DEF 14A of NexPoint Residential Trust, Inc., Apr 11, 2024

DEF 14A of NexPoint Residential Trust, Inc.

Filed Apr 11, 2024 · FY20230001437749-24-011772

Open on EDGAR

  1. PROPOSAL 1 – ELECTION OF DIRECTORS

    PROPOSAL 1 – ELECTION OF DIRECTORS At the Annual Meeting, seven directors will be elected to serve one-year terms expiring at our annual stockholders meeting in 2025 and until their respective successors are duly elected and qualified. This section contains information relating to the seven director nominees. The director nominees were selected by our nominating and corporate governance committee and approved by the Board for submission to the stockholders. The nominees for election are Messrs. Dondero, Mitts, Constantino and Kavanaugh, Dr. Laffer, Dr. Swain and Ms. Wood. All currently serve as directors. The Board unanimously recommends a vote FOR the election of each of the nominees.

  2. Nominees to be elected for terms expiring at the Annual Meeting in 2025

    Nominees to be elected for terms expiring at the Annual Meeting in 2025 James Dondero, age 61, has served as our President and as chairman of the Board since May 2015. Mr. Dondero has served as the President and chairman of the board of directors of NexPoint Real Estate Finance, Inc. (“NREF”), a publicly traded commercial mortgage real estate investment trust (“REIT”), since February 2020, and as chairman of the board of directors of VineBrook Homes Trust, Inc. (“VineBrook”), a single-family rental REIT, since August 2022. Mr. Dondero also previously served as President and a member of the board of directors of VineBrook from February 2019 to August 2021. Mr. Dondero also has served as President of NexPoint Diversified Real Estate Trust (“NXDT”), a publicly traded diversified REIT, since May 2015 and has served as chairman of the board of trustees of NXDT since July 2022 as well as a member of the board of directors of NexPoint Homes Trust, Inc. (“NXHT”), a single-family rental REIT, since June 2022. Mr. Dondero is also: founder and president of NexPoint Advisors, L.P. (our “Sponsor”), an investment advisor registered with the Securities and Exchange Commission (the “SEC”); and chairman of NexBank (“NexBank”). Mr. Dondero co-founded Highland Capital Management, L.P. (“Highland”), in 1993 with Mark Okada and served as President from 2004 to 2020. Mr. Dondero has over 30 years of experience investing in credit and equity markets and has helped pioneer credit asset classes. Mr. Dondero has also served as the Chief Executive Officer of NexPoint Hospitality Trust, Inc. (“NHT”), a publicly traded hospitality REIT listed on the TSX Venture Exchange, since December 2019. Mr. Dondero also served as a director of Jernigan Capital, Inc., a self-storage lending REIT, from August 2016 to November 2020. He also serves as president of NexPoint Capital, Inc. (“NexPoint Capital”) and NexPoint Real Estate Strategies Fund (“NRESF”), both of which are affiliates of NexPoint Real Estate Advisors, L.P. (our “Adviser”). NREF, VineBrook, NXDT, NXHT, our Sponsor, NexBank, NHT, NexPoint Capital and NRESF are all affiliates of the Company. On October 16, 2019, Highland filed for Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the District of Delaware. On April 13, 2018, the Bankruptcy Court for the Northern District of Texas entered orders for relief placing Acis Capital Management, L.P. and Acis Capital Management GP, LLC in involuntary bankruptcy. Mr. Dondero served as President of Acis Capital Management GP, LLC, which is the general partner of Acis Capital Management, L.P. On January 31, 2019, the court confirmed Acis’s plan of reorganization. Mr. Dondero was selected to serve on the Board because of his prior service as a director and his experience as an executive officer. Brian Mitts, age 53, has served as a member of the Board since September 2014. Mr. Mitts has served as our Chief Financial Officer, Executive VP-Finance and Treasurer since March 2015 and as Secretary since February 2019. From September 2014 to March 2015, Mr. Mitts served as our President and Treasurer. Mr. Mitts co-founded our Adviser, as well as NXRT, NREF and other real estate businesses with Mr. McGraner and Mr. Dondero. Currently, Mr. Mitts leads our financial reporting and accounting teams and is integral in financing and capital allocation decisions. Prior to co-founding our Advisor, NXRT and NREF, Mr. Mitts was Chief Operations Officer of Highland Funds Asset Manager, L.P., the external advisor of open-end and closed-end funds where he managed the operations of these funds and helped develop new products. Mr. Mitts was also a co-founder of our Sponsor, the parent of NREA. He has worked for NREA or its affiliates since 2007. Mr. Mitts served as the Chief Financial Officer, Executive Vice President-Finance, Secretary and Treasurer of NREF, since February 2020 and as a member of the board of directors of NREF since June 2019. Mr. Mitts also served as President and Treasurer of NREF from June 2019 until February 2020. Mr. Mitts has also served as the Chief Financial Officer, Executive VP-Finance, Treasurer and Corporate Secretary of NHT since December 2018. In addition, he has served as a director of VineBrook since July 2018, as Chief Financial Officer, Treasurer and Assistant Secretary of VineBrook since November 2018, as President since February 2023 and assumed the title of Chief Executive Officer in addition to President in February 2024. From July 2018 to October 2018, Mr. Mitts served as President and Treasurer of VineBrook and from September 2021 to February 2023, Mr. Mitts served as Interim President of VineBrook. Since November 2020, Mr. Mitts has also served as Chief Financial Officer, Secretary and Treasurer of NexPoint Storage Partners, Inc. (“NSP”), a self-storage REIT, and as a member of the board of directors of NSP since March 2023. In addition, Mr. Mitts has served as Chief Financial Officer, Executive VP-Finance, Treasurer and Assistant Secretary and as a member of the board of trustees of NXDT since July 2022. Mr. Mitts has also served as President and Treasurer of NXHT since February 2022 and additionally as Chief Executive Officer, Chief Financial Officer, and Assistant Secretary and as a member of the board of directors of NXHT since June 2022. NREF, VineBrook, NXDT, NXHT, NSP and NHT are all affiliates of the Company. Mr. Mitts was selected to serve on the Board because of his prior service as a director and his experience as an executive officer. Edward Constantino, age 77, has served as a member of the Board since March 2015. Mr. Constantino has served as a member of the board of directors of NREF since February 2020, as a member of the board of directors of VineBrook since February 2019, as a member of the board of trustees of NXDT since March 2020 and as a member of the board of directors of NXHT since June 2022. Mr. Constantino has over 40 years of audit, advisory and tax experience working for two major accounting firms, Arthur Andersen LLP and KPMG. Mr. Constantino retired from KPMG in late 2009, where he was an audit partner in charge of the firm’s real estate and asset management businesses. Mr. Constantino is, and since 2010 has been, a member of the board of directors of Patriot National Bancorp, Inc. Mr. Constantino has also served as a consultant for the law firm Skadden, Arps, Slate, Meagher & Flom LLP. He is a licensed CPA, a member of the American Institute of Certified Public Accountants and a member of the New York State Society of Public Accountants. He is currently a member of the board of trustees and part of the Finance and Investment Committee of St. Francis College in Brooklyn Heights, New York. He is also a board member and audit committee chair of ARC Trust, Inc. and ARC Trust III, Inc. Mr. Constantino was selected to serve on the Board because of his extensive accounting experience, particularly in the real estate field.

  3. Nominees to be elected for terms expiring at the Annual Meeting in 2025

    Scott Kavanaugh, age 63, has served as a member of the Board since March 2015. Mr. Kavanaugh has served as a member of the board of directors of NREF since February 2020, as a member of the board of directors of VineBrook since December 2018, as a member of the board of directors of NXHT since June 2022, and as a member of the board of trustees of NXDT since July 2022. Mr. Kavanaugh is, and since December 2009 has been, the CEO of First Foundation Inc. (“FFI”), a financial services company. From June 2007 until December 2009, he served as President and Chief Operating Officer of FFI. Mr. Kavanaugh has been the Vice-Chairman of FFI since June 2007. He also is, and since September 2007 has been, the Chairman and CEO of FFI’s wholly owned banking subsidiary, First Foundation Bank. Mr. Kavanaugh was a founding stockholder and served as an Executive Vice President and Chief Administrative Officer and a member of the board of directors of Commercial Capital Bancorp, Inc., the parent holding company of Commercial Capital Bank, from 1999 until 2003. From 1998 until 2003, Mr. Kavanaugh served as the Executive Vice President and Chief Operating Officer and a director of Commercial Capital Mortgage. From 1993 to 1998, Mr. Kavanaugh was a partner and head of trading for fixed income and equity securities at Great Pacific Securities, Inc., a west coast-based regional securities firm. Mr. Kavanaugh is, and since 2009 has been, a member of the board of directors of Colorado Federal Savings Bank and its parent holding company, Silver Queen Financial Services, Inc. Mr. Kavanaugh was selected to serve on the Board because of his expertise in investment management and his experience as both an executive officer and a director of multiple companies. Dr. Arthur Laffer, age 83, has served as a member of the Board since May 2015. Dr. Laffer has served as a member of the board of directors of NREF since February 2020, as a member of the board of directors of VineBrook since December 2018, as a member of the board of directors of NXHT since June 2022 and as a member of the board of trustees of NXDT since July 2022. Dr. Laffer is the founder and chairman of Laffer Associates, an economic research and consulting firm and served as the chairman and director of Laffer Investments, a registered investment advisor, from 1999 to 2019. Dr. Laffer served as a director of GEE Group, Inc., a provider of specialized staffing solutions from 2014 to 2020. Dr. Laffer also served as a director of EVO Transportation and Energy Services Inc. from 2018 to 2019. A former member of President Reagan’s Economic Policy Advisory Board during the 1980s, Dr. Laffer’s economic acumen and influence have earned him the distinction in many publications as the Father of Supply-Side Economics. He has served on several boards of directors of public and private companies, including staffing company MPS Group, Inc., which was sold to Adecco Group for $1.3 billion in 2009. Dr. Laffer has served as a director of VerifyMe, Inc. since 2019. Dr. Laffer was previously a consultant to Secretary of the Treasury William Simon, Secretary of Defense Donald Rumsfeld, and Secretary of the Treasury George Shultz. In the early 1970s, Dr. Laffer was the first to hold the title of Chief Economist at the Office of Management and Budget under Dr. Shultz. Additionally, Dr. Laffer was formerly the Distinguished University Professor at Pepperdine University and a member of the Pepperdine University board of directors. He also served as Charles B. Thornton Professor of Business Economics at the University of Southern California and as Associate Professor of Business Economics at the University of Chicago. Dr. Laffer was selected to serve on the Board because of his expertise in economics and his experience as a director of multiple companies. Carol Swain, age 70, has served as a member of our Board since August 2022. In addition, she has served as a member of the board of directors of VineBrook, as a member of the board of directors of NREF, the board of trustees of NXDT and as a member of the board of directors of NXHT since August 2022. Dr. Swain is an author, speaker, political commentator and entrepreneur. She founded Unity Training Solutions LLC in November 2020 and founded Carol Swain Enterprises, LLC in October 2014. Dr. Swain previously was a professor at Vanderbilt University from August 1999 to 2017. Dr. Swain has also served on the Tennessee Advisory Committee to the U.S. Civil Rights Commission, the National Endowment for the Humanities, and the 1776 Commission. Dr. Swain received her Bachelor of Arts from Roanoke College, a master’s degree in political science from Virginia Tech, a Ph.D. in political science from the University of North Carolina at Chapel Hill and a Master of Legal Studies from Yale Law School. Dr. Swain was selected to serve on our Board because of her experience in the fields of political science, law and government. Catherine Wood, age 68, has served as a member of the Board since July 2020. In addition, she has served as a member of the boards of directors of NREF and VineBrook since July 2020, as a member of the board of trustees of NXDT since August 2022 and as a member of the board of directors of NXHT since June 2022. Ms. Wood is currently Chief Executive Officer, Chief Investment Officer and a board member of ARK Investment Management LLC (“ARK”), an SEC-registered investment advisor, which she founded in January 2014. Ms. Wood is also currently Chief Executive Officer, Chief Investment Officer and a board member of ARK ETF Trust. Prior to ARK, Ms. Wood spent 12 years at AllianceBernstein as Chief Investment Officer of Global Thematic Strategies. Ms. Wood joined AllianceBernstein from Tupelo Capital Management, a hedge fund she co-founded. Prior to her tenure at Tupelo Capital Management, Ms. Wood worked for 18 years at Jennison Associates LLC as Chief Economic Officer and several other positions. Ms. Wood started her career in Los Angeles at The Capital Group as an Assistant Economist. Ms. Wood received her Bachelor of Science, summa cum laude, in Finance and Economics from the University of Southern California. Ms. Wood was selected to serve on the Board because of her experience as it relates to disruptive technologies, business models and processes, which provides an important perspective to the Board.

  4. Board of Directors

    Board of Directors The Board presently consists of seven members, five of whom are non-management directors. Each director serves a one-year term expiring at each annual meeting of stockholders and lasting until his or her respective successor is duly elected and qualified.

  5. Director Compensation

    Director Compensation Directors who are officers of the Company do not receive compensation for their service as directors. We provide the following compensation for non-management directors:

  6. Director Compensation

    | ● | each non-management director receives an annual director’s fee payable in cash equal to $20,000 and an annual grant of restricted stock units; |

  7. Director Compensation

    | ● | the chair of the audit committee receives an additional annual fee payable in cash equal to $15,000; |

  8. Director Compensation

    | ● | the chair of the compensation committee receives an additional annual fee payable in cash equal to $7,500; |

  9. Director Compensation

    | ● | the chair of the nominating and corporate governance committee receives an additional annual fee payable in cash equal to $7,500; and |

  10. Director Compensation

    | ● | the lead independent director receives an additional annual fee payable in cash equal to $10,000. |

  11. Director Compensation

    We also reimburse directors for all expenses incurred in attending Board and committee meetings.

  12. Director Compensation Table

    Director Compensation Table The following table provides information regarding the compensation of our non-management directors for the year ended December 31, 2023.

  13. Director Compensation Table

    | NAME | FEES EARNED OR PAID IN CASH | STOCK AWARDS(1) | TOTAL | | James Dondero | — | — | — | | Brian Mitts | — | — | — | | Edward Constantino | $35,000 | $110,754 | $145,754 | | Scott Kavanaugh | $37,500 | $110,754 | $148,254 | | Dr. Arthur Laffer | $27,500 | $110,754 | $138,254 | | Dr. Carol Swain | $20,000 | $110,754 | $130,754 | | Catherine Wood | $20,000 | $110,754 | $130,754 |

  14. Director Compensation Table

    | (1) Consists of restricted stock units granted on March 28, 2023. The restricted stock units that were granted on March 28, 2023 vested on March 28, 2024, the first anniversary of the grant date. The grant date fair value of each award was equal to the closing price of the Company's stock on the date of grant as calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 (“Topic 718”). Pursuant to the rules of the SEC, the amounts shown in this column exclude the impact of estimated forfeitures related to service-based vesting conditions. See Note 7 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 for information regarding the assumptions made in determining these values. As of December 31, 2023, our non-management directors each held 2,794 restricted stock units. |

  15. Qualifications for Director Nominees

    Qualifications for Director Nominees The nominating and corporate governance committee is responsible for reviewing with the Board, at least annually, the appropriate skills and experience required for members of the Board. This assessment includes factors such as judgment, skill, diversity, integrity, experience with businesses and other organizations of comparable size, the interplay of the candidate’s experience with the experience of other Board members, and the extent to which the candidate would be a desirable addition to the Board and any committees of the Board. In connection with this assessment, the nominating and corporate governance committee will identify individuals believed to be qualified to become Board members and recommend candidates to the Board to fill new or vacant positions. The nominating and corporate governance committee will also review the qualifications of, and make recommendations to the Board regarding, director nominations submitted to the Company by stockholders in accordance with the Company’s bylaws or otherwise using the same assessment process described above. In addition, the nominating and corporate governance committee will evaluate whether an incumbent director should be nominated for re-election to the Board as part of its annual review and selection process. The nominating and corporate governance committee will use the same factors established for new director candidates to make its evaluation and will also take into account the incumbent director’s performance as a Board member.

  16. Equity Compensation

    Equity Compensation The compensation committee may from time to time pursuant to the NexPoint Residential Trust, Inc. 2016 Long Term Incentive Plan (“2016 LTIP”) grant our named executive officers equity-based awards, including options to purchase shares of our common stock, stock appreciation rights, restricted stock, restricted stock units, performance awards and other equity-based awards relating to our common stock. These awards are intended to align the recipients’ interests with those of our stockholders by allowing the recipient to share in the creation of value for our stockholders through capital appreciation and dividends. These equity awards are generally subject to vesting requirements over a number of years, and are designed to promote the retention of management and achievement of strong performance for the Company. These awards provide a further benefit to us by enabling our Adviser to attract, motivate and retain talented individuals to serve as our executive officers. The compensation committee does not use a specific formula to calculate the number of equity awards and other rights awarded to our named executive officers under our 2016 LTIP. In addition, the compensation committee does not explicitly set future award levels/opportunities on the basis of what the named executive officers earned from prior awards. Rather, the compensation committee takes into account a variety of factors, including the financial performance of the Company during the prior fiscal year, current market conditions, the performance of each named executive officer, the desire to continue to align the interests of each of our named executive officers with our stockholders, general market practices of our peers and similarly sized companies, as well as the recommendations of our President, in determining the specific amounts to be granted to an individual, if any. We believe our compensation policies are particularly appropriate since we are an externally managed REIT. REIT regulations require us to pay at least 90% of our REIT taxable income to stockholders as dividends. As a result, we believe that our common stockholders are principally interested in receiving attractive risk-adjusted dividends and growth in dividends and market capitalization. Accordingly, we want to provide an incentive to our named executive officers that rewards success in achieving these goals. Since we generally do not have the ability to retain earnings, we believe that equity-based awards serve to align the interests of our named executive officers with the interests of our stockholders. Additionally, we believe that equity-based awards are consistent with our stockholders’ interest in market capitalization growth as these individuals will be incentivized to grow our market capitalization for stockholders over time. We believe that this alignment of interests provides an incentive to our named executive officers to implement strategies that will enhance our overall performance and promote growth in dividends and growth in our market capitalization. For the fiscal year 2023, our compensation committee made one grant of restricted stock units to each of our named executive officers pursuant to the 2016 LTIP, which vest ratably in five annual installments (other than with respect to Mr. Goetz, who had a portion of the restricted stock units of such grant immediately vest on the Separation Date (as defined below) and forfeited the remaining portion of the restricted stock units of such grant on the Separation Date pursuant to the Separation Agreement (as defined below)). For each named executive officer other than Mr. Goetz, the award vested one-fifth on March 28, 2024. These grants are described in more detail below under “–Grants of Plan Based Awards in 2023”.

  17. Pension Benefits

    Pension Benefits We do not provide any of our officers with pension benefits.

  18. Nonqualified Deferred Compensation

    Nonqualified Deferred Compensation We do not provide any of our officers with any nonqualified deferred compensation plans.

  19. Summary Compensation Table

    Summary Compensation Table The following table sets forth the compensation paid to or accrued by those named executive officers for whom we are able to quantify such compensation for services the named executive officer rendered to us during the fiscal years presented.

  20. Summary Compensation Table

    | NAME AND PRINCIPAL POSITION | YEAR | SALARY ($)(1) | BONUS ($)(1) | STOCK AWARDS ($)(2) | NON-EQUITY INCENTIVE PLAN COMPENSATION ($) | NON-QUALIFIED DEFERRED COMPENSATION EARNINGS ($) | ALL OTHER COMPENSATION ($) | TOTAL ($) | | James Dondero | 2023 | — | — | $3,271,489 | — | — | — | $3,271,489 | | President and | 2022 | — | — | $3,694,998 | — | — | — | $3,694,998 | | Chairman | 2021 | — | — | $2,473,496 | — | — | — | $2,473,496 | | Brian Mitts | 2023 | — | — | $739,365 | — | — | — | $739,365 | | Chief Financial Officer, Executive VP-Finance, Secretary and Treasurer and Director | 2022 | — | — | $834,354 | | | | $834,354 | | | 2021 | — | — | $458,961 | | | | $458,961 | | Matt McGraner | 2023 | — | — | $3,145,434 | — | — | — | $3,145,434 | | Executive VP and Chief Investment Officer | 2022 | — | — | $3,694,998 | — | — | — | $3,694,998 | | | 2021 | — | — | $3,144,992 | — | — | — | $3,144,992 | | D. C. Sauter | 2023 | — | — | $410,789 | — | — | — | $410,789 | | General Counsel | 2022 | — | — | $417,219 | — | — | — | $417,219 | | | 2021 | — | — | $297,467 | — | — | — | $297,467 | | Matthew Goetz | 2023 | — | — | $515,298 | — | — | — | $515,298 | | Former Senior VP-Investments and Asset Management | 2022 | — | — | $321,848 | — | — | — | $321,848 | | | 2021 | — | — | $212,494 | — | — | — | $212,494 |

  21. Summary Compensation Table

    | (1) The named executive officers are employees of our Adviser or its affiliates and are not paid cash compensation by us. |

  22. Summary Compensation Table

    | (2) The amounts reported in the “Stock Awards” column represent the aggregate grant date fair value of restricted stock units, calculated in accordance with FASB ASC Topic 718. Pursuant to SEC rules, the amounts shown in this column exclude the impact of estimated forfeitures related to service-based vesting conditions. See Note 7 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 for information regarding the assumptions made in determining these values. The amount shown in this column for Mr. Goetz also includes the incremental fair value, calculated in accordance with paragraph 55-116 of FASB ACS Topic 718, for 11,452 restricted stock units, the vesting of which accelerated on November 9, 2023 pursuant to the Separation Agreement. |

  23. Grants of Plan Based Awards in 2023

    Grants of Plan Based Awards in 2023 The following table contains information regarding grants of plan-based awards to our named executive officers during the year ended December 31, 2023.

  24. Grants of Plan Based Awards in 2023

    | NAME | COMMITTEE ACTION DATE | GRANT DATE | ALL OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK (#) | GRANT DATE FAIR VALUE OF STOCK AWARDS ($)(1) | | James Dondero | 3/28/2023 | 3/28/2023 | 82,530 | 3,271,489 | | Brian Mitts | 3/28/2023 | 3/28/2023 | 18,652 | 739,365 | | Matt McGraner | 3/28/2023 | 3/28/2023 | 79,350 | 3,145,434 | | D.C. Sauter | 3/28/2023 | 3/28/2023 | 10,363 | 410,789 | | Matthew Goetz | 3/28/2023 | 3/28/2023 | 6,795 | 515,298 |

  25. Grants of Plan Based Awards in 2023

    | (1) Represents the aggregate grant date fair value, calculated in accordance with FASB ASC Topic 718. Pursuant to SEC rules, the amounts shown in this column exclude the impact of estimated forfeitures related to service-based vesting conditions. See Note 7 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 for information regarding the assumptions made in determining these values. The amount shown in this column for Mr. Goetz also includes the incremental fair value, calculated in accordance with paragraph 55-116 of FASB ACS Topic 718, for 11,452 restricted stock units, the vesting of which accelerated on November 9, 2023 pursuant to the Separation Agreement. |

  26. Grants of Plan Based Awards in 2023

    The 2016 LTIP authorizes the compensation committee of our Board to provide equity-based compensation in the form of stock options, appreciation rights, restricted shares, restricted stock units, performance shares, performance units and certain other awards denominated or payable in, or otherwise based on, the Company’s common stock or factors that may influence the value of the Company’s common stock, plus cash incentive awards, for the purpose of providing our officers, our non-management directors, and potentially certain non-employees who perform employee-type functions, incentives and rewards for performance.

  27. Outstanding Equity Awards at Fiscal Year-End

    Outstanding Equity Awards at Fiscal Year-End The following table contains information regarding outstanding equity awards held by our named executive officers as of December 31, 2023.

  28. Outstanding Equity Awards at Fiscal Year-End

    | | STOCK AWARDS | | | NAME | NUMBER OF SHARES OF STOCK THAT HAVE NOT VESTED (#) | MARKET VALUE OF SHARES THAT HAVE NOT VESTED ($)(1) | | James Dondero | 195,566(2) | $6,733,337 | | Brian Mitts | 41,942(3) | $1,444,063 | | Matt McGraner | 215,388(4) | $7,415,809 | | D.C. Sauter | 20,358(5) | $700,926 | | Matthew Goetz | 0(6) | $0 |

  29. Outstanding Equity Awards at Fiscal Year-End

    | (1) Market value is based on the closing price of our common stock as of December 29, 2023 ($34.43), the last trading day of the year. |

  30. Outstanding Equity Awards at Fiscal Year-End

    | (2) Consists of restricted stock units granted on February 21, 2019, February 20, 2020, May 11, 2020, February 18, 2021, February 17, 2022 and March 28, 2023. With respect to the restricted stock units granted on February 21, 2019, as of December 31, 2023, there were 8,094 restricted stock units not vested, which vested on February 21, 2024. With respect to the restricted stock units granted on February 20, 2020, as of December 31, 2023, there were 19,513 restricted stock units not vested, which vested one-half on February 20, 2024 and which will vest one-half on February 20, 2025. With respect to the restricted stock units granted on May 11, 2020, as of December 31, 2023, there were 13,558 restricted stock units not vested, which will vest one-half on May 11, 2024 and one-half on May 11, 2025. With respect to the restricted stock units granted on February 18, 2021, as of December 31, 2023, there were 35,822 restricted stock units not vested, which vested one-third on February 18, 2024, and which will vest one-third on February 18, 2025 and one-third on February 18, 2026. With respect to the restricted stock units granted on February 17, 2022, as of December 31, 2023, there were 35,240 restricted stock units not vested, which vested one-fourth on February 17, 2024, and which will vest one-fourth on February 17, 2025, one-fourth on February 17, 2026 and one-fourth on February 17, 2027. With respect to the restricted stock units granted on March 28, 2023, as of December 31, 2023, there were 85,530 restricted stock units not vested, which vested one-fifth on March 28, 2024, and which will vest one-fifth on March 28, 2025, one-fifth on March 28, 2026, one-fifth on March 28, 2027 and one-fifth on March 28, 2028. |

  31. Outstanding Equity Awards at Fiscal Year-End

    | (3) Consists of restricted stock units granted on February 21, 2019, February 20, 2020, May 11, 2020, February 18, 2021, February 17, 2022 and March 28, 2023. With respect to the restricted stock units granted on February 21, 2019, as of December 31, 2023, there were 3,472 restricted stock units not vested, which vested on February 21, 2024. With respect to the restricted stock units granted on February 20, 2020, as of December 31, 2023, there were 3,195 restricted stock units not vested, which vested one-half on February 20, 2024 and which will vest one-half on February 20, 2025. With respect to the restricted stock units granted on May 11, 2020, as of December 31, 2023, there were 2,020 restricted stock units not vested, which will vest one-half on May 11, 2024 and one-half on May 11, 2025. With respect to the restricted stock units granted on February 18, 2021, as of December 31, 2023, there were 6,646 restricted stock units not vested, which vested one-third on February 18, 2024, and which will vest one-third on February 18, 2025 and one-third on February 18, 2026. With respect to the restricted stock units granted on February 17, 2022, as of December 31, 2023, there were 7,957 restricted stock units not vested, which vested one-fourth on February 17, 2024, and which will vest one-fourth on February 17, 2025, one-fourth on February 17, 2026 and one-fourth on February 17, 2027. With respect to the restricted stock units granted on March 28, 2023, as of December 31, 2023, there were 18,652 restricted stock units not vested, which vested one-fifth on March 28, 2024, and which will vest one-fifth on March 28, 2025, one-fifth on March 28, 2026, one-fifth on March 28, 2027 and one-fifth on March 28, 2028. |

  32. Outstanding Equity Awards at Fiscal Year-End

    | (4) Consists of restricted stock units granted on February 21, 2019, February 20, 2020, May 11, 2020, February 18, 2021, February 17, 2022 and March 28, 2023. With respect to the restricted stock units granted on February 21, 2019, as of December 31, 2023, there were 13,067 restricted stock units not vested, which vested on February 21, 2024. With respect to the restricted stock units granted on February 20, 2020, as of December 31, 2023, there were 24,891 restricted stock units not vested, which vested one-half on February 20, 2024 and which will vest one-half on February 20, 2025. With respect to the restricted stock units granted on May 11, 2020, as of December 31, 2023, there were 17,294 restricted stock units not vested, which will vest one-half on May 11, 2024 and one-half on May 11, 2025. With respect to the restricted stock units granted on February 18, 2021, as of December 31, 2023, there were 45,546 restricted stock units not vested, which vested one-third on February 18, 2024, and which will vest one-third on February 18, 2025 and one-third on February 18, 2026. With respect to the restricted stock units granted on February 17, 2022, as of December 31, 2023, there were 35,240 restricted stock units not vested, which vested one-fourth on February 17, 2024, and which will vest one-fourth on February 17, 2025, one-fourth on February 17, 2026 and one-fourth on February 17, 2027. With respect to the restricted stock units granted on March 28, 2023, as of December 31, 2023, there were 79,350 restricted stock units, which vested one-fifth on March 28, 2024, and which will vest one-fifth on March 28, 2025, one-fifth on March 28, 2026, one-fifth on March 28, 2027 and one-fifth on March 28, 2028. |

  33. Outstanding Equity Awards at Fiscal Year-End

    | (5) Consists of restricted stock units granted on February 20, 2020, May 11, 2020, February 18, 2021, February 17, 2022 and March 28, 2023. With respect to the restricted stock units granted on February 20, 2020, as of December 31, 2023, there were 1,008 restricted stock units not vested, which vested one-half on February 20, 2024, and which will vest one-half on February 20, 2025. With respect to the restricted stock units granted on May 11, 2020, as of December 31, 2023, there were 700 restricted stock units not vested, which will vest one-half on May 11, 2024 and one-half on May 11, 2025. With respect to the restricted stock units granted on February 18, 2021, as of December 31, 2023, there 4,308 restricted stock units not vested, which vested one-third on February 18, 2024, and which will vest one-third February 18, 2025 and one-third February 18, 2026. With respect to the restricted stock units granted on February 17, 2022, as of December 31, 2023, there were 3,979 restricted stock units not vested, which vested one-fourth on February 17, 2024, and which will vest one-fourth on February 17, 2025, one-fourth on February 17, 2026 and one-fourth on February 17, 2027. With respect to the restricted stock units granted on March 28, 2023, as of December 31, 2023, there were 10,363 restricted stock units, which vested one-fifth on March 28, 2024, and which will vest one-fifth on March 28, 2025, one-fifth on March 28, 2026, one-fifth on March 28, 2027 and one-fifth on March 28, 2028. |

  34. Outstanding Equity Awards at Fiscal Year-End

    | (6) Mr. Goetz resigned from the Company on November 9, 2023, at which time 11,452 restricted stock units immediately vested and 7,476 restricted stock units were forfeited pursuant to the Separation Agreement. |

  35. Options Exercised and Stock Vested

    Options Exercised and Stock Vested As of December 31, 2023, no options to purchase shares of our common stock were exercised or outstanding. The following table contains information regarding the restricted stock units that vested during the year-ended December 31, 2023:

  36. Options Exercised and Stock Vested

    | | STOCK AWARDS | | | NAME | NUMBER OF SHARES ACQUIRED ON VESTING (#) | VALUE REALIZED ON VESTING ($)(1) | | James Dondero | 46,191 | $2,211,321 | | Brian Mitts | 10,286 | $497,336 | | Matt McGraner | 58,152 | $2,785,285 | | D.C. Sauter | 3,285 | $157,412 | | Matthew Goetz | 17,807 | $644,984 |

  37. Options Exercised and Stock Vested

    | (1) Value realized is calculated based on the closing price of our common stock on the vesting date multiplied by the number of shares vested. |

  38. Potential Payments Upon Termination of Employment or Change in Control

    Potential Payments Upon Termination of Employment or Change in Control In the event any officer’s employment with our Adviser is terminated involuntarily by the Adviser for reasons other than for cause, by the officer for good reason, or otherwise due to such officer’s death, disability or retirement, all outstanding restricted stock units granted that have not previously vested or been forfeited, will vest. If a change in control occurs and the award is not assumed or converted into a replacement award in a manner described in the award agreement, all outstanding awards held by our officers that have not previously vested or been forfeited, will vest. See “—Outstanding Equity Awards at Fiscal Year-End” above for the market value of outstanding equity awards as of December 31, 2023 that would have vested if any of the events described above occurred on December 31, 2023. In general, except as may be otherwise prescribed by the compensation committee in any award agreement, the 2016 LTIP provides that a change of control will be deemed to have occurred if: (a) individuals who constitute the Board on the effective date of the 2016 LTIP cease for any reason to constitute at least a majority of the Board, unless their replacements are approved as described in the 2016 LTIP (subject to certain exceptions described in the 2016 LTIP); (b) a person or group becomes the beneficial owner of 35% or more of the then-outstanding shares of our common stock or the combined voting power of our then-outstanding securities entitled to vote generally in the election of directors, subject to certain exceptions; (c) the Company closes a reorganization, merger, consolidation, significant sale or purchase of assets or other similar transaction resulting in a substantial change in its ownership or leadership, in each case which causes the persons or groups who are the beneficial owners of 35% or more of the then-outstanding shares of our common stock or the combined voting power of our then-outstanding securities entitled to vote generally in the election of directors to cease to be such beneficial owners of the entity resulting from such transaction, in substantially the same proportions of ownership as immediately prior to such transaction, as further described in the 2016 LTIP; (d) the Company’s stockholders approve its complete liquidation or dissolution; or (e) the Adviser is terminated.

  39. Pay Ratio Disclosure

    Pay Ratio Disclosure As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the median annual total compensation of our employees and the annual total compensation of Mr. Dondero, our President: For 2023, our last completed fiscal year:

  40. Pay Ratio Disclosure

    | ● | the median of the annual total compensation of all our employees (other than our President) was $196,667, and |

  41. Pay Ratio Disclosure

    | ● | the annual total compensation of our President, as reported in the Summary Compensation Table included in this Proxy Statement, was $3,271,489. |

  42. Pay Ratio Disclosure

    Based on this information, for 2023 the ratio of the annual total compensation of our President to the median of the annual total compensation of all employees was 17 to 1. Because our employee population only consists of three individuals, we have decided to determine the median employee each year as we can do so in a reasonably efficient and economical manner. To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our President, we took the following steps:

  43. Pay Ratio Disclosure

    | 1. | We determined that, as of December 31, 2023, our employee population consisted of three salaried individuals, each of whom is located in the United States. This population consisted of only full-time employees. In determining whether our workers are employees, we applied widely recognized employment and tax laws. |

  44. Pay Ratio Disclosure

    | 2. | To identify the median employee, we compared the total cash compensation of our employees as reflected in our payroll records for 2023. |

  45. Pay Ratio Disclosure

    | 3. | Once we identified our median employee, we combined all of the elements of such employee’s compensation for 2023 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $196,667. |

  46. Pay Ratio Disclosure

    This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. Therefore, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

  47. Pay Versus Performance

    Pay Versus Performance As required by Item 402(v) of Regulation S-K, we are providing the following information regarding the relationship between executive compensation and our financial performance for each of the last four completed calendar years. In determining the “compensation actually paid” to our named executive officers (“NEOs”), we are required to make various adjustments to amounts that have been previously reported in the Summary Compensation Table in previous years, as the SEC’s valuation methods for this section differ from those required in the Summary Compensation Table. The table below summarizes compensation values both previously reported in our Summary Compensation Table, as well as the adjusted values required in this section for the 2020, 2021, 2022 and 2023 calendar years. Note that for our NEOs other than our principal executive officer (the “PEO”), compensation and any applicable adjustments are reported as averages. The compensation committee does not use compensation actually paid as a basis for making compensation decisions. Further, the Company does not use financial performance measures to link compensation actually paid to the NEOs to Company performance.

  48. Pay Versus Performance

    | Year | Summary compensation table total for PEO | Compensation actually paid to PEO (1) | Average summary compensation table total for non-PEO named executive officers | Average compensation actually paid to non-PEO named executive officers (2) | Value of initial fixed $100 investment based on: | | Net income (in thousands) | | | | | | | Total shareholder return | Peer group total shareholder return (3) | | | 2023 | $3,271,489 | $2,015,100 | $1,202,722 | $680,484 | $84 | $109 | $44,433 | | 2022 | $3,694,998 | $(2,791,675) | $1,318,641 | $(1,329,308) | $102 | $96 | $(9,291) | | 2021 | $2,473,496 | $9,578,593 | $1,028,479 | $4,166,501 | $191 | $127 | $23,106 | | 2020 | $3,516,187 | $3,250,562 | $1,382,590 | $1,223,886 | $94 | $89 | $44,150 |

  49. Pay Versus Performance

    (1) Mr. Dondero was our PEO for all four reporting years. The following are the adjustments made during each year to arrive at the compensation actually paid to our PEO during each year.

  50. Pay Versus Performance

    | Adjustments | 2023 | 2022 | 2021 | 2020 | | Amounts reported under “Stock Awards” in Summary Compensation Table | $(3,271,489) | $(3,694,988) | $(2,437,496) | $(3,516,187) | | Fair Value of Awards Granted in Year that Remain Unvested as of Year-End | $2,841,508 | $1,917,100 | $5,004,903 | $3,498,064 | | Change in Fair Value from Prior Year-End to Current Year-End of Awards Granted Prior to Year that were Outstanding and Unvested as of Year-End | $(1,027,498) | $(4,642,704) | $4,538,011 | $(184,270) | | Change in Fair Value from Prior Year-End to Vesting Date of Awards Granted Prior to Year that Vested During Year | $201,089 | $(66,071) | $35,679 | $(63,232) | | Total Adjustments | $(1,256,389) | $(2,791,675) | $9,578,593 | $3,250,562 |

  51. Pay Versus Performance

    (2) The Non-PEO NEOs in all four reporting years are: Brian Mitts, Matt McGraner, D.C. Sauter and Matthew Goetz. The following are the adjustments made during each year to arrive at the average compensation actually paid to our Non-PEO NEOs during each year.

  52. Pay Versus Performance

    | Adjustments | 2023 | 2022 | 2021 | 2020 | | Amounts reported under “Stock Awards” in Summary Compensation Table | $(1,202,722 | $(1,318,641) | $(1,028,479) | $(1,382,590) | | Fair Value of Awards Granted in Year that Remain Unvested as of Year-End | $991,240 | $683,656 | $2,081,038 | $1,374,028 | | Change in Fair Value from Prior Year-End to Current Year-End of Awards Granted Prior to Year that were Outstanding and Unvested as of Year-End | $(384,787) | $(1,982,467) | $2,072,118 | $(102,258) | | Fair Value of Awards that are Granted and Vest in the Same Year as of the Vesting Date | 18,129 | | | | | Change in Fair Value from Prior Year-End to Vesting Date of Awards Granted Prior to Year that Vested During Year | $55,902 | $(30,488) | $13,345 | $(47,884) | | Total Adjustments | $(522,238) | $(1,329,308) | $4,166,501 | $1,223,886 |

  53. Pay Versus Performance

    (3) The peer group is the MSCI U.S. REIT Index (^RMZ). Relationship between Compensation Paid and Performance Measures The following charts set forth the relationship between the Compensation Actually Paid to the PEO and the Average Compensation Actually Paid to the NEOs other than the PEO in fiscal 2020, 2021, 2022 and 2023 (collectively, “NEO Compensation Actually Paid”) to each of (1) Net income and (2) total shareholder return (“TSR”).