DEF 14A of NexPoint Real Estate Finance, Inc.
Filed Apr 11, 2024 · FY20230001437749-24-011776
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.
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 our Board since February 2020. Mr. Dondero has also served as the President and chairman of the board of directors of NexPoint Residential Trust, Inc. (“NXRT”), a publicly traded multifamily real estate investment trust (a “REIT”), since May 2015, as President of NexPoint Diversified Real Estate Trust (“NXDT”), a publicly traded diversified REIT, since May 2015 and additionally as chairman of the board of trustees of NXDT since July 2022, and as chairman of the board of directors of VineBrook Homes Trust, Inc. (“VineBrook”), a single-family rental (“SFR”) REIT, since August 2022. Additionally, Mr. Dondero previously served as President and a member of the board of directors of VineBrook from February 2019 to August 2021. Mr. Dondero is also: founder and president of NexPoint Advisors, L.P. (our “Sponsor” or “NexPoint”), 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”), which are affiliates of NexPoint Real Estate Advisors VII, L.P. (our “Manager”). NXRT, VineBrook, NXDT, NXHT, our Sponsor, NexBank, NHT, NexPoint Capital and NRESF are all affiliates of the Company. In addition, he has served as a member of the board of directors of NexPoint Homes Trust, Inc. (“NXHT”), an SFR REIT, since June 2022. 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 was 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 our 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 our Board since June 2019 and as our Chief Financial Officer, Executive VP-Finance, Secretary and Treasurer since February 2020. Mr. Mitts also served as our President and Treasurer from June 2019 until February 2020. Mr. Mitts is also a member of the investment committee of our Manager. Mr. Mitts co-founded NexPoint Real Estate Advisors, L.P. (“NREA”), which is the parent of our Manager, 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 NREA, 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. He has worked for NREA or its affiliates since 2007. Mr. Mitts has also served as a director of NXRT since September 2014 and as the Chief Financial Officer, Executive Vice President-Finance and Treasurer of NXRT since March 2015. In February 2019, Mr. Mitts was also appointed Secretary of NXRT. From September 2014 to March 2015, Mr. Mitts served as President and Treasurer of NXRT. 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, and from September 2021 to February 2023 Mr. Mitts served as Interim President of VineBrook. From July 2018 to October 2018, Mr. Mitts served as President and Treasurer 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. NXRT, VineBrook, NXDT, NXHT, NSP and NHT are all affiliates of the Company. Mr. Mitts was selected to serve on our 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 our Board since February 2020. Mr. Constantino has also served as a member of the board of directors of NXRT since March 2015, as a member of the board of directors of VineBrook since February 2019 and as a member of the board of trustees of NXDT since March 2020. He has also served 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 our Board because of his extensive accounting experience, particularly in the real estate field.
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 February 2020. Mr. Kavanaugh has also served as a member of the board of directors of NXRT since March 2015, as a member of the board of directors of VineBrook since December 2018 and as a member of the board of trustees of NXDT since July 2022. He has also served as a member of the board of directors of NXHT since June 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 February 2020. Dr. Laffer has also served as a member of the board of directors of NXRT since May 2015, as a member of the board of directors of VineBrook since December 2018 and as a member of the board of trustees of NXDT since July 2022. He has also served as a member of the board of directors of NXHT since June 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 the Board since August 2022. In addition, she has served as a member of the board of directors of NXRT, as a member of the board of directors of VineBrook and as a member of the board of trustees of NXDT since August 2022. She has also served 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 board of directors of NXRT and as a member of the board of directors of VineBrook since July 2020 and as a member of the board of trustees of NXDT since August 2022. She has also served 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.
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.
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: • 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; • the chair of our audit committee receives an additional annual fee payable in cash equal to $15,000; • the chair of our compensation committee receives an additional annual fee payable in cash equal to $7,500; • the chair of our nominating and corporate governance committee receives an additional annual fee payable in cash equal to $7,500; and • the lead independent director receives an additional annual fee payable in cash equal to $10,000. We also reimburse directors for all expenses incurred in attending Board and committee meetings.
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.
Director Compensation Table
| NAME | FEES EARNED OR PAID IN CASH | STOCK AWARDS (1) | TOTAL | | Edward Constantino | $35,000 | $64,708 | $99,708 | | Scott Kavanaugh | $37,500 | $64,708 | $102,208 | | Dr. Arthur Laffer | $27,500 | $64,708 | $92,208 | | Dr. Carol Swain | $20,000 | $64,708 | $84,708 | | Catherine Wood | $20,000 | $64,708 | $84,708 |
Director Compensation Table
| (1) These restricted stock units were granted on April 4, 2023 and vested on April 4, 2024, the first anniversary of the grant date. The grant date fair value of the award was equal to the closing price of the Company’s stock on the date of grant as calculated in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 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 11 to our consolidated financial statements included in the Company’s 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 4,274 restricted stock units. |
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.
Summary Compensation Table
Summary Compensation Table The following table sets forth the compensation paid to or accrued by those named executive officers during the fiscal year presented.
Summary Compensation Table
| NAME AND PRINCIPAL POSITION | YEAR | STOCK AWARDS (1) | TOTAL | | James Dondero | 2023 | $2,015,664 | $2,015,664 | | President | 2022 | $1,405,471 | $1,405,471 | | Matt McGraner | 2023 | $1,938,541 | $1,938,541 | | Chief Investment Officer and Executive VP | 2022 | $1,405,471 | $1,405,471 | | Brian Mitts | 2023 | $414,064 | $414,064 | | Chief Financial Officer, Executive VP- Finance, Secretary and Treasurer | 2022 | $335,427 | $335,427 | | Matthew Goetz (2) | 2023 | $1,460,988 | $1,460,988 | | Former Senior VP—Investments and Asset Management | 2022 | $888,247 | $888,247 |
Summary Compensation Table
| (1) The amounts reported in the “Stock Awards” column represent the aggregate grant date fair value of restricted stock units, calculated in accordance with ASC Topic 718. Pursuant to SEC rules, the amounts shown in this column exclude the impact of estimated forfeitures related to service-based vesting conditions. See Note 11 to our consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for information regarding the assumptions made in determining these values. The amount shown in this column for Mr. Goetz also includes the incremental fair value, calculated in accordance with paragraph 55-116 of FASB ACS Topic 718, for 72,674 restricted stock units, the vesting of which accelerated on November 9, 2023 pursuant to the Separation Agreement. | | (2) Mr. Goetz resigned from the Company on November 9, 2023. |
Outstanding Equity Awards at Fiscal Year-End
Outstanding Equity Awards at Fiscal Year-End The following table contains information regarding outstanding equity awards held by our named executive officers as of December 31, 2023.
Outstanding Equity Awards at Fiscal Year-End
| | STOCK AWARDS | | | | NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (#) | MARKET VALUE OF SHARES OR UNITS THAT HAVE NOT VESTED ($)(1) | | James Dondero | 234,297(2) | $3,690,178 | | Matt McGraner | 235,489(3) | $3,708,952 | | Brian Mitts | 60,071(4) | $946,119 | | Matthew Goetz | 0(5) | $0 |
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 ($15.75), the last trading day of the year.
Outstanding Equity Awards at Fiscal Year-End
| (2) Consists of restricted stock units granted on June 24, 2020, February 22, 2021, February 21, 2022 and April 4, 2023. With respect to the restricted stock units granted on June 24, 2020, as of December 31, 2023, there were 17,557 restricted stock units not vested, which will vest on May 8, 2024. With respect to the restricted stock units granted on February 22, 2021, as of December 31, 2023, there were 31,679 restricted stock units not vested, which vested one-half on February 22, 2024 and will vest one-half on February 22, 2025. With respect to the restricted stock units granted on February 21, 2022, as of December 31, 2023, there were 51,926 restricted stock units not vested, which vested one-third on February 21, 2024 and will vest one-third on February 21, 2025 and one-third on February 21, 2026. With respect to the restricted stock units granted on April 4, 2023, as of December 31, 2023, there were 133,135 restricted stock units not vested, which vested one-fourth on April 4, 2024 and will vest one-fourth on April 4, 2025, one-fourth on April 4, 2026, and one-fourth on April 4, 2027. |
Outstanding Equity Awards at Fiscal Year-End
| (3) Consists of restricted stock units granted on June 24, 2020, February 22, 2021, February 21, 2022 and April 4, 2023. With respect to the restricted stock units granted on June 24, 2020, as of December 31, 2023, there were 23,843 restricted stock units not vested, which will vest on May 8, 2024. With respect to the restricted stock units granted on February 22, 2021, as of December 31, 2023, there were 31,679 restricted stock units not vested, which vested one-half on February 22, 2024 and will vest one-half on February 22, 2025. With respect to the restricted stock units granted on February 21, 2022, as of December 31, 2023, there were 51,926 restricted stock units not vested, which vested one-third on February 21, 2024 and will vest one-third on February 21, 2025 and one-third on February 21, 2026. With respect to the restricted stock units granted on April 4, 2023, as of December 31, 2023, there were 128,041 restricted stock units not vested, which vested one-fourth on April 4, 2024 and will vest one-fourth on April 4, 2025, one-fourth on April 4, 2026, and one-fourth on April 4, 2027. | | (4) Consists of restricted stock units granted on June 24, 2020, February 22, 2021, February 21, 2022 and April 4, 2023. With respect to the restricted stock units granted on June 24, 2020, as of December 31, 2023, there were 5,780 restricted stock units not vested, which will vest on May 8, 2024. With respect to the restricted stock units granted on February 22, 2021, as of December 31, 2023, there were 10,326 restricted stock units not vested, which vested one-half on February 22, 2024 and will vest one-half on February 22, 2025. With respect to the restricted stock units granted on February 21, 2022, as of December 31, 2023, there were 16,616 restricted stock units not vested, which vested one-third on February 21, 2024 and will vest one-third on February 21, 2025 and one-third on February 21, 2026. With respect to the restricted stock units granted on April 4, 2023, as of December 31, 2023, there were 27,349 restricted stock units not vested, which vested one-fourth on April 4, 2024 and will vest one-fourth on April 4, 2025, one-fourth on April 4, 2026, and one-fourth on April 4, 2027. | | (5) Mr. Goetz resigned from the Company on November 9, 2023, at which time 72,675 restricted stock units immediately vested and 44,066 restricted stock units were forfeited pursuant to the Separation Agreement. |
Pension Benefits
Pension Benefits We do not provide any of our officers with pension benefits.
Nonqualified Deferred Compensation
Nonqualified Deferred Compensation We do not provide any of our officers with any nonqualified deferred compensation plans.
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 Manager is terminated involuntarily by the Manager 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 NexPoint Real Estate Finance, Inc. 2020 Long Term Incentive Plan (as amended and restated from time to time, the “2020 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 2020 LTIP cease for any reason to constitute at least a majority of the Board, unless their replacements are approved as described in the 2020 LTIP (subject to certain exceptions described in the 2020 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 2020 LTIP; (d) the Company’s stockholders approve its complete liquidation or dissolution; or (e) the Manager is terminated.