425: NexPoint Hospitality Trust Urges Unitholders to Vote on Merger with NexPoint Diversified Real Estate Trust

NexPoint Hospitality Trust reminds unitholders to vote on key proposals, including amendments to COVID and CDOR loans and the proposed merger with NexPoint Diversified Real Estate Trust, prior to the February 19, 2025 deadline.

Summary

• NexPoint Hospitality Trust (NHT) is reminding its unitholders to vote before the February 19, 2025 deadline regarding key proposals at the upcoming annual and special meeting on February 21, 2025.
• The proposals include amendments to convertible promissory notes issued between September 2019 and May 2021 (COVID Loans) and those issued by CDOR Option Sub, LLC on October 30, 2020 and December 22, 2020 (CDOR Loans).
• A special resolution is also up for vote, concerning the previously announced merger transaction with NexPoint Diversified Real Estate Trust (NXDT).
• The merger involves a reorganization where unitholders can elect to receive either $0.36 cash per unit or one common share of NexPoint Hospitality Trust, Inc., which will then be converted into NXDT Common Shares.
• The meeting will be held virtually on February 21, 2025, and unitholders of record as of December 30, 2024, are eligible to vote.
• The COVID Loans consist of twelve loans totaling $15,624,41.00, used to fund operating expenses during the COVID-19 pandemic.
• The CDOR Loans consist of two convertible promissory notes totaling $4,750,000.
• If the amendments are implemented, only the principal amount of the COVID Loans will be convertible into Class B Units for five-year terms, while the conversion right under the CDOR Loans will be removed entirely.
• The Special Committee determined the Transaction was fair to Unitholders and recommended the Cash Consideration based on the work conducted by Doane Grant Thornton LLP.
• If every Unitholder elects to receive Share Consideration, an aggregate of 918,890 NXDT Common Shares would be issuable, representing approximately 2.2% of the issued and outstanding common shares in the capital of NXDT, assuming an NXDT share price of US$5.33.

Sentiment

Score: 7

Explanation: The announcement is primarily informational, reminding unitholders to vote on a previously announced merger. The sentiment is neutral to slightly positive, as the merger offers potential benefits to unitholders.

Positives

• The merger with NXDT offers unitholders a choice between cash ($0.36 per unit) and NXDT Common Shares, providing flexibility.
• The Special Committee determined the Transaction was fair to Unitholders.
• Share Consideration allows Unitholders to participate in any increase in value of NHT's assets and the NXDT Common Shares were expected to have much greater liquidity due to higher trading volumes.

Negatives

• The votes in respect to the 875,846 Units held by the directors and senior officers of NXDT to be excluded for the purposes of minority approval requirements pursuant to the Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, are more specifically held by Matthew McGraner, the Executive VP and Chief Investment Officer of NXDT.

Risks

• The timing and completion of the Transaction is subject to customary closing conditions, termination rights and other risks and uncertainties including, without limitation, required regulatory and unitholder approvals.
• The Transaction could be modified, restructured or terminated.

Future Outlook

The completion of the merger transaction with NexPoint Diversified Real Estate Trust is subject to customary closing conditions, regulatory and unitholder approvals, and other risks and uncertainties.

Management Comments

• The Special Committee determined the Transaction was fair to Unitholders.
• The Special Committee also ultimately decided, with the assistance of its legal and financial advisors, to recommend the Share Consideration on the basis that Unitholders who receive NXDT Common Shares will have the opportunity to participate in any increase in value of NHTs assets and the NXDT Common Shares were expected to have much greater liquidity due to higher trading volumes.

Industry Context

The announcement reflects ongoing consolidation trends within the real estate investment trust (REIT) sector, where companies seek to enhance scale and efficiency through mergers and acquisitions.

Comparison to Industry Standards

• The REIT sector often sees mergers and acquisitions as a way to consolidate assets and improve operational efficiency.
• The offer of both cash and share consideration is a common tactic in mergers to appeal to different investor preferences.
• The valuation of US$0.36 per unit was based on a previous acquisition by NXDT and historical valuation analysis, aligning with standard valuation practices in REIT transactions.

Related Party Transactions

• The COVID Loans were received from entities controlled or managed by James Dondero.
• The three other convertible loans, with substantially similar terms to the COVID Loans, that the REIT currently has outstanding from entities controlled or managed by James Dondero, will not be affected by the Amendments.

Stakeholder Impact

• Unitholders will be impacted by the merger transaction, with the option to receive cash or NXDT Common Shares.
• The merger could potentially impact employees and operations of both NexPoint Hospitality Trust and NexPoint Diversified Real Estate Trust.

Next Steps

• Unitholders need to vote on the proposed resolutions before the proxy voting deadline on February 19, 2025.
• The annual and special meeting will be held virtually on February 21, 2025.

Key Dates