[Federal Register Volume 87, Number 109 (Tuesday, June 7, 2022)]
[Notices]
[Pages 34724-34726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12165]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. IC-34605; 811-21869]


NexPoint Diversified Real Estate Trust

June 1, 2022.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of application for deregistration under Section 8(f) of the 
Investment Company Act of 1940 (the ``Act'').

Summary of Application:  NexPoint Diversified Real Estate Trust 
requests an order declaring that it has ceased to be an investment 
company.

Applicant:  NexPoint Diversified Real Estate Trust (``Applicant'').

Filing Dates:  The application was filed on March 31, 2021 and was 
amended on September 13, 2021, November 5, 2021, December 2, 2021 and 
May 19, 2022.

Hearing or Notification of Hearing:  An order granting the request will 
be issued unless the Commission orders a hearing. Interested persons 
may request a hearing by emailing the Commission's Secretary at 
[email protected] and serving Applicant with a copy of the 
request by email, if an email address is listed for Applicant below, or 
personally or by mail, if a physical address is listed for Applicant 
below. Hearing requests should be received by the Commission by 5:30 
p.m. on June 27, 2022 and should be accompanied by proof of service on 
Applicant, in the form of an affidavit, or, for lawyers, a certificate 
of service. Pursuant to rule 0-5 under the Act, hearing requests should 
state the nature of the writer's interest, any facts bearing upon the 
desirability of a hearing on the matter, the reason for the request, 
and the issues contested. Persons who wish to be notified of a hearing 
may request notification by emailing to the Commission's Secretary at 
[email protected].

ADDRESSES: The Commission: [email protected]. Applicants: 
Stephanie Vitiello, NexPoint Diversified Real Estate Trust, 300 
Crescent Court, Suite 700, Dallas, TX 75201, [email protected]; Thomas 
A. DeCapo and Kenneth E. Burdon, Skadden, Arps, Slate, Meagher & Flom 
LLP, 500 Boylston Street, Boston, MA 02116; and R. Charles Miller, K&L 
Gates, LLP, 1601 K Street NW, Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT: Kyle R. Ahlgren, Acting Branch Chief; 
Marc Mehrespand, Branch Chief, at (202) 551-6825 (Division of 
Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicant's Representations

    1. Applicant is a Delaware statutory trust and is a non-
diversified, closed-end management investment company registered under 
the Act. Prior to Applicant's Special Meeting of Shareholders held on 
August 28, 2020 (the ``Special Meeting''), Applicant was named 
``NexPoint Strategic Opportunities Fund'' and it sought to achieve the 
primary investment objectives of providing its common shareholders both 
current income and capital appreciation by investing in structured 
products, equities, other investment companies, real estate investment 
trusts (``REITs''), and a variety of loans and other debt obligations.
    2. At the Special Meeting, Applicant's shareholders approved a 
proposal (the ``Business Change Proposal'') to change Applicant's 
business from a registered investment company to a diversified REIT 
that focuses primarily on investing in various commercial real estate 
property types and across the capital structure, including but not 
limited to: equity, mortgage debt, mezzanine debt and preferred equity. 
Notably, the proxy statement in connection with the Business Change 
Proposal stated that, if approved, Applicant would realign its 
portfolio so that it will not be considered an investment company under 
the Act and apply to the Commission for an order declaring that 
Applicant has ceased to be an investment company. Applicant represents 
that, in accordance with the Business Change Proposal, it began 
operating during its 2021 taxable year so that it may qualify for 
taxation as a REIT for federal tax purposes.
    3. Applicant states that, following the Special Meeting, it began 
to implement the Business Change Proposal, including changing its name 
to ``NexPoint Diversified Real Estate Trust'' (effective November 8, 
2021), reorganizing, winding down or divesting its legacy portfolio 
assets and realigning its portfolio such that it is no longer an 
investment company under the Act. Applicant states that it holds itself 
out as a diversified REIT, and that its periodic reports to 
shareholders, press releases and website indicate that Applicant is 
implementing the Business Change Proposal.
    4. Applicant's investment advisory agreement (``IAA'') with its 
investment adviser, NexPoint Advisors, L.P. (the ``Adviser''), remains 
in effect. Applicant anticipates that if Applicant receives the order, 
the Adviser would continue to provide the day-to-day management of 
Applicant's operations pursuant to the IAA, except that the terms of 
the IAA would likely be amended to remove certain provisions required 
by the Act and to otherwise conform the IAA to terms more customary for 
publicly traded REITs. Applicant represents that its officers devote 
significant time to

[[Page 34725]]

Applicant's new business strategy, including in connection with the 
formation of business objectives, plans and strategies and sourcing of 
real estate investment opportunities.
    5. Applicant represents that it currently operates as a diversified 
REIT and originates commercial mortgage loans and otherwise invests in 
commercial real estate through two wholly-owned private REIT 
subsidiaries, NexPoint Real Estate Opportunities, LLC (``NREO'') and 
NexPoint Real Estate Capital LLC (``NREC''), and a majority-owned 
private REIT subsidiary, NexPoint Storage Partners, Inc. (``NSP'' and, 
together with NREO and NREC, the ``Subsidiaries''). Applicant 
represents that none of the Subsidiaries is an ``investment company'' 
within the meaning of Section 3(a) of the Act, and none of the 
Subsidiaries is relying on the exclusion from the definition of 
``investment company'' in Sections 3(c)(1) or 3(c)(7) of the Act.
    6. Applicant represents that, as of May 18, 2022: (1) Approximately 
16% of Applicant's total assets were comprised of ``investment 
securities'' for purposes of Sections 3(a)(1)(C) and 3(a)(2) of the Act 
(``Investment Securities''); and (2) approximately 24%, 17%, and 10% of 
the total assets of NREO,\1\ NREC, and NSP, respectively, were 
comprised of Investment Securities. Applicant represents that it may 
establish other wholly-owned subsidiaries to carry out specific 
activities, consistent with Applicant's business of operating as a 
diversified REIT.
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    \1\ Applicant represents that as of May 18, 2022, for purposes 
of Section 3(a)(1)(C) of the Act: (1) approximately 76% of NREO's 
total assets consisted of fee interests in real property and its 
interest in a majority-owned subsidiary (as defined in Section 
2(a)(24) of the Act) that is not an investment company and is not 
relying on Section 3(c)(1) or 3(c)(7) (the ``NREO Subsidiary''); and 
(2) approximately 92.6% of the NREO Subsidiary's total assets 
consisted of interests in four majority-owned subsidiaries (as 
defined in Section 2(a)(24) of the Act) that are not investment 
companies and are not relying on Section 3(c)(1) or 3(c)(7) (such 
subsidiaries of the NREO Subsidiary, ``NREO REIT Sub I'', ``NREO 
REIT Sub II'', ``NREO REIT Sub III'' and ``NREO REIT Sub IV''). 
Applicant further represents that NREO REIT Sub I is excluded from 
the definition of ``investment company'' by Section 3(c)(5)(C) of 
the Act, and that none of NREO REIT Sub II, NREO REIT Sub III, or 
NREO REIT Sub IV is an investment company within the meaning of 
Section 3(a) of the Act or is relying on Section 3(c)(1) or 3(c)(7) 
of the Act.
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    7. Applicant represents that for the period from May 30, 2021 
through May 1, 2022 (the ``Transition Period''), it derived 
approximately 86% of its net income after taxes from investment 
securities (as defined in Section 3(a)(2) of the Act). Applicant notes 
that this high percentage of investment-related income during the 
Transition Period was due to Applicant's activity in realigning its 
portfolio to become a diversified REIT, the continued holding of legacy 
collateralized loan obligation (``CLO'') positions while awaiting a 
material realization event for the principal asset underlying these 
CLOs, Metro-Goldwyn-Mayer Studios Inc. (``MGM''), and the receipt of 
the proceeds from the acquisition of MGM by Amazon.com, Inc., which 
closed on March 17, 2022 (the ``MGM Transaction''). Applicant 
represents that now that the MGM Transaction has closed, neither 
Applicant nor the legacy CLOs maintain any positons that upon 
disposition are expected to result--individually or in aggregate--in 
the generation of income from investment securities that would be 
material to Applicant. Applicant further represents that for the period 
from May 2, 2022 through December 31, 2022, on a pro forma basis, 
Applicant expects to derive approximately 5% of its net income after 
taxes from investment securities. Finally, Applicant represents that it 
does not expect to derive any material portion of its net income after 
taxes from investment securities, and that it does not expect any of 
its subsidiaries (including the Subsidiaries and any future 
subsidiaries) to derive a material portion of its net income after 
taxes from investment securities.
    8. Applicant represents that upon deregistering as an investment 
company it will issue a press release to shareholders indicating that 
it is no longer a registered investment company and will cease 
indicating in its financial statements that it is a registered 
investment company.
    9. Applicant states that it is not currently a party to any 
litigation or administrative proceeding and has timely complied with 
its obligations to file annual and other reports with the Commission.
    10. Applicant represents that, if the requested order is granted, 
it expects that its common shares will continue to be traded on The New 
York Stock Exchange.

Applicant's Legal Analysis

    1. Section 8(f) of the Act provides that whenever the Commission, 
upon application or its own motion, finds that a registered investment 
company has ceased to be an investment company, the Commission shall so 
declare by order and upon the taking effect of such order, the 
registration of such company shall cease to be in effect.
    2. Section 3(a)(1)(A) of the Act defines an ``investment company'' 
as any issuer which ``is or holds itself out as being engaged 
primarily, or proposes to engage primarily, in the business of 
investing, reinvesting, or trading in securities.'' Section 3(a)(1)(B) 
of the Act defines an ``investment company'' as any issuer which ``is 
engaged or proposes to engage in the business of issuing face-amount 
certificates of the installment type, or has been engaged in such 
business and has any such certificate outstanding.''
    3. Section 3(a)(1)(C) of the Act defines an ``investment company'' 
as any issuer which ``is engaged or proposes to engage in the business 
of investing, reinvesting, owning, holding, or trading in securities, 
and owns or proposes to acquire investment securities having a value 
exceeding 40 per centum of the value of such issuer's total assets 
(exclusive of Government securities and cash items) on an 
unconsolidated basis.'' Section 3(a)(2) of the Act defines ``investment 
securities'' as ``all securities except (A) Government securities, (B) 
securities issued by employees' securities companies, and (C) 
securities issued by majority-owned subsidiaries of the owner which (i) 
are not investment companies, and (ii) are not relying on the exception 
from the definition of investment company in paragraph (1) or (7) of 
subsection (c).''
    4. Applicant states that it is no longer an investment company as 
defined in Section 3(a)(1)(A), 3(a)(1)(B) or Section 3(a)(1)(C). With 
regard to Section 3(a)(1)(A), Applicant represents that it now operates 
as a diversified REIT, and argues that its historical development, its 
public representations, the activities of its directors and officers, 
the nature of its present assets and the sources of its present income 
support this assertion.
    5. With regard to Section 3(a)(1)(B), Applicant represents that it 
is not engaged, and does not propose to engage, in the business of 
issuing face-amount certificates of the installment type, has not been 
engaged in such business and does not have any such certificate 
outstanding.
    6. With regard to Section 3(a)(1)(C), Applicant represents that 
Investment Securities comprise less than 40% of the value of 
Applicant's total assets because Applicant's interests in the 
Subsidiaries (which, as discussed above, Applicant represents are not 
themselves investment companies and do not rely on Section 3(c)(1) or 
3(c)(7) of the Act) in aggregate exceed 60% of the value of Applicant's 
total assets.\2\
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    \2\ Applicant represents that Applicant owns 100% of the voting 
securities of NREC and NREO and 53% of the voting securities of NSP. 
Applicant further represents that, to ensure that the value of 
Investment Securities owned by Applicant is less than 40% of its 
total assets, Applicant will own at least 50% of the voting 
securities of any subsidiaries that it may form that are not 
themselves investment companies and are not relying on the exclusion 
from the definition of investment company set forth in Section 
3(c)(1) or Section 3(c)(7) of the Act.

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[[Page 34726]]

    7. Applicant states that it is thus qualified for an order of the 
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Commission pursuant to Section 8(f) of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12165 Filed 6-6-22; 8:45 am]
BILLING CODE 8011-01-P


