[Federal Register Volume 87, Number 109 (Tuesday, June 7, 2022)]
[Notices]
[Pages 34724-34726]
[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<PHONE_NUMBER> (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<PHONE_NUMBER>.

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

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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    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