ThZeal - The Zeal

vhti20220930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-56274

VineBrook Homes Trust, Inc.

(Exact name of registrant as specified in its charter)


Maryland		83-1268857
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

300 Crescent Court, Suite 700, Dallas, Texas		75201
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (214) 276-6300

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
N/A	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 11, 2022, the registrant had 24,761,177 shares of its Class A Common Stock, par value $0.01 per share, and no shares of its Class I Common Stock, par value $0.01 per share, outstanding.

Table of Contents

VineBrook Homes Trust, Inc.

Form 10-Q

Quarter Ended September 30, 2022

INDEX

	Page


Cautionary Note Regarding Forward-Looking Statements	ii
Part I
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	1
Consolidated Unaudited Statements of Operations and Comprehensive Income (Loss)	2
Consolidated Unaudited Statements of Stockholders' Equity	3
Consolidated Unaudited Statements of Cash Flows	5
Notes to Consolidated Unaudited Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	59
Item 4. Controls and Procedures	59
Part II
Item 1. Legal Proceedings	60
Item 1A. Risk Factors	60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3. Defaults Upon Senior Securities	60
Item 4. Mine Safety Disclosures	60
Item 5. Other Information	60
Item 6. Exhibits	61
Signatures	62

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) of VineBrook Homes Trust, Inc. (“we”, “us”, “our”, or the “Company”) other than historical facts may be considered forward-looking statements. In particular, statements relating to our business and investment strategies, plans or intentions, acquisitions, the Internalization (as defined below), including the expected timing of the transaction, our liquidity and capital resources, our performance and results of operations contain forward-looking statements. Furthermore, all statements regarding future financial performance (including market conditions) are forward-looking statements. We caution investors that any forward-looking statements presented in this Form 10-Q are based on management’s beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “would,” “result,” the negative version of these words and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements.

Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you against relying on any of these forward-looking statements.

Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

•

risks associated with the COVID-19 pandemic, including unpredictable variants and future outbreak of other highly infectious or contagious diseases;

•

risks associated with our limited operating history and the possibility that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of NexPoint Real Estate Advisors V, L.P. (our “Adviser”), members of VineBrook Homes, LLC’s (our “Manager”) management team or their affiliates;

•

our dependence on our Adviser, Manager and their affiliates and personnel to conduct our day-to-day operations and potential conflicts of interest with our Adviser, Manager and their affiliates and personnel;

•

risks associated with the Manager’s ability to terminate the Management Agreements (as defined below) and risks associated with any potential internalization of our management functions;

•

loss of key personnel of our Adviser and our Manager;

•

risks associated with the fluctuation in the net asset value (“NAV”) per share amounts;

•

unfavorable changes in economic conditions and their effects on the real estate industry generally and our operations and financial condition, including our ability to access funding and generate returns for stockholders;

•

the risk we make significant changes to our strategies in a market downturn, or fail to do so;

•

the risk of rising interest rates and our ability to mitigate the related risks through long-term fixed interest rate loans and interest rate hedges;

•

risks associated with ownership of real estate, including properties in transition, subjectivity of valuation, environmental matters and lack of liquidity in our assets;

•

risks related to increasing property taxes, homeowner’s associations (“HOAs”) fees and insurance costs may negatively affect our financial results;

•

risks associated with acquisitions, including the risk of expanding our scale of operations and acquisitions, which could adversely impact anticipated yields;

Table of Contents

•

risks associated with leasing real estate, including the risks that rents do not increase sufficiently to keep pace with rising costs of operations and competitive pressures from other types of properties or market conditions that incentivize tenants to purchase their residences;

•

risks related to tenant relief laws, including laws regulating evictions, rent control laws, executive orders, administrative orders and other regulations that may impact our rental income and profitability;

•

risks related to governmental laws, regulations and rules applicable to our properties or that may be passed in the future;

•

risks relating to the timing and costs of the renovation of properties which has the potential to adversely affect our operating results and ability to make distributions;

•

risks related to our ability to change our major policies, operations and targeted investments without stockholder consent;

•

risks related to climate change and natural disasters;

•

risks related to failure to maintain our status as a real estate investment trust (“REIT”);

•

risks related to failure of our OP (defined below) to be taxable as a partnership for U.S. federal income tax purposes, possibly causing us to fail to qualify for or to maintain REIT status;

•

risks related to compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities;

•

the risk that the Internal Revenue Service (“IRS”) may consider certain sales of properties to be prohibited transactions, resulting in a 100% penalty tax on any taxable gain;

•

the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends;

•

risks associated with the stock ownership restrictions of the Internal Revenue Code of 1986, as amended (the “Code”) for REITs and the stock ownership limit imposed by our amended and restated charter;

•

recent and potential legislative or regulatory tax changes or other actions affecting REITs;

•

failure to generate sufficient cash flows to service our outstanding indebtedness or pay distributions at expected levels;

•

risks associated with purchasing single-family rental (“SFR”) properties through the foreclosure auction process;

•

damage associated with SFR properties sold through short sales or foreclosure sales may require extensive renovation;

•

risks associated with the Highland Capital Management, L.P. (“Highland”) bankruptcy, including related litigation and potential conflicts of interest; and

•

any of the other risks included under Item 1A, “Risk Factors,” in our Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 23, 2022 (our “Annual Report”).

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this Form 10-Q. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.

iii

Table of Contents

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	*September 30, 2022*			*December 31, 2021*
	(unaudited)
ASSETS
Operating real estate investments
Land	$	652,218		$	334,191
Buildings and improvements		2,946,479			1,391,786
Intangible lease assets		2,606			971
Total gross operating real estate investments		3,601,303			1,726,948
Accumulated depreciation and amortization		(141,109	)		(76,789	)
Total net operating real estate investments		3,460,194			1,650,159
Real estate held for sale, net		2,888			81
Total net real estate investments		3,463,082			1,650,240
Investments, at fair value		2,500			2,500
Cash		92,566			54,104
Restricted cash		30,681			20,893
Accounts and other receivables		18,896			8,327
Due from Manager (see Note 13)		1,076			2,909
Prepaid and other assets		68,925			19,352
Interest rate derivatives, at fair value		73,731			—
TOTAL ASSETS	$	3,751,457		$	1,758,325

LIABILITIES AND EQUITY
Liabilities:
Notes payable, net	$	948,220		$	376,842
Credit facilities, net		1,503,155			391,703
Accounts payable and other accrued liabilities		71,776			47,208
Accrued real estate taxes payable		36,070			19,450
Accrued interest payable		15,136			1,690
Security deposit liability		25,970			14,295
Prepaid rents		6,189			3,341
Interest rate derivatives, at fair value		—			3,590
Total Liabilities		2,606,516			858,119

Redeemable Series A preferred stock, $0.01 par value: 16,000,000 shares authorized; 5,000,000 and 5,000,000 shares issued and outstanding, respectively		121,456			120,896
Redeemable noncontrolling interests in the OP		239,541			196,362
Redeemable noncontrolling interests in consolidated VIEs		108,499			—
Stockholders' Equity:
Class A Common stock, $0.01 par value: 300,000,000 shares authorized; 24,761,177 and 21,814,248 shares issued and outstanding, respectively		248			219
Additional paid-in capital		761,691			651,531
Distributions in excess of retained earnings		(135,062	)		(68,011	)
Accumulated other comprehensive income/(loss)		45,726			(791	)
Total Stockholders' Equity		672,603			582,948
Noncontrolling interests in consolidated VIEs		2,842			—
TOTAL LIABILITIES AND EQUITY	$	3,751,457		$	1,758,325

See Accompanying Notes to Consolidated Financial Statements

Table of Contents

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

(Unaudited)

	*For the Three Months Ended September 30,*						*For the Nine Months Ended September 30,*
	*2022*			*2021*			*2022*			*2021*
Revenues
Rental income	$	71,594		$	40,823		$	182,016		$	110,071
Other income		2,044			1,064			6,243			2,265
Total revenues		73,638			41,887			188,259			112,336
Expenses
Property operating expenses		12,592			8,282			33,636			19,442
Real estate taxes and insurance		12,260			8,157			32,716			22,095
Property management fees		3,844			1,756			10,363			6,316
Advisory fees		4,313			2,337			11,243			5,638
Corporate general and administrative expenses		2,701			1,992			7,341			5,310
Property general and administrative expenses		4,373			1,505			11,871			4,160
Depreciation and amortization		28,693			14,881			68,856			35,432
Interest expense		16,875			7,752			37,650			20,566
Loss on extinguishment of debt		2,468			—			3,469			—
Total expenses		88,119			46,662			217,145			118,959
Loss on sales of real estate		(224	)		(175	)		(8	)		(373	)
Casualty gain/(loss), net of insurance proceeds		84			151			(78	)		49
Net loss		(14,621	)		(4,799	)		(28,972	)		(6,947	)
Dividends on and accretion to redemption value of Redeemable Series A preferred stock		2,226			2,206			6,654			6,619
Net loss attributable to redeemable noncontrolling interests in the OP		(1,782	)		(823	)		(3,976	)		(1,324	)
Net loss attributable to redeemable noncontrolling interests in consolidated VIEs		(3,112	)		—			(4,303	)		—
Net loss attributable to noncontrolling interests in consolidated VIEs		(113	)		—			(113	)		—
Net loss attributable to common stockholders	$	(11,840	)	$	(6,182	)	$	(27,234	)	$	(12,242	)
Other comprehensive income
Unrealized gain on interest rate hedges		29,356			1,076			54,866			7,382
Total comprehensive income/(loss)		14,735			(3,723	)		25,894			435
Dividends on and accretion to redemption value of Redeemable Series A preferred stock		2,226			2,206			6,654			6,619
Comprehensive income/(loss) attributable to redeemable noncontrolling interests in the OP		2,621			(639	)		4,373			425
Comprehensive loss attributable to redeemable noncontrolling interests in consolidated VIEs		(3,112	)		—			(4,303	)		—
Comprehensive loss attributable to noncontrolling interests in consolidated VIEs		(113	)		—			(113	)		—
Comprehensive income/(loss) attributable to common stockholders	$	13,113		$	(5,290	)	$	19,283		$	(6,609	)

Weighted average common shares outstanding - basic		25,124			17,230			24,545			13,511
Weighted average common shares outstanding - diluted		25,124			17,230			24,545			13,511

Loss per share - basic	$	(0.47	)	$	(0.36	)	$	(1.11	)	$	(0.91	)
Loss per share - diluted	$	(0.47	)	$	(0.36	)	$	(1.11	)	$	(0.91	)

See Accompanying Notes to Consolidated Financial Statements

Table of Contents

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(dollars in thousands, except share and per share amounts)

(Unaudited)

	*Class A Common Stock*
Three Months Ended September 30, 2022	*Number of Shares*			*Par Value*			*Additional Paid-in Capital*			*Distributions in Excess of Retained Earnings*			*Accumulated Other Comprehensive Income (Loss)*		*Total*
Balances, June 30, 2022		24,960,485		$	250		$	780,111		$	(109,628	)	$	20,773	$	691,506
Net loss attributable to common stockholders								—			(11,840	)		—		(11,840	)
Issuance of Class A common stock		475,440			5			27,904			—			—		27,909
Redemptions of Class A common stock		(674,891	)		(7	)		(42,343	)		—			—		(42,350	)
Offering costs								(1,565	)		—			—		(1,565	)
Equity-based compensation		143			—			920			—			—		920
Common stock dividends declared ($0.5301 per share)								—			(13,594	)		—		(13,594	)
Other comprehensive income attributable to common stockholders								—			—			24,953		24,953
Adjustments to reflect redemption value of redeemable noncontrolling interests in the OP								(224	)		—			—		(224	)
Adjustment to reflect redemption value of redeemable noncontrolling interests in consolidated VIEs								(3,112	)		—			—		(3,112	)
Balances, September 30, 2022		24,761,177		$	248		$	761,691		$	(135,062	)	$	45,726	$	672,603

	*Class A Common Stock*
Nine Months Ended September 30, 2022	*Number of Shares*			*Par Value*			*Additional Paid-in Capital*			*Distributions in Excess of Retained Earnings*			*Accumulated Other Comprehensive Income (Loss)*			*Total*
Balances, December 31, 2021		21,814,248		$	219		$	651,531		$	(68,011	)	$	(791	)	$	582,948
Net loss attributable to common stockholders								—			(27,234	)		—			(27,234	)
Issuance of Class A common stock		4,064,923			41			220,562			—			—			220,603
Redemptions of Class A common stock		(1,167,653	)		(12	)		(71,604	)		—			—			(71,616	)
Offering costs								(3,058	)		—			—			(3,058	)
Equity-based compensation		49,659			—			2,595			—			—			2,595
Common stock dividends declared ($1.5903 per share)								—			(39,817	)		—			(39,817	)
Other comprehensive income attributable to common stockholders								—			—			46,517			46,517
Adjustments to reflect redemption value of redeemable noncontrolling interests in the OP								(34,032	)		—			—			(34,032	)
Adjustment to reflect redemption value of redeemable noncontrolling interests in consolidated VIEs								(4,303	)		—			—			(4,303	)
Balances, September 30, 2022		24,761,177		$	248		$	761,691		$	(135,062	)	$	45,726		$	672,603

See Accompanying Notes to Consolidated Financial Statements

Table of Contents

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(dollars in thousands, except share and per share amounts)

(Unaudited)

	*Class A Common Stock*
Three Months Ended September 30, 2021	*Number of Shares*			*Par Value*		*Additional Paid-in Capital*			*Distributions in Excess of Retained Earnings*			*Accumulated Other Comprehensive Income (Loss)*			*Total*
Balances, June 30, 2021		13,891,715		$	139	$	362,165		$	(44,801	)	$	(5,409	)	$	312,094
Net loss attributable to common stockholders							—			(6,182	)		—			(6,182	)
Issuance of Class A common stock		5,574,829			56		228,495			—			—			228,551
Redemptions of Class A common stock		(23,920	)		—		(1,105	)		—			—			(1,105	)
Offering costs							(1,264	)		—			—			(1,264	)
Equity-based compensation		—			—		598			—			—			598
Common stock dividends declared ($0.5301 per share)							—			(9,362	)		—			(9,362	)
Other comprehensive income attributable to common stockholders							—			—			892			892
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP							(26,940	)		—			—			(26,940	)
Balances, September 30, 2021		19,442,624		$	195	$	561,949		$	(60,345	)	$	(4,517	)	$	497,282

	*Class A Common Stock*
Nine Months Ended September 30, 2021	*Number of Shares*			*Par Value*			*Additional Paid-in Capital*			*Distributions in Excess of Retained Earnings*			*Accumulated Other Comprehensive Income (Loss)*			*Total*
Balances, December 31, 2020		9,260,795		$	93		$	210,381		$	(26,002	)	$	(10,150	)	$	174,322
Net loss attributable to common stockholders								—			(12,242	)		—			(12,242	)
Issuance of Class A common stock		10,315,837			103			402,614			—			—			402,717
Redemptions of Class A common stock		(160,650	)		(1	)		(6,386	)		—			—			(6,387	)
Offering costs								(2,504	)		—			—			(2,504	)
Equity-based compensation		26,642			—			1,738			—			—			1,738
Common stock dividends declared ($1.5903 per share)								—			(22,101	)		—			(22,101	)
Other comprehensive income attributable to common stockholders								—			—			5,633			5,633
Adjustments to reflect redemption value of redeemable noncontrolling interests in the OP								(43,894	)		—			—			(43,894	)
Balances, September 30, 2021		19,442,624		$	195		$	561,949		$	(60,345	)	$	(4,517	)	$	497,282

See Accompanying Notes to Consolidated Financial Statements

Table of Contents

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

	*For the Nine Months Ended September 30,*
	*2022*			*2021*
Cash flows from operating activities
Net loss	$	(28,972	)	$	(6,947	)
Adjustments to reconcile net loss to net cash provided by operating activities
Loss on sales of real estate		8			373
Depreciation and amortization		68,856			35,432
Non-cash interest amortization		5,577			2,666
Change in fair value of interest rate derivatives included in interest expense		(9,765	)		2,843
Net cash paid on derivative settlements		(3,203	)		(3,202	)
Loss on extinguishment of debt		3,469			—
Equity-based compensation		4,704			3,384
Casualty loss/(gain), net of insurance proceeds		78			(49	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Operating assets		(6,992	)		(2,473	)
Operating liabilities		49,954			13,148
Net cash provided by operating activities		83,714			45,175

Cash flows from investing activities
Investment in unconsolidated entity		(100,819	)		—
Redemption of investment in unconsolidated entity		100,819			—
Acquisition of NexPoint Homes through VIE consolidation, net of cash received		(47,022	)		—
Net proceeds from sales of real estate		7,931			1,405
Prepaid acquisition deposits		(41,685	)		(1,336	)
Insurance proceeds received		707			496
Acquisitions of real estate investments		(1,360,466	)		(751,042	)
Additions to real estate investments		(147,095	)		(58,179	)
Net cash used in investing activities		(1,587,630	)		(808,656	)

Cash flows from financing activities
Notes payable proceeds received		288,512			125,000
Notes payable payments		(7,892	)		(9,562	)
Credit facilities proceeds received		1,115,000			405,000
Credit facilities principal payments		—			(115,000	)
Bridge facilities proceeds received		350,000			—
Bridge facilities principal payments		(350,000	)		—
NREO Note repayment		—			(1,250	)
Financing costs paid		(13,383	)		(7,902	)
Interest rate cap premium paid		(12,673	)		—
Proceeds from issuance of Class A common stock		174,085			391,225
Redemptions of Class A common stock paid		(35,544	)		(5,282	)
Offering costs paid		(3,315	)		(2,325	)
Dividends paid to common stockholders		(18,537	)		(10,614	)
Payments for taxes related to net share settlement of stock-based compensation		(555	)		(46	)
Proceeds from issuance of redeemable Series A preferred stock, net of offering costs		—			35,167
Preferred stock dividends paid		(6,094	)		(4,988	)
Contributions from redeemable noncontrolling interests in the OP		8,789			5,014
Distributions to redeemable noncontrolling interests in the OP		(4,835	)		(4,774	)
Contributions from redeemable noncontrolling interests in consolidated VIEs		65,653			—
Contributions from noncontrolling interests in consolidated VIEs		2,955			—
Net cash provided by financing activities		1,552,166			799,663

Change in cash and restricted cash		48,250			36,182
Cash and restricted cash, beginning of period		74,997			37,096
Cash and restricted cash, end of period	$	123,247		$	73,278

Supplemental Disclosure of Cash Flow Information
Interest paid, net of amount capitalized	$	18,119		$	10,927
Cash paid for income and franchise taxes		262			167

Supplemental Disclosure of Noncash Activities
Assumed liabilities in asset acquisitions		3,829			5,027
Accrued dividends payable to common stockholders		748			567
Accrued distributions payable to redeemable noncontrolling interests in the OP		939			313
Accrued dividends payable to preferred stockholders		6,094			2,031
Accrued redemptions payable to common stockholders		42,350			1,105
Accrued capital expenditures		3,263			—
Accretion to redemption value of Redeemable Series A preferred stock		560			525
Fair market value adjustment on assumed debt		89			—
Assumed debt on acquisitions		13,582			—
Offering costs accrued		84			284
Issuance of Class A common stock related to DRIP dividends		21,173			10,920
DRIP dividends to common stockholders		(21,173	)		(10,920	)
Contributions from redeemable noncontrolling interests in the OP related to DRIP distributions		1,487			1,191
DRIP distributions to redeemable noncontrolling interests in the OP		(1,487	)		(1,191	)
Real estate investments assumed in acquisition of NexPoint Homes through VIE consolidation		326,432			—
Earnest money deposits assumed in acquisition of NexPoint Homes through VIE consolidation		36,838			—
Other assets assumed in acquisition of NexPoint Homes through VIE consolidation		8,729			—
Notes payable assumed in acquisition of NexPoint Homes through VIE consolidation		278,530			—
Other liabilities assumed in acquisition of NexPoint Homes through VIE consolidation		4,607			—
Noncontrolling interests assumed in acquisition of NexPoint Homes through VIE consolidation		41,150			—

See Accompanying Notes to Consolidated Financial Statements

Table of Contents

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Organization and Description of Business

VineBrook Homes Trust, Inc. (the “Company”, “we”, “us,” “our”) was incorporated in Maryland on July 18, 2018 and has elected to be taxed as a real estate investment trust (“REIT”). The Company is focused on acquiring, renovating, leasing, maintaining and otherwise managing single family rental (“SFR”) home investments primarily located in large to medium size cities and suburbs located in the midwestern, heartland and southeastern United States. Substantially all of the Company’s business is conducted through VineBrook Homes Operating Partnership, L.P. (the “OP”), the Company’s operating partnership, as the Company owns its properties indirectly through the OP. VineBrook Homes OP GP, LLC (the “OP GP”), is the general partner of the OP. As of September 30, 2022, there were a combined 25,346,922 Class A, Class B and Class C units of the OP (collectively, “OP Units”), of which 21,542,876 Class A OP Units, or 85.0%, were owned by the Company, 2,691,330 Class B OP Units, or 10.6%, were owned by NexPoint Real Estate Opportunities, LLC (“NREO”), 89,037 Class C OP Units, or 0.4%, were owned by NRESF REIT Sub, LLC (“NRESF”), 140,509 Class C OP Units, or 0.6%, were owned by GAF REIT, LLC (“GAF REIT”) and 883,170 Class C OP Units, or 3.4%, were owned by limited partners that were sellers in the Formation Transaction (defined below) (and in certain instances affiliated with the equity holders of the Manager) (the “VineBrook Contributors”) or other Company insiders. NREO, NRESF and GAF REIT are noncontrolling limited partners unaffiliated with the Company but are affiliates of the Adviser (defined below). The Second Amended and Restated Limited Partnership Agreement of the OP (the “OP LPA”) generally provides that Class A OP Units and Class B OP Units each have 50.0% of the voting power of the OP Units, including with respect to the election of directors to the Partnership Board (defined below in Note 10), and the Class C OP Units have no voting power. Each Class A OP Unit, Class B OP Unit and Class C OP Unit otherwise represents substantially the same economic interest in the OP.

The Company began operations on November 1, 2018 as a result of the acquisition of various partnerships and limited liability companies owned and operated by the VineBrook Contributors and other third parties, which owned 4,129 SFR assets located in Ohio, Kentucky and Indiana (the “Initial Portfolio”) for a total purchase price of approximately $330.2 million, including closing and financing costs of $6.0 million (the “Formation Transaction”). On November 1, 2018, the Company accepted subscriptions for 1,097,367 shares of its Class A common stock, par value $0.01 (“Shares”), for gross proceeds of approximately $27.4 million in connection with the Formation Transaction. The proceeds from the issuance of Shares were used to acquire OP Units. The OP used the capital contribution from the Company to fund a portion of the purchase price for the Initial Portfolio. The remaining purchase price and closing costs were funded by a capital contribution totaling $70.7 million from NREO, $8.6 million of equity rolled over from VineBrook Contributors, and $241.4 million from a Federal Home Loan Mortgage Corporation (“Freddie Mac”) mortgage (the “Initial Mortgage”) provided by KeyBank N.A. (“KeyBank”). On May 1, 2019 (the “Release Date”), approximately $1.4 million worth of OP Units were released to various VineBrook Contributors from an indemnity reserve escrow that was established at the time the Initial Portfolio was acquired. From the time the escrow reserve was established until the Release Date, no indemnity claims were made against said escrow.

Between November 1, 2018 and September 30, 2022, the Company, through the SPEs (as defined in Note 3) owned by the OP, purchased 20,220 additional homes and sold 196 homes within the VineBrook reportable segment (see Note 15), and through the OP’s consolidated investment in NexPoint Homes (as defined in Note 2) purchased 2,544 additional homes. Together with the Initial Portfolio, the Company, through the OP’s SPEs and its consolidation of NexPoint Homes, indirectly owned an interest in 26,697 homes (the “Portfolio”) in 20 states as of September 30, 2022. The acquisitions of the additional homes in the VineBrook reportable segment were funded by loans (see Note 7), proceeds from the sale of Shares and Preferred Shares (defined below) and excess cash generated from operations.

The Company is externally managed by NexPoint Real Estate Advisors V, L.P. (the “Adviser”), through an agreement dated November 1, 2018, subsequently amended and restated on May 4, 2020, renewed on November 1, 2021 and amended on October 25, 2022 (the “Advisory Agreement”). The Advisory Agreement will automatically renew on the anniversary of the renewal date for one-year terms hereafter, unless otherwise terminated. The Adviser provides asset management services to the Company. The OP caused the SPEs to retain VineBrook Homes LLC (the “Manager”), an affiliate of certain VineBrook Contributors, to renovate, lease, maintain, and operate the VineBrook properties under management agreements (as amended, the “Management Agreements”) that generally have an initial three-year term with one-year automatic renewals, unless otherwise terminated. The Management Agreements are supplemented by a side letter (as amended and restated, the “Side Letter”) by and among the Company, the OP, the OP GP, the Manager and certain of its affiliates. Certain SPEs from time to time may have property management agreements with independent third parties that are not the Manager. These are typically the result of maintaining legacy property managers after an acquisition to help transition the properties to the Manager or, in the case of a future sale, to manage the properties until they are sold. All of the Company’s investment decisions are made by employees of the Adviser and the Manager, subject to general oversight by the OP’s investment committee and the Company’s board of directors (the “Board”). Because the equity holders of the Manager own OP Units, the Manager is considered an affiliate for financial reporting disclosure purposes.

The Company’s investment objectives are to maximize the cash flow and value of properties owned, acquire properties with cash flow growth potential, provide quarterly cash distributions and achieve long-term capital appreciation for its stockholders through targeted management and a renovation program for the homes acquired.

On August 28, 2018, the Company commenced the offering of 40,000,000 Shares through a continuous private placement (the “Private Offering”), under regulation D of the Securities Act of 1933, as amended (the “Securities Act”) (and various state securities law provisions) for a maximum of $1.0 billion of its Shares. The Private Offering closed on September 14, 2022. The initial offering price for Shares sold through the Private Offering was $25.00 per Share. The Company conducted periodic closings and sold Shares at the prior net asset value (“NAV”) per share as determined using the valuation methodology recommended by the Adviser and approved by the pricing committee (the “Pricing Committee”) of the Board (the “Valuation Methodology”), plus applicable fees and commissions. The NAV per share is calculated on a fully diluted basis. NAV may differ from the values of our real estate assets as calculated in accordance with accounting principles generally accepted in the United States (“GAAP”).

NexPoint Securities, Inc. (the “Dealer Manager”), an entity under common ownership with the Adviser, served as the sole dealer manager for the Private Offering and Raymond James & Associates, Inc. (“Raymond James”) and other unaffiliated broker-dealers served as placement agents (the “Placement Agents”) through selling agreements (“Selling Agreements”) between each Placement Agent and the Company.

The Company has adopted a Long-Term Incentive Plan (the “2018 LTIP”) whereby the Board, or a committee thereof, may grant awards of restricted stock units of the Company (“RSUs”) or profits interest units in the OP (“PI Units”) to certain employees of the Adviser and the Manager, or others at the discretion of the Board (including the directors and officers of the Company or other service providers of the Company or the OP). Under the terms of the 2018 LTIP, 426,307 Shares were initially reserved, subject to automatic increase on January 1st of each year beginning with January 1, 2019 by a number equal to 10% of the total number of OP Units and vested PI Units outstanding on December 31st of the preceding year, provided that the Board may act prior to each such January 1st to determine that there will be no increase for such year or that the increase will be less than the number of shares by which the Share Reserve would otherwise increase (the “Share Reserve”). In addition, the Shares available under the 2018 LTIP may not exceed in the aggregate 10% of the number of OP Units and vested PI Units outstanding at the time of measurement (the “Share Maximum”). Grants may be made annually by the Board, or more or less frequently in the Board’s sole discretion. Vesting of grants made under the 2018 LTIP will occur over a period of time as determined by the Board and may include the achievement of performance metrics, also as determined by the Board in its sole discretion.

Table of Contents

2. Summary of Significant Accounting Policies

Basis of Accounting and Use of Estimates

The accompanying unaudited consolidated financial statements are presented in accordance with GAAP and the rules and regulations of the SEC. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. There have been no significant changes to the Company’s significant accounting policies during the nine months ended September 30, 2022.

The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. References to number of properties are unaudited.

In the opinion of management, all adjustments and eliminations necessary for the fair presentation of the Company’s financial position as of September 30, 2022 and December 31, 2021 and results of operations for the three and nine months ended September 30, 2022 and 2021 have been included. The unaudited information included in these interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2021 and 2020 included in our Annual Report. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or any other future period.

Principles of Consolidation

The Company accounts for subsidiary partnerships, limited liability companies, joint ventures and other similar entities in which it holds an ownership interest in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. If the Company determines the entity is not a VIE, it evaluates whether the entity should be consolidated under the voting model. The Company consolidates an entity when it controls the entity through ownership of a majority voting interest. As of September 30, 2022, the Company has determined it must consolidate the OP, its subsidiaries and the OP’s investment in NexPoint Homes Trust, Inc. (“NexPoint Homes”) (see Note 5) under the VIE model as it was determined the Company both controls the direct activities of the OP and its investments, including NexPoint Homes, and has the right to receive benefits that could potentially be significant to the OP, its subsidiaries and its investment in NexPoint Homes. The Company has control to direct the activities of the OP and its subsidiaries because the OP GP must generally receive approval of the Board to take any actions. The Company has control to direct the activities of NexPoint Homes because the OP owns approximately 96% of the outstanding equity of NexPoint Homes and the parties that beneficially own over 99% of the operating partnership of NexPoint Homes are related parties to the Company as of September 30, 2022. The consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP, its subsidiaries and NexPoint Homes. All significant intercompany accounts and transactions have been eliminated in consolidation. OP Units and equity interests in consolidated VIEs that are not owned by the Company are presented as noncontrolling interests in the consolidated financial statements, and income or loss generated is allocated between the Company and the noncontrolling interests based upon their relative ownership percentages. In these consolidated financial statements, redeemable noncontrolling interests in the OP are exclusive of any interests in NexPoint Homes and its SFR OP (as defined in Note 5). Noncontrolling interests in consolidated VIEs are representative of interests in NexPoint Homes and redeemable noncontrolling interests in consolidated VIEs are representative of interests in the SFR OP (as defined in Note 5).

Real Estate Investments

Upon acquisition, we evaluate our acquired SFR properties for purposes of determining whether a transaction should be accounted for as an asset acquisition or business combination. Since substantially all of the fair value of our acquired properties is concentrated in a single identifiable asset or group of similar identifiable assets and the acquisitions do not include a substantive process, our purchases of homes or portfolios of homes qualify as asset acquisitions. Accordingly, upon acquisition of a property, the purchase price and related acquisition costs (“Total Consideration”) are allocated to land, buildings, improvements, fixtures, and intangible lease assets based upon their relative fair values.

The allocation of Total Consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement (“ASC 820”) (see Note 8), is based on an independent third-party valuation firm’s estimate of the fair value of the tangible and intangible assets and liabilities acquired or management's internal analysis based on market knowledge obtained from historical transactions. The valuation methodology utilizes market comparable information, depreciated replacement cost and other estimates in allocating value to the tangible assets. The allocation of the Total Consideration to intangible lease assets represents the value associated with the in-place leases, as one month’s worth of effective gross income (rental revenue, less credit loss allowance, plus other income) as the average downtime of the assets in the portfolio is approximately one month and the assets in the portfolio are leased on a gross rental structure. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized or accreted as interest expense over the life of the debt assumed.

Real estate assets, including land, buildings, improvements, fixtures, and intangible lease assets are stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. Expenditures for improvements, renovations, and replacements are capitalized at cost. The Company also incurs indirect costs to prepare acquired properties for rental. These costs are capitalized to the cost of the property during the period the property is undergoing activities to prepare it for its intended use. We capitalize interest, real estate taxes, insurance, utilities and other indirect costs as costs of the property only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided that expenditures for the asset have been made and the costs have been incurred. Upon completion of the renovation of our properties, all costs of operations, including repairs and maintenance, are expensed as incurred, unless the renovation meets the Company’s capitalization criteria. Real estate-related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the following table:

Land	Not depreciated
Buildings		27.5 years
Improvements and other assets		3 - 15 years
Acquired improvements and fixtures		1 - 5 years
Intangible lease assets		6 months

Table of Contents

As of September 30, 2022, the gross balance and accumulated amortization related to the intangible lease assets was $2.6 million and $0.9 million, respectively. As of December 31, 2021, the gross balance and accumulated amortization related to the intangible lease assets was $1.0 million and $0.5 million, respectively. For the three months ended September 30, 2022 and 2021, the Company recognized approximately $1.7 million and $2.1 million, respectively, of amortization expense related to the intangible lease assets. For the nine months ended September 30, 2022 and 2021, the Company recognized approximately $4.7 million and $5.8 million, respectively, of amortization expense related to the intangible lease assets.

Real estate assets are reviewed for impairment quarterly or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Significant indicators of impairment may include, but are not limited to, declines in home values, rental rates or occupancy percentages, as well as significant changes in the economy. In such cases, the Company will evaluate the recoverability of the assets by comparing the estimated future cash flows expected to result from the use and eventual disposition of each asset to its carrying amount and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount. If impaired, the real estate asset will be written down to its estimated fair value. The process whereby we assess our SFR homes for impairment requires significant judgment and assessment of factors that are, at times, subject to significant uncertainty. No significant impairments on operating properties were recorded during the three and nine months ended September 30, 2022 and 2021.

Cash and restricted cash

The Company maintains cash at multiple financial institutions and, at times, these balances exceed federally insurable limits. As a result, there is a concentration of credit risk related to amounts on deposit. We believe any risks are mitigated through the size of the financial institutions at which our cash balances are held.

Restricted cash represents cash deposited in accounts related to security deposits, property taxes, insurance premiums and deductibles and other lender-required escrows. Amounts deposited in the reserve accounts associated with the loans can only be used as provided for in the respective loan agreements, and security deposits held pursuant to lease agreements are required to be segregated.

The following table provides a reconciliation of cash and restricted cash reported on the consolidated balance sheets that sum to the total of such amount shown in the consolidated statements of cash flows (in thousands):

	*September 30,*
	*2022*		*2021*		*December 31, 2021*
Cash	$	92,566	$	54,786	$	54,104
Restricted cash		30,681		18,492		20,893
Total cash and restricted cash	$	123,247	$	73,278	$	74,997

Revenue Recognition

The Company’s primary operations consist of rental income earned from its residents under lease agreements typically with terms of one year or less. As a result of the adoption of ASC 842, Leases, on January 1, 2019, the Company classifies the SFR property leases as operating leases and elects to not separate the lease component, comprised of rents from SFR properties, from the associated non-lease component, comprised of fees from SFR properties and tenant charge-backs. The combined component is accounted for under the new lease accounting standard while certain resident reimbursements are accounted for as variable payments under the revenue accounting guidance. Rental income is recognized when earned. This policy effectively results in income recognition on a straight-line basis over the related terms of the leases. Resident reimbursements and other income consist of charges billed to residents for utilities, resident-caused damages, pets, and administrative, application and other fees and are recognized when earned. Historically, the Company has used a direct write-off method for uncollectable rents; wherein uncollectible rents are netted against rental income. In response to the COVID-19 pandemic, the Company additionally has established a reserve for any accounts receivable that are not expected to be collectible, which are netted against rental income. For the three months ended September 30, 2022 and 2021, rental income includes $3.0 million and $2.1 million of variable lease payments, respectively. For the nine months ended September 30, 2022 and 2021, rental income includes $7.6 million and $4.5 million of variable lease payments, respectively.

Gains or losses on sales of properties are recognized pursuant to the provisions included in ASC 610-20, Other Income. We recognize a full gain or loss on sale, which is presented in loss on sales of real estate on the consolidated statements of operations and comprehensive income (loss), when the derecognition criteria under ASC 610-20 have been met.

In April 2020, the FASB issued a Staff Q&A on accounting for leases during the COVID-19 pandemic, focused on the application of lease guidance in ASC 842. The Q&A states that some lease contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. Therefore, entities would need to perform a lease-by-lease analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to lease concessions. The FASB determined it would be acceptable for entities to not perform a lease-by-lease analysis regarding rent concessions resulting from COVID-19, and to instead make a policy election regarding rent concessions, which would give entities the option to account or not to account for these rent concessions as lease modifications if the total payments required by the modified contract are substantially the same or less than the total payments required by the original contract. Entities making the election to account for these rent concessions as lease modifications would recognize the effects of rent abatements and rent deferrals on a prospective straight-line basis over the remainder of the modified contract. We have made the election to not perform a lease-by-lease analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to payment plans. By electing the FASB relief, we have also made an accounting policy election to not account for rent deferrals provided to lessees due to the COVID-19 pandemic as lease modifications. Lessees are required to pay the full outstanding balance of the rent deferred over the period of the payment plan.

Redeemable Securities

Included in the Company’s consolidated balance sheets are redeemable noncontrolling interests in the OP, redeemable noncontrolling interests in consolidated VIEs and 6.50% Series A Cumulative Redeemable Preferred Stock (the “Preferred Shares”). These interests are presented in the “mezzanine” section of the consolidated balance sheets because they do not meet the functional definition of a liability or equity under current accounting literature. The Company accounts for these under the provisions of ASC Topic 480-10-S99-3A, paragraph 15(b).

Table of Contents

In accordance with ASC Topic 480-10-S99, since the redeemable noncontrolling interests in the OP and redeemable noncontrolling interests in consolidated VIEs have a redemption feature, they are measured at their redemption value if such value exceeds the carrying value of interests. The redemption value is based on the NAV per unit at the measurement date. The offset to the adjustment to the carrying amount of the redeemable noncontrolling interests in the OP and redeemable noncontrolling interests in consolidated VIEs is reflected in the Company’s additional paid-in capital on the consolidated balance sheets. In accordance with ASC Topic 480-10-S99, the Preferred Shares are measured at their carrying value plus the accretion to their future redemption value on the balance sheet. The accretion is reflected in the Company’s dividends on and accretion to redemption value of Series A redeemable preferred stock on the consolidated statements of operations and comprehensive income (loss).

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of the Company’s common stock outstanding, which excludes any unvested RSUs and PI Units issued pursuant to the 2018 LTIP. Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the dilutive effects of the assumed vesting of RSUs and PI Units and the conversion of OP Units and vested PI Units to Shares. During periods of net loss, the assumed vesting of RSUs and PI Units and the conversion of OP Units and vested PI Units to Shares is anti-dilutive and is not included in the calculation of earnings (loss) per share. The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods presented (in thousands, except per share amounts):

	*For the Three Months Ended September 30,*						*For the Nine Months Ended September 30,*
	*2022*			*2021*			*2022*			*2021*
Numerator for loss per share:
Net loss	$	(14,621	)	$	(4,799	)	$	(28,972	)	$	(6,947	)
Less:
Dividends on and accretion to redemption value of Redeemable Series A preferred stock		2,226			2,206			6,654			6,619
Net loss attributable to redeemable noncontrolling interests in the OP		(1,782	)		(823	)		(3,976	)		(1,324	)
Net loss attributable to redeemable noncontrolling interests in consolidated VIEs		(3,112	)		—			(4,303	)		—
Net loss attributable to noncontrolling interests in consolidated VIEs		(113	)		—			(113	)		—
Net loss attributable to common stockholders	$	(11,840	)	$	(6,182	)	$	(27,234	)	$	(12,242	)

Denominator for earnings (loss) per share:
Weighted average common shares outstanding - basic		25,124			17,230			24,545			13,511
Weighted average unvested RSUs, PI Units, and OP Units (1)		—			—			—			—
Weighted average common shares outstanding - diluted		25,124			17,230			24,545			13,511

Earnings (loss) per weighted average common share:
Basic	$	(0.47	)	$	(0.36	)	$	(1.11	)	$	(0.91	)
Diluted	$	(0.47	)	$	(0.36	)	$	(1.11	)	$	(0.91	)

(1)

For the three months ended September 30, 2022 and 2021, excludes approximately 4,375,000 shares and 4,135,000 shares, respectively, related to the assumed vesting of RSUs and PI Units and the conversion of OP Units and vested PI Units to Shares, as the effect would have been anti-dilutive. For the nine months ended September 30, 2022 and 2021, excludes approximately 4,325,000 shares and 4,030,000 shares, respectively, related to the assumed vesting of RSUs and PI Units and the conversion of OP Units and vested PI Units to Shares, as the effect would have been anti-dilutive.

Segment Reporting

Under the provision of ASC 280, Segment Reporting, the Company has determined that it has two reportable segments, VineBrook and NexPoint Homes. Both reportable segments involve activities related to acquiring, renovating, developing, leasing and operating SFR homes as rental properties. The Company’s management allocates resources and evaluates operating performance across the two segments. The VineBrook reportable segment is the legacy reportable segment and represents the majority of the Company’s operations and generally purchases homes to implement a value-add strategy. The NexPoint Homes reportable segment was formed June 8, 2022 and represents a supplemental reportable segment that generally purchases newer homes that require less rehabilitation compared to the VineBrook reportable segment. Within the VineBrook reportable segment, the Company had a geographic market concentration in one market (Cincinnati) that represents more than 10% of the total gross book value of SFR homes as of September 30, 2022.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the nine months ended September 30, 2022, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company has elected practical expedients within FASB ASC 848 related to replacing the source of hedged transactions and continues evaluating the impact the adoption of this ASU will have on the Company's consolidated financial statements.

Table of Contents

3. Investments in Subsidiaries

In connection with its indirect investments in real estate assets acquired, the Company, through its ownership of the OP, indirectly holds a proportional ownership interest in the Portfolio, through the OP’s beneficial ownership of all of the issued and outstanding membership interests in the special purpose limited liability companies (“SPEs”) that directly or indirectly own the Portfolio. All of the properties in the Portfolio are consolidated in the Company’s consolidated financial statements. The assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the Company, except as discussed below. Under the terms of the notes payable, except as discussed below, the lender has a mortgage interest in each real estate asset in the SPE to which the loan is made.

As of September 30, 2022, the Company, through the OP and its SPE subsidiaries, owned the Portfolio, which consisted of 24,153 properties in the VineBrook reportable segment and 2,544 properties in the NexPoint Homes reportable segment, through 12 SPEs and their various subsidiaries and through the consolidated investment in NexPoint Homes. The following table presents the ownership structure of each SPE group that directly or indirectly owns the title to each real estate asset as of September 30, 2022, the number of assets held, the cost of those assets, the resulting debt allocated to each SPE and whether the debt is a mortgage loan. The mortgage loan may be settled from the assets of the below entity or entities to which the loan is made. Loans from the Warehouse Facility (as defined in Note 7) can only be settled from the assets owned by VB One, LLC (dollars in thousands):

VIE Name	*Homes*		*Cost Basis*		*OP Beneficial Ownership %*			*Encumbered by Mortgage (1)*	*Debt Allocated*
NREA VB I, LLC		66	$	6,048		100	%	Yes	$	5,048
NREA VB II, LLC		167		16,568		100	%	Yes		10,742
NREA VB III, LLC		1,322		121,675		100	%	Yes		71,115
NREA VB IV, LLC		385		37,438		100	%	Yes		24,283
NREA VB V, LLC		1,829		127,264		100	%	Yes		108,384
NREA VB VI, LLC		298		28,059		100	%	Yes		18,324
NREA VB VII, LLC		36		3,081		100	%	Yes		2,989
True FM2017-1, LLC		211		19,072		100	%	Yes		10,168
VB One, LLC		13,926		1,766,912		100	%	No		1,195,000
VB Two, LLC		1,853		170,377		100	%	No		124,462
VB Three, LLC		3,890		545,477		100	%	No		320,000
VB Five, LLC		170		18,348		100	%	Yes		8,824
NexPoint Homes		2,544		743,872		96	%	No		467,254
		26,697	$	3,604,191					$	2,366,593	(2)

(1)

Assets held, directly or indirectly, by VB One, LLC, VB Two, LLC and VB Three, LLC are not encumbered by a mortgage. Instead, the lender has an equity pledge in certain assets of the respective SPEs and an equity pledge in the equity of the respective SPEs.

(2)

In addition to the debt allocated to the SPEs noted above, as of September 30, 2022, NexPoint Homes had approximately $100.1 million of debt (excluding amounts owed to the OP from NexPoint Homes., as these are eliminated in consolidation) not collateralized directly by homes which reflects the amount outstanding on the SFR OP Convertible Notes (as defined in Note 13) as of September 30, 2022.

Table of Contents

4. Real Estate Assets

As of September 30, 2022, the Company, through the OP and its SPE subsidiaries, owned 26,697 homes, including 24,153 homes in the VineBrook reportable segment and 2,544 homes in the NexPoint Homes reportable segment. As of December 31, 2021, the Company only had one reportable segment, VineBrook, and through the OP and its SPE subsidiaries, owned 16,891 homes. The components of the Company’s real estate investments in homes were as follows (in thousands):

	*Land*		*Buildings and improvements (1)*				*Intangible lease assets*			*Real estate held for sale, net*			*Total*
Gross Real Estate, December 31, 2021	$	334,191	$	1,391,786			$	971		$	81		$	1,727,029
Additions		318,027		1,554,693		(2)		5,908			10,797			1,889,425
Write-offs		—		—				(4,273	)		—			(4,273	)
Dispositions		—		—				—			(7,990	)		(7,990	)
Gross Real Estate, September 30, 2022		652,218		2,946,479				2,606			2,888			3,604,191
Accumulated depreciation and amortization		—		(140,250	)			(859	)		—			(141,109	)
Net Real Estate, September 30, 2022	$	652,218	$	2,806,229			$	1,747		$	2,888		$	3,463,082

(1)

Includes capitalized interest, real estate taxes, insurance and other costs incurred during rehabilitation of the properties.

(2)

Includes capitalized interest of approximately $7.5 million and other capitalizable costs outlined in (1) above of approximately $6.5 million.

During the three months ended September 30, 2022 and 2021, the Company recognized depreciation expense of approximately $27.0 million and $12.8 million, respectively. During the nine months ended September 30, 2022 and 2021, the Company recognized depreciation expense of approximately $64.2 million and $29.7 million, respectively.

Acquisitions and dispositions

During the nine months ended September 30, 2022, the Company, through the OP, acquired 7,348 homes, including the homes in the portfolios discussed below, and disposed of 86 homes within the VineBrook reportable segment. On June 8, 2022, the Company, through its consolidated investment in NexPoint Homes, assumed 1,242 homes, and NexPoint Homes subsequently acquired 1,302 homes. As of September 30, 2022, NexPoint Homes owns 2,544 homes. See Note 5 for additional information about NexPoint Homes.

On February 8, 2022, the Company, through the OP, purchased 2,842 homes, located across eight states, with the largest concentration in the southeastern United States (the “Prager Portfolio”). The gross purchase price was approximately $352.7 million, in addition to approximately $31.4 million in debt extinguishment costs and $3.7 million in other closing costs. See the table below for more information about the Prager Portfolio as of the acquisition date:

Market	*State*	*# of Homes*
Memphis	TN, MS		743
Atlanta	GA		741
Saint Louis	MO		308
Pensacola	FL		300
Raeford	NC		250
Kansas City	MO		230
Portales	NM		150
Augusta	GA, SC		67
Jacksonville	FL		53
Total			2,842

On March 18, 2022, the Company, through the OP, purchased 170 homes located in Memphis, Tennessee for approximately $17.1 million (the “CrestCore Portfolio”).

On August 25, 2022, the Company, through the OP, purchased a portfolio of approximately 1,030 homes located across 10 states, with the largest concentration in the midwestern and southern United States (the “Global Atlantic Portfolio”) for approximately $217.0 million. See the table below for more information about the Global Atlantic Portfolio as of the acquisition date:

Market	State	# of Homes
Birmingham	AL		147
Columbia	SC		145
Kansas City	MO, KS		143
Jackson	MS		122
St. Louis	MO		87
Cincinnati	OH, KY		71
Montgomery	AL		68
Huntsville	AL		58
Indianapolis	IN		44
Triad	NC		41
Charleston	SC		33
Augusta	GA, SC		32
Columbus	OH		20
Dayton	OH		12
Greenville	SC		7
Total			1,030

Held for sale properties

The Company periodically classifies real estate assets as held for sale when certain criteria are met, in accordance with GAAP. Once the Company begins marketing an asset or determines that it will pursue marketing an asset, the asset becomes classified as held for sale. At that time, the Company presents the net real estate assets separately in its consolidated balance sheet, and the Company ceases recording depreciation and amortization expense related to that property. Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell. As of September 30, 2022, there are 35 properties that are classified as held for sale. These held for sale properties have a carrying amount of approximately $2.9 million.

Table of Contents

5. NexPoint Homes Investment

During the nine months ended September 30, 2022, the Company, through its taxable REIT subsidiary (“the TRS”), invested approximately $100.8 million in Ensign Peak Realty, LLC (“Ensign”), an owner and operator of SFR homes. This investment was redeemed in full on June 8, 2022 in connection with the formation of NexPoint Homes, described below.

Formation of NexPoint Homes - Contribution Agreements

On June 8, 2022, the Company, through the OP, entered into a contribution agreement (the “Contribution Agreement”) with NexPoint Homes, which is externally advised by an affiliate of our Adviser. In accordance with the Contribution Agreement, the OP contributed $50.0 million to NexPoint Homes in exchange for 2,000,000 shares of Class A common stock, par value $0.01 per share of NexPoint Homes (the “NexPoint Homes Class A Shares”). The NexPoint Homes Class A Shares were issued and valued at $25.00 per share.

Following the contribution by the OP to NexPoint Homes, NexPoint Homes entered into a contribution agreement (the “SFR OP Contribution Agreement”) with NexPoint SFR Operating Partnership, L.P. (the “SFR OP”), the operating partnership of NexPoint Homes, certain funds managed by affiliates of our Adviser and certain individuals (the “Principals”) affiliated with HomeSource Operations, LLC, the external manager of the SFR OP. In accordance with the SFR OP Contribution Agreement, NexPoint Homes contributed $50.0 million to the SFR OP in exchange for 2,000,000 limited partnership units of the Operating Partnership (“SFR OP Units”).

On June 8, 2022, the OP loaned $50.0 million to NexPoint Homes in exchange for $50.0 million of 7.50% convertible notes of NexPoint Homes (the “NexPoint Homes Convertible Notes”). The NexPoint Homes Convertible Notes bear interest at 7.50%, are interest only during the term of the NexPoint Homes Convertible Note and mature on June 30, 2027. From August 1, 2022 through March 31, 2027, the NexPoint Homes Convertible Notes are convertible into NexPoint Homes Class A Shares at the election of the OP at the then-current net asset value of NexPoint Homes, subject to certain limitations.

On June 8, 2022, in connection with the formation of NexPoint Homes, the Company consolidated a note with Metropolitan Life Insurance Company (the “NexPoint Homes MetLife Note 1”). The NexPoint Homes MetLife Note 1 is guaranteed by the OP and bears interest at a fixed rate of 3.72% on the tranche collateralized by stabilized properties and 4.47% on the tranche collateralized by non-stabilized properties. The NexPoint Homes MetLife Note 1 is interest-only and matures and is due in full on March 3, 2027. As of September 30, 2022, the NexPoint Homes MetLife Note 1 had an outstanding principal balance of $233.6 million which is included, net of unamortized deferred financing costs, in notes payable on the consolidated balance sheets.

See Note 7 for more information on the Company’s consolidated debt related to its investment in NexPoint Homes.

Consolidation of NexPoint Homes

Under ASC 810, Consolidation, the Company has determined that NexPoint Homes represents a variable interest entity. Under the VIE model, the Company concluded that the Company both controls and directs the activities of NexPoint Homes and has the right to receive benefits that could potentially be significant to its investment in NexPoint Homes. The Company has control to direct the activities of NexPoint Homes as the OP owns approximately 96% of the outstanding equity of NexPoint Homes as of September 30, 2022 and the parties that beneficially own over 99% of the SFR OP are related parties to the Company. As such, the Company determined it is appropriate to consolidate NexPoint Homes. All significant intercompany accounts and transactions have been eliminated in consolidation. As NexPoint Homes continues to raise additional capital, the Company will continue to evaluate whether the entity is a VIE and if the Company is the primary beneficiary of the VIE and should consolidate the entity.

Table of Contents

6. Investments, at Fair Value

On November 22, 2021, the Company, through the TRS, invested $2.5 million in Vesta Ventures Fund I, LP (the “Vesta Fund”). The Vesta Fund is a closed-end fund with an initial seven-year term beginning on February 24, 2021, subject to certain extension provisions, that invests in early and growth stage technology companies that provide solutions to the SFR real estate sector. Vesta Ventures GP, LLC (the “Vesta GP”) is the general partner and managing member of the Vesta Fund and accordingly has the exclusive right to manage and control the Vesta Fund. The TRS is a limited partner in the Vesta Fund with a minority interest and accordingly has no control or influence over the Vesta Fund.

Investments in privately held entities that report NAV, such as our privately held equity investments, are presented at fair value using NAV as a practical expedient, with changes in fair value recognized in net income. We use NAV reported by limited partnerships generally without adjustment, unless we are aware of information indicating that the NAV reported by a limited partnership does not accurately reflect the fair value of the investment at our reporting date. We disclose the timing of liquidation of an investee’s assets and the date when redemption restrictions will lapse (or indicate if this timing is unknown) if the investee has communicated this information to us or has announced it publicly. We recognize both realized and unrealized gains and losses in our consolidated statements of operations. Unrealized gains and losses represent changes in NAV as a practical expedient to estimate fair value for investments in privately held entities that report NAV. Realized gains and losses on our investments represent the difference between proceeds received upon disposition of investments and their historical or adjusted cost. At September 30, 2022, the Company had no material unrealized or realized gains or losses related to the investment.

7. Debt

On September 20, 2019, the OP (as guarantor) and VB One, LLC (as borrower) entered into a credit facility (the “Warehouse Facility”) with KeyBank. The Warehouse Facility is secured by an equity pledge in certain assets of VB One, LLC and an equity pledge in the equity of VB One, LLC. On November 3, 2021, the Company (as guarantor), the OP (as parent borrower), and each of (i) VB OP Holdings, LLC and (ii) VB One, LLC and certain of its subsidiaries (as subsidiary borrowers), entered into an amended and restated credit agreement to recast the Warehouse Facility, which was subsequently amended on December 9, 2021, April 8, 2022 and May 20, 2022. The amended recast Warehouse Facility is a full-term, interest-only facility with an initial 36-month term ending November 3, 2024, has one 12-month extension option, and bears interest at a variable rate equal to the forward-looking term rate based on the Secured Overnight Financing Rate (“SOFR”) for the applicable interest period (“one-month term SOFR”), or daily SOFR for the applicable interest period, plus a margin of 0.1% plus an applicable rate ranging from 1.6% to 2.45% depending on the Company’s consolidated total leverage ratio. Under the amended recast Warehouse Facility, the OP has the right to increase the total commitments available for borrowing, which may take the form of an increase in revolving commitments or one or more tranches of term loan commitments, up to $1.2 billion.

On September 13, 2022, the Company received increased commitments of $200.0 million on the Warehouse Facility, incurring $3.3 million of deferred financing costs, and then drew $200.0 million on the Warehouse Facility. As of September 30, 2022, approximately $1.2 billion was drawn on the Warehouse Facility. The balance of the Warehouse Facility, net of unamortized deferred financing costs, is included in credit facilities on the consolidated balance sheets.

Table of Contents

On December 28, 2020, in connection with the acquisition of a 45-home portfolio, the OP provided a non-recourse carveout guaranty related to an approximately $2.4 million mortgage loan assumed by a subsidiary of the OP (the “CoreVest Note”) with CoreVest American Finance Lender LLC as a result of the OP’s acquisition of SMP Homes 5B, LLC. The CoreVest Note is secured by the properties in SMP Homes 5B, LLC and an equity pledge in SMP Homes 5B, LLC and bears interest at a fixed rate equal to 6.12%. The CoreVest Note matures and is due in full on January 9, 2023 and requires monthly principal and interest payments. On July 11, 2022, the OP repaid the full balance of the CoreVest Note, which extinguished the CoreVest Note.

On March 1, 2021, the Company entered into a non-recourse carveout guaranty and certain wholly owned subsidiaries of VB Three, LLC (as borrowers) entered into a $500.0 million credit agreement with JP Morgan (the “JPM Facility”). The JPM Facility is secured by equity pledges in VB Three, LLC and its wholly owned subsidiaries and bears interest at a variable rate equal to one-month LIBOR plus 2.75%. The JPM Facility is interest-only and matures and is due in full on March 1, 2023. On March 10, 2022, the Company entered into Amendment No. 1 to the JPM Facility, wherein each advance under the JPM Facility will bear interest at a daily SOFR plus 2.85%. As of September 30, 2022, the JPM Facility has $180.0 million of available capacity. The balance of the JPM Facility, net of unamortized deferred financing costs, is included in credit facilities on the consolidated balance sheets. The JPM Facility currently matures on March 1, 2023. Management is in the process of extending or refinancing the facility with the existing lender. If the Company is not able to complete an extension or refinancing with the existing lender, management believes it has sufficient access to other potential sources of capital, including through raising equity, securing new debt or selling a portion of the portfolio to repay the debt upon maturity.

On January 13, 2022, in connection with the acquisition of a 98-home portfolio, the OP (as guarantor) assumed an approximately $4.6 million Freddie Mac mortgage loan (the “Hatchway Broadmoor Mortgage”) with Arbor Agency Lending, LLC as a result of the OP’s acquisition of Hatchway Broadmoor, LLC. The Hatchway Broadmoor Mortgage is secured by properties in Hatchway Broadmoor, LLC and an equity pledge in Hatchway Broadmoor, LLC and bears interest at a fixed rate equal to 5.35%. The Hatchway Broadmoor Mortgage matures and is due in full on February 1, 2029 and requires monthly principal and interest payments. On August 19, 2022, the OP incurred a prepayment penalty of approximately $0.6 million and repaid the full balance of the Hatchway Broadmoor Mortgage which extinguished the Hatchway Broadmoor Mortgage.

On February 8, 2022, in connection with the acquisition of the Prager Portfolio, the Company entered into a bridge credit agreement through the OP with KeyBank National Association, and borrowed $150.0 million (the “Bridge Facility”). On April 8, 2022, the Company repaid the outstanding principal balance on the Bridge Facility, which extinguished the Bridge Facility. In connection with the extinguishment of the Bridge Facility, the Company incurred a loss on extinguishment of debt of approximately $1.0 million, which is presented on the consolidated statements of operations and comprehensive income (loss).

On March 18, 2022, in connection with the acquisition of an 88-home portfolio, the OP provided a non-recourse carveout guaranty related to an approximately $4.7 million mortgage loan assumed by a subsidiary of the OP (the “Crestcore II Note”) with CoreVest American Finance Lender LLC as a result of the OP’s acquisition of Crestcore II, LLC. The Crestcore II Note is secured by the properties in Crestcore II, LLC and an equity pledge in Crestcore II, LLC and bears interest at a fixed rate equal to 5.12%. The Crestcore II Note matures and is due in full on July 9, 2029 and requires monthly principal and interest payments. The balance of the Crestcore II Note, net of unamortized deferred financing costs, is included in notes payable on the consolidated balance sheets.

On March 18, 2022, in connection with the acquisition of an 82-home portfolio, the OP provided a non-recourse carveout guaranty related to an approximately $4.2 million mortgage loan assumed by a subsidiary of the OP (the “Crestcore IV Note”) with CoreVest American Finance Lender LLC as a result of the OP’s acquisition of Crestcore IV, LLC. The Crestcore IV Note is secured by the properties in Crestcore IV, LLC and an equity pledge in Crestcore IV, LLC and bears interest at a fixed rate equal to 5.12%. The Crestcore IV Note matures and is due in full on July 9, 2029 and requires monthly principal and interest payments. The balance of the Crestcore IV Note, net of unamortized deferred financing costs, is included in notes payable on the consolidated balance sheets.

On August 25, 2022, in connection with the acquisition of the Global Atlantic Portfolio, the Company entered into a bridge credit agreement through the OP with KeyBank National Association, and borrowed $165.0 million (the “Bridge Facility II”). The Bridge Facility II accrued interest at one-month term SOFR plus a margin of 2.6%. On September 2, 2022, the Company drew an additional $35.0 million on the Bridge Facility II. On September 13, 2022, the Company repaid the outstanding principal balance on the Bridge Facility II, which extinguished the Bridge Facility II. In connection with the extinguishment of the Bridge Facility II, the Company incurred a loss on extinguishment of debt of approximately $1.8 million, which is presented on the consolidated statements of operations and comprehensive income (loss).

In addition to the debt agreements discussed above for the VineBrook reportable segment, as of September 30, 2022, the NexPoint Homes reportable segment had $567.4 million of debt outstanding included in notes payable on the consolidated balance sheets, which is comprised of the NexPoint Homes MetLife Note 1, the NexPoint Homes Metlife Note 2 (as defined below), NexPoint Homes KeyBank Facility and the SFR OP Convertible Notes (as defined in Note 13). See the summary table below for further information on the debt of the NexPoint Homes Reportable Segment.

On August 12, 2022, a subsidiary of SFR OP as borrower closed a $200 million delayed draw facility with Metropolitan Life Insurance Company, as lender (the “NexPoint Homes MetLife Note 2”). The NexPoint Homes MetLife Note 2 matures on August 12, 2027 and bears interest at a fixed rate of 5.44%. As of September 30, 2022, approximately $171.2 million has been drawn on the NexPoint Homes MetLife Note 2.

On August 12, 2022, a subsidiary of SFR OP as borrower closed a $75 million revolver facility with KeyBank, as lender (the “NexPoint Homes KeyBank Facility”). The NexPoint Homes KeyBank Facility on August 12, 2025 and bears interest at a floating rate of 185 to 260 basis points depending on the borrower’s leverage ratio over the SOFR. As of September 30, 2022, approximately $62.5 million has been drawn on the NexPoint Homes KeyBank Facility.

As of September 30, 2022, the Company is in compliance with all debt covenants in all of its debt agreements.

The weighted average interest rate of the Company’s debt was 4.9333% as of September 30, 2022 and 2.3707% as of December 31, 2021. As of September 30, 2022 and December 31, 2021, the adjusted weighted average interest rate of the Company’s debt, including the effect of derivative financial instruments, was 4.3747% and 2.9171%, respectively. For purposes of calculating the adjusted weighted average interest rate of the Company’s debt as of September 30, 2022, including the effect of derivative financial instruments, the Company has included the weighted average fixed rate of 1.9508% on its combined $1.3 billion notional amount of interest rate swap and cap agreements, representing a weighted average fixed rate for one-month LIBOR, daily SOFR and one-month term SOFR, which effectively fixes the interest rate on $1.3 billion of the Company’s floating rate indebtedness (see Note 8).

For full descriptions of the debt arrangements not included in this Form 10-Q, please see Note 6 to the consolidated financial statements in our Annual Report.

Table of Contents

The following table contains summary information concerning the Company’s debt as of September 30, 2022 and December 31, 2021 (dollars in thousands):

		*Outstanding Principal as of*
	*Type*	*September 30, 2022*			*December 31, 2021*			*Interest Rate (1)*			*Maturity*
Initial Mortgage	Floating	$	240,885		$	241,269			4.69	%	12/1/2025
Warehouse Facility	Floating		1,195,000			160,000			4.84	%	11/3/2024	(2)
JPM Facility	Floating		320,000			240,000			5.83	%	3/1/2023
MetLife Note	Fixed		124,462			124,689			3.25	%	1/31/2026
TrueLane Mortgage	Fixed		10,168			10,387			5.35	%	2/1/2028
CoreVest Note	Fixed		—			2,338			6.12	%	1/9/2023
Crestcore II Note	Fixed		4,671			—			5.12	%	7/9/2029
Crestcore IV Note	Fixed		4,153			—			5.12	%	7/9/2029
NexPoint Homes MetLife Note 1	Fixed		233,545			—			3.76	%	3/3/2027
NexPoint Homes MetLife Note 2	Fixed		171,209			—			5.44	%	8/12/2027
NexPoint Homes KeyBank Facility	Floating		62,500			—			5.24	%	8/12/2025
SFR OP Convertible Notes (3)	Fixed		100,100			—			7.50	%	6/30/2027
		$	2,466,693		$	778,683
Debt premium, net (4)			396			416
Deferred financing costs, net of accumulated amortization of $12,651 and $5,325, respectively			(15,714	)		(10,554	)
		$	2,451,375		$	768,545

(1)

Represents the interest rate as of September 30, 2022. Except for fixed rate debt, the interest rate is one-month LIBOR, daily SOFR or one-month term SOFR, plus an applicable margin. One-month LIBOR as of September 30, 2022 was 3.1427%, daily SOFR as of September 30, 2022 was 2.9800% and one-month term SOFR as of September 30, 2022 was 3.0421%.

(2)

This is the stated maturity for the Warehouse Facility, but it is subject to a 12-month extension option.

(3)

The SFR OP Convertible Notes exclude the amounts owed to NexPoint Homes by the SFR OP, as these are eliminated in consolidation.

(4)

The Company reflected valuation adjustments on its assumed fixed rate debt to adjust it to fair market value on the dates of acquisition for the difference between the fair value and the assumed principal amount of debt. The difference is amortized into interest expense over the remaining terms of the debt.

Schedule of Debt Maturities

The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to September 30, 2022 are as follows (in thousands):

	*Total*
2022	$	586
2023		323,541
2024		3,699
2025		1,491,700	(1)
2026		124,867
Thereafter		522,300
Total	$	2,466,693

(1)

Assumes the Company exercises the 12-month extension option on the Warehouse Facility.

Deferred Financing Costs

The Company defers costs incurred in obtaining financing and amortizes the costs over the term of the related debt using the straight-line method, which approximates the effective interest method. Deferred financing costs, net of amortization, are recorded as a reduction from the related debt on the Company’s consolidated balance sheets. Upon repayment of, or in conjunction with, a material change in the terms of the underlying debt agreement, any unamortized costs are charged to loss on extinguishment of debt. For the three months ended September 30, 2022 and 2021, amortization of deferred financing costs of approximately $2.3 million and $1.1 million, respectively, are included in interest expense on the consolidated statements of operations and comprehensive income (loss). For the nine months ended September 30, 2022 and 2021, amortization of deferred financing costs of approximately $5.6 million and $2.7 million, respectively, are included in interest expense on the consolidated statements of operations and comprehensive income (loss).

Loss on Extinguishment of Debt

Loss on extinguishment of debt includes prepayment penalties and defeasance costs incurred on the early repayment of debt and other costs incurred in a debt extinguishment. Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to loss on extinguishment of debt. For the nine months ended September 30, 2022 and 2021, the Company wrote-off deferred financing costs of approximately $3.5 million and $0.0 million, respectively, which is included in loss on extinguishment of debt on the consolidated statements of operations and comprehensive income (loss).

Table of Contents

8. Fair Value of Derivatives and Financial Instruments

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy):

●

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

●

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals.

●

Level 3 inputs are the unobservable inputs for the asset or liability, which are typically based on an entity’s own assumption, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on input from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Table of Contents

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company utilizes independent third parties to perform the allocation of value analysis for each property acquisition and to perform the market valuations on its derivative financial instruments and has established policies, as described above, processes and procedures intended to ensure that the valuation methodologies for investments and derivative financial instruments are fair and consistent as of the measurement date.

Derivative Financial Instruments and Hedging Activities

The Company manages interest rate risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company has entered into an interest rate cap and interest rate swaps to manage exposures that arise from changes in interest rates. The Company’s derivative financial instruments are used to manage the Company’s risk of increased cash outflows from the floating rate loans that may result from rising interest rates, in particular the reference rate for the loans, which include one-month LIBOR, daily SOFR and one-month term SOFR. In order to minimize counterparty credit risk, the Company has entered into and expects to enter in the future into hedging arrangements and intends to only transact with major financial institutions that have high credit ratings.

The Company utilizes an independent third party to perform the market valuations on its derivative financial instruments. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair value of the interest rate cap is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the cap. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of September 30, 2022 and December 31, 2021 were classified as Level 2 of the fair value hierarchy.

The changes in the fair value of derivative financial instruments that are designated as cash flow hedges are recorded in other comprehensive income (loss) and are subsequently reclassified into net income (loss) in the period that the hedged forecasted transaction affects earnings. Amounts reported in other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s floating rate debt. Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements but either do not meet the strict requirements to apply hedge accounting in accordance with FASB ASC 815, Derivatives and Hedging, or the Company has elected not to designate such derivatives as hedges. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in net income (loss) as interest expense.

In order to fix a portion of, and mitigate the risk associated with, the Company’s floating rate indebtedness, the Company, through the OP, has entered into 12 interest rate swap transactions with KeyBank and Mizuho Capital Markets LLC (“Mizuho”) with a combined notional amount of $970.0 million. The interest rate swaps the Company has entered into effectively replace the floating interest rate (one-month LIBOR or daily SOFR) with respect to those amounts with a weighted average fixed rate of 2.0902%. The Company has designated these interest rate swaps as cash flow hedges of interest rate risk.

As of September 30, 2022, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk (dollars in thousands):

Effective Date	Expiration Date	Counterparty	Index (1)	Notional		Fixed Rate
7/1/2019	7/1/2024	KeyBank	One-Month LIBOR	$	100,000		1.6290	%
9/1/2019	12/21/2025	KeyBank	One-Month LIBOR		100,000		1.4180	%
9/1/2019	12/21/2025	KeyBank	One-Month LIBOR		50,000		1.4190	%
2/3/2020	2/1/2025	KeyBank	One-Month LIBOR		50,000		1.2790	%
3/2/2020	3/3/2025	KeyBank	One-Month LIBOR		20,000		0.9140	%
				$	320,000		1.4309	%	(2)

Effective Date	*Expiration Date*	*Counterparty*	*Index (1)*	*Notional*		*Fixed Rate*
3/31/2022	11/1/2025	KeyBank	Daily SOFR	$	100,000		1.5110	%
3/31/2022	11/1/2025	KeyBank	Daily SOFR		100,000		1.9190	%
3/31/2022	11/1/2025	KeyBank	Daily SOFR		50,000		2.4410	%
6/1/2022	11/1/2025	Mizuho	Daily SOFR		100,000		2.6284	%
6/1/2022	11/1/2025	Mizuho	Daily SOFR		100,000		2.9413	%
6/1/2022	11/1/2025	Mizuho	Daily SOFR		100,000		2.7900	%
7/1/2022	11/1/2025	Mizuho	Daily SOFR		100,000		2.6860	%
				$	650,000		2.4148	%	(2)

(1)

As of September 30, 2022, one-month LIBOR was 3.1427% and daily SOFR was 2.9800%.

(2)

Represents the weighted average fixed rate of the interest rate swaps for one-month LIBOR interest rate swaps and daily SOFR interest rate swaps, respectively, which have a combined weighted average fixed rate of 2.0902%.

Table of Contents

For the three months ended September 30, 2022 and 2021, on the consolidated statements of operations and comprehensive income (loss), the Company recognized approximately $29.4 million and $1.1 million of unrealized gain, respectively, related to the change in fair value of the interest rate hedges. For the nine months ended September 30, 2022 and 2021, on the consolidated statements of operations and comprehensive income (loss), the Company recognized approximately $54.9 million and $7.4 million of unrealized gain, respectively, related to the change in fair value of the interest rate hedges.

Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. On April 13, 2022, the Company, through the OP, paid a premium of approximately $12.7 million and entered into an interest rate cap transaction with Goldman Sachs Bank USA (“Goldman”) with a notional amount of $300.0 million. The interest rate cap effectively caps one-month term SOFR at 1.50% on $300.0 million of floating rate debt. The interest rate cap expires on November 1, 2025.

As of September 30, 2022, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):

Derivative		*Notional*			*Hedged Floating Rate Debt*		*Index*		*Index as of September 30, 2022*				*Strike Rate*
Interest Rate Cap		$	300,000		Warehouse Facility		One-Month Term SOFR			3.0421	%			1.50	%

For the three and nine months ended September 30, 2022, on the consolidated statements of operations and comprehensive income (loss), the Company recognized an $8.2 million and $10.3 million reduction in interest expense, respectively, related to the change in fair value of the interest rate cap.

The table below presents the fair value of the Company’s derivative financial instruments, which are presented on the consolidated balance sheets as of September 30, 2022 and December 31, 2021 (in thousands):

		*Asset Derivatives*				*Liability Derivatives*
	*Balance Sheet Location*	*September 30, 2022*		*December 31, 2021*		*September 30, 2022*		*December 31, 2021*
Derivatives designated as hedging instruments:
Interest rate swaps	Interest rate derivatives, at fair value	$	51,277	$	—	$	—	$	3,590

Derivatives not designated as hedging instruments:
Interest rate caps	Interest rate derivatives, at fair value		22,454		—		—		—
Total		$	73,731	$	—	$	—	$	3,590

Financial assets and liabilities for which the carrying values approximate their fair values include cash, restricted cash, accounts receivable, accounts payable, and security deposits. Generally, these assets and liabilities are short‑term in duration and are recorded at fair value on the consolidated balance sheets. The Company believes the carrying value of each outstanding loan approximates fair value based on the nature, term and interest rate of each loan.

Table of Contents

9. Stockholders’ Equity

The Company issued Shares under the Private Offering and issues shares under the Company’s distribution reinvestment program (the “DRIP”). Shares issued under the DRIP are issued at a 3% discount to the then-current NAV per share. During the nine months ended September 30, 2022, the Company issued approximately 4,065,000 Shares under the Private Offering and DRIP for proceeds of approximately $220.1 million.

Long-Term Incentive Plan

The Company adopted the 2018 LTIP whereby the Board, or a committee thereof, may grant RSUs or PI Units to certain employees of the Adviser and the Manager, or others at the discretion of the Board (including the directors and officers of the Company or other service providers of the Company or the OP). The 2018 LTIP provides for the Share Reserve and the Share Maximum for issuance of RSUs or PI Units. Grants may be made annually by the Board or more or less frequently in the Board’s sole discretion. Vesting of grants made under the 2018 LTIP will occur ratably over a period of time as determined by the Board and may include the achievement of performance metrics also as determined by the Board in its sole discretion.

RSU Grants Under the 2018 LTIP

On December 10, 2019, a total of 73,700 RSUs were granted to certain employees of the Adviser and officers of the Company. On May 11, 2020, a total of 179,858 RSUs were granted to certain employees of the Adviser, officers of the Company and independent Board members. On February 15, 2021, a total of 191,506 RSUs were granted to certain employees of the Adviser, officers of the Company and independent Board members. On February 17, 2022, a total of 185,111 RSUs were granted to certain employees of the Adviser, officers of the Company and independent Board members. The RSUs granted to certain employees of the Adviser and officers of the Company on December 10, 2019 and May 11, 2020 vest over a four-year period. The RSUs granted to certain employees of the Adviser and officers of the Company on February 17, 2022, February 15, 2021 and May 11, 2020 vest 50% ratably over four years and 50% at the successful completion of an initial public offering. The RSUs granted to independent Board members fully vest on the first anniversary of the grant date. Any unvested RSU is forfeited, except in limited circumstances, as determined by the compensation committee of the Board, when the recipient is no longer employed by the Adviser. RSUs are valued at fair value (which is the NAV per share in effect) on the date of grant, with compensation expense recorded in accordance with the applicable vesting schedule that approximates a straight-line basis. Beginning on the date of grant, RSUs accrue dividends that are payable in cash on the vesting date. Once vested, the RSUs convert on a one-for-one basis into Shares.

As of September 30, 2022, the number of RSUs granted that are outstanding was as follows (dollars in thousands):

Dates	*Number of RSUs*				*Value (1)*
Outstanding December 31, 2021		377,704			$	12,405
Granted		185,111				10,022
Vested		(54,028	)	(2)		(1,854	)
Forfeited		(2,036	)			(80	)
Outstanding September 30, 2022		506,751			$	20,493

(1)

Value is based on the number of RSUs granted multiplied by the most recent NAV per share on the date of grant, which was $54.14 for the February 17, 2022 grant, $36.56 for the February 15, 2021 grant, $30.82 for the May 11, 2020 grant, and $29.85 for the December 10, 2019 grant.

(2)

Certain grantees elected to net the taxes owed upon vesting against the Shares issued resulting in 49,659 Shares being issued as shown on the consolidated statements of stockholders' equity.

The vesting schedule for the outstanding RSUs is as follows:

Vest Date	*RSUs Vesting*
December 10, 2022		18,425
February 15, 2023		22,591
February 17, 2023		30,331
May 11, 2023		21,217
December 10, 2023		18,426
February 15, 2024		22,591
February 17, 2024		22,019
May 11, 2024		21,217
February 14, 2025		22,591
February 17, 2025		22,019
February 17, 2026		22,019
Upon successful completion of IPO		263,305
		506,751

For the three months ended September 30, 2022 and 2021, the Company recognized approximately $0.9 million and $0.6 million, respectively, of non-cash compensation expense related to the RSUs, which is included in corporate general and administrative expenses on the consolidated statements of operations and comprehensive income (loss). For the nine months ended September 30, 2022 and 2021, the Company recognized approximately $2.6 million and $1.7 million, respectively, of non-cash compensation expense related to the RSUs, which is included in corporate general and administrative expenses on the consolidated statements of operations and comprehensive income (loss).

Table of Contents

10. Noncontrolling Interests

Redeemable Noncontrolling Interests in the OP

Other than PI Units and 6.50% Series A Cumulative Redeemable Preferred Units of the OP (“OP Preferred Units”), partnership interests in the OP are represented by OP Units. Net income (loss) is allocated pro rata to holders of OP Units and PI Units based upon net income (loss) attributable to the OP and the respective members’ OP Units and PI Units held during the period. Capital contributions, distributions, and profits and losses are allocated to PI Units and OP Units not held by the Company (the “noncontrolling interests”).

The following table presents the redeemable noncontrolling interests in the OP (in thousands):

	*Balances*
Redeemable noncontrolling interests in the OP, December 31, 2021	$	196,362
Net loss attributable to redeemable noncontrolling interests in the OP		(3,976	)
Contributions by redeemable noncontrolling interests in the OP		10,276
Distributions to redeemable noncontrolling interests in the OP		(7,261	)
Redemptions by redeemable noncontrolling interests in the OP		(350	)
Equity-based compensation		2,109
Other comprehensive income attributable to redeemable noncontrolling interests in the OP		8,349
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP		34,032
Redeemable noncontrolling interests in the OP, September 30, 2022	$	239,541

As of September 30, 2022, the Company held 21,542,876 Class A OP Units, NREO held 2,691,330 Class B OP Units, NRESF held 89,037 Class C OP Units, GAF REIT held 140,509 Class C OP Units and the VineBrook Contributors and other Company insiders held 883,170 Class C OP Units.

On September 7, 2021, the general partner of the OP executed the OP LPA for the purposes of creating a board of directors of the OP (the “Partnership Board”) and subdividing and reclassifying the outstanding common partnership units of the OP into Class A, Class B and Class C OP Units. The OP LPA generally provides that the newly created Class A OP Units and Class B OP Units each have 50.0% of the voting power of the OP Units, including with respect to the election of directors to and removal of directors from the Partnership Board, and that the Class C OP Units have no voting power. The reclassification of the OP Units did not have a material effect on the economic interests of the holders of OP Units. In connection with the OP LPA, the OP Units held by the Company were reclassified into Class A OP Units, the OP Units held by NREO were reclassified into Class B OP Units and the remaining OP Units were reclassified into Class C OP Units. In addition, the OP LPA provides that holders of PI Units will receive Class C OP Units upon conversion of vested PI Units into OP Units.

The Partnership Board of the OP has exclusive authority to select, remove and replace the general partner of the OP and no other authority. The Partnership Board may replace the general partner of the OP at any time. Pursuant to the terms of the OP LPA, the Company appointed Brian Mitts as the sole initial director of the Partnership Board. The number of directors on the Partnership Board is initially one but may be increased by following the affirmative vote or consent of the majority of the voting power of the OP Units (the “Requisite Approval”). The election of directors to and removal of directors from the Partnership Board also requires the Requisite Approval.

Upon execution of the OP LPA, the Company reconsidered whether it was still the primary beneficiary of the OP. Upon reconsideration, the Company determined that it is the member of the related party group most closely associated with the OP and has the power to direct the activities that are most significant to the OP as any actions taken by the OP GP are subject to the authority and approval of the Company’s Board. Accordingly, the Company determined that it should continue to consolidate the OP.

PI Unit Grants Under the 2018 LTIP

In connection with the 2018 LTIP, PI Units have been issued to key personnel, senior management and executives of the Manager. On April 19, 2019, a total of 40,000 PI Units were granted; on November 21, 2019, a total of 80,399 PI Units were granted; on May 11, 2020, a total of 219,826 PI Units were granted; on November 30, 2020, a total of 11,764 PI Units were granted; on May 31, 2021, a total of 246,169 PI Units were granted; and on August 10, 2022, a total of 27,849 PI Units were granted. The PI Units are a special class of partnership interests in the OP with certain restrictions, which are convertible into Class C OP Units, subject to satisfying vesting and other conditions. PI Unit holders are entitled to receive the same distributions as holders of our OP Units (only if we declare and pay such distributions). The PI Units granted in 2019 generally fully vest over a period of two to four years. The PI Units granted on May 11, 2020 and May 31, 2021 vest 50% ratably over four years and 50% at the successful completion of an initial public offering and the PI Units granted on November 30, 2020 vest 100% ratably over four years or alternatively 100% on the successful completion of an initial public offering. The PIU Units granted on August 10, 2022 generally vest ratably over five years. Once vested and converted into Class C OP Units in accordance with the OP LPA, the PI Units will then be fully recognized as Class C OP Units, which are subject to a one year lock up period before they can be converted to Shares. Any unvested PI Unit granted to an employee of the Manager is forfeited, except in limited circumstances, as determined by the compensation committee of the Board, when the recipient is no longer employed by the Manager. PI Units are valued at fair value on the date of grant, with compensation expense recorded in accordance with the applicable vesting schedule over the periods in which the restrictions lapse, that approximates a straight-line basis. We valued the PI Units at a per-unit value equivalent to the per-share offering price of our OP Units less a discount for lack of marketability and other discounts estimated by a third-party consultant. Beginning on the date of grant, PI Units accrue dividends that are payable in cash quarterly (if we declare and pay distributions to holders of our OP Units).

Table of Contents

As of September 30, 2022, the number of PI Units granted that are outstanding and unvested was as follows (dollars in thousands):

Dates	Number of PI Units			Value (1)
Outstanding December 31, 2021	498,590		$	16,965
Granted	27,849			1,719
Vested	(57,309	)		(1,964	)
Forfeited	(11,933	)		(434	)
Outstanding September 30, 2022	457,197		$	16,286

(1)

Value is based on the number of PI Units granted multiplied by the estimated per unit fair value on the date of grant, which was $27.88 for the April 19, 2019 grant, $29.12 for the November 21, 2019 grant, $30.16 for the May 11, 2020 grant, $33.45 for the November 30, 2020 grant, $38.29 for the May 31, 2021 grant and $61.74 for the August 10, 2022 grant.

The vesting schedule for the PI Units is as follows:

Vest Date	*PI Units Vesting*
November 1, 2022		7,200
November 21, 2022		18,425
November 30, 2022		1,470
March 30, 2023		29,831
May 11, 2023		27,478
August 10, 2023		5,570
November 1, 2023		7,200
November 21, 2023		18,425
November 30, 2023		1,470
March 30, 2024		29,831
April 25, 2024		5,171
May 11, 2024		27,478
May 27, 2024		398
November 30, 2024		1,470
March 30, 2025		29,831
April 25, 2025		5,171
May 27, 2025		398
April 25, 2026		5,171
May 27, 2026		398
April 25, 2027		5,171
May 27, 2027		398
Upon successful completion of IPO*		229,242
		457,197

*Upon successful completion of an IPO, an additional 11,764 PI Units will vest immediately instead of vesting ratably according to the schedule above on each of November 30, 2022, November 30, 2023 and November 30, 2024.

For the three months ended September 30, 2022 and 2021, the OP recognized approximately $0.7 million and $0.7 million, respectively, of non-cash compensation expense related to the PI Units, which is included in corporate general and administrative expenses on the Company’s consolidated statements of operations and comprehensive income (loss). For the nine months ended September 30, 2022 and 2021, the OP recognized approximately $2.1 million and $1.7 million, respectively, of non-cash compensation expense related to the PI Units, which is included in corporate general and administrative expenses on the Company’s consolidated statements of operations and comprehensive income (loss).

The table below presents the consolidated Shares and OP Units outstanding held by the noncontrolling interests (“NCI”), as the OP Units held by the Company are eliminated in consolidation:

Period End	*Shares Outstanding*		*OP Units Held by NCI*		*Consolidated Shares and NCI OP Units Outstanding*
March 31, 2022		24,696,441		3,725,832		28,422,273
June 30, 2022		24,960,485		3,740,441		28,700,926
September 30, 2022		24,761,177		3,804,046		28,565,223

Redeemable Noncontrolling Interests in Consolidated VIEs

Partnership interests in the SFR OP are represented by SFR OP Units. Net income (loss) is allocated pro rata to holders of SFR OP Units and is based upon net income (loss) attributable to the SFR OP and the respective members’ SFR OP Units held during the period. Capital contributions, distributions, and profits and losses are allocated to SFR OP Units not held by the Company (the “redeemable noncontrolling interests in consolidated VIEs”). During the nine months ended September 30, 2022, redeemable noncontrolling interests in consolidated VIEs contributed approximately $108.5 million and had a net loss attributable to redeemable noncontrolling interests in consolidated VIEs of approximately $4.3 million. As of September 30, 2022, an adjustment to reflect the redemption value of the redeemable noncontrolling interests in consolidated VIEs of approximately $4.3 million was recognized. As of September 30, 2022, the redeemable noncontrolling interests in consolidated VIEs was approximately $108.5 million on the consolidated balance sheets.

Noncontrolling Interests in Consolidated VIEs

NexPoint Homes has issued NexPoint Homes Class A Shares and NexPoint Homes Class I common stock, par value $0.01 (the “NexPoint Homes Class I Shares,” collectively with NexPoint Homes Class A Shares, the “NexPoint Homes Shares”). Interests in NexPoint Homes are represented by NexPoint Homes Shares. Both classes of NexPoint Homes Shares have the same rights and value.

Capital contributions, distributions, and profits and losses are allocated to NexPoint Homes Shares not held by the Company (the “noncontrolling interests in consolidated VIEs”). During the nine months ended September 30, 2022, noncontrolling interests in consolidated VIEs contributed approximately $3.0 million and had a net loss attributable to noncontrolling interests in consolidated VIEs of approximately $0.1 million. As of September 30, 2022, the noncontrolling interests in consolidated VIEs was approximately $2.8 million on the consolidated balance sheets.

Table of Contents

11. Redeemable Series A Preferred Stock

The Company has issued 5,000,000 Preferred Shares as of September 30, 2022. The Preferred Shares have a redemption value of $25.00 per share and are mandatorily redeemable on October 7, 2027, subject to certain extensions.

The following table presents the redeemable Series A preferred stock (dollars in thousands):

	*Preferred Shares*		*Balances*
Redeemable Series A preferred stock, December 31, 2021		5,000,000	$	120,896
Issuance of Redeemable Series A preferred stock		—		—
Issuance costs related to Redeemable Series A preferred stock		—		—
Net income attributable to Redeemable Series A preferred stockholders		—		6,094
Dividends declared to Redeemable Series A preferred stockholders ($1.21875)		—		(6,094	)
Accretion to redemption value		—		560
Redeemable Series A preferred stock, September 30, 2022		5,000,000	$	121,456

Table of Contents

12. Income Taxes

The Company has made the election and intends to be taxed as a REIT under Sections 856 through 860 of the Code and expects to continue to qualify as a REIT. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90% of its “REIT taxable income,” as defined by the Code, to its stockholders in order for its distributed earnings to not be subject to corporate income tax. Additionally, the Company will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions it pays with respect to any calendar year are less than the sum of (1) 85% of its ordinary income, (2) 95% of its capital gain net income and (3) 100% of its undistributed income from prior years. The Company intends to operate in such a manner so as to qualify as a REIT, but no assurance can be given that the Company will operate in a manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. The Company had no significant taxes associated with its TRS for the nine months ended September 30, 2022 or 2021.

If the Company fails to meet these requirements, it could be subject to U.S. federal income tax on all of the Company’s taxable income at regular corporate rates for that year. The Company would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. Additionally, the Company will also be disqualified from electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost unless the Company is entitled to relief under specific statutory provisions. As of September 30, 2022, the Company believes it is in compliance with all applicable REIT requirements. The Company is still subject to state and local income taxes and to federal income and excise tax on its undistributed income, however those taxes are not material to the financial statements.

The Company evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Company’s management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Company has no examinations in progress and none are expected at this time. The tax years subject to examination are 2021, 2020 and 2019.

The Company had no material unrecognized federal or state tax benefit or expense, accrued interest or penalties as of September 30, 2022. When applicable, the Company recognizes interest and/or penalties related to uncertain tax positions on its consolidated statements of operations and comprehensive income (loss).

13. Related Party Transactions

Advisory Fee

Pursuant to the Advisory Agreement, the Company will pay the Adviser, on a monthly basis in arrears, an advisory fee at an annualized rate of 0.75% of the gross asset value of the Company on a consolidated basis (excluding the value of the OP’s assets but inclusive of the Company’s pro rata share of the debt held at the OP and its SPEs). The Adviser will manage the Company’s business including, among other duties, advising the Board to issue distributions, preparing our quarterly and annual consolidated financial statements prepared under GAAP, development and maintenance of internal accounting controls, management and conduct of maintaining our REIT status, calculation of our NAV and recommending the appropriate NAV to be set by the Board, processing of sales of Shares through the Private Offering, reporting to holders of Shares, our tax filings, and other responsibilities customary for an external advisor to a business similar to ours. With certain specified exceptions, the advisory fee together with reimbursement of operating and offering expenses may not exceed 1.5% of average total assets of the Company and the OP, as determined in accordance with GAAP on a consolidated basis, at the end of each month (or partial month) (i) for which any advisory fee is calculated or (ii) during the year for which any expense reimbursement is calculated.

For the three months ended September 30, 2022 and 2021, the Company incurred advisory fees of approximately $4.3 million and $2.3 million, respectively, which is included in advisory fees on the consolidated statements of operations and comprehensive income (loss). For the nine months ended September 30, 2022 and 2021, the Company incurred advisory fees of approximately $11.2 million and $5.6 million, respectively, which is included in advisory fees on the consolidated statements of operations and comprehensive income (loss).

Management Fee

The equity holders of the Manager are holders of noncontrolling interests in the OP and comprise a portion of the VineBrook Contributors. Through this noncontrolling ownership, the Manager is deemed to be a related party. Pursuant to the Management Agreements, the OP will pay the Manager (i) an acquisition fee equal to 1.0% of the purchase price paid for any new property acquired during the month, (ii) a construction fee monthly in arrears that shall not exceed the greater of 10% of construction costs or $1,000, whichever is higher, in connection with the repair, renovation, improvement or development of any newly acquired property, and (iii) a property management fee monthly in arrears equal to a percentage of collected rental revenues for all properties during the month as follows:

●

8.0% of collected rental revenue up to and including $45 million on an annualized basis;

●

7.0% of the incremental collected rental revenue above $45 million but below and including $65 million on an annualized basis;

●

6.0% of the incremental collected rental revenue above $65 million but below and including $85 million on an annualized basis; and

●

5.0% of the incremental collected rental revenue above $85 million on an annualized basis.

Table of Contents

Under the Management Agreements and the Side Letter, the aggregate fees that the Manager can earn in any fiscal year are capped such that the Manager’s EBITDA (as defined in the Management Agreements) derived from these fees may not exceed the greater of $1.0 million or 0.5% of the combined equity value of the Company and the OP on a consolidated basis, calculated on the first day of each fiscal year based on the aggregate NAV of the outstanding Shares and OP Units held other than by the Company on the last business day of the prior fiscal year (the “Manager Cap”). The aggregate fees up to the Manager Cap are payable (1) in cash in an amount equal to the tax obligations of the Manager’s equity holders resulting from the aggregate management fees earned in such fiscal year up to a maximum rate of 25% (the “Manager Cash Cap”) and (2) with respect to the remaining portion of the aggregate fees, in Class C OP Units, at a price per OP Unit equal to the Cash Amount (as defined in the OP LPA). The aggregate fees paid in cash that exceed the Manager Cash Cap are rebated back to the OP. For the nine months ended September 30, 2022 and September 30, 2021, $0.4 million and $0.8 million, respectively, was recorded as a Manager Cap rebate as reductions to property management fees on the consolidated statements of operations.

The Manager is responsible for the day-to-day management of the properties, acquisition of new properties, disposition of existing properties (with acquisition and disposition decisions made under the approval of the investment committee and the Board), leasing the properties, managing tenant issues and requests, collecting rents, paying operating expenses, managing maintenance issues, accounting for each property using GAAP, and other responsibilities customary for the management of SFR properties.

Property management fees are included in property management fees on the consolidated statements of operations and comprehensive income (loss) and acquisition and construction fees are capitalized into each home and are included in buildings and improvements on the consolidated balance sheet and are depreciated over the useful life of each property.

The following table is a summary of fees that the OP incurred to the Manager and its affiliates, as well as reimbursements paid to the Manager and its affiliates for various operating expenses the Manager paid on the OP’s behalf, of which approximately $6.2 million and $2.6 million is due to the Manager and included in accounts payable and other accrued liabilities on the consolidated balance sheets as of September 30, 2022 and 2021, respectively, under the terms of Management Agreements and Side Letter, for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):

		*For the Three Months Ended September 30,*				*For the Nine Months Ended September 30,*
	*Location on Financial Statements*	*2022*		*2021*		*2022*		*2021*
Fees Incurred
Property management fees	Statement of Operations	$	3,249	$	1,756	$	9,691	$	5,810
Acquisition fees	Balance Sheet		3,650		1,126		9,705		8,072
Construction supervision fees	Balance Sheet		4,562		1,667		12,182		4,681

Reimbursements
Payroll and benefits	Balance Sheet and Statement of Operations		6,997		4,165		19,465		10,953
Other reimbursements	Balance Sheet and Statement of Operations		515		229		1,282		566
*Totals*		$	18,973	$	8,943	$	52,325	$	30,082

Internalization of the Adviser or the Manager

The Company may acquire all of the outstanding equity interests of the Adviser, the Manager or both (an “Internalization”) under certain provisions (a “Purchase Provision”) of the Advisory Agreement or the Side Letter to effect an Internalization upon the payment of a certain fee (an “Internalization Fee”). If the Company determines to acquire the equity interests of the Adviser, the applicable Purchase Provision of the Advisory Agreement provides that the Adviser must first agree to such acquisition and that the Company will pay the Adviser an Internalization Fee equal to three times the total of the prior 12 months’ advisory fee, payable only in capital stock of the Company. If the Company determines to acquire the equity interests of Manager, the applicable Purchase Provision of the Side Letter provides the Company has a right to do so and that the Company will pay the Manager an Internalization Fee equal to $6.5 million plus 50% of the subtraction of $6.5 million from three times the total of the prior 12 months’ property management fee, payable in cash, Shares or Class C OP Units. The OP may also acquire the equity interests of the Manager on the same terms under the applicable Purchase Provision.

In accordance with the Side Letter, on June 28, 2022, the OP notified the Manager that it elected to exercise its Purchase Provision of the Manager. As of September 30, 2022, the Internalization of the Manager has not closed. The Company expects to close the Internalization of the Manager in the fourth quarter of 2022, following which the services previously provided by the Manager will be internally managed, although there can be no assurance that the transaction will close on this timeline or at all. Certain additional conditions and limitations apply to the Internalizations, including but not limited to caps on the Internalization Fees. The Company expects any equity issued in satisfaction of an Internalization Fee to be valued at the NAV per share in effect on May 31, 2022, the date used to calculate the Internalization Fee under the Purchase Provision.

Termination Fees Payable to the Adviser or Manager

If the Advisory Agreement or any one of the Management Agreements is terminated without cause by the Company or the SPE, as applicable, or is otherwise terminated under certain conditions, the Adviser or the Manager, as applicable, will be entitled to a termination fee (a “Termination Fee”) in the amount of three times the prior 12 months’ advisory fee, in the case of a termination of the Advisory Agreement, or three times the prior 12 months’ property management fee, in the case of the applicable Management Agreement. In addition to termination by the Company without cause, the Adviser will be entitled to the Termination Fee if the Adviser terminates the Advisory Agreement without cause or terminates the agreement due to the occurrence of certain specified breaches of the Advisory Agreement by the Company. The Advisory Agreement may be terminated without cause by the Company or the Adviser with 180 days’ notice prior to the expiration of the then-current term. In addition to termination by the SPE without cause, the Manager will be entitled to the Termination Fee if the SPE sells or otherwise disposes of all or substantially all of the properties subject to the applicable Management Agreement. The Management Agreements may be terminated by the SPE with 90 days’ notice without cause. Termination Fees are payable in cash.

Table of Contents

Advance Acquisition and Construction Fee Advances Paid to the Manager

Pursuant to the Side Letter, the Manager may request from the OP from time-to-time an advance on acquisition and construction fees (the “Fee Advances”) to fund the performance of its obligations under the Management Agreements. Each Fee Advance is repaid from future acquisition and construction fees earned by and owed to the Manager. Fee Advances are included in the line item due from Manager on the consolidated balance sheets. As of September 30, 2022 and December 31, 2021, the Company recorded no receivable for Fee Advances.

Backstop Loans to the Manager

Pursuant to the Side Letter, in the event the Manager does not have sufficient cash flow from operations to meet its budgeted obligations under the Management Agreements, the Manager may from time to time request from the Company a temporary loan (the “Backstop Loan”) to satisfy the shortfall. Backstop Loans are interest free, may be prepaid at any time and may not exceed a principal amount that is in the aggregate equal to the lesser of the Internalization Fee or Termination Fee under the applicable Management Agreement. Unless otherwise repaid, each Backstop Loan is payable upon termination of the applicable Management Agreement. Backstop Loans are included in the line item due from Manager on the consolidated balance sheets. As of September 30, 2022 and December 31, 2021, the Company recorded a receivable for Backstop Loans made to the manager of approximately $0.7 million and approximately $0.7 million, respectively.

Dealer Manager Fees

Investors may be charged a dealer manager fee of between 0.50% and 3.00% of gross investor equity by the Dealer Manager for sales of Shares pursuant to the Private Offering, subject to certain breakpoints and various terms of the Dealer Manager Agreements. At the sole discretion of the Dealer Manager, the dealer manager fee may be partially or fully waived. The dealer manager fee is paid to an affiliate of the Adviser.

Organization and Private Offering Expenses

Offering and organizational expenses (“O&O Expenses”) may be incurred in connection with sales in the Private Offering at the discretion of the Company and are borne by investors through a fee of up to 0.50% of gross investor equity for sales through Raymond James and up to 1.00% of gross investor equity for other sales. O&O Expenses are intended to reimburse the Company, Adviser and Placement Agents for the costs of maintaining the Private Offering and selling costs incurred in raising equity under the Private Offering. Payments for bona fide expenses and reimbursements are O&O Expenses which are recorded as a reduction to equity.

NexBank

The Company and the OP maintain bank accounts with an affiliate of the Adviser, NexBank N.A. (“NexBank”). NexBank charges no recurring maintenance fees on the accounts. As of September 30, 2022, the REIT and OP have approximately $0.9 million and $42.4 million, respectively, in cash at NexBank.

Table of Contents

NexPoint Homes Transactions

In connection with the Company’s consolidated investment in NexPoint Homes, the Company consolidated non-controlling interests in NexPoint Homes that were contributed by affiliates of the Adviser. As of September 30, 2022, these affiliates had contributed approximately $109.8 million of equity to NexPoint Homes. Additionally, the Company consolidated five SFR OP convertible notes that are loans from affiliates of the Adviser to the SFR OP that bear interest at 7.50% and mature on June 30, 2027 (the “SFR OP Convertible Notes”). As of September 30, 2022, the total principal outstanding on the SFR OP Convertible Notes was approximately $100.1 million which is included in notes payable on the consolidated balance sheets.

The Company consolidates an approximately $4.8 million loan from the SFR OP to HomeSource Operations, LLC (the “HomeSource Note”). The HomeSource Note bears interest at daily SOFR plus 2.00% and matures on February 1, 2027. In connection with the HomeSource Note, the SFR OP received a 9.99% non-voting interest in the HomeSource Operations LLC (the “HomeSource Investment”). The HomeSource Note and the HomeSource Investment are included in prepaid and other assets on the consolidated balance sheet.

On June 8, 2022, NexPoint Homes entered into an advisory agreement (the “NexPoint Homes Advisory Agreement”) with NexPoint Real Estate Advisors XI, LP (the “NexPoint Homes Adviser”), an affiliate of the Adviser. Under the terms of the NexPoint Homes Advisory Agreement, the NexPoint Homes Adviser manages the day-to-day affairs of NexPoint Homes for a fee equal to 0.75% of the consolidated enterprise value of NexPoint Homes. No fees were collected by the NexPoint Homes Adviser in connection with the NexPoint Homes Advisory Agreement during the nine months ended September 30, 2022.

The NexPoint Homes portfolio is generally managed by HomeSource Operations, LLC, a Delaware limited liability company (the “NexPoint Homes Manager”), pursuant to the terms of a management agreement, dated June 8, 2022 (the “NexPoint Homes Management Agreement”), among the NexPoint Homes Manager and the SFR OP. The NexPoint Homes Manager is responsible for the day-to-day management of the NexPoint Homes portfolio, paying operating expenses, managing maintenance issues, accounting for each property using GAAP, overseeing third-party property managers and other responsibilities customary for the management of SFR properties. The NexPoint Homes Manager is entitled to an acquisition fee, a construction fee and an asset management fee. The acquisition fee is paid at closing of homes and the construction fee and asset management fee are paid monthly in arrears. Approximately $0.1 million in fees were earned by the NexPoint Homes Manager in connection with the NexPoint Homes Management Agreement during the nine months ended September 30, 2022.

Table of Contents

14. Commitments and Contingencies

Commitments

In the normal course of business, the Company enters into various construction related purchase commitments with parties that provide these goods and services. In the event the Company were to terminate construction services prior to the completion of projects, the Company could potentially be committed to satisfy outstanding or uncompleted purchase orders with such parties. As of September 30, 2022, management does not anticipate any material deviations from schedule or budget related to rehabilitation projects currently in process.

Contingencies

In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of all such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated balance sheets or consolidated statements of operations and comprehensive income (loss) of the Company. The Company is not involved in any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company or its properties or subsidiaries.

The Company is not aware of any environmental liability with respect to the properties it owns that could have a material adverse effect on the Company’s business, assets, or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s results of operations and cash flows.

An entity purchased by the OP as a part of the Formation Transaction, the Huber Transaction Sub, LLC (“Huber”), had potential liability exposure to a legacy environmental issue related to a 1988 petroleum release from an underground storage tank located on a property subsequently not purchased by Huber. The owner of the property prior to Huber has assumed the defense of alleged environmental violations and is proceeding with the required regulatory investigation and remediation of the underground storage tank release clean up. Huber received an indemnification, and the Company and the OP in turn received an indemnification, which was evidenced by approximately $2.6 million of proceeds in an escrow account (the “Indemnification Escrow”) that is for the benefit of the Company and the OP in the event the prior owner fails to perform their obligations in regard to any required remediation of the issue. On January 27, 2021, the Indemnification Escrow was released and this matter was fully resolved.

Table of Contents

15. Segment Information

Reportable Segments

Following the formation of NexPoint Homes, the Company has two reportable segments. For the three and nine months ended September 30, 2022, the majority of the Company’s operations are included within the Company’s primary reportable segment, VineBrook, as the NexPoint Homes reportable segment was recently formed on June 8, 2022. For the three and nine months ended September 30, 2021, the Company had one reportable segment, VineBrook. All corporate related costs are included in the VineBrook segment to align with how financial information is presented to the chief operating decision maker. The following presents select operational results for the reportable segments (in thousands):

	*For the Three Months Ended September 30,*
	*2022*							*2021*
	*Revenues*		*Expenses*		*Net loss*			*Revenues*		*Expenses*		*Net loss*
VineBrook	$	64,587	$	74,900	$	(10,453	)	$	41,887	$	46,662	$	(4,799	)
NexPoint Homes		9,051		13,219		(4,168	)		—		—		—
Total Company	$	73,638	$	88,119	$	(14,621	)	$	41,887	$	46,662	$	(4,799	)

	*For the Nine Months Ended September 30,*
	*2022*							*2021*
	*Revenues*		*Expenses*		*Net loss*			*Revenues*		*Expenses*		*Net loss*
VineBrook	$	177,962	$	199,686	$	(21,810	)	$	112,336	$	118,959	$	(6,947	)
NexPoint Homes		10,297		17,459		(7,162	)		—		—		—
Total Company	$	188,259	$	217,145	$	(28,972	)	$	112,336	$	118,959	$	(6,947	)

The following presents select balance sheet data for the reportable segments (in thousands):

	*As of September 30, 2022*									*As of December 31, 2021*
	*VineBrook*			*NexPoint Homes*			*Total Company*			*VineBrook*			*NexPoint Homes*		*Total Company*
Assets
Gross operating real estate investments	$	2,857,431		$	743,872		$	3,601,303		$	1,726,948		$	—	$	1,726,948
Accumulated depreciation and amortization		(135,262	)		(5,847	)		(141,109	)		(76,789	)		—		(76,789	)
Net operating real estate investments		2,722,169			738,025			3,460,194			1,650,159			—		1,650,159
Real estate held for sale, net		2,888			—			2,888			81			—		81
Net real estate investments		2,725,057			738,025			3,463,082			1,650,240			—		1,650,240
Other assets		220,816			67,559			288,375			108,085			—		108,085
Total assets	$	2,945,873		$	805,584		$	3,751,457		$	1,758,325		$	—	$	1,758,325

Liabilities
Debt payable, net	$	1,886,042		$	565,333		$	2,451,375		$	768,545		$	—	$	768,545
Other liabilities		139,904			15,237			155,141			89,574			—		89,574
Total liabilities	$	2,025,946		$	580,570		$	2,606,516		$	858,119		$	—	$	858,119

Table of Contents

16. Subsequent Events

The Company evaluated subsequent events through the date the consolidated financial statements were issued, to determine if any significant events occurred subsequent to the balance sheet date that would have a material impact on these consolidated financial statements and determined the following events were material:

Acquisitions

Subsequent to September 30, 2022, the Company acquired 432 homes in the VineBrook reportable segment for a purchase price of approximately $52.9 million.

Fourth Quarter 2022 Dividends

On October 14, 2022, the Company approved a common stock dividend of $0.1767 per Share for shareholders of record as of October 17, 2022 that will be paid on December 30, 2022. On October 24, 2022, the Company approved a common stock dividend of $0.1767 per Share for shareholders of record as of November 15, 2022 that will be paid on December 30, 2022. On October 24, 2022, the Company approved a preferred stock dividend of $0.40625 per share for holder of record of Preferred Shares as of December 23, 2022, which will be paid on January 10, 2023. On October 24, 2022, the Company approved a preferred stock dividend of $0.40625 per share for holder of record of Preferred Shares as of December 23, 2022, which will be paid on January 10, 2023.

NAV Determination

In accordance with the Valuation Methodology, on October 31, 2022, the Company determined that its NAV per share calculated on a fully diluted basis was $62.97 as of September 30, 2022. In accordance with provisions in the OP LPA, the value of the OP Units per OP Unit was also increased to $62.97. Shares and OP Units issued under the respective DRIPs will be issued a 3% discount to the NAV per share in effect.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and our historical results of operations. The following should be read in conjunction with our financial statements and accompanying notes included herein and with our annual report on Form 10-K (our “Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this Form 10-Q. See “Cautionary Note Regarding Forward-Looking Statements” in this report and the information under the heading “Risk Factors” in Part I, Item IA, “Risk Factors” of our Annual Report. Our management believes the assumptions underlying the Company’s financial statements and accompanying notes are reasonable. However, the Company’s financial statements and accompanying notes may not be an indication of our financial condition and results of operations in the future.

Overview

The Company is an owner and operator of SFR homes for lease. The Company has two reportable segments, VineBrook and NexPoint Homes. VineBrook represents the Company’s primary reportable segment and represents a significant majority of the Company’s consolidated portfolio (the “VineBrook Portfolio”). The NexPoint Homes reportable segment represents a minority of the Company’s consolidated portfolio (the “NexPoint Homes Portfolio”) and operations.

As of September 30, 2022, our VineBrook Portfolio consisted of 24,153 SFR homes primarily located in the midwestern, heartland and southeastern United States. As of September 30, 2022, the VineBrook Portfolio had occupancy of approximately 81.9% with a weighted average monthly effective rent of $1,142 per occupied home. As of September 30, 2022, the VineBrook Portfolio had a stabilized occupancy of approximately 94.3% with a weighted average monthly stabilized effective rent of $1,160 per occupied home and 51.5% of homes in our VineBrook Portfolio were excluded from being stabilized either because the homes were in rehabilitation or were purchased with tenants in place. Substantially all of the Company’s business is conducted through the OP, as the Company owns its homes indirectly through the OP. VineBrook Homes OP GP, LLC, is the OP GP. As of September 30, 2022, there were 25,346,922 OP Units outstanding, of which 21,542,876 Class A OP Units, or 85.0% of the OP Units outstanding, were owned by the Company. Please see the notes to the financial statements for the breakdown of the non-controlling ownership of our OP.

As of December 31, 2021, our VineBrook Portfolio consisted of 16,891 SFR homes primarily located in the midwestern, heartland and southeastern United States. As of December 31, 2021, the VineBrook Portfolio had occupancy of approximately 81.9% with a weighted average monthly effective rent of $1,067 per occupied home. As of December 31, 2021, the VineBrook Portfolio had a stabilized occupancy of approximately 95.2% with a weighted average monthly effective rent of $1,074 per occupied stabilized home and 49.7% of homes in our VineBrook Portfolio were excluded from being stabilized either because the homes were in rehabilitation or were purchased with tenants in place. As of December 31, 2021, there were 22,300,100 OP Units outstanding, of which 18,673,164, or 83.7%, were owned by the Company.

We are primarily focused on acquiring, renovating, leasing, maintaining and otherwise managing SFR home investments primarily located in large to medium size cities and suburbs located in the midwestern, heartland and southeastern United States. We intend to employ targeted management and a value-add program at a majority of our homes in an attempt to improve rental rates and the net operating income (“NOI”) at our homes, maximize cash flow, provide quarterly cash distributions and achieve long-term capital appreciation for our stockholders. We are externally managed by the Adviser through the Advisory Agreement, which was renewed on November 1, 2021 and will automatically renew on the anniversary of the renewal date for one-year terms thereafter, unless otherwise terminated.

We began operations on November 1, 2018 as a result of the acquisition of various partnerships and limited liability companies owned and operated by the VineBrook Contributors and other third parties, which owned the Initial Portfolio of approximately 4,129 SFR assets located in Ohio, Kentucky and Indiana for a total purchase price of approximately $330.2 million, including closing and financing costs of approximately $6.0 million. On November 1, 2018, the Company accepted subscriptions for 1,097,367 Shares for gross proceeds of approximately $27.4 million in connection with the Formation Transaction. The proceeds from the issuance of such Shares were used to acquire OP Units. The OP used the capital contribution from the Company to fund a portion of the purchase price for the Initial Portfolio. The remaining purchase price and closing costs were funded by a capital contribution totaling $70.7 million from NREO, $8.6 million of equity rolled over from VineBrook Contributors, and $241.4 million from the Initial Mortgage.

On August 28, 2018, the Company commenced the offering of 40,000,000 Shares through the Private Offering under Regulation D of the Securities Act (and various state securities law provisions) for a maximum of $1.0 billion of its Shares. The Private Offering closed on September 14, 2022. The initial offering price for Shares sold through the Private Offering was $25.00 per share. The Company sold Shares in periodic closings at a purchase price generally equal to the NAV per share as determined using the Valuation Methodology and as recommended by the Adviser and approved by the Pricing Committee, plus applicable fees and commissions. The NAV per share is calculated on a fully diluted basis. For sales through Raymond James, the purchaser subscribed for a gross amount based on NAV per share and separately paid the applicable fees upfront from the purchaser’s account with Raymond James. For sales through a broker-dealer other than Raymond James, the purchaser subscribed for a gross amount based on a public offering price (“POP”), which includes the applicable upfront fees and commissions. NAV may differ from the values of our real estate assets as calculated in accordance with GAAP.

On October 15, 2021, a lawsuit (the “Bankruptcy Trust Lawsuit”) was filed by a trust formed in connection with the Highland bankruptcy (the “Highland Bankruptcy”) in the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”). The Bankruptcy Trust Lawsuit makes claims against a number of entities, including NexPoint Advisors, L.P. (“NexPoint”), the parent of our Adviser, and James Dondero, a director and former officer of the Company. The Bankruptcy Trust Lawsuit does not include claims related to our business or our assets or operations. NexPoint and Mr. Dondero have informed us that they believe the Bankruptcy Trust Lawsuit has no merit and they intend to vigorously defend against the claims. We do not expect that the Bankruptcy Trust Lawsuit will have a material effect on our business, results of operations or financial condition.

The Internalization

Most of the VineBrook Portfolio is managed by the Manager pursuant to the terms of the Management Agreements, the Manager and various wholly owned subsidiaries of the OP that own the SPEs. The Manager is responsible for the day-to-day management of the properties, leasing the properties, managing tenant situations, collecting rents, paying operating expenses, managing maintenance issues, accounting for each property using GAAP and other responsibilities customary for the management of SFR properties. In addition, the Manager is generally responsible for the identification of potential SFR properties and the acquisition and disposition of SFR properties approved by the Investment Committee or pursuant to authority delegated to the Manager by the Investment Committee.

The Management Agreements are supplemented by the Side Letter, under the terms of which the Company and the OP have the right and option (but not the obligation) to purchase all of the equity interests of the Manager (the “Internalization”) at a price calculated by a formula specified in the Side Letter (the “Call Right”). The purpose of the Call Right is to provide the Company and the OP with the ability to internally perform the responsibilities and obligations of the Manager under the Management Agreements. On June 28, 2022, the Company sent a notice (the “Call Right Notice”) to the Manager notifying the Manager of its intention to exercise its Call Right and internalize the Manager. As a result of sending the Call Right Notice, the price the Company will pay the Internalization Fee to acquire the Manager of $20.3 million which was fixed based on May 30, 2022 data. The Internalization Fee will be paid in a combination of common stock, OP Units and/or cash.

The Internalization process is being overseen by an independent special committee of the Board, comprised of all the members of the Board except Dana Sprong. The Company expects to close the Internalization in the fourth quarter of 2022, following which the services previously provided by the Manager will be internally managed, although there can be no assurance that the transaction will close on this timeline or at all. The Company also expects to make one-time equity grants under the LTIP to the employees who the Company hires in connection with the Internalization.

Following the Internalization, the Manager’s internalized employees will continue to be responsible for the day-to-day management of the properties, the identification of potential SFR properties and the acquisition and disposition of SFR properties. The Adviser’s duties will not change as a result of the Internalization. Certain SPEs from time to time may have property management agreements with independent third parties that are not the Manager. These are typically the result of maintaining legacy property managers after an acquisition to help transition the properties to the Manager or, in the case of a future sale, to manage the properties until they are sold. This may continue to be the case even after the Internalization is complete.

Tusk and Siete Portfolio Acquisitions

On August 3, 2022, VB Five, LLC (“Buyer”), an indirect subsidiary of the Company, entered into a purchase agreement under which the Buyer agreed to acquire a portfolio of approximately 1,610 SFR homes located in Arizona, Florida, Georgia, Ohio and Texas (the “Tusk Portfolio”). Also on August 3, 2022, the Buyer entered into a purchase agreement under which the Buyer agreed to acquire a portfolio of approximately 1,289 SFR homes located in Arizona, Florida, Georgia, North Carolina, Ohio and Texas (the “Siete Portfolio”). The Company does not expect to close the acquisitions of the Tusk Portfolio or the Siete Portfolio in 2022.

Table of Contents

Our VineBrook Portfolio

Since our formation, we have significantly grown our VineBrook Portfolio, which only includes homes in the VineBrook reportable segment. When the Company began operations on November 1, 2018, the Initial Portfolio consisted of 4,129 homes located in Ohio, Kentucky and Indiana. As of September 30, 2022 and 2021, the VineBrook Portfolio consisted of 24,153 and 15,787 homes, respectively, in 18 and 16 states, respectively. As of September 30, 2022 and 2021, the VineBrook Portfolio had an occupancy of 81.9% and 82.6%, respectively, and a weighted average monthly effective rent of $1,142 and $1,059, respectively, per occupied home. As of September 30, 2022 and 2021, the occupancy of stabilized homes in our VineBrook Portfolio was 94.3% and 94.8%, respectively, and the weighted average monthly effective rent of occupied stabilized homes was $1,160 and $1,051, respectively. As of September 30, 2022 and 2021, 51.5% and 51.1%, respectively, of homes in our VineBrook Portfolio were excluded from being stabilized either because the homes were in rehabilitation or were purchased with tenants in place. The table below provides summary information regarding our VineBrook Portfolio as of September 30, 2022.

Market	State	# of Homes		Portfolio Occupancy			Average Effective Rent		# of Stabilized Homes		Stabilized Occupancy			Stabilized Average Monthly Rent
Cincinnati	OH, KY		3,326		90.9	%	$	1,199		2,374		95.5	%	$	1,217
Dayton	OH		2,889		88.8	%		1,100		2,388		96.0	%		1,092
Columbus	OH		1,644		92.2	%		1,170		1,357		96.8	%		1,173
St. Louis	MO		2,419		72.2	%		1,066		812		87.1	%		1,072
Indianapolis	IN		1,465		89.1	%		1,155		800		94.8	%		1,185
Birmingham	AL		1,093		89.8	%		1,197		328		92.7	%		1,196
Columbia	SC		1,046		85.2	%		1,252		289		94.8	%		1,293
Kansas City	MO, KS		1,175		90.0	%		1,172		574		95.3	%		1,152
Jackson	MS		1,275		60.1	%		1,138		423		93.4	%		1,171
Memphis	TN, MS		1,778		70.9	%		967		605		92.4	%		999
Augusta	GA, SC		827		71.3	%		1,056		227		93.4	%		1,209
Milwaukee	WI		1,008		68.6	%		1,129		333		89.8	%		1,255
Atlanta	GA		784		86.6	%		1,282		29		79.3	%		1,705
Pittsburgh	PA		490		60.2	%		1,037		171		94.2	%		1,133
Pensacola	FL		300		96.3	%		1,324		63		90.5	%		1,426
Greenville	SC		381		86.6	%		1,207		149		91.3	%		1,376
Little Rock	AR		390		50.5	%		978		166		88.0	%		1,007
Huntsville	AL		299		78.9	%		1,261		104		91.3	%		1,293
Raeford	NC		250		97.2	%		1,014		45		97.8	%		1,156
Portales	NM		350		95.7	%		1,066		36		100.0	%		1,093
Omaha	NE, IA		295		83.4	%		1,176		185		96.2	%		1,193
Triad	NC		265		83.0	%		1,196		106		98.1	%		1,250
Montgomery	AL		336		79.8	%		1,176		155		92.3	%		1,162
Charleston	SC		33		87.9	%		1,351		—		n/a			n/a
Sub-Total/Average			24,118		81.9	%	$	1,142		11,719		94.3	%	$	1,160
Held for Sale			35		n/a			n/a		n/a		n/a			n/a
Total/Average			24,153		81.9	%	$	1,142		11,719		94.3	%	$	1,160

As of December 31, 2021, the Company, through the OP’s SPEs, indirectly owned an interest in 16,891 homes in 16 states. As of December 31, 2021, the Portfolio had occupancy of 81.9%, and a weighted average monthly effective rent of $1,067 per occupied home. As of December 31, 2021, the occupancy of stabilized homes in our Portfolio was 95.2%, and the weighted average monthly effective rent of stabilized occupied homes was $1,074. As of December 31, 2021, 49.7% of homes in our Portfolio were excluded from being stabilized either because the homes were in rehabilitation or were purchased with tenants in place. The table below provides summary information regarding our Portfolio as of December 31, 2021:

Market	State	# of Homes		Portfolio Occupancy			Average Effective Rent		# of Stabilized Homes		Stabilized Occupancy			Stabilized Average Monthly Rent
Cincinnati	OH, KY		3,031		90.7	%	$	1,117		2,083		96.8	%	$	1,127
Dayton	OH		2,742		90.1	%		1,019		2,244		97.3	%		1,007
Columbus	OH		1,499		93.1	%		1,108		1,203		97.4	%		1,115
St. Louis	MO		1,696		79.9	%		1,010		596		92.1	%		991
Indianapolis	IN		1,308		83.0	%		1,081		571		88.6	%		1,104
Birmingham	AL		814		79.0	%		1,128		92		85.9	%		1,244
Columbia	SC		784		82.7	%		1,195		107		89.7	%		1,259
Kansas City	MO, KS		742		77.4	%		1,071		345		91.0	%		1,030
Jackson	MS		789		57.8	%		1,046		185		93.0	%		1,160
Memphis	TN, MS		626		84.0	%		911		385		93.0	%		927
Augusta	GA, SC		555		73.5	%		973		69		94.2	%		1,130
Milwaukee	WI		655		72.1	%		1,073		212		90.6	%		1,195
Pittsburgh	PA		401		59.1	%		951		86		97.7	%		1,071
Greenville	SC		253		77.5	%		1,177		39		92.3	%		1,346
Little Rock	AR		286		44.4	%		900		85		97.6	%		930
Huntsville	AL		180		75.0	%		1,146		34		79.4	%		1,261
Omaha	NE, IA		206		60.2	%		1,167		74		100.0	%		1,169
Triad	NC		161		83.2	%		1,083		46		97.8	%		1,152
Montgomery	AL		161		56.5	%		1,033		35		94.3	%		1,146
Sub-Total/Average			16,889		81.9	%	$	1,067		8,491		95.2	%	$	1,074
Held for Sale			2		n/a			n/a		n/a		n/a			n/a
Total/Average			16,891		81.9	%	$	1,067		8,491		95.2	%	$	1,074

Table of Contents

NexPoint Homes Portfolio

NexPoint Homes is an owner and operator of SFR homes for lease. As of September 30, 2022, the NexPoint Homes portfolio consisted of 2,544 SFR homes primarily located in the midwestern and southeastern United States. As of September 30, 2022, NexPoint Homes had occupancy of approximately 89.3% with a weighted average monthly effective rent of $1,769 per occupied home. NexPoint Homes’ activities include acquiring, renovating, developing, leasing and operating SFR homes as rental properties. See Note 5, NexPoint Homes Investment, for additional details on the formation of NexPoint Homes.

The table below provides summary information regarding the NexPoint Homes portfolio as of September 30, 2022.

Market	State	# of Homes		Portfolio Occupancy			Average Effective Rent
Fayetteville	AR		440		94.1	%	$	1,487
Little Rock	AR		211		88.2	%		1,325
Oklahoma City	OK		518		80.5	%		1,509
Tulsa	OK		172		89.0	%		1,522
Atlanta	GA		211		97.6	%		1,986
San Antonio	TX		199		95.0	%		1,587
Dallas/Fort Worth	TX		51		94.1	%		2,169
Memphis	TN, MS		158		93.7	%		1,399
Kansas City	MO, KS		146		95.9	%		1,780
Birmingham	AL		133		94.0	%		1,483
Huntsville	AL		71		90.1	%		1,875
Charlotte	NC		61		88.5	%		1,858
Triad	NC		50		82.0	%		1,660
Other (1)	KS, AL, FL, TX		123		68.2	%		1,778
Sub-Total/Average			2,544		89.3	%	$	1,769
Held for Sale			—		n/a			n/a
Total/Average			2,544		89.3	%	$	1,769

(1) Contains markets that have less than 50 homes which include Orlando, Tampa, Jacksonville, Austin, Houston, Mobile and Wichita.

The following table sets forth a summary of operating results for the NexPoint Homes reportable segment for the three and nine months ended September 30, 2022 (in thousands):

	For the Three Months Ended September 30, 2022			For the Nine Months Ended September 30, 2022
Total revenues	$	9,051		$	10,297
Total expenses		13,219			17,459
Net loss	$	(4,168	)	$	(7,162	)

The NexPoint Homes reportable segment began operations on June 8, 2022 and currently does not contribute significantly to the Company’s consolidated operations. The Company anticipates revenues from the NexPoint Homes reportable segment to increase as more homes become stabilized and the reportable segment’s operations begin to scale. As NexPoint Homes continues to raise additional capital, the Company’s direct ownership interest in NexPoint Homes will decrease which may eventually result in deconsolidation of NexPoint Homes. The Company will continue to evaluate whether the entity is a VIE and if the Company is the primary beneficiary of the VIE and should consolidate the entity.

Table of Contents

Components of Revenues and Expenses

The following is a description of the components of our revenues and expenses.

Revenues

Rental Income. Our revenues are derived primarily from rental revenue, net of any concessions and uncollectible amounts, collected from residents of our SFR homes under lease agreements which typically have a term of one year. Also included are utility reimbursements, late fees, pet fees, and other rental fees charged to tenants.

Other income. Other income includes ancillary income earned from tenants such as non-refundable fees, application fees, move-out fees, and other miscellaneous fees charged to tenants.

Expenses

Property operating expenses. Property operating expenses include property maintenance costs, turn costs (costs incurred in making a home ready for the next resident after the prior resident vacates the home), leasing costs and the associated salary and employee benefit costs, utilities, vehicle leases and HOA fees. Certain property operating costs are capitalized in accordance with our capitalization policy. Certain turn costs are capitalized to buildings and improvements if they improve the condition of the home or return it to its original condition and exceed $1,500 in cost. Upon being occupied, expenditures up to $1,500 for ordinary repairs and maintenance thereafter are expensed as incurred, and we capitalize expenditures that improve the condition of the home in excess of $1,500.

Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending on the location of each home. Insurance includes the cost of property, general liability, and other needed insurance for each property. Certain real estate taxes and insurance costs are capitalized in accordance with our capitalization policy.

Property management fees. Property management fees include fees paid to the Manager for managing each property, presented net of fee rebates related to the Manager Cap (see Note 13 to our consolidated financial statements).

Advisory fees. Advisory fees include the fees paid to our Adviser pursuant to the Advisory Agreement (see Note 13 to our consolidated financial statements).

Corporate general and administrative expenses. Corporate general and administrative expenses include, but are not limited to, audit fees, legal fees, tax preparation fees, Board fees, equity-based compensation expense and corporate payroll.

Property general and administrative expenses. Property general and administrative expenses include the costs of marketing, professional fees, legal fees, general office supplies, and other administrative related costs incurred in operating the properties.

Depreciation and amortization. Depreciation and amortization costs primarily include depreciation of our homes and amortization of acquired in-place leases, recognized over their respective useful lives.

Interest expense. Interest expense primarily includes the cost of interest expense on debt, payments and receipts related to our interest rate derivatives, the change in fair value of interest rate derivatives not designated as hedges and the amortization of deferred financing costs. Certain interest costs are capitalized in accordance with our capitalization policy.

Loss on extinguishment of debt. Loss on extinguishment of debt includes prepayment penalties and defeasance costs, the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt related to the early repayment of debt and other costs incurred in a debt extinguishment.

Gain/(loss) on sales of real estate. Gain/(loss) on sales of real estate includes the gain or loss recognized upon sales of homes. Gain/(loss) on sales of real estate is calculated by deducting the carrying value of the real estate and costs incurred to sell the properties from the sales prices of the homes.

Casualty gain/(loss). Casualty gain/(loss) includes the gain or loss incurred on homes, net of insurance proceeds received, that experience an unexpected and unusual event such as a natural disaster or fire.

Table of Contents

Consolidated Results of Operations for the Three Months Ended September 30, 2022 and 2021

The three months ended September 30, 2022 compared to the three months ended September 30, 2021

The following table sets forth a summary of our consolidated operating results for the three months ended September 30, 2022 and 2021 (in thousands):

	For the Three Months Ended September 30,
	2022			2021			$ Change
Total revenues	$	73,638		$	41,887		$	31,751
Total expenses		(88,119	)		(46,662	)		(41,457	)
Loss on sales of real estate		(224	)		(175	)		(49	)
Casualty gain, net of insurance proceeds		84			151			(67	)
Net loss		(14,621	)		(4,799	)		(9,822	)
Dividends on and accretion to redemption value of Redeemable Series A preferred stock		2,226			2,206			20
Net loss attributable to redeemable noncontrolling interests in the OP		(1,782	)		(823	)		(959	)
Net loss attributable to redeemable noncontrolling interests in consolidated VIEs		(3,112	)		—			(3,112	)
Net loss attributable to noncontrolling interests in consolidated VIEs		(113	)		—			(113	)
Net loss attributable to common stockholders	$	(11,840	)	$	(6,182	)	$	(5,658	)

The change in our net loss between the periods primarily relates to increases in property operating expenses, real estate taxes and insurance costs, advisory fees, property general and administrative expenses, depreciation and amortization, interest expense, and loss on extinguishment of debt, partially offset by an increase in rental income.

Revenues

Rental income. Rental income was $71.6 million for the three months ended September 30, 2022 compared to $40.8 million for the three months ended September 30, 2021, which was an increase of $30.8 million. The increase between the periods was primarily due to our acquisition activity and increases in rental rates over the past year.

Other income. Other income was $2.0 million for the three months ended September 30, 2022 compared to $1.1 million for the three months ended September 30, 2021, which was an increase of $0.9 million. The increase between the periods was primarily due to our acquisition activity over the past year.

Table of Contents

Expenses

Property operating expenses. Property operating expenses were $12.6 million for the three months ended September 30, 2022 compared to $8.3 million for the three months ended September 30, 2021, which was an increase of $4.3 million. The increase between the periods was primarily due to our acquisition activity in 2022. For the three months ended September 30, 2022 and 2021, turn costs represented approximately 15% and 13%, respectively, of our property operating expenses.

Real estate taxes and insurance. Real estate taxes and insurance were $12.3 million for the three months ended September 30, 2022 compared to $8.2 million for the three months ended September 30, 2021, which was an increase of $4.1 million. The increase between the periods was primarily due to our acquisition activity in 2022 as well as increases in our real estate taxes as a result of increases in property valuations.

Property management fees. Property management fees were $3.8 million for the three months ended September 30, 2022 compared to $1.8 million for the three months ended September 30, 2021, which was an increase of $2.0 million. The increase between the periods was primarily due to our acquisition activity and increases in rental rates over the past year.

Advisory fees. Advisory fees were $4.3 million for the three months ended September 30, 2022 compared to $2.3 million for the three months ended September 30, 2021, which was an increase of $2.0 million. The increase between the periods was primarily due to our equity raising activity in 2022 and increases in total debt principal outstanding.

Corporate general and administrative expenses. Corporate general and administrative expenses were $2.7 million for the three months ended September 30, 2022 compared to $2.0 million for the three months ended September 30, 2021, which was an increase of $0.7 million. The increase between the periods was primarily due to increases in equity-based compensation expense and other corporate expenses as our operations continued to gain scale.

Property general and administrative expenses. Property general and administrative expenses were $4.4 million for the three months ended September 30, 2022 compared to $1.5 million for the three months ended September 30, 2021, which was an increase of $2.9 million. The increase between the periods was primarily due to our acquisition activity in 2022.

Depreciation and amortization. Depreciation and amortization costs were $28.7 million for the three months ended September 30, 2022 compared to $14.9 million for the three months ended September 30, 2021, which was an increase of $13.8 million. The increase between the periods was primarily due to our acquisition activity in 2022.

Interest expense. Interest expense was $16.9 million for the three months ended September 30, 2022 compared to $7.8 million for the three months ended September 30, 2021, which was an increase of $9.1 million. The increase between the periods was primarily due to an increase in interest on debt and amortization of deferred financing costs, as we increased our total debt principal outstanding and witnessed an increase in our weighted average interest rate during 2022, partially offset by the change in fair value of interest rate derivatives included in interest expense. The following table details the various costs included in interest expense for the three months ended September 30, 2022 and 2021 (in thousands):

	For the Three Months Ended September 30,
	2022			2021			$ Change
Gross interest cost	$	19,521		$	9,027		$	10,494
Capitalized interest		(2,646	)		(1,275	)		(1,371	)
Total	$	16,875		$	7,752		$	9,123

Loss on extinguishment of debt. Loss on extinguishment of debt was $2.5 million for the three months ended September 30, 2022 compared to no loss on extinguishment of debt for the three months ended September 30, 2021, which was an increase of $2.5 million. The increase between the periods was due to the extinguishment of the Bridge Facility II and the Hatchway Broadmoor Mortgage which occurred during the three months ended September 30, 2022.

Gain/(loss) on sales of real estate. Loss on sales of real estate was $0.2 million for the three months ended September 30, 2022 and 2021.

Casualty gain/(loss), net of insurance proceeds. Casualty gain, net of insurance proceeds, was $0.1 million for the three months ended September 30, 2022 and $0.2 million for the three months ended September 30, 2021, which was a decrease of $0.1 million. The decrease between the periods was primarily due to a slight decrease in net insurance proceeds received in 2022.

Table of Contents

Consolidated Results of Operations for the Nine Months Ended September 30, 2022 and 2021

The nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

The following table sets forth a summary of our consolidated operating results for the nine months ended September 30, 2022 and 2021 (in thousands):

	For the Nine Months Ended September 30,
	2022			2021			$ Change
Total revenues	$	188,259		$	112,336		$	75,923
Total expenses		(217,145	)		(118,959	)		(98,186	)
Loss on sales of real estate		(8	)		(373	)		365
Casualty (loss)/gain, net of insurance proceeds		(78	)		49			(127	)
Net loss		(28,972	)		(6,947	)		(22,025	)
Dividends on and accretion to redemption value of Redeemable Series A preferred stock		6,654			6,619			35
Net loss attributable to redeemable noncontrolling interests in the OP		(3,976	)		(1,324	)		(2,652	)
Net loss attributable to redeemable noncontrolling interests in consolidated VIEs		(4,303	)		—			(4,303	)
Net loss attributable to noncontrolling interests in consolidated VIEs		(113	)		—			(113	)
Net loss attributable to common stockholders	$	(27,234	)	$	(12,242	)	$	(14,992	)

The change in our net loss between the periods primarily relates to increases in property operating expenses, real estate taxes and insurance costs, property management fees, advisory fees, property general and administrative expenses, depreciation and amortization and interest expense, partially offset by an increase in rental income.

Revenues

Rental income. Rental income was $182.0 million for the nine months ended September 30, 2022 compared to $110.1 million for the nine months ended September 30, 2021, which was an increase of $71.9 million. The increase between the periods was primarily due to our acquisition activity and increases in rental rates over the past year.

Other income. Other income was $6.2 million for the nine months ended September 30, 2022 compared to $2.3 million for the nine months ended September 30, 2021, which was an increase of $3.9 million. The increase between the periods was primarily due to our acquisition activity over the past year.

Table of Contents

Expenses

Property operating expenses. Property operating expenses were $33.6 million for the nine months ended September 30, 2022 compared to $19.4 million for the nine months ended September 30, 2021, which was an increase of $14.2 million. The increase between the periods was primarily due to our acquisition activity in 2022. For the nine months ended September 30, 2022 and 2021, turn costs represented approximately 14% and 14%, respectively, of our property operating expenses.

Real estate taxes and insurance. Real estate taxes and insurance were $32.7 million for the nine months ended September 30, 2022 compared to $22.1 million for the nine months ended September 30, 2021, which was an increase of $10.6 million. The increase between the periods was primarily due to our acquisition activity in 2022 as well as increases in our real estate taxes as a result of increases in property valuations.

Property management fees. Property management fees were $10.4 million for the nine months ended September 30, 2022 compared to $6.3 million for the nine months ended September 30, 2021, which was an increase of $4.1 million. The increase between the periods was primarily due to our acquisition activity and increases in rental rates over the past year.

Advisory fees. Advisory fees were $11.2 million for the nine months ended September 30, 2022 compared to $5.6 million for the nine months ended September 30, 2021, which was an increase of $5.6 million. The increase between the periods was primarily due to our equity raising activity in 2022 and increases in total debt principal outstanding.

Corporate general and administrative expenses. Corporate general and administrative expenses were $7.3 million for the nine months ended September 30, 2022 compared to $5.3 million for the nine months ended September 30, 2021, which was an increase of $2.0 million. The increase between the periods was primarily due to increases in equity-based compensation expense and other corporate expenses as our operations continued to gain scale.

Property general and administrative expenses. Property general and administrative expenses were $11.9 million for the nine months ended September 30, 2022 compared to $4.2 million for the nine months ended September 30, 2021, which was an increase of $7.7 million. The increase between the periods was primarily due to our acquisition activity in 2022.

Depreciation and amortization. Depreciation and amortization costs were $68.9 million for the nine months ended September 30, 2022 compared to $35.4 million for the nine months ended September 30, 2021, which was an increase of $33.5 million. The increase between the periods was primarily due to our acquisition activity in 2022.

Interest expense. Interest expense was $37.7 million for the nine months ended September 30, 2022 compared to $20.6 million for the nine months ended September 30, 2021, which was an increase of $17.1 million. The increase between the periods was primarily due to an increase in interest on debt and amortization of deferred financing costs, as we increased our total debt principal outstanding and witnessed an increase in our weighted average interest rate during 2022, partially offset by the change in fair value of interest rate derivatives included in interest expense. The following table details the various costs included in interest expense for the nine months ended September 30, 2022 and 2021 (in thousands):

	For the Nine Months Ended September 30,
	2022			2021			$ Change
Gross interest cost	$	45,170		$	23,360		$	21,810
Capitalized interest		(7,520	)		(2,794	)		(4,726	)
Total	$	37,650		$	20,566		$	17,084

Loss on extinguishment of debt. Loss on extinguishment of debt was $3.5 million for the nine months ended September 30, 2022 compared to no loss on extinguishment of debt for the nine months ended September 30, 2021, which was an increase of $3.5 million. The increase between the periods was due to the extinguishment of the Bridge Facility, the Bridge Facility II and the Hatchway Broadmoor Mortgage which occurred during the nine months ended September 30, 2022.

Gain/(loss) on sales of real estate. Loss on sales of real estate was less than $0.1 million for the nine months ended September 30, 2022, and loss on sales of real estate was $0.4 million for the nine months ended September 30, 2021, which was a decrease of approximately $0.4 million. There were more instances of bulk dispositions for the nine months ended September 30, 2022 than there were during the nine months ended September 30, 2021, resulting in gains on sales of real estate included in current period activity, which partially offset total loss on sales of real estate in 2022.

Casualty gain/(loss), net of insurance proceeds. Casualty loss, net of insurance proceeds, was $0.1 million for the nine months ended September 30, 2022, and casualty gain, net of insurance proceeds, was less than $0.1 million for the nine months ended September 30, 2021, which was a decrease of approximately $0.1 million. The decrease between the periods was primarily due to a slight increase in casualty events in 2022.

Table of Contents

Non-GAAP Measurements

Net Operating Income

NOI is a non-GAAP financial measure of performance. NOI is used by our management to evaluate and compare the performance of our properties to other comparable properties, to determine trends in earnings and to compute the fair value of our properties as NOI is not affected by (1) interest expense, (2) advisory fees, (3) the impact of depreciation and amortization expenses, (4) gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (5) corporate general and administrative expenses, (6) property general and administrative expenses, (7) casualty gains or losses and (8) other gains and losses that are specific to us, including loss on extinguishment of debt.

The cost of funds is eliminated from net income (loss) because it is specific to our particular financing capabilities and constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital, or in the case of assumed debt, decisions made by others, which may have changed or may change in the future. Advisory fees are eliminated because they do not reflect continuing operating costs of the property owner. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our homes that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale, which will usually change from period to period. Corporate general and administrative expenses are eliminated because they do not reflect the ongoing operating activity performed at the properties. Property general and administrative expenses are eliminated because they represent expenses such as legal, professional, centralized leasing, technology support, and accounting functions. Casualty gains or losses are excluded because of the infrequent and unusual nature of the sustained damages, they do not reflect continuing operating costs of the property owner and typically the economic impact, aside from deductible or risk retention, is covered by insurance. Losses on extinguished debt are excluded because they do not reflect continuing operating costs of the property owner. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales or sustained damage at similar times. We believe that eliminating these items from net income is useful because the resulting measure captures the actual ongoing revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.

However, the usefulness of NOI is limited because it excludes corporate general and administrative expenses, property general and administrative expense, interest expense, casualty gains or losses, advisory fees, depreciation and amortization expense, gains or losses from the sale of properties, and other gains and losses as determined under GAAP, and the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income, which further limits its usefulness.

NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere regarding the components of net income (loss) that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

Table of Contents

The following table, which has not been adjusted for the effects of noncontrolling interests (“NCI”), reconciles our NOI for the three and nine months ended September 30, 2022 and 2021 to net loss, the most directly comparable GAAP financial measure on a consolidated basis (in thousands):

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Net loss	$	(14,621	)	$	(4,799	)	$	(28,972	)	$	(6,947	)
Adjustments to reconcile net loss to NOI:
Advisory fees		4,313			2,337			11,243			5,638
Corporate general and administrative expenses		2,701			1,992			7,341			5,310
Property general and administrative expenses		4,373			1,505			11,871			4,160
Depreciation and amortization		28,693			14,881			68,856			35,432
Interest expense		16,875			7,752			37,650			20,566
Loss on extinguishment of debt		2,468			—			3,469			—
Loss on sales of real estate		224			175			8			373
Casualty (gain)/loss, net of insurance proceeds		(84	)		(151	)		78			(49	)
NOI	$	44,942		$	23,692		$	111,544		$	64,483

The following table, which has not been adjusted for the effects of NCI, reconciles our NOI for the three and nine months ended September 30, 2022 to net loss, the most directly comparable GAAP financial measure by reportable segment (in thousands):

	For the Three Months Ended September 30, 2022									For the Nine Months Ended September 30, 2022
	VineBrook			NexPoint Homes			Total			VineBrook			NexPoint Homes			Total
Net loss	$	(10,453	)	$	(4,168	)	$	(14,621	)	$	(21,810	)	$	(7,162	)	$	(28,972	)
Adjustments to reconcile net loss to NOI:
Advisory fees		4,313			—			4,313			11,243			—			11,243
Corporate general and administrative expenses		2,526			175			2,701			7,162			179			7,341
Property general and administrative expenses		3,900			473			4,373			10,310			1,561			11,871
Depreciation and amortization		23,641			5,052			28,693			63,009			5,847			68,856
Interest expense		11,199			5,676			16,875			30,976			6,674			37,650
Loss on extinguishment of debt		2,468			—			2,468			3,469			—			3,469
Loss on sales of real estate		224			—			224			8			—			8
Casualty (gain)/loss, net of insurance proceeds		(84	)		—			(84	)		78			—			78
NOI	$	37,734		$	7,208		$	44,942		$	104,445		$	7,099		$	111,544

Table of Contents

Net Operating Income for Our Same Home and Non-Same Home Properties for the Three Months Ended September 30, 2022 and 2021

There are 5,442 homes in our 2022 same home pool (our “Same Home” properties). To be included as a “Same Home,” homes must be in the VineBrook reportable segment and must have been stabilized for at least 90 days in advance of the first day of the previous fiscal year and be held through the current reporting period-end. Same Home properties for the period ended September 30, 2022 and September 30, 2021 were stabilized by October 1, 2020 and held through September 30, 2022. Same Home properties do not include homes held for sale. Homes that are stabilized are included as Same Home properties, whether occupied or vacant. See Item 1. “Business—Our Portfolio” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 23, 2022 for a discussion of the definition of stabilized. We view Same Home NOI as an important measure of the operating performance of our homes because it allows us to compare operating results of homes owned for the entirety of the current and comparable periods and therefore eliminate variations caused by acquisitions or dispositions during the periods.

The following table reflects the revenues, property operating expenses and NOI for the three months ended September 30, 2022 and 2021 for our Same Home and Non-Same Home properties (dollars in thousands):

	For the Three Months Ended September 30,
	2022		2021		$ Change			% Change
Revenues
Same Home
Rental income ⁽¹⁾	$	17,325	$	16,409	$	916			5.6	%
Other income ⁽¹⁾		47		38		9			23.7	%
Same Home revenues		17,372		16,447		925			5.6	%
Non-Same Home
Rental income ⁽¹⁾		54,750		24,529		30,221			123.2	%
Other income ⁽¹⁾		505		61		444			727.9	%
Non-Same Home revenues		55,255		24,590		30,665			124.7	%
Total revenues		72,627		41,037		31,590			77.0	%

Operating expenses
Same Home
Property operating expenses ⁽¹⁾		3,382		2,733		649			23.7	%
Real estate taxes and insurance		2,717		2,909		(192	)		-6.6	%
Property management fees ⁽²⁾		919		695		224			32.2	%
Same Home operating expenses		7,018		6,337		681			10.7	%
Non-Same Home
Property operating expenses ⁽¹⁾		8,199		4,699		3,500			74.5	%
Real estate taxes and insurance		9,543		5,248		4,295			81.8	%
Property management fees ⁽²⁾		2,925		1,061		1,864			175.7	%
Non-Same Home operating expenses		20,667		11,008		9,659			87.7	%
Total operating expenses		27,685		17,345		10,340			59.6	%

NOI
Same Home		10,354		10,110		244			2.4	%
Non-Same Home		34,588		13,582		21,006			154.7	%
Total NOI	$	44,942	$	23,692	$	21,250			89.7	%

	(1)	Presented net of tenant chargebacks.
	(2)	Fees incurred to the Manager.

See reconciliation of net income (loss) to NOI above under “—Net Operating Income.”

Table of Contents

Same Home Results of Operations for the Three Months Ended September 30, 2022 and 2021

As of September 30, 2022, our Same Home properties were approximately 95.7% occupied with a weighted average monthly effective rent per occupied home of $1,110. As of September 30, 2021, our Same Home properties were approximately 95.4% occupied with a weighted average monthly effective rent per occupied home of $1,032. For our Same Home properties, we recorded the following operating results for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021:

Revenues

Rental income. Rental income was $17.3 million for the three months ended September 30, 2022 compared to $16.4 million for the three months ended September 30, 2021, which was an increase of approximately $0.9 million, or 5.6%. The increase is related to a 7.6% increase in the weighted average monthly effective rent per occupied home and by a 0.3% increase in occupancy.

Other income. Other income remained flat at less than $0.1 million for the three months ended September 30, 2022 and 2021.

Expenses

Property operating expenses. Property operating expenses were $3.4 million for the three months ended September 30, 2022 compared to $2.7 million for the three months ended September 30, 2021, which was an increase of approximately $0.7 million, or 23.7%. The majority of the increase is related to an increase in general turnover costs of approximately $0.2 million, an increase in repairs and maintenance supply costs of approximately $0.2 million, an increase in third party maintenance costs of approximately $0.1 million and an increase in landscaping costs of approximately $0.1 million.

Real estate taxes and insurance. Real estate taxes and insurance costs were $2.7 million for the three months ended September 30, 2022 compared to $2.9 million for the three months ended September 30, 2021, which was a decrease of approximately $0.2 million, or 6.6%. The majority of the decrease is related to a decrease in property insurance costs of approximately $0.3 million, partially offset by an increase in real estate taxes of approximately $0.1 million.

Property management fees. Property management fees were $0.9 million for the three months ended September 30, 2022 compared to $0.7 million for the three months ended September 30, 2021, which was an increase of approximately $0.2 million or 32.2%. The majority of the increase is related to an approximately $0.2 million decrease in the fee rebate allocated to Same Home properties related to the Manager Cap.

Table of Contents

Net Operating Income for Our Same Home and Non-Same Home Properties for the Nine Months Ended September 30, 2022 and 2021

The following table reflects the revenues, property operating expenses and NOI for the nine months ended September 30, 2022 and 2021 for our Same Home and Non-Same Home properties (dollars in thousands):

	For the Nine Months Ended September 30,
	2022		2021		$ Change			% Change
Revenues
Same Home
Rental income ⁽¹⁾	$	51,194	$	48,908	$	2,286			4.7	%
Other income ⁽¹⁾		122		102		20			19.6	%
Same Home revenues		51,316		49,010		2,306			4.7	%
Non-Same Home
Rental income ⁽¹⁾		131,541		61,365		70,176			114.4	%
Other income ⁽¹⁾		2,099		198		1,901			960.1	%
Non-Same Home revenues		133,640		61,563		72,077			117.1	%
Total revenues		184,956		110,573		74,383			67.3	%

Operating expenses
Same Home
Property operating expenses ⁽¹⁾		8,445		6,721		1,724			25.7	%
Real estate taxes and insurance		8,389		8,916		(527	)		-5.9	%
Property management fees ⁽²⁾		2,890		2,718		172			6.3	%
Same Home operating expenses		19,724		18,355		1,369			7.5	%
Non-Same Home
Property operating expenses ⁽¹⁾		21,888		10,958		10,930			99.7	%
Real estate taxes and insurance		24,327		13,179		11,148			84.6	%
Property management fees ⁽²⁾		7,473		3,598		3,875			107.7	%
Non-Same Home operating expenses		53,688		27,735		25,953			93.6	%
Total operating expenses		73,412		46,090		27,322			59.3	%

NOI
Same Home		31,592		30,655		937			3.1	%
Non-Same Home		79,952		33,828		46,124			136.3	%
Total NOI	$	111,544	$	64,483	$	47,061			73.0	%

	(1)	Presented net of tenant chargebacks.
	(2)	Fees incurred to the Manager.

See reconciliation of net income (loss) to NOI above under “—Net Operating Income.”

Table of Contents

Same Home Results of Operations for the Nine Months Ended September 30, 2022 and 2021

As of September 30, 2022, our Same Home properties were approximately 95.7% occupied with a weighted average monthly effective rent per occupied home of $1,110. As of September 30, 2021, our Same Home properties were approximately 95.4% occupied with a weighted average monthly effective rent per occupied home of $1,032. For our Same Home properties, we recorded the following operating results for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021:

Revenues

Rental income. Rental income was $51.2 million for the nine months ended September 30, 2022 compared to $48.9 million for the nine months ended September 30, 2021, which was an increase of approximately $2.3 million, or 4.7%. The increase is related to a 7.6% increase in the weighted average monthly effective rent per occupied home and by a 0.3% increase in occupancy.

Other income. Other income remained flat at $0.1 million for the nine months ended September 30, 2022 and 2021.

Expenses

Property operating expenses. Property operating expenses were $8.4 million for the nine months ended September 30, 2022 compared to $6.7 million for the nine months ended September 30, 2021, which was an increase of approximately $1.7 million, or 25.7%. The majority of the increase is related to an increase in general turnover costs of approximately $0.8 million, an increase in repairs and maintenance supply costs of approximately $0.3 million, an increase in third party maintenance costs of approximately $0.3 million and an increase in water and sewer costs of approximately $0.2 million.

Real estate taxes and insurance. Real estate taxes and insurance costs were $8.4 million for the nine months ended September 30, 2022 compared to $8.9 million for the nine months ended September 30, 2021, which was a decrease of approximately $0.5 million, or 5.9%. The majority of the decrease is related to a decrease in property insurance costs of approximately $0.4 million and a decrease in real estate taxes of approximately $0.1 million.

Property management fees. Property management fees were $2.9 million for the nine months ended September 30, 2022 compared to $2.7 million for the nine months ended September 30, 2021, which was an increase of approximately $0.2 million, or 6.3%. The majority of the increase is related to an approximately $0.2 million decrease in the fee rebate allocated to Same Home properties related to the Manager Cap.

Table of Contents

The following table reflects a reconciliation of Same Home and Non-Same Home revenues and operating expenses to total revenues and operating expenses, including tenant chargebacks, for the three months ended September 30, 2022 and 2021 (dollars in thousands):

	For the Three Months Ended September 30,
	2022		2021
Same Home revenues	$	17,372	$	16,447
Non-Same Home revenues		55,255		24,590
Chargebacks		1,011		850
Total revenues		73,638		41,887


Same Home operating expenses		7,018		6,337
Non-Same Home operating expenses		20,667		11,008
Chargebacks		1,011		850
Total operating expenses	$	28,696	$	18,195

The following table reflects a reconciliation of Same Home and Non-Same Home revenues and operating expenses to total revenues and operating expenses, including tenant chargebacks, for the nine months ended September 30, 2022 and 2021 (dollars in thousands):

	For the Nine Months Ended September 30,
	2022		2021
Same Home revenues	$	51,316	$	49,010
Non-Same Home revenues		133,640		61,563
Chargebacks		3,303		1,763
Total revenues		188,259		112,336


Same Home operating expenses		19,724		18,355
Non-Same Home operating expenses		53,688		27,735
Chargebacks		3,303		1,763
Total operating expenses	$	76,715	$	47,853

Table of Contents

FFO, Core FFO and AFFO

We believe that net income (loss), as defined by GAAP, is the most appropriate earnings measure. We also believe that funds from operations (“FFO”) as defined by the National Association of Real Estate Investments Trusts (“NAREIT”), core funds from operations (“Core FFO”) and adjusted funds from operations (“AFFO”) are important non-GAAP supplemental measures of operating performance for a REIT.

Since the historical cost accounting convention used for real estate assets requires depreciation except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income (loss), as defined by GAAP. FFO is defined by NAREIT as net income (loss) computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization. We compute FFO for the VineBrook reportable segment in accordance with NAREIT’s definition. We excluded the NexPoint Homes reportable segment operations from the FFO calculation due to the timing of the acquisition of the portfolio as it was not deemed meaningful to the calculation. Our presentation differs slightly in that we begin with net income (loss) attributable to common stockholders and add net income (loss) attributable to NCI in the OP and then make the adjustments to arrive at FFO.

Core FFO for the VineBrook reportable segment makes certain adjustments to FFO for the VineBrook reportable segment, which relate to items that are either not likely to occur on a regular basis or are otherwise not representative of the ongoing operating performance of our Portfolio. Core FFO adjusts FFO to remove items such as gains or losses on extinguishment of debt, casualty gains or losses, changes in fair value on interest rate derivatives included in interest expense, the amortization of deferred financing costs and equity-based compensation expense. We believe Core FFO is useful as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs.

AFFO for the VineBrook reportable segment makes certain adjustments to Core FFO for the VineBrook reportable segment in order to arrive at a more refined measure of the operating performance of our Portfolio. There is no industry standard definition of AFFO and the method of calculating AFFO is divergent across the industry. AFFO adjusts Core FFO to remove recurring capital expenditures, which are costs necessary to help preserve the value and maintain functionality of our homes. We believe AFFO is useful as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs.

Basic and diluted weighted average shares in our FFO table includes both our Shares and OP Units. NexPoint Homes Shares and SFR OP Units are not part of this count as the metrics in the FFO table only pertain to the VineBrook reportable segment.

We believe that the use of FFO, Core FFO and AFFO, combined with the required GAAP presentations, improves the understanding of operating results of REITs and makes comparisons of operating results among such companies more meaningful. While FFO, Core FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income (loss) as defined by GAAP and should not be considered as an alternative or substitute to those measures in evaluating our liquidity or operating performance. FFO, Core FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO, Core FFO and AFFO may not be comparable to FFO, Core FFO and AFFO reported by other REITs.

The FFO, Core FFO and AFFO results discussed further below are for the VineBrook reportable segment, and reconcile to net loss for the VineBrook reportable segment. See below for a reconciliation of VineBrook net loss to consolidated net loss:

	For the Three Months Ended September 30, 2022									For the Nine Months Ended September 30, 2022
	VineBrook			NexPoint Homes			Total			VineBrook			NexPoint Homes			Total
Net loss attributable to common stockholders	$	(10,821	)	$	(1,019	)	$	(11,840	)	$	(24,900	)	$	(2,334	)	$	(27,234	)
Net (loss)/income attributable to redeemable NCI in the OP		(1,858	)		76			(1,782	)		(3,564	)		(412	)		(3,976	)
Net loss attributable to redeemable NCI in consolidated VIEs		—			(3,112	)		(3,112	)		—			(4,303	)		(4,303	)
Net loss attributable to NCI in consolidated VIEs		—			(113	)		(113	)		—			(113	)		(113	)

Table of Contents

The three months ended September 30, 2022 as compared to the three months ended September 30, 2021

The following table reconciles our calculations of VineBrook FFO, Core FFO and AFFO to VineBrook net loss, which is reconciled to consolidated net loss above, the most directly comparable GAAP financial measure, for the three months ended September 30, 2022 and 2021 (in thousands, except per share amounts):

	For the Three Months Ended September 30,
	2022			2021			$ Change			% Change
Net loss attributable to common stockholders	$	(10,821	)	$	(6,182	)	$	(4,639	)		75.0	%
Net loss attributable to redeemable NCI in the OP		(1,858	)		(823	)		(1,035	)		125.8	%
Depreciation and amortization		23,641			14,881			8,760			58.9	%
Loss on sales of real estate		224			175			49			28.0	%
FFO		11,186			8,051			3,135			38.9	%

FFO per share - basic	$	0.39		$	0.39		$	—			0.0	%
FFO per share - diluted	$	0.38		$	0.38		$	—			0.0	%

Casualty gain, net of insurance proceeds		(84	)		(151	)		67			-44.4	%
Amortization of deferred financing costs		2,136			1,077			1,059			98.3	%
Loss on extinguishment of debt		2,468			—			2,468			100.0	%
Change in fair value of interest rate derivatives included in interest expense		(7,694	)		—			(7,694	)		-100.0	%
Equity-based compensation expense		1,632			1,310			322			24.6	%
Core FFO		9,644			10,287			(643	)		-6.3	%

Core FFO per share - basic	$	0.33		$	0.49		$	(0.16	)		-32.7	%
Core FFO per share - diluted	$	0.33		$	0.48		$	(0.15	)		-31.3	%

Recurring capital expenditures		(3,201	)		(1,682	)		(1,519	)		90.3	%
AFFO		6,443			8,605			(2,162	)		-25.1	%

AFFO per share - basic	$	0.22		$	0.41		$	(0.19	)		-46.3	%
AFFO per share - diluted	$	0.22		$	0.40		$	(0.18	)		-45.0	%

Weighted average shares outstanding - basic		29,039			20,849
Weighted average shares outstanding - diluted ⁽¹⁾		29,499			21,365

Dividends declared per share	$	0.5301		$	0.5301

FFO Coverage - diluted ⁽²⁾	0.72x			0.71x
Core FFO Coverage - diluted ⁽²⁾	0.62x			0.91x
AFFO Coverage - diluted ⁽²⁾	0.42x			0.76x

(1)

For the three months ended September 30, 2022 and 2021, includes approximately 460,000 shares and 516,000 shares, respectively, related to the assumed vesting of RSUs and PI Units not contingent upon an IPO.

(2)

Indicates coverage ratio of FFO/Core FFO/AFFO per common share (diluted) over dividends declared per common share during the period.

FFO was $11.2 million for the three months ended September 30, 2022 compared to $8.1 million for the three months ended September 30, 2021, which was an increase of approximately $3.1 million. The change in our FFO between the periods primarily relates to an increase in VineBrook rental income of $22.1 million, partially offset by increases in VineBrook total property operating expenses of $8.7 million, VineBrook advisory fees of $2.0 million, VineBrook property general and administrative expenses of $2.4 million, VineBrook interest expense of $3.5 million and VineBrook loss on extinguishment of debt of $2.5 million. The changes in diluted Core FFO per share and AFFO per share were primarily related to a 38.0% increase in the diluted weighted average shares outstanding as of September 30, 2022 compared to September 30, 2021 as a result of significant equity raise activity. The entirety of the proceeds from these equity issuances have not been deployed immediately into the acquisition of cash flow yielding homes as a portion of the homes purchased during the period are currently in rehabilitation. The increase in the weighted average shares outstanding in the current period without a significant and immediate corresponding increase in Core FFO and AFFO resulted in the period over period decline. Also, the weighted average interest rate of debt increased from 2.4715% as of September 30, 2021 to 4.8865% as of September 30, 2022 for the VineBrook reportable segment, which has contributed to the decline in our Core FFO and AFFO per share results. On a longer time horizon, these irregularities are expected to diminish and we expect our results to normalize and comparatively improve on a per share basis as a larger amount of the acquired homes become stabilized, resulting in increases in diluted Core FFO per share and AFFO per share. Additionally, the Company has entered into eight additional interest rate derivative agreements in 2022 with a combined notional amount of $950.0 million in order to partially offset the impact of increasing interest rates.

Core FFO was $9.6 million for the three months ended September 30, 2022 compared to $10.3 million for the three months ended September 30, 2021, which was a decrease of approximately $0.7 million. The change in our Core FFO between the periods primarily relates to an increase in VineBrook interest expense and the change in fair value of interest rate derivatives included in VineBrook interest expense, which is subtracted to arrive at Core FFO given it is a non-cash item.

AFFO was $6.4 million for the three months ended September 30, 2022 compared to $8.6 million for the three months ended September 30, 2021, which was a decrease of approximately $2.2 million. The change in our AFFO between the periods primarily relates to a decrease in Core FFO and an increase in VineBrook recurring capital expenditures of $1.5 million.

Table of Contents

The nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021

The following table reconciles our calculations of VineBrook FFO, Core FFO and AFFO to VineBrook net loss, which is reconciled to consolidated net loss above, the most directly comparable GAAP financial measure, for the nine months ended September 30, 2022 and 2021 (in thousands, except per share amounts):

	For the Nine Months Ended September 30,
	2022			2021			$ Change			% Change
Net loss attributable to common stockholders	$	(24,900	)	$	(12,242	)	$	(12,658	)		103.4	%
Net loss attributable to NCI in the OP		(3,564	)		(1,324	)		(2,240	)		169.2	%
Depreciation and amortization		63,009			35,432			27,577			77.8	%
Loss on sales of real estate		8			373			(365	)		-97.9	%
FFO		34,553			22,239			12,314			55.4	%

FFO per share - basic	$	1.22		$	1.30		$	(0.08	)		-6.2	%
FFO per share - diluted	$	1.20		$	1.27		$	(0.07	)		-5.5	%

Casualty loss/(gain), net of insurance proceeds		78			(49	)		127			-259.2	%
Amortization of deferred financing costs		5,455			2,691			2,764			102.7	%
Loss on extinguishment of debt		3,469			—			3,469			100.0	%
Change in fair value of interest rate derivatives included in interest expense		(9,765	)		—			(9,765	)		-100.0	%
Equity-based compensation expense		4,704			3,384			1,320			39.0	%
Core FFO		38,494			28,265			10,229			36.2	%

Core FFO per share - basic	$	1.36		$	1.65		$	(0.29	)		-17.6	%
Core FFO per share - diluted	$	1.33		$	1.61		$	(0.28	)		-17.4	%

Recurring capital expenditures		(8,384	)		(3,935	)		(4,449	)		113.1	%
AFFO		30,110			24,330			5,780			23.8	%

AFFO per share - basic	$	1.06		$	1.42		$	(0.36	)		-25.4	%
AFFO per share - diluted	$	1.04		$	1.39		$	(0.35	)		-25.2	%

Weighted average shares outstanding - basic		28,390			17,082
Weighted average shares outstanding - diluted ⁽¹⁾		28,870			17,541

Dividends declared per share	$	1.5903		$	1.5903

FFO Coverage - diluted ⁽²⁾	0.75x			0.80x
Core FFO Coverage - diluted ⁽²⁾	0.84x			1.01x
AFFO Coverage - diluted ⁽²⁾	0.65x			0.87x

(1)

For the nine months ended September 30, 2022 and 2021, includes approximately 480,000 shares and 459,000 shares, respectively, related to the assumed vesting of RSUs and PI Units not contingent upon an IPO.

(2)

Indicates coverage ratio of FFO/Core FFO/AFFO per common share (diluted) over dividends declared per common share during the period.

FFO was $34.6 million for the nine months ended September 30, 2022 compared to $22.2 million for the nine months ended September 30, 2021, which was an increase of approximately $12.4 million. The change in our FFO between the periods primarily relates to an increase in VineBrook rental income of $62.0 million, partially offset by increases in VineBrook total property operating expenses of $25.7 million, VineBrook advisory fees of $5.6 million, VineBrook corporate general and administrative expenses of $1.9 million, VineBrook property general and administrative expenses of $6.2 million and VineBrook interest expense of $10.4 million. The changes in diluted FFO per share, Core FFO per share and AFFO per share were primarily related to an 64.6% increase in the diluted weighted average shares outstanding as of September 30, 2022 compared to September 30, 2021 as a result of significant equity raise activity. The entirety of the proceeds from these equity issuances have not been deployed immediately into the acquisition of cash flow yielding homes as a portion of the homes purchased during the period are currently in rehabilitation. This significant increase in the weighted average shares outstanding in the current period without a significant and immediate corresponding increase in FFO resulted in the period over period decline. Also, the weighted average interest rate of debt increased from 2.4715% as of September 30, 2021 to 4.8865% as of September 30, 2022 for the VineBrook reportable segment, which has contributed to the decline in our FFO per share results. On a longer time horizon, these irregularities are expected to diminish and we expect our results to normalize and comparatively improve on a per share basis as a larger amount of the acquired homes become stabilized, resulting in increases in diluted FFO per share, Core FFO per share and AFFO per share. Additionally, the Company has entered into eight additional interest rate derivative agreements in 2022 with a combined notional amount of $950.0 million in order to partially offset the impact of increasing interest rates.

Core FFO was $38.5 million for the nine months ended September 30, 2022 compared to $28.3 million for the nine months ended September 30, 2021, which was an increase of approximately $10.2 million. The change in our Core FFO between the periods primarily relates to an increase in FFO partially offset by the change in fair value in interest rate derivatives included in interest expense, which is subtracted to arrive at Core FFO given it is a non-cash item.

AFFO was $30.1 million for the nine months ended September 30, 2022 compared to $24.3 million for the nine months ended September 30, 2021, which was an increase of approximately $5.8 million. The change in our AFFO between the periods primarily relates to an increase in Core FFO and an increase in VineBrook recurring capital expenditures of $4.5 million.

Table of Contents

Net Asset Value

The sale price of the Shares sold in the Private Offering as well as the sale price of OP Units was equal to the most recent NAV per share in effect at the time a subscription agreement or funds were received, plus applicable fees and commissions. The purchase price at which Shares may be repurchased in accordance with the terms of the Share Repurchase Plan (defined below) is generally based on the most recent NAV per share in effect at the time of repurchase, and Shares or OP Units issued under the applicable DRIP generally reflect a 3% discount to the then-current NAV per share.

Effective for valuations beginning on July 31, 2021, the Company implemented an amended and restated Valuation Methodology as approved by our Board. Under the Valuation Methodology, Green Street Advisors (“Green Street”) calculates a preliminary NAV by valuing the portfolio in accordance with the Valuation Methodology. Green Street then recommends the preliminary NAV to the Adviser. Based on this recommendation, the Adviser then calculates transaction costs and makes any other adjustments, including costs of internalization, determined necessary to finalize NAV. The finalized NAV is then approved by the pricing committee of the Board.

On and before March 31, 2020, NAV was determined as of the end of each quarter. Beginning April 30, 2020, NAV was determined as of the end of each month. Effective for NAV determined on and after December 31, 2021, NAV has been determined as of the end of each quarter. NAV per share is calculated on a fully diluted basis. The table below illustrates the changes in NAV since inception:

Date	NAV per share
November 1, 2018	$	25.00
December 31, 2018		28.27
March 31, 2019		28.75
June 30, 2019		28.88
September 30, 2019		29.85
December 31, 2019		30.58
March 31, 2020		30.59
April 30, 2020		30.82
May 31, 2020		31.08
June 30, 2020		31.24
July 31, 2020		31.47
August 31, 2020		32.91
September 30, 2020		34.00
October 31, 2020		34.18
November 30, 2020		34.38
December 31, 2020		36.56
January 31, 2021		36.56
February 28, 2021		36.68
March 31, 2021		36.82
April 30, 2021		37.85
May 31, 2021		38.68
June 30, 2021		40.82
July 31, 2021		43.76
August 31, 2021		46.19
September 30, 2021		47.90
October 31, 2021		49.09
November 30, 2021		51.38
December 31, 2021		54.14
March 31, 2022		59.85
June 30, 2022		62.75
September 30, 2022		62.97

Fees and Commissions paid to Placement Agents and Dealer Manager

Subject to certain exceptions, investors that purchased Shares through the Private Offering generally paid the Placement Agents in the Private Offering placement fees or commissions, in addition to the NAV sales price. For sales through Placement Agents other than Raymond James, the placement fees or commissions were generally between 1% to 5.5% of gross investor equity, subject to certain breakpoints and various terms of each specific Selling Agreement. A placement fee equal to 3% and an advisory fee equal to 2% of gross proceeds invested, which is also in addition to the NAV sales price, was paid to Raymond James for all Shares sold by Raymond James on behalf of the Company in the Private Offering. With the consent of the applicable Placement Agent, some or all of the applicable fees and commissions may have been waived. Other Selling Agreements may have had specific fees that differ from the Raymond James fees related to selling Shares to their clients. In addition, the Dealer Manager generally received a fee of 0.5% on sales in the Private Offering through Raymond James and 3% on sales through other Placement Agents, a portion of which may be reallowed to those Placement Agents. Placement Agent compensation was subject to a reasonable carve-out for sales of Shares directly by the Company or for sales to employees of our Adviser, Manager and affiliates thereof. For sales through registered investment advisors (“RIAs”), the Dealer Manager received a fee of up to 2% of gross investor equity. With respect to sales through RIAs or Placement Agents other than Raymond James who in each case were first introduced to the Company by Raymond James, Raymond James could receive a participating placement fee equal to 1% of gross investor equity. The Private Offering was terminated on September 14, 2022.

Table of Contents

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of funds necessary to pay for debt maturities, operating expenses and other expenditures directly associated with our homes, including:

•

recurring maintenance necessary to maintain our homes;

•

interest expense and scheduled principal payments on outstanding indebtedness;

•

distributions necessary to qualify for taxation as a REIT;

•

advisory fees payable to our Adviser;

•

general and administrative expenses;

•

capital expenditures related to upcoming acquisitions and rehabilitation of owned homes;

•

offering expenses related to raising equity; and

•

property management fees payable to the Manager.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and debt financing. Additionally, as of September 30, 2022, we had access to credit through our credit facilities. The Warehouse Facility has an additional $5.0 million of capacity.

Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional homes, renovations and other capital expenditures to improve our homes and scheduled debt payments and distributions. We expect to meet our long-term liquidity requirements through various sources of capital, which may include public or private issuances of common equity, preferred equity or debt, draws on our revolving credit facilities, existing working capital, net cash provided by operations, long-term mortgage indebtedness and may include other secured and unsecured borrowings. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity, market perceptions about us and restrictions on sales of properties under the Code. Additionally, the Company continues to monitor the impact of COVID-19 and its impact on future rent collections, valuation of real estate investments, impact on cash flow and ability to refinance or repay debt. The success of our business strategy will depend, in part, on our ability to access these various capital sources.

As disclosed in Note 16 to our consolidated financial statements, so far in the fourth quarter of 2022 we have acquired 432 homes for an aggregate purchase price of approximately $52.9 million. In addition, we expect to complete the Internalization of the Manager in the fourth quarter of 2022, which we expect will be paid in a mix of cash and equity.

Table of Contents

Our homes will require periodic capital expenditures and renovation to remain competitive. Also, acquisitions of new homes will require significant capital outlays. Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures and acquisitions through retained earnings long-term is limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects could be materially and adversely affected.

We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, acquisitions, anticipated scheduled debt service payments and dividend requirements for the twelve-month period following September 30, 2022, except as would not be expected to have a material adverse effect. We believe that the various sources of long-term capital, which may include public or private issuances of common equity, preferred equity or debt, draws on our revolving credit facilities, existing working capital, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings will provide sufficient funds for our operations, acquisitions, anticipated scheduled debt service payments and dividend requirements in the long-term, except as would not be expected to have a material adverse effect.

Cash Flows

The nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021

The following table presents selected data from our consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 (in thousands):

	For the Nine Months Ended September 30,
	2022			2021			$ Change
Net cash provided by operating activities	$	83,714		$	45,175		$	38,539
Net cash used in investing activities		(1,587,630	)		(808,656	)		(778,974	)
Net cash provided by financing activities		1,552,166			799,663			752,503
Change in cash and restricted cash		48,250			36,182			12,068
Cash and restricted cash, beginning of period		74,997			37,096			37,901
Cash and restricted cash, end of period	$	123,247		$	73,278		$	49,969

Cash flows from operating activities. During the nine months ended September 30, 2022, net cash provided by operating activities was $83.7 million compared to net cash provided by operating activities of $45.2 million for the nine months ended September 30, 2021. The change in cash flows from operating activities was mainly due to an increase in net operating income during the period.

Cash flows from investing activities. During the nine months ended September 30, 2022, net cash used in investing activities was $1.6 billion compared to net cash used in investing activities of $808.7 million for the nine months ended September 30, 2021. The change in cash flows from investing activities was mainly due to the acquisition of NexPoint Homes through VIE consolidation, net of cash received, during the period, as well as an increase in acquisitions of real estate investments and an increase in additions to real estate investments during the period.

Cash flows from financing activities. During the nine months ended September 30, 2022, net cash provided by financing activities was $1.6 billion compared to net cash provided by financing activities of $799.7 million for the nine months ended September 30, 2021. The change in cash flows from financing activities was mainly due to an increase in proceeds received from notes payable, an increase in proceeds received from credit facilities and an increase in contributions from redeemable noncontrolling interests in consolidated VIEs, which was partially offset by a decrease in proceeds received from issuance of Class A common stock during the period.

Table of Contents

Debt, Derivatives and Hedging Activity

Debt

As of September 30, 2022, the VineBrook reportable segment had aggregate debt outstanding to third parties of approximately $1.9 billion at a weighted average interest rate of 4.8865% and an adjusted weighted average interest rate of 4.1611%. For purposes of calculating the adjusted weighted average interest rate of our debt outstanding, we have included the weighted average fixed rate of 1.9508%, representing a weighted average fixed rate for one-month LIBOR, daily SOFR and one-month term SOFR, on our combined $1.3 billion notional amount of interest rate swap agreements and interest rate cap agreement, which effectively fixes the interest rate on $1.3 billion of our floating rate debt. See Notes 7 and 8 to our consolidated financial statements for additional information.

The following table sets forth a summary of our mortgage loan indebtedness for the VineBrook reportable segment as of September 30, 2022:

		Outstanding Principal as of
	Type	September 30, 2022		Interest Rate (1)			Maturity
Initial Mortgage	Floating	$	240,885		4.69	%	12/1/2025
Warehouse Facility	Floating		1,195,000		4.84	%	11/3/2024	(2)
JPM Facility	Floating		320,000		5.83	%	3/1/2023
MetLife Note	Fixed		124,462		3.25	%	1/31/2026
TrueLane Mortgage	Fixed		10,168		5.35	%	2/1/2028
Crestcore II Note	Fixed		4,671		5.12	%	7/9/2029
Crestcore IV Note	Fixed		4,153		5.12	%	7/9/2029
Total Outstanding Principal		$	1,899,339

(1)

Represents the interest rate as of September 30, 2022. Except for fixed rate debt, the interest rate is one-month LIBOR, daily SOFR or one-month term SOFR, plus an applicable margin. One-month LIBOR as of September 30, 2022 was 3.1427%, daily SOFR as of September 30, 2022 was 2.9800% and one-month term SOFR as of September 30, 2022 was 3.0421%.

(2)

This is the stated maturity for the Warehouse Facility, but it is subject to a 12-month extension option.

In addition to the mortgage loan indebtedness for the VineBrook reportable segment presented above and described below, the NexPoint Homes reportable segment had $567.4 million of debt outstanding at September 30, 2022 (excluding amounts owed to the OP by NexPoint Homes, as these are eliminated in consolidation). See Notes 5, 7 and 13 to the unaudited consolidated financial statements.

Table of Contents

On September 20, 2019, the OP, as guarantor, and VB One, LLC, as borrower, entered into a credit facility (the “Warehouse Facility”) with KeyBank. The Warehouse Facility is secured by an equity pledge in certain assets of VB One, LLC and an equity pledge in the equity of VB One, LLC. On November 3, 2021, the Company, as guarantor, the OP, as parent borrower, and each of (i) VB OP Holdings, LLC and (ii) VB One, LLC and certain of its subsidiaries, as subsidiary borrowers, entered into an amended and restated credit agreement to recast the Warehouse Facility, which was subsequently amended on December 9, 2021, April 8, 2022 and May 20, 2022. The amended recast Warehouse Facility is a full-term, interest-only facility with an initial 36-month term ending November 3, 2024, has one 12-month extension option, and bears interest at a variable rate equal to the forward-looking term rate based on SOFR for the applicable interest period (one-month term SOFR), or daily SOFR for the applicable interest period, plus a margin of 0.1% plus an applicable rate ranging from 1.6% to 2.45% depending on the Company’s consolidated total leverage ratio. Under the amended recast Warehouse Facility, the OP has the right to increase the total commitments available for borrowing, which may take the form of an increase in revolving commitments or one or more tranches of term loan commitments, up to $1.2 billion. On September 13, 2022, the Company received increased commitments of $200.0 million on the Warehouse Facility, incurring $3.3 million of deferred financing costs, and then drew $200.0 million on the Warehouse Facility. As of September 30, 2022, $1.2 billion was drawn on the Warehouse Facility. The balance of the Warehouse Facility, net of unamortized deferred financing costs, is included in credit facilities on the consolidated balance sheets.

On December 28, 2020, in connection with the acquisition of a 45-home portfolio, the OP provided a non-recourse carveout guaranty related to the approximately $2.4 million CoreVest Note assumed by a subsidiary of the OP as a result of the OP’s acquisition of SMP Homes 5B, LLC. The CoreVest Note is secured by the properties in SMP Homes 5B, LLC and an equity pledge in SMP Homes 5B, LLC and bears interest at a fixed rate equal to 6.12%. The CoreVest Note matures and is due in full on January 9, 2023 and requires monthly principal and interest payments. On July 11, 2022, the OP repaid the full balance of the CoreVest Note, which extinguished the CoreVest Note.

On March 1, 2021, the Company entered into a non-recourse carveout guaranty and certain wholly owned subsidiaries of VB Three, LLC, as borrowers, entered into a $500.0 million credit agreement with JP Morgan (the “JPM Facility”). The JPM Facility is secured by equity pledges in VB Three, LLC and its wholly owned subsidiaries and bears interest at a variable rate equal to one-month LIBOR plus 2.75%. The JPM Facility is interest-only and matures and is due in full on March 1, 2023. On March 10, 2022, the Company entered into Amendment No. 1 to the JPM Facility, wherein each advance under the JPM Facility will bear interest at a daily SOFR plus 2.85%. As of September 30, 2022, the outstanding balance of the JPM Facility was $320.0 million and had $180.0 million of available capacity. The balance of the JPM Facility, net of unamortized deferred financing costs, is included in credit facilities on the consolidated balance sheets. The JPM Facility currently matures on March 1, 2023. Management is in the process of extending or refinancing the facility with the existing lender. If the Company is not able to complete an extension or refinancing with the existing lender, management believes it has sufficient access to other potential sources of capital, including through raising equity, securing new debt or selling a portion of the portfolio to repay the debt upon maturity.

On January 13, 2022, in connection with the acquisition of a 98-home portfolio, the OP, as guarantor, assumed an approximately $4.6 million Freddie Mac mortgage loan (the “Hatchway Broadmoor Mortgage”) with Arbor Agency Lending, LLC as a result of the OP’s acquisition of Hatchway Broadmoor, LLC. The Hatchway Broadmoor Mortgage is secured by properties in Hatchway Broadmoor, LLC and an equity pledge in Hatchway Broadmoor, LLC and bears interest at a fixed rate equal to 5.35%. The Hatchway Broadmoor Mortgage matures and is due in full on February 1, 2029 and requires monthly principal and interest payments. On August 19, 2022, the OP repaid the full balance of the Hatchway Broadmoor Mortgage, which extinguished the Hatchway Broadmoor Mortgage.

Table of Contents

On February 8, 2022, in connection with the acquisition of the Prager Portfolio, the Company entered into a bridge credit agreement through the OP with KeyBank National Association, and borrowed $150.0 million (the “Bridge Facility”). On April 8, 2022, the Company repaid the outstanding principal balance on the Bridge Facility, which extinguished the Bridge Facility. In connection with the extinguishment of the Bridge Facility, the Company incurred a loss on extinguishment of debt of approximately $1.0 million, which is presented on the consolidated statements of operations and comprehensive income (loss).

On March 18, 2022, in connection with the acquisition of an 88-home portfolio, the OP provided a non-recourse carveout guaranty related to an approximately $4.7 million mortgage loan assumed by a subsidiary of the OP (the “Crestcore II Note”) with CoreVest American Finance Lender LLC as a result of the OP’s acquisition of Crestcore II, LLC. The Crestcore II Note is secured by the properties in Crestcore II, LLC and an equity pledge in Crestcore II, LLC and bears interest at a fixed rate equal to 5.12%. The Crestcore II Note matures and is due in full on July 9, 2029 and requires monthly principal and interest payments. The balance of the Crestcore II Note, net of unamortized deferred financing costs, is included in notes payable on the consolidated balance sheets.

On March 18, 2022, in connection with the acquisition of an 82-home portfolio, the OP provided a non-recourse carveout guaranty related to an approximately $4.2 million mortgage loan assumed by a subsidiary of the OP (the “Crestcore IV Note”) with CoreVest American Finance Lender LLC as a result of the OP’s acquisition of Crestcore IV, LLC. The Crestcore IV Note is secured by the properties in Crestcore IV, LLC and an equity pledge in Crestcore IV, LLC and bears interest at a fixed rate equal to 5.12%. The Crestcore IV Note matures and is due in full on July 9, 2029 and requires monthly principal and interest payments. The balance of the Crestcore IV Note, net of unamortized deferred financing costs, is included in notes payable on the consolidated balance sheets.

On August 25, 2022, in connection with the acquisition of the Global Atlantic Portfolio, the Company entered into a bridge credit agreement through the OP with KeyBank National Association, and borrowed $165.0 million (the “Bridge Facility II”). The Bridge Facility II accrued interest at one-month term SOFR plus a margin of 2.6%. On September 2, 2022, the Company drew an additional $35.0 million on the Bridge Facility II. On September 13, 2022, the Company repaid the outstanding principal balance on the Bridge Facility II, which extinguished the Bridge Facility II. In connection with the extinguishment of the Bridge Facility II, the Company incurred a loss on extinguishment of debt of approximately $1.8 million, which is presented on the consolidated statements of operations and comprehensive income (loss).

As of September 30, 2022, the Company was in compliance with the debt covenants in each of its debt agreements.

We intend to invest in additional homes as suitable opportunities arise and adequate sources of equity and debt financing are available. We expect that future investments in properties, including any improvements or renovations of current or newly acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, future borrowings and the proceeds from additional issuances of Shares, Preferred Shares or other securities or property dispositions.

Although we expect to be subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing Shares, Preferred Shares or other debt or equity securities, on terms that are acceptable to us or at all.

Furthermore, following the completion of our renovations and depending on the interest rate environment at the applicable time, we may seek to refinance our floating rate debt into longer-term fixed rate debt at lower leverage levels.

For full descriptions of the debt arrangements not included in this Form 10-Q, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Debt, Derivatives and Hedging Activity” in our Annual Report.

Interest Rate Derivative Agreements

We have entered into and expect to continue to enter into interest rate swap and cap agreements with various third parties to fix or cap the floating interest rates on a majority of our floating rate mortgage debt outstanding. The interest rate swap agreements generally have a term of approximately three to six years and effectively establish a fixed interest rate on debt on the underlying notional amounts. In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we, through the OP, have entered into 12 interest rate swap transactions with KeyBank and Mizuho with a combined notional amount of $970.0 million. As of September 30, 2022, the interest rate swaps we have entered into effectively replace the floating interest rate (one-month LIBOR or daily SOFR) with respect to $970.0 million of our floating rate mortgage debt outstanding with a weighted average fixed rate of 2.0902%. As of September 30, 2022, interest rate swap agreements effectively covered $970.0 million, or 55.2%, of our $1.8 billion of floating rate debt outstanding for the VineBrook reportable segment. During the term of these interest rate swap agreements, we are required to make monthly fixed rate payments of 2.0902%, on a weighted average basis, on the notional amounts, while KeyBank and Mizuho are obligated to make monthly floating rate payments based on one-month LIBOR or daily SOFR to us referencing the same notional amounts. For purposes of hedge accounting under ASC 815, Derivatives and Hedging, we have designated these interest rate swaps as cash flow hedges of interest rate risk. See Notes 7 and 8 to our consolidated financial statements for additional information.

On April 13, 2022, we paid a premium of approximately $12.7 million and entered into an interest rate cap transaction with Goldman Sachs Bank USA with a notional amount of $300.0 million. The interest rate cap effectively caps one-month term SOFR on $300.0 million of our floating rate debt at 1.50%. The interest rate cap expires on November 1, 2025.

Table of Contents

Reference Rate Reform

On March 5, 2021, the Financial Conduct Authority of the U.K. (the “FCA”) announced that one-month LIBOR will either cease to be provided by any administrator or no longer be representative immediately after June 30, 2023. This announcement has several implications, including setting the spread that may be used to convert the index rates in our debt and hedging contracts from LIBOR to an alternative rate, such as the Secured Overnight Financing Rate.

The Company anticipates that one-month LIBOR will continue to be available at least until June 30, 2023. Any changes adopted by the FCA or other governing bodies in the method used for determining one-month LIBOR may result in a sudden or prolonged increase or decrease in reported one-month LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if one-month LIBOR were to remain available in its current form.

The Company has contracts that are indexed to one-month LIBOR and it is monitoring and evaluating the related risks, which include interest on loans and amounts received/paid on derivative instruments. These risks arise in connection with transitioning contracts to an alternative rate, including any resulting value transfer that may occur. Transitions and alternative rates are likely to vary by contract. The value of loans, securities, or derivative instruments tied to one-month LIBOR, as well as interest rates on our current or future indebtedness, may also be impacted if one-month LIBOR is unrepresentative or discontinued. For some instruments the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition or upon which alternative rate is appropriate.

While we expect one-month LIBOR to be available in substantially its current form until at least June 30, 2023, it is possible that one-month LIBOR will become unavailable prior to that point. This could result, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.

Alternative rates and other market changes related to the replacement of one-month LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.

The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with one-month LIBOR.

Adjustments to systems and mathematical models to properly process and account for alternative rates will be required, which may strain the model risk management and information technology functions and result in substantial incremental costs for the Company.

Table of Contents

REIT Tax Election and Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and expect to continue to qualify as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our “REIT taxable income,” as defined by the Code, to our stockholders. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable U.S. federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the three and nine months ended September 30, 2022 and 2021. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. NexPoint Homes has elected to be taxed as a REIT under Sections 856 through 860 of the Code and expects to continue to qualify as a REIT.

We anticipate that we will continue to qualify to be taxed as a REIT for U.S. federal income tax purposes, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders. As a REIT, we will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years.

If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.

We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. We have no examinations in progress and none are expected at this time.

We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

We had no material unrecognized tax benefit or expense, accrued interest or penalties as of September 30, 2022. We and our subsidiaries are subject to U.S. federal income tax as well as income tax of various state and local jurisdictions. The 2021, 2020 and 2019 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our consolidated statements of operations and comprehensive income (loss).

Dividends

We intend to make regular quarterly dividend payments to holders of our Shares. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income to holders of our Shares out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.

We will make dividend payments based on our estimate of taxable earnings per share of common stock, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses. Our dividends per share may be substantially different than our taxable earnings and GAAP earnings per share.

Table of Contents

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to increases in rents nationwide. The majority of our lease terms are for a period of one year or less and reset to market if renewed. The majority of our leases also contain protection provisions applicable to reimbursement billings for utilities. Due to the short-term nature of our leases, we do not believe our results will be materially affected.

Inflation may also affect the overall cost of debt, as the implied cost of capital increases. The Federal Reserve, in response to or in anticipation of continued inflation concerns, could continue to raise interest rates. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate derivatives, which to date have included interest rate cap and interest rate swap agreements.

Seasonality

We believe that our business and related operating results will be impacted by seasonal factors throughout the year. We experience higher levels of tenant move-outs and move-ins during the late spring and summer months, which impacts both our rental revenues and related turnover costs. Furthermore, our property operating costs are seasonally impacted in certain markets for expenses such as repairs to heating, ventilation and air conditioning systems, turn costs and landscaping expenses during the summer season. Additionally, our SFR properties are at greater risk in certain markets for adverse weather conditions such as extreme cold weather in winter months and hurricanes in late summer months.

Off-Balance Sheet Arrangements

As of September 30, 2022 and December 31, 2021, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts. These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of recently issued accounting pronouncements and our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this report.

Table of Contents

Real Estate Investments

Upon acquisition, we evaluate our acquired SFR properties for purposes of determining whether a transaction should be accounted for as an asset acquisition or business combination. Since substantially all of the fair value of our acquired properties is concentrated in a single identifiable asset or group of similar identifiable assets and the acquisitions do not include a substantive process, our purchases of homes or portfolios of homes qualify as asset acquisitions. Accordingly, upon acquisition of a property, the purchase price and related acquisition costs (the “Total Consideration”) are allocated to land, buildings, improvements, fixtures, and intangible lease assets based upon their relative fair values.

The allocation of Total Consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement (“ASC 820”) (see Note 8 to our consolidated financial statements), is based on an independent third-party valuation firm’s estimate of the fair value of the tangible and intangible assets and liabilities acquired, or management's internal analysis based on market knowledge obtained from historical transactions. The valuation methodology utilizes market comparable information, depreciated replacement cost and other estimates in allocating value to the tangible assets. The allocation of the Total Consideration to intangible lease assets represents the value associated with the in-place leases, as one month’s worth of effective gross income (rental revenue, less credit loss allowance, plus other income) as the average downtime of the assets in the portfolio is approximately one month and the assets in the portfolio are leased on a gross rental structure. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized or accreted as interest expense over the life of the debt assumed.

The allocation of Total Consideration to the various components of properties acquired during the year can have an effect on our net loss due to the useful depreciable and amortizable lives applicable to each component and the recognition of the related depreciation and amortization expense. For example, if a greater portion of the Total Consideration is allocated to land, which does not depreciate, our net income would be higher. Typically, we allocate between 10% to 30% of the Total Consideration to land.

Real estate assets, including land, buildings, improvements, fixtures, and intangible lease assets are stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. Expenditures for improvements, renovations, and replacements are capitalized at cost. The Company also incurs costs to prepare acquired properties for rental. These costs are capitalized to the cost of the property during the period the property is undergoing activities to prepare it for its intended use. We capitalize interest costs as a cost of the property only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided that expenditures for the asset have been made and interest costs have been incurred. Upon completion of the renovation of our properties, all costs of operations, including repairs and maintenance, are expensed as incurred, unless the renovation meets the Company’s capitalization criteria.

Impairment

Real estate assets are reviewed for impairment quarterly or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Significant indicators of impairment may include, but are not limited to, declines in home values, rental rates or occupancy percentages, as well as significant changes in the economy. In such cases, the Company will evaluate the recoverability of the assets by comparing the estimated future cash flows expected to result from the use and eventual disposition of each asset to its carrying amount and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount. If impaired, the real estate asset will be written down to its estimated fair value. The process whereby we assess our SFR homes for impairment requires significant judgment and assessment of factors that are, at times, subject to significant uncertainty. No significant impairments on operating properties were recorded during the years ended December 31, 2021 and 2020 or the three and nine months ended September 30, 2022 and 2021.

Table of Contents

Implications of being an Emerging Growth Company and Smaller Reporting Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”) and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. We may elect to comply with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS Act.

We could remain an “emerging growth company” until the earliest of (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of shares of our common stock pursuant to an effective registration statement, (2) the last day of the fiscal year in which our annual gross revenues exceed $1.07 billion, (3) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (4) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

We are also a “smaller reporting company” as defined in the Exchange Act, and may elect to take advantage of certain of the scaled disclosures available to smaller reporting companies. We may be a smaller reporting company even after we are no longer an “emerging growth company.”

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our Interim President and Chief Financial Officer, evaluated, as of September 30, 2022, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Interim President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Interim President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15-d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.

Item 1A. Risk Factors

Except as noted below, there have been no material changes to the risk factors previously disclosed under Item 1A, “Risk Factors,” of our Annual Report.

Macroeconomic trends including inflation and rising interest rates may adversely affect our financial condition and results of operations.

Macroeconomic trends, including increases in inflation and rising interest rates, may adversely impact our business, financial condition and results of operations. Inflation in the United States has recently accelerated and is currently expected to continue at an elevated level in the near-term. Rising inflation could have an adverse impact on our operating expenses and our floating rate mortgages and credit facilities, as these costs could increase at a rate higher than our rental and other revenue. There is no guarantee we will be able to mitigate the impact of rising inflation. The Federal Reserve has recently started raising interest rates to combat inflation and restore price stability and it is expected that rates will continue to rise throughout the remainder of 2022. In addition, to the extent our exposure to increases in interest rates on any of our debt is not eliminated through interest rate swaps and interest rate protection agreements, such increases will result in higher debt service costs which will adversely affect our cash flows. We cannot assure you that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings. Such future constraints could increase our borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments, which could slow or deter future growth.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Shares

The following table presents information regarding the sale of Shares in the Continuous Offering and the DRIP that have not been previously disclosed in Current Reports on Form 8-K.

	Common Stock Private Offering						Common Stock DRIP
Date	Shares Sold		Sale Price (1)		Gross Proceeds		Shares Reinvested		Sale Price (2)		Gross Proceeds (3)		Total Gross Proceeds
September 14, 2022		176,274	$	59.85	$	10,550		—	$	—	$	—	$	10,550
September 30, 2022		—		—		—		114,288		60.87		6,991		6,991
		176,274			$	10,550		114,288			$	6,991	$	17,541

(1)

Sale price is the per share weighted average for the sale date which includes upfront selling costs.

(2)

Shares issued under DRIP are generally issued at a 3% discount to the Company’s then-current NAV.

(3)

For Shares issued under the DRIP, we do not receive any cash proceeds from the transaction as the shareholder receives shares in lieu of the cash dividend. Refer to Note 9 for further discussion.

An aggregate of approximately $0.8 million in selling commissions and fees were paid in connection with sales of Shares in the Continuous Offering in the above transactions. No underwriting discount or commission is applicable to sales pursuant to the DRIP.

The Company issued the Shares noted above to accredited investors in reliance upon the exemptions from registration under the Securities Act Securities Act provided by Rule 506(b) under Regulation D promulgated under the Securities Act and Section 4(a)(2) of the Securities Act.

Repurchase of Shares

The Company has adopted a share repurchase plan (the “Share Repurchase Plan”) pursuant to which investors may request on a quarterly basis that the Company repurchase all or a portion of their Shares, subject to certain terms and conditions. Under the Share Repurchase Plan, shares will be repurchased at the most recent NAV per share in effect, which will generally be equal to our prior quarter’s or month’s NAV per share. The Share Repurchase Plan began on November 1, 2019. The total amount of aggregate repurchases of Shares is limited to no more than 5% of the Company’s aggregate NAV per calendar quarter. For additional discussion and information, see “Exhibit 4.1. Description of Registrant’s Securities to be Registered—Share Repurchase Plan” in our Annual Report. The table below contains information regarding the repurchases of Shares by the Company pursuant to the Share Repurchase Plan during the three months ended September 30, 2022.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs (in thousands)
July 1 - July 31		—	$	—		—	$	—
August 1 - August 31		—		—		—		—
September 1 - September 30		674,891		62.75		674,891		55,969
Total		674,891	$	62.75		674,891	$	55,969

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits

EXHIBIT INDEX

Exhibit Number	Description


2.1*	Interest Purchase Agreement dated August 3, 2022 by and among VB Five, LLC, SOF-XI Term Holdings, L.P. and SOF-XI Term Parent Holdings, L.P.

2.2*	Interest Purchase Agreement dated August 3, 2022 by and among VB Five, LLC, SOF-XI Term Holdings, L.P, O. F-XI RS Holdings, L.P. and SFR Master Holdings, L.P.

10.1*	Amended and Restated Revolving Credit Agreement, dated November 3, 2021, by and among VineBrook Homes Operating Partnership, L.P., as parent borrower, certain of its subsidiaries, as subsidiary borrowers, the lenders party thereto, KeyBank National Association, as administrative agent, Citizens Bank, N.A., as documentation agent, BMO Capital Markets Corp., Raymond James Bank, Truist Securities, Inc., Wells Fargo Bank, National Association and Citizens Bank, N.A. as co-syndication agents, and KeyBanc Capital Markets Inc., BMO Capital Markets Corp., Raymond James Bank, Truist Securities, Inc., Wells Fargo Bank, National Association and Citizens Bank, N.A. as joint lead arrangers and joint bookrunners, as amended.

31.1*	Certification of Interim President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1+	Certification of Interim President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	Inline XBRL Instance Document

101.SCH*	Inline XBRL Taxonomy Extension Schema Document

101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

+ Furnished herewith.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

VineBrook Homes Trust, Inc.

Signature	Title	Date

/s/ Brian Mitts		November 14, 2022
Brian Mitts	Interim President, Chief Financial Officer, Treasurer and Assistant Secretary
	(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)