Nexpoint Diversified Real Estate Trust

This is a non-binding, advisory vote (a 'say-on-pay') asking shareholders to approve the overall compensation of the Company’s named executive officers as disclosed in the proxy statement. Management emphasizes that the Company is externally managed by its Adviser, which determines and pays the named executive officers’ cash compensation, and that the Company may grant equity-based awards to these officers to align interests with shareholders. The Board and compensation committee unanimously recommend a vote FOR, noting prior shareholder support (88.6% in 2025) and that the committee will consider the vote’s outcome in future compensation decisions. The vote does not alter contractual compensation arrangements and is advisory only, but carries reputational and governance weight; the compensation committee uses the result to guide incentive design, frequency of advisory votes (annual by Board policy), and potential adjustments. Given the Adviser structure, the proxy explains limited direct cash payments from the Company and describes equity awards, clawback policies, and post-vesting holding requirements intended to align leadership incentives with shareholder interests. In evaluating the proposal, shareholders should consider the external management arrangement, the use of equity awards for alignment, historical voting results, and the Board’s commitment to incorporate feedback. A FOR vote signals shareholder acceptance of executive pay practices and the disclosures provided; a AGAINST or WITHHOLD would signal concern and could prompt further Board review. Management frames the vote as consistent with governance best practices and annual shareholder feedback mechanisms.

This proposal asks shareholders to approve adoption of the Company’s 2026 Long Term Incentive Plan (the 2026 LTIP), which would replace the 2023 LTIP and authorize up to 1,872,000 Common Shares for issuance under a broad suite of award types (RSUs, option rights, SARs, performance awards, profits interest units, etc.). Management and the compensation committee argue the plan is needed to attract, retain and align executives, non-employee trustees and other key service providers with long-term shareholder value, and the Board unanimously recommends approval. The plan includes governance-oriented features: a one-year minimum vesting default (with limited exceptions), limits on non-employee trustee compensation, no liberal share counting, no repricing without shareholder approval, double-trigger change-in-control protections, and clawback provisions. Approval would enable future equity grants (including ISOs up to the share cap) and permit flexibility in award design while capping dilution (estimated overhang to ~8.6% if reserve is included). If approved, the Company will register the shares on Form S-8 and cease new grants under the 2023 LTIP; if not approved, the 2023 LTIP remains in effect and the company could not grant awards under the 2026 LTIP. Investors should weigh the incremental dilution and burn rate history against the need to retain executives in an externally managed REIT structure, where the Adviser pays most cash compensation and equity is the principal alignment tool. The Board frames the plan as a measured, market-aligned approach to incentivize performance while incorporating safeguards to limit excessive dilution or undesirable practices.

This management proposal requests shareholder approval under NYSE Rule 312.03(c) and Section 11(g) of the Company’s Statement of Preferences to permit the Company to issue Common Shares upon conversion or redemption of Series B Preferred Shares sold in the continuous registered offering, because aggregate conversions or redemptions could exceed the NYSE’s 20% issuance thresholds or the Statement of Preferences conversion cap without approval. The Series B Preferred Shares include conversion features, discounts tied to market price and NAV triggers, and redemption provisions that allow holders (and in some cases the Company) to require or elect cash or common-share settlement; these mechanics create the possibility that conversions or redemptions would, in the aggregate, constitute a reportable issuance under NYSE rules. Management frames the vote as a technical but necessary approval to preserve flexibility and compliance with listing rules and the Statement of Preferences, not as a change to the economic terms of the Series B offering; the Board unanimously recommends FOR. Shareholders should consider the dilutive impact in the context of the offering size (up to 16 million Series B shares) and the conversion mechanics, and weigh the benefits of access to preferred capital and financing flexibility against potential future dilution and voting-power effects. A failure to approve would leave the existing conversion cap in place and could constrain the Company’s ability to satisfy conversions or redemptions in common shares consistent with the offering terms.

The shareholder proponent (Jeffrey Pontiff) argues that persistent share-price underperformance and a large discount to reported NAV demonstrate that the market no longer values NXDT as a going concern and that an orderly liquidation would crystallize NAV for shareholders. Pontiff cites a decade-plus decline in market price, a reported NAV materially above market, the Company’s weak relative valuation in the REIT universe, and alleged misaligned incentives under the externally managed structure (fees to the Adviser irrespective of equity performance) as the rationale for liquidation. The Board counters that current commercial real estate market dislocations (high rates, thin transaction markets, constrained financing) make forced liquidation likely to realize steep discounts versus reported NAV, and that many assets are illiquid or privately held where modeled NAVs are not realizable in a fire sale. The Board also highlights liquidation priority risks — preferred shares and secured creditors would be paid before common shareholders — which could leave little residual value for common equity even if gross proceeds approximated NAV. The Board therefore recommends against the advisory proposal and prefers an active, opportunistic disposition plan, use of share repurchases and access to preferred capital, arguing patience will preserve value and allow the Company to monetize assets in a more favorable environment. The controversy reflects broader governance tensions at externally managed REITs about alignment of adviser incentives, liquidity of underlying assets, and trade-offs between immediate crystallization of NAV and the risk of crystallizing losses in depressed markets; investors should evaluate the likelihood of meaningful common-share recoveries net of senior claims under either path and the credibility and track record of management’s alternative plan.