DALLAS and TORONTO, Oct. 19, 2023 /PRNewswire/ -- NexPoint Hospitality Trust ("NHT" or the "REIT") (TSX-V: NHT.U) has received requests for (i) clarification regarding its previous disclosure relating to the approximate US$87 million of convertible loans provided by entities controlled or managed by James Dondero primarily during the COVID-19 pandemic (the "Loans"); and (ii) supplemental disclosure to its management information circular dated September 11, 2023 (the "Circular") regarding the process undertaken with the TSX Venture Exchange (the "TSXV") whereby the TSXV requested amendments to the Loans issued between June 2021 and September 2022 in the aggregate amount of US$56,165,000 (the "COVID Loans").

Clarification Regarding Previous Disclosure

As a result of the COVID-19 pandemic, the REIT experienced material decreases in revenues, results of operations and cash flows. The impact to the global economy caused by the response to the COVID-19 pandemic also negatively impacted the REIT's ability to obtain new financing. The Loans were advanced, in most cases, in critical moments to principally fund the REIT's ongoing operating expenses and to satisfy interest and principal payments due on third party debt. In certain situations, the proceeds from the Loans were used to fund acquisitions designed to improve the financial condition of the REIT. Without the Loans, the REIT would likely not have been able to continue its operations as a going concern.

Each of the Loans was unsecured, had a 20-year term and bore interest at rates ranging from 1.82% per year to 7.5% per year (which were market interest rates at the time of their issuance). Of those Loans, the COVID Loans bore interest at rates ranging from 2.25% per year to 7.5% per year. As of June 30, 2023, approximately US$83 million of the Loans remained outstanding. From the time of issuance to the present, the holder of the Loans has had the right to convert the principal and interest owing under the Loans into class B units (the "Class B Units") of NHT Operating Partnership, LLC (the "OP") on the basis of the market price of the REIT's trust units (the "Units") at the time of conversion.

Previous disclosure of the REIT stated that the Loans were, subject to approval of the TSXV, convertible at any time at the election of the REIT into Class B Units. The REIT wishes to clarify and correct this earlier disclosure. The Loans are, and have always been, only convertible into Class B Units at the option of their respective holder. However, if any of the Loans are converted by their respective holders into Class B Units and the holder then elects to redeem those Class B Units, the REIT may elect to satisfy the redemption by issuing Units to the holder. Any issuance of Units or repayment of the Loans in Units would be subject to the approval of the TSXV.

Supplemental Disclosure to Circular

As disclosed in the Circular, the COVID Loans were filed with the TSXV at various points during 2021 and 2022, as loan submissions pursuant to TSXV Policy 5.1 – Loans, Loan Bonuses, Finder's Fees and Commissions ("Policy 5.1"). The REIT filed in this manner as the Loans were not, as described above, convertible by the holder into publicly traded Units (Units were only issuable at the election of the REIT, subject to TSXV approval) and therefore, based on the guidance in Policy 5.1, were subject to filing under Policy 5.1.[1] As a result of filing under Policy 5.1, since any issuance of Units on a redemption of Class B Units received by a holder of the COVID Loans was subject to TSXV approval, the REIT believed its position was consistent with the requirements and guidance of Policy 5.1. The REIT commenced filing on this basis in early 2021 and these filings were not questioned until December 2022, when the TSXV advised the REIT that it believed the COVID Loans were required to be treated as "Convertible Securities" under TSXV Policy 4.1 – Private Placements ("Policy 4.1") rather than loans under Policy 5.1. While all the Loans were filed with the TSXV, the TSXV only raised this issue with respect to the COVID Loans; it did not raise it with respect to the other Loans. Following this notification, the REIT engaged with the TSXV and presented support for its filings under Policy 5.1, but ultimately the TSXV concluded that Policy 4.1 should apply. Due to this determination and in order to satisfy the requirements of Policy 4.1, the TSXV required the following amendments (the "Amendments") to the COVID Loans (which amendments would bring the COVID Loans into compliance with the terms expressly prescribed by Policy 4.1 for convertible securities): (i) either the conversion feature be removed or limited to five years from the date of issuance of each COVID Loan (which represents the maximum length of the conversion period); (ii) the conversion feature be limited to the principal amount of the COVID Loan (rather than the principal amount plus interest); and (iii) the conversion price be fixed at a price equal to the market price of the REIT's Units on the TSXV at the time of the issuance of such COVID Loan.

There was no negotiation with the TSXV regarding the substance of the Amendments as the TSXV's position was simply that the COVID Loans had to be amended to comply with Policy 4.1. The REIT worked expeditiously to obtain consent to the Amendments from each of the lenders (the "Lenders") under each of the COVID Loans. With the Lenders' cooperation and desire to ensure the REIT's compliance with TSXV policies, the Lenders agreed to implement the Amendments. However, the REIT was not in a position to negotiate these amendments with the Lenders – it was seeking the cooperation of the Lenders to adjust the conversion provisions or remove them altogether to satisfy the TSXV policies. For one COVID Loan, the Lender agreed to remove the conversion right altogether. For the remaining COVID Loans, the Lenders opted to limit the conversion period to five years. The REIT did not enter into any other agreement, beyond the Amendments themselves, with the Lenders in connection with the Amendments. In that circumstance, the board of trustees of the REIT (the "Board") determined that the concessions obtained from the Lenders were fair and reasonable.

The Board undertook a thorough review of the terms of the Amendments to the COVID Loans and concluded that the Amendments were in the best interests of the REIT. As described in the Circular, the Board: (i) considered the terms of the Amendments to the COVID Loans; (ii) considered the need to comply with the requirements of the TSXV in order to maintain a listing for the Units; and (iii) consulted with its legal advisors, to reach this conclusion. In considering the terms of the Amendments under (i) above, the REIT and the Board considered that the Amendments would provide a clear benefit to the REIT and unitholders (including minority unitholders) by (i) shortening the time period in which the conversion right can be exercised from 20 years to five years (or removing the conversion right altogether); (ii) fixing conversion prices for the COVID Loans at prices greater than the current market price; and (iii) reducing the amount convertible from principal and interest to only principal. As a result of the Amendments, the potential dilution of the REIT's unitholders would be materially reduced. Further, as failure to implement the Amendments would potentially result in the delisting of the Units, the Board determined that the Amendments were in the best interests of unitholders due to the likely adverse impact of delisting on the liquidity and value of the Units.

The REIT, Mr. Dondero, and the trustees and officers of the REIT, conducted reasonable inquiries pursuant to Section 8.1(2) of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions to determine the units to be excluded from the minority approval vote on the Amendments.

About NexPoint Hospitality Trust

NexPoint Hospitality Trust is a publicly traded real estate investment trust, with its Units listed on the TSX Venture Exchange under the ticker NHT.U. NHT is principally focused on acquiring, owning and operating well-located hospitality properties in the United States that offer a high current yield and in many cases are underperforming assets with the potential to increase in value through investments in capital improvements, a market-based recovery, brand repositioning, revenue enhancements, operational improvements, expense inefficiencies, and exploiting excess land or underutilized space. NHT owns 9 branded properties sponsored by Marriott, Hilton, Hyatt, and Intercontinental Hotels Group, located across the U.S. NHT is externally advised by NexPoint Real Estate Advisors VI, L.P.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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¹ Policy 5.1 provides as follows: "...For the purposes of this Policy, the term "loan" will include any form of debt instrument issued by an Issuer that is not convertible into Listed Shares."

SOURCE NexPoint Hospitality Trust