NexPoint Residential Trust, Inc. Annual Report 2021

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FY2021 Annual Report · NexPoint Residential Trust, Inc.

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RESIDENTIAL TRUST

2 0 2 1

ANNUAL
REPORT

C O N T A C T

NEXPOINT RESIDENTIAL TRUST

(NYSE:NXRT)

300 Crescent Court, Suite 700

Dallas, TX, 75201

(w) nxrt.nexpoint.com

Hudson High House - Cary, NC

April 8, 2022

TO MY FELLOW SHAREHOLDERS,

NexPoint Residential Trust, Inc. (NYSE: NXRT) (“NXRT” or the “Company”) experienced
immense growth in 2021. While no one can say the past two years have been stress-free,
we are pleased with how the Company has performed. We believe the pandemic provided
the ultimate test of our thesis. In NXRT’s early days, critics doubted the feasibility of a
portfolio of workforce housing assets located in non-gateway markets. Today, we are
providing clean, safe, and affordable housing to an ever-growing population of America’s
working class in the Sunbelt, while also creating outsized returns for our shareholders.
Now, more than ever, our product is in high demand.

PPerformancee Highlightss –– Ass off Closee off Tradingg Marchh 31,, 20211

704.0% Cumulative Total Return Since Inception

+364.0% Outperformance Compared to Closest Peer
+502.0% Outperformance Compared to the Peer Average
+670.8% Outperformance Compared to the RMZ

800%

700%

600%

500%

400%

300%

200%

100%

-100%

NXRT US Equity

EQR US Equity

ESS US Equity

APTS US Equity

BRG US Equity

IRT US Equity

UDR US Equity

CPT US Equity

MAA US Equity

For the full year 2021, NXRT reported Net Income, FFO, Core FFO and AFFO of $23.0M,
$63.6M, $62.5M and $70.9M, respectively, attributable to common stockholders.1

Since inception, we have continued to generate superior Same Store NOI growth relative
to our multifamily peers. During 2021, our 2020-2021 Same Store properties average
effective rent, total revenue and NOI increased 11.1%, 4.9%, and 5.5%, respectively, over
the prior year period.1 For the 2021 calendar year, NXRT’s 4.9% revenue growth outpaced
the average for our peer group by 271 bps, while our 5.5% NOI growth proved to be 504
bps better than our peers.1,2

Our value-add program has also continued to add to our outsized performance. We
completed full and partial renovations on 896 units across our portfolio in 2021, improving
current resident quality of life, attracting new residents, and achieving meaningful returns
for our shareholders. During the past year, we leased 1,179 completed renovations and
achieved an average monthly rent increase of $175 resulting in a total return on investment
of 21.1%. Looking forward to 2022, we are expecting to complete 1,465 full interior
upgrades, 463 partial interior upgrades, and 490 minor interior upgrades (such as new
flooring, addition of backsplashes, updated countertops, etc.) and expect to produce
estimated ROIs of approximately 21.4%, 23.6%, and 49.2%, respectively, on those value-
added initiatives.3

In 2021, we installed 368 new kitchen and laundry appliances, which produced an ROI of
approximately 63.5%. Looking forward to 2022, we are budgeting to install 736
washer/dryer sets and expect to produce an estimated ROI of approximately 63%.3 We
completed full rollouts of our smart home technology and security upgrades at four
properties throughout the year, which has produced an ROI of approximately 30.6%. For
2022, we are budgeting for smart home technology upgrades on more than 1,129
additional units, which we expect to produce an estimated ROI of approximately 62.7%.3

We believe NXRT's focus on acquiring properties with a value-add component should
continue to produce attractive returns and outsized Core FFO and NOI growth, which we
believe will deliver long-term capital appreciation to stockholders.3 Additionally, the
Company declared dividends totaling $36.2 million, or $1.404 per share, in 2021. Driven
by excellent cash flow generation and a strong Core FFO Coverage Ratio (1.73x our
dividends declared during the fiscal year 2021)1, our board of directors increased the
quarterly dividend by 11.4% during the fourth quarter of 2021. This increase in our
quarterly dividend to $0.38 per share represents an 84.5% increase since inception.

EEnvironmental, Social and Governance (“ESG”) Initiatives

NXRT’s strategy is inherently an environmentally and socially focused strategy. We strive
to conserve natural resources, maintain high-quality housing and employment for people
from all walks of life, and provide transparency for our shareholders through extensive
disclosure overseen by our majority independent board. Through our renovation program,
NXRT improves the energy efficiency of our properties through the installation of new
plumbing and lighting fixtures that are more energy efficient. Socially, we are dedicated to
providing affordable, high quality housing options for our residents. On the governance
front, NXRT continues to focus on expanding diversity at the board and Company level,
including our property manager, BH Management. Going forward, we will commit to
providing more robust ESG data, starting with an annual ESG report, with our inaugural
version scheduled to debut by the summer. 3

Since inception, NXRT has spent approximately $5.2 million on environmentally
responsible updates across all 36 properties in the green initiatives program. From
inception of the program through December 31, 2021, those properties reported reduced
utility costs of approximately $8.4 million, saving approximately 1.1 billion gallons of water
and 38.1 million kWh since inception, while also generating an average annual ROI of 3.4%.
This equates to an average usage savings of 34% across the 36 properties. We expect
these environmentally-friendly improvements will continue to reduce operating expenses,
which we will be able to pass back to residents and investors alike, thereby enhancing
property value, asset quality, and extending the runway for further organic revenue
growth.3

In addition to our green initiatives mentioned above, another part of NXRT’s core strategy
provides working-class Americans access to safe, clean and affordable housing in high job
growth markets. The shortage of housing for our workforce demographic is dramatically
shrinking, with virtually no new affordable product entering the market. We will continue
to fill this much-needed gap, improving the quality of our housing product while also
enhancing shareholder value.

NXRT is pleased to report that BH Management, our property management partner,
continues to improve upon diversity in the workplace. As of March 31, 2022, 82% of BH
employees dedicated to NXRT operations are racially and/or ethnically diverse and 44%
are women. NXRT and BH aspire to promote women and racially and/or ethnically diverse
employees to management positions - women account for 75% of managers at BH, while
65% of managers at BH are racially and/or ethnically diverse.

We also believe in the importance of maintaining a board of directors that best serves our
investors. After adding Ms. Cathie Wood to the board of directors in July 2020, the
importance of adding a racially diverse board member became even more apparent. New
for 2022, we provided diversity details (such as gender, race, ethnicity, tenure, skills,
experience, and age) in our proxy statement. Additionally, as disclosed in our 2022 proxy
statement, the Nominating and Corporate Governance Committee will evaluate the
diversity-related information it received in 2022 and determine to address any diversity-
related issues by the annual meeting of stockholders in 2023. We believe a balanced board
of directors with diverse viewpoints and deep expertise best serves the interests of NXRT
and its shareholders.

SSuperior Capital Allocation & Balance Sheet Management

During 2021, the Company successfully completed the disposition of two properties,
proving the tenacity of our value creation strategy. In November 2021, we sold Beechwood
Terrance and Cedar Pointe, which are both located in Antioch, Tennessee, for a combined
$91.25 million, generating an IRR of 36.1% and 3.55x multiple on invested capital.4

After buying only one property in 2020, NXRT purchased four properties in 2021. We
strengthened our presence in the Charlotte MSA and also expanded into a new market –
Raleigh. Raleigh is a compelling growth market, as the life science and technology
industries continue to flourish and grow in the area, providing an influx of high-quality
prospective residents.

During the full year 2021, through our ATM program, the Company issued approximately
350,000 shares of common stock for approximately $26.4 million in gross proceeds, which
the Company used to partially fund acquisitions and for general corporate purposes.

As of December 31, 2021, we had total indebtedness of $1.6 billion at an adjusted
weighted average interest rate of 1.96%, of which $1.5 billion was debt with a floating
interest rate. The interest rate swap agreements we have entered into effectively fix the
interest rate on $1.2 billion, or 96.34%, of our $1.2 billion of floating rate mortgage debt
outstanding, leaving approximately 20% of our total floating rate debt outstanding exposed
to interest rate volatility as of December 31, 2021. As we entered 2022 and interest rates
have increased, we have sought to further limit our exposure to interest rate movements
to secure a consistent cost of debt capital.

OOutlook/Strategic Advantages3

Looking forward to 2022, we are optimistic about a continuation of a key theme we saw in
2021 – mass migration into the Sunbelt. We maintain a core focus on delivering internal
growth and outsized performance to investors while making prudent capital allocation
decisions to drive value creation for our shareholders. We have long focused on Class B
assets that have been upgraded and will continue to attract tenants, through any market
condition. We believe we will continue to be well-positioned – from both geographic and
capital allocation perspectives – as we enter 2022.

Thank you for your continued support of our team and belief in our Company,

Sincerely,

James D. Dondero, President

1 See Non-GAAP Measurements included in our Form 10-K for the year ended December 31, 2021 accompanying this letter.
2 NXRT’s peer group includes the following NYSE-listed multifamily REITs: APTS, BRG, CPT, IRT, MAA, EQR, ESS, UDR.
3 See Cautionary Statement Regarding Forward-Looking Statements in our Form 10-K for the year ended December 31, 2021
accompanying this letter.
4 We define a “multiple on invested capital” as the total return to NXRT (inclusive of the Company’s share of property
distributions and net cash proceeds from sales, less mortgage debt repaid) divided by NXRT’s total capital investment in
the properties.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2021
OR
☐ 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 001-36663

NexPoint Residential Trust, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland
(State or other Jurisdiction of
Incorporation or Organization)

300 Crescent Court, Suite 700, Dallas, Texas
(Address of Principal Executive Offices)

47-1881359
(I.R.S. Employer
Identification No.)

75201
(Zip Code)

(214) 276-6300
(Telephone Number, Including Area Code)

Title of each class
Common Stock, par value $0.01 per share

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Trading Symbol
NXRT

Name of each exchange on which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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
Non-Accelerated Filer
Emerging growth company

Accelerated Filer
Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the shares of common stock of the registrant held by non-affiliates of the registrant, based upon the closing price of such shares on
June 30, 2021 was approximately $1,214,000,000.

As of February 17, 2022, the registrant had 25,552,658 shares of its common stock, par value $0.01 per share, outstanding.

Portions of the proxy statement for the registrant’s 2022 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

Auditor Firm Id:

185

Auditor Name:

KPMG, LLP

Auditor Location: Dallas, Texas, United States

DOCUMENTS INCORPORATED BY REFERENCE

This page intentionally left blank

NEXPOINT RESIDENTIAL TRUST, INC.
Form 10-K
Year Ended December 31, 2021

INDEX

Cautionary Statement Regarding Forward-Looking Statements .............................................................................................................

Page

PART I

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Business .........................................................................................................................................................................
Risk Factors....................................................................................................................................................................
Unresolved Staff Comments ..........................................................................................................................................
Properties .......................................................................................................................................................................
Legal Proceedings ..........................................................................................................................................................
Mine Safety Disclosures .................................................................................................................................................

PART II

Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ......
Selected Financial Data ..................................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations .........................................
Quantitative and Qualitative Disclosures About Market Risk ........................................................................................
Financial Statements and Supplementary Data ..............................................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .........................................
Controls and Procedures .................................................................................................................................................
Other Information ...........................................................................................................................................................

PART III

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Directors, Executive Officers and Corporate Governance .............................................................................................
Executive Compensation ................................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .......................
Certain Relationships and Related Transactions, and Director Independence ................................................................
Principal Accountant Fees and Services .........................................................................................................................

PART IV

5
19
41
42
43
43

44
45
46
70
71
71
71
72

73
73
73
73
73

Item 15.

Exhibits and Financial Statement Schedules ..................................................................................................................
Index to Consolidated Financial Statements...................................................................................................................

74
F-1

Cautionary Statement Regarding Forward-Looking Statements

This annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are
subject to risks and uncertainties. In particular, statements relating to our liquidity and capital resources, the performance of our properties and
results of operations contain forward-looking statements. Furthermore, all of the statements regarding future financial performance (including
market conditions and demographics) are forward-looking statements. We caution investors that any forward-looking statements presented in this
annual report are based on management’s current 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” and
similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-
looking statements by discussions of strategy, plans or intentions.

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 therefore 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:

•

unfavorable changes in market and economic conditions in the United States and globally and in the specific markets where our
properties are located;

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

risks associated with ownership of real estate;

limited ability to dispose of assets because of the relative illiquidity of real estate investments;

our multifamily properties are concentrated in certain geographic markets in the Southeastern and Southwestern United States, which
makes us more susceptible to adverse developments in those markets;

increased risks associated with our strategy of acquiring value enhancement multifamily properties rather than more conservative
investment strategies;

failure to succeed in new markets may have adverse consequences on our performance;

potential reforms to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association
(“Fannie Mae”);

competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our profitability and
impede our growth;

competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase or maintain
rents;

the relatively low residential mortgage rates may result in potential renters purchasing residences rather than leasing them, and as a
result, cause a decline in our occupancy rates;

the risk that we may fail to consummate future property acquisitions;

failure of acquisitions to yield anticipated results;

risks associated with increases in interest rates and our ability to issue additional debt or equity securities in the future;

risks associated with selling apartment communities, which could limit our operational and financial flexibility;

contingent or unknown liabilities related to properties or businesses that we have acquired or may acquire;

lack of or insufficient amounts of insurance;

the risk that our environmental assessments may not identify all potential environmental liabilities and our remediation actions may
be insufficient;

high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint,
chemical vapor, subsurface contamination and mold growth;

high costs associated with the compliance with various accessibility, environmental, building and health and safety laws and
regulations, such as the Americans with Disabilities Act of 1990 and the Fair Housing Act;

risks associated with limited warranties we may obtain when purchasing properties;

•

exposure to decreases in market rents due to our short-term leases;

risks associated with operating through joint ventures and funds;

our dependence on information systems;

risks associated with breaches of our data security;

costs associated with being a public company, including compliance with securities laws;

the risk that our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal
control over financial reporting;

risks associated with our substantial current indebtedness and indebtedness we may incur in the future;

risks associated with derivatives or hedging activity;

risks associated with representations and warranties made by the us in connection with sales of our properties may subject us to
liability that could result in losses and could harm our operating results and, therefore, distributions we make to our stockholders;

loss of key personnel of NexPoint Advisors, L.P. (our “Sponsor”), NexPoint Real Estate Advisors, L.P. (“our Adviser”) and our
property manager;

the risk that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Adviser,
members of our Adviser’s management team or by our Sponsor or its affiliates;

risks associated with our Adviser’s ability to terminate the Advisory Agreement (as defined below);

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

the substantial fees and expenses we pay to our Adviser and its affiliates;

risks associated with any potential internalization of our management functions;

conflicts of interest and competing demands for time faced by our Adviser, our Sponsor and their officers and employees;

the risk that we may compete with other entities affiliated with our Sponsor or property manager for properties and tenants;

failure to maintain our status as a REIT;

failure of our operating partnership to be taxable as a partnership for federal income tax purposes, possibly causing us to fail to
qualify for or to maintain REIT status;

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;

risks associated with our ownership of interests in taxable REIT subsidiaries;

the recognition of taxable gains from the sale of properties as a result of the inability to complete certain like-kind exchanges in
accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”);

the risk that the Internal Revenue Service (the “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 Code for REITs and the stock ownership limit imposed by our charter;

the ability of our board of directors to revoke our REIT qualification without stockholder approval;

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

risks associated with the market for our common stock and the general volatility of the capital and credit markets;

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

risks associated with limitations of liability for and our indemnification of our directors and officers;

the risk that legal proceedings we become involved in from time to time could adversely affect our business;

iii

•

the risk that acts of violence could decrease the value of our assets and have an adverse effect on our business and results of
operations;

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

any other risks included under the heading “Risk Factors” in this 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 annual report. 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.

ITEM 1. BUSINESS

General

PART I

NexPoint Residential Trust, Inc. (the “Company”, “we”, “our”) was incorporated in Maryland on September 19, 2014, and has elected to
be taxed as a REIT. The Company is focused on “value-add” multifamily investments primarily located in the Southeastern and Southwestern
United States. Substantially all of the Company’s business is conducted through NexPoint Residential Trust Operating Partnership, L.P. (the “OP”),
the Company’s operating partnership. The Company owns its properties (the “Portfolio”) through the OP and its wholly owned taxable REIT
subsidiary (“TRS”). The OP owns approximately 99.9% of the Portfolio; the TRS owns approximately 0.1% of the Portfolio. The Company’s
wholly owned subsidiary, NexPoint Residential Trust Operating Partnership GP, LLC (the “OP GP”), is the sole general partner of the OP. As of
December 31, 2021, there were 23,819,402 common units in the OP (“OP Units”) outstanding, of which 23,746,169, or 99.7%, were owned by the
Company and 73,233, or 0.3%, were owned by a noncontrolling limited partner (see Note 10 to our consolidated financial statements).

The Company is externally managed by the Adviser through an agreement dated March 16, 2015, as amended, and renewed on February
14, 2022 for a one-year term (the “Advisory Agreement”), by and among the Company, the OP and the Adviser. The Adviser conducts substantially
all of the Company’s operations and provides asset management services for its real estate investments. The Company expects it will only have
accounting employees while the Advisory Agreement is in effect. All of the Company’s investment decisions are made by the Adviser, subject to
general oversight by the Adviser’s investment committee and the Board. The Adviser is wholly owned by our Sponsor.

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 value-add program. Consistent with the Company’s policy to acquire assets for both income and capital gain, the Company intends to hold
at least majority interests in its properties for long-term appreciation and to engage in the business of directly or indirectly acquiring, owning, and
operating well-located multifamily properties with a value-add component in large cities and suburban submarkets of large cities primarily in the
Southeastern and Southwestern United States consistent with its investment objectives. We generate revenue primarily by leasing our multifamily
properties. Economic and market conditions may influence the Company to hold properties for different periods of time. From time to time, the
Company may sell a property if, among other deciding factors, the sale would be in the best interest of its stockholders.

The entities through which we own the properties in the Portfolio have entered into management agreements with BH Management Services,
LLC (“BH”). Pursuant to these agreements, BH operates and leases the underlying properties in the Portfolio and provides construction management
services. BH has significant experience operating and leasing multifamily properties, having begun business in 1993 and currently operating and
leasing approximately 103,000 multifamily units across the country. The Company pays BH a management fee of approximately 3% of the monthly
gross income from each property managed, as well as construction supervision fees and certain other fees. BH is an affiliate of the noncontrolling
limited partner of the OP. See Note 10 to our consolidated financial statements for additional information.

The Company may also participate with third parties in property ownership through limited liability companies (“LLCs”), funds or other
types of co-ownership or acquire real estate or interests in real estate in exchange for the issuance of common stock, OP Units, preferred stock or
options to purchase stock. These types of investments may permit the Company to own interests in larger assets without unduly restricting
diversification, which provides flexibility in structuring the Company’s portfolio.

The Company may allocate up to 30% of the portfolio to investments in real estate-related debt and securities with the potential for high
current income or total returns. These allocations may include first and second mortgages and subordinated, bridge, mezzanine, construction and
other loans, as well as debt securities related to or secured by multifamily real estate and common and preferred equity securities, which may
include securities of other REITs or real estate companies.

As of December 31, 2021, the Company, through the OP and the wholly owned TRS, owned 39 properties representing 14,825 units in

seven states, as further described under Item 2, “Properties” and Notes 3, 4 and 5 to our consolidated financial statements.

2021 Highlights

Key highlights and transactions completed in 2021 include the following:

•

2020 ATM Program: On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements
with each of Jefferies LLC (“Jefferies”), Raymond James & Associates, Inc. (“Raymond James”), KeyBanc Capital Markets Inc.
(“KeyBanc”) and Truist Securities, Inc. f/k/a SunTrust Robinson Humphrey, Inc. (“Truist”, and together with Jefferies, Raymond
James and KeyBanc, the “2020 ATM Sales Agents”), pursuant to which the Company may issue and sell from time to time shares of
the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $225,000,000 (the “2020 ATM
Program”). Sales of shares of common stock, if any, may be made in transactions that are deemed to be “at the market” offerings, as
defined in Rule 415 under the Securities Act, including, without limitation, sales made by means of ordinary brokers’ transactions on
the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to
prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of
common stock, the Company may enter into forward sale agreements with each of Jefferies, KeyBanc and Raymond James, Truist,
or their respective affiliates, through the 2020 ATM Program. During the year ended December 31, 2021, the Company issued 350,513

shares of common stock at an average price of $75.41 per share for gross proceeds of $26.4 million under the 2020 ATM Program.
The Company paid approximately $0.4 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other
issuance costs of approximately $0.4 million, both of which were netted against the gross proceeds and recorded in additional paid in
capital. The following table contains summary information of the 2020 ATM Program since inception:

Gross proceeds .............................................................................................. $ 57,979,098
Common shares issued ................................................................................. 1,068,819
54.25
Gross average sale price per share ................................................................ $

Sales commissions ........................................................................................ $
869,687
Offering costs ............................................................................................... 1,056,003
Net proceeds ................................................................................................. 56,053,408
52.44
Average price per share, net ......................................................................... $

•

Acquisitions: We completed four acquisitions in 2021. Details of the acquisition are in the table below (dollars in thousands):

Location

Date of
Acquisition

Purchase Price

Mortgage Debt
(1)

# Units

Effective
Ownership

Property Name
The Verandas at Lake Norman .

Creekside at Matthews .............

Six Forks Station ......................

Hudson High House .................

Charlotte,
North Carolina
Charlotte,
North Carolina
Raleigh, North
Carolina
Cary, North
Carolina

June 30, 2021

63,500 $

34,925

264

June 30, 2021

58,000

31,900

240

September 10, 2021

74,760

41,180

323

December 7, 2021

93,250
289,510 $

46,625
154,630

302
1,129

100 %

(1)

For additional information regarding our debt, see Note 6 to our consolidated financial statements.

•

Dispositions: We sold two properties totaling 510 units in 2021. Details of the dispositions are in the table below (in thousands):

Property Name
Beechwood Terrace ...................

Cedar Pointe ..............................

Location

Date of Sale

Sales Price

Outstanding
Principal (1)

Net Cash
Proceeds (2)

Gain on Sale
of Real Estate

Antioch,
Tennessee
Antioch,
Tennessee

November 1, 2021

53,600 $

23,365 $

53,004 $

33,961

November 1, 2021

37,650
91,250 $

17,300
40,665 $

37,232
90,236 $

12,253
46,214

(1) Represents the outstanding principal balance when the loan was repaid.
(2) Represents sales price, net of closing costs.

•

Renovations: For the properties in our Portfolio as of December 31, 2021, we completed full and partial renovations on 1,264 units
at an average cost of $8,922 per renovated unit. Since inception, for the properties in our Portfolio as of December 31, 2021, we have
completed full and partial renovations on 6,015 units at an average cost of $7,547 per renovated unit that has been leased as of
December 31, 2021. We have achieved average rent growth of 13.8%, or a $136 average monthly rental increase per unit, on all units
renovated and leased as of December 31, 2021, resulting in a return on investment on capital expended for interior renovations of
21.6%.

Dividends: We declared dividends totaling $36.2 million, or $1.404 per share for the year ended December 31, 2021. During the
fourth quarter of 2021, we increased our quarterly dividend for the fifth time since the Spin-Off to $0.38 per share, which was an
increase of $0.0388 per share, or a 11.4% increase, over our previous quarterly dividends declared in 2021. The increase in our
quarterly dividend to $0.38 per share is an increase of $0.1740 per share, or a 84.5% increase, over our quarterly dividends declared
from the Spin-Off. Our fourth quarter dividend equates to a 1.8% annualized yield based on our closing share price of $83.83 on
December 31, 2021.

Results of Operations and Non-GAAP Measures: We reported the following net income, net operating income (“NOI”), funds
from operations (“FFO”), core funds from operations (“Core FFO”) and adjusted funds from operations (“AFFO”) for the year ended
December 31, 2021 as compared to the year ended December 31, 2020 (dollars in thousands):

For the Year Ended December 31,
2020
2021

$ Change

% Change

Net income .............................................................. $
NOI .......................................................................... (2)
FFO attributable to common stockholders ............... (2)
Core FFO attributable to common stockholders ...... (2)
AFFO attributable to common stockholders ............ (2)

23,106 $

44,150 $

(21,044 ) (1)

128,389
63,579
62,487
70,919

118,396
57,238
55,512
62,448

9,993
6,341
6,975
8,471

-47.7 %
8.4 %
11.1 %
12.6 %
13.6 %

(1)

(2)

The change in our net income between the periods primarily relates to a decrease in gain on sales of real estate of $23.0 million and increases
in property operating expenses of $0.5 million and depreciation and amortization expense of $4.5 million, partially offset by an increase in
total revenues of $14.4 million.
See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” for a discussion regarding the non-
GAAP measures of NOI, FFO, Core FFO and AFFO provided above, including reconciliations to net income in accordance with U.S.
generally accepted accounting principles (“GAAP”).

•

Same Store Growth: There are 33 properties encompassing 13,098 units of apartment space in our same store pool for the years
ended December 31, 2021 and 2020 (our “2020-2021 Same Store” properties). Our 2020-2021 Same Store properties exclude the
following 6 properties in our Portfolio as of December 31, 2021: Fairways at San Marcos, The Verandas at Lake Norman, Creekside
at Matthews, Six Forks Station, Hudson High House and Cutter’s Point as well as the 50 units that are currently down (see Note 5).
For our 2020-2021 Same Store properties, we recorded the following operating metrics for the year ended December 31, 2021 as
compared to the year ended December 31, 2020:

Operating Metric

2021

2020

% Change

Occupancy (1) ............................................................................................................
Average Effective Monthly Rent Per Unit (2) ............................................................ $
Rental income (in thousands) ..................................................................................... $
Other income (in thousands)....................................................................................... $
NOI (in thousands) ..................................................................................................... $

94.2 %
$
$
$
$

1,255
194,609
5,474
115,332

93.9 %
1,130
185,283
5,416
109,286

0.3 %
11.1 %
5.0 %
1.1 %
5.5 %

(1) Occupancy is calculated as the number of units occupied as of December 31 for the respective year, divided by the total number of units,

expressed as a percentage.

(2) Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31 for the
respective year minus any tenant concessions over the term of the lease, divided by the number of units under commenced leases as of
December 31 for the respective year.

•

Amended and Restated Corporate Credit Facility: On June 30, 2021, the Company, through the OP, entered into a secured $250.0
million credit facility with Truist Bank (“Truist”), as administrative agent, and the lenders from time to time party thereto (the
“Amended and Restated Corporate Credit Facility”). $225 million of the Amended and Restated Corporate Credit Facility was a
revolving credit facility and $25 million of the Amended and Restated Corporate Credit Facility was a term loan. In addition, on June
30, 2021, in connection with entering into the Amended and Restated Corporate Credit Facility, the Company, through the OP,
terminated its $225.0 million revolving credit facility with Truist, as administrative agent, and the lenders from time to time party
thereto, prior to the maturity date of January 28, 2022. Subject to conditions provided in the Amended and Restated Corporate Credit
Facility, the Amended and Restated Corporate Credit Facility may be increased up to an additional $100.0 million (the “Accordion
Feature”) if the lenders agree to increase their commitments or if the lenders agree for the increase to be funded by any additional
lender proposed by the Company, through the OP. The Amended and Restated Corporate Credit Facility will mature on June 30,
2024 with respect to the revolving commitments, unless the Company exercises its option to voluntarily and permanently reduce all
of the revolving commitments before the maturity date or elects to exercise its right and option to extend the facility with respect to
the revolving commitments for a single one-year term. On September 9, 2021, the Company, through the OP, modified the Amended
and Restated Corporate Credit Facility to provide for an additional $35.0 million term loan with a maturity date of December 31,
2021, increasing the Amended and Restated Corporate Credit Facility from $250 million to $285 million. In conjunction with the
increase in the facility, the Company incurred costs of $0.3 million in obtaining the additional financing through the modification.
On September 30, 2021, the Company made a $10.0 million principal payment on the term loans resulting in $275.0 million in
aggregate principal outstanding as of September 30, 2021 on the Amended and Restated Corporate Credit Facility. On November 3,
2021, the Company made a $50.0 million principal payment on the remaining term loans maturing December 31, 2021. On December
6, 2021, the Company, through the OP, increased the amount of the Amended and Restated Corporate Credit Facility by $55.0
million, and incurred costs of $0.4 million of deferred financing costs in conjunction with the increase in the facility. As of December
31, 2021, there was $280.0 million in aggregate principal outstanding on the Amended and Restated Corporate Credit Facility.

Cash Position: At December 31, 2021, we had $88.7 million of cash on our balance sheet, of which $11.9 million was reserved for
future renovations, and $27.4 million was reserved for lender-required escrows and security deposits. We believe we have adequate
cash on hand, in addition to our expected cash flows from operations, to meet our near-term obligations, service our debt, pay
distributions and make opportunistic acquisitions.

COVID-19: For information on the effects COVID-19 pandemic had on our business, see Item 1A. “Risk Factors” to our
consolidated financial statements included in this annual report.

Our Real Estate Portfolio

As of December 31, 2021, we owned 39 properties representing 14,825 units that we lease in seven states that were approximately 94.3%
occupied with a weighted average monthly effective rent per occupied apartment unit of $1,261. For additional information regarding our Portfolio,
see Item 2, “Properties” and Notes 3, 4 and 5 to our consolidated financial statements.

We evaluate our operating performance on an individual property level and view our real estate assets as one industry segment and,

accordingly, our properties are aggregated into one reportable segment.

Our Business Objectives and Strategies

Our primary business objectives are to:

•

deliver stable, attractive yields and long-term capital appreciation to our stockholders;

acquire multifamily properties in markets with attractive job growth and household formation fundamentals primarily in the
Southeastern and Southwestern United States;

acquire assets at discounts to replacement cost;

implement a value-add program to increase returns to our stockholders;

own assets that provide lifestyle amenities and upgraded living spaces to low and moderate income renters; and

recycle capital from dispositions when economic and market conditions present opportunities that we believe are in the best interest
of our stockholders.

We intend to accomplish these objectives by:

•

Focusing on Acquiring Class B Properties in Our Core Markets. We will continue to seek opportunities to acquire primarily
Class B multifamily properties at prices that we believe represent discounts to replacement cost, provide the potential for significant
long-term value appreciation and that we expect will generate attractive yields for our stockholders. We will focus on these types of
opportunities in our core markets, which we consider to be primarily major metropolitan areas in the Southeastern and Southwestern
United States.

Focusing on Multifamily Properties with a Value-Add Component. We will continue to seek opportunities to acquire multifamily
properties that have a value-add component. Due to a lack of reinvestment by many prior owners, we believe these types of properties
provide us the opportunity to make relatively modest capital expenditures that result in a significant increase in rents, thereby
generating NOI growth, and thus higher yields and capital appreciation for our stockholders.

Prudently Using Leverage to Increase Stockholder Value. We will typically finance new property acquisitions at a target leverage
level of approximately 50-60% loan-to-value (outstanding principal balance to enterprise value). Given that we intend for the majority
of our acquisitions to have a value-add component in the first three years of ownership, we will generally seek leverage with the
optionality to refinance (such as floating rate debt). In the management team’s experience, this leverage strategy allows for the
opportunity to maximize returns for our stockholders while providing maximum flexibility. We are currently targeting to reduce our
leverage to 40-45% loan-to-value (outstanding principal balance to enterprise value) over time by increasing the value of our
properties, refinancing properties we intend to hold longer term and strategically paying down debt with excess cash flows from
operations or future equity offerings.

Our Adviser’s investment approach combines its management team’s experience with a structure that emphasizes thorough market research,
local market knowledge, underwriting discipline and risk management in evaluating potential investments with a goal of maximizing long-term
stockholder value and a philosophy of thoughtful capital allocation and balance sheet management.

Acquisition and Operating Strategy

We seek primarily Class B multifamily properties that are priced at a discount to replacement cost. We believe that through the
implementation of our value-add program we will be able to grow the NOI of these types of properties significantly in the first three years of
ownership and thus these types of acquisitions will be accretive over the long-term to our FFO, Core FFO and AFFO. As we progress through the
real estate life cycle, these opportunities will become more difficult to find. However, we will continue to take a disciplined approach to acquisitions
by primarily pursuing these types of opportunities. At times, we may acquire properties from affiliates, including from Delaware statutory trusts
managed by affiliates of our Advisor (“Advised DSTs”). On or about March 1, 2022, through our operating partnership, we will send an offer to
acquire two properties from Advised DSTs. One property is a Class B apartment community consisting of 232 units located in the Atlanta, Georgia
MSA (“Adair”). The other property is a Class A apartment community consisting of 330 units located in the Phoenix, Arizona MSA (“Estates”).
The Operating Partnership will acquire Adair and Estates through exchange rights granted to the Operating Partnership in the respective trust
agreements for Adair and Estates. The total consideration for Adair is $65 million. The total consideration for Estates is $77.9 million. Affiliates
of our Advisor own less than 2% of the Adair trust units and less than 1% of the Estates trust units and will participate in the sales on the same
terms as other holders. Under the exchange rights, the current owners of the Advised DSTs are permitted to elect to receive either units of the
Operating Partnership or cash for their proportionate share of the consideration. We expect to close these acquisitions in the late first, or early
second, quarter of 2022.

Our Adviser’s investment approach includes active management of each property acquired. Our Adviser believes that active management
is critical to creating value. Prior to the purchase of a property, BH and our Adviser generally tour each property and develop a business strategy
for the property. This includes a forecast of the action items to be taken and the capital needed to achieve the anticipated returns. Our Adviser
reviews such property-level business strategies on an ongoing basis to anticipate changes or opportunities in the market. In an effort to keep
properties in compliance with our underwriting standards and management strategies, our Adviser remains involved throughout the investment life
cycle of each acquired property and actively consults with BH throughout the holding period.

Value-Add Strategy

We will continue to implement our value-add strategy at our properties where we believe we can achieve a significant increase in rents
above what would otherwise be the case with purely organic market increases. Our value-add program has three components: 1) improvement of
exteriors and common areas, 2) improvement of interiors and 3) management and cost improvements.

We invest in exterior and common areas improvements at our properties in an effort to enhance asset quality, to improve “curb
appeal”/market positioning, and expand or enhance our amenity offerings, all of which we believe will improve tenant retention and modestly drive
rent and NOI growth. Renovations to the exteriors and common areas include structural improvements that enhance the physical condition, value
and/or useful life of our properties, as well as aesthetic improvements to, among others, landscape and signage. We also seek to improve our
competitive positioning by adding to, redecorating or otherwise enhancing our common areas and amenity offerings. As of December 31, 2021,
with the exception of the properties we acquired in 2021, we have renovated the exteriors and common areas at a majority of the properties in our
Portfolio.

We expect interior renovations, along with organic growth in rents, to be the primary drivers of rent and NOI growth at our properties. Our
interior renovations include: 1) aesthetic design enhancements such as kitchen and/or bath remodeling, 2) replacement of outdated appliances,
equipment and fixtures, 3) addition of washer/dryer appliances, 4) private yards, 5) fiber internet and 6) smart technologies such as Bluetooth locks,
networked climate control systems and USB electrical outlets. We also seek to achieve cost improvements through investment in longer-lived
materials, energy conservation projects, and other strategic initiatives. Since inception, for the properties in our Portfolio as of December 31, 2021,
we have completed full and partial renovations on 6,015 units out of our 14,825 total units with an average monthly rental increase per unit of $136
and an average cost of $7,547 per renovated unit that has been leased as of December 31, 2021. In cases where we believe rents will grow
significantly in a market organically, we will implement the value-add program more strategically in order to capture significant rent and NOI
growth without expending additional capital. Additionally, to the extent we believe rents at a property are maximized regardless of the level of
additional renovations, we may opt not to further renovate units at that property. As of December 31, 2021, we had reserved approximately $11.9
million for our planned capital expenditures and other expenses to implement our value-add program, which will complete approximately 1,226
planned interior rehabs, eliminating the need for us to raise additional capital in order to carry out our currently planned value-add program.

Disposition Strategy

In general, we intend to hold our multifamily properties for production of rental income for a period of at least three years from the date of
acquisition. Economic and market conditions may influence us to hold our investments for different periods of time. From time to time, we may
sell an asset before the end of the expected holding period, particularly if we receive a bona fide unsolicited offer with attractive terms, have an
upcoming liquidity need, such as a debt maturing, are strategically exiting a certain market or sub-market or the sale of the asset would otherwise
be in the best interest of our stockholders. When reviewing whether a sale is in the best interest of our stockholders, we take into consideration
whether market conditions and asset positioning have maximized the value of the property to us and any potential adverse tax consequences of a
sale.

Financing Strategy

We intend to use leverage in making our investments with an objective of maintaining a strong balance sheet and providing liquidity to
grow our Portfolio. We are currently targeting to reduce our leverage to 40-45% loan-to-value (outstanding principal balance to enterprise value)
over time by increasing the value of our properties and refinancing properties we intend to hold longer-term. However, we are not subject to any
limitations on the amount of leverage we may use, and, accordingly, the amount of leverage we use may be significantly less or greater than what
we currently anticipate. We are currently meeting our short-term liquidity needs through our cash and cash equivalents and cash flows from
operations.

When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain properties and other assets
for cash with the intention of obtaining a loan for a portion of the purchase price at a later time. We will refinance properties during the term of a
loan only under certain circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing mortgage, an existing
mortgage matures, the value of the property has increased significantly and we can obtain more attractive terms through refinancing the property,
or an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment.

We typically use floating rate debt with interest rate swaps and interest rate caps as opposed to using fixed rate debt. We believe this is a
more sensible and flexible way to utilize leverage, while limiting our interest rate risk in our strategy as we attempt to increase the value of each
property over the course of three years after acquisition through our value-add program. Fixed rate financing is typically more expensive and less
flexible since there are typically high prepayment penalties, yield maintenance payments and/or defeasance penalties when refinancing the debt
prior to maturity. To the extent we intend to hold a property long-term, we will reassess the use of refinancing with fixed rate debt.

Property Management Strategy

We seek to achieve long-term earnings growth through superior property management. To achieve this, we have partnered with BH to
manage all of our properties as an external manager. In order to align our property manager’s interests with those of our stockholders, BH (through
an affiliate) is a noncontrolling limited partner of the OP. We believe BH provides the following benefits:

•

manages approximately 103,000 multifamily units in 27 states and has managed multifamily communities for 29 years;

brings a scale of operations we could not otherwise achieve for approximately 3% of gross income, which is the contracted amount
we pay for its property management services;

has operations in all of our current and desired markets, allowing us greater scale when entering new markets or make investments in
non-core markets without making substantial investments in management infrastructure in those markets;

has a construction management operation and substantial experience in renovating Class B multifamily units;

its scale allows it to obtain highly competitive pricing as it pertains to the costs of our value-add program, increasing our return on
investment for renovations;

helps us source and underwrite opportunities as well as assist in due diligence of properties prior to closing;

assists in locating potential buyers for our properties;

its size, scale and experience allows it to keep costs low and maximize rents and occupancy; and

has proved successful in driving other revenue growth at properties it manages.

Our Structure

The following chart shows our ownership structure.

An affiliate of BH Equities, LLC is the property manager for all of our properties.

Our Adviser

We are externally managed by our Adviser pursuant to the Advisory Agreement, by and among the OP, our Adviser, and us. Our Adviser
was organized on September 5, 2014 and is an affiliate of our Sponsor. Our Adviser has contractual and fiduciary responsibilities to us and our
stockholders as further described under “—Our Advisory Agreement” below. The members of our Adviser’s management team are Jim Dondero,
Brian Mitts, Matt McGraner, D.C. Sauter and Matthew Goetz, all of whom are employed by our Adviser or its affiliates.

Our Advisory Agreement

Below is a summary of the terms of our Advisory Agreement:

Duties of Our Adviser. Our Advisory Agreement provides that our Adviser manage our business and affairs in accordance with the policies
and guidelines established by our Board and that our Adviser be under the supervision of our Board. The agreement requires our Adviser to provide
us with all services necessary or appropriate to conduct our business, including the following:

•

locating, presenting and recommending to us real estate investment opportunities consistent with our investment policies, acquisition
and disposition strategies and objectives, including our conflicts of interest policies;

•

structuring the terms and conditions of transactions pursuant to which acquisitions and dispositions of properties will be made;

acquiring and disposing properties on our behalf in compliance with our investment objectives, strategies and applicable tax
regulations;

arranging for the financing and refinancing of properties;

administering our bookkeeping and accounting functions;

serving as our consultant in connection with policy decisions to be made by our Board, managing our properties or causing our
properties to be managed by another party;

monitoring our compliance with regulatory requirements, including the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, New York Stock
Exchange (“NYSE”) rules and regulations of the Code to maintain our status as a REIT;

performing administrative services; and

rendering other services as our Board deems appropriate.

Our Adviser is required to obtain the prior approval of our Board in connection with:

•

any investment for which the portion of the consideration paid out of our equity equals or exceeds $50,000,000;

any investment that is inconsistent with the publicly disclosed investment guidelines as in effect from time to time, or, if none are
then publicly disclosed, as otherwise adopted by our Board from time to time; or

any engagement of affiliated service providers on behalf of us or the OP, which engagement terms will be negotiated on an arm’s
length basis.

For these purposes, “equity” means the purchase price of the investment, exclusive of the proceeds of any debt financing incurred or to be

incurred in connection with the relevant investment and anticipated closing and other acquisition costs.

Our Adviser will be prohibited from taking any action, in its sole judgment, or in the sole judgment of our Board, that:

•

would adversely affect our qualification as a REIT under the Code, unless our Board had determined that REIT qualification is not
in the best interest of us and our stockholders;

would subject us to regulation under the Investment Company Act of 1940 (the “1940 Act”), except to the extent that we and our
Adviser have undertaken in the Advisory Agreement and our charter to comply with Section 15 of the 1940 Act in connection with
the entry into, continuation of, or amendment of the Advisory Agreement or any advisory agreement;

is contrary to or inconsistent with our investment guidelines; or

would violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over us or our
shares of common stock, or otherwise not be permitted by our charter or bylaws.

Advisory Fee. Our Advisory Agreement requires that we pay our Adviser an annual advisory fee of 1.00% of our Average Real Estate

Assets.

“Average Real Estate Assets” means the average of the aggregate book value of Real Estate Assets (see below) before reserves for
depreciation or other non-cash reserves, computed by taking the average of the book value of real estate assets at the end of each month (1) for
which any fee under the Advisory Agreement is calculated or (2) during the year for which any expense reimbursement under the Advisory
Agreement is calculated. “Real Estate Assets” is defined broadly in the Advisory Agreement to include, among other things, investments in real
estate-related securities and mortgages and reserves for capital expenditures (the value-add program).

In calculating the advisory fee, we categorize our Average Real Estate Assets into either “Contributed Assets” or “New Assets.” The
advisory fee on Contributed Assets may not exceed $4.5 million in any calendar year. This cap is intended to limit the fees paid to our Adviser on
the Contributed Assets following the Spin-Off to the fees that would have been paid by NHF to its adviser had the Spin-Off not occurred. The
advisory fee on New Assets is not subject to this limitation but is subject to the expense cap mentioned below.

“Contributed Assets” means all of the real estate assets we owned upon the completion of the Spin-Off and is not reduced for dispositions

of such assets subsequent to the Spin-Off.

“New Assets” means all of the Average Real Estate Assets other than Contributed Assets. New Assets includes proceeds from the sale of

a Contributed Asset that are used to purchase a new investment.

The advisory fee is payable monthly in arrears in cash, unless our Adviser elects, in its sole discretion, to receive all or a portion of such
fee in shares of our common stock, subject to the limitations set forth below under “—Limitations on Receiving Shares.” The number of shares
issued to our Adviser as payment for the advisory fee will be equal to the dollar amount of the portion of such fee that is payable in shares divided
by the volume-weighted average closing price of shares of our common stock for the ten trading days prior to the end of the month for which such
fee will be paid, which we refer to as the fee VWAP. Our Adviser computes each installment of the advisory fee as promptly as possible after the
end of the month with respect to which such installment is payable.

The accrued fees are payable monthly as promptly as possible after the end of each month during which the Advisory Agreement is in

effect. A copy of the computations made by our Adviser to calculate such installment is delivered to our Board for informational purposes only.

Administrative Fee. Our Advisory Agreement requires that we pay our Adviser an annual administrative fee of 0.20% of the Average Real

Estate Assets.

In calculating the administrative fee, we categorize our Average Real Estate Assets into either Contributed Assets or New Assets. The
administrative fee on Contributed Assets may not exceed $890,000 in any calendar year. This cap is intended to limit the fees paid to our Adviser
on the Contributed Assets following the Spin-Off to the fees that would have been paid by NHF to its adviser had the Spin-Off not occurred. The
administrative fee on New Assets is not subject to this limitation but is subject to the expense cap described below.

The administrative fee is payable monthly in arrears in cash, unless our Adviser elects, in its sole discretion, to receive all or a portion of
such fee in shares of our common stock, subject to the limitations set forth below under “—Limitations on Receiving Shares.” The number of
shares issued to our Adviser as payment for the administrative fee will be equal to the dollar amount of the portion of such fee that is payable in
shares divided by the fee VWAP. Our Adviser computes each installment of the administrative fee as promptly as possible after the end of each
month with respect to which such installment is payable. The accrued fees are payable monthly as promptly as possible after the end of each month
during which the Advisory Agreement is in effect. A copy of the computations made by our Adviser to calculate such installment is delivered to
our Board for informational purposes only.

Reimbursement of Expenses. Our Advisory Agreement requires that we reimburse our Adviser for all of its out-of-pocket expenses in
performing its services, including legal, accounting, financial, due diligence and other services performed by our Adviser that outside professionals
or outside consultants would otherwise perform and also pay our pro rata share of rent, telephone, utilities, office furniture, equipment, machinery
and other office, internal and overhead expenses of our Adviser required for our operations (“Adviser Operating Expenses”). Adviser Operating
Expenses do not include expenses for the advisory and administrative services provided under the Advisory Agreement. We will also reimburse
our Adviser for any and all expenses (other than underwriters’ discounts) in connection with an offering, including, without limitation, legal,
accounting, printing, mailing and filing fees and other documented offering expenses.

When applicable, our Adviser prepares a statement documenting all expenses incurred during each month, and delivers such statement to
us within 15 business days after the end of each month. When submitted for reimbursement, such expenses are reimbursed by us no later than the
15th business day immediately following the date of delivery of such statement of expenses to us. All expenses payable by us or reimbursable to
our Adviser pursuant to the agreement will not be in amounts greater than those which would be payable to outside professionals or consultants
engaged to perform such services pursuant to agreements negotiated on an arm’s length basis. Our Adviser may, at its discretion and at any time,
waive its right to reimbursement for eligible out-of-pocket expenses paid on our behalf. Once waived, these expenses are considered permanently
waived and become non-recoupable in the future.

Expense Cap. Reimbursement of Adviser Operating Expenses under the Advisory Agreement, advisory and administrative fees paid to
our Adviser and corporate general and administrative expenses such as audit, legal, listing and Board fees and equity-based compensation expense
recognized under a long-term incentive plan will not exceed 1.5% of Average Real Estate Assets per calendar year (or part thereof that the Advisory
Agreement is in effect) (the “Expense Cap”). The Expense Cap does not limit the reimbursement by us of expenses related to securities offerings
paid by our Adviser. The Expense Cap also does not apply to legal, accounting, financial, due diligence and other service fees incurred in connection
with mergers and acquisitions, extraordinary litigation or other events outside our ordinary course of business or any out-of-pocket acquisition or
due diligence expenses incurred in connection with the acquisition or disposition of real estate assets.

Term of the Advisory Agreement. The Advisory Agreement has a one-year term. The Advisory Agreement shall continue in full force
and effect so long as the Advisory Agreement is approved at least annually by our Board. On February 14, 2022, our Board, including the
independent directors, unanimously approved the renewal of the Advisory Agreement with the Adviser for a one-year term.

The Advisory Agreement may be terminated at any time, without payment of any penalty to our Adviser, by vote of our Board or
stockholders, or by our Adviser, in each case on not more than 60 days’ nor less than 30 days’ prior written notice to the other party. The Advisory
Agreement shall automatically and immediately terminate in the event of its “assignment” (as defined in the 1940 Act).

Amendment. The Advisory Agreement may only be amended, waived, discharged or terminated in writing signed by the party against

which enforcement of the amendment, waiver, discharge or termination is sought.

Limitations on Receiving Shares. The ability of our Adviser to receive shares of our common stock as payment for all or a portion of the
advisory and administrative fees due under the terms of our Advisory Agreement will be subject to the following limitations: (1) the ownership of
shares of common stock by our Adviser may not violate the ownership limitations set forth in our charter, after giving effect to any exception from
such ownership limitations that our Board may grant to our Adviser or its affiliates and (2) compliance with all applicable restrictions under the
U.S. federal securities laws and the NYSE rules. To the extent that payment of any fee in shares of our common stock would result in a violation
of the ownership limits set forth in our charter (taking into account any applicable waiver or any restrictions imposed under the U.S. federal
securities laws or NYSE rules), all or a portion of such fee payable to our Adviser will be payable in cash to the extent necessary to avoid such
violation.

Registration Rights. We entered into a registration rights agreement with our Adviser with respect to any shares of our common stock that
our Adviser receives as payment for any fees owed under our Advisory Agreement. These registration rights will require us to file a registration
statement with respect to such shares. We agreed to pay all of the expenses relating to registering these securities. The costs associated with
registering these securities will not be deducted from the compensation owed to our Adviser.

Liability and Indemnification of our Adviser. Under the Advisory Agreement, we are also required to indemnify our Adviser and to pay

or reimburse reasonable expenses in advance of final disposition of a proceeding with respect to certain of our Adviser’s acts or omissions.

Other Activities of our Adviser and its Affiliates. Our Adviser and its affiliates expect to engage in other business ventures, and as a
result, their resources will not be dedicated exclusively to our business. However, pursuant to the Advisory Agreement, our Adviser will be required
to devote sufficient resources to our administration to discharge its obligations.

Potential Acquisition of our Adviser. Many REITs that are listed on a national stock exchange are considered “self-managed” or
“internally managed,” since the employees of such REITs perform all significant management functions. In contrast, REITs that are not self-
managed, like us, are referred to as “externally managed” and typically engage a third party, such as our Adviser, to perform management functions
on its behalf. Our independent directors may determine that we should become self-managed through the acquisition of our Adviser, which we
refer to as an internalization transaction. See “Risk Factors—If we internalize our management functions, the percentage of our outstanding
common stock owned by our other stockholders could be reduced, and we could incur other significant costs associated with being self-managed.”

Our Property Manager

The entities through which we own the properties in our Portfolio have entered into management agreements with BH. Pursuant to these
agreements, BH operates and leases the underlying properties in our Portfolio. In addition to property management and leasing services, BH also
provides us with market research, acquisition advice, a pipeline of investment opportunities and construction management services. We utilize BH
for property and construction management services and leasing, paying BH a management fee of approximately 3% of the monthly gross income
from each property managed, as well as construction supervision fees and certain other fees described under “—Property Management Agreements”
below.

Property Management Agreements

Under these agreements, BH operates, coordinates and supervises the ordinary and usual business and affairs pertaining to the operation,

maintenance, leasing, licensing, and management of each property. The following summarizes the terms of the management agreements.

Term. The terms of the management agreements will continue until the last day of the calendar month following the second anniversary of
the agreement. Upon the expiration of the original term, the agreements will automatically renew on a month-to-month basis until terminated. The
agreements may be terminated at any time with 60 days written notice.

Proposed Management Plans. Each management agreement requires that BH prepare and submit a proposed management plan and
operating budget for the marketing, operation, repair and maintenance, and renovation of the property for the year the agreement is entered into.
BH must submit subsequent proposed management plans 45 days prior to the beginning of the next year.

Amounts Payable under the Management Agreements. The entities that own the properties pay BH monthly for its services. Pursuant
to the management agreements, BH may pay itself out of each property’s operating account. Any sums not paid within 10 days after becoming due
bear interest at the rate of 18% per annum. Compensation under the management agreements consists of the following components:

•

Management Fee. The management fee is approximately 3% of the monthly gross income from each property. For the purposes of
calculating the management fee, “monthly gross income” is defined as all receipts of every kind and nature actually collected from
the operation of the property, determined on a cash basis, including, without limitation, rental or lease payments, late charges, service
charges, forfeited security deposits, proceeds of vending machine collections, resident utility payment collections, and all other forms
of miscellaneous income (but excluding the collection of any insurance or condemnation awards).

Set-Up/Inspection Fees. BH receives a one-time set-up/inspection fee per unit upon commencement of management of each
property.

Construction Supervision Fee. BH receives a construction supervision fee of 5-6% of total project costs if BH performs these
services.

Renter’s Insurance Program Fee; Other Fees. In the event that the entities that own the properties direct BH to implement a
renter’s insurance program at a property, the entities pay BH a fee in connection with running such program. In consideration for
any additional services other than the services required under the management agreements, the entities pay BH an hourly rate.

Additionally, BH also acts as a paymaster for the properties and is reimbursed at cost for various operating expenses it pays on behalf of

the properties.

Termination. A management agreement will terminate automatically in the event that the entity that owns the property is sold or if all or
substantially all of the property to which the agreement applies is otherwise disposed of. Additionally, a management agreement may be terminated
if certain other events occur, including:

•

a default by BH or the entity that owns the property that is not cured prior to the expiration of any applicable cure periods;

upon written notice by either party if a petition for bankruptcy, reorganization or arrangement is filed by the other party, or if any
such petition shall be filed against the other party and is not dismissed within 60 days of the date of such filing, or in the event the
other party shall make an assignment for the benefit of creditors, or take advantage of any insolvency statute or similar law;

upon 15 days written notice in the event that all or substantially all of the property is destroyed by a casualty, or taken by means of
eminent domain or condemnation; or

upon 60 days written notice by either party.

If a management agreement is terminated by the entity that owns the property for any reason, or if it is terminated by BH due to our default
or due to the destruction, condemnation or taking by eminent domain of a property, the entity that owns the property will be required to pay damages
to BH. Such damages will be equal to the management fee earned by BH for the calendar month immediately preceding the month in which the
notice of termination is given, multiplied by the number of months and/or portions thereof remaining from the termination date until the end of the
initial term or term year in which the termination occurred.

Additionally, for the month or the partial month after the date of the termination of BH’s on-site property management responsibilities, BH

will be paid a close-out management fee equivalent to 50% of the last month’s full management fee.

Insurance. The entities that own the properties are required to maintain property and liability insurance for each property, and its liability
insurance policy must include BH as an “Additional Insured.” BH is required to maintain, at the entities’ expense, workers’ compensation insurance
covering all employees of BH employed in, on, or about each property so as to provide statutory benefits required by state and federal laws.

Assignment. BH may not assign the management agreements without the prior written consent of the entities that own the properties.

Indemnification. The entities that own the properties are required to indemnify, defend and hold harmless BH and its agents and employees
from and against all claims, liabilities, losses, damages, and/or expenses arising out of (1) BH’s performance under the management agreements,
or (2) facts, occurrences, or matters first arising before the date of the management agreements. The entities that own the properties are not required
to indemnify BH against damages or expenses suffered as a result of the gross negligence, willful misconduct, or fraud on the part of BH, its agents,
or employees.

BH is required to indemnify, defend, and hold harmless the entities that own the properties and their agents and employees from and against
all claims, liabilities, losses, damages, and/or expenses arising out of the gross negligence, willful misconduct, or fraud on the part of BH, its agents,
or employees, and shall at its own cost and expense defend any action or proceeding against us arising therefrom.

Regulation

Multifamily properties are subject to various laws, ordinances and regulations, including regulations relating to common areas, such as
swimming pools, activity centers, and recreational facilities. We believe that each of our properties has the necessary permits and approvals to
operate its business.

Americans with Disabilities Act

The properties in our Portfolio must comply with Title III of the Americans with Disability Act of 1990 (the “ADA”), to the extent that
such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons
with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial
compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA.
However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make
readily accessible accommodations is an ongoing one, and we will continue to assess our properties and make alterations as appropriate in this
respect.

Fair Housing Act

The Fair Housing Act (the “FHA”), its state law counterparts and the regulations promulgated by the U.S. Department of Housing and
Urban Development and various state agencies, prohibit discrimination in housing on the basis of race or color, national origin, religion, sex,
familial status (including children under the age of 18 living with parents or legal custodians, pregnant women and people securing custody of
children under 18) or handicap (disability) and, in some states, financial capability or other bases. A failure to comply with these laws in our
operations could result in litigation, fines, penalties or other adverse claims, or could result in limitations or restrictions on our ability to operate,
any of which could materially and adversely affect us. We believe that we operate our properties in substantial compliance with the FHA.

Environmental Matters

Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real
property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum
products at, on, in, under, or migrating from such property, including costs to investigate and clean up such contamination and liability for natural
resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such
contamination, and the liability may be joint and several. These liabilities could be substantial and the cost of any required remediation, removal,
fines, or other costs could exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to
remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or personal or property damage or
materially adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition,
environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination.
Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be
used or businesses may be operated, and these restrictions may require substantial expenditures.

Independent environmental consultants have conducted Phase I Environmental Site Assessments at all of the properties in our Portfolio
using the American Society for Testing and Materials Standard E 1527-05. A Phase I Environmental Site Assessment is a report that identifies
potential or existing environmental contamination liabilities. Site assessments are intended to discover and evaluate information regarding the
environmental condition of the assessed property and surrounding properties. These assessments do not generally include soil samplings, subsurface
investigations or an asbestos survey. None of the site assessments identified any known past or present contamination that we believe would have
a material adverse effect on our business, assets or operations. However, the assessments are limited in scope and may have failed to identify all
environmental conditions or concerns. A prior owner or operator of a property or historic operations at our properties, or operations and conditions
at nearby properties, may have created a material environmental condition that is not known to us or the independent consultants preparing the site
assessments. Material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws,
ordinances or regulations may impose material additional environmental liability. Moreover, conditions identified in environmental assessments
that did not appear material at that time, may in the future result in material liability.

Environmental laws also govern the presence, maintenance and removal of hazardous materials in building materials (e.g., asbestos and
lead), and may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability (e.g., liability for
personal injury associated with exposure to asbestos). Such laws require that owners or operators of buildings containing hazardous materials
properly manage and maintain certain hazardous materials, adequately notify or train those who may come into contact with certain hazardous
materials, and undertake special precautions, including removal or other abatement, if certain hazardous materials would be disturbed during
renovation or demolition of a building. In addition, the properties in our Portfolio are subject to various federal, state, and local environmental and
health and safety requirements, such as state and local fire requirements.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem
remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can
also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen,
viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects
and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our
properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the
affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to
liability from our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air
quality issues at our properties.

We believe that there are no compliance issues with laws and regulations that have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the environment, that have adversely affected, or are reasonably expected
to adversely affect, our business, financial condition and results of operations, and we do not currently anticipate material capital expenditures
arising from environmental regulation. We believe that climate change could present risks to our business. Some of the potential impacts of climate
change to our business include increased operating costs due to additional regulatory requirements and the risk of disruptions to our business. We
do not believe these risks are material to our business at this time. Our currently anticipated capital expenditures for environmental control facility
matters are not material.

The cost of future environmental compliance may materially and adversely affect us. See “Risk Factors—We may face high costs associated
with the investigation or remediation of environmental contamination, including asbestos, lead-based paint, chemical vapor, subsurface
contamination and mold growth.”

Insurance

We carry comprehensive general liability coverage on the properties in our Portfolio, with limits of liability customary within the industry
to insure against liability claims and related defense costs. Similarly, we are insured against the risk of direct physical damage in amounts necessary
to reimburse us on a replacement-cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the
reconstruction period. The majority of our property policies for all U.S. operating and development communities include coverage for the perils of
flood, tornado and earthquake shock with limits and deductibles customary in the industry and specific to the project. We will also obtain title
insurance policies when acquiring new properties, which insure fee title to the properties in our Portfolio. We have obtained coverage for losses
incurred in connection with both domestic and foreign terrorist-related activities. These policies include limits and terms we consider commercially
reasonable. There are certain losses (including, but not limited to, losses arising from environmental conditions, acts of war or certain kinds of
terrorist attacks) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief,
economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own funds to
resolve the issue, including litigation costs. In addition, for the properties in our Portfolio, we could self-insure certain portions of our insurance
program and therefore, use our own funds to satisfy those limits. We believe the policy specifications and insured limits are adequate given the
relative risk of loss, the cost of the coverage and industry practice. In the opinion of our management team, the properties in our Portfolio are
adequately insured.

Competition

In attracting and retaining residents to occupy the properties in our Portfolio, we compete with numerous other housing alternatives. The
properties in our Portfolio compete directly with other rental apartments as well as condominiums and single-family homes that are available for
rent or purchase in the sub-markets in which our properties are located. Principal factors of competition include rent or price charged, attractiveness
of the location and property and quality and breadth of services and amenities. If our competitors offer leases at rental rates below current market
rates, or below the rental rates that the tenants of the properties in our Portfolio pay, we may lose potential tenants and we may be pressured to
reduce rental rates below those currently charged or to offer more substantial rent abatements, tenant improvements, early termination rights or
below-market renewal options in order to retain tenants when the tenants’ leases expire.

The number of competitive properties relative to demand in a particular area has a material effect on our ability to lease apartment units at
our properties and on the rents we charge. In addition, we compete with numerous other investors for suitable properties. This competition affects
our ability to acquire properties and the price that we pay in such acquisitions.

Human Capital Disclosure

As of December 31, 2021, we had three employees. We endeavor to maintain workplaces that are free from discrimination or harassment
on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression or any
other status protected by applicable law. The basis for recruitment, hiring, development, training, compensation and advancement is a person’s
qualifications, performance, skills and experience. Our employees are fairly compensated, without regard to gender, race and ethnicity, and
routinely recognized for outstanding performance.

Our Adviser conducts substantially all of our operations and provides asset management for our real estate investments. We expect we will

only have accounting employees while the Advisory Agreement is in effect.

Corporate Information

Our Adviser’s offices are located at 300 Crescent Court, Suite 700, Dallas, Texas 75201. Our Adviser’s telephone number is (214) 276-
6300. We maintain a website at nxrt.nexpoint.com. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available on our website as
soon as reasonably practicable after we file such material with, or furnish it to, the SEC. Information contained on, or accessible through our
website, is not incorporated by reference into and does not constitute a part of this annual report or any other report or documents we file with or
furnish to the SEC. These documents may also be found on the SEC’s website at www.sec.gov.

Item 1A. Risk Factors

You should carefully consider the following risks and other information in this annual report in evaluating us and our capital stock. Any of
the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially
and adversely affect our business, financial condition or results of operations, and could, in turn, impact the trading price of our capital stock.

Summary Risk Factors

The following is a summary of some of the risks and uncertainties that could materially adversely affect our business, financial condition

and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.

•

unfavorable changes in market and economic conditions in the United States and globally and in the specific markets where our
properties are located;

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

risks associated with the ownership of real estate;

limited ability to dispose of assets because of the relative illiquidity of real estate investments;

our multifamily properties are concentrated in certain geographic markets in the Southeastern and Southwestern United States, which
makes us more susceptible to adverse developments in those markets;

increased risks associated with our strategy of acquiring value enhancement multifamily properties rather than more conservative
investment strategies;

failure to succeed in new markets may have adverse consequences on our performance;

risks associated with operating through joint ventures and funds;

our dependence on information systems;

risks associated with breaches of our data security;

costs associated with being a public company, including compliance with securities laws;

the risk that our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal
control over financial reporting;

•

risks associated with our substantial current indebtedness and indebtedness we may incur in the future;

risks associated with derivatives or hedging activity;

loss of key personnel of our Sponsor, our Adviser and our property manager;

risks associated with our Adviser’s ability to terminate the Advisory Agreement (as defined below);

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

the substantial fees and expenses we pay to our Adviser and its affiliates;

risks associated with any potential internalization of our management functions;

conflicts of interest and competing demands for time faced by our Adviser, our Sponsor and their officers and employees;

the risk that we may compete with other entities affiliated with our Sponsor or property manager for properties and tenants;

failure to maintain our status as a REIT;

failure of our operating partnership to be taxable as a partnership for federal income tax purposes, possibly causing us to fail to
qualify for or to maintain REIT status;

risks associated with our ownership of interests in taxable REIT subsidiaries;

the recognition of taxable gains from the sale of properties as a result of the inability to complete certain like-kind exchanges in
accordance with Section 1031 of the Code

the risk that the Internal Revenue Service 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 Code for REITs and the stock ownership limit imposed by our charter;

the ability of our board of directors to revoke our REIT qualification without stockholder approval;

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

risks associated with the market for our common stock and the general volatility of the capital and credit markets;

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

risks associated with limitations of liability for and our indemnification of our directors and officers;

the risk that legal proceedings we become involved in from time to time could adversely affect our business; and

the risk that acts of violence could decrease the value of our assets and have an adverse effect on our business and results of operations.

Risks Related to Our Business and Industry

The current COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases could materially and adversely
impact or disrupt our financial condition, results of operations, cash flows and performance.

The COVID-19 pandemic has had, and other pandemics in the future could have, repercussions across regional and global economies and
financial markets. The outbreak of COVID-19 has significantly adversely impacted global economic activity and has contributed to significant
volatility and negative pressure in financial markets. The global impact of the outbreak evolved rapidly and continues to evolve, as COVID-19
cases rise again. Additionally, the emergence of new variants of COVID-19 are unpredictable and current vaccines and treatments may not be
effective against new variants.

The COVID-19 pandemic, and other future pandemics, could also materially and adversely impact or disrupt our financial condition,

results of operations, cash flows and performance due to, among other factors:

•

reduced economic activity may cause certain of our tenants to be unable to meet their rent obligations to us in full, or at all, or to
otherwise seek modifications of such obligations;

federal, state, local and industry-initiated efforts that may adversely affect the ability of landlords, including us, to collect rent and
customary fees, adjust rental rates and enforce remedies for the failure to pay rent, such as the order issued by the CDC to temporarily
halt residential evictions to prevent further spread of COVID-19;

reduced economic activity could result in a prolonged recession, which could negatively impact our prospects for leasing additional
apartment units and/or renewing leases with existing tenants;

difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and
instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital
necessary to fund business operations or address maturing liabilities on a timely basis, or at all;

the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our
Amended and Restated Corporate Credit Facility and other debt agreements and result in a default and potentially an acceleration of
indebtedness, which non-compliance could negatively impact our ability to request further increase to our Amended and Restated
Corporate Credit Facility and pay dividends, among other things;

weaker economic conditions due to the COVID-19 pandemic could require us to recognize future impairment losses;

a general decline in business activity and demand for real estate transactions could adversely affect our ability to sell or purchase
properties;

a change in housing trends, including tenants seeking properties with yards or larger outdoor spaces; our ability to lease or relet units
due to social distancing or other restrictions intended to prevent the spread of COVID-19 that may frustrate our leasing activities;

our ability to continue our apartment unit redevelopment programs and attain increased rental rates for renovated or upgraded units
due to social distancing or other restrictions intended to prevent the spread of COVID-19;

the possibility that one or more of our apartment communities could become a cluster site for COVID-19 infections, which could
negatively impact our reputation and occupancy levels and result in operational losses due to reduced rental demand;

the potential negative impact on the health of the employees of our Adviser and our property manager, particularly if a significant
number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption; and

the timing of the development and distribution of effective treatments for COVID-19 and future pandemics.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. New outbreaks or variants may cause our
Adviser’s employees to return to working remotely. An extended period of remote work arrangements could introduce operational risk, including,
but not limited to, cybersecurity risks, impair our ability to manage our business and negatively impact our internal controls over financial reporting.

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be
predicted, including additional actions taken to contain COVID-19 or treat its impact, among others. The rapid development and fluidity of this
situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents
material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance. Moreover, many risk factors
set forth in our Annual Report should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

Unfavorable market and economic conditions in the United States and globally and in the specific markets or submarkets where our properties
are located could adversely affect occupancy levels, rental rates, rent collections, operating expenses and the overall market value of our assets,
and impair our ability to sell, recapitalize or refinance our assets.

Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions in the United States and globally
may significantly affect our occupancy levels, our rental rates, rent collections, operating expenses, the market value of our properties and our
ability to strategically acquire, dispose, recapitalize or refinance our multifamily properties on economically favorable terms or at all. Our ability
to lease our properties at favorable rates is adversely affected by increases in supply of multifamily communities in our markets and is dependent
upon overall economic conditions, which are adversely affected by, among other things, the COVID-19 pandemic job losses and unemployment
levels, a recession, personal debt levels, a downturn in the housing market, stock market volatility and uncertainty about the future. Some of our
major expenses, including debt service and real estate taxes, generally do not decline when related rents decline. We expect that any declines in
our occupancy levels, rental revenues and/or the values of our multifamily properties would cause us to have less cash available to pay our
indebtedness, fund necessary capital expenditures and to make distributions to our stockholders, which could negatively affect our financial
condition and the market value of our assets. Factors that may affect our occupancy levels, our revenues, our NOI and/or the value of our properties
include the following, among others:

•

the COVID-19 pandemic and the effectiveness of actions taken, or actions that may be taken, by governmental authorities to contain
the outbreak or treat its impact of COVID-19;

downturns in global, national, regional and local economic conditions;

declines in the financial condition of our residents, which may make it more difficult for us to collect rents from these residents;

the inability or unwillingness of our residents to pay rent increases;

a decline in household formation;

a decline in employment or lack of employment growth;

an oversupply of, or a reduced demand for, apartment homes;

changes in market rental rates in our core markets;

our ability to renew leases or re-lease space on favorable terms;

the timing and costs associated with property improvements, repairs and renovations, including supply chain issues and labor shortages
as a result of the COVID-19 pandemic;

declines in mortgage interest rates, making home and condominium ownership more affordable;

changes in home loan lending practices, including the easing of credit underwriting standards, increasing the availability of home
loans and thereby reducing demand for apartment homes;

government or builder incentives which enable first-time homebuyers to put little or no money down, making alternative housing
options more attractive;

rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in
operating costs; and

economic conditions that could cause an increase in our operating expenses, such as increases in property taxes (particularly as a
result of increased local, state and national government budget deficits and debt and potentially reduced federal aid to state and local
governments), utilities, insurance, compensation of on-site associates and routine maintenance.

We are subject to risks inherent in ownership of real estate.

Real estate cash flows and values are affected by a number of factors, including competition from other available properties and the ability
to provide adequate property maintenance and insurance and to control operating costs. Real estate cash flows and values are also affected by such
factors as government regulations (including zoning, usage and tax laws) limitations on rent and rent increases, interest rate levels, the availability
of financing, property tax rates, utility expenses, potential liability under environmental and other laws and changes in environmental and other
laws.

Real estate investments are relatively illiquid and may limit our flexibility.

Equity real estate investments are relatively illiquid, which tends to limit our ability to react promptly to changes in economic or other
market conditions. Our ability to dispose of assets in the future will depend on prevailing economic and market conditions. Our inability to sell our
properties on favorable terms or at all could have a material adverse effect on our sources of working capital and our ability to satisfy our debt
obligations. In addition, real estate can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real
estate in our markets may limit our ability to change or reduce the number of multifamily properties in our Portfolio promptly in response to
changes in economic or other conditions.

Our multifamily properties are concentrated in certain geographic markets, which makes us more susceptible to adverse developments in those
markets.

Our most significant geographic investment concentrations are primarily in the Southeastern and Southwestern United States. We are,
therefore, subject to increased exposure from economic and other competitive factors specific to markets within these geographic areas. To the
extent general economic conditions worsen in one or more of these markets, or if any of these areas experience a natural disaster, the value of our
Portfolio and our market rental rates could be adversely affected. As a result, our results of operations, cash flow, cash available for distribution,
including cash available to pay distributions to our stockholders, and our ability to satisfy our debt obligations could be materially adversely
affected.

Failure to succeed in new markets may have adverse consequences on our performance.

We may make acquisitions outside of our existing market areas if appropriate opportunities arise. Our historical experience in our existing markets
does not ensure that we will be able to operate successfully in new markets, should we choose to enter them. We may be exposed to a variety of
risks if we choose to enter new markets, including an inability to accurately evaluate local market conditions, to identify appropriate acquisition
opportunities, to hire and retain key personnel and a lack of familiarity with local governmental and permitting procedures. In addition, we may
abandon opportunities to enter new markets that we have begun to explore for any reason and may, as a result, fail to recover expenses already
incurred.

Our strategy for acquiring value-enhancement multifamily properties involves greater risks than more conservative investment strategies.

Our primary strategy is a value-add strategy. Therefore, for a majority of our Portfolio, we intend to execute a “value-enhancement” strategy
whereby we will acquire under-managed assets in high-demand neighborhoods, invest additional capital, and reposition the properties to increase
both average rental rates and resale value. Our strategy for acquiring value-enhancement multifamily properties involves greater risks than more
conservative investment strategies. The risks related to these value-enhancement investments include risks related to delays in the repositioning or
improvement process, higher than expected capital improvement costs, the additional capital needed to execute our value-add program, including
possible borrowings or raising additional equity necessary to fund such costs, and ultimately that the repositioning process may not result in the
higher rents and occupancy rates anticipated. In addition, our value-enhancement properties may not produce revenue while undergoing capital
improvements. Furthermore, we may also be unable to complete the improvements of these properties and may be forced to hold or sell these
properties at a loss. For these and other reasons, we cannot assure you that we will realize growth in the value of our value-enhancement multifamily
properties, and as a result, our ability to make distributions to our stockholders could be adversely affected.

Potential reforms or changes to Freddie Mac and Fannie Mae could adversely affect our business.

As of December 31, 2021, we had approximately $1.2 billion and $55.8 million of outstanding consolidated indebtedness under our Freddie
Mac and Fannie Mae mortgage loans, respectively. We rely on national and regional institutions, including Freddie Mac and Fannie Mae, to provide
financing for our acquisitions and permanent financing on properties we may develop in the future. Currently, there is significant uncertainty
regarding the futures of Freddie Mac and Fannie Mae. Should Freddie Mac and Fannie Mae have their mandates changed or reduced, be disbanded
or reorganized by the government, privatized or otherwise discontinue providing liquidity to our sector, it could significantly reduce our access to
debt capital and/or increase borrowing costs and could significantly reduce our sales of assets and/or the values realized upon sale.

Competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our profitability and impede our
growth.

We compete with numerous real estate companies and other owners of real estate in seeking multifamily properties for acquisition and
pursuing buyers for dispositions. We expect that other real estate investors, including insurance companies, private equity funds, sovereign wealth
funds, pension funds, other REITs and other well-capitalized investors, will compete with us to acquire existing properties and to develop new
properties, and many of these investors will have greater sources of capital to acquire properties. This competition could increase prices for
properties of the type we would likely pursue and adversely affect our profitability and impede our growth.

Competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase or maintain rents.

Our multifamily properties compete with other housing alternatives to attract residents, including other rental apartments, condominiums
and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. All of our
multifamily properties are located in developed areas that include other multifamily properties and/or condominiums. The number of competitive
multifamily properties and/or condominiums in a particular area, and any increased affordability of owner occupied single and multifamily homes
caused by declining housing prices, low mortgage interest rates and government programs to promote home ownership, could have a material
adverse effect on our ability to lease our apartments and the rents we are able to obtain. In addition, single-family homes and other residential
properties provide housing alternatives to residents and potential residents of our multifamily properties.

The relatively low residential mortgage rates may result in potential renters purchasing residences rather than leasing them, and as a result,
cause a decline in occupancy rates.

The relatively low residential mortgage interest rates currently available and government-sponsored programs to promote home ownership
have resulted in a record high level on the National Association of Realtor’s Housing Affordability Index, an index used to measure whether or not
a typical family could qualify for a mortgage loan on a typical home. The foregoing factors may encourage potential renters to purchase residences
rather than lease them, thereby causing a decline in the occupancy rates of our properties.

We depend on our tenants for substantially all of our revenues. Poor tenant selection and defaults and nonrenewals by our tenants may
adversely affect our reputation, financial performance and ability to make distributions.

We depend on rental income from tenants for substantially all of our revenues. As a result, our success depends in large part upon our
ability to attract and retain qualified tenants for our properties. Our reputation, financial performance and ability to make distributions to our
shareholders would be adversely affected if a significant number of our tenants fail to meet their lease obligations or fail to renew their leases. For
example, tenants may default on rent payments, make unreasonable and repeated demands for service or improvements, make unsupported or
unjustified complaints to regulatory or political authorities, use our properties for illegal purposes, damage or make unauthorized structural changes
to our properties that are not covered by security deposits, refuse to leave the property upon termination of the lease, engage in domestic violence
or similar disturbances, disturb nearby residents with noise, trash, odors or eyesores, fail to comply with HOA regulations, sublet to less desirable
individuals in violation of our lease or permit unauthorized persons to live with them. Damage to our properties may delay re-leasing after eviction,
necessitate expensive repairs or impair the rental income or value of the property resulting in a lower than expected rate of return. Increases in
unemployment levels and other adverse changes in the economic conditions in our markets could result in substantial tenant defaults. In the event
of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord at that property and will incur costs in protecting
our investment and re-leasing the property. In addition, we rely on information supplied by prospective residents in making tenant selections, which
may in some cases be false.

We may fail to consummate future property acquisitions, and we may not be able to find suitable alternative investment opportunities.

When acquiring properties in the future, we may be subject to various closing conditions, and there can be no assurance that we can satisfy
these conditions or that the acquisitions will close. If we fail to consummate future acquisitions, there can be no assurance that we will be able to
find suitable alternative investment opportunities.

Acquisitions may not yield anticipated results, which could negatively affect our financial condition and results of operations.

We intend to actively acquire multifamily properties for rental operations as market conditions, including access to the debt and equity
markets, dictate. We may also acquire multifamily properties that are unoccupied or in the early stages of lease-up. We may be unable to lease-up
these multifamily properties on schedule, resulting in decreases in expected rental revenues and/or lower yields as the result of lower occupancy
and rental rates as well as higher than expected concessions. We may underestimate the costs necessary to bring an acquired property up to standards
established for its intended market position or to complete a development project. We may be unable to integrate the existing operations of newly
acquired multifamily properties and over time such communities may not perform as well as existing communities or as we initially anticipated in
terms of occupancy and/or rental rates. Additionally, we expect that other major real estate investors with significant capital will compete with us
for attractive investment opportunities or may also develop properties in markets where we focus our development efforts. This competition may
increase acquisition costs for multifamily properties. We may not be in a position or have the opportunity in the future to make suitable property
acquisitions on favorable terms.

We are subject to certain risks associated with selling apartment communities, which could limit our operational and financial flexibility.

We periodically dispose of apartment communities that no longer meet our strategic objectives, but adverse market conditions may make it
difficult to sell apartment communities like the ones we own. We cannot predict whether we will be able to sell any property for the price or on the
terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of
time needed to find a willing purchaser and to close the sale of a property. Furthermore, we may be required to expend funds to correct defects or to
make improvements before a property can be sold. These conditions may limit our ability to dispose of properties and to change our portfolio promptly
in order to meet our strategic objectives, which may in turn have a material adverse effect on our financial condition and the market value of our assets.
We are also subject to the following risks in connection with sales of our apartment communities:

•

a significant portion of the proceeds from our overall property sales may be held by intermediaries in order for some sales to qualify
as an exchange under Section 1031 of the Code (“1031 Exchanges”) so that any related capital gain can be deferred for U.S. federal
income tax purposes. As a result, we may not have immediate access to all of the cash proceeds generated from our property sales;
and

U.S. federal tax laws limit our ability to profit on the sale of communities that we have owned for less than two years, and this
limitation may prevent us from selling communities when market conditions are favorable.

We may be subject to contingent or unknown liabilities related to properties or businesses that we have acquired or may acquire for which we
may have limited or no recourse against the sellers.

The properties or businesses that we have acquired or may acquire, may be subject to unknown or contingent liabilities for which we have
limited or no recourse against the sellers. Unknown liabilities might include liabilities for, among other things, cleanup or remediation of undisclosed
environmental conditions, liabilities under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), claims of residents, vendors
or other persons dealing with the entities prior to the acquisition of such property, tax liabilities, and accrued but unpaid liabilities whether incurred in
the ordinary course of business or otherwise. Because many liabilities, including tax liabilities, may not be identified within the applicable contractual
indemnification period, we may have no recourse against any of the owners from whom we acquire such properties for these liabilities. The existence
of such liabilities could significantly and adversely affect the value of the property subject to such liability. As a result, if a liability were asserted against
us based on ownership of any of such properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flows.

We are subject to losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage.

There are certain types of losses (including, but not limited to, losses arising from environmental conditions, earthquakes, tornados and
hurricanes, acts of war or certain kinds of terrorist attacks) that are not insured, in full or in part, because they are either uninsurable or the cost of
insurance makes it, in our belief, economically impractical to maintain such coverage. We carry commercial general liability insurance, property
insurance and terrorism insurance with respect to our communities with limits and on terms we consider commercially reasonable. If an uninsured
loss or liability were to occur, whether because of a lack of insurance coverage or a loss in excess of insured limits, we could lose our capital
invested in a community, as well as the anticipated future revenues from such community. We would also continue to be obligated to repay any
mortgage indebtedness or other obligations related to the community. If an uninsured liability to a third party were to occur, we would incur the
cost of defense and settlement with, or court ordered damages to, that third party. A significant uninsured property or liability loss could materially
and adversely affect our business and our financial condition and results of operations.

Compliance with various laws and regulations, including accessibility, building and health and safety laws and regulations, may be costly, may
adversely affect our operations or expose us to liability.

In addition to compliance with environmental regulations, we must comply with various laws and regulations such as accessibility, building,
zoning, landlord/tenant and health and safety laws and regulations, including, but not limited to, the ADA and the FHA. Some of those laws and
regulations may conflict with one another or be subject to limited judicial or regulatory interpretations. Under those laws and regulations, we may be
liable for, among other things, the costs of bringing our properties into compliance with the statutory and regulatory requirements. Noncompliance with
certain of these laws and regulations may result in liability without regard to fault and the imposition of fines and could give rise to actions brought
against us by governmental entities and/or third parties who claim to be or have been damaged as a consequence of an apartment not being in compliance
with the subject laws and regulations. As part of our due diligence procedures in connection with the acquisition of a property, we typically conduct an
investigation of the property’s compliance with known laws and regulatory requirements with which we must comply once we acquire a property,
including a review of compliance with the ADA and local zoning regulations. Our investigations and these assessments may not have revealed, and
may not with respect to future acquisitions reveal, all potential noncompliance issues or related liabilities and we can provide no assurance that our
properties have been, or that our future projects will be, designed and built in accordance with all applicable legal requirements.

The development, construction and operation of our communities are subject to regulations and permitting under various federal, state and
local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water runoff and wastewater discharge.
Noncompliance with such laws and regulations may subject us to fines and penalties. We can provide no assurance that we will not incur any
material liabilities as a result of noncompliance with these laws.

We may obtain only limited warranties when we acquire a property and may only have limited recourse if our due diligence did not identify any
issues that may subject us to unknown liabilities or lower the value of our property, which could adversely affect our financial condition and
ability to make distributions to you.

The seller of a property often sells the property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties
of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations
and indemnifications that will survive for only a limited period after the closing. The acquisition of, or purchase of, properties with limited
warranties increases the risk that we may lose some or all of our invested capital in the property, lose rental income from that property or may be
subject to unknown liabilities with respect to such properties.

Representations and warranties made by us in connection with sales of our properties may subject us to liability that could result in losses
and could harm our operating results and, therefore, distributions we make to our stockholders.

When we sell a property, we may be required to make representations and warranties regarding the property and other customary items. In
the event of a breach of such representations or warranties, the purchaser of the property may have claims for damages against us, rights to
indemnification from us or otherwise have remedies against us. In any such case, we may incur liabilities that could result in losses and could harm
our operating results and, therefore distributions we make to our stockholders.

Short-term apartment leases expose us to the effects of declining market rent, which could adversely affect our ability to make cash distributions
to our stockholders.

Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at
the end of the lease term without penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for
longer terms.

We may be subject to risks involved in real estate activity through joint ventures.

We may acquire properties through joint ventures when we believe circumstances warrant the use of such structures. Joint venture
investments involve risks, including: the possibility that joint venture partners might refuse to make capital contributions when due; that we may
be responsible to joint venture partners for indemnifiable losses; that joint venture partners might at any time have business or economic goals
which are inconsistent with ours; and that joint venture partners may be in a position to take action or withhold consent contrary to our
recommendations, instructions or requests. In some instances, joint venture partners may have competing interests in our markets that could create
conflicts of interest. Further, joint venture partners may fail to meet their obligations to the joint venture as a result of financial distress or otherwise,
and we would be forced to make contributions to maintain the value of the property. To the extent joint venture partners do not meet their obligations
to the joint venture or they take action inconsistent with the interests of the joint venture, we could be adversely affected.

If we acquire properties through joint ventures, we may be required to make decisions jointly with the other investors who have interests
in the respective joint ventures. We might not have the same interests as the other investors in relation to these decisions or transactions.
Accordingly, we might not be able to favorably resolve any of these issues, or we might have to provide financial or other inducements to the other
investors to obtain a favorable resolution.

In addition, various restrictive provisions and third-party rights, including consent rights to certain transactions, may apply to sales or
transfers of interests in joint ventures. Consequently, decisions to buy or sell interests in a property or properties relating to joint ventures may be
subject to the prior consent of other investors. These restrictive provisions and third-party rights would potentially preclude us from achieving full
value of the properties because of our inability to obtain the necessary consents to sell or transfer the interests.

Risks Related to Health and the Environment

Our environmental assessments may not identify all potential environmental liabilities and our remediation actions may be insufficient.

Properties being considered for potential acquisition by us are subjected to at least a Phase I or similar environmental assessment prior to
closing, which generally does not involve invasive techniques such as soil or ground water sampling. A Phase II assessment is conducted if
recommended in the Phase I report. These assessments, together with subsurface assessments conducted on some properties, have not revealed,
and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect on our business, assets,
financial condition or results of operations. However, such environmental assessments may not identify all potential environmental liabilities.
Moreover, we may in the future discover adverse environmental conditions at our communities, including at communities we acquire in the future,
which may have a material adverse effect on our business, assets, financial condition or results of operations. In connection with our ownership,
operation and selective development of communities, from time to time we undertake substantial remedial action in response to the presence of
subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. In some cases, an
indemnity exists upon which we may be able to rely if environmental liability arises from the contamination, or if remediation costs exceed

estimates. We can provide no assurance, however, that all necessary remediation actions have been or will be undertaken at our communities or
that we will be indemnified, in full or at all, in the event that environmental liability arises.

We may face high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint,
chemical vapor, subsurface contamination and mold growth.

We are subject to various federal, state and local environmental and public health laws, regulations and ordinances. Under various federal,
state and local environmental and public health laws, regulations and ordinances, we may be required, regardless of knowledge or responsibility,
to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases
natural substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third
parties for property, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the
contamination. These damages and costs may be substantial and may exceed any insurance coverage we have for such events. The presence of
such substances, or the failure to properly remediate the contamination, may adversely affect our ability to borrow against, sell or rent the affected
property. In addition, some environmental laws create or allow a government agency to impose a lien on the contaminated site in favor of the
government for damages and costs it incurs as a result of the contamination.

We face risks relating to asbestos.

Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing
materials (“ACMs”) when such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common
law may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal
injury associated with exposure to ACMs. ACMs may have been used in the construction of a number of the communities that we acquired and
may have been used in the construction of communities we acquire in the future. We will implement an operations and maintenance program at
each of the communities at which we discover ACMs. We can provide no assurance that we will not incur any material liabilities as a result of the
presence of ACMs at our communities.

We face risks relating to lead-based paint.

Some of our communities may have lead-based paint and we may have to implement an operations and maintenance program at some of
our communities. Communities that we acquire in the future may also have lead-based paint. We can provide no assurance that we will not incur
any material liabilities as a result of the presence of lead-based paint at our communities.

We face risks relating to chemical vapors and subsurface contamination.

We are also aware that environmental agencies and third parties have, in the case of certain communities with on-site or nearby
contamination, asserted claims for remediation, property damage or personal injury based on the alleged actual or potential intrusion into buildings
of chemical vapors (e.g., radon) or volatile organic compounds from soils or groundwater underlying or in the vicinity of those buildings or on
nearby properties. We can provide no assurance that we will not incur any material liabilities as a result of vapor intrusion at our communities.

We face risks relating to mold growth.

Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem
remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need
to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances
lead to adverse health effects, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of
adequate ventilation and include a lease requirement that they notify us when they see mold or excessive moisture. We have established procedures
for promptly addressing and remediating mold or excessive moisture when we become aware of its presence regardless of whether the resident
believes or we believe a health risk is present. However, we can provide no assurance that mold or excessive moisture will be detected and
remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be required to undertake a costly
remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities that may exceed any
applicable insurance coverage.

Risks Related to Indebtedness

Variable rate debt is subject to interest rate risk, which could increase our interest expense, increase the cost to refinance and increase the cost
of issuing new debt.

As of December 31, 2021, approximately $1.5 billion of our total debt outstanding bears interest at variable rates, and we may also borrow
additional money at variable interest rates in the future. As of December 31, 2021, eleven interest rate swap agreements, with a combined notional
amount of $1.2 billion and terms expiring in 2021, 2022, 2024 and 2026, effectively fix the interest rate on $1.2 billion, or 78%, of our $1.5 billion
of floating rate debt outstanding. As of December 31, 2021, the interest rate cap agreements we have entered into effectively cap one-month LIBOR
on $458.8 million of our floating rate mortgage debt outstanding at a weighted average rate of 4.79% for the term of the agreements, which is
generally 3-4 years. Except to the extent we have arrangements in place that hedge against the risk of rising interest rates, increases in interest rates
would increase our interest expense under these instruments and would increase the cost of refinancing these instruments and issuing new debt. As
a result, our cash flow and our ability to service our indebtedness and to make distributions to our stockholders would be adversely affected, which
could adversely affect the market price of our common stock.

Changes to, or the elimination of, LIBOR may adversely affect interest expense related to our loans and investments.

In a speech on July 27, 2017, Andrew Bailey, the Chief Executive of the Financial Conduct Authority of the U.K., or the FCA, announced
the FCA’s intention to cease sustaining LIBOR after 2021. The FCA has statutory powers to require panel banks to contribute to LIBOR where
necessary. The administrator for LIBOR announced on March 5, 2021 that it will permanently cease to publish most LIBOR settings beginning on
January 1, 2022 and cease to publish the overnight, one-month, three-month, six-month and 12-month USD LIBOR settings on July 1, 2023.
Accordingly, the FCA has stated that is does not intend to persuade or compel banks to submit to LIBOR after such respective dates. Until such
time, however, FCA panel banks have agreed to continue to support LIBOR. In October 2021, the federal bank regulatory agencies issued a Joint
Statement on Managing the LIBOR Transition. In that guidance, the agencies offered their regulatory expectations and outlined potential
supervisory and enforcement consequences for banks that fail to adequately plan for and implement the transition away from LIBOR. The failure
to properly transition away from LIBOR may result in increased supervisory scrutiny. The U.S. Federal Reserve, in conjunction with the Alternative
Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has recommended replacing U.S.-dollar LIBOR
with the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities.
Although there have been a few issuances utilizing SOFR or the Sterling Over Night Index Average, an alternative reference rate that is based on
transactions, it is unknown whether these alternative reference rates will attain market acceptance as replacements for LIBOR.

Approximately 78.9% of our portfolio as of December 31, 2021 pays interest at a variable rate that is tied to LIBOR. If LIBOR is no longer
available, our loan documents generally give our lenders the discretion to choose a new index based upon comparable information. However, if
LIBOR is no longer available, we may need to renegotiate some of our agreements to determine a replacement index or rate of interest. There is
currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of
any such event on our cost of capital and net investment income cannot yet be determined and any changes to benchmark interest rates could
increase our financing costs, which could impact our results of operations, cash flows and the market value of our investments. In addition, the
elimination of LIBOR and/or changes to another index could result in mismatches with the interest rate of investments that we are financing.

We may incur mortgage indebtedness and other borrowings, which we have broad authority to incur, that may increase our business risks and
decrease the value of your investment.

We expect that in most instances, we will acquire real properties by using either existing financing or borrowing new funds. In addition,
we may incur additional mortgage and other secured debt and pledge all or some of our unpledged real properties as security for that debt to obtain
funds to acquire additional real properties. We may borrow if we need funds to satisfy the REIT tax qualification requirement that we generally
distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with
GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We also may borrow if we otherwise deem
it necessary or advisable to assure that we maintain our qualification as a REIT.

If there is a shortfall between the cash flow from a property and the cash flow needed to service the related debt, then the amount available
for distributions to stockholders may be reduced. In addition, incurring secured debt increases the risk of loss since defaults on indebtedness secured
by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus
reducing the value of your investment. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of
the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured
by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds.
In such event, we may be unable to pay the amount of distributions required in order to maintain our REIT status. We may give full or partial
guarantees to lenders of mortgage and other secured debt to the entities that own our properties. When we provide a guaranty on behalf of an entity
that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages or
other secured debt contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any
of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected, which
could result in losing our REIT status and would result in a decrease in the value of your investment.

We have a substantial amount of indebtedness, which may limit our financial and operating activities and may adversely affect our ability to
incur additional debt to fund future needs.

As of December 31, 2021, there was $1.3 billion of mortgage debt outstanding related to our Portfolio.

Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fully implement
our capital expenditure, acquisition and development activities, or pay the dividends necessary to maintain our REIT qualification. Our level of
debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

•

require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on, indebtedness,
thereby reducing the funds available for other purposes;

make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things, adversely
affect our ability to meet operational needs;

force us to dispose of one or more of our properties, possibly on unfavorable terms (including the possible application of the 100%
tax on income from prohibited transactions, discussed below in “—Risks Related to Our Structure”) or in violation of certain covenants
to which we may be subject;

subject us to increased sensitivity to interest rate increases;

make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events;

limit our ability to withstand competitive pressures;

limit our ability to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original
indebtedness;

reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or

place us at a competitive disadvantage to competitors that have relatively less debt than we have.

If any one of these consequences were to materialize, our financial condition, results of operations, cash flow and trading price of our
common stock could be adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which
could hinder our ability to meet the REIT distribution requirements imposed by the Code.

We may be unable to refinance current or future indebtedness on favorable terms, if at all.

We may not be able to refinance existing debt on terms as favorable as the terms of existing indebtedness, or at all, including as a result of
increases in interest rates or a decline in the value of our Portfolio or portions thereof. If principal payments due at maturity cannot be refinanced,
extended or paid with proceeds of other capital transactions, such as new equity capital, our operating cash flow will not be sufficient in all years
to repay all maturing debt. As a result, certain of our other debt may default, we may be forced to postpone capital expenditures necessary for the
maintenance of our properties, we may have to dispose of one or more properties on terms that would otherwise be unacceptable to us or we may
be forced to allow the mortgage holder to foreclose on a property. Foreclosure on mortgaged properties or an inability to refinance existing
indebtedness would likely have a negative impact on our financial condition and results of operations and could adversely affect our ability to make
distributions to our stockholders.

Our debt agreements include restrictive covenants, which could limit our flexibility and our ability to make distributions.

Our debt agreements, including our lines of credit, contain customary negative covenants that, among other things, limit our ability, without
the prior consent of the lender, to further mortgage the property, to reduce or change insurance coverage or to engage in material asset sales,
mergers, consolidations and acquisitions. Our debt agreements require certain mandatory prepayments upon disposition of underlying collateral.
Early repayments of certain debt are subject to prepayment penalties. Failure to comply with these covenants could cause a default under the
agreements and result in a requirement to repay the indebtedness prior to its maturity, which could have an adverse effect on our cash flow and
ability to make distributions to our stockholders. In addition, loan documents may limit our ability to replace a property’s property manager or
terminate certain operating or lease agreements related to a property. These or other limitations would decrease our operating flexibility and our
ability to achieve our operating objectives.

If we are required to make payments under any “bad boy” carve out guarantees that we have provided in connection with certain mortgages
and related loans, our business and financial results could be materially adversely affected.

In obtaining certain non-recourse loans, we have provided our lenders with standard carve out guarantees. These guarantees are only
applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party,
voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper (commonly
referred to as “bad boy” guarantees). Although we believe that “bad boy” carve out guarantees are not guarantees of payment in the event of
foreclosure or other actions of the foreclosing lender that are beyond the borrower’s control, some lenders in the real estate industry have recently
sought to make claims for payment under such guarantees. In the event such a claim were made against us under a “bad boy” carve out guarantee,
following foreclosure on mortgages or related loans, and such claim were successful, our business and financial results could be materially adversely
affected.

Derivatives and hedging activity could adversely affect cash flow.

In the normal course of business, we use derivatives to manage our exposure to interest rate volatility on debt instruments, including hedging
for future debt issuances. At other times, we may utilize derivatives to increase our exposure to floating interest rates. However, these hedging
arrangements may not have the desired beneficial impact. Hedging arrangements, which can include a number of counterparties, may expose us to
additional risks, including failure of any of our counterparties to perform under these contracts, and may involve extensive costs, such as transaction
fees or, if we terminate them, breakage costs. No strategy can completely insulate us from the risks associated with interest rate fluctuations.

Risks Related to Our Structure

The recent Chapter 11 bankruptcy filing by Highland Capital Management, L.P. (“Highland”) may have materially adverse consequences on
our business, financial condition and results of operations.

On October 16, 2019, Highland, a former affiliate of our Sponsor, filed for Chapter 11 bankruptcy protection with the United States
Bankruptcy Court for the District of Delaware, or the Highland Bankruptcy, which was subsequently transferred to the United States Bankruptcy
Court for the Northern District of Texas (the “Bankruptcy Court”). On January 9, 2020, the Bankruptcy Court approved a change of control of
Highland, which involved the resignation of James Dondero as the sole director of, and the appointment of an independent board to, Highland’s
general partner. On September 21, 2020, Highland filed a plan of reorganization and disclosure statement with the Bankruptcy Court, which was
subsequently amended (the “Fifth Amended Plan of Reorganization”). On October 9, 2020, Mr. Dondero resigned as an employee of Highland and
as portfolio manager for all Highland-advised funds. As a result of these changes, our Sponsor is no longer under common control with Highland
and therefore Highland is no longer affiliated with us. On February 8, 2021, the Bankruptcy Court announced its intent to confirm Highlands’s
Fifth Amended Plan of Reorganization. On October 15, 2021, the Bankruptcy Trust Lawsuit was filed by a trust set up in connection with the
Highland Bankruptcy. The Bankruptcy Trust Lawsuit makes claims against a number of entities, including NexPoint and James Dondero. The
Bankruptcy Trust Lawsuit does not include claims related to our business or our assets or operations. While neither our Sponsor nor our Adviser
were parties to the bankruptcy filing, the Highland Bankruptcy and lawsuits filed in connection therewith, including the Bankruptcy Trust Lawsuit,
could expose our Sponsor, our Adviser, our affiliates, our management and/or us to negative publicity, which might adversely affect our reputation
and/or investor confidence in us, and/or future capital raising activities. In addition, the Highland Bankruptcy and Bankruptcy Trust Lawsuit may
be both time consuming and disruptive to our operations and cause significant diversion of management attention and resources which may
materially and adversely affect our business, financial condition and results of operations. Further, the Highland Bankruptcy has and may continue
to expose our Sponsor, our Advisor and our affiliates to claims arising out of our former relationship with Highland that could have an adverse
effect on our business, financial condition and results of operations.

The Highland Bankruptcy could create potential conflicts of interest.

Our Adviser and/or its general partner, limited partners, officers, affiliates and employees provide investment advice to other parties and
manage other accounts and private investment vehicles similar to the Company. Our Adviser has historically been affiliated through common
control with Highland, an SEC-registered investment adviser that filed for Chapter 11 bankruptcy protection on October 16, 2019. On January 9,
2020, the Bankruptcy Court approved a change of control of Highland, which involved the resignation of James Dondero as the sole director of,
and the appointment of an independent board to, Highland’s general partner. On October 9, 2020, Mr. Dondero resigned as an employee of Highland
and as portfolio manager for all Highland-advised funds.

As a result of these changes, our Sponsor and Adviser are no longer under common control with Highland or a related person of Highland.
Mr. Dondero is the beneficial owner of our Adviser. Under the Fifth Amended Plan of Reorganization, Highland terminated the Shared Services
Agreement with our Sponsor. However, our Sponsor and Adviser have been able to continue to receive these services through a transfer of
personnel, equipment and facilities from Highland either to our Sponsor or to a third-party service provider. Employees of a third-party service
provider that provides services to our Sponsor or Adviser could face conflicts arising from, for example, our Sponsor or Adviser acting separately
with respect to investment determinations on assets commonly held by clients respectively of our Sponsor or Adviser, although any such persons
will not have sole investment discretion with respect to any determinations made by our Sponsor or Adviser for its clients.

We depend upon key personnel of our Adviser and its affiliates and our property manager.

We are an externally managed REIT and therefore we do not have any internal management capacity and only have accounting employees.
We also depend on BH for our property management and construction services. We depend to a significant degree on the diligence, skill and
network of business contacts of the management team and other key personnel of our Adviser and of our property manager to achieve our investment
objectives, including Messrs. Dondero, Mitts, McGraner, Goetz and Sauter, all of whom may be difficult to replace. We expect that our Adviser
will evaluate, negotiate, structure, close and monitor our investments in accordance with the terms of the Advisory Agreement.

We also depend upon the senior professionals of our Adviser and our property manager to maintain relationships with sources of potential
investments, and we rely upon these relationships to provide us with potential investment opportunities. We cannot assure you that these individuals
will continue to provide indirect investment advice to us. If these individuals, including the members of the management team of our Adviser, do
not maintain their existing relationships with our Adviser, maintain existing relationships or develop new relationships with other sources of
investment opportunities, we may not be able to grow our investment portfolio. In addition, individuals with whom the senior professionals of our
Adviser and our property manager have relationships are not obligated to provide us with investment opportunities. Therefore, we can offer no
assurance that such relationships will generate investment opportunities for us.

We may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Adviser, members of our
Adviser’s management team or by Highland or its affiliates.

Our primary focus in making investments generally differs from that of existing investment funds, accounts or other investment vehicles
that are or have been managed by affiliates of our Adviser, members of our Adviser’s management team or sponsored by our former affiliate
Highland or its affiliates. In addition, the previously sponsored investment programs by Highland were significantly different from us in terms of
targeted assets, regulatory structure and limitations, investment strategy and objectives and investment personnel. Past performance is not a
guarantee of future results, and there can be no assurance that we will achieve comparable results of those Highland affiliates. We also cannot
assure you that we will replicate the historical results achieved by members of the management team, and we caution you that our investment
returns could be substantially lower than the returns achieved by them in prior periods. Additionally, all or a portion of the prior results may have
been achieved in particular market conditions which may never be repeated.

Our Adviser can resign on 30 days’ notice from its role as adviser, and we may not be able to find a suitable replacement within that time,
resulting in a disruption in our operations that could adversely affect our financial condition, business, and results of operations and cash
flows.

The Advisory Agreement gives our Adviser the right to resign after giving not more than 60 nor less than 30 days’ written notice, whether
we have found a replacement or not. If our Adviser resigns, we may not be able to find a new adviser or hire internal management with similar
expertise and ability to provide the same or equivalent services on acceptable terms within 30 to 60 days, or at all. If we are unable to do so quickly,
our operations are likely to experience a disruption and our financial condition, business and results of operations, as well as our ability to pay
distributions, are likely to be adversely affected. In addition, the coordination of our internal management and investment activities is likely to
suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the experience possessed by our
Adviser and its affiliates. Even if we are able to retain comparable management, the integration of such management and its lack of familiarity with
our investment objectives may result in additional costs and time delays that may adversely affect our business, financial condition, results of
operations and cash flows.

You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a stockholder.

Our Board determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and
distributions. Our Board may amend or revise these and other policies without your vote. Our Board’s broad discretion in setting policies and your
inability to exert control over those policies increases the uncertainty and risks you face as a stockholder.

We may change our targeted investments without stockholder consent.

We expect our portfolio of investments in commercial real estate to consist primarily of multifamily properties. Though this is our current
target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may
change our targeted investments and investment guidelines at any time without the consent of our stockholders. Any such change could result in
us making investments that are different from, and possibly riskier than, the investments described in this annual report. These policies may change
over time. A change in our targeted investments or investment guidelines, which may occur without notice to you or without your consent, may
increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our
common stock and our ability to make distributions to you. We intend to disclose any changes in our investment policies in our next required
periodic report, if any.

We pay substantial fees and expenses to our Adviser and its affiliates and to our property manager, which payments increase the risk that you
will not earn a profit on your investment.

Pursuant to the Advisory Agreement, we pay significant fees to our Adviser and its affiliates. Those fees include advisory and administrative
fees and obligations to reimburse our Adviser and its affiliates for expenses they incur in connection with providing services to us, including certain
personnel services.

Additionally, pursuant to the management agreements we have entered into with BH, we pay significant fees to BH. These fees include

property management fees, construction management and other customary property manager fees.

If we internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders could be
reduced, and we could incur other significant costs associated with being self-managed.

In the future, our Board may consider internalizing the functions performed for us by our Adviser by, among other methods, acquiring our
Adviser’s assets. The method by which we could internalize these functions could take many forms. There is no assurance that internalizing our
management functions will be beneficial to us and our stockholders. An acquisition of our Adviser could result in a dilution of your interests as a
stockholder and could reduce earnings per share and FFO, Core FFO and AFFO per share. Additionally, we may not realize the perceived benefits,
we may not be able to properly integrate a new staff of managers and employees or we may not be able to effectively replicate the services provided
previously by our Adviser, property manager or their affiliates. Internalization transactions, including without limitation, transactions involving the
acquisition of affiliated advisers or property managers have also, in some cases, been the subject of litigation. Even if these claims are without
merit, we could be forced to spend significant amounts of money defending claims that would reduce the amount of funds available for us to invest
in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations,
financial condition and ability to pay distributions.

There are significant potential conflicts of interest that could affect our investment returns.

As a result of our arrangements with our Adviser, there may be times when our Adviser or its affiliates have interests that differ from those

of our stockholders, giving rise to a conflict of interest.

Our directors and management team serve or may serve as officers, directors or principals of entities that operate in the same or a related
line of business as we do, or of investment funds managed by our Adviser or its affiliates. Similarly, our Adviser or its affiliates may have other
clients with similar, different or competing investment objectives, including NexPoint Real Estate Finance, Inc. and VineBrook Homes Trust, Inc.
In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be
in the best interest of us or our stockholders. For example, the management team of our Adviser has, and will continue to have, management
responsibilities for other investment funds, accounts or other investment vehicles managed or sponsored by our Adviser or its affiliates. Our
investment objectives may overlap with the investment objectives of such affiliated investment funds, accounts or other investment vehicles. As a
result, those individuals may face conflicts in the allocation of investment opportunities among us and other investment funds or accounts advised
by or affiliated with our Adviser. Our Adviser will seek to allocate investment opportunities among eligible accounts in a manner consistent with
its allocation policy. However, we can offer no assurance that such opportunities will be allocated to us fairly or equitably in the short-term or over
time.

Additionally, under the Advisory Agreement, our Adviser does not assume any responsibility to us other than to render the services called
for under that agreement, and it will not be responsible for any action of our Board in following or declining to follow our Adviser’s advice or
recommendations. In addition, we have agreed to indemnify our Adviser and each of its officers, directors, members, managers and employees
from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection
with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Advisory Agreement, except
where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such person’s duties under the Advisory Agreement.
These protections may lead our Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account.

Our Adviser faces conflicts of interest relating to the fee structure under our Advisory Agreement, which could result in actions that are not
necessarily in the long-term best interest of our stockholders.

Under our Advisory Agreement, our Adviser or its affiliates is entitled to fees that are structured in a manner intended to provide incentives
to our Adviser to perform in our best interest and in the best interest of our stockholders. However, because our Adviser is entitled to receive
substantial compensation regardless of performance, our Adviser’s interests are not wholly aligned with those of our stockholders. In that regard,
our Adviser could be motivated to recommend riskier or more speculative investments that would entitle our Adviser to the highest fees. For
example, because advisory and administrative fees payable to our Adviser are based on our total real estate assets, including any form of investment
leverage, our Adviser may have an incentive to incur a high level of leverage or to acquire properties on less than favorable terms in order to
increase the total amount of real estate assets under management. In addition, our Adviser’s ability to receive higher fees and reimbursements
depends on our continued investment in real properties. Therefore, the interest of our Adviser and its affiliates in receiving fees may conflict with
the interest of our stockholders in earning income on their investment in our common stock.

Our Adviser, Sponsor and their officers and employees face competing demands relating to their time, and this may cause our operating results
to suffer.

Our Adviser, our Sponsor and their officers and employees and their respective affiliates are key personnel, general partners, sponsors,
managers, owners and advisers of other real estate investment programs, including investment products sponsored by affiliates of our Adviser,
some of which have investment objectives and legal and financial obligations similar to ours and may have other business interests as well. Because
these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business
and these other activities. If this occurs, the returns on our investments may suffer.

We may compete with other entities affiliated with our Sponsor and property manager for tenants.

Neither our Sponsor and its affiliates nor BH and its affiliates is prohibited from engaging, directly or indirectly, in any other business or
from possessing interests in any other business venture, including ventures involved in the acquisition, development, ownership, management,
leasing or sale of real estate, including properties in the vicinity of the properties in our Portfolio. Our Sponsor and/or its affiliates and BH and its
affiliates may own and/or manage properties in the same geographical areas in which we currently own and expect to acquire real estate assets.
Therefore, our properties may compete for tenants with other properties owned and/or managed by our Sponsor and its affiliates and BH and its
affiliates. Our Sponsor and BH may face conflicts of interest when evaluating tenant opportunities for our properties and other properties owned
and/or managed by our Sponsor and its affiliates and BH and its affiliates, and these conflicts of interest may have a negative impact on our ability
to attract and retain tenants.

Risks Related to Legal, Regulatory, Tax and Accounting

Our failure to qualify as a REIT for U.S federal income tax purposes would reduce the amount of income we have available for distribution
and limit our ability to make distributions to our stockholders.

Our qualification as a REIT depends upon our ability to meet requirements regarding our organization and ownership, distributions of our
income, the nature and diversification of our income and assets and other tests imposed by the Code. The REIT qualification requirements are
extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Furthermore, future
legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our
disqualification as a REIT. We believe we have been and are organized and qualify as a REIT, and we intend to operate in a manner that will permit
us to continue to qualify as a REIT. However, we cannot assure you that we have qualified as a REIT, or that we will remain qualified as a REIT
in the future.

If we were to fail to qualify as a REIT for any taxable year, we would be subject to U.S. federal income tax on our taxable income at regular
corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxable income. Any resulting corporate
tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an
adverse impact on the value of shares of our common stock. Unless we were entitled to relief under certain Code provisions, we also would be
disqualified from taxation as a REIT and would not be allowed to re-elect REIT status for the four taxable years following the year in which we
failed to qualify as a REIT.

The rule against re-electing REIT status following a loss of such status would also apply to us if NREO failed to qualify as a REIT for its
taxable years ending on or before December 31, 2015, because we are treated as a successor to NREO for U.S. federal income tax purposes.
Although NREO has represented to us that it has no knowledge of any fact or circumstance that would cause us to fail to qualify as a REIT, and
covenanted in the agreement between us and our Adviser to use its reasonable best efforts to maintain its REIT status for each of NREO’s taxable
years ending on or before December 31, 2015, no assurance can be given that such representation and covenant would prevent us from failing to
qualify as a REIT. Although, in the event of a breach, we may be able to seek damages from NHF and NREO, there can be no assurance that such
damages, if any, would appropriately compensate us.

If our operating partnership failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would
cease to qualify as a REIT.

Our OP intends to qualify as a partnership for U.S. federal income tax purposes, and intends to take that position for all income tax reporting
purposes. If classified as a partnership, our OP generally will not be a taxable entity and will not incur any U.S. federal income tax liability.
However, our OP would be treated as a corporation for U.S. federal income tax purposes if it was a “publicly traded partnership,” unless at least
90% of its income was qualifying income as defined in the Code. A “publicly traded partnership” is a partnership whose partnership interests are
traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). Although our OP’s
partnership units are not traded on an established securities market, the OP’s units could be viewed as readily tradable on a secondary market (or
the substantial equivalent thereof), and our OP may not qualify for one of the “safe harbors” under the applicable tax regulations. Qualifying income
for the 90% test generally includes passive income, such as real property rents, dividends and interest. The income requirements applicable to
REITs and the definition of qualifying income for purposes of this 90% test are similar in most respects. Our OP may not meet this qualifying
income test. If our OP were to be taxed as a corporation, it would incur substantial tax liabilities, and we would then fail to qualify as a REIT for
U.S. federal income tax purposes, unless we qualified for relief under certain statutory savings provisions, and our ability to raise additional capital
and pay distributions to our stockholders would be impaired.

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and
diversification of our assets, the amounts we distribute to our stockholders and the ownership of our capital stock. In order to meet these tests, we
may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance. In
particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government
securities and qualified REIT real estate assets, including certain mortgage loans and mortgage-backed securities. The remainder of our investment
in securities (other than government securities, securities of TRSs and qualified real estate assets) generally cannot include more than 10% of the
outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in
general, no more than 5% of the value of our assets (other than government securities, securities of TRSs and qualified real estate assets) can consist
of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs. If
we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar
quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result,
we may be required to liquidate otherwise attractive investments from our Portfolio. These actions could have the effect of reducing our income
and amounts available for distribution to our stockholders.

Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to
manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real
estate assets or to offset certain other positions, if properly identified under applicable Treasury Regulations, does not constitute “gross income”
for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those
transactions will likely be treated as non-qualifying income for purposes of the 75% or 95% gross income tests. As a result of these rules, we may
need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging
activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would
otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future
taxable income of such TRS.

Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows.

Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including
taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property
and transfer taxes. In addition, any TRS we form in the future will be subject to regular corporate U.S. federal, state and local taxes. Any of these
taxes would decrease cash available for distributions to stockholders.

Our ownership of interests in TRSs raises certain tax risks.

A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such
REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more
than 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and
health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of
its parent REIT. A TRS is subject to income tax as a regular C corporation. We currently own interests in a TRS and may acquire securities in
additional TRSs in the future.

We will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions,” “excess interest” or “redetermined TRS
service income.” In general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our tenants
by a TRS of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by a TRS of ours for amounts paid
to us that are in excess of the amounts that would have been deducted based on arm’s-length negotiations. Redetermined TRS service income
generally represents amounts by which the gross income of a TRS attributable to its services for or on behalf of us (other than to a tenant of ours)
would be increased based on arm’s length negotiations.

Our TRS is and any TRS we acquire in the future will be subject to corporate income tax at the U.S. federal, state and local levels, (including
on the gain realized from the sale of property held by it, as well as on income earned while such property is operated by the TRS). This tax
obligation, if material, would diminish the amount of the proceeds from the sale or operation of such property, or other income earned through the
TRS that would be distributable to our stockholders. U.S. federal, state and local corporate income tax rates may be increased in the future, and
any such increase would reduce the amount of the net proceeds available for distribution by us to our stockholders from the sale of property or
other income earned through a TRS after the effective date of any increase in such tax rates. We do not anticipate material income tax obligations
in connection with our ownership of interests in TRSs.

As a REIT, the value of our interests in our TRSs generally may not exceed 20% of the total value of our total assets at the end of any
calendar quarter. If the IRS were to determine that the value of our interests in all of our TRSs exceeded this limit at the end of any calendar quarter,
then we would fail to qualify as a REIT. If we determine it to be in our best interest to own a substantial number of our properties through one or
more TRSs, then it is possible that the IRS may conclude that the value of our interests in our TRSs exceeds 20% of the value of our total assets at
the end of any calendar quarter and therefore cause us to fail to qualify as a REIT. Additionally, as a REIT, no more than 25% of our gross income
with respect to any year may, in general, be from sources other than certain real estate-related assets. Dividends paid to us from a TRS are typically
considered to be non-real estate income. Therefore, we may fail to qualify as a REIT if dividends from all of our TRSs, when aggregated with all
other non-real estate income with respect to any one year, are more than 25% of our gross income with respect to such year.

The sale of certain properties could result in significant tax liabilities unless we are able to defer the taxable gain through 1031 Exchanges.

In general, we structure asset sales for possible inclusion in 1031 Exchanges. The ability to complete a 1031 Exchange depends on many
factors, including, among others, identifying and acquiring suitable replacement property within limited time periods, and the ownership structure
of the properties being sold and acquired. Therefore, we are not always able to sell an asset as part of a 1031 Exchange. When successful, a 1031
Exchange enables us to defer the taxable gain on the asset sold. If we cannot defer the taxable gain resulting from the sales of certain properties,
our business, financial condition, results of operations and cash flow, the market price per share of our common stock and our ability to satisfy our
debt service obligations and make distributions to our stockholders could be materially and adversely affected.

Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.

For so long as we qualify as a REIT, our ability to dispose of property during the first few years following its acquisition may be restricted
to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs,
while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized on the sale or other disposition of any property (other
than foreclosure property) that we own or hold an interest in, directly or indirectly through any subsidiary entity, including our operating partnership,
but generally excluding TRSs, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or
business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on
the particular facts and circumstances surrounding each property. During such time as we qualify as a REIT, we intend to avoid the 100% prohibited
transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a TRS (but such TRS will incur
corporate rate income taxes with respect to any income or gain recognized by it), (2) conducting our operations in such a manner so that no sale or
other disposition of an asset we own or hold an interest in, directly or through any subsidiary, will be treated as a prohibited transaction, or
(3) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the
Code for properties that, among other requirements, have been held for at least two years. No assurance can be given that any particular property
that we own or hold an interest in, directly or through any subsidiary entity, including our operating partnership, but generally excluding TRSs,
will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

To continue qualifying as a REIT, we must meet annual distribution requirements, which may force us to forgo otherwise attractive
opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives
and reduce your overall return.

In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not
equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital
gain. 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. These requirements could cause us to distribute amounts
that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at
unfavorable rates, or sell assets to fund these distributions. It is possible that we might not always be able to make distributions sufficient to meet
the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings while we qualify as a REIT.

Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.

Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates
is 20%. Dividends payable by REITs, however, generally are not eligible for this reduced rate. Distributions from REITs that are treated as dividends
but are not designated as qualified dividends or capital gain dividends are treated as ordinary income. For taxable years beginning before January
1, 2026, distributions from REITs that are treated as dividends but are not designated as qualified dividends or capital gain dividends are taxed as
ordinary income after deducting 20% of the amount of the dividend in the case of non-corporate stockholders. To qualify for this deduction, the
U.S. stockholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days taking into account certain special holding
period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend and cannot be under an obligation to make related
payments with respect to a position in substantially similar or related property. At the maximum ordinary income tax rate of 37% applicable for
taxable years beginning before January 1, 2026, the maximum tax rate on ordinary REIT dividends for non-corporate stockholders is 29.6%.
Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular
corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less
attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of
REITs, including our common stock. In addition, certain U.S. stockholders may be subject to a 3.8% Medicare tax on dividends payable by REITs.
Tax rates could be changed in future legislation.

The share ownership restrictions of the Code for REITs and the 6.2% share ownership limit in our charter may inhibit market activity in shares
of our stock and restrict our business combination opportunities.

In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in
value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT
election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns shares of our common stock
under this requirement. Additionally, at least 100 persons must beneficially own shares of our common stock during at least 335 days of a taxable
year for each taxable year, other than the first year for which a REIT election is made. To help ensure that we meet these tests, among other
purposes, our charter restricts the acquisition and ownership of shares of our common stock.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification
as a REIT while we so qualify. Unless exempted by our Board (prospectively or retroactively), for so long as we qualify as a REIT, our charter
prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying
certain attribution rules under the Code) more than 6.2% in value of the aggregate of the outstanding shares of our capital stock and more than
6.2% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of our common stock. Our Board may not grant an
exemption from these restrictions to any proposed transferee whose ownership in excess of the 6.2% ownership limit would result in our failing to
qualify as a REIT. Our Board granted a waiver from the ownership limits for Jim Dondero and certain of his affiliates, and may grant additional
waivers in the future. These waivers will be subject to certain initial and ongoing conditions designed to protect our status as a REIT. These
restrictions on transferability and ownership will not apply, however, if our Board determines that it is no longer in our best interest to qualify as a
REIT or that compliance with the restrictions is no longer required in order for us to so qualify as a REIT.

These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common

stock or otherwise be in the best interest of the stockholders.

The ability of the Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.

Our charter provides that our Board may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it
determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction
for dividends paid to stockholders in computing our taxable income and will be subject to U.S. federal income tax at regular corporate rates and
state and local taxes, which may have adverse consequences on our total return to our stockholders.

New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible
for us to qualify or remain qualified as a REIT.

The U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative
action at any time, which could affect the U.S. federal income tax treatment of an investment in us. The U.S. federal income tax rules dealing with
REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S. Department of the Treasury, which could
result in statutory changes as well as frequent revisions to regulations and interpretations.

There can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted
that could impact our business and financial results. Furthermore, the REIT rules are constantly under review by persons involved in the legislative
process and by the IRS and the U.S. Department of the Treasury, which may result in revisions to regulations and interpretations in addition to
statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results.

We cannot predict whether, when or to what extent any new U.S. federal tax laws, regulations, interpretations or rulings will impact the
real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors regarding potential future changes to the U.S.
federal tax laws on an investment in our stock.

Foreign investors may be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from
us and upon disposition of shares of our common stock.

Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or
accumulated earnings and profits. Such dividends paid to a non-U.S. stockholder ordinarily will be subject to U.S. withholding tax at a 30% rate,
or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as “effectively connected” with the
conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”),
capital gain distributions attributable to sales or exchanges of “U.S. real property interests” (“USRPIs”), generally will be taxed to a non-U.S.
stockholder as if such gain were effectively connected with a U.S. trade or business. However, a capital gain dividend will not be treated as
effectively connected income if (1) the distribution is received with respect to a class of stock that is regularly traded on an established securities
market located in the United States and (2) the non-U.S. stockholder does not own more than 10% of the class of our stock at any time during the
one-year period ending on the date the distribution is received.

Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal
income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stock will not constitute a USRPI so long as we are a
“domestically-controlled” REIT. A REIT is “domestically controlled” if less than 50% of the REIT’s stock, by value, has been owned directly or
indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter,
during the entire period of the REIT’s existence. We cannot assure you that we will qualify as a “domestically controlled” REIT. If we were to fail
to so qualify, gain realized by foreign investors on a sale of shares of our stock would be subject to FIRPTA tax, unless the shares of our stock
were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly
own more than 10% of the value of our outstanding common stock.

Risks Related to the Ownership of our Common Stock

Our common stock is listed on the NYSE and broad market fluctuations could negatively affect the market price of our stock.

We have listed shares of our common stock on the NYSE under the symbol “NXRT.” The price of NXRT common stock may fluctuate
significantly. Further, the market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate
and cause significant price variations to occur. We cannot assure you that the market price of our common stock will not fluctuate or decline
significantly in the future. Some of the factors that could affect our stock price or result in fluctuations in the price or trading volume of our common
stock include:

•

actual or anticipated variations in our quarterly operating results;

changes in our operations or earnings estimates or publication of research reports about us or the real estate industry;

changes in market valuations of similar companies;

increases in market interest rates that lead purchasers of our shares to demand a higher yield;

adverse market reaction to any increased indebtedness we incur in the future;

additions or departures of key management personnel;

actions by institutional stockholders;

speculation in the press or investment community;

the realization of any of the other risk factors presented in this annual report;

the extent of investor interest in our securities;

the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including
securities issued by other real estate-based companies;

our underlying asset value;

investor confidence in the stock and bond markets, generally;

changes in tax laws;

future equity issuances;

failure to meet income estimates;

•

failure to meet and maintain REIT qualifications; and

general market and economic conditions, including as a result of the COVID-19 pandemic.

In the past, class-action litigation has often been instituted against companies following periods of volatility in the price of their common
stock. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have an adverse
effect on our financial condition, results of operations, cash flow and trading price of our common stock.

The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations.

The form, timing and/or amount of dividend distributions will be declared at the discretion of our Board and will depend on actual cash
flows from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code
and other factors as our Board may consider relevant. Our Board may modify our dividend policy from time to time at its discretion.

We may be unable to make distributions at expected levels, which could result in a decrease in the market price of our common stock.

If sufficient cash is not available for distribution from our operations, we may have to fund distributions from working capital, borrow to
provide funds for such distributions, reduce the amount of such distributions, or issue stock dividends. To the extent we borrow to fund distributions,
our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have
been. If cash available for distribution generated by our assets is less than we expect, our inability to make the expected distributions could result
in a decrease in the market price of our common stock. In addition, if we make stock dividends in lieu of cash distributions, it may have a dilutive
effect on the holdings of our stockholders.

All distributions are made at the discretion of our Board and are based upon, among other factors, our historical and projected results of
operations, financial condition, cash flows and liquidity, maintenance of our REIT qualification and other tax considerations, capital expenditure
and other expense obligations, debt covenants, contractual prohibitions or other limitations, applicable law and such other matters as our Board
may deem relevant from time to time. We may not be able to make distributions in the future, and our inability to make distributions, or to make
distributions at expected levels, could result in a decrease in the market price of our common stock.

Our charter permits the Board to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party
from acquiring us in a manner that could otherwise result in a premium price to our stockholders.

Our Board may classify or reclassify any unissued shares of common stock or preferred stock and establish the preferences, conversion or
other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of any such stock.
Thus, our Board could authorize the issuance of preferred stock with terms and conditions that could have priority as to distributions and amounts
payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring
or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of
our assets) that might provide a premium price to holders of our common stock.

Future issuances of debt securities and equity securities may negatively affect the market price of shares of our common stock and, in the case
of equity securities, may be dilutive to existing stockholders and could reduce the overall value of your investment.

In the future, we may issue debt or equity securities or incur other financial obligations, including stock dividends and shares that may be
issued in exchange for common units and equity plan shares/units. Upon liquidation, holders of our debt securities and other loans and preferred
stock will receive a distribution of our available assets before common stockholders. We are not required to offer any such additional debt or equity
securities to existing stockholders on a preemptive basis. Therefore, additional common stock issuances, directly or through convertible or
exchangeable securities (including common units and convertible preferred units), warrants or options, will dilute the holdings of our existing
common stockholders and such issuances or the perception of such issuances may reduce the market price of shares of our common stock. Any
convertible preferred units would have, and any series or class of our preferred stock would likely have, a preference on distribution payments,
periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders.

Existing stockholders do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue 600 million
shares of capital stock, of which 500 million shares are designated as common stock and 100 million shares are designated as preferred stock. Our
Board may increase the number of authorized shares of capital stock without stockholder approval. Our Board may elect to (1) sell additional shares
in future public offerings; (2) issue equity interests in private offerings; (3) issue shares of our common stock under a long-term incentive plan to
our directors, officers and other key employees (and those of our Adviser or its affiliates and our subsidiaries), our non-employee directors, and
potentially certain non-employees who perform employee-type functions; (4) issue shares to our Adviser, its successors or assigns, in payment of
an outstanding fee obligation or as consideration in a related-party transaction; or (5) issue shares of our common stock to sellers of properties we
acquire in connection with an exchange of OP Units. To the extent we issue additional equity interests, your percentage ownership interest in us
will be diluted. Further, depending upon the terms of such transactions, most notably the offering price per share, existing stockholders may also
experience a dilution in the book value of their investment in us.

Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce your and our
recovery against them if they negligently cause us to incur losses.

Maryland law provides that a director has no liability in the capacity as a director if he or she performs his or her duties in good faith, in a
manner he or she reasonably believes to be in the company’s best interest and with the care that an ordinarily prudent person in a like position
would use under similar circumstances. As permitted by the Maryland General Corporation Law (the “MGCL”), our charter limits the liability of
our directors and officers to us and our stockholders for money damages, except for liability resulting from:

•

actual receipt of an improper benefit or profit in money, property or services; or

a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of
action adjudicated.

In addition, our charter authorizes us, and our bylaws require us, to indemnify our directors and officers for actions taken by them in those
capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the maximum extent permitted by
Maryland law. We have entered into indemnification agreements with our directors and executive officers. As a result, we and our stockholders
may have more limited rights against our directors and officers than might otherwise exist under common law. Accordingly, in the event that
actions taken by any of our directors or officers are immune or exculpated from, or indemnified against, liability but which impede our performance,
our stockholders’ ability to recover damages from that director or officer will be limited.

Our charter and bylaws contain provisions that may delay, defer or prevent an acquisition of our common stock or a change in control.

Our charter and bylaws contain a number of provisions, the exercise or existence of which could delay, defer or prevent a transaction or a

change in control that might involve a premium price for our stockholders or otherwise be in their best interest, including the following:

•

Our Charter Contains Restrictions on the Ownership and Transfer of Our Stock. In order for us to qualify, and elect to be taxed,
as a REIT, no more than 50% of the value of outstanding shares of our stock may be owned, beneficially or constructively, by five
or fewer individuals at any time during the last half of each taxable year other than the first year for which we elect to be taxed as a
REIT. Subject to certain exceptions, our charter prohibits any stockholder from owning beneficially or constructively more than
6.2% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or 6.2% in value
of the aggregate of the outstanding shares of all classes or series of our stock. We refer to these restrictions collectively as the
“ownership limits.” The constructive ownership rules under the Code are complex and may cause the outstanding stock owned by a
group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition
of less than 6.2% of our outstanding shares of common stock or the outstanding shares of all classes or series of our stock by an
individual or entity could cause that individual or entity or another individual or entity to own constructively in excess of the relevant
ownership limits. Our charter also prohibits any person from owning shares of our stock that would result in our being “closely held”
under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT. Any attempt to own or transfer shares of our
common stock or of any of our other capital stock in violation of these restrictions may result in the shares being automatically
transferred to a charitable trust or may be void. These ownership limits may prevent a third party from acquiring control of us if our
Board does not grant an exemption from the ownership limits, even if our stockholders believe the change in control is in their best
interest. Our Board granted a waiver from the ownership limits applicable to holders of our common stock to Jim Dondero and certain
of his affiliates and may grant additional waivers in the future. These waivers will be subject to certain initial and ongoing conditions
designed to protect our status as a REIT.

Our Board Has the Power to Cause Us to Issue Additional Shares of Our Stock without Stockholder Approval. Our charter
authorizes us to issue additional authorized but unissued shares of common or preferred stock. In addition, our Board may, without
stockholder approval, amend our charter to increase the aggregate number of shares of our common stock or the number of shares of
stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred
stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our Board may establish a
series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a
premium price for our shares of common stock or otherwise be in the best interest of our stockholders.

Certain provisions of Maryland law may limit the ability of a third party to acquire control of us.

Certain provisions of the MGCL may have the effect of inhibiting a third party from acquiring us or of impeding a change of control under
circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market
price of such shares, including:

•

“business combination” provisions that, subject to limitations, prohibit certain business combinations between an “interested
stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding shares of
voting stock or an affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date
in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation) or an
affiliate of any interested stockholder and us for five years after the most recent date on which the stockholder becomes an interested
stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations; and

“control share” provisions that provide that holders of “control shares” of us (defined as voting shares of stock that, if aggregated
with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges
of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued
and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of
at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.

Pursuant to the Maryland Business Combination Act, our Board by resolution exempted from the provisions of the Maryland Business
Combination Act all business combinations (1) between our Adviser, Jim Dondero and certain of his affiliates or their respective affiliates and us
and (2) between any other person and us, provided that such business combination is first approved by our Board (including a majority of our
directors who are not affiliates or associates of such person). Our bylaws contain a provision exempting from the Maryland Control Share
Acquisition Act any and all acquisitions by any person of shares of our stock. There can be no assurance that these exemptions or resolutions will
not be amended or eliminated at any time in the future.

Additionally, Title 3, Subtitle 8 of the MGCL permits our Board, without stockholder approval and regardless of what is currently provided
in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which are not currently provided for in our
charter or bylaws.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could
materially and adversely affect our business and the market price of our common stock.

Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting,
which require significant resources and management oversight. Internal control over financial reporting is complex and may be revised over time
to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting
will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed
that internal controls were effective. Matters impacting our internal controls may cause us to be unable to report our financial data on a timely basis,
or may cause us to restate previously issued financial data, and thereby subject us to adverse regulatory consequences, including sanctions or
investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets
due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is
also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial
reporting. This could materially adversely affect us by, for example, leading to a decline in the market price for our common stock and impairing
our ability to raise capital.

Additionally, our independent registered public accounting firm is required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest
to the effectiveness of our internal control over financial reporting on an annual basis. If we cannot maintain effective procedures or internal control
over financial reporting, or our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness
of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.

General Risks

We depend on information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect our
ability to pay dividends to our stockholders.

Our business depends on the communications and information systems of our Sponsor, to which we have access through our Adviser. In
addition, certain of these systems are provided to our Sponsor by third-party service providers. To protect confidential customer, vendor, financial
and employee information, we employ information security measures that secure our information systems from cybersecurity attacks or breaches.
Even with these measures, we may be subject to unauthorized access of digital data with the intent to misappropriate information, corrupt data or
cause operational disruptions. If a failure of our safeguarding measures were to occur or if we use software that contains an unknown vulnerability
or that is subject to an attack, it could have a negative impact to our business and result in business interruptions, remediation costs and/or legal
claims. This, in turn, could have a material adverse effect on our operating results and negatively affect our ability to pay dividends to our
stockholders.

Acts of violence could decrease the value of our assets and could have an adverse effect on our business and results of operations.

Our apartment communities could directly or indirectly be the location or target of actual or threatened terrorist attacks, crimes, shootings
or other acts of violence, the occurrence of which could impact the value of our communities through damage, destruction, loss or increased security
costs, as well as result in operational losses due to reduced rental demand, and the availability of insurance may be limited or may be subject to
substantial costs. If such an incident were to occur at one of our apartment communities, we may also become subject to significant liability claims,
some of which may exceed our insurance coverage for general liability. In addition, the adverse effects that actual or threatened terrorist attacks
could have on national economic conditions, as well as economic conditions in the markets in which we operate, could similarly have a material
adverse effect on our business and results of operations.

Breaches of our data security could materially harm our business and reputation.

We collect and retain certain personal information provided by our tenants. While security measures to protect the confidentiality of this
information are in place, we can provide no assurance that we will be able to prevent unauthorized access to this information. Any breach of our
data security measures and/or loss of this information may result in legal liability and costs (including damages and penalties), as well as damage
to our reputation, that could materially and adversely affect our business and financial performance.

Legal proceedings that we become involved in from time to time could adversely affect our business.

As an owner and operator of multifamily apartment communities, we may become involved in various legal proceedings, including, but
not limited to, proceedings related to commercial, employment, environmental, securities, shareholder, tenant or tort legal issues, some of which
could result in a class action lawsuit.

Legal proceedings, if decided adversely to or settled by us, and not covered by insurance, could result in liability material to our financial
condition, results of operations or cash flows. Likewise, regardless of outcome, legal proceedings could result in substantial costs and expenses,
affect the availability or cost of some of our insurance coverage and significantly divert the attention of our management. There can be no assurance
that we will be able to prevail in, or achieve a favorable settlement of, any pending or future legal proceedings to which we become subject.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of December 31, 2021, our Portfolio consisted of 39 properties representing 14,825 units in seven states. The following table provides

a summary of the properties in our Portfolio as of December 31, 2021:

Properties by State
2020-2021 Same Store Properties

Texas

Location

Number
of Units

Date
Acquired

Purchase
Price

(in thousands)

Average Effective
Monthly Rent
Per Unit (1)

% Occupied
(2)

Number of
Units

Rehabbed (3)

Rehab
Expenditures
per Unit (4)

As of December 31, 2021

Arbors on Forest Ridge ..................................... Bedford, Texas
Silverbrook ........................................................ Grand Prairie, Texas
Versailles ........................................................... Dallas, Texas
Venue at 8651 ................................................... Fort Worth, Texas
Old Farm ........................................................... Houston, Texas
Stone Creek at Old Farm................................... Houston, Texas
Hollister Place ................................................... Houston, Texas
Atera Apartments .............................................. Dallas, Texas
Crestmont Reserve ............................................ Dallas, Texas
Summers Landing ............................................. Fort Worth, Texas

Florida

The Summit at Sabal Park................................. Tampa, Florida
Courtney Cove .................................................. Tampa, Florida
Sabal Palm at Lake Buena Vista ....................... Orlando, Florida
Cornerstone ....................................................... Orlando, Florida
Seasons 704 Apartments ...................................

Parc500 .............................................................

Avant at Pembroke Pines ..................................

West Palm Beach,
Florida
West Palm Beach,
Florida
Pembroke Pines,
Florida

210
1/31/2014 $
642
1/31/2014
388
2/26/2015
333
10/30/2015
12/29/2016
734
190 12/29/2016
260 2/1/2017
10/25/2017
380
9/26/2018
242
6/7/2019
196

252
324
400
430

8/20/2014
8/20/2014
11/5/2014
1/15/2015

12,805 $
30,400
26,165
19,250
84,721
23,332
24,500
59,200
24,680
19,396

19,050
18,950
49,500
31,550

1,021
1,043
1,024
1,006
1,207
1,248
1,065
1,310
985
1,033

1,198
1,132
1,377
1,152

96.2 %
94.1 %
96.4 %
92.2 %
93.7 %
96.8 %
85.8 %
92.9 %
95.5 %
93.9 %

96.0 %
93.8 %
97.8 %
95.6 %

274 $
830
584
488
—
—
422
532
171
94

436
201
656
369

2,631
2,521
3,374
4,010
—
—
3,517
1,610
2,111
2,133

3,039
4,868
723
5,140

222 4/15/2015

21,000

1,410

96.8 %

188

5,746

217

7/27/2016

22,421

1,543

96.3 %

178

14,640

1,520 8/30/2019
7/17/2019

342

322,000
55,000

Residences at West Place .................................. Orlando, Florida

Nevada

Bella Solara ....................................................... Las Vegas, Nevada
Bloom ................................................................ Las Vegas, Nevada
Torreyana Apartments ...................................... Las Vegas, Nevada

320
528
316

11/22/2019
11/22/2019
11/22/2019

66,500
106,500
68,000

Georgia

The Preserve at Terrell Mill .............................. Marietta, Georgia
Rockledge Apartments ...................................... Marietta, Georgia

752
708

2/6/2015
6/30/2017

58,000
113,500

Tennessee

Brandywine I & II ............................................. Nashville, Tennessee
Arbors of Brentwood ........................................ Nashville, Tennessee
Residences at Glenview Reserve ...................... Nashville, Tennessee

632
346
360

9/26/2018
9/10/2019
7/17/2019

Arizona

Madera Point ..................................................... Mesa, Arizona
The Venue on Camelback ................................. Phoenix, Arizona
Bella Vista ......................................................... Phoenix, Arizona
The Enclave ...................................................... Tempe, Arizona
The Heritage ...................................................... Phoenix, Arizona

8/5/2015
256
10/11/2016
415
248
1/28/2019
204 1/28/2019
1/28/2019
204

79,800
62,250
45,000

22,525
44,600
48,400
41,800
41,900

1,695
1,345

1,309
1,238
1,365

1,156
1,408

1,031
1,284
1,074

1,140
915
1,515
1,507
1,432

93.9 %
93.0 %

91.3 %
89.2 %
93.7 %

90.6 %
93.9 %

95.6 %
95.1 %
95.6 %

94.5 %
92.3 %
96.0 %
96.6 %
95.6 %

352
50

71
45
22

590
827

300
330
82

385
183
126
117
108

11,886
5,828

9,635
11,303
11,631

9,882
3,731

7,684
2,094
10,954

2,888
10,263
11,059
9,826
10,975

North Carolina

Radbourne Lake ................................................

Timber Creek ....................................................

Total 2020-2021 Same Store Properties (5)

Charlotte, North
Carolina
Charlotte, North
Carolina

Non-Same Store Properties

Texas

225 9/30/2014

24,250

1,227

94.2 %

535

868

352
13,148

9/30/2014
$

22,750
1,709,695 $

1,032
1,255

92.0 %
93.9 %

341
9,887 $

4,701
4,604

Cutter's Point ..................................................... Richardson, Texas

196

1/31/2014

15,845

1,219

311.7 %

269

3,059

Arizona

Fairways at San Marcos .................................... Chandler, Arizona

352

11/2/2020

84,480

1,425

96.3 %

12,145

North Carolina

The Verandas at Lake Norman .........................

Creekside at Matthews ......................................

Six Forks Station ...............................................

Charlotte, North
Carolina
Charlotte, North
Carolina
Raleigh, North
Carolina

Hudson High House .......................................... Cary, North Carolina

Total Non-Same Store Properties ......................

264 6/30/2021

63,500

1,215

93.2 %

1,408

240

6/30/2021

58,000

1,350

94.2 %

4,083

323
302
1,677

9/10/2021
12/7/2021
$

74,760
93,250
389,835 $

1,228
1,361
1,352

95.4 %
94.7 %
34.1 %

83
—
449 $

1,281
—
4,588

Total ......................................................................

14,825

2,099,530 $

1,259

87.6 %

10,336 $

4,603

(2)

(1) Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31, 2021 minus
any tenant concessions over the term of the lease, divided by the number of units under commenced leases as of December 31, 2021.
Percent occupied is calculated as the number of units occupied as of December 31, 2021, divided by the total number of units, expressed as
a percentage.
Inclusive of all full and partial interior upgrades completed.
Inclusive of all full and partial interior upgrades completed and leased as of December 31, 2021.

(3)
(4)

(5)

Includes the 50 downed units excluded from our 2020-2021 Same Store pool (see Note 5).

For additional information regarding our Portfolio, see Notes 3, 4, 5 and 6 to our consolidated financial statements.

Item 3. 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 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stockholder Information

On February 17, 2022, we had 25,552,658 shares of common stock outstanding held by a total of approximately 899 record holders. The
number of record holders is based on the records of American Stock Transfer & Trust Company, LLC, who serves as our transfer agent. The
number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing
agency, but does include each such broker or clearing agency as one record holder.

Market Information

Our common stock trades on the NYSE under the ticker symbol “NXRT.”

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On June 15, 2016, we announced that our Board authorized us to repurchase an indeterminate number of shares of our common stock at an
aggregate market value of up to $30.0 million during a two-year period that was set to expire on June 15, 2018 (the “Share Repurchase Program”).
On April 30, 2018, our Board increased the Share Repurchase Program from $30.0 million to up to $40.0 million and extended it by an additional
two years to June 15, 2020. On March 13, 2020, our Board further increased the Share Repurchase Program from $40.0 million to up to $100.0
million and extended it to March 12, 2023. During the year ended December 31, 2021, the Company did not repurchase any shares of its common
stock. Since the inception of the Share Repurchase Program through December 31, 2021, the Company had repurchased 2,382,155 shares of its
common stock, par value $0.01 per share, at a total cost of approximately $61.2 million, or $25.70 per share as shown in the table below:

Period
Beginning Total ...........................................................
October 1 – October 31 ...............................................
November 1 – November 30 .......................................
December 1 – December 31 ........................................
Total as of December 31, 2021 ..................................

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
millions)

Average Price
Paid Per Share

Total Number

of Shares Purchased

2,382,155 $
—
—
—
2,382,155 $

25.70
—
—
—
25.70

2,382,155 $
—
—
—
2,382,155 $

38.8
38.8
38.8
38.8
38.8

PERFORMANCE GRAPH

On April 1, 2015, our common stock commenced trading on the NYSE. The following graph compares the cumulative total stockholder
return on our common shares for the measurement period commencing December 31, 2015 and ending December 31, 2021 with the cumulative
total returns of the Russell 3000 Index, the MSCI U.S. REIT Index (^RMZ) and the Standard & Poor’s U.S. REIT Index. The following graph
assumes an investment of $100 on the initial day of the relevant measurement period and that all dividends were reinvested.

Item 6. Selected Financial Data

[Reserved]

Item 7. 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. 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 annual report. See “Cautionary Statement
Regarding Forward-Looking Statements” and “Risk Factors” in this 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

As of December 31, 2021, our Portfolio consisted of 39 multifamily properties primarily located in the Southeastern and Southwestern
United States encompassing 14,825 units of apartment space that was approximately 94.3% leased with a weighted average monthly effective rent
per occupied apartment unit of $1,261. Substantially all of our business is conducted through the OP. We own the Portfolio through the OP and
our TRS. The OP owns approximately 99.9% of the Portfolio; our TRS owns approximately 0.1% of the Portfolio. The OP GP is the sole general
partner of the OP. As of December 31, 2021, there were 23,819,402 OP Units outstanding, of which 23,746,169, or 99.7%, were owned by us and
73,233, or 0.3%, were owned by an unaffiliated limited partner (see Note 10 to our consolidated financial statements).

We are primarily focused on directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add
component in large cities and suburban submarkets of large cities, primarily in the Southeastern and Southwestern United States. We generate
revenue primarily by leasing our multifamily properties. We intend to employ targeted management and a value-add program at a majority of our
properties in an attempt to improve rental rates and the NOI at our properties and achieve long-term capital appreciation for our stockholders. We
are externally managed by the Adviser through the Advisory Agreement, by and among the OP, the Adviser and us. The Advisory Agreement was
renewed on February 14, 2022 for a one-year term. The Adviser is wholly owned by NexPoint Advisors, L.P.

On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies,
Raymond James, KeyBanc and Truist, pursuant to which the Company may issue and sell from time to time shares of the Company’s common
stock, par value $0.01 per share, having an aggregate sales price of up to $225,000,000. Sales of shares of common stock, if any, may be made in
transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act, including, without limitation, sales
made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at
the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance
and sale of shares of common stock, the Company may enter into forward sale agreements with each of Jefferies, KeyBanc, and Raymond James,
or their respective affiliates, through the 2020 ATM Program. During the year ended December 31, 2020, the Company issued 718,306 shares of
common stock at an average price of $43.92 per share for gross proceeds of $31.5 million under the 2020 ATM Program. The Company paid
approximately $0.5 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately
$0.6 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. During the year ended December 31,
2021, the Company issued 350,513 shares of common stock at an average price of $75.41 per share for gross proceeds of $26.4 million under the
2020 ATM Program. The Company paid approximately $0.4 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred
other issuance costs of approximately $0.4 million, both of which were netted against the gross proceeds and recorded in additional paid in capital.
The 2020 ATM Program may be terminated by the Company at any time and expires automatically once aggregate sales under the 2020 ATM
Program reach $225,000,000 (see Note 8 to our consolidated financial statements).

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 to our stockholders. As a REIT, we will be subject to 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
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. 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. We had no significant taxes associated with our TRS for the years ended
December 31, 2021, 2020 and 2019.

On October 15, 2021, a lawsuit was filed by a trust set up in connection with the bankruptcy of Highland Capital Management, L.P. in the
United States Bankruptcy Court for the Northern District of Texas. The lawsuit makes claims against a number of entities, including our Sponsor,
the parent of our Advisor, and James Dondero. The lawsuit does not include claims related to our business or our assets or operations. Our Sponsor
and Mr. Dondero have informed us that they believe the lawsuit has no merit and they intend to vigorously defend against the claims. We do not
expect that the lawsuit will have a material effect on our business, results of operations or financial condition.

Components of Our Revenues and Expenses

Revenues

Rental income. Our earnings are primarily attributable to the rental revenue from our multifamily properties. We anticipate that the leases
we enter into for our multifamily properties will typically be for one year or less on average. 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, laundry fees,

cable TV income, and other miscellaneous fees charged to tenants.

Expenses

Property operating expenses. Property operating expenses include property maintenance costs, salary and employee benefit costs, utilities,

casualty-related expenses and recoveries and other property operating costs.

Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending on the location

of each property. Insurance includes the cost of commercial, general liability, and other needed insurance for each property.

Property management fees. Property management fees include fees paid to BH, our property manager, or other third party management

companies for managing each property (see Note 10 to our consolidated financial statements).

Advisory and administrative fees. Advisory and administrative fees include the fees paid to our Adviser pursuant to the Advisory Agreement

(see Note 11 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, listing fees, board of director fees, equity-based compensation expense, investor relations costs and payments of reimbursements to our
Adviser for operating expenses. Corporate general and administrative expenses and the advisory and administrative fees paid to our Adviser
(including advisory and administrative fees on properties defined in the Advisory Agreement as New Assets) will not exceed 1.5% of Average
Real Estate Assets per calendar year (or part thereof that the Advisory Agreement is in effect), calculated in accordance with the Advisory
Agreement, or the Expense Cap. The Expense Cap does not limit the reimbursement by us of expenses related to securities offerings paid by our
Adviser. The Expense Cap also does not apply to legal, accounting, financial, due diligence, and other service fees incurred in connection with
mergers and acquisitions, extraordinary litigation, or other events outside our ordinary course of business or any out-of-pocket acquisition or due
diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Additionally, in the sole discretion of the Adviser,
the Adviser may elect to waive certain advisory and administrative fees otherwise due. If advisory and administrative fees are waived in a period,
the waived fees for that period are considered to be waived permanently and the Adviser may not be reimbursed in the future.

Property general and administrative expenses. Property general and administrative expenses include the costs of marketing, professional

fees, general office supplies, and other administrative related costs of each property.

Depreciation and amortization. Depreciation and amortization costs primarily include depreciation of our multifamily properties and

amortization of acquired in-place leases.

Other Income and Expense

Interest expense. Interest expense primarily includes the cost of interest expense on debt, the amortization of deferred financing costs and

the related impact of interest rate derivatives used to manage our interest rate risk.

Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs 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, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs incurred in a
debt extinguishment.

Casualty losses. Casualty losses include expenses resulting from damages from an unexpected and unusual event such as a natural disaster.
Expenses can include additional payments on insurance premiums, impairment recognized on a property, and other abnormal expenses arising from
the related event.

Miscellaneous income. Miscellaneous income includes proceeds received from insurance for business interruption involving the loss of

rental income at a property that has temporarily suspended operations due to an unexpected and unusual event.

Gain on sales of real estate. Gain on sales of real estate includes the gain recognized upon sales of properties. Gain 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 properties.

Results of Operations for the Years Ended December 31, 2021, 2020 and 2019

The year ended December 31, 2021 as compared to the year ended December 31, 2020

The following table sets forth a summary of our operating results for the years ended December 31, 2021 and 2020 (in thousands):

For the Year Ended December 31,

2021

2020

$ Change

Total revenues .................................................................................................... $
Total expenses ....................................................................................................
Operating income before gain on sales of real estate ..........................................
Gain on sales of real estate .................................................................................
Operating income ...............................................................................................
Interest expense ..................................................................................................
Loss on extinguishment of debt and modification costs .....................................
Casualty gain ......................................................................................................
Miscellaneous income ........................................................................................
Net income .........................................................................................................
Net income attributable to redeemable noncontrolling interests in the

Operating Partnership .....................................................................................
Net income attributable to common stockholders .............................................. $

219,240 $
(201,032 )
18,208
46,214
64,422
(44,623 )
(912 )
2,595
1,624
23,106

204,800 $
(191,236 )
13,564
69,151
82,715
(44,753 )
(1,470 )
5,886
1,772
44,150

69
23,037 $

132
44,018 $

14,440
(9,796 )
4,644
(22,937 )
(18,293 )
130
558
(3,291 )
(148 )
(21,044 )

(63 )
(20,981 )

The change in our net income between the periods primarily relates to decreases in gain on sales of real estate of $22.9 million and casualty
gain of $3.3 million, partially offset by an increase in total revenues of $14.4 million. The change in our net income between the periods was also
due to our acquisition and disposition activity in 2020 and 2021 and the timing of the transactions (we disposed of three properties in the first
quarter of 2020, one property in the third quarter of 2020, and purchased one property in the fourth quarter of 2020; we purchased two properties
in the second quarter of 2021, one property in the third quarter of 2021, one property in the fourth quarter of 2021, and disposed of two properties
in the fourth quarter of 2021).

Revenues

Rental income was $213.5 million for the year ended December 31, 2021 compared to $199.2 million for the year ended December 31,
2020, which was an increase of approximately $14.3 million. The increase between the periods was primarily due to our acquisition and disposition
activity in 2020 and 2021 and the timing of the transactions, as described above, and a 11.8% increase in the weighted average monthly effective
rent per occupied apartment unit in our Portfolio to $1,261 as of December 31, 2021 from $1,128 as of December 31, 2020, primarily driven by
the value-add program that we have implemented and organic growth in rents in the markets where our properties are located.

Other income. Other income was $5.7 million for the year ended December 31, 2021 compared to $5.6 million for the year ended December
31, 2020, which was an increase of approximately $0.1 million. The increase between the periods was primarily due to a $0.2 million decrease in
application and administration concessions, partially offset by a $0.1 million decrease in cable tv income.

Expenses

Property operating expenses. Property operating expenses were $47.7 million for the year ended December 31, 2021 compared to $47.2
million for the year ended December 31, 2020, which was an increase of approximately $0.5 million. The increase between the periods was
primarily due to our acquisition and disposition activity in 2020 and 2021 and the timing of the transactions, as described above. The increase
between periods was also due to a $0.8 million, or 4.0%, increase in payroll expenses.

Real estate taxes and insurance. Real estate taxes and insurance costs were $33.2 million for the year ended December 31, 2021 compared
to $31.7 million for the year ended December 31, 2020, which was an increase of approximately $1.5 million. The increase between the periods
was primarily due to a $1.1 million, or 4.0%, increase in property taxes due to higher assessments of value by taxing authorities. The increase
between the periods was also due to our acquisition and disposition activity in 2020 and 2021 and the timing of the transactions, as described above.

Property management fees. Property management fees were $6.3 million for the year ended December 31, 2021 compared to $6.0 million
for the year ended December 31, 2020, which was an increase of approximately $0.3 million. The increase between the periods was primarily due
to an increase in total revenues, which the fee is primarily based on.

Advisory and administrative fees. Advisory and administrative fees were $7.6 million for the year ended December 31, 2021 compared to
$7.7 million for the year ended December 31, 2020, which was an decrease of approximately $0.1 million. For the years ended December 31, 2021
and 2020, our Adviser elected to voluntarily waive advisory and administrative fees of approximately $17.3 million and $15.4 million and are
considered permanently waived. Our Adviser is not contractually obligated to waive fees on New Assets in the future and may cease waiving fees
on New Assets at its discretion. Advisory and administrative fees may increase in future periods as we acquire additional properties, which will be
classified as New Assets.

Corporate general and administrative expenses. Corporate general and administrative expenses were $12.0 million for the year ended
December 31, 2021 compared to $10.0 million for the year ended December 31, 2020, which was an increase of approximately $2.0 million. The
increase was primarily due to an increase in stock compensation expense of $1.5 million.

Property general and administrative expenses. Property general and administrative expenses were $7.3 million for the year ended December
31, 2021 compared to $6.2 million for the year ended December 31, 2020, which was an increase of approximately $1.1 million. The increase
between the periods was primarily due to increases in centralized marketing services of $0.3 million and lead generation expense of $0.1 million.

Depreciation and amortization. Depreciation and amortization costs were $86.9 million for the year ended December 31, 2021 compared
to $82.4 million for the year ended December 31, 2020, which was an increase of approximately $4.5 million. The increase between the periods
was primarily due to an increase of depreciation expense of $7.2 million, partially offset by the amortization of intangible lease assets of $4.1
million related to five properties for the year ended December 31, 2021 compared to $6.8 million related to six properties for the year ended
December 31, 2020, which was a decrease of approximately $2.7 million.

Other Income and Expense

Interest expense. Interest expense was $44.6 million for the year ended December 31, 2021 compared to $44.8 million for the year ended
December 31, 2020, which was a decrease of approximately $0.2 million. The decrease between the periods was primarily due to an increase in
interest rate swap expense of approximately $5.6 million, partially offset by a decrease in interest on debt of $5.1 million. The following table
details the various costs included in interest expense for the years ended December 31, 2021 and 2020 (in thousands):

Interest on debt ................................................................................................... $
Amortization of deferred financing costs ...........................................................
Interest rate swaps ..............................................................................................
Interest rate caps expense ...................................................................................
Total ............................................................................................................. $

27,405 $
2,197
14,909
112
44,623 $

32,546 $
2,837
9,337
33
44,753 $

(5,141 )
(640 )
5,572
79
(130 )

For the Year Ended December 31,

2021

2020

$ Change

Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs was $0.9 million for the year
ended December 31, 2021 compared to $1.5 million for the year ended December 31, 2020, which was a decrease of approximately $0.6 million.
The decrease between periods was primarily due to a decrease in prepayment penalties and defeasance costs of $0.3 million and a decrease in write-
offs of deferred financing costs of $0.3 million. The following table details the various costs included in loss on extinguishment of debt and
modification costs for the years ended December 31, 2021 and 2020 (in thousands):

Prepayment penalties and defeasance costs ........................................................ $
Write-off of deferred financing costs .................................................................
Debt modification and other extinguishment costs .............................................
Total ............................................................................................................. $

407 $
503
2
912 $

711 $
756
3
1,470 $

(304 )
(253 )
(1 )
(558 )

For the Year Ended December 31,

2021

2020

$ Change

Casualty gains (losses). Casualty gains were $2.6 million for the year ended December 31, 2021 compared to casualty gains of $5.9 million
for the year ended December 31, 2020. The decrease between periods was primarily due to significant damages sustained at Cutter’s Point, Venue
8651, and Timber Creek (see Note 5 to our consolidated financial statements).

Miscellaneous income. Miscellaneous income was $1.6 million for the year ended December 31, 2021 compared to $1.8 million for the
year ended December 31, 2020, which was a decrease of approximately $0.2 million. The decrease between the periods was primarily due to
business interruption proceeds received from insurance for lost rents at Cutter’s Point and Venue 8651 (see Note 5 to our consolidated financial
statements).

Gain on sales of real estate. Gain on sales of real estate was $46.2 million for the year ended December 31, 2021 compared to $69.2 million
for the year ended December 31, 2020, which was a decrease of approximately $23.0 million. During the year ended December 31, 2021, we sold
two properties; during the year ended December 31, 2020, we sold four properties.

The year ended December 31, 2020 as compared to the year ended December 31, 2019

The following table sets forth a summary of our operating results for the years ended December 31, 2020 and 2019 (in thousands):

For the Year Ended December 31,

2020

2019

$ Change

Total revenues .................................................................................................... $
Total expenses ....................................................................................................
Operating income ...............................................................................................
Interest expense ..................................................................................................
Loss on extinguishment of debt and modification costs .....................................
Gain on sales of real estate .................................................................................
Casualty gain (loss) ............................................................................................
Miscellaneous income ........................................................................................
Net income .........................................................................................................
Net income attributable to redeemable noncontrolling interests in the

204,800 $
(191,236 )
13,564
(44,753 )
(1,470 )
69,151
5,886
1,772
44,150

181,066 $
(166,157 )
14,909
(37,385 )
(2,869 )
127,684
(3,488 )
587
99,438

132
44,018 $

298
99,140 $

23,734
(25,079 )
(1,345 )
(7,368 )
1,399
(58,533 )
9,374
1,185
(55,288 )

(166 )
(55,122 )

The change in our net income between the periods primarily relates to a decrease in gain on sales of real estate of $58.5 million and increases
in total property operating expenses of $4.5 million and depreciation and amortization expense of $13.3 million, partially offset by an increase in
total revenues of $23.7 million. The change in our net income between the periods was also due to our acquisition and disposition activity in 2019
and 2020 and the timing of the transactions (we purchased three properties in the first quarter of 2019, one property in the second quarter of 2019,
four properties in the third quarter of 2019, three properties in the fourth quarter of 2019, and disposed of six properties in the third quarter of 2019;
we disposed of three properties in the first quarter of 2020, one property in the third quarter of 2020, and purchased one property in the fourth
quarter of 2020).

Revenues

Rental income. Rental income was $199.2 million for the year ended December 31, 2020 compared to $177.2 million for the year ended
December 31, 2019, which was an increase of approximately $22.0 million. The increase between the periods was primarily due to our acquisition
and disposition activity in 2019 and 2020 and the timing of the transactions, as described above, and a 2.3% increase in the weighted average
monthly effective rent per occupied apartment unit in our Portfolio to $1,128 as of December 31, 2020 from $1,103 as of December 31, 2019,
primarily driven by the value-add program that we have implemented and organic growth in rents in the markets where our properties are located.

Other income. Other income was $5.6 million for the year ended December 31, 2020 compared to $3.9 million for the year ended December
31, 2019, which was an increase of approximately $1.7 million. The increase between the periods was primarily due to a $1.9 million increase in
cable TV income partially offset by a $0.1 million decrease in application fees.

Expenses

Property operating expenses. Property operating expenses were $47.2 million for the year ended December 31, 2020 compared to $42.7
million for the year ended December 31, 2019, which was an increase of approximately $4.5 million. The increase between the periods was
primarily due to our acquisition and disposition activity in 2019 and 2020 and the timing of the transactions, as described above. The increase
between periods was also due to a $0.8 million, or 4.0%, increase in payroll expenses.

Real estate taxes and insurance. Real estate taxes and insurance costs were $31.7 million for the year ended December 31, 2020 compared
to $25.1 million for the year ended December 31, 2019, which was an increase of approximately $6.6 million. The increase between the periods
was primarily due to a $5.1 million, or 23.1%, increase in property taxes. The increase between the periods was also due to our acquisition and
disposition activity in 2019 and 2020 and the timing of the transactions, as described above. Property taxes incurred in the first year of ownership
may be significantly less than subsequent years since the purchase price of the property may trigger a significant increase in assessed value by the
taxing authority in subsequent years, increasing the cost of real estate taxes.

Property management fees. Property management fees were $6.0 million for the year ended December 31, 2020 compared to $5.4 million
for the year ended December 31, 2019, which was an increase of approximately $0.6 million. The increase between the periods was primarily due
to an increase in total revenues, which the fee is primarily based on.

Advisory and administrative fees. Advisory and administrative fees were $7.7 million for the year ended December 31, 2020 compared to
$7.5 million for the year ended December 31, 2019, which was an increase of approximately $0.2 million. For the year ended December 31, 2020,
our Adviser elected to voluntarily waive the advisory and administrative fees incurred on the properties we acquired subsequent to October 2016,
excluding Hollister Place, Stone Creek at Old Farm and The Heritage, which totaled approximately $15.4 million and are considered to be
permanently waived. For the year ended December 31, 2019, our Adviser elected to voluntarily waive the advisory and administrative fees incurred
on the properties we acquired subsequent to October 2016, excluding Hollister Place and Stone Creek at Old Farm, which totaled approximately
$9.1 million and are considered to be permanently waived for the period. The advisory and administrative fees waived by our Adviser for the years
ended December 31, 2020 and 2019 are considered to be permanently waived for the periods. Our Adviser is not contractually obligated to waive
fees on New Assets in the future and may cease waiving fees on New Assets at its discretion. Advisory and administrative fees may increase in
future periods as we acquire additional properties, which will be classified as New Assets.

Corporate general and administrative expenses. Corporate general and administrative expenses were $10.0 million for the year ended
December 31, 2020 compared to $9.6 million for the year ended December 31, 2019, which was an increase of approximately $0.4 million. The
increase was primarily due to an increase in stock compensation expense of $0.4 million.

Property general and administrative expenses. Property general and administrative expenses were $6.2 million for the year ended December
31, 2020 compared to $6.8 million for the year ended December 31, 2019, which was a decrease of approximately $0.6 million. The decrease
between the periods was primarily due to decreases in eviction fees of $0.2 million.

Depreciation and amortization. Depreciation and amortization costs were $82.4 million for the year ended December 31, 2020 compared
to $69.1 million for the year ended December 31, 2019, which was an increase of approximately $13.3 million. The increase between the periods
was primarily due to an increase of depreciation expense of $19.2 million, partially offset by the amortization of intangible lease assets of $6.8
million related to six properties for the year ended December 31, 2020 compared to $12.7 million related to fourteen properties for the year ended
December 31, 2019, which was a decrease of approximately $5.9 million.

Other Income and Expense

Interest expense. Interest expense was $44.8 million for the year ended December 31, 2020 compared to $37.4 million for the year ended
December 31, 2019, which was an increase of approximately $7.4 million. The increase between the periods was primarily due to an increase in
interest rate swap expense of approximately $15.8 million, partially offset by a decrease in interest on debt of $9.2 million. The following table
details the various costs included in interest expense for the years ended December 31, 2020 and 2019 (in thousands):

Interest on debt ................................................................................................... $
Amortization of deferred financing costs ...........................................................
Interest rate swaps - effective portion .................................................................
Interest rate caps expense ...................................................................................
Total ............................................................................................................. $

32,546 $
2,837
9,337
33
44,753 $

41,744 $
2,083
(6,472 )
30
37,385 $

(9,198 )
754
15,809
3
7,368

For the Year Ended December 31,

2020

2019

$ Change

Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs was $1.5 million for the year
ended December 31, 2020 compared to $2.9 million for the year ended December 31, 2019, which was a decrease of approximately $1.4 million.
The decrease between periods was primarily due to a decrease in prepayment penalties and defeasance costs of $0.7 million and a decrease in write-
offs of deferred financing costs of $0.7 million. The following table details the various costs included in loss on extinguishment of debt and
modification costs for the years ended December 31, 2020 and 2019 (in thousands):

711 $
756
3
1,470 $

1,449 $
1,419
1
2,869 $

(738 )
(663 )
2
(1,399 )

For the Year Ended December 31,

2020

2019

$ Change

Casualty gains (losses). Casualty gains were $5.9 million for the year ended December 31, 2020 compared to casualty losses of $3.5 million
for the year ended December 31, 2019. The increase between periods was primarily due to significant damages sustained at Cutter’s Point, Venue
8651, and Timber Creek (see Note 5 to our consolidated financial statements).

Miscellaneous income. Miscellaneous income was $1.8 million for the year ended December 31, 2020 compared to $0.6 million for the
year ended December 31, 2019, which was an increase of approximately $1.2 million. The increase between the periods was primarily due to
business interruption proceeds received from insurance for lost rents at Cutter’s Point and Venue 8651 (see Note 5 to our consolidated financial
statements).

Gain on sales of real estate. Gain on sales of real estate was $69.2 million for the year ended December 31, 2020 compared to $127.7
million for the year ended December 31, 2019, which was a decrease of approximately $58.5 million. During the year ended December 31, 2020,
we sold four properties; during the year ended December 31, 2019, we sold six properties.

Non-GAAP Measurements

Net Operating Income and Same Store Net Operating Income

NOI is a non-GAAP financial measure of performance. NOI is used by investors and 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 calculated by adjusting net income (loss) to add back (1) interest expense (2) advisory and administrative fees, (3) the impact of depreciation
and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in
accordance with GAAP, (4) corporate general and administrative expenses, (5) other gains and losses that are specific to us including loss on
extinguishment of debt and modification costs, (6) casualty-related expenses/(recoveries) and casualty gains (losses), (7) pandemic expenses that
are not reflective of continuing operations of the properties and (8) property general and administrative expenses that are not reflective of the
continuing operations of the properties or are incurred on behalf of the Company at the property for expenses such as legal, professional, centralized
leasing service and franchise tax fees.

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, which may have changed or may change in the future. Non-operating fees to affiliates 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 multifamily properties 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. Casualty-related expenses and recoveries, casualty gains and losses, and losses of extinguished debt and modification costs are excluded
because they do not reflect continuing operating costs of the property owner. Corporate level general and administrative expenses are eliminated
because they do not reflect the operating activity performed at the properties. Entity level general and administrative expenses incurred at the
properties and pandemic expenses are eliminated as they are specific to the way in which we have chosen to hold our properties and are the result
of our ownership structuring. Also, expenses that are incurred upon acquisition of a property 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. 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, interest expense, loss on
extinguishment of debt and modification costs, acquisition costs, certain fees to affiliates such as advisory and administrative fees, depreciation
and amortization expense and gains or losses from the sale of properties, pandemic expenses, and other gains and losses as determined under
GAAP, 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 in “—Results of Operations” 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.

We define “Same Store NOI” as NOI for our properties that are comparable between periods. We view Same Store NOI as an important
measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of
the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions during the periods.

NOI and 2020-2021 Same Store NOI for the Years Ended December 31, 2021 and 2020

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our 2020-2021 Same
Store NOI for the years ended December 31, 2021 and 2020 to net income, the most directly comparable GAAP financial measure (in thousands):

Net income ............................................................................................................................

23,106 $

44,150

For the Year Ended December 31,

2021

2020

Adjustments to reconcile net income to NOI:

Advisory and administrative fees ....................................................................................
Corporate general and administrative expenses ...............................................................
Casualty-related expenses/(recoveries) ............................................................................ (1)
Casualty losses (gains) ....................................................................................................
Pandemic expense ........................................................................................................... (2)
Property general and administrative expenses ................................................................. (3)
Depreciation and amortization .........................................................................................
Interest expense ...............................................................................................................
Loss on extinguishment of debt and modification costs ..................................................
Gain on sales of real estate ..............................................................................................
NOI ........................................................................................................................................

Less Non-Same Store

Revenues .........................................................................................................................
Operating expenses ..........................................................................................................
Operating income ............................................................................................................
Same Store NOI ....................................................................................................................

7,631
11,966
(200 )
(2,595 )
50
2,232
86,878
44,623
912
(46,214 )
128,389 $

(19,157 )
6,971
(871 )
115,332 $

7,670
10,035
790
(5,886 )
510
1,644
82,411
44,753
1,470
(69,151 )
118,396

(14,101 )
6,678
(1,687 )
109,286

(1) Adjustment to net income to exclude certain property operating expenses that are casualty-related expenses/(recoveries).
(2) Represents additional cleaning, disinfecting and other costs incurred at the properties related to COVID-19.
(3) Adjustment to net income to exclude certain property general and administrative expenses that are not reflective of the continuing operations
of the properties or are incurred on our behalf at the property for expenses such as legal, professional, centralized leasing service and franchise
tax fees.

NOI and 2019-2021 Same Store NOI for the Years Ended December 31, 2021, 2020 and 2019

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our 2019-2021 Same
Store NOI for the years ended December 31, 2021, 2020 and 2019 to net income, the most directly comparable GAAP financial measure (in
thousands):

For the Year Ended December 31,

2021

2020

2019

Net income ..................................................................................................... $

23,106 $

44,150 $

99,438

Adjustments to reconcile net income to NOI:

Advisory and administrative fees .............................................................
Corporate general and administrative expenses ........................................
Casualty-related expenses/(recoveries) ..................................................... (1)
Casualty losses (gains) .............................................................................
Pandemic expense .................................................................................... (2)
Property general and administrative expenses .......................................... (3)
Depreciation and amortization ..................................................................
Interest expense ........................................................................................
Loss on extinguishment of debt and modification costs ...........................
Gain on sales of real estate .......................................................................
NOI ................................................................................................................. $

Less Non-Same Store

Revenues ..................................................................................................
Operating expenses ...................................................................................
Operating income .....................................................................................
Same Store NOI ............................................................................................. $

7,631
11,966
(200 )
(2,595 )
50
2,232
86,878
44,623
912
(46,214 )
128,389 $

(98,786 )
39,001
(871 )
67,733 $

7,670
10,035
790
(5,886 )
510
1,644
82,411
44,753
1,470
(69,151 )
118,396 $

(89,362 )
37,394
(1,687 )
64,741 $

7,500
9,613
(34 )
3,488
—
1,939
69,086
37,385
2,869
(127,684 )
103,600

(69,608 )
29,163
(587 )
62,568

Net Operating Income for Our 2020-2021 Same Store and Non-Same Store Properties for the Years Ended December 31, 2021 and 2020

There are 33 properties encompassing 13,098 units of apartment space in our same store pool for the years ended December 31, 2021 and
2020 (our “2020-2021 Same Store” properties). Our 2020-2021 Same Store properties exclude the following 6 properties in our Portfolio as of
December 31, 2021: Fairways at San Marcos, The Verandas at Lake Norman, Creekside at Matthews, Six Forks Station, Hudson High House and
Cutter’s Point as well as the 50 units that are currently down (see Note 5).

The following table reflects the revenues, property operating expenses and NOI for the years ended December 31, 2021 and 2020 for our

2020-2021 Same Store and Non-Same Store properties (dollars in thousands):

For the Year Ended December 31,
2020
2021

$ Change

% Change

Revenues
Same Store

Rental income ....................................................................... $
Other income ........................................................................
Same Store revenues .........................................................

Non-Same Store

Rental income .......................................................................
Other income ........................................................................
Non-Same Store revenues .................................................
Total revenues ................................................................

Operating expenses
Same Store

Property operating expenses (1) ...........................................
Real estate taxes and insurance ............................................
Property management fees (2) ..............................................
Property general and administrative expenses (3) ................
Same Store operating expenses .........................................

Non-Same Store

Property operating expenses (4) ...........................................
Real estate taxes and insurance ............................................
Property management fees (2) ..............................................
Property general and administrative expenses (5) ................
Non-Same Store operating expenses .................................
Total operating expenses ................................................

Operating income
Same Store

194,609 $
5,474
200,083

18,896
261
19,157
219,240

43,643
31,525
5,758
4,578
85,504

4,246
1,627
576
522
6,971
92,475

185,283 $
5,416
190,699

13,954
147
14,101
204,800

9,326

58
9,384

4,942
114
5,056
14,440

41,949
29,874
5,499
4,175
81,497

3,952
1,835
472
419
6,678
88,175

1,694
1,651
259
403
4,007

294
(208 )
104
103
293
4,300

5.0 %
1.1 %
4.9 %

35.4 %
77.6 %
35.9 %
7.1 %

4.0 %
5.5 %
4.7 %
9.7 %
4.9 %

7.4 %
-11.3 %
22.0 %
24.6 %
4.4 %
4.9 %

Miscellaneous income ..........................................................

753

669

N/M

Non-Same Store

Miscellaneous income ..........................................................
Total operating income ...................................................

871
1,624

1,687
1,771

(816 )
(147 )

-48.4 %
-8.3 %

NOI

Same Store ...........................................................................
Non-Same Store ...................................................................
Total NOI ......................................................................... $

115,332
13,057
128,389 $

109,286
9,110
118,396 $

6,046
3,947
9,993

5.5 %
43.3 %
8.4 %

(1)

(2)
(3)

(4)
(5)

For the years ended December 31, 2021 and 2020, excludes approximately $255,000 and $414,000, respectively, of casualty-related
recoveries.
Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the OP.
For the years ended December 31, 2021 and 2020, excludes approximately $1,874,000 and $1,289,000, respectively, of expenses that are
not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal,
professional, centralized leasing service and franchise tax fees.
For the years ended December 31, 2021 and 2020, excludes approximately $5,000 and $203,000, respectively, of casualty-related expenses.
For the years ended December 31, 2021 and 2020, excludes approximately $358,000 and $356,000, respectively, of expenses that are not
reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional,
centralized leasing service and franchise tax fees.

See reconciliation of net income to NOI above under “NOI and 2020-2021 Same Store NOI for the Years Ended December 31, 2021 and

2020.”

2020-2021 Same Store Results of Operations for the Years Ended December 31, 2021 and 2020

As of December 31, 2021, our 2020-2021 Same Store properties were approximately 94.2% leased with a weighted average monthly
effective rent per occupied apartment unit of $1,255. As of December 31, 2020, our 2020-2021 Same Store properties were approximately 93.9%
leased with a weighted average monthly effective rent per occupied apartment unit of $1,130. For our 2020-2021 Same Store properties, we
recorded the following operating results for the year ended December 31, 2021 as compared to the year ended December 31, 2020:

Revenues

Rental income. Rental income was $194.6 million for the year ended December 31, 2021 compared to $185.3 million for the year ended
December 31, 2020, which was an increase of approximately $9.3 million, or 5.0%. The majority of the increase is related to a 11.1% increase in
the weighted average monthly effective rent per occupied apartment unit to $1,255 as of December 31, 2021 from $1,130 as of December 31, 2020.

Other income. Other income was $5.5 million for the year ended December 31, 2021 compared to $5.4 million for the year ended December
31, 2020, which was an increase of approximately $0.1 million, or 1.1%. The majority of the increase is related to a $0.1 million increase in internet
income.

Expenses

Property operating expenses. Property operating expenses were $43.6 million for the year ended December 31, 2021 compared to $41.9
million for the year ended December 31, 2020, which was an increase of approximately $1.7 million, or 4.0%. The majority of the increase is
related to a $1.2 million, or 7.6%, increase in repairs and maintenance expense.

Real estate taxes and insurance. Real estate taxes and insurance costs were $31.5 million for the year ended December 31, 2021 compared
to $29.9 million for the year ended December 31, 2020, which was an increase of approximately $1.6 million, or 5.5%. The majority of the increase
is related to a $1.1 million, or 4.3%, increase in property taxes and a $0.5 million, or 13.3%, increase in insurance expense.

Property management fees. Property management fees were $5.8 million for the year ended December 31, 2021 compared to $5.5 million
for the year ended December 31, 2020, which was an increase of approximately $0.3 million, or 4.7%. The majority of the increase is related to an
increase in total revenues, which the fee is primarily based on.

Property general and administrative expenses. Property general and administrative expenses were $4.6 million for the year ended December
31, 2021 compared to $4.2 million for the year ended December 31, 2020, which was an increase of approximately $0.4 million, or 9.7%. The
majority of the increase is related to a $0.3 million, or 11.4%, increase in marketing costs.

Net Operating Income for Our 2019-2021 Same Store and Non-Same Store Properties for the Years Ended December 31, 2021, 2020 and
2019

There are 22 properties encompassing 8,514 units of apartment space in our same store pool for the years ended December 31, 2021, 2020 and
2019 (our “2019-2021 Same Store” properties). Our 2019-2021 Same Store properties exclude the following 17 properties in our Portfolio as of
December 31, 2021: Bella Vista, The Enclave, The Heritage, Summers Landing, Residences at Glenview Reserve, Residences at West Place, Avant at
Pembroke Pines, Arbors of Brentwood, Torreyana, Bloom, Bella Solara, Fairways at San Marcos, The Verandas at Lake Norman, Creekside at
Matthews, Six Forks Station, Hudson High House and Cutter’s Point as well as 50 units that are currently down (see Note 5).

The following table reflects the revenues, property operating expenses and NOI for the years ended December 31, 2021, 2020 and 2019 for

our 2019-2021 Same Store and Non-Same Store properties (dollars in thousands):

For the Year Ended December 31,
2020

2019

2021

2021 compared to 2020

2021 compared to 2019

$ Change

% Change

$ Change

% Change

Revenues
Same Store

Rental income ............................................. $ 118,292 $ 113,402 $ 109,222 $
2,236
Other income ..............................................
Same Store revenues ............................... 120,454 115,438 111,458

2,036

2,162

Non-Same Store

Rental income .............................................
Other income ..............................................
Non-Same Store revenues .......................

67,940
1,668
69,608
Total revenues ...................................... 219,240 204,800 181,066

95,213
3,573
98,786

85,835
3,527
89,362

4,890
126
5,016

9,378
46
9,424
14,440

4.3 % $
6.2 %
4.3 %

9,070
(74 )
8,996

10.9 %
1.3 %
10.5 %
7.1 %

27,273
1,905
29,178
38,174

8.3 %
-3.3 %
8.1 %

40.1 %
114.2 %
41.9 %
21.1 %

Operating expenses
Same Store

Property operating expenses (1) .................
Real estate taxes and insurance ..................
Property management fees (2) ....................
Property general and administrative

27,334
19,593
3,559

26,061
18,582
3,428

25,766
16,787
3,324

1,273
1,011
131

4.9 %
5.4 %
3.8 %

1,568
2,806
235

expenses (3) .............................................
Same Store operating expenses ...............

2,988
53,474

2,710
50,781

3,013
48,890

278
2,693

10.3 %
5.3 %

(25 )
4,584

Non-Same Store

Property operating expenses (4) .................
Real estate taxes and insurance ..................
Property management fees (2) ....................
Property general and administrative

20,555
13,559
2,775

19,840
13,127
2,543

16,960
8,326
2,064

715
432
232

3.6 %
3.3 %
9.1 %

3,595
5,233
711

expenses (5) .............................................
Non-Same Store operating expenses .......
Total operating expenses ......................

2,112
39,001
92,475

1,884
37,394
88,175

1,813
29,163
78,053

228
1,607
4,300

12.1 %
4.3 %
4.9 %

299
9,838
14,422

6.1 %
16.7 %
7.1 %

-0.8 %
9.4 %

21.2 %
62.9 %
34.4 %

16.5 %
33.7 %
18.5 %

Operating income
Same Store

Miscellaneous income ................................

753

—

669

N/M

753

0.0 %

Non-Same Store

Miscellaneous income ................................
Total operating income ............................

871
1,624

1,687
1,771

587
587

(816 )
(147 )

-48.4 %
-8.3 %

284
1,037 N/M

48.4 %

NOI

Same Store .................................................
Non-Same Store .........................................

62,568
41,032
Total NOI ............................................... $ 128,389 $ 118,396 $ 103,600 $

67,733
60,656

64,741
53,655

2,992
7,001
9,993

5,165
4.6 %
19,624
13.0 %
8.4 % $ 24,789

8.3 %
47.8 %
23.9 %

(1)

(2)
(3)

(4)

(5)

For the years ended December 31, 2021, 2020 and 2019, excludes approximately $248,000, $595,000 and $80,000, respectively, of casualty-
related recoveries.
Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the OP.
For the years ended December 31, 2021, 2020 and 2019, excludes approximately $1,256,000, $674,000 and $1,071,000, respectively, of
expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such
as legal, professional, centralized leasing service and franchise tax fees.
For the years ended December 31, 2021, 2020 and 2019, excludes approximately $98,000, $1,895,000 and $46,000, respectively, of
casualty-related expenses.
For the years ended December 31, 2021, 2020 and 2019, excludes approximately $976,000, $970,000 and $869,000, respectively, of
expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such
as legal, professional, centralized leasing service and franchise tax fees.

See reconciliation of net income to NOI above under “NOI and 2019-2021 Same Store NOI for the Years Ended December 31, 2021, 2020

and 2019.”

2019-2021 Same Store Results of Operations for the Years Ended December 31, 2021 and 2020

As of December 31, 2021, our 2019-2021 Same Store properties were approximately 94.5% leased with a weighted average monthly
effective rent per occupied apartment unit of $1,162. As of December 31, 2020, our 2019-2021 Same Store properties were approximately 94.1%
leased with a weighted average monthly effective rent per occupied apartment unit of $1,050. For our 2019-2021 Same Store properties, we
recorded the following operating results for the year ended December 31, 2021 as compared to the year ended December 31, 2020:

Revenues

Rental income. Rental income was $118.3 million for the year ended December 31, 2021 compared to $113.4 million for the year ended
December 31, 2020, which was an increase of approximately $4.9 million, or 4.3%. The majority of the increase is related to a 10.7% increase in
the weighted average monthly effective rent per occupied apartment unit to $1,162 as of December 31, 2021 from $1,050 as of December 31, 2020,
and a 0.4% increase in occupancy.

Other income. Other income was $2.2 million for the year ended December 31, 2021 compared to $2.0 million for the year ended December
31, 2020, which was an increase of approximately $0.2 million, or 6.2%. The majority of the increase is related to a $0.1 million decrease in
concessions related to application and administration fees.

Expenses

Property operating expenses. Property operating expenses were $27.3 million for the year ended December 31, 2021 compared to $26.1
million for the year ended December 31, 2020, which was an increase of approximately $1.2 million, or 4.9%. The majority of the increase is
related to an increase in repairs and maintenance costs of $0.6 million.

Real estate taxes and insurance. Real estate taxes and insurance costs were $19.6 million for the year ended December 31, 2021 compared
to $18.6 million for the year ended December 31, 2020, which was an increase of approximately $1.0 million, or 5.4%. The majority of the increase
is related to a $0.7 million, or 4.4%, increase in property taxes.

Property management fees. Property management fees were $3.6 million for the year ended December 31, 2021 compared to $3.4 million
for the year ended December 31, 2020, which was an increase of approximately $0.2 million, or 3.8%. The majority of the increase is related to an
increase in total revenues, which the fee is primarily based on.

Property general and administrative expenses. Property general and administrative expenses were $3.0 million for the year ended December
31, 2021 compared to $2.7 million for the year ended December 31, 2020, which was an increase of approximately $0.3 million, or 10.3%. The
majority of the increase is related to a $0.2 million increase in office operations.

2019-2021 Same Store Results of Operations for the Years Ended December 31, 2021 and 2019

As of December 31, 2021, our 2019-2021 Same Store properties were approximately 94.5% leased with a weighted average monthly
effective rent per occupied apartment unit of $1,162. As of December 31, 2019, our 2019-2021 Same Store properties were approximately 94.5%
leased with a weighted average monthly effective rent per occupied apartment unit of $1,035. For our 2019-2021 Same Store properties, we
recorded the following operating results for the year end December 31, 2021 as compared to the year ended December 31, 2019:

Revenues

Rental income. Rental income was $118.3 million for the year ended December 31, 2021 compared to $109.2 million for the year ended
December 31, 2019, which was an increase of approximately $9.1 million, or 8.3%. The majority of the increase is related to a 12.3% increase in
the weighted average monthly effective rent per occupied apartment unit to $1,162 as of December 31, 2021 from $1,035 as of December 31, 2019
and a 0.1% increase in occupancy.

Other income. Other income was $2.2 million for the year ended December 31, 2021 compared to $2.2 million for the year ended December

31, 2019.

Expenses

Property operating expenses. Property operating expenses were $27.3 million for the year ended December 31, 2021 compared to $25.8
million for the year ended December 31, 2019, which was an increase of approximately $1.5 million, or 6.1%. The majority of the increase is
related to a $0.7 million, or 8.0%, increase in repair and maintenance expenses.

Real estate taxes and insurance. Real estate taxes and insurance costs were $19.6 million for the year ended December 31, 2021 compared
to $16.8 million for the year ended December 31, 2019, which was an increase of approximately $2.8 million, or 16.7%. The majority of the
increase is related to a $2.2 million, or 15.2%, increase in property taxes.

Property management fees. Property management fees were $3.6 million for the year ended December 31, 2021 to $3.3 million for the year
ended December 31, 2019, which was an increase of approximately $0.3 million, or 7.1%. The majority of the increase is related to an increase in
total revenues, which the fee is primarily based on.

Property general and administrative expenses. Property general and administrative expenses were $3.0 million for the year ended December

31, 2021 compared to $3.0 million for the year ended December 31, 2019.

FFO, Core FFO and AFFO

We believe that net income, 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 Investment 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, as defined by GAAP. FFO is defined by NAREIT as net income computed in accordance
with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization. We compute FFO attributable
to common stockholders in accordance with NAREIT’s definition. Our presentation differs slightly in that we begin with net income (loss) before
adjusting for amounts attributable to noncontrolling interests and we show the combined amounts attributable to such noncontrolling interests as
an adjustment to arrive at FFO attributable to common stockholders.

Core FFO makes certain adjustments to FFO, which 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 losses on extinguishment of debt and
modification costs (including prepayment penalties and defeasance costs incurred on the early repayment of debt, the write-off of unamortized
deferred financing costs and fair market value adjustments of assumed debt related to the early repayment of debt, costs incurred in a debt
modification that are not capitalized as deferred financing costs and other costs incurred in a debt extinguishment), casualty-related expenses and
recoveries and gains or losses, pandemic expenses, the amortization of deferred financing costs incurred in connection with obtaining short-term
debt financing, and the noncontrolling interests (as described above) related to these items. We believe Core FFO is useful to investors as a
supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved
in the aforementioned activities.

AFFO makes certain adjustments to Core FFO 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 practice is divergent across the industry. AFFO adjusts Core FFO to remove items such as
equity-based compensation expense and the amortization of deferred financing costs incurred in connection with obtaining long-term debt
financing, and the noncontrolling interests (as described above) related to these items. We believe AFFO is useful to investors as a supplemental
gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the
aforementioned activities.

The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted
FFO, Core FFO and AFFO per share, as they are exchangeable for common stock on a one-for-one basis. The FFO, Core FFO and AFFO allocable
to such units is allocated on this same basis and reflected in the adjustments for noncontrolling interests in the table below. As such, the assumed
conversion of these units would have no net impact on the determination of diluted FFO, Core FFO and AFFO per share. See Note 10 to our
consolidated financial statements for additional information.

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 among investors 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 that do not define
FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define Core FFO or AFFO differently
than we do.

The following table reconciles our calculations of FFO, Core FFO and AFFO to net income, the most directly comparable GAAP financial

measure, for the years ended December 31, 2021, 2020 and 2019 (in thousands, except per share amounts):

For the Year Ended December 31,

2021

2020

2019

% Change
2021 - 2020

% Change 2021
- 2019

Net income ........................................................................... $
Depreciation and amortization ..............................................
Gain on sales of real estate ...................................................
Adjustment for noncontrolling interests ...............................
FFO attributable to common stockholders.......................

23,106 $
86,878
(46,214 )
(191 )
63,579

44,150 $
82,411
(69,151 )
(172 )
57,238

99,438
69,086
(127,684 )
(122 )
40,718

-47.7 %
5.4 %
-33.2 %
11.0 %
11.1 %

FFO per share – basic ........................................................ $
FFO per share – diluted ..................................................... $

2.53 $
2.47 $

2.32 $
2.27 $

1.69
1.66

8.9 %
8.8 %

Loss on extinguishment of debt and modification costs .......
Casualty-related expenses/(recoveries) .................................
Casualty losses (gains) .........................................................
Pandemic expense ................................................................ (1)
Amortization of deferred financing costs - acquisition term

notes .................................................................................

Adjustment for noncontrolling interests ...............................
Core FFO attributable to common stockholders .............

912
(200 )
(2,595 )
50

737
4
62,487

1,470
790
(5,886 )
510

1,384
6
55,512

2,869
(34 )
3,488
—

553
(21 )
47,573

Core FFO per share – basic ............................................... $
Core FFO per share – diluted ............................................ $

2.48 $
2.43 $

2.25 $
2.20 $

1.97
1.93

Amortization of deferred financing costs - long term debt ...
Equity-based compensation expense ....................................
Adjustment for noncontrolling interests ...............................
AFFO attributable to common stockholders ....................

1,460
6,997
(25 )
70,919

1,453
5,504
(21 )
62,448

1,530
5,130
(20 )
54,213

AFFO per share – basic ..................................................... $
AFFO per share – diluted .................................................. $

2.82 $
2.75 $

2.53 $
2.47 $

2.25
2.20

-68.2 %
N/M
N/M
N/M

-46.7 %
-33.3 %
12.6 %

10.5 %
10.3 %

0.5 %
27.1 %
19.0 %
13.6 %

11.5 %
11.2 %

N/M
25.8 %
-63.8 %
56.6 %
56.1 %

49.5 %
49.1 %

-68.2 %
487.1 %
N/M
N/M

33.3 %
-119.0 %
31.3 %

25.8 %
25.4 %

-4.5 %
36.4 %
25.0 %
30.8 %

25.3 %
24.9 %

Weighted average common shares outstanding – basic ...
Weighted average common shares outstanding

25,170

24,715

24,116

1.8 %

4.4 %

– diluted ...........................................................................

25,760

25,234

24,593

2.1 %

4.7 %

Dividends declared per common share ............................. $

1.404 $

1.279 $

1.138

9.8 %

23.4 %

FFO Coverage – diluted ..................................................... (2)
Core FFO Coverage – diluted ............................................ (2)
AFFO Coverage – diluted .................................................. (2)

1.76x
1.73x
1.96x

1.77x
1.72x
1.94x

1.46x
1.70x
1.94x

-0.9 %
0.4 %
1.3 %

20.8 %
1.6 %
1.2 %

(1) Represents additional cleaning, disinfecting and other costs incurred at the properties related to COVID-19.
(2)

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

The year ended December 31, 2021 as compared to the year ended December 31, 2020

FFO was $63.6 million for the year ended December 31, 2021 compared to $57.2 million for the year ended December 31, 2020, which
was an increase of approximately $6.4 million. The change in our FFO between the periods primarily relates to an increase in total revenues of
$14.4 million, partially offset by an increase in total property operating expenses of $3.4 million and a decrease in casualty gains of $3.3 million.

Core FFO was $62.5 million for the year ended December 31, 2021 compared to $55.5 million for the year ended December 31, 2020,
which was an increase of approximately $7.0 million. The change in our Core FFO between the periods primarily relates to an increase in FFO and
a decrease in casualty gains of $3.3 million, partially offset by a decrease in amortization of deferred financing costs for acquisition term notes of
$0.6 million, a decrease in loss on extinguishment of debt and modification costs of $0.6 million, and a decrease to casualty related expenses of
$1.0 million.

AFFO was $70.9 million for the year ended December 31, 2021 compared to $62.4 million for the year ended December 31, 2020, which
was an increase of approximately $8.5 million. The change in our AFFO between the periods primarily relates to increases in Core FFO and equity-
based compensation expense of $1.5 million.

The year ended December 31, 2021 as compared to the year ended December 31, 2019

FFO was $63.6 million for the year ended December 31, 2021 compared to $40.7 million for the year ended December 31, 2019, which
was an increase of approximately $23.1 million. The change in our FFO between the periods primarily relates to an increase in total revenues of
$38.2 million, partially offset by an increase in total property operating expenses of $14.6 million.

Core FFO was $62.5 million for the year ended December 31, 2021 compared to $47.6 million for the year ended December 31, 2019,
which was an increase of approximately $15.1 million. The change in our Core FFO between the periods primarily relates to an increase in FFO,
partially offset by a decrease in amortization of deferred financing costs for acquisition term notes of $0.6 million, an increase in casualty gains of
$6.1 million, and a decrease in loss on extinguishment of debt and modification costs of $2.0 million.

AFFO was $70.9 million for the year ended December 31, 2021 compared to $54.2 million for the year ended December 31, 2019, which
was an increase of approximately $16.9 million. The change in our AFFO between the periods primarily relates to increases in Core FFO and
equity-based compensation expense of $1.9 million.

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 multifamily properties, including:

•

capital expenditures to continue our value-add program and to improve the quality and performance of our multifamily properties;

interest expense and scheduled principal payments on outstanding indebtedness (see “—Obligations and Commitments” below);

recurring maintenance necessary to maintain our multifamily properties;

distributions necessary to qualify for taxation as a REIT;

acquisitions of additional properties;

advisory and administrative fees payable to our Adviser;

general and administrative expenses;

reimbursements to our Adviser; and

property management fees payable to BH.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and existing cash balances. As
of December 31, 2021, we had approximately $11.9 million of renovation value-add reserves for our planned capital expenditures to implement
our value-add program. Renovation value-add reserves are not required to be held in escrow by a third party. We may reallocate these funds, at our
discretion, to pursue other investment opportunities or meet our short-term liquidity requirements.

Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional multifamily properties,
renovations and other capital expenditures to improve our multifamily properties and scheduled debt payments and distributions. We expect to
meet our long-term liquidity requirements through various sources of capital, which may include a revolving credit facility and future debt or equity
issuances, existing working capital, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings,
and property dispositions. 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.
The Company continues to monitor the impact on 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.

In addition to our value-add program, our multifamily properties will require periodic capital expenditures and renovation to remain
competitive. Also, acquisitions, redevelopments, or expansions of our multifamily properties 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,
acquisitions, or redevelopment 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.

On February 20, 2019, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies,
Raymond James and Truist (collectively, the “2019 ATM Sales Agents”), pursuant to which the Company could issue and sell from time to time
shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $100,000,000 (the “2019 ATM
Program”). Sales of shares of common stock, if any, could be made in transactions that were deemed to be “at the market” offerings, as defined in
Rule 415 under the Securities Act, including, without limitation, sales made by means of ordinary brokers’ transactions on the New York Stock
Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated
prices based on prevailing market prices. In addition to the issuance and sale of shares of common stock, the Company could enter into forward
sale agreements with each of Jefferies and Raymond James, or their respective affiliates, through the 2019 ATM Program. During the year ended
December 31, 2019, the Company issued 1,565,322 shares of common stock at an average price of $45.98 per share for gross proceeds of
approximately $72.0 million. The Company paid approximately $1.1 million in fees to the 2019 ATM Sales Agents with respect to such sales and
incurred other issuance costs of approximately $1.0 million, both of which were netted against the gross proceeds and recorded in additional paid
in capital. During the year ended December 31, 2020, the Company issued 560,000 shares of common stock at an average price of $50.00 per share
for gross proceeds of $28.0 million under the 2019 ATM Program. The Company paid approximately $0.4 million in fees to the 2019 ATM Sales
Agents with respect to such sales and incurred other issuance costs of approximately $0.4 million, both of which were netted against the gross
proceeds and recorded in additional paid in capital. On February 27, 2020, the 2019 ATM Program reached aggregate sales of $100,000,000 and
therefore expired.

We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for
our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month period following December 31, 2021.

Cash Flows

The following table presents selected data from our consolidated statements of cash flows for the years ended December 31, 2021, 2020

and 2019 (in thousands):

Net cash provided by operating activities ........................................................... $
Net cash provided by (used in) investing activities ............................................
Net cash provided by (used in) financing activities ............................................
Net increase (decrease) in cash, cash equivalents and restricted cash ................
Cash, cash equivalents and restricted cash, beginning of year ............................
Cash, cash equivalents and restricted cash, end of year ...................................... $

73,268 $
(235,906 )
194,319
31,681
57,015
88,696 $

57,226 $
11,503
(82,896 )
(14,167 )
71,182
57,015 $

51,366
(553,129 )
529,816
28,053
43,129
71,182

2021

For the Year Ended December 31,
2020

2019

The year ended December 31, 2021 as compared to the year ended December 31, 2020

Cash flows from operating activities. During the year ended December 31, 2021, net cash provided by operating activities was $73.3 million
compared to net cash provided by operating activities of $57.2 million for the year ended December 31, 2020. The change in cash flows from
operating activities was mainly due to an increase in total revenues of $14.4 million between the periods.

Cash flows from investing activities. During the year ended December 31, 2021, net cash used in investing activities was $235.9 million
compared to net cash provided by investing activities of $11.5 million for the year ended December 31, 2020. The change in cash flows from
investing activities was mainly due to our acquisition and disposition activity in 2021 and 2020 and the timing of the transactions.

Cash flows from financing activities. During the year ended December 31, 2021, net cash provided by financing activities was $194.3
million compared to net cash used in financing activities of $82.9 million for the year ended December 31, 2020. The change in cash flows from
financing activities was mainly due to a net increase in debt of approximately $270.5 million between the periods.

The year ended December 31, 2020 as compared to the year ended December 31, 2019

Cash flows from operating activities. During the year ended December 31, 2020, net cash provided by operating activities was $57.2 million
compared to net cash provided by operating activities of $51.4 million for the year ended December 31, 2019. The change in cash flows from
operating activities was mainly due to an increase in total revenues of $23.7 million, partially offset by increases in total property operating expenses
of $11.2 million and interest expense of $7.4 million.

Cash flows from investing activities. During the year ended December 31, 2020, net cash provided by investing activities was $11.5 million
compared to net cash used in investing activities of $553.1 million for the year ended December 31, 2019. The change in cash flows from investing
activities was mainly due to our acquisition and disposition activity in 2020 and 2019 and the timing of the transactions.

Cash flows from financing activities. During the year ended December 31, 2020, net cash used in financing activities was $82.9 million compared
to net cash provided by financing activities of $529.8 million for the year ended December 31, 2019. The change in cash flows from financing
activities was mainly due to a net decrease in debt of approximately $555.8 million between the periods.

Debt, Derivatives and Hedging Activity

Mortgage Debt

As of December 31, 2021, our subsidiaries had aggregate mortgage debt outstanding to third parties of approximately $1.3 billion at a
weighted average interest rate of 1.81% and an adjusted weighted average interest rate of 2.94%. For purposes of calculating the adjusted weighted
average interest rate of our mortgage debt outstanding, we have included the weighted average fixed rate of 1.3461% for one-month LIBOR on our
combined $1.2 billion notional amount of interest rate swap agreements, which effectively fix the interest rate on $1.2 billion of our floating rate
mortgage debt. See Notes 6 and 7 to our consolidated financial statements for additional information.

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 four
to five years and effectively establish a fixed interest rate on debt on the underlying notional amounts. The interest rate swap agreements involve
the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount. As of December 31, 2021, interest rate swap agreements effectively covered 96% of our $1.2 billion
of floating rate mortgage debt outstanding.

The interest rate cap agreements generally have a term of three to four years, cover the outstanding principal amount of the underlying debt
and are generally required by our lenders. Under the interest rate cap agreements, we pay a fixed fee in exchange for the counterparty to pay any
interest above a maximum rate. As of December 31, 2021, interest rate cap agreements covered $458.8 million of our $1.2 billion of floating rate
mortgage debt outstanding. These interest rate cap agreements effectively cap one-month LIBOR on $458.8 million of our floating rate mortgage
debt at a weighted average rate of 4.79%.

We intend to invest in additional multifamily properties 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
common stock 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 common stock or other debt
or equity securities, on terms that are acceptable to us or at all.

Furthermore, following the completion of our value-add and capital expenditures programs 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.

Amended and Restated Corporate Credit Facility

On January 28, 2019, the Company, through the OP, entered into a $75.0 million credit facility (the “Corporate Credit Facility”) with Truist
Bank, as administrative agent and the lenders party thereto, and immediately drew $52.5 million to fund a portion of the purchase price of Bella
Vista, The Enclave, and The Heritage. The Corporate Credit Facility is a full-term, interest-only facility with an initial 24-month term, has one 12-
month extension at the option of the Company, and the Company has the right to request an increase in the facility amount up to $150 million (the
“Accordion Feature”). The facility bears interest at a rate of one-month LIBOR plus a range from 2.00% to 2.50%, depending on the Company’s
leverage level as determined under the Corporate Credit Facility agreement, and is guaranteed by the Company. On June 29, 2019, the Company,
through the OP, exercised its option under the Accordion Feature of the Corporate Credit Facility and increased the amount of the facility from $75
million to $125 million. In conjunction with the increase in the facility, the Company incurred costs of $0.5 million in obtaining the additional
financing through the Accordion Feature. On August 28, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility
by $25 million, resulting in aggregate commitments of $150 million as of September 30, 2019. In conjunction with the increase in the facility, the
Company incurred costs of $0.2 million of deferred financing costs. On November 20, 2019, the Company, through the OP, increased the amount
of the Corporate Credit Facility by $75 million, resulting in aggregate commitments of $225 million as of December 31, 2019. In conjunction with
the increase in the facility, the Company incurred costs of $0.8 million of deferred financing costs. As of December 31, 2020, there was $183.0
million in aggregate principal outstanding on the Corporate Credit Facility.

On June 30, 2021, the Company, through the OP, entered into a secured $250.0 million credit facility with Truist Bank (“Truist”), as
administrative agent, and the lenders from time to time party thereto (the “Amended and Restated Corporate Credit Facility”). $225 million of the
Amended and Restated Corporate Credit Facility was a revolving credit facility and $25 million of the Amended and Restated Corporate Credit
Facility was a term loan. In addition, on June 30, 2021, in connection with entering into the Amended and Restated Corporate Credit Facility, the
Company, through the OP, terminated its $225.0 million revolving credit facility with Truist, as administrative agent, and the lenders from time to
time party thereto, prior to the maturity date of January 28, 2022. Subject to conditions provided in the Amended and Restated Corporate Credit
Facility, the Amended and Restated Corporate Credit Facility may be increased up to an additional $100.0 million (the “Accordion Feature”) if the
lenders agree to increase their commitments or if the lenders agree for the increase to be funded by any additional lender proposed by the Company,
through the OP. The Amended and Restated Corporate Credit Facility will mature on June 30, 2024 with respect to the revolving commitments,
unless the Company exercises its option to voluntarily and permanently reduce all of the revolving commitments before the maturity date or elects
to exercise its right and option to extend the facility with respect to the revolving commitments for a single one-year term. On September 9, 2021,
the Company, through the OP, modified the Amended and Restated Corporate Credit Facility to provide for an additional $35.0 million term loan
with a maturity date of December 31, 2021, increasing the Amended and Restated Corporate Credit Facility from $250 million to $285 million. In
conjunction with the increase in the facility, the Company incurred costs of $0.3 million in obtaining the additional financing through the
modification. On September 30, 2021, the Company made a $10.0 million principal payment on the term loans resulting in $275.0 million in
aggregate principal outstanding as of September 30, 2021 on the Amended and Restated Corporate Credit Facility. On November 3, 2021, the
Company made a $50.0 million principal payment on the remaining term loans maturing December 31, 2021. On December 6, 2021, the Company,
through the OP, increased the amount of the Amended and Restated Corporate Credit Facility by $55.0 million, and incurred costs of $0.4 million
of deferred financing costs in conjunction with the increase in the facility. As of December 31, 2021, there was $280.0 million in aggregate principal
outstanding on the Amended and Restated Corporate Credit Facility.

Advances under the Amended and Restated Corporate Credit Facility accrue interest at a per annum rate equal to, at the Company’s election,
either LIBOR plus a margin of 1.90% to 2.40%, depending on the Company’s total leverage ratio, or a base rate determined according to the highest
of (a) the prime rate, (b) the federal funds rate plus 0.50%, (c) LIBOR plus 1.0% or (d) 0.0% plus a margin of 0.90% to 1.40%, depending on the
Company’s total leverage ratio. An unused commitment fee at a rate of 0.15% or 0.25%, depending on the outstanding aggregate revolving
commitments, applies to unutilized borrowing capacity under the Amended and Restated Corporate Credit Facility. Amounts owing under the
Amended and Restated Corporate Credit Facility may be prepaid at any time without premium or penalty. The Amended and Restated Corporate
Credit Facility is guaranteed by the Company and the obligations under the Amended and Restated Corporate Credit Facility are, subject to some
exceptions, secured by a continuing security interest in substantially all of the assets of the Company. The Company is in compliance with all the
covenants in its Amended and Restated Corporate Credit Facility

Interest Rate Swap Agreements

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 nine interest rate swap transactions with KeyBank and two with Truist Bank (collectively the “Counterparties”) with a combined notional
amount of $1.2 billion which are effective as of December 31, 2021. As of December 31, 2021, the interest rate swaps we have entered into
effectively replace the floating interest rate (one-month LIBOR) with respect to $1.2 billion of our floating rate mortgage debt outstanding with a
weighted average fixed rate of 1.3461%. During the term of these interest rate swap agreements, we are required to make monthly fixed rate
payments of 1.3461%, on a weighted average basis, on the notional amounts, while the Counterparties are obligated to make monthly floating rate
payments based on one-month LIBOR to us referencing the same notional amounts. For purposes of hedge accounting under Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, we have designated these interest rate
swaps as cash flow hedges of interest rate risk. See Notes 6 and 7 to our consolidated financial statements for additional information.

The following table contains summary information regarding our outstanding interest rate swaps (dollars in thousands):

Effective Date
April 1, 2017
May 1, 2017
July 1, 2017
June 1, 2019
June 1, 2019
September 1, 2019
September 1, 2019
January 3, 2020
March 4, 2020
June 1, 2021
June 1, 2021

Termination Date
April 1, 2022
April 1, 2022
July 1, 2022
June 1, 2024
June 1, 2024
September 1, 2026
September 1, 2026
September 1, 2026
June 1, 2026
September 1, 2026
September 1, 2026

Counterparty
KeyBank
KeyBank
KeyBank
KeyBank
Truist
KeyBank
KeyBank
KeyBank
Truist
KeyBank
KeyBank

Notional

Fixed Rate (1)

100,000
50,000
100,000
50,000
50,000
100,000
125,000
92,500
100,000
200,000
200,000
1,167,500

1.957 %
1.961 %
1.782 %
2.002 %
2.002 %
1.462 %
1.302 %
1.609 %
0.820 %
0.845 %
0.953 %
1.346 % (2)

The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2021, one-month LIBOR was 0.10125%.

(1)
(2) Represents the weighted average fixed rate of the interest rate swaps.

As of December 31, 2021, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of

interest rate risk with future effective dates (dollars in thousands):

Effective Date
March 1, 2022
March 1, 2022
September 1, 2026

Termination Date
March 1, 2025
March 1, 2025
January 1, 2027

Counterparty
Truist
Truist
KeyBank

Notional Amount

Fixed Rate (1)

145,000
105,000
92,500
342,500

0.5730 %
0.6140 %
1.7980 %
0.9164 % (2)

(1)

The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2021, one-month LIBOR was 0.10125%.

(2) Represents the weighted average fixed rate of the forward interest rate swaps.

Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2021 for the next five calendar years
subsequent to December 31, 2021. We used one-month LIBOR as of December 31, 2021 to calculate interest expense due by period on our floating
rate debt and net interest expense due by period on our interest rate swaps.

Total

2022

Payments Due by Period (in thousands)
2025
2024
2023

2026

Thereafter

Operating Properties Mortgage Debt
Principal payments ........................................
$ 1,281,146 $
Interest expense ............................................. (1) 145,639

1,482 $ 21,198 $ 395,068 $ 205,338 $ 423,149 $ 234,911
10,864
35,228
$ 1,426,785 $ 36,710 $ 54,119 $ 423,433 $ 228,248 $ 438,500 $ 245,775

22,910

15,351

32,921

28,365

$ 280,000 $
17,785
$ 297,785 $

— $
7,125
7,125 $

— $ 280,000 $
7,126
3,534
7,126 $ 283,534 $

— $
—
— $

—
—
—

Total ........................................................

Credit Facility
Principal payments ........................................
Interest expense .............................................
Total ........................................................

Total contractual obligations and

commitments ............................................

$ 1,724,570 $ 43,835 $ 61,245 $ 706,967 $ 228,248 $ 438,500 $ 245,775

(1)

Interest expense obligations includes the impact of expected settlements on interest rate swaps which have been entered into in order to fix
the interest rate on the hedged portion of our floating rate debt obligations. As of December 31, 2021, we had entered into eleven interest
rate swap transactions with a combined notional amount of $1.2 billion. We have allocated the total impact of expected settlements on the
$1.2 billion notional amount of interest rate swaps to “Operating Properties Mortgage Debt.” We used one-month LIBOR as of December
31, 2021 to determine our expected settlements through the terms of the interest rate swaps.

Amended and Restated Corporate Credit Facility

The Amended and Restated Corporate Credit Facility will mature on June 30, 2024 with respect to the revolving commitments, unless the
Company exercises its option to voluntarily and permanently reduce all of the revolving commitments before the maturity date or elects to exercise
its right and option to extend the facility with respect to the revolving commitments for a single one-year term. During the year ended December
31, 2021, the Company repaid all of its $55M in term loans maturing December 31, 2021.

Advisory Agreement

Our Advisory Agreement requires that we pay our Adviser an annual advisory and administrative fee of 1.2%. The advisory and
administrative fees paid to the Adviser on the Contributed Assets (as defined in the Advisory Agreement) are subject to an annual cap of
approximately $5.4 million. For the years ended December 31, 2021 and 2020, the Company incurred advisory and administrative fees of $7.6
million and $7.7 million, respectively.

NLMF Holdco, LLC

The Company’s agreement with NLMF Holdco, LLC may result in additional funding requirements to cover future project costs. The
maximum exposure of potential commitments is expected to be no more than $4.0 million. We expect that these actions will provide faster, more
reliable and lower cost internet to our residents. We expect to roll out this service to our other properties in the future. As of December 31, 2021,
the Company has funded approximately $0.2 million to NLMF Holdco, LLC which is included in prepaid and other assets on the consolidated
balance sheet of the Company. For the year ended December 31, 2021, the Company incurred expenses of $0.1 million for fiber internet service
which is included in property operating expenses on the consolidated statement of operations and comprehensive income. To provide faster, more
reliable and lower cost internet to our residents, we have entered into agreements, in the form of Exhibit 10.20, with NLMF Holdco, LLC, an entity
under common control with our Adviser and in which we own a 10% equity interest and agreements, in the form of Exhibit 10.21, with NLMF
Leaseco, LLC, which is controlled by Matt McGraner, one of our officers. The foregoing description does not purport to be complete and is
qualified in its entirety by the form agreements, which are attached hereto as Exhibit 10.20 and Exhibit 10.21 and are incorporated herein by
reference.

Capital Expenditures and Value-Add Program

We anticipate incurring average annual repairs and maintenance expense of $575 to $725 per apartment unit in connection with the ongoing
operations of our business. These expenditures are expensed as incurred. In addition, we reserve, on average, approximately $250 to $350 per
apartment unit for non-recurring capital expenditures and/or lender required replacement reserves. When incurred, these expenditures are either
capitalized or expensed, in accordance with GAAP, depending on the type of the expenditure. Although we will continuously monitor the adequacy
of this average, we believe these figures to be sufficient to maintain the properties at a high level in the markets in which we operate. A majority
of the properties in our Portfolio were underwritten and acquired with the premise that we would invest $4,000 to $10,000 per unit in the first 36
months of ownership, in an effort to add value to the asset’s exterior and interiors. In many cases, we reserve cash at the closing of each acquisition
to fund these planned capital expenditures and value-add improvements. As of December 31, 2021, we had approximately $11.9 million of
renovation value-add reserves for our planned capital expenditures and other expenses to implement our value-add program, which will complete
approximately 1,226 planned interior rehabs. The following table sets forth a summary of our capital expenditures related to our value-add program
for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Rehab Expenditures

2021

For the Year Ended December 31,
2020

2019

Interior ............................................................................................................... (1) $
Exterior and common area .................................................................................
Total rehab expenditures ................................................................................

11,278 $
7,773
19,051 $

10,093
20,447
30,540

12,044
11,242
23,286

(1)

Includes total capital expenditures during the period on completed and in-progress interior rehabs. For the years ended December 31, 2021,
2020 and 2019, we completed full and partial interior rehabs on 1,264, 1,679 and 2,516 units, respectively.

Freddie Mac Multifamily Green Advantage Program

In order to obtain more favorable pricing on our mortgage debt financing with Freddie Mac, the Company decided to participate in Freddie
Mac’s Multifamily Green Advantage program (the “Green Program”). As of December 31, 2021, the Company has completed its Green Program
improvements on all but one property, which is expected to be completed in 2022. We expect to reduce water/sewer costs at each property where
the Green Program is implemented by at least 15% through the replacement of showerheads, plumbing fixtures and toilets with modern energy
efficient upgrades. Due to changes in Freddie Mac’s requirements to participate in the Green Program, we are not implementing this on acquisitions
going forward.

Income Taxes

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 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. 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. We had no significant taxes associated with our TRS
for the years ended December 31, 2021, 2020 and 2019.

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 December 31, 2021. We and our subsidiaries
are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2020, 2019 and 2018 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 common stock. 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 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 common stock 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 quarterly
dividends per share may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared our fourth
quarterly dividend of 2021 of $0.38 per share on October 29, 2021, which was paid on December 30, 2021 and funded out of cash flows from
operations.

Off-Balance Sheet Arrangements

As of December 31, 2021, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future material
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 recent 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 annual report.

Purchase Price Allocation

Upon acquisition of a property considered to be an asset acquisition, the purchase price and related acquisition costs (“total consideration”)
are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets based on relative fair value in
accordance with FASB ASC 805, Business Combinations. Acquisition costs are capitalized in accordance with FASB ASC 805.

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 and Disclosures (see Note 7 to our consolidated financial statements), is based on
management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost
of such asset, appraisals, property condition reports, market data and other related information. 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 as interest expense over the life of the debt assumed.

Impairment

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and
capitalization rates. In such cases, we will evaluate the recoverability of such real estate assets based on estimated future cash flows and the
estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the
carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. The Company’s impairment
analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a real estate investment may not be
recoverable, including determining the period the Company will hold the rental property, net operating income, and the estimated capitalization
rate for each respective real estate investment.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to a relatively low inflation rate. 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. Should inflation return, 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. Currently, interest rates are less than historical
averages. However, 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 hedges, which to date have included interest rate cap and
interest rate swap agreements.

REIT Tax Election

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 federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the years
ended December 31, 2021, 2020 and 2019. 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the adverse effect on the value of assets and liabilities that results from a change in market conditions. Our primary market
risk exposure is interest rate risk with respect to our indebtedness and counterparty credit risk with respect to our interest rate derivatives. In order
to minimize counterparty credit risk, we enter into and expect to enter into hedging arrangements only with major financial institutions that have
high credit ratings. As of December 31, 2021, we had total indebtedness of $1.6 billion at a weighted average interest rate of 1.96%, of which $1.5
billion was debt with a floating interest rate. The interest rate swap agreements we have entered into effectively fix the interest rate on 96% of our
$1.2 billion of floating rate mortgage debt outstanding (see below). As of December 31, 2021, the adjusted weighted average interest rate of our
total indebtedness was 2.93%. For purposes of calculating the adjusted weighted average interest rate of the total indebtedness, we have included
the weighted average fixed rate of 1.3461% for one-month LIBOR on the $1.2 billion notional amount of interest rate swap agreements that we
have entered into as of December 31, 2021, which effectively fix the interest rate on $1.2 billion of our floating rate mortgage debt outstanding.

An increase in interest rates could make the financing of any acquisition by us costlier. Rising interest rates could also limit our ability to
refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced
indebtedness. We may manage, or hedge, interest rate risks related to our borrowings by means of interest rate cap and interest rate swap agreements.
As of December 31, 2021, the interest rate cap agreements we have entered into effectively cap one-month LIBOR on $458.8 million of our floating
rate mortgage debt at a weighted average rate of 4.79% for the term of the agreements, which is generally 3 to 4 years. We also expect to manage
our exposure to interest rate risk by maintaining a mix of fixed and floating rates for our indebtedness.

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 eleven interest rate swap transactions with the Counterparties with a combined notional amount of $1.2 billion. The interest rate swaps we
have entered into effectively replace the floating interest rate (one-month LIBOR) with respect to that amount with a weighted average fixed rate
of 1.3461%. During the term of these interest rate swap agreements, we are required to make monthly fixed rate payments of 1.3461%, on a
weighted average basis, on the notional amounts, while the Counterparties are obligated to make monthly floating rate payments based on one-
month LIBOR to us referencing the same notional amounts. We have designated these interest rate swaps as cash flow hedges of interest rate risk.

Until our interest rates reach the caps provided by our interest rate cap agreements, each quarter point change in LIBOR would result in an
approximate increase to annual interest expense costs on our floating rate indebtedness, reduced by any payments due from the Counterparties
under the terms of the interest rate swap agreements we had entered into as of December 31, 2021, of the amounts illustrated in the table below for
our indebtedness as of December 31, 2021 (dollars in thousands):

Change in Interest Rates
0.25% ......................................................................................................... $
0.50% .........................................................................................................
0.75% .........................................................................................................
1.00% .........................................................................................................

Annual Increase to Interest Expense
810
1,620
2,430
3,240

There is no assurance that we would realize such expense as such changes in interest rates could alter our liability positions or strategies in

response to such changes.

We may also be exposed to credit risk in the derivative financial instruments we use. Credit risk is the failure of the counterparty to perform
under the terms of the derivative financial instruments. If the fair value of a derivative financial instrument is positive, the counterparty will owe
us, which creates credit risk for us. If the fair value of a derivative financial instrument is negative, we will owe the counterparty and, therefore, do
not have credit risk. We seek to minimize the credit risk in derivative financial instruments by entering into transactions with major financial
institutions that have high credit ratings.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit
rates for the calculation of LIBOR after 2021. The ARRC has proposed that SOFR is the rate that represents best practice as the alternative to USD-
LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition
plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to
derivatives and cash markets exposed to USD-LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity
and evaluating the related risks.

Item 8. Financial Statements and Supplementary Data

The information required by this Item 8 is included in our consolidated financial statements and the notes thereto beginning on page F-1 in

this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. 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 President and Chief Financial
Officer, evaluated, as of December 31, 2021, 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 President and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of December 31, 2021, 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 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.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and for our assessment of the effectiveness of internal control over financial reporting.
Our internal control over financial reporting is a process designed under the supervision of our President and our Chief Financial Officer, and
effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.

Our management, including our President and Chief Financial Officer, has conducted an assessment regarding the effectiveness of our
internal control over financial reporting as of December 31, 2021, based on the framework established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the criteria described
above, management has concluded that our internal control over financial reporting was effective as of December 31, 2021.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) that occurred during the quarter ended December 31, 2021, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

Attestation Report of the Independent Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an independent

registered public accounting firm, as stated in their report which is included herein.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate Governance

PART III

The information required in response to this Item 10 is incorporated herein by reference to our definitive proxy statement to be filed with
the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.

Item 11. Executive Compensation

The information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement to be filed with
the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement to be filed with
the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement to be filed with
the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.

Our Board has determined that Mr. Constantino’s simultaneous service on the audit committees of more than two other public companies
(NXRT, NHF and Patriot Bank N.A.) would not impair his ability to effectively serve on our audit committee. Our Board also determined that Mr.
Constantino’s service on the other companies’ audit committees did not hinder his ability to serve on our audit committee as he is currently retired
and not serving in an executive officer capacity for another company.

Item 14. Principal Accountant Fees and Services

The information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement to be filed with
the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Report:

PART IV

1. Financial Statements. See Index to Consolidated Financial Statements and Schedules of NexPoint Residential Trust, Inc. on page F-1 of

this Report.

2. Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules of NexPoint Residential Trust, Inc. on
page S-43 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the required information is included in
the financial statements or notes thereto.

3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index.

EXHIBIT INDEX

Exhibit Number

Description

1.1

Form of Equity Distribution Agreement (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-

K filed with the SEC on March 10, 2020)

1.2

Form of Master Forward Sale Agreement (incorporated by reference to Exhibit 1.2 to the Company’s Current Report on Form

8-K filed with the SEC on February 18, 2020)

2.1

Separation and Distribution Agreement (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on

Form 10 filed with the SEC on March 12, 2015)

3.1

Articles of Amendment and Restatement of NexPoint Residential Trust, Inc. (incorporated by reference to Exhibit 3.1 to the

3.2*

4.1*

10.1

10.2

10.3

10.4

10.5

Company’s Current Report on 8-K filed with the SEC on June 15, 2016)

Amended and Restated Bylaws of NexPoint Residential Trust, Inc.

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

Amended and Restated Limited Partnership Agreement of NexPoint Residential Trust Operating Partnership, L.P. (incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with
the SEC on August 1, 2017)

First Amendment to Amended and Restated Limited Partnership Agreement of NexPoint Residential Trust Operating
Partnership, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the SEC on February 19, 2019)

Advisory Agreement by and among NexPoint Residential Trust, Inc., NexPoint Residential Trust Operating Partnership, L.P.
and NexPoint Real Estate Advisors, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2015, filed with the SEC on May 15, 2015)

Amendment to Advisory Agreement, dated June 15, 2016, by and among the Company, NexPoint Residential Trust Operating
Partnership, L.P. and NexPoint Real Estate Advisors, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on 8-K filed with the SEC on June 15, 2016)

Registration Rights Agreement by and between NexPoint Residential Trust, Inc. and NexPoint Real Estate Advisors, L.P.
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2015, filed with the SEC on May 15, 2015)

10.6

Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Company’s

Registration Statement on Form 10 filed with the SEC on January 9, 2015)

10.7

NexPoint Residential Trust, Inc. 2016 Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s

Current Report on 8-K filed with the SEC on June 15, 2016)

10.8

10.9

10.10

10.11

10.12

Confirmation of swap transaction, dated May 18, 2016, from KeyBank National Association to NexPoint Residential Trust
Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the
SEC on May 19, 2016)

Confirmation of swap transaction, dated June 13, 2016, from KeyBank National Association to NexPoint Residential Trust
Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the
SEC on June 17, 2016)

Confirmation of swap transaction, dated June 30, 2016, from KeyBank National Association to NexPoint Residential Trust
Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the
SEC on July 1, 2016)

Confirmation of swap transaction, dated August 12, 2016, from KeyBank National Association to NexPoint Residential Trust
Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the
SEC on August 16, 2016)

Confirmation of swap transaction, dated March 27, 2017, from KeyBank National Association to NexPoint Residential Trust
Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with
the SEC on March 28, 2017)

10.13

10.14

10.15*

10.16

10.17

10.18

10.19

Confirmation of swap transaction, dated June 14, 2017, from KeyBank National Association to NexPoint Residential Trust
Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with
the SEC on June 15, 2017)

Form of Restricted Stock Units Agreement (Officers) for award agreements entered into prior to February 15, 2021 (incorporated
by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with
the SEC on March 15, 2017)

Form of Restricted Stock Units Agreement for award agreements entered into on or after February 15, 2021

Form of Restricted Stock Units Agreement (Directors) (incorporated by reference to Exhibit 10.13 to the Company’s Annual

Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 15, 2017)

Revolving Credit Agreement by and among NexPoint Residential Trust Operating Partnership, L.P., as Borrower, the Lenders
from time to time party thereto, and SunTrust Bank, a Georgia banking corporation, as Administrative Agent, dated as of January
28, 2019, as amended (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019, filed with the SEC on February 21, 2020)

Amended and Restated Revolving Credit Agreement, by and among NexPoint Residential Trust Operating Partnership, L.P., as
borrower, the lenders from time to time party thereto and Truist Bank, as administrative agent, dated as of June 30, 2021
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 1, 2021)

September 2021 Modification of Loan Documents, dated September 9, 2021, by and among NexPoint Residential Trust
Operating Partnership, L.P., NexPoint Residential Trust, Inc., Truist Bank and the pledgors and lenders party to thereto
(incorporated by reference to Exhibit 10.3 on the Company’s Quarterly Report on Form 10-Q for the period ended September
30, 2021 filed with the SEC on November 3, 2021)

10.20

Form of Easement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report for the quarter ended June 30,

2021, filed with the SEC on July 30, 2021)

10.21

Form of Onboarding Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report for the quarter

21.1*

23.1*

31.1*

31.2*

32.1+

ended June 30, 2021, filed with the SEC on July 30, 2021)

List of Subsidiaries of NexPoint Residential Trust, Inc.

Consent of KPMG LLP

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer 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 (The instance document does not appear in the interactive data file because its XBRL tags are

embedded within the inline XBRL document)

101.SCH*

Inline XBRL Taxonomy Extension Schema

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE*104*

Inline XBRL Taxonomy Extension Presentation Linkbase

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

*
+

Filed herewith.
Furnished herewith.

Pursuant to the requirements of Section 13 or 15(d) 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.

SIGNATURES

February 17, 2022

NEXPOINT RESIDENTIAL TRUST, INC.

/s/ Jim Dondero
Jim Dondero
President (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf

of the registrant and in the capacities and on the dates indicated.

Signature

Title

President and Director
(Principal Executive Officer)

Date

February 17, 2022

/s/ Jim Dondero
Jim Dondero

/s/ Brian Mitts
Brian Mitts

/s/ Edward Constantino
Edward Constantino

/s/ Dr. Arthur Laffer
Dr. Arthur Laffer

/s/ Scott Kavanaugh
Scott Kavanaugh

/s/ Catherine Wood
Catherine Wood

Chief Financial Officer and Director
(Principal Financial Officer and Principal Accounting Officer)

February 17, 2022

Director

February 17, 2022

This page intentionally left blank

INDEX TO FINANCIAL STATEMENTS

Page

Financial Statements

NexPoint Residential Trust, Inc.—Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID # 185) ....................................................................................

F-2

Consolidated Balance Sheets as of December 31, 2021 and 2020 ...........................................................................................................

F-5

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020

and 2019 .............................................................................................................................................................................................

F-6

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 .........................................

F-7

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019........................................................

F-8

Notes to Consolidated Financial Statements............................................................................................................................................

F-10

Financial Statements Schedules

Schedule III—Real Estate and Accumulated Depreciation .....................................................................................................................

S-1

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
NexPoint Residential Trust, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of NexPoint Residential Trust, Inc., and subsidiaries (the Company) as of December
31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement Schedule III Real Estate and
Accumulated Depreciation (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 17, 2022
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.

F-2

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical
audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allocation of purchase price to land in asset acquisitions

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company acquired certain real estate properties and accounted for
them as asset acquisitions during the year ended December 31, 2021. The purchase price in each asset acquisition was allocated to the assets
acquired and liabilities assumed based on their relative fair values.

We identified the evaluation of the allocation of purchase price to land in asset acquisitions as a critical audit matter. Specifically, there was
a high degree of subjective auditor judgment and specialized skills and knowledge involved in evaluating the relevance of comparable land
sales used by the Company to determine the fair values of land.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls related to the Company’s purchase price allocation process, including a control related to the
evaluation of publicly available comparable land sales used to determine the fair value of land. We also involved valuation professionals with
specialized skills and knowledge who assisted in assessing the relevance of the Company’s selected comparable land sales and comparing
them to publicly available data for other comparable land sales.

/s/ KPMG LLP

We have served as the Company’s auditor since 2014.

Dallas, Texas
February 17, 2022

F-3

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
NexPoint Residential Trust, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited NexPoint Residential Trust, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31,
2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and
comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and
the related notes and financial statement Schedule III Real Estate and Accumulated Depreciation (collectively, the consolidated financial
statements), and our report dated February 17, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We
are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Dallas, Texas
February 17, 2022

F-4

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

December 31, 2021

December 31, 2020

Operating Real Estate Investments

ASSETS

Land .............................................................................................................................................. $
Buildings and improvements .........................................................................................................
Intangible lease assets ...................................................................................................................
Construction in progress ................................................................................................................
Furniture, fixtures, and equipment .................................................................................................
Total Gross Operating Real Estate Investments ...............................................................................
Accumulated depreciation and amortization .................................................................................
Total Net Real Estate Investments ....................................................................................................
Cash and cash equivalents .............................................................................................................
Restricted cash ...............................................................................................................................
Accounts receivable, net ................................................................................................................
Prepaid and other assets .................................................................................................................
Fair market value of interest rate swaps ........................................................................................
TOTAL ASSETS ............................................................................................................................ $

Liabilities:

LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgages payable, net .................................................................................................................. $
Credit facility, net ..........................................................................................................................
Accounts payable and other accrued liabilities ..............................................................................
Accrued real estate taxes payable ..................................................................................................
Accrued interest payable ...............................................................................................................
Security deposit liability ................................................................................................................
Prepaid rents ..................................................................................................................................
Fair market value of interest rate swaps ........................................................................................
Total Liabilities ...............................................................................................................................

375,857 $
1,743,866
2,576
6,078
120,419
2,248,796
(287,096 )
1,961,700
49,450
39,246
4,844
4,701
3,526
2,063,467 $

1,276,285 $
278,215
12,590
13,182
2,491
2,945
1,775
—
1,587,483

323,429
1,544,115
1,675
10,796
96,228
1,976,243
(215,494 )
1,760,749
24,457
32,558
9,045
2,405
—
1,829,214

1,162,855
182,323
10,058
12,822
2,274
2,688
1,639
43,530
1,418,189

Redeemable noncontrolling interests in the Operating Partnership ..................................................

6,139

3,098

Stockholders' Equity:

Preferred stock, $0.01 par value: 100,000,000 shares authorized; 0 shares issued ........................
Common stock, $0.01 par value: 500,000,000 shares authorized; 25,500,567 and 25,016,957

shares issued and outstanding, respectively ................................................................................
Additional paid-in capital ..............................................................................................................
Accumulated earnings less dividends ............................................................................................
Accumulated other comprehensive income (loss) .........................................................................
Total Stockholders' Equity ............................................................................................................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................................... $

—

255
407,803
59,209
2,578
469,845
2,063,467 $

250
376,710
75,321
(44,354 )
407,927
1,829,214

See Notes to Consolidated Financial Statements

F-5

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)

Revenues

Rental income ........................................................................................................ $
Other income .........................................................................................................
Total revenues ..........................................................................................................
Expenses

Property operating expenses ..................................................................................
Real estate taxes and insurance .............................................................................
Property management fees (1) ...............................................................................
Advisory and administrative fees (2) .....................................................................
Corporate general and administrative expenses .....................................................
Property general and administrative expenses .......................................................
Depreciation and amortization ...............................................................................
Total expenses ..........................................................................................................
Operating income before gain on sales of real estate ...........................................
Gain on sales of real estate ....................................................................................
Operating income ...................................................................................................
Interest expense .....................................................................................................
Loss on extinguishment of debt and modification costs ........................................
Casualty gain (loss) ...............................................................................................
Miscellaneous income ...........................................................................................
Net income ...............................................................................................................
Net income attributable to redeemable noncontrolling interests in the

Operating Partnership .......................................................................................
Net income attributable to common stockholders ............................................... $
Other comprehensive income (loss)

Unrealized gains (losses) on interest rate derivatives ............................................
Total comprehensive income (loss) ........................................................................
Comprehensive income (loss) attributable to redeemable noncontrolling

interests in the Operating Partnership .............................................................
Comprehensive income (loss) attributable to common stockholders ................. $

2021

For the Year Ended December 31,
2020

2019

213,505 $
5,735
219,240

199,237
5,563
204,800

177,162
3,904
181,066

47,739
33,152
6,334
7,631
11,966
7,332
86,878
201,032
18,208
46,214
64,422
(44,623 )
(912 )
2,595
1,624
23,106

47,201
31,709
5,971
7,670
10,035
6,239
82,411
191,236
13,564
69,151
82,715
(44,753 )
(1,470 )
5,886
1,772
44,150

42,692
25,113
5,388
7,500
9,613
6,765
69,086
166,157
14,909
127,684
142,593
(37,385 )
(2,869 )
(3,488 )
587
99,438

69
23,037 $

132
44,018

298
99,140

47,073
70,179

(46,961 )
(2,811 )

(14,625 )
84,813

210
69,969 $

(9 )
(2,802 )

Weighted average common shares outstanding – basic .......................................
Weighted average common shares outstanding – diluted ...................................

25,170
25,760

24,715
25,234

Earnings per share – basic ..................................................................................... $
Earnings per share – diluted .................................................................................. $

0.92 $
0.89 $

1.78
1.74

$
$

(1)

(2)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the Company’s Operating Partnership
(see Note 10).
Fees incurred to the Adviser (see Note 11).

See Notes to Consolidated Financial Statements

F-6

254
84,559

24,116
24,593

4.11
4.03

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in thousands, except share and per share amounts)

Balances, January 1, 2019 ...........................

— $

Preferred Stock

Common Stock

Number of
Shares

Par Value

Number of
Shares
— 23,499,635 $

Additional
Paid-in
Capital
234 $ 285,511 $

Accumulated
Earnings
(Loss)
Less
Dividends

Accumulated
Other
Comprehensive
Income (Loss)

Common
Stock
Held in
Treasury
at Cost

Total

(6,764 ) $

17,047 $

— $ 296,028

Net income attributable to common

stockholders ............................................
Vesting of stock-based compensation ........
Issuance of common shares through at-

the-market offering .................................
Common stock dividends declared ............
Other comprehensive loss ..........................
Adjustment to reflect redemption value of
redeemable noncontrolling interests in
the Operating Partnership .......................
Balances, December 31, 2019 ......................

Net income attributable to common

stockholders ............................................
Repurchases of common stock ..................
Retirement of common stock held in

treasury ...................................................
Vesting of stock-based compensation ........
Issuance of common shares through at-

Net income attributable to common

stockholders ............................................
Vesting of stock-based compensation ........
Issuance of common shares through at-

the-market offering .................................
Common stock dividends declared ............
Other comprehensive income ....................
Adjustment to reflect redemption value of
redeemable noncontrolling interests in
the Operating Partnership .......................
Balances, December 31, 2021 ......................

—
—

—
—
—

—
—

—
180,783

— 1,565,322
—
—
—
—

—
1

16
—
—

—
4,379

99,140
—

—
—

99,140
4,380

69,858
—
—

—
(28,219 )
—

—
—
(14,581 )

—
—
—

69,874
(28,219 )
(14,581 )

—
— $

—
—
— 25,245,740 $

—
—
251 $ 359,748 $

(381 )
63,776 $

—
2,466 $

—
(381 )
— $ 426,241

—
—

—
—
—

—
— $

—
—

—
—
—

—
—

44,018
—

-
—

—
(44,530 )

44,018
(44,530 )

— (1,644,697 )
137,608
—

(16 )
1

(44,514 )
3,772

—
—

44,530
—

—
3,773

— 1,278,306
—
—
—
—

14
—
—

57,704
—
—

—
(32,564 )
—

—
—
(46,820 )

—
—
—

57,718
(32,564 )
(46,820 )

—
—
— 25,016,957 $

—
—
250 $ 376,710 $

91
75,321 $

—
(44,354 ) $

—
91
— $ 407,927

—
—

—
133,097

—
—
—

350,513
—
—

—
1

4
—
—

—
5,507

23,037
—

—
—

23,037
5,508

25,586
—
—

—
(36,243 )
—

—
—
46,932

—
—
—

25,590
(36,243 )
46,932

—
— $

—
—
— 25,500,567 $

—
—
255 $ 407,803 $

(2,906 )
59,209 $

—
2,578 $

(2,906 )
—
— $ 469,845

See Notes to Consolidated Financial Statements

F-7

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

For the Year Ended December 31,
2020

2019

2021

23,106 $

44,150 $

99,438

(69,151 )
82,411
4,354
9,370
(7,859 )
(202 )
2,710
5,504
1,468
(605 )
(7,125 )

(4,866 )
(2,933 )
57,226

140,197
(1,495 )
7,544
(49,977 )
(84,766 )
11,503

46,464
(71,914 )
35,000
(70,000 )
(861 )
(35 )
(711 )

57,718
(1,731 )
(44,530 )
(32,296 )
(82,896 )

(14,167 )
71,182
57,015 $

(127,684 )
69,086
3,502
(6,442 )
6,842
(148 )
906
5,130
—
—
3,488

(1,256 )
(1,496 )
51,366

286,479
(600 )
2,500
(44,159 )
(797,349 )
(553,129 )

423,149
(145,821 )
255,000
(37,000 )
(5,120 )
(20 )
(1,449 )

69,874
(751 )
—
(28,046 )
529,816

28,053
43,129
71,182

Cash flows from operating activities
Net income .................................................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating activities:

Gain on sales of real estate ........................................................................................................
Depreciation and amortization ..................................................................................................
Amortization/write-off of deferred financing costs ..................................................................
Change in fair value on derivative instruments included in interest expense ..........................
Net cash received (paid) on derivative settlements ..................................................................
Amortization/write-off of fair market value adjustment of assumed debt ...............................
Provision for bad debts, net .......................................................................................................
Vesting of stock-based compensation .......................................................................................
Insurance proceeds received for business interruption .............................................................
Insurance proceeds paid for business interruption ....................................................................
Casualty losses (gains) ..............................................................................................................

Changes in operating assets and liabilities, net of effects of acquisitions:

Operating assets .........................................................................................................................
Operating liabilities ...................................................................................................................
Net cash provided by operating activities ..........................................................................

Cash flows from investing activities

Net proceeds from sales of real estate .......................................................................................
Insurance premiums paid for casualty losses ............................................................................
Insurance proceeds received from casualty losses ....................................................................
Additions to real estate investments ..........................................................................................
Acquisitions of real estate investments .....................................................................................
Net cash provided by (used in) investing activities ...........................................................

Cash flows from financing activities

Mortgage proceeds received .....................................................................................................
Mortgage payments ...................................................................................................................
Credit facilities proceeds received ............................................................................................
Credit facilities payments ..........................................................................................................
Deferred financing costs paid ....................................................................................................
Interest rate cap fees paid ..........................................................................................................
Prepayment penalties on extinguished debt ..............................................................................
Proceeds from the issuance of common shares through at-the-market offering, net of

offering costs ..........................................................................................................................
Payments for taxes related to net share settlement of stock-based compensation ...................
Repurchase of common stock ...................................................................................................
Dividends paid to common stockholders ..................................................................................
Net cash provided by (used in) financing activities ...........................................................

(46,214 )
86,878
3,131
14,952
(14,909 )
(203 )
3,921
6,997
1,457
—
(4,503 )

(3,536 )
2,191
73,268

90,236
(1,591 )
8,792
(43,006 )
(290,337 )
(235,906 )

154,630
(41,562 )
340,000
(243,000 )
(3,267 )
(372 )
(407 )

25,590
(1,489 )
—
(35,804 )
194,319

Net increase (decrease) in cash, cash equivalents and restricted cash .........................................
Cash, cash equivalents and restricted cash, beginning of year ....................................................
Cash, cash equivalents and restricted cash, end of year ............................................................... $

31,681
57,015
88,696 $

See Notes to Consolidated Financial Statements

F-8

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Supplemental Disclosure of Cash Flow Information

Interest paid .............................................................................................................................. $

27,391 $

34,165 $

41,053

Supplemental Disclosure of Noncash Activities

Capitalized construction costs included in accounts payable and other accrued liabilities ....
Change in fair value on derivative instruments designated as hedges ....................................
Other assets acquired from acquisitions...................................................................................
Liabilities assumed from acquisitions ......................................................................................
Fair market value adjustment of assumed debt ........................................................................
Assumed debt on acquisitions ..................................................................................................
Increase in dividends payable upon vesting of restricted stock units ......................................
Write-off of assets due to casualty losses ................................................................................
Write-off of fully amortized in-place leases ............................................................................
Write-off of deferred financing costs .......................................................................................

2,913
47,073
164
571
—
—
439
2,028
3,647
503

2,713
(46,961 )
31
44
—
—
268
1,297
12,414
756

3,776
(14,625 )
758
6,608
980
70,486
173
7,838
8,181
1,419

See Notes to Consolidated Financial Statements

F-9

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

NexPoint Residential Trust, Inc. (the “Company”, “we”, “our”) was incorporated in Maryland on September 19, 2014, and has elected to be
taxed as a real estate investment trust (“REIT”). The Company is focused on “value-add” multifamily investments primarily located in the Southeastern
and Southwestern United States. Substantially all of the Company’s business is conducted through NexPoint Residential Trust Operating Partnership,
L.P. (the “OP”), the Company’s operating partnership. The Company owns its properties (the “Portfolio”) through the OP and its wholly owned taxable
REIT subsidiary (“TRS”). The OP owns approximately 99.9% of the Portfolio; the TRS owns approximately 0.1% of the Portfolio. The Company’s
wholly owned subsidiary, NexPoint Residential Trust Operating Partnership GP, LLC (the “OP GP”), is the sole general partner of the OP. As of
December 31, 2021, there were 23,819,402 common units in the OP (“OP Units”) outstanding, of which 23,746,169, or 99.7%, were owned by the
Company and 73,233, or 0.3%, were owned by a noncontrolling limited partner (see Note 10).

The Company is externally managed by NexPoint Real Estate Advisors, L.P. (the “Adviser”), through an agreement dated March 16, 2015,
as amended, and renewed on February 14, 2022 for a one-year term (the “Advisory Agreement”), by and among the Company, the OP and the
Adviser. The Adviser conducts substantially all of the Company’s operations and provides asset management services for its real estate investments.
The Company expects it will only have accounting employees while the Advisory Agreement is in effect. All of the Company’s investment
decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and the Company’s board of directors (the
“Board”). The Adviser is wholly owned by NexPoint Advisors, L.P. (the “Sponsor”).

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 value-add program. Consistent with the Company’s policy to acquire assets for both income and capital gain, the Company intends to hold
at least majority interests in its properties for long-term appreciation and to engage in the business of directly or indirectly acquiring, owning, and
operating well-located multifamily properties with a value-add component in large cities and suburban submarkets of large cities primarily in the
Southeastern and Southwestern United States consistent with its investment objectives. Economic and market conditions may influence the
Company to hold properties for different periods of time. From time to time, the Company may sell a property if, among other deciding factors,
the sale would be in the best interest of its stockholders.

2. Summary of Significant Accounting Policies

Basis of Accounting

The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the
United States (“GAAP”). 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. All significant intercompany accounts and transactions
have been eliminated in consolidation. There have been no significant changes to the Company’s significant accounting policies during the year
ended December 31, 2021.

Principles of Consolidation

The Company accounts for subsidiary partnerships, 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. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.
The consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP and its subsidiaries.

F-10

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. Rental income is recognized when earned. This policy effectively results in income recognition on the straight-line method over the
related terms of the leases. The Company records an allowance to reflect revenue that may not be collectable. This is recorded through a provision
for bad debts which is included in rental income in the accompanying consolidated statements of operations and comprehensive income (loss).
Resident reimbursements and other income consist of charges billed to residents for utilities, carport and garage rental, and pets, administrative,
application and other fees and are recognized when earned. The Company implemented the provisions of Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) as of January 1, 2019 using the modified retrospective approach. The adoption
of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements as a substantial portion of its revenue consists
of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (“ASU 2018-11”), which provides entities with relief from
the costs of implementing certain aspects of ASU 2016-02. ASU 2018-11 provides a practical expedient that allows lessors to not separate lease
and non-lease components in a contract and allocate the consideration in the contract to the separate components if both (i) the timing and pattern
of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component
would be classified as an operating lease. The Company elected the practical expedient to account for lease and non-lease components as a single
component in lease contracts where the Company is the lessor. The Company implemented the provisions of ASU 2018-11 and 2016-02,
collectively Topic 842 Leases (“ASC 842”), effective January 1, 2019, and elected the transition option that the ASU provides which permits
entities to not recast the comparative periods presented when transitioning to the standard. The Company implemented changes to its business
processes and controls related to accounting for and the presentation and disclosure of leases in the consolidated statements of operations and began
presenting all rentals and reimbursements from tenants as a single line item within rental income on the consolidated statements of operations and
comprehensive income (loss).

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, Leases. 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.

Purchase Price Allocation

Upon acquisition of a property considered to be an asset acquisition, the purchase price and related acquisition costs (“total consideration”)
are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets in accordance with FASB ASC 805,
Business Combinations. Acquisition costs are capitalized in accordance with FASB ASC 805.

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 and Disclosures (“ASC 820”) (see Note 7), is based on management’s estimate of the
property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost of such asset, appraisals,
property condition reports, market data and other related information. The allocation of the total consideration to intangible lease assets represents
the value associated with the in-place leases, which may include lost rent, leasing commissions, legal and other related costs, which the Company,
as buyer of the property, did not have to incur to obtain the residents. 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 as interest expense over the life of the debt assumed.

F-11

Real estate assets, including land, buildings, improvements, furniture, fixtures and equipment, 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. 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 ........................................................................................ 30 years
Improvements ................................................................................. 15 years
Furniture, fixtures, and equipment .................................................. 3 years
Intangible lease assets .................................................................... 6 months

Construction in progress includes the cost of renovation projects being performed at the various properties. Once a project is complete, the
historical cost of the renovation is placed into service in one of the categories above depending on the type of renovation project and is depreciated
over the estimated useful lives as described in the table above.

Impairment

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and
capitalization rates. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows and
the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the
carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. The Company’s impairment
analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a real estate investment may not be
recoverable, including determining the period the Company will hold the rental property, net operating income, and the estimated capitalization
rate for each respective real estate investment.

As of December 31, 2021, the Company has not recorded any impairment on its real estate assets. However, we continue to monitor the

impact of COVID-19 (see “—Coronavirus (‘COVID-19’)” for additional information, below).

Held for Sale

The Company periodically classifies real estate assets as held for sale when certain criteria are met, in accordance with GAAP. At that time,
the Company presents the net real estate assets and the net debt associated with the real estate held for sale 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 December 31, 2021, there are no properties held for sale.

Income Taxes

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (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.
As a REIT, the Company will be subject to federal income tax on its undistributed REIT taxable income and net capital gain and to a 4%
nondeductible excise tax on any amount 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 years ended December 31, 2021, 2020 and 2019.

If the Company fails to meet these requirements, it could be subject to 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 December 31, 2021, the
Company believes it is in compliance with all applicable REIT requirements.

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.

F-12

The Company recognizes its tax positions and evaluates them using a two-step process. First, the Company determines 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, the Company will determine the amount of benefit to recognize and record the amount that is more likely
than not to be realized upon ultimate settlement.

The Company had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2021. The Company
and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2020, 2019 and 2018 tax
years remain open to examination by tax jurisdictions to which the Company and its subsidiaries are subject. When applicable, the Company
recognizes interest and/or penalties related to uncertain tax positions on its consolidated statements of operations and comprehensive income (loss).

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. The Company has 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 will continue to evaluate the impact of the guidance and may apply other elections as applicable as additional
changes in the market occur.

Coronavirus (“COVID-19”)

As a result of the COVID-19 pandemic, the Company may experience difficulties collecting monthly rent on time, leasing additional apartment
units and/or renewing leases with existing tenants, selling or purchasing properties and accessing debt and equity capital on attractive terms, or at all.
To date, the Company has not been materially impacted by the COVID-19 pandemic and will continue to monitor the impact of the COVID-19
pandemic on all aspects of its business. For additional information regarding the risks to the Company related to the COVID-19 pandemic, or any other
future pandemic. See “Item 1A. Risk factors” within “Part I” in this annual report on Form 10-K for additional discussion of the risks posed by the
COVID-19 pandemic.

3. Investments in Subsidiaries

The Company conducts its operations through the OP, which owns properties through single asset limited liability companies that are
special purpose entities (“SPEs”). The Company consolidates the SPEs that it controls as well as any VIEs where it is the primary beneficiary. The
Company controls and consolidates the OP as a VIE. In connection with its indirect equity investments in the properties acquired, the Company,
through the OP and the TRS, directly or indirectly holds 100% of the membership interests in SPEs that directly own the properties. All of the
properties the SPEs own 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.

Additionally, the Company has in the past and may in the future enter into purchase and sale transactions structured as reverse like-kind
exchanges (“1031 Exchanges”) under Section 1031 of the Code. For a reverse 1031 Exchange in which the Company purchases a new property
prior to selling the property to be matched in the like-kind exchange (the Company refers to the new property being acquired in the 1031 Exchange
prior to the sale of the related property as a “Parked Asset”), legal title to the Parked Asset is held by an Exchange Accommodation Titleholder
(“EAT”) engaged to execute the 1031 Exchange until the sale transaction and the 1031 Exchange are completed. The Company, through a wholly
owned subsidiary, enters into a master lease agreement with the EAT whereby the EAT leases the acquired property and all other rights acquired
in connection with the acquisition to the Company. The term of the master lease agreement is the earlier of the completion of the reverse 1031
Exchange or 180 days from the date that the property was acquired. The EAT is classified as a VIE as it does not have sufficient equity investment
at risk to finance its activities without additional subordinated financial support. The Company consolidates the EAT as its primary beneficiary
because it has the ability to control the activities that most significantly impact the EAT’s economic performance and the Company retains all of
the legal and economic benefits and obligations related to the Parked Assets prior to completion of the 1031 Exchange. As such, the Parked Assets
are included in the Company’s consolidated financial statements as VIEs until legal title and control is transferred to the Company upon either
completion of the 1031 Exchange or termination of the master lease agreement, at which time they will be consolidated as wholly owned
subsidiaries.

F-13

As of December 31, 2021, the Company, through the OP and the wholly owned TRS, owned 39 properties through SPEs. The following
table represents the Company’s ownership in each property by virtue of its 100% ownership of the SPEs that directly own the title to each property
as of December 31, 2021 and 2020:

Property Name

Location

Year Acquired

2021

2020

Effective Ownership Percentage at December 31,

2014
2014
2014
2014
2014
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2016
2016
2016
2016
2017
2017
2017
2018
2018
2018
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2020
2021
2021
2021
2021

100 %
100 %
100 %
—
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
—
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %

100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %

— (5)
— (5)
— (5)
— (5)

Fort Worth, Texas

Arbors on Forest Ridge ......................... Bedford, Texas
Cutter's Point ......................................... Richardson, Texas
Silverbrook ............................................ Grand Prairie, Texas
Beechwood Terrace ............................... (1) Antioch, Tennessee
The Summit at Sabal Park ..................... Tampa, Florida
Courtney Cove ....................................... Tampa, Florida
Radbourne Lake .................................... Charlotte, North Carolina
Timber Creek ......................................... Charlotte, North Carolina
Sabal Palm at Lake Buena Vista ............ Orlando, Florida
Cornerstone ........................................... Orlando, Florida
The Preserve at Terrell Mill................... Marietta, Georgia
Versailles ............................................... Dallas, Texas
Seasons 704 Apartments ........................ West Palm Beach, Florida
Madera Point ......................................... Mesa, Arizona
Venue at 8651 ........................................
Parc500 .................................................. West Palm Beach, Florida
The Venue on Camelback ..................... (2) Phoenix, Arizona
Old Farm ............................................... Houston, Texas
Stone Creek at Old Farm ....................... Houston, Texas
Hollister Place ....................................... Houston, Texas
Rockledge Apartments .......................... Marietta, Georgia
Atera Apartments .................................. Dallas, Texas
Cedar Pointe .......................................... (1) Antioch, Tennessee
Crestmont Reserve ................................ Dallas, Texas
Brandywine I & II ................................. Nashville, Tennessee
Bella Vista .............................................
Phoenix, Arizona
The Enclave ........................................... Tempe, Arizona
The Heritage ..........................................
Phoenix, Arizona
Summers Landing..................................
Fort Worth, Texas
Residences at Glenview Reserve ........... Nashville, Tennessee
Residences at West Place ...................... Orlando, Florida
Avant at Pembroke Pines .......................
Arbors of Brentwood ............................. Nashville, Tennessee
Torreyana Apartments ........................... (3) Las Vegas, Nevada
Bloom .................................................... (3) Las Vegas, Nevada
Bella Solara ........................................... (3) Las Vegas, Nevada
Fairways at San Marcos......................... Chandler, AZ
The Verandas at Lake Norman .............. (4) Charlotte, North Carolina
Creekside at Matthews .......................... (4) Charlotte, North Carolina
Six Forks Station ................................... Raleigh, North Carolina
Hudson High House .............................. Cary, North Carolina

Pembroke Pines, Florida

(1)
(2)

Property was sold in 2021.
Formerly known as The Colonnade.

F-14

(3)

(4)

(5)

The EAT that directly owned Torreyana, Bloom and Bella Solara was consolidated as a VIE at December 31, 2019. The master lease
agreement with the EAT that directly owned these properties terminated on March 31, 2020, at which time legal title transferred to the
Company. Upon the transfer of the title, the EAT that directly owned these properties was no longer considered a VIE.
The EAT that directly owned The Verandas at Lake Norman and Creekside at Matthews was consolidated as a VIE at June 30, 2021 giving
the Company an effective 100% ownership interest. The master lease agreement with the EAT that directly owned these properties
terminated on December 28, 2021, at which time legal title transferred to the Company. Upon the transfer of title, the EAT that directly
owned these properties was no longer considered a VIE.
Properties were acquired in 2021; therefore, no ownership as of December 31, 2020.

F-15

4. Real Estate Investments Statistics

As of December 31, 2021, the Company was invested in a total of 39 multifamily properties, as listed below:

Property Name

Arbors on Forest Ridge ......
Cutter's Point ......................
Silverbrook .........................
The Summit at Sabal Park .
Courtney Cove ...................
Radbourne Lake .................
Timber Creek .....................
Sabal Palm at Lake Buena

Rentable Square
Footage

(in thousands)*
155
198
526
205
225
247
248

Vista ...............................
Cornerstone ........................
The Preserve at Terrell

Mill ................................
Versailles ............................
Seasons 704 Apartments ....
Madera Point ......................
Venue at 8651 ....................
Parc500 ..............................
The Venue on Camelback ..
Old Farm ............................
Stone Creek at Old Farm ...
Hollister Place ....................
Rockledge Apartments .......
Atera Apartments ...............
Crestmont Reserve .............
Brandywine I & II ..............
Bella Vista ..........................
The Enclave .......................
The Heritage ......................
Summers Landing ..............
Residences at Glenview

Reserve ..........................
Residences at West Place...
Avant at Pembroke Pines ...
Arbors of Brentwood .........
Torreyana Apartments .......
Bloom .................................
Bella Solara ........................
Fairways at San Marcos .....
The Verandas at Lake

Norman .......................... (4)
Creekside at Matthews ....... (4)
Six Forks Station ................ (4)
Hudson High House ........... (4)

371
318

692
301
217
193
289
266
256
697
186
246
802
334
199
414
243
194
199
139

344
345
1,442
325
309
498
271
340

241
263
360
293

Number
of
Units*(3)

210
196
642
252
324
225
352

Date
Acquired
1/31/2014
1/31/2014
1/31/2014
8/20/2014
8/20/2014
9/30/2014
9/30/2014

400
430

11/5/2014
1/15/2015

752
388
222
256
333
217
415
734
190
260
708
380
242
632
248
204
204
196

360
342
1520
346
316
528
320
352

264
240
323
302

2/6/2015
2/26/2015
4/15/2015
8/5/2015
10/30/2015
7/27/2016
10/11/2016
12/29/2016
12/29/2016
2/1/2017
6/30/2017
10/25/2017
9/26/2018
9/26/2018
1/28/2019
1/28/2019
1/28/2019
6/7/2019

7/17/2019
7/17/2019
8/30/2019
9/10/2019
11/22/2019
11/22/2019
11/22/2019
11/2/2020

6/30/2021
6/30/2021
9/10/2021
12/7/2021

Average Effective Monthly
Rent Per Unit
as of December 31,*(1)

% Occupied as of December 31,*(2)

2021

2020

2021

2020

1,021 $
1,219
1,043
1,198
1,132
1,227
1,032

1,377
1,152

1,156
1,024
1,410
1,140
1,006
1,543
915
1,207
1,248
1,065
1,408
1,310
985
1,031
1,515
1,507
1,432
1,033

1,074
1,345
1,695
1,284
1,365
1,238
1,309
1,425

1,215
1,350
1,228
1,361

917
1,112
926
1,033
946
1,137
949

1,259
1,056

1,006
925
1,209
980
933
1,340
821
1,133
1,194
1,007
1,261
1,247
895
960
1,320
1,355
1,298
941

993
1,214
1,515
1,194
1,184
1,120
1,128
1,232

—
—
—
—

96.2 %
95.4 %
94.1 %
96.0 %
93.8 %
94.2 %
96.1 %

97.8 %
95.6 %

90.9 %
96.4 %
96.8 %
94.5 %
94.5 %
96.3 %
92.3 %
93.9 %
96.8 %
92.5 %
93.9 %
93.9 %
95.5 %
95.6 %
96.0 %
96.6 %
95.6 %
93.9 %

95.6 %
93.0 %
93.9 %
95.1 %
93.7 %
89.2 %
91.3 %
96.3 %

93.2 %
94.2 %
95.4 %
94.7 %

94.3 %
95.0 %
94.9 %
96.0 %
93.5 %
89.8 %
93.5 %

95.0 %
91.2 %

95.5 %
94.3 %
98.6 %
93.8 %
93.4 %
97.7 %
93.7 %
92.1 %
92.1 %
91.2 %
95.5 %
92.1 %
98.8 %
94.3 %
95.6 %
97.5 %
94.1 %
95.9 %

92.8 %
90.1 %
94.4 %
91.3 %
93.0 %
94.1 %
91.6 %
96.0 %

—
—
—
—

13,391

14,825

Information is unaudited.

*
(1) Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31, 2021 and
December 31, 2020, respectively, minus any tenant concessions over the term of the lease, divided by the number of units under commenced
leases as of December 31, 2021 and December 31, 2020, respectively.
Percent occupied is calculated as the number of units occupied as of December 31, 2021 and 2020, divided by the total number of units,
expressed as a percentage.

(2)

F-16

(3)
(4)

Includes 50 down units due to casualty events as of December 31, 2021 (see Note 5).
Properties were acquired in 2021.

5. Real Estate Investments

As of December 31, 2021, the major components of the Company’s investments in multifamily properties were as follows (in thousands):

Operating Properties
Arbors on Forest Ridge .........................
Cutter's Point .........................................
Silverbrook ............................................
The Summit at Sabal Park ....................
Courtney Cove ......................................
Radbourne Lake ....................................
Timber Creek ........................................
Sabal Palm at Lake Buena Vista ...........
Cornerstone ...........................................
The Preserve at Terrell Mill ..................
Versailles ...............................................
Seasons 704 Apartments .......................
Madera Point .........................................
Venue at 8651 .......................................
Parc500..................................................
The Venue on Camelback .....................
Old Farm ...............................................
Stone Creek at Old Farm ......................
Hollister Place .......................................
Rockledge Apartments ..........................
Atera Apartments ..................................
Crestmont Reserve ................................
Brandywine I & II .................................
Bella Vista .............................................
The Enclave ..........................................
The Heritage ..........................................
Summers Landing .................................
Residences at Glenview Reserve ..........
Residences at West Place ......................
Avant at Pembroke Pines ......................
Arbors of Brentwood ............................
Torreyana Apartments ..........................
Bloom ....................................................
Bella Solara ...........................................
Fairways at San Marcos ........................
The Verandas at Lake Norman .............
Creekside at Matthews ..........................
Six Forks Station ...................................
Hudson High House ..............................

Accumulated depreciation and

Land

Buildings and
Improvements

Intangible Lease
Assets

Construction in
Progress

Furniture,
Fixtures and
Equipment

Totals

2,330
3,330
4,860
5,770
5,880
2,440
11,260
7,580
1,500
10,170
6,720
7,480
4,920
2,350
3,860
8,340
11,078
3,493
2,782
17,451
22,371
4,124
6,237
10,942
11,046
6,835
1,798
3,367
3,345
48,434
6,346
23,824
23,805
12,605
10,993
9,510
11,515
11,357
23,809
375,857

11,755
13,091
27,495
13,882
14,350
22,744
13,310
42,456
30,901
53,080
21,887
14,644
18,090
17,495
21,172
38,328
70,993
19,714
21,196
97,374
36,857
21,067
73,737
37,193
30,469
35,011
18,433
42,306
52,310
275,968
56,040
43,700
82,545
53,415
72,920
52,884
45,271
62,129
67,654
1,743,866

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,200
1,376
2,576

—
—
—
—
—
64
239
2
21
—
—
—
48
334
—
306
99
2
1,308
—
1,824
—
—
51
11
68
1
—
—
1,414
—
25
16
24
2
6
18
195
—
6,078

1,821
7,379
5,566
1,978
2,444
2,455
3,827
2,758
3,722
8,997
4,075
2,078
2,612
3,843
4,147
3,248
3,902
899
2,739
5,968
2,384
1,515
5,160
2,687
2,403
2,386
790
2,366
1,591
11,611
2,235
1,371
2,697
1,854
1,989
650
756
748
768
120,419

15,906
23,800
37,921
21,630
22,674
27,703
28,636
52,796
36,144
72,247
32,682
24,202
25,670
24,022
29,179
50,222
86,072
24,108
28,025
120,793
63,436
26,706
85,134
50,873
43,929
44,300
21,022
48,039
57,246
337,427
64,621
68,920
109,063
67,898
85,904
63,050
57,560
75,629
93,607
2,248,796

amortization .....................................
Total Operating Properties ................

—
375,857

(203,125 )
1,540,741

(1,029 )
1,547

—
6,078

(82,942 )
37,477

(287,096 )
1,961,700

F-17

As of December 31, 2020, the major components of the Company’s investments in multifamily properties were as follows (in thousands):

Operating Properties
Arbors on Forest Ridge .........................
Cutter's Point .........................................
Silverbrook ............................................
Beechwood Terrace ..............................
The Summit at Sabal Park ....................
Courtney Cove ......................................
Radbourne Lake ....................................
Timber Creek ........................................
Sabal Palm at Lake Buena Vista ...........
Cornerstone ...........................................
The Preserve at Terrell Mill ..................
Versailles ...............................................
Seasons 704 Apartments .......................
Madera Point .........................................
Venue at 8651 .......................................
Parc500..................................................
The Venue on Camelback .....................
Old Farm ...............................................
Stone Creek at Old Farm ......................
Hollister Place .......................................
Rockledge Apartments ..........................
Atera Apartments ..................................
Cedar Pointe ..........................................
Crestmont Reserve ................................
Brandywine I & II .................................
Bella Vista .............................................
The Enclave ..........................................
The Heritage ..........................................
Summers Landing .................................
Residences at Glenview Reserve ..........
Residences at West Place ......................
Avant at Pembroke Pines ......................
Arbors of Brentwood ............................
Torreyana Apartments ..........................
Bloom ....................................................
Bella Solara ...........................................
Fairways at San Marcos ........................

Accumulated depreciation and

Land

Buildings and
Improvements

Intangible Lease
Assets

Construction in
Progress

Furniture,
Fixtures and
Equipment

Totals

2,330
3,330
4,860
1,390
5,770
5,880
2,440
11,260
7,580
1,500
10,170
6,720
7,480
4,920
2,350
3,860
8,340
11,078
3,493
2,782
17,451
22,371
2,371
4,124
6,237
10,942
11,046
6,835
1,798
3,367
3,345
48,436
6,346
23,824
23,805
12,605
10,993
323,429

11,682
8,035
27,256
22,233
13,749
13,713
22,617
13,245
42,401
30,781
50,757
21,766
14,418
17,926
17,473
20,927
38,106
70,846
19,471
21,884
96,902
37,525
24,268
20,955
73,613
36,787
30,308
34,761
17,909
42,027
51,802
272,436
55,777
43,489
81,714
53,134
71,422
1,544,115

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,675
1,675

17
4,983
3
32
—
114
—
42
—
2
1,524
—
18
—
106
22
37
24
—
—
86
9
—
19
6
—
—
—
43
14
154
2,847
21
122
494
57
—
10,796

1,650
2,044
5,049
2,791
1,813
2,165
2,147
3,473
2,391
3,343
7,310
3,861
1,743
2,273
3,531
3,827
2,570
3,419
792
2,555
5,363
2,188
1,577
1,411
4,072
2,110
1,856
1,793
670
1,495
1,049
7,977
1,118
1,047
1,782
1,228
745
96,228

15,679
18,392
37,168
26,446
21,332
21,872
27,204
28,020
52,372
35,626
69,761
32,347
23,659
25,119
23,460
28,636
49,053
85,367
23,756
27,221
119,802
62,093
28,216
26,509
83,928
49,839
43,210
43,389
20,420
46,903
56,350
331,696
63,262
68,482
107,795
67,024
84,835
1,976,243

amortization .....................................
Total Operating Properties ....................

—
323,429

(153,063 )
1,391,052

(558 )
1,117

—
10,796

(61,873 )
34,355

(215,494 )
1,760,749

Depreciation expense was $82.8 million, $75.6 million and $56.4 million for the years ended December 31, 2021, 2020 and 2019,

respectively.

Amortization expense related to the Company’s intangible lease assets was $4.1 million, $6.8 million and $12.7 for the years ended
December 31, 2021, 2020 and 2019, respectively. Amortization expense related to the Company’s intangible lease assets for all acquisitions
completed through December 31, 2021 is expected to be $1.5 million in 2022. Due to the six-month useful life attributable to intangible lease
assets, the value of intangible lease assets on any acquisition prior to June 30, 2021 has been fully amortized and the assets and related accumulated
amortization have been written off as of December 31, 2021.

F-18

Acquisitions

The Company acquired four properties during the year ended December 31, 2021, as detailed in the table below (dollars in thousands). The
Company acquired one property for a combined purchase price of approximately $84.5 million during the year ended December 31, 2020. See
Notes 3, 4 and 6 for additional information.

Property Name

Location

The Verandas at Lake

Date of
Acquisition

Purchase Price

Mortgage Debt (1)

# Units

Effective
Ownership

Norman ........................ Charlotte, North Carolina
Creekside at Matthews .... Charlotte, North Carolina
Six Forks Station ............. Raleigh, North Carolina
Hudson High House ........ Cary, North Carolina

June 30, 2021
June 30, 2021
September 10, 2021
December 7, 2021

63,500 $
58,000
74,760
93,250
289,510 $

34,925
31,900
41,180
46,625

264
240
323
302

154,630 1,129

100 %
100 %
100 %
100 %

(1)

For additional information regarding the Company’s debt, see Note 6.

Dispositions

The Company sold two properties during the year ended December 31, 2021, as detailed in the table below (in thousands). The Company

sold four properties for approximately $142.0 million during the year ended December 31, 2020.

Property Name

Location

Date of Sale

Sales Price

Beechwood Terrace ................... Antioch, Tennessee
Cedar Pointe .............................. Antioch, Tennessee

November 1, 2021
November 1, 2021

53,600
37,650
91,250

(1) Represents sales price, net of closing costs.

Cutter’s Point Casualty Losses

Net Cash Proceeds (1)
$

53,004 $
37,232
90,236 $

Gain on Sale
of Real Estate

33,961
12,253
46,214

On October 20, 2019, as a result of a tornado, the Cutter’s Point property suffered significant property damage. The damage incurred
rendered the property inoperable; therefore, the Company ceased operations at the property because it was under reconstruction. In relation to this
event, the Company wrote down the carrying value of Cutter’s Point by approximately $7.8 million, and, in accordance with ASC 610 Other
Income, the Company recognized approximately $3.5 million in casualty losses on the consolidated statement of operations and comprehensive
income during the year ended December 31, 2019. Lost rental income is insured and the Company expects any operating losses resulting from the
damage to be immaterial while the property undergoes reconstruction. Starting November 1, 2019, the Company began capitalizing insurance
expense, real estate taxes, interest expense and debt issuance costs to construction in progress and stopped depreciation due to Cutter’s Point being
under development. As of December 31, 2021, approximately $0.8 million of these costs have been capitalized. During the year ended December
31, 2021, Cutter's Point recognized $1.1 million in casualty gains on the consolidated statements of operations and comprehensive income in
relation to this event. The Company filed a business interruption insurance claim and recognized approximately $0.9 million for the lost rent,
which is included in miscellaneous income on the consolidated statement of operations and comprehensive income for the year ended December
31, 2021. Upon completion of Phase I of the rebuild efforts, the Company returned 60 units to service in 2020; On June 21, 2021, 80 downed units
were returned to service; During the third quarter of 2021, the remaining 56 units as part of Phase II of the rebuild were completed. As of December
31, 2021, all units had been returned to service and were available.

Winter Storm Uri

In February of 2021, as a result of winter storm Uri, Atera, Hollister Place, Old Farm, Stone Creek, Cutter’s Point, and Venue 8651 each
sustained significant property damage. In relation to this event, the Company wrote down the carrying value of the impacted properties by
approximately $2.0 million. During the year ended December 31, 2021, the Company recognized $1.5 million in casualty gains and $0.5 million
in business interruption proceeds for lost rent, which is included in miscellaneous income, on the consolidated statements of operations and
comprehensive income (loss) in relation to this event. As of December 31, 2021, 23 units damaged by winter storm Uri are excluded from the
Portfolio’s total unit count and all same store pools due to the properties reconstruction which are estimated to be completed in 2022.

F-19

6. Debt

Mortgage Debt

The following table contains summary information concerning the mortgage debt of the Company as of December 31, 2021 (dollars in

thousands):

Operating Properties

Arbors on Forest Ridge ....................................... (3)
Cutter's Point ....................................................... (3)
Silverbrook .......................................................... (3)
The Summit at Sabal Park .................................. (3)
Courtney Cove .................................................... (3)
The Preserve at Terrell Mill ................................ (3)
Versailles ............................................................. (3)
Seasons 704 Apartments ..................................... (3)
Madera Point ....................................................... (3)
Venue at 8651 ..................................................... (3)
The Venue on Camelback ................................... (3)
Old Farm ............................................................. (3)
Stone Creek at Old Farm .................................... (3)
Timber Creek ...................................................... (3)
Radbourne Lake .................................................. (3)
Sabal Palm at Lake Buena Vista ......................... (3)
Cornerstone ......................................................... (4)
Parc500................................................................ (5)
Hollister Place ..................................................... (3)
Rockledge Apartments ........................................ (3)
Atera Apartments ................................................ (3)
Crestmont Reserve .............................................. (3)
Brandywine I & II ............................................... (3)
Bella Vista ........................................................... (6)
The Enclave ........................................................ (6)
The Heritage ........................................................ (6)
Summers Landing ............................................... (7)
Residences at Glenview Reserve ........................ (8)
Residences at West Place .................................... (8)
Avant at Pembroke Pines .................................... (3)
Arbors of Brentwood .......................................... (3)
Torreyana Apartments ........................................ (6)
Bloom .................................................................. (6)
Bella Solara ......................................................... (6)
Fairways at San Marcos ...................................... (6)
The Verandas at Lake Norman ........................... (9)
Creekside at Matthews ........................................ (9)
Six Forks Station ................................................. (10)
Hudson High House ............................................ (9)

Fair market value adjustment ..............................
Deferred financing costs, net of accumulated

amortization of $5,047 ...................................

Type
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Fixed
Fixed
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Fixed
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating

Term (months)
84
84
84
84
84
84
84
84
84
84
84
84
84
84
84
84
120
120
84
84
84
84
84
84
84
84
84
84
120
84
84
84
84
84
84
84
84
120
84

Interest Rate (2)
1.78%
1.78%
1.78%
1.72%
1.72%
1.72%
1.72%
1.72%
1.72%
1.88%
1.78%
1.78%
1.78%
1.36%
1.39%
1.40%
4.24%
4.49%
1.44%
1.67%
1.58%
1.28%
1.28%
1.42%
1.42%
1.42%
1.28%
1.54%
4.24%
1.53%
1.53%
1.80%
1.80%
1.80%
2.18%
1.90%
1.90%
1.76%
2.06%

Outstanding
Principal (1)

13,130
16,640
30,590
13,560
13,680
42,480
23,880
17,460
15,150
13,734
28,093
52,886
15,274
24,100
20,000
42,100
20,803
14,665
14,811
68,100
29,500
12,061
43,835
29,040
25,322
24,625
10,109
26,445
33,817
177,100
34,237
37,400
58,850
36,575
46,464
34,925
31,900
41,180
46,625
1,281,146

1,059 (11)

(5,920 )
1,276,285

Maturity Date
7/1/2024
7/1/2024
7/1/2024
7/1/2024
7/1/2024
7/1/2024
7/1/2024
7/1/2024
7/1/2024
7/1/2024
7/1/2024
7/1/2024
7/1/2024
10/1/2025
10/1/2025
9/1/2025
3/1/2023
8/1/2025
10/1/2025
7/1/2024
11/1/2024
10/1/2025
10/1/2025
2/1/2026
2/1/2026
2/1/2026
10/1/2025
10/1/2025
10/1/2028
9/1/2026
10/1/2026
12/1/2026
12/1/2026
12/1/2026
12/1/2027
7/1/2028
7/1/2028
10/1/2031
1/1/2029

(1) Mortgage debt that is non-recourse to the Company and encumbers the multifamily properties.

(2)

(3)

Interest rate is based on a reference rate plus an applicable margin, except for fixed rate mortgage debt. References rates used in our portfolio
include One-month LIBOR and 30-Day Average Secured Overnight Financing Rate (“SOFR”). As of December 31, 2021, One-month
LIBOR was 0.10125% and SOFR was 0.04967%.

Loan can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00%. Starting in the 13th month of the term
through the 81st month of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three
months of the term.

F-20

(4) Debt in the amount of $18.0 million was assumed upon acquisition of this property and recorded at approximated fair value. The assumed
debt carries a 4.09% fixed rate, was originally issued in March 2013, and had a term of 120 months with an initial 24 months of interest
only. At the time of acquisition, the principal balance of the first mortgage remained unchanged and had a remaining term of 98 months
with 2 months of interest only. The first mortgage is pre-payable and subject to yield maintenance from the 13th month through August 31,
2022 and is pre-payable at par September 1, 2022 until maturity. Concurrently with the acquisition of the property, the Company placed a
supplemental second mortgage on the property with a principal amount of approximately $5.8 million, a fixed rate of 4.70%, and with a
maturity date that is the same time as the first mortgage. The supplemental second mortgage is pre-payable and subject to yield maintenance
from the date of issuance through August 31, 2022 and is pre-payable at par September 1, 2022 until maturity. As of December 31, 2021,
the total indebtedness secured by the property had a blended interest rate of 4.24%.

(5) Debt was assumed upon acquisition of this property and recorded at approximated fair value. The loan is open to pre-payment in the last

four months of the term.

(6)

(7) Debt was assumed upon acquisition of this property and recorded at approximated fair value. It can be pre-paid in the first 12 months of
the term in certain circumstances at par plus 5.00%. Starting in the 13th month of the term through the 81st month of the term, the loan can
be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three months of the term.

(8) Debt was assumed upon acquisition of this property and recorded at approximated fair value. The loan can be prepaid at the greater of par
plus 1.00% of the unpaid principal balance or the product obtained by multiplying the present value of the principal being prepaid by the
excess of the monthly fixed interest rate of the loan over a daily discount rate. The loan is open to pre-payment in the last three months of
the term.

(9)

Loan can be pre-paid in the first 24 months of the term in certain circumstances at par plus 5.00%. Starting in the 25th month of the term
through the 36th month of the term, the loan can be pre-paid at par plus 2% of the unpaid principal balance. Starting in the 37th month of
the term, the loan can be pre-paid at par plus 1% of the unpaid principal balance. The loan is open to pre-payment in the last three months
of the term.

(10) Loan can be pre-paid in the first 24 months of the term in certain circumstances at par plus 5.00%. Starting in the 25th month of the term
through the 116th of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last four
months of the term.

(11) The Company reflected a valuation adjustment on its fixed rate debt for Parc500 and Residences at West Place to adjust it to fair market
value on their respective 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 mortgages.

During the year ended December 31, 2021, the Company sold two properties and repaid the related mortgage loans that encumbered the

properties, as detailed in the table below (in thousands):

Property Name
Beechwood Terrace .......................................................
Cedar Pointe ..................................................................

Date of Sale
November 1, 2021
November 1, 2021

Type
Floating
Floating

Outstanding
Principal (1)

23,365
17,300
40,665

(1) Represents the outstanding principal balance when the loan was repaid.

The weighted average interest rate of the Company’s mortgage indebtedness was 1.81% as of December 31, 2021 and 1.83% as of December
31, 2020. The decrease between the periods is primarily related to a decrease in one-month LIBOR of approximately 4 basis points to 0.10125%
as of December 31, 2021 from 0.14388% as of December 31, 2020. As of December 31, 2021, the adjusted weighted average interest rate of the
Company’s mortgage indebtedness was 2.94%. For purposes of calculating the adjusted weighted average interest rate of the outstanding mortgage
indebtedness, the Company has included the weighted average fixed rate of 1.3461% for one-month LIBOR on its combined $1.2 billion notional
amount of interest rate swap agreements, which effectively fix the interest rate on $1.2 billion of the Company’s floating rate mortgage debt (see
Note 7).

Each of the Company’s mortgages is a non-recourse obligation subject to customary provisions. The loan agreements contain customary
events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the documents
evidencing the loan, defaults in payments under any other security instrument covering any part of the property, whether junior or senior to the
loan, and bankruptcy or other insolvency events. As of December 31, 2021, the Company believes it is in compliance with all provisions.

F-21

Freddie Mac Multifamily Green Advantage. In order to obtain more favorable pricing on the Company’s mortgage debt financing with
Freddie Mac, the Company decided to participate in Freddie Mac’s Multifamily Green Advantage program (the “Green Program”). As of December
31, 2020, the Company has completed its Green Program improvements on all but one property, which is expected to be completed in 2022. The
Company expects to reduce water/sewer costs at each property where the Green Program is implemented by at least 15% through the replacement
of showerheads, plumbing fixtures and toilets with modern energy efficient upgrades. Due to changes in Freddie Mac’s requirements to participate
in the Green Program, the Company is not implementing this on acquisitions going forward.

Credit Facility

The following table contains summary information concerning the Company’s credit facility as of December 31, 2021 (dollars in

thousands):

Amended and Restated Corporate Credit

Facility ..................................................

Floating

280,000

2.50%

6/30/2024

Type

Term (months)

Outstanding
Principal

Interest Rate (1)

Maturity Date

Deferred financing costs, net of

accumulated amortization of $387 ........

(1,785 )
278,215

(1)

Interest rate is based on one-month LIBOR plus an applicable margin. One-month LIBOR as of December 31, 2021 was 0.10125%.

On June 30, 2021, the Company, through the OP, entered into a secured $250.0 million credit facility with Truist Bank (“Truist”), as
administrative agent, and the lenders from time to time party thereto (the “Amended and Restated Corporate Credit Facility”). $225 million of the
Amended and Restated Corporate Credit Facility was a revolving credit facility and $25 million of the Amended and Restated Corporate Credit
Facility was a term loan. In addition, on June 30, 2021, in connection with entering into the Amended and Restated Corporate Credit Facility, the
Company, through the OP, terminated its $225.0 million Corporate Credit Facility with Truist, as administrative agent, and the lenders from time
to time party thereto, prior to the maturity date of January 28, 2022. Subject to conditions provided in the Amended and Restated Corporate Credit
Facility, the Amended and Restated Corporate Credit Facility may be increased up to an additional $100.0 million (the “Accordion Feature”) if the
lenders agree to increase their commitments or if the lenders agree for the increase to be funded by any additional lender proposed by the Company,
through the OP. The Amended and Restated Corporate Credit Facility will mature on June 30, 2024 with respect to the revolving commitments,
unless the Company exercises its option to voluntarily and permanently reduce all of the revolving commitments before the maturity date or elects
to exercise its right and option to extend the facility with respect to the revolving commitments for a single one-year term. On September 9, 2021,
the Company, through the OP, modified the Amended and Restated Corporate Credit Facility to provide for an additional $35.0 million term loan
with a maturity date of December 31, 2021, increasing the Amended and Restated Corporate Credit Facility from $250 million to $285 million. In
conjunction with the increase in the facility, the Company incurred costs of $0.3 million in obtaining the additional financing through the
modification. On September 30, 2021, the Company made a $10.0 million principal payment on the term loans resulting in $275.0 million in
aggregate principal outstanding as of September 30, 2021 on the Amended and Restated Corporate Credit Facility. On November 3, 2021, the
Company made a $50.0 million principal payment on the remaining term loans maturing December 31, 2021. On December 6, 2021, the Company,
through the OP, increased the amount of the Amended and Restated Corporate Credit Facility by $55.0 million, and incurred costs of $0.4 million
of deferred financing costs in conjunction with the increase in the facility. As of December 31, 2021, there was $280.0 million in aggregate principal
outstanding on the Amended and Restated Corporate Credit Facility.

F-22

Advances under the Amended and Restated Corporate Credit Facility accrue interest at a per annum rate equal to, at the Company’s election,
either LIBOR plus a margin of 1.90% to 2.40%, depending on the Company’s total leverage ratio, or a base rate determined according to the highest
of (a) the prime rate, (b) the federal funds rate plus 0.50%, (c) LIBOR plus 1.0% or (d) 0.0% plus a margin of 0.90% to 1.40%, depending on the
Company’s total leverage ratio. An unused commitment fee at a rate of 0.15% or 0.25%, depending on the outstanding aggregate revolving
commitments, applies to unutilized borrowing capacity under the Amended and Restated Corporate Credit Facility. Amounts owing under the
Amended and Restated Corporate Credit Facility may be prepaid at any time without premium or penalty. The Amended and Restated Corporate
Credit Facility is guaranteed by the Company and the obligations under the Amended and Restated Corporate Credit Facility are, subject to some
exceptions, secured by a continuing security interest in substantially all of the assets of the Company. The Company is in compliance with all of
the covenants required in its Amended and Restated Corporate Credit Facility.

Deferred Financing Costs

The Company defers costs incurred in obtaining financing and amortizes the costs over the terms of the related loans 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 and modification costs (see “Loss on
Extinguishment of Debt and Modification Costs” below). For the years ended December 31, 2021, 2020 and 2019, amortization of deferred
financing costs of approximately $2.2 million, $2.8 million and $2.1 million, respectively, is included in interest expense on the consolidated
statements of operations and comprehensive income (loss).

Loss on Extinguishment of Debt and Modification Costs

Loss on extinguishment of debt and modification costs includes prepayment penalties and defeasance costs incurred on the early repayment
of debt, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs incurred in a debt extinguishment.
For the years ended December 31, 2021, 2020 and 2019, the Company wrote-off deferred financing costs of approximately $0.5 million, $0.8
million and $1.4 million, respectively, which is included in loss on extinguishment of debt and modification costs on the consolidated statements
of operations and comprehensive income (loss).

Schedule of Debt Maturities

The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to

December 31, 2021 are as follows (in thousands):

Operating
Properties

Credit Facility

Total

2022 ........................................................................ $
2023 ........................................................................
2024 ........................................................................
2025 ........................................................................
2026 ........................................................................
Thereafter ...............................................................
Total ................................................................. $

1,482 $
21,198
395,068
205,338
423,149
234,911
1,281,146 $

— $
—
280,000
—
—
—
280,000 $

1,482
21,198
675,068
205,338
423,149
234,911
1,561,146

7. 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.

F-23

•

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.

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 is exposed to certain risks arising from both its business operations and economic conditions. The Company principally
manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages
economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and
the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that
arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined
by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the
Company’s known or expected cash payments principally related to the Company’s borrowings. In order to minimize counterparty credit risk, the
Company enters into and expects to enter into hedging arrangements only 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 values of interest rate caps are 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 caps. 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 December 31, 2021, 2020 and 2019 were classified as Level 2 of the fair value hierarchy.

The Company’s main objective in using interest rate derivatives is to add stability to interest expense related to floating rate debt. To
accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest
rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life
of the agreements without exchange of the underlying notional amount. The interest rate swaps have terms ranging from four to five years. 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. The interest rate caps have terms ranging from three to four years. During the years ended December 31, 2021, 2020 and
2019, interest rate cap derivatives were used to hedge the variable cash flows associated with a portion of the Company’s floating rate debt. The
interest rate cap agreements the Company has entered into effectively cap one-month LIBOR on $458.8 million of the Company’s floating rate
mortgage indebtedness at a weighted average rate of 4.79%.

In order to fix a portion of, and mitigate the risk associated with, the Company’s floating rate indebtedness (without incurring substantial
prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), the Company, through
the OP, has entered into nine interest rate swap transactions with KeyBank and two with Truist Bank (the “Counterparties”) with a combined
notional amount of $1.2 billion which are effective as of December 31, 2021. The interest rate swaps the Company has entered into effectively
replace the floating interest rate (one-month LIBOR) with respect to that amount with a weighted average fixed rate of 1.3461%. The Company
has designated these interest rate swaps as cash flow hedges of interest rate risk.

F-24

As of December 31, 2021, 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
April 1, 2017
May 1, 2017
July 1, 2017
June 1, 2019
June 1, 2019
September 1, 2019
September 1, 2019
January 3, 2020
March 4, 2020
June 1, 2021
June 1, 2021

Termination Date
April 1, 2022
April 1, 2022
July 1, 2022
June 1, 2024
June 1, 2024
September 1, 2026
September 1, 2026
September 1, 2026
June 1, 2026
September 1, 2026
September 1, 2026

Counterparty
KeyBank
KeyBank
KeyBank
KeyBank
Truist
KeyBank
KeyBank
KeyBank
Truist
KeyBank
KeyBank

Notional Amount

Fixed Rate (1)

100,000
50,000
100,000
50,000
50,000
100,000
125,000
92,500
100,000
200,000
200,000
1,167,500

1.9570 %
1.9610 %
1.7820 %
2.0020 %
2.0020 %
1.4620 %
1.3020 %
1.6090 %
0.8200 %
0.8450 %
0.9530 %
1.3461 % (2)

The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2021, one-month LIBOR was 0.10125%.

(1)
(2) Represents the weighted average fixed rate of the interest rate swaps.

As of December 31, 2021, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of

interest rate risk with future effective dates (dollars in thousands):

Future Swaps

Effective Date
March 1, 2022
March 1, 2022
September 1, 2026

Termination Date
March 1, 2025
March 1, 2025
January 1, 2027

Counterparty
Truist
Truist
KeyBank

Notional Amount

Fixed Rate
(1)

145,000
105,000
92,500
342,500

0.5730 %
0.6140 %
1.7980 %
0.9164 % (2)

The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2021, one-month LIBOR was 0.10125%.

(1)
(2) Represents the weighted average fixed rate of the interest rate swaps.

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.

As of December 31, 2021, 2020 and 2019, the Company had the following outstanding derivatives that were not designated as hedges in

qualifying hedging relationships (dollars in thousands):

As of December 31,
2021 ...................................................................................................
2020 ...................................................................................................
2019 ...................................................................................................

Number of
Instruments
15
16
15

Notional
Amount

$
$
$

458,846
393,006
346,542

F-25

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated

balance sheets as of December 31, 2021 and 2020 (in thousands):

Balance Sheet Location

December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

Asset Derivatives

Liability Derivatives

Derivatives designated as hedging

instruments:

Interest rate swaps ............................

Fair market value of
interest rate swaps

Derivatives not designated as hedging

instruments:

11,045 $

— $

7,519 $

43,530

Interest rate caps ............................... Prepaid and other assets
$

Total .......................................................

263
11,308 $

3
3 $

—
7,519 $

—
43,530

The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of operations and

comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Amount of gain (loss)
recognized in OCI

Location of gain
(loss) reclassified
from accumulated

Amount of gain (loss)
reclassified from
OCI into income

2021

2020

2019

OCI into income

2021

2020

2019

Derivatives designated as
hedging instruments:

For the year ended
December 31,

Interest rate products ........... $

32,164 $

(56,299 ) $

(8,153 ) Interest expense $

(14,909 ) $

(9,337 ) $

6,472

Derivatives not designated as

hedging instruments:

For the year ended
December 31,

Interest rate products ..........

Other Financial Instruments Carried at Fair Value

Location of gain
(loss) recognized
in income

Amount of gain (loss)
recognized in income
2020

2019

2021

Interest expense $

(112 ) $

(33 ) $

(30 )

Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such value exceeds the
carrying value of the redeemable noncontrolling interests in the OP (see Note 10). The redemption value is based on the fair value of the Company’s
common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date.
Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests
in the OP are classified as Level 2 if they are adjusted to their redemption value.

Financial Instruments Not Carried at Fair Value

At December 31, 2021 and 2020, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaid and other assets,
accounts payable and other accrued liabilities, accrued real estate taxes payable, accrued interest payable, security deposits and prepaid rent
approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were
determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the
Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have
a material effect on the estimated fair value amounts.

Long-term indebtedness is carried at amounts that reasonably approximate their fair value at the time they were recognized. In calculating
the fair value of its long-term indebtedness, the Company used interest rate and spread assumptions that reflect current credit worthiness and market
conditions available for the issuance of long-term debt with similar terms and remaining maturities. These financial instruments utilize Level 2
inputs.

F-26

The table below presents the carrying value and estimated fair value of our debt at December 31, 2021 and 2020 (in thousands):

December 31, 2021

December 31, 2020

Carrying Value

Estimated
Fair Value

Carrying Value

Estimated
Fair Value

Fixed rate debt ...................... $
Floating rate debt (1) ............ $

69,285 $
1,491,861 $

71,141 $
1,525,298 $

70,067 $
1,281,011 $

73,548
1,324,990

(1)

Includes balances outstanding under our Amended and Restated Corporate Credit Facility.

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows
and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover
the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. There can be no
assurance that the estimates discussed herein, using Level 3 inputs, are indicative of the amounts the Company could realize on disposition of the
real estate asset. The Company did not record any impairment charges related to real estate assets for the years ended December 31, 2021, 2020
and 2019.

8. Stockholders’ Equity

Common Stock

During the years ended December 31, 2021, 2020 and 2019, the Company issued 133,097, 137,608 and 180,783 shares of common stock
pursuant to its long-term incentive plan (see “Long Term Incentive Plan” below) and 350,513, 1,278,306 and 1,565,322 pursuant to its at-the-
market offering (see “At-the-Market Offering” below).

As of December 31, 2021, the Company had 25,500,567 shares of common stock, par value $0.01 per share, issued and outstanding.

Share Repurchase Program

On June 15, 2016, the Board authorized the Company to repurchase up to $30.0 million of its common stock, par value $0.01 per share,
during a two-year period that was set to expire on June 15, 2018 (the “Share Repurchase Program”). On April 30, 2018, the Board increased the
Share Repurchase Program from $30.0 million to up to $40.0 million and extended it by an additional two years to June 15, 2020. On March 13,
2020, the Board further increased the Share Repurchase Program from $40.0 million to up to $100.0 million and extended it to March 12, 2023.
The Company may utilize various methods to effect the repurchases, and the timing and extent of the repurchases will depend upon several factors,
including market and business conditions, regulatory requirements and other corporate considerations, including whether the Company’s common
stock is trading at a significant discount to net asset value per share. Repurchases under this program may be discontinued at any time.

During the year ended December 31, 2021, the Company did not repurchase any shares of its common stock. Since the inception of the
Share Repurchase Program through December 31, 2021, the Company had repurchased 2,382,155 shares of its common stock, par value $0.01 per
share, at a total cost of approximately $61,224,000, or $25.70 per share.

Treasury Shares

From time to time, in accordance with the Company’s share repurchase program, the Company may repurchase shares of its common stock
in the open market. Until any such shares are retired, the cost of the shares is included in common stock held in treasury at cost on the consolidated
balance sheet. The number of shares of common stock classified as treasury shares reduces the number of shares of the Company’s common stock
outstanding and, accordingly, are considered in the weighted average number of shares outstanding during the period. During the year ended
December 31, 2021, the Company did not retire any shares of common stock. During the years ended December 31, 2020 and 2019, the Company
retired 1,644,697 and zero shares of its common stock held in treasury, respectively. As of December 31, 2021 and 2020, the Company had no
shares of common stock held in treasury.

Long Term Incentive Plan

On June 15, 2016, the Company’s stockholders approved a long-term incentive plan (the “2016 LTIP”) and the Company filed a registration
statement on Form S-8 registering 2,100,000 shares of common stock, par value $0.01 per share, which the Company may issue pursuant to the 2016
LTIP. The 2016 LTIP authorizes the compensation committee of the Board to provide equity-based compensation in the form of stock options,
appreciation rights, restricted shares, restricted stock units, performance shares, performance units and certain other awards denominated or payable in,
or otherwise based on, the Company’s common stock or factors that may influence the value of the Company’s common stock, plus cash incentive
awards, for the purpose of providing the Company’s directors, officers and other key employees (and those of the Adviser and the Company’s
subsidiaries), the Company’s non-employee directors, and potentially certain non-employees who perform employee-type functions, incentives and
rewards for performance.

F-27

Restricted Stock Units. Under the 2016 LTIP, restricted stock units may be granted to the Company’s directors, officers and other key
employees (and those of the Adviser and the Company’s subsidiaries) and typically vest over a three to five-year period for officers, employees
and certain key employees of the Adviser and annually for directors. Beginning on the date of grant, restricted stock units earn dividends that are
payable in cash on the vesting date. On August 11, 2016, pursuant to the 2016 LTIP, the Company granted 209,797 restricted stock units to its
directors and officers. On March 16, 2017, pursuant to the 2016 LTIP, the Company granted 219,802 restricted stock units to its directors and
officers. On February 15, 2018, pursuant to the 2016 LTIP, the Company granted 275,795 restricted stock units to its directors, officers, employees
and certain key employees of the Adviser. On February 21, 2019, pursuant to the 2016 LTIP, the Company granted 186,662 restricted stock units
to its directors, officers, employees and certain key employees of the Adviser. On February 20, 2020, pursuant to the 2016 LTIP, the Company
granted 168,183 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On May 11, 2020, pursuant to
the 2016 LTIP, the Company granted 116,852 restricted stock units to its directors, officers, employees and certain key employees of the Adviser.
On February 18, 2021, pursuant to the 2016 LTIP, the Company granted 204,663 restricted stock units to its directors, officers, employees and
certain key employees of the Adviser. The following table includes the number of restricted stock units granted, vested, forfeited and outstanding
as of December 31, 2021:

2021

Number of Units

Weighted Average
Grant Date Fair Value

Outstanding January 1, ..........................................................................................
Granted ..................................................................................................................
Vested ....................................................................................................................
Forfeited ................................................................................................................
Outstanding December 31, ....................................................................................

553,931
204,663
(167,627 ) (1)
(2,135 )
588,832

36.83
41.43
34.18
41.46
39.17

(1) Certain key employees of the Adviser elected to net the taxes owed upon vesting against the shares issued resulting in 133,097 shares being

issued as shown on the consolidated statement of stockholders’ equity.

The following table contains information regarding the vesting of restricted stock units under the 2016 LTIP for the next five calendar years

subsequent to December 31, 2021:

February

May

Total

Shares Vesting

2022 ...............................................................................................
2023 ...............................................................................................
2024 ...............................................................................................
2025 ...............................................................................................
2026 ...............................................................................................

Total ..............................................................................................

180,249
105,495
105,495
70,607
38,911
500,757

22,022
22,019
22,017
22,017
—
88,075

202,271
127,514
127,512
92,624
38,911

588,832

As of December 31, 2021, the Company had issued 692,256 shares of common stock under the 2016 LTIP. For the years ended December
31, 2021, 2020 and 2019, the Company recognized approximately $7.0 million, $5.5 million and $5.1 million, respectively, of equity-based
compensation expense related to grants of restricted stock units. As of December 31, 2021, the Company had recognized a liability of approximately
$1.5 million related to dividends earned on restricted stock units that are payable in cash upon vesting.

At-the-Market Offering

On February 20, 2019, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies
LLC (“Jefferies”), Raymond James & Associates, Inc. (“Raymond James”) and Truist Securities, Inc. f/k/a SunTrust Robinson Humphrey, Inc.
(“Truist”, and together with Raymond James and Jefferies, the “2019 ATM Sales Agents”), pursuant to which the Company could issue and sell
from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $100,000,000 (the
“2019 ATM Program”). Sales of shares of common stock, if any, could be made in transactions that were deemed to be “at the market” offerings,
as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including, without limitation, sales made by means of
ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at
prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of
common stock, the Company could enter into forward sale agreements with each of Jefferies and Raymond James, or their respective affiliates,
through the 2019 ATM Program. During the year ended December 31, 2019, the Company issued 1,565,322 shares of common stock at an average
price of $45.98 per share for gross proceeds of approximately $72.0 million. The Company paid approximately $1.1 million in fees to the Sales
Agents with respect to such sales and incurred other issuance costs of approximately $1.0 million, both of which were netted against the gross
proceeds and recorded in additional paid in capital. During the three months ended March 31, 2020, the Company issued 560,000 shares of common
stock at an average price of $50.00 per share for gross proceeds of $28.0 million under the 2019 ATM Program. The Company paid approximately
$0.4 million in fees to the 2019 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $0.3 million, both
of which were netted against the gross proceeds and recorded in additional paid in capital. On February 27, 2020, the 2019 ATM Program reached
aggregate sales of $100,000,000 and therefore expired. The following table contains summary information of the 2019 ATM Program since its
inception:

F-28

Gross proceeds ....................................................................................................................................... $
Common shares issued ...........................................................................................................................
Gross average sale price per share .......................................................................................................... $

Sales commissions .................................................................................................................................. $
Offering costs .........................................................................................................................................
Net proceeds ...........................................................................................................................................
Average price per share, net ................................................................................................................... $

99,973,433
2,125,322
47.04

1,499,601
1,350,920
97,122,912
45.70

On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies,
Raymond James, KeyBanc Capital Markets Inc. (“KeyBanc”) and Truist Bank (together with Jefferies, Raymond James and KeyBanc, the “2020
ATM Sales Agents”), pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value
$0.01 per share, having an aggregate sales price of up to $225,000,000 (the “2020 ATM Program”). Sales of shares of common stock, if any, may
be made in transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act, including, without
limitation, sales made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices
prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to
the issuance and sale of shares of common stock, the Company may enter into forward sale agreements with each of Jefferies, KeyBanc and
Raymond James, or their respective affiliates, through the 2020 ATM Program. During the year ended December 31, 2020, the Company issued
718,306 shares of common stock at an average price of $43.92 per share for gross proceeds of $31.5 million under the 2020 ATM Program. The
Company paid approximately $0.5 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other issuance costs of
approximately $0.6 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. During the year ended
December 31, 2021, the Company issued 350,513 shares of common stock at an average price of $75.41 per share for gross proceeds of $26.4
million under the 2020 ATM Program. The Company paid approximately $0.4 million in fees to the 2020 ATM Sales Agents with respect to such
sales and incurred other issuance costs of approximately $0.4 million, both of which were netted against the gross proceeds and recorded in
additional paid in capital. The following table contains summary information of the 2020 ATM Program since its inception:

Gross proceeds ......................................................... $
Common shares issued .............................................
Gross average sale price per share ............................ $

Sales commissions .................................................... $
Offering costs ...........................................................
Net proceeds .............................................................
Average price per share, net ..................................... $

9. Earnings Per Share

57,979,098
1,068,819
54.25

869,687
1,056,003
56,053,408
52.44

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 restricted stock units issued pursuant to the 2016
LTIP. Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the dilutive effect of the assumed vesting of
restricted stock units. During periods of net loss, the assumed vesting of restricted stock units is anti-dilutive and is not included in the calculation
of earnings (loss) per share.

F-29

The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted
earnings per share, as they are exchangeable for common stock on a one-for-one basis. The income allocable to such units is allocated on this same
basis and reflected as net income attributable to redeemable noncontrolling interests in the OP in the accompanying consolidated statements of
operations and comprehensive income (loss). As such, the assumed conversion of these units would have no net impact on the determination of
diluted earnings per share. See Note 10 for additional information.

The following table sets forth the computation of basic and diluted earnings per share for the periods presented (in thousands, except per

share amounts):

2021

For the Year Ended December 31,
2020

2019

23,106

44,150 $

99,438

Numerator for earnings per share:
Net income ................................................................................................ $
Net income attributable to redeemable noncontrolling interests in the

Operating Partnership ............................................................................
Net income attributable to common stockholders ............................. $

Denominator for earnings per share:
Weighted average common shares outstanding .........................................
Denominator for basic earnings per share ..............................................
Weighted average unvested restricted stock units .....................................

Denominator for diluted earnings per share ........................................... (1)

69
23,037

132
44,018 $

25,170
25,170
590
25,760

24,715
24,715
519
25,234

Earnings per weighted average common share:

Basic ....................................................................................................... $
Diluted .................................................................................................... $

0.92
0.89

$
$

1.78 $
1.74 $

298
99,140

24,116
24,116
477
24,593

4.11
4.03

(1)

If the Company sustains a net loss for the period presented, unvested restricted stock units are not included in the diluted earnings per share
calculation.

10. Noncontrolling Interests

Redeemable Noncontrolling Interests in the OP

Interests in the OP held by limited partners are represented by OP Units. Net income (loss) is allocated to holders of OP Units based upon
net income (loss) attributable to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP
Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to OP Units in accordance with the
terms of the partnership agreement of the OP. Each time the OP distributes cash to the Company, outside limited partners of the OP receive their
pro-rata share of the distribution. Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption
value if such value exceeds the carrying value of the redeemable noncontrolling interests in the OP.

On June 30, 2017, the Company and the OP entered into a contribution agreement with BH Equities, LLC and its affiliates (collectively,
“BH Equity”), whereby the Company purchased 100% of the joint venture interests in the portfolio owned by BH Equity, representing
approximately 8.4% ownership in the portfolio (the “BH Buyout”), for total consideration of approximately $51.7 million (the “Purchase Amount”).
The Purchase Amount consisted of approximately $49.7 million in cash that was paid on June 30, 2017 and 73,233 OP Units (initially valued at
$2.0 million) that were issued on August 1, 2017. The number of OP Units issued was calculated by dividing $2.0 million by the midpoint of the
range of the Company’s net asset value as publicly disclosed in connection with the Company’s release of its second quarter of 2017 earnings
results, which was $27.31 per share.

In connection with the issuance of OP Units to BH Equity on August 1, 2017, the Company and the OP amended the partnership agreement
of the OP (the “Amendment”). Pursuant to the Amendment, limited partners holding OP Units have the right to cause the OP to redeem their units
at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the OP), provided that such OP Units
have been outstanding for at least one year. The Company, through the OP GP, as the general partner of the OP may, in its sole discretion, purchase
the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (one share of common stock of the Company for
each OP Unit), as defined in the partnership agreement of the OP. Notwithstanding the foregoing, a limited partner will not be entitled to exercise
its redemption right to the extent the issuance of the Company’s common stock to the redeeming limited partner would (1) be prohibited, as
determined in the Company’s sole discretion, under the Company’s charter or (2) cause the acquisition of common stock by such redeeming limited
partner to be “integrated” with any other distribution of the Company’s common stock for purposes of complying with the Securities Act.
Accordingly, the Company records the OP Units held by noncontrolling limited partners outside of permanent equity and reports the OP Units at
the greater of their carrying value or their redemption value using the Company’s stock price at each balance sheet date.

F-30

The following table sets forth the redeemable noncontrolling interests in the OP for the year ended December 31, 2021 (in thousands):

Redeemable noncontrolling interests in the OP, December 31, 2020 ................................................... $
Net income attributable to redeemable noncontrolling interests in the OP .................................................
Other comprehensive income attributable to redeemable noncontrolling interests in the OP .....................
Contributions from redeemable noncontrolling interests in the OP ............................................................
Distributions to redeemable noncontrolling interests in the OP .................................................................
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP ........................
Redeemable noncontrolling interests in the OP, December 31, 2021 ................................................... $

3,098
69
141
18
(93 )
2,906
6,139

Noncontrolling Interests

Noncontrolling interests have in the past and may in the future be comprised of joint venture partners’ interests in joint ventures the
Company consolidates. When applicable, the Company reports its joint venture partners’ interests in its consolidated joint ventures and other
subsidiary interests held by third parties as noncontrolling interests. The Company records these noncontrolling interests at their initial fair value,
adjusting the basis prospectively for their share of the respective consolidated investment’s net income or loss, equity contributions, return of
capital, and distributions. Generally, these noncontrolling interests are not redeemable by the equity holders and are presented as part of permanent
equity. Income and losses are allocated to the noncontrolling interest holder based on its economic ownership percentage.

Fees and Reimbursements to BH and its Affiliates

The Company has entered into management agreements with BH Management Services, LLC (“BH”), the Company’s property manager
and an independently owned third party, who manages the Company’s properties and supervises the implementation of the Company’s value-add
program. BH is an affiliate of BH Equity, who was a noncontrolling interest member of the Company’s joint ventures prior to the BH Buyout on
June 30, 2017. Through BH Equity’s noncontrolling interests in such joint ventures, BH Equity was deemed to be a related party. With the
completion of the BH Buyout, BH Equity is no longer deemed to be a related party. BH Equity became a noncontrolling limited partner of the OP
upon execution of the Amendment. BH and its affiliates do not have common ownership in any joint venture with the Adviser; there is also no
common ownership between BH and its affiliates and the Adviser.

The property management fee paid to BH is approximately 3% of the monthly gross income from each property managed. Currently, BH
manages all of the Company’s properties. Additionally, the Company may pay BH certain other fees, including: (1) a fee of $15-25 per unit for the
one-time setup and inspection of properties, (2) a construction supervision fee of 5-6% of total project costs, which is capitalized, (3) acquisition
fees and due diligence costs reimbursements, and (4) other owner approved fees at $55 per hour. BH also acts as a paymaster for the properties and
is reimbursed at cost for various operating expenses it pays on behalf of the properties. The following is a summary of fees that the properties
incurred to BH and its affiliates, as well as reimbursements paid to BH from the properties for various operating expenses, for the years ended
December 31, 2021, 2020 and 2019 (in thousands):

Fees incurred

Property management fees ............................ (1) $
Construction supervision fees ........................ (2)
Design fees .................................................... (2)
Acquisition fees ............................................. (3)

Reimbursements

Payroll and benefits ....................................... (4)
Other reimbursements ................................... (5)

2021

For the Year Ended December 31,
2020

2019

6,308 $
1,098
88
677

18,802
3,574

5,949 $
1,848
666
201

18,284
3,253

5,363
1,549
255
1,465

18,148
3,286

Included in property management fees on the consolidated statements of operations and comprehensive income (loss).

(1)
(2) Capitalized on the consolidated balance sheets and reflected in buildings and improvements.
(3)
(4)
(5)

Includes due diligence costs. Acquisition fees are capitalized to real estate assets on the consolidated balance sheets.
Included in property operating expenses on the consolidated statements of operations and comprehensive income (loss).
Includes property operating expenses such as repairs and maintenance costs and certain property general and administrative expenses, which
are included on the consolidated statements of operations and comprehensive income (loss).

F-31

11. Related Party Transactions

Advisory and Administrative Fee

In accordance with the Advisory Agreement, the Company pays the Adviser an advisory fee equal to 1.00% of the Average Real Estate
Assets (as defined below). The duties performed by the Company’s Adviser under the terms of the Advisory Agreement include, but are not limited
to: providing daily management for the Company, selecting and working with third party service providers, managing the Company’s properties
or overseeing the third party property manager, formulating an investment strategy for the Company and selecting suitable properties and
investments, managing the Company’s outstanding debt and its interest rate exposure through derivative instruments, determining when to sell
assets, and managing the value-add program or overseeing a third party vendor that implements the value-add program. “Average Real Estate
Assets” means the average of the aggregate book value of Real Estate Assets before reserves for depreciation or other non-cash reserves, computed
by taking the average of the book value of real estate assets at the end of each month (1) for which any fee under the Advisory Agreement is
calculated or (2) during the year for which any expense reimbursement under the Advisory Agreement is calculated. “Real Estate Assets” is defined
broadly in the Advisory Agreement to include, among other things, investments in real estate-related securities and mortgages and reserves for
capital expenditures (the value-add program). The advisory fee is payable monthly in arrears in cash, unless the Adviser elects, in its sole discretion,
to receive all or a portion of the advisory fee in shares of common stock, subject to certain limitations.

In accordance with the Advisory Agreement, the Company also pays the Adviser an administrative fee equal to 0.20% of the Average Real
Estate Assets. The administrative fee is payable monthly in arrears in cash, unless the Adviser elects, in its sole discretion, to receive all or a portion
of the administrative fee in shares of common stock, subject to certain limitations.

The advisory and administrative fees paid to the Adviser on the Contributed Assets (as defined in the Advisory Agreement) are subject to

an annual cap of approximately $5.4 million (the “Contributed Assets Cap”) (see “Expense Cap” below).

Pursuant to the terms of the Advisory Agreement, the Company will reimburse the Adviser for all documented Operating Expenses and
Offering Expenses it incurs on behalf of the Company. “Operating Expenses” include legal, accounting, financial and due diligence services
performed by the Adviser that outside professionals or outside consultants would otherwise perform, the Company’s pro rata share of rent,
telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Adviser required for the
Company’s operations, and compensation expenses under the 2016 LTIP. Operating Expenses do not include expenses for the advisory and
administrative services described in the Advisory Agreement. Certain Operating Expenses, such as the Company’s ratable share of rent, telephone,
utilities, office furniture, equipment, machinery and other office, internal and overhead expenses incurred by the Adviser or its affiliates that relate
to the operations of the Company, may be billed monthly to the Company under a shared services agreement. “Offering Expenses” include all
expenses (other than underwriters’ discounts) in connection with an offering, including, without limitation, legal, accounting, printing, mailing and
filing fees and other documented offering expenses. For the years ended December 31, 2021, 2020 and 2019, the Adviser did not bill any Operating
Expenses or Offering Expenses to the Company and any such expenses the Adviser incurred during the periods are considered to be permanently
waived.

Expense Cap

Pursuant to the terms of the Advisory Agreement, expenses paid or incurred by the Company for advisory and administrative fees payable
to the Adviser and Operating Expenses will not exceed 1.5% of Average Real Estate Assets per calendar year (or part thereof that the Advisory
Agreement is in effect (the “Expense Cap”)). The Expense Cap does not limit the reimbursement of expenses related to Offering Expenses. The
Expense Cap also does not apply to legal, accounting, financial, due diligence and other service fees incurred in connection with mergers and
acquisitions, extraordinary litigation or other events outside the Company’s ordinary course of business or any out-of-pocket acquisitions or due
diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Also, advisory and administrative fees are further
limited on Contributed Assets to approximately $5.4 million in any calendar year. “Contributed Assets” refers to all Real Estate Assets contributed
to the Company as part of its Spin-Off. The Contributed Assets Cap is not reduced for dispositions of such assets subsequent to its Spin-Off.
Advisory and administrative fees on New Assets are not subject to the above limitation and are based on an annual rate of 1.2% on Average Real
Estate Assets, but are subject to the Expense Cap. New Assets are all Real Estate Assets that are not Contributed Assets.

For the years ended December 31, 2021, 2020 and 2019, the Company incurred advisory and administrative fees of $7.6 million, $7.7
million and $7.5 million, respectively. For the years ended December 31, 2021, 2020 and 2019, the Adviser elected to voluntarily waive the advisory
and administrative fees of $17.3 million, $15.4 million and $9.1 million, respectively. The advisory and administrative fees waived by the Adviser
for the years ended December 31, 2021, 2020 and 2019 are considered to be permanently waived for the periods. The Adviser is not contractually
obligated to waive fees on New Assets in the future and may cease waiving fees on New Assets at its discretion.

F-32

Other Related Party Transactions

The Company has in the past, and may in the future, utilize the services of affiliated parties. For the years ended December 31, 2021, 2020
and 2019, the Company paid approximately $0.0 million, $0.2 million and $0.3 million, respectively, to NexBank Title, Inc. (“NexBank Title”).
NexBank Title is an affiliate of the Adviser through common beneficial ownership. NexBank Title provides title insurance and work related to
providing title insurance on properties related to acquisitions, dispositions and refinancing transactions. These amounts are either capitalized as
real estate assets or deferred financing costs, expensed as loss on extinguishment of debt and modification costs, or expensed as selling costs when
determining gain (loss) on sales of real estate, depending on the appropriate accounting as determined for each specific transaction. The Company
holds multiple operating accounts at NexBank Capital, Inc. (“NexBank”).

On July 30, 2021, three of our property-owning subsidiaries entered into agreements with NLMF Holdco, LLC, an entity under common
control with our Adviser and in which we own a 10% equity interest. As of December 31, 2021, the Company has funded approximately $0.2
million to NLMF Holdco, LLC which is included in prepaid and other assets on the consolidated balance sheet of the Company. For the year ended
December 31, 2021, the Company incurred expenses of $0.1 million for fiber internet service which is included in property operating expenses on
the consolidated statement of operations and comprehensive income. Additionally, on July 30, 2021, we entered into agreements with NLMF
Leaseco, LLC, which is controlled by Matt McGraner, one of our officers.

12. Commitments and Contingencies

Commitments

In the normal course of business, the Company enters into various rehabilitation construction related purchase commitments with parties
that provide these goods and services. In the event the Company were to terminate rehabilitation 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 December
31, 2021, management does not anticipate any material deviations from schedule or budget related to rehabilitation projects currently in process.

The Company’s agreement with NLMF Holdco, LLC may result in additional funding requirements to cover future project costs. The
maximum exposure of potential commitments is expected to be no more than $4.0 million. As of December 31, 2021, the Company has funded
approximately $0.2 million to NLMF Holdco, LLC which is included in prepaid and other assets on the consolidated balance sheet of the Company.

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.

Environmental liabilities could have a material adverse effect on the Company’s business, assets, cash flows or results of operations. As of
December 31, 2021, the Company was not aware of any environmental liabilities. There can be no assurance that material environmental liabilities
do not exist.

F-33

Self-Insurance Program

Effective March 1, 2019, the Company maintains a partial self-insurance program for property and casualty claims whereby it incurs the “first-
loss” portion of a claim up to an aggregate loss amount. Claims resulting in losses in excess of a $100,000 per occurrence property deductible will be
paid by the Company up to an aggregate amount of $1.2 million (the “2019 Aggregate Amount”). For the period from March 1, 2019 to February 29,
2020, the Company incurred a claim related to Cutter’s Point (see Note 5) as part of the 2019 Aggregate Amount. The claim related to Cutter’s Point
required the Company to fund the full 2019 Aggregate Amount with $0.6 million being funded in December 2019 and the remaining $0.6 million
funded during the three months ended March 31, 2020. For the period from March 1, 2019 to February 29, 2020, there were no other potential claims,
besides the claim involving Cutter’s Point, that met the criteria as set forth under ASC 450-20.

On March 1, 2020, the Adviser entered into a new policy resulting in a new aggregate amount of $2,365,000 (the “2020 Aggregate Amount”)
which is allocated across properties managed by the Adviser with approximately $1.5 million being allocated to the Company. As of December 30,
2020, all of the $1.5 million of the 2020 Aggregate Amount allocated to the Company has been funded. Under ASC 450-20 “Loss Contingencies”, the
Company does not reserve for the 2020 Aggregate Amount or any portion thereof until a claim is made and the amount of the claim and the timing of
payment on the claim can be reasonably estimated. For the period from March 1, 2020 to February 28, 2021, the Company fully funded the 2020
Aggregate Amount for claims related to Venue 8651, Timber Creek and Winter Storm Uri (see Note 5).

On March 1, 2021, the Adviser entered into a new policy resulting in a new aggregate amount of $2,468,750 (the “2021 Aggregate Amount”)
which is allocated across properties managed by the Adviser with approximately $1.6 million being allocated to the Company. As of December 31,
2021, all of the $1.6 million of the 2021 Aggregate Amount allocated to the Company has been prepaid. Under ASC 450-20 “Loss Contingencies”, the
Company does not reserve for the 2021 Aggregate Amount or any portion thereof until a claim is made and the amount of the claim and the timing of
payment on the claim can be reasonably estimated. For the period from March 1, 2021 to December 31, 2021, the Company has funded $0.1 million
of its allocated 2021 Aggregate Amount related to a claim at Old Farm.

[13. Subsequent Events]

Dividends Declared

On February 14, 2022, the Company’s board of directors declared a quarterly dividend of $0.38 per share, payable on March 31, 2022 to

stockholders of record on March 15, 2022.

F-34

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(in thousands)

Property Name

Location

Encumbrances
(1)

Land

Buildings and
Improvements
(2)

Subsequent
to

Total

Acquisition Land

Buildings and
Improvements
(3)

Total (4)

Initial Cost to Company

Costs

Capitalized

Gross Amount Carried at
December 31, 2021

Accumulated
Depreciation
and
Amortization
(5) (6)

Date
Acquired

Arbors on Forest
Ridge .......................... Bedford, Texas $
Cutter's Point ..............

Richardson,
Texas
Grand Prairie,
Texas

Silverbrook .................

The Summit at Sabal
Park ............................ Tampa, Florida
Courtney Cove ........... Tampa, Florida
Radbourne Lake .........

Charlotte, North
Carolina
Charlotte, North
Carolina

Timber Creek .............

Sabal Palm at Lake
Buena Vista ................

Cornerstone ................

The Preserve at Terrell
Mill .............................

Orlando,
Florida
Orlando,
Florida

Marietta,
Georgia

Versailles .................... Dallas, Texas
Seasons 704
Apartments .................

West Palm
Beach, Florida
Madera Point .............. Mesa, Arizona
Venue at 8651 ............

Parc500.......................

The Venue on
Camelback ..................

Fort Worth,
Texas
West Palm
Beach, Florida

Phoenix,
Arizona

Old Farm .................... Houston, Texas
Stone Creek at Old
Farm ........................... Houston, Texas
Hollister Place ............ Houston, Texas
Rockledge
Apartments .................

Marietta,
Georgia

Atera Apartments ....... Dallas, Texas
Crestmont Reserve ..... Dallas, Texas
Brandywine I & II ......

Bella Vista ..................

The Enclave ............... Tempe, Arizona
The Heritage ...............

Nashville,
Tennessee
Phoenix,
Arizona

Phoenix,
Arizona
Fort Worth,
Texas

Summers Landing ......

Residences at
Glenview Reserve ......

Residences at West
Place ...........................

13,130 $ 2,330 $

10,475 $

12,805 $

3,413 $ 2,330 $

13,576 $

15,906 $

(5,037 ) 1/31/2014

16,640 3,330

12,515

15,845

8,307 3,330

20,470

23,800

(4,124 ) 1/31/2014

30,590 4,860

25,540

30,400

8,314 4,860

33,061

37,921

(12,347 ) 1/31/2014

13,560 5,770
13,680 5,880

13,280
13,070

19,050
18,950

2,984 5,770
4,155 5,880

15,860
16,794

21,630
22,674

(5,471 ) 8/20/2014
(5,652 ) 8/20/2014

20,000 2,440

21,810

24,250

4,105 2,440

25,263

27,703

(7,889 ) 9/30/2014

24,100 11,260

11,490

22,750

6,685 11,260

17,376

28,636

(7,036 ) 9/30/2014

42,100 7,580

41,920

49,500

4,683 7,580

45,216

52,796

(12,674 ) 11/5/2014

20,803 1,500

30,050

31,550

5,488 1,500

34,644

36,144

(10,600 ) 1/15/2015

42,480 10,170
23,880 6,720

47,830
19,445

58,000
26,165

16,061 10,170
7,098 6,720

62,077
25,962

72,247
32,682

(19,355 ) 2/6/2015
(8,969 ) 2/26/2015

17,460 7,480
15,150 4,920

13,520
17,605

21,000
22,525

3,603 7,480
3,774 4,920

16,722
20,750

24,202
25,670

(5,296 ) 4/15/2015
(6,143 ) 8/5/2015

13,734 2,350

16,900

19,250

5,283 2,350

21,672

24,022

(6,941 ) 10/30/2015

14,665 3,860

19,424

23,284

6,386 3,860

25,319

29,179

(7,547 ) 7/27/2016

28,093 8,340
52,886 11,078

36,520
73,986

44,860
85,064

6,085 8,340
4,362 11,078

41,882
74,994

50,222
86,072

(9,475 ) 10/11/2016
(15,318 ) 12/29/2016

15,274 3,493
14,811 2,782

19,937
21,902

23,430
24,684

1,250 3,493
4,273 2,782

20,615
25,243

24,108
28,025

(4,079 ) 12/29/2016
(5,840 ) 2/1/2017

68,100 17,451
29,500 22,371
12,061 4,124

96,577 114,028
59,461
37,090
24,791
20,667

9,786 17,451
5,315 22,371
2,602 4,124

103,342 120,793
63,436
41,065
26,706
22,582

(20,671 ) 6/30/2017
(7,508 ) 10/25/2017
(3,660 ) 9/26/2018

43,835 6,237

73,870

80,107

6,789 6,237

78,897

85,134

(11,899 ) 9/26/2018

29,040 10,942
25,322 11,046

37,661
30,933

48,603
41,979

3,189 10,942
2,719 11,046

39,931
32,883

50,873
43,929

(5,605 ) 1/28/2019
(4,684 ) 1/28/2019

24,625 6,835

35,244

42,079

2,971 6,835

37,465

44,300

(5,088 ) 1/28/2019

10,109 1,798

17,628

19,426

2,129 1,798

19,224

21,022

(2,159 ) 6/7/2019

Nashville,
Tennessee

Orlando,
Florida

26,445 3,367

41,652

45,019

4,002 3,367

44,672

48,039

(4,902 ) 7/17/2019

33,817 3,345

52,657

56,002

2,422 3,345

53,901

57,246

(5,289 ) 7/17/2019

S-1

Avant at Pembroke
Pines ............................

Arbors of Brentwood ..

Torreyana
Apartments ..................

Bloom ..........................

Bella Solara .................

Fairways at San
Marcos .........................

The Verandas at Lake
Norman........................

Creekside at
Matthews .....................

Six Forks Station .........

Hudson High House ....

Pembroke
Pines, Florida
Nashville,
Tennessee

Las Vegas,
Nevada
Las Vegas,
Nevada
Las Vegas,
Nevada

Chandler,
Arizona

177,100 48,434 275,673

324,107

20,309 48,434

288,993

337,427

(27,962 ) 8/30/2019

34,237

6,346

56,409

62,755

3,080

6,346

58,275

64,621

(5,491 ) 9/10/2019

37,400 23,824

44,560

68,384

1,737 23,824

45,096

68,920

(3,877 ) 11/22/2019

58,850 23,805

83,288

107,093

3,821 23,805

85,258

109,063

(7,204 ) 11/22/2019

36,575 12,605

54,262

66,867

2,190 12,605

55,293

67,898

(4,653 ) 11/22/2019

46,464 10,993

73,785

84,778

2,801 10,993

74,911

85,904

(3,126 ) 11/2/2020

Charlotte, North
Carolina

Charlotte, North
Carolina
Raleigh, North
Carolina
Cary, North
Carolina

34,925

9,510

54,270

63,780

241

9,510

53,540

63,050

(1,011 ) 6/30/2021

31,900 11,515

46,741

58,256

305 11,515

46,045

57,560

(886 ) 6/30/2021

41,180 11,357

63,748

75,105

524 11,357

64,272

75,629

(1,399 ) 9/10/2021

46,625 23,809

69,793

93,602

5 23,809

69,798

93,607

(229 ) 12/7/2021

$ 1,281,146 $ 375,857 $ 1,733,727 $ 2,109,584 $ 183,246 $ 375,857 $ 1,872,939 $ 2,248,796 $ (287,096 )

(1)
(2)

(3)

(4)

Encumbrances includes mortgage debt.
Includes gross intangible lease assets of approximately $44.0 million and buildings, improvements and furniture, fixtures and equipment of
approximately $1.7 billion, which includes total acquisition costs of approximately $8.2 million incurred on the acquisitions of The
Colonnade, Old Farm, Stone Creek at Old Farm, Hollister Place, Rockledge Apartments, Atera Apartments, Crestmont Reserve,
Brandywine I & II, Bella Vista, The Enclave, The Heritage, Summers Landing, Residences at Glenview Reserve, Residences at West Place,
Avant at Pembroke Pines, Arbors of Brentwood, Torreyana, Bloom, Bella Solara, Fairways at San Marcos, Verandas at Lake Norman,
Creekside at Matthews, Six Forks Station, and Hudson High House and a fair market value adjustment, a premium of approximately $0.9
million, related to the assumption of debt in connection with the acquisition of Parc500.
Includes gross intangible lease assets of approximately $2.6 million, construction in progress of approximately $6.1 million, and furniture,
fixtures and equipment of approximately $120.4 million.
The aggregate cost, net of accumulated depreciation, for Federal income tax purposes as of December 31, 2021 was approximately $2.0
billion (unaudited).
Includes accumulated amortization of intangible lease assets of approximately $1.0 million.

(5)
(6) Depreciation and amortization are computed on a straight-line basis over the estimated useful lives. The estimated useful life to compute
depreciation for buildings is 30 years, for improvements is 15 years, and for furniture, fixtures and equipment is three years. The estimated
useful life to compute amortization for intangible lease assets is six months.

S-2

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021

A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2021, 2020 and 2019 is as follows

(in thousands):

Real Estate:
Balance, beginning of year .......................................................... $
Additions:

For the Year Ended December 31,

2021

2020

2019

1,976,243 $

1,942,221 $

1,222,563

Real estate acquired ..................................................................
Improvements ...........................................................................

290,743
43,202

84,778
48,933

882,313
47,739

Deductions:

Real estate sold .........................................................................
Write-off of fully amortized assets and other ..........................
Balance, end of year .................................................................... $

(55,045 )
(6,347 )
2,248,796 $

(85,588 )
(14,101 )
1,976,243 $

(191,203 )
(19,191 )
1,942,221

Accumulated Depreciation and Amortization:
Balance, beginning of year .......................................................... $
Depreciation expense ...............................................................
Amortization expense ...............................................................
Accumulated depreciation on sales ..........................................
Write-off of fully amortized assets and other ..........................
Balance, end of year .................................................................... $

215,494 $
82,760
4,118
(11,028 )
(4,248 )
287,096 $

160,411 $
75,609
6,802
(14,523 )
(12,805 )
215,494 $

135,021
56,360
12,726
(32,408 )
(11,288 )
160,411

S-3

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