OZ

Business Context and Reporting Period

Company: Belpointe PREP, LLC (NYSE American: OZ)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2025
Business Overview: A publicly traded Qualified Opportunity Fund focused on acquiring, developing, and managing commercial and mixed-use real estate within Qualified Opportunity Zones. The company is externally managed by Belpointe PREP Manager, LLC.

Key Financial Metrics

Note: The company reported negative Net Operating Income (NOI) of $(1.28) million for the six months ended June 30, 2025, driven by high property expenses during the lease-up phase of new developments.

Material Changes vs. Prior Period

• Revenue Growth: Rental revenue increased significantly to $3.74 million (6M 2025) from $0.72 million (6M 2024), primarily due to the commencement of operations and lease-up activity at the "Aster & Links" mixed-use development in Sarasota, Florida.
• Increased Expenses: Total expenses rose to $20.48 million from $9.57 million year-over-year. This was driven by:
  • Interest Expense: Increased to $7.23 million from $2.43 million due to higher outstanding debt balances on construction loans.
  • Depreciation & Amortization: Increased to $3.78 million from $0.93 million as assets at Aster & Links were placed in service.
  • Property Expenses: Increased to $6.68 million from $2.69 million due to operational costs of new properties.
• Debt Expansion: Total debt increased by approximately $51 million to fund ongoing construction projects, specifically the 1991 Main Construction Loan and 1000 First Construction Loan.
• Capitalization: The company issued 60,288 Class A units during the six months ended June 30, 2025, raising gross proceeds of approximately $4.02 million.

Outlook, Risks, and Management Commentary

• Development Progress:
  • Aster & Links (Sarasota): Substantially completed; currently in lease-up phase with Sprouts Farmers Market as an anchor tenant.
  • VIV (St. Petersburg): Construction is 90% complete, with completion anticipated in the second half of 2025.
• Liquidity: Management believes cash on hand, proceeds from the Follow-on Offering, and debt financing are sufficient to meet requirements for the next 12 months. Unfunded commitments for development projects total approximately $26.0 million.
• Legislative Impact: The company is evaluating the impact of the "One Big Beautiful Bill Act" (OBBBA) enacted on July 4, 2025, which permanently extends certain federal income tax provisions and makes changes to tax laws affecting Opportunity Funds.
• Legal Proceedings: The company is defending against a foreclosure complaint filed by Galinn Fund LLC regarding a $3.0 million loan allegedly executed by a former affiliate without authority. Management disputes liability and asserts substantial defenses, including fraud and forgery.
• Risk Factors: Key risks include interest rate volatility, construction delays, lease-up timing, and the ability to access debt financing in a high-rate environment.

Investor Verification Checklist

• Lease-Up Velocity: Verify occupancy rates and rental revenue growth at Aster & Links and VIV to ensure they meet stabilization targets.
• Debt Covenants: Confirm continued compliance with financial covenants, specifically the requirement to maintain liquid assets of at least $20.0 million and net worth of at least $130.0 million.
• Construction Budgets: Monitor the $26.0 million in unfunded commitments for VIV and Aster & Links to assess potential need for additional equity or debt financing.
• Legal Resolution: Track the status of the Galinn Fund LLC litigation to ensure no material adverse impact on the 497-501 Middle Turnpike asset.
• Tax Implications: Review the final impact of the OBBBA on the company's Qualified Opportunity Fund status and investor tax benefits.