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, 2024
Business Overview: A publicly traded Qualified Opportunity Fund focused on acquiring, developing, and managing commercial real estate in Qualified Opportunity Zones. The company is externally managed by Belpointe PREP Manager, LLC. As of June 30, 2024, the portfolio consists primarily of development projects in Florida (Sarasota, St. Petersburg), Tennessee (Nashville), and Connecticut (Storrs).
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 |
|---|---|---|
| Total Revenue | $721 | $1,275 |
| Net Loss | $(8,697) | $(6,878) |
| Net Loss Attributable to Class A Units | $(8,701) | $(6,890) |
| Loss Per Unit (Basic & Diluted) | $(2.40) | $(1.95) |
| Cash and Cash Equivalents | $24,740 | $20,125 |
| Total Cash (incl. Restricted) | $35,170 | $90,093 |
| Total Debt, Net | $119,905 | $19,678 |
| Real Estate Under Construction | $262,656 | $291,130 |
Material Changes vs. Prior Period
- Revenue Decline: Rental revenue decreased 43% year-over-year (from $1.275M to $0.721M) primarily due to the full amortization of below-market rent intangible liabilities in the prior year.
- Increased Interest Expense: Interest expense rose from $0 to $2.426M for the six-month period, driven by the drawdown of significant construction and mezzanine debt facilities in 2024.
- Debt Expansion: Total debt increased significantly from $19.7M to $119.9M. New financings included a $56.4M mezzanine loan for the "1991 Main" project and a $104M construction loan commitment for the "1000 First" project.
- Impairment Charges: Real estate impairment charges decreased to $0.777M from $2.166M in the prior year, related to a Nashville asset.
- Cash Flow: Net cash used in operating activities increased to $5.383M (from $3.422M), while net cash provided by financing activities surged to $96.283M (from $0.185M) due to new debt proceeds.
Outlook, Risks, and Management Commentary
- Development Progress:
- 1991 Main (Sarasota): Seven floors of one building and retail space (leased to Sprouts Farmers Market) reached substantial completion in Q2 2024. Remaining construction expected by end of 2024.
- 1000 First (St. Petersburg): Construction loan secured ($104M); completion expected in H2 2025.
- Subsequent Events: As of August 8, 2024, additional phases of 1991 Main totaling $37M in capitalized costs were placed into service.
- Liquidity: Management believes cash on hand, anticipated proceeds from Public Offerings, and financing activities are sufficient for the next 12 months. However, the company has not sold any units in its Follow-on Offering as of June 30, 2024.
- Risks:
- Interest Rate Sensitivity: Variable-rate construction loans expose the company to rising rates, partially mitigated by interest rate caps.
- Construction Delays: Delays in lease-up, stabilization, or construction could impact cash flows and financing covenants.
- Capital Raising: Reliance on the Public Offerings for liquidity; unsold capacity remains significant ($514M).
Investor Verification Checklist
- Debt Covenants: Verify compliance with financial covenants, specifically the requirement to maintain liquid assets of at least $20M and net worth of at least $130M.
- Construction Budgets: Monitor unfunded commitments ($109.1M aggregate for 1991 Main and 1000 First) against available financing and cash reserves.
- Lease-Up Rates: Track occupancy and rental rates for the newly completed phases of 1991 Main to assess revenue stabilization.
- Public Offering Activity: Monitor sales of Class A units under the Primary and Follow-on Offerings to gauge equity capital availability.
- Related Party Transactions: Review ongoing fees and reimbursements to the Manager and Sponsor, which totaled $3.3M in operating expenses for the six months ended June 30, 2024.