Belpointe PREP, LLC — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in U.S. dollars; financial-statement amounts are in thousands unless stated otherwise. Belpointe is an externally managed qualified opportunity fund focused on acquiring, developing and managing commercial real estate in qualified opportunity zones.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $338 | $278 | $979 | $679 |
| Total expenses | $2,116 | $487 | $7,611 | $1,050 |
| Net income (loss) | $(1,330) | $133 | $(5,271) | $(68) |
| Net income (loss) attributable to Belpointe | $(1,045) | $51 | $(4,947) | $(143) |
| Basic and diluted income (loss) per Class A unit | $(0.30) | $0.37 | $(1.45) | $(3.06) |
Rental revenue grew 22% in Q3 and 44% for the nine-month period year over year, mainly due to additional acquired properties, partly offset by a tenant vacating 1900 Fruitville Road. Expenses rose substantially: property expenses were $973 in Q3 and $2,804 year to date; general and administrative expenses were $794 and $3,908, respectively. Management attributed much of the increase to management fees, acquired properties, and costs incurred after the offering commenced. Interest income increased to $450 in Q3 and $1,500 year to date, mainly from real estate loans. The 2021 comparison included a $251 gain on redemption of an equity investment; there was no comparable 2022 gain.
Balance sheet, cash flow and capital
- At September 30, 2022, total assets were $341.8 million, including $160.5 million of net real estate, $139.5 million of cash and cash equivalents, and $34.9 million of loans receivable. Cash including restricted cash was $140.9 million.
- Total liabilities were $13.4 million, and reported debt was zero. The $10.8 million mortgage loan outstanding at year-end 2021 was repaid in April 2022.
- For the first nine months, operating cash flow was negative $4.5 million, investing cash flow was negative $63.0 million, and financing cash flow was positive $16.0 million. Cash and restricted cash decreased $51.4 million.
- Real estate under construction increased to $111.4 million from $76.9 million at year-end 2021. Members’ capital was $328.3 million. Class A units outstanding increased to 3,454,449 from 3,382,149.
- The ongoing best-efforts offering is registered for up to $750 million of Class A units, initially priced at $100 per unit. The company issued 72,300 units and reported $6.6 million of net offering proceeds for the first nine months of 2022.
Material developments, outlook and risks
- The company is redeveloping 1991 Main Street in Sarasota. Construction was underway; management expected leasing to begin in Q1 2024 and completion in Q2 2024. It reported a $155.3 million unfunded commitment under the construction management agreement, expected to be incurred over 21 months, and estimated at least $228.7 million of remaining construction and soft costs. The filing also reports $4.0 million outstanding and payable in connection with the redevelopment.
- Management said available capital—including offering proceeds and potential construction or other loans—combined with operating cash flow, was expected to cover anticipated working capital and capital expenditures for the next 12 months and beyond. This is an expectation, not a guarantee; the filing gives no specific earnings or distribution guidance.
- Management identified rising interest rates and inflation, energy costs, market volatility, economic uncertainty, supply-chain disruption, labor shortages and COVID-19 as uncertainties that could affect costs, financing, property values and results. It said it could not estimate their future impact. Development schedules, costs and returns are also exposed to project and approval risks; 1700 Main Street remained on hold pending Sarasota rezoning.
- A $30.0 million mortgage loan to Norpointe, an affiliate of the CEO, was restructured through a majority-owned subsidiary and remained outstanding at September 30, bearing 5% interest and due June 28, 2023. The loan was secured by a first mortgage. The company also had a $5.0 million loan bearing 6% interest, due February 2023.
- Manager and affiliate fees and reimbursements included $1.9 million of management fees for the nine months and $2.8 million of development fees earned during the construction phase. The company disclosed affiliate relationships, including the CEO-affiliate loan and insurance brokerage services involving a company in which the CEO’s immediate family members have an indirect minority interest.
- The filing reported no material litigation and no material change to the risk factors in the 2021 Form 10-K. Management stated disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Funding sources and timing for the 1991 Main redevelopment, including the reported commitment, remaining cost estimate and amounts payable.
- Repayment prospects and collateral coverage for the $30.0 million CEO-affiliate loan and the $5.0 million loan due in February 2023.
- Actual construction costs, permitting and rezoning progress, project schedules, and whether expected leasing and completion dates remain achievable.
- Offering proceeds, future capital needs and any borrowing or unit issuance that could affect liquidity or dilution; confirm the timing and basis of future NAV updates.
- Changes in related-party fees, reimbursements and transactions, and their effect on expenses and project economics.