Business Context and Reporting Period
Company: Belpointe PREP, LLC (Ticker: OZ)
Reporting Period: Quarterly period ended September 30, 2024 (Q3 2024)
Business Overview: Belpointe PREP is a publicly traded qualified opportunity fund focused on identifying, acquiring, developing, and managing commercial real estate within qualified opportunity zones. The company is externally managed by Belpointe PREP Manager, LLC. As of September 30, 2024, the company had 3,647,093 Class A units outstanding.
Key Financial Metrics
| Metric | Q3 2024 (3 Months) | Q3 2023 (3 Months) | YTD 2024 (9 Months) | YTD 2023 (9 Months) |
|---|---|---|---|---|
| Total Revenue | $860,000 | $468,000 | $1,581,000 | $1,743,000 |
| Net Loss | $(6,924,000) | $(3,302,000) | $(15,622,000) | $(10,180,000) |
| Net Loss Attributable to Class A Units | $(6,928,000) | $(3,284,000) | $(15,630,000) | $(10,174,000) |
| Loss Per Unit (Basic & Diluted) | $(1.90) | $(0.92) | $(4.30) | $(2.87) |
| Cash and Cash Equivalents | $23,990,000 | N/A | $23,990,000 | N/A |
| Total Debt (Net) | $144,135,000 | N/A | $144,135,000 | N/A |
| Real Estate Under Construction | $172,331,000 | N/A | $172,331,000 | N/A |
Note: All figures in thousands except per unit data. YTD figures represent the nine months ended September 30.
Material Changes vs. Prior Period
- Revenue Growth: Q3 2024 rental revenue increased 84% year-over-year to $860,000, driven by the lease-up of residential units and retail spaces at the "Aster & Links" development in Sarasota, Florida, which was placed into service during the current year.
- Increased Expenses: Total expenses rose 106% in Q3 2024 compared to Q3 2023. This was primarily due to:
- Interest Expense: Increased from $0 in Q3 2023 to $3.33 million in Q3 2024 due to new debt financings.
- Property Expenses: Increased 104% to $2.08 million, reflecting operational costs for newly stabilized assets.
- Depreciation: Increased 202% to $1.46 million as assets were placed in service.
- Debt Expansion: Total debt net increased significantly from $19.7 million at December 31, 2023, to $144.1 million at September 30, 2024. This includes new construction loans and a mezzanine loan to fund ongoing developments.
- Impairment Reduction: Impairment charges decreased significantly. While Q3 2023 included a $795,000 charge, Q3 2024 had no impairment charges. YTD 2024 impairment was $777,000 compared to $2.96 million in YTD 2023.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- Project Status: Construction on "Aster & Links" (Sarasota) is complete with lease-up underway. "Viv" (St. Petersburg) is approximately 60% complete with an anticipated completion in H2 2025.
- Liquidity: Management believes cash on hand, proceeds from Public Offerings, and financing activities are sufficient to meet requirements for the next 12 months.
- Capital Raising: The company continues its "at-the-market" offering program. As of September 30, 2024, $513 million remained unsold from the Primary Offering.
Risks and Contingencies:
- Market Conditions: Risks include construction delays, lease-up delays, fluctuating interest rates, inflation, and changes in occupancy rates.
- Financing Costs: The company faces risks related to borrowing costs and the ability to access debt financing.
- Related Party Dependence: The company is economically dependent on its Manager and Sponsor for essential services, including asset management and capital raising.
- Unfunded Commitments: As of September 30, 2024, the company had aggregate unfunded commitments of $83.8 million for the "Viv" and "Aster & Links" projects.
Investor Verification Checklist
- Debt Covenants: Verify compliance with financial covenants, specifically the requirement to maintain liquid assets of no less than $20.0 million and net worth of no less than $130.0 million.
- Construction Progress: Monitor the timeline for the completion of the "Viv" project in St. Petersburg and the lease-up rates for "Aster & Links" in Sarasota.
- Interest Rate Exposure: Review the effectiveness of interest rate caps (strikes at 5.07% and 6.25%) in mitigating rising SOFR rates on variable-rate construction loans.
- Capital Raise Velocity: Track the rate of Class A unit sales under the "at-the-market" offering to ensure sufficient liquidity for unfunded construction commitments.
- Related Party Transactions: Review the magnitude of fees and reimbursements paid to the Manager and Sponsor, which totaled $5.15 million for the nine months ended September 30, 2024.