Belpointe PREP, LLC — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; comparisons are with fiscal 2021, not a standalone 2022 fourth quarter. Belpointe PREP is an externally managed real estate company focused on commercial properties in qualified opportunity zones (QOZs). It reported that at least 90% of its assets consist of QOZ property and that it intends to be taxed as a partnership.
Financial results and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Rental revenue | $1.391 million | $0.997 million |
| Total expenses | $10.898 million | $4.652 million |
| Net loss | $8.238 million | $3.042 million |
| Net loss attributable to Belpointe PREP | $7.683 million | $3.135 million |
| Interest income | $1.850 million | $0.369 million |
| Net cash used in operating activities | $6.651 million | $2.268 million |
| Net cash used in investing activities | $63.530 million | $43.365 million |
| Net cash provided by financing activities | $22.802 million | $231.401 million |
| Cash and restricted cash at year-end | $144.967 million | $192.346 million |
- Rental revenue increased 40%, primarily reflecting acquisitions and a full year of activity from 2021 acquisitions, partly offset by a tenant vacating 1900 Fruitville Road.
- Expenses rose 134%, driven by property and management costs, higher general and administrative costs, and increased depreciation and amortization. The larger expense base contributed to a wider net loss.
- At December 31, 2022, total assets were $353.995 million, including $198.258 million of net real estate. Total liabilities were $21.343 million. Reported debt was zero, down from $10.790 million in 2021 after repayment of the acquisition loan; lease liabilities were $7.126 million.
- Cash declined by $47.379 million during 2022. Investing outflows principally reflected real estate development and acquisitions, partly offset by loan repayments. Financing cash flow included offering proceeds and repayment of the $10.8 million acquisition loan.
- The 2022 loss per Class A unit was $2.25 versus $7.64 in 2021. The weighted-average unit count rose substantially, so per-unit loss comparisons are affected by the 2021 exchange offer and issuance activity.
Portfolio, financing and material changes
- The filing describes 17 QOZ investments across three states, with a focus on multifamily and mixed-use properties, many still in development or redevelopment. The portfolio includes properties in Florida, Tennessee and Connecticut.
- Construction at 1991 Main Street in Sarasota was underway. The company estimated at least $218.9 million of remaining construction and soft costs, including a $144.3 million unfunded commitment under the construction management agreement. It expected initial occupancy in the first half of 2024 and completion by year-end 2024.
- The company issued 141,300 Class A units in 2022 and reported $13.5 million of net proceeds for the year. Its continuous primary offering is a best-efforts offering, with a registered maximum of $750 million.
- The company made and repaid several loans during 2022, including a $30 million loan to Norpointe, an affiliate of the CEO, and an approximately $5 million Visco loan. The Norpointe loan bore 5% interest, was restructured in June for QOZ compliance and repaid in December; the Visco loan bore 6% interest and was repaid in December.
- After acquiring a 70.2% controlling interest in CMC Storrs, the company reported a $0.4 million loss related to cash misappropriated by a joint-venture partner. That partner agreed to forfeit its interest effective March 24, 2023.
- Management reported no material litigation at year-end. The independent auditor issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not express an opinion on internal controls.
Outlook, distributions and principal risks
- Management said that rising interest rates, inflation, banking-system instability, credit availability, market volatility, supply-chain disruptions and labor shortages create material uncertainty. It said it could not estimate their future impact and noted that past performance may not indicate future results.
- Management expected available capital resources, potential offering and construction-loan proceeds, and operating cash flow to be sufficient for anticipated working capital and capital expenditures over the next 12 months and beyond. This outlook depends in part on raising capital and securing financing; it is not a guarantee.
- The company does not expect to pay distributions until investments generate operating cash flow. It has no required minimum distribution and described a 6%–8% annual rate as a target it anticipates working toward, not a commitment.
- Key risks include development cost overruns and delays, financing availability and interest rates, concentration in Florida and exposure to severe weather, property and tenant performance, illiquidity, competition, leverage, QOZ and partnership tax qualification, and dependence on the external Manager and Sponsor.
- Related-party arrangements merit attention: the Manager receives a quarterly fee at an annualized 0.75% of NAV and holds Class B units entitling it to 5% of specified gains or distributions. Affiliates also receive development fees and reimbursements. The filing notes that these arrangements were not negotiated at arm’s length.
Important facts for investors to verify
- Current construction budget, remaining funding needs, financing status and schedule for 1991 Main and other development projects.
- Current cash, restricted cash, liabilities, debt and any new construction financing since year-end.
- Whether rental income and property operations are improving enough to fund expenses and support any future distributions.
- Progress on the CMC partner forfeiture and recovery, if any, of the reported misappropriated cash.
- Terms and oversight of related-party loans, management and development fees, expense reimbursements, and the Manager’s 5% Class B economic interest.
- Whether the company continues to meet QOZ and partnership tax requirements, and the implications for investors’ tax treatment and K-1 reporting.