Belpointe PREP, LLC — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The company is an externally managed qualified opportunity fund focused on acquiring, developing and managing commercial real estate in qualified opportunity zones. It reported 15 investments across three states.
Key financial metrics
Amounts below are in millions of dollars except per-unit data; financial statements are unaudited.
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Revenue | $0.329 | $0.154 |
| Net loss | $(2.009) | $(0.135) |
| Net loss attributable to Belpointe PREP | $(2.016) | $(0.128) |
| Basic and diluted loss per Class A unit | $(0.60) | $(1,280), with only 100 weighted-average units |
| Operating cash flow | $(1.770) | $(0.087) |
| Investing cash flow | $(39.128) | $(3.405) |
| Financing cash flow | $20.183 | $24.000 |
| Cash and cash equivalents | $171.544 | $192.131 at Dec. 31, 2021 |
| Total assets | $349.033 | $341.426 at Dec. 31, 2021 |
| Total liabilities | $27.187 | $17.551 at Dec. 31, 2021 |
| Debt, net | $10.797 | $10.790 at Dec. 31, 2021 |
Rental revenue rose about 114% year over year, while expenses grew faster: total expenses were $2.832 million versus $0.273 million. The filing does not provide a meaningful operating margin; the company remains in a development and investment phase. Loan receivables totaled $38.4 million at quarter-end, including a $30.0 million loan to an affiliate of the CEO. Cash and restricted cash together were $171.6 million. No cash interest payments were reported for either comparative quarter.
Material changes and notable items
- Compared with Q1 2021, revenue and expenses increased as the portfolio expanded and the public offering and related operations commenced. General and administrative expense rose to $1.641 million from $0.132 million; property expense rose to $0.907 million from $0.071 million.
- Investing cash outflow increased to $39.1 million, principally reflecting $35.0 million of loan funding, development spending and real estate investment. Real estate under construction increased to $85.4 million from $76.9 million at year-end.
- On January 3, the company made a $30.0 million, 5% first-mortgage loan to Norpointe, an affiliate of its CEO, maturing December 31, 2022. It also made a $5.0 million, 6% secured loan to Visco, due February 2023, and extended a $3.5 million CMC loan maturity to June 27, 2022.
- The $10.8 million mortgage debt outstanding at quarter-end was repaid on April 22, 2022. The loan had been secured by property with a reported carrying value of $44.0 million.
- The company incurred $0.634 million in management fees in Q1 2022. It reported $7.539 million due to affiliates at quarter-end, including $4.407 million for insurance and $1.585 million for development fees. Related-party insurance premiums of $4.5 million included $0.4 million in brokerage commissions earned by an insurance broker with indirect family ties to the CEO.
- No Class A units were issued in the Primary Offering during Q1. The offering had raised $212.5 million in net proceeds through December 31, 2021; $20.3 million of year-end subscriptions receivable was collected in Q1.
Outlook, risks and contingencies
- Management stated that available capital resources, anticipated offering and financing proceeds, and operating cash flows were expected to be sufficient for anticipated working capital and capital expenditure needs over the next 12 months and beyond. This is a forward-looking assessment, not a guarantee.
- The company entered a construction management agreement for redevelopment of 1991 Main in Sarasota. It estimated at least $237.3 million of remaining construction and soft-cost funding, targeted an unlevered yield above 6%, and expected completion by Q1 2024. A separate $3.8 million unfunded capital commitment was reported under a construction management agreement.
- Management described ongoing uncertainty from COVID-19, inflation, supply-chain disruption, labor shortages, the Russia-Ukraine conflict and broader economic conditions. It said the impact of COVID-19 on future results could not be estimated.
- The company targets property-level leverage of 50%–70% of cost or fair market value after acquiring a substantial stabilized portfolio, but may use greater leverage during acquisition and development. The filing says there is no limit on borrowing for an individual property or portfolio.
- The company reported no material litigation, no material changes to its previously disclosed risk factors, and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective at a reasonable assurance level.
- There is no specific earnings or revenue guidance in the filing. The company plans to begin quarterly NAV calculations no later than the first quarter following year-end 2022, subject to the stated process.
Most important facts for investors to verify
- Repayment and any remaining obligations related to the $10.8 million mortgage loan repaid after quarter-end.
- Credit quality, collateral value, repayment timing and related-party governance for the $30.0 million CEO-affiliate loan, as well as the other commercial real estate loans.
- How the company will fund the estimated minimum $237.3 million remaining 1991 Main project costs and other development commitments, including potential offering or borrowing needs.
- Related-party fees, reimbursements and insurance arrangements, including the increase in amounts due to affiliates.
- Project timelines, leasing, development costs and the assumptions underlying management’s liquidity and yield expectations amid inflation, labor and supply-chain risks.