Belpointe PREP, LLC — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; financial statements are unaudited. Belpointe PREP is an externally managed qualified opportunity fund focused on acquiring, developing and managing commercial real estate in qualified opportunity zones. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $0.337 | $0.497 |
| Total expenses | $4.433 | $3.301 |
| Net loss attributable to Belpointe PREP | $(3.981) | $(2.810) |
| Loss per Class A unit | $(1.10) | $(0.80) |
| Net cash used in operating activities | $(6.628) | $(1.386) |
| Net cash used in investing activities | $(37.865) | $(21.169) |
| Net cash provided by (used in) financing activities | $63.084 | $(0.141) |
| Cash and cash equivalents | $29.205 | $20.125 at Dec. 31, 2023 |
| Restricted cash | $12.971 | $3.460 at Dec. 31, 2023 |
| Debt, net | $86.922 | $19.678 at Dec. 31, 2023 |
| Total assets / total liabilities | $450.920 / $129.128 | $382.117 / $57.053 at Dec. 31, 2023 |
Revenue was insufficient to cover operating costs; the filing does not present a meaningful positive operating margin. The company reported a $3.981 million loss on $0.337 million of revenue. Cash, cash equivalents and restricted cash together were $42.176 million at quarter-end. Restricted cash is reserved under lender agreements and is not equivalent to unrestricted liquidity.
Changes from the comparable period
- Revenue declined 32% to $0.337 million, primarily because below-market lease intangible amortization was lower.
- Net loss attributable to the company widened by $1.171 million. Expenses increased 34%, including $0.721 million of interest expense and a $0.595 million real estate impairment; neither item was reported in Q1 2023. Lower general and administrative costs and depreciation partially offset these increases.
- Operating cash outflow increased to $6.628 million, and development-related investing outflow increased to $37.865 million.
- Debt, net rose by $67.244 million, mainly reflecting new mezzanine borrowing and additional construction-loan draws. Financing provided $63.084 million during the quarter, versus a $0.141 million outflow in Q1 2023.
- Real estate under construction increased to $337.737 million from $291.130 million at year-end. Total assets rose to $450.920 million.
Debt, liquidity and development commitments
- The 1991 Main construction loan has a commitment of up to $130.0 million, bears interest at one-month SOFR plus 3.45% with an 8.51% minimum rate, and had a $50.0 million balance at March 31. The company drew an additional $8.2 million through the filing date.
- The 1991 Main mezzanine loan has a commitment of up to $56.4 million, bears 13% interest, and had a $41.8 million balance at quarter-end. Both loans mature in May 2027, subject to extension options. Reported total debt principal was $91.875 million before unamortized issuance costs and discounts.
- The loans are secured by the 1991 Main investment. Guarantees require at least $20 million in liquid assets and $130 million in net worth; the company reported compliance at March 31, 2024. Reserves held back at closing totaled $14.5 million.
- Construction commitments for 1991 Main and 1000 First totaled approximately $77.3 million unfunded at quarter-end; $26.4 million was outstanding and payable, including retainage. Management estimated remaining construction and soft-cost funding of at least $65.3 million for 1991 Main and approximately $110.5 million for 1000 First.
- The company was seeking a first-mortgage construction loan for 1000 First. It warned that if financing was not finalized before May 31, 2024, construction would stop or be delayed until additional financing was obtained.
- Operating cash flow and public-offering proceeds, financing, and advances of reimbursable expenses from affiliates are identified as liquidity sources. The filing does not provide a quantified full-year earnings or cash-flow forecast.
Outlook, risks and unusual items
- Management said market conditions for multifamily and mixed-use rental properties in its markets had remained strong, but emphasized substantial uncertainty and did not quantify expected financial results.
- Management expected initial occupancy at Aster & Links (1991 Main) in the first half of 2024 and completion of both buildings by year-end 2024. The project is planned for 424 apartments and about 51,000 square feet of retail; a Sprouts Farmers Market lease covers about 23,000 square feet.
- Risks highlighted include borrowing costs and access to debt or equity capital, inflation, insurance cost and availability, construction and lease-up delays, occupancy and rent fluctuations, competition, labor and supply-chain issues, and changing landlord-tenant laws. The company cautioned that past performance may not indicate future results.
- A $0.595 million impairment was recorded on a Nashville real estate asset because estimated fair value was below carrying value. The company also recorded a $0.027 million unrealized loss on its interest-rate cap.
- Related-party activity includes management fees, development fees, cost reimbursements and insurance arrangements. The Manager and affiliates incurred $1.658 million of costs included in operations during the quarter and capitalized a further $1.642 million. The company is dependent on its Manager and affiliates for essential services.
- No material litigation was reported, and management reported no material changes to the risk factors in the 2023 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the 1000 First construction loan was finalized by the stated May 31, 2024 deadline, and whether construction continued without delay.
- Current borrowing balances, interest costs, reserve requirements, covenant compliance and availability under the 1991 Main loan commitments; the construction loan’s interest-rate cap was scheduled to mature in July 2024.
- Funding and payment status for the $77.3 million of unfunded commitments and the larger remaining project funding estimates disclosed by management.
- Actual construction, lease-up and stabilization progress at Aster & Links and other projects relative to stated expectations, and any further impairments or cost changes.
- Updated NAV and offering activity. The disclosed December 31, 2023 NAV was $100.88 per Class A unit; no Class A units had been sold in the follow-on offering as of March 31, 2024.
- Terms and amounts of ongoing affiliate payments and potential conflicts, including development-management arrangements involving the CEO’s family members.