10-Q/A: Belpointe PREP, LLC Reports Second Quarter 2024 Results; Amendment Filed for Certification Language

Belpointe PREP, LLC files an amended quarterly report to conform certification language, while reporting a net loss for the second quarter of 2024.

Summary

• Belpointe PREP, LLC has filed an amendment to its original quarterly report for the period ended June 30, 2024, solely to conform the language in the certifications to the requirements of Regulation S-K.
• The company reported a net loss of $4.72 million for the three months ended June 30, 2024, and a net loss of $8.701 million for the six months ended June 30, 2024.
• Rental revenue decreased to $384,000 for the three months ended June 30, 2024, and $721,000 for the six months ended June 30, 2024.
• The company's total assets were $476.155 million as of June 30, 2024, compared to $382.117 million as of December 31, 2023.
• Debt, net, increased to $119.905 million as of June 30, 2024, from $19.678 million as of December 31, 2023.
• The company has 3,631,703 Class A units, 100,000 Class B units, and one Class M unit outstanding as of August 9, 2024.
• The company's NAV as of March 31, 2024, was $99.59 per Class A unit.
• The company is developing several properties, including 1991 Main Street in Sarasota, Florida, and 1000 First Avenue North in St. Petersburg, Florida.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with significant losses and increased debt, but also highlights ongoing development and asset growth. The negative financial results and increased leverage temper the positive aspects, resulting in a below-average sentiment score.

Positives

• Total assets increased from $382.117 million at the end of 2023 to $476.155 million as of June 30, 2024, indicating growth in the company's holdings.
• The company has secured significant construction loans for its development projects, including a $104 million loan for 1000 First and a $130 million loan for 1991 Main.
• The company has completed construction on seven floors of one building at the 1991 Main project, including 145 apartment units and retail space leased to Sprouts.
• The company has a diverse portfolio of properties in various stages of development, including multifamily and mixed-use projects.

Negatives

• The company reported a net loss of $4.72 million for the three months ended June 30, 2024, and a net loss of $8.701 million for the six months ended June 30, 2024.
• Rental revenue decreased compared to the same periods in 2023, primarily due to lower below-market rent intangible amortization.
• The company's debt, net, has significantly increased to $119.905 million as of June 30, 2024.
• The company incurred impairment charges of $0.2 million and $0.8 million for the three and six months ended June 30, 2024, respectively, related to a Nashville property.

Risks

• The company's future performance is subject to economic uncertainty, fluctuating interest rates, and volatility in the real estate markets.
• Construction delays and delays in the lease-up and stabilization of properties could negatively impact the company's financial results.
• The company's ability to raise additional capital and access debt financing is subject to market conditions and other factors.
• The company is dependent on its manager and sponsor for essential services, and any disruption in these relationships could adversely affect the company.
• The company is subject to various financial and operational covenants, and failure to comply with these covenants could result in defaults on its loans.

Future Outlook

The company's future performance is subject to various uncertainties, including economic conditions, interest rates, and real estate market volatility. The company will continue to review its investment and financing strategies to optimize performance and reduce risk. The company anticipates completing construction on the remaining phases of the 1991 Main project by the end of 2024 and the 1000 First project in the second half of 2025.

Management Comments

• Management believes that the company's cash on-hand, anticipated proceeds from public offerings, projected cash flows from real estate assets, and current and anticipated financing activities will be sufficient to meet liquidity and capital resource requirements for the next 12 months and beyond.
• Management continuously reviews the company's investment and financing strategies for optimization and to reduce risk.

Industry Context

The company operates in the qualified opportunity zone real estate market, which is subject to various economic and market factors. The demand for multifamily and mixed-use rental properties in the company's geographic markets remains strong, but is subject to uncertainty due to factors such as construction delays, interest rates, and inflation. The company's performance is also influenced by the broader real estate industry trends, including transaction volumes and financing availability.

Comparison to Industry Standards

• Belpointe PREP is unique as the only publicly traded qualified opportunity fund listed on a national securities exchange, making direct comparisons challenging.
• The company's leverage policy targets 50-70% property-level leverage, which is within the typical range for real estate investment companies, but may be higher during development phases.
• The company's development projects, such as 1991 Main and 1000 First, are large-scale and complex, comparable to other major mixed-use developments in similar urban areas.
• The company's reliance on related-party transactions for management and development services is common in the real estate industry, but requires careful monitoring for potential conflicts of interest.
• The company's financial performance, including net losses and decreased rental revenue, is not uncommon for companies in the development phase, but will need to improve as projects are completed and stabilized.

Related Party Transactions

• The company has various related party transactions with its manager, sponsor, and their affiliates, including management fees, development fees, and reimbursements for expenses.
• The company entered into a revolving credit facility agreement with Belpointe Development Holding, LLC, an affiliate of the CEO, for up to $3 million.
• The company borrowed $4 million from Lacoff Holding II LLC, an affiliate of the CEO, which was repaid in full on February 8, 2024.
• Certain family members of the CEO hold a non-controlling beneficial interest in Belpointe Specialty Insurance, LLC, which acts as the company's insurance broker.

Stakeholder Impact

• Shareholders are impacted by the company's net losses and the decrease in rental revenue.
• Employees of the manager and sponsor are impacted by the company's reimbursements for their services.
• Tenants of the company's properties are impacted by the company's development and management activities.
• Creditors are impacted by the company's increased debt and its ability to meet its financial obligations.
• Suppliers and contractors are impacted by the company's ongoing development projects.

Next Steps

• The company will continue to develop its existing properties, including 1991 Main and 1000 First.
• The company will continue to monitor market conditions and adjust its investment and financing strategies as needed.
• The company will continue to seek additional capital resources through public offerings and other financing activities.
• The company will continue to evaluate potential new investment opportunities.

Key Dates

Keywords

Real Estate, Opportunity Zone, Multifamily, Development, Construction, Rental Revenue, Net Loss, Debt, NAV, Belpointe PREP