10-Q: Belpointe PREP Refinances Aster & Links, Reports Q3 Loss

Belpointe PREP, LLC refinanced its Aster & Links property for $204.1 million, expecting significant interest savings, while reporting an increased net loss for the nine months ended September 30, 2025.

Summary

• Net loss for the nine months ended September 30, 2025, increased to $28.4 million, up from $15.6 million in the same period of 2024.
• Rental revenue significantly increased to $6.1 million for the nine months ended September 30, 2025, compared to $1.6 million in 2024, primarily due to the stabilization of Aster & Links.
• Interest expense rose to $12.1 million for the nine months ended September 30, 2025, from $5.8 million in 2024, driven by a higher weighted average outstanding debt balance and reduced capitalized interest.
• A $3.0 million loss on extinguishment of debt was recorded in Q3 2025 due to the Aster & Links refinancing, including a $2.6 million non-cash write-off of unamortized deferred financing costs.
• The Aster & Links mixed-use development in Sarasota, Florida, secured $204.1 million in post-construction financing, with $172.8 million advanced at closing, replacing existing construction debt.
• The Aster & Links refinancing is expected to generate annual interest savings of several million dollars.
• Aster & Links was over 55% leased as of October 31, 2025.
• The VIV development in St. Petersburg, Florida, is approximately 97.7% complete, with leasing commenced in October 2025 and first residential move-ins scheduled for November 2025; it was 10% leased as of October 31, 2025.
• A sale agreement was entered into for the 900 8th Avenue South property in Nashville, Tennessee, for $19.3 million, with an anticipated closing date in 2026.
• The company's Board authorized the renewal of the Management Agreement for an additional three-year term and new services and cost-sharing agreements on November 12, 2025.

Sentiment

Score: 4

Explanation: While there are positive operational developments like the Aster & Links refinancing and progress on VIV, the significant increase in net loss, higher interest expenses, and a loss on debt extinguishment indicate a challenging financial period. The sale of a Nashville property at a slight loss after a prior impairment also weighs on sentiment. The legal dispute adds uncertainty.

Positives

• Successfully completed a $204.1 million post-construction refinancing for the Aster & Links property, which is expected to generate annual interest savings of several million dollars.
• Aster & Links, a significant mixed-use development, is now over 55% leased as of October 31, 2025, indicating progress towards stabilization.
• The VIV development is nearing completion at 97.7% and has commenced leasing, with first residential move-ins scheduled for November 2025.
• Entered into an agreement to sell the 900 8th Avenue South property for $19.3 million, which could provide liquidity and reduce debt exposure.
• Rental revenue saw a substantial increase to $6.1 million for the nine months ended September 30, 2025, from $1.6 million in the prior year, reflecting operational growth from new properties.

Negatives

• Net loss significantly increased to $28.4 million for the nine months ended September 30, 2025, compared to $15.6 million in the same period of 2024.
• Interest expense more than doubled to $12.1 million for the nine months ended September 30, 2025, from $5.8 million in 2024.
• A $3.0 million loss on extinguishment of debt was recorded in Q3 2025 related to the Aster & Links refinancing.
• General and administrative expenses increased by $0.4 million for the nine months ended September 30, 2025, primarily due to higher legal expenses and increased cost allocations from the Manager and its affiliates.
• Commercial Segment Net Operating Income (NOI) decreased by $0.8 million for the nine months ended September 30, 2025, primarily due to higher real estate taxes and lower base rents from tenant vacancies.

Risks

• Future economic conditions and demand for commercial and mixed-use properties are subject to ongoing uncertainty, including rent growth, new construction rates, absorption rates, unemployment, fluctuating interest rates, and higher inflation.
• Potential for higher costs associated with the development of projects due to inflation, supply chain disruptions, and labor shortages.
• Delays in the lease-up and stabilization of properties, which could impact projected cash flows and profitability.
• Fluctuations in occupancy rates, tenant non-renewals, and tenant defaults due to market conditions, including layoffs.
• Exposure to increases in the one-month term SOFR for variable-rate loans, despite interest rate caps, if rates exceed the strike price or if caps need renewal at higher costs.
• Litigation risk, as exemplified by the Galinn Fund LLC complaint against CMC Storrs SPV, LLC, which could result in unforeseen liabilities or legal expenses.
• Dependence on the Manager and its affiliates for essential services, posing a risk if they are unable to provide these services or if the agreements are terminated.
• Guaranty agreements for the Aster & Links Loans and 1000 First Construction Loan require maintaining certain net worth and liquid asset standards, which if not met, could trigger defaults.

Future Outlook

Management anticipates that market conditions for commercial and mixed-use properties will remain consistent but are subject to ongoing uncertainties such as interest rate fluctuations, inflation, and supply chain disruptions. The company expects the Aster & Links refinancing to yield several million dollars in annual interest savings. Remaining funding for construction and soft costs for Aster & Links is estimated at a minimum of $13.0 million, and for VIV, a minimum of $26.2 million. The company believes its current cash, proceeds from offerings, existing debt, and projected cash flows will be sufficient to meet liquidity needs for the next 12 months. The recently enacted One Big Beautiful Bill Act, which makes qualified opportunity zones permanent and introduces new fund categories, is being evaluated for its impact on future investment strategy.

Management Comments

• Our Manager continuously reviews our investment and financing strategies for optimization and to reduce our risk in the face of the fluidity of these and other factors.
• We believe that Aster & Links is well-positioned to be a premier residential and retail destination in the heart of what will continue to be a vibrant city.
• We dispute any liability in the Galinn litigation, believe we have substantial defenses to Galinn's claims, and are vigorously defending the matter.

Industry Context

The real estate industry, particularly in commercial and mixed-use sectors, faces ongoing uncertainty from macroeconomic factors like interest rates, inflation, and supply chain issues. Belpointe PREP's focus on Qualified Opportunity Zones (QOZs) is bolstered by the 'One Big Beautiful Bill Act' (OBBBA) making QOZs permanent and introducing new fund categories, potentially increasing investor interest and capital flow into such developments. The company's strategy of developing luxury mixed-use properties in growing markets like Sarasota and St. Petersburg, Florida, aligns with trends of urban revitalization and demand for amenity-rich living spaces. However, the increased borrowing costs and general administrative expenses reflect broader industry challenges in a rising interest rate environment and inflationary pressures.

Comparison to Industry Standards

• The Aster & Links refinancing at SOFR + 2.55% (3.25% floor) with interest-only payments and two one-year extensions appears competitive for a post-construction loan on a luxury mixed-use development, especially with expected annual interest savings. Comparable projects in high-growth Florida markets might see similar or slightly higher spreads depending on leverage and sponsor strength.
• The VIV construction loan at SOFR + 3.80% (7.55% minimum) is within the typical range for construction financing, reflecting the inherent risks of projects still under development. The interest rate cap helps mitigate variable rate exposure, a common practice in the current market.
• The 900 8th Land Loan at 9.50% fixed interest rate is relatively high, which could indicate higher perceived risk for a land assemblage in Nashville, or a reflection of market rates for non-construction land loans. The sale of this property for $19.3 million, while below the initial purchase price of $19.7 million, could be a strategic move to de-risk and reallocate capital, especially given the 2024 impairment charge on a Nashville asset.
• The leasing progress of Aster & Links (>55% leased) and VIV (~10% leased) as of October 31, 2025, reflects typical lease-up curves for new developments, with Aster & Links showing good traction post-completion and VIV just commencing leasing. Industry benchmarks for luxury multifamily lease-up often target 15-20 units per month, suggesting Aster & Links is performing well, while VIV is in its very early stages.

Corporate Governance

Legal Proceedings

• The Galinn Fund LLC filed a complaint on December 5, 2024, against CMC Storrs SPV, LLC (a subsidiary holding the 497-501 Middle Turnpike property) alleging default on a $3.0 million mortgage note and seeking foreclosure and damages.
• The company disputes liability in the Galinn litigation, asserting the loan was obtained through fraud by a former affiliate (Chen Ji) and negligence by Galinn.
• CMC filed an amended counterclaim and cross complaint against Chen and Galinn on September 15, 2025, alleging fraud, wrongful conduct, theft, conversion, forgery, slander, and violations of the Connecticut Unfair Trade Practices Act, seeking declaratory relief and damages.

Related Party Transactions

• Outstanding principal balance of $2.6 million and accrued interest of $0.2 million on the BDH Facility (loan from Belpointe Development Holding, LLC, an affiliate of the CEO) as of September 30, 2025. $1.5 million (including $0.2 million interest) was repaid on October 21, 2025.
• Management fees paid to the Manager (an affiliate of the Sponsor) increased by $0.2 million for the three months ended September 30, 2025, compared to the same period in 2024, due to an increase in Net Asset Value (NAV).
• Development fees incurred from affiliates acting as development managers were $0.3 million for Q3 2025 ($2.1 million for 9M 2025) and $1.2 million for Q3 2024 ($2.8 million for 9M 2024).
• Employee reimbursement expenditures to affiliates acting as development managers were $0.5 million for Q3 2025 ($1.4 million for 9M 2025) and $0.4 million for Q3 2024 ($0.9 million for 9M 2024).
• Belpointe Specialty Insurance (an affiliate of the CEO's family members) earned commissions and administrative fees of less than $0.1 million for Q3 2025 (less than $0.1 million for 9M 2025) and less than $0.1 million for Q3 2024 ($0.2 million for 9M 2024) for placing insurance coverage.
• As of September 30, 2025, $11.3 million was due to affiliates, including $6.6 million for management and property management fees, $2.7 million for development fees, and $1.8 million for employee cost sharing and reimbursements.

Stakeholder Impact

• Shareholders (Class A unit holders) experienced a higher net loss per unit ($7.64 for 9M 2025 vs. $4.30 for 9M 2024), indicating reduced profitability, but the refinancing and project progress could offer future value.
• Investors in the Follow-on Offering continue to contribute capital, with $8.4 million raised in 9M 2025, supporting ongoing development and operations.
• Lenders (SM Finance III LLC) benefit from the new Aster & Links loans being secured by first-priority mortgages and pledges, with interest rate caps mitigating risk, and the company maintaining compliance with loan covenants.
• Employees and management (through affiliates) continue to receive management fees and reimbursements, with new agreements authorized to clarify cost sharing and indemnification.
• Tenants at Aster & Links and VIV will benefit from completed luxury developments and amenities, with leasing progress indicating demand.
• The sale of 900 8th Avenue South impacts the local community and potential future tenants/residents of that development.

Next Steps

• Continue lease-up and stabilization efforts for Aster & Links, which is currently over 55% leased.
• Proceed with residential move-ins for VIV in November 2025 and continue its leasing efforts.
• Complete the sale of the 900 8th Avenue South property, with the Entitlement Date set for January 13, 2026, and the anticipated closing date in 2026.
• Evaluate the impact of the One Big Beautiful Bill Act (OBBBA) on future investment strategy, particularly regarding new opportunity zones and qualified rural opportunity funds.
• Monitor and manage the ongoing litigation with Galinn Fund LLC, vigorously defending the matter and pursuing the counterclaim.
• Manage the extension options for the 900 8th Land Loan, with one six-month extension remaining until January 2, 2026.
• Implement the renewed Management Agreement and the Amended and Restated Services and Cost Sharing Agreement and Indemnification Agreement authorized by the Board on November 12, 2025.

Key Dates

Recommendation

Belpointe PREP, LLC presents a mixed financial picture. While the significant increase in net loss and interest expenses for the nine months ended September 30, 2025, is a concern, the successful refinancing of the Aster & Links property is a positive step towards stabilizing a major asset and is expected to generate annual interest savings. The progress on the VIV development and the strategic sale of the 900 8th Avenue South property demonstrate active portfolio management. The long-term implications of the 'One Big Beautiful Bill Act' for Qualified Opportunity Zones could be highly favorable, but the impact is still being evaluated. The ongoing litigation adds a layer of uncertainty. Given the current stage of development for key assets and the potential for future growth balanced against increased losses and operational costs, a 'hold' recommendation is appropriate. Investors should monitor the lease-up rates of new properties, the resolution of legal matters, and the company's ability to leverage the QOZ framework effectively.

Keywords

Real Estate Development, Opportunity Zones, Mixed-Use Property, Commercial Real Estate, SEC Filing, Financial Results, Debt Refinancing, Construction Projects, Leasing Activity, Asset Sales, Interest Rates, SOFR, Financial Performance, Belpointe PREP