10-Q: Belpointe PREP Reports Wider Q2 Loss Amid Growth

Belpointe PREP, LLC reported a significant increase in net loss for the second quarter and first half of 2025, despite substantial growth in rental revenue driven by new property developments.

Summary

• Net loss attributable to Belpointe PREP, LLC for the three months ended June 30, 2025, was $7.63 million, compared to $4.72 million for the same period in 2024.
• For the six months ended June 30, 2025, net loss was $16.25 million, up from $8.70 million in the prior year period.
• Rental revenue surged to $2.00 million for the three months ended June 30, 2025, from $0.38 million in 2024, and to $3.74 million for the six months ended June 30, 2025, from $0.72 million in 2024.
• Interest expense significantly increased to $2.87 million for the three months and $7.23 million for the six months ended June 30, 2025, compared to $1.71 million and $2.43 million respectively in 2024, primarily due to a higher weighted average outstanding debt balance.
• Real estate under construction increased to $229.55 million as of June 30, 2025, from $191.31 million at December 31, 2024.
• The company raised aggregate gross proceeds of $4.02 million from Class A unit sales in its Public Offerings for the six months ended June 30, 2025, contributing to a total of $361.4 million raised since inception.
• NAV per Class A unit was $118.38 as of March 31, 2025.
• Construction on the VIV project in St. Petersburg, Florida, is 90% complete, with anticipated completion in the second half of 2025.
• The company is involved in a legal proceeding with The Galinn Fund LLC regarding an alleged $3.0 million loan default, which the company disputes, claiming fraud and negligence.

Sentiment

Score: 4

Explanation: While the company demonstrates strong revenue growth from new property developments and maintains compliance with debt covenants, the significant increase in net loss and rising expenses, particularly interest expense, indicates a challenging period of heavy investment with delayed profitability. The ongoing legal proceeding, though deemed immaterial by management, adds a layer of uncertainty. The overall financial performance for the period is negative despite operational progress.

Positives

• Rental revenue saw substantial year-over-year growth, increasing by 421% for the three months and 419% for the six months ended June 30, 2025, primarily due to properties like Aster & Links commencing operations.
• Significant progress on development projects, with VIV (1000 First Avenue North) being 90% complete and expected to finish in the second half of 2025.
• Successfully raised additional capital through the Follow-on Offering, with $4.02 million in gross proceeds from Class A unit sales in the first half of 2025.
• Maintained compliance with all loan covenants, including liquid assets of no less than $20.0 million and a net worth of no less than $130.0 million.
• Exercised the first of two available six-month extension options on the $10.0 million 900 8th Land Loan, extending its maturity to January 2026.
• Entered into new interest rate cap agreements to mitigate exposure to increases in the one-month SOFR on variable-rate construction loans.
• Completed the redevelopment of 1900 Fruitville Road into additional non-exclusive parking for Sprouts, a key anchor tenant at Aster & Links.
• Successfully rezoned several Nashville properties (690/1106 Davidson Street, 1130 Davidson Street, 1400 Davidson Street) to accommodate medium to high-density multi-family residential and mixed commercial uses.

Negatives

• Net loss increased significantly to $7.63 million for the three months ended June 30, 2025, from $4.72 million in the prior year, and to $16.25 million for the six months, from $8.70 million.
• Loss per Class A unit widened to $2.06 for the three months and $4.41 for the six months ended June 30, 2025, compared to $1.30 and $2.40 respectively in 2024.
• Interest expense more than doubled for both the three and six-month periods, reaching $2.87 million and $7.23 million respectively, due to a higher weighted average outstanding debt balance.
• Property expenses increased substantially to $3.97 million for the three months and $6.68 million for the six months ended June 30, 2025, from $1.43 million and $2.69 million respectively in 2024.
• Depreciation and amortization expenses rose to $1.86 million for the three months and $3.78 million for the six months ended June 30, 2025, from $0.64 million and $0.93 million respectively in 2024.
• Commercial Segment Net Operating Income (NOI) decreased by $0.5 million for the three months and $0.6 million for the six months ended June 30, 2025, primarily due to higher real estate taxes.
• Mixed-use Segment NOI decreased by $0.3 million for the three months ended June 30, 2025, though this is attributed to the lease-up phase of Aster & Links.
• Total members capital decreased to $291.82 million as of June 30, 2025, from $304.06 million at December 31, 2024.

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, interest rates, inflation, credit availability, and market volatility.
• Potential for higher costs associated with the development of projects due to inflation and supply chain disruptions.
• Impacts on regional labor markets as a result of changes in immigration policies and general labor shortages.
• Changes in the availability and price of insurance coverage.
• Construction delays and delays in the lease-up and stabilization of properties.
• Fluctuations in occupancy rates, tenant non-renewals, and tenant defaults due to market conditions.
• Fluctuations in market rents as a result of competition.
• Severe weather events and other natural phenomena.
• Uncertainties from political unrest, changes to trade policies, trade disputes, and tariffs.
• Changes in federal income tax laws resulting from the recent enactment of the One Big Beautiful Bill Act of 2025 and forthcoming related administrative guidance and regulations.
• Changes in landlord-tenant laws in the markets of operation.
• Dependence on the Manager and its affiliates for essential services, requiring the company to find alternative providers if they are unable to provide services.
• Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties, despite management's current assessment of immateriality.

Future Outlook

Market conditions for commercial and mixed-use properties are expected to remain generally consistent, though future economic conditions and demand are subject to ongoing uncertainty from factors such as interest rates, inflation, credit availability, and labor shortages. The company is currently evaluating the impact of the recently enacted One Big Beautiful Bill Act of 2025 on federal income tax laws. Management continuously reviews investment and financing strategies to optimize and reduce risk. Construction on the VIV project is anticipated to be completed in the second half of 2025, with leasing commencing prior to completion. The company believes its cash on-hand, anticipated proceeds from offerings, current debt obligations, and projected cash flows will be sufficient to meet liquidity needs for the next 12 months.

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 dispute any liability in this litigation, believe we have substantial defenses to Galinns claims, and are vigorously defending the matter."
• "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."
• "St. Petersburg placed 46th on Niches 2025 Best Cities to Live in America list, earning an Overall Niche Grade of A."
• "Sarasota is headquarters to a diverse group of large companies, such as Boars Head Provisions, CAE Healthcare, Sun Hydraulics and Voalte."

Industry Context

The company operates as the only publicly traded qualified opportunity fund listed on a national securities exchange, focusing on identifying, acquiring, developing, or redeveloping and managing commercial and mixed-use real estate within qualified opportunity zones. This status offers favorable capital gains tax treatment for certain investors. The broader real estate industry faces ongoing uncertainties from macroeconomic factors like interest rate fluctuations, inflation, and supply chain disruptions. Regionally, Sarasota's metro area economy has shown strong gains in jobs, population, and home values, while downtown St. Petersburg is one of the fastest-growing neighborhoods in the Tampa-St. Petersburg-Clearwater MSA, experiencing increased demand due to its amenities and economic growth.

Comparison to Industry Standards

• NA

Legal Proceedings

• The Galinn Fund LLC filed a complaint on December 5, 2024, against CMC Storrs SPV, LLC (a subsidiary), Chen Ji, and two Guarantors, alleging default on a $3.0 million mortgage note executed by Chen on May 24, 2024, and seeking foreclosure and damages.
• The company disputes liability, asserting the loan was obtained through Chen's fraud and Galinn's negligence, as Chen was no longer affiliated with CMC when he executed the note.
• On June 11, 2025, CMC filed a counterclaim and cross complaint against Chen and Galinn, alleging fraud, forgery, slander, and violations of the Connecticut Unfair Trade Practices Act, seeking damages and attorney fees.
• As of June 30, 2025, the company assessed this litigation as neither material nor likely to have a material adverse effect on its business, financial condition, or results of operations.

Related Party Transactions

• The company has a revolving credit facility (BDH Facility) of up to $3.0 million from Belpointe Development Holding, LLC, an affiliate of its Chief Executive Officer, with an outstanding principal balance of $2.6 million as of June 30, 2025.
• A $4.0 million loan from Lacoff Holding II LLC, an affiliate of the Chief Executive Officer, borrowed on December 29, 2023, was repaid in full on February 8, 2024.
• The Manager and its affiliates, including the Sponsor, incurred operating expenses of $0.4 million for the three months and $0.9 million for the six months ended June 30, 2025, on the company's behalf.
• Management fees paid to the Manager totaled $0.83 million for the three months and $1.65 million for the six months ended June 30, 2025.
• Development fees incurred to affiliates of the Sponsor totaled $0.8 million for the three months and $1.7 million for the six months ended June 30, 2025, included in Real estate under construction.
• Employee reimbursement expenditures to affiliates acting as development managers totaled $0.5 million for the three months and $0.9 million for the six months ended June 30, 2025.
• As of June 30, 2025, amounts due to affiliates included $5.72 million for management fees, $2.71 million for development fees, and $2.00 million for employee cost sharing and reimbursements.
• Certain immediate family members of the Chief Executive Officer have an indirect minority non-controlling beneficial ownership interest in Belpointe Specialty Insurance, LLC, which acts as the company's insurance broker and earned commissions and administrative fees of less than $0.1 million for both the three and six months ended June 30, 2025.

Stakeholder Impact

• **Shareholders (Class A unit holders)**: Experienced a wider net loss per unit, but benefit from the company's Qualified Opportunity Fund status for potential favorable capital gains tax treatment. The ongoing development projects represent future value potential.
• **Lenders/Creditors**: The company is in compliance with all financial and operational loan covenants, indicating a stable ability to meet its debt obligations.
• **Management/Affiliates**: Continue to receive significant management and development fees, and reimbursements for expenses, aligning their interests with the company's growth.
• **Tenants/Customers**: New properties like Aster & Links are coming online and leasing up, providing new residential and retail options in key markets.
• **Local Communities**: Development projects contribute to local economies through construction activity, job creation, and new residential/commercial spaces in qualified opportunity zones.

Next Steps

• Anticipated completion of construction for the VIV project in St. Petersburg, Florida, in the second half of 2025.
• Leasing for the VIV project is expected to begin prior to its construction completion.
• The Manager will continue to calculate the Net Asset Value (NAV) of Class A units within approximately 60 days of the last day of each quarter.
• The company will file prospectus supplements disclosing quarterly determinations of its NAV per Class A unit.
• The company will disclose updated NAV in a prospectus supplement if a material event causes a 10% or more change from the most recently disclosed NAV.
• The company expects to continue to obtain capital resources from its Follow-on Offering, future offerings, current debt obligations, and projected operating funds.
• Management will continue to evaluate the impact of the One Big Beautiful Bill Act of 2025 on federal income tax laws.

Key Dates

Recommendation

The company is in a critical development phase, with significant capital deployed into new projects like Aster & Links and VIV, which are now beginning to generate substantial rental revenue. However, this growth is currently offset by a sharp increase in net loss, primarily driven by higher interest expenses on increased debt and rising operating costs. While the company is actively raising capital and maintaining compliance with loan covenants, the current financial performance reflects heavy investment with delayed profitability. The long-term potential of its Qualified Opportunity Zone investments remains attractive, but the immediate financial results warrant a cautious approach. A seasoned investor would likely hold to observe the stabilization and profitability of the newly developed assets and the resolution of the legal matter, rather than initiating a strong buy or sell position at this juncture.

Keywords

Qualified Opportunity Fund, Real Estate Development, Mixed-use Property, Commercial Real Estate, SEC Filing, 10-Q, Sarasota, St. Petersburg, Nashville, Connecticut, Opportunity Zones, Property Management, Construction Loans, Interest Rates, Net Asset Value, REIT