DEF: Belpointe PREP Schedules 2025 Annual Meeting, Seeks Director Re-election and Auditor Ratification

Belpointe PREP, LLC announces its 2025 Annual Meeting of Unitholders to elect two Class I directors and ratify the appointment of CohnReznick LLP as its independent registered public accounting firm.

Summary

• The Annual Meeting of Unitholders will be held on Friday, September 12, 2025, at 12:00 p.m. at 255 Glenville Road, Greenwich, Connecticut 06831.
• Unitholders planning to attend in person are asked to contact Belpointe PREP's Investor Relations Department at 1-833-828-2721 or via email at IR@belpointeoz.com.
• Key proposals for the meeting include the election of two Class I directors and the ratification of CohnReznick LLP as the independent registered public accounting firm for the fiscal year ended December 31, 2025.
• The record date for determining unitholders eligible to vote at the Annual Meeting is June 16, 2025.
• As of the record date, 3,698,562 Class A units, 100,000 Class B units, and one Class M unit were outstanding.
• Each Class A and Class B unit entitles the holder to one vote, while the Class M unit holder is entitled to votes equal to ten times the sum of outstanding Class A and Class B units.
• The Board of Directors recommends a vote FOR each of the proposals presented in the proxy statement.

Sentiment

Score: 6

Explanation: The filing is a routine proxy statement, which is generally neutral. However, the extensive related party transactions and the disproportionate voting power of the Class M unit, while disclosed, introduce elements that could be viewed with caution by some investors, slightly dampening overall sentiment. The robust corporate governance framework with independent committees and a clawback policy are positive counterpoints.

Positives

• The Board of Directors recommends a vote FOR all proposals, indicating internal alignment and confidence in the proposed actions.
• The audit committee approved CohnReznick LLP as the new independent registered public accounting firm after a competitive process, suggesting due diligence in the selection.
• A clawback policy for executive compensation was adopted, effective October 2, 2023, requiring recoupment of erroneously awarded compensation in the event of an accounting restatement, enhancing accountability.
• The Board is structured with a majority of independent directors, and all key committees (Audit, Compensation, Nominating and Corporate Governance, and Conflicts) are comprised exclusively of independent directors, promoting strong oversight.
• An Executive Advisory Board has been established, composed of experienced professionals, to provide strategic advice on investments, market conditions, and financing opportunities.

Negatives

• Citrin Cooperman & Company, LLP, the former independent registered public accounting firm, declined to stand for re-election due to a strategic shift in their focus, rather than a mutual decision or company-initiated change.
• The Class M unit, held by Belpointe PREP Manager, LLC (an affiliate of the CEO), carries disproportionate voting power, equal to ten times the combined votes of all Class A and Class B units, which could limit the influence of other unitholders.
• The Manager, through its ownership of 100,000 Class B units, is entitled to 5% of any gain recognized or distributed by the company, regardless of whether Class A unitholders have received a return on their capital, potentially creating a misalignment of interests.
• The company engages in significant related party transactions, including loans from affiliates of the CEO and substantial fees paid to the Manager and its affiliates for various services.
• Non-employee directors are not obligated to limit their outside business interests or activities, even if those opportunities are complementary to or in competition with the company's businesses.

Risks

• Potential conflicts of interest arise from the external management structure and the extensive related party transactions with affiliates of the CEO and Sponsor.
• The company's day-to-day operations and investment activities are heavily reliant on the Manager, which is an affiliate of the Sponsor and indirectly owned by the CEO.
• The disproportionate voting power of the Class M unit holder could concentrate control and decision-making, potentially limiting the influence of other Class A and Class B unitholders on corporate matters.
• The Manager's entitlement to 5% of any gain recognized or distributed via Class B units, irrespective of Class A unitholder returns, may create a misalignment of financial incentives.
• A substantial termination fee, equal to six times the annual management fee, is payable to the Manager upon certain terminations or non-renewals of the management agreement, which could be a significant financial burden.
• Directors are permitted to have business interests and engage in activities that are similar to, in addition to, or in competition with the company's operations, which could lead to potential conflicts of interest.

Future Outlook

The filing primarily focuses on the upcoming annual meeting and corporate governance matters, not financial guidance or forward-looking business strategies. The initial term of the management agreement continues through December 31, 2025, and is set to automatically renew for an unlimited number of three-year terms unless the company elects not to renew it by providing 180 days prior notice.

Management Comments

• "Please join us for Belpointe PREP, LLCs (Belpointe PREPs) annual meeting (the Annual Meeting) of unitholders on Friday, September 12, 2025, at 12:00 p.m. at 255 Glenville Road, Greenwich, Connecticut 06831."
• "We urge you to read the accompanying materials regarding the matters to be voted on at the Annual Meeting and to submit your voting instructions by proxy."
• "Thank you for your continued support of Belpointe PREP, LLC."
• "Our audit committee is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm, and believes that appointment of CohnReznick is in the best interests of the Company and our unitholders."
• "Management believes that the commissions that Belpointe Specialty Insurance earns are comparable to those commissions that we would pay to unaffiliated third parties in arms-length transactions."

Industry Context

Belpointe PREP, LLC operates as a Qualified Opportunity Fund (QOF), focusing on commercial real estate properties, real estate-related assets, private equity acquisitions, and opportunistic acquisitions of other QOFs and qualified opportunity zone businesses. This aligns with the broader trend of utilizing Opportunity Zones for tax-advantaged real estate and business investments, a niche within the real estate and private equity sectors. The company's external management structure is common in certain investment vehicles like REITs or private equity funds, where a separate entity manages the assets and operations.

Comparison to Industry Standards

• The external management structure and associated fees (management fees, development fees, expense reimbursements) are common in externally managed real estate investment vehicles; however, the specific percentages (e.g., 0.75% annualized management fee, 4.25%-4.5% development fees) and the 5% gain allocation to Class B units should be benchmarked against industry averages for similar Qualified Opportunity Funds or REITs to assess competitiveness and unitholder value alignment.
• The disproportionate voting power of the Class M unit (10x Class A + Class B) is a notable governance structure that differs from typical public company voting rights where common shares usually have one vote per share. This structure is more akin to certain private equity or fund structures where founders or managers retain significant control.
• The audit fees of $132,000 (2024) and $138,685 (2023) for a publicly traded entity should be benchmarked against similar-sized real estate investment companies or QOFs to determine if they are within industry norms for audit complexity and scope.

Management Changes

Corporate Governance

Related Party Transactions

• **BDH Facility**: On May 16, 2024, entered into a revolving credit facility agreement with Belpointe Development Holding, LLC (an affiliate of the Chief Executive Officer) to borrow up to $3.0 million at an annual rate of 5.0%, maturing on August 31, 2026. As of December 31, 2024, the outstanding principal balance was $2.6 million with less than $0.1 million in accrued interest.
• **LH II Loan**: On December 29, 2023, borrowed $4.0 million from Lacoff Holding II LLC (an affiliate of the Chief Executive Officer) via a promissory note secured by a first mortgage lien, at an annual rate of 5.26%. The loan was repaid in full on February 8, 2024, including less than $0.1 million in accrued interest.
• **Joint Venture and Co-Ownership Arrangements**: Affiliates of the Sponsor or Manager (Belpointe SP Group) act as sponsor, general partner, manager, or developer in the company's investments, with the company generally serving as a passive investor. In 2024, the Belpointe SP Group made less than $0.1 million in noncontrolling interest contributions, representing 0.1% ownership in various investments.
• **Belpointe Specialty Insurance**: Certain immediate family members of the Chief Executive Officer have a passive indirect minority beneficial ownership interest. Belpointe Specialty Insurance acts as the company's broker for insurance coverage, earning commissions and administration fees. In 2024, the company paid $2.9 million in premiums, from which Belpointe Specialty Insurance earned $0.2 million in commissions and administrative fees. Management believes these commissions are comparable to arm's-length transactions.
• **Relationship with Manager and Sponsor**: The company is externally managed by Belpointe PREP Manager, LLC (Manager), an affiliate of the Sponsor, indirectly owned by the Chief Executive Officer and beneficially by certain immediate family members of the Chief Executive Officer.
• **Management Agreement**: The Manager is responsible for day-to-day operations and investment activities. The initial term continues through December 31, 2025, with automatic three-year renewals unless non-renewed by the company with 180 days prior notice.
• **Termination Fee**: Upon certain terminations or non-renewals of the management agreement, the Manager is entitled to a termination fee equal to six times the annual management fee earned during the 12-month period immediately preceding the termination date.
• **Management Fee**: The company pays the Manager a quarterly management fee at an annualized rate of 0.75% of its Net Asset Value (NAV). In 2024, $2.7 million in management fees were incurred, of which $1.3 million was paid.
• **Class B Units**: The Manager holds 100,000 Class B units, entitling it to 5% of any gain recognized by or distributed to the company or its subsidiaries, regardless of whether Class A unitholders have received a return of their capital. No Class B unit allocations or distributions were made in 2024.
• **Expense Reimbursement**: The company reimburses the Manager and its affiliates, including the Sponsor, for actual fees and expenses incurred in connection with public offerings, investment management, and out-of-pocket expenses paid to third parties. In 2024, $2.6 million was incurred and reimbursed.
• **Employee and Cost Sharing Agreement**: The Sponsor provides the Manager with access to portfolio management, asset valuation, risk management, and administrative services, and is entitled to expense reimbursements and allocable employment costs. In 2024, the Sponsor and its affiliates incurred $2.1 million for these costs.
• **Development Fees**: Affiliates of the Sponsor receive development fees (generally 4.25% to 4.5% of total project costs) and expense reimbursements for projects. In 2024, $4.2 million in development fees and $1.7 million for employee reimbursement expenditures relating to projects under development were incurred.

Stakeholder Impact

• **Unitholders (Class A)**: Invited to participate and vote on key corporate governance matters, including director elections and auditor ratification. Their voting power is significantly diluted by the Class M unit, and their returns are subject to the 5% gain allocation to the Manager via Class B units.
• **Management/Sponsor**: Benefit significantly from the external management structure through management fees, development fees, expense reimbursements, and the 5% gain allocation from Class B units. The CEO and his immediate family maintain substantial control and financial interests through their affiliated entities.
• **Auditors**: CohnReznick LLP is proposed as the new independent registered public accounting firm, replacing Citrin Cooperman & Company, LLP, which declined re-election. This change impacts the auditing relationship and continuity.

Next Steps

• The Annual Meeting of Unitholders will be held on September 12, 2025, to vote on the election of Class I directors and the ratification of CohnReznick LLP as the independent registered public accounting firm.
• Preliminary voting results will be announced at the Annual Meeting.
• Final voting results will be tallied by the inspector of election and published in a Current Report on Form 8-K within four business days following the Annual Meeting.
• Successors to the class of directors whose term expires at each successive annual meeting will be elected to serve three-year terms.
• The management agreement will automatically renew for unlimited three-year terms after December 31, 2025, unless the company provides 180 days prior notice of non-renewal.

Key Dates

Recommendation

The filing is a routine proxy statement for an annual meeting, which typically does not contain new information that would significantly alter a company's valuation or investment thesis. While it details extensive related party transactions and a governance structure that concentrates control and economic benefits with the Manager and its affiliates, these arrangements are inherent to the company's external management model and have been previously disclosed or are standard for such structures. The change in auditor is explained as a strategic decision by the former auditor, not a red flag. For a seasoned investor, this filing primarily serves as an update on corporate governance and upcoming votes, reinforcing the existing operational and financial structure rather than introducing new catalysts for a 'buy' or 'sell' decision. The recommendation is 'hold' as there's no new information to warrant a change in existing position, but the detailed related party transactions and governance structure warrant continued monitoring.

Keywords

Belpointe PREP, LLC, OZ, Proxy Statement, Annual Meeting, Corporate Governance, Director Election, Auditor Ratification, Related Party Transactions, Qualified Opportunity Fund, Real Estate Investment, External Management, Class A Units, Class B Units, Class M Unit, CohnReznick LLP, Citrin Cooperman & Company LLP