Other
Operating Expenses
Pursuant
to the Management Agreement, we reimburse our Manager, Sponsor and their respective affiliates for actual expenses incurred on our behalf
in connection with the selection, acquisition or origination of investments, whether or not we ultimately acquire or originate an investment.
We also reimburse our Manager, Sponsor and their respective affiliates for out-of-pocket expenses paid to third parties in connection
with providing services to us.
Pursuant
to the Employee and Cost Sharing Agreement, we reimburse our Sponsor and our Manager for expenses incurred for our allocable share of
the salaries, benefits and overhead of personnel providing services to us. During the three months ended March 31, 2023 and 2022, our
Manager and its affiliates, including our Sponsor, incurred operating expenses of $0.6 million and $0.5 million, respectively, on our
behalf. The expenses are payable, at the election of the recipient, in cash, by issuance of our Class A units at the then-current NAV,
or through some combination of the foregoing. As of March 31, 2023, all expenses incurred since inception have been paid in cash.
Management
Fee
Subject
to the limitations set forth in our Amended and Restated Limited Liability Company Operating Agreement (our “Operating Agreement”)
and the oversight of our Board, our Manager is responsible for managing our affairs on a day-to-day basis and for the origination, selection,
evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets,
including but not limited to commercial real estate loans, and debt and equity securities issued by other real estate-related companies,
as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified
opportunity zone businesses.
Pursuant
to the Management Agreement, we pay our Manager a quarterly management fee in arrears of one-fourth of 0.75%. The management fee is based
on our NAV at the end of each quarter. As of the quarter ended March 31, 2023, our assumed NAV was $100.00 per Class A unit. Our Manager
will calculate and announce our NAV within approximately 60 days of the last day of each quarter. Any adjustment to our NAV will take
effect as of the first business day following its public announcement. For the three months ended March 31, 2023 and 2022, we incurred
management fees of $0.7 million and $0.6 million, respectively, which are included in Property expenses in our unaudited consolidated
statements of operations.
Development
Fees and Reimbursements
Affiliates
of our Sponsor are entitled to receive (i) development fees on each project in an amount that is usual and customary for comparable services
rendered to similar projects in the geographic market of the project, and (ii) reimbursements for their expenses, such as employee compensation
and other overhead expenses incurred in connection with the project.
During
the three months ended March 31, 2023 and 2022, we incurred development fees earned during the construction phase of $0.7 million and
$1.6 million, respectively. As of March 31, 2023 and December 31, 2022, $3.3 million and $4.3 million, respectively, remained due and
payable to our affiliates for development fees.
During
the three months ended March 31, 2023 and 2022, we incurred employee reimbursement expenditures to our affiliates acting as development
managers of $0.4 million and $0.3 million, respectively, of which $0.3 million and $0.2 million, respectively, is included in Real estate
under construction in our unaudited consolidated balance sheets, and $0.1 million and $0.1 million, respectively, is included in General
and administrative expenses in our unaudited consolidated statements of operations. As of March 31, 2023 and December 31, 2022, $0.6
million and $0.3 million, respectively, remained due and payable to our affiliates for employee reimbursement expenditures.
Acquisition
Fees
We
will pay our Manager, Sponsor, or an affiliate of our Manager or Sponsor, an acquisition fee equal to 1.5% of the total value of any
acquisition transaction, including any acquisition through merger with another entity (but excluding any transactions in which our Sponsor,
or an affiliate of our Manager or Sponsor, would otherwise receive a development fee). We did not incur any acquisition fees during the
three months ended March 31, 2023 and 2022, since all investments acquired during these periods were, or will be, subject to payment
of development fees.
Insurance
Certain
immediate family members of our Chief Executive Officer have a passive indirect minority beneficial ownership interest in Belpointe Specialty
Insurance, LLC (“Belpointe Specialty Insurance”). Belpointe Specialty Insurance has acted as our broker in connection with
the placement of insurance coverage for certain of our properties and operations. Belpointe Specialty Insurance earns brokerage commissions
related to the brokerage services that it provides to us, which commissions vary, are based on a percentage of the premiums that we pay
and are set by the insurer. We have also engaged Belpointe Specialty Insurance to provide us with contract insurance consulting services
related to owner-controlled insurance programs, for which we pay an administration fee.
During
the three months ended March 31, 2023 and 2022, we obtained insurance premiums in the aggregate amount of $0.1 million and $4.5 million,
respectively, from which Belpointe Specialty Insurance earned commissions of less than $0.1 million and $0.4 million, respectively. For
each of the three months ended March 31, 2023 and 2022, Belpointe Specialty Insurance earned administration fees of less than $0.1 million.
Insurance premiums are prepaid and are included in Other assets on the unaudited consolidated balance sheets. With respect to our properties
under development, for the three months ended March 31, 2023 and 2022, $0.5 million and less than $0.1 million, respectively, were amortized
into Real estate under construction on the unaudited consolidated balance sheets. As it pertains to our operating properties, for the
three months ended March 31, 2023 and 2022, $0.1 million and $0.1 million, respectively, were amortized into Property expenses on the
unaudited consolidated statements of operations.
Economic
Dependency
Under
various agreements we have engaged our Manager and its affiliates, including in certain cases our Sponsor, to provide certain services
that are essential to the Company, including asset management services, asset acquisition and disposition services, supervision of our
Primary Offering and any other offerings we conduct, as well as other administrative responsibilities for the Company, including, without
limitation, accounting services and investor relations services. As a result of these relationships, we are dependent upon our Manager
and its affiliates, including our Sponsor. In the event that these companies are unable to provide us with the services we have engaged
them to provide, we would be required to find alternative service providers.
Note
5 – Real Estate, Net
Acquisitions
of Real Estate During 2023
On
June 28, 2022, through an indirect majority-owned subsidiary of our Operating Company, we acquired a 70.2% controlling interest (the
“CMC Interest”) in CMC Storrs SPV, LLC (“CMC”), a holding company for an approximately 60-acre site located in
Mansfield, Connecticut. As part of the transaction two unaffiliated joint venture partners (the “CMC JV Partners”) were deemed
to have made initial capital contributions to CMC. Following our acquisition of the CMC Interest, we discovered that one of the CMC JV
Partners had misappropriated cash from the other’s cash account. Accordingly, the CMC JV Partner forfeited $1.0 million, or 29.8%,
of their noncontrolling interest in CMC on March 24, 2023 (a non-cash financing activity during the three months ended March 31, 2023).
As a result of the forfeiture, we indirectly own a 100% controlling interest in CMC.
Depreciation
expense was $0.2 million for each of the three months ended March 31, 2023 and 2022, and is included in Depreciation and amortization
expense on the unaudited consolidated statements of operations.
Real
Estate Under Construction
The
following table provides the activity of our Real estate under construction in the consolidated balance sheets (amounts in thousands):
Schedule of Real Estate Under Construction
|
March
31, 2023 |
|
December
31, 2022 |
|
(unaudited) |
|
|
Beginning
balance |
$ 133,898 |
|
$ 76,882 |
Capitalized
costs (1) (2) |
23,102 |
|
45,907 |
Land
held for development (3) |
91 |
|
10,958 |
Capitalized
interest |
103 |
|
151 |
Ending balance |
$ 157,194 |
|
$ 133,898 |
| (1) | Includes
development fees and employee reimbursement expenditures of $1.0 million and $5.6 million
for the three months ended March 31, 2023 and the year ended December 31, 2022, respectively. |
| (2) | Includes
direct and indirect project costs to the construction and development of real estate projects,
including but not limited to loan fees, property taxes and insurance, incurred of $0.6 million
and $2.2 million for the three months ended March 31, 2023 and the year ended December 31,
2022, respectively. |
| (3) | Includes
ground lease payments and straight-line rent adjustments incurred of zero and $0.8 million
for the three months ended March 31, 2023 and the year ended December 31, 2022, respectively. |
Real
estate under construction includes non-cash investing activity of $9.7 million for the three months ended March 31, 2023 (inclusive of
unpaid development fees of $0.7 million, and unpaid employee cost sharing and reimbursements of $0.3 million) and $13.9 million for the
year ended December 31, 2022.
Note
6 – Intangible Assets and Liabilities
Intangible
assets and liabilities are summarized as follows (amounts in thousands):
Schedule of Intangible Assets And Liabilities
| |
March
31, 2023 | | |
December
31, 2022 | |
| |
Gross
Carrying Amount | | |
Accumulated
Amortization | | |
Net
Carrying Amount | | |
Gross
Carrying Amount | | |
Accumulated
Amortization | | |
Net
Carrying Amount | |
| |
(unaudited) | | |
(unaudited) | | |
(unaudited) | | |
| | |
| | |
| |
Finite-Lived Intangible
Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
In-place leases | |
$ | 3,836 | | |
$ | (1,094 | ) | |
$ | 2,742 | | |
$ | 3,836 | | |
$ | (791 | ) | |
$ | 3,045 | |
Indefinite-Lived Intangible
Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Development rights | |
| 5,659 | | |
| — | | |
| 5,659 | | |
| 5,659 | | |
| — | | |
| 5,659 | |
Total intangible assets | |
$ | 9,495 | | |
$ | (1,094 | ) | |
$ | 8,401 | | |
$ | 9,495 | | |
$ | (791 | ) | |
$ | 8,704 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Finite-Lived Intangible
Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Below-market leases | |
$ | (2,517 | ) | |
$ | 552 | | |
$ | (1,965 | ) | |
$ | (2,517 | ) | |
$ | 411 | | |
$ | (2,106 | ) |
Total intangible liabilities | |
$ | (2,517 | ) | |
$ | 552 | | |
$ | (1,965 | ) | |
$ | (2,517 | ) | |
$ | 411 | | |
$ | (2,106 | ) |
In-place
lease and development right intangible assets, noted above, are included in Intangible assets on the consolidated balance sheets. Below-market
lease liabilities, noted above, are included in Lease liabilities on the consolidated balance sheets.
Amortization
of in-place lease intangible assets was $0.3 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively,
and is included in Depreciation and amortization expense on the unaudited consolidated statements of operations.
Amortization
of below-market lease liabilities was $0.1 million and $0.1 million for each of the three months ended March 31, 2023 and 2022 and is
included in Rental revenue on the unaudited consolidated statements of operations.
Note
7 – Loans Receivable
On
September 30, 2021, we lent approximately $3.5 million to CMC pursuant to the terms of a secured promissory note bearing interest at
an annual rate of 12.0% and due and payable on June 27, 2022 (the “CMC Loan”). On June 28, 2022, the CMC Loan was repaid
in full, including accrued interest of $0.3 million.
On
January 3, 2022, we provided a $30.0 million commercial mortgage loan to Norpointe, LLC (“Norpointe”), an affiliate of our
Chief Executive Officer, pursuant to the terms of a secured promissory note bearing interest at an annual rate of 5.0% and due and payable
on December 31, 2022 (the “Norpointe Loan”). On June 28, 2022, for purposes of complying with the qualified opportunity fund
requirements under the Code and related Treasury Regulations, we restructured the Norpointe Loan through an indirect majority owned subsidiary
(the “Restructured Norpointe Loan”). The Restructured Norpointe Loan was evidenced by a secured promissory note bearing interest
at an annual rate of 5.0%, due and payable on June 28, 2023. On December 13, 2022, the Restructured Norpointe Loan was repaid in full,
including accrued interest of less than $0.1 million.
On
February 23, 2022, we provided an approximately $5.0 million commercial mortgage loan to Visco Propco, LLC (“Visco”) pursuant
to the terms of a secured promissory note bearing interest at an annual rate of 6.0% and due and payable on February 18, 2023 (the “Visco
Loan”). On December 2, 2022, the Visco Loan was repaid in full, including accrued interest of $0.2 million.
Interest
income from loans receivable was zero and $0.5 million for the three months ended March 31, 2023 and 2022, respectively, and is included
in Interest income in our unaudited consolidated statements of operations.
Note
8 – Fair Value of Financial Instruments
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
marketplace participants at the measurement date under current market conditions (i.e., the exit price).
We
categorize our financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.
The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1)
and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different
levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the
instrument.
Financial
assets and liabilities recorded on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as
follows:
Level
1 – Quoted market prices in active markets for identical assets or liabilities.
Level
2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical
or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield
curves, and market-corroborated inputs).
Level
3 – Valuation generated from model-based techniques that use inputs that are significant and unobservable in the market. These
unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation
techniques include use of option pricing models, discounted cash flow methodologies or similar techniques, which incorporate management’s
own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management
judgment or estimation.
We
estimated that our financial assets and liabilities had fair values that approximated their carrying values as of March 31, 2023 and
December 31, 2022.
Note
9 – Members’ Capital
Our
Operating Agreement generally authorizes our Board to issue an unlimited number of units and options, rights, warrants and appreciation
rights relating to such units for consideration or for no consideration and on the terms and conditions as determined by our Board, in
its sole discretion, in most cases without the approval of our members. These additional securities may be used for a variety of purposes,
including in future offerings to raise additional capital and acquisitions. Our Operating Agreement currently authorizes the issuance
of an unlimited number of Class A units, 100,000 Class B units and one Class M unit.
There
were no units issued during the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, there were 3,523,449
Class A units, 100,000 Class B units and one Class M unit issued and outstanding.
Class
A units
Upon
payment in full of any consideration payable with respect to the initial issuance of our Class A units, the holder thereof will not be
liable for any additional capital contributions to the Company. Holders of Class A units are not entitled to preemptive, redemption or
conversion rights. Holders of our Class A units are entitled to one vote per unit on all matters submitted to a vote of our members.
Matters must generally be approved by a majority (or, in the case of the election of directors, by a plurality) of the votes entitled
to be cast.
Holders
of our Class A units share ratably in any distributions we make, subject to any statutory or contractual restrictions on distributions
and to any restrictions on distributions imposed by the terms of any preferred units we issue.
Upon
our dissolution, liquidation or winding up, after payment of all amounts required to be paid to creditors and holders of preferred units,
if any, holders of our Class A units are entitled to receive our remaining assets available for distribution.
Class
B units
All
of our Class B units are currently held by our Manager and were issued on September 14, 2021. Holders of our Class B units are not entitled
to preemptive, redemption or conversion rights. Holders of our Class B units are entitled to one vote per unit on all matters submitted
to a vote of our members. Matters must generally be approved by a majority (or, in the case of the election of directors, by a plurality)
of the votes entitled to be cast.
Holders
of our Class B units are entitled to share ratably as a class in 5% of any gains recognized by or distributed to the Company or recognized
by or distributed from our Operating Companies or any subsidiary or other entity related to the Company, regardless of whether the holders
of our Class A units have received a return of their capital. The allocation and distribution rights that the holders of our Class B
units are entitled to may not be amended, altered or repealed, and the number of authorized Class B units may not be increased or decreased,
without the consent of the holders of our Class B units. In addition, our Manager, or any other holder of our Class B units, will continue
to hold the Class B units even if our Manager is no longer our manager.
Upon
our dissolution, liquidation or winding up, after payment of all amounts required to be paid to creditors and holders of preferred units,
if any, holders of Class B units will be entitled to receive any accrual of gains or distributions otherwise distributable pursuant to
the terms of the Class B units, regardless of whether the holders of our Class A units have received a return of their capital.
Class
M unit
The
Class M unit is currently held by our Manager and was issued on September 14, 2021. The holder of our Class M unit is not entitled to
preemptive, redemption or conversion rights. The holder of our Class M unit is entitled to that number of votes equal to the product
obtained by multiplying (i) the sum of the aggregate number of outstanding Class A units plus Class B units, by (ii) 10, on matters on
which the Class M unit has a vote. Our Manager will continue to hold the Class M unit for so long as it remains our manager.
The
holder of our Class M unit does not have any right to receive ordinary, special or liquidating distributions.
Preferred
units
Under
our Operating Agreement, our Board may from time to time establish and cause us to issue one or more classes or series of preferred units
and set the designations, preferences, rights, powers and duties of such classes or series.
Basic
and Diluted Loss Per Class A Unit
For
the three months ended March 31, 2023, the basic and diluted weighted-average units outstanding were 3,523,449. For the three months
ended March 31, 2023, net loss attributable to Class A units was $2.8 million, and the loss per basic and diluted unit was $0.80.
For
the three months ended March 31, 2022, the basic and diluted weighted-average units outstanding were 3,382,149. For the three months
ended March 31, 2022, net loss attributable to Class A units was $2.0 million, and the loss per basic and diluted unit was $0.60.
Note
10 – Commitments and Contingencies
As
of March 31, 2023, we were not subject to any material litigation nor were we aware of any material litigation threatened against us.
During
the three months ended March 31, 2022, we entered into a construction management agreement in connection with the development of one
of our commercial real estate properties. As of March 31, 2023, we had an unfunded capital commitment of $128.8 million (excluding capitalized
interest, development fees and indirect project costs) under the terms of this agreement. We expect to incur this capital commitment
incrementally over the course of the next 15 months. As of March 31, 2023, $8.8 million, inclusive of retainage of $3.3 million, is outstanding
and payable in connection with this development.
Note
11 – Subsequent Events
Management
has evaluated subsequent events to determine if events or transactions occurring after the balance sheet date through the date the unaudited
consolidated financial statements were available for issuance require potential adjustment to or disclosure in the unaudited consolidated
financial statements and has concluded that, except as set forth below, all such events or transactions that would require recognition or disclosure have been recognized
or disclosed.
In
April 2023, we entered into a construction management agreement in connection with the development of one of our commercial real estate
properties. The construction management agreement contains terms and conditions that are customary for a project of this type and will
be subject to a guaranteed maximum price of $48.6 million.
In
May 2023, BPOZ 1991 Main, LLC, an indirect wholly-owned subsidiary of our Operating Company, entered into a variable-rate
construction loan agreement for $130.0
million (the “1991 Main Construction Loan”). The 1991 Main Construction Loan bears interest equal to 1-month term
Secured Overnight Financing Rate plus 345 basis points subject to a minimum all-in per annum interest rate of 8.51%,
and is for an initial term of four years, with a one-year extension option. In connection with the 1991 Main Construction Loan, we
purchased an interest rate cap with a strike price of 5.07%
to hedge our variable-rate interest exposure.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In
this Quarterly Report on Form 10-Q (this “Form 10-Q”), unless context otherwise requires, references to “we,”
“us,” “our” “Belpointe” or the “Company” refer to Belpointe PREP, LLC, its operating
companies, Belpointe PREP OC, LLC, and Belpointe PREP TN OC, LLC (each an “Operating Company” and, together, the “Operating
Companies”), and each of the Operating Companies’ subsidiaries, taken together.
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited
consolidated financial statements and related notes appearing elsewhere in this Form 10-Q and our audited consolidated financial statements
and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “Annual Report”) filed
with the U.S. Securities and Exchange Commission on March 31, 2023, a copy of which may be accessed here. As discussed in the
section entitled “Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements
that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results
to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below, and those discussed in the section entitled “Risk Factors”
included our Annual Report.
Overview
We
are the only publicly traded qualified opportunity fund listed on a national securities exchange. We are a Delaware limited liability
company formed on January 24, 2020, and we currently intend to operate in a manner that will allow us to qualify as a partnership for
U.S. federal income tax purposes. We are focused on identifying, acquiring, developing or redeveloping and managing commercial real estate
located within qualified opportunity zones. At least 90% of our assets consist of qualified opportunity zone property. We qualified as
a qualified opportunity fund beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund certain
of our investors are eligible for favorable capital gains tax treatment on their investments.
All
of our assets are held by, and all of our operations are conducted through, one or more of our Operating Companies, either directly or
indirectly through their subsidiaries. We are externally managed by Belpointe PREP Manager, LLC (our “Manager”), which is
an affiliate of our sponsor, Belpointe, LLC (our “Sponsor”).
On
May 9, 2023, the U.S. Securities and Exchange Commission (the “SEC”) declared effective our registration statement on Form
S-11, as amended (File No. 333-271262) (the “Follow-on Registration Statement”), registering the offer and sale of up to
$750,000,000 of our Class A units on a continuous “best efforts” basis by any method deemed to be an “at the market”
offering pursuant to Rule 415(a)(4) under the Securities Act of 1933, as amended (the “Securities Act”), including by offers
and sales made directly to investors or through one or more agents (our “Follow-on Offering”).
In
connection with the Follow-on Registration Statement, we entered into a non-exclusive dealer manager agreement with Emerson Equity LLC
(“Dealer Manager”), a registered broker-dealer, for the sale of our Class A units through the Dealer Manager. The Dealer
Manager will enter into participating dealer agreements and wholesale agreements with other broker-dealers, referred to as “selling
group members,” to authorize those broker-dealers to solicit offers to purchase our Class A units. We will pay our Dealer Manager
commissions of up to 0.25%, and the selling group members commissions ranging from 0.25% to 4.50%, of the principal amount of Class A
unit sold in the Follow-on Offering.
In
addition, the Follow-on Registration Statement constitutes a post-effective amendment to the registration statement on Form S-11, as
amended (File No. 333-255424), registering the offer and sale of our ongoing initial public offering of up to $750,000,000 of our Class
A units, declared effective by the SEC on September 30, 2021, of which $522,656,100 remained unsold as of May 9, 2023 (our “Primary
Offering” and, together with our Follow-on Offering, our “Public Offerings”).
The
purchase price for Class A units in our Public Offerings will be the lesser of (i) the current net asset value (the “NAV”)
of our Class A units, and (ii) the average of the high and low sale prices of our Class A units on the NYSE American (the “NYSE”)
during regular trading hours on the last trading day immediately preceding the investment date on which the NYSE was open for trading
and trading in our Class A units occurred. As of May 9, 2023 the assumed NAV of our Class A units was equal to $100.00 per Class A
unit. Our Manager will calculate our NAV within approximately 60 days of the last day of each quarter (the “Determination Date”).
Any adjustment to our NAV will take effect as of the first business day following its public announcement. Our adjusted NAV will be equal
to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on
the Determination Date.
Our
Business Outlook
While
market conditions for multifamily and mixed-use rental properties have remained strong over the past several quarters, future economic
conditions and the demand for multifamily and mixed-use rental properties are, and the real estate industry in general is, subject to
uncertainty as a result of a number of factors, including, among others, the rate of unemployment, increasing interest rates, higher
rates of inflation, instability in the banking system, the availability of credit, financial market volatility, general economic uncertainty,
increasing energy costs, supply chain disruptions and labor shortages. The potential effect of these and other factors and the projected
impact of these and other events on our business, results of operations and financial performance, presents material uncertainty and
risk with respect to our future performance and financial results, including the potential to negatively impact our costs of operations,
our financing arrangements, the value of our investments, and the laws, regulations and governmental and regulatory policies applicable
to us. As a result, our past performance may not be indicative of future results.
Given
the evolving nature of certain of these factors, the extent to which they may impact our future performance and financial results will
depend on future developments which remain highly uncertain and, as a result, at this time we are unable to estimate the impact that
these factors may have on our future financial results. 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.
Our
Investments
As
of the date of this Form 10-Q, our investment portfolio consisted of the following multifamily and mixed-use rental properties:
1991
Main Street – Sarasota, Florida – 1991 Main Street (“1991 Main”) is a 5.13-acre site which was originally
acquired for an aggregate purchase price of $20.7 million, inclusive of transaction costs and deferred financing fees. A portion of the
aggregate purchase of 1991 Main was funded by a $10.8 million secured loan from First Foundation Bank (the “Acquisition Loan”),
which we repaid in full on April 22, 2022.
We
currently anticipate that 1991 Main will be developed into a 424-apartment home community consisting of one-bedroom, two-bedroom and
three-bedroom apartments, and four-bedroom townhome-style penthouse apartments, as well as six guest suite apartments, with approximately
51,000 square feet of retail space located on the first level. 1991 Main will consist of two high-rise buildings with 7 stories in the
front and 10 stories in the rear, and over 900 parking spaces consisting of garage and surface parking. Each building will include a
clubroom, fitness room, center courtyard with heated saltwater pool and roof top amenities including a community room and a private dining
area for private events as well as outdoor grills and seating. In addition, each building will have its own leasing office located at
the entry lobby.
During
the year ended December 31, 2022, we entered into a construction management agreement for the development of 1991 Main. The construction
management agreement contains terms and conditions that are customary for a project of this type and will be subject to a guaranteed
maximum price (a “GMP”). We currently anticipate that the remaining funding for construction and soft costs associated with
the development will be a minimum of $189.3 million, inclusive of the GMP, and are building to an estimated unlevered yield of greater
than 6%. The development is currently under construction, and we expect initial occupancies to occur in the first half of 2024. Construction
is expected to be completed by the end of 2024.
1991
Main is located within the historic downtown Sarasota at the intersection of Main Street and Links Avenue, has a Walk Score®
ranking of 90 out of 100, and is located in a high foot traffic area next to a number of popular retail establishments.
1900
Fruitville Road – Sarasota Florida – 1900 Fruitville Road (“1900 Fruitville”) is a 1.2-acre site, consisting
of a retail building and parking lot, which we acquired for an aggregate purchase price of $4.7 million, inclusive of transaction costs.
The sole tenant in the building vacated in January 2022 and we currently anticipate that the property will be used as a future development
site.
902-1020
First Avenue North and 900 First Avenue North – St. Petersburg, Florida – 902-1020 First Avenue North (“902-1020
First”) consists of several parcels, comprising 1.6-acres of land, which we acquired for an aggregate purchase price of $12.1 million,
inclusive of transaction costs. We currently anticipate that 902-1020 First will be developed into a high-rise building featuring approximately
269-apartment homes consisting of studio, one-bedroom, two-bedroom and three-bedroom units, with approximately 15,500 square feet of
retail space located on the first level and a four-level parking garage. We currently anticipate that 902-1020 First will consist of
a 15-story high-rise building, comprised of two 11-story residential towers above a 4-story parking garage. We currently anticipate amenities
will include a clubroom, fitness center, courtyard with a swimming pool, shared working space and a leasing office.
In
April 2023, we entered into a construction management agreement in connection with the development of 902-1020 First. The construction
management agreement contains terms and conditions that are customary for a project of this type and will be subject to a GMP of $48.6
million.
902-1020
First is located in the downtown district of St. Petersburg, one mile west of Tampa Bay and the downtown waterfront district, as a Walk
Score® ranking of 96 out of 100 and features direct access to downtown amenities such as public parking, restaurants,
museums and cultural sites.
900
First Avenue North (“900 First”) is a parcel of land with a two-tenant retail building which we acquired for an aggregate
purchase price of $2.5 million, inclusive of transaction costs. 900 First will remain a two-tenant retail building and we have taken
the additional development rights and added them to 902-1020 First.
St.
Petersburg placed 44th on Niche’s 2023 Best Cities to Live in America list, earning an Overall Niche Grade of A. St.
Petersburg is the 5th largest city in Florida and the 88th largest city in the United States and has an average annual population growth
rate of approximately 1.57% since 2020. Downtown St. Petersburg is one of the fastest growing neighborhoods in the Tampa-St. Petersburg-Clearwater
metropolitan statistical area (“MSA”) and has experienced increased demand in recent years because of proximity to the water,
sporting events, shopping, bars and restaurants in the neighborhood. The Tampa-St. Petersburg-Clearwater MSA is home to more than 20
corporate headquarters, seven of which are Fortune 1000 companies. The St. Petersburg area also includes a branch of St. Petersburg College
and the University of South Florida St. Petersburg and is home to two professional sports teams, the Tampa Bay Rays (Major League Baseball)
and the Tampa Bay Rowdies (United Soccer League Championship).
1701,
1702 and 1710 Ringling Boulevard – Sarasota, Florida – 1701 Ringling Boulevard (“1701 Ringling”) and 1710
Ringling Boulevard (“1710 Ringling”) make up a 1.6-acre site, consisting of a six-story office building and a parking lot
which we acquired for an aggregate purchase price of $7.0 million, inclusive of transaction costs. We currently anticipate that 1701
Ringling will be renovated into a modern office building, consisting of approximately 80,000 square feet of rentable space, with 1710
Ringling consisting of an approximately 128-space parking lot. Upon acquiring 1701 Ringling, we entered into a new lease agreement with
the existing tenant covering approximately 42,000 square feet for an initial term of 20 years, and several lease extension options. Renovations
to 1701 Ringling will include the creation of a glass front lobby area, the conversion of the existing freight elevator into an oversized
passenger elevator and the reinstallation of windows into the façade.
1702
Ringling Boulevard (“1702 Ringling” and, together with 1701 Ringling and 1710 Ringling, “1701-1710 Ringling”)
is a 0.327-acre site consisting of a fully-leased, single-story 1,546 gross square foot single-tenant office building and associated
parking lot, which we acquired for an aggregate purchase price of $1.5 million, inclusive of transaction costs. We currently anticipate
holding 1702 Ringling for future multifamily development and density and massing studies are underway for conceptual design.
1701-1710
Ringling is located within the historic downtown Sarasota area along Ringling Boulevard, a major two-way arterial road, with good access
to the surrounding Sarasota market, as well as easy access to Interstate 75 and the greater Tampa-St Petersburg area. 1701-1710 Ringling
has a Walk Score® ranking of 93 out of 100, and is located in a high foot traffic area close to a number of popular restaurants
and retail establishments. Overall, the neighborhood is in the stable to growth trend stage of its life cycle.
497-501
Middle Turnpike and Cedar Swamp Road – Storrs, Connecticut – 497-501 Middle Turnpike (“497-501 Middle”)
is an approximately 60.0-acre site, consisting of approximately 30 acres of former golf course and approximately 30 acres of undeveloped
hiking and biking trails surrounding wetlands. We acquired a majority ownership interest in CMC Storrs SPV, LLC (“CMC”),
the holding company for 497-501 Middle, for an initial capital contribution of $3.8 million.
We
currently anticipate that 497-501 Middle will be developed into an approximately 250-apartment home community and that amenities will
include a leasing office, clubhouse with a demonstration kitchen, fitness center, game room, study/lounge area, meeting rooms, and an
outside AstroTurf meadow.
Cedar
Swamp Road (“Cedar Swamp Road”) is a 1.1-acre site immediately adjacent to 497-501 Middle, which we acquired for a purchase
price of $0.3 million, inclusive of transaction costs. We currently anticipate adding Cedar Swamp Road to the 497-501 Middle development.
497-501
Middle and Cedar Swamp Road are located less than a mile from the main college campus at the University of Connecticut (“UConn”)
in Storrs, Connecticut (“Storrs”), approximately 30 minutes from Hartford, Connecticut, and 90 minutes from Boston, Massachusetts.
UConn ranked 26th among “top public universities” nationally in the 2022 U.S. New & World Report (“U.S. News”)
collegiate rankings, and, based on a fact sheet published by UConn, over 18,000 undergraduate students attended college at the Storrs
campus in 2021, with 75% of those students living off campus. According to U.S. News, UConn has one of the worst housing units to student
ratios of major universities in the U.S.
900
8th Avenue South – Nashville, Tennessee – 900 8th Avenue South (“900 8th Avenue South” or “Nashville
No. 1”) is a 3.2-acre land assemblage, which we acquired for an aggregate purchase price of $19.7 million, inclusive of transaction
costs. We recently completed the demolition of an existing structure on 900 8th Avenue South and currently anticipate a future mixed-use
development.
In
connection with our acquisition of Nashville No. 1, an unaffiliated third party (the “JV Partner”) assigned the purchase
and sale agreement for 900 8th Avenue South together with a previously paid property deposit to the indirect holding company for 900
8th Avenue South in exchange for the JV Partner’s deemed initial capital contribution and a promissory note (the “900 Eighth
Promissory Note”) in the amount of $$0.2 million and bearing interest at the greater of (i) 1% per annum, or (ii) the short-term
adjusted applicable federal rate for the current month for purposes of Section 1288(b) of the U.S. Internal Revenue Code of 1986, as
amended (the “Code”). The 900 Eighth Promissory Note was repaid in full in April 2022.
A
2022 report published by PricewaterhouseCoopers ranked Nashville as the number one real estate market, with the best overall real estate
prospects and one of the fastest-growing metro areas. Nashville is headquarters to a diverse group of Fortune 1000 companies, such as
HCA Healthcare, Dollar General, Community Healthy Systems, Delek, Tractor Supply, Brookdale Senior Living, Acadia Healthcare, Cracker
Barrel, Louisiana-Pacific and Genesco. It is also home to a number of colleges and universities, such as Tennessee State University,
Vanderbilt University, Belmont University, Fisk University, Trevecca Nazarene University and Lipscomb University. Nashville is the largest
apartment market in the state of Tennessee, and currently the Nashville apartment market has a 94.2% occupancy rate. While COVID-19 disrupted
economic growth trends in Nashville, the metro has seen job growth return over the past several months coinciding with the phased reopening
of the local economy.
Nashville
No. 1 is located in central Nashville at the north end of the 8th Avenue south district, has a Walk Score® ranking of
85 out of 100, and is located within walking distance of a number of popular retail, dining and nightlife establishments in downtown
Nashville.
1700
Main Street – Sarasota, Florida – 1700 Main Street (“1700 Main”) is a 1.3-acre site, consisting of a former
gas station, a three-story office building with parking lot and a three-story retail building, which we acquired for an aggregate purchase
price of $6.9 million, inclusive of transaction costs. We currently anticipate that 1700 Main will be redeveloped into a 168-apartment
home community consisting of one-bedroom, two-bedroom and three-bedroom units, with approximately 7,000 square feet of retail space located
on the first two levels. We anticipate that 1700 Main will consist of a 10-story podium style building with a 3-story, 360-space garage
and 7 stories of apartments above, including a clubroom, fitness center, courtyards with a swimming pool and rooftop terraces as well
as a leasing office. We have placed the development of 1700 Main on hold pending re-zoning by the City of Sarasota. We have engaged an
architectural firm for conceptual studies so that we can prepare a design to present to the City of Sarasota for approval once the re-zoning
is complete.
U.S.
News & World Report ranked Sarasota as the ninth best place to live in the United States for 2021-2022, number two among the fastest
growing places in the U.S., and the number one best place to retire. Sarasota is headquarters to a diverse group of large companies,
such as Boar’s Head Provisions, CAE Healthcare, PGT Innovations, Tervis, Sun Hydraulics and Voalte. The Sarasota area also has
a large number of universities including the University of Southern Florida, Florida State University’s College of Medicine campus,
Ringling College, State College of Florida, Keiser College and New College of Florida. According to the U.S. Department of Housing and
Urban Development (HUD), the housing demand for the Northport-Sarasota-Bradenton MSA is 11,950 new units between August 2020-2023, but
only 3,250 housing units will be delivered in that timeframe causing a short fall of 8,700 units by the completion of construction. In
addition, Sarasota was included in Forbes’ list of cities that have experienced the highest rental rate jumps year-over-year for
the September 2020-2021 period, with an average increase of 21%.
1700
Main is located within the historic downtown Sarasota area along Main Street, has a Walk Score® ranking of 95 out of 100,
and is located in a high foot traffic area next to a number of popular restaurants and retail establishments.
Nashville
No. 2 – Nashville, Tennessee – Our second investment in Nashville, Tennessee (“Nashville No. 2”) is an approximately
8.0-acre site, consisting of two industrial buildings and associated parking, which we acquired for an aggregate purchase price of $21.0
million, inclusive of transaction costs. We currently anticipate that Nashville No. 2 will be redeveloped into mixed-use residential
community consisting of studio, one-bedroom, two-bedroom and three-bedroom apartments. The buildings will have a fitness center, game
room, co-working spaces, outdoor heated saltwater swimming pool, riverfront courtyards and rooftop terraces as well as a leasing office.
Nashville
No. 3 – Nashville, Tennessee – Our third investment in Nashville, Tennessee, is an approximately 1.7-acre site consisting
of a single-story, 10,000 square foot retail building and associated parking lot, which we acquired for an aggregate purchase price of
$2.1 million, inclusive of transaction costs. The building is leased back to the seller through November 2023, with the ability to continue
month to month thereafter.
Nashville
No. 4 – Nashville, Tennessee – Our fourth investment in Nashville, Tennessee, is an approximately 5.9-acre site consisting
of an industrial building, which we acquired for an aggregate purchase price of $16.4 million, inclusive of transaction costs. The building
is leased back to the seller through June 2024. We currently anticipate that Nashville No. 4 will be redeveloped into a mixed-use residential
community consisting of studio, one-bedroom, two-bedroom and three bedroom apartments.
Storrs
Road – Storrs, Connecticut – Storrs Road (“Storrs Road”) is a 9.0-acre parcel of land near UConn,
which we acquired for an aggregate purchase price of $0.1 million, inclusive of transaction costs. We currently anticipate holding Storrs
Road for future multifamily development.
1750
Storrs Road - Storrs, Connecticut - 1750 Storrs Road (“1750 Storrs”) is an approximately 19.0-acre development site near
UConn, which we acquired for an aggregate purchase price of $5.5 million, inclusive of transaction costs.
We
currently anticipate that 1750 Storrs will be developed into a multifamily mixed-use development, featuring one-bedroom, two-bedroom
and three-bedroom townhomes. Amenities are anticipated to include a clubhouse, with state-of-the-art fitness center, chef’s kitchen
and more.
901-909
Central Avenue North – St. Petersburg, Florida – 901-909 Central Avenue North is a 0.13-acre site consisting of a fully-leased
single-story 5,328 gross square foot retail/office building comprised of 4 units located in St. Petersburg, Florida, which we acquired
for an aggregate purchase price of $2.6 million, inclusive of transaction costs.
Results
of Operations
The
following table sets forth information regarding our unaudited consolidated results of operations during the three months ended March
31, 2023 and 2022 (amounts in thousands).
| |
Three
Months Ended March 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
$
Change | | |
%
Change | |
Revenue | |
| | |
| | |
| | |
| |
Rental
revenue | |
$ | 497 | | |
$ | 329 | | |
$ | 168 | | |
| 51 | % |
Total
revenue | |
| 497 | | |
| 329 | | |
| 168 | | |
| 51 | % |
| |
| | | |
| | | |
| | | |
| | |
Expenses | |
| | | |
| | | |
| | | |
| | |
Property expenses | |
| 1,018 | | |
| 907 | | |
| 111 | | |
| 12 | % |
General and administrative | |
| 1,771 | | |
| 1,641 | | |
| 130 | | |
| 8 | % |
Depreciation
and amortization expense | |
| 512 | | |
| 284 | | |
| 228 | | |
| 80 | % |
Total
expenses | |
| 3,301 | | |
| 2,832 | | |
| 469 | | |
| 17 | % |
| |
| | | |
| | | |
| | | |
| | |
Other (loss) income | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| — | | |
| 501 | | |
| (501 | ) | |
| (100 | )% |
Other
(expense) income | |
| (3 | ) | |
| (7 | ) | |
| 4 | | |
| (57 | )% |
Total
other (loss) income | |
| (3 | ) | |
| 494 | | |
| (497 | ) | |
| (101 | )% |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (2,807 | ) | |
| (2,009 | ) | |
| (798 | ) | |
| 40 | % |
Net
income attributable to noncontrolling interests | |
| (3 | ) | |
| (7 | ) | |
| 4 | | |
| (57 | )% |
Net
loss attributable to Belpointe PREP, LLC | |
$ | (2,810 | ) | |
$ | (2,016 | ) | |
$ | (794 | ) | |
| 39 | % |
Revenue
Rental
Revenue
During
the three months ended March 31, 2023 as compared to the same period in 2022, rental revenue increased by $0.2 million. This increase
is primarily due to an increase in lease revenues as a result of a full year of activity related to our 2022 property acquisitions, partially
offset by a decrease in rental revenue as a result of the sole tenant vacating 1900 Fruitville.
Expenses