Part I - Business and Risk Factors This section details the company's business as a publicly traded Qualified Opportunity Fund, its real estate investment strategy, associated operational and financial risks, and cybersecurity measures Business Overview Belpointe PREP, LLC operates as the sole publicly traded Qualified Opportunity Fund, focusing on acquiring and developing commercial real estate within qualified opportunity zones, primarily in Florida, Connecticut, and Tennessee - The company is the only publicly traded qualified opportunity fund listed on a national securities exchange, focusing on commercial real estate within qualified opportunity zones27 - As of December 31, 2023, the company has raised aggregate gross offering cash proceeds of $354.3 million through its public offerings and prior offerings from its predecessor, Belpointe REIT26 - The company is externally managed by Belpointe PREP Manager, LLC, an affiliate of its sponsor, Belpointe, LLC. The manager handles day-to-day operations and investment decisions2829 - The company's primary investment objectives are to preserve capital, pay consistent cash distributions, grow net cash from operations, and realize growth in investment value32 Investment Portfolio The company's investment portfolio comprises significant multifamily and mixed-use development projects in Florida, Connecticut, and Tennessee, including Aster & Links and Viv Key Development Projects as of December 31, 2023 | Project Name & Location | Description | Status & Key Details | | :--- | :--- | :--- | | Aster & Links (1991 Main St, Sarasota, FL) | 424-apartment mixed-use with ~51,000 sq. ft. retail. | Under construction, initial occupancy expected H1 2024. Secured $130M construction loan and a subsequent $56.4M mezzanine loan. Sprouts Farmers Market signed as anchor retail tenant. | | Viv (1000 First Ave North, St. Petersburg, FL) | 15-story high-rise with 269 apartments and ~15,500 sq. ft. retail. | Under development with a GMP of $69.0 million. Located near Tropicana Field. | | Nashville Properties (TN) | Multiple sites including 900 8th Ave South and several on Davidson St. | Land assemblages acquired for future mixed-use residential development. Rezoning for higher density was successful in September 2023. | | Storrs Properties (CT) | Multiple sites including 497-501 Middle Turnpike and 1750 Storrs Road. | Land acquired for development of apartment communities near the University of Connecticut (UConn). | - The company secured a $130.0 million variable-rate construction loan for its Aster & Links project, maturing in May 2027. As of Dec 31, 2023, $23.1 million has been drawn49 - In January 2024, the company secured a $56.4 million mezzanine loan for the Aster & Links project to reimburse costs and fund continued development53 Risk Factors The company faces substantial risks including limited operating history, reliance on its external Manager, real estate development challenges, significant debt, and the potential loss of its Qualified Opportunity Fund tax status - Organizational Risks: The company has a limited operating history and relies heavily on its Manager and Sponsor, whose interests may conflict with unitholders. The management agreement was not negotiated at arm's length and has a costly termination fee102122125 - Real Estate & Development Risks: The company is subject to real estate industry downturns, with a majority of its current investments concentrated in Florida. Development projects face risks of cost overruns, delays, and failure to complete on budget174177178 - Financing Risks: The company intends to use significant leverage (targeting 50-70% at the property level), which increases the risk of loss. Fluctuating interest rates could increase financing costs, and debt agreements contain restrictive covenants that may limit operational flexibility214216218 - Tax Risks: There is no assurance the company will continue to meet the requirements for treatment as a partnership or a Qualified Opportunity Fund. Failure to do so would result in entity-level taxation and the loss of tax benefits for investors231236 Cybersecurity The company relies on its Sponsor's IT systems and cybersecurity policies, with Board oversight, and has not experienced material cyber incidents to date - The company relies on its Sponsor's IT systems and cybersecurity risk management policies, which are designed to address and mitigate cyber threats248249 - The Board of Directors is responsible for overseeing cybersecurity risk, with the Manager providing regular updates251 - As of the report date, the company has not been materially affected by any cybersecurity threats or incidents250 Part II - Market, Financials, and Controls This section details the company's public trading market, financial performance including a net loss increase, liquidity, and the effectiveness of its internal controls and procedures Market for Common Equity and Related Matters The company's Class A units trade on the NYSE American, with future distributions targeted at 6-8% annually, funded by public offering proceeds for real estate development - Class A units are traded on the NYSE American under the symbol "OZ." As of March 22, 2024, there were 46 holders of record256257 - The company has not established a minimum distribution level and does not expect to pay distributions until there is sufficient operating cash flow. The long-term target annual distribution rate is 6-8%258 Use of Public Offering Proceeds (as of Dec 31, 2023, in thousands) | Category | Amount | | :--- | :--- | | Offering Proceeds | | | Gross offering proceeds | $235,266 | | Net offering proceeds | $233,535 | | Uses of Net Proceeds | | | Funding of loans receivable | $34,955 | | Purchases and development of real estate | $152,701 | | Working capital | $19,685 | | Total Uses | $207,341 | Management's Discussion and Analysis (MD&A) The company reported an increased net loss of $14.4 million in 2023, driven by an impairment charge and higher expenses, with liquidity primarily from public offerings and debt financing significant development commitments Consolidated Results of Operations (in thousands) | | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $2,254 | $1,391 | $863 | 62% | | Total expenses | $16,641 | $10,898 | $5,743 | 53% | | Impairment of real estate | $4,060 | $0 | $4,060 | 100% | | Net loss | ($14,362) | ($8,238) | ($6,124) | 74% | | Net loss attributable to Belpointe PREP, LLC | ($14,351) | ($7,683) | ($6,668) | 87% | - The increase in net loss for 2023 was primarily due to a $4.1 million impairment charge on a real estate asset in Nashville, Tennessee295 - The company has significant unfunded capital commitments for its development projects, including $61.8 million for 1991 Main (Aster & Links) and $40.3 million for 1000 First (Viv) as of December 31, 2023307312 Cash Flow Summary (in thousands) | | Years Ended December 31, | | :--- | :--- | :--- | | | 2023 | 2022 | | Cash flows used in operating activities | $(6,945) | $(6,651) | | Cash flows used in investing activities | $(145,123) | $(63,530) | | Cash flows provided by financing activities | $30,686 | $22,802 | Financial Statements and Supplementary Data The 2023 financial statements show increased assets driven by real estate under construction, higher liabilities from new debt, a net loss of $14.4 million, and significant related-party fees Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Real estate, net | $353,541 | $198,258 | | Real estate under construction | $291,130 | $133,898 | | Cash and cash equivalents | $20,125 | $143,467 | | Total Assets | $382,117 | $353,995 | | Debt, net | $19,678 | $0 | | Total Liabilities | $57,053 | $21,343 | | Total Members' Capital | $325,064 | $332,652 | Consolidated Statement of Operations Highlights (in thousands) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Rental revenue | $2,254 | $1,391 | | Total expenses | $16,641 | $10,898 | | Net loss | ($14,362) | ($8,238) | | Loss per Class A unit | ($4.04) | ($2.25) | - Related party fees incurred in 2023 included $2.7 million in management fees and $5.9 million in development fees paid to affiliates of the Sponsor and Manager407419 - As of December 31, 2023, the company had two development projects with aggregate unfunded construction commitments of $102.1 million475 - Subsequent to year-end, on January 31, 2024, a subsidiary entered into a mezzanine loan agreement for up to $56.4 million to fund the continued development of the 1991 Main project477 Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were effective at a reasonable assurance level as of December 31, 2023 - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level483 - Based on an assessment using the COSO framework, management determined that the company's internal control over financial reporting was effective as of December 31, 2023486 Part III - Governance and Compensation This section outlines the company's corporate governance structure, executive compensation practices, beneficial ownership, related-party transactions, and principal accountant fees Directors, Executive Officers and Corporate Governance The company's governance structure includes a six-member Board with four independent directors, an Audit Committee, and an Executive Advisory Board, led by CEO Brandon E. Lacoff and CFO Martin Lacoff - The executive team includes Brandon E. Lacoff (CEO) and Martin Lacoff (CFO), who are son and father, respectively491499 - The Board of Directors has six members, with four determined to be independent: Dean Drulias, Timothy Oberweger, Shawn Orser, and Ronald Young, Jr491547 - The company has an Audit Committee composed of three independent directors: Timothy Oberweger, Shawn Orser (Chair), and Ronald Young Jr506 Executive Compensation As an externally managed entity, the company does not directly compensate executive officers, who are paid by the Manager, while non-employee directors received $20,000 in cash compensation for 2023 - The company is externally managed and does not directly compensate its executive officers. Compensation is paid by the Manager511 - For the year ended December 31, 2023, each non-employee director received $20,000 in cash compensation for their service512 Security Ownership CEO Brandon E. Lacoff beneficially owns all Class B and M units, granting him significant voting power, while Empirical Wealth Management is the sole external 5% Class A unitholder - CEO Brandon E. Lacoff beneficially owns 100% of the Class B units and the single Class M unit through his role as manager of Belpointe PREP Manager, LLC517518 - Empirical Wealth Management is the only external 5% unitholder, beneficially owning approximately 8% of the Class A units as of December 31, 2023517519 Certain Relationships and Related Transactions The company engages in significant related-party transactions with its Manager, Sponsor, and affiliates, including $2.7 million in management fees and $5.9 million in development fees, and short-term loans from CEO-affiliated entities - The company pays its Manager a quarterly management fee equal to an annualized rate of 0.75% of NAV. For 2023, this amounted to $2.7 million539 - Affiliates of the Sponsor are entitled to development fees. In 2023, the company incurred $5.9 million in development fees and $1.7 million in related employee reimbursement expenditures546 - The company engaged in short-term loans with affiliates of the CEO, including a $1.5 million loan from Belpointe Development Holding, LLC and a $4.0 million loan from Lacoff Holding II, LLC, both transacted in late 2023531532 - The Manager holds 100,000 Class B units, entitling it to 5% of any gain recognized or distributed by the company, regardless of whether Class A unitholders have received a return of capital540 Principal Accountant Fees and Services The company incurred audit fees of $138,685 in 2023 and $134,575 in 2022 from Citrin Cooperman & Company, LLP, with all services pre-approved by the Audit Committee Accountant Fees (in USD) | Fee Type | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | $138,685 | $134,575 | | Tax fees | $0 | $0 | | Total | $138,685 | $134,575 |
BELPOINTE PREP(OZ) - 2023 Q4 - Annual Report