BELPOINTE PREP(OZ) - 2024 Q2 - Quarterly Report

Financial Information Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for the period ended June 30, 2024. Total assets grew to $476.2 million, primarily driven by real estate development, funded by a significant increase in debt. The company reported a higher net loss of $8.7 million for the first six months of 2024 compared to $6.9 million in the prior year period, mainly due to increased property and interest expenses associated with its development projects Consolidated Balance Sheets As of June 30, 2024, total assets increased to $476.2 million from $382.1 million at year-end 2023, driven by a substantial rise in 'Real estate under construction' and 'Building and improvements.' This growth was financed by a significant increase in total liabilities to $159.3 million from $57.1 million, primarily due to new debt obligations which rose to $119.9 million from $19.7 million | Balance Sheet Highlights (in thousands) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Real estate, net | $434,158 | $353,541 | | Cash and cash equivalents | $24,740 | $20,125 | | Total Assets | $476,155 | $382,117 | | Liabilities & Capital | | | | Debt, net | $119,905 | $19,678 | | Total Liabilities | $159,255 | $57,053 | | Total Members' Capital | $316,900 | $325,064 | | Total Liabilities and Members' Capital | $476,155 | $382,117 | Consolidated Statements of Operations For the second quarter of 2024, the company reported a net loss of $4.7 million, an increase from the $4.1 million loss in Q2 2023. For the six-month period, the net loss widened to $8.7 million in 2024 from $6.9 million in 2023. The larger loss was driven by a 51% decrease in rental revenue for the quarter and the incurrence of $1.7 million in interest expense, which was not present in the prior-year period | (in thousands, except per unit data) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $384 | $778 | $721 | $1,275 | | Total Expenses | $5,133 | $5,059 | $9,566 | $8,360 | | Net Loss | $(4,716) | $(4,071) | $(8,697) | $(6,878) | | Net Loss per Class A unit | $(1.30) | $(1.16) | $(2.40) | $(1.95) | Consolidated Statements of Cash Flows For the six months ended June 30, 2024, the company used $5.4 million in cash for operating activities and $79.3 million for investing activities, primarily for real estate development. These activities were funded by $96.3 million in cash provided by financing activities, which included proceeds from new term and construction loans. This contrasts with the same period in 2023, where financing activities only provided $0.2 million | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,383) | $(3,422) | | Net cash used in investing activities | $(79,315) | $(51,637) | | Net cash provided by financing activities | $96,283 | $185 | | Net increase (decrease) in cash | $11,585 | $(54,874) | Notes to Consolidated Financial Statements The notes detail the company's focus on qualified opportunity zone properties, its ongoing public offerings, and significant related-party transactions, including management and development fees. Key disclosures cover new debt agreements, such as the $104.0 million construction loan for the 1000 First project and the $56.4 million mezzanine loan for the 1991 Main project. The company also reported unfunded construction commitments of $109.1 million as of June 30, 2024 - The company is focused on identifying, acquiring, developing, and managing commercial real estate located within 'qualified opportunity zones' and qualifies as a partnership and qualified opportunity fund for U.S. federal income tax purposes[25] - The company has ongoing public offerings to sell up to $750 million of Class A units, with the price based on the lesser of the current NAV or the market price on the NYSE American[27][29][30] - In 2024, the company entered into several significant debt agreements, including a $104.0M construction loan, a $10.0M land loan, and a $56.4M mezzanine loan to fund its development projects[80][81] - As of June 30, 2024, the company has an aggregate unfunded commitment of $109.1 million for its development projects at 1000 First Avenue North and 1991 Main Street[116] Management's Discussion and Analysis (MD&A) Management discusses its position as the only publicly traded qualified opportunity fund and details its investment portfolio, which is concentrated in Florida, Tennessee, and Connecticut. The analysis of operations highlights increased net losses due to higher development-related expenses. The company outlines its liquidity strategy, relying on cash on hand, public offerings, and significant construction financing to meet its substantial capital commitments for ongoing projects Business Overview and Outlook The company operates as the sole publicly traded qualified opportunity fund, focusing on developing commercial real estate. While market conditions in its operating areas are strong, management acknowledges significant uncertainties from factors like interest rates, inflation, and construction delays, which could impact future performance. The NAV per Class A unit was announced as $99.59 as of March 31, 2024 - The company is the only publicly traded qualified opportunity fund listed on a national securities exchange[121] - The NAV as of March 31, 2024 was $99.59 per Class A unit[126] - Future performance is subject to uncertainty from factors including interest rates, inflation, construction delays, and supply chain disruptions[127] Investment Portfolio The company's investment portfolio consists of multifamily and mixed-use properties under development or held for future development, primarily in Sarasota and St. Petersburg, Florida; Nashville, Tennessee; and Storrs, Connecticut. Key projects include 'Aster & Links' (424 units, Sarasota), which is partially complete, and 'Viv' (269 units, St. Petersburg), with construction expected to finish in late 2025. These projects are supported by substantial construction and mezzanine loans - Aster & Links (Sarasota, FL): A 424-apartment development. During Q2 2024, 145 units were completed. The remaining construction is expected to be finished by the end of 2024. The project is financed by a $130.0M construction loan and a $56.4M mezzanine loan[130][133][135] - Viv (St. Petersburg, FL): A 15-story high-rise with 269 apartments and retail space. Construction is anticipated to be completed in the second half of 2025. A $104.0M construction loan was secured in June 2024 to fund development[143][147] - Nashville, TN Portfolio: The company holds several sites, including 900 8th Avenue South and multiple properties on Davidson Street, for future mixed-use residential redevelopment. A new $10.0M land loan was secured for the 900 8th Avenue South property in June 2024[156][157][162] Results of Operations Comparing Q2 2024 to Q2 2023, rental revenue fell 51% to $0.4 million, mainly due to lower non-cash intangible amortization. Total expenses increased slightly to $5.1 million, driven by a 44% rise in property expenses and new interest expenses of $1.7 million from development-related debt. This resulted in a higher net loss of $4.7 million for the quarter | (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Rental revenue | $384 | $778 | $(394) | (51)% | | Property expenses | $1,429 | $989 | $440 | 44% | | Interest expense | $1,705 | $— | $1,705 | 100% | | Net loss | $(4,716) | $(4,071) | $(645) | 16% | - The decrease in rental revenue was primarily due to lower below-market rent intangible amortization as certain intangible liabilities became fully amortized after June 30, 2023[169] - The increase in property expenses was mainly due to general and administrative costs incurred at the Aster & Links project, which was not operational in the prior-year period[171] Liquidity and Capital Resources The company's primary liquidity sources are cash on hand ($35.2 million including restricted cash at June 30, 2024), proceeds from public offerings, and debt financing. Significant capital is required for development, with unfunded commitments of $30.5 million for 1991 Main and $78.7 million for 1000 First. These will be funded through draws on its large construction loans and other available capital - As of June 30, 2024, cash, cash equivalents, and restricted cash totaled $35.2 million[192] - The company has significant unfunded capital commitments for its main development projects: $30.5 million for 1991 Main (Sarasota) and $78.7 million for 1000 First (St. Petersburg)[184][185] - The company secured substantial financing to fund development, including a $130.0M construction loan and $56.4M mezzanine loan for 1991 Main, and a $104.0M construction loan for 1000 First[185][186] - The company's leverage policy targets a 50-70% loan-to-value ratio on its stabilized commercial real estate portfolio[190] Other Information Controls and Procedures Management, with the participation of the CEO and CFO, evaluated the company's disclosure controls and procedures. They concluded that these controls were effective as of June 30, 2024, ensuring that required information is recorded and reported in a timely manner. There were no material changes to the company's internal control over financial reporting during the quarter - Based on an evaluation, the principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period[198] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[199] Legal, Risk, and Equity Sales Information This section consolidates key disclosures from Part II. The company reports no material legal proceedings and no material changes to its previously disclosed risk factors. It provides details on its public offerings, having raised aggregate gross proceeds of $355.0 million as of June 30, 2024. The net proceeds are primarily allocated to the purchase and development of real estate - As of June 30, 2024, the company was not subject to any material legal proceedings[200] - There have been no material changes to the risk factors disclosed in the company's Annual Report for the year ended December 31, 2023[201] | Uses of Net Offering Proceeds (in thousands) | Amount | | :--- | :--- | | Purchases and development of real estate | $179,600 | | Funding of loans receivable | $34,955 | | Working capital | $19,685 | | Total | $234,240 | - As of June 30, 2024, the company has raised aggregate gross offering cash proceeds of $355.0 million from its public offerings and those of its predecessor[208]