Part I - Business and Risk Factors This section covers the company's business model as a publicly traded qualified opportunity fund, its real estate investments, financing strategies, and a comprehensive analysis of associated risks Business Overview Belpointe PREP, LLC operates as the sole publicly traded qualified opportunity fund, focusing on acquiring and developing commercial and mixed-use real estate within qualified opportunity zones, externally managed by Belpointe, LLC - The company is the only publicly traded qualified opportunity fund listed on a national securities exchange, focusing on real estate within qualified opportunity zones27 - As of December 31, 2024, the company has raised aggregate gross offering cash proceeds of $357.3 million since inception26 - The company is externally managed by Belpointe PREP Manager, LLC, an affiliate of its sponsor, Belpointe, LLC, which handles day-to-day operations and investment decisions2829 - Primary investment objectives include capital preservation, paying consistent cash distributions, growing net cash from operations, and realizing growth in investment value3236 Investment Portfolio The company's investment portfolio primarily comprises commercial and mixed-use properties in Florida, Connecticut, and Tennessee, including major developments like Aster & Links and Viv Key Development Projects | Project Name | Location | Description | Status / Key Details | | :--- | :--- | :--- | :--- | | Aster & Links | Sarasota, FL | 424 luxury residential units, ~51,000 sq. ft. retail | Construction completed, lease-up began in 2024. Sprouts Farmers Market is anchor tenant | | Viv | St. Petersburg, FL | 269 apartment units, ~15,500 sq. ft. retail | 72% complete as of Dec 31, 2024. Completion expected in H2 2025 | | 1701-1710 Ringling | Sarasota, FL | Renovation of an 80,000 sq. ft. office building and parking | Existing tenant leased ~42,000 sq. ft. for a 20-year term | | 497-501 Middle | Storrs, CT | Development of ~261 apartment homes | Located less than a mile from UConn campus | | 900 8th Ave South | Nashville, TN | 3.2-acre site approved for mixed-use development | Maximum of 300 residential units and seven stories | Financing and Corporate Policies The company targets 50-70% property-level leverage for stabilized assets and maintains partnership and qualified opportunity fund status for tax efficiency - The company targets an aggregate property-level leverage between 50-70% of the greater of cost or fair market value of its stabilized assets89 - The company intends to maintain its status as a partnership for U.S. federal income tax purposes, relying on the Qualifying Income Exception under Section 7704 of the Code to avoid being taxed as a corporation9395 - The company qualified as a qualified opportunity fund (QOF) for its taxable year ended December 31, 2020, and intends to continue to meet the requirements42 Risk Factors The company faces substantial risks from its external management structure, real estate illiquidity, geographic concentration, significant debt, and potential loss of tax-advantaged status - Organizational Risks: The company has a limited operating history, is externally managed, and its management agreement was not negotiated at arm's length. The Sponsor does not hold a significant equity amount, potentially misaligning incentives107120127 - Investment & Market Risks: Real estate investments are illiquid and subject to industry downturns, interest rate fluctuations, and inflation. The portfolio has geographic concentration in Florida, increasing susceptibility to local economic conditions and events like hurricanes176184187 - Financing Risks: The company may incur significant debt, subjecting it to risks of default, restrictive covenants, and increased vulnerability to adverse economic conditions. Hedging against interest rate exposure may be costly and ineffective226228233 - Tax Risks: Failure to maintain classification as a partnership for tax purposes would result in entity-level taxation, reducing cash available for distributions. Similarly, failing to meet the requirements of a qualified opportunity fund would cause investors to lose associated tax benefits245249 - Conflicts of Interest: Conflicts exist between the company, its Manager, and affiliates. The Manager is responsible for calculating the NAV, which is the basis for its management fee. The company also enters into joint ventures and other transactions with affiliates221224161 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments260 Cybersecurity The company relies on its Sponsor's IT systems and cybersecurity measures, with Board oversight, and has not experienced material impacts from cyber threats to date - The company relies on its Sponsor's IT systems and cybersecurity risk management policies261 - The Board of Directors is responsible for oversight of cybersecurity risks, which are managed by the Manager264 - As of the report date, cybersecurity threats have not had a material effect on the company's business, operations, or financial condition263 Legal Proceedings The company is vigorously defending a lawsuit concerning a $3.0 million loan on its Storrs, Connecticut property, alleging the loan was fraudulently obtained - The Galinn Fund LLC filed a complaint against CMC Storrs SPV, LLC (a holding company for a company property) seeking to foreclose on a mortgage and collect damages related to a $3.0 million loan269270 - The company maintains the loan was obtained through fraud by a former affiliate and negligence by the lender, and it disputes all liability271272 Part II - Market, Operations, and Financial Condition This section details the company's equity market performance, use of offering proceeds, and a comprehensive analysis of its financial condition and operational results Equity Market and Use of Proceeds The company's Class A units trade on NYSE American, targeting 6-8% annual distributions, with $236.6 million in net proceeds primarily allocated to real estate development and loans receivable - Class A units are traded on the NYSE American under the symbol 'OZ'. As of March 28, 2025, there were 46 holders of record276277 - The company has not yet paid distributions but anticipates a target annual distribution rate of 6-8% once operating cash flow is sufficient278 Use of Net Offering Proceeds as of Dec 31, 2024 (in thousands) | Use of Proceeds | Amount | | :--- | :--- | | Funding of loans receivable | $34,955 | | Purchases and development of real estate | $180,594 | | Working capital | $21,031 | | Total Net Proceeds Used | $236,580 | Management's Discussion and Analysis (MD&A) The company reported an increased net loss of $23.9 million in 2024, driven by higher interest and property expenses, with liquidity supported by cash, offering proceeds, and significant financing facilities Results of Operations (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenue | $2,675 | $2,254 | | Total Expenses | $26,948 | $16,641 | | Interest Expense | $10,006 | $0 | | Net Loss | ($23,856) | ($14,362) | | Net Loss per Unit | ($6.56) | ($4.04) | - The increase in net loss was primarily due to $10.0 million in interest expense incurred in 2024 from new construction and mezzanine loans, which was not present in 2023315 - Segment NOI for the Mixed-use segment decreased by $1.1 million due to the recent placement of the Aster & Links property in service, with initial operating expenses outpacing rental revenue during the lease-up phase312 Cash Flow Summary (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Cash flows used in operating activities | ($13,689) | ($6,945) | | Cash flows used in investing activities | ($138,089) | ($145,123) | | Cash flows provided by financing activities | $157,024 | $30,686 | - The company has significant unfunded capital commitments, including $9.7 million for the Aster & Links project and $50.3 million for the Viv project as of December 31, 2024326328 Part II - Financial Statements and Supplementary Data This section presents the company's consolidated financial statements, including balance sheets, statements of operations, and cash flows, along with detailed notes and auditor's opinion Consolidated Financial Statements The 2024 consolidated financial statements show increased assets and liabilities due to real estate development and new debt, a net loss of $23.9 million, and an unqualified auditor's opinion Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Real estate, net | $485,276 | $353,541 | | Total Assets | $517,591 | $382,117 | | Debt, net | $177,017 | $19,678 | | Total Liabilities | $213,534 | $57,053 | | Total Members' Capital | $304,057 | $325,064 | Consolidated Statement of Operations Data (in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Rental Revenue | $2,675 | $2,254 | | Total Expenses | $26,948 | $16,641 | | Net Loss | ($23,856) | ($14,362) | | Loss per Class A unit | ($6.56) | ($4.04) | - The independent registered public accounting firm, Citrin Cooperman & Company, LLP, provided an unqualified opinion on the consolidated financial statements345 Notes to Consolidated Financial Statements Notes detail significant related-party transactions, $183.2 million in debt primarily from construction loans, and $59.9 million in unfunded commitments, with the Mixed-use segment holding most assets Fees and Expenses with Manager & Affiliates - 2024 (in thousands) | Type | Amount | | :--- | :--- | | Costs incurred by Manager (G&A) | $3,128 | | Management fees (Property Expense) | $2,705 | | Development fees & reimbursements (Capitalized) | $5,438 | | Insurance (Capitalized & Expensed) | $3,272 | Debt Summary as of Dec 31, 2024 (in thousands) | Loan | Maximum Facility | Outstanding Principal | | :--- | :--- | :--- | | 1991 Main Mezzanine Loan | $56,378 | $46,243 | | 900 8th Land Loan | N/A | $10,000 | | 1991 Main Construction Loan | $130,000 | $97,521 | | 1000 First Construction Loan | $104,000 | $29,468 | | Total Debt | | $183,232 | - As of December 31, 2024, the company had aggregate unfunded construction commitments of $59.9 million for two development projects487 - The Mixed-use segment comprised $395.6 million of the company's $517.6 million in total assets as of December 31, 2024492 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes reported - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were effective at the reasonable assurance level501 - 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, 2024504 Part III - Corporate Governance and Related Matters This section outlines the company's corporate governance structure, including its Board of Directors, executive officers, compensation practices, security ownership, and related party transactions 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). They are father and son509517 - The Board of Directors has six members: Brandon Lacoff, Martin Lacoff, Dean Drulias, Timothy Oberweger, Shawn Orser, and Ronald Young, Jr. Four of the six directors are independent509564 - The Audit Committee is composed of three independent directors: Timothy Oberweger, Shawn Orser (Chair), and Ronald Young Jr525 Executive Compensation As an externally managed entity, executive officers are compensated by the Manager, while non-employee directors each received $20,000 in cash compensation for 2024 - The company is externally managed and does not directly compensate its executive officers530 - For the fiscal year 2024, each non-employee director received $20,000 in cash compensation531 Security Ownership As of March 28, 2025, CEO Brandon E. Lacoff controls all Class B and M units, while directors and officers own less than 1% of Class A units, with two institutional investors holding significant Class A stakes Beneficial Ownership as of March 28, 2025 | Name of Beneficial Owner | Class A Units (%) | Class B Units (%) | Class M Units (%) | | :--- | :--- | :--- | :--- | | Brandon E. Lacoff | <1% | 100% | 100% | | All directors & officers as a group | <1% | 100% | 100% | | Empirical Wealth Management | 7% | 0% | 0% | | Precision Wealth Strategies, LLC | 6% | 0% | 0% | Related Party Transactions The company engages in significant related-party transactions with its Manager, Sponsor, and affiliates, including management fees, development fees, and loan agreements, all controlled by the CEO - The company pays its Manager a quarterly management fee equal to an annualized rate of 0.75% of NAV. For 2024, this amounted to $2.7 million556 - The Manager holds 100,000 Class B units, which entitle it to 5% of any gain recognized or distributed by the company or its subsidiaries558 - Affiliates of the Sponsor are entitled to development fees, which totaled $4.2 million in 2024, plus $1.7 million in employee reimbursement expenditures related to development projects561563 - In 2024, the company entered into a $3.0 million revolving credit facility with Belpointe Development Holding, LLC, an affiliate of the CEO547 Principal Accountant Fees and Services Citrin Cooperman & Company, LLP served as the independent auditor, with $132,000 in audit fees for 2024, all pre-approved by the Audit Committee Accountant Fees | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit fees | $132,000 | $138,685 | | Tax fees | $0 | $0 | | Total | $132,000 | $138,685 | Part IV - Exhibits and Signatures This section lists all exhibits and financial statement schedules filed as part of the Form 10-K, including key agreements and certifications Exhibits and Financial Statement Schedules This section lists all documents filed as exhibits to the Form 10-K, including key agreements and certifications, with financial statement schedules omitted as not applicable - Key exhibits filed with the report include the Management Agreement, Employee and Cost Sharing Agreement, and various governance and financing documents570
BELPOINTE PREP(OZ) - 2024 Q4 - Annual Report