Executive Summary / Key Takeaways

• Belpointe PREP ($OZ) operates as the sole publicly traded qualified opportunity fund, offering investors unique potential tax advantages by focusing on real estate development and management within designated opportunity zones.
• The company is transitioning from a development-heavy phase to asset stabilization, marked by the substantial completion and commencement of lease-up at its flagship Aster Links mixed-use property in Sarasota, Florida, which is driving significant rental revenue growth.
• Key development projects like Viv in St. Petersburg, Florida, are nearing completion (approximately 84% complete as of March 31, 2025), positioning the company for further revenue and potential NOI increases as these assets become operational and lease up.
• While recent financial results show increased net losses primarily due to higher interest expenses on development debt and increased depreciation as assets are placed in service, the underlying operational performance of newly completed properties is improving, as evidenced by the Mixed-use segment's NOI trend.
• The company's ability to execute on its remaining development pipeline, manage financing costs in a higher interest rate environment, and successfully lease up its properties will be critical to realizing value and potentially narrowing the gap between its Net Asset Value (NAV) and trading price.

Setting the Scene: A Unique Play in Opportunity Zones

Belpointe PREP, LLC (NYSE American: OZ) stands apart in the real estate investment landscape as the only publicly traded qualified opportunity fund listed on a national securities exchange. This unique structure is central to its investment thesis, offering investors the potential for favorable capital gains tax treatment by directing capital into designated low-income communities – the qualified opportunity zones. The company's core mandate is to identify, acquire, develop or redevelop, and manage commercial and mixed-use real estate assets within these zones, aiming to generate long-term value through appreciation and rental income.

OZ's journey began with its formation in January 2020, building upon the foundation of its predecessor, Belpointe REIT, Inc., which it acquired in 2021. This history laid the groundwork for its current structure and its strategy of raising capital through continuous public offerings of its Class A units, a crucial mechanism for funding its ambitious development pipeline.

In the competitive arena of real estate investment, OZ operates alongside much larger, diversified players like Blackstone (BX) and Brookfield Asset Management (BN), as well as specialized REITs such as Realty Income (O) and industrial giants like Prologis (PLD). While these larger entities boast immense scale, broader portfolios, and often more established operational efficiencies and technological integration, OZ carves out its niche through its explicit focus on opportunity zones. This specialization, coupled with its public listing providing a degree of liquidity not typically found in private opportunity funds, serves as its primary strategic differentiator. Its smaller scale relative to these titans means it may face potentially higher operating costs per unit and greater sensitivity to financing market fluctuations, but it also allows for a focused approach to development within its target zones. Unlike some competitors who leverage advanced proprietary technologies for property analysis or logistics optimization, OZ's differentiation lies more in its strategic focus on the Opportunity Zone framework and its execution capabilities in development and lease-up within those specific geographic areas.

Building the Future: Progress on the Development Pipeline

Belpointe PREP's strategy is fundamentally tied to the successful execution of its development pipeline. The company has strategically assembled a portfolio of properties across key markets, including Sarasota, Florida; St. Petersburg, Florida; Nashville, Tennessee; and Storrs, Connecticut. These locations have been selected for their growth potential and designation as qualified opportunity zones.

A significant milestone was reached in 2024 with the substantial completion and commencement of operations at Aster Links, a 424-unit mixed-use luxury development in downtown Sarasota. This property, which includes approximately 51,000 square feet of retail space anchored by a Sprouts Farmers Market, is now actively leasing. As of May 13, 2025, the company announced that approximately one-third of the residential units at Aster Links have been leased, marking crucial progress in stabilizing the asset and generating rental income. The adjacent property at 1900 Fruitville Road was redeveloped into additional parking to support the retail component of Aster Links, demonstrating a cohesive development approach.

Another cornerstone project, Viv in St. Petersburg, Florida, is also advancing rapidly. This mixed-use development, planned to feature 269 apartment homes and approximately 15,500 square feet of retail space, was approximately 84% complete as of March 31, 2025. The company anticipates construction completion in the second half of 2025, with leasing expected to begin prior to that. The strategic location in downtown St. Petersburg, near Tropicana Field and the waterfront district, positions Viv to capitalize on the area's growth and demand for modern residential and retail space.

Beyond these flagship projects, OZ is progressing on other developments. In Nashville, the company has achieved key rezoning approvals for its Davidson Street and 900 8th Avenue South properties, paving the way for future mixed-use residential and commercial developments. Similarly, properties in Storrs, Connecticut, near the University of Connecticut, and additional sites in Sarasota are being held or prepared for future multifamily and mixed-use projects.

The successful transition of these properties from raw land or redevelopment sites to income-generating assets is paramount to the company's investment thesis. The progress at Aster Links and the nearing completion of Viv are tangible steps towards realizing the value embedded in this development pipeline.

Financial Performance: A Snapshot of Transition

The financial results for the three months ended March 31, 2025, compared to the same period in 2024, reflect the company's stage of transition from pure development to having operational assets. Total revenue saw a substantial increase, rising from $0.34 million in Q1 2024 to $1.74 million in Q1 2025. This growth is primarily attributable to the Mixed-use segment, where rental revenue surged from $0.06 million to $1.44 million, driven by the commencement of operations and lease-up at Aster Links. The Commercial segment also saw a slight increase in rental revenue, from $0.28 million to $0.30 million.

However, profitability metrics show increased losses. The Net Loss widened from $3.98 million in Q1 2024 to $8.62 million in Q1 2025. This is largely a function of increased expenses associated with having operational assets and higher financing costs. Interest expense saw a significant jump from $0.72 million to $4.36 million. This increase is primarily due to interest on properties that were under development in the prior year period now being expensed rather than capitalized as they become operational or substantially complete. Depreciation and amortization also increased substantially, from $0.28 million to $1.92 million, reflecting assets like Aster Links being placed in service.

Segment Net Operating Income (NOI), a measure of core rental operations, provides a more granular view. The Mixed-use segment's NOI improved from a loss of $0.30 million in Q1 2024 to a loss of $0.08 million in Q1 2025, demonstrating the positive impact of Aster Links' operations despite initial lease-up costs. The Commercial segment's NOI, however, decreased from a positive $0.06 million to a loss of $0.06 million, primarily attributed to higher real estate taxes.

General and administrative expenses remained relatively stable ($1.62 million vs. $1.57 million), while management fees increased ($0.83 million vs. $0.69 million) in line with an increase in the company's NAV. Interest income rose ($0.25 million vs. $0.14 million) due to higher cash balances in interest-bearing accounts.

Overall, the financial results highlight the expected pattern for a company transitioning from development to operations: significant increases in revenue from new assets, but also substantial increases in operating expenses, depreciation, and particularly interest expense as development debt transitions or interest is no longer capitalized. The current period is characterized by investment in future income streams, resulting in near-term losses.

Capital Structure, Liquidity, and Financing the Vision

Funding the development pipeline is critical for Belpointe PREP. The company's primary liquidity needs revolve around funding construction and development costs, covering operating expenses and fees, servicing debt, and potentially making distributions. As of March 31, 2025, the company held $22.95 million in cash and cash equivalents, with total cash and restricted cash amounting to $27.51 million.

Capital resources are primarily sourced from its public offerings and secured debt financing. As of March 31, 2025, the company had raised aggregate gross offering cash proceeds of $357.6 million from its public offerings. This equity capital is supplemented by significant debt financing. The company has construction loans in place for its major developments, including $103.1 million drawn on the 1991 Main Construction Loan (Aster Links) and $48.0 million drawn on the 1000 First Construction Loan (Viv). It also has a $47.8 million balance on the 1991 Main Mezzanine Loan and a $10.0 million balance on the 900 8th Land Loan. These loans carry variable interest rates (SOFR-based with floors for construction loans) and a fixed rate (13% for the mezzanine loan, 9.5% for the land loan), exposing the company to interest rate risk, partially mitigated by interest rate caps on the variable-rate construction loans.

The company has significant unfunded capital commitments totaling $42.8 million under its construction management agreements for Viv and Aster Links as of March 31, 2025. The remaining anticipated funding for construction and soft costs is estimated at a minimum of $22.6 million for Aster Links and approximately $50.7 million for Viv. These figures underscore the substantial capital required to bring the remaining projects to completion.

Belpointe PREP's leverage strategy targets 50-70% property-level leverage on stabilized assets, with potentially higher leverage employed during the development phase. The company is subject to loan covenants requiring minimum liquid assets ($20 million) and net worth ($130 million), with compliance reported as of March 31, 2025. The ability to secure additional financing and manage debt costs will be crucial as the development pipeline progresses and interest rates remain a factor.

Risks and Challenges on the Path to Value

Investing in real estate development, particularly within opportunity zones, comes with inherent risks. Belpointe PREP faces exposure to general economic conditions, including the rate of rent growth, new construction, absorption, unemployment, inflation, and interest rates. Fluctuations in these factors can impact property values, rental income, development costs, and the availability and cost of financing. Higher interest rates, in particular, increase borrowing costs, directly impacting profitability, as seen in the recent financial results.

The company is also exposed to risks specific to development, such as construction delays, cost overruns, and delays in lease-up and stabilization of properties. The successful execution of projects like Viv and the continued lease-up of Aster Links are critical operational hurdles.

Furthermore, the company is dependent on its external Manager and affiliates for essential services. While this structure is common, any disruption in these services could adversely affect operations.

A specific legal proceeding involving the 497-501 Middle Turnpike property in Storrs, Connecticut, presents a potential challenge. A lender is seeking foreclosure and damages based on a loan allegedly obtained through fraud by a former affiliate. While the company disputes liability and is vigorously defending the matter, litigation introduces uncertainty and potential costs.

The ability to raise additional capital through its public offerings or secure debt financing on favorable terms is also subject to market conditions and the company's performance, posing a risk to funding future development or meeting obligations if capital markets become constrained.

Outlook and the Investment Thesis

Belpointe PREP's investment thesis centers on the potential for significant value creation as its development pipeline matures and properties within qualified opportunity zones stabilize. The recent operationalization of Aster Links and the anticipated completion of Viv in the second half of 2025 represent key catalysts for future revenue and potential NOI growth. The progress in leasing at Aster Links provides a tangible indicator of demand for the company's product.

The company's Net Asset Value (NAV) was $119.94 per Class A unit as of December 31, 2024. The purchase price for units in its public offerings is linked to this NAV or the NYSE American trading price, providing a degree of transparency regarding management's valuation of its assets. The potential for the stock price to trade at a discount to this NAV could be viewed by some investors as an opportunity, contingent on the successful execution of the development strategy and the realization of value from these projects.

While the company currently operates at a net loss due to the costs associated with its development phase and higher interest expenses, the focus is on long-term value creation. The successful lease-up and stabilization of Aster Links and Viv are critical near-term objectives that are expected to drive future financial performance improvements. The rezoning progress in Nashville and the strategic positioning of other properties lay the groundwork for subsequent phases of development.

The unique qualified opportunity fund structure remains a key draw for investors seeking tax-advantaged real estate exposure. The company's ability to navigate the current high-interest-rate environment, manage construction and lease-up risks, and effectively deploy capital will determine its success in translating its development pipeline into sustained profitability and shareholder value.

Conclusion

Belpointe PREP offers investors a distinctive opportunity to participate in real estate development within qualified opportunity zones through a publicly traded structure. The company is currently in a pivotal phase, with its significant development pipeline, particularly Aster Links and Viv, transitioning towards operational status. While recent financial results reflect the costs inherent in this transition, marked by increased interest expense and depreciation, they also show promising revenue growth driven by newly completed assets.

The core investment thesis hinges on the successful execution of the remaining development projects, their subsequent lease-up, and the long-term appreciation and income generation from these stabilized properties. Key factors for investors to monitor include the pace of leasing at Aster Links, the timely and on-budget completion of Viv, the company's ability to manage its debt structure in the current interest rate environment, and progress on the earlier-stage development sites. If Belpointe PREP can effectively navigate these operational and financial dynamics, the value embedded in its opportunity zone portfolio has the potential to be unlocked, offering a compelling, albeit risk-laden, path to long-term returns.