Belpointe PREP, LLC (OZ) is the only publicly traded qualified opportunity fund listed on a national securities exchange. The company is focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within qualified opportunity zones. As of March 31, 2023, OZ's investment portfolio consisted of several multifamily and mixed-use rental properties across Florida, Tennessee, and Connecticut.

OZ was formed on January 24, 2020 as a Delaware limited liability company and qualifies as a partnership and qualified opportunity fund for U.S. federal income tax purposes. At least 90% of the company's assets consist of qualified opportunity zone property, and all of its assets are held by, and all of its operations are conducted through, one or more operating companies, either directly or indirectly through their subsidiaries. OZ is externally managed by Belpointe PREP Manager, LLC, an affiliate of its sponsor, Belpointe, LLC.

Business Overview

OZ's primary focus is on identifying, acquiring, developing or redeveloping and managing commercial real estate located within qualified opportunity zones. The company's investment portfolio currently consists of several multifamily and mixed-use rental properties across Florida, Tennessee, and Connecticut.

Florida Investments

In Florida, OZ's investments include 1991 Main Street in Sarasota, which is being developed as two 10-story buildings with over 900 garage and surface-level parking spaces, featuring 424 apartments and 51,000 square feet of retail space. The company also owns 1900 Fruitville Road in Sarasota, which it plans to use as additional parking for its Sprouts Farmers Market tenant at 1991 Main Street. Additionally, OZ owns 1000 First Avenue North and 900 First Avenue North in St. Petersburg, which are being developed into a 15-story high-rise building with 269 apartment homes and 15,500 square feet of retail space.

Tennessee Investments

In Tennessee, OZ's investments include 900 8th Avenue South, 1130 Davidson Street, 1400 Davidson Street, and 690/1106 Davidson Street in Nashville, all of which the company plans to redevelop into mixed-use residential communities.

Connecticut Investments

In Connecticut, OZ owns 497-501 Middle Turnpike and Cedar Swamp Road in Storrs, which it plans to develop into a 261-apartment home community and an adjacent single-family home, as well as 1750 Storrs Road, which the company intends to develop into a multifamily mixed-use project.

Financials

For the year ended December 31, 2022, OZ reported annual revenue of $2,254,000 and a net loss of $14,351,000. The company's annual operating cash flow and free cash flow were both $-6,945,000.

During the three months ended March 31, 2023, OZ generated revenue of $337,000 and incurred a net loss of $3,981,000. The company's operating cash flow and free cash flow for the quarter were both $-6,628,000.

OZ's financial performance has been impacted by the ongoing development and construction activities across its investment portfolio. The company has incurred significant costs related to the development of its properties, including construction expenses, interest, and impairment charges. As OZ continues to execute on its investment strategy, it expects to continue to report net losses and negative cash flows in the near term.

Liquidity

As of March 31, 2023, OZ had cash and cash equivalents of $29,205,000 and restricted cash of $12,971,000, for a total of $42,176,000 in cash and cash equivalents and restricted cash. The company's total debt, net of unamortized debt issuance costs and debt discount, was $86,922,000 as of the same date.

OZ's primary sources of liquidity and capital resources include the proceeds from its public offerings, advances of reimbursable fees and expenses by its manager and affiliates, secured or unsecured financing from banks and other lenders, and any undistributed cash flow generated from operations. The company's ongoing liquidity needs are primarily to fund its investments, including construction and development costs, pay its operating fees and expenses, and service its outstanding indebtedness.

As of March 31, 2023, OZ had an aggregate unfunded commitment of $77.3 million under its construction management agreements for the development of 1991 Main in Sarasota and 1000 First in St. Petersburg. The company is in the process of obtaining a first mortgage construction loan to fund the remaining construction and soft costs associated with the development of 1000 First, but due to liquidity constraints caused in part by its obligation to maintain reserves in connection with the 1991 Main Construction Loan and 1991 Main Mezzanine Loan, if OZ does not finalize the 1000 First Construction Loan prior to May 31, 2023, it will stop or delay construction until it can obtain additional financing.

Risks and Challenges

OZ's business and financial performance are subject to various risks and uncertainties, including construction delays, delays in the lease-up and stabilization of its properties, fluctuations in occupancy rates and market rents, changes in borrowing costs due to interest rate movements, inflation, and general economic conditions in the markets where it operates.

The company's future performance and financial results will depend on the resolution of these and other factors, the extent of which remains highly uncertain. OZ's manager continuously reviews its investment and financing strategies to optimize and reduce risk in the face of these evolving market conditions.

Outlook

Despite the challenges, OZ remains focused on executing its strategy of identifying, acquiring, developing, and managing commercial real estate in qualified opportunity zones. The company believes its investments in high-growth markets like Florida, Tennessee, and Connecticut position it well to capitalize on the favorable demographic and economic trends in these regions over the long term.

Conclusion

Belpointe PREP, LLC (OZ) is a unique publicly traded qualified opportunity fund that is leveraging the tax benefits of investing in opportunity zones to develop commercial real estate projects across the southeastern United States and Connecticut. While the company's financial performance has been impacted by the costs associated with its ongoing development activities, OZ's diversified portfolio of multifamily and mixed-use properties in high-growth markets suggests it is well-positioned to deliver long-term value for its investors as it continues to execute on its investment strategy.