Executive Summary / Key Takeaways

• Unique Opportunity Zone Focus: Belpointe PREP, LLC (OZ) stands out as the sole publicly traded qualified opportunity fund, offering investors unique capital gains tax advantages by investing in commercial and mixed-use real estate within designated opportunity zones. This specialized focus is its primary strategic differentiator.
• Development-Driven Growth: The company is in a significant development phase, with key projects like Aster Links in Sarasota now in lease-up and VIV in St. Petersburg nearing completion (90% complete as of June 30, 2025). These developments are expected to drive future rental revenue growth and asset stabilization.
• Current Financial Performance Reflects Development Stage: OZ reported a net loss of $7.63 million for Q2 2025 and $16.25 million for the six months ended June 30, 2025. This is primarily due to substantial development costs, increased interest expense from higher debt balances, and depreciation as new assets come online.
• Liquidity and Leverage Management: The company maintains compliance with loan covenants, holding $29.70 million in cash and equivalents as of June 30, 2025. It manages significant unfunded commitments ($26.0 million for VIV and Aster Links) through a mix of public offerings and construction loans, targeting a property-level leverage of 50-70% post-stabilization.
• Navigating Macroeconomic and Competitive Pressures: OZ faces industry-wide challenges including fluctuating interest rates, inflation, and labor shortages. Its smaller scale and development-heavy profile present vulnerabilities compared to larger, more diversified competitors, necessitating careful strategic execution to realize its long-term potential.

The Unique Proposition of Belpointe PREP

Belpointe PREP, LLC (NYSE:OZ) is not a typical real estate investment vehicle. Formed in January 2020, OZ distinguishes itself as the only publicly traded qualified opportunity fund listed on a national securities exchange. This unique structure allows certain investors to benefit from favorable capital gains tax treatment, providing a compelling incentive for capital allocation to the company's projects. OZ's core strategy revolves around identifying, acquiring, developing, or redeveloping, and managing commercial and mixed-use real estate properties exclusively within qualified opportunity zones across the United States.

The company's operational model is externally managed by Belpointe PREP Manager, LLC, an affiliate of its sponsor, Belpointe, LLC. This management team is responsible for day-to-day affairs, including identifying and executing acquisitions and investments. OZ's focus on opportunity zones is its primary strategic and structural differentiator, rather than a proprietary technological innovation in the traditional sense. This specialization provides a distinct competitive advantage by tapping into a specific pool of tax-advantaged capital, which larger, more generalist real estate players may not pursue with the same depth or focus.

Competitive Landscape and Strategic Positioning

OZ operates within the broad and highly competitive real estate development and investment sector. Its direct competitors include established REITs and investment firms with significant scale and diversified portfolios, such as Prologis, Inc. (PLD), Simon Property Group (SPG), Blackstone Inc. (BX), and Brookfield Asset Management (BN). While these giants boast extensive market presence and robust financial profiles, OZ carves out its niche through its specialized Qualified Opportunity Fund (QOF) status.

Compared to Prologis, a leader in industrial logistics, OZ's development-heavy, mixed-use focus in specific urban opportunity zones offers a different growth vector. Prologis typically exhibits strong revenue growth and high profitability margins (2024 Gross Profit Margin: 75%, Net Profit Margin: 45%), driven by its global scale and established tenant base. OZ, still in its early development and lease-up phases, currently operates with negative margins (TTM Gross Profit Margin: -90.03%, Net Profit Margin: -551.36%), reflecting its significant investment in future income generation. This disparity highlights OZ's higher risk-reward profile as a growth-oriented developer.

Against Simon Property Group, a retail and mixed-use giant, OZ's advantage lies in its ability to attract tax-incentivized capital for new developments, potentially enabling more aggressive project financing. Simon, with its mature portfolio, demonstrates stable revenue and strong margins (2024 Gross Profit Margin: 83%, Net Profit Margin: 40%). OZ's smaller operational scale and newer projects mean it lags in immediate cash flow generation and established occupancy rates. However, its targeted approach to revitalizing specific urban areas through QOZ investments could yield higher long-term returns on invested capital as projects stabilize.

Blackstone and Brookfield, global investment powerhouses with vast real estate arms, command superior financial resources and broader diversification. Their ability to deploy massive capital across various asset classes and geographies provides a significant competitive edge in terms of scale and efficiency. OZ's more concentrated focus on U.S. opportunity zones, while offering specialized expertise, means it cannot match the operational scale or immediate profitability of these firms. OZ's competitive moat is therefore built on its unique QOF structure and its specialized expertise in navigating the complexities of opportunity zone development, rather than traditional technological superiority or sheer asset volume.

Building the Portfolio: History and Operational Milestones

OZ's journey began in January 2020, quickly qualifying as a QOF by the end of that year. A pivotal moment was its succession to Belpointe REIT, Inc. in 2021, integrating prior offerings and assets and establishing a foundation for public capital raising. Through its Primary Offering (commenced October 2021) and Follow-on Offering (effective May 2023), OZ has raised aggregate gross offering proceeds of $361.40 million as of June 30, 2025, demonstrating its ability to attract investor capital for its specialized mandate.

The company's strategic initiatives are clearly visible in its development pipeline. Aster Links, a 424-unit mixed-use luxury development in Sarasota, Florida, reached substantial completion and began lease-up in 2024. This flagship asset, featuring approximately 51,000 square feet of retail space anchored by Sprouts Farmers Market (SFM), commenced operations in Q2 2024. By May 2025, Aster Links had successfully leased approximately one-third of its residential units, a significant milestone indicating progress towards stabilization. The project's estimated unlevered yield is greater than 6% on a minimum funding of $180.2 million, underscoring its potential profitability.

Another key project, VIV in St. Petersburg, Florida, is rapidly advancing. As of June 30, 2025, construction on VIV was 90% complete, with leasing anticipated to begin prior to its expected completion in the second half of 2025. This mixed-use development will feature 269 apartment homes and approximately 15,500 square feet of retail space, further expanding OZ's income-generating portfolio. Other notable developments include the redevelopment of 1900 Fruitville Road into parking for Aster Links' tenant, and various land assemblages in Nashville (900 8th Avenue South, 6901-106 Davidson Street, 1130 Davidson Street, 1400 Davidson Street) and Storrs, Connecticut (497-501 Middle Turnpike, Cedar Swamp Road, Storrs Road, 1750 Storrs Road) slated for future mixed-use or multifamily development. The Nashville parcels, for instance, were successfully rezoned in September 2023 to accommodate medium to high-density multi-family residential and mixed commercial uses.

Financial Performance and Liquidity

OZ's financial performance for the three and six months ended June 30, 2025, reflects its intensive development phase. Total revenue for Q2 2025 was $2.00 million, a substantial increase from $0.38 million in Q2 2024, driven primarily by the Mixed-use Segment's rental revenue growth (from $0.096 million in Q2 2024 to $1.786 million in Q2 2025). For the six months, total revenue grew from $0.72 million in 2024 to $3.74 million in 2025, with Mixed-use rental revenue surging from $0.152 million to $3.227 million. This significant top-line growth is a direct result of Aster Links commencing operations and its ongoing lease-up.

Despite revenue growth, the company reported a net loss of $7.63 million for Q2 2025, widening from a $4.72 million loss in Q2 2024. The six-month net loss also increased to $16.26 million from $8.70 million. This is largely attributable to increased expenses inherent in a development-focused business. Property expenses rose significantly, particularly in the Mixed-use Segment, as Aster Links transitioned to an operating asset. Interest expense surged to $2.87 million in Q2 2025 (from $1.71 million in Q2 2024) and $7.23 million for the six months (from $2.43 million in 2024), driven by a higher weighted-average outstanding debt balance and the cessation of interest capitalization on completed projects. Depreciation and amortization also increased by $1.20 million in Q2 2025 due to placing fixed assets in service at Aster Links.

From a liquidity standpoint, OZ reported cash and cash equivalents of $24.96 million as of June 30, 2025, with total cash and restricted cash at $29.73 million. The company's primary liquidity needs are funding ongoing construction, covering operating expenses, and servicing debt. As of June 30, 2025, OZ had an aggregate unfunded commitment of $26.0 million under construction management agreements for VIV and Aster Links. The remaining funding for Aster Links is anticipated to be a minimum of $16.2 million, and for VIV, approximately $35.8 million. The company's debt, net, stood at $228.44 million as of June 30, 2025, up from $177.02 million at year-end 2024. OZ was in compliance with all loan covenants, including maintaining liquid assets of no less than $20 million and a net worth of no less than $130 million. Management believes current cash, proceeds from public offerings, and future financing will be sufficient for the next 12 months.

Outlook and Risks

OZ's outlook is intrinsically tied to the successful completion and stabilization of its development pipeline. With VIV expected to complete construction in the second half of 2025 and begin leasing, the company anticipates a significant increase in rental revenue. The ongoing lease-up of Aster Links will also continue to contribute positively to the top line. The unique tax benefits associated with Qualified Opportunity Funds remain a core draw for investors, providing a distinct advantage in capital attraction.

However, the path forward is not without considerable risks. The real estate industry is subject to ongoing macroeconomic uncertainties, including fluctuating interest rates, which directly impact borrowing costs (e.g., the 1991 Main Construction Loan bears interest at SOFR + 3.45%, subject to a minimum of 8.51%). Higher inflation rates could lead to increased development costs, potentially eroding project margins. Construction delays, tenant non-renewals, and market rent fluctuations due to competition also pose operational risks. The company's external management structure means it is dependent on its Manager and affiliates for essential services, creating an economic dependency.

Furthermore, recent legislative changes, such as the "One Big Beautiful Bill Act of 2025," which permanently extended certain federal income tax provisions, introduce a new layer of regulatory uncertainty. While the company is evaluating its impact, such changes could affect the attractiveness of the QOF structure or its operational costs. OZ is also involved in litigation concerning a $3.00 million mortgage note related to its 497-501 Middle Turnpike property, which it is vigorously defending, asserting fraud and negligence by other parties. While deemed immaterial as of June 30, 2025, litigation always carries inherent unpredictability.

Conclusion

Belpointe PREP, LLC (OZ) presents a compelling, albeit high-growth, investment thesis rooted in its unique positioning as the sole publicly traded qualified opportunity fund. Its strategic focus on developing commercial and mixed-use properties within opportunity zones offers a distinct tax-advantaged avenue for investors. The company's recent operational milestones, particularly the lease-up of Aster Links and the near completion of VIV, signal a transition from pure development to revenue generation, which should eventually improve its currently negative profitability metrics.

While OZ faces significant development-stage costs, increased interest expenses, and broader macroeconomic headwinds common to the real estate sector, its adherence to loan covenants and ongoing capital-raising efforts demonstrate a commitment to financial stability. The success of its pipeline, particularly the stabilization of Aster Links and the timely completion and lease-up of VIV, will be critical determinants of its future financial performance and ability to narrow the valuation gap to its Net Asset Value. For investors seeking exposure to the growth potential of opportunity zones with a long-term horizon, OZ offers a differentiated and focused play, contingent on effective execution of its ambitious development strategy and favorable market conditions.