Belpointe PREP, LLC

Note 5 –Real Estate, Net

Acquisitions of Real Estate During 2023

On June 28, 2022, through an indirect majority-owned subsidiary of our Operating Company, we acquired a 70.2% controlling interest (the “CMC Interest”) in CMC Storrs SPV, LLC (“CMC”), a holding company for an approximately 60-acre site located in Mansfield, Connecticut. As part of the transaction, two unaffiliated joint venture partners (the “CMC JV Partners”) were deemed to have made initial capital contributions to CMC. Following our acquisition of the CMC Interest, we discovered that one of the CMC JV Partners had misappropriated cash from the other’s cash account. Accordingly, the CMC JV Partner forfeited $1.0 million, or 29.8%, of their noncontrolling interest in CMC on March 24, 2023 (a non-cash financing activity during the year ended December 31, 2023). As a result of the forfeiture, we indirectly own a 100% controlling interest in CMC.

On August 24, 2023, through an indirect majority-owned subsidiary of our Operating Company, we acquired land located in Sarasota, Florida, that was previously subject to a ground lease for a purchase price of $4.9 million, inclusive of transaction costs of $0.1 million. We accounted for the transaction as an asset acquisition. As the acquired land is being held for development, the total purchase price was allocated to Real estate under construction on the consolidated balance sheets.

Real Estate Under Construction

The following table provides the activity of our Real estate under construction (amounts in thousands):

Placed in Service

During the year ended December 31, 2024, our 1991 Main Street, Sarasota, Florida (“Aster & Links”) development project reached substantial completion, and as a result, we reclassified $235.7 million from Real estate under construction to Land ($12.3 million), Building and improvements ($220.8 million), and Furniture, fixtures and equipment ($2.6 million) on our consolidated balance sheets.

Non-cash Disclosures

Real estate under construction includes non-cash investing activity of $21.0 million for year ended December 31, 2024 (inclusive of unpaid development fees of $2.2 million and unpaid employee cost sharing and reimbursements of $0.9 million) and $27.6 million for the year ended December 31, 2023 (inclusive of unpaid development fees of $6.1 million and unpaid employee cost sharing and reimbursements of $1.3 million).

Depreciation Expense

Depreciation expense was $4.0 million, and $0.8 million for the years ended December 31, 2024, and 2023, respectively, and is included in Depreciation and amortization in our consolidated statements of operations.

Note 6 –Intangible Assets and Liabilities

The following table summarizes our intangible assets and liabilities (amounts in thousands):

During the years ended December 31, 2024, and 2023, the amortization of in-place lease intangible assets was $0.1 million, and $1.2 million, respectively, and is included in Depreciation and amortization in our consolidated statements of operations.

During the years ended December 31, 2024, and 2023, the amortization of below-market lease liability was $0.1 million and $0.8 million, respectively, and is included in Rental revenue in our consolidated statements of operations.

Based on the intangible assets and liabilities recorded as of December 31, 2024, scheduled annual net amortization of intangibles for the next five calendar years and thereafter is as follows (amounts in thousands):

Note 7 –Debt, Net

2024 Debt Transactions

On June 28, 2024, our indirect majority-owned subsidiary entered into a variable-rate construction loan agreement for up to $104.0 million in principal amount (the “1000 First Construction Loan”) with various lenders.

On June 26, 2024, our indirect majority-owned subsidiary entered into a fixed-rate loan agreement for $10.0 million in principal amount (the “900 8th Land Loan”) with KHRE SMA Funding, LLC.

On January 31, 2024, our indirect majority-owned subsidiary entered into a fixed-rate mezzanine loan agreement for up to $56.4 million in principal amount (the “1991 Main Mezzanine Loan”) with Southern Realty Trust Holdings, LLC.

2023 Debt Transactions

On May 12, 2023, our indirect majority-owned subsidiary entered into a variable-rate construction loan agreement for up to $130.0 million in principal amount (the “1991 Main Construction Loan”) with Bank OZK.

The following table details our Debt, net (dollars in thousands):

The following table summarizes the scheduled future principal payments under our debt arrangements as of December 31, 2024 (amounts in thousands):

Interest paid, net of capitalized interest for the years ended December 31, 2024 and 2023, was $7.5 million andzero, respectively. During the year ended December 31, 2024 we capitalized unpaid lender fees of less than $0.1 million, which is a non-cash financing activity.

Amortization of deferred financing costs for the years ended December 31, 2024 and 2023, was $2.3 million and $0.6 million, respectively, of which $1.0 million and $0.6 million was capitalized, respectively.

Guarantees and Covenants

Each of our indebtedness agreements are secured by the individual underlying real estate investments serving as collateral. In connection with certain agreements, we provided completion guarantees, which, among other things, guarantee completion of the work at each individual construction project, as well as carveout guarantees pursuant to which we guarantee the borrowers obligations with respect to certain non-recourse carveout events, such as “bad acts,” environmental conditions, and violations of certain provisions of the loan documents. We also provided a customary environmental indemnity agreement to the certain lenders pursuant to which we agreed to protect, defend, indemnify, release and hold harmless such lenders from and against certain environmental liabilities related to the real estate investments for which they apply.

We are subject to various financial and operational covenants which includes, but is not limited to, maintaining liquid assets of no less than $20.0 million and a net worth of no less than $130.0 million. As of December 31, 2024 and 2023, we were in compliance with all of our loan covenants.

Note 8 –Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date under current market conditions (i.e., the exit price).

We categorize our financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.

Level 2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs).

Level 3 – Valuation generated from model-based techniques that use inputs that are significant and unobservable in the market. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow methodologies or similar techniques, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.

We estimated that our other financial assets and liabilities had fair values that approximated their carrying values as of December 31, 2024 and 2023.

Recurring Fair Value Measurements

Assets measured at fair value on a recurring basis is comprised of our interest rate caps (see Note 9 – Derivative Instruments). The valuation of our interest rate caps are prepared by an independent third-party and is classified as Level 2 in the fair value hierarchy, as the valuation is approximated using market values of similar instruments in active markets.

The following table sets forth the carrying value and estimated fair value of our debt arrangements as of December 31, 2024 and 2023 (amounts in thousands):

Note 9 –Derivative Instruments

In connection with our variable rate loan agreements (Note 7 – Debt, Net), we are required to obtain and maintain interest rate protection in the form of interest rate caps during the term of the loans to effectively limit the impact of increases in the one-month SOFR. We are subject to credit risk by the counterparty of these derivative instruments in the event of non-performance under the derivative contracts, however we believe the risk to be minimal.

The following table details our derivative financial instrument as of December 31, 2024 (dollars in thousands):

The following table details the fair value of our derivative financial instruments (amounts in thousands):

The following table details the effect of our derivative financial instrument on our consolidated statement of operations for the years ended December 31, 2024 and 2023 (in thousands):

Note 10 –Members’ Capital

Our Operating Agreement generally authorizes our Board to issue an unlimited number of units and options, rights, warrants and appreciation rights relating to such units for consideration or for no consideration and on the terms and conditions as determined by our Board, in its sole discretion, in most cases without the approval of our members. These additional securities may be used for a variety of purposes, including in future offerings to raise additional capital and acquisitions. Our Operating Agreement currently authorizes the issuance of anunlimited number of Class A units,100,000 Class B units andone Class M unit.

For the years ended December 31, 2024, and 2023, we issued 41,774, and 98,950, respectively, Class A units. As of December 31, 2024, there were 3,664,173 Class A units,100,000 Class B units andone Class M unit issued and outstanding. As of December 31, 2023, there were 3,622,399 Class A units,100,000 Class B units andone Class M unit issued and outstanding.

Class A units

Upon payment in full of any consideration payable with respect to the initial issuance of our Class A units, the holder thereof will not be liable for any additional capital contributions to the Company. Holders of our Class A units are not entitled to preemptive, redemption or conversion rights. Holders of our Class A units are entitled to one vote per unit on all matters submitted to a vote of our members. Matters must generally be approved by a majority (or, in the case of the election of directors, by a plurality) of the votes entitled to be cast.

Holders of our Class A units share ratably in any distributions we make, subject to any statutory or contractual restrictions on distributions and to any restrictions on distributions imposed by the terms of any preferred units we issue.

Upon our dissolution, liquidation or winding up, after payment of all amounts required to be paid to creditors and holders of preferred units, if any, holders of our Class A units are entitled to receive our remaining assets available for distribution.

Class B units

All of our Class B units are currently held by our Manager and were issued on September 14, 2021. Holders of our Class B units are not entitled to preemptive, redemption or conversion rights. Holders of our Class B units are entitled to one vote per unit on all matters submitted to a vote of our members. Matters must generally be approved by a majority (or, in the case of the election of directors, by a plurality) of the votes entitled to be cast.

Holders of our Class B units are entitled to share ratably as a class in 5% of any gains recognized by or distributed to the Company or recognized by or distributed from our Operating Companies or any subsidiary or other entity related to the Company, regardless of whether the holders of our Class A units have received a return of their capital. The allocation and distribution rights that the holders of our Class B units are entitled to may not be amended, altered or repealed, and the number of authorized Class B units may not be increased or decreased, without the consent of the holders of our Class B units. In addition, our Manager, or any other holder of our Class B units, will continue to hold the Class B units even if our Manager is no longer our manager.

Upon our dissolution, liquidation or winding up, after payment of all amounts required to be paid to creditors and holders of preferred units, if any, holders of our Class B units will be entitled to receive any accrual of gains or distributions otherwise distributable pursuant to the terms of the Class B units, regardless of whether the holders of our Class A units have received a return of their capital.

Class M unit

The Class M unit is currently held by our Manager and was issued on September 14, 2021. The holder of our Class M unit is not entitled to preemptive, redemption or conversion rights. The holder of our Class M unit is entitled to that number of votes equal to the product obtained by multiplying (i) the sum of the aggregate number of outstanding Class A units plus Class B units, by (ii) 10, on matters on which the Class M unit has a vote. Our Manager will continue to hold the Class M unit for so long as it remains our manager.

The holder of our Class M unit does not have any right to receive ordinary, special or liquidating distributions.

Preferred units

Under our Operating Agreement, our Board may from time to time establish and cause us to issue one or more classes or series of preferred units and set the designations, preferences, rights, powers and duties of such classes or series.

Basic and Diluted Loss Per Class A Unit

For the years ended December 31, 2024, and 2023, the basic and diluted weighted-average units outstanding were 3,638,258, and 3,553,319, respectively. For the years ended December 31, 2024, and 2023, net loss attributable to our Class A units was $23.9 million, and $14.4 million, respectively, and the loss per basic and diluted unit was $6.56, and $4.04, respectively.

Note 11 –Commitments and Contingencies

From time to time the Company may become involved in certain non-material litigation or other claims arising in the ordinary course of business. See Note — 13 Subsequent Events.

As of December 31, 2024, the Company is not subject to any material litigation nor is the Company aware of any material litigation threatened against it.

In connection with the development of our commercial real estate assets, we have entered into separate construction management agreements for each asset which contain terms and conditions that are customary for the related scope of work. As of December 31, 2024, we have two development projects with an aggregate unfunded commitment of $59.9 million. As of December 31, 2024, $19.6 million, inclusive of retainage of $13.0 million, is outstanding and payable in connection with these developments.

Note 12 –Segment Reporting

We identify our operating segments based on the way we organize and evaluate our business. As a result of the placement of Aster & Links in service and the commencement of operations during the year ended December 31, 2024, we have revised our reportable segments to includetwo distinct segments as follows:

Our Chief Executive Officer is our Chief Operating Decision Maker (“CODM”). Our CODM reviews financial information presented on an operating segment basis for purposes of allocating resources, making decisions and assessing financial performance.

We believe segment net operating income (loss) (“Segment NOI”) provides a useful measure of our performance of our business, as it reflects the core rental operations of our operating real estate. Segment NOI is calculated as total revenues, less property expenses, excluding corporate level items, such as management fees incurred to our Manager (Note 4 – Related Party Arrangements), depreciation and amortization, general and administrative expenses, interest expense, and other non-operating items.

The following table details the results of Segment NOI, reconciled to our consolidated statement of operations for the years ended December 31, 2024, and 2023 (amounts in thousands):

The following table details the significant expense categories by segment for the years ended December 31, 2024, and 2023 (amounts in thousands):

The following table details our total assets by segment as of December 31, 2024, and 2023 (amounts in thousands):

Note 13 –Subsequent Events

Management’s Evaluation

Management has evaluated subsequent events to determine if events or transactions occurring after the balance sheet date through the date the audited consolidated financial statements were issued require potential adjustment to or disclosure in the audited consolidated financial statements and has concluded that, except as set forth below, all such events or transactions that would require recognition or disclosure have been recognized or disclosed.

The Galinn Fund LLC

On December 5, 2024, the Galinn Fund LLC, a New York limited liability company (“Galinn”), filed a complaint in Connecticut State Superior Court naming CMC Storrs SPV, LLC (“CMC”), the holding company for our investment property located at 497-501 Middle Turnpike, Storrs, Connecticut (“497-501 Middle”), as a defendant, alongside Chen Ji, an individual (“Chen”), and two additional entities (the “Guarantors”).

In the complaint Galinn alleges, among other things, that on May 24, 2024, Chen, on behalf of CMC, executed a mortgage note (the “Note”) in the principal amount of $3.0 million (the “Loan”), which was secured in part by a mortgage against 497-501 Middle (the “Mortgage”). Galinn further alleges that CMC is in default under both the Note and Mortgage for failure to make payments when due. Galinn is seeking to foreclose on the Mortgage and damages against CMC and the Guarantors.

In March 2020, when we first acquired an equity interest in CMC, Chen was an affiliate of the entity, however, he thereafter exited the investment and is no longer in any way affiliated with or authorized to act on behalf of CMC. We maintain that the Loan was obtained as a result of Chen’s fraud and Galinn’s negligence, and had Galinn done adequate due diligence, or reviewed the publicly available filings on the State of Connecticut’s Business Records website, or even a basic Google search, Chen’s lack of authority would have been readily apparent prior to Galinn having made the Loan.