Millrose Properties Q2 2025 Earnings Report

Millrose Properties EPS Results

• Actual EPS: $0.68
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Millrose Properties Revenue Results

• Actual Revenue: $149.00 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Millrose Properties Announcement Details

• Quarter: Q2 2025
• Date: 7/31/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 10:00AM ET

Millrose Properties (NYSE:MRP) Corp is a publicly traded real estate investment trust that focuses on the acquisition, ownership and development of industrial and logistics properties. The company seeks to capitalize on the growing demand for modern warehouse facilities driven by e-commerce, freight distribution and last-mile delivery requirements. Millrose structures its investments to generate stable, long-term rental income through diversified lease agreements with industrial and logistics operators.

The firm’s core activities include sourcing strategically located industrial assets, overseeing property management operations and executing targeted development or renovation projects. Millrose works closely with tenants to customize space configurations, optimize operational efficiencies and integrate sustainability features. By managing its own projects and leveraging in-house asset management expertise, the company aims to enhance portfolio value and drive consistent occupancy levels.

Millrose Properties’ portfolio is concentrated primarily in the Northeast and Mid-Atlantic regions of the United States, with properties situated in key distribution hubs such as the New York metropolitan area, New Jersey and southeastern Pennsylvania. These markets benefit from dense consumer populations, extensive transportation networks and proximity to major ports. The company also evaluates expansion opportunities in high-growth Sun Belt markets where demand for modern logistics space continues to outpace supply.

Millrose’s executive leadership team brings together seasoned real estate and logistics professionals with decades of experience in industrial property investment and operations. The company emphasizes disciplined underwriting, proactive asset management and a long-term capital allocation strategy designed to support sustainable growth. Through its focused approach to industrial real estate, Millrose Properties aims to deliver reliable operating results and build a high-quality portfolio that meets evolving tenant needs.

Millrose Properties Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Millrose paid its first full quarterly dividend of $0.69 per share, underscoring the reliability of its cash flow model.
• Positive Sentiment: The company raised its year-end adjusted funds from operations guidance to a run rate of $0.70–$0.73 per share, driven by stronger-than-expected third-party investment activity.
• Positive Sentiment: Third-party capital deployments grew to approximately $1.1 billion at quarter-end and have since increased to about $1.3 billion, diversifying the platform beyond its Lennar master program.
• Positive Sentiment: Millrose closed a $1 billion delayed draw term loan with Goldman Sachs and JPMorgan, enhancing liquidity and maintaining a conservative 15% debt-to-capitalization ratio.
• Negative Sentiment: Affordability constraints and waning consumer confidence are pressuring certain coastal secondary markets in Florida and Texas, though Millrose’s minimal exposure to these areas is fully protected by cross-termination pooling.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Millrose Properties Q2 2025 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I will now turn the call over to Jesse Ross, Millrose Head of Financial Planning and Analysis. Jesse, you may begin your conference.

[Jesse Ross, Head of Financial Planning and Analysis at Millrose Properties]

Good morning. Thank you for joining us. With us today to discuss our second-quarter 2025 results are Darren Richman, our Chief Executive Officer, and President Robert Nitkin, our Chief Operating Officer, Garett Rosenblum, our Chief Financial Officer, and Stephen Hensley, Senior Market Risk Analyst. Before we begin, I'd like to remind everyone that this call may include forward-looking statements and discuss non-GAAP financial measures. Please refer to our second-quarter 2025 financial and operational results announcement as well as the second quarter investor presentation we released and posted on our website under the Investor Relations heading for a discussion of these matters. With that, I'll turn the call over to Darren.

[Darren Richman, CEO at Millrose Properties]

Thank you Jesse, and good morning, everyone. I am pleased to discuss our second-quarter results marking our first full quarter as a public company and a period of significant growth and execution for Millrose. We continue to deliver on our strategy to redefine how homebuilders and land developers access land capital. As a pioneer in the institutionalization of land banking services, Millrose offers homebuilders a unique permanent capital solution for the acquisition and development of residential home sites. Our innovative business model enables us to efficiently enter into option contracts with our homebuilder partners that facilitate just-in-time delivery of finished home sites for builders and predictable cash income yield for Millrose shareholders. Our financial performance in the second quarter underscores our dedication to disciplined capital investment and reflects strong demand for our scaled solutions-based approach.

[Darren Richman, CEO at Millrose Properties]

The payment of our first quarterly dividend reflects the visibility and consistency that our platform was purpose-built to offer. This illustrates the reliability of our economic model in which cash flows from contractual monthly option payments and ongoing capital redeployment deliver attractive recurring revenues that convert into the payment of timely and predictable dividends. Following the spin-off, Lennar continues to serve as our principal client, providing stable cash flows that support our financial performance. This quarter we effectively demonstrated the value of our operational flywheel, recycling substantial proceeds from Lennar home site sales into new land acquisitions and development funding under the Lennar Master Program Agreement. This capital deployment is central to our strategy, enabling us to consistently generate returns on invested capital.

[Darren Richman, CEO at Millrose Properties]

We also extended our partnerships with third parties, with invested capital away from the Lennar Master Program Agreement increasing to approximately $1.1 billion as of June 30, demonstrating our value proposition to third-party homebuilders. During the quarter we continued to pioneer new use cases for Millrose Properties as a solution provider, facilitating the first-of-its-kind capital backstop in the take-private of Landsea Homes Corporation by New Home Company. Through this transaction, Millrose Properties acquired a diversified portfolio of home sites under option with New Home Company with net cash funding of approximately $500 million. More recently, affiliates of Millrose's manager announced a significant capital partnership with Taylor Morrison to enable the growth of its industry leading build-to-rent brand Yardley. This is yet another important use case for Homesite Option Purchase Platform arrangements as a scalable capital solution. We expect most of this opportunity will be allocated to the Millrose platform.

[Darren Richman, CEO at Millrose Properties]

This partnership, like most of our forward flow relationships, provides for exclusivity to provide capital at agreed terms over a defined period of time. In the case of Yardley, affiliates of our manager have agreed to provide $3 billion of land banking capital for Yardley during the two-and-a-half-year term of the exclusivity agreement, with closings under the facility expected for Millrose starting in the third quarter. The partnership is anticipated to further accelerate Millrose's accretive growth and provide an important use case validation of our end markets into rental housing. As you can see, the market demand for our capital solution across the homebuilding industry continues to be incredibly robust. We are seeing an environment where demand for Millrose's platform continues to support growing our capital base accretively.

[Darren Richman, CEO at Millrose Properties]

With our strong backlog pipeline and growing opportunities, we are increasingly confident in scaling Millrose and maintaining high returns. I had previously noted a $2 billion stretch target for year-end investment balance outside of the Lennar Master Program Agreement. This quarter's momentum has now shifted that stretch target to our base case and we are accordingly raising guidance. As you'll hear from Garett, let me now take a moment to comment on recent market conditions. Stephen will have more to say in a few minutes. Our strategy is built for long-term success while the broader underlying demand for home sites remains robust. We can't overlook the impact that affordability and waning consumer confidence has had and continues to have on certain end markets. As we mentioned last quarter, if we look at the longer term, strong structural tailwinds persist.

[Darren Richman, CEO at Millrose Properties]

We believe that there continues to be a significant shortfall in housing supply. Additionally, many of our builder clients are operating with historically high margins and strong balance sheets highlighted by low leverage levels, positioning them and the industry for resilience and for future growth. Our collateral continues to hold up very well, benefited from prime locations and pooling agreements. In summary, the second quarter highlighted the power of our platform, our team's execution, and the significant demand for the unique capital solution that we offer. We are excited about the opportunities ahead, and we remain committed to delivering value for our shareholders, homebuilder partners, and the communities we serve. With that, I will hand the call over to Rob for an operational update.

[Rob Nitkin, COO at Millrose Properties]

Thanks, Darren. Good morning, everyone. Core of our business is a national platform that acquires, manages, and monetizes entitled residential home sites. A key distinction of our business versus our competitors is the investments we have made in infrastructure in terms of systems, technology, and human capital built through years of development. Today, we employ over 40 professionals dedicated to the platform. These professionals are responsible for market surveillance, rigorous due diligence, asset onboarding, asset management, and asset disposition choreographed into the production schedule of our clients in order to deliver home sites on a just-in-time basis. Their hard work and local market expertise, overlaid on a philosophy of data-driven insights and process optimization, enables us to execute and scale with speed and precision in today's more dynamic housing environment. We've deliberately focused on maintaining high underwriting standards.

[Rob Nitkin, COO at Millrose Properties]

Our Investment Committee has enhanced its discipline around asset selection, with particular scrutiny on projected gross margins, pace assumptions, and the trajectory of local housing fundamentals. We've applied a more stringent lens in certain markets where moderating absorption has driven increased unsold inventory, ensuring our capital is positioned in the most compelling risk-adjusted opportunities. While market headlines tend to generalize, housing is inherently local. Accordingly, as a key data-driven filter in our underwriting process, we employ an internal MSA risk-rating model to track in real time the evolving supply and demand dynamics of local housing markets. We've also continued to focus on transaction structure and terms to further mitigate risk. As you've heard, demand for our capital has accelerated. This has allowed us to maintain discipline on key contract protections on the transactions we execute, including meaningful deposits and cross-termination pooling mechanisms which further mitigate market risk.

[Rob Nitkin, COO at Millrose Properties]

As of today, we have seen no indication of any option terminations in the portfolio. At the same time, we continue to earn compelling income. Our weighted-average option rate outside of the Lennar Master Program Agreement stood at 11.4% as of quarter end, while our blended option rate including Lennar was 8.9%. Our discipline amidst continued rising demand for the platform is reflected in our performance this quarter. We expanded our partnerships with third parties, investing $813 million in acquisitions and development outside of the Lennar Master Program Agreement and reaching a corresponding investment balance of approximately $1.1 billion as of June 30th. The progress has continued subsequent to the end of the quarter, with the investment balance in this category at approximately $1.3 billion as of today, including the initial closings under the Taylor Morrison Yardly partnership.

[Rob Nitkin, COO at Millrose Properties]

We deepened our network of builder relationships and we're pleased to now have 11 distinct counterparties, with six ranked in the top 25 of the Zonda Builder 100, a ranking of the largest home builders by closings. These builders represent some of the most sophisticated and well-capitalized home builders in the country and our ability to serve as a capital partner in their growth is a testament to our model. Our team has shown a unique capability to execute innovative strategic transactions, including those Darren mentioned: the closing of an approximately $500 million home site portfolio to support New Home Company's acquisition of Landsea Homes Corporation and the execution of the Taylor Morrison build-to-rent partnership and application of an existing transaction structure into the rental housing end market. These transactions underscore our ability to move quickly, underwrite at scale, and solve complex land needs of sophisticated counterparties.

[Rob Nitkin, COO at Millrose Properties]

Lastly, our partnership with Lennar continues to be a cornerstone of our platform. Joint investments in technology and systems have meaningfully enhanced transaction execution and operational efficiency. Of the $768 million in net cash proceeds received from homesite sales to Lennar in the quarter, $718 million was redeployed into new Lennar land acquisitions and development funding, demonstrating the flywheel effect that comes with scale, partnership, and process excellence. It was a quarter marked by disciplined execution, strategic expansion, and continued alignment with leading industry partners, and we look forward to continuing that momentum in the quarters ahead. With that, I'll hand it over to Millrose's Senior Market Risk Analyst, Stephen Hensley, who will share some detail on our view of today's market.

[Stephen Hensley, Senior Market Risk Analyst at Millrose Properties]

Thanks, Rob. At Millrose, we know that disciplined underwriting requires effective market surveillance, particularly in today's dynamic U.S. housing market in which affordability constraints and consumer confidence challenges are driving historically low housing turnover. Elevated mortgage rates have made it difficult for many prospective buyers to afford a home that meets their needs, while macroeconomic uncertainty has dampened consumer sentiment, limiting transaction activity as many wait for greater clarity before making long-term financial decisions. In this context, I'd like to share some additional insights into our proprietary MSA risk-rating model, which Rob alluded to. The model utilizes monthly data points that are pertinent to the health of individual housing markets, including new home sales, new and resale prices, employment growth, and resale months of supply.

[Stephen Hensley, Senior Market Risk Analyst at Millrose Properties]

Changes to these higher-frequency data points help us understand directional trends at an MSA level that contribute to underwriting hurdles at a portfolio level. Over the past 12 months, our proprietary model has picked up softening market conditions across parts of Florida and Texas and, more recently, to other regions of the country. While the discussion of Florida remains present in the media, we've identified the softness is most pronounced in what we would consider coastal secondary markets rather than larger core metropolitan areas. Our model has recently flagged Fort Myers, Naples, and Daytona Beach as markets to monitor. While fundamentals are evolving in these markets, our current option exposure is minimal at roughly 1% of remaining portfolio takedown proceeds. Additionally, 100% of properties in these three markets are included in geographically diversified cross-termination pooling agreements.

[Stephen Hensley, Senior Market Risk Analyst at Millrose Properties]

Austin, Texas is another market where we are seeing evolving market conditions, and again 100% of our Austin assets are pooled in cross-termination agreements. I'd like to touch briefly on affordability. While it is true that affordability remains a headwind for the industry today, there are mitigants that are acting as stabilizers. Credit quality of homebuyers remains healthy, likely due in part to a more financially mature profile of today's consumers, with first-time homebuyers deferring purchases until their late 30s and the typical buyer in their mid-50s. Additionally, prospective buyers are more often receiving support from older family members to make homeownership attainable. According to a survey conducted by Redfin in May, roughly 21% of Gen Z and Millennial homebuyers use a cash gift from family to help fund their down payment. Despite the near-term uncertainty, we maintain a long-term constructive view on the housing market, which remains structurally undersupplied.

[Stephen Hensley, Senior Market Risk Analyst at Millrose Properties]

Additionally, the supply of finished developed lots remains constrained nationwide, exacerbated by the complex, lengthy process of land entitlement, which supports continued stability in land values over time. We believe macroeconomic uncertainty will ease as domestic policy becomes more defined, helping to restore consumer confidence. On the affordability front, muted home price appreciation combined with ongoing wage growth should gradually close the affordability gap. With that, I'll hand it to Garett.

[Garett Rosenblum, CFO at Millrose Properties]

Thank you, Stephen, and good morning, everyone. I'm pleased to walk you through Millrose Properties' financial performance for the second quarter of 2025. This first full quarter post-spin from Lennar marks an important milestone as we continue to leverage our robust platform, significant liquidity, and disciplined capital allocation strategy to drive attractive returns for our investors. For the quarter, we reported net income attributable to Millrose common shareholders of $112.8 million, or $0.68 per share, driven by $149 million in option fees and other related income. Our annualized return on equity increased to 7.8%, a 20 basis point increase compared to the first quarter on a normalized basis, driven by continued growth of our partnerships outside of the Lennar Master Program Agreement. Our book value per share at the end of the quarter stood at $35.39.

[Garett Rosenblum, CFO at Millrose Properties]

Our management fee expense was $22 million, which is calculated transparently at 1.25% of gross tangible assets. Interest expense was $10.3 million, and income tax expense was $4.8 million. To further enhance transparency and better reflect the recurring earnings power of our business, we are introducing Adjusted Funds from Operations, or AFFO, as a supplemental performance metric this quarter. AFFO adjusts for non-cash and non-recurring items, providing a clearer view of the cash-generating capacity of our platform. We believe this metric will offer investors a more accurate measure of our sustainable distributable earnings. This quarter, AFFO was $115 million, or $0.69 per share. Further details and a full reconciliation of any non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and supplemental materials.

[Garett Rosenblum, CFO at Millrose Properties]

We paid our first full quarter dividend of $114.5 million, or $0.69 per share, demonstrating the attractive recurring yields our model generates. As we have said, we are committed to distributing our earnings back to shareholders. In the form of cash dividends.

[Garett Rosenblum, CFO at Millrose Properties]

Turning to our balance sheet and capitalization, Millrose maintains a conservative leverage profile, significant asset base, and ample liquidity. As of June 30, we reported total assets of approximately $8 billion with a debt-to-capitalization ratio of approximately 15%. Total debt was $1 billion. A significant highlight this quarter was the successful closing of our $1 billion delayed-draw term loan from Goldman Sachs and JPMorgan. This new facility materially enhances our already robust capital structure, providing ample financial flexibility to support our strong investment pace and execute on our growing range of opportunities. This facility was fully drawn as of June 30th, 2025, and was used to fund the New Home Company transaction and pay down the revolving credit facility. As a reminder, we expect to adhere to a conservative maximum leverage level of 33% net debt-to-capitalization, underscoring our disciplined approach to capital management.

[Garett Rosenblum, CFO at Millrose Properties]

Our attractive credit profile and substantial capital capacity support our efficient investment pace through the prudent utilization of all available funding resources. Finally, we are raising guidance for our year-end quarterly AFFO per share run rate of $0.70 to $0.73, consistent with expectations for higher transaction funding outside of the Lennar Master Program Agreement. We remain focused on delivering value to our shareholders through consistent earnings, prudent capital allocation, and a conservative balance sheet. With that, I'll turn the call back to Darren.

[Darren Richman, CEO at Millrose Properties]

To close, let me reiterate our immense confidence in Millrose and the pivotal role we are playing in the homebuilding ecosystem. Our innovative Homesite Option Purchase Platform isn't just a solution. It's a fundamental shift in how capital flows to meet robust housing demand. We look forward to continuing on our mission to deliver value to the homebuilder and investor stakeholders we serve and build upon the strong foundations we have established. Thank you for your continued support, and we look forward to sharing our further progress next quarter. With that, Operator, let's open the call up to Q&A.

[Operator]

All right. At this time I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Our first question comes from Julian Blouin with Goldman Sachs. Please go ahead.

[Julien Blouin, VP and Equity Research Analyst at Goldman Sachs]

Hello?

[Operator]

Julian, are you there?

[Julien Blouin, VP and Equity Research Analyst at Goldman Sachs]

Yes, can you hear me?

[Operator]

Yes.

[Julien Blouin, VP and Equity Research Analyst at Goldman Sachs]

There has been a lot of talk recently about home builders potentially starting to put pressure on land banking partners to write down land values and restructure their agreements. Do you see this as a risk for you? More generally, what are you hearing from your land banking partners about how they view Millrose as a partner amidst this more sort of challenging environment?

[Darren Richman, CEO at Millrose Properties]

Julian, this is Darren. There are two reasons why a home builder would use a land banking counterpart. One is for capital efficiency and the other is for risk mitigation. I think, as you know, and we've been very clear, our role in providing capital is really for capital efficiency, working with our homebuilder clients to buy land on their behalf so they can get the benefits of that efficiency, increasing their asset returns. There are still home builders out there though that are using intermediaries for risk mitigation where they're leveraging the balance sheet of third parties to kind of offload risk. It's really in those situations that we're hearing the same thing. We know which builders are looking for capital efficiency because those are the builders that are willing to give us additional credit enhancements.

[Darren Richman, CEO at Millrose Properties]

That's really the role, that's more of a modernization of land banking, to be one of capital efficiency. Because of the credit enhancements that we benefit from, we haven't seen any slippage in our portfolio nor do we expect to see any slippage. I don't know, Rob, if there's anything to add.

[Rob Nitkin, COO at Millrose Properties]

No, that's right.

[Julien Blouin, VP and Equity Research Analyst at Goldman Sachs]

Great. Maybe as a follow-up on those sort of credit enhancements, I appreciate the additional color in this quarter's presentation around cross-asset pooling. Can you sort of walk us through the success you're seeing on being able to pool properties on the non-Lennar deals you've been closing, and are there still some partners that you're working with that are maybe still hesitant around pooling?

[Darren Richman, CEO at Millrose Properties]

Yeah, Julian, I'd say again it's more of a modernization that folks are willing to entertain, and it really does speak to how hard it is to get land approved for development in the Grade A locations that we are helping to finance. It really started with our relationship with Lennar. They really helped to pioneer the pooling concept. We are seeing more widespread adoption of other builders joining that right now. We did the math overnight. About 97% of our portfolio is pooled. That gives you some sense for the adoption not just from our primary client, Lennar, but the other builders that have chosen to do business with us. It's something we're very proud of, that not only are we growing accretively, but we're actually benefiting from strong credit enhancements as we're constructing the portfolio.

[Julien Blouin, VP and Equity Research Analyst at Goldman Sachs]

Great. Maybe if I can sneak in the last one, how should we think about the yields on an agreement like the Taylor Morrison Yardly deal? Is it more similar to the sort of Apollo New Home Company yield that is a little bit lower than what we saw you do on a smaller sort of one-off basis in the first quarter? I assume based on what you've just walked us through that these Yardly agreements do include cross-asset pooling on those properties?

[Darren Richman, CEO at Millrose Properties]

I don't want to talk about specific transactions really, you know, with our counterparts. What I will say is we do expect our average yield to compress maybe closer to 11%. That's kind of what we've guided to as we grow our portfolio. The trade off is we're willing to give some rate relief to get the credit enhancements. And as we drive more adoption in the portfolio, we do see that blended rate coming down probably closer to 11%. I'd rather not specifically talk to any of our clients.

[Rob Nitkin, COO at Millrose Properties]

Yeah, and just to join, it's Rob. I would just note, you know, it's worth reiterating given the dynamics you mentioned, and admittedly, it is a notable homebuilder environment right now where we're focused every day on downside protection just as much or even more so than we're focused on yield. Just as Darren said, our incremental yield on the non-Lennar transactions was lower, and that is directly related to a focus on doing business with the right builders like Darren mentioned, as well as cross-asset pooling everywhere we can get it and being focused on downside protection. Our yield probably would be higher if we didn't have those structural risk mitigants, but it's a balance that we're focused on.

[Julien Blouin, VP and Equity Research Analyst at Goldman Sachs]

Okay, great. Thank you so much, team.

[Darren Richman, CEO at Millrose Properties]

Thanks, Julian.

[Operator]

Our next question comes from the line of Eric Wolfe with Citi. Please go ahead.

[Eric Wolfe, VP and Equity Research Analyst at Citi]

Hey, thanks for taking my questions. Maybe to follow-up on Taylor Morrison, can you just talk about how you and Kennedy Lewis will decide how the $3 billion gets split up and whether there's a different underwriting process that you go through in evaluating build-to-rent communities versus for sale.

[Rob Nitkin, COO at Millrose Properties]

I'll start with the second part which is evaluating build-to-rent. Ultimately we're relying on a lot of the same basic data around the strength of the housing market, employment trends, migration, and the overall economic strength of, you know, the tenant slash home buyer in that market. There is definitely a specific overlay as it relates to our build to rent evaluation on yield and expenses and, you know, much more of an operating income relative to basis analysis typical of rental real estate as opposed to for sale. It's very similar but certainly nuanced. Maybe I'll just touch on the allocation of Kennedy Lewis versus Millrose. Obviously it's the same people like Kennedy Lewis and Millrose. Kennedy Lewis, we are the external manager of Millrose.

[Rob Nitkin, COO at Millrose Properties]

While the agreement is with Kennedy Lewis subject to the publicly available allocation policy in the management agreement, there is an allocation that goes between both vehicles for a period of time. However, as we've noted, that available capital for this business at the Kennedy Lewis Fund, it's finite and will burn off over time. Until longer term we expect the majority of this product to be in Millrose.

[Darren Richman, CEO at Millrose Properties]

Yeah, and one thing I'd add on the Taylor Morrison is look, we really appreciate our relationship with Taylor Morrison. It's really an amazing use case for Millrose to be providing capital to their build-to-rent product. Their product really speaks to the affordability gap. Usually, this product lives on the edge of a master plan community that Taylor Morrison is already associated with. What I really like about it is, not only is it a new use case, but because we're not just financing the land, but we're financing the vertical construction, this is more of a de-risked portfolio opportunity for us. Not that we don't like land and all the cross-collateralization that we get, but this is yet another use case which I think is yet an evolution and more of a deal of use case because it's not just the land that we're financing, but we're financing. The vertical as well.

[Eric Wolfe, VP and Equity Research Analyst at Citi]

Yeah, makes sense. I understand the opportunity there. I guess, you know, when you look at your underwriting, are you assuming that the builder or the developer eventually just pays you back with borrowing on the community? Because obviously there's no sellout of the community. Assuming that's the case, are these agreements structured in such a way that it would be a little bit longer than a normal agreement with a for sale builder, as I would assume it takes one to two years to kind of stabilize that community.

[Rob Nitkin, COO at Millrose Properties]

No, it's actually, you know, I would say a similar tenor, even shorter. Then the typical for sale communities, it's structured in exactly the same way as our normal-course agreements. The only difference is there is one tax lot as opposed to multiple platted tax lots in a rental community. There is one take, if you will, at the end of the contract. That take is generally, you know, sooner than the last take of our other contracts. We're just relying on the builder, in this case Taylor Morrison, to use its capital, you know, to repurchase, as you said, the asset from us, just like we do, you know, in the for-sale scenario. In Taylor Morrison's case, the strength and credit quality of that organization, we have no concerns with its ability to do that, obviously.

[Rob Nitkin, COO at Millrose Properties]

This is a really meaningful, important business line for Taylor Morrison that they're putting a lot of effort and capital behind. It functions exactly the same way. We have just as much, if not more so, confidence in the counterparty to buy back, you know, the asset here. We feel really good, as Darren said, about the yield that our shareholders are getting relative to a really high-quality counterparty in asset.

[Eric Wolfe, VP and Equity Research Analyst at Citi]

That makes sense. I guess, last question, Taylor Morrison, if you get the majority of that, Millrose gets the majority of that, I think it'll be close to your sort of total leverage and investment capacity. Based on that sort of leverage constraint, do you feel like the stock is at a spot now where it maybe makes sense to issue equity or do you think it needs to be closer to book value? I think even at today's level, the investment spreads versus your cost of capital is pretty accretive. Obviously, there would be a little bit of dilution to book value. Just curious how you're thinking about the trade off there.

[Darren Richman, CEO at Millrose Properties]

Our priority right now is optimizing the balance sheet with debt, and we'll see where we end up as we put those debt structures in place with the equity. We've been very consistent. We have no plans of issuing dilutive equity, and we're reasonably pleased that the story has gained traction. Let us kind of execute, continue to execute on our strategy, prioritize the debt part of the capital structure, and then we'll pick our heads up and see where we're at.

[Eric Wolfe, VP and Equity Research Analyst at Citi]

Makes sense. Just last question, promise, on the deals that you closed in the second quarter, sort of a follow up to Julian's question. Can you just talk a bit about the credit enhancement that you got with those? I think one of the most frequent questions I get is sort of what does the credit enhancement look like on those deals outside of the Lennar Master Program Agreement? What's the level of option deposit, option termination? Effectively just trying to understand the potential downside risk on these deals, which, you know, in turn requires an understanding of how much equity is invested or credit enhancement you have.

[Darren Richman, CEO at Millrose Properties]

Yeah, I mean, I'll start. I really hesitate to provide. Kind. Of contract-level information on our counterparties to the market. You know, we've been very clear that we're not going to talk about counterparties, more specific terms. The reason why comfortable talking about New Home and Taylor Morrison is because they've revealed themselves to be clients of ours. Suffice it to say that there are cross termination provisions with New Home and by extension the assets that we purchased from Landsea, and the contracts look very similar in structure and form overall to every other contract that we have. We feel very, very good about the portfolio and the protections that we put in place and the high barriers for a home builder to just walk away. Even, you know, it's not just those credit protections.

[Darren Richman, CEO at Millrose Properties]

The reason why we brought Stephen on is because we wanted to really provide comfort that there's a real disciplined approach to our underwriting and to the geographies that we'll go into and the home builders that we'll serve and product types. Even as Stephen said, in the kind of hot button communities MSAs that are out there, we have very minimal exposures. Any exposures we do have are cross pooled. I will say overall, maybe as a data point, no one MSA represents more than 6% of our portfolio. That should give the market a good sense for how diversified this portfolio is in addition to the credit enhancements that sit on top of it.

[Eric Wolfe, VP and Equity Research Analyst at Citi]

Got it. Thanks for the time.

[Darren Richman, CEO at Millrose Properties]

Thank you.

[Operator]

All right, at this time, I do want to remind you all, please press star followed by the number one on your telephone keypad to ask a question during today's call. I'm going to take a brief pause to see if there are any additional questions. All right, it looks like I'm going to turn it back over to you, Darren Richman, for closing remarks.

[Darren Richman, CEO at Millrose Properties]

Thank you. Thanks to everybody for joining us this quarter. We're very, very pleased with our results. We're very pleased with the quality of the portfolio that we're putting together, even in the face of what we think is a recalibration in the housing market back to pre-COVID levels. As the market recalibrates, we're still building our portfolio through any of those headwinds. We do think there are real entrenched tailwinds to our product adoption. We look forward to speaking with all of you on our next quarter conference call. Thank you.

[Operator]

Thank you all for joining. That concludes today's call. You may now disconnect.

Participants

Executives

• Darren Richman, CEO
• Jesse Ross, Head of Financial Planning and Analysis
• Stephen Hensley, Senior Market Risk Analyst
• Rob Nitkin, COO

Analysts

• Garett Rosenblum, CFO at Millrose Properties
• Eric Wolfe, VP and Equity Research Analyst at Citi
• Julien Blouin, VP and Equity Research Analyst at Goldman Sachs