Millrose Properties - Earnings Call - Q1 2025
May 14, 2025
Executive Summary
- Q1 2025 inaugural quarter as a standalone REIT: option-fee revenues and related income were $82.7M; net income attributable to common shareholders was $64.8M; diluted EPS was $0.39; book value per share was $35.40.
- Revenue beat Wall Street consensus by 6.5% ($82.7M actual vs $77.6M estimate); EPS consensus for Q1 was unavailable; management raised year‑end quarterly EPS run‑rate guidance to $0.69–$0.71 and lifted 2025 third‑party transaction funding guidance to $1.5B, supported by strong non‑Lennar demand and a new $1B delayed draw term loan.
- Capital deployment accelerated: $635M redeployed with Lennar and $351M with third‑party builders at 11.7% yields; total portfolio W.A. yield was 8.7% and liquidity was ~$1.1B with $350M debt (5% debt-to-cap).
- Dividend framework: paid a pro‑rated $0.38 stub dividend for the period post spin, with a first full quarterly dividend of $0.69 declared for Q2 (payable July 15, 2025), consistent with distributing 100% of earnings.
What Went Well and What Went Wrong
What Went Well
- Robust demand outside Lennar: $351M deployed with third‑party customers at 11.7% average yields; subsequent events added ~$130M more by May 9, highlighting pipeline strength.
- Guidance raised on earnings capacity and funding: third‑party transaction funding upped to $1.5B and year‑end quarterly EPS run‑rate raised to $0.69–$0.71; secured $1B delayed draw term loan alongside a $1.3B revolver, expanding dry powder.
- CEO tone confident on platform value proposition: “The strong demand for our innovative Homesite Option Purchase Platform is driving growth... We believe this approach gives us and our counterparties important visibility in land planning”.
What Went Wrong
- High customer concentration: >99% of option-fee revenue in the quarter was from Lennar; management acknowledges concentration risk though notes strong counterparty quality and expanding third‑party engagements.
- Third‑party duration optics: headline W.A. duration cited at ~52 months vs ~31 months for new Lennar deals; management clarified this reflects final takedown dates and that effective lives are about half, with higher deposits and cross‑collateralization mitigating risk.
- Pre‑spin carve‑out complicates YoY/seq comparisons: Q1 2024 predecessor had no revenue; Q1 2025 includes add‑back for pre‑spin SG&A, limiting period‑over‑period margin analysis.
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Millrose Properties first quarter 2025 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's 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. To withdraw your question, press star one again. We kindly ask that you please limit your questions to one and one follow-up. If you have additional questions, please return to the queue. I will now turn the call over to Jesse Ross, Millrose Head of Financial Planning and Analysis. Jesse, you may begin the conference.
Jesse Ross (Head of Financial Planning and Analysis)
Good morning, everyone, and thank you for joining us for Millrose Properties first earnings call as a publicly traded company following our spinoff from Lennar Corporation on February 7th. With us today to discuss our first quarter 2025 results are Darren Richman, our Chief Executive Officer and President, Robert Nitkin, our Chief Operating Officer, and Garett Rosenblum, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements.
Please refer to the first quarter 2025 financial and operational results announced as well as the first quarter investor presentation we released and posted on our website under the Investor Relations heading for a discussion of forward-looking statements and reconciliations of non-GAAP financial measures. With that, I'll turn the call over to Darren.
Darren Richman (CEO and President)
Thank you, Jesse, and good morning, everyone. It is my pleasure to welcome you to our first earnings call as a standalone company. This is an exciting milestone for us, and we're eager to share the progress we've made in our first quarter as a public company. Millrose is the first publicly traded land banking REIT that provides home builders with a reliable, efficient source of capital for land acquisition and development. Our innovative home option purchase platform allows us to deliver home sites to builders on a just-in-time basis while generating recurring, predictable cash flows for our shareholders. We maintain a close, mutually beneficial relationship with Lennar Corporation, one of the nation's leading home builders. Lennar serves as our anchor tenant with a portfolio of approximately $6.6 billion in assets under purchase option agreements with a weighted average yield of 8.5% as of March 31, 2025.
This relationship provides Millrose with a stable foundation as we grow and diversify our platform to serve other home builders. The value we bring to the market is clear. Home builders today face increasing challenges in managing their balance sheets while maintaining the flexibility to respond to market opportunities. Millrose is uniquely positioned to be their trusted partner, offering perpetual capital solutions that alleviate balance sheet demands and unlock enterprise value. For investors, Millrose represents a stable, tax-efficient, income-generating investment vehicle. Our business model is simple yet powerful. We generate consistent income from monthly option fee payments on capital deployed. Importantly, our revenue model is not tied to land value speculation or the execution of land development, which helps us to deliver highly predictable revenues, earnings, and dividends. Our strategy is built for long-term success.
While broader demand for homes has remained strong, the housing market continues to face pressures of high interest rates and other market uncertainties. Despite this economic backdrop, home builders are continuing to invest in land and land development. Looking at the longer term, strong structural tailwinds persist. We believe that there continues to be a significant shortfall in housing supply, and while estimates vary the actual deficit, most estimates peg the gap in the range of $3 million-$5 million units. 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 future growth. We believe Millrose is well-positioned to capitalize on these trends. Our unique operating model allows us to scale efficiently while maintaining a conservative risk profile.
We're excited about the opportunities ahead, and we're committed to delivering value for our shareholders, home builder partners, and the communities we serve. We are already proving out our investment thesis. Our first quarter of operations was highlighted by robust demand for our capital, demonstrating the power of the Millrose platform. Looking first at our Lennar portfolio, we are seeing our capital recycling model at work with receipts of $645 million in cash proceeds from home site sales to Lennar and $635 million redeployed into land acquisition and development funding in the quarter. We have also made progress in growing our partnerships with other home builders. While we do not disclose the names of our specific customers to protect the confidentiality of those counterparties, we can say that the engagement across the industry has been overwhelmingly positive.
We have executed five separate programmatic partnership commitments with home builder counterparties, which provide the builder with defined capital availability from Millrose under pre-negotiated terms. We believe this approach gives our counterparties important visibility in their land planning. During the quarter, we announced $351 million of transactions outside the Lennar relationship, with average yields of 11.7%. We're pleased to report that this progress has continued after the quarter end, with approximately $130 million of additional non-Lennar transactions between the March 31st quarter end and today, resulting in approximately $480 million of total cumulative transactions funding since the spinoff. We are also excited to announce a significant new transaction. Millrose has entered into a commitment to fund approximately $700 million in a traditional land banking transaction structure in partnership with New Home Company to support their acquisition of Land C Homes.
This transaction, like our previously announced Rausch Coleman transaction, exemplifies Millrose's differentiated ability to facilitate large-scale, capital-efficient M&A in the home building sector. Given this exciting increase in demand, we are increasing our full year 2025 guidance in transaction funding outside of the Lennar Master Plan agreement to $1.5 billion from the previously announced $1 billion. I will share, however, that I've set for our team an internal stretch target of $2 billion, which I do believe is achievable given the market reception we've observed thus far. Accordingly, we are also increasing our year-end quarterly earnings per share run rate guidance to a range of $0.69-$0.71 per share. To support this investment pace, we are also pleased to announce a new signed $1 billion delayed draw term loan commitment from Goldman Sachs and JPMorgan.
This new capital commitment, in addition to our $1.3 billion revolving credit facility, provides us with ample capital capacity to execute on our growing opportunity set. Our performance demonstrates the power of our business model, and we are excited about the future prospects as we continue to leverage the Lennar agreement while also diversifying our business and capitalizing on growing demand across the industry. Overall, we see a number of very durable sector tailwinds that should continue to advantage Millrose.
They are: one, the as-mentioned structural shortage of housing, mainly the result of challenges to get land permitted and entitled. Two, the new home market continues to pick up market share from the existing home market given the structural move in interest rates. Three, the big builders continue to get bigger, owing to their scale advantages. Four, more builders are shifting to just-in-time delivery of land and are embracing land-light strategies. With that, I will now turn the call over to Rob for an operational update.
Robert Nitkin (COO)
Thank you, Darren. Good morning, everyone. I'm pleased to join you on our first earnings call and to provide an update on our operational progress for the quarter. As you can probably infer from Darren's comments, our team has been highly active since the spinoff. We currently operate with 33 dedicated home builder finance professionals across multiple offices, whose focus and execution across origination, diligence, asset management, and servicing functions have been instrumental in establishing the foundation of Millrose. As Darren noted, in the quarter, we redeployed over $600 million in Lennar home site sales proceeds into newly underwritten Lennar transactions and development funding. This is in addition to the previously disclosed $859 million Rausch Coleman transaction that closed shortly after the spinoff, in which we acquired approximately 24,000 home sites and simultaneously executed option agreements with Lennar.
I'd like to recognize the entire Lennar team in their work to ensure a seamless transition and stewardship of these mission-critical home site assets and a highly successful post-spin operating relationship. Beyond our Lennar relationship, we have executed on strong demand from third-party home builders, enabling us to deploy capital at attractive, risk-adjusted returns. During the quarter, we underwrote, diligenced, and closed $351 million in third-party transactions, and this momentum has continued post-quarter end, as Darren noted. As of today, we have closed or are committed to close transactions with seven counterparties apart from Lennar, the majority of whom are publicly traded home builders. I'm also pleased to elaborate on Darren's mention of our exciting transaction with New Home Company.
Millrose has entered into a $700 million land banking funding commitment in support of the Landsea Homes acquisition recently announced by New Home Company, a leading home builder owned by funds affiliated with Apollo Global Management. While New Home will acquire Landsea's operating business, Millrose will acquire a significant portion of its home site assets and enter into corresponding option agreements with New Home. The $700 million commitment includes up to a $600 million commitment for land acquisition, which is expected to fund in the third quarter of 2025, and an additional up to $100 million in subsequent land development funding. The transaction represents an attractive home site portfolio, but also the creation of a stronger builder counterparty, including a $650 million additional equity contribution by Apollo.
We have great respect for the management of Matt Zaist and the entire New Home team, with whom we've enjoyed a mutually beneficial relationship historically. As our pipeline continues to grow, we are investing heavily in the expansion of our underwriting, diligence, asset management, and servicing teams, as well as our technology platform to support scalable growth and transaction capacity. With that, I'll turn the call over to Garett for a financial update.
Garett Rosenblum (CFO)
Thank you, Rob, and good morning, everyone. I'm pleased to walk you through Millrose Properties' financial performance for the first quarter of 2025. This quarter marks an important milestone as we established ourselves as a standalone REIT with a strong platform, significant liquidity, and a disciplined capital allocation strategy. For the quarter, we reported net income attributable to Millrose common shareholders of $64.8 million after an adjustment for expenses from the pre-spin period, or $0.39 per share, driven by $82.7 million in option fees. Our book value per share at the end of the quarter stood at $35.40. Our management fee expense was $12.1 million, which is calculated transparently at 1.25% of gross tangible assets. Interest expense was $2.5 million, and income tax expense was $4.4 million. We plan to distribute 100% of our earnings back to shareholders.
In the quarter, we paid an inaugural dividend of $63.1 million, or $0.38 per share. The $0.38 dividend per share is the prorated portion for the stub period, which would equate to $0.65 per share on a normalized quarterly basis. Turning briefly to our balance sheet, Millrose is currently capitalized with $7.2 billion of total assets, with a debt-to-capitalization ratio of approximately 5%. We ended the quarter with $350 million in total debt and ample liquidity of approximately $1.1 billion, which includes availability under our revolving credit facility and cash. Going forward, we expect to maintain a conservative maximum leverage target of 33% net debt-to-capitalization. Finally, turning to guidance, we are increasing our guidance for full year 2025 transaction funding outside of the Lennar Master Program agreement to $1.5 billion and increasing our year-end quarterly earnings per share run rate guidance to a range of $0.69-$0.71 per share.
Once again, Millrose plans to distribute 100% of earnings back to shareholders in the form of cash dividends. 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 and President)
Thank you, Garett. To close, I want to reiterate how excited we are about the opportunities ahead for Millrose. Our innovative approach to land banking is transforming the way home builders access capital while providing stable, predictable returns for our investors. We're confident in our strategy, and we're committed to delivering value for all our stakeholders. Thank you for your support, and we look forward to sharing our progress in the quarters ahead. Operator, that concludes our prepared remarks. We are now ready to take questions.
Operator (participant)
We will now begin the question and answer session. At this time, if you'd like to ask a question, simply press star one on your telephone keypad. We kindly ask that you please limit your questions to one and one follow-up. Our first question comes from the line of Julian Blouin with Goldman Sachs. Please go ahead.
Julien Blouin (VP and Equity Research Analyst)
Thank you for taking my question, and congratulations on the quarter team. Can you help us think about the kinds of yields you look for on some of these larger deals, like the Landsea New Home deal? Just trying to understand if it's more roughly consistent with the non-Lennar deals or sort of the Lennar preferential rate.
Darren Richman (CEO and President)
Yeah, no, Julien, thanks for joining us. It is definitely the non-Lennar. Again, we've talked about this in the past. Just given the demand for this capital versus the supply, we are getting consistent rates with what we've reported. Now, they might be a little bit lower than the 11.7 because in some of these, in many of these, we actually are getting cross-collateralization. There is a give-up on rate for more credit enhancement, which the builders, many of the builders, are moving towards.
Julien Blouin (VP and Equity Research Analyst)
Okay, great. Thank you. Maybe bigger picture, can you help us understand how crucial Millrose's participation was to unlocking this transaction for Apollo and New Home? How should we think about the opportunities out there to support other transactions within home building and maybe also beyond?
Darren Richman (CEO and President)
Yeah, I think Rausch Coleman really set the standard for using Millrose as a tool to effectuate M&A. There's a lot of buzz right now from more of the mid-sized builders as they're trying to outrun their lack of scale. There's a lot of activity more in the mid-market part of the home builder sector. To get right to the heart of your question, Millrose is very front and center as a tool now in the toolbox to effectuate M&A. We are very excited about that. In part, that's part of the reason why our stretch goal is more towards $2 billion than $1.5 billion, because we do think, given the activity in the sector right now, we are going to be a participant in more and more conversations and ultimately in more M&A.
M&A, look, we all know it's hard to achieve given cultural and valuation issues, but we are now a tool in the toolbox for M&A.
Julien Blouin (VP and Equity Research Analyst)
Okay, great. I'll get back in the queue.
Operator (participant)
Once again, for any questions, press star one. Our next question comes from the line of Eric Wolfe with Citi. Please go ahead.
Eric Wolfe (VP and Equity Research Analyst)
Hey, thanks. For your guidance of $0.69-$0.71 of EPS run rate at year-end, can you just talk about what's embedded in that in terms of total transaction funding, the weighted average yield on that funding, the mix between Lennar Master Program versus non-Master Program, and just anything else that you think is important to get to that sort of $0.70 of run rate by year-end?
Robert Nitkin (COO)
Yeah, sure. Thanks for the question, Eric. Happy to. That would be consistent with the $1.5 billion non-Lennar target. Think of that as the existing balance of Lennar deals and the $1.5 billion of non-Lennar. It assumes a yield on the non-Lennar that's about 50 basis points more conservative than the 11.7 that we realized in the first quarter and cost of debt that's about 50 basis points more conservative and wider than our cost of debt today. Hopefully that helps.
Eric Wolfe (VP and Equity Research Analyst)
Yeah, that's helpful. You just gave the rates, I guess, be about 11.2% on the $1.5 billion. Maybe just talk about sort of average duration on that, option deposit, termination fees, cross-collateralization, anything you just think is important from a risk mitigation point of view. To the extent that your underwriting perhaps has changed over the last couple of months, given a little bit more of an uncertain environment, can you just talk about sort of how you've adjusted your underwriting based on the current environment?
Robert Nitkin (COO)
Yeah, sure. In general, that pipeline varies in terms of deposit and cross-collateralization pooling. I think you're going to see a mix of some pooling, some others, based on what Darren alluded to with builders seeing the cross-termination pooling and higher deposits as a tool to bring down their yield. We're happy with that dynamic. Generally speaking, the overall deposit on this category of deals is higher than in the Lennar category. Generally speaking, we are very focused on risk mitigation, particularly given what you mentioned in the market. We're seeing plenty of demand, but it hasn't changed our underwriting process, which continues to be as rigorous as it ever was. Not only the real estate diligence, but the vetting of gross margin and ASP assumptions that we believe to be consistent with the correct market. We continue to be rigorous in our underwriting.
Eric Wolfe (VP and Equity Research Analyst)
Thank you.
Operator (participant)
Our next question is a follow-up from the line of Julian Blouin with Goldman Sachs. Please go ahead.
Julien Blouin (VP and Equity Research Analyst)
Thank you. Maybe following up on that, we noticed that the weighted average duration for the new third-party deployments was quite a bit longer than the deployments for Lennar. Can you sort of help us understand what's driving that difference? How do you get comfortable around that longer duration, given maybe the lack of cross-collateralization on some of those third-party deals? Does the higher yield help make up for that?
Darren Richman (CEO and President)
Yeah, I would say I actually would not characterize that duration on third-party deals as longer duration. Remember, that is the final home site takedown. The weighted average life of the deal is much less than that, maybe around half of that. In the 50-ish months sort of total last takedown, we are very comfortable with that duration. What you are keying in on is that you are right, the duration, again, for final takedown of the new Lennar deals we have done is shorter, which is consistent with what Lennar has said, which is this is a tool for work in progress, shorter-term home site inventory.
Julien Blouin (VP and Equity Research Analyst)
Got it. Thank you.
Operator (participant)
Our next question is a follow-up from the line of Eric Wolfe with Citi. Please go ahead.
Eric Wolfe (VP and Equity Research Analyst)
Thanks. It looks like you're assuming around the average takedown per site of, call it, around $100,000. Could you just talk about how that relates to sort of the total estimated sort of home prices that you're assuming, the margins that you're assuming the home builders get? I'm just trying to understand sort of what that represents relative to sort of total home sale and the profit that you're expecting the home builder to take down from that.
Darren Richman (CEO and President)
Yeah, sure. If you think about a, call it, $450,000 home sale, that would mean a total lot price of $100,000. The balance of that would be the vertical build cost and the gross margin assumptions where we're generally underwriting, as we've talked about, to a gross margin consistent with the builders' targets that they reported.
Eric Wolfe (VP and Equity Research Analyst)
Okay. I guess as far as the new delayed draw term loan, I think you said something about it was 50 basis points wide of your line of credit. I do not know if I heard that right, but maybe just walk us through the LTV on that loan, trying to understand sort of the asset base that it is secured by, as well as the rate and anything else that you think is sort of important for us to understand about that loan.
Garett Rosenblum (CFO)
Yeah, this is Darren. The rate is actually consistent with the revolver and has many of the same terms and conditions as in the revolver. Yeah, so said differently, my sort of more conservative assumptions in that full year target, that assumption was not, that was more conservative than the rate on that delayed draw term loan.
Eric Wolfe (VP and Equity Research Analyst)
Got it. Is that secured by Lennar, I guess, Lennar home sites and just anything in terms of the LTV on that? If it's $1 billion, what's the sort of leverage profile?
Darren Richman (CEO and President)
Yeah. The spin-out was of Lennar's assets, which are themselves unlevered. This would be a corporate loan against all of our assets, inclusive of Lennar's and other third parties now. Hopefully that answers your question.
Eric Wolfe (VP and Equity Research Analyst)
Yes, it does. Sorry. When you said it was secured, I thought it was secured by a certain percentage of assets, but I got it. It's by everything.
Darren Richman (CEO and President)
At the corporate level.
Eric Wolfe (VP and Equity Research Analyst)
Right. Makes sense. In terms of your decision, I guess, to distribute 100% of earnings back to shareholders, could you just sort of talk us through sort of that decision, I guess, to the extent that there's any sort of timing mismatches in the future related to takedown proceeds versus deploying capital? Would you slightly lower the dividend, or would you just fund the excess through the line of credit? How did you come up with the decision to fund exactly 100% of your earnings distributed back to shareholders?
Darren Richman (CEO and President)
Yeah, this is meant to be a cash yielding instrument. This capital, the reason why a REIT was chosen is really to repatriate as much capital annually as we produce. The decision is really consistent with that. The extra between 90% and 100% would be taxable anyway. We do not really get any capital advantages inside of the REIT to recycle and reuse those proceeds. If you think about the dividend, then 10% of at 100% and then 90% of that, it is really a small amount of capital on an $8 billion or so balance sheet. It does not really do much from a capital deployment perspective, but it does a lot to move the needle from an effective yield.
That is what we are really trying to do, drive our accretive growth, drive that yield as high as we can, and repatriate as much capital to shareholders as we produce.
Eric Wolfe (VP and Equity Research Analyst)
Understood. That's helpful. The last question, thanks for letting me ask all these. I think as part of your initial agreement with Lennar, you were receiving option fee payments, or you are receiving option fee payments on around $580 million of funding that was funded with their deposits. Are you assuming that some of that comes off to get to that, call it, $0.70 year-end run rate? What's a good assumption for how that should come off over time?
Robert Nitkin (COO)
Yeah, it has a small impact that won't be meaningful. I think you'll see all the reconciliations on the materials in both the 10-Q and the presentation. I don't think it's particularly meaningful.
Eric Wolfe (VP and Equity Research Analyst)
Okay. Got it. All right. Thank you.
Darren Richman (CEO and President)
Thank you.
Operator (participant)
For any questions or follow-ups, simply press star one on your telephone keypad. That will conclude our question and answer session. I'll hand the call back to management for any closing comments.
Darren Richman (CEO and President)
Yeah, we'd like to thank everybody for joining us today. We're very excited about our progress that we've made thus far and the momentum that we have as a business, as an organization, and really our role in the sector. Thank you, and we look forward to doing these again in the future. Take care.
Operator (participant)
This will conclude today's call. Thank you all for joining. You may now disconnect.