Millrose Properties (MRP) risk factors, FY2024 10-K

Risks Related to Our Business Model and Investment in a Newly Formed Entity

1. 01We are a newly formed company with limited operating history, and you have a limited basis on which to evaluate our ability to achieve our business objectives or to even perform as a standalone and separate business
2. 02We have no history of operating a HOPP’R, and may not develop a successful business if we are not able to successfully become (and remain) Lennar’s preferred business partner for financing the acquisition and development of land or otherwise procure HOPP’R agreements outside of the Lennar Agreements
3. 03The Supplemental Transferred Assets Transaction included properties outside of the geographies in which Lennar has historically operated, and property values in those geographies may be different from those in which Lennar has operated
4. 04Our initial business consists primarily of owning and selling the Transferred Assets and the Supplemental Transferred Assets in connection with providing the HOPP’R to Lennar. Therefore, we are subject to risks associated with having a portfolio that is highly concentrated by one business counterparty
5. 05Our recycled capital business model is contingent on our customers electing to exercise their land purchase options
6. 06Our agreements with Lennar involve conflicts of interest, and we might have received better terms from unaffiliated third parties than the terms we received in these agreements
7. 07Any exercise by Lennar of its Enforcement Rights pursuant to the Founder’s Rights Agreement may severely negatively impact our business operations and financial condition
8. 08We have not obtained independent appraisals or fairness opinions as to the value of any of our real estate assets or any environmental reports on any of our real estate assets, including the Transferred Assets, and we rely upon Lennar and our Other Customers for certain information regarding the Homesites
9. 09Ownership of land and other real estate assets is subject to environmental risks and liabilities, which may not be covered by the representations and warranties and indemnities provided to us in the Lennar Agreements (or any future HOPP’R agreements with new customers)
10. 10We are subject to a wide range of general and industry-specific laws and regulations relating to the protection of the environment which require compliance that can be burdensome and expensive
11. 11Lennar’s Work on the Transferred Assets and on any Future Property Assets we (through Millrose Holdings) acquire in connection with our ongoing relationship with Lennar may negatively impact our business
12. 12If we or Lennar enter into bankruptcy, the Master Program Agreement or the Master Option Agreement may be unenforceable
13. 13Our primary land assets in our Real Estate Portfolio are the Transferred Assets and the Supplemental Transferred Assets. The properties in the Transferred Assets and the Supplemental Transferred Assets are expected to have a short cash conversion cycle
14. 14If the market value of our Real Estate Portfolio declines, our profits could decrease, and we may incur losses
15. 15Past performance by the management team who are employees of Kennedy Lewis and their respective affiliates may not be indicative of future performance of an investment in us
16. 16If we are not able to raise additional capital to fund our operations, or if we cannot access capital on attractive terms, we may not always have sufficient funding to maintain our operations
17. 17Volatility in the market may impact our ability to do business
18. 18As a holding company, our dependence on our subsidiaries for cash flow may negatively affect our business
19. 19Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act

Risks Related to Our Intellectual Property

1. 20We entered into a HOPP’R License Agreement with a wholly-owned subsidiary of Lennar, which is critical to our business. The HOPP’R Rights are owned by a subsidiary of Lennar, and any changes to the HOPP’R License Agreement will impact our access to the HOPP’R Rights and may adversely impact our business
2. 21Our business relies on our ability to provide the HOPP’R, including the Recycled Capital HOPP’R, to our customers, and we may lose our competitive advantage against other land banks as other entities in the future may also acquire a license to provide the HOPP’R to their customers

Risks Related to the Land Banking Industry

1. 22There are substantial risks inherent in owning land for new home construction
2. 23Our business is susceptible to risks from natural disasters, geopolitical events and other events outside of our control that may delay development on the land we hold for Lennar and any Other Customers
3. 24Our insurance coverage may not cover all potential losses
4. 25Our inability to successfully acquire an adequate inventory of Future Property Assets at reasonable prices could adversely impact our operations
5. 26A decline in prices of new homes could require us to write down the carrying value of land we own
6. 27Land assets and real estate investments are not as liquid as certain other types of assets, which may reduce economic returns to stockholders
7. 28We cannot make any assurances that our growth or expansion strategies will be successful, and we may incur a variety of costs to engage in such strategies, including through new asset acquisitions, and the anticipated benefits may never be realized
8. 29Real estate valuation is inherently subjective and uncertain, and is subject to change, especially during periods of volatility
9. 30We may acquire Future Property Assets, and entities holding such Future Property Assets that involve risks that could adversely affect our business and financial condition
10. 31Our Real Estate Portfolio primarily includes the Transferred Assets and the Supplemental Transferred Assets. The properties in the Transferred Assets and the Supplemental Transferred Assets are expected to have a short cash conversion cycle

Risks Related to Our Management Structure

1. 32We depend upon key personnel of KL, and if KL cannot recruit and retain key personnel for us, our business, financial condition and results of operations could be significantly impacted
2. 33KL can terminate the Management Agreement on 60 days’ notice under certain circumstances, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our business, financial condition and results of operations
3. 34You have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a stockholder
4. 35We pay substantial fees to KL, which payments increase the risk that we may not earn a profit. There is also no guarantee that KL will be successful identifying and consummating new business opportunities with Other Customers, which also increases the risk that you will not earn any returns on your investment
5. 36If we internalize our management functions, we could incur significant costs associated with being self-managed
6. 37The termination of the Management Agreement with KL may require us to pay a substantial termination fee, including in the case of a termination for unsatisfactory performance, which may limit our ability to end our relationship with KL
7. 38Any adverse changes in the financial health of KL or its affiliates or our relationship with them could hinder our operating performance and the return on your investment
8. 39There are significant potential conflicts of interest that could affect our business returns
9. 40KL maintains a contractual as opposed to a fiduciary relationship with us. KL’s liability will be limited under the Management Agreement, and we have agreed to indemnify the Manager against certain liabilities
10. 41We are party to transactions with related parties that may increase the risk of allegations of conflicts of interest
11. 42KL faces conflicts of interest relating to the fee structure under the Management Agreement, which could result in actions that are not necessarily in the long-term best interest of our stockholders
12. 43KL and its officers and employees face competing demands relating to their time, and this may cause our operating results to suffer
13. 44We may be at an increased risk for dissident stockholder activities due to perceived conflicts of interest arising from our external management structure and relationships
14. 45Our business, financial condition and results of operations could suffer in the event of system failures or cybersecurity attacks
15. 46ESG initiatives, requirements and market expectations may impose additional costs and expose us and our customers to new risks
16. 47Artificial intelligence (“AI”) and other machine learning techniques could increase competitive, operational, legal and regulatory risks to our business in ways that we cannot predict
17. 48Global economic and political instability, geopolitical conflicts, and changes in U.S. trade policies, including tariffs, could adversely affect our business, financial condition, or results of operations

Risks Related to Our Governance Structure

1. 49Our dual-class capital structure may adversely affect the market price of our Class A common stock and in turn the value of our Class B common stock
2. 50Some investors may not invest in our Class A common stock as a result of our dual-class capital structure and our overall governance profile, which may adversely affect the trading price of our Class A common stock
3. 51The Miller Family, members of which are substantial stockholders of Lennar, has substantial voting power with regard to us, and may be able to cause us to do things that are favorable to Lennar
4. 52Our rights and the rights of our stockholders to recover claims against our directors and officers are limited, which could reduce your and our recovery against them if they cause us to incur losses
5. 53a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated
6. 54We may not have sufficient funds to satisfy indemnification claims of our officers and directors
7. 55Our Charter and Bylaws, along with applicable provisions of Maryland law, include certain anti-takeover defense measure provisions that may make a merger, tender offer or proxy context difficult, which could depress the market price of our Class A common stock and in turn the value of our Class B common stock
8. 56In addition, Lennar has a Management Succession Consent Right. However, there is no guarantee that we will not have a change in control at some point in the future
9. 57Maryland law may limit the ability of a third party to acquire control of us

Risks Related to Legal, Regulatory, Tax and Accounting Compliance

1. 58We might fail to qualify or remain qualified as a REIT
2. 59unless Millrose is entitled to relief under statutory provisions, it could not elect to be subject to tax as a REIT for four taxable years following the year during which it was disqualified
3. 60Complying with REIT Requirements may require us to forgo otherwise attractive investments or to dispose of otherwise attractive investments
4. 61Even though we intend to qualify as a REIT, we will face tax liabilities that could reduce our cash flows
5. 62Our current organizational structure consists of a parent company (Millrose), which wholly owns Millrose Holdings, a TRS. Millrose Holdings, in turn, owns, either directly or through intervening subsidiaries, the Property LLCs where all of our land assets are held
6. 63To continue qualifying as a REIT, we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our business objectives and reduce your overall return
7. 64Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends
8. 65The stock ownership restrictions of the Code for REITs and the stock ownership limits in our Charter may inhibit market activity in shares of our stock and restrict our business combination opportunities
9. 66The ability of the Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to all of our stockholders
10. 67New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify or remain qualified as a REIT

Risks Related to Operating as a Public Company

1. 68Our Manager is required to devote substantial time to compliance with our public company responsibilities and corporate governance practices
2. 69Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting
3. 70KL does not have prior experience in managing publicly traded companies
4. 71We rely solely on our Manager for services related to ensuring our compliance with all laws, regulations, rules, policies and practices applicable to public companies (including corporate governance practices)

Risks Related to Our Common Stock

1. 72There is currently a limited history of an active trading market for our Class A common stock, which may restrict your ability to sell your shares
2. 73Our Class B common stock is not listed on any exchange or in any other organized market, and may not trade at all
3. 74The market price and trading volume of our Class A common stock may be volatile and may face negative pressure, including as a result of future sales or distributions of our Class A common stock
4. 75Your voting power in Millrose may be further diluted if we issue more shares of our common stock in the future, including in connection with the acquisition of any Future Property Assets
5. 76We cannot assure you of our ability to pay dividends in the future
6. 77Our ability to pay dividends is limited by the requirements of Maryland law
7. 78Lennar currently retains ownership of a certain amount of our common stock, and its decisions as to future distributions or dispositions of our common stock, which is out of our control, may have a material adverse impact on the value of our common stock
8. 79We are an “emerging growth company” and intend to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors