Millrose Properties (MRP) Q3 2025 earnings call transcript

Good morning. Thank you for joining us. With us today to discuss our third quarter 2025 results are Darren Richmond, our Chief Executive Officer and President, Robert Mickin, our Chief Operating Officer, Garrett Rosenblum, our Chief Financial Officer, Adel Pasha, our Chief Technology Officer, and Steven Hensley, our Senior Market Risk Analyst. Before we begin, I'd like to remind everyone that this call may include forward-looking statements and discuss non-GAP financial measures. Please refer to our 3rd Quarter 2025 Financial and Operational Results announcements as well as the 3rd Quarter and Investor Presentation. We release and post it on our website under the Investor Relations heading for a discussion of these matters.

With that, I'll turn the call over to Darren.

Thank you, Jesse, and good morning, everyone. I'm pleased to report that Milrose delivered another strong quarter demonstrating the effectiveness of our discipline capital deployment strategy and the growing demand for our home site option platform. Our approach centers on recycling home site sale proceeds and investing newly raised capital to maximize returns for our shareholders. This quarter, we generated 852 million in net cash proceeds from home site sales, including 766 million from Lenar, and redeployed 858 million in new land acquisitions and development funding with Lenar. We also saw 770 million in funding outside the Lenar Master Program Agreement, which underscores the broad-based market demand and scalability of our platform.

As we continue to expand our homeholder relationships, we now partner with 12 distinct counter-parties. Our invested capital outside the Lenar reached 1.8 billion with home site inventory and other related assets totaling 2 billion at a weighted average yield of 11.3%. Our portfolio now spans approximately 139,000 home sites across 875 communities in 30 states, reflecting our national reach and operational excellence.

A key differentiator for Millrose is our proprietary technology platform. This strategic asset enables us to manage nearly 140,000 home sites, automate transaction management, and leverage AI for unique market insights and operational efficiency.

Our technology allows us to scale faster, integrate acquisition seamlessly, and deliver unmatched agility to our builder partners. It also provides early warning indicators in real-time when we see pace and price failing to meet underwriting expectations.

This allows us to constantly recalibrate our due diligence monitors using real-time information. We have Adalpasha, our CTO on hand, profile our systems and the strategic mode that it represents.

Our discipline underwriting and risk management are central to our business model by structuring transactions with meaningful deposits and cross-termination pooling mechanisms. We continue to mitigate risk and maintain prudent standards, even as we grow.

We further strengthen our balance sheet this quarter by completing $2 billion in senior note offerings, replacing short-term bridge capital with long-term debt at favorable rates.

With approximately $1.6 billion in total liquidity and a conservative debt to capitalization ratio of 25%, Millrose's well-position for continued growth and capital efficiency.

Millrose is pioneering a new era in institutional land banking, offering a scalable asset-like capital solution for homebuilders. As the only national public platform dedicated solely to residential home site capital, we provide certainty and reliability that private capital sources cannot match. Our partners consistently tell us that this certainty is a key reason they choose Millrose. Despite ongoing market challenges, our business model resilience and risk mitigation features have enabled us to deliver strong performance and expand our partnerships.

We maintain high conviction in the long-term housing market and are confident that Millrose is exceptionally well-positioned to capture accelerated demand as conditions improve. Our platform is helping builders navigate affordability pressures and inventory challenges, providing flexible capital solutions that support their growth and operational efficiency.

It is important to highlight that we are quickly approaching the point of terminal velocity where shareholders will benefit from the optimization of our balance sheet for an entire fiscal period. As our capital structure reaches its most efficient state, we anticipate that shareholders will increasingly realize the benefits of our scale and disciplined approach, enabling us to reinvest in high return opportunities and maintain robust liquidity all while supporting our competitive position in the sector.

With these advantages, we are confident that we can continue to deliver value for our partners and stakeholders as we pioneer new solutions in institutional land banking and further solidify our leadership in the market.

Our strong operational results enabled us to increase our quarterly dividend to 73 cents per share, representing an 8.2% dividend yield based on our book value. Based on our momentum, we are raising our guidance for year-end AFFO run rate to 74 to 76 cents per share and increasing our full-year 2025 new transaction funding target under other agreements to $2.2 billion. We are pleased to note that this target is above our reach goal of $2 billion.

We remain committed to distributing 100% of our AFFO to shareholders reinforcing our alignment with shareholder interests. In closing, our third quarter results demonstrate that our capital redeployment strategy is working effectively across all aspects of our business. We look forward to continuing this momentum and sharing our progress next quarter. Thank you for your continued support, and with that, I will hand the call over to Rob.

Thank you, Darren, and good morning, everyone. I am pleased to report on the operational progress we achieved in the third quarter and to share how we believe these initiatives position Milrose for continued success. Q3 was an active and productive quarter for Milrose. We deployed capitalist scale, expanded partnerships with new counterparties, and reinforced underwriting discipline as our national team continued to leverage the Milrose technology platform to rigorously evaluate each transaction.

We also strengthened our balance sheet, raising $2 billion of long-term debt at highly agreed of rate. As Darren noted, our performance was fueled by accelerating transaction volumes and growing industry-wide adoption of our platform.

Milrose was founded on the vision that a scaled, national, publicly-traded home site capital solution could be an all-weather solution to deliver home site on a just-in-time basis, and that vision is now being realized. Today, Milrose transacts with 12 distinct counterparties, and as we engage with our growing roster of home-builder partners, we increasingly hear them highlight Milrose's advantages over other private capital players.

With unmatched scale, a national team of industry experts and a portfolio spanning 30 states and 876 communities, we can execute the broadest range of transactions with speed and deep-sector expertise. As a permanent capital solution dedicated to serving as the industry solution for residential home site capital, our partners avoid the constraints of private, fund lifecycle and the uncertainty of opaque capital sources.

Builders consistently tell us that certainty and reliability of capital often matters more than cost. With $2 billion raised in the quarter and $1.6 billion of publicly disclosed liquidity today, we deliver that certainty.

Finally, as you'll hear from our Chief Technology Officer, Otto Pasha, our technology platform, reduces the operational burden on counterparties' land planning and finance teams by automating home site purchase coordination and processing. At the same time, it captures transaction data that provides unique market insights to strengthen our underwriting. We believe that these structural advantages make Milrose the partner of choice for leading home-builders. This is exemplified by large programmatic partnerships, such as our collaboration with Taylor Morrison's Yardly Build-to-Rent brand, as well as our demonstrated experience as the first call for capital-efficient M&A.

The strength of our platform is evident in our transaction terms and portfolio performance. We continue to generate compelling returns with a weighted average yield outside the Lenar Master Program agreement of 11.3% as a quarter end. We grew investments in this category by $770 million in acquisitions and development funding, bringing our invested capital to approximately $1.8 billion as of September 30th.

Including Lenar, our portfolio weighted average annualized yield rose to 9.1%, up 20 basis points from the prior quarter. While growth is important, we remain laser focused on underwriting discipline, and as portfolio expands, we continue to enhance our risk-monitoring system. Each transaction is evaluated against real-time sales and pricing trends within our portfolio with overlaid local market insights from our asset management team.

Our asset managers are constantly engaging with counterparties across the country, interfacing directly with the individual local builder divisions of our home-builder partners. Through these channels, we've been able to capture unique quantitative and qualitative insights about the operating environment across markets and leverage these insights to maintain prudent underwriting standards and monitored risk. We also continue to structure transactions to mitigate risk, securing meaningful deposits as a share of total project costs and employing cross-termination pooling mechanisms.

Importantly, given the demand we've observed, we also have the ability to remain selective in our partnerships, avoiding builders who view land banking as a tool for risk mitigation rather than capital and operating efficiency. This has helped to buttress our portfolio during the recent market stress.

We are proud of our third quarter of performance and grateful for these significant contributions of the entire Mill Road team in driving our continued growth. With the strength of our pipeline, capital capacity and competitive position, we remain highly optimistic going forward.

With that, I'll turn it over to Audel to share more on the Mill Road technology platform.

Thanks, Rob. I want to highlight a core component of our strategy, the proprietary technology platform that complements the operational excellence of our servicing and investment teams. We are not simply building a tool, but a strategic moat that enables us to manage the scale and complexity unmatched in the land banking industry. To put our operations into perspective, we manage a portfolio of nearly 140,000 home sites. We recycle approximately one third of our book value annually, which means we are in a constant cycle of redeploying capital with speed and precision.

Our transactions typically range from $10 million to $30 million each. We serve 12 distinct customers with more than 800 assets across diverse geographies and product types.

Managing this business on spreadsheets would be impossible. Our technology platform provides three distinct strategic advantages. First, high velocity transaction processing. In the third quarter alone, we averaged 138 home site takedowns per business day and processed over 3,500 land and development transactions.

Land banking relies on seamless technological and operational alignment with our builders. Our platform allows us to provide our builder partners with the operational flexibility they need to meet their goals. A level of agility that is simply unachievable with traditional systems and spreadsheets. Enhancing and expanding these integrations is a key priority which we believe will unlock further growth and strengthen these critical partnerships.

Second, a powerful data advantage. The sheer volume of our deal flow transaction data and builder sales reports has created a rich proprietary data set. This data moat gives us unique insights in underwriting transactions and monitoring market risk. We are also beginning to leverage AI to derive novel insights from this data set and further automate internal processes.

Finally, unmatched M&A execution. We demonstrated this with a mill row spin-off and the acquisition of Roush and supporting you home in its acquisition of LANCY. Our ability to partner with builders to rapidly underwrite and integrate hundreds of communities is a direct result of our proprietary data platform which automates the ingestion and management of all aspects of land banking data.

Our capacity to close deals and provide immediate operational readiness for our builders is an unmatched capability in this market. Our technology is a core strategic asset. It allows us to scale faster, integrate acquisition seamlessly and operate with greater agility. We are confident this platform provides a durable competitive advantage that our competitors cannot easily replicate. We look forward to releasing a set of features to extend these efficiencies directly to our partners. We are excited to continue developing this platform to drive the future growth of mill rows.

With that, I'll hand it over to Garrett to talk through our quarterly financial overview.

Thank you all and good morning everyone. I'm pleased to walk you through our third order 2025 financial performance which demonstrates the cash generating power of our business model and our disciplined approach to capital allocation. For the third quarter, we reported net income attributable to mill rows common shareholders of 105.1 million or 63 cents per share driven by 179 million in option fees and development loan income. Our net income this quarter was negatively impacted by one-time expenses associated with our debt financing activities. These non-recurring expenses related to our debt transactions impacted our gap net income. These are one-time items incurred in connection with our business reaching scale and don't affect the underlying cash generating capacity of our business.

Adjusted funds from operations or AFFO was 122.5 million or 74 cents per share which provides the basis of our distributable earnings by adjusting for these one-time costs and other non-cash items. As we discussed last quarter, AFFO offers enhanced transparency into the recurring distributable earnings power of our business. Our book value per share at the end of the quarters to the $35.29. Our management fee expense was 25.9 million which is calculated transparently at one and a quarter percent of gross tangible assets. Interest expense was 43.7 million and income tax expense was 5.9 million. On September 22nd, we declared a quarterly dividend of 121.2 million or 73 cents per share representing an 8.2 percent dividend yield based on book value per share that demonstrates our strong profitability and commitment to shareholder value.

Milrose is committed to distributing 100 percent of our earnings to shareholders. Turning to our balance sheet and capitalization, we significantly strengthened our financial position this quarter through a strategic debt race. We successfully completed two billion in senior note offerings including 1.25 billion of six and three senior notes due 2030 and 750 million of six and a quarter senior notes due 2032, both upsized due to strong investor demand. We used the proceeds to repay our one billion dollar one year term loan and reduced outstanding borrowings under our revolving credit facility by 450 million. These transactions eliminated near term refinancing risk while securing a tract of long-term financing and combined with our 1.3 billion revolving credit facility provide us with approximately 1.6 billion in total liquidity at the quarter end which provides ample financial resources to continue to grow the business.

As of September 30th, we reported total assets of approximately 9 billion and total debt of 2 billion with a debt to capitalization ratio of approximately 25 percent. We continue to expect to adhere to a conservative maximum debt to capitalization ratio of 33 percent underscoring our discipline approach to capital management. Based on our strong performance and continued momentum in other agreements, we are raising our guidance for full year 2025 new transaction funding under other agreements the 2.2 billion up from previous guidance. Accordingly, we are also raising our year end AFFO quarterly run rate guidance to a range of 74 cents to 76 cents per share. We remain focused on delivering value to shareholders through consistent earnings growth, prudent capital allocation, and maintaining our conservative balance sheet while capitalizing on the significant opportunities ahead.

With that, I'll turn the call back to Darren.

To close, our third report results demonstrating that our capital redeployment strategy is working effectively across all aspects of our business. From an organic growth in other agreements to optimizing our capital structure and increasing shareholder returns, we continue to execute on our mission to redefine how capital flows to meet housing demand. Our business model resilience through challenging market conditions combined with our strong liquidity position and growing pipeline of opportunities gives us confidence in our ability to continue delivering attractive returns to shareholders while serving as an essential capital partner to the homebuilding industry.

We look forward to continuing this momentum and sharing our progress next quarter. Thank you again for your continued support. And with that, operator, let's open the call up to Q&A.

Yeah, sure. Thanks for the question, Julian. So just one quick correction. So as of the end of the third quarter, our invested capital in this category outside of the Lenard Master Program agreement is $1.8 billion. So originally, our stretch target was $2 billion. It's $1.8 billion as of the end of the third quarter into our revised target is $2.2 billion, meaning that it's not a $200 million increase where guiding towards it's a $400 million increase. And that's our best guess based on still a very strong continued set of demands from the builders, certainly no slow down. But that's our best guess based on wherever you are today. Does that make sense?

Yeah, Julian, it's Darren. We have ample runway. As we said in our prepared remarks, we've about $1.6 billion of firepower, which includes cash and room under the revolver.

I think we've communicated in the past and we'll reiterate it today is our goal is really to optimize the balance sheet first before we pivot to equity issuances. We've had a couple of new equity initiations that are well above book value. And just as an editorial note, we buy into it. We definitely buy into the story beyond book value. And as we had kind of communicated with you and others in the past, the goal isn't just to get to book value and declare victory.

We think that the ultimate returns that investors would expect and demand could result in this stock trading well above book value. And so to answer your question, it really is about optimizing the balance sheet using our debt capacity and then seeing where we are as a company and where that the stock is to then think about equity issuances.

Yeah, this is Darren. I mean, I'll start and then Rob can jump in. We in the history of our land banking experience, we haven't had a home builder walkway. We haven't had a home builder look to renegotiate a contract. It's not to say that it won't happen or it can happen, but I can only say looking as using history as a guide, it hasn't happened yet. And I would argue that it really comes down to our underwriting standards, the use of technology that Otto spoke about the due diligence screening that we do as part of our overlay is really the clue that holds this all together. And on top of that, we're also looking for a counterparty that is really a partner.

And we're looking for counter parties that are looking to do business for capital efficiency, not risk mitigation. And we know that because these are counter parties that are willing to sign up upfront to pooling agreements. Again, even the pooling agreements, investors, home builders could walk away from those. So I don't want to suggest that even with pooling that folks couldn't walk away, but it really does become a self selection opportunity for us to know what type of relationship the home builder is looking for. I don't know, rather, there should be no doubt.

Yeah, I would just add that to come up with something like that would require ascribing some probability to not just the option termination, but an actual loss in the recovery value of the land that we own, fee simple, have underwritten net of the deposit we hold against it, which is obviously as a result of our work. It's not a scenario. We think it's likely, again, I'd say it won't happen, but there's no clear methodology that would make sense to us to use for that.

Hey, Eric, it's Garrett. That's a gap required adjustment under what's called Cecil or as far as the credit loss pronouncement, which basically requires us to basically estimate potential credit losses. It can't be zero. We basically estimated it, and that could change as we go forward. But again, this is merely a gap required estimate and not an indication of what we actually expect.

Yeah, so last quarter we mentioned we had 11 distinct counterparties. We added one this quarter. So we have 12 distinct counterparties. So we did add that counterparty, but really a lot of this is most of that increase you mentioned is driven by just further penetration in the partnership that we've set up. We've had a lot of success, just continue to integrate operationally to do more business with our really high quality builder counterparties.

So a few things. One, we all know affordability is a real challenge. And so the fact that the administration is focused on making housing more available and more affordable certainly makes sense, makes sense to us. All of the headlines and the articles we've read would suggest that it relates to more production. More production is obviously good for our business. It creates more certainty around the land that we own and gives us more confidence in the land that we own.

Outside of that, I know that there are a lot of conversations that are happening behind the scenes in the industry. And the industry is definitely working to do their part to come up with creative solutions to the challenges.

Yeah, we haven't disclosed the specific volume by counterparty. But I will say that we have had a lot of success that there is a decent portion of that number that is the penetration with Yardley. And that has ramped up and been a great successful partnership with the folks over at the Yardley team at Taylor Morris. And so it's going really well. It has started to close. And we're really excited about it. But beyond that, we haven't given any disclosure at this point.

Thanks, Bragg. It's Garrett. They were grouped in with inventory at the beginning. And we felt the prudent to break it out going forward as this continues to be a significant part of our business. And it's not a new line of business for us as being a, you know, trying to serve the interest of our builder clients. This is how certain of our clients want to access our land banking capital is through developer partnerships. This has always been part of our strategy and our product offering. It's just as Garrett said, it got to a point where it's now big enough and scaled enough that the accounts have asked us to break it out separately. But it doesn't represent a new strategy for us.

Yes. That's going to be the short answer there.

Not outside of the contractual provisions that they're allowed to. So if you're asking about the pause periods where they're declaring a six month pause, absolutely not. But there are always adjustments regardless of the period related to certain communities and all of these, anything that was done within the contractual allowances for them and for others.

We're already rated. So just to clear that up. And so we're rated by Fitch, S&P, and Moody's.

And it's worth reiterating. Actually, one of the big achievements we're quite proud of in the quarter is that, you know, going from a company without ratings to three ratings from those organizations, including an investment grade rating from one of them and being able to access the deepest public credit markets to raise $2 billion of bonds at an interest rate that we think that is highly accreted to our business, has been a big win for us to strengthen our balance sheet.

And that's part of what really opened up the $1.6 billion of liquidity that we have today, heading into the fourth quarter that really makes us optimistic about our ability to sort of attack the opportunity in front of us and becomes a really strong competitive advantage versus other players that we can just speak to that publicly available, $1.6 billion of liquidity and the strength of our balance sheet.

Yeah, we haven't disclosed the past portion, but there is certainly a substantial amount of past deals. I mean, part of our risk underwriting is that we're always, as we said, always evaluating a home builder's assumptions around price and pace and ultimately the gross margin they project on those communities. And we in this quarter, just as all in other quarters turned down a substantial amount of deals because we didn't think they were set up for success in that our own unique independent data sources were not necessarily consistent with the builders underwriting.

Anything to add Darren?

Yeah, no, the only other thing I'd add is it's a good question and it's a good point in the sense that there are counter-parties that we have decided not to do business with because they've historically used land banking for risk relationships, then try to eke out a little bit more spread, but taking a lot more risk in times like we've experienced in the last year.

Yeah, I would just say, you know, it's part of our cash flow planning every day that we track our peak capital, including all the development funding and all of our commitments. And so we're comfortable based on all the liquidity we have today and our capital pipeline that we conserve everything and there does remain additional capacity to bring on new customers.

Yeah, ample. I mean, that's really the reason why we keep highlighting the 1.6 billion is because almost all of that is really meant for new third-party business. And that's exactly why we highlighted Otto and the work that he's done is because given the scale and complexity of the business that we have and the fact that we do give up about a third of our book value every year, this constant recycling and planning is so important and vital to making sure that our balance sheet is optimized at all times and we're not sitting on cash. And we have in on the other side over committed cash and are not able to fund.

Yeah, that's a great question. It's not something that we're focused on right now. We're really looking to use that data set to drive our operational underwriting efficiencies. And, you know, we're always evaluating kind of strategic partnerships in the home building space, you know, where we could create a value chain that really complements our capital solution. But it is, look, this data is so important using it in our ecosystem to make real-time judgments. I mean, there was a question asked earlier about deals we passed on. Remember, every deal we pass on, in addition to deals we do, we're capturing all that data real-time.

And we're ingesting it and using it to make informed judgments as part of our due diligence. We have Steve Hensley here who oversees that analytics, again, making sure that we're under-investing in hot areas that are not performing well and finding ways to put money to work in areas that are performing well and will continue to perform well, where there's a shortage of housing relative to job growth.

We haven't really had to do so outside of what the builders are contractually entitled to. But I've said this before, Julian, you've definitely heard me say it. If a builder came to us in the ordinary course and said, hey, we were taking down four homes per community per month, the contract says we need to take down three. We'd like to take down two.

And we don't have additional needs for that capital. It probably means we're going to slow down development as well. And we'd rather the capital working for as long as we can keep it. And so we're always thinking through accommodating any client request as long as we don't have an additional need for that capital. And why would we cause somebody to buy back a home site at a time when it doesn't work for them? All we're doing is losing book value on which we would earn our option rate. So to answer the question very specifically, we haven't had to make accommodations outside of what our builder counterparties are entitled to. But we would definitely be open if asked, making sure that we have the capital to do it understood.

And I guess in terms of what they're in contractually entitled to, what is the sort of the flexibility they have within their current contractual agreements and sort of how much are they exercising that flexibility, maybe to currently sort of slow down their pace? Yeah, you can see that when our option agreement is publicly available. So you can see some examples of a finite amount of quarterly takedown extensions such that the final takedown cannot be extended. And so that's an example of that kind of flexibility.

And one of the many reasons that builders look at this kind of capital partnership better than the debt, which is less flexible for a variety of reasons. But generally speaking, even above that, the benefit is that we've individually underwritten every asset. And so we have the ability in our team really can make a judgment call around pace and the right takedowns, particularly in the context of a business that had over $800 million of home site sale proceeds just in a quarter.

So we have such ample liquidity. And by that number, you can see the builders are still taking down their home sites largely on schedule. But that would be one example to answer your question. But I just want to go to the point, maybe the heart of it is we really haven't seen any change in our business. And I think that's what people are pulsing around, like what are we seeing from builders? And we really haven't seen any change, any real change in their behavior that causes us any concern. We would highlight it and we just haven't seen it. It really has been sort of business as usual for us, which has been great. And it's not like we haven't seen what's going on in the backdrop.

But you got to remember, we've underwritten all these assets. These are mission critical assets. These are irreplaceable assets by and large. And we would expect that the builders would continue to take them down almost regardless of what was going on in the backdrop. So I just want to make sure that we're making the point that it really has been and continues to be business as usual for us.

Thank you. Look, I just want to thank everybody once again for joining us today for following the story. We're all available. Should anybody have follow-up questions?

Thank you again. And we wish you a great day.