Millrose Properties (MRP) Q4 2025 earnings call transcript

Good morning, and thank you for joining us. With us today to discuss Mill Rose Properties fourth quarter and full year 2025 results are Darren Richmond, our chief executive officer and president. Robert Nickin, our chief operating officer. Garrett Rosenblum, our chief financial officer, and Steven Hensley, our senior market risk analyst. Before we begin, I'd like to remind everyone that today's call may include forward-looking statements and references to non-GAV financial measures.

These statements are subject to risks and uncertainties that could cause actual results that differ materially from those expressed were implied. Please refer to our fourth quarter and full year 2025 earnings release and investor presentation, both available on our website under the investor relations heading for discussion of these matters and a reconciliation of non-GAV measures.

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

Thank you, Jesse, and good morning, everyone. I'm pleased to discuss our results for the fourth quarter and full year 2025, our first year as a public company. For years, we have seen a clear opportunity in a housing market defined by persistent under-supply and builders seeking greater balance sheet efficiency.

Even as the industry faced meaningful headwinds, affordability challenges, elevated grades, and macro uncertainty, the structural need for housing capital remained unchanged. If anything, the industry shift towards capital efficiency has only accelerated, and Mill Rose was designed for exactly this moment.

Our permanent capital model provides builders with just-in-time home site delivery system. We acquire and fund development under option agreements. Builders take down home sites on a predetermined schedule, and our shareholders receive predictable, recurring income underpinned by U. S. housing demand.

That income is not tied to home prices, land values, or the pace of home sales. We generate contractual monthly option payments that spend multiple year contracts, and are owed regardless of market conditions. We do not speculate on land appreciation, take entitlement risk, or participate in home building margins. Our capitalist structurally insulated from the cyclicality of our builders operating businesses.

That is a fundamental distinction from every other land-based real estate business in the public markets today. And it is the foundation on which 2025 was built. 2025 was the defining year for Mill Rose. Despite a cautious home building environment, we were embraced across the industry with a reception that exceeded even our own expectations, validating both the concept and our team's execution.

Our investment balance outside the foundational in our master program agreement finished the year at approximately 2.4 billion, surpassing the 2.2 billion stretch target we had previously discussed. That outperformance reflects something important. Builders weren't just willing to work with us. They sought us out both initiating new relationships and deepening existing ones. In a year when builders were exercising appropriate caution on an activity level, Mill Rose was aggressively taking share and pioneering new use cases for land banking capital.

That is a direct reflection of what we offer and experience trusted partner with deep operational and technological integration. The ability to transact rapidly and at scale and a national team that understands the home building business from the ground up. That accelerating pace of adoption translated directly to financial outperformance. We had previously provided a year-end run rate AFFO guidance range of 74 to 76 cents per share.

Our 4Q AFFO came in at the top end of that range at 76 cents, but the growth we delivered over the course of the quarter puts our normalized year-end run rate at 77 cents ahead of where we expected to be. We also demonstrated the uniquely cash generative cap over cycling nature of our business model. With 3.4 billion of that home site tail proceeds generated in 2025. Beyond the financial implications of that liquidity, we're proud of the real world impact embedded in this number. Over the course of 2025, we delivered more than 31,000 home sites to builders across the country. Projects with an average home selling price of approximately 20% below the national average for newly built single-family homes.

Housing affordability remains one of the defining challenges facing the American housing market, driven in large part by the scarcity of entitled well-located land. What we do isn't just financially compelling. It is genuinely additive to the housing supply where it is needed most.

Looking ahead, we enter 2026 with a pipeline that gives us real confidence in our growth trajectory. Based on the transaction volume we demonstrated in 2025 and the depth of our current opportunity set, our base case expectation is that we can grow invested capital outside the Lenard Master program agreement by an additional $2 billion. Bringing total invested capital to approximately $10.5 billion with over 40% of that balance outside the foundational Lenard relationship.

That would represent a meaningful milestone in the diversification of our platform. I want to be transparent about how we think about funding that expansion because growth for its own sake has never been part of our objective. We remain committed to a conservative leverage policy with a current target of 33% debt to cap and we will not issue equity below book value, which currently stands at $35.28 per share. On that basis, we can point with confidence today to funding approximately half of that $2 billion demand increase through existing debt capacity.

We expect to deploy that $1 billion in invested capital growth by approximately maybe here, exiting Q2-2026 with a quarterly AFFO per share run rate in the range of 78 to 80 cents a share.

For the second half of that pipeline, we are being highly selected by design, concentrating capital toward the strongest counterparties, the most durable structures and the best located underlying properties. The opportunity set exceeds what we can fund today and that is a position of strength, not a constraint. The equity optionality we retain is upside for existing shareholders, not a bottleneck to our business. On evaluation, our current AFFO multiple implies a meaningful discount to the competitive set of rates. A gap we believe is difficult to justify given our lower leverage, our contractual income structure with high quality counterparties, and the projected 10 percent annual AFFO per share growth implied by our $2 billion growth expectation. That is described on page 14 of our earnings presentation.

Here, we've laid out an illustrator bridge from our current AFFO run rate to year end 2026. At the low end, deploying one billion of new capital and current yields, we drive more than 7 percent growth in AFFO per share, executing on this $2 billion opportunity set we see in front of us funded with a prudent mix of debt and equity consistent with our stated leverage targets implies a 10 percent growth in AFFO per share.

We believe that this valuation discount to our peers reflects the market still getting comfortable with a business model that is genuinely new to the public markets, and that is a fair and reasonable dynamic. But when we expect to resolve itself as we continue to demonstrate consistent execution, we operate it through a challenging home building environment 2025 without a single builder terminating or threatening to terminate an option agreement. As that track record compounds, we expect investor confidence and our valuation to follow. We are optimistic that a re-rating is coming and then we will be able to raise equity above book value in 2026, which would allow us to fully capture the pipeline in front of us.

Finally, the macro backdrop entering 2026 is the most constructive that we have seen since our spinoff. In many markets, the supply and demand imbalance that weight down builder activity through March of 2025 is showing early signs of rebalancing. Lower housing starts have begun to work through excess inventory and moderating mortgage rates are supporting a gradual return of prior demand. Again, that backdrop line values have proven remarkably resilient.

According to a recent survey from John Burns Research and Consulting, one of the most respected voices in the residential housing market, land prices remain stable through 2025 and continue to increase in many markets. For millroads, that is an important data point. It affirms the unique character of our entitled home site assets. It replaces both non-depreciating perpetual options on US home values and confirms that our portfolio is well positioned as the market continues to recover. 2025 proved the model. 2026 is where we intend to begin showing its full potential. We believe we have the platform, the pipeline, the partnerships and the track record, and we are just getting started.

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

Thank you, Darren. I want to spend a few minutes on what it actually is to operate this platform at the scale we've described, because the numbers deserve context. As of year end, Millroads manages approximately 142,000 home sites across 933 communities and 30 states serving 15 distinct counterparties, nine of which rank among the top 25 home builders in the country.

During 2025, we deployed $5.5 billion in new land acquisition and development funding and received $3.4 billion in takedown proceeds. Transaction volume of this magnitude is made possible by significant operational infrastructure working in sync with a large and experienced team.

Every home site take down the process is a real estate transaction, not just a wire transfer or ledger entry. As Darren mentioned, in 2025, we executed over 31,000 of those closings, each involving title work, deed transfer, and state specific closing requirements on a schedule that cannot slip, because builders are running construction timelines that depend on us. What makes that reliability possible is our technology. A platform that gives builders a real time and lot selection capability with every selection triggering automated portfolio updates, title tracking, and closing workflows. But technology alone doesn't close real estate transactions.

Equally important is an experienced team of underwriters, servicers, and asset managers with deep multi-year operating relationships with our builders partners, and the willingness to pick up the phone and work through any time-sensitive request or transaction nuance.

Growth emissions volume of activity requires the same level of discipline on the deployment side. Expanding from one counterpart to 15 required demonstrating both home site delivery reliability and new deal underwriting capacity, the ability to evaluate, diligence, and close its high volume on externally driven deadlines. Our proprietary data set and underwriting tools built from years of trends that are acting across every market we operate in allow our underwriting team to rapidly form a view on new opportunities before passing toward real estate diligence teams for legal and development review. These tools also provide real-time signals on local market dynamics, and you'll hear more on what we're currently seeing from Stephen Hensley in a moment.

Combine the close coordination between our underwriters and builder partner land teams, our diligence is both rapid and rigorous. That speed of execution alongside the unique reliability and permanence of our capital is a competitive advantage builders notice and consistently site. Every new builder relationship benefits from our track record of efficient execution at scale. First we go on our and now with 14 additional partners as well as the institutional credibility our team built at Kennedy Lewis in the years before Millrose launched.

That combination of platform history and team pedigree creates a level of credibility that cannot easily or quickly be replicated. We also bring to the relationships market insights and intelligence from our operations across 30 states that most individual builders simply don't have access to. We believe sharing that perspective makes us a more valuable partner in defense relationships. The expanding share of wall and dare and reference isn't just a financial outcome it's a reflection of the compounding spirit of partnership we are committed to building across the industry. I also want to elaborate on our cross-term donation pooling structures present on 96 percent of our portfolio by investment balance because pooling is more than a negotiated legal protection.

It is first and foremost a relationship defining mechanism. When a builder agrees to a pool they are self-identifying as a partner seeking capital efficiency not risk mitigation and that distinction matters. These are builders who understand their model embrace the off balance sheet structure and are committed to a long-term programmatic relationship. It is worth being clear ride about what pooling does and does not do. It does not prevent a builder from walking away from an option contract. What it does is raise the cost of doing so creating a meaningful economic disincentive that protects the integrity of the relationship without eliminating the builders' optionality. That balance is intentional and is part of what makes pooling a durable alignment tool rather than a blunt legal instrument.

Beyond that initial alignment function pooling is also a live risk management discipline. We maintain a real-time pooling analysis to track every pool by geography, duration and risk exposure as communities advance through their life cycle. Enabled by our technology platform we monitor shifts in each pool's risk profile continuously directly informing go-forward deal allocation. This active management is what keeps pooling meaningful over time and it is a capacity that we believe is genuinely difficult to replicate without the scale and systems we have built.

Looking ahead, the opportunity in front of mill rows is both substantial and highly actionable. Our pipeline is deeper, more diversified and more geographically balanced than at any point since launch. We are seeing increased engagement from existing partners and meaningful interests from new builders looking to shift more of their land strategy into off-balance sheet structures. As Aaron described, we are being selective but the pipeline gives us the luxury of that selectivity and we are confident in the quality of what we are choosing to pursue. To fully capture this opportunity, we continue to build incremental capital and liquidity to enhance balance sheet flexibility and reinforce competence for our counter-parties. We are currently working with our bank group on additional floating rate debt capacity both to diversify our fixed rate bond structure and to better match the floating rate nature of a portion of our option payment income.

2025 was the year we built and constructed the infrastructure of this platform. The technology, the team, the processes, and the capital relationships required to scale across the industry. That foundation is now firmly in place. With a pipeline that reflects deepening builder engagement and improving broader market, we enter 2026 with a conviction in the further expanded accretive growth opportunities for mill rows and our shareholders.

With that, I'll turn it over to Stephen to share what we're seeing across our markets and why we're optimistic about the macro landscape ahead.

Thank you, Stephen, and good morning, everyone. I'm pleased to walk you through our fourth quarter and full year 2025 financial results, which continue to demonstrate the cash generating power of our business model and the direct translation of capital deployment into shareholder reserves. For the fourth quarter, we reported net income of $122.2 million or 74 cents per share, driven by $179.5 million in option fees and $10 million in development loan income.

For the full year, we reported net income of $404.8 million or $2.44 per share. Our first fiscal years of public company and one that delivered on every financial commitment we made at the outset.

Fourth quarter adjusted funds from operations came in at 76 cents per share at the high end of our guidance range of 74 to 76 cents per share. But as Darren noted, the invested capital growth we delivered over the course of the quarter puts our normalized year-end run rate at 77 cents per share ahead of where we expect it to be. This outperformance reflects exactly what our model is designed to do. Every dollar deployed in other agreements at average yields of approximately 11 percent against the cost of that of 6.3 percent drives directly a creative AFFO growth and expanding dividend capacity. That spread and our ability to sustain and grow it is the engine of our earnings trajectory.

Book value for share year ends to the $35.28. For full year context, interest expense was 91.8 million. Income tax expense was 20.5 million and management fee expense totaled 87.8 million. As a reminder, our management fee is calculated transparently at a fixed rate of 1.25 percent of gross tangible assets.

Turning to the balance sheet, we ended the year with total assets of approximately 9.3 billion and total debt of 2.1 billion, resulting in a debt to capitalization ratio of approximately 26 percent, well inside our stated maximum of 33 percent. That headroom is intentional. It gives us meaningful capacity to fund the next phase of growth without compromising the conservative and financial posture that underpins our investment-grade counterparty relationships and our dividend reliability. We ended the year with approximately 1.3 billion and total liquidity, providing ample capacity to support our investment pipeline.

And as Rob noted, we are working with our banking partners to further expand that capacity. And we expected to deploy approximately 1 billion in additional invested capital by mid-year, exiting Q2-26 with an expected quarterly AFFO run rate of 78 to 80 cents per share.

Our dividend performance reflects the quality and consistency of our earnings. For the fourth quarter, we paid the dividend of 124.5 million or 75 cents per share and 8.4 percent annualized deal than equity, roughly 80 basis points higher than our first quarter dividend. That progression over the course of a single year is a direct result of the creative deployment of capital and other agreements. Exactly the strategy we outlined when we became a public company. Milrose remains committed to distributing 100 percent of AFFO to shareholders and we expect that commitment to compound meaningfully as our invested capital base continues to grow.

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

Thanks, Garret. I want to leave you with a few thoughts before we open the line. 2025 was not an easy year for the home building industry. And that is precisely what made it such a meaningful proof point for Milrose. We operated through a four-to-billion headwinds, elevated rates, and a cautious builder environment without a single option agreement terminated or even threatened. Our contractual income held, our capital recycled, our platform grew. That is not a coincidence. It is the design of this business working exactly as intended. What gives me the most confidence entering 2026 is not just the pipeline in front of us, but the flywheel nature of what we are building. Every community we deliver, every builder relationship we deepen, and every dollar of capital we recycle adds to the platform that becomes harder to replicate and more valuable to the industry over time.

We are still early in that process, and that is an exciting place to be. To the team, the execution you delivered in our first year as a public company was exceptional, and it did not go unnoticed. To our home building partners, your trust is the foundation of everything we do, and we do not take it lightly. And to our shareholders, we are committed to earning your confidence every quarter, not by telling you what this platform can be, but by showing you. Operator, let's open the line up for questions.

Juleen, that's a good question. This is Darren. Thank you. Thanks for your time today. Look, we're going to adhere to the 30. We don't want to hem ourselves in too much on the leverage target. In the context of maybe something strategic, we might push it. In the ordinary course, we're really going to kind of adhere to that target.

There may be circumstances where we might change that for some period, but that really is the threshold goal. And for those people who are kind of new to the story, the reason why we set it at that conservative level is these are still volatile assets. And the reality is that we cycle through about a third of our balance sheet every year in the ordinary course. And having that visibility and that cash in the ordinary course to be able to pay down our debt or neutralize the debt with cash on the balance sheet is just a very important asset for this company. So to answer your question, there may be circumstances where for a brief period, we feel comfortable and we have line of sight to take it beyond 33%.

But the long term goal is really been purposefully set at 33% for the reasons I decided.

I think you've given me the easy question. This is some meatball of the question for you, Rob, to answer.

Yeah, thank you, Julie. And I mean, people just ask us a lot, particularly for a somewhat new business model in the public forum, with this Homestead Option purchase platform, who are your comp set and how should we value you? And it's not our job to debate the academics of our price AFFO multiple, but we didn't think after our first full year of results, now that we have more proof points, just to point out some of the differences versus the various REITs out there. And you and others have heard us say out loud that we think ourselves more of a triple net or infrastructure related equity REIT, which is what we believe. But what's new this quarter?

What's new this quarter is that we have just more proof points in terms of both our AFFO growth per share that we've demonstrated and that we're projecting in the forward scenario really afforded by just the math of our creative spread investing, the yields we're able to invest at versus our cost of capital, pointing out the low leverage, achieving those yields and those growth targets with the leverage that we have right now that as we were just talking about is pretty much below any other REIT, at least in our eyes in the industry, which we feel good about. And honestly, that was a lot of what we were so excited about thinking back before we even launched Milrose, why we were so excited to bring this business model into the public forum was to show the power of the yield, the growth, therefore the total return that we afford or shareholders win to low leverage.

And on top of that, lastly, I would just say it's worth pointing out that while we have low duration and that's another slightly differentiating item you may say positive or negative from other REITs, we view it as a pure positive in that from a credit and risk management perspective, we're constantly refreshing the basis to contemporary market conditions and evaluating new assets that are sort of refilling our portfolio from a risk perspective. But at the same time, we've signed up to these repeatable, operationally integrated relationships with our builders counter-parties. So it's not as if we have a brand new cost of origination on each individual deal. Our origination is not episodic. It's a self-refreshing relationship with these builders, which again, from both a credit and origination perspective, we think is the best of both worlds.

So that's what we wanted to point out.

Yeah, and I might add to that. Obviously, I had to everything Rob just said. But to add to it, these are mission-critical assets as we talked about. Not only are they mission-critical, but these are the exact assets that are in scarce supply. Having land that's already entitled, approved for development, is the gating item to why we don't see more growth and volume. And so we're financing those assets that are in shortest supply. And then the other items I'd add is we're doing this against a backdrop of housing shortage. And maybe lastly, I'd add that these assets don't require any capital enhancement from like a CapEx perspective to refresh. And so this is all contractually related.

So I think when you put all these pieces together, plus the growth that we laid out in this report, that even if we achieve just the billion dollars in the ground, that's almost an 8% growth in AFFO on top of the already strong dividend that we're achieving. So when you kind of put all this together, it creates what we think is a very unique package of baseline dividend plus growth that to us, we're students of the market. We're obviously talking our book, but to us should result in a much higher multiple. And we do think we'll get there. This is still a young company. We're a year into it, and we're continuing to show proof points.

So we do think ultimately, we will trampoline ahead from evaluation perspective.

Yeah, and I'll start, Eric. This is Aaron and Rob will jump in. We've talked about this in the past with these forward flow relationships that we have, where the industry is really starting to coalesce around, rather than home builders looking at discrete parcels and trying to get them land bank and financed to entering into more programmatic relationships, where they'll come to us and say we need a billion dollars of buying power or 500 million dollars of buying power. And so we've talked about that. That totals about $9 billion across roughly 10 different counterparties, those forward flow relationships. We're going to naturally cycle through about $3 billion of our land portfolio in the next year that will need to be replaced.

So some of that $9 billion will go into replacing those assets. And then so the point is we have a lot of visibility and a lot of confidence around it. Some of those deals ultimately fall away because obviously our due diligence process will kick out deals that we don't want to be financing. So as we kind of distill down that forward flow quantum, we feel very comfortable with the guidance that we put out in. We want to be very thoughtful about guidance we give to make sure that we can achieve that. Yeah. And I might just add, as you know, Eric, there's also built into our existing $2.4 billion of other agreements, investment balance, the future development funding commitments that we've already signed up for.

And we're including in that billion dollar projection. And so that will do a decent amount of the work for us. And so you ask the question, you know, does that require any new counterparties based on the existing based in development funding projections, even then at home site takedowns, as well as that, you know, the aggregate of those $9 billion for flow relationships, Darren alluded to, you know, if you said, you know, we weren't going to add another counterparty next year, which I don't think is true, I would still feel pretty confident about that number.

Yeah, I would use not perfectly precise in its way, but I would use the proxy that our Lenard Master Program Agreement rate is fixed, which is true, and subject to reset. forward deal as it has been publicly disclosed. And our other agreements bucket is vast majority floating subject to a floor. So while there's not, you know, infinite downside of rain cuts, you know, there is some volatility. And that's the reason that our existing credit agreement, you know, use of that the floating rate mitigates any movement there. And, you know, we made the comments that you alluded to on the additional floating rate debt. And that's been, you know, I would add that there's not there's an imminent change in six first floating, you know, in these agreements since any recent rate cut cycles or anything like that.

That's been the nature of the structure of these other agreements, you know, since before we launched Melrose, I'd say.

Yeah, the floor is probably, yeah, floor is probably between, you know, 50 and 200 basis points below sort of where that rate is.

Yeah, so it was three additional counter parties went from 12 to 15 this quarter and the majority of the growth was from existing counter parties. And so the addition of new counter parties, you know, we started as you initial deals with them and those initial deals with those incremental three counter parties were not, we're not the majority, but, you know, we've now brought them on to our platform with all more to them. We've negotiated docks with them and it's our expectation that they'll continue to grow as we get more operationally integrated as a partner.

This is Darren. It's a tough question to answer. We're not looking to sandbag anything. This is kind of our best assessment at this point in time, given the deal flow that's ahead of us. And also given that the need to raise additional capital, you know, I'll remind you last year, the volume was enhanced through M&A. And while we're aware of, you know, discussions that are out there from a M&A perspective, those are always difficult to model. And so none of that would be included in our forecast. So this really is our best estimate here and now. And I'll acknowledge one other thing that month to month, quarter to quarter, it won't be a straight line in terms of that volume filling in.

But we feel very confident given the pipeline, given the relationships that we will meet that year-end target of two billion.

Yeah, I don't. We're not going to go that deep into the, you know, into the gods of the operation at this point.

It's not our preference to do that. We, you know, as you would imagine, where we ourselves or investors, we come from the credit landscape. We're very familiar with those type of products as well as converts and other arrangements that are equity-like. The goal here is really to keep that capital structure as clean as possible and as transparent as possible. Would we entertain them potentially? But that's not our plan right now.

Yeah, I'd like to thank everybody again for joining us this morning. We're around if people have follow-up questions. You know, just in closing, really what we're looking for is durable, fundamental growth, not short-term glitter. We're looking to continue to build new relationships and develop new use cases for land banking capital. We're very excited about the prospects for the business, where we are today, and the reception we continue to get from our existing clients and new clients as well. So I want to thank everybody.