Millrose Properties, Inc. Q4 FY2025 earnings call

• Darren Richmond discussed the firm's first year as a public company, highlighting the permanent capital model providing builders with just-in-time home site delivery, generating contractual monthly option payments. 2025 was a defining year with investment balance outside the Lennar Master Program Agreement finishing at ~2.4 billion. - Rob Nitkin talked about operating the platform at scale, managing ~142,000 home sites across 933 communities in 30 states serving 15 counterparties, with significant operational infrastructure, technology, and experienced team. Emphasized cross termination pooling structures on 96% of portfolio, which is a relationship defining mechanism and live risk management discipline. - Stephen Hensley discussed macro picture and proprietary data showing encouraging signals for spring selling season, with mixed but improving landscape by market, geographic diversity of portfolio protecting against single market performance. - Garrett Rosenblum walked through financial performance, highlighting cash-generating power, accretive AFFO growth, book value per share, balance sheet details, and dividend performance.

For the fourth quarter, net income was 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, net income was 404.8 million, or $2.44 per share. Fourth quarter adjusted funds from operations came in at 76 cents per share, with the normalized year-end run rate at 77 cents per share. Ended the year with total assets of approximately $9.3 billion and total debt of $2.1 billion, debt to capitalization ratio of approximately 26%. Ended the year with approximately 1.3B in total liquidity. Paid a dividend of 124.5 million or 75 cents per share in the fourth quarter with an 8.4% annualized yield on equity.

• Base case expectation is to grow invested capital outside the Lennar Master Program Agreement by an additional $2 billion, bringing total invested capital to approximately $10.5 billion. - Expect to deploy approximately $1 billion in additional invested capital by mid-year, exiting Q2 2026 with a quarterly AFFO run rate of 78 to 80 cents per share. - Believes a 10% annual AFFO per share growth implied by the $2 billion growth expectation, with valuation discount to peers expected to resolve as execution continues.

Q: Congrats on the strong quarter team. Just given this strong pace of deployment and the clear demand from home builders, I was wondering, as you start to come up against your internally set leverage cap, would you be comfortable going above that leverage cap for a brief time until your shares sort of reach book value...

A: Darren said they're going to adhere to the 30, but there may be circumstances where they might push it beyond 33% for a brief period, with the long-term goal purposefully set at 33% for reasons like volatile assets and need for cash visibility.

Q: You also mentioned in your opening remarks how you distinguish yourself from every other land-based real estate business in the public markets. And I think Rob was mentioning how the current ASFO multiple discount is sort of difficult to justify I'm just curious, in your own internal conversations, how do you view or who do you view as your most relevant comps...

A: Rob said they think themselves more of a triple net or infrastructure-related equity rate, with more proof points in AFFO growth per share and low leverage, and it's a young company continuing to show proof points.

Q: You talked about $1 billion of new capital deployment by the middle of the year. How much visibility do you have toward that incremental $1 billion at this point? Is it based on deals you've already sourced and signed? And would those be new relationships or sort of continued growth among your current 15 counterparties...

A: Darren said they've talked about forward flow relationships with industry coalescing around programmatic ones, with about $9 billion across roughly 10 different counterparties, and feel confident given the pipeline and relationships.

Q: I see you added two counterparties this quarter. Were they the primary driver of the $690 million funded this quarter from third parties, or are you seeing additional demand from your existing counterparties...

A: Darren said it was three additional counterparties, majority of growth from existing counterparties, with initial deals with new ones not the majority but expectation they'll grow.

Q: In the press release you made a mention that you're delivering home price to builders at an average sales price 20% below the national average for new homes...

A: Darren said they're not going to go that deep into the guts of the operation at this point.

Q: You know, you made it clear that you want to issue equity below book and you've got a debt target of 33%. You know, you mentioned earlier, you might go a little above that, but Given that the market's going to do what it does with your common stock, it would seem you could issue preferred that would be accreted to what you can deploy capital at. Is that a potential source of capital for you, or do you view that as just more expensive debt...

A: Darren said it's not their preference to do that, goal is to keep capital structure clean and transparent, but would entertain them potentially not as plan right now