Millrose Properties’ Earnings Calls Reveal Leverage Strategy Shifts and Deployment Target Contradictions

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Date of Call: Aug 4, 2026

Financials Results

• EPS: $0.76 per diluted share (net income), $0.77 per diluted share (AFFO)

Guidance:

• Run rate AFFO exiting the quarter was approximately $0.80 per share at the high end of the previously provided exit run rate guidance range.
• The leverage target of 33% debt-to-capitalization is under ongoing evaluation, with management considering adjustments based on portfolio performance and operating history.

Business Commentary:

Strong Capital Deployment and Recycling:

• Millrose Properties reported Invested Capital reaching approximately $8.8 billion at quarter end and recycled approximately $1 billion during the quarter.
• The capital was redeployed into approximately $1.1 billion of new opportunities while maintaining consistent underwriting standards.
• This reflects the company's ability to efficiently recycle capital and deploy it into new opportunities, showcasing a mature permanent capital platform.

Dividend Growth and Earnings Support:

• The company declared its sixth consecutive quarterly dividend increase, raising the dividend to $0.77 per share.
• AFFO for the quarter was $0.77 per diluted share, driven by higher recurring option fee income on a growing Invested Capital base.
• The dividend increase is fully supported by recurring AFFO, demonstrating the durability of the earnings model and confidence in the platform's long-term trajectory.

Portfolio Diversification and Expansion:

• Millrose's portfolio now serves 19 counterparties, with approximately 32% of Invested Capital deployed outside of the foundational Lennar relationship.
• The company added two new counterparty relationships, including a new land banking relationship with JPI, representing an expansion into multifamily assets.
• This diversification reflects the growing adoption of Millrose's permanent capital solution across the home building industry.

Operational Efficiency and Underwriting Discipline:

• The company reported a weighted average yield of approximately 10.6% from non-Lennar agreements during the quarter.
• Millrose maintained a disciplined approach to underwriting, with new transactions consistently achieving an average underwritten gross margin of approximately 21%.
• The operational efficiency and disciplined underwriting are key differentiators that allow Millrose to manage risk and drive stronger returns for shareholders.

Market Position and Strategic Role:

• Millrose's platform is positioned to support capital-efficient M&A, as demonstrated by its involvement in Dream Finders Homes' proposed acquisition of Beazer Homes.
• The company's strategic role is expanding, with an active pipeline and growing opportunity set.
• This strategic positioning is supported by sophisticated systems and deep market knowledge, enhancing Millrose's competitive position in the industry.

Sentiment Analysis:

Overall Tone: Positive

• Management described delivering "another strong quarter" with robust demand for their permanent capital platform. They noted "no option terminations" since inception, a "very active" pipeline, and that the platform is "more mature" and "more evolved". The outlook is described as "constructive" and "positive" regarding the long-term trajectory and strategic role in the housing ecosystem.

Q&A:

• Question from Julien Blouin (Goldman Sachs): How should we think about the yields on the multifamily land banking deals? Are they similar to the non-Lennar activity? Do you foresee similar additional structures with other developers going forward?
  Response: Yes, the yields for multifamily land banking are consistent with other non-Lennar agreements and are accretive. Management is actively looking to expand into more multifamily deals that meet their risk and return criteria.

• Question from Julien Blouin (Goldman Sachs): Are you setting aside deployment capacity for the proposed Dream Finders deal? Would you be willing to pivot and take leverage above the 33% limit?
  Response: Management is evaluating the leverage target and feels more comfortable considering increases above 33% in the context of M&A due to faster cash generation from developed land. They prioritize downside protection and capital preservation.

• Question from Eric Wolfe (Citigroup): What LTV are you underwriting to for the multifamily deals, and how will the structure differ from home building deals in terms of security and risk mitigation?
  Response: The structure is almost identical to other land banking agreements, focusing on land and horizontal improvements with deposits, fixed option rates, and ensuring a margin of safety. The deal with JPI is a rental multifamily project.

• Question from Eric Wolfe (Citigroup): Regarding the $0.80 quarterly AFFO run rate guidance, what does that imply for average Invested Capital, weighted average yield, and leverage?
  Response: The $0.80 run rate is based on the current portfolio yields and investment balances, reflecting the underlying earnings power after redeployment of early loan repayments. It does not factor in Q3 expectations or changes.

• Question from Eric Wolfe (Citigroup): Have you received guidance from ratings agencies on the path to an investment-grade rating, and is it worth pursuing given potential debt spread benefits?
  Response: An investment-grade rating is an important priority, but management is being thoughtful and will not jeopardize the portfolio's posture. They are re-evaluating the leverage target based on actual operating history while maintaining financial flexibility.

• Question from Craig Kucera (Lucid): Can you provide insight into your deployment pipeline and expectations for capital deployment by year-end?
  Response: The pipeline remains strong with organic deployment around $400-500 million per quarter. The $2 billion annual target is achievable unconstrained by capital, but decisions will be thoughtful regarding leverage and avoiding dilutive equity raises.

• Question from Craig Kucera (Lucid): Is expansion into multifamily a core strategy, or was the JPI deal a one-off?
  Response: Management is being opportunistic with multifamily but does not currently characterize it as a wholesale core strategy. They are focused on expanding their product suite within the residential market to deepen relationships and add value.

• Question from Craig Kucera (Lucid): How should we think about the income tax expense going forward after it was lower this quarter?
  Response: The lower tax expense is due to changes in allocation of taxable income based on updated market assumptions. It represents a more normalized run rate as part of ongoing optimization of all business elements including taxes.

• Question from Ryan Gilbert (BTIG): Was the tick down in other agreement yield to 10.6% due to a mix shift to higher quality opportunities, and should we expect further shifts?
  Response: Yes, the yield change was due to a mix shift toward higher quality opportunities, but there is no trend to extrapolate; volatility is expected as the portfolio mix changes.

• Question from Ryan Gilbert (BTIG): Has the recent rate move-up in July shifted builder demand or underwriting for new opportunities?
  Response: Rate volatility impacts first-time buyer segments, but overall builders are increasingly using off-balance sheet financing like Millrose to hedge against near-term uncertainty and preserve community count, a trend that is expected to continue.

• Question from Ryan Gilbert (BTIG): How are you achieving a 21% underwritten gross margin given stable land values and flat incentives?
  Response: The 21% margin is achieved through builders' lower cost structures, modest incentive improvements, and a mix shift toward stronger Southeast markets. It reflects ongoing operational efficiencies and is a prioritized target in underwriting.

• Question from Eric Wolfe (Citigroup): Are you considering condo projects or financing vertical construction in multifamily deals?
  Response: Management is open to various structures, including vertical construction if accretive and within risk parameters. The JPI deal is horizontal, but they evaluate options that protect capital and maximize yield.

• Question from Eric Wolfe (Citigroup): Is there potential to sell off pieces of option agreements (e.g., first loss) to enhance yield?
  Response: No, such transactions are not planned on a one-off basis. Leverage will come from the balance sheet, with potential future optimization using the revolver and notes.

• Question from Ryan Gilbert (BTIG): How are you contingency planning for potential option terminations if the market worsens?
  Response: Management proactively plans for terminations by evaluating land basis, underwriting quality, deposits, and having alternatives like bringing in other builders or pursuing different use cases (e.g., BTR) to ensure capital protection and value preservation.

Contradiction Point 1

Capital Deployment Strategy and Leverage Flexibility

Shift from strict liquidity reliance to considering leverage increases.

Julien Blouin (Goldman Sachs) - Julien Blouin (Goldman Sachs)

2026Q2: The management team is actively thinking about the appropriate leverage target... They are comfortable exceeding it in the context of M&A... They are reserving cash and planning capital deployment for the year. - Robert Nitkin(COO), Darren Richman(CEO)

How should we think about the yields on the multifamily land banking deals, and would you be willing to pivot and take leverage above the 33% limit? - Julien Blouin (Goldman Sachs)

2026Q1: The company is not currently considering alternative financing structures like JV capital. For now, it will rely on its $1.5 billion liquidity (revolver and cash) and the recycling nature of its balance sheet. - Darren Richman(CEO)

Contradiction Point 2

Outlook for Single-Family Rental (SFR) Housing Finance

Shift from no change in behavior to prospectively cooling capital.

Eric Wolfe (Citigroup) - Eric Wolfe (Citigroup)

2026Q2: Regarding the multifamily venture with JPI... It is focused on the land and horizontal improvements. They will be selective... The JPI project is rental. - Robert Nitkin(COO), Darren Richman(CEO)

What is the underwritten LTV for the multifamily venture with JPI, and are you considering rental or for-sale multifamily? - Eric Wolfe (Citigroup)

2026Q1: No change in behavior regarding the existing portfolio. However, prospectively, capital has cooled from entering the market to finance build-to-rent or buy-for-sale-to-rent projects. - Darren Richman(CEO)

Contradiction Point 3

Leverage Target Flexibility

Contradiction on willingness to temporarily exceed 33% leverage cap.

Julien Blouin (Goldman Sachs) - Julien Blouin (Goldman Sachs)

2026Q2: While the 33% target is not being changed today, we are comfortable exceeding it in the context of M&A due to the quick-turning, developed land. - Robert Nitkin(COO), Darren Richman(CEO)

How should we assess the yields on multifamily land banking deals in light of potential leverage above the 33% limit? - Julien Blouin (Goldman Sachs Group, Inc., Research Division)

2025Q4: The company will generally adhere to the 33% leverage target in the ordinary course. While there may be strategic circumstances where leverage is pushed temporarily, the long-term goal is 33%. - Darren Richman(CEO)

Contradiction Point 4

Capital Deployment Target

Contradiction on the nature of the $2 billion annual deployment target.

Craig Kucera (Lucid) - Craig Kucera (Lucid)

2026Q2: The $2 billion annual target is still possible if unconstrained by capital, but we are being thoughtful about not over-leveraging. - Robert Nitkin(COO)

What are your deployment pipeline updates and expected deployments by year-end? - Craig Kucera (Lucid Capital Markets, LLC, Research Division)

2025Q4: The $2 billion is the best assessment based on current deal flow and pipeline, but does not include potential M&A... The company is confident in meeting the year-end target. - Darren Richman(CEO)

Contradiction Point 5

Strategy Regarding Non-Traditional Financing Instruments

Contradiction on openness to using preferred equity as a capital source.

What are Julien Blouin's key questions for the earnings call? - Julien Blouin (Goldman Sachs)

2026Q2: They are looking to do more of [multifamily land banking] and explore new use cases and structures, always prioritizing capital protection and returns. - Robert Nitkin(COO), Darren Richman(CEO)

How should we think about the yields on multifamily land banking deals, and do you foresee similar structures with other developers going forward? - Craig Kucera (Lucid Capital Markets, LLC, Research Division)

2025Q4: Preferred equity is not the current plan. The goal is to maintain a clean and transparent capital structure. - Darren Richman(CEO)

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