Item 1A. Risk Factors
Our business involves substantial risks. Any of the risk factors described below or elsewhere in this Form 10-K could significantly and adversely affect our business prospects, financial condition and results of operations. The risks described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial may also adversely affect us.
RISK FACTORS
Risks Related to Our Business Model and Investment in a Recently Formed Entity
We are a recently 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 perform as a standalone and separate business.
Millrose was incorporated as a Maryland corporation on March 19, 2024 and its Class A Common Stock was listed on the NYSE on February 7, 2025 at the time of the Spin-Off from Lennar. Because we have limited operating history as an independent public company, you have a limited basis upon which to evaluate our ability to achieve our business objectives and perform as a standalone and separate business. The financial information included in this Form 10-K for the periods prior to the Spin-Off do not reflect the financial condition, results of operations or cash flows that we probably would have achieved as a separate, publicly-traded company during the pre-Spin-Off periods, or those that we are likely achieve in the future. The financial information of the Predecessor Millrose Business prior to the Spin-Off also does not reflect the additional costs required to operate as a publicly traded company and maintain compliance with all applicable laws and regulations to which publicly traded companies are subject.
If we fail to achieve our business objectives, we will generate limited operating revenues which may not allow us to perform and grow as a standalone business. Factors that could materially and adversely impact our results may include, but are not limited to, the following:
The Spin-Off did not include the carryover of any existing operations, personnel or other infrastructure. We do not benefit from administrative and support services from Lennar and instead rely on the Manager pursuant to the terms of the Management Agreement. As such, our business, operations, facilities, personnel, infrastructure, systems and other resources are all recently formed and wholly separate from and not comparable to those of Lennar, except with respect to the services provided by Lennar pursuant to the Master Program Agreement.
We have incurred and will continue to incur increased expenses as a recently formed, independent public company, which have been paid and will be paid for by our Manager as part of the Manager’s responsibilities (such expenses are covered by the Management Fee and are not separately reimbursed by us to our Manager), except as described under “Part I, Item 1. Business —Our Manager.”
Since the Spin-Off, our primary business and source of revenues have been and will continue to be from Lennar pursuant to the Lennar Agreements. While Millrose has acquired other homebuilders as new counterparties, there is no guarantee that Millrose will continue to be successful in negotiating agreements with additional counterparties. Millrose expects that future arrangements will be similar to its current arrangements with counterparties, but there is no certainty that Millrose will be able to successfully negotiate for substantially all of the same terms it has in the current counterparty agreements, including with respect to pooling.
In addition to our existing debt obligations under the Revolving Credit Facility, 2030 Notes, and 2032 Notes, we may pursue additional debt financing to support our business growth initiatives. However, there can be no assurance that such financing will be obtained or will be sufficient to cover all of our planned initiatives. Additionally, our ability to obtain additional debt financing is subject to the Debt-to-Equity Ratio Limit, which may restrict the level of financing we can obtain.
Lennar, as the original parent company of Millrose and the initial contributor of assets transferred to Millrose in connection with the Spin-Off, has certain Founder’s Rights, which are exclusive to Lennar, including the Management Succession Consent Right, the Effective Equity Price Protection Right, the Enforcement Rights, the Applicable Rate Adjustment Right, the Capital Priority Right, the Secured Financing Collateral Consent Right, and the Pause Period Designation Right, among others. As such, Lennar may have influence over certain corporate matters, which may deter potential investors from investing in Millrose and may deter potential counterparties other than Lennar or Lennar Related Ventures from doing business with Millrose. Additionally, Lennar’s Capital Priority Right limits the
amount of capital Millrose has available for transactions with counterparties other than Lennar or Lennar Related Ventures, which may make it difficult to provide our homesite option platform to such counterparties. For additional information regarding Lennar’s rights, see “Part I, Item 1. Business—Operational Agreements with Lennar—Founder’s Rights Agreement.”
The Lennar Agreements do not have an expiration date; however, Lennar is not obligated to enter into future transactions with Millrose or provide any new business opportunities to Millrose, including referrals of Lennar Related Ventures. While the Lennar Agreements contemplate an ongoing business relationship and grant Lennar a Capital Priority Right, they do not provide us with exclusivity, rights of first refusal, first look, or other priorities for future opportunities. As a result, Lennar may choose not to offer us additional business for any reason, including utilizing traditional land banking arrangements, engaging other providers, or determining that the terms of the Lennar Agreements are not competitive. Additionally, Lennar’s existing land banking relationships with other providers could limit the number of opportunities available to us with respect to future property assets.
We or the Manager have made investments to outsource from other providers certain facilities, systems, infrastructure and third-party consultants and experts outside of our Manager. If the cost of these investments exceeds the Management Fee, our Manager may seek to renegotiate the Management Agreement.
KL may decide to execute on different business strategies and make business decisions different than those made in the past, which may lead to outcomes that do not achieve anticipated objectives and may adversely affect our financial performance.
We have a limited history of operating our homesite option platform. Our ability to grow depends on being a preferred partner with our counterparties for funding land acquisition and development, as well as securing additional counterparty agreements. If we are unable to achieve these objectives, our growth prospects could be adversely affected.
Other significant changes may occur in our cost structure, management, financing and business operations as a result of our status as a recently independent company.
The Rausch 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.
The homesites that we acquired from Rausch are located in some U.S. geographies where Lennar had not historically operated prior to the Rausch Transaction. The differences in geographies may impact Lennar’s decision-making with respect to its purchase option exercises, which could be different from how they determine their purchase option exercises for the homesites transferred by Lennar to us in the Spin-Off or those in markets where Lennar traditionally operates. Such differences could affect our business, operations and financial condition in ways that are difficult to predict.
We are subject to risks associated with having a highly concentrated portfolio.
Our business consists primarily of owning and selling assets in connection with providing our homesite option platform to Lennar and Other Counterparties. Lennar is currently our largest counterparty and our business was initially formed to engage in land bank transactions with Lennar as well as potential Lennar Related Ventures and Other Counterparties. We do not currently intend to diversify our business operations beyond growing our homesite option platform and continuing to provide development loans to our developers. Risks associated with a highly concentrated portfolio include, but are not limited to, the following:
Although we have diversified our counterparty base since the Spin-Off and intend to continue doing so, there is no assurance that we will successfully attract or retain additional counterparties in the near term. Even as we attract new counterparties, the scope of our business operations will likely be limited to providing the homesite option platform and providing development loans.
Our Real Estate Portfolio is concentrated in three states (California, Florida and Texas), with a substantial portion located in Florida and Texas. This geographic concentration may increase our exposure to market fluctuations and environmental risks, as discussed elsewhere in this “Risk Factors” section.
There can be no assurance that we will not experience defaults or terminations under the Lennar Agreements. Because our portfolio is highly concentrated with Lennar, any factors that negatively affect
Lennar’s operations or capital resources could have a significant adverse impact on our business, financial condition, or results of operations, as discussed elsewhere in this “Risk Factors” section.
Under the Lennar Agreements, Millrose may not enter into third-party financing arrangements that would cause the combined debt-to-equity ratio of Millrose and its affiliates to exceed 1:1 without Lennar’s prior approval. This restriction may limit our ability to provide funding to counterparties who prefer to structure their relationships with us through debt issuances.
Maintaining land assets is costly and exposes us to significant risks. Because we do not intend to diversify beyond the homesite option platform and similar operations, we cannot offset these risks through other business lines. If the costs associated with maintaining land assets exceed the capital resources available to us, our ability to sustain our business could be adversely affected.
Our recycled capital business model is contingent on our counterparties electing to exercise their land purchase options.
The continued sustainability of Millrose’s recycled capital business model, which is intended to generally provide Millrose with reliable, consistent and uninterrupted access to capital, is contingent on our counterparties electing to exercise their land purchase options. However, our counterparties are under no obligation to exercise their land purchase options and purchase the homesites, and they may decline to exercise them in the event of a significant downturn in the market. If a counterparty forfeits or terminates their land purchase options, we can request that they build homes on our behalf on the forfeited homesite (which request they cannot unreasonably deny) and we may attempt to sell such completed homesites to third parties. However, there is no guarantee we would be able to achieve such sales. Construction and the subsequent resale to third parties requires additional time and cost to Millrose, including hiring personnel and providing the capital to build the homes, which would be borne by us. The price for which we can sell homes to third parties may be significantly less than the amounts of our investments.
Our 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.
We entered into the Lennar Agreements and Management Agreement simultaneous with the Spin-Off from Lennar. These agreements were prepared at Lennar’s direction, in consultation with its strategic advisor, Kennedy Lewis. Because Lennar’s and Millrose’s interests may have differed when these agreements were negotiated, the agreements may not have fully reflected Millrose’s best interests. Risks associated with conflicts of interest in our agreements with Lennar include, but are not limited to, the following:
Because we lacked independent management prior to the Spin-Off, the agreements we entered into were not negotiated at arm’s length, and we did not independently confirm that their terms were consistent with market standards. As a result, the terms of these agreements may be more favorable to Lennar than if Lennar had negotiated with an unaffiliated third party, and we cannot assure you that they are as favorable to Millrose as would have resulted from arm’s-length negotiations.
Certain Lennar Agreements, including the Founder’s Right Agreement, include rights exclusive to Lennar that we cannot offer to Other Counterparties, which may reduce our negotiating leverage with Other Counterparties. These rights may not align with the interests of our stockholders now that we are a publicly traded company and may differ from terms (and Bylaws provisions) that we could have obtained through arm’s-length negotiations with unaffiliated third parties. As a result, these rights could limit our flexibility, deter potential investors and counterparties, and adversely affect the market price of our Class A Common Stock and in turn the value of our Class B Common Stock.
Certain terms in the Lennar Agreements may hinder our ability to expand our business, attract new counterparties to use our homesite option platform, or negotiate competitive terms with counterparties other than Lennar.
Some terms in the Lennar Agreements make it difficult for us to amend them without significant cost and effort, and without obtaining Lennar’s written consent. We cannot assure you that we will be able to renegotiate, amend, or terminate any agreements, or specific provisions, that we consider unfavorable or adverse to our interests. Our continued obligations under these agreements could materially and adversely affect our business, growth opportunities, financial condition, and results of operations.
Certain of the rights granted to Lennar in the Founder’s Rights Agreement are exclusive to Lennar, which will require our Board to enforce such rights.
Assets acquired from Lennar in connection with the Spin-Off, in the Rausch Transaction, and all other land assets acquired under the Lennar Agreements were placed into pools under certain Multiparty Cross Agreements. Future property assets acquired under the Lennar Agreements will also be pooled under additional Multiparty Cross Agreements (or added to existing Multiparty Cross Agreements). These pools were structured primarily for diversity across geographies, communities, and home types, but the selection and pooling decisions were made solely by Lennar, with input from Kennedy Lewis, before we had independent management. As a result, the criteria used may not reflect standard market practices, and we cannot assure you that the composition of these pools will be favorable to us. If assets within a pool are negatively affected by market or operational factors, the value of all assets in that pool could decline at the same time. Although pooling is intended to follow broad diversification principles, Lennar retains substantial discretion in selecting pool properties and setting pool terms. We may have limited ability to negotiate pooling conditions with Lennar or Lennar Related Ventures, and we may not be able to negotiate pooling terms at all with Other Counterparties.
Any exercise by Lennar of its Enforcement Rights pursuant to the Founder’s Rights Agreement may severely negatively impact our business operations and financial condition.
If we refuse to sell homesites to Lennar after it exercises a purchase option, Lennar has an Enforcement Right by which it can compel us to sell and, if we fail to comply within a ten-day cure period, Lennar may immediately stop all monthly option payments on all properties covered by the Lennar Agreements without penalty or breach. This could significantly reduce our cash flow and jeopardize our ability to maintain working capital and make required distributions to qualify as a REIT. Even if we dispute Lennar’s right to purchase based on pooling cross-termination provisions, we must still sell the homesites and then pursue litigation to recover losses. Such litigation could be costly, time-consuming, and may not be economically viable. As a result, these Enforcement Rights create strong financial pressure to comply with Lennar’s option exercises even when we believe we are not legally obligated, which could materially and affect our operations and liquidity.
In any dispute with Lennar over the exercise of purchase options, the terms of the Lennar Agreements would require us to give up the assets or perform the obligation before the dispute is resolved, and then pursue time-consuming and costly litigation to recover losses (or, if we decide not to pursue litigation, to absorb the costs). These Enforcement Rights make it very expensive and burdensome to refuse option exercises, creating strong financial pressure to honor option exercises even when we believe we are not legally obligated to do so.
If a dispute is litigated and resolved in Lennar’s favor, the Enforcement Rights and related payments would be in addition to any court-awarded damages, increasing the risk of a material adverse impact on our financial condition. If a dispute is resolved in our favor, the payments provided under the Enforcement Rights may not fully compensate us for our actual losses, even when combined with any damages awarded by the court. As a result, any exercise of Lennar’s Enforcement Rights under the Founder’s Rights Agreement could severely and adversely affect our business, operations, financial condition, and our ability to enforce the terms of our agreements with Lennar.
We have not obtained independent appraisals or fairness opinions as to the value of our real estate assets, including those acquired in the Spin-Off from Lennar and in the Rausch Transaction.
We have not obtained independent appraisals or valuations for our real estate assets, including the assets acquired in the Spin-Off and the Rausch Transaction. As a result, we cannot assure you that the values assigned to our real estate assets are accurate. In addition, any appraisals we obtain in the future may be overstated, and market values could decline. We relied on Lennar for the value of our total assets acquired in the Spin-Off, which were conveyed to us in their then current condition. We rely on our counterparties for information regarding the homesites we acquire, which are subject to change as counterparties provide different or additional information as part of the acquisition process and during the period we own the homesites.
We have not obtained environmental reports on all of our real estate assets, and we rely upon our counterparties for certain information regarding the homesites.
We have not obtained Phase I or similar environmental reports from independent consultants for our real estate assets, including those acquired in the Spin-Off from Lennar and in the Rausch Transaction. Going forward, we expect to obtain Phase I and similar environmental reports for newly acquired real estate assets, although we may not do so in all cases. Lennar subsidiaries provided certain representations and warranties regarding title and environmental condition for assets acquired in the Spin-Off, and Lennar agreed to indemnify us for the assets acquired in the Rausch Transaction. While we obtain certain representations and warranties from sellers at
acquisition, we cannot assure you that material environmental conditions do not exist on any of our land assets. Similarly, we cannot assure you that representations and warranties provided in connection with future acquisitions under agreements with our counterparties will protect us from liability or risk exposure if title or environmental issues arise. Any such issues could result in significant remediation costs and have a material adverse effect on our business, financial condition, and results of operations.
Ownership of 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 counterparty agreements.
Ownership of land and other real estate assets exposes us to environmental risks and liabilities that may not be fully covered by representations, warranties, or indemnities under our counterparty agreements. Although some properties in our portfolio have environmental approvals and permits, we may still incur substantial costs and liabilities for environmental matters. Representations and warranties provided by homebuilders, including Lennar, generally cover only known conditions at the time of the applicable agreement. We remain responsible for any newly discovered issues or conditions missed during prior reviews. We cannot assure you that properties we acquire will be fully entitled or have all required approvals and permits. If we cannot negotiate to shift liability to counterparties, we will likely bear these risks.
Under various laws, property owners may be required to investigate, clean up, and remove hazardous substances and may be held liable for property damage or personal injuries caused by such substances. We could also be liable to government agencies or third parties for costs and damages they incur in connection with hazardous substances. These costs can be substantial and difficult to estimate due to uncertainties about contamination, remediation methods, local regulations, and timing. In addition, environmental laws impose ongoing operational, maintenance, and reporting requirements that may require significant compliance costs. Any remediation or compliance actions could materially and adversely affect our business, financial condition, and results of operations.
We 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.
We are subject to numerous general and industry-specific environmental laws and regulations, including those governing silvicultural activities, pesticide and herbicide use, harvesting, road building, endangered species protection, stormwater and surface water management, air emissions, contaminated site cleanup, health and safety, and building codes. Although certain homebuilders provide representations and warranties regarding title and environmental condition, these provisions my not fully protect us. If counterparty agreements do not adequately shift liability risk, we may incur significant expenditures to comply with applicable environmental laws and regulations. We cannot assure you that we will receive similar (or any) representations and warranties from future counterparties.
We also could incur in the future substantial costs, such as civil or criminal fines, sanctions and enforcement actions (including orders limiting our operations or requiring remedial actions), cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations on land we currently own or have owned in the past. Such costs would be incurred by Millrose directly, as they would not be paid for by our Manager pursuant to the Management Agreement. Because environmental regulations are constantly evolving, we may continue to incur costs to maintain compliance with those laws and our compliance costs could increase materially. In addition, air emissions, stormwater, and surface water management regulations may present liabilities and are subject to change. Future compliance with existing and new laws, regulations, environmental permits, and other requirements may disrupt our business operations, increase potential liabilities, and require significant expenditures.
We may be subject to conservation laws and regulations that restrict activities affecting protected species or their habitats. Although permits and approvals are in place or will be obtained for current construction sites, new laws could designate additional species as protected, or previously undiscovered protected species could be found on our properties. Future regulations, such as increased biodiversity mandates, expanded wildlife habitats, or stricter enforcement of endangered species rules, could limit development on our properties and adversely affect our business, financial condition, and results of operations. We cannot assure you that permits and approvals will be in place for any properties we acquire in the future.
Our counterparties’ obligation to undertake Land Development on our land assets may negatively impact our business.
Under our counterparty agreements, our counterparties are obligated to complete Horizontal Development, which excludes home construction, and may choose, but are not required, to undertake home construction after the
Horizontal Development is completed. We have also, in certain circumstances, extended development to Vertical Development on certain owned homesites. Pursuant to the counterparty agreements, Millrose provides capital for land within predetermined budgets but does not perform development activities itself. All construction work is carried out by counterparties and their third-party contractors. Risks associated with our counterparties construction activities include, but are not limited to, the following:
Predetermined development budgets do not cover liabilities arising from construction, and construction activity could result in environmental consequences that we may be required to remediate, which could significantly reduce our available cash and adversely affect our business, financial condition, and results of operations.
While Lennar completed Phase I environmental reports for the assets we acquired in the Spin-Off and may have defenses under the All Appropriate Inquiries process, we do not have similar protections and could face significant environmental liabilities which could result in significant adverse impacts to our business, financial condition or results of operations.
The indemnities provided by our counterparties may not be sufficient to cover every liability that may be incurred. Additionally, we could be held jointly and severally liable for environmental issues, and the value of any indemnity depends on our counterparty’s creditworthiness. We cannot assure you that we will be able to negotiate similar indemnities with future counterparties.
Notwithstanding our counterparty’s work, our counterparties could decide at any time not to continue or complete Land Development or home construction they have started. While the counterparty construction agreements are guaranteed by our counterparties and require specific performance for Land Development, the counterparty agreements do not obligate them to complete home construction. As a result, we would have no remedies or monetary penalties if our counterparties stop home construction.
If our counterparties default or do not exercise their purchase option on homesites with unfinished home construction, it may be difficult to sell those homesites to other buyers, who may be unwilling or unable to complete the work. If the partially completed construction must be removed before a sale, we could incur significant additional costs that we may not have the financial capacity to cover, which could adversely affect our operations and limit our ability to maintain sufficient capital reserves for future property asset acquisitions.
If we or our major counterparties, including Lennar, enter into bankruptcy, the counterparty agreements may be unenforceable.
If we or any of our major counterparties, including Lennar, enter into bankruptcy, key agreements such as the Master Program Agreement or the Master Option Agreement may become unenforceable. In the event of a bankruptcy filing, whether voluntary or involuntary, these agreements could be recharacterized as secured financing arrangements, leases, or executory contracts and may be amended or rejected by the bankruptcy court. Because our business model relies heavily on purchase options and interest payments under these agreements, we may be unable to generate operating revenues if they are terminated or modified.
Given the significance of our agreements with Lennar to our operations, if Lennar entered into bankruptcy it would likely have a severe adverse impact on our business and could force us into bankruptcy unless we are able to quickly establish relationships with other Lennar Related Ventures or additional counterparties. Similarly, the bankruptcy of any other major counterparty could materially and adversely affect our liquidity, growth prospects, and financial condition.
If we cannot continue to enter into new counterparty agreements, which may be limited by the Capital Priority Right, our business and sources of income could be materially and adversely affected.
Our primary land assets were acquired under the Lennar Agreements, which have short cash conversion cycles. Since the Spin-Off, we have also entered into agreements with Lennar Related Ventures and Other Counterparties with similar short cycles. While these arrangements provide regular cash inflows through monthly option payments and takedown payments, these inflows may decline or cease once the assets under our current counterparty agreements are fully sold. If our current counterparties do not offer us additional business and we cannot secure new agreements with Other Counterparties, our sources of income could be significantly reduced. Several factors could limit our ability to maintain or grow our business, including:
Although we have been offered and expect to be offered additional transactions from Lennar, there is no certainty as to when, how often, or to what extent this will occur. The Lennar Agreements do not obligate Lennar to provide future business, and they do not grant us exclusivity, rights of first refusal, or priority rights for new opportunities. While the Lennar Agreements include a Capital Priority Right and contemplate an ongoing business relationship whereby we would provide our homesite option platform for future property assets acquired under those agreements, this provision does not guarantee any future transactions. Lennar could choose not to offer us additional business for any reason, including using traditional land banks or other financing structures, or if our terms are not competitive.
Other Counterparties are under no obligation to continue doing business with us beyond their existing agreements. If we cannot secure new transactions with Other Counterparties, our ability to maintain cash flow, fund operations, and pursue growth opportunities could be materially and adversely affected.
Lennar may refer Lennar Related Ventures to us, and we are obligated to enter into homesite option platform agreements with them on terms substantially similar to those in the Lennar Agreements if they meet the requirements specified therein. However, Lennar is under no obligation to make such referrals, and we cannot guarantee that we will contract with any Lennar Related Ventures beyond those we are required to accept.
Under the Management Agreement, our Manager is responsible for sourcing, evaluating, and negotiating with potential counterparties who may wish to engage Millrose for the homesite option platform. However, Lennar’s Capital Priority Right and Founder’s Rights may limit our ability to attract Other Counterparties, as these rights are reserved exclusively for Lennar and will not be offered to Other Counterparties.
Our Manager may face limitations in negotiating competitive fee structures with Other Counterparties because Lennar has the right to adjust its monthly option payment rate for future proposed projects to match any lower rate we agree to with a non-Lennar counterparty. This could restrict our ability to offer flexible pricing and remain competitive.
Many of our competitors in the traditional land banking market have longer operating histories, established reputations, and significant market presence. By contrast, we are a recently formed company with a limited operating history and brand recognition. Although our Manager has extensive experience managing land banking entities, we cannot assure you that the market will attribute credibility to Millrose solely because of our Manager’s experience.
New business opportunities may not be exclusive to Millrose and are subject our Manager’s Allocation Policy. See “Part I, Item 1. Business—Our Objectives and Strategies—Investment Guidelines” for more information.
Should Lennar not provide additional transactions and we fail to secure new counterparties, we could lose a substantial source of revenue and income. Moreover, if we cannot attract new counterparties on acceptable terms, or if negotiated terms are unfavorable or expose us to significant risks, our business, financial condition, and results of operations could be materially and adversely affected.
Declines in the market value of our Real Estate Portfolio could materially and adversely affect our business, financial condition, and result of operations.
The market value of land assets can fluctuate significantly due to changing economic and housing market conditions. Land assets are generally valued in the market using different metrics than those used to value homesites, and inventory risk can be substantial. Declines in land values or homesite demand may require us to write down the value of our assets under GAAP, and such write-downs could be material.
Several factors could contribute to this risk, including:
Land values can decline due to changes in supply and demand for homesites, existing housing inventory, and overall market conditions. Inventory carrying costs can be significant and may result in losses in poorly performing communities or markets.
Under the Lennar Agreements, Lennar may suspend development and reduce monthly option payments during specified pause periods triggered by market conditions. For example, Lennar may pause its Horizontal Development and option windows for two periods of up to six months and reduce its monthly option payment rate to 50% of the applicable rate. Similar provisions in other counterparty
agreements could also delay takedowns and reduce cash inflows. See “Part I, Item 1. Business—Operational Agreements with Lennar—Master Option Agreement.”
If homebuilders fail to exercise or terminate purchase options, we could lose anticipated monthly option payments and takedown proceeds. Pooling and cross-termination provisions may not provide sufficient incentive for builders to maintain commitments, and exceptions apply. As a result, we may be forced to hold land assets for extended periods without a buyer or sell them at prices below the original option terms, which could materially and adversely affect our business, financial condition, and results of operations.
Any of these factors could materially and adversely affect our business, financial condition, and results of operations.
Past performance by the management team, who are employees of Kennedy Lewis and their respective affiliates, may not be indicative of our future performance.
KL acts as our Manager and is responsible for employing all management, employees, and other personnel, and for overseeing all business operations. KL is an affiliate and wholly owned subsidiary of Kennedy Lewis, which has extensive experience in the land banking industry. However, our business differs from the investment funds, accounts, and other vehicles historically managed by Kennedy Lewis or its affiliates in terms of targeted assets, geographic focus, regulatory structure, investment strategy, and objectives.
Further, Kennedy Lewis has no experience managing a public company. While KL’s management team has experience managing Millrose and other land banking entities, past performance of KL, Kennedy Lewis, Lennar, or any related affiliates is not a guarantee of future results. There can be no assurance that we will achieve results comparable to other entities managed by Kennedy Lewis. Our business returns could be substantially lower than returns achieved by Kennedy Lewis or its affiliates in prior periods, and those results may have been achieved under market conditions that may not recur.
You should not rely on the historical performance of KL’s management team, Kennedy Lewis, or businesses associated with them as indicative of our future performance or the returns we will, or are likely to, generate going forward.
If 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.
We rely on external financing to fund operations for our homesite option platform, manage cash needs, reduce drag on returns, and pursue growth initiatives. While we have access to the Revolving Credit Facility and proceeds from the 2030 Notes and 2032 Notes, these sources may not be sufficient to cover all of our business growth initiatives. There is no assurance that additional financing will be available on favorable terms or at all.
Several factors could limit our ability to raise capital, including:
Our debt agreements contain restrictions that limit our ability to incur certain types of indebtedness and other financings.
Under the Lennar Agreements, we may not enter into third-party financing arrangements that cause our debt-to-equity ratio to exceed 1:1 without Lennar’s prior approval.
Lennar’s Effective Equity Price Protection Right may limit equity raises during the first 18 months following the Spin-Off, which could result in dilution and downward pressure on our Class A Common Stock price.
Sustained high interest rates, rate hike increases, prolonged high inflation, economic downturn and possible recessions in the future may impair our ability to pay taxes and our operational expenses. As a recently formed company with limited operating history, limited assets and no guarantors, it may be difficult for us (including our subsidiaries) to obtain sufficient sources of capital funding, particularly during times of volatile or adverse economic and market conditions.
Given the structure of the Promissory Notes and the nature of certain terms of the Lennar Agreements (including the Recognition Agreement), Millrose may not be able to secure additional loans on
attractive terms or at all, and we may be limited in our and our subsidiaries’ ability to access the capital markets on terms acceptable for our business.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders may be diluted, and the terms of such financing transactions may include liquidation or other preferences that adversely affect the rights of our stockholders.
Such capital raises would also impact how we are able to use our available capital, given Lennar’s Capital Priority Right. Debt and receivables financings may be coupled with an equity component, such as warrants to purchase shares of our Common Stock, which could also result in dilution of our existing stockholders’ ownership.
Debt or equity financing may include restrictive covenants, unfavorable terms, or equity components such as warrants, which could dilute existing stockholders. Issuing equity or convertible debt may also impact the stock price or value of our Class A Common Stock, and if the stock price is suppressed, we may not be able to raise the capital we need through equity issuances.
If financing is unavailable or available only on unfavorable terms, we may be unable to efficiently manage our Real Estate Portfolio, perform obligations under the Lennar Agreements, complete property acquisitions, or pursue growth opportunities.
Failure to raise sufficient capital or secure financing on acceptable terms could materially and adversely affect our business, financial condition, and results of operations.
Volatility in the market may impact our ability to do business.
Our business is sensitive to changes in interest rates, inflation, and general economic conditions. Sustained periods of high interest rates or even moderate inflation may increase operating costs, reduce the value of our Real Estate Portfolio, raise the cost of capital, and make it more difficult for us and our subsidiaries to raise additional financing. While home demand and prices often rise in low interest rate environments, there is no assurance that this will occur or that we will be able to capitalize on such conditions, particularly since we do not sell homes directly and any potential benefits would be limited.
Changing economic and financial market conditions could significantly reduce the value of land and other real estate assets, loans, and related investments, and reduce the amounts earned on those investments. In addition, as a recently formed company, we may be disadvantaged compared to traditional land banking providers that have greater financial resources, established counterparty relationships, and stronger ability to withstand adverse or volatile market conditions.
Any of these factors could materially and adversely affect our business, financial condition, and results of operations.
As a holding company, our dependence on our subsidiaries for cash flow may negatively affect our business.
Millrose Properties, Inc. is a holding company with no business operations of its own. We conduct all land acquisition and development activities through our subsidiaries. All or substantially all of our assets currently consist of (i) 100% of the membership interests of MPH Parent, (ii) the Promissory Notes and similar notes issued by MPH Parent and its subsidiaries to Millrose, and (iii) the development loans held by SPE LLC and its subsidiaries.
Our ability to pay obligations depends on dividends, interest payments, and other distributions from these subsidiaries, which in turn depend on counterparties performing under their homesite option platform agreements and developer loan agreements. Several factors could limit our subsidiaries’ ability to distribute cash to us, including:
The ability of Millrose’s operating subsidiaries, including MPH Parent and Millrose Holdings, to pay dividends to Millrose is expected to be restricted by REIT Requirements, applicable Maryland law and the terms of any outstanding debt or credit facilities, and Millrose’s reliance on our counterparties to continue providing Millrose with more deals.
Each subsidiary’s sustainability depends on the counterparty it serves. If a counterparty defaults on its obligations, that subsidiary could face credit defaults or bankruptcy, which may negatively impact our other subsidiaries and overall operations.
If a significant counterparty, such as Lennar, fails to perform, our entire operations could be materially affected, and we may be forced to seek bankruptcy protection.
Because we rely entirely on our subsidiaries for cash flow, any inability of our subsidiaries to generate or distribute sufficient funds could materially and adversely affect our business, financial condition, and results of operations.
Your investment return may be adversely affected if we are required to register as an investment company under the Investment Company Act.
We intend to continue to conduct our operations so that none of Millrose, MPH Parent, Millrose Holdings, the Property LLCs or the Other Subsidiaries are investment companies under the Investment Company Act. However, there can be no assurance that we and our subsidiaries will be able to successfully avoid operating as an investment company.
A change in the value of any of our assets could negatively affect our ability to maintain our exemption from regulation under the Investment Company Act. To maintain compliance with the applicable exemption under the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional assets that we might not otherwise have acquired or may have to forego opportunities to acquire assets that we would otherwise want to acquire and would be important to our investment strategy.
If we were required to register as an investment company but failed to do so, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration, and other matters. Compliance with the Investment Company Act would, accordingly, limit our ability to make certain investments and require us to significantly restructure our business plan, which could materially adversely affect our business and our ability to resume paying distributions to our stockholders.
Disruptions to our technology platform could impair our ability to execute transactions and recycle capital.
Our homesite option platform is a technology enabled system that supports the acquisition and disposition of homesites, administration of option agreements, and the continuous recycling of capital that underpins our business model. The platform’s effectiveness depends on the reliability, availability, security, and accuracy of the systems used to process transactions and manage data. We rely on our Manager to perform these functions. In the event we decide to internalize our management function or terminate the Management Agreement, we will lose access to the homesite option platform. In addition, cybersecurity incidents could compromise the homesite option platform’s functionality or data integrity. Although safeguards and controls are in place, no technology system is entirely secure, and disruptions to our homesite option platform could materially and adversely affect our business and results of operations.
Risks Related to Our Debt Obligations
We have a substantial amount of indebtedness. Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, reduce our funds available for discretionary purposes, and increase the risk that we might default on our indebtedness.
As of December 31, 2025, we had approximately $2.1 billion of outstanding indebtedness, including $2.0 billion of Senior Notes and outstanding borrowings of $0.1 billion with $1.225 billion of availability under our Revolving Credit Facility.
Our substantial indebtedness could have important consequences for us. For example, it could:
adversely affect our ability to raise additional capital for working capital, capital expenditures, operations, debt service requirements, strategic initiatives or other purposes;
limit our ability to react to changes in the economy or our industry, and restrict us from engaging in development activities or exploiting business opportunities;
limit our flexibility in planning for, or reacting to, changes in our operations or business;
limit, along with the financial and other restrictive covenants in our debt agreements, among other things, our ability to borrow additional funds;
require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, thereby reducing funds available to us for discretionary purposes, including the payment of dividends and investing in business opportunities;
make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants, could result in an event of default under the Indentures (as defined below) and the Revolving Credit Agreement;
make us more highly leveraged than some of our competitors, which may place us at a competitive disadvantage; or
make us more vulnerable to downturns in our business or the economy.
We may not be able to generate sufficient cash to service all of our indebtedness.
Our ability to pay principal and interest on our debt obligations will depend upon, among other things:
our future financial and operating performance, which will be affected by prevailing economic, industry and competitive conditions and financial, business, legislative, regulatory and other factors, many of which are beyond our control;
our future ability to borrow under the Revolving Credit Facility, the availability of which depends on, among other things, our complying with the covenants in the Revolving Credit Facility; and
our future ability to raise funds by issuances of debt or equity securities or sales of assets.
We cannot assure you that our business will generate cash flow from operations, that we will be able to draw under the Revolving Credit Facility, or that we will be able to issue debt or equity securities or sell assets in amounts sufficient to fund our liquidity needs, including the payment of principal and interest on our indebtedness.
Despite our current indebtedness levels, we may still be able to incur substantially more debt, including secured indebtedness, and other obligations.
We may incur substantial additional indebtedness, including secured indebtedness, in the future, as well as other obligations. Although covenants under the Indentures and the Revolving Credit Facility limit our ability to incur certain types of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. If new debt is added to our existing debt levels, the related risks that we face would increase and may make it more difficult to satisfy our existing financial obligations. In addition, the Indentures and the Revolving Credit Facility do not limit us from incurring obligations that do not constitute indebtedness as defined therein.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
The Revolving Credit Facility and the Indentures contain, and any other existing or future indebtedness of ours would likely contain, a number of covenants that will impose significant operating and financial restrictions on us, including restrictions on our and our subsidiaries’ ability to, among other things:
incur certain types of additional indebtedness, including guarantees of indebtedness;
create certain liens;
engage in certain sale and leaseback agreements;
effect certain mergers or consolidations, or sell all or substantially all of our assets; and
alter the businesses we conduct;
As a result of these covenants, we may be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.
A breach of any of these covenants could result in a default under all or certain of our debt instruments. In the event of any such event of default, the lenders thereunder could elect to:
terminate any future lending commitments;
declare all amounts outstanding, together with accrued and unpaid interest, to be immediately due and payable; and
require us to repay these amounts.
Our indebtedness subjects us to interest rate risk.
Borrowings under the Revolving Credit Facility are at variable rates of interest, and therefore expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.
The indebtedness under the Indentures is at fixed rates of interest and is subject to call protection, which means that in certain circumstances we would have to pay a premium if we redeemed the indebtedness before its maturity. If interest rates drop, our debt service obligations on the fixed rate indebtedness would stay the same, and our cost of capital would be greater than if we had borrowed at a variable rate of interest. Or if interest rates drop and we elect to refinance our fixed rate indebtedness with variable rate indebtedness, we might have to pay the call protection premium, which in some circumstances could be significant. In either case, our cost of capital might be greater than that of our competitors, which could place us at a competitive disadvantage.
Risks Related to the Land Banking Industry
There are significant risks inherent in owning land for new home construction.
We are exposed to significant risks with owning land assets for homebuilders, which may not purchase these assets for home construction within the timelines we expect, or at all. The future use of these land assets is inherently uncertain because it depends on homebuilders’ development plans, which may change or be delayed. These risks increase as consumer demand for housing decreases and the holding period for land assets lengthens. As a result, we may end up owning land assets on which homes cannot be profitably built and sold.
In certain circumstances, a grant of entitlements or development agreements with respect to a particular parcel of land may include restrictions on the transfer of such entitlements to a buyer, which could negatively impact the price of such land and our ability to sell it for its full entitled value. In addition, inventory carrying costs can be significant and may result in reduced margins or losses in poorly performing communities or markets.
Additionally, deteriorating market conditions could cause us to record significant inventory impairment charges. The recording of such impairment charges could materially and adversely affect our business, financial condition, and results of operations.
Our business is susceptible to risks from natural disasters, geopolitical events and other factors outside of our control that may delay development of land assets that we hold for homebuilders.
Our counterparty agreements, and any similar agreements we may enter into in the future, require us to hold land assets for our counterparties while they develop homesites before purchasing them from us. Our properties are located in concentrated geographic areas across the United States. Development of these land assets may be delayed by natural disasters or geopolitical events affecting these regions. As such, we and our counterparties are subject to risks and could incur additional costs from adverse weather, natural disasters, and the impacts of global climate change. For example, some of the land assets we own are in zones at risk for natural disasters and could be severely damaged or destroyed by such events, including unexpected phenomena (such as earthquakes and landslides) and physical climate risks that could materialize as either singular extreme weather events (such as hurricanes, tornadoes, floods, storms, and wildfires) or through long-term climatic changes (such as increased precipitation, weather instability, and rising sea levels). Such events could result in significant in development, increased costs, or charges, any of which could materially and affect our business, financial condition, and results of operations.
Additionally, the value of our land assets may fluctuate over time due to factors outside our control, including, but not limited to, developments on surrounding land, changes in zoning laws or other regulations that might impact how our counterparties use the land assets, and shifting demographic trends that influence which areas are considered desirable for development. As of December 31, 2025, a significant portion of our land assets was concentrated in California, Florida, and Texas, with substantial holdings in Florida and Texas. This geographic concentration increases our exposure to adverse weather, economic conditions, and regulatory changes in these markets compared to a more geographically diverse portfolio.
Further, although we are not aware of any pending material issues, properties we own or may acquire in the United States are subject to eminent domain. If a government entity exercises eminent domain, the compensation we receive may not be sufficient to cover our costs or obligations to counterparties, which could materially and adversely affect our business, financial condition, and results of operations.
Our insurance coverage may not be sufficient to cover all potential losses.
In accordance with our counterparty agreements, counterparties are required to maintain certain types of insurance for land assets acquired under those agreements. Our Manager is responsible for confirming that these assets are insured consistent with industry standards and for securing additional coverage for risks not otherwise covered by counterparty insurance. Although our Manager seeks to ensure that our Real Estate Portfolio is adequately insured, there is no guarantee that coverage will always be complete. Gaps in coverage may exist or may not be identified in time by our Manager, and the scope and quality of counterparty-provided insurance is outside our control because we are not sourcing and vetting the insurance provided by our counterparties. In addition, if any counterparty provided insurance lapses, whether intentionally or inadvertently, we may be negatively impacted if we cannot obtain adequate replacement coverage on suitable terms in a timely manner. Any failure to maintain sufficient insurance coverage could result in significant losses and materially and adversely affect our business, financial condition, and results of operations.
Certain losses that may impact our Real Estate Portfolio, including losses from floods, earthquakes, acts of war, terrorism, riots, and pandemics, are generally not insured or not fully insured because coverage is not considered economically feasible or prudent. If an uninsured loss or a loss exceeding insured limits occurs with respect to one or more of our properties, we could suffer a significant loss of capital invested and future revenues from these land assets. In addition, we may remain obligated under any recourse debt associated with the affected property.
Under our counterparty agreements, counterparties are responsible for all Land Development on the homesites, including any damage during development, and must maintain property insurance coverage for such
risks. However, this responsibility applies only while counterparties intend to exercise their purchase options. If a counterparty decides not to exercise or forfeits its purchase options, we become fully responsible for any issues related to the land, completed or in-progress development, and any home construction already performed. In such cases, we may not be able to obtain adequate insurance coverage or other protections in a timely manner, particularly if the decision affects an entire pool of properties rather than a single property. The lack of adequate insurance could also impair our ability to sell these properties to third-party buyers. Furthermore, we cannot be certain that insurance companies our Manager identifies will offer products with sufficient coverage at commercially reasonable rates if counterparty-provided coverage lapses. If we experience a loss that is uninsured or exceeds insured limits, or if insurers fail to meet their obligations, we could lose the capital invested in the affected land assets, as well as anticipated future revenues. In addition, we may remain obligated for any recourse debt or other financial obligations related to these assets. Any such or increased insurance costs could materially and affect our business, financial condition, and results of operations.
Our inability to successfully acquire an adequate inventory of land assets at reasonable prices could materially and adversely impact our operations.
Our future operating results depend on our ability to acquire land assets in desirable locations. Although we maintain transaction agreements with multiple counterparties, there is no guarantee when, if, or to what extent they will offer us new business opportunities or land asset transactions. We cannot assure that an adequate supply of land assets will be available to us on favorable terms or that suitable land assets will meet the requirements of our homesite option platform.
Additionally, even if our Manager identifies appropriate land assets, those assets may not be presented to Millrose’s counterparties under the Allocation Policy and could instead be allocated to traditional land banking entities managed by Kennedy Lewis, who may compete with us in the market.
An insufficient supply of land assets in counterparties’ markets, any inability to convey owned homesites to counterparties due to government regulations or other factors, or our inability to purchase or finance homesites on reasonable terms could have a material adverse effect on our business, financial condition, and results of operations. Any land shortages or decrease in the supply of suitable land at reasonable prices could result in increased land costs. If the fair market value of properties declines from their original values at the time we enter into option agreements, we may need to reduce option exercise prices to induce homebuilders to exercise options or purchase properties. Additionally, since Lennar has the right to adjust monthly option payment rates for future projects to match any lower rate we negotiate with another counterparty, a significant portion of our future Real Estate Portfolio and our ability to finance land acquisitions could be negatively impacted if our Manager negotiates lower monthly option rates during market downturns and Lennar exercises their adjustment rights.
A decline in new home prices could require us to write down the carrying value of land we own.
The value of land suitable for residential development fluctuates based on local and national market conditions and other factors such as interest rates, mortgage availability, and consumer demand. During the 2007–2009 recession, landowners were required to take significant write-downs of land inventory values. If market conditions deteriorate significantly in the future, we could be required to record substantial write-downs of the carrying value of our land assets. We may also need to reduce purchase prices to induce option holders to exercise options or purchase properties, which could adversely affect our business.
Land assets and real estate investments are not as liquid as certain other types of assets, which may reduce economic returns to stockholders.
Land assets and real estate investments are inherently less liquid than many other types of investments, which may limit our ability to respond quickly to changes in economic or market conditions. Significant expenditures associated with real estate investments, such as secured mortgage debt payments, real estate taxes, and maintenance costs, generally do not decrease when income from these investments declines.
Because we intend to elect REIT status, we will generally only be able to hold property for sale in the ordinary course of business through taxable TRSs to avoid punitive taxation on gains from property sales. While we may dispose of certain land assets held through TRSs under our counterparty agreements to generate liquidity, these restrictions could limit our flexibility and adversely affect our business.
To the extent permitted by our existing and future arrangements with counterparties, and if counterparties elect not to exercise their options to acquire certain land assets from Millrose, we may seek to sell these assets to third parties to generate proceeds for capital deployment. However, the price at which we can sell properties to third parties may be significantly less than our investment amounts. Our ability to sell land assets on advantageous terms depends on factors such as: (i) competition from other landowners seeking to dispose of similar assets; (ii) economic and market conditions, including capitalization rates applicable to our land assets; and (iii) other factors beyond our control, including general economic conditions. If competitors sell comparable assets in the same markets at valuations below ours, we may be unable to divest our assets at favorable pricing or at all. Additionally, potential buyers may require access to debt and equity capital to acquire land assets from us. If these buyers have limited or no access to capital on favorable terms, dispositions could be delayed.
If we do not have sufficient cash from operations, sale of land assets, or available credit facilities to continue normal business operations, we may need to pursue alternative ways to increase liquidity. Such alternatives may include, without limitation, divesting land assets at less-than-optimal terms or incurring additional debt. There can be no assurance that these alternatives will be available on favorable terms or that we will maintain our REIT qualification if we pursue them. In addition, taking such measures could adversely affect our business, including reducing distributable cash flow and impacting debt covenants under any future debt agreements, which could materially and adversely affect our business, financial condition, and results of operations.
We cannot assure that our growth strategies will succeed and we may incur significant costs without delivering the anticipated benefits.
Although we have entered into agreements with additional counterparties since the Spin-Off, our business operations and investment portfolio remain significantly concentrated with Lennar. This lack of diversification limits how well we compete with traditional land banking entities and our ability to establish a sustainable market share independent of our counterparties. While we have Other Counterparties, we have only a limited number of definitive arrangements to acquire additional assets, form or acquire subsidiaries, or secure other business beyond the Lennar Agreements, and there is no guarantee that we will attract additional counterparties or expand these relationships. Furthermore, Lennar’s Capital Priority Right may limit the amount of capital available to provide our homesite option platform to counterparties other than Lennar.
We continue to engage in discussions with other homebuilders interested in becoming new counterparties; however, there is no assurance that we will successfully negotiate agreements with additional counterparties or secure new business arrangements outside of our current counterparty base within any specific timeframe.
We may in the future significantly increase the size or change the mix of our Real Estate Portfolio or enter into new lines of business. We may be unable to successfully and efficiently integrate newly acquired assets or businesses into our existing operations or effectively manage our Real Estate Portfolio and growth. In addition, increases in the size of our Real Estate Portfolio, changes in its composition, or expansion into new lines of business may place significant demands on our Manager’s administrative, operational, asset management, financial, and other resources. Any failure to manage growth effectively could materially and adversely affect our business, financial condition, and results of operations.
Real estate valuation is inherently subjective and uncertain, and is subject to change, especially during periods of volatility.
The valuation of land and real estate, and therefore our land assets, is inherently subjective due to factors such as the unique characteristics of each property, its location, expected future revenues of that property, and the valuation methodology used. As a result, these valuations rely on assumptions that may not prove accurate and are subject to change, particularly during periods of market volatility or reduced demand for real estate. Valuations may not reflect the price at which a land asset or loan will ultimately be sold, particularly given the terms of our existing counterparty agreements. Differences between valuations and ultimate sales prices could be material. In addition, valuation methodologies may change over time, and real estate option contracts are subject to varying local laws and regulatory risks in the jurisdictions that we operate at the federal, state, and local levels.
Our ability to satisfy the asset tests to qualify as a REIT depends upon our analysis of the fair market values of our TRS ownership interests. These fair market values depend, at least in part, on the values of our TRSs’ land assets, some of which will not be susceptible to a precise determination given their undeveloped nature, and for which we will not obtain independent appraisals. Accordingly, there can be no assurance that the IRS will not contend that our TRS ownership interests cause a violation of the REIT asset tests.
We may acquire land assets and entities holding such land assets that involve risks that could adversely affect our business and financial condition.
The acquisition of land assets involves risks, including the possibility that acquired assets will not perform as expected or be suitable for their intended purpose. Under our counterparty agreements, counterparties evaluate and vet any future property assets they choose to present to us; however, when we acquire new land assets, we may face challenges associated with entering new markets, such as limited local market knowledge, unfamiliarity with permitting procedures, and the need to establish new business relationships.
KL, while experienced in land banking, does not have expertise as a homebuilder or real estate developer. If a homebuilder defaults or fails to exercise its purchase option after Land Development, we may need to construct homes ourselves, engage a third-party builder, or sell homesites without completing construction to recover our investment. These alternatives could involve significant costs and require real estate development expertise that KL does not possess. Hiring personnel with the necessary skills would require substantial expense, which may not be covered by the Management Fee, and KL may not be well-positioned to oversee third-party builders effectively. Selling assets without completing home construction would likely reduce their value, particularly because counterparties would be unlikely to let purchase options expire unless property values have declined significantly.
Any failure to recoup our investment in developing and selling such assets would negatively impact our financial results. Additionally, we face significant competition for land assets that meet predetermined criteria that future property assets must meet, and may encounter challenges in obtaining financing for future acquisitions of land assets.
We operate in a competitive and evolving industry, which could adversely affect our growth and profitability
Land banking is highly competitive and continues to evolve. Many of our competitors are significant market participants with substantial financial resources, established relationships with homebuilders and land developers, and the ability to offer a variety of land acquisition and development financing structures. As competition intensifies, participants may engage in aggressive pricing, deploy alternative transaction structures, or pursue strategic acquisitions, any of which could reduce our market share, pressure returns, or limit our ability to identify and execute attractive investment opportunities.
We believe we operate within a more specialized and less crowded niche focused on land banking solutions for residential homebuilders. Nevertheless, we compete with a limited number of private investment funds, real estate platforms, and asset managers that provide land banking or comparable asset light solutions. While we believe that high barriers to entry exist due to the operational complexity, administrative infrastructure, and long‑term capital commitments required to support these strategies, new entrants or existing competitors may overcome these barriers by deploying additional capital, developing new technologies, or forming strategic partnerships.
We believe that our homesite option platform, recycled capital model, and perpetual funding approach differentiate us from traditional private‑market land banking solutions. However, there can be no assurance that such competitive advantages will be maintained over time. Changes in market conditions, increased competition, regulatory developments, or challenges in accessing capital could impair our ability to continuously deploy and redeploy capital, fund land acquisition and horizontal development opportunities, or provide consistency of funding to our counterparties.
If we are unable to compete effectively, maintain our relationships with homebuilders and land developers, or adapt to changes in competitive dynamics within the land banking and residential housing finance markets, our business, financial condition, results of operations, and growth prospects could be materially and adversely affected.
We may change the profile of our Real Estate Portfolio without stockholder consent.
Our Real Estate Portfolio currently primarily consists of the lands assets acquired under the Lennar Agreements and Other Agreements, under which the properties have a relatively short cash conversion cycle. There can be no assurance that the profile of our Real Estate Portfolio will always be similar to that of our current land assets. There is no certainty that Millrose will be able to successfully negotiate with regard to land assets that share similar characteristics to our current land assets. Although we expect some of its future land assets to generally match the profile of our current land assets, we expect that many of our future land assets may have a different profile.
We may adjust our Real Estate Portfolio based on real estate market conditions and business opportunities, and we may change our Investment Guidelines at any time without the consent of our stockholders, subject to the terms of our counterparty agreements. In the future, we may make business decisions that result in us making investments in land assets that are different from, and possibly riskier than, those described in this Form 10-K. In connection with such changes in our targeted land assets and strategies, our Board may also change our policies over time. Any such changes to our targeted land asset acquisition guidelines could increase our exposure to interest rate risk, default risk, and real estate market fluctuations, which could materially and adversely affect the value of our Common Stock, our ability to make distributions, and our business, financial condition, and results of operations.
Risks Related to Our Management Structure
We depend upon KL’s key personnel, and if KL cannot recruit and retain key personnel for us, our business, financial condition and results of operations could be significantly impacted.
We are an externally managed company and do not have, nor will we develop, internal management capacity or employees. As a result, we rely heavily on the experience, diligence, and network of business contacts of KL’s management team and other key personnel, all of whom may be difficult to replace. Under the Management Agreement, KL is obligated to provide substantially all of our senior management functions, including sourcing, evaluating, negotiating, structuring, closing, and monitoring our Real Estate Portfolio. KL also operates our homesite option platform pursuant to counterparty agreements. If KL fails to attract, retain, or adequately compensate qualified personnel, or if there is any disruption in KL’s ability to provide these services, our ability to execute our business strategy could be materially and adversely impacted.
Under the Management Agreement, KL, as our Manager, has significant discretion in implementing and executing our business and operating policies, subject to guidelines adopted by our Board. Our success depends heavily on the experience, skill, resources, and relationships of KL’s senior officers and key personnel, including our officers, all of whom are currently senior officers of KL. We do not have employment agreements or key person life insurance for these individuals, and none are contractually required to devote a specific amount of time to us. If any of these officers cease their affiliation with us or KL, suitable replacements may not be readily available, which could adversely affect our operations. Furthermore, our future success depends on KL’s ability to attract and retain highly skilled managerial, operational, and marketing personnel. Competition for such talent is intense, and KL may not succeed in hiring or retaining these individuals. If KL fails to maintain or secure qualified personnel, our ability to implement our business strategies could be delayed or impaired, resulting in a material effect on our business, financial condition, and results of operations.
We also rely on KL’s senior professionals to maintain and develop relationships with sources of potential business opportunities. These relationships are critical to our ability to identify and pursue acquisitions and development projects. However, we cannot assure you that these individuals will remain employed by KL or continue to provide indirect business advice to us. KL is under no obligation to present new business opportunities or contacts to us. If KL’s senior professionals fail to maintain existing relationships or establish new ones, we may be unable to provide capital for acquisitions, develop land assets, or grow our portfolio as planned. Furthermore, relationships maintained by KL’s professionals do not guarantee business opportunities for us, and any opportunities that do arise will be subject to the Allocation Policy (see “Part I, Item 1. Business—Our Objectives and Strategies—Investment Guidelines”). Accordingly, we can offer no assurance that these relationships will generate business opportunities for us.
KL 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, which could disrupt our operations and materially and adversely affect our business, financial condition and results of operations.
Under the Management Agreement, KL may terminate its services with 60 days’ prior written notice if we default on any material term, condition, or covenant and fail to cure such default within the applicable cure period (30 days, or 45 days if we commence cure within 30 days). Termination may occur regardless of whether we have secured a replacement manager. If KL terminates the Management Agreement, we may be unable to identify and engage a new external manager or establish internal management with comparable expertise within 60 days, or at all, on acceptable terms. Additionally, if we terminate the Management Agreement without cause, we would be required to pay a termination fee under its terms, and we may have difficulty in finding a qualified replacement. Any disruption in management services could materially and adversely affect our business, financial condition, and results of operations.
Under the Founder’s Rights Agreement, Lennar holds a Management Succession Consent Right that requires its consent for the appointment of any new manager if the Management Agreement is terminated for any reason, with or without cause. Lennar also has consent rights over any management agreement we may enter into with a new or existing manager. These consent rights could delay our ability to appoint a replacement manager, which may result in operational disruptions and adversely affect our business, financial condition, results of operations, and ability to pay distributions. Furthermore, if we cannot identify and engage a single institution or group of executives with experience comparable to KL, the coordination of our management and business activities may suffer. Even if we retain comparable management, integration challenges and lack of familiarity with our business objectives could lead to additional costs and time delays, which may materially adversely affect our business, financial condition, and results of operations.
You have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a stockholder.
Our Board has discretion to establish and amend our major policies, including those described herein, subject to existing contractual obligations and limitations described herein. These policies may be revised or amended without stockholder approval. Your inability to exert control over our policies and operations may increase uncertainty and risks you face as a stockholder.
Our Board’s discretion is subject to constraints under the Founder’s Rights Agreement with Lennar, which grants Lennar approval rights over certain Board actions, including the appointment of a replacement manager pursuant to its Management Succession Consent Right. In addition, our Charter contains protective governance provisions requiring that certain actions receive approval from holders of Class B Common Stock voting separately as a class, in addition to approval from holders of Class A Common Stock and Class B Common Stock voting together. As of December 31, 2025, the Miller Family owns approximately 98.7% of the Class B Common Stock, representing approximately 43% of the total voting power of our outstanding stock, and has influence over the outcome of matters requiring a stockholder vote. These governance provisions and consent rights may significantly limit your ability as a stockholder, particularly as a holder of Class A Common Stock, to influence our policies and operations.
As our Manager, KL is authorized to operate within broad business and operating guidelines and has significant discretion in identifying and managing land assets and making individual operating and business decisions. While our Board periodically reviews our guidelines, operating activities, and investments, it does not approve each decision made by KL and relies primarily on information provided by KL during these reviews. Transactions entered into by KL may be costly, difficult, or impossible to unwind by the time they are reviewed by our Board. Within the broad parameters of our acquisition guidelines, KL has latitude to determine the types and amounts of assets to acquire and invest in on our behalf, which could include transactions that deliver returns substantially below expectations or result in losses. Such outcomes could materially and adversely affect our business, financial condition, and results of operations. In the future, our Board’s oversight may be subject to additional limitations under other agreements or, alternatively, may gain increased flexibility in our business operations.
We pay substantial fees to KL which reduce funds we have available for distribution to stockholders.
Pursuant to the Management Agreement, we pay significant fees to KL, including the Management Fee. Those fees include advisory and administrative fees and obligations to reimburse KL in limited circumstances as described in the Management Agreement for certain expenses they incur in connection with providing services to us (not including fees incurred in connection with extraordinary litigation and mergers and acquisitions and other events outside Millrose’s ordinary course of business, including, in certain circumstances, costs associated with the ownership and maintenance of land). However, the payment of such fees to KL does not guarantee that KL is able to successfully manage our land assets and our existing business relationships with our counterparties.
There is no guarantee that KL will successfully identify and consummate new business opportunities, which may impede our growth and reduce stockholder returns.
We rely on KL to identify, consummate, and manage new business opportunities for us. There is no guarantee that KL can successfully manage new projects added to our portfolio in the future. Our ability to make investments on favorable terms may be constrained by contractual restrictions, competition from traditional land banking providers (including other publicly traded REITs and institutional investment funds), which may significantly
increase transaction costs, and the inability to finance a transaction on favorable terms or at all. Failure to identify or consummate acquisitions or future dispositions of land assets with counterparties on satisfactory terms, or at all, may impede our growth and negatively affect our cash available for distribution to our stockholders.
If we internalize our management functions, we could incur significant costs and face operational challenges.
Subject to the terms of the Management Agreement, our Board may in the future consider internalizing the functions currently performed by KL. Internalization could take various forms, and there is no assurance that it would benefit us or our stockholders. Any internalization transaction could result in dilution of your interests as a stockholder, reduce earnings per share, and adversely affect our results of operations. We may not realize anticipated benefits, may face difficulties integrating new management and employees, and may be unable to replicate the services previously provided by KL or its affiliates. Internalization transactions have, in some cases, been subject to litigation, which, even if without merit, could require significant expenditures to defend, reducing funds available for investment and distributions. These factors could have a material adverse effect on our business, financial condition, results of operations, and ability to pay distributions.
The 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.
The Management Agreement with KL automatically renews annually for an additional one-year term. While we have the right to terminate the Management Agreement or remove KL as Manager under certain circumstances, if we terminate the agreement without cause, as defined in the Management Agreement, we are obligated to pay KL a substantial termination fee. These provisions significantly increase the cost of terminating the Management Agreement without cause and may limit our ability to end our relationship with KL. Payment of the termination fee could materially and adversely affect our financial condition, including our ability to pay distributions to stockholders. As a result, the termination fee and related provisions may discourage us from replacing KL even if its performance is unsatisfactory.
Any adverse changes in KL’s or its affiliates' financial condition or our relationship with KL could negatively impact our operating performance and stockholder returns.
We are dependent on KL to manage our operations and acquire and manage our real estate assets. Under the direction of our Board, KL makes all decisions with respect to the management of our business operations and obligations as a public company. KL depends upon the fees and other compensation that it receives from us to conduct its own operations. Any adverse changes in the financial condition of KL or its affiliates, or any adverse change in our relationship with KL, could hinder KL’s ability to effectively manage our operations and investments, which would adversely affect us and our stockholders.
There are significant potential conflicts of interest with KL that could affect our business returns.
Because of our relationship with KL, there may be times when KL or its affiliates have interests that differ from those of our stockholders, creating potential conflicts of interest. For example, conflicts may arise if we must compete for the time and attention of KL personnel who also serve other clients, as none of our officers are contractually required to devote a specific amount of time to Millrose. Additionally, the compensation we pay to KL for its services may not reflect market terms and is payable regardless of whether our stockholders receive any distributions.
KL is an affiliate and wholly owned subsidiary of Kennedy Lewis, which has a long-standing business relationship with Lennar and maintains existing land banking engagements with Lennar through other entities. Prior to the Spin-Off, Kennedy Lewis acted as a strategic advisor to Lennar in structuring the Spin-Off, forming Millrose, and preparing agreements and documentation related to the Spin-Off and Millrose’s post-spin relationship with Lennar, for which it received no payment. Kennedy Lewis also assisted Lennar in negotiating the terms of the Management Agreement, including the Management Fee. Kennedy Lewis did not act on Millrose’s behalf in negotiating the Lennar Agreements or preparing Millrose’s organizational documents and corporate policies. Given Kennedy Lewis’s relationship with Lennar, our largest and primary counterparty for the foreseeable future, significant conflicts of interest may arise if KL needs to renegotiate the terms of any Lennar Agreements. These conflicts could influence KL’s decision-making and adversely affect our business, financial condition, and results of operations.
KL’s team serves, or may serve, as officers, directors, or principals of entities operating in the same or related lines of business as ours, or of investment funds managed by Kennedy Lewis or its affiliates. Kennedy Lewis and its affiliates may have other counterparties with similar, different, or competing business objectives. While KL does not intend to manage any entity other than Millrose (including its subsidiaries), Kennedy Lewis owns other subsidiaries that manage businesses, private funds, and entities engaged in land banking, including residential land banking. Fees earned by Kennedy Lewis for these services may exceed KL’s net income from acting as our Manager.
In serving in these multiple capacities, Kennedy Lewis and its affiliates may have obligations to other counterparties or investors that conflict with our interests. For example, KL’s management team also manages investment funds, accounts, or other vehicles sponsored by Kennedy Lewis or its affiliates, whose business objectives may overlap with ours. This overlap may create conflicts in allocating business opportunities among us and other affiliated funds or accounts. Although KL does not directly manage other entities, Kennedy Lewis owns subsidiaries substantially similar to KL that manage other companies, including potential competitors in the residential real estate industry. These conflicts could adversely affect our ability to pursue attractive opportunities and may materially impact our business, financial condition, and results of operations.
We may seek business opportunities to provide funding to new counterparties. If any new transactions require us, or allow us, to identify potential land assets for our counterparties, KL, as our Manager, will be responsible for sourcing and identifying such assets and opportunities on our behalf. These opportunities may also represent strategic investments for other funds, accounts, or vehicles advised by or affiliated with KL or Kennedy Lewis. In such cases, Kennedy Lewis must allocate opportunities among eligible accounts in accordance with the Allocation Policy. However, we cannot assure you that these opportunities will be allocated to us fairly or equitably in the short term or over time. Additionally, we may pursue strategic or financing transactions with affiliates of KL or with affiliates acting as advisors, which could create additional conflicts of interest.
In the Management Agreement, we acknowledge that KL may engage in other activities or businesses and act as manager for other persons or entities, including REITs, even if those entities have business acquisition policies and objectives similar to ours. We are not entitled to preferential treatment in receiving information, recommendations, or other services from KL. This lack of exclusivity may result in KL allocating resources or opportunities to other entities ahead of us, which could adversely affect our business.
KL maintains a contractual, not fiduciary, relationship with us, and its liability is limited under the Management Agreement as we have agreed to indemnify the Manager against certain liabilities.
Under the Management Agreement, KL’s responsibilities are limited to providing the services specified in that agreement, and KL is not liable for any action taken by our Board in following or declining to follow KL’s advice or recommendations. While officers recommended by KL and appointed by our Board owe duties under Maryland law, including duties of care, loyalty, good faith, and candid disclosure, KL itself, as Manager, maintains a contractual rather than fiduciary relationship with us.
Additionally, we have agreed to indemnify KL and each of its officers, directors, members, managers, and employees, against claims or liabilities (including reasonable legal fees and expenses) arising from our business and operations or actions taken on our behalf under the Management Agreement, except where attributable to gross negligence, willful misconduct, bad faith, or reckless disregard of duties. These indemnification protections and the absence of fiduciary obligations may incentivize KL to act in a riskier manner when managing our affairs than it would when acting for its own account, which could materially and adversely affect our business, financial condition, and results of operations.
We are and have been party to transactions with related parties that may increase the risk of allegations of conflicts of interest.
We are, and have been, party to transactions with related parties, including Lennar through the completion of the Exchange Offer on November 28, 2025, and KL. Millrose was not separately represented when these agreements were drafted. As a result, the terms of these agreements may not be as favorable to us as those that could have been negotiated with unrelated parties. If any related-party transactions were successfully challenged, we might not realize the expected benefits of those transactions. Moreover, any such challenge could result in substantial costs, including litigation expenses not covered by KL under the Management Agreement, and divert management’s attention. These outcomes could materially and adversely affect our reputation, business, and growth prospects, and could impair our ability to achieve the anticipated benefits of these transactions, regardless of whether the allegations have merit.
KL’s fee structure under the Management Agreement may create conflicts of interests that are not aligned with stockholders’ long-term interests.
Under the Management Agreement, KL is entitled to receive substantial compensation regardless of performance, based on the aggregate size of Tangible Assets. This structure may incentivize KL to recommend riskier or more speculative investments, including significant acquisitions of additional land assets, to increase the total assets under management and, consequently, its fees. For example, because the Management Fee is calculated based on our total land and other real estate assets, KL may have an incentive to use higher leverage or acquire land assets on less favorable terms to grow the asset base. KL’s ability to earn higher fees and reimbursements depends on our continued investment in land and other real estate assets, which may conflict with stockholders’ interest in achieving sustainable returns on their investment in our Common Stock.
KL and its officers and employees face competing demands on their time, which may adversely affect our performance.
KL and its officers, employees, and affiliates serve as key personnel, general partners, sponsors, managers, owners, and advisors for other land and real estate investment programs, including investment products sponsored by Kennedy Lewis affiliates. Some of these programs have business objectives and obligations similar to ours and may compete for opportunities and resources. Additionally, Kennedy Lewis manages other entities engaged in land banking that could compete with us for opportunities and resources. Our Chief Executive Officer (“CEO”) and President is a Managing Partner of Kennedy Lewis and a member of the investment committee for funds advised by Kennedy Lewis. While our CEO is expected to devote substantial time to Millrose, there is no contractual requirement for our CEO to dedicate a specific amount of time to us. Similarly, our Chief Financial Officer and Chief Operating Officer are full-time employees of Kennedy Lewis and, although currently expected to focus on Millrose, are not contractually required to do so exclusively. Because these individuals have competing demands on their time and are not obligated under the Management Agreement to allocate a specified amount of time to Millrose, conflicts of interest may arise. If these competing demands limit their attention to our business, our operations and investment returns could suffer.
We may be at an increased risk for dissident stockholder activities due to perceived conflicts of interest arising from our external management structure and relationships.
Companies with external management structures may more often be subject to dissident stockholder proposals and litigation alleging conflicts of interest in their business dealings. Our relationships with KL, Kennedy Lewis, and Lennar may heighten this risk. In addition, proxy advisory firms, which exert influence over institutional voting, may recommend that stockholders withhold votes for incumbent directors, vote against our say-on-pay proposals, or support stockholder proposals we oppose. Such recommendations could affect the outcome of director elections and other stockholder votes, potentially increasing activism and litigation. These activities, if initiated against us, could result in substantial costs, divert management’s attention, and materially and adversely impact our reputation and business.
General Risk Factors
Our business, financial condition and results of operations could suffer in the event of system failures or cybersecurity attacks.
We rely on KL, as our Manager, for all internal technology systems and cybersecurity procedures and oversight. As a recently-formed corporation, we have implemented and tested our security measures and a disaster recovery plan for our internal and hosted information technology systems. Our systems may be vulnerable to damage from numerous sources, including energy blackouts, natural disasters, terrorism, war, telecommunication failures, and cybersecurity attacks such as malware, ransomware, or unauthorized access. Any system failure or incident that disrupts our operations or those of KL could result in a material interruption to our business and require significant remediation costs.
Third-party security breaches at KL or its service providers could also compromise our data and operations through unauthorized access or service disruption, potentially resulting in financial losses. Despite training, detection systems, and response procedures, the growing frequency and sophistication of cyberattacks may increase the risk of disruption to our business, financial condition, and results of operations, as well as exacerbate reputational risk. We also depend on the relevant training, detection systems and response procedures delivered by KL to its employees. KL has limited experience managing a public company, where public scrutiny and cyber threats may be more frequent and severe.
Cybersecurity threats may also originate from internal sources, including employee or contractor misconduct, intentional or inadvertent misuse of authorized access, social engineering, credential compromise, human error, or failures to comply with established security policies, procedures, and controls. Individuals with legitimate access to our systems may be uniquely positioned to cause or facilitate data breaches, system disruptions, or the unauthorized disclosure or manipulation of sensitive information, whether intentionally or unintentionally. Our Manager maintains a cybersecurity program designed to mitigate these internal risks through a combination of administrative, technical, and physical safeguards, including role based access controls, segregation of duties, continuous monitoring and logging of system activity, incident detection and response protocols, and mandatory cybersecurity awareness training for employees. The program also includes policies governing acceptable use, data classification and protection, and periodic access reviews. However, no internal controls or training programs can fully eliminate the risk of insider , human , or policy .
The growing frequency and sophistication of cyberattacks may significantly increase our costs and legal exposure. As cyber threats become more frequent and complex across the market, we may incur substantial costs to protect our infrastructure and respond to incidents, including expenses for additional personnel, consultants, and advanced security technologies. Any compromise of our or KL’s security could result in violations of privacy and other applicable laws, unauthorized access to sensitive information, significant legal and financial exposure, reputational damage, misuse of data, and a loss of confidence in our security measures, all of which could materially harm our business. Furthermore, remediation costs for security events may not be covered by insurance. In addition, any material cybersecurity incident will require public disclosure under SEC rules.
ESG initiatives, requirements and market expectations may impose additional costs and risks
There is a focus from some regulators, investors, and certain of our counterparties’ stakeholders concerning corporate sustainability, particularly as our business centers around land assets. For example, California has enacted climate focused disclosure laws, which require certain companies doing business in California to disclose greenhouse gas emissions and/or potential climate-related financial risks. These laws are subject to pending legal challenges. If they are implemented, we may be required to focus significant time and resources on behalf of ourselves and our counterparties to comply with these new requirements, and we may incur significant costs in compliance with such rules. Some investors may use ESG factors to guide their investment strategies and, in some cases, may choose not to invest in us, or otherwise do business with us, if they believe our or our counterparties’ policies relating to corporate responsibility are inadequate. Third party providers of corporate responsibility ratings and reports on companies have increased in number, resulting in varied and in some cases inconsistent standards. In addition, the criteria by which companies’ corporate responsibility practices are assessed are evolving, which could result in greater expectations of us and our counterparties and cause us and our counterparties to undertake costly initiatives to such new criteria. Alternatively, if we or our counterparties elect not to or are to such new criteria or do not meet the criteria of a specific third-party provider, some investors may conclude that our or our counterparties’ policies with respect to corporate responsibility are .
We may face reputational damage in the event that our or our counterparties’ corporate responsibility procedures or standards do not meet the goals or the standards set by various constituencies. If we and our counterparties fail to comply with ESG related regulations and to satisfy the expectations of investors and our counterparties’ stakeholders, or our counterparties’ announced goals and other initiatives are not executed as planned, our reputation could be adversely affected, and our business, financial condition or results of operations, and our ability to grow our business, may be negatively impacted. In addition, we may incur significant costs in attempting to comply with regulatory requirements, ESG policies or third-party expectations or demands and we may not be successful in effectively complying with regulatory requirements, ESG policies or third-party expectations.
We may also receive pushback from other stakeholders regarding any initiatives related to ESG, reflecting continued scrutiny of such initiatives and potential implications for non-governmental entities, including publicly traded companies. In March 2025, the SEC voted to end its defense of federal climate disclosure rules that had been adopted in March 2024. Though the SEC climate disclosure rules are subject to ongoing litigation and final agency action remains pending, the SEC’s withdrawal confirms the federal shift away from climate and ESG policies. If we do not successfully manage expectations across varied stakeholder interests or we experience conflicts between actual or proposed governmental regulations and stakeholder expectations, it could erode stakeholder trust or impact our reputation, and our financial results may suffer. In addition, even if we are effective at addressing such concerns, we may experience increased costs as a result of balancing competing interests and public opinion related to ESG matters and executing upon any ESG goals, which costs may not be offset by any benefit to our reputation, and which could have an impact on our business and financial condition.
Artificial intelligence (“AI”) and other machine learning techniques could increase, accelerate, or amplify competitive, operational, legal and regulatory risks to our business in ways that we cannot predict.
The use of AI by us and others, and the overall adoption of AI throughout society, may exacerbate or create new and unpredictable competitive, operational, legal and regulatory risks to our business. There is substantial uncertainty about the extent to which AI will result in dramatic changes throughout the world, and we may not be able to anticipate, prevent, mitigate or remediate all of the potential risks, challenges or impacts of such changes. These changes could potentially disrupt, among other things, our business model, investment strategies and operational processes. Some of our competitors may be more successful than us in the development and implementation of new technologies, including services and platforms based on AI, to improve their operations. If we are unable to adequately advance our capabilities in these areas or do so at a slower pace than others in our industry, we may be at a competitive disadvantage.
Recent technological advances in AI present both opportunities and risks to us. If the data we, or third parties whose services we rely on, use in connection with the possible development or deployment of AI is incomplete, inadequate or biased in some way, the performance of our business could suffer. Data in technology that uses AI may contain a degree of inaccuracy and error, which could result in flawed algorithms in various models used in our business. The volume and reliance on data and algorithms also make AI more susceptible to cybersecurity threats, including data poisoning and the compromise of underlying models, training data or other intellectual property. Our personnel or the personnel of our service providers could, without being known to us, improperly utilize AI and machine learning-technology while carrying out their responsibilities. This could reduce the effectiveness of AI technologies and impact us and our operations to the extent that we rely on the AI’s work product.
There is also a risk that AI may be misused or misappropriated by third parties we engage. For example, a user may input confidential information, including material non-public information or personally identifiable information, into AI applications, resulting in the information becoming a part of a dataset that is accessible by third-party technology applications and users, including our competitors. Further, we may not be able to control how third-party AI that we choose to use is developed or maintained, or how data we input is used or disclosed. The misuse or misappropriation of our data could have an adverse impact on our reputation and could subject us to legal and regulatory investigations or actions or create competitive risk.
In addition, the use of AI by us or others may require compliance with legal or regulatory frameworks that are not fully developed or tested, and we may face litigation and regulatory actions related to our use of AI. There have been increased requirements, including from global regulators, regarding the use of “big data,” diligence of data sets and oversight of data vendors. Our ability to use data to gain insights into and manage our business may be limited in the future by regulatory scrutiny and legal developments.
Global 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.
Our business could be adversely affected by unstable economic and political conditions within the U.S. and foreign jurisdictions, geopolitical conflicts, and changes in U.S. trade policies, including tariffs. Ongoing conflicts, such as those in Ukraine and the Middle East, and uncertainty regarding future trade relations between the U.S. and key trading partners, could disrupt global supply chains, increase material costs, and contribute to inflationary pressures. While we do not have direct counterparty or supplier relationships in these regions, sanctions, export controls, cyberattacks, and disruptions to energy markets could indirectly impact our business and the cost of goods necessary for homesite development and construction.
In addition, the U.S. has recently imposed, and may continue to impose or modify, significant tariffs with limited advance notice. These tariffs are expected to increase material costs on imported goods, including construction materials and other critical supplies, which could increase our costs and reduce availability of necessary materials, for our business partners and counterparties. These tariffs, as well as potential retaliatory measures by other countries, may further impact global trade flows, exacerbate inflation, and contribute to higher interest rates or general economic uncertainty. Such factors could negatively impact our business partners, employees, and counterparties or otherwise materially adversely affect our business, financial condition and results of operations.
Risks Related to Our Governance Structure
Our 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.
Pursuant to our Charter, we have two classes of Common Stock: Class A Common Stock and Class B Common Stock. The Class A Common Stock is listed on NYSE and publicly traded under the symbol “MRP”. We have no intention of listing the Class B Common Stock at this or any other time. As a result, your ability to transfer shares of Class B Common Stock may be limited, and you may need to bear the risks of your investment indefinitely. Individual shares of Class B Common Stock cannot be converted into Class A Common Stock; however, holders of a majority of the outstanding Class B Common Stock can cause the entire class to be converted into Class A Common Stock, and if that occurs, Millrose will no longer be authorized to issue Class B Common Stock.
The Class B Common Stock has ten votes for each share of Class B Common Stock held in the holder’s name, except when voting together with the holders of the Class A Common Stock, each holder of record of Class B Common Stock is entitled to the greater of (i) ten votes per share or (ii) that number of votes per share of Class B Common Stock that would entitle the outstanding shares of Class B Common Stock to cast, in the aggregate, 35% of the votes entitled to be cast on the matter, whereas the Class A Common Stock has one vote per share. Subject to the provisions of the Charter, with respect to all matters upon which stockholders are entitled to vote, the holders of the outstanding shares of Class A Common Stock and the holders of the outstanding shares of Class B Common Stock will vote together without regard to class (other than as to the number of votes per share). Notwithstanding the foregoing, so long as there are any shares of Class B Common Stock outstanding, any amendment to the Charter (except for those amendments permitted to be made without stockholder approval under Maryland law or by specific provision in the Charter) must be approved by the affirmative vote of the holders of two-thirds in voting power of the Class A Common Stock and Class B Common Stock, voting together without regard to class. Once there are no longer any shares of Class B Common Stock outstanding, the Charter may be amended only if the amendment is approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Additionally, any merger, consolidation, sale of all or substantially all of our assets or other business combination involving Millrose that is submitted for approval of the Millrose’s stockholders must be approved by both (i) a majority of the voting power of the votes entitled to be cast by all stockholders of Class A Common Stock and Class B Common Stock, voting together without regard to class, and (ii) a majority of the total outstanding votes entitled to be cast by all stockholders of Class B Common Stock, voting as a separate class. In addition, so long as any shares of Class B Common Stock are outstanding, Millrose shall not, without the affirmative vote of at least two-thirds of the shares of Class B Common Stock outstanding, voting separately as a class, issue additional shares of the Class B Common Stock (other than in connection with dividends or other distributions paid with shares of Class B Common Stock solely to holders of Class B Common Stock). As a result, holders of Class B Common Stock (which is currently held almost entirely by the Miller Family, as discussed below) have the ability to prevent Millrose from taking actions that may be viewed by the Miller Family but might otherwise be viewed by other stakeholders as in the interests of Millrose and its stockholders.
As a result, the holders of the Class B Common Stock may have the ability to control the outcome of certain matters requiring stockholder approval for the foreseeable future, including the election of directors, even if their stock holdings represent less than a majority of the outstanding shares of Common Stock. This concentration of voting power will limit the ability of other stockholders to influence corporate matters and may cause us to make strategic decisions that could involve risks to you or that may not be aligned with your interests. This influence may adversely affect the market price of Class A Common Stock and the value of the Class B Common Stock. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our Common Stock that you may feel are in your best interest as one of our stockholders. A significant portion of the voting power of our Common Stock is held by the Miller Family, whose interests may differ from or conflict with the interests of Millrose stockholders.
Our Class B Common Stock will convert automatically into Class A Common Stock, on a one-for-one basis, upon the approval of the conversion, in whole, but not in part, of all shares of our Class B Common Stock, then outstanding by the holders of a majority of the outstanding shares of our Class B Common Stock. If that occurs, Millrose will no longer be authorized to issue our Class B Common Stock. Individual shares of our Class B Common Stock cannot be converted into our Class A Common Stock.
In addition, while we do not currently expect to issue any additional shares of our Class B Common Stock, and any such issuance requires the approval of the holders of our Class B Common Stock, any future issuances of our Class B Common Stock would be dilutive to both holders of our Class A Common Stock and our Class B
Common Stock. Such issuances would also reduce the voting power of our Class A Common Stock as compared to our Class B Common Stock and could further concentrate the voting power of holders of our Class B Common Stock relative to holders of our Class A Common Stock. Additionally, so long as there are any shares of our Class B Common Stock outstanding, and notwithstanding any future issuances of our Class A Common Stock, holders of our Class A Common Stock will not be entitled to cast more than 65% of the votes entitled to be cast by the holders of Common Stock and any other classes or series of stock entitled to vote with the Common Stock. Holders of our Class B Common Stock may be entitled to cast more than 35%, and holders of our Class A Common Stock may only be entitled to cast less than 65%, of the votes entitled to be cast by the holders of Common Stock and any other classes or series of stock entitled to vote with the Common Stock, if the number of outstanding shares of our Class B Common Stock multiplied by 10 (the “Class B Initial Vote”) is greater than 35% of the number of outstanding shares of our Class A Common Stock plus the Class B Initial Vote.
It is possible that our dual-class structure, combined with the concentrated influence of our Class B Common Stockholders, will result in a lower or more volatile market price of our Class A Common Stock or in adverse publicity or other adverse consequences.
Some 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.
Certain index providers have announced restrictions on including companies with multiple share class structures in certain of their indices. For example, in July 2017, FTSE Russell and Standard & Poor’s announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Under the announced policies, our dual-class capital structure makes us ineligible for inclusion in any of these indices. Although S&P Dow Jones, a provider of widely followed stock indices, reversed its prior decision to exclude companies with multiple share classes, such as ours, in certain of their indices, and we have been included in the S&P SmallCap 600, there is no guarantee that our Class A Common Stock will be included in any additional Standard and Poor’s index, despite their eligibility. The Council of Institutional Investors remains strongly opposed to dual-class structures and some investors may continue to avoid investing in companies with dual-class structures like ours. In addition, several stockholder advisory firms oppose the use of multiple class structures. As a result, our Class A Common Stock may not be included in certain stock indices and may cause stockholder advisory firms to publish commentary and recommendations about our corporate governance practices (including recommendations that stockholders vote re-election of directors) or otherwise seek to cause us to change our capital structure.
Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from stock indices would likely preclude investment by many of these funds and could make our Class A Common Stock less attractive to certain other investors. Additionally, any actions or publications by stockholder advisory firms critical of our corporate governance practices or capital structure could adversely affect the value of our Class A Common Stock and the market price of our Class B Common Stock.
Lennar, as the original parent company of Millrose and the initial contributor of the assets transferred to Millrose in connection with the Spin-Off, has certain Founder’s Rights, which are exclusive to Lennar. These rights, pursuant to the Founder’s Rights Agreement, include the Management Succession Consent Right, the Effective Equity Price Protection Right, the Enforcement Rights, the Applicable Rate Adjustment Right, the Capital Priority Right, the Secured Financing Collateral Consent Right, and the Pause Period Designation Right, among others (see “Part I, Item 1. Business—Operational Agreements with Lennar—Founder’s Rights Agreement” for a full description of the Founder’s Rights). The Founder’s Rights granted to Lennar could deter potential Other Counterparties from doing business with us and could deter potential investors, which could adversely affect the value of our Class A Common Stock and the value of our Class B Common Stock.
The Miller Family, members of which are substantial stockholders of Lennar, has substantial voting power with regard to us and the ability to exercise influence over certain corporate actions.
The Miller Family has shares of our Class B Common Stock that gives it the power to cast approximately 43% votes that can be cast of all the votes by Millrose stockholders. Therefore, the Miller Family has the ability to influence Millrose’s affairs and may have the ability to exercise control over them, including the election and removal of directors and other matters submitted to Millrose’s stockholders for approval, amendments to Millrose’s Charter and Bylaws, and significant transactions, if they are presented to Millrose’s stockholders for approval. As long as the Miller Family has near majority voting power, the Miller Family will also have the power to impede or cause a change in control of Millrose. The Miller Family voting power probably would discourage a potential
acquirer from attempting to obtain control of Millrose without approval of the Miller Family, which the Miller Family might withhold if a proposed acquisition provides a control premium to any stockholders other than the Miller Family. Millrose stockholders are not entitled to dissenters’ rights of appraisal under Millrose’s Charter or applicable Maryland law unless our Board determines that such rights apply. In addition to its near majority voting power of our Common Stock, the Miller Family may be able to exert influence over Millrose’s business, by virtue of their relationship with Lennar and Lennar’s relationship with Millrose.
Given Stuart A. Miller’s role as Executive Chairman and Chief Executive Officer of Lennar, it is possible that the Miller Family’s interests may, in some circumstances, conflict with the interests of Millrose’s other stockholders. Various conflicts of interest between Lennar, the Miller Family and Millrose could arise. Potential conflicts of interest could also arise if Millrose enters into any new commercial arrangements with Lennar or with Mr. Miller.
Millrose entered into various agreements to govern Millrose’s relationship with Lennar, including the Master Program Agreement, Master Option Agreement, Founder’s Rights Agreement and others described under “Part I, Item 1. Business—Operational Agreements with Lennar.” The agreements between Lennar, Millrose and Millrose Holdings were not based on arm’s-length negotiations and were not approved by any of our independent directors as these were executed prior to the date of the Spin-Off. In addition, Lennar had significant influence in structuring the Spin-Off. Nobody separately represented Millrose in structuring the Spin-Off. It is possible that Millrose could have negotiated more favorable terms of the Lennar Agreements if it had engaged in arm’s length negotiations with Lennar.
Our 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.
Maryland law provides that directors have no liability in their capacity as directors if they perform their duties in good faith, in a manner they reasonably believe to be in the corporation’s best interest and with the care that an ordinarily prudent person in a like position would use under similar circumstances. As permitted by the MGCL, our Charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:
actual receipt of an improper benefit or profit in money, property or services; or
a 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.
In addition, our Charter authorizes us, and our Bylaws require us, to indemnify our directors and officers and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding for losses they may incur by reason of their service in those capacities unless their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, they actually received an improper personal benefit in money, property or services or, in the case of any criminal proceeding, they had reasonable cause to believe the act or omission was unlawful. We entered into indemnification agreements with the directors and officers that are described herein. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. Accordingly, in the event that actions taken by any of our directors or officers are immune or from, or indemnified , liability but which our performance, our stockholders’ ability to recover from that director or officer will be limited. Any indemnification of our officers will also be subject to, and handled in accordance with, the Management Agreement and any ancillary agreements with KL.
We may not have sufficient funds to satisfy indemnification claims of our officers and directors.
Our Bylaws include indemnification protections for our officers and directors and we entered into indemnification agreements with the officers and directors that are described herein. Accordingly, any indemnification provided will be able to be satisfied by us only if we have sufficient funds. Our obligation to indemnify our officers and directors may discourage stockholders from bringing a lawsuit against our officers or directors for breach of their duties. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers or directors pursuant to these indemnification provisions. Any indemnification of our officers will also be subject to, and handled in accordance with, the Management Agreement and any ancillary agreements with KL.
Our 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 contest difficult, which could depress the market price of our Class A Common Stock and in turn the value of our Class B Common Stock.
In addition to any applicable anti-takeover defense measure provisions afforded under Maryland law, our Charter and Bylaws include certain provisions that may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination or an acquisition of Millrose, including provisions that:
authorize our dual-class capital structure, which provides our holders of our Class B Common Stock with the ability to significantly influence the outcome of certain matters requiring stockholder approval, even if they own less than a majority of our outstanding shares of Common Stock;
for so long as there are any shares of our Class B Common Stock outstanding, require a supermajority vote of the holders of our Common Stock, voting together without regard to class, to amend our Charter;
provide that vacancies on the Board be filled only by a majority of the directors then serving, even though less than a quorum and whether or not resulting from an increase in the size of the Board, and not by stockholders;
permit the removal of a director or the entire Board only by the affirmative vote of two-thirds of the holders of the votes entitled to be cast in the election of directors;
prohibit cumulative voting;
permit amendments to the Charter, without stockholder approval, to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series we have authority to issue;
permit issuances of authorized but unissued Common Stock without stockholder approval (other than, except for distributions of our Class B Common Stock to holders of our Class B Common Stock, additional issuances of our Class B Common Stock);
authorize undesignated, or “blank check,” preferred stock, which may contain voting, liquidation, dividend and other rights senior to our Common Stock and shares of which may be issued without the approval of the holders of our Common Stock;
establish advance notice procedures for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting or special meeting of stockholders; and
specify that only our Board, the chair of our Board, our chief executive officer or president or, upon the written request of stockholders entitled to cast not less than a majority of the votes entitled to be cast, our secretary can call special meetings of our stockholders.
In 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.
Lennar’s rights pursuant to the Founder’s Rights Agreement (as described under “Part I, Item 1. Business —Operational Agreements with Lennar—Founder’s Rights Agreement”) may allow Lennar to influence certain corporate matters and increase the risk that Lennar could use the consent right to hinder or delay Millrose’s ability to carry out its intended business and strategy. As such, the Lennar’s Founder’s Rights may deter Other Counterparties from wanting to engage in business with Millrose, and could also increase the risk of concern and uncertainty for potential investors, which could depress the market price of our Class A Common Stock and the value of our Class B Common Stock.
Maryland law may limit the ability of a third party to acquire control of us.
The MGCL provides protection for Maryland corporations against unsolicited takeovers by addressing, among other things, the duties of the directors in unsolicited takeover situations. The duties of directors of Maryland corporations do not require them to (a) accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation, (b) authorize the corporation to redeem any rights under, or modify or render inapplicable, any stockholder rights plan, (c) make a determination not to apply the Maryland Business Combination Act, or (d) act or fail to act solely because of the effect the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition. Moreover, under the MGCL, the act of a director of a Maryland corporation
relating to or affecting an acquisition or potential acquisition of control is not subject to any higher duty or greater scrutiny than is applied to any other act of a director. The MGCL also contains a statutory presumption that an act of a director of a Maryland corporation satisfies the applicable standards of conduct for directors under the MGCL.
The MGCL also provides that, unless exempted, certain Maryland corporations may not engage in business combinations, including mergers, dispositions of 10% or more of its assets, certain issuances of shares of stock and other specified transactions with an “interested stockholder” or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter unless specified criteria are met. An interested stockholder is generally a person, or an affiliate or associate of the Maryland corporation, owning or controlling, directly or indirectly, 10% or more of the voting power of the outstanding stock of the Maryland corporation, unless the stock had been obtained in a transaction approved by its board of directors. The statute permits various exemptions from its provisions, including business combinations that are exempted by our Board prior to the time the interested stockholder becomes an interested stockholder. Our Board has adopted a resolution exempting any business combination involving us and any person from the provisions of this law, provided that such business combination is first approved by our Board, including a majority of directors who are not affiliates or associates of such person.
The MGCL also provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of stockholders entitled to cast two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquiror, by officers or by employees who are directors of the corporation are excluded from shares of stock entitled to vote on the matter. Control shares are generally voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within certain ranges of voting power, commencing at one-tenth or more of all voting power. A control share acquisition means the acquisition of issued and outstanding control shares, subject to certain exceptions. The control share acquisition statute does not apply to (1) shares of stock acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (2) acquisitions approved or exempted by the charter or bylaws of the corporation. Our Bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions of shares of our stock by the Millers and Vanguard.
These and other provisions of the MGCL could have the effect of delaying, deferring or preventing a proxy contest, tender offer, merger or other change in control, which may have a material adverse effect on our business, financial condition and results of operations. Such restrictions under Maryland law are in addition to any restrictions and limitations relating to compliance with our REIT status or Millrose Holdings’ compliance with its own status requirements.
On the other hand, none of these provisions can guarantee that we will not have a change in control at some point in the future and, as discussed above, we could experience significant adverse effects to our business, financial condition and results of operations, as well as our ability to maintain operations if we do experience a change in control event and Lennar exercises its “poison pill” right.
Millrose’s Charter provides that, except as specifically exempted by Millrose’s Charter or the Board, no person may own more than 9% of Millrose’s outstanding stock. Millrose’s Charter provides an excepted holder limit for the Miller Family to own, beneficially or by virtue of the applicable constructive ownership provisions of the Code, up to 12.8% in the aggregate, in value or in number of shares, whichever is more restrictive, of the outstanding shares of our Common Stock or the outstanding shares of all classes or series of Millrose stock. In addition, the Board has authorized Lennar’s retention of 20% of Millrose’s outstanding Common Stock and may in the future approve other stockholders to own more than 9% of Millrose’s outstanding stock. This makes it almost impossible for somebody to acquire control of Millrose without the approval of the Board.
Our Bylaws designate any state court of competent jurisdiction within the State of Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other agents.
Our Bylaws currently provide that unless we consent in writing to the selection of an alternative forum, only a state court of competent jurisdiction within the State of Maryland, or, if such state courts do not have jurisdiction, the United States District Court located within the State of Maryland, will be the sole and exclusive forum for: (1) any Internal Corporate Claim, as such term is defined in the MGCL, or any successor provision thereof, and any
action or proceeding asserting any Internal Corporate Claim, including without limitation: (i) any derivative action or proceeding brought on behalf of Millrose, other than any action arising under federal securities laws, (ii) any claim, or action or proceeding asserting a claim, based on an alleged breach of any duty owed by any director or officer or other employee of Millrose to Millrose or to the stockholders of Millrose, or (iii) any claim, or any action or proceeding, asserting a claim, against Millrose or any director or officer or other employee of Millrose arising under or pursuant to any provision of the MGCL or our Charter or our Bylaws, or (2) any action or proceeding asserting a claim against Millrose or any director or officer or other employee of Millrose that is governed by the internal affairs doctrine of Maryland law. The exclusive forum provision of our Bylaws does not apply to any action for which a court sitting in the State of Maryland does not have jurisdiction. The exclusive forum provision of our Bylaws does not establish exclusive jurisdiction in the courts of Maryland for that arise under the federal securities laws or arising under the Securities Act, or the Exchange Act or any claim for which the federal courts have jurisdiction. Any person or entity purchasing or otherwise acquiring or holding any interest in our shares of Common Stock shall be deemed to have notice of and to have consented to these provisions of our Bylaws, as they may be amended from time to time.
Risks Related to Legal, Regulatory, Tax and Accounting Compliance
We might fail to qualify or remain qualified as a REIT.
We intend to qualify as a REIT under the Code and believe we will qualify as a REIT. However, REIT status is dependent on compliance with complex tax rules that are subject to change and differing interpretation. Moreover, our Charter provides our Board with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the approval of our stockholders. If we lose our status as a REIT, we will face serious income tax consequences that could substantially reduce the funds available for satisfying our obligations and for distribution to our stockholders because:
Millrose would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates;
Millrose would be subject to increased state and local taxes; and
unless 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.
Because REIT qualification requires us to meet a number of complex requirements, it is possible that we may fail to fulfill them, and, if we do, our earnings will be reduced by the amount of U.S. federal and other income taxes owed. A reduction in our earnings would affect the amount we could distribute to our stockholders. If we do not qualify as a REIT, we will not be required to make distributions to stockholders, because a non-REIT is not required to pay dividends to stockholders in order to maintain REIT status or avoid an excise tax. In addition, if we fail to qualify as a REIT, all distributions to stockholders will continue to be treated as dividends to the extent of our current and accumulated earnings and profits, although corporate stockholders may be eligible for the dividends received deduction, and individual stockholders may be eligible for taxation at the rates generally applicable to long-term capital gains with respect to distributions.
As a result of all these factors, our failure to qualify as a REIT also could impair our ability to implement our business strategy and could adversely affect the value of our Common Stock. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to remain qualified as a REIT. Although we believe that we will qualify as a REIT beginning with our first taxable year ended December 31, 2025, we cannot assure you that we will remain qualified as a REIT for U.S. federal income tax purposes.
Additionally, because we have no employees or management of our own and all our operations are run by our Manager and the employees that our Manager appoints for us, our ability to qualify for and maintain REIT status is entirely dependent on our Manager to ensure that we operate in ways that are fully compliant with all applicable REIT Requirements. The employees that our Manager assigns to us may not have extensive experience with managing a REIT or maintaining REIT status for any companies it manages, and our Board has limited recourse (including certain indemnities, limitations on activities, and termination) against KL under the Management Agreement if KL fails to ensure that we follow all applicable requirements to qualify for or maintain our status as a REIT.
Complying with REIT Requirements may require us to forgo otherwise attractive investments or to dispose of otherwise attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders, and the ownership of our capital stock. In order to meet these tests, we may be required to forgo investments we might otherwise make. Thus, compliance with the REIT Requirements may hinder our performance. In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including any mortgage loans. The remainder of our investment in securities (other than government securities, securities of MPH Parent and any other TRSs, and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities, securities of MPH Parent and other TRSs, and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% (25% for taxable years beginning after December 31, 2025) of the value of our total assets can be represented by securities of one or more TRSs (other than qualified real estate assets). If we fail to comply with these requirements at the end of any calendar quarter, we must correct the within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid our REIT qualification and resulting tax consequences, which may . As a result, we may be required to otherwise investments from our portfolio. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
Even though we intend to qualify as a REIT, we will face tax liabilities that could reduce our cash flows.
Even though we intend to qualify for taxation as a REIT, all our land acquisition and development activities will be conducted through one or more TRSs. MPH Parent and any of other of its TRSs will be subject to U.S. federal income tax at regular corporate rates, as well as state, and local income taxes. Also, we may be subject to certain U.S. federal, state, and local taxes, or non-U.S. taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property, and transfer taxes. For example, if Millrose fails to satisfy the 75% gross income test, and yet has maintained its qualification as a REIT because certain other requirements have been met, we may be subject to a 100% tax on the net income attributable to the product of (i) the amount of gross income by which it fails the 75% gross income test and (ii) a fraction intended to reflect Millrose’s profitability. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain capital gains we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt entities, such as charities or qualified pension plans, would have no from their deemed payment of such tax liability. State, local, and non-U.S. income tax laws may differ substantially from the corresponding U.S. federal income tax laws. Any of these taxes would decrease cash available for distributions to stockholders. Our stockholders are urged to consult their tax advisors regarding the effect of U.S. federal, state, local and non-U.S. tax laws on ownership of our Common Stock.
Our organizational structure, including our ownership of interests in MPH Parent and other TRSs in the future, raises certain tax risks.
Our current organizational structure consists of a parent company (Millrose), which wholly owns MPH Parent, a TRS. MPH Parent, in turn, owns, either directly or through intervening subsidiaries, the Property LLCs where all of our land assets are held.
A TRS is an entity classified as a corporation for U.S. federal income tax purposes in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business. A TRS is subject to income tax as a regular corporation. Millrose and MPH Parent have jointly filed to elect for MPH Parent to be a TRS. Millrose has formed other TRSs and may form or acquire additional TRSs in the future.
MPH Parent and Millrose’s other TRSs are, and any TRS Millrose forms or acquires in the future will be, subject to corporate income tax at the U.S. federal, state, and local levels (including on gain recognized from the sale of property held by it and taxable income attributable to land acquisition and development activities). These tax
liabilities, if material, would diminish the amount of income earned through a TRS that would be distributable to Millrose and ultimately to our stockholders. U.S. federal, state and local corporate income tax rates may be increased in the future, and any such increase would further reduce the amount available for distribution by us to our stockholders from income earned through a TRS after the effective date of any increase in such tax rates. In addition, a 100% excise tax will be imposed on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.
As a REIT, no more than 25% of our gross income with respect to any year may, in general, be from sources other than certain real estate-related assets. Dividends paid to us from MPH Parent or any other TRSs will be considered non-real estate income. However, we expect that most of our income from MPH Parent or any other TRSs will be interest income from the Promissory Notes given the by the MPH Parent and such other TRSs to Millrose. We expect that interest income to be qualifying REIT income, and we will be relying on this income to help us qualify for and maintain Millrose’s REIT status. We may fail to qualify as a REIT if the dividends from all of our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25% of our gross income with respect to such year.
To 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.
In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject to U.S. federal income tax on any undistributed REIT taxable income or net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (i) 85% of our ordinary income, (ii) 95% of our capital gain net income and (iii) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on our land acquisition and development business or other investment opportunities, and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. Certain types of assets generate substantial mismatches between REIT taxable income and available cash. As a result, the requirement to distribute a substantial portion of our REIT taxable income could cause us to: (i) sell assets in adverse market conditions; (ii) offer Lennar reductions in the price of exercising its options in order to induce it to accelerate exercise, (iii) raise capital on terms; or (iv) distribute amounts that would otherwise be invested in future acquisitions or repayment of debt, in order to comply with REIT Requirements. To the extent that we are required to sell assets in market conditions or raise capital on terms, we could be materially and affected. Further, amounts distributed will not be available to fund our operations or further our business objectives. Under certain circumstances, covenants and restrictions imposed by debt facilities may prevent us from making distributions that we deem necessary to comply with REIT Requirements.
It is possible that we might not always be able to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings while we qualify as a REIT. Furthermore, our inability to make required distributions could threaten our status as a REIT and could result in material adverse tax consequences for us and our stockholders. Alternatively, we may make taxable in-kind distributions of our own stock, which may result in our stockholders being required to pay income taxes with respect to such distributions in excess of any cash they receive or cause us to be required to withhold taxes with respect to such distributions in excess of any cash our stockholders receive.
Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.
Income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts, or estates is generally subject to tax at reduced rates. Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts or estates is 20%. Dividends payable by a REIT, however, generally are not eligible for this reduced rate, except to the extent that the REIT’s dividends are attributable to qualified dividends received by the REIT and such REIT designates that portion of its dividends as qualified dividends. Distributions from REITs that are treated as dividends but are not designated as qualified dividends or capital gain dividends are treated as ordinary income. Under currently applicable tax law, distributions from REITs that are treated as dividends but are not designated as qualified dividends or capital gain dividends are taxed as ordinary income after the deduction under section 199A of the Code for 20% of the amount of the dividend in the case of certain U.S. non-corporate stockholders. To qualify for this deduction, the U.S. stockholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend and cannot be under an
obligation to make related payments with respect to a position in substantially similar or related property. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to qualified dividends could cause investors who are individuals, trusts or estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our Common Stock. In addition, certain U.S. stockholders may be subject to a 3.8% Medicare tax on dividends payable by REITs. Tax rates applicable to our dividends could be changed in future legislation.
The 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.
Our Charter restricts the acquisition and ownership of shares of our stock above certain thresholds in order to preserve our status as a REIT. Among other limitations on ownership and transfer of shares of our stock, our Charter restricts, with certain exceptions, any person or entity from owning, beneficially or by virtue of the applicable constructive ownership provisions of the Code, more than 9%, in value or in number of shares, whichever is more restrictive, of the outstanding shares of our Common Stock or 9% in value of the outstanding shares of all classes or series of our stock. A person holding less than 9% of our total outstanding capital stock or Common Stock may become subject to our Charter restrictions if repurchases by us cause such person’s holdings to exceed 9% of our total outstanding capital stock or Common Stock. Our Charter provides an excepted holder limit for the Miller Family to own, beneficially or by virtue of the applicable constructive ownership provisions of the Code, up to 12.8% in the aggregate, in value or in number of shares, whichever is more restrictive, of the outstanding shares of our Common Stock or the outstanding shares of all classes or series of our stock. Our Charter provides that shares of our capital stock acquired or held in excess of the ownership limits will automatically be transferred to a trust for the of a designated beneficiary, and that any person who acquires shares of our capital stock in of the ownership limits is not entitled to any dividends on such shares, to vote such shares or to receive any proceeds from the subsequent sale of such shares in excess of the lesser of the price paid for such shares or the amount realized from the sale (net of any commissions and other expenses of sale). A transfer of shares of our capital stock (including our Common Stock) in of the ownership limits is void ab initio under certain circumstances. Pursuant to our Charter, our Board, by vote of a supermajority of its members, may waive these ownership limits or create new limits. Our Board has provided a waiver of this stock ownership restriction to certain stockholders in connection with the Distribution and to Lennar in connection with the shares of Common Stock, held in the form of our Class A Common Stock, retained by Lennar after the Distribution. However, our Board may not grant an exemption from these restrictions to any proposed transferee whose ownership of our outstanding stock would result in our being “closely held” within the meaning of Section 856(h) of the Code or otherwise would result in our to qualify as a REIT, and any waivers granted will be subject to certain initial and ongoing conditions designed to protect our status as a REIT. These restrictions on transferability and ownership will not apply, however, if our Board determines that it is no longer in our interest to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to so qualify as a REIT.
The ability of the Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to all of our stockholders.
Our Charter provides that our Board may revoke or otherwise terminate our REIT election if our Board determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT, without stockholder approval. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and will be subject to U.S. federal income tax at regular corporate rates and to state and local taxes, which may have adverse consequences on our total return to our stockholders.
New 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.
The U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in us. The U.S. federal income tax rules dealing with REITs are constantly under review by Congress, the IRS and the U.S. Department of the Treasury, which could result in statutory changes or revisions to regulations and administrative interpretations. There can be no assurance that any such future statutory or regulatory changes will not adversely impact our ability to qualify as a REIT or otherwise adversely affect our business, financial condition or results of operations. Any such changes could have a material adverse effect on an investment in shares of our Common Stock or on the market price thereof. We cannot predict whether, when or to what extent any new U.S. federal tax laws, regulations, or administrative interpretations will impact us or an investment in our shares.
Prospective investors are urged to consult their tax advisors regarding potential future changes to the U.S. federal tax laws on an investment in our stock.
Although REITs are generally taxed favorably as compared with entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal and state income tax purposes as a regular corporation. As a result, our Charter provides our Board with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the approval of our stockholders.
Risks Related to Operating as a Public Company
Our Manager is required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
As a public company, we are subject to the reporting requirements of applicable laws and regulations, including the Exchange Act, Sarbanes-Oxley Act and Dodd-Frank Act, and the rules and regulations of the NYSE, which impose various requirements on listed companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We are entirely reliant on our Manager for compliance with our public company responsibilities. These requirements make some activities more difficult, time-consuming, and costly, and place significant strain on the Manager’s personnel, systems and resources. Our Manager does not have experience managing a public company and may increase the risk of potential non-compliance.
We are relying on the Manager in continuing to evaluate these rules and regulations and cannot predict or estimate the amount of additional costs to the Manager or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting.
Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which require significant resources and management oversight. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. While the Manager will be responsible for ensuring that we have adequate internal controls over financial reporting, which will be paid for by our Manager and covered under the Management Fee, we will be directly impacted if the Manager fails to identify and implement appropriate internal control procedures.
The Management Agreement requires the Manager to ensure that we have internal controls over financial reporting that meet the requirements of federal securities laws. Such internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Our Manager is responsible for ensuring our internal controls and procedures are compliant with applicable laws and regulations, including the Exchange Act, Sarbanes-Oxley Act and Dodd-Frank Act, which require annual management assessment of the effectiveness of our internal control over financial reporting. Implementing any appropriate changes to our internal controls may distract the Manager and its officers and employees from their business operations, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and the design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. The Manager may not have the required experience in monitoring the adequacy of our internal controls as a public company.
We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. Any failure to maintain that adequacy, or consequent inability to produce accurate
financial statements on a timely basis, could increase our operating costs and harm our business. Deficiencies, including any material weakness, in our internal control over financial reporting that may occur in the future could result in misstatements or restatements of our financial statements or a decline in the price of our securities, which could lead to a loss of investor confidence in us and in the reliability of our financial statements. Matters impacting our internal controls may also cause us to be unable to report our financial data on a timely basis, or may cause us to restate previously issued financial data, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. If our investors perceive that our internal controls are or that we are to produce accurate and reliable financial statements on a timely basis, we may see impacts on the trading price of our Class A Common Stock and on our ability to raise additional capital, and on our ability to effectively market and sell our service to new and existing counterparties.
Additionally, when we no longer qualify as a non-accelerated filer, and beginning with the Form 10-K for the fiscal year ending December 31, 2026, our independent registered public accounting firm will be required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis. If we cannot maintain effective procedures or internal control over financial reporting, or our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our Class A Common Stock and in turn the value of our Class B Common Stock could decline.
KL does not have prior experience in managing publicly traded companies.
While Kennedy Lewis has significant experience and expertise in the land banking industry and has worked with Lennar in the past in situations related to land banking, prior to the Spin-Off, it did not have prior experience in managing publicly traded companies. Lennar’s selection of KL as the Manager was solely based on their prior working relationship with Kennedy Lewis and their reliance on Kennedy Lewis’ expertise in offering land banking. Lennar did not engage in a competitive selection process to evaluate KL against other potential manager candidates, including potential managers with relevant experience in managing public companies. Kennedy Lewis was engaged to advise Lennar as a strategic advisor in structuring the Spin-Off with the intention that KL would be retained to manage Millrose following the Spin-Off.
We 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).
As discussed above, we do not have independent management, employees or other personnel. We are entirely reliant on our Manager to provide us with management services. These services extend beyond management of operations at the Millrose Holdings level and, subject to supervision of the Board, include governance and compliance services at the Millrose level, which is subject to all applicable laws, regulations, rules, policies and practices for publicly traded companies, as well as applicable laws, regulations and other requirements for maintaining our status as a REIT.
We engage outside counsel, advisors and experts to assist with our public company compliance, including with respect to reporting and disclosure requirements, controls and compliance requirements, stock exchange rule requirements, among others; however, there can be no assurance that we will be fully compliant with all legal, regulatory, rule and policy requirements to which we are subject at all times. If our Manager fails to adequately manage Millrose and ensure full compliance, or if we are found to be significantly behind traditional land banking entities in adopting and implement corporate governance best practices, our business, financial condition or results of operations, along with our reputation, may be impacted. For example, if we are not fully compliant with applicable reporting and disclosure requirements, we may face investigations and enforcement action from the SEC; if we are not compliant with applicable stock exchange listing requirements, we may we face delisting from the NYSE; and if our governance practices are found or perceived to be inconsistent with those of other public companies, we could face scrutiny, backlash and suits from our stockholders.
Risks Related to Our Common Stock
There 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.
There is currently a limited history of an active trading market for our Class A Common Stock. Furthermore, a robust active trading market for our securities may not be sustained. You may be unable to sell your securities
unless a market can be sustained. Whether an active public trading market for shares of our Class A Common Stock will continue will depend on a number of factors, including the extent of institutional investor interest in us, the reputation of REITs generally and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies), our actual and projected financial results, our distribution policy and general stock and market conditions. Therefore, purchasers of our Class A Common Stock should have a long-term investment intent and should recognize that it may be difficult to sell the shares, notwithstanding the fact that they are not restricted securities.
Our Class B Common Stock is not listed on any exchange or in any other organized market, and may not trade at all, which may limit your ability to transfer shares of Class B Common Stock.
Our Class B Common Stock is not listed on any exchange and we have no intent to list it in the future. Without an active market, our Class B Common Stock might be illiquid assets for which there is not expected to be any secondary market nor is it expected that any will develop in the future. Your ability to transfer shares of Class B Common Stock may be limited as result. As such, you may need to bear the risks of your investment in Class B Common Stock indefinitely. Individual shares of Class B Common Stock cannot be converted into Class A Common Stock. However, the holders of a majority of the outstanding Class B Common Stock can cause the entire class to be converted into Class A Common Stock. If that occurs, Millrose will no longer be authorized to issue Class B Common Stock.
The 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.
As discussed above, there is a limited history of an active trading market for our Class A Common Stock. Further, the lack of public company peers may also increase volatility in the market price of our Common Stock. For many reasons, including the risks identified in this Form 10-K, the market price of our Class A Common Stock may be volatile. These factors may result in short or long-term negative pressure on the value of our Common Stock.
Following the Spin-Off, Lennar owned 20% of the outstanding shares of our Common Stock (in the form of our Class A Common Stock) and disposed of this stock through the Exchange Offer, which expired on November 21, 2025. Lennar may also dispose of additional shares of our Class A Common Stock and our Class B Common Stock that are forfeited back to Lennar by its employees through a subsequent spin-off, split-off, public offering, private sale or any combination of these potential transactions. Additionally, other stockholders may decide to dispose of some or all of our Class A Common Stock that they received in the Spin-Off, which may generally be sold at any time in the public market. Further, as described under “Part I. Item 1. Business— Operational Agreements with Lennar—Founder’s Rights Agreement,” Lennar has an Effective Equity Price Protection Right, whereby in the event that Millrose issues additional shares of our Class A Common Stock (or any other equity securities in a manner consistent with its Charter) within 18 months of the date of the Spin-Off to any Other Counterparty in exchange for future property assets in a transaction consistent with the Applicable Rate Adjustment Right and with an aggregate value in excess of $500 million at a price per share lower than the price per share received by Lennar for the assets transferred to Millrose in connection with the Spin-Off, Millrose must issue an additional number of shares of our Class A Common Stock to Millrose stockholders equal to the number of additional shares the Lennar stockholders who received our Common Stock at the Distribution Date would have received if the Distribution had been executed at the same price per share as what the Other Counterparty received in connection with the Subsequent Bulk Assets Contribution, as calculated in the manner described under “Part I, Item 1. Business—Operational Agreements with Lennar—Founder’s Rights Agreement” and distribute such shares to its stockholders in a stock dividend, subject to approval by the Board and in compliance with Maryland law. If too many stockholders sell our Class A Common Stock at the same time or if the Equity Price Protection Right is exercised, our stock price might be reduced due to the influx of supply, especially if the number of shares being sold saturates the market and there is not enough corresponding demand. The sales of significant amounts of our Class A Common Stock, or the perception in the market that this may occur, may result in the lowering of the market price of our Class A Common Stock, and value of our Class B Common Stock, which may have a material effect on our business, financial condition and results of operations. In particular, the Equity Price Protection Right is for the 18-month period following the Spin-Off, which is a time when the stock price of newly public companies is likely to already be , and so an issuance of a potentially significant amount of additional our Class A Common Stock to Millrose’s stockholders, many of whom may decide to sell into the market following such distribution, would further an already likely stock price.
Your 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.
Our Charter allows us to issue up to the amount authorized and still unissued shares of our Common Stock as set forth in our Charter without stockholder approval, except that any future issuances of shares of our Class B Common Stock requires the affirmative vote of the holders of at least two-thirds of the shares of our Class B Common Stock then outstanding. We are not required to offer any such additional stock to existing holders of Common Stock on a preemptive basis. Holders of shares of preferred stock, if authorized and issued, will generally be entitled to receive distributions, both current and in connection with any liquidation, dissolution or winding up, prior to the holders of our Common Stock. Our Board may elect for us to issue shares of our stock in future public or private offerings, particularly if we require raising additional capital in the market. In accordance with Lennar’s Effective Equity Price Protection Right, if Millrose issues additional shares of our Class A Common Stock (or any other equity securities in a manner consistent with its Charter) within 18 months of the date of the Spin-Off to any Other Counterparty in exchange for future property assets in a transaction consistent with the Applicable Rate Adjustment Right and with an aggregate value in excess of $500 million at a price per share lower than the price per share received by Lennar for the assets transferred to Millrose in connection with the Spin-Off, Millrose must issue an additional number of shares of our Class A Common Stock to Millrose stockholders equal the number of additional shares the Lennar stockholders who received our Common Stock at the Distribution Date would have received if the Distribution had been executed at the same price per share as what the Other Counterparty received in connection with the Subsequent Bulk Assets Contribution, and such shares must be distributed to Millrose’s stockholders in a stock dividend (subject to approval by the Board and in compliance with Maryland law), which could result in an issuance of a significant amount of additional shares of our Class A Common Stock and further dilution for existing stockholders. See “Part I, Item 1. Business—Operational Agreements with Lennar—Founder’s Rights Agreement,” for more information. We may also issue additional shares of our Common Stock (our Class A Common Stock, in most if not all cases) in connection with acquiring any future property assets when entering into new agreements or as part of any ongoing relationships we may have in the future. Any future issuances of our Common Stock, including in connection with future agreements with Other Counterparties and with equity awards pursuant to our 2024 Incentive Plan or any other incentive plan, or preferred stock, will dilute the holdings and voting power of all existing holders. The perception that we may issue additional Common Stock may impact the trading price of our Class A Common Stock and the value of our Class B Common Stock.
In addition, our Board may amend our Charter to increase or decrease the number of authorized shares of stock, or the number of shares of any class or series of stock designated, or reclassify any unissued shares into other classes or series of stock without the necessity of obtaining stockholder approval. All such shares may be issued in the sole discretion of our Board, subject to any NYSE rules and the restrictions on issuing Class B Common Stock summarized above.
We cannot assure you of our ability to pay dividends in the future.
We intend for our annual dividend to be more than 90% of our REIT taxable income on an annual basis, determined without regard to the dividends paid deduction and excluding any net capital gains. Our ability to pay dividends may be adversely affected by a number of factors, including the risk factors described in this Form 10-K. Dividends will be authorized by our Board and declared by us based upon a number of factors, including actual results of operations, restrictions under Maryland law or applicable debt covenants, our financial condition, our taxable income, the annual distribution requirements under the REIT Requirements, our operating expenses and other factors our Board deems relevant. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash dividends or year-to-year increases in cash dividends in the future.
Furthermore, while we are required to pay dividends in order to qualify as a REIT and to maintain our REIT status, we may elect not to maintain our REIT status, in which case we would no longer be required to pay such dividends. Moreover, even if we do elect to maintain our REIT status, we may elect to comply with the applicable distribution requirements by distributing, under certain circumstances, a portion of the required amount in the form of shares of our Common Stock in lieu of cash. If we elect not to maintain our REIT status or to satisfy any required distributions in shares of Common Stock in lieu of cash, such action could negatively affect our business and financial condition as well as the market price of our Common Stock. Notwithstanding our current intention to qualify as a REIT and maintain such status and any current plans or announcements with respect to dividends, no assurance can be given that we will pay any dividends on shares of our Common Stock in the future.
Our ability to pay dividends is limited by the requirements of Maryland law.
Our ability to pay dividends on our Common Stock is limited by the laws of Maryland. Under Maryland law, a Maryland corporation generally may not make a distribution (including a dividend or redemption) if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business, or the corporation’s total assets would be less than the sum of its total liabilities plus, unless the corporation’s charter provides otherwise, the amount that would be needed, if the corporation were dissolved at the time of the dividend, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. Accordingly, we generally may not make a distribution if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus, unless our Charter provides otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are to those receiving the distribution. Any dividends or redemption payments may be or prohibited. As a result, the trading price of our Class A Common Stock and in turn the value of our Class B Common Stock may decrease, which may have a material effect on our business, financial condition and results of operations.
Item 1B. Unr esolved Staff Comments
None.
Item 1C. C ybersecurity
Risks Management and Strategy
We rely on our Manager’s cybersecurity program, to identify, assess, and manage material risks to our business from cybersecurity threats. With oversight from our Board, our Manager and executive officers are responsible for establishing and monitoring the effectiveness of our controls for cybersecurity risk and have implemented an enterprise-wide information security program designed to identify, protect against, detect, assess, respond to, and manage reasonably foreseeable cybersecurity risks and threats to our systems. Our Manager’s cybersecurity risk management processes are integrated into our broader risk management processes and are evaluated in conjunction with other operational and business risks. The program, which is supported in part by third-party consultants and service providers, includes cybersecurity risk assessments, an incident response plan, business continuity planning, as well as ongoing vulnerability scanning and periodic penetration testing. In addition, Kennedy Lewis has implemented mandatory cybersecurity training for all employees and phishing tests designed to raise awareness and educate personnel on cybersecurity risks.
To protect our systems from cybersecurity threats, our Manager uses various security tools that help prevent, identify, escalate, investigate, resolve and recover from identified vulnerabilities and security incidents in a timely manner. These include, but are not limited to, software for employee access monitoring and reporting, threat detection, and mobile device controls.
Cybersecurity threats may also arise from internal sources, including employee misconduct, misuse of authorized access, human error, or failures to follow established security policies and procedures. Our Manager’s cybersecurity program is designed to mitigate such internal risks through access controls, monitoring and logging, segregation of duties, mandatory cybersecurity training, and policies governing acceptable use and data protection.
Our risk management processes include oversight and identification of cybersecurity threats related to third-party service providers. Service provider due diligence may include, as appropriate depending on the nature of the service and the provider’s access to our data, periodic reviews of the provider’s business continuity planning, data protection, and cybersecurity practices, as well as contractual commitments to maintain IT systems in accordance with cybersecurity standards.
As of the date of this Form 10-K, we are not aware of any risks from cybersecurity threats, including as a result of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect us, including in our business strategy, results of operations or financial condition. However, our business is highly dependent on our ability to collect, use, store and manage organizational and property data. If any of our significant information and data management systems do not operate properly or are disabled, we could suffer a material disruption of our business or managing real estate, loss of sensitive data, regulatory intervention, breach of confidentiality or other contract provisions, or reputational damage. These systems may fail to operate properly or become disabled as a result of events wholly or partially beyond our control, including disruptions of electrical or
communications services, natural disasters, political instability, terrorist attacks, sabotage, computer viruses, deliberate attempts to disrupt our computer systems through “hacking,” “phishing,” or other forms of both deliberate or unintentional cyber-attack, or our inability to occupy our office location. See “Part I, Item 1A. Risk Factors” for more information on risks from cybersecurity threats that are reasonably likely to materially affect our business strategy, results of operations and financial condition.
Governance
The Audit Committee of the Board (the “Audit Committee”) oversees Millrose’s cybersecurity risk as part of our overall risk management policies. The Board, including the Audit Committee, receives updates on a quarterly basis from our Manager and executive officers on our cybersecurity program, including measures taken to address cybersecurity risks and significant cybersecurity incidents.
Our Chief Technology Officer (“CTO”) leads the cybersecurity program, and is responsible for developing, implementing, and monitoring our cybersecurity infrastructure and managing our response to threats or security incidents, in coordination with our Manager’s IT and Compliance team. Our General Counsel provides oversight on legal and regulatory aspects of cybersecurity risk management. We engage a third party to assist with cybersecurity risk assessment, policies and documentation, training and tabletop exercises, and vulnerability scanning and penetration testing.
Our CTO has served in this role since February 2025 and has more than ten years of technology and cybersecurity experience. He is concurrently a Managing Director at Kennedy Lewis where he has been responsible for managing the firm’s technology and analytical capabilities since 2022.
Item 2. Pro perties
Our corporate headquarters are located at 600 Brickell Avenue, Suite 1400, Miami, Florida 33131.
We hold homesite properties in connection with our land banking operations throughout the United States, the locations of which are summarized under “Part I. Item 1. Business—Our Objectives and Strategies —Portfolio Overview”. These properties are owned and sold to homebuilders upon exercise of their purchase options under option contracts. We generally do not enter into occupancy arrangements with builders or allow tenants on our homesite properties.
Counterparties are required to maintain adequate builder risk insurance and commercial general liability insurance before commencing Land Development or improvements, and land assets acquired under option agreements must be insured by counterparties consistent with industry standards.
Title and interest in property assets are evaluated on a case-by-case basis as they are acquired, and we obtain certain representations and warranties regarding title and interest from sellers at acquisition. Millrose generally does not obtain appraisals, valuations or fairness opinions for land assets before acquiring them. Millrose did not obtain appraisals, valuations or fairness opinions for the land assets acquired in the Spin-Off from Lennar and in the Rausch Transaction.
Properties in our Real Estate Portfolio are subject to state and local taxes, which are typically borne by homebuilders while their purchase options remain outstanding.
For additional discussion of our Real Estate Portfolio, its utilization in our business and risks associated with holding such properties, see “Part I. Item 1. Business—Our Objectives and Strategies —Portfolio Overview,” “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part I. Item 1A. Risk Factors—Risks Related to Our Business Model and Investment in a Recently Formed Entity” in this Form 10-K.
Item 3. L egal Proceedings
Millrose is not currently a party to any legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.
Item 4. Min e Safety Disclosures
Not applicable.
Part II
Item 5. Market Fo r Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Class A Common Stock has been listed on the New York Stock Exchange under the symbol “MRP” since February 5, 2025. Prior to that date, there was no public trading market for our Common Stock. A “when-issued” trading market for our Class A Common Stock existed between February 5, 2025 and February 7, 2025. We do not intend to list shares of our Class B Common Stock on the NYSE or any other exchange or quotation system, and it is unlikely that there will be a public trading market for our Class B Common Stock. The closing price for our Class A Common Stock on February 23, 2026 was $30.59 per share.
Authorized Capital Stock
Under our Charter, the Company has authorized 275,000,000 shares of Class A Common Stock, par value $0.01 per share, 175,000,000 shares of Class B Common Stock, par value $0.01 per share, and 50,000,000 shares of preferred stock, par value $0.01 per share.
Holders
As of February 23, 2026, we had 166,003,497 shares of Common Stock outstanding. As of February 23, 2026, there were (i) 2,019 record holders of our Class A Common Stock and (ii) 24 record holders of our Class B Common Stock. There were no shares of preferred stock outstanding.
Dividends
We intend to elect to be classified and to qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2025.
We intend to continue to make distributions to our stockholders based on our adjusted funds from operations (“AFFO”). For purposes of determining our cash contributions, the AFFO will be calculated starting with funds from operations (“FFO”), which is the net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate depreciation. FFO will then be adjusted to eliminate the impact of non-recurring items that are not reflective of ongoing operations and certain non-cash items that reduce or increase net income (loss) in accordance with GAAP, and for income tax expense (other than income tax expenses of our TRSs) that will not be incurred following our election and qualification to be subject to tax as a REIT for U.S. federal income tax purposes. Millrose’s computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and, therefore, may not be comparable to such other REITs.
U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay regular corporate income tax rates on any undistributed taxable income to the extent that it annually distributes less than 100% of its taxable income. Cash available for distribution to our stockholders is derived solely from distributions from MPH Parent and interest from the Promissory Notes. All dividends will be made by us at the discretion of our Board and will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants (which are expected to include limits on dividends), applicable law and other factors as our Board deems relevant. Up to 80% of these dividends may be paid in the form of a stock dividend, rather than cash. We cannot guarantee, and there can be no assurance, that we will declare or pay any cash dividends or distributions.
We intend to continue to pay dividends and anticipate that our dividends will generally be taxable as ordinary income to our stockholders, not as income from qualified dividends (which are taxed at a reduced rate), although a portion of the dividends may be designated by us as qualified dividend income or capital gain or may constitute a return of capital. We will furnish annually to each of our stockholders a statement setting forth the dividends paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain.
Our dividend policy enables us to review from time to time alternative funding sources to pay our required distributions. To the extent those funding sources are insufficient to meet our cash needs, or the cost of such financing exceeds the cash flow generated by the Real Estate Portfolio for any period, cash available for distribution could be reduced. To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may pay up to 80% of the dividend in the form of a stock dividend. Also, if the Board believes we should pay at least most of the dividends in cash, we may consider various funding sources to cover any cash shortfall, including borrowing under debt facilities, selling certain of the Real Estate Portfolio (if builders will waive their purchase options) or using a portion of the net proceeds we receive in future offerings. See “Risk Factors—Risks Related to Legal, Regulatory, Tax and Accounting Compliance.”
For purposes of satisfying the minimum distribution requirement to qualify for and maintain REIT status, our taxable income will be calculated without reference to our cash flow. Consequently, under certain circumstances, we may not have available cash to pay our required distributions and a portion of our distributions may consist of our stock or our debt instruments. In either event, a stockholder of ours will be required to report dividend income as a result of such distributions even though we distributed no cash or only nominal amounts of cash to such stockholder.
The following are the Company's dividends as declared by the Board for the years ended December 31, 2025 and 2024, and through the date of this Form 10-K:
Payment Date
Record Date
Dividend per Share
April 15, 2025
April 4, 2025
July 15, 2025
July 3, 2025
October 15, 2025
October 3, 2025
January 15, 2026
January 5, 2026
For federal income tax purposes, the Company’s 2025 dividend distributions (excluding the dividend paid on January 15, 2026, which is treated as a 2026 dividend for tax purposes) were characterized entirely as ordinary taxable dividends per share, with no portion treated as capital gain dividends or return of capital.
There were no dividends declared by the Predecessor Millrose Business for the year ended December 31, 2024.
Stock Repurchases
There were no share repurchases of our Common Stock made during the year ended December 31, 2025.
Stock Performance Graph
The following graph compares the cumulative total return on Millrose Class A Common Stock with the cumulative total return of the S&P 500 Index and the FTSE Nareit All Equity REITs Index for the period from February 7, 2025, the first day Millrose Class A Common Stock began trading on the New York Stock Exchange, through December 31, 2025.
The graph and table assume that $100 was invested in each of Millrose Class A Common Stock, the S&P 500 Index, and the FTSE Nareit All Equity REITs Index on February 7, 2025, and that all dividends were reinvested. The total return values do not include dividends declared, but not paid, during the period. Cumulative returns shown in the graph are based on historical data and do not necessarily indicate future performance.
Millrose
S&P Total
FTSE Nareit All
Properties, Inc
Return Index
Equity REITs Index
February 7, 2025
December 31, 2025
This performance graph shall not be deemed “filed” for purposes of the Section 18 of the Exchange Act, except as expressly set forth by specific reference in such filing.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed with the SEC in connection with the Annual Meeting of Stockholders to be held in 2026 (the “Proxy Statement”).
Recent Sales of Unregistered Securities
None.
Item 6. [Re served]
Item 7. M anagement’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying consolidated financial statements and the notes thereto included elsewhere in this Form 10-K. Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Form 10-K, particularly under the section titled “Cautionary Statement Concerning Forward-Looking Statements.” The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those made, projected, or implied in the forward-looking statements. See the sections titled “Part I, Item 1A. Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the risks, uncertainties, and assumptions associated with these statements.
As further described in Note 1. Description of Business to our consolidated financial statements included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K, we completed the Spin-Off from Lennar on February 7, 2025. The financial information presented herein (i) for the periods prior to the February 7, 2025 Spin-Off is that of the Predecessor Millrose Business and is derived from the consolidated financial statements and accounting records of Lennar, and (ii) for the periods after the February 7, 2025 Spin-Off is that of Millrose and its subsidiaries. Millrose was formed on March 19, 2024 and has operated as an independent company since the Spin-Off on February 7, 2025.
Our Business
Millrose is a corporation incorporated under the laws of the State of Maryland on March 19, 2024. Millrose became an independent, publicly traded company on February 7, 2025 following the Spin-Off from Lennar and its Class A Common Stock is listed on the NYSE under the symbol “MRP”. We purchase and develop residential land and sell finished homesites to homebuilders by way of option contracts with predetermined costs and takedown schedules. We serve as a solution for homebuilders seeking to expand access to finished homesites while implementing an asset-light strategy. As fully developed homesites are sold by Millrose, capital is recycled into future land acquisitions for homebuilders, providing counterparties with durable access to community growth. Our option contracts provide for the payment of recurring option fees paid by our counterparties through the term of the applicable contract. To a lesser extent, we also provide development loans secured by property intended for single-family use to certain third-party counterparties. We are externally managed and advised by KL pursuant to the Management Agreement.
The Spin-Off and Related Transactions
On the Distribution Date, we completed our Spin-Off from Lennar through a distribution of approximately 80% of Millrose’s outstanding Common Stock to holders of Lennar Common Stock as of the close of business on January 21, 2025. In connection with the Spin-Off, we received a contribution from Lennar of approximately $5.5 billion in land assets, representing approximately 87,000 homesites, and cash of approximately $1.0 billion, which included $585 million of cash deposit liabilities related to option contracts with Lennar.
On February 10, 2025, we completed the acquisition of land consisting of approximately 25,000 homesites through the acquisition of 100% of the outstanding stock of RCH Holdings, Inc., a recently formed parent holding company of Rausch, for approximately $859 million in cash, which is net of option deposits funded by Lennar and other holdbacks.
On October 10, 2025, Lennar exercised its registration rights pursuant to the Registration Rights Agreement and commenced the Exchange Offer. On November 26, 2025, Lennar announced the results of the Exchange Offer through which Lennar accepted an aggregate of 8,049,594 shares of Lennar Class A common stock in exchange for 33,298,754 shares of Class A Common Stock of Millrose. The Exchange Offer was completed on November 28, 2025. As a result, Lennar now owns a de minimis amount of Common Stock following the completion of the Exchange Offer.
New Home Transaction
On May 12, 2025, the Company entered into a commitment with New Home for Millrose to provide land banking capital of up to $700 million to support New Home’s acquisition of Landsea. On June 25, 2025, New Home completed the acquisition of Landsea and the Company funded land banking capital of $494.5 million at closing for the acquisition of a portfolio of homesites on which the Company executed option agreements with New Home. As a result of the transaction, the Company acquired $522.8 million in land assets, consisting of 4,186 homesites for $494.5 million in cash, which is net of deposits of $28.3 million related to the option contracts.
In connection with the New Home transaction, on June 24, 2025, the Company entered into the DDTL Credit Agreement that provided for a delayed draw term loan facility with commitments in the aggregate amount of $1.0 billion that was scheduled to mature on June 23, 2026. Proceeds of the DDTL Credit Agreement were used to fund the New Home acquisition of Landsea and any remaining proceeds were available for general corporate purposes. On September 11, 2025, the DDTL Credit Agreement was terminated and all obligations thereunder were repaid in full (as further described below).
Senior Notes
On August 7, 2025, the Company completed the offering of $1.25 billion aggregate principal amount of the 2030 Notes (the “August 2025 Offering”). Net proceeds of the August 2025 Offering were used to repay $500 million principal amount outstanding under the DDTL Credit Facility and $450 million principal amount outstanding under the Revolving Credit Facility, and the remainder was used for general corporate purposes.
On September 11, 2025, the Company completed the offering of $750 million aggregate principal amount of the 2032 Notes (the “September 2025 Offering”). Net proceeds of the September 2025 Offering were used to repay the entire $500 million remaining principal amount outstanding under the DDTL Credit Facility, and related expenses. The remainder was used for general corporate purposes.
Invested Capital as of December 31, 2025
Invested Capital is a non-GAAP financial measure that represents the balance on which monthly cash option fees are paid by counterparties. Invested Capital includes certain components of our consolidated financial statements related to (i) homesites under option contracts, (ii) development loans receivable, and (ii) liabilities. The most directly comparable GAAP financial measure is homesites under option contracts as presented in the Company’s consolidated balance sheets. Management uses Invested Capital as a measure of the capital deployed and believes that the figure is useful to investors because it serves as the basis for generating option fees and other related income. This non-GAAP measure is presented solely to permit investors to understand how our management assesses underlying performance and is not, and should not be viewed as, a substitute for GAAP measures, and should be viewed in conjunction with our GAAP financial measures.
Invested Capital Activity for the Year Ended December 31, 2025
The table below reconciles GAAP reported homesites under option contracts to Invested Capital as of December 31, 2025 and summarizes invested capital activity for the year ended December 31, 2025:
Year Ended December 31, 2025
(in thousands)
Master
Program
Agreement
Other
Agreements
Total
Invested Capital Reconciliation of GAAP to Non-GAAP
GAAP reported homesites under option contracts as of December 31, 2025
Add: Development loan receivables (gross)
Remove: Interest receivable on development loans
Remove: Due from counterparties (1)
Remove: Net deferred tax assets and deferred tax liabilities from homesite inventories
Remove: Earnest deposits from homesites under option contracts
Remove: Homesites under option contracts acquired through purchase money mortgages
Add: Development holdback liability
Add: Builder deposit liabilities
Total Invested Capital as of December 31, 2025
Invested Capital
Invested Capital as of February 10, 2025 (2)
Takedown Proceeds (3)
Land Acquisition and Development Funding (4)
Invested Capital as of December 31, 2025
(in millions)
Weighted Average Yield as of December 31, 2025 (5)
Implied Quarterly Income Run Rate as of December 31, 2025 (6)
Weighted Average Remaining Life as of December 31, 2025 (7)
3.3 Years
2.0 Years
3.0 Years
Weighted Average Maturity as of December 31, 2025 (8)
64 Months
35 Months
57 Months
Includes option fees received from counterparties in the subsequent month.
Includes homesites under option contracts contributed by Lennar at Spin-Off and acquired from Rausch, less option earning deposits and other holdbacks.
Reduction in investment balance for the year ended December 31, 2025 from (a) homesite takedowns pursuant to option agreements, net of deposit credits adjusted for non-option earning deposits, and (b) repayment of development loans.
Includes acquisitions of homesites under option contracts, net of option earnings deposits, and development loan funding for the year ended December 31, 2025.
Based on average option rate and/or loan interest rate weighted by investment balance, assumes SOFR rate as of September 26, 2025.
Calculated by multiplying Invested Capital balance at end of period by weighted average yield as of December 31, 2025.
Calculated by taking weighted average life per each community weighted by investment balance.
Calculated by taking months until the final scheduled homesite sale per each community weighted by investment balance.
During the year ended December 31, 2025, we funded $2.862 billion for land acquisition and development and received $3.168 billion in net takedown proceeds under the Master Program Agreement at a weighted average yield of 8.5%. We funded $2.623 billion for land acquisition and development and received $254.9 million in net takedown proceeds for Other Agreements during this period at a weighted average yield of 11%. On a total portfolio basis, the weighted average yield was 9.2% as of December 31, 2025.
Invested Capital Activity for the Three Months Ended December 31, 2025
The table below reconciles GAAP reported homesites under option contracts to Invested Capital as of December 31, 2025 and summarizes invested capital activity for the three months ended December 31, 2025:
Three Months Ended December 31, 2025
(in thousands)
Master
Program
Agreement
Other
Agreements
Total
Invested Capital Reconciliation of GAAP to Non-GAAP
GAAP reported homesites under option contracts as of December 31, 2025
Add: Development loan receivables (gross)
Remove: Interest receivable on development loans
Remove: Due from counterparties (1)
Remove: Net deferred tax assets and deferred tax liabilities from homesite inventories
Remove: Earnest deposits from homesites under option contracts
Remove: Homesites under option contracts acquired through purchase money mortgages
Add: Development holdback liability
Add: Builder deposit liabilities
Total Invested Capital as of December 31, 2025
Invested Capital
Invested Capital as of September 30, 2025 (2)
Takedown Proceeds (3)
Land Acquisition and Development Funding (4)
Invested Capital as of December 31, 2025
(in millions)
Weighted Average Yield as of December 31, 2025 (5)
Implied Quarterly Income Run Rate as of December 31, 2025 (6)
Weighted Average Remaining Life as of December 31, 2025 (7)
3.3 Years
2.0 Years
3.0 Years
Weighted Average Maturity as of December 31, 2025 (8)
64 Months
35 Months
57 Months
Includes option fees received from counterparties in the subsequent month.
Includes (a) homesite under option contracts contributed by Lennar at Spin-Off and acquired from Rausch, less option earning deposits and other holdbacks, and (b) takedown, land acquisition and development funding activity through September 30, 2025.
Reduction in investment balance for the three months ended December 31, 2025 from (a) homesite takedowns pursuant to option agreements, net of deposit credits adjusted for non-option earning deposits, and (b) repayment of development loans.
Includes acquisitions of homesites under option contracts, net of option earnings deposits, and development loan funding for the three months ended December 31, 2025.
Based on average option rate and/or loan interest rate weighted by investment balance, assumes SOFR rate as of September 26, 2025.
Calculated by multiplying Invested Capital balance at end of period by weighted average yield as of December 31, 2025, adjusted for the number of days in the fourth quarter 2025.
Calculated by taking weighted average life per each community weighted by investment balance.
Calculated by taking months until the final scheduled homesite sale per each community weighted by investment balance.
During the three months ended December 31, 2025, we funded $650.9 million for land acquisition and development and received $884.7 million in net takedown proceeds under the Master Program Agreement at a weighted average yield of 8.5%. We funded $689.4 million for land acquisition and development and received $139.3 million in net takedown proceeds for Other Agreements during this period at a weighted average yield of 11%. On a total portfolio basis, the weighted average yield was 9.2% as of December 31, 2025.
Properties as of December 31, 2025
As of December 31, 2025, our homesite assets consisted of 933 properties (also known as communities) in 30 states across the United States, totaling approximately 142,139 homesites, with an approximate aggregate value of $8.9 billion of homesites under option contracts. Of the homesites owned as of December 31, 2025, we expect the total takedown prices of all homesites to be approximately $16.1 billion, and the total estimated development costs of homesites to be approximately $6.8 billion.
As of December 31, 2025, our property assets are collectively located across 30 U.S. states. Approximately 50% of the property assets are concentrated in three states (California, Florida, Texas) and approximately 41% are located in two strong housing market states: Florida and Texas (where we believe the market has healthy underlying demographic and/or economic trends primarily driven by generally steadily growing population).
The below table shows the location, number of properties, number of underlying homesites and expected total takedown prices of our properties as of December 31, 2025:
State Location
Number of
Properties
Number of
Underlying
Homesites (1)
Total
Takedown
Prices
Alabama
Arizona
Arkansas
California
Colorado
Delaware
Florida (2)
Georgia
Idaho
Illinois
Indiana
Kansas
Maryland
Minnesota
Missouri
Nevada
New York
New Jersey
North Carolina
Oklahoma
Oregon
Pennsylvania
South Carolina
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
West Virginia
Total
Or prospective homesites if fully entitled, as applicable.
Excludes properties, homesites, and takedown prices for investments associated with development loans.
The below table is a summary of our pools of properties included in our property assets as of December 31, 2025:
Total
Number of Homesites (1)
Lennar
Other Agreements
Invested Capital ($ in billions) (2)
Lennar
Other Agreements
Number of Counterparties
Number of Pools
Portfolio Pooled % (3)
Homesites Delivered
Number of Terminated Properties
Number of homesites excludes investments associated with development loans.
Homesites under option contracts and gross development loans receivables, less deposits, deferred tax liability, interest receivable on development loans, homesites under option contracts acquired through purchase money mortgages, and other holdbacks on post-spin acquired assets.
Calculated as total amount of invested capital that is within a pool.
As of December 31, 2025, we had 142,139 homesites with 15 counterparties which were included in 66 separate pools, in accordance with the applicable Multiparty Cross Agreements. The portfolio pooled was 96%, of which 100% was pooled under the Master Program Agreement.
Components of Results of Operations
The following is a summary of the key components of our operations for the year ended December 31, 2025:
Revenues
Our primary source of revenue is income generated from holding land under option contracts. The Company accounts for these contracts under ASC 842 Leases because the Company transfers elements of control of the homesites to the counterparties during the option contract period. The Company owns title to and holds land during the development period and grants our counterparties under these contracts exclusive options to purchase land at predetermined prices and takedown schedules. In return the Company earns income on our homesites under option contracts through recurring option fees paid by our counterparties through the term of the applicable option contract. We also derive development loan income from interest earned on the outstanding loan balance of development loans secured by residential property.
Costs
Operating Expenses: Our operating expenses after the Spin-Off include Management Fees paid to KL for management and advisory services. The Management Fee is calculated as 1.25% of Tangible Assets (as defined in the Management Agreement). All personnel are employed by the Manager or an affiliate of the Manager, and their salaries are paid by the Manager or affiliate, as relevant; therefore, we do not record personnel-related expenses, including salaries, benefits, and share-based compensation for any employees. All cash compensation paid to our Board and certain general and administrative expenses are covered by the Management Fee. The Management Fee does not cover offering expenses, costs incurred for services in connection with extraordinary litigation and mergers and acquisitions and other events outside of Millrose’s ordinary course of business, and, in some circumstances, costs associated with the ownership and maintenance of land. Any such expenses that are not covered by the Management Fee are paid for by Millrose and are recorded as general and administrative expenses or other expenses, as appropriate under GAAP. Certain of our option agreements provide (and new option agreements in the future may provide) for reimbursement by the counterparties of our transaction and/or asset management expenses, including third-party legal, diligence and servicing costs, and may include certain amounts paid by such counterparties directly to affiliates of the Manager in connection with related services provided to by such affiliates to the applicable counterparties. Our operating expenses include stock-based compensation for RSUs granted to each member of the Board during the fiscal year ended December 31, 2025. The Company records the RSU award costs on a straight-line basis over the RSU vesting period as stock-based compensation in operating expenses. The
Company also records a provision for credit losses in accordance with ASC 326 Financial Instruments – Credit Losses (“CECL”).
Operating expenses prior to the Spin-Off include salaries, general and administrative expenses. These expenses have been allocated from Lennar based on a reasonable proportional cost allocation method primarily based directly on headcount, usage, or other allocation methods depending on the nature of the services.
Other Income and Expenses: We record interest income earned on our cash balances held with financial institutions as other income as it is not part of the primary activities of the business. Other expenses also include (i) interest expense related to our Revolving Credit Facility and our DDTL Credit Facility (collectively, the “Credit Agreements”), and the Senior Notes, and (ii) other expenses related to rating agency fees, legal fees, audit fees, and bank fees.
Results of Operations for the Years Ended December 31, 2025, 2024, and 2023
The following discussion describes the results of operations for years ended December 31, 2025, 2024, and 2023. The financial data includes the combined results of operations for the Predecessor Millrose Business prior to the Spin-Off and the Millrose business after the Spin-Off. The results of operations include activity related to the acquired Rausch land assets from the February 10, 2025 acquisition date through December 31, 2025. We have a single operating and reportable segment in accordance with GAAP and our operations are conducted in the United States.
Years ended December 31,
Revenues:
Option fee revenues
Development loan income
Total revenues
Operating expenses:
Management fee expense
Stock-based compensation expense
Provision for credit loss expense
Sales, general, and administrative expenses from pre-spin periods
Total operating expenses
Income (loss) from operations
Other income (expense):
Interest income
Interest expense
Other expenses
Total other income (expense)
Net income (loss) before income taxes
Income tax expense
Net income (loss)
Adjustment for expenses from pre-spin periods
Net income attributable to Millrose Properties, Inc. Common stockholders
Year Ended December 31, 2025 Versus Year Ended December 31, 2024
Overview of Net Income (Loss)
Our net income was $379.9 million for the year ended December 31, 2025, compared to a net loss of $246.2 million for the year ended December 31, 2024. Net income was higher due to (i) revenues earned after the Spin-Off and (ii) lower actual operating expenses after the Spin-Off versus an allocation prior to the Spin-Off, partially offset by (a) higher net interest expense, (b) higher tax provision, and (c) higher other expenses.
Option Fee Revenues
Option fees revenues were $570.9 million for year ended December 31, 2025, compared to $0 for the year ended December 31, 2024. For the year ended December 31, 2024, the Predecessor Millrose Business did not generate option fee revenues because the inventories of the Predecessor Millrose Business were not subject to purchase option contracts with homebuilders. The principal operating activities related to finished homesites were conducted by the Predecessor Millrose Business’s parent company, who sold those homesites to Lennar counterparties.
Development Loan Income
Development loan income was $29.5 million for the year ended December 31, 2025, compared to $0 for the year ended December 31, 2024. For the year ended December 31, 2024, the Predecessor Millrose Business did not generate development loan income because there were no principal operating activities related to development loans.
Management Fee Expense
Management fee expense was $87.8 million for the year ended December 31, 2025, compared to $0 for the year ended December 31, 2024.
Stock-based Compensation Expense
Stock-based compensation expense related to RSUs granted to the Board was $0.7 million for the year ended December 31, 2025. Stock-based compensation expense for the Predecessor Millrose Business was $10.1 million for the year ended December 31, 2024 and was aggregated in sales, general, and administrative expenses in the consolidated statements of operations of the Predecessor Millrose Business.
Provision for Credit Loss Expense
Provision for credit loss expense related to development loans was $1.0 million for the year ended December 31, 2025. For the year ended December 31, 2024, the Predecessor Millrose Business did not have a provision for credit loss expense because it did not hold homesites under option contracts or development loans.
Sales, General and Administrative Expenses from pre-Spin-Off Periods
Sales, general and administrative expenses from pre-Spin-Off periods were $25.0 million for the year ended December 31, 2025, compared to $246.2 million for the year ended December 31, 2024. These allocated expense amounts primarily include expenses from operating and employee compensation costs for dedicated regional and divisional land teams tasked with acquiring and developing the land inventories.
Other Income (Expense)
Other income (expense) was a net expense of $85.7 million for the year ended December 31, 2025, compared to $0 for the year ended December 31, 2024. Other income and expense for the year ended December 31, 2025 includes (i) interest expense for the Credit Agreements and Senior Notes of $91.8 million, and (ii) other expenses of $1.6 million, which was partially offset by interest income of $7.7 million earned on cash balances held in the Company’s operating bank accounts.
Net Income (Loss) Before Income Taxes
Net income before income taxes was $400.4 million for the year ended December 31, 2025, compared to a net loss of $246.2 million for the year ended December 31, 2024. The increase in net income before income taxes is due to (i) revenues earned after the Spin-Off and (ii) lower operating expenses due to lower management service fees after the Spin-Off compared to sales, general, and administrative expenses allocated prior to the Spin-Off, partially offset by (a) higher net interest expense for the Credit Agreements and Senior Notes, (b) higher tax provision, and (c) higher other expenses.
Income Tax Expense
The provision for income taxes for the year ended December 31, 2025 was $20.5 million, compared to $0 for the year ended December 31, 2024. The tax provision for the year ended December 31, 2025, as determined and calculated from the activities in our TRSs, resulted in an overall effective tax rate of 24.8%. There was no income tax expense for the Predecessor Millrose Business for the year ended December 31, 2025 due to offsetting changes in the valuation allowance against its deferred taxes that reduced income tax and effective tax rate to zero. See Note 10. Income Taxes in the consolidated financial statements for more information.
Year Ended December 31, 2024 Versus Year Ended December 31, 2023
Revenues
For each of the fiscal years ended December 31, 2024 and 2023, the Predecessor Millrose Business had no revenues because the Predecessor Millrose Business was not subject to purchase option contracts with homebuilders or development loans. All finished homesites were transferred to the Predecessor Millrose Business’s parent company, who sold those homes to Lennar counterparties.
Sales, general, and administrative expenses from pre-spin periods
While the Predecessor Millrose Business had no revenues during the fiscal years ended December 31, 2024 and 2023, salaries, general and administrative expenses were allocated to it from Lennar based on a specific identification basis or, when specific identification was not practicable, a reasonable proportional cost allocation method primarily based directly on headcount, usage, or other allocation methods depending on the nature of the services. Salaries, general and administrative expenses were $246.2 million for the year ended December 31, 2024, as compared to $209.8 million for the year ended December 31, 2023. These allocated expense amounts for both fiscal years included expenses from operating and employee compensation costs for dedicated regional and divisional land teams tasked with acquiring and developing the land inventories. The $36.4 million increase between salaries, general and administrative expenses from fiscal year ended December 31, 2023 to fiscal year ended December 31, 2024 is primarily due to an increase in headcount and an increase in the compensation cost per employee allocated from Lennar since the prior year period.
Provision for Income Taxes
For each of the fiscal years ended December 31, 2024 and 2023, the Predecessor Millrose Business recorded no tax provision. See Note 10. Income Taxes in the consolidated financial statements for more information.
Net Loss
For the fiscal years ended December 31, 2024 and 2023, the Predecessor Millrose Business had a net loss of $246.2 million and $209.8 million, respectively. The net loss the Predecessor Millrose Business recognized in each of these two fiscal years was mainly due to the salaries, general and administrative expenses allocated to it by Lennar.
Adjusted Funds from Operations
Our reported results are presented in accordance with GAAP. We also disclose Adjusted Funds from Operations (“AFFO”), which is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that AFFO is useful to investors because it is a widely accepted industry measure used by analysts and investors to compare the operating performance of REITs.
We calculate AFFO by starting with Nareit’s definition of funds from operations (“FFO”), which is the net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate depreciation, as applicable. During this period, there were no applicable adjustments to net income of the Company to calculate FFO. We then calculate AFFO by adjusting net income to eliminate the impact of non-recurring items that are not reflective of operations and certain non-cash items that reduce or increase net income (loss) in accordance with GAAP, and also adjusted for income tax expense (other than income tax expenses of our TRS) that will not be incurred following our election and qualifications to be subject to tax as a REIT for U.S. federal income tax purposes. As shown in the tables below, certain non-recurring and non-cash transactions added back for the three months and year ended December 31, 2025 include non-cash components of compensation expense,
amortization of financing and issuance costs for our Credit Agreements and Senior Notes, provision for credit loss expense, and non-recurring agency expenses related to the Spin-Off.
Other REITs may not define AFFO in the same manner as we do and therefore our calculation of AFFO may not be comparable to such other REITs. You should also not consider AFFO to be an alternative to net income or as a reliable measure of our operating performance.
The table below is a reconciliation of GAAP net income to AFFO and GAAP earnings per share to AFFO earnings per share for the year ended December 31, 2025.
Year Ended
(in thousands, except share amounts)
December 31, 2025
Net income attributable to Millrose Properties, Inc. common stockholders
Adjustments:
Add: Amortization of deferred financing and issuance costs (1)
Add: Rating agency expenses (2)
Add: Provision for credit loss expense (3)
Add: Stock-based compensation expense (4)
Total adjustments
AFFO attributable to Millrose Properties, Inc. common stockholders
AFFO basic earnings per share of Class A and Class B Common Stock
AFFO diluted earnings per share of Class A and Class B Common Stock
Reconciliation of GAAP earnings per share to AFFO per share
GAAP reported basic and diluted earnings per share of Class A and Class B Common Stock
Adjustments:
Add: Amortization of deferred financing and issuance costs (1)
Add: Rating agency expenses (2)
Add: Provision for credit loss expense (3)
Add: Stock-based compensation (4)
AFFO basic and diluted earnings per share of Class A and Class B Common Stock
Basic weighted average common shares outstanding of Class A and Class B Common Stock
Diluted weighted average common shares
Reflected in interest expense in the consolidated statements of operations. See Note 8. Debt Obligations in the consolidated financial statements. Includes $11.9 million accelerated amortization for the DDTL Credit Agreement termination.
Reflected in other expenses in the consolidated statements of operations. See Note 2. Basis of Presentation and Significant Accounting Policies, Other Income (Expenses) in the consolidated financial statements.
Provision for credit losses for development loan receivables. See Note 2. Basis of Presentation and Significant Accounting Policies, Development Loan Receivables in the consolidated financial statements
RSUs granted to each member of the Board under the 2024 Incentive Plan. See Note 12. Stock-Based Compensation in the consolidated financial statements.
The table below is a reconciliation of GAAP net income to AFFO and GAAP earnings per share to AFFO earnings per share for the three months ended December 31, 2025.
Three Months Ended
(in thousands, except share amounts)
December 31, 2025
Net income attributable to Millrose Properties, Inc. common stockholders
Adjustments:
Add: Amortization of deferred financing and issuance costs (1)
Add: Rating agency expenses (2)
Add: Provision for credit loss expense (3)
Add: Stock-based compensation expense (4)
Total adjustments
AFFO attributable to Millrose Properties, Inc. common stockholders
AFFO basic earnings per share of Class A and Class B Common Stock
AFFO diluted earnings per share of Class A and Class B Common Stock
Reconciliation of GAAP earnings per share to AFFO per share
GAAP reported basic and diluted earnings per share of Class A and Class B Common Stock
Adjustments:
Add: Amortization of deferred financing and issuance costs (1)
Add: Rating agency expenses (2)
Add: Provision for credit loss expense (3)
Add: Stock-based compensation (4)
AFFO basic and diluted earnings per share of Class A and Class B Common Stock
Basic weighted average common shares outstanding of Class A and Class B Common Stock
Diluted weighted average common shares
Reflected in interest expense in the consolidated statements of operations. See Note 8. Debt Obligations in the consolidated financial statements.
Reflected in other expenses in the consolidated statements of operations. See Note 2. Basis of Presentation and Significant Accounting Policies, Other Income (Expenses) in the consolidated financial statements.
Provision for credit losses for development loan receivables. See Note 2. Basis of Presentation and Significant Accounting Policies, Development Loan Receivables, net in the consolidated financial statements.
RSUs granted to each member of the Board under 2024 Incentive Plan. See Note 12. Stock-Based Compensation in the consolidated financial statements.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to fund investments and operations, make distributions to our stockholders and meet other general business needs.
As of December 31, 2025, we had $35.0 million cash on hand and approximately $1.225 billion capacity under our Revolving Credit Facility. Our primary sources of liquidity are cash flows from operations and debt financing under our Revolving Credit Facility of $1.335 billion and our Senior Notes of $1.969 billion, net of issuance costs. We believe that our existing cash on hand, cash generated from operations and available capacity under the Revolving Credit Facility will be sufficient to meet our liquidity needs in the short and long term. In the future, we may seek to further raise capital or engage in other forms of borrowings in order to fund future investments or to refinance existing indebtedness. Our ability to satisfy our liquidity requirements depends on our future operating performance, which is affected by prevailing economic conditions, market conditions in the real estate industry and other factors, many of which are beyond our control.
At December 31, 2024, the Predecessor Millrose Business had no cash on hand. Millrose did not have any business operations through its subsidiaries until the completion of the Spin-Off and therefore did not require cash for any operations prior to the Spin-Off.
The Predecessor Millrose Business’s debt at December 31, 2024 and December 31, 2023 was $24.2 million and $32.6 million, respectively. The Predecessor Millrose Business’s debt consisted of promissory notes for the
acquisition of land and community development district bonds, with the interest rate of 0.0% and various maturity dates through 2028. The Predecessor Millrose Business had no third-party financing instruments such as credit facilities, term loans and commercial paper programs at December 31, 2024 or December 31, 2023.
Cash Flows for the Years Ended December 31, 2025, 2024, and 2023
Our cash flows for the years ended December 31, 2025, 2024, and 2023 were as follows:
Years ended December 31,
(in thousands)
Cash flows from (used in)
Operating activities
Investing activities
Financing activities
Net increase in cash
Cash Flows from Operating Activities
Net cash from operating activities was $3.673 billion for the year ended December 31, 2025. Cash inflows included cash generated from takedowns of homesites under option contracts net of deposit credits, option fees from homesites under option contracts, interest paid-in-kind under our development loan agreements, and interest earned on cash held in our bank accounts for operating purposes. Our cash flows from operating activities also included the Predecessor Millrose Business pre-Spin-Off net loss of $25.0 million. Cash outflows consisted of payments of the Management Fee, interest on new debt obligations, and other operating expenses since the Spin-Off.
The increase in cash from operating activities for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily driven by cash received from takedowns net of option deposits credits, option fees related to the Company's homesites under option contracts, and payments received from our development loan agreements following the Spin-Off. The Predecessor Millrose Business did not generate operating cash flows from these activities prior to the Spin-Off. The increases partially offset primarily by higher interest payments we have made on the debt obligations that we have entered into since the Spin-Off.
Net cash provided by operating activities for the year ended December 31, 2024 primarily consisted of the Predecessor Millrose Business pre-Spin-Off net loss, and allocations for increases in stock-based compensation and inventory, partially offset by increases in account payable and accrued expenses. The decrease in operating cash flows for the year December 31, 2024 compared to December 31, 2023 was primarily due to higher Predecessor Millrose Business pre-Spin-Off net loss. All cash used in operating activities for both the fiscal years ended December 31, 2024 and 2023 was allocated to the Predecessor Millrose Business by Lennar and was not generated by the Predecessor Millrose Business itself.
Cash Flows from Investing Activities
Net cash used in investing activities was $5.722 billion for the year ended December 31, 2025. Investing cash outflows consisted of cash paid to acquire the Rausch homesites, cash used to acquire homesites for our homesite option platform net of option deposits, and loans made to counterparties under our development loan agreements. These investing cash outflows were partially offset by option deposit payments received related to the inventory contributed by Lennar at the Spin-Off and principal payments received from counterparties under our development loan agreements.
The decrease in cash from investing activities for the year ended December 31, 2025 compared to the year ended December 31, 2024 reflects our transition from the Predecessor Millrose Business and our strategy to grow our homesite option platform through the acquisition of homesites under option contracts and through the Rausch transaction. The decrease is partially offset by the option deposits and principal payments received under our development loan agreements.
Cash Flows from Financing Activities
Net cash from financing activities was $2.084 billion for the year ended December 31, 2025. Financing cash inflows consisted of cash contributed by Lennar at the Spin-Off and proceeds received from our debt obligations related to the Revolving Credit Facility, DDTL Credit Facility, and Senior Notes. These financing cash inflows were partially offset by deal costs related to the Spin-Off, financing costs related to our debt obligations, principal repayments of the Revolving Credit Facility and DDTL Credit Facility, dividends paid to our stockholders, and payments on a seller note related to a community acquired from Lennar.
The increase in net cash from financing activities for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily reflected the transition of the Predecessor Millrose Business to our standalone post-Spin-Off capital structure which included cash contributions at the Spin-Off and issuances of new debt, partially offset by principal payments related to our debt obligations and dividends paid to stockholders. Financing activities of the Predecessor Millrose Business for the year ended December 31, 2024 included only net transfers from Lennar and limited debt activity.
Net cash from financing activities for the year ended December 31, 2024 was $917.2 million and primarily consisted of transfers from Lennar of $930.7 million, partially offset by debt repayments of $13.5 million. The increase in net cash provided by financing activities for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to higher net transfers from Lennar and lower debt repayments. All cash from financing activities for both the fiscal years ended December 31, 2024 and 2023 was allocated to the Predecessor Millrose Business by Lennar and was not generated by the Predecessor Millrose Business itself.
See Note 8. Debt Obligations to our consolidated financial statements included in “Part II, Item 8 Financial Statements and Supplementary Data” of this Form 10-K for further description.
Revolving Credit Facility
On the Distribution Date, the Company entered into the Revolving Credit Agreement with a consortium of lenders party thereto and JPMorgan Chase Bank, N.A., as the Revolver Agent. The Revolving Credit Agreement provides for commitments in an aggregate amount of $1.335 billion. Outstanding borrowings under the Revolving Credit Facility were $110 million as of December 31, 2025. Availability under the Revolving Credit Agreement is subject to a borrowing base updated quarterly (or, at our option, monthly), which is calculated by reference to the value of certain real property assets, with advance rates that vary by asset category, and unrestricted cash and cash equivalents, with adjustments as specified in the Revolving Credit Agreement. The Revolving Credit Facility may be used by us to borrow loans or obtain standby letters of credit.
Loans under the Revolving Credit Agreement bear interest at the Adjusted Term SOFR Rate (as defined in the Revolving Credit Agreement) plus an applicable margin at the per annum rate of (i) 2.00%, if the Leverage Ratio (as defined in the Revolving Credit Agreement) is less than or equal to 0.30 to 1.00, (ii) 2.25% if Leverage Ratio is greater than 0.30 to 1.00 and less than or equal to 0.40 to 1.00, and (iii) 2.50% if the Leverage Ratio is greater than 0.40 to 1.00. At the Company's option, loans may instead bear interest at the Alternate Base Rate (as defined in the Revolving Credit Agreement) plus an applicable margin at the per annum rate of 1.00%, 1.25% or 1.50%, depending upon the Leverage Ratio.
Obligations under the Revolving Credit Agreement are secured by pledges by the Company of (i) the Promissory Notes and (ii) the equity interests of MPH Parent and certain other subsidiaries. In addition, the Revolving Credit Agreement requires the Company to pledge (i) certain future intercompany promissory notes and (ii) the equity interests of certain subsidiaries whose equity interests are not pledged to secure intercompany promissory notes. Pursuant to an intercreditor agreement (the “ICA”), dated as of June 24, 2025, by and among the DDTL Administrative Agent and the Revolver Agent, the DDTL Administrative Agent and the Revolver Agent agreed that certain liens on Shared Collateral (as defined in the ICA) securing the DDTL Credit Agreement and the Revolving Credit Agreement were of equal priority, and certain distributions made in respect of Shared Collateral were to be shared on a ratable basis. The ICA was terminated in connection with the prepayment of all outstanding obligations under the DDTL Credit Agreement.
On August 1, 2025, SPE LLC was joined as a guarantor to the Revolving Credit Agreement. On November 21, 2025, MPSAB, LLC was joined as a guarantor to the Revolving Credit Agreement. As of December 31, 2025, there were no other guarantors under the Revolving Credit Agreement. We may elect to join certain of our subsidiaries to the Revolving Credit Agreement as guarantors from time to time, and in certain circumstances, the
Revolving Credit Agreement requires us to cause certain of our other subsidiaries that are not Taxable REIT Subsidiaries (as defined in the Revolving Credit Agreement) to become guarantors.
On November 21, 2025, the Company entered into Amendment No.1 to the Revolving Credit Facility. The Revolving Credit Facility was amended pursuant to Amendment No.1 to the Revolving Credit Facility to revise certain definitions to effect the granting, perfection, protection, expansion or enhancement of certain security interests for the benefit of the secured creditors thereunder in connection with an internal reorganization of certain subsidiaries of the Company.
The Revolving Credit Agreement includes affirmative and negative covenants applicable to us and our subsidiaries, including limitations regarding liens, investments, asset sales, transactions with affiliates, restrictive agreements, mergers and other fundamental changes, permitted lines of business, financial contracts, and designation of unrestricted subsidiaries. The Revolving Credit Agreement contains financial covenants, tested quarterly, consisting of a maximum Leverage Ratio, a minimum interest coverage ratio, and a minimum tangible net worth. The Revolving Credit Agreement also requires us to be in compliance with all REIT Requirements. As of December 31, 2025, we were in compliance with all covenants under the Revolving Credit Agreement.
The Revolving Credit Agreement contains events of default, including if KL shall cease to be our manager and a replacement manager reasonably acceptable to the required lenders is not appointed within 90 days.
The Revolving Credit Agreement is scheduled to mature on February 7, 2028 (the “Revolving Maturity Date”). Principal amounts and other obligations outstanding under the Revolving Credit Facility are due in full on the Revolving Maturity Date. Interest on each drawdown is due quarterly for loans bearing interest at the Alternate Base Rate and on the last day of the applicable interest payment date for loans bearing interest at the Adjusted Term SOFR Rate.
See Note 8. Debt Obligations to our consolidated financial statements included in “Part II, Item 8 Financial Statements and Supplementary Data” of this Form 10-K for further description.
Delayed Draw Term Loan Facility
On June 24, 2025, the Company entered into the DDTL Credit Agreement with the lenders party thereto and Goldman Sachs Bank USA as administrative agent for the lenders (in such capacity, the DDTL Administrative Agent). The DDTL Credit Agreement provided for the DDTL Credit Facility with commitments in an aggregate amount of $1.0 billion. Proceeds of the Acquisition Tranche Loans (as defined in the DDTL Credit Agreement) were used to finance the previously announced acquisition of a portfolio of homesites on which the Company executed option agreements with New Home to support New Home’s acquisition of Landsea, which closed on June 25, 2025 (as further defined in the DDTL Credit Agreement, the “Specified Acquisition”), and the proceeds of any General Tranche Loans (as defined in the DDTL Credit Agreement) were used for general corporate purposes (including, without limitation, to pay outstanding obligations under the Revolving Credit Facility). On September 11, 2025, the receipt by Millrose of the net cash proceeds from the September 2025 Offering triggered a mandatory prepayment under the DDTL Credit Agreement. Millrose used a portion of such net cash proceeds to repay in full all outstanding obligations under the DDTL Credit Agreement. In connection therewith, on September 11, 2025, Millrose terminated the DDTL Credit Agreement and the other loan documents and all of the security interests in the assets of Millrose securing the obligations thereunder were released.
Loans under the DDTL Credit Agreement bore interest at the Adjusted Term SOFR Rate (as defined in the DDTL Credit Agreement, the “DDTL Adjusted Term SOFR Rate”) plus an applicable margin at the per annum rate of: (i) from (and including) the initial draw date through (and including) 89 days after the initial draw date (a) 2.00% if the Leverage Ratio (as defined in the DDTL Credit Agreement, the “DDTL Leverage Ratio”) was less than or equal to 0.30 to 1.00, (b) 2.25% if the DDTL Leverage Ratio was greater than 0.30 to 1.00 and less than or equal to 0.40 to 1.00, and (c) 2.50% if the DDTL Leverage Ratio was greater than 0.40 to 1.00; (ii) from (and including) 90 days after the initial draw date through (and including) 179 days after the initial draw date (a) 2.25% if the DDTL Leverage Ratio was less than or equal to 0.30 to 1.00, (b) 2.50% if the DDTL Leverage Ratio was greater than 0.30 to 1.00 and less than or equal to 0.40 to 1.00, and (c) 2.75% if the DDTL Leverage Ratio was greater than 0.40 to 1.00; (iii) from (and including) 180 days after the initial draw date through (and including) 269 days after the initial draw date (a) 2.50% if the DDTL Leverage Ratio was less than or equal to 0.30 to 1.00, (b) 2.75% if the DDTL Leverage Ratio was greater than 0.30 to 1.00 and less than or equal to 0.40 to 1.00, and (c) 3.00% if the DDTL Leverage Ratio was than 0.40 to 1.00; and (iv) from (and including) 270 days after the initial draw date and thereafter (a) 2.75% if the DDTL Leverage Ratio was less than or equal to 0.30 to 1.00, (b) 3.00% if the DDTL Leverage Ratio was than 0.30 to 1.00 and less than or equal to 0.40 to 1.00, and (c) 3.25% if the DDTL Leverage Ratio was than 0.40 to 1.00. At the Company’s option, loans may have instead born interest at the Alternate Base Rate (as defined in the DDTL Credit Agreement, the “DDTL Alternate Base Rate”) plus an applicable margin at the per annum rate of 1.00% lower than the applicable margin for DDTL Adjusted Term SOFR Rate loans set forth above, in each case based upon the DDTL Leverage Ratio and the time after initial draw.
Obligations under the DDTL Credit Agreement were secured by pledges by the Company of (i) the Promissory Notes, and (ii) the equity interests of MPH Parent and certain other subsidiaries. In addition, the DDTL Credit Agreement required the Company to pledge (i) certain future intercompany promissory notes and (ii) the equity interests of certain subsidiaries whose equity interests were not pledged to secure intercompany promissory notes. Pursuant to the ICA, the DDTL Administrative Agent and the Revolver Agent agreed that certain liens on Shared Collateral (as defined in the ICA) securing the DDTL Credit Agreement and the Revolving Credit Agreement were of equal priority, and certain distributions made in respect of Shared Collateral were to be shared on a ratable basis. The ICA was terminated in connection with the prepayment of all outstanding obligations under the DDTL Credit Agreement.
The DDTL Credit Agreement included mandatory prepayments applicable to the Company and its subsidiaries in the event net cash proceeds are received from certain debt issuances, certain issuances of capital stock, and certain non-ordinary course dispositions of assets.
The DDTL Credit Agreement included affirmative and negative covenants applicable to the Company and its subsidiaries, including limitations regarding liens, investments, asset sales, transactions with affiliates, restrictive agreements, mergers and other fundamental changes, permitted lines of business, financial contracts, and designation of unrestricted subsidiaries. The DDTL Credit Agreement contained financial covenants, tested quarterly, consisting of a maximum DDTL Leverage Ratio, a minimum interest coverage ratio, and a minimum tangible net worth. The DDTL Credit Agreement also required the Company to maintain its status as a REIT.
The DDTL Credit Agreement contained events of default, including if KL ceased to be the Company’s manager and a replacement manager reasonably acceptable to the Required Lenders (as defined in the DDTL Credit Agreement) was not appointed within 90 days.
The DDTL Credit Agreement maturity date was June 23, 2026 (the “DDTL Maturity Date”). Principal amounts and other obligations outstanding under the DDTL Credit Agreement were due in full on the DDTL Maturity Date. Interest on each drawdown was due quarterly for loans bearing interest at the Alternate Base Rate and on the last day of the applicable interest payment date for loans bearing interest at the Adjusted Term SOFR Rate.
On August 1, 2025, the Company entered into the First Amendment to DDTL. The DDTL Credit Agreement was amended pursuant to the First Amendment to DDTL to, among other things, allow the Company to partially exempt in certain circumstances the Designated Issuance from the DDTL Credit Agreement provision that otherwise required a mandatory prepayment of the loans borrowed under the DDTL Credit Agreement (the “DDTL Loans”) using 100% of the net cash proceeds from each incurrence of debt or issuance of equity securities (subject to certain limited exceptions specified in the DDTL Credit Agreement). In the case of the Designated Issuance, the Company was instead required to prepay the DDTL Loans in an amount equal to the lesser of (x) 100% of such net cash proceeds and (y) an amount sufficient such that no more than $500.0 million in aggregate principal amount of DDTL Loans remain outstanding immediately after such prepayment. The First Amendment to DDTL also amended
the DDTL Credit Agreement to add a funding fee in an amount equal to 0.250% of the aggregate principal amount of the DDTL Loans outstanding on the date that is 270 days after the initial draw date under the DDTL Credit Agreement, which initial draw date was June 24, 2025.
On August 1, 2025, SPE LLC was joined as a guarantor to the DDTL Credit Agreement. There were no other guarantors of the DDTL Credit Agreement.
On August 7, 2025, the Company completed the August 2025 Offering, which in accordance with the First Amendment to DDTL, triggered a mandatory prepayment of $500 million of principal amount owed under the DDTL Credit Agreement. On September 11, 2025, the Company completed the September 2025 Offering, which in accordance with the First Amendment to DDTL, triggered a mandatory prepayment of $500 million of the remaining principal amount owed under the DDTL Credit Agreement. As a result of the September 2025 Offering, the full outstanding principal amount of the loans outstanding under the DDTL Credit Agreement and all other outstanding obligations thereunder were repaid September 11, 2025. In connection therewith, the Company terminated the DDTL Credit Facility, along with all of the security interests in the assets of the Company securing the obligations under the DDTL Credit Facility. The Company derecognized the remaining debt obligations and recorded the remaining unamortized issuance costs of $11.9 million as interest expense during the third quarter of 2025.
See Note 8. Debt Obligations to our consolidated financial statements included in “Part II, Item 8 Financial Statements and Supplementary Data” of this Form 10-K for further description.
August 2025 Offering of Senior Notes
On August 7, 2025, the Company completed the offer and sale of $1.25 billion aggregate principal amount of its 6.375% Senior Notes due 2030. The 2030 Notes were issued at par value. The Company received net proceeds of approximately $1.23 billion, after deducting the initial purchasers’ discounts and commissions and offering expenses. Net proceeds of the August 2025 Offering were used (i) to repay $500 million principal amount of outstanding borrowings under the DDTL Credit Facility, (ii) to repay $450 million principal amount of outstanding borrowings under the Revolving Credit Agreement, and (iii) for general corporate purposes.
The 2030 Notes were issued and sold to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2030 Notes have not been and will not be registered under the Securities Act, or any state securities laws, and, unless so registered, may not be offered or sold in the United States without applicable exemption from the registration requirements of the Securities Act and applicable state securities laws, or blue sky laws and foreign securities laws. The 2030 Notes were issued pursuant to the 2030 Notes Indenture.
The 2030 Notes and the guarantee are the Company’s and the guarantors’ general senior unsecured obligations and are (i) pari passu in right of payment with all of the Company’s and the guarantors’ existing and future senior indebtedness, including the indebtedness under the Revolving Credit Agreement and the 2032 Notes, (ii) senior in right of payment to any future subordinated indebtedness of the Company and the guarantors, (iii) effectively subordinated to all of the Company’s and the guarantors’ existing and future secured indebtedness, including the indebtedness under the Revolving Credit Agreement, to the extent of the value of the assets securing such indebtedness, and (iv) structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s subsidiaries that do not guarantee the 2030 Notes.
The 2030 Notes will mature on August 1, 2030. Pursuant to the 2030 Notes Indenture, interest on the 2030 Notes accrues at a rate of 6.375% per annum and is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2026.
The Company has the option to redeem some or all of the 2030 Notes on or after August 1, 2027 at the redemption prices specified in the 2030 Notes Indenture. Prior to August 1, 2027, the Company may redeem some or all of the 2030 Notes at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest on the 2030 Notes being redeemed plus a “make-whole” premium. In addition, prior to August 1, 2027, the Company may redeem up to 40% of the 2030 Notes with cash in an amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 106.375% of the principal amount being redeemed plus accrued and unpaid interest on the 2030 Notes being redeemed.
The 2030 Notes Indenture includes certain restrictive covenants that limit the Company’s and certain of its subsidiaries’ ability to, among other things: (i) create certain liens, (ii) engage in certain sale and leaseback transactions, and (iii) effect certain mergers or consolidations, or sell all or substantially all of its assets. These covenants are subject to a number of important qualifications and exceptions as set forth in the 2030 Notes Indenture. Additionally, upon the occurrence of a Change of Control Triggering Event (as defined in the 2030 Notes Indenture), the Company must offer to repurchase all of the 2030 Notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The 2030 Notes Indenture also provides for customary events of default. As of December 31, 2025, the Company was in compliance with all covenants under the 2030 Notes Indenture and there were no events of default.
On December 19, 2025, the Company and MPSAB, LLC entered into a Supplemental Indenture, pursuant to which MPSAB, LLC was joined as a guarantor to the 2030 Notes Indenture. As of December 31, 2025, the 2030 Notes are fully and unconditionally guaranteed on a senior unsecured basis by SPE LLC and MPSAB, LLC.
See Note 8. Debt Obligations to our consolidated financial statements included in “Part II, Item 8 Financial Statements and Supplementary Data” of this Form 10-K for further description.
September 2025 Offering of Senior Notes
On September 11, 2025, the Company completed the offer and sale of $750 million aggregate principal amount of its 6.250% senior notes due 2032. The 2032 Notes were issued at par value. The Company received net proceeds of approximately $737.5 million, after deducting the initial purchasers’ discounts and commissions and offering expenses. Net proceeds of the September 2025 Offering were used (i) to repay the entire $500 million principal amount of outstanding borrowings under the DDTL Credit Facility, and related expenses, and (ii) for general corporate purposes.
The 2032 Notes were issued and sold to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain non-U.S. persons accordance with Regulation S under the Securities Act. The 2032 Notes have not been and will not be registered under the Securities Act, or any state securities laws, and, unless so registered, may not be offered or sold in the United States without applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws. The 2032 Notes were issued pursuant to the 2032 Notes Indenture.
The 2032 Notes and the guarantee are the Company’s and the guarantors’ general senior unsecured obligations and are (i) pari passu in right of payment with all of the Company’s and the guarantors’ existing and future senior indebtedness, including the indebtedness under the Revolving Credit Agreement and the 2030 Notes, (ii) senior in right of payment to any future subordinated indebtedness of the Company and the guarantors, (iii) effectively subordinated to all of the Company’s and the guarantors’ existing and future secured indebtedness, including the indebtedness under the Revolving Credit Agreement, to the extent of the value of the assets securing such indebtedness, and (iv) structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s subsidiaries that do not guarantee the 2032 Notes.
The 2032 Notes will mature on September 15, 2032. Pursuant to the 2032 Notes Indenture, interest on the 2032 Notes accrues at a rate of 6.250% per annum and is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2026.
The Company has the option to redeem some or all of the 2032 Notes on or after September 15, 2028 at the redemption prices specified in the 2032 Notes Indenture. Prior to September 15, 2028, the Company may redeem some or all of the 2032 Notes at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest on the notes being redeemed plus a “make-whole” premium. In addition, prior to September 15, 2028, the Company may redeem up to 40% of the 2032 Notes with cash in an amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 106.250% of the principal amount being redeemed plus accrued and unpaid interest on the 2032 Notes being redeemed.
The 2032 Notes Indenture includes certain restrictive covenants that limit the Company’s and certain of its subsidiaries’ ability to, among other things: (i) create certain liens (ii) engage in certain sale and leaseback transactions, and (iii) effect certain mergers or consolidations, or sell all or substantially all of its assets. These covenants are subject to a number of important qualifications and exceptions as set forth in the 2032 Notes Indenture. Additionally, upon the occurrence of a Change of Control Triggering Event (as defined in the 2032 Notes Indenture), the Company must offer to repurchase all of the 2032 Notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The 2032 Notes Indenture also provides for customary events of default. As of December 31, 2025, the Company was in compliance with all covenants under the 2032 Notes Indenture and there were no events of default.
On December 19, 2025, the Company and MPSAB, LLC entered into a Supplemental Indenture, pursuant to which MPSAB, LLC was joined as a guarantor to the 2032 Notes Indenture. As of December 31, 2025, the 2032 Notes are fully and unconditionally guaranteed on a senior secured basis by SPE LLC and MPSAB, LLC.
See Note 8. Debt Obligations to our consolidated financial statements included in “Part II, Item 8 Financial Statements and Supplementary Data” of this Form 10-K for further description.
Repurchase of Senior Notes
From time to time, we or our affiliates may repurchase our outstanding debt securities through cash purchases or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Purchase Money Mortgages
During 2025, the Company acquired two land parcels totaling $33 million which were financed through property-level, purchase-money arrangements which are fully indemnified by a counterparty. Both obligations are non-recourse to the Company and are secured solely by the respective underlying properties. The counterparty is responsible for all debt service related to the interest on the purchase money mortgages until their maturity dates in March 2026 and December 2027, respectively, at which time the Company intends to enter into an option agreement on these properties with the counterparty.
Principal payments of $29 million are due in 2026, and $4 million are due in 2027. See Note 8. Debt Obligations to our consolidated financial statements included in “Part II, Item 8 Financial Statements and Supplementary Data” of this Form 10-K for further description.
Predecessor Millrose Business Debt
The Predecessor Millrose Business’s debt as of December 31, 2024 consisted of promissory notes for the acquisition of land and community development district bonds.
Debt to Equity Ratio Limit Right
In addition to the Credit Agreements, Millrose may seek to pursue other debt and expects to have access to a certain amount of debt and equity capital at least a portion of which is intended to be available for use in financing transactions with new counterparties. Millrose may also seek additional third-party financing to satisfy any additional capital needs or raise capital through equity and debt issuances into the market. Additionally, any third-party financing arrangements Millrose enters into may not cause its debt to equity ratio to exceed the Debt to Equity Ratio Limit of 1:1 unless Millrose obtains the prior approval of Lennar.
Secured Financing Collateral Consent Right
In addition to the Credit Agreements, from time to time, Millrose may enter into various “secured financing arrangements,” which may include but are not limited to secured or collateralized loans, or any other transactions where assets may be pledged or used as collateral to secure the financing instrument, whether or not the security interest is perfected. In such cases, Millrose may use the land assets it holds through its subsidiaries in its Real Estate Portfolio or the proceeds from counterparties’ exercises of purchase options relating to the land assets in Millrose’s Real Estate Portfolio as collateral to secure the financing. While Millrose may, at its discretion, enter into any secured financing arrangements it so chooses (subject to the Debt to Equity Ratio Limit), Millrose is prohibited from granting or selling any security interest whereby the assets pledged pursuant to such security interest include assets acquired from Lennar pursuant to the terms of the Lennar Agreements and Lennar and homesites of Other Counterparties (i.e., mixing the assets into one collateral pool) without Lennar’s prior written consent.
Dividends
On April 15, 2025, the Company paid a dividend of $0.38 to holders of our Class A Common Stock and our Class B Common Stock as of the close of business on April 4, 2025, as declared by the Board on March 17, 2025. On July 15, 2025, the Company paid a dividend of $0.69 to holders of our Class A Common Stock and our Class B Common Stock as of the close of business on July 3, 2025, as declared by the Board on June 16, 2025. On October 15, 2025, the Company paid a dividend of $0.73 to holders of our Class A Common Stock and our Class B Common Stock as of the close of business on October 3, 2025, as declared by the Board on September 22, 2025. On December 22, 2025 the Company declared a dividend of $0.75 to holders of our Class A Common Stock and our Class B Common Stock of record as of the close of business January 5, 2026. This dividend was paid on January 15, 2026.
We intend to make regular dividend payments of at least 90% of our REIT taxable income to holders of our Common Stock out of assets legally available for this purpose. While we do not plan to do so, under currently applicable IRS guidance, approximately 80% of these dividends may be paid in the form of stock dividends, rather than in cash. Dividends will be authorized by our Board and declared by us based on a number of factors including actual results of operations, dividend restrictions under Maryland law or applicable debt covenants, our liquidity and financial condition, our taxable income, the annual distribution requirements under the REIT Requirements, our operating expenses and any other factors our Board deems relevant. Subject to certain exceptions, distributions received from us will not be qualified dividends and will therefore be taxed at ordinary income rates to the extent of our current or accumulated earnings and profits.
Effects of Inflation and Seasonality
Inflation
The real estate market has not been affected significantly by inflation in the past several years due to increases in rents nationwide. Inflation may affect the overall cost of debt, as the implied cost of capital increases. The Board of Governors of the Federal Reserve System, in response to or in anticipation of continued inflation concerns, could continue to raise interest rates. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate derivatives.
Seasonality
The Company's results of operations are not subject to material seasonal fluctuations. While the residential housing market experiences cyclical periods of expansion and contraction due to interest rates and other macroeconomic conditions, these changes are not driven by seasonal factors. By abiding by the Investment Guidelines, operating in accordance with our operating principles and risk mitigation features, we believe our homesite option platform will continue through periods of weak residential housing markets.
Promissory Notes
MPH Parent and other TRSs have issued to Millrose Promissory Notes that are secured by a pledge of all equity interests in the Property LLCs and unrecorded mortgages on certain of our real property assets. In the event that MPH Parent or another TRS of Millrose acquires additional land assets, the Promissory Notes may be further amended to reflect such acquisitions. Alternatively, MPH Parent or another TRS of Millrose may issue one or more additional promissory notes that are similar to the Promissory Notes.
Mortgages
In connection with the Promissory Notes, each of the Property LLCs delivered fully executed mortgages (the “Mortgages”) with respect to the homesites that they own in favor of Millrose to secure the Promissory Notes. The Mortgages were not recorded initially, but each Property LLC is required to comply with Millrose’s request to amend the Mortgages so that they may be recorded if Millrose so requests.
The homesites covered by the Mortgages will automatically be released from the applicable Mortgage upon (a) payment in full of the applicable Promissory Note or (b) the occurrence of a closing of such homesite in accordance with the Master Option Agreement or Other Agreements. Additionally, any new real property that the Property LLCs acquire while any portion of the Promissory Notes remains unpaid or unsatisfied shall automatically be subject to the lien of the Mortgages or of similar mortgages or deeds of trust.
Pledge and Security Agreements
In connection with the Promissory Notes, MPH Parent and certain other TRSs entered into the Pledge and Security Agreements with Millrose, pursuant to which such TRSs pledged a first priority perfected, continuing security interest in and lien on 100% of its membership interests in each Property LLC and in all proceeds thereof (the “Pledged Collateral”) as collateral for note borrower’s performance of its obligations under the Promissory Notes and Mortgages. Except during the continuance of a Note event of default, note borrower will have the right to receive all distributions, interest and proceeds in respect of the Pledged Collateral.
In the event that a TRS of Millrose acquires additional land assets, the Pledge and Security Agreements may be further amended to reflect such acquisitions. Alternatively, MPH Parent or another TRS of Millrose may enter into one or more additional pledge and security agreements that are similar to the Pledge and Security Agreements.
REIT Tax Election and Income Taxes
We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Code and expect to qualify as a REIT when we file a REIT tax election with our federal income tax return for the taxable year ended December 31, 2025. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our “REIT taxable income,” as defined by the Code, to our stockholders. Taxable income from certain non-REIT qualifying activities is derived through our TRSs and is subject to applicable U.S. federal, state, and local income and franchise taxes. For the year ended December 31, 2025, we recorded consolidated income tax expense of $20.5 million, which was attributable to our TRSs. We had no significant taxes associated with our TRS for the years ended December 31, 2025, 2024, or 2023.
We believe we qualify for taxation as a REIT under the Code, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders. As a REIT, we will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. In addition, our TRSs are fully subject to applicable U.S., federal, state, and local income and franchise taxes.
If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.
We evaluate the tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the applicable statute of limitations, for all major jurisdictions, which include federal and certain states. We have no examinations in progress and none are expected at this time. We evaluate our tax positions using a two-step process. First, we determine whether a tax position is more likely than not to be sustained
upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement. We had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2024 or December 31, 2025. Our TRSs are subject to U.S. federal income tax as well as income tax of various state and local jurisdictions. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our combined statements of operations and comprehensive income (loss).
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amount of revenues and expenses during the reporting period. Our critical accounting estimates are those that involve a high degree of judgment and uncertainty and for which changes in assumptions could have a material impact on our consolidated financial statements. Our significant accounting policies are described in Note 2, Basis of Presentation and Significant Accounting Policies included in Part II, Item 8 of this Form 10-K. The following are the critical accounting estimates that require us to exercise our business judgment or make significant estimates:
Homesites Under Option Contracts
We evaluate our homesite option contracts at inception to determine if they contain a lease as defined under ASC 842. Determining whether these option agreements should be accounted for under ASC 842 required management to apply significant judgment, including assumptions about whether the homebuilders (i) obtain substantially all of the economic benefits from use of the asset and (ii) have elements of control of the optioned assets. Changes in these assumptions could significantly affect the timing of revenue recognition in the Company’s consolidated financial statements. The Company's option contracts with its counterparties grant the counterparties the exclusive right to acquire homesites owned by the Company at predetermined prices and takedown schedules. Although the Company retains legal title to the land during the option agreement term, the counterparties obtain substantive rights to direct the planning, use, and development of the homesites.
Because the Company transfers elements of control of the homesites to the counterparties during the option contract period, we account for homesites under option contract under ASC 842. The Company accounts for option fee contracts as sale-type leases under ASC 842 because the Company concluded that the purchase options are reasonably certain of being exercised. Option fee income is recognized over the term of the contract using an effective interest yield. Monthly option fees may vary over time based on reimbursable development costs, changes in takedown timing or volume, or other contractual adjustments, and such changes are recognized prospectively through an updated effective interest yield over the term of the option contract.
Homesites under option contracts consist of land and related development costs associated with homesites subject to option contracts. The carrying value of homesites under option contracts is recorded based on the Company's capital funded under the option contracts, which includes the land acquisition costs, qualifying development costs and other directly attributable costs incurred on the underlying land. When a counterparty completes a takedown and homesites are transferred in accordance with the option contract, the Company derecognizes the related carrying amount from the balance sheet.
Because our option contracts are accounted for as sales-type leases, the resulting asset, representing our right to received future takedown payments and option fees, is considered a contractual right to receive cash. Therefore, the Company evaluates expected credit losses for homesites subject to option contracts in accordance with ASC 326. Expected credit losses are estimated using a weighted average remaining maturity (“WARM”) methodology, which applies an annual loss rate to the estimated remaining life of the related contract balance and is adjusted for expected cash flows and relevant qualitative factors. Qualitative considerations include the counterparties' consistent payment performance, the absence of delinquencies or defaults since inception, historical charge off rates for residential housing, and cross-collateralization features across certain counterparty arrangements. The Company
also considers the credit quality of its most significant counterparties. After considering these factors, the Company determined that the risk of loss was immaterial as of December 31, 2025.
Development Loan Receivables, Net
Development loan receivables, net are recorded at amortized cost, which includes principal amounts due and PIK interest, net of principal repayments and an allowance for credit losses. We estimate expected credit losses on development loan receivables in accordance with ASC 326, using a WARM methodology. Under this approach, we apply an annual charge-off rate to the estimated remaining life of the development loan portfolio, adjust for expected cash flows, and further adjust the historical baseline for qualitative factors, including current economic conditions and reasonable and supportable forecasts of future economic conditions. Accrued PIK interest is included in the amortized cost basis of the development loans for purposes of calculating the allowance for credit losses.
The allowance for credit losses is a critical accounting estimate because it requires significant judgment in determining the annual charge-off rate, expected cash flows, and the qualitative adjustments applied to reflect current conditions and forward-looking information. These judgments are informed by ongoing monitoring of borrower and project performance and broader market conditions affecting residential development activity. Changes in borrower performance, collateral values, expected cash flows, portfolio composition, or macroeconomic conditions could result in changes to the allowance for credit losses and the provision for credit losses in future periods.
Recent Accounting Standards
For discussion of recently issued accounting standards, see Note 2. Basis of Presentation and Significant Accounting Policies of the notes to the consolidated financial statements included in “Part II, Item 8 Financial Statements and Supplementary Data” of this Form 10-K.
