Millrose Properties (MRP) Q4 FY25 earnings call: guidance and Q&A

Would Millrose consider temporarily exceeding its 33% debt-to-cap target to fund growth, given confidence in future equity re-rating?

Darren Richman stated that while the company generally adheres to the 33% target due to the volatile nature of assets and the need for cash visibility, there might be rare, strategic circumstances where they briefly push it, but the long-term goal remains 33%.

“There may be circumstances where for a brief period, we feel comfortable and we have line of sight to take it beyond 33%. But the long-term goal has really been purposefully set at 33% for the reasons I just cited.”

asked by Julien Blouin · answered by Darren Richman

How does Millrose view its most relevant comps and its current valuation relative to them, given the stated discount?

Robert Nitkin and Darren Richman explained that Millrose views itself as a triple-net or infrastructure-related equity REIT, highlighting its demonstrated AFFO growth, low leverage (below other REITs), and unique low-duration, self-refreshing relationships with builders. They emphasized the mission-critical, scarce nature of their assets and the lack of CapEx requirements, believing these factors justify a higher multiple.

“we think ourselves more of a triple net or infrastructure-related equity REIT, which is what we believe. But what's new this quarter -- what's new this quarter is that we have just more proof points in terms of both our AFFO growth per share that we've demonstrated and that we're projecting in the forward scenario, really afforded by just the math of our accretive spread investing, right, the yields we're able to invest at versus our cost of capital.”

asked by Julien Blouin · answered by Robert Nitkin

How much visibility does Millrose have on the $1 billion new capital deployment target by mid-year, and will it involve new or existing counterparties?

Darren Richman explained that the visibility comes from existing forward flow relationships totaling $9 billion across 10 counterparties, which will replace about $3 billion of cycling land portfolio. Robert Nitkin added that existing baked-in development funding commitments also contribute significantly, and the target can be met even without adding new counterparties, though new ones are being onboarded.

“we have a lot of visibility and a lot of confidence around it. Some of those deals ultimately fall away because, obviously, our due diligence process will kick out deals that we don't want to be financing. So as we kind as we kind of distill down that forward flow quantum, we feel very comfortable with the guidance that we put out.”

asked by Eric Wolfe · answered by Darren Richman

What is the split between floating and fixed rate exposure in invested capital, and what is the floor on the 11% yields for other agreements if rates decline?

Robert Nitkin clarified that the Lennar master program agreement rate is fixed, while other agreements are predominantly floating, subject to a floor. He estimated the floor for the 11% yields to be "probably between 50 and 200 basis points below" the current rate.

“floor is probably between 50 and 200 basis points below sort of where that rate is.”

asked by Eric Wolfe · answered by Robert Nitkin

Were the 3 new counterparties the primary driver of the $690 million funded in Q4, or was it existing counterparties, and is the $2 billion guidance conservative?

Robert Nitkin stated that the majority of the Q4 growth came from existing counterparties, with the 3 new ones contributing initial deals. Darren Richman clarified that the $2 billion guidance is the best assessment, not a sandbag, and does not include potential M&A, which enhanced volume last year.

“the majority of the growth was from existing counterparties. And so the addition of new counterparties, we started to do initial deals with them and those initial deals with those incremental 3 counterparties were not the majority, but we've now brought them onto our platform.”

asked by Craig Kucera · answered by Robert Nitkin

Given the equity trading below book value and the debt target, would Millrose consider issuing preferred equity as a capital source?

Darren Richman stated that while they are familiar with such products, it is not their preference. The goal is to keep the capital structure as clean and transparent as possible, though they might potentially entertain it in the future.

“It's not our preference to do that. As you would imagine, we're -- we ourselves are investors. We come from the credit landscape. We're very familiar with those type of products as well as converts and other arrangements that are equity-like. The goal here is really to keep the capital structure as clean as possible and as transparent as possible.”

asked by Craig Kucera · answered by Darren Richman