Q1 2025 Millrose Properties Inc Earnings Call
One mute to prevent any background noise. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad to withdraw your question Press Star One again, we kindly ask that you. Please limit your questions to one and one follow up.
Operator: All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. To withdraw your question, press star 1 again.
Operator: We kindly ask that you please limit your questions to one and one follow-up. If you have additional questions, please return to the queue.
Speaker Change: Have additional questions. Please return to the queue I will now turn the call over to Jesse Ross Millrose head of financial planning and analysis. Jesse you may begin the conference.
Jesse Ross: I will now turn the call over to Jesse Ross, Milrose Head of Financial Planning and Analysis. Jesse, you may begin the conference.
Speaker Change: Everyone and thank you for joining us for LOE Rose properties first earnings call as a publicly traded company following our spin off from Newmar Corporation on February seven.
Darren Richmond: Good morning, everyone, and thank you for joining us for Milrose Properties' first earnings call as a publicly traded company, following our spinoff from Lenard Corporation on February 7th.
Speaker Change: With us today to discuss our first quarter 2025 results are Darren Richardson, our Chief Executive Officer, and President Robert <unk>, Our Chief operating Officer, and Garrett Rosenbloom, our Chief Financial Officer.
Darren Richmond: With us today to discuss our first quarter 2025 results are Darren Richmond, our Chief Executive Officer and President, Robert Nickin, our Chief Operating Officer, and Garrett Rosenblum, our Chief Financial Officer.
Speaker Change: Before we begin I'd like to remind everyone that this call may include forward looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause actual results to differ materially from the anticipated results or expectations expressed in these forward looking statements. Please refer to the first quarter 2025 financial.
Darren Richmond: Before we begin, I'd like to remind everyone that this call may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements.
Darren Richmond: Please refer to the first quarter 2025 financial and operational results announced as well as the first quarter investor presentation we released and posted on our website under the investor relations heading for a discussion of forward-looking statements and reconciliations of non-GAAP financial measures.
Darren: And operational results announced as well as the first quarter Investor presentation, we release and posted on our website under the Investor relations heading for a discussion of forward looking statements and reconciliations of non-GAAP financial measures with that I'll turn the call over to Darren.
Darren Richmond: With that, I'll turn the call over to Darren. Thank you, Jesse, and good morning everyone. It is my pleasure to welcome you to our first earnings call as a standalone company. This is an exciting milestone for us, and we're eager to share the progress we've made in our first quarter as a public company. Millrose is the first publicly traded land banking REIT that provides homebuilders with a reliable, efficient source of capital for land acquisition and development. Our innovative home option purchase platform allows us to deliver home sites to builders on a just-in-time basis while generating recurring, predictable cash flows for our shareholders.
Darren: Thank you Jessie and good morning, everyone. It is my pleasure to welcome you to our first earnings call as a Standalone company.
Darren: This is an exciting milestone for us and we're eager to share the progress we've made in our first quarter as a public company.
Darren: <unk> is the first publicly traded land banking REIT that provides homebuilders with a reliable efficient source of capital for land acquisition and development.
Darren: Our innovative home option purchase platform allows us to deliver homesites to builders on adjusting time basis, while generating recurring predictable cash flows for our shareholders.
Darren: We maintain a close mutually beneficial relationship with Lin Our corporation, one of the nation's leading homebuilders.
Darren Richmond: We maintain a close, mutually beneficial relationship with Lenar Corporation, one of the nation's leading homebuilders. Lennar serves as our anchor tenant with a portfolio of approximately $6.6 billion in assets under Purchase Option Agreements with a weighted average yield of 8.5% as of March 31, 2025. This relationship provides Milrose with a stable foundation as we grow and diversify our platform to serve other homebuilders. The value we bring to the market is clear. Homebuilders today face increasing challenges in managing their balance sheets while maintaining the flexibility to respond to market opportunities. Millrose is uniquely positioned to be their trusted partner, offering perpetual capital solution that alleviates balance sheet demands and unlocks enterprise value.
Darren: <unk> serves as our anchor tenant with a portfolio of approximately $6 6 billion in assets under purchase option agreements with a weighted average yield of eight 5% as of March 31 2025.
Darren: This relationship provides millrose with its stable foundation, as we grow and diversify our platform to serve other homebuilders.
Darren: The value we bring to the market is clear.
Darren: Homebuilders today face increasing challenges in managing their balance sheets, while maintaining the flexibility to respond to market opportunities.
Darren: <unk> is uniquely positioned to be their trusted partner.
Darren: Operating perpetual capital solution that alleviates balance sheet demands and unlocks enterprise value.
Darren: For investors Melrose represents a stable tax efficient income generating investment vehicle.
Darren Richmond: For investors, Millrose represents a stable, tax-efficient, income-generating investment vehicle. Our business model is simple, yet powerful. We generate consistent income from monthly option fee payments on capital deployed. Importantly, our revenue model is not tied to land value speculation or the execution of land development, which helps us to deliver highly predictable revenues, earnings, and dividends.
Darren: Our business model is simple yet powerful.
Darren: We generate consistent income from monthly option fee payments on capital deployed.
Darren: Importantly, our revenue model is not tied to land values speculation or.
Darren: For the execution of land development.
Darren: Which helps us to deliver highly predictable revenues earnings and dividends.
Darren: Our strategy is built with the long term success.
Darren Richmond: Our strategy is built with a long-term success. While broader demand for homes has remained strong, the housing market continues to face pressures of high interest rates and other market uncertainties. Despite this economic backdrop, homebuilders are continuing to invest in land and land development. Looking at the longer term, strong structural tailwinds persist. We believe that there continues to be a significant shortfall in housing supply and while estimates vary the actual deficit, most estimates peg the gap in the range of 3 to 5 million units. Additionally, many of our builder clients are operating with historically high margins and strong balance sheets.
Darren: While a broader demand for homes has remained strong the housing market continues to face pressures of high interest rates and other market uncertainties. Despite.
Darren: Despite this economic backdrop homebuilders are continuing to invest in land and land development.
Darren: Looking at the longer term strong structural tailwind persist.
Darren: We believe that there continues to be a significant shortfall in housing supply and while estimates vary of the actual deficit. Most estimates peg the gap in the range of three to 5 million units.
Darren: Additionally, many of our builder clients are operating with historically high margins and strong balance sheets high.
Darren: Highlighted by low leverage levels positioning them in the industry for resilience and future growth.
Darren Richmond: highlighted by low leverage levels, positioning them, and the industry for resilience and future growth. We believe Milrose is well positioned to capitalize on these trends. Our unique operating model allows us to scale efficiently while maintaining a conservative risk profile. We're excited about the opportunities ahead, and we're committed to delivering value for our shareholders, homebuilder partners, and the communities we serve.
Darren: We believe millrose is well positioned to capitalize on these trends our unique operating model allows us to scale efficiently, while maintaining a conservative risk profile.
Darren: We're excited about the opportunities ahead, and we're committed to delivering value for our shareholders Homebuilder partners and the communities we serve.
Darren: We are already proving out our investment thesis our first quarter of operations was highlighted by robust demand for our capital demonstrating the power of the Millrose platform.
Darren Richmond: We are already proving out our investment thesis. Our first quarter of operations was highlighted by robust demand for our capital, demonstrating the power of the Millrose platform. Looking first at our Lennar portfolio, we are seeing our capital recycling model at work, with receipts of $645 million in cash proceeds from home site sales to Lennar and $635 million redeployed into land acquisition and development funding in the quarter. We have also made progress in growing our partnerships with other homebuilders. While we don't disclose the names of our specific customers to protect the confidentiality of those counterparties, we can say that the engagement across the industry has been overwhelmingly positive.
Darren: Looking first at our <unk> portfolio, we are seeing our capital recycling model at work with receipts of $645 million in cash proceeds from homesite sales to <unk> and $635 million and redeployed into land acquisition and development funding in the quarter.
Darren: We have also made progress in growing our partnerships with other homebuilders.
While we don't disclose the names of our specific customers to protect the confidentiality of those counterparties, we can say that the engagement across the industry has been overwhelmingly positive.
Darren: We have executed five separate programmatic partnership commitments with homebuilder Counterparties.
Darren Richmond: We have executed five separate programmatic partnership commitments with HomeBuilder counterparties, which provide the builder with defined capital availability from Milrose under pre-negotiated terms. We believe this approach gives our counterparties important visibility in their land planning. During the quarter, we announced $351 million of transactions outside the Lenar relationship, with average yields of 11.7%. We're pleased to report that this progress has continued after the quarter end with approximately $130 million of additional non-LNR transactions between the March 31st quarter end and today. resulting in approximately $480 million of total cumulative transactions funding since the spinoff.
Darren: Which provide the builder with defined capital availability from Melrose under pre negotiated terms.
Darren: We believe this approach gives our counterparties important visibility in their land planning.
Darren: During the quarter, we announced $351 million of transactions outside the LNR relationship with average yields of 11, 7%.
Darren: We're pleased to report that this progress has continued after the quarter end with approximately $130 million of additional non Lin our transactions between the March 31 quarter end and today <unk>.
Darren: <unk> in approximately $480 million of total cumulative transactions funding since the spinoff.
Darren: We are also excited to announce a significant new transaction.
Darren Richmond: We are also excited to announce a significant new transaction. Milrose has entered into a commitment to fund approximately $700 million in a traditional land banking transaction structure in partnership with the New Home Company to support their acquisition of Land C Homes. This transaction, like our previously announced Roush-Coleman transaction, exemplifies Melrose's differentiated ability to facilitate large scale capital efficient M&A in the home building sector.
Darren: <unk> has entered into a commitment to fund approximately $700 million in a traditional land banking transaction structure and partnership with the new home company to support their acquisition of land Sea homes.
Darren: This transaction like our previously announced Roush Coleman transaction exemplifies neurosis differentiated ability to facilitate large scale capital efficient M&A in the homebuilding sector.
Darren: Given this exciting increase in demand we are increasing our full year 2025 guidance in transaction funding outside of the Mannar Masterplan agreement to one 5 billion from the previously announced $1 billion.
Darren Richmond: Given this exciting increase in demand, we are increasing our full year 2025 guidance in transaction funding outside of the Lenore Master Plan agreement to $1.5 billion from the previously announced $1 billion. I will share, however, that I've set for our team an internal stretch target of $2 billion, which I do believe is achievable given the market reception we've observed thus far. Accordingly, we are also increasing our year-end quarterly earnings per share run rate guidance to a range of $0.69 to $0.71 per share.
Darren: We'll share however that I've said for our team and internal stretch target of $2 billion, which I do believe is achievable given the market reception, we've observed thus far.
Darren: Accordingly, we are also increasing our year end quarterly earnings per share run rate guidance to a range of 69 to 71 per share.
Darren: To support this investment pace. We are also pleased to announce a new signed 1 billion delayed draw term loan commitment from Goldman Sachs and Jpmorgan.
Darren Richmond: To support this investment pace, we are also pleased to announce a new signed $1 billion delay-draw term loan commitment from Goldman Sachs and J.P. Morgan. This new capital commitment, in addition to our $1.3 billion Revolving Credit Facility, provides us with ample capital capacity to execute on our growing opportunity set. Our performance demonstrates the power of our business model, and we are excited about the future prospects as we continue to leverage the Lennar Agreement, while also diversifying our business and capitalizing on growing demand across the industry.
Darren: This new capital commitment in addition to a $1 3 billion revolving credit facility provides us with ample capital capacity to execute on our growing opportunity set.
Darren: Performance demonstrates the power of our business model and we're excited about the future prospects as we continue to leverage <unk> agreement, while also diversifying our business and capitalizing on growing demand across the industry.
Darren: Overall, we see a number of very durable sector tailwind that should continue to advantaged Melrose.
Darren Richmond: Overall, we see a number of very durable sector tailwinds that should continue to advantage Millrose. They are one. As mentioned, structural shortage of housing, mainly the result of challenges to get land permitted and entitled. Two, the new home market continues to pick up market share from the existing home market given the structural move in interest rates. 3. The big builders continue to get bigger owing to their scale advantages. And four, more builders are shifting to just-in-time delivery of land and are embracing land-like strategies.
Darren: They are one.
Darren: As mentioned structural shortage of housing mainly the result of challenges to get land permitted and entitled.
Darren: To the new home market continues to pick up market share from the existing home market given the structural move in interest rates.
Darren: Three the big builders continue to get bigger owing to their scale advantages.
Darren: And for more builders are shifting to just in time delivery of land and are embracing land light strategies.
Rob: With that I will now turn the call over to Rob for an operational update.
Rob Nickin: With that, I will now turn the call over to Rob for an operational update. Thank you, Darren. Good morning, everyone. I'm pleased to join you on our first earnings call and to provide an update on our operational progress for the quarter. As you can probably infer from Darren's comments, our team has been highly active since the spinoff. We currently operate with 33 dedicated homebuilder finance professionals across multiple offices whose focus and execution across origination, diligence, asset management and servicing functions have been instrumental in establishing the foundation of Melrose. As Darren noted, in the quarter, we redeployed over $600 million in Lennar homesite sale proceeds into newly underwritten Lennar transactions and development funding.
Rob: Thank you Darrin and good morning, everyone I'm pleased to join you on our first earnings call and to provide an update on our operational progress for the quarter as you can probably infer from Darrin <unk> comments. Our team has been highly active since the spin off we currently operate with 33 dedicated homebuilder finance professionals across multiple losses.
Rob: It's an execution across origination diligent asset management and servicing functions have been instrumental in establishing the foundation of Melrose.
Rob: Darin noted in the quarter, we redeployed over $600 million in Lenoir homesite sales proceeds into newly underwritten Linda our transactions and development funding.
Rob: This is in addition to the previously disclosed $859 million Roche Goldman transaction to close shortly after the spin off which we acquired approximately 24000, homesites and simultaneously executed option agreements with <unk>.
Rob Nickin: This is in addition to the previously disclosed $859 million Rausch-Coleman transaction that closed shortly after the spinoff, in which we acquired approximately 24,000 homesites and simultaneously executed option agreements with Lennar.
Rob: I'd like to recognize the entire Lin our team and their work to ensure a seamless transition and stewardship of these mission critical homesite assets in a highly successful post spin operating relationship.
Rob Nickin: I'd like to recognize the entire Lennar team in their work to ensure a seamless transition in stewardship of these mission-critical home site assets and a highly successful post-bin operating relationship. Beyond our linear relationship, we have executed on strong demand from third party homebuilders, enabling us to deploy capital at attractive risk-adjusted returns. During the quarter, we underwrote, diligenced, and closed $351 million in third-party transactions, and this momentum has continued post-quarter end, as Darren noted. As of today, we have closed or are committed to close transactions with seven counterparties apart from Lenar, the majority of whom are publicly traded homebuilders.
Rob: Beyond our linear a relationship we have executed on strong demand from third party homebuilders, enabling us to deploy capital at attractive risk adjusted returns.
Rob: During the quarter, we underwrote diligent includes $351 million.
Rob: Third party transactions and this momentum has continued post quarter end as Darin noted.
Rob: As of today, we have closed or committed to close transactions with seven counterparties apart from one or the.
Rob: City of whom are publicly traded homebuilders.
Speaker Change: I'm also pleased to elaborate on Darren mentioned of our exciting transaction with the new home group.
Rob Nickin: I'm also pleased to elaborate on Darren's mention of our exciting transaction with the new home group. Melrose has entered into a $700 million land banking funding commitment in support of the Land C Homes acquisition recently announced by New Home Company, a leading home builder owned by funds affiliated with Apollo Global Management. While New Home will acquire Lansi's operating business, Millrose will acquire a significant portion of its homesite assets and enter into corresponding option agreements with New Home. The $700 million commitment includes up to a $600 million commitment for land acquisition, which is expected to fund in the third quarter of 2025, and an additional up to $100 million in subsequent land development funding.
Speaker Change: <unk> has entered into a $700 million land banking funded commitment and supported the land Sea homes acquisition recently announced by New home company, a leading homebuilder owned by funds affiliated with Apollo Global management.
Speaker Change: New home will acquire land a few of the operating business Millrose will acquire a significant portion of its homesite assets.
Speaker Change: And enter into corresponding option agreements with new home with.
Speaker Change: The $700 million commitment includes up to $600 million commitment for land acquisition, which is expected to fund in the third quarter of 2025, and an additional up to $100 million in subsequent land development funding.
Speaker Change: The transaction represents an attractive homesite portfolio, but also the creation of a stronger builder counterparty, including a $650 million additional equity contribution by Apollo we have great respect for the management of mandates and the entire new home team with whom we've enjoyed a mutually beneficial relationship historically.
Rob Nickin: The transaction represents an attractive home site portfolio, but also the creation of a stronger builder counterparty, including a $650 million additional equity contribution by Apollo. We have great respect for the management of Matt Zaitz and the entire New Home team, with whom we've enjoyed a mutually beneficial relationship historically.
Speaker Change: As our pipeline continues to grow we are investing heavily in the expansion of our underwriting diligent asset management and servicing teams.
Rob Nickin: As our pipeline continues to grow, we are investing heavily in the expansion of our underwriting, diligence, asset management, and servicing teams, as well as our technology platform to support scalable growth and transaction capacity.
As well as our technology platform to support scalable growth and transaction capacity.
Garrett: With that I'll turn the call over to Garrett for a financial update.
Garrett Rosenblum: With that, I'll turn the call over to Garrett for a financial update. Thank you, Rob, and good morning everyone. I'm pleased to walk you through Millrose Properties financial performance for the first quarter of 2025. This quarter marks an important milestone as we establish ourselves as a standalone REIT with a strong platform, significant liquidity, and a disciplined capital allocation strategy. For the quarter, we reported net income attributable to Milrose Commons shareholders of $64.8 million after an adjustment for expenses from the pre-spin period, or $0.39 per share, driven by $82.7 million in option fees. Our book value per share at the end of the quarter stood at $35.40.
Garrett: Thank you, Rob and good morning, everyone. I am pleased to walk you through our Melrose properties financial performance for the first quarter of 2025.
Garrett: This quarter marks an important milestone as we establish ourselves as a standalone REIT with a strong platform significant liquidity and a disciplined capital allocation strategy.
Speaker Change: For the quarter, we reported net income attributable to Bill rose common shareholders of $64 8 million after an adjustment for expenses from the pre spin period, or <unk> 39 per share driven by $82 $7 million in option fees, our book value per share at the end of the quarter stood at $35 40.
Speaker Change: Our management fee expense was $12 1 million, which is calculated transparently at one 5% of gross tangible assets interest expense was $2 5 million and income tax expense was $4 4 million.
Garrett Rosenblum: Our management fee expense was $12.1 million, which is calculated transparently at 1.25% of gross tangible assets. Interest expense was $2.5 million, and income tax expense was $4.4 million. We plan to distribute 100% of our earnings back to shareholders. In the quarter, we paid an inaugural dividend of $63.1 million, or $0.38 per share. The $0.38 dividend per share is the prorated portion for the stub period, which would equate to $0.65 per share on a normalized quarterly basis. Turning briefly to our balance sheet, Millrose is currently capitalized with $7.2 billion of total assets, with a debt-to-capitalization ratio of approximately 5%.
Speaker Change: We plan to distribute 100% of our earnings back to shareholders in the quarter, we paid and an inaugural dividend of $63 1 million or <unk> 38 per share with 38 dividend per share is the prorated portion for the stub period, which would equate to <unk> 65 per share on a normalized quarterly basis.
Speaker Change: Turning briefly to our balance sheet. Melrose is currently capitalized was $7 2 billion of total assets with a debt to capitalization ratio of approximately 5%. We ended the quarter with $350 million in total debt and ample liquidity of approximately $1 1 billion, which includes availability under our revolving credit.
Garrett Rosenblum: We ended the quarter with $350 million in total debt and ample liquidity of approximately $1.1 billion, which includes availability under our revolving credit facility and cash. Going forward, we expect to maintain a conservative maximum leverage target of 33% net debt to capitalization. Finally, turning to guidance, we are increasing our guidance for full-year 2025 transaction funding outside of the Lennar Master Program Agreement to $1.5 billion and increasing our year-end quarterly earnings per share run rate guidance to a range of $0.69 to $0.71 per share. Once again, Millrose plans to distribute 100% of earnings back to shareholders in the form of cash dividends.
Speaker Change: <unk> and cash.
Speaker Change: Moving forward, we expect to maintain a conservative maximum leverage target of 33% net debt to capitalization.
Speaker Change: Finally, turning to guidance, we are increasing our guidance for full year 2025 transaction funding outside of the Master program agreement for $1 5 billion and increasing our year end quarterly earnings per share run rate guidance to a range of 69 to 71 per share once again low Roes plans to distribute it.
Darren: 100% of earnings back to shareholders in the form of cash dividends and we remain focused on delivering value for our shareholders through consistent earnings prudent capital allocation and a conservative balance sheet with that I will turn the call back to Darren.
Garrett Rosenblum: We remain focused on delivering value to our shareholders through consistent earnings, prudent capital allocation, and a conservative balance sheet.
Darren: Thank you Erez.
Darren Richmond: Thank you, Gerrit. To close, I want to reiterate how excited we are about the opportunities ahead for Millrose. Our innovative approach to land banking is transforming the way homebuilders access capital while providing stable, predictable returns for our investors. We're confident in our strategy and we're committed to delivering value for all our stakeholders.
Darren: To close I want to reiterate how excited we are about the opportunities ahead for Melrose.
Darren: Our innovative approach to land banking is transforming the way homebuilders access capital, while providing stable predictable returns for our investors.
Darren: We're confident in our strategy and we're committed to delivering value for all our stakeholders.
Darren: Thank you for your support and we look forward to sharing our progress in the quarters ahead.
Darren Richmond: Thank you for your support, and we look forward to sharing our progress in the quarters ahead.
Darren: Operator that concludes our prepared remarks, we're now ready to take questions.
Operator: Operator, that concludes our prepared remarks. We are now ready to take questions. We will now begin the question and answer session. At this time, if you'd like to ask a question, simply press star 1 on your telephone keypad.
Speaker Change: We will now begin the question and answer session. At this time, if you'd like to ask a question simply press star one on your telephone keypad, we kindly ask that you. Please limit your questions to one and one follow up our first question comes from the line of Julian Blooming with Goldman Sachs. Please go ahead.
Operator: We kindly ask that you please limit your questions to one and one follow-up.
Julianne Bluin: Our first question comes from the line of Julianne Bluin with Goldman Sachs. Please go ahead. Thank you for taking my question and congratulations on the quarter, team. Can you help us think about the kinds of yields you look for on some of these larger deals like the Lancy New Home deal? Just trying to understand if it's more roughly consistent with the non-Lenar deals or sort of the Lenar preferential rate. Yeah, no, Julian, thanks for joining us. It is definitely the non-Lenar. And again, we've talked about this in the past, just given the demand for this capital versus the supply, we are getting consistent rates with what we've reported.
Julian Blooming: Thank you for taking my question and congratulations on the quarter team.
Julian Blooming: Can you help us think about the kinds of yields you look for on some of these larger deals like the land team new home deal.
Julian Blooming: Just trying to understand if it's more roughly consistent with the non linear or deals or sort of the linear or preferential rate.
Julian Blooming: Yes, no Julien thanks for joining us it is definitely the non <unk>.
Julian Blooming: And again, we've talked about this in the past just given the demand for this capital versus the supply.
Julian Blooming: We are getting consistent rates with what we've reported now they might be a little bit lower than the 11 seven because in some of these and many of these we actually are getting cross collateralization.
Darren Richmond: Now, they might be a little bit lower than the 11.7 because in some of these, in many of these, we actually are getting cross-collateralization. And so there is a give up on rate for more credit enhancement, which the builders, many of the builders are moving towards.
And so there is.
Julian Blooming: Give up on rate for more credit enhancement.
Julian Blooming: Which to builders many of the builders or are moving towards.
Julian Blooming: Okay, great. Thank you and maybe bigger picture can you help us understand how crucial millrose as participation was to unlocking this transaction for Apollo and new home and how should we think about the opportunities out there to support other transactions within homebuilding and maybe also beyond.
Julianne Bluin: Okay, great. Thank you.
Darren Richmond: And maybe, bigger picture, can you help us understand how crucial Milrose's participation was to unlocking this transaction for Apollo, a new home? And how should we think about the opportunities out there to support other transactions within home building and maybe also beyond? Yeah, I think Ralph Coleman really set the standard for using Milrose as a tool to effectuate M&A. And there's a lot of buzz right now, from the more than midsize builders, as they're trying to outrun their lack of scale. And so there's, there's a lot of activity, more in the mid market, part of the home builder sector.
Speaker Change: Yes, I think Ralph Coleman really set the standard for using Millrose as a tool to effectuate M&A.
Julian Blooming: And there's a lot of buzz right now.
Julian Blooming: The more of the mid sized builders as they are trying to outrun their lack of scale and so there is there is a lot of activity more in the mid market part of the homebuilder sector.
Julian Blooming: And to get right to the heart of your question Melrose is very front and center as a tool now in the toolbox to effectuate M&A.
Darren Richmond: And to get right to the heart of your question, Milrose is very front and center as a tool now in the toolbox to effectuate M&A. We are very excited about that. And in part, that's part of the reason why our stretch goal is more towards $2 billion than $1.5 billion, because we do think, given the activity in the sector right now, we are going to be a participant in more and more conversations, and ultimately in more M&A. And M&A, look, we all know it's hard to achieve, given cultural and valuation issues. We are now a tool in the toolbox for M&A.
Julian Blooming: We are very excited about that and in part. That's that's that's part of the reason why our stretch goal is more towards $2 billion and $1 5 billion because we do think.
Julian Blooming: Given the activity in this sector right now we are going to be a participant.
Julian Blooming: And more and more conversations and ultimately in and more M&A and M&A look we all know it's hard to achieve given cultural and valuation.
Julian Blooming: Issues.
Julian Blooming: But.
Julian Blooming: So we are now a tool in the toolbox for M&A.
Julian Blooming: Okay, great I'll get back in the queue.
Julianne Bluin: Okay, great.
Julianne Bluin: I'll get back in the queue.
Speaker Change: Once again, Brian a question Press Star one our next question comes from the line of Eric Wolfe with Citi. Please go ahead.
Operator: Once again, for any questions, press star 1.
Eric Wolf: Our next question comes from the line of Eric Wolf with Citi. Please go ahead. Hey, thanks.
Speaker Change: Hey, Thanks for your guidance of 69 to 71 cents of EPS related to year end can you just talk about what's embedded in that in terms of total transactions funding.
Eric Wolf: For your guidance of 69 to 71 cents of EPS run rate at year-end, can you just talk about what's embedded in that in terms of total transaction funding, the weighted average yield on that funding, the mix between $1 master program versus non-master program, and anything else that you think is important to get to that sort of 70 cents of run rate by year-end? Yeah, sure. Thanks for taking the question, Eric. Happy to. So that would be consistent with the $1.5 billion non-Lenar target. So think of that as, you know, the existing balance of Lenar deals and that $1.5 billion of non-Lenar.
Speaker Change: The weighted average yield on that from being the mix between our master program versus non Master program and anything else that you think is important to get to that 70 cents a run rate by year end.
Speaker Change: Yeah sure. Thanks, Thanks for the question, Eric Happy too so that would be consistent with the $1 $5 billion nonlinear our target to think of that is.
Speaker Change: The existing balance of on our deals and $1 5 billion of non mannar.
It assumes a yield on the non mannar, that's about 50 basis points more conservative than the $11 7 million.
Garrett Rosenblum: It assumes a yield on the non-Lenar that's about 50 basis points more conservative than the 11.7 that, you know, we realized in the first quarter. And cost of debt that's about 50 basis points more conservative, you know, wider than our cost of debt today.
Speaker Change: That we realized in the first quarter and cost of debt, that's about 50 basis points more conservative and a wider than our cost of debt today.
Speaker Change: So hopefully that helps.
Eric Wolf: So hopefully that helps. Yeah, that's helpful. And then you just gave the rates, I guess, about 11.2% on the $1.5 billion.
Speaker Change: Yeah that's helpful.
Speaker Change: And then you just gave the rates.
Speaker Change: Yes.
Speaker Change: 2% on the $1 5 billion, but can you maybe just talk about sort of average duration on that option deposit termination fees.
Garrett Rosenblum: But maybe just talk about sort of average duration on that, option deposit, termination fees, cross-collateralization, anything you just think is important from a risk mitigation point of view.
Speaker Change: Cross Collateralization anything do you just think it's important from a risk mitigation point of view and then to the extent that there are.
Garrett Rosenblum: And then to the extent that your underwriting perhaps has changed over the last couple months, given a little bit more of a uncertain environment, can you just talk about sort of how you've adjusted your underwriting based on the current environment? Yeah, sure. So in general, that pipeline, it varies in terms of deposit and cross collateralization pooling, I think, you know, you're going to see a mix of some pooling some others, you know, based on what Darren alluded to with builders seeing the cross termination pooling and higher deposit as a tool to bring down their yield.
Speaker Change: Underwriting perhaps has changed over the last couple of months given a little bit more of a uncertain environment can you just talk about sort of how you've adjusted your underwriting.
Speaker Change: Based on the current environment.
Speaker Change: Yeah sure so in general that pipeline is.
Speaker Change: It varies in terms of deposit and cross Collateralization pooling I think youre going to see a mix of some pooling some others based on what Darrin alluded to with builders being the cross termination pooling and higher deposit as a tool to bring down their yield in.
Speaker Change: We're happy with that dynamic.
Garrett Rosenblum: And, you know, we're happy with that dynamic. Generally speaking, the overall deposit on this category of deals is higher than in our category. And generally speaking, we are very focused on risk mitigation, particularly given what you mentioned in the market, we're seeing plenty of demand, but it hasn't changed our underwriting process, which is continued to be as rigorous as it ever was, you know, not only the real estate diligence, but the vetting of gross margin ASP assumptions that we believe to be consistent with the correct market. So, you know, we continue to be rigorous in our underwriting.
Speaker Change: Generally speaking the overall deposit.
Speaker Change: On this category of deals is.
Speaker Change: Higher.
Speaker Change: In our category.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: Generally speaking.
Speaker Change: We are very focused on risk mitigation.
Speaker Change: Particularly given.
Speaker Change: What you mentioned in the market.
Speaker Change: We're seeing.
Speaker Change: Plenty of demand, but it hasnt changed our underwriting process, which is continued to be at a rig as rigorous as it ever was not only the real estate diligence.
Speaker Change: But the embedding of gross margin and ASP assumptions that we believe to be consistent with the correct market. So we continue to be rigorous in our underwriting.
Speaker Change: Thank you.
Eric Wolf: Thank you.
Speaker Change: Our next question is a follow up from the line of Julian balloon with Goldman Sachs. Please go ahead.
Julianne Bluin: Our next question is a follow-up from the line of Julian Blewin with Goldman Sachs.
Speaker Change: Thank you.
Darren Richmond: Please go ahead. Thank you. And maybe following up on that, we noticed that the weighted average duration for the new third-party deployments was quite a bit longer than the deployments for Lenar. Can you sort of help us understand what's driving that difference? And then how do you get comfortable around that longer duration, given maybe the lack of cross-collateralization on some of those third-party deals? Does the higher yield help make up for that? Yeah, I would say I actually wouldn't characterize, you know, that duration on third part deals as longer duration. You know, remember, that's the final home site takedown.
Speaker Change: And maybe following up on that we noticed that the weighted average duration for the new third party deployments was quite a bit longer than the deployments for <unk> can you sort of help us understand what's driving that difference and then how do you get comfortable around that longer duration, given maybe the lack of.
Speaker Change: Cross Collateralization on some of those third party deals.
Speaker Change: Does the higher yield to help make up for that.
Speaker Change: Yes, I would say I actually wouldnt characterize that duration on third party yielded longer duration and remember that's the final home homesite takedown. So the weighted average life of the deal is much less than that maybe around half of that so.
Darren Richmond: So the weighted average life of the deal is much less than that, maybe around half of that. So, you know, in the 50-ish months sort of total last takedown, we're very comfortable with that duration. And what you're keying in on is that you're right, the duration, again, for final takedown of the new Lennar deals we've done is shorter, which is consistent with what Lennar has said, which is this is a tool for work in progress, shorter term home site, you know, inventory.
Speaker Change: 50 ish months sort of total total total last takedown, we're very comfortable with that duration and what youre keying in on is that you are right. The duration again for final takedown of Newland. Our deals. We've done is shorter which is consistent with what <unk> has said with this this is a tool for work in progress shorter term.
Speaker Change: <unk> home side.
Speaker Change: Inventory.
Speaker Change: Got it thank you.
Julianne Bluin: Got it. Thank you.
Speaker Change: Our next question is a follow up from the line of Eric Wolfe with Citi. Please go ahead.
Eric Wolf: Our next question is a follow-up from the line of Eric Wolf with Citi. Please go ahead. Thanks. It looks like you're assuming around an average takedown per site of called around 100,000. Could you just talk about how that relates to sort of the total estimated sort of home prices that you're assuming, the margins that you're assuming the homebuilders get? I'm just trying to understand sort of what that represents relative to sort of total home sale and the profit that you're expecting the homebuilder to take down from that. Yeah, sure. So if you think about a call it $450,000 home sale, you know, that would mean a total lock price of $100,000.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: It looks like you're assuming around the average ticked down.
Speaker Change: The precise of call. It around 100000 could you just talk about how that relates to sort of the total estimated sort of home prices that youre, assuming the margins that youre assuming.
Speaker Change: The homebuilders that I'm, just trying to understand sort of what that represents.
Speaker Change: Relative to sort of total home sales.
Speaker Change: Profit that youre expecting.
Speaker Change: The homebuilder to tick down from that.
Speaker Change: Yes, sure. So if you think about call it $450000 home sale that would mean.
Speaker Change: Total lot price of $100000 and so the balance of that would be the vertical build cost and the gross margin assumptions.
Darren Richmond: And so the balance of that would be, you know, the vertical build cost and the gross margin assumptions, where, you know, we're generally underwriting, as we've talked about to a gross margin, you know, consistent with the builders targets, you know, that they've reported. Okay. And... Yes, as far as the new delayed draw term loan, I think you said something about it was 50 basis points wide of your line of credit. I don't know if I heard that right. But maybe just, you know, walk us through the LPV on that loan, trying to understand something like the asset base that it's secured by, as well as the rate and anything else that you think is sort of important for us to understand about that loan.
Speaker Change: There were generally underwriting as we've talked about.
Speaker Change: Gross margin consistent with that.
Speaker Change: The builders targets that they've reported.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: I guess as far as the new delayed draw term loan I think you said something about it was 50 basis points wide of your line of credit.
Speaker Change: Don't know if I heard that right, but maybe just walk us through the LTV.
Speaker Change: On that loan I'm trying to understand.
Speaker Change: The asset base that are secured by.
Speaker Change: As well as the rate and anything else that you think sort of important for us to understand about the about that loan.
Darren: Yes. This is Darren.
Darren Richmond: Yeah, this is Darren. The rate is actually consistent with the revolver. and has many of the same terms and conditions as in the revolver. Yeah, so said differently, my sort of more conservative assumptions in that full year target, that was, you know, that assumption was not that was more conservative than, you know, the rate on that delays are on. Yeah. And is that secured by Lennar, I guess, Lennar home sites and just anything in terms of the LPV on that? billion dollars, like what's the sort of leverage? Profile. Yeah, the spin-out was of Lennar's assets which are themselves unlevered.
Speaker Change: The rate is actually consistent with the revolver.
Speaker Change: And has many of the same terms and conditions as in the revolver.
Speaker Change: Yes, So said differently my sort of more conservative assumptions in that full year target.
Speaker Change: That was that assumption was not that was more conservative.
Speaker Change: The rate on that the way the doctor everyone.
Speaker Change: Got it and is that secured by.
Speaker Change:
Speaker Change: Our.
Speaker Change: I guess.
Speaker Change: <unk>.
Speaker Change: Homesites and just anything in terms of the LTV on that.
Speaker Change: Like what's the.
Speaker Change: Sort of leverage.
Speaker Change: Profile.
Speaker Change: Yes.
Speaker Change: The Spinout was of <unk> assets, which are themselves unlevered.
Speaker Change: So this would be a corporate loan against all of our assets.
Darren Richmond: So this would be a corporate loan against all of our assets. inclusive of Lennars and other third parties now. So hopefully that answers your question. Yes, it does. Sorry. I thought when you said it was secured, I thought it was secured by like a certain percentage of assets, but I got it. It's it's it's everything at the corporate level. And right. Makes sense.
Speaker Change: Inclusive of <unk> and other third parties now.
Speaker Change: So hopefully that answers your question.
Speaker Change: Yes, sorry, I thought.
Speaker Change: Instead of a secured I thought it was secured by like a certain percentage of assets, but I got it.
Speaker Change: At the corporate level.
Speaker Change: Right makes sense.
Speaker Change: And then in terms of your decision I guess to distribute 100% of earnings back to shareholders could you just sort of pockets through sort of.
Darren Richmond: And then, you know, in terms of your decision, I guess, to distribute 100% of earnings back to shareholders, could you just sort of talk us through sort of, you know, that decision, I guess, to the extent that there's any sort of timing mismatches in the future, related to take down proceeds versus deploying capital? You know, would you slightly lower the dividend or you just fund the excess through the line of credit? Like, how did you come up with the decision to fund exactly 100% of your earnings distributed back to shareholders? Yeah, this is meant to be a cash yielding instrument.
Speaker Change: That decision I guess to the extent that there is any sort of timing mismatches in the future related to take down proceeds versus deploying capital would you slightly lowered the dividend or would you just fund the access through the line of credit like how did you come up with the decision to find exactly 100%.
Speaker Change: Of your earnings distributed back to shareholders.
Speaker Change: Yes. This is meant to be a cash yielding instrument.
Speaker Change: This capital.
Darren Richmond: The this capital as you know, the reason why the REIT was chosen is really to repatriate as much capital annually as we produce. And so that the decision is really consistent with that. The extra between 90% and 100% would be taxable anyway. So, we don't really get any capital advantages inside of the REIT to recycle and reuse those proceeds. If you think about the dividend, then 10% of at 100% and then 90% of that, it's really a small amount of capital on a $8 billion or so balance sheet. And so it doesn't really do much from a capital deployment perspective, but it does a lot to move the needle from a effective yield.
Speaker Change: The reason why the <unk> was.
Speaker Change: Chosen is really to repatriate as much capital annually as we produce.
Speaker Change: And and so that the decision is really consistent with that the extra between 90% and 100% would be taxable anyway. So.
Speaker Change: So we don't really get any <unk>.
Speaker Change: Capital advantages inside of the REIT.
Speaker Change: To re cycle and reuse those proceeds if you if you think about the dividend than 10% of.
Speaker Change: At 100% and then 90% of that it's really a small amount of capital on a $8 billion so balance sheet.
Speaker Change: And so it doesn't really do much from a capital deployment perspective, but it does a lot to move the needle from a effective yield.
Speaker Change: And Thats what were really trying to do is drive our accretive growth drive that yield as high as we can and repatriate as much capital to shareholders as we produce.
Darren Richmond: And that's what we're really trying to do, is drive our creative growth, drive that yield as high as we can, and repatriate as much capital to shareholders as we produce. Understood, that's helpful.
Speaker Change: Understood. That's helpful and then last question.
Eric Wolf: And the last question, thanks for letting me ask all these. I think, you know, as part of your initial agreement with NARA, you're receiving option fee payments or you are receiving option fee payments on around $580 million of funding that was funded with their deposits. Are you assuming that some of that comes off to get to that, let's call it $0.70 a year end run rate? And what's a good assumption for how that should come off over time? Yeah, it has a small impact that that, you know, won't be meaningful. I think you'll see all the reconciliations on the materials in both the 10-Q and the presentation.
Speaker Change: Thanks for letting me ask for this I think.
Speaker Change: Part of your initial agreement with Laura Youre, receiving option fee payment you are receiving the option payments on around $580 million of funding that was funded with their deposits are you assuming that some of that comes off to get to that call. It seven year end run rate and what's a good assumption for for how that should come off over time.
Speaker Change: Yes, it has a small impact.
Speaker Change: Ed.
Speaker Change: We won't be meaningful I think youll see all the reconciliations on the materials in both the 10-Q and the presentation.
Speaker Change: But.
Speaker Change: I don't think it's particularly meaningful.
Operator: But, you know, I don't think it's particularly meaningful. Got it. All right. Thank you. And once again, for any questions or follow-ups, simply press star 1 on your telephone keypad.
Speaker Change: Okay got it alright, thank you.
Speaker Change: Thank you.
Speaker Change: And once again for any questions or follow ups simply press star one on your telephone keypad.
Speaker Change: That will conclude our question and answer session I'll hand, the call back to management for any closing comments.
Operator: That will conclude our question and answer session.
Darren Richmond: I'll hand the call back to management for any closing comments. Yeah, we'd like to thank everybody for joining us today. We're very excited about our progress that we've made thus far, and the momentum that we have as a business, as an organization, and really our role in the sector. Thank you, and we look forward to doing these again in the future.
Speaker Change: Yes, we'd like to thank everybody for joining us today, we're very excited about our progress that we've made thus far and the momentum that we have as a business as an organization and really our role in the sector. Thank you. When we look forward to doing this again in the future take care.
Darren Richmond: Take care.
Speaker Change: This will conclude today's call. Thank you all for joining you may now disconnect.
Operator: This will conclude today's call. Thank you all for joining.
Operator: You may now disconnect.