Millrose Properties, Inc. 10-K

Item 1. Business General Millrose Properties, Inc. is a corporation incorporated under the laws of the State of Maryland on March 19, 2024 for the purpose of receiving the Business Assets from Lennar and becoming an independent publicly traded company. As of December 31, 2024, the Predecessor Millrose Business was wholly owned by Lennar. On February 7, 2025, Millrose completed a Spin-Off of the Predecessor Millrose Business from Lennar and became an independent publicly traded company listed on the NYSE. The Spin-Off was effected by the distribution of approximately 80% of the outstanding shares of Millrose common stock to holders of Lennar common stock on the Distribution Date. On February 10, 2025, Millrose completed an acquisition of land consisting of approximately 24,000 Homesites through the acquisition of 100% of the outstanding stock of RCH Holdings, Inc., a newly formed parent holding company of Rausch, for approximately $876 million in cash, which is net of option deposits funded by Lennar and other holdbacks. See “Part 1, Item 2. Properties” for more information on the Transferred Assets and Supplemental Transferred Assets acquired by Millrose in connection with the Spin-Off and the Supplemental Transferred Assets Transaction, and Note 8 to the Combined Audited Financial Statements of the Predecessor Millrose Business for more information related to the Spin-Off and the Supplemental Transferred Assets Transaction. We provide, through our subsidiaries, an operational and capital solution for home builders and land development companies to finance the acquisition and development of land assets through our Homesite Option Purchase Platform (known as the HOPP’R). The HOPP’R is a comprehensive suite of systems and procedures developed to operate and manage the acquisition, financing and development of land assets on a large scale. Millrose is a holding company without any operations of its own. Our operations are conducted through Millrose Holdings, a Delaware limited liability company and our wholly-owned operating subsidiary, the Property LLCs and Other Subsidiaries. We are externally managed by our Manager with personnel provided by our Manager and officers recommended by our Manager and appointed by our Board serving as all officers and employees of, and performing all business operations for, Millrose, Millrose Holdings, the Property LLCs and any Other Subsidiaries. For the year ended December 31, 2024, the Predecessor Millrose Business did not operate as a separate operating or reportable segment. Starting in the year ended December 31, 2025, Millrose will operate as one operating and reportable segment, Homesite Revenue, with properties geographically located in the following regions across the United States as of March 25, 2025: East (Alabama, Delaware, Florida, New Jersey and Pennsylvania) Central (Georgia, Illinois, Indiana, Kansas, Maryland, Minnesota, Missouri, North Carolina, South Carolina, Tennessee, Virginia, West Virginia and Wisconsin) South (Arkansas, Oklahoma and Texas) West (Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah and Washington) Millrose intends to elect to be treated as a REIT for U.S. federal income tax purposes beginning with its taxable year ending December 31, 2025. Millrose Holdings intends to be treated as a TRS of Millrose. Accordingly, Millrose Holdings will be subject to full entity-level taxation in connection with its business operations. Similarly, we expect that any other TRSs that Millrose may form or acquire in the future will be taxable business entities. Because all of the land acquisition and development activity in connection with providing the HOPP’R to our customers (including with respect to the Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets for Lennar and with respect to any potential Future Property Assets for any Lennar Related Ventures and Other Customers) will be conducted through one or more TRSs, we anticipate that all such activity will be subject to U.S. federal income tax at the entity level. 21 Table of Contents Overview of Millrose’s Business Objectives Millrose’s business is to provide financing of land acquisition and Horizontal Development through the HOPP’R to home builders and land developers, based on a unique recycled capital model intended to accelerate home builders’ land light strategies either through the Lennar Agreements or through other agreements with potential future Lennar Related Ventures and Other Customers that are negotiated on Millrose’s behalf by our Manager. Following the Spin-Off, we have initially provided the Recycled Capital HOPP’R, principally to Lennar, which is designed to provide Lennar with reliable, consistent and uninterrupted access to capital, even during periods of market downturn or continued periods of depressed market conditions, subject to the assumptions and other risks described in this Form 10-K. Millrose has engaged and continues to engage in discussions with other home builders who are interested in becoming new customers, but there is no guarantee that Millrose will continue to be successful in negotiating agreements with such customers and there is no guarantee that Millrose will be able to secure any business arrangements with any home builders outside of Lennar in any given timeframe. Our Recycled Capital HOPP’R is a result of the initial contributions of the Business Assets from Lennar, which allows us to use the proceeds from the payment of Option Deposits and the exercise of Purchase Options to finance the acquisition of Future Property Assets and the Horizontal Development of Future Property Assets without having to repay the value of the initial contribution. This cycle is expected to repeat, allowing us a steady flow of capital, assuming Lennar’s continued and timely exercise of the Purchase Options on the timelines set forth in the applicable Project Addenda and continued payments of Option Deposits when Future Property Assets are acquired pursuant to the Lennar Agreements. This self-financing reliable cycle is a unique feature of Millrose’s solution to traditional Land Banking, and is made possible by (i) the perpetual use of the HOPP’R to operate and manage the acquisition, financing and Horizontal Development of land assets on a large scale and (ii) Lennar’s initial contribution of the Business Assets in return for equity — allowing Millrose access to assets and cash to finance new land acquisitions without having to repay the initial contribution. This Recycled Capital HOPP’R is intended to be accessible to all customers in the residential real estate industry, not just limited to Lennar, and the features unique to the Recycled Capital HOPP’R are designed to allow Millrose to continue financing new transactions with customers both in times of strong market conditions and times of market downturns, therefore supporting the reliable and consistent nature of the structure. The ability of Millrose to offer perpetual land acquisition and Horizontal Development financing solutions through the Recycled Capital HOPP’R distinguishes Millrose’s business from those that engage in traditional Land Banking, which is often required to distribute land sale proceeds to investors. Thus, while traditional Land Banking providers generally cannot engage in additional Land Banking without raising new investor funds, leaving them vulnerable to market dynamics and investor preferences, Millrose’s recycled capital structure should provide home builders with consistent access to capital, even during periods of market downturn or continued periods of depressed market conditions, subject to the assumptions and other risks described in this Form 10-K. However, there is no guarantee that this financing model will be fully self-financing. We entered into the Credit Agreement, which provides for a revolving credit facility with commitments in an aggregate amount of $1.335 billion, and may seek to pursue additional debt financing, all of which may be available to manage cash needs and reduce drag on returns, as well as for use to provide the HOPP’R to Other Customers. However, there is no guarantee that such sources of additional cash will be obtained or will be sufficient to cover all of our business growth initiatives. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources Following the Spin-Off” for more information. Additionally, the ability of Millrose to obtain additional debt financing is subject to the Debt to Equity Ratio Limit under the Founders’ Rights Agreement. Millrose Holdings provides the Recycled Capital HOPP’R to Lennar pursuant to the Lennar Agreements and holds the Transferred Assets and the Supplemental Transferred Assets received in the Spin-Off through the Property LLCs. Subject to the Manager Diligence Obligations, Millrose is required to provide the HOPP’R for 22 Table of Contents the Future Property Assets of (i) Lennar and (ii) any Lennar Related Venture that meets the requirements of the Operating Principles, provided that the Lennar Related Venture has an acceptable risk profile with respect to its creditworthiness and agrees to terms substantially similar to the Lennar Agreements. For any Future Property Assets of Lennar or any Lennar Related Venture that do not meet the requirements of the Operating Principles or do not satisfy the Manager Diligence Obligations, we may decide to provide the HOPP’R under the terms as determined by our Manager. Millrose Holdings provides the HOPP’R to Lennar through the Property LLCs. Millrose Holdings may also provide the HOPP’R to Lennar Related Ventures (with approval from Lennar, to be provided at Lennar’s discretion) or Millrose may provide the HOPP’R to such Lennar Related Ventures through one or more Other Subsidiaries as determined by Lennar and our Manager. We also intend to offer other types of HOPP’R arrangements to potential customers who may not want to engage us for the Recycled Capital HOPP’R, which we seek out on our own (through our Manager) for purposes of diversification and scaling business growth. Our Manager negotiates any such arrangements individually on an ad hoc basis. Even if not all of Millrose’s customers will use the Recycled Capital HOPP’R, the HOPP’R has the flexibility to evolve and be further refined with different features to fit each customer’s needs. There is no certainty as to what the terms and arrangements of such agreements may be, but in some cases, we expect they may share certain characteristics and terms seen in more traditional Land Banking arrangements that are commonly used in the market today, which are influenced by, and subject to, market conditions. In some cases, new customers may also negotiate with our Manager to transfer their already-owned properties to Millrose in exchange for Millrose equity as a way to participate in Millrose’s model. Regardless of the combination of features any customer may desire to negotiate with Millrose, the HOPP’R is designed to provide at its core a sophisticated, streamlined and professional approach to land acquisition and Horizontal Development financing for home builders and developers in the residential real estate industry that was previously exclusively for the benefit of Lennar. To the extent we provide the HOPP’R to any Other Customers, it will be done through Other Subsidiaries and pursuant to agreements that will be negotiated on behalf of Millrose by our Manager. Additionally, in the event that Millrose provides the HOPP’R to Other Customers, it will likely need third-party financings to do so, and we may be limited in our ability to seek additional financing (in the event our existing sources of capital are insufficient) if it would cause our debt to equity ratio to exceed the Debt to Equity Ratio Limit unless we obtain the prior approval of Lennar. In no event will the HOPP’R be provided to Other Customers through Millrose Holdings or any Other Subsidiaries that provide the HOPP’R to Lennar. In all cases, and subject to Lennar’s Capital Priority Right, the proceeds received from the payment of Option Deposits and the exercise of Purchase Options from providing the HOPP’R to customers through Millrose Holdings and any Other Subsidiaries are available to the Millrose Subsidiaries to finance additional Future Property Assets acquisitions that can be improved and developed by Millrose and purchased as finished Homesites by our customers on a “just in time” basis, while a portion could be used to repay the principal on the Promissory Note. Millrose Holdings and Other Subsidiaries distributes to Millrose (subject to limitations on the portion of Millrose’s income that can be dividends in compliance with the REIT Requirements) (i) net earnings generated from the Monthly Option Payments after payments for taxes and expenses (including the Management Fee) and (ii) monthly interest payments on the Promissory Note, and such amounts are then distributed by Millrose as dividends to Millrose’s stockholders, consistent with or in excess of the amount that would satisfy applicable REIT Requirements. The continued sustainability of Millrose’s self-financing recycled capital business model, which is intended to provide us with reliable, consistent and uninterrupted access to capital, is contingent in the first instance on Lennar and any Other Customers electing to exercise their land purchase options. Given that the Transferred Assets that Lennar contributed to Millrose in the Spin-Off comprise a substantial portion of the current and future Homesite inventory that Lennar plans to use for the construction and sale of homes, we expect that Lennar will consistently exercise its options to purchase Homesites from us in order to continue its business of being a home builder. However, Lennar is under no obligation to exercise its options, and we would have no ability to force Lennar to purchase Homesites if it decided not to exercise the options it has pursuant to the Lennar Agreements, which is possible in the event of a significant downturn in the market. Additionally, Millrose can request (and 23 Table of Contents Lennar cannot unreasonably deny such request) that Lennar build homes on behalf of Millrose on any Homesites for which it has forfeited or terminated its Purchase Options. As there is generally a stronger market to sell completed homes compared to Homesites, we should be able to sell such completed homes to generate additional capital, although there is no guarantee we would be able to achieve such sales. Such construction and the subsequent sale to the third parties would require additional time and cost, including hiring personnel and providing the capital to build the homes, that will 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. Absent option exercises by Lennar and Other Customers, Millrose’s self-financing recycled capital business model may still be sustained by supplementing customer option exercises with various alternative transaction contingency options, such as sales of homes to third parties, that would help in ensuring that Millrose will continue to replenish its capital reserves. Our revolving credit facility under the Credit Agreement and any additional debt financing we may seek to pursue may be available to manage cash needs and reduce drag on returns, as well as for use to provide the HOPP’R to Other Customers. However, there is no guarantee that such sources of additional cash will be obtained or will be sufficient to cover all of our business growth initiatives. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources Following the Spin-Off” for more information. Additionally, the ability of Millrose to obtain additional debt financing is subject to the Debt to Equity Ratio Limit under the Founders’ Rights Agreement. Further, Millrose has the ability, subject to market and other conditions, to issue additional equity to generate additional capital, which would allow us to replenish its capital reserves. However, there is no guarantee that we would be able to achieve additional financing on acceptable terms or at all, or that our common stock will always hold sufficient value for equity raises to be viable. Land Banking Reimagined Reimagining Land Banking as an Asset Class Millrose envisions a transformation in the landscape of Land Banking, pioneering a recycled capital vehicle tailored for its income-generating real estate asset class, while aiming to address key challenges prevalent in the Land Banking industry. The HOPP’R is a new type of land acquisition and Horizontal Development financing model that strives to address all of the concerns of traditional Land Banking—excessive risk, lack of readily available, sufficient capital and heavily negotiated, bespoke agreements. In prior iterations of Land Banking, the investment opportunity remained largely exclusive to private equity and institutional investors. Typically, these ventures financed longer-duration, riskier land assets, fraught with inherent market risks and the looming threat of cost overruns, which could severely impact land bank returns and viability. Moreover, such models were often associated with undercapitalized, risky home builders, and were seen more as a risk mitigation strategy rather than a robust source of capital to the home builder. The land bank’s fragmented capital pool further exacerbated the model’s challenges, particularly evident in more volatile market environments. In contrast, we believe Millrose heralds a new era in financing the acquisition and development of land. As the first pure-play publicly traded vehicle offering large-scale recycled capital financing of land acquisition and Horizontal Development using the HOPP’R, which reimagines Land Banking investment opportunities as an asset class, it allows investors (not just private equity funds) to participate in this asset class. Focused on geographically diversified, fully entitled, shorter-duration assets, the Recycled Capital HOPP’R aims to effectively mitigate market risks. The Master Option Agreement with Lennar features (and option agreements that may be entered into with Lennar Related Ventures and Other Customers may feature) upfront deposits, potential termination fees, guaranteed Horizontal Development costs and defined takedown schedules, increasing the potential for consistent profits and returns for stockholders. The Recycled Capital HOPP’R also incorporates mechanisms such as cross-termination of assets within a pool under the Multiparty Cross Agreement, disincentivizing Lennar from terminating option agreements prematurely. Similar agreements may be entered 24 Table of Contents into with Lennar Related Ventures and Other Customers in the future. The Master Construction Agreement, and similar agreements that may be entered into with Lennar Related Ventures and Other Customers, shift the risk of cost overruns to the home builder, enhancing Millrose’s overall stability. As a recycled capital vehicle designed to navigate various market environments, the HOPP’R is intended to be resilient and dependable, poised to redefine the dynamics of Land Banking as an asset class. Functioning as a critical source of capital for Lennar, we believe Millrose will facilitate Lennar’s (and possibly other home builders’) endeavors to maintain and expand its land light strategy. Subject to the Manager Diligence Obligations, Millrose is required to provide the HOPP’R for the Future Property Assets of Lennar that meet the requirements of the Operating Principles. This streamlined process is intended to free Lennar to potentially find more land transactions knowing that Millrose is available to finance these transactions. Furthermore, we believe Millrose is equipped to finance land acquisition and Horizontal Development for Lennar in all areas where Lennar operates. By offering Lennar this scale and reliability, Millrose seeks to help Lennar acquire additional properties while accelerating its land light strategy. Risk Mitigation Millrose was created with a core focus on mitigating risks inherent to Land Banking, underpinned by its robust Operating Principles, designed to safeguard investor interests, allowing Millrose to provide the Recycled Capital HOPP’R to Lennar and certain Lennar Related Ventures. The Operating Principles, detailed under “—The Operating Principles” below, provide various risk mitigation features. With the duration of assets potentially constraining a land bank’s capacity to fund its Land Banking portfolio effectively, the Recycled Capital HOPP’R adopts a proactive approach to portfolio construction, meticulously aligning cash inflows and outflows in an attempt to mitigate duration risk and support sustained financial stability. Additionally, Millrose seeks to address the possibility of entitlement delays, stemming from government approvals, by structuring deals Millrose believes have minimal approval risk, bolstered by stringent underwriting criteria and comprehensive due diligence processes. Development cost risk poses another significant concern to land banks, with the specter of cost overruns threatening to disrupt budgeted expenses. Millrose will mitigate such risk by making home builders responsible for all cost overruns, thereby protecting itself from cash flow vulnerabilities. Regarding termination risk, wherein a home builder may prematurely terminate option contracts, Millrose implements measures to disincentivize such actions by Lennar and potentially Lennar Related Ventures and Other Customers in the future, imposing forfeiture of deposits and termination fees, while obligating the home builder to complete the Homesites’ development. Additionally, pooling communities allows Millrose to use multiple properties as collateral for option contracts so that premature termination of one option contract results in the home builder losing access to the other communities in the same pool. Development schedule risk presents yet another challenge for traditional Land Banking, with projects potentially missing development timelines and delaying monetization. In an effort to mitigate this, under the Lennar Agreements (and any similar agreements with Lennar Related Ventures and Other Customers), Millrose receives current income in the form of Monthly Option Payments and continues to receive Monthly Option Payments in the event of project delays, with the goal of generating yield for stockholders and maintaining financial resilience. Furthermore, to mitigate the risk of capital constraints and financing challenges potentially impeding a home builder’s ability to comply with takedowns, Millrose seeks to offer the HOPP’R to well-capitalized, high-quality home builders and land developers that will execute agreements similar to the Lennar Agreements, although there is no guarantee that such agreements will be finalized. We believe that the Operating Principles are key features in providing the Recycled Capital HOPP’R while maintaining a low-risk business model. 25 Table of Contents The Operating Principles The following is a summary of Millrose’s Operating Principles, and how they have been reflected in the Lennar Agreements. The descriptions of the Lennar Agreements are not comprehensive; for more information about the terms and provisions of the Lennar Agreements, see “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with Lennar.” In most cases, Future Property Assets to be acquired are to consist of properties for which all discretionary approvals and entitlements to allow Horizontal Development to begin soon after the acquisition of the land have already been obtained. • This requirement is designed to mitigate the risk of potential land development delays and regulatory uncertainties, as well as risks associated with changes in local regulations or zoning ordinances that may result in unforeseen obstacles to development. Moreover, we believe this Operating Principle will result in shorter deal durations, streamline the development process and help enable home builders to commence development of the land without the risk of approval delays and thereby further optimize time and resources. Ultimately, we believe approved and permitted land assets should enhance investor confidence in the cash conversion cycle. • This is already the case with most of the Transferred Assets and the Supplemental Transferred Assets, and the Master Program Agreement includes provisions along with a separate set of Program Criteria that generally require this for any Future Property Assets that Millrose Holdings may acquire pursuant to the Lennar Agreements. Future Property Assets must meet certain predetermined criteria in an effort to ensure that we maintain a diversified Real Estate Portfolio. • Diversification is important as a real estate risk mitigation tool in general, and specifically, for Millrose. Because the properties within the Real Estate Portfolio are spread across different regions, we believe Millrose should be able to safeguard against adverse localized economic events that may impact a particular market. Similarly, diversification across various markets and property types should enable more flexibility for Millrose to capitalize on opportunities and adapt to changing home buyer preferences. However, there is a risk that Future Property Assets may not be as diverse as the Transferred Assets and the Supplemental Transferred Assets. • The criteria that Lennar is obligated to follow are set forth in the Program Criteria set forth in the Master Program Agreement and will apply to all Future Property Assets that Millrose Holdings acquires pursuant to the Lennar Agreements. • Millrose has the benefit both of property evaluations by Lennar site acquisition personnel and the Manager Diligence Obligations with regard to each Future Property Asset. Future Property Assets to be acquired are to be subject to a nonrefundable deposit as consideration for the grant of the purchase option of such Future Property Asset. • Requiring a nonrefundable deposit as consideration for the grant of home builder’s purchase option of the Future Property Asset, which should be paid in part at the outset when a Future Property Asset is acquired from or on behalf of a home builder and in part when Millrose requires the capital or when the home builder terminates its purchase option as a termination fee, is designed to (i) provide the home builder with additional incentive not to default on its purchase options and pay the Monthly Option Payments and (ii) provide Millrose with sufficient capital to maintain its operations and invest in additional Future Property Assets for such home builder (although Millrose may need to secure additional third-party financing or raise capital through equity or debt issuances in the future if Millrose’s existing sources of capital are insufficient). 26 Table of Contents • Pursuant to the Lennar Agreements, Lennar paid the Initial Deposit portion of the Option Deposit with respect to the Transferred Assets upon the execution of the Master Program Agreement and Master Option Agreement. Lennar is also obligated to pay the Initial Deposit portion of any Option Deposit with respect to the Supplemental Transferred Assets and any Future Property Assets upon the execution of the applicable Project Addendum and will be obligated to pay the Additional Deposit portions of the Option Deposits with respect to the Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets as set forth in the Lennar Agreements. Construction agreements are to contain provisions that are designed to ensure cost overruns on any Horizontal Development will be guaranteed by the home builder. • Such an arrangement aims to shield Millrose from unexpected expenses that may arise during the Horizontal Development process. With the home builder bearing the responsibility for any cost overruns relating to Horizontal Development on the properties, we believe Millrose will be able to operate with greater predictability and with more confidence that its financial expectations will be substantially met (or even if it does not, that it will be within an acceptable and foreseeable range of such expectations). This Operating Principle aims to minimize financial risks and to maximize the likelihood that developments stay within time and budgetary limits and should, in our view, result in stable and consistent financial returns. • As reflected in the Master Construction Agreement, as part of the Lennar Services, Lennar has agreed to cover any cost overruns with respect to any Horizontal Development for the Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets. Lennar has also agreed to maintain insurance, including general liability insurance, to cover certain liabilities that may arise with respect to its Horizontal Development projects, among others. Lennar will also solely be responsible for any costs related to home construction. Properties and Homesites comprising the Future Property Assets are to be subject to pooling arrangements to create cross-termination. • We believe that embedding cross-termination rights in Millrose’s option contracts with any customer who desires the Recycled Capital HOPP’R is a risk mitigation tool that is beneficial to Millrose. The pooling of communities, as required by the Lennar Agreements, is intended to allow Millrose to use multiple properties as collateral for option contracts, thereby spreading the risk across various assets. In the event that one community underperforms or faces difficulties, Lennar would risk losing access to the other communities in the same pool if it tried to walk away from the underperforming community in that pool. Future Property Assets that adhere to the Operating Principles would be pooled generally using the same principles as those used to pool the Transferred Assets and the Supplemental Transferred Assets. For more information about how Transferred Assets and the Supplemental Transferred Assets are pooled and any Future Property Assets adhering to the Operating Principles will be pooled, see “Part I, Item 2. Properties—Description of the Transferred Assets and the Supplemental Transferred Assets—Pooling of the Transferred Assets and the Supplemental Transferred Assets” and “Part I, Item 2. Properties—Description of Future Property Assets—Pooling of Future Property Assets.” We expect this strategy may also help Millrose’s our ability to negotiate more favorable terms and secure financing from lenders in the future, to the extent external financing is needed. However, there is no guarantee that Future Property Assets acquired for Other Customers will be subject to the pooling requirement. • Pursuant to the Lennar Agreements, the Transferred Assets and the Supplemental Transferred Assets are pooled into 30 pools consisting of an average of 29 properties each. Each property included in any Future Property Asset acquired pursuant to the Lennar Agreements will be pooled pursuant to one or more Multiparty Cross Agreements, which identifies the pooled communities and sets forth the rights 27 Table of Contents that Millrose and its subsidiaries have in the event Lennar decides to terminate a purchase option (subject to certain exceptions, such as the fee building exemption, which is described further in “—Millrose’s Operational Agreements”). Millrose (through Millrose Holdings, the Property LLCs and Other Subsidiaries) expects to receive predictable, recurring Monthly Option Payments in order to maintain the purchase options to buy back the Transferred Assets, the Supplemental Transferred Assets or any Future Property Assets. • This arrangement is designed to provide a predictable and stable source of income for Millrose, which we believe is essential for consistent dividend distributions to our stockholders. With Monthly Option Payments paid by the home builder at consistent intervals, we expect Millrose Holdings will be able to better manage its working capital for maintaining operations (including payment of taxes and other expenses, including the Management Fee). Millrose Holdings, the Property LLCs and Other Subsidiaries will distribute to Millrose (i) net earnings generated from the Monthly Option Payments after payments for taxes and expenses (including the Management Fee) and (ii) monthly interest payments on the Promissory Note (which is currently approximately $358 million annually based on a 7.5% interest rate), and such amounts will then be distributed by Millrose as dividends to our stockholders, consistent with or in excess of the amount that would satisfy applicable REIT Requirements. We expect these fixed income-like payments may also act as a steady financial foundation for lenders in the future, to the extent external financing is needed. We expect any future HOPP’R agreements pursuant to which we will provide the Recycled Capital HOPP’R will include a substantially similar arrangement. • The Master Option Agreement with Lennar obligates Lennar to pay to Millrose Holdings the Monthly Option Payment to maintain its exclusive option to purchase back the Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets in accordance with the Lennar Agreements. Nothing in any of the Lennar Agreements is intended to impede, impair or otherwise negatively impact Millrose’s ability to qualify for REIT status for U.S. federal income tax purposes. • Millrose’s intended REIT status and externally managed operating structure is designed to help minimize administrative burdens and allow Millrose to continually reinvest land sale proceeds to drive new business. Millrose intends to elect to be treated as a REIT for U.S. federal income tax purposes, beginning with its first taxable year for the year ending December 31, 2025. Millrose’s intended REIT status and its externally managed operating structure and relationship with our Manager aim to minimize the administrative burdens on Millrose, which we believe help enable our Manager to focus more on strategic relationships with Lennar and other customers. Additionally, we believe Millrose’s position fosters greater flexibility in decision-making, allowing Millrose to pursue opportunities to provide the HOPP’R to customers without being constrained by shifts in investor sentiments and market conditions. In light of these considerations, Millrose Holdings seeks to continuously deploy a portion of its capital into financing new HOPP’R transactions. We expect this approach also promotes efficiency by maximizing the utilization of available funds, thereby minimizing cash drag and idle capital, further contributing to the goal of providing us with stable, predictable returns over an extended period. • The Lennar Agreements were designed with the goal of ensuring that none of the provisions in the Lennar Agreements will negatively impact Millrose’s ability to qualify for REIT status for U.S. federal income tax purposes. Land Banking as a Solution for Home Builders’ Land Light Strategies Traditional Land Banking has generally been a deal-by-deal off-balance sheet financing structure whereby a Land Banking provider (separate from the home builder itself) purchases fee title to a land parcel, and then enters 28 Table of Contents into a purchase option agreement with a home builder to sell the land parcel back once the land parcel becomes fully developed Homesites. The purchase option agreement may be secured by a nonrefundable option fee paid by the home builder. The land parcel may or may not have all permits, approvals and entitlements at the time of closing, and the time from when the land is purchased by the land bank until the last Homesite is sold to home builders can be protracted for many years. Traditional Land Banking arrangements may also involve a construction agreement by which the Land Banking provider pays the home builder, as the contractor, to develop the property at a fixed or guaranteed cost and generally lack asset diversity running the risk that a market downturn in one region could lead to multiple customers with purchase option contracts opting not to exercise their options. In traditional Land Banking, customers may walk from a property or “cherry pick” assets if there is more than one property land banked at a time, creating risk and leaving the land bank responsible for finding new buyers for less-desirable properties. At times of rising demand for finished Homesites, home builders are faced with the challenge of securing land at rising prices. The land acquisition costs and the Horizontal Development phase represent the main source of capital inefficiency given the long duration of time involved, coupled with the amount of capital required to fund land acquisition and Horizontal Development. An illustrative average home building lifecycle comprises the following main phases: Phase 1 – Land Acquisition and Approval (generally 6-60 months): The first phase involves the identification and acquisition of and the receipt of entitlements, approvals and permits for the land, which is a time-intensive process and includes zoning and permitting risks. This part of the process involves obtaining approvals to develop the property in accordance with land zoning and development building codes. The Homesite yield on any given property is a function, in part, of the permitted zoning and development building regulations. At times, a home builder will identify and acquire land which has already been partially or fully approved or entitled. Phase 2 – Property Acquisition, Entitlement and Horizontal Development (generally 6-60 months): The second phase involves completing the land purchase and Horizontal Development, which lays the groundwork for building homes. This is where Millrose enters the development process. Horizontal Development includes installing all utilities and infrastructure required to build homes in a community, including drainage, sewage, water lines, roads, sidewalks, utility lines, grading and landscaping. Sometimes such infrastructure can also include the construction of recreational facilities, common area elements and other amenities. The land is usually purchased before or when Horizontal Development can commence. Therefore, this phase is both time- and capital-intensive for the home builder. Phase 3 – Sale and Home Construction Development (generally 4-14 months to complete the first home): Once the Horizontal Development is substantially completed, the third phase involving the construction of homes can begin. Typically, the home builder is responsible for constructing the home, completing utility connections to the homes and installing landscaping, all at its cost. Building the actual home is referred to as “home construction” or “vertical development” and is much less time-intensive than Horizontal Development. In some cases, the home builder may undertake construction work before purchasing the Homesite or without even purchasing the Homesite, in which case the Land Banking provider may be asked to deliver the Homesite and the completed home directly to the ultimate home buyer. Following the evolution of the housing market since the global financial crisis of 2007-2008, there is a growing trend of home builders to pursue a land light strategy, which allows home builders to minimize their investment in land acquisition and Horizontal Development in favor of finding “just in time” sources of land inventory. The adoption of a land light strategy typically offers compelling advantages to home builders in today’s competitive real estate landscape. Transitioning to a land light model allows home builders to own less land while relying more heavily on third parties for their Land Banking needs. By relying on land owned by others, home builders can conserve valuable capital that can be allocated to other critical areas of the business, such as expanding into new markets and regions, innovating, integrating technology and/or enhancing stockholder returns through the payment of dividends and stock buybacks. It may also extend a home builder’s 29 Table of Contents capital base in the pursuit of securing more land for future development. Furthermore, a land light strategy can generally facilitate a faster time to market for home builders. Land Banking meets this growing demand for ways to maintain a land light strategy and “just in time” operating model, and most major home builders in the United States are employing some form of Land Banking strategy today. Future HOPP’R Arrangements with Lennar and Lennar Related Ventures Millrose’s business arrangements are primarily pursuant to the Lennar Agreements, which seek to provide Lennar with the Recycled Capital HOPP’R with respect to the Transferred Assets. The properties in the Transferred Assets and the Supplemental Transferred Assets are expected to have a short cash conversion cycle. Lennar has offered and we expect that Lennar will offer additional transactions to us in the form of Future Property Assets that we would acquire pursuant to the Lennar Agreements, and Lennar has referred and we expect that Lennar will refer any Lennar Related Ventures interested in the HOPP’R to us. However, there is no certainty as to when, how often and to what extent this will occur. Any future transactions that Lennar or any Lennar Related Venture presents to us will be in one of two categories: • Type 1: Those that fully comply with the terms of the Lennar Agreements, including adherence to all the Operating Principles; and • Type 2: Those that do not fully comply with the terms of the Lennar Agreements and may adhere only to some or none of the Operating Principles. We are obligated to accept any Future Property Assets presented to us by Lennar or any Lennar Related Venture that fit within Type 1 and satisfy the Manager Diligence Obligations, provided that we have sufficient capital to do so, as calculated in accordance with the terms of the Master Program Agreement, and provided that such Lennar Related Ventures has an acceptable risk profile with respect to its creditworthiness. If we do not have sufficient capital, despite Lennar’s Capital Priority Right, then the obligation may be delayed until we do have sufficient capital to acquire the Future Property Assets. These acquisitions are governed by the Lennar Agreements with respect to any acquisitions done for Lennar and are governed under separate agreements with respect to any acquisitions done for a Lennar Related Venture. We expect agreements for a Lennar Related Venture to have substantially the same terms as the Lennar Agreements (including adherence to all the Operating Principles) but not to be covered under Lennar’s Guaranty and not to include the Monthly Option Payment fee rate matching provision. For Future Property Assets that fall within Type 2, we may, at our Manager’s discretion, accept any transactions presented to us. The terms of any Type 2 transactions from Lennar are individually negotiated on a case-by-case basis between Lennar and our Manager and may be governed by separate HOPP’R agreements and not the Lennar Agreements. The terms of any Type 2 transactions from any Lennar Related Ventures are also individually negotiated on a case-by-case basis between the Lennar Related Venture and our Manager and are governed under separate agreements. The terms of any such agreements with Lennar or any Lennar Related Venture may be different from the terms in the Lennar Agreements, and the HOPP’R we provide to Lennar or to a Lennar Related Venture in Type 2 may not be the same Recycled Capital HOPP’R that we provide pursuant to the Lennar Agreements. Millrose seeks to provide the HOPP’R to each customer through a separate subsidiary. For example, Millrose Holdings provides the Recycled Capital HOPP’R to Lennar through the Property LLCs. Millrose Holdings may also provide the HOPP’R to Lennar Related Ventures (with approval from Lennar, to be provided at Lennar’s discretion) or Millrose may provide the HOPP’R to such Lennar Related Ventures through one or more Other Subsidiaries as determined by Lennar and our Manager. To the extent we provide the HOPP’R to any Other Customers, it is done through Other Subsidiaries and pursuant to agreements that are negotiated on behalf of Millrose by our Manager. Additionally, in the event that Millrose provides the HOPP’R to Other Customers, it will likely need third-party financings to do so. We have a revolving credit facility under the Credit Agreement and may seek to pursue additional debt financing, all of which may be available to manage cash needs and reduce drag on returns, as well as for use to provide the HOPP’R to Other Customers, but there is no guarantee that such 30 Table of Contents sources of additional cash will be obtained or will be sufficient to cover all of our business growth initiatives. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources Following the Spin-Off” for more information. Additionally, the ability of Millrose to obtain additional debt financing is subject to the Debt to Equity Ratio Limit. In no event will the HOPP’R be provided to Other Customers through Millrose Holdings or any Other Subsidiaries that provide the Recycled Capital HOPP’R to Lennar. Any capital held in Millrose Holdings to be used to fund future HOPP’R transactions for Lennar and certain Lennar Related Ventures is subject to the Capital Priority Right as set forth in the Founder’s Rights Agreement. Lastly, under the Founder’s Rights Agreement, Lennar’s Applicable Rate Adjustment Right allows Lennar to adjust its Applicable Rate for Proposed Projects initiated during the 180 day period after a HOPP’R or other arrangement is entered into for any rate lower than Lennar’s agreed upon between Millrose and any Lennar Related Ventures or Other Customers. See “—Millrose’s Operational Agreements” for more information. In accordance with the Lennar Agreements, Lennar is under no obligation to provide us with any new transactions and opportunities (in either Type 1 or Type 2). This means that, unless we receive substantial new transaction opportunities from Lennar, Lennar Related Ventures or Other Customers, we will not have any active customers utilizing the HOPP’R following the complete turnover of the Transferred Assets and the Supplemental Transferred Assets. As such, part of our business strategy is to seek additional customers that wish to contract with us to utilize the HOPP’R in order to diversify our customer base and grow our business. Potential Future HOPP’R Arrangements with Other Customers We seek to provide the HOPP’R to Other Customers as part of our diversification and growth strategy. It is KL’s responsibility, as our Manager, under the Management Agreement to find, identify, evaluate and negotiate with any potential Other Customers. Agreements with Other Customers are individually negotiated on Millrose’s behalf by our Manager (and such agreements may not include the same features as the Recycled Capital HOPP’R). KL has substantial Land Banking experience, and we believe KL as our Manager is well-positioned to evaluate the relative risks and the potential returns when negotiating these transactions. For each transaction with Other Customers, our Manager must satisfy the Manager Diligence Obligations and has full discretion to negotiate the applicable terms and arrangements. The terms of such agreements and arrangements may be vary, and Other Customers may be unwilling to agree to any of our Operating Principles. As a result, the HOPP’R we provide to Other Customers may be very different from what we will provide to Lennar. The arrangements around providing the HOPP’R in these cases may instead share the characteristics and terms of more traditional Land Banking arrangements that are commonly used in the market today (i.e., there will likely not be any assurance to such home builders that Millrose will be able to provide them with available capital during periods of market downturn or continued periods of depressed market conditions). In all cases, Millrose will provide the HOPP’R and all other similar arrangements to its customers (including with respect to any acquisitions of Future Property Assets for any customer, including Lennar) in accordance with Millrose’s Operating Guidelines described below under “—Millrose’s Operating Guidelines” and set forth in the Management Agreement, including, but not limited to, the Investment Guidelines and Allocation Policy for presenting investment opportunities to entities it and its subsidiaries advise, including Millrose. We cannot provide any certainty about how many (if any) Other Customers we may be able to attract and take on as customers. Even if our Manager does find suitable Other Customers, such opportunities will be subject to the Allocation Policy. See “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with our Manager—Management Agreement” and “Part I, Item 1A. Risk Factors—Risks Related to our Management Structure” for more information about Kennedy Lewis’s allocation policies and the related risks. 31 Table of Contents The Benefits of Millrose’s Recycled Capital HOPP’R Historically, Land Banking was done for long-lived and riskier collateral, and Land Banking structures were often utilized to offload risks associated with discrete assets onto a capital provider. These historical risk mitigation objectives of traditional Land Banking customers are inconsistent with the Recycled Capital HOPP’R that we aim to provide to at least certain of our customers, including Lennar. We believe Millrose’s business model suits the needs of, and provides valuable benefits to, sophisticated home builders, such as Lennar, who can withstand the responsibilities and risk exposures allocated to them under the Operating Principles. As such, the Operating Principles as reflected in the current Lennar Agreements require Lennar to take on significant responsibility in order to take advantage of the Recycled Capital HOPP’R. In return, Millrose expects to provide Lennar with a perpetual and tailored Recycled Capital HOPP’R that will persevere through both advantageous and disadvantageous market conditions. We believe the benefits that Millrose will provide to Lennar beyond what traditional Land Banking providers offer will enable Lennar to enjoy significantly greater certainty, predictability and reassurance about the stability and sustainability of its land light strategy—benefits that we believe far outweigh the responsibilities described above. Currently, our largest customer is Lennar. Millrose has engaged and continues to engage in discussions with other home builders who are interested in becoming new customers, but there is no guarantee that Millrose will continue to be successful in negotiating agreements with such customers and there is no guarantee that Millrose will be able to secure additional business arrangements with any home builders outside of Lennar in any given timeframe. Pursuant to the structures in place and the terms set forth in the Lennar Agreements, we believe Millrose’s contemplated business model should allow Lennar to realize its desire of enhancing return on equity and accelerating its planned ongoing transformation into an asset-light, high cash flow home building manufacturer. As set forth in the below illustrative diagram, we expect that the Recycled Capital HOPP’R should allow Lennar to systematically move land into an off balance sheet vehicle that is option driven, which can result in Homesites being available on a “just in time” basis, no different than when Lennar purchases other assets (e.g., materials, lumber and refrigerators) from critical suppliers as the cadence of home production dictates. While there are many benefits to Millrose over traditional Land Banking, one key differentiator, as discussed above, lies in the Recycled Capital HOPP’R: the intended permanence of Millrose financing afforded by the terms of the Lennar Agreements is expected to provide Lennar with access to a lower cost of capital on an ongoing basis and ensure that Lennar’s business operations remain uninterrupted. We believe this dependability should add significant value to Lennar in terms of providing more certainty as to where capital will come from and the extent to which it will remain available even in times of market stress. Highly Synergistic Business to Support Home Building The following descriptions summarize the synergistic arrangements we have with Lennar. These are the main steps contemplated in the Lennar Agreements between Millrose Holdings and Lennar: • Acquisition of Transferred Assets, Supplemental Transferred Assets and Future Property Assets 32 Table of Contents Millrose Holdings, through the Property LLCs, holds all of the Transferred Assets and the Supplemental Transferred Assets. Although there can be no guarantees, Millrose expects Millrose Holdings will make new land acquisitions of Future Property Assets for Lennar in accordance with the terms of the Master Program Agreement. Pursuant to the Master Program Agreement, in the event Lennar desires to enter into new transactions with Millrose Holdings, Lennar will be obligated to identify and evaluate suitable Future Property Assets for Millrose Holdings to purchase in connection with Millrose Holdings’ ongoing relationship with Lennar. With respect to any potential Future Property Assets that Millrose Holdings will acquire pursuant to the Lennar Agreements, Lennar will perform the acquisition analyses, diligence and vetting of potential Future Property Assets against the Program Criteria set forth in the Master Program Agreement on behalf of Millrose Holdings and once our Manager provides its approval after it performs the Manager Diligence Obligations on any Future Property Asset, Millrose Holdings (directly or through one of the Property LLCs) is obligated to acquire the Future Property Assets. As part of the Manager Diligence Obligations, the Manager employs its current underwriting team to conduct a thorough independent diligence assessment of each proposed transaction, ensuring adherence to the Investment Guidelines and assessing the credibility of the home builder’s financial projections. Kennedy Lewis’ underwriting team consists of more than 30 diligence professionals proficient in homebuilding, land acquisition, and financial analysis. They leverage third-party market data and internal proprietary datasets to formulate an autonomous evaluation of projected home selling prices, sales pace, and profit margins for each community. In general, the Manager’s due diligence includes an appropriate legal evaluation that ensures the land has received all necessary entitlement and environmental approvals. However, in accordance with the Lennar Agreements, Millrose has a put back right under certain circumstances that allows it to sell a property back to Lennar for a price equal to Millrose’s total capital investment in such property. This right is triggered in the event that, after acquisition of a Future Property Asset, there is a material misrepresentation regarding title, environmental and/or permits/approvals, such that the property cannot be developed and sold generally in the manner contemplated. In such circumstances, Millrose may exercise the put back right by notifying Lennar of the issue and misrepresentation, and Lennar will be obligated to purchase such property from Millrose within a reasonable time following Millrose’s exercise of its put back right. In light of Millrose’s put back right, our Manager does not believe that there is a need to conduct the same extensive legal analysis for proposed transactions with Lennar that it would for customers that have not given Millrose a similar put back right. As such, for any home builder and developer counterparties that do not agree to such put back right, the Manager will conduct an extensive due diligence process, including an appropriate legal analysis. All Transferred Assets and Supplemental Transferred Assets are pooled in accordance with the applicable Multiparty Cross Agreements. The Transferred Assets and the Supplemental Transferred Assets are grouped into 30 pools consisting of an average of 29 properties each. Future Property Assets will also be pooled in accordance with additional Multiparty Cross Agreements (or added to existing Multiparty Cross Agreements), provided that the aggregate sum of all Option Deposits Lennar has made, or is obligated to make with respect to such new pool of Future Property Assets, shall not at any time exceed $50,000,000 with respect to pools of the Transferred Assets and $25,000,000 with respect to pools of Future Property Assets. Pools will be established with primary consideration given to diversity within pools across geographies, communities and home types. • Purchase Option of Lennar with respect to the Transferred Assets, the Supplemental Transferred Assets and Future Property Assets Pursuant to the Lennar Agreements, Lennar has the right but not the obligation to purchase Homesites from the Transferred Assets and the Supplemental Transferred Assets and to purchase any Future Property Assets at predetermined respective Takedown Prices and on predetermined respective Takedown Schedules. In connection with the Spin-Off, Millrose Holdings (directly or through one or more Property LLCs) executed various Project Addenda, pursuant to which the Transferred Assets are subject to the Master Program Agreement and Master Option Agreement. Following the closing of the Supplemental Transferred Assets Transaction, Millrose 33 Table of Contents Holdings executed various Project Addenda pursuant to which the Supplemental Transferred Assets are subject to the Master Program Agreement and Master Option Agreement. Once any Future Property Asset has been purchased in accordance with the Master Program Agreement, Millrose Holdings (directly or through one or more Property LLCs) will execute additional Project Addenda with respect to the Future Property Assets. The Master Option Agreement, as supplemented by each Project Addendum with respect to the respective properties, sets forth the terms and provisions relating to Lennar’s Purchase Option, including terms relating to Lennar’s Option Deposits, Monthly Option Payments, Takedown Schedules and Takedown Prices associated with each property comprising the Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets, as applicable. Under the Master Program Agreement and Master Option Agreement, upon Lennar’s request, Millrose and Millrose Holdings (directly or through the applicable Property LLC) agree to reasonably amend any Project Addendum, including adjustments to the Takedown Schedule and Takedown Prices; provided, however, that Millrose and Millrose Holdings may withhold their consent to any proposed amendments which will have a material adverse effect on Millrose, Millrose Holdings or any Property LLC. Lennar’s Purchase Option is issued in consideration for the Option Deposits with respect to the Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets. The Option Deposits consist of an Initial Deposit and, if Millrose chooses, an Additional Deposit. The Initial Deposit was paid upfront upon execution of the Master Program Agreement and Master Option Agreement with respect to the Transferred Assets, was paid upon execution of the applicable Project Addendum with respect to the Supplemental Transferred Assets and will be paid upon execution of the applicable Project Addendum with respect to any Future Property Assets. The value of the Initial Deposit (i) was based on 5% of the total value of the Transferred Assets including future purchases and Horizontal Development costs, (ii) was based on 5% of the total value of the Supplemental Transferred Assets and Horizontal Development costs, and (iii) will be 5% of the sum of the projected total land acquisition and Horizontal Development costs for any Future Property Assets, as the case may be. The Additional Deposit may be paid at a later time as (i) a call option exercise by Millrose Holdings in the event our Manager, in its reasonable judgment, determines that Millrose Holdings requires such additional capital to fund its ongoing business operations in the ordinary course and/or (ii) a termination fee in the event Lennar terminates or forfeits its Purchase Option with respect to any properties. Regardless of whether the Additional Deposit is paid as a call option exercise, a termination fee or a combination of both, the value of the Additional Deposit will be cumulative and be up to 5% of the Takedown Price of the Homesites on a Property that are still subject to the Purchase Options that Lennar has outstanding. See “—Millrose’s Operational Agreements” for more information about the Option Deposits. Separately, Millrose Holdings receives Monthly Option Payments equal to an 8.5% (per annum) fixed rate per annum of its total outstanding capital investment in land acquisition and Horizontal Development funding with respect to the Transferred Assets and the Supplemental Transferred Assets, calculated on a daily basis, and at a floating rate between 7.0% to 10.0%, as calculated in the manner set forth in the Master Option Agreement and described under “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with Lennar—Master Option Agreement” that will once calculated for any Proposed Project, remain fixed for the duration of such Proposed Project with respect to any Future Property Assets, similar to a commercial bank receiving interest on its outstanding loan balances. These Monthly Option Payments are designed to provide Millrose with a recurring cash fixed income revenue base, supporting the goal of ensuring predictable cash distributions to stockholders. In certain circumstances, Lennar may request “pause periods” as contemplated in the Lennar Agreements, pursuant to which Lennar may lower its Monthly Option Payment fixed rate per annum as follows: (i) two pause periods for a period of up to six months for each pause period (during which time all takedowns and Work construction deadlines for all properties held for Lennar pursuant to the Lennar Agreements will also be extended), (ii) Lennar and Millrose may mutually agree to designate two additional pause periods of up to six months each for a total of up to two years, and (iii) pursuant to Lennar’s Pause Period Designation Right, Lennar will have the right to unilaterally decide to designate a Pause Period at any time in its sole discretion. See “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with Lennar—Master Option Agreement” for more information and specific details about the calculation of the Monthly Option Payments and the terms of the “pause” feature. 34 Table of Contents • Horizontal Development and Home Construction on the Transferred Assets, the Supplemental Transferred Assets and Future Property Assets The Transferred Assets and the Supplemental Transferred Assets are, and any Future Property Assets will also become, subject to the Master Construction Agreement, under which Lennar is obligated to undertake Horizontal Development as part of its Work. Pursuant to the Lennar Agreements, Millrose, through Millrose Holdings and the Property LLCs, own the Transferred Assets and the Supplemental Transferred Assets, and will own any Future Property Assets, while Lennar performs its Work, and then (assuming Lennar’s exercise of its Purchase Options) the finished Homesites will be purchased by Lennar. Under the Master Option Agreement, Lennar has the option, but not the obligation, to undertake home construction on the Transferred Assets, the Supplemental Transferred Assets and the Future Property Assets. Millrose Holdings intends to use a portion of the payments received by Millrose Holdings pursuant to the Lennar Agreements to finance Lennar’s Work on the Transferred Assets and the Supplemental Transferred Assets over time, up to predetermined budgets for each Homesite project. Millrose Holdings may also use any capital secured through third-party financing to fund such construction payments. During a “pause period,” no construction payments will be due from Millrose Holdings to Lennar. Lennar oversees and executes the Work and provides completion and cost guarantees in favor of Millrose Holdings to complete the Work. Millrose, through Millrose Holdings (or any Property LLCs), is solely responsible for financing the Work up to the predetermined budgets for each property as set forth in the relevant Project Addendum. If Lennar undertakes home construction on the Homesites, then the cost of all home construction will be borne by Lennar and not Millrose or Millrose Holdings (or any of the Property LLCs). Lennar is responsible for all Work and any home construction on the Transferred Assets, the Supplemental Transferred Assets and Future Property Assets acquired pursuant to the terms of the Lennar Agreements and for all insurance to cover any issues relating to the Work and the construction of the homes. Neither Millrose nor any of its subsidiaries will be responsible for maintaining any insurance with respect to the Homesites or anything constructed on the Homesites, except for general liability insurance as described herein under “Part I, Item 2. Properties—Operating Data on Real Estate Portfolio—Insurance.” • Exercise of the Option to Purchase the Finished Homesites Once the land is developed and Homesites are finished, Lennar is expected to purchase these improved Homesites, or cause Millrose Holdings or any Property LLCs to transfer the Homesites directly to home buyers once home construction has been completed (in which case, Lennar will indemnify Millrose for any issues relating to such direct delivery to home buyers pursuant to the Lennar Agreements). As and when Homesites are purchased by Lennar (or transferred directly to home buyers, at Lennar’s request), Millrose Holdings will collect all pre-negotiated costs for land acquisition and Horizontal Development in the form of take-down payments as consideration for the purchase of finished Homesites. The Takedown Price associated with each property will be the sum of the acquisition price of the property that Millrose Holdings (or its subsidiaries) paid and the predetermined budget that Millrose Holdings would finance in connection with the Horizontal Development of the property. In the event Lennar terminates, forfeits or otherwise fails to exercise its Purchase Options, then in addition to paying any portion of the Additional Deposit (that is still unpaid) as a termination fee, Lennar will be subject to the cross-termination provisions of the Multiparty Cross Agreements. Pursuant to such provisions, in circumstances where Millrose Holdings chooses to exercise its cross-termination right, Lennar will also forfeit its Purchase Option with respect to any properties pooled with the property for which Lennar did not exercise its Purchase Option. In the event Lennar does not exercise its Purchase Option and instead agrees, at Millrose Holdings’ request, to complete home construction on the forfeited property for Millrose Holdings, then the cross-termination provisions will not apply with respect to such property, in accordance with the Lennar Agreements. The following diagram illustrates the key steps in the HOPP’R process with regard to the Transferred Assets and the Supplemental Transferred Assets and to any Future Property Assets pursuant to the Lennar Agreements. As shown below, Millrose Holdings and its Property LLCs provides the HOPP’R to Lennar with regard to the Transferred Assets and the Supplemental Transferred Assets and any such Future Property Assets. 35 Table of Contents Land Purchase Horizontal Development Homesite Acquisition •  Millrose Holdings, through its subsidiaries, holds title to the Transferred Assets and the Supplemental Transferred Assets and will purchase and hold title to any Future Property Assets acquired pursuant to the Lennar Agreements. Lennar will perform the Lennar Services on each potential Future Property Assets that Millrose Holdings may acquire pursuant to the Lennar Agreements. Subject to the Manager Diligence Obligations, Millrose Holdings’ future purchases will be either directly with the landowner or from Lennar. •  At each new Future Property Asset closing, Millrose Holdings will execute a Project Addendum with Lennar to develop the Future Property Asset into finished Homesites pursuant to the Master Construction Agreement. The Transferred Assets and the Supplemental Transferred Assets are already subject to the Master Construction Agreement. •  Millrose Holdings grants Lennar Purchase Options to acquire all of the finished Homesites comprising the Future Property Assets at set prices and schedules set forth in the Project Addenda, which supplement the Master Option Agreement. Such Purchase Options require Lennar to pay Millrose Holdings the Option Deposit, representing Lennar’s commitment to the project. The Transferred Assets and the Supplemental Transferred Assets are already subject to the Master Option Agreement. •  The Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets will be pooled pursuant to one or more Multiparty Cross Agreements. •  Lennar undertakes and completes all Work on each Homesite comprising the Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets pursuant to the Master Construction Agreement and related Project Addenda. •  Millrose Holdings pays for the costs of the Horizontal Development as set forth in the Project Addenda. •  Lennar is responsible for any cost overruns in excess of the maximum development cost agreed at closing. Lennar is contractually obligated to complete Horizontal Development of land into finished Homesites. •  At its election, Lennar may commence or complete home construction on the Homesites prior to purchase. Millrose Holdings will not be responsible for financing any portion of the home construction on the Homesites. Millrose Holdings also does not have the right to force Lennar to undertake or complete home construction on any Homesite. •  For as long as Lennar maintains its Purchase Options with respect to any Homesites, it will be responsible for maintaining insurance coverage with respect to all Work and home construction on the Homesites. •  Lennar exercises its Purchase Option to acquire finished Homesites at the prices and timing detailed in the Master Option Agreement and related Project Addenda. •  At Lennar’s request, Millrose Holdings may deliver the Homesites to home buyers directly and will be indemnified by Lennar. •  Failure to acquire Homesites as agreed results in (1) forfeiture of the Initial Deposit portion of the Option Deposit, (2) loss of the right to acquire future Homesites, (3) payment by Lennar of the Additional Deposit portion of the Option Deposit (unless already paid to Millrose Holdings in connection with Millrose Holdings’ call option exercise), (4) Lennar being required to complete Work on the Homesites even if not selling homes and (5) loss of the right to buy other Homesites in the pool. •  Terminations of any Purchase Option with respect to any property may impact the entire pool in which the property sits if Millrose Holdings exercises its cross-termination rights, subject to the fee building exception. 36 Table of Contents The following diagram illustrates the life cycle of our finance model with respect to the Transferred Assets and the Supplemental Transferred Assets and to any Future Property Assets to be purchased by Millrose Holdings or a future Millrose subsidiary at Lennar’s request pursuant to the Master Program Agreement (except, with respect to the Transferred Assets, the initial land purchase descriptions do not apply as the Transferred Assets were transferred to Millrose Holdings and are held by the Property LLCs in connection with the Spin-Off): Illustrative Cash Flows • Option Deposit and Monthly Option Payments. Lennar pays Millrose Holdings the Initial Deposit portion of the Option Deposit as consideration for the grant of the Purchase Option, with the Additional Deposit portion of the Option Deposit to be paid later pursuant to the terms of the Master Option Agreement. Additionally, on an ongoing basis, Lennar pays Millrose Holdings a Monthly Option Payment, to maintain the Purchase Option. • Purchase by Millrose Holdings. Millrose Holdings pays the acquisition price for the Future Property Asset. • Development. Millrose Holdings funds the Horizontal Development of the land, up to the predetermined maximum budgets set forth in the respective Project Addenda, and Lennar uses such funds for completing the Horizontal Development. Lennar can complete home construction on the Homesites as well, at its option. • Purchase by Builder. Lennar purchases the improved Homesite from Millrose Holdings at the Takedown Price. In addition to the Option Deposits and the Monthly Option Payments, Millrose Holdings receives the Takedown Price paid by Lennar when Lennar exercises its Purchase Option to acquire Homesites from Millrose Holdings. In the event of any default or termination, Millrose Holdings has the ability to sell to a third-party 37 Table of Contents buyer the Homesites for which Lennar no longer has a purchase option. Pursuant to the Multiparty Cross Agreements that form a part of the Master Program Agreement, if Lennar allows its option to expire, Lennar forfeits the Option Deposits for the entire pool with regard to one of the pooled properties, then Millrose Holdings has the right, but not the obligation, to terminate the option on the other pooled assets. This helps protect Millrose Holdings against Lennar decisions not to purchase particular properties that have declined in value by enabling Millrose Holdings to sell to third parties, free of Lennar’s Purchase Options, other properties in the pool that may have increased in value. The price for which we can sell properties to third parties or sell homes we build may be significantly less than the amounts of our investments. In the event Millrose Holdings requests Lennar to complete home construction on any Homesite with respect to which Lennar has forfeited or terminated its Purchase Option and Lennar agrees, then the cross-termination provisions of the Multiparty Cross Agreements will not be applicable with respect to such Homesite. Limitations with Respect to Our Arrangements with Lennar Notwithstanding any of the above, there can be no assurance of how much Lennar will utilize the HOPP’R (if any), or on what timelines. While the Lennar Agreements do not have an expiration date, Lennar is under no obligation to commit to any future transactions with Millrose Holdings or give Millrose Holdings any new business at all (including any referrals of Lennar Related Ventures) under the Lennar Agreements. The Lennar Agreements provide Lennar with a Capital Priority Right and contemplate an ongoing business relationship between Millrose and Lennar, whereby Millrose would provide the Recycled Capital HOPP’R to Lennar for any Future Property Assets that Millrose Holdings may acquire pursuant to the Lennar Agreements, but the Lennar Agreements do not include any exclusivity, rights of first refusal or first look or other priority rights for us with respect to any future business opportunities. This means that Lennar can decide not to offer us any additional business (beyond the Transferred Assets and the Supplemental Transferred Assets) for any reason at all, including, but not limited to, using traditional land banks or establishing another entity that will operate a HOPP’R, or if the business terms of the Lennar Agreements (individually or in the aggregate) are not as competitive as others in the market. Additionally, Lennar’s Land Banking arrangements with other providers could limit how many business opportunities we will be able to receive from Lennar with respect to Future Property Assets on a going-forward basis. Because Lennar’s subsidiary (or any future owner of the HOPP’R Rights) may license the HOPP’R Rights to other land banks and other external managers that manage land banks, our business could suffer, as we might no longer be the only publicly traded entity that will engage in large-scale recycled capital financing of land acquisition and Horizontal Development using the HOPP’R. In the future, other companies may develop their own versions of the HOPP’R, there can be no assurance that Millrose’s HOPP’R will be able to provide the same features that competitor companies providing the HOPP’R may have and at the same prices that competitor companies providing the HOPP’R may be able to offer. In turn, there can be no certainty as to whether our customers will remain with us if our future competitors that also provide the HOPP’R offer better services and/or better prices than we can. Furthermore, the Lennar Agreements require that Lennar Related Ventures and Other Customers may not pay a lower monthly option payment rate than the rate paid by Lennar unless Lennar is offered the same lower rate on a go-forward basis. Any change in the Applicable Rate would apply to all Purchase Options for Future Property Assets. While Millrose’s largest customer is Lennar, Millrose has engaged and continues to engage in discussions with other home builders who are interested in becoming new customers, but there is no guarantee that Millrose will continue to be successful in negotiating agreements with such additional customers and there is no guarantee that Millrose will be able to secure additional business arrangements with any home builders outside of Lennar in any given timeframe. Millrose expects that the arrangements with these other potential customers will be similar to its arrangements with Lennar (as described above), but there is no certainty that Millrose will be able to successfully negotiate for substantially all of the same terms it has in the Lennar Agreements, including with respect to pooling. 38 Table of Contents Limitations to the Growth of the HOPP’R As discussed under “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with Lennar—Founder’s Rights Agreement” Lennar’s Applicable Rate Adjustment Right allows Lennar to adjust its Applicable Rate for Proposed Projects initiated during the 180 day period after a HOPP’R or other arrangement is entered into for any rate lower than Lennar’s agreed upon between Millrose and any Lennar Related Ventures or Other Customers. This would also apply to any individually-negotiated HOPP’R agreements we enter into with Lennar Related Ventures or Other Customers for alternate, possibly non-self-financing recycled capital forms of the HOPP’R that do not require adherence to our Operating Principles. If Lennar pays a lower fee rate on Monthly Option Payments with respect to new deals going forward, our revenues will be negatively impacted, and we may incur significant costs as a result of the change. As a consequence, we cannot guarantee that we will be able to identify or attract any Other Customers who will want to utilize the HOPP’R. Many of the competitors in this more “traditional” Land Banking space have significantly larger operations and resources, a much longer operating history and credibility and developed reputation, and an established market capitalization. We are a brand-new company with no prior operating history or reputation and, even though KL manages our operations and has extensive experience in managing Land Banking entities, there can be no certainty as to how much credibility the market will ascribe to Millrose simply because KL is the Manager. Lennar, as the original parent company of Millrose and the initial contributor of the Business Assets to Millrose, has certain Founder’s Rights. As such, Lennar, and in some cases the Class B common stock holders, may influence certain corporate matters, which may deter potential Other Customers from doing business with Millrose. Other Customers will not have access to the same rights as Lennar and additionally, Other Customers may be concerned about the risk that Lennar and/or the holders of Class B common stock (the majority of which is held by the Miller Family) will have certain controls that would adversely impact their business with Millrose (especially if the Other Customers are competitors of Lennar). See “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with Lennar—Founder’s Rights Agreement.” Millrose’s Customers Other than Lennar Lennar is currently our largest customer, and we have no certainty as to when we may engage with additional customers to provide them with the HOPP’R. While we are confident that we will maintain successful operations in the first few years following the Spin-Off as we provide the Recycled Capital HOPP’R to Lennar with respect to the Transferred Assets and the Supplemental Transferred Assets, there is uncertainty as to the future of our business following the complete turnover of the Transferred Assets and the Supplemental Transferred Assets, as Lennar is under no obligation to provide us with any new transactions and opportunities with respect to any Future Property Assets. This means that, unless we continue to receive substantial new transaction opportunities from Lennar under the Lennar Agreements or we continue to contract with Lennar Related Ventures or Other Customers, we will not have many active customers utilizing the HOPP’R following the complete turnover of the Transferred Assets and the Supplemental Transferred Assets. While Millrose’s largest customer currently is Lennar, we have engaged and continue to engage in discussions with other home builders who are interested in becoming new customers. However, there is no guarantee that we will continue to be successful in negotiating agreements with additional customers and there is no guarantee that Millrose will be able to secure additional business arrangements with other home builders outside of Lennar in any given timeframe. Millrose expects that the arrangements with these other potential new customers will be similar to its arrangements with Lennar (as described above), but there is no certainty that Millrose will be able to successfully negotiate for substantially all of the same terms it has in the Lennar Agreements, including with respect to pooling. We continue to seek to identify, evaluate and enter into HOPP’R agreements with additional new customers to expand our operations to customers beyond Lennar as part of its efforts to expand and diversify our customer base and Real Estate Portfolio and scale our business growth. Millrose will rely on Lennar to refer any Lennar 39 Table of Contents Related Ventures to Millrose as potential customers, which Lennar may elect to do at its option. It is KL’s responsibility, as our Manager, under the Management Agreement to find, identify and evaluate any potential Other Customers. To drive diversification and growth of Millrose’s business and maximize the potential of its business, we do not intend to limit the HOPP’R solely to the Recycled Capital HOPP’R. Although the intended permanency of Millrose’s HOPP’R is a key distinguishing feature of Millrose’s business, the HOPP’R also has the flexibility to evolve and be further refined with different features to fit each customer’s needs. Regardless of the combination of features any customer may desire to negotiate with Millrose, the HOPP’R is designed to provide at its core a sophisticated, streamlined and professional approach to land acquisition and Horizontal Development financing for home builders and developers in the residential real estate industry that was previously exclusively for the benefit of Lennar. We believe expanding our business beyond just the Recycled Capital HOPP’R and building a much larger potential customer base that could encompass a larger population of residential home builders and real estate developers, no matter their capital needs, risk profile or business model, will also help enable us to grow our business and provide us with more sources of revenue and income. Due to the individualized negotiation process, we cannot predict the nature or terms of any of these future agreements. Such potential arrangements may reflect some but not all, or none of the Operating Principles. The nature of any arrangements we may have with any such customers will depend on the allocation of certain responsibilities and risk exposures between us and the home builders or real estate developers. We expect that, in the absence of any Operating Principles reflected in these HOPP’R agreements, the HOPP’R we provide will be strategically tailored to the relative risk profile, creditworthiness (as determined by our Manager) and business models of the potential customer, with the aim of protecting Millrose from bearing too much risk, and we expect the arrangements we negotiate will generally reflect the latest market conditions and follow then-current standard industry practices. In many circumstances, the HOPP’R we provide to such Lennar Related Ventures and Other Customers may not be the Recycled Capital HOPP’R, and the arrangements around providing the HOPP’R in these cases may rather share the characteristics and terms of more traditional Land Banking arrangements that are commonly used in the market today (i.e., there will likely not be any assurance to such home builders that Millrose will be able to provide them with available capital during periods of market downturn or continued periods of depressed market conditions, particularly in view of Lennar’s Capital Priority Right). Our Board oversees our Manager’s management of our business operations, including the provision of the HOPP’R to our customers and performance of all obligations under the Lennar Agreements and any future HOPP’R agreements, with the objective of ensuring that our Manager’s business decisions and the agreements that it enters into on behalf of Millrose (or Millrose’s Other Subsidiaries) are all in the best interests of Millrose and its stockholders. In the event that financing (including debt or equity financing) is required for any new or existing arrangements to provide the HOPP’R to new customers, such decisions will be subject to the approval of our Board. Any issuances of debt or equity to finance these relationships could result in impacts to our business and to our stockholders, including increasing our debt to equity ratios, dilution for our existing stockholders, and increasing risk of default of Other Customers. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business Model and Investment in a Newly Formed Entity” and “Part I, Item 1A. Risk Factors—Risks Related to our Common Stock.” Lennar may have a role in identifying potential Other Customers who may engage with us for the HOPP’R, but is not obligated to do so, and Lennar will have no role in negotiating any such HOPP’R agreements, or dictating or restricting our ability to provide any ongoing services related to the provision of the HOPP’R to such Other Customers. Millrose’s Operational Agreements See “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with Lennar” of this Form 10-K for more information on the operational agreements and other arrangements between Lennar and Millrose and Millrose Holdings. 40 Table of Contents Millrose’s Revenue and Capital Sources Traditionally, income associated with property REITs is generated through rental payments received from tenants occupying properties within their portfolio. The market segments in which they operate span a diverse array of traditional real estate sectors such as residential, commercial, retail, and industrial. These rental revenues form the cornerstone of a REIT’s income stream, often providing stability and predictability. At least initially following the Spin-Off, Millrose, through Millrose Holdings, expects to utilize a model that is similar to this consistent nature of rent payments for certain other REITs. However, rather than receive rents for possession of the underlying real estate, Millrose Holdings expects to receive its payments on a consistent basis in the form of Monthly Option Payments. The Monthly Option Payments will be equal to a fixed rate per annum of its total outstanding capital investment in land acquisition and Horizontal Development funding, calculated on a daily basis. The payments received by Millrose Holdings, the Property LLCs and Other Subsidiaries from the payment of Option Deposits and from the exercise of Purchase Options will be available to the Millrose Subsidiaries to finance acquisitions of additional Future Property Assets that can be improved and developed through the HOPP’R and purchased as finished Homesites by our customers on a “just in time” basis, while a portion may be used to repay the principal on the Promissory Note. Millrose Holdings, the Property LLCs and Other Subsidiaries will distribute to Millrose (i) net earnings generated from the Monthly Option Payments after payments for taxes and expenses (including the Management Fee) and (ii) monthly interest payments on the Promissory Note (which is currently approximately $358 million annually based on a 7.5% interest rate), and such amounts will then be distributed by Millrose as dividends to Millrose’s stockholders, consistent with or in excess of the amount that would satisfy applicable REIT Requirements. We believe these expected regularly scheduled payments should provide a predictable and stable source of income and stockholder distributions, assuming the expected performance by Lennar of its obligations under the Lennar Agreements. There can be no guarantee as to what extent Millrose will be able to engage any Lennar Related Ventures or Other Customers and expand its customer base and business operations, and there is the possibility that Millrose’s business will remain largely limited to its relationship with Lennar following the Spin-Off. Our ability to finance relationships with customers other than Lennar may be limited by Lennar’s Capital Priority Right. In the future, to the extent Millrose (directly or through its subsidiaries) enters into HOPP’R agreements with any Lennar Related Ventures or Other Customers, Millrose’s revenues will also be expected to include income from any such future business relationships with such Lennar Related Ventures and Other Customers. We have a revolving credit facility under the Credit Agreement and may seek to pursue additional debt financing, all of which may be available to manage cash needs and reduce drag on returns, as well as for use to provide the HOPP’R to Other Customers, but there is no guarantee that such sources of additional cash will be obtained or will be sufficient to cover all of our business growth initiatives. Additionally, the ability of Millrose to obtain additional debt financing is subject to the Debt to Equity Ratio Limit In the future, 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. For more information, see the sections entitled “Part I, Item 1A. Risk Factors—Risks Related to Our Business Model and Investment in a Newly Formed Entity,” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources Following the Spin-Off.” For more information about our initial sources of revenues and our other potential sources of liquidity and capital, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations Following the Spin-Off.” Millrose’s Operating Guidelines Allocation Policy Other Customers brought to Millrose by KL, as our Manager, will be subject to the Allocation Policy (which is described further under “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with our Manager—Management Agreement” and attached to the Management Agreement). 41 Table of Contents In any event, our Manager strives to ensure that Millrose and Millrose Holdings at all times maintain ample cash reserves for liquidity purposes, allowing for swift capital deployment or maneuvering in response to market fluctuations in furtherance of improving Millrose’s Real Estate Portfolio allocation by taking advantage of strategic market opportunities. Subject to any contractual obligations that may impact our Manager’s ability to do so, our Manager also aims to maintain continual monitoring and, to the extent feasible, adjustments of Millrose’s Real Estate Portfolio (in the context of Millrose providing the HOPP’R to Other Customers) with the goal of ensuring general alignment with Millrose’s business model, investment objectives and market conditions, and facilitating long-term growth and resilience in the face of changing economic landscapes. Investment Guidelines Our Manager intends to make acquisitions of Future Property Assets (although success is not guaranteed) under the following guidelines and conditions, which are set forth in the Management Agreement (in addition to any additional guidelines set forth in any HOPP’R agreements that are specific to each customer, such as the Program Criteria in the Lennar Agreements): 1. Maintain geographic diversity so that no more than 40% of the total value of the Real Estate Portfolio are concentrated in a single state. 2. Limit Future Property Assets with discretionary entitlements that create unnecessary risk to the projected Takedown Schedules. 3. Ensure execution of construction agreement allocating responsibility to counterparty for completion of all sitework and guarantee of costs in excess of budget. 4. Ensure execution of an option agreement on or prior to closing with a defined Takedown Schedule. 5. Invest in Future Property Assets with a primary planned use as Homesites for single-family detached and/or attached homes. 6. Invest in Future Property Assets that are free from liens and encumbrances or material transfer restrictions and without pending moratoriums on building or development on the property; provided, however, that the real estate assets may be subject to Community Development Districts (CDDs), Mello-Roos Community Facilities Districts (CFDs) (California), Municipal Utility Development Districts (MUDDs) (Texas), or other special-purpose districts or special taxing districts used to finance public improvements and infrastructure. 7. Invest in Future Property Assets for which there is a satisfactory environmental site assessment dated no earlier than 180 days prior to the date of acquisition of such property. 8. Invest in Future Property Assets that allow builder rights to such assets to be assignable. 9. No investment will be made that would cause Millrose to fail to qualify as a REIT. 10. No investment will be made that would cause Millrose to register as an investment company under the Investment Company Act. 11. Subject to the terms of the Allocation Policy and the requirements for maintaining Millrose’s qualification as a REIT, the Manager may invest as it deems appropriate any proceeds of future offering by Millrose and cash from operations and capital transactions in excess of the amount required for the purchase of Future Property Assets pursuant to these Investment Guidelines may be invested as the Manager deems appropriate, subject to the requirements for maintaining Millrose’s qualification as a REIT. The Competitive Landscape The Land Banking market is characterized by a competitive landscape shaped by various entities ranging from real estate developers to alternative investment asset managers. Key players such as Kennedy Lewis, Angelo, Gordon & Co. L.P. (now a subsidiary of TPG Inc.), DW Partners, LP and Brookfield Properties are 42 Table of Contents some of the most significant competitors in the market, each offering unique structures tailored to meet the expanding needs of home builders and land developers. As competition intensifies, innovative approaches and strategic acquisitions become essential for companies to maintain their competitive edge in this dynamic market environment. Millrose intends to operate in the residential housing finance space, which is generally occupied by residential mortgage REITs and other finance companies deriving revenue from interest income on financing mortgage or other finance arrangements. However, we believe Millrose’s intended focus specifically on the residential marketplaces it in a less competitive niche of the market, competing with a select number of private investment funds and asset managers providing Land Banking to residential home builders. The trending shift of home builders towards a land light strategy and “just in time” operating model requires having access to a sophisticated perpetual financing partner to alleviate balance sheet demands and unlock enterprise value through more efficient capital investment. However, high barriers to entry exist due to the operational and administrative requirements of the land light strategy. Although there are traditional Land Banking providers that focus on the residential home building finance space, as of the date of this Form 10-K, Millrose is expected to emerge from the Spin-Off as the only publicly traded entity that will engage in large-scale recycled capital financing of land acquisition and Horizontal Development using the HOPP’R. Land Banking (including residential Land Banking) is a space normally limited to private equity funds. We believe that Millrose’s bifurcated business model that is designed to strategically manage risk and maximize returns and Millrose’s current arrangements with Lennar through the Lennar Agreements, together with the other factors described herein, will help to maximize Millrose’s ability to execute strategic plans best suited to maximize the value of the HOPP’R and provide returns to its investors. Human Capital Management The KL Management Team The Manager is Kennedy Lewis Land and Residential Advisors LLC, an affiliate and wholly-owned subsidiary of Kennedy Lewis. Kennedy Lewis is an institutional alternative investment firm with assets under management in excess of $25 billion, including Millrose, as of March 25, 2025. Assets under management is based on the most recent documented/approved calculations for clients of investment managers affiliated with Kennedy Lewis and the assets under management of private funds includes funded and unfunded commitments. It was founded in 2017 and is headquartered in New York City with additional offices in Miami, Florida and Geneva, Switzerland. Kennedy Lewis is led by David Kennedy Chene, as the Co-Founder, Co-Portfolio Manager and Co-Managing Partner, Darren Lewis Richman, as the Co-Founder, Co-Portfolio Manager and Co-Managing Partner, and Doug Logigian, as the Co-Managing Partner and President. These principals, together with the broader Kennedy Lewis team, have extensive experience sourcing, underwriting, capitalizing and financing land and home builder finance investments. We believe the capabilities of KL, including its vertically integrated servicing and asset management support division, serve to mitigate risk and add value to Millrose’s investments. Kennedy Lewis’ in-house Land Banking servicer includes professionals with prior experience working at home builders, including Lennar, Hovnanian Enterprises, Inc., Beazer Homes USA Inc., Toll Brothers, Inc., and Woodbridge Builders Corp., as well as Land Banking platforms at DW Partners, LP and Blackstone Credit, the credit investment arm of The Blackstone Group. Led by David Valiaveedan, former Vice President of Finance and Treasurer at Hovnanian Enterprises, Inc., a national home builder, this dedicated team provides various value-add asset management services, including: • Asset monitoring: monitor pace of Horizontal Development and community sales; provide ongoing market and project risk assessment, including home sale pricing and pace of sales; regular site visits. • Servicing: disbursements of capital for Horizontal Development, sales of Homesites to home builders and collection of monthly option payments. 43 Table of Contents • Due diligence and transaction support for Kennedy Lewis’ investment team: gather due diligence documents, coordinate closing documents, compile third-party research for analysis, and populate standard templates that drive financial models. As experts in the Land Banking industry, KL has significant experience that we believe will help Millrose maximize value under its business structure and strategy. We believe our organizational structure, with KL as our external manager, and our business strategy and model, with the features described above, should allow Millrose (through Millrose Holdings) to capitalize on the value of the Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets over the life cycle of these Horizontal Development projects. See “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with our Manager” for more information about KL as the Manager and our relationship with KL. Staffing We do not currently have any employees. Our day-to-day operations are managed by our Manager. Our Manager may hire additional professionals, based upon their needs. See “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with our Manager.” Millrose’s Organizational Structure An illustrative summary organizational chart of Millrose’s corporate structure, including state of incorporation or formation, and each entity’s relationships with Lennar and our Manager is below: 44 Table of Contents Compliance with Governmental Laws and Regulations, including those relating to Environmental Matters Because we operate as a REIT and own real estate properties, we are required to comply with various governmental laws and regulations, including those relating to environmental matters. Because we are a public company, we also must comply with the Exchange Act. Environmental Matters We have invested, and expect to continue to invest, in real property assets, which are subject to laws and regulations relating to the protection of the environment and human health and safety. Environmental laws and regulations, such as the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), as amended, and analogous state laws, generally impose liability, without regard to fault or legality of the original conduct, on classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the current owner or operator of a contaminated property, a former owner or operator of the property at the time of contamination, and those persons that disposed or arranged for the disposal of the hazardous substance at the property. Under CERCLA and comparable state statutes, persons deemed “responsible parties” are subject to strict liability that, in some circumstances, may be joint and several for the costs of removing or remediating previously disposed wastes (including wastes disposed of or released by prior owners or operators) or property contamination (including groundwater contamination), for damages to natural resources and for the costs of certain health studies. It also is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings. Environmental laws and regulations are under constant review for amendment or expansion, and some have been amended to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenant companies’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay would reduce our ability to make distributions. Other Regulations State and federal laws in this area are constantly evolving, and we intend to monitor these laws and take commercially reasonable steps to protect ourselves from the impact of these laws, including where deemed necessary, obtaining environmental assessments of properties that we acquire; however, we will not obtain an independent third-party environmental assessment for every property we acquire. In addition, any assessment we obtain may not reveal all environmental liabilities or whether a prior owner of a property created a material environmental condition not known to us. The cost of defending against claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution. Seasonality For a discussion of the seasonality of our business, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Millrose Following the Spin-Off—Seasonality.” 45 Table of Contents