Item 2. Properties
Item 2. Properties
Our corporate headquarters are located in Miami, Florida at 600 Brickell Avenue, Suite 1400 Miami, Florida 33131.
Overview of Operating Assets
The below
description of properties includes (A) the Transferred Assets, which were transferred by Lennar to us in connection with the Spin-Off, (B) the Supplemental Transferred Asset, which were acquired by
Millrose in connection with the Supplemental Transferred Assets Transaction following the Spin-Off and (C) any Future Property Assets that Millrose (through Millrose Holdings, the Property LLCs and any
Other Subsidiaries) may (i) acquire in the future pursuant to the Master Program Agreement with Lennar or (ii) acquire in the future pursuant to any HOPPR agreements that Millrose may enter into with Lennar (other than the Lennar
Agreements), Lennar Related Ventures or any Other Customers, which may adhere only to some or none of the Operating Principles (see Part I, Item 1. BusinessLand Banking ReimaginedFuture HOPPR Arrangements with Lennar and
Lennar Related Ventures for more information).
The Transferred Assets, the Supplemental Transferred Assets and any Future Property
Assets that Millrose (through any of its subsidiaries) acquires are referred to herein and throughout this Form 10-K as the Real Estate Portfolio.
As a result of the Spin-Off and the Supplemental Transferred Assets Transaction, the Real Estate
Portfolio consists primarily of the Transferred Assets and the Supplemental Transferred Assets. We expect that the Real Estate Portfolio will grow as Millrose (through Millrose Holdings or any of its Property LLCs) acquires Future Property Assets
pursuant to the Master Program Agreement with Lennar or pursuant to any agreements that Millrose (through its subsidiaries) may enter into with Lennar, Lennar Related Ventures or Other Customers in the future.
Description of the Transferred Assets and the Supplemental Transferred Assets
In connection with the Spin-Off, Lennar contributed a significant portion of its land inventory for the
current and future construction of homes to Millrose, which excluded certain Homesites that were already in development and ready to be sold in the short-term, or that Lennar controls through options or agreements, including agreements with
strategic land banks and joint ventures, or are otherwise reserved for future use, common areas or homeowners association dedication and that were not transferred to Millrose from Lennars other subsidiaries. Additionally, Lennar
contributed to Millrose the Cash Contribution as part of the Business Assets. Millrose used approximately $876 million of the Cash Contribution for the purpose of entering into the Supplemental Transferred Assets Transaction.
The Transferred Assets and the Supplemental Transferred Assets are held by Millrose Holdings through the Property LLCs (each property held by
the respective Property LLC formed in the state in which such property is located). As of December 31, 2024, the Transferred Assets and the Supplemental Transferred Assets are located in 29 states. We have also formed one additional Property
LLC in New York which did not hold any properties as of December 31, 2024. We may form additional subsidiaries (including Property LLCs) in other U.S. states to the extent necessary in the future.
Purpose of the Transferred Assets and the Supplemental Transferred Assets
Millroses Property Use Objective with respect to the Transferred Assets and the Supplemental Transferred Assets are limited to
(i) holding the Homesites until Lennar exercises its Purchase Options to purchase them in accordance with the terms of the Master Option Agreement, (ii) funding the Horizontal Development that Lennar will contractually be obligated to
install with respect to any Homesites, up to a certain pre-agreed budget, in
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accordance with the terms of the Master Construction Agreement that forms a part of the Master Program Agreement, and (iii) to the extent applicable and requested by Lennar, facilitating any
Lennar sales of completed homes by delivering the home and Homesite directly to home buyers to which Lennar has sold the homes. For the avoidance of doubt, Millrose Holdings Property Use Objective with respect to the Transferred Assets and the
Supplemental Transferred Assets does not include (i) performing or funding any home construction on any properties, (ii) performing (directly or through contracted third parties) any Horizontal Development on any properties other than
through Lennar, or (iii) entering into any leases or other use/occupancy-related arrangements with respect to any properties. However, Lennar may decide not to exercise or forfeit its Purchase Options with respect to any Homesites as further
described under Part III, Item 13. Certain Relationships and Related Transactions, and Director IndependenceTransactions with LennarMaster Option Agreement in which case these restrictions would not apply to properties that
are no longer subject to Lennar Purchase Options.
In connection with the Recycled Capital HOPPR we provide to Lennar, Millrose
Holdings will hold all of the Transferred Assets and the Supplemental Transferred Assets through 31 Property LLCs (with one Property LLC not currently holding any assets) and 18 LLC subsidiaries of Millrose RCH Landco Ltd. We have no Transferred
Assets or Supplemental Transferred Assets located in New York. We may acquire any Future Property Assets as introduced by Lennar that will also be held through the Property LLCs or Other Subsidiaries, with the objective of selling them back to
Lennar once Lennar has completed all Horizontal Development on the properties, in each case pursuant to the terms of the Lennar Agreements. The general terms of the relationship between Millrose (through Millrose Holdings) and Lennar are set forth
in the Master Program Agreement, including the terms on which Future Property Assets will be acquired by Millrose Holdings (or any Property LLCs) pursuant to the Lennar Agreements. However, we may, at our Managers discretion, but will not be
obligated to, acquire Future Property Assets 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 will have no obligation to acquire any Future Property Asset that does
not satisfy the Manager Diligence Obligations.
Concurrently with the execution of the Master Program Agreement, separate Project Addenda
were executed with respect to the Transferred Assets. Promptly following the closing of the Supplemental Transferred Assets Transaction, one or more Project Addenda were executed with respect to each of the Homesites and prospective Homesites
included in Supplemental Transferred Assets. A separate Project Addendum will be executed with respect to any Future Property Assets, pursuant to which such Future Property Assets will become subject to the Master Program Agreement, the Master
Option Agreement, and the Master Construction Agreement. The Master Option Agreement provides Lennar with the exclusive option to purchase properties included in the Transferred Assets, the Supplemental Transferred Assets and any Future Property
Assets in accordance with an agreed upon schedule of Homesite purchases and pricing set forth in the supplemental Project Addenda. Lennar may acquire the Homesites in accordance with the relevant schedule contained in the applicable Project Addenda,
which specifies the minimum order and time at which Homesites may be acquired by Lennar. If Lennars Purchase Options are terminated or if Lennar decides not to exercise its options in accordance with the terms of the Master Program Agreement
and Master Option Agreement, Millrose Holdings may sell the properties that were subject to such forfeited or terminated options to third-party buyers. Regardless of who the ultimate buyer is, Millroses Property Use Objective will not change.
The Master Construction Agreement provides Lennar with the obligation to complete all Work on each Homesite comprising the Transferred
Assets and the Supplemental Transferred Assets (and any Future Property Assets acquired pursuant to the terms of the Lennar Agreements) while such properties are owned by Millrose Holdings (through its Property LLCs), even if Lennar no longer has
options to acquire them, in each case on the timelines and budgets (with respect to the Horizontal Development only) set forth in the Project Addenda for such properties. Pursuant to the Master Construction Agreement, Lennar has the right (but not
the obligation) to complete home construction on properties while such properties are owned by Millrose Holdings (through its Property LLCs). Millrose Holdings does not conduct any Horizontal Development or home construction activities itself.
Millrose Holdings is required to fund all Horizontal Development up to a certain pre-agreed budget amount as agreed with Lennar pursuant to the Master Construction Agreement, as supplemented by
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relevant Project Addenda, and Lennar is required to fund any Horizontal Development costs in excess of that. Millrose Holdings will not bear or fund any home construction costs. Subject to
minimal exceptions, properties are separately subject to a Multiparty Cross Agreement, pursuant to which the properties are pooled for purposes of restricting Lennars ability to select certain properties it would want to purchase and let its
Purchase Options terminate with regard to other properties in that pool. A summary of the key terms and provisions of the Lennar Agreements can be found under Part III, Item 13. Certain Relationships and Related Transactions, and Director
IndependenceTransactions with Lennar.
Geography, Value and Types of Transferred Assets and the Supplemental Transferred Assets
We believe the Transferred Assets, the Supplemental Transferred Assets and Millroses Real Estate Portfolio is located across a
geographically and economically diverse set of solid markets with a concentration in certain key locations, as indicated in the map below. The geographic mix of properties included in the Transferred Assets and the Supplemental Transferred Assets is
intended to be similar to Lennars current geographic spread. We expect to prioritize target markets based on the following three main criteria based on Millroses expectations for such markets:
I. Market is core, with solid market penetration, extensive history of homebuilding in the market, and experienced in-market developers.
II. Market has good presence from other home builders or land developers with
similar product, providing downside protection in the unlikely event of option termination.
III. Market exhibits healthy underlying
demographic and/or economic trends.
As of the December 31, 2024, the Transferred Assets and Supplemental Transferred Assets
consisted of 860 properties (also known as communities) in 29 states across the United States, totaling approximately 112,855 Homesites, with an approximate aggregate value of $6.6 billion. On average, each property will be developed into
approximately 131 Homesites but this will vary depending on the size of each property and expected size of each Homesite. As of December 31, 2024, the properties were geographically located in the following regions of the United States:
(1) East (comprising Alabama, Delaware, Florida, New Jersey and Pennsylvania)
(2) Central (comprising, Georgia, Illinois, Indiana, Kansas, Maryland, Minnesota, Missouri, North Carolina, South Carolina, Tennessee,
Virginia, West Virginia and Wisconsin)
(3) South (comprising Arkansas, Oklahoma and Texas)
(4) West (comprising Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah and Washington)
We believe each of these four regions to be good locations with positive demographics and growth potential.
As of December 31, 2024, Homesites in these geographical markets are expected to be located approximately 20% in the East Region, 25% in
the Central Region, 37% in the South Region and 18% in the West Region, respectively, of the aggregate number of the Homesites and prospective Homesites to be developed on the properties included in the Transferred Assets and the Supplemental
Transferred Assets. The below is a diagram of the percentage of the Homesites and prospective Homesites included in the Transferred Assets and the Supplemental Transferred Assets per region, as of December 31, 2024.
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As of December 31, 2024, the Transferred Assets and the Supplemental Transferred Assets collectively
are located across 29 U.S. states. Approximately 46% of the Transferred Assets and the Supplemental Transferred Assets are concentrated in three states (California, Florida and Texas) in terms of number of Homesites, with a substantial portion
(approximately 37%) of the Transferred Assets and the Supplemental Transferred Assets located in two strong housing market states: Florida (where Lennar has historically had a large portion of its real estate activities and is continuing to grow its
real estate activities) and Texas (where we believe the market has healthy underlying demographic and/or economic trends primarily driven by generally steadily growing population).
As of December 31, 2024, the below table shows the location, number of properties, number of underlying Homesites and expected total
Takedown Prices of the properties which are included in the Transferred Assets and the Supplemental Transferred Assets across 29 U.S. states and as set forth in the relevant Project Addenda:
State Location*
Number of
Properties
Number of
Underlying
Homesites**
Total Takedown
Prices
Alabama
49
5,298
$
355,245,861
Arizona
27
3,354
347,163,536
Arkansas
51
4,739
314,709,294
California
47
9,713
1,939,975,149
Colorado
18
2,909
415,071,144
Delaware
9
1,052
172,903,322
Florida
135
15,893
1,318,316,234
Georgia
19
2,723
287,353,894
Idaho
10
284
44,426,358
Illinois
11
467
41,820,987
Indiana
18
1,252
104,631,440
Kansas
7
857
83,532,437
Maryland
9
4,602
540,528,610
Minnesota
41
1,679
167,348,066
Missouri
4
363
29,171,301
Nevada
19
672
121,384,725
New Jersey
4
534
91,251,369
North Carolina
36
2,414
294,080,516
Oklahoma
56
10,427
684,535,684
Oregon
17
757
91,464,671
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State Location*
Number of
Properties
Number of
Underlying
Homesites**
Total Takedown
Prices
Pennsylvania
1
24
2,232,699
South Carolina
40
9,112
898,604,670
Tennessee
14
1,403
163,614,646
Texas
180
26,478
1,715,586,457
Utah
5
1,575
180,447,725
Virginia
10
2,185
247,636,641
Washington
13
1,158
194,241,571
Wisconsin
2
12
1,411,698
West Virginia
8
919
65,357,291
Total***
860
112,855
$
10,914,047,999
*
We have also formed one Property LLC in New York which does not hold any of the Transferred Assets or the
Supplemental Transferred Assets. We expect that this Property LLC may hold Future Property Assets.
**
Or prospective Homesites if fully entitled, as applicable.
***
Totals may not foot due to rounding.
We expect that total Takedown Prices of all Homesite which are included in the Transferred Assets and the Supplemental Transferred Assets is
approximately $11 billion. The option exercise price on each Homesite represents the purchase price at which Lennar may purchase such Homesite from us by paying Millrose the purchase price for each such Homesite as set forth in the relevant
Project Addenda and pursuant to the terms of the Master Option Agreement. The total Takedown Prices are calculated based on the value of the Transferred Assets at the time of the Distribution by Lennar (which may be different than the value as of
December 31, 2024 reflected in this Form 10-K) and based on the value of the Supplemental Transferred Assets at the time of the closing of the Supplemental Transferred Assets Transaction by Lennar. See
Part III, Item 13. Certain Relationships and Related Transactions, and Director IndependenceTransactions with LennarMaster Option Agreement for more information on the option exercise price and the Master Option
Agreement.
The Real Estate Portfolio contains a broad range of properties and land that can be used for constructing homes appropriate
for first-time, move-up, active adult, luxury and multi-generational homebuyers in a variety of locations ranging from urban communities to suburban golf course communities. The Homesites in our Real Estate
Portfolio are in communities that we believe have stable demographics and have historically exhibited favorable home buying trends, such as strong population and income growth.
All of the properties included in the Transferred Assets and the Supplemental Transferred Assets are covered by what the Manager believes to
be adequate insurance.
Development of the Transferred Assets and the Supplemental Transferred Assets
Pursuant to the Master Construction Agreement, Lennar has the obligation to perform Work in order to have all Horizontal Development on the
Homesites completed. Lennar is generally responsible for the completion of, and has control over, the construction means and methods and will be solely responsible for any acts or omissions of its or its subcontractors employees performing the
Work. Millrose Holdings finances all costs actually incurred by Lennar in the performance of the Work relating only to Horizontal Development, up to the agreed-upon budget for each Homesite set forth in the applicable Project Addendum. Lennar is
responsible for costs and expenses in excess of the pre-agreed budget required to complete the Work relating to Horizontal Development and, subsequently, for all costs required for home construction by Lennar.
In addition, subject to reimbursement from Millrose Holdings in accordance with the Lennar Agreements, Lennar is responsible for providing and paying for all labor, materials and construction equipment necessary to facilitate its services and
engaging any third-party professional engineers necessary to complete the Work, as well as all applicable fees,
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taxes and permits pertaining to the Work. If Lennar breaches the terms of the Master Construction Agreement, Millrose Holdings may order Lennar to stop the Work or make good on such deficiencies.
A summary of the key terms and provisions of the Lennar Agreements can be found under Part III, Item 13. Certain Relationships and Related Transactions, and Director IndependenceTransactions with Lennar.
The estimated development costs relating to the Horizontal Development of each property into Homesites differ depending on the status and
level of development of such property.
As of December 31, 2024, we expect that total estimated development costs of Homesites which
are included in the Transferred Assets and the Supplemental Transferred Assets are approximately $4 billion. Estimated development costs are calculated based on all the anticipated costs of completing the Work and represent the total amount
allocated to each component of the Work, in accordance with the terms of the Master Construction Agreement. Such estimates are subject to changes, increases and decreases depending on various factors, including macroeconomics conditions and costs of
development materials but are subject to the limitations on the total amount allocated to each component of the Work, as set forth in the Master Construction Agreement. See Part III, Item 13. Certain Relationships and Related Transactions, and
Director IndependenceTransactions with Lennar for more information.
Millrose Holdings (through the Property LLCs) expects to
pay the predetermined budgeted Horizontal Development costs pursuant to the terms of the Master Construction Agreement. A summary of the key terms and provisions of the Lennar Agreements can be found under Part III, Item 13. Certain
Relationships and Related Transactions, and Director IndependenceTransactions with Lennar.
As described elsewhere in this
Form 10-K, (i) neither Millrose nor Millrose Holdings can guarantee that Lennar will exercise its Purchase Options with respect to the Transferred Assets and the Supplemental Transferred Assets or
continue to pay its Monthly Option Payments but (ii) we expect that substantially all, if not all, of the Homesites and prospective Homesites included in the Transferred Assets and the Supplemental Transferred Assets will be purchased by Lennar
pursuant to its option under the terms of the Master Option Agreement. In the event the payments received from Lennar are not sufficient to cover any development costs required by the Master Construction Agreement, Millrose Holdings may be required
to find alternative sources of capital, including through loans, credit facilities, or by issuing its securities in the capital markets. We have a revolving credit facility under the Credit Agreement and may seek to pursue additional debt financing.
However, there is no guarantee that such sources of additional cash will be obtained or will be sufficient and we may need to seek additional financing to pay all Horizontal Development costs for Lennars projects. However, pursuant to the
Lennar Agreements, Millrose may not enter into any third-party financing arrangements if such financing arrangement would cause the collective debt to equity ratio of Millrose and its affiliates to exceed 1:1, unless it obtains the prior approval of
Lennar. Further, Millrose is restricted from obtaining any secured financing arrangements without Lennars consent, if it decides to contribute both properties covered by the Lennar Agreements and properties of Other Customers into the same
collateral pool. In terms of future capital commitments on the Transferred Assets and the Supplemental Transferred Assets, since Millrose and Millrose Holdings have already acquired such Transferred Assets and Supplemental Transferred Assets, we are
expecting future capital commitments on such properties to be limited to any development costs to be paid out in connection with, and in accordance with the terms of, the Lennar Agreements. As a result, we expect that Millroses and Millrose
Holdings total capital commitment on the Transferred Assets and the Supplemental Transferred Assets will be limited to the estimated development costs for each of the Homesites and prospective Homesite included in the Transferred Assets and
the Supplemental Transferred Assets, considering the level of development and scope of approvals of each of the properties included in the Transferred Assets and the Supplemental Transferred Assets.
As of December 31, 2024, the median estimated capital commitment and the average estimated capital commitment for each property included
in the Transferred Assets and the Supplemental Transferred Assets was $219,044 and $6.3 million, respectively. The lower median estimated capital commitment is due to the
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proportion of Transferred Assets and Supplemental Transferred Assets that are finished Homesites that do not require additional capital commitments.
In addition, considering the level of development of each property included in the Transferred Assets and the Supplemental Transferred Assets,
we are expecting to sell Homesites back to Lennar over time as they are being developed (or directly to the ultimate homeowner, as instructed by Lennar). The Transferred Assets and the Supplemental Transferred Assets are expected to have a short
cash conversion cycle.
This contrasts with more traditional arrangements which are longer dated and push out cash conversion.
Millrose has a revolving credit facility under the Credit Agreement and may seek to pursue additional debt financing, which Millrose expects
to use to manage cash needs and reduce drag on returns, as well as for use to provide the HOPPR to Other Customers.
The expected
takedowns on the Transferred Assets and the Supplemental Transferred Assets are based on Lennars management current expectations and are subject to changes depending on various factors, including macroeconomic conditions and, in particular,
real estate market conditions. We rely on the Manager to monitor these takedowns of the Transferred Assets and the Supplemental Transferred Assets. We cannot predict or estimate the actual timing of or any delays in Lennars eventual takedowns
of these properties, or if Lennar decides not to exercise its option to purchase any such property.
Pooling of the Transferred Assets and the
Supplemental Transferred Assets
With minimal exceptions, we intend that all properties included in the Real Estate Portfolio will be
pooled with other properties pursuant to the Multiparty Cross Agreements, as further described under Part III, Item 13. Certain Relationships and Related Transactions, and Director IndependenceTransactions with LennarMultiparty
Cross Agreement. All Transferred Assets and Supplemental Transferred Assets are pooled in accordance with the applicable Multiparty Cross Agreements. This pooling mechanism is intended to protect Millrose against any cherry-picking
by Lennar of more marketable properties while leaving Millrose with unexercised options over properties that have depreciated in value or are otherwise no longer as marketable. When properties are pooled together, if Lennar were to decline to
exercise the purchase option for any property, Lennar would lose the option to purchase the other Pool Properties in the same pool under the applicable Multiparty Cross Agreement. The pooling of properties comprising the Transferred Assets and the
Supplemental Transferred Assets is intended to allow Millrose to use multiple properties as collateral, thereby spreading the risk across various assets. In the event that one property underperforms or faces difficulties, Lennar would risk losing
access to the other, potentially better-performing, properties in the same pool, to the extent it decides to walk away from a discrete property in that pool.
With respect to the Transferred Assets and the Supplemental Transferred Assets, Lennar determined the selection of the Pool Properties and the
composition of each pool. Each pool for the Transferred Assets and the Supplemental Transferred Assets is capped at a total value of $50 million (calculated based on the total amount of Option Deposits of each property in that pool), and pool
composition is determined based on a consideration of various factors, including, but not limited to, diversity of geography, communities, investment duration and home types. The priority in determining the pools is to diversify each pool across
geographies. With respect to the Transferred Assets and the Supplemental Transferred Assets, there are a total of 30 pools, with an average of 29 properties in each pool. Each pool includes properties split across major geographic regions, with an
approximate even split of properties in different regions (East, West, South and Central) to ensure a consistent mix in each pool. All of the pools contain assets from all four regions with averages in terms of value of approximately 19%-37% of properties in each region. In addition, in order to diversify each pool in terms of investment duration, the pools were determined to include properties across each of the five Groups. We make best
efforts to include a generally consistent distribution of Groups in each pool after first prioritizing geographical diversity.
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As of December 31, 2024, the below table shows, by pool, the total Option Deposits,
total number, value by region and value by Group of the properties which are included in the Transferred Assets and the Supplemental Transferred Assets:
Pool #
Total
Number
of Properties
Value of Properties by Region (%)
East
Central
South
West
1
28
17.6
19.5
44.1
18.7
2
24
7.8
19.0
60.0
13.2
3
31
10.9
32.6
39.8
16.8
4
33
41.7
14.8
39.6
3.9
5
37
18.5
28.0
38.7
14.8
6
33
24.6
6.7
32.9
35.8
7
35
25.8
26.9
30.9
16.4
8
35
46.2
19.5
30.5
3.8
9
27
26.0
30.6
18.4
24.9
10
23
17.6
20.9
37.6
23.8
11
35
29.6
26.9
30.6
12.9
12
33
15.0
23.1
55.0
6.8
13
29
31.2
10.5
46.0
12.3
14
32
18.5
23.9
44.4
13.2
15
33
10.4
9.1
56.5
24.0
16
27
17.1
13.3
63.3
6.3
17
24
44.9
13.8
18.1
23.2
18
32
18.7
9.5
44.3
27.6
19
36
25.4
18.5
36.7
19.4
20
23
4.7
6.6
69.6
19.1
21
41
20.3
30.5
34.7
14.5
22
34
12.7
48.4
34.3
4.5
23
36
13.2
7.9
53.4
25.6
24
26
61.1
8.4
11.9
18.5
25
31
22.0
23.7
31.4
22.8
26
37
23.7
19.4
43.9
13.0
27
20
3.1
16.0
34.7
46.1
28
13
1.0
0.7
18.4
80.0
29
4
0.0
97.2
2.8
0.0
30
8
3.5
87.0
9.4
0.0
Average
29
20.4
23.8
37.1
18.7
Competitive Conditions of the Transferred Assets and the Supplemental Transferred Assets
As of December 31, 2024, the Transferred Assets and the Supplemental Transferred Assets are located across 29 U.S. states. We believe we
are competitive in the market regions where these Transferred Assets and Supplemental Transferred Assets are primarily located due to the large selection of properties, communities and prospective Homesites included in the Transferred Assets and the
Supplemental Transferred Assets. Further, we benefit from Lennars success as a home builder in those market regions. The Transferred Assets and the Supplemental Transferred Assets contain a broad range of properties and land that can be used
for constructing homes appropriate for first-time, move-up, active adult, luxury and multi-generational homebuyers in a variety of locations ranging from urban communities to suburban golf course communities.
We believe the Homesites in the Transferred Assets and the Supplemental Transferred Assets are in communities that have stable demographics and have historically exhibited favorable home buying trends, such as strong population and income growth.
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In general, the residential homebuilding industry is highly competitive with competition
from numerous national, regional and local home builders in each of the market regions in which the Transferred Assets and the Supplemental Transferred Assets are located. We believe the real estate competitive conditions of the Transferred Assets
and the Supplemental Transferred Assets include, without limitation, market supply and demand (with locations throughout 29 U.S. states), short-term cash conversion, access to land (particularly in land-constrained markets) and Homesites developed
on the Transferred Assets and the Supplemental Transferred Assets.
However, these competitive conditions and drivers are all dependent on
conditions in the local markets in which such Transferred Assets and Supplemental Transferred Assets are located. They are subject to significant changes over time as a result of macro- and micro-economic events and circumstances. In addition, if
Lennar does not exercise its option to purchase the properties from us, the Transferred Assets and the Supplemental Transferred Assets will compete with properties of other residential home builders and land banks in the markets in which they are
located. See Part III, Item 13. Certain Relationships and Related Transactions, and Director IndependenceTransactions with LennarMaster Option Agreement.
Description of Future Property Assets
Future Property
Assets to be acquired pursuant to the Lennar Agreements
In addition to the Transferred Assets and the Supplemental Transferred Assets,
Millrose expects to acquire, through Millrose Holdings (or any of its Property LLCs), Future Property Assets pursuant to the Master Program Agreement and using capital pursuant to Lennars Capital Priority Right, as set forth in the
Founders Rights Agreement. Any such acquisition of Future Property Assets will be governed by the terms of the Master Program Agreement, as supplemented by the relevant Project Addenda. Consistent with the existing obligations of Millrose and
in accordance with the terms of the Lennar Agreements, our Property Use Objective with respect to any Future Property Assets acquired pursuant to the Lennar Agreements is limited to (i) funding the acquisition and making Homesites available to
Lennar in accordance with the terms of the Master Option Agreement, (ii) funding the Work that Lennar will contractually agree to install with respect to any Homesites, up to a certain pre-agreed budget,
in accordance with the terms of the Master Construction Agreement, and (iii) to the extent applicable and requested by Lennar, facilitating any sales of the finished Homesites with completed homes to any buyers that Lennar may so choose and
identify. For the avoidance of doubt, Millrose Holdings Property Use Objective does not include (i) performing or funding any home construction on any properties, (ii) performing (directly or through contracted third parties) any
Horizontal Development on any properties other than through Lennar, or (iii) entering into any leases or other use/occupancy-related arrangements with respect to any properties.
As of the date of this Form 10-K we do not have and are unable to provide any guidance as to the type
of properties or land we may be acquiring in the future, if any.
We rely on Lennar to provide us with the Lennar Services in connection
with any acquisitions of Future Property Assets pursuant to the Lennar Agreements. Such Future Property Assets are generally located in the same geographical areas as the Transferred Assets and the Supplemental Transferred Assets except to the
extent Lennar expands the areas where it will build homes. Future Property Assets acquired generally consist of properties and land that have a similar risk profile as the Transferred Assets and the Supplemental Transferred Assets. For more
information about the terms and processes for such acquisitions, see Part I, Item 1. BusinessLand Banking ReimaginedFuture HOPPR Arrangements with Lennar and Lennar Related Ventures.
Future Property Assets to be acquired pursuant to any arrangements with Lennar (other than the Lennar Agreements), Lennar Related Ventures or any Other
Customers
The purpose of any Future Property Assets to be acquired in the future pursuant to any arrangements that Millrose may enter
into with Lennar (other than the Lennar Agreements), Lennar Related Ventures or any Other Customers will be determined in such agreements and in accordance with our Investment Guidelines and in
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satisfaction of the Manager Diligence Obligations. However, we expect, but cannot guarantee, that our Property Use Objective with respect to any Future Property Assets acquired pursuant to any
arrangements that Millrose may enter into with Lennar (other than the Lennar Agreements), Lennar Related Ventures or any Other Customers will generally be consistent with the Property Use Objective we have in the Lennar Agreements. For more
information about our relationships, any arrangements we have or may have to provide the HOPPR to our customers, our objectives and Investment Guidelines, see Part I, Item 1. Business.
In addition to our Manager securing Future Property Assets, we expect that most, if not all, of our Other Customers, like Lennar, will
identify and/or select Future Property Assets that they would like Millrose (through its subsidiaries) to acquire in connection with their use of the HOPPR. Our Manager will exercise reasonable and timely discretion over the acquisition of
Future Property Assets to ensure that such Future Property Assets comply with the Investment Guidelines and satisfy the Manager Diligence Obligations. In the exercise of its discretion, we expect that our Manager will generally consider a variety of
factors as further described under Part I, Item 1. BusinessMillroses Operating GuidelinesInvestment Guidelines in addition to adherence to our Investment Guidelines and the Allocation Policy.
Pooling of Future Property Assets
As
discussed in Pooling of the Transferred Assets and the Supplemental Transferred Assets, each property acquired pursuant to the Lennar Agreements will be pooled pursuant to one or more Multiparty Cross Agreements. These agreements
dictate that, in the event that Lennar chooses to terminate any of the Purchase Options, it must do so on all properties in a pool and therefore forfeiting its deposit on all properties in the pool. We currently expect that Future Property Assets
acquired pursuant to the Lennar Agreements will be pooled in accordance with additional Multiparty Cross Agreements (or added to existing Multiparty Cross Agreements), and with respect to each pool, the aggregate sum of all Option Deposits Lennar
has made, or is obligated to make with respect to all of the properties included in such new pool, shall not at any time exceed $25,000,000. Consistent with the pooling criteria of the Transferred Assets and the Supplemental Transferred Assets,
pools for Future Property Assets acquired pursuant to the Lennar Agreements will be established with primary consideration given to diversity within pools across geographies, communities, investment duration and home types. Best efforts will be used
to ensure a consistent and even mix of geographic regions (East, West, South and Central) similar to those of the Transferred Assets pools and Supplemental Transferred Assets pools for each new pool. While there is a risk that differences in
development timing of properties within a pool may allow for the rejection of certain remaining properties in the pool, we seek to structure each pool with communities scheduled for development and homesite purchases within reasonably similar
timelines, reducing the potential to leave behind a single undesirable property. Each property is subject to a preset takedown schedule so that it will be challenging to cherry pick certain communities once the property is acquired and
the takedown schedule is set. While Lennar is able to accelerate takedowns of up to 50% of any pool, the size of each pool is sufficiently large that we believe the pooling mechanism will still be able to adequately act as a risk mitigation tool
even if Lennar exercises its acceleration option with respect to any pool.
Outside of the Lennar Agreements, any Future Property Assets
that we acquire for any customers that agree to adhere to the Operating Principles will also be pooled in the same manner and using the same criteria. However, in the event Millrose enters into a secured financing arrangement that uses a Property
held through any Millrose Subsidiaries as collateral to secure the financing, Millrose will be prohibited from cross-pooling such Transferred Assets, Supplemental Transferred Assets or Future Property Assets it holds pursuant to the Lennar
Agreements with Future Property Assets of Other Customers without Lennars consent. We believe that embedding cross-termination rights in Millroses option contracts with any customer who desires the Recycled Capital HOPPR is a risk
mitigation tool that will be beneficial to Millrose, as we believe this kind of arrangement should protect Millrose against any customer cherry picking assets and leaving Millrose responsible for finding new buyers for any less-desirable
properties. The pooling of communities is expected 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, the customer would risk
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losing access to the other communities in the same pool if it tried to walk away from an 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. While there may be some differences (e.g., different customers may have different geographic regions and
mixes), we will seek to ensure that the overall effectiveness of the pooling mechanism as a risk mitigation tool is preserved across our relationships with all customers who agree to include such a mechanism in their HOPPR agreements with us.
However, there is no guarantee that Future Property Assets acquired for Other Customers will be subject to the pooling requirement.
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 home builders outside of Lennar or its existing
customers 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. As of the date of this Form 10-K, because we do not have any visibility as to the Future
Property Assets, if any, that Millrose (through Millrose Holdings or any of its Property LLCs) may acquire pursuant to any HOPPR agreements or other similar arrangements that Millrose may enter into with Lennar (outside of the Lennar
Agreements), Lennar Related Ventures or any Other Customers, we do not know whether such Future Property Assets will be subject to any pooling criteria or multiparty cross agreements. Pooling is an important tool that is designed to mitigate the
risk of Millrose being left with undesirable land assets due to unexercised purchase options, but we anticipate that not all potential customers will want or be able to agree to such a provision. If Lennar (and potentially certain Lennar
Related Ventures) are the only customers who will agree to pooling, which is included in our Operating Principles, then the use of our Recycled Capital HOPPR will likely be limited to a small group of customers and we will have a higher risk
exposure to purchase option defaults from all other customers who do not agree to pooling in their HOPPR arrangements with us. 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.
Operating Data on Real Estate Portfolio
Insurance
Our Manager, on behalf of Millrose and Millrose Holdings (including any of its Property LLCs), maintains general liability insurance
policies for common liability claims from third parties, including slip and fall accidents and other common third-party risks. However, in accordance with the terms of the Master Option Agreement, prior to the commencement of any Horizontal
Development or improvements on any properties, Lennar must maintain commercial general liability insurance and such other insurance coverage that Lennar deems sufficient to cover the damage to the Work constructed by Lennar or any third-party
contractor that Lennar may engage.
Our Manager is responsible for making sure that the Transferred Assets, the Supplemental Transferred
Assets and any Future Property Assets acquired pursuant to the Master Program Agreement are adequately insured by Lennar, consistent with industry standards. Our Manager is expecting to maintain insurance policies (similar to the ones subscribed by
Lennar) on any Future Property Assets that would be acquired outside of the terms of the Master Program Agreement and would not be insured separately by our counterparty so that the whole Real Estate Portfolio will be adequately insured, consistent
with industry standards.
Our Manager may also purchase specific insurance policies for individual investments or blanket policies
covering multiple investments and participants and their respective affiliates. These types of policies may include commercial general liability insurance, professional liability insurance, excess liability insurance, or other forms
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of insurance applicable to specific situations. Our Manager, as part of its Management Fee, will directly pay for any such insurance policies. The Manager will determine from time to time whether
Millrose and Millrose Holdings (including any of its Property LLCs) may or may not require such additional policies.
Leases and Occupancy
In accordance with the Master Option Agreement, we expect to sell the Homesites included in the Transferred Assets and the Supplemental
Transferred Assets to Lennar upon Lennars exercise of its exclusive Purchase Options prior to or when completion of the Work on the completed Homesites is approaching, and that Lennar will work on the home construction at its option in
accordance with the terms of the Master Option Agreement. The Lennar Agreements obligate Lennar to complete Horizontal Development and gives Lennar the option to undertake home construction on the Homesites while we (through Millrose Holdings) own
the Homesites. We do not, and will not, have any lease agreements with respect to the Transferred Assets and the Supplemental Transferred Assets, do not intend to enter into any lease agreements in the foreseeable future and do not, and will not,
have any tenants or occupants on any of the properties in the Real Estate Portfolio. Furthermore, we do not expect leases and occupancy to be within the scope of our Property Use Objective for the foreseeable future. Part III, Item 13. Certain
Relationships and Related Transactions, and Director IndependenceTransactions with Lennar.
Title and Interest
The Transferred Assets were contributed to Millrose Holdings Property LLCs by Lennar in connection with the Spin-Off. Although certain diligence undertakings were completed by Lennar to confirm conveyance records, deeds and titles and we received certain representations and warranties on such Transferred Assets in
connection with the conveyance, there can be no assurance that we will receive all of the Transferred Assets, free and clear of all liens, defects and encumbrances.
The agreement pursuant to which the Transferred Assets were transferred included certain representations and warranties with respect to the
state of the properties and land constituting the Transferred Assets and included certain protections for us in the event there are external factors outside of our control that may impact the quality, usability or value of the properties and land.
There will be certain limited recourses to us in the event a third-party claims title to any of the assets or claims any other rights or privileges with respect to the assets (including, for example, any rights to repurchase upon transfer, or any
easement or other usage rights). See Part I, Item 1A. Risk FactorsRisks Related to Our Business Model and Investment in a Newly Formed Entity for more information about the related risks.
In addition, no environmental site assessment was completed on any of the Transferred Assets to research the current and historical uses of
such property or land as part of the transfer of such properties. Given the absence of environmental site assessment, we are not able to assess whether the soil or groundwater beneath particular properties may have been impacted or polluted.
However, in some instances, Lennar or another predecessor owner may have obtained Phase 1 assessments of such properties (but we are not able to rely or benefit from any protections from liability from such assessments).
Title and interests on any Future Property Assets will be determined on a
case-by-case basis as they will be acquired by Millrose (through Millrose Holdings or any of its Property LLCs) and included in the Real Estate Portfolio. However, when
acquiring Future Property Assets pursuant to the Lennar Agreements, we expect to obtain certain representations and warranties with regard to title and interests on such Future Property Assets from the sellers.
No Third-Party Appraisals
Neither
Millrose nor Lennar have obtained independent, third-party appraisals of the Transferred Assets, or any independent third-party valuations of the Transferred Assets or any fairness opinion on the transactions in
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connection with the Spin-Off. We will determine on a case-by-case basis
whether to obtain any independent, third-party appraisals or valuations, if any, of Future Property Assets before acquiring them.
Land Depreciation
Given the nature of the properties and land included in the Real Estate Portfolio, we are not expecting any material depreciation on
the Real Estate Portfolio.
State and Local Taxes
Properties and land included in the Transferred Assets and the Supplemental Transferred Assets are subject to taxes in accordance with local
and state tax laws, including annual realty taxes. The Transferred Assets and the Supplemental Transferred Assets are located in hundreds of different municipalities across 29 U.S. states. Pursuant to the terms of the Master Option Agreement, Lennar
is responsible for any such local taxes while its option to purchase the land in accordance with the terms of the Master Option Agreement remains outstanding. We generally expect the realty tax rate based on the assessed value of each property
included in the Transferred Assets and the Supplemental Transferred Assets to range from approximately 0.4% to 4% to be paid annually by Lennar. We expect that any realty taxes on any Future Property Assets that we acquire pursuant to the Lennar
Agreements will be paid by Lennar.
Item 3. Legal Proceedings
Millrose is not currently a party to any legal proceedings that we believe would reasonably be expected to have a material adverse effect on
our business, financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
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Part II