Item 5. Market for Registrant’s Common Equity
Item 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our
Class A common stock has been listed on the New York Stock Exchange under the symbol MRP since February 5, 2025. Prior to that date, there was no public trading market for our common stock. A when-issued trading
market for our Class A common stock existed between February 5, 2025 and February 7, 2025. We do not intend to list shares of our Class B common stock on the NYSE or any other exchange or quotation system, and it is unlikely that
there will be a public trading market for our Class B common stock. The closing price for our Class A common stock on March 25, 2025 was $26.12 per share.
Authorized Capital Stock
Under our
Charter, the Company has authorized 275,000,000 shares of Class A common stock, par value $0.01 per share, 175,000,000 shares of Class B common stock, par value $0.01 per share, and 50,000,0000 shares of preferred stock, par value $0.01
per share.
Holders
As of
March 25, 2025, we had 166,003,497 shares of common stock outstanding. As of March 25, 2025, there were (i) 2,227 record holders of our Class A common stock and (ii) 28 record holders of our Class B common stock. There were no
shares of preferred stock outstanding.
Dividends
We intend to elect to be classified and to qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ending
December 31, 2025.
We intend to make distributions to our stockholders based on our adjusted funds from operations. For purposes of
determining our cash distributions, our AFFO will be calculated by starting with the definition of the NAREIT of funds from operations, which is the net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property,
plus real estate depreciation. The NAREIT definition will then be adjusted to eliminate the impact of non-recurring items that are not reflective of ongoing operations and certain non-cash items that reduce or increase net income (loss) in accordance with GAAP, and it is also adjusted for any income tax expense (other than income tax expenses of our TRS) recorded for our fiscal year 2024 that
will not be incurred following our election and qualification to be treated as a REIT for U.S. federal income tax purposes, resulting in AFFO for us. Our computation of AFFO may differ from the methodology for calculating AFFO used by other equity
REITs, and, therefore, may not be comparable to such other REITs.
U.S. federal income tax law generally requires that a REIT distribute
annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay regular corporate income tax rates to the extent that it annually distributes less than 100% of its
taxable income. Initially, cash available for distribution to our stockholders is derived solely from distributions from Millrose Holdings and interest from the Promissory Note. All dividends will be made by us at the discretion of our Board and
will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants (which include limits on dividends), applicable law and other factors as our Board deems relevant. We cannot guarantee, and there can be
no assurance, that we will declare or pay any cash dividends or distributions.
We intend to pay dividends and anticipate that our
dividends will generally be taxable as ordinary income to our stockholders, not as income from qualified dividends (which are taxed at a reduced rate), although a portion
109
Table of Contents
of the dividends may be designated by us as qualified dividend income or capital gain or may constitute a return of capital. We will furnish annually to each of our stockholders a statement
setting forth the dividends paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain
Our dividend policy will enable us to review from time to time alternative funding sources to pay our required distributions. To the extent
those funding sources are insufficient to meet our cash needs, or the cost of such financing exceeds the cash flow generated by the Transferred Assets and the Supplemental Transferred Assets for any period, cash available for distribution could be
reduced. To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may pay up to 80% of the dividend in the form of a stock dividend. Also, to the extent our
Board believes we should pay at least most of the dividends in cash, we may consider various funding sources to cover any cash shortfall, including borrowing under debt facilities, selling certain of the Transferred Assets and the Supplemental
Transferred Assets (if Lennar will waive its Purchase Options) or using a portion of the net proceeds we receive in future offerings. See Risk FactorsRisks Related to Legal, Regulatory, Tax and Accounting Compliance.
For purposes of satisfying the minimum distribution requirement to qualify for and maintain REIT status, our taxable income will be calculated
without reference to our cash flow. Consequently, under certain circumstances, we may not have available cash to pay our required distributions and a portion of our distributions may consist of our stock or our debt instruments. In either event, a
stockholder of ours will be required to report dividend income as a result of such distributions even though we distributed no cash or only nominal amounts of cash to such stockholder. On March 17, 2025, our Board declared a dividend of $0.38
to be paid to holders of Class A common stock and Class B common stock as of the close of business on April 4, 2025, and will be paid on April 15, 2025.
Stock Repurchases
There were no share
repurchases of our common stock made during the quarter ended December 31, 2024.
Securities Authorized for Issuance Under Equity Compensation
Plans
On December 17, 2024, our sole stockholder at the time and board of directors adopted the 2024 Incentive Plan. As of
December 31, 2024, none of our securities had been issued or granted pursuant to the 2024 Incentive Plan.
Stock Performance Graph
As of December 31, 2024, we did not have any securities outstanding.
Recent Sales of Unregistered Securities
None.
Item 6. [Reserved]
110
Table of Contents
Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations
You should read the following Managements Discussion and Analysis of Financial Condition and
Results of Operations in conjunction with the accompanying audited combined financial statements of the Predecessor Millrose Business and the notes thereto included elsewhere in this Form 10-K. Some of the
information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could
cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Form 10-K, particularly under the section titled Cautionary Statement Concerning
Forward-Looking Statements. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those made, projected, or implied in the
forward-looking statements. See the sections titled Part I, Item 1A. Risk Factors and Cautionary Statement Concerning Forward-Looking Statements for a discussion of the risks, uncertainties, and assumptions associated with
these statements.
Business Overview and Background
Millrose is a corporation incorporated under the laws of the State of Maryland on March 19, 2024. Our Company was formed in connection
with the Spin-Off from Lennar to create an independent, publicly-traded company that provides the HOPPR to Lennar, Lennar Related Ventures and Other Customers. Through various subsidiaries, we hold
finished homesites with homes under construction, finished homesites imminently ready for construction, land under development, land ready for development and land not yet ready for development. We are externally managed and advised by KL, pursuant
to the Management Agreement between Millrose and KL.
We intend to elect to be classified and to qualify as a REIT for U.S. federal income
tax purposes, effective the taxable year ending December 31, 2025. Millrose Holdings, our wholly-owned subsidiary, through its various subsidiaries, will hold all of the land inventories and manage the HOPPR. Millrose intends to elect for
Millrose Holdings to be taxable as a TRS and may elect to form other wholly-owned subsidiaries that will also elect to be taxed as taxable REIT subsidiaries in the future. Taxable REIT subsidiaries are subject to taxation at regular corporate income
tax rates.
Millrose Prior to the Spin-Off
The following discussion describes the results of operations, liquidity and capital resources, cash flows and
off-balance sheet arrangements of the Predecessor Millrose Business prior to the Spin-Off, which information is derived from the financial results of Lennar. The periods
covered in this discussion include the years ended December 31, 2024 and 2023. Millrose was not formed until March 19, 2024 and has operated as an independent company only since the Spin-Off on
February 7, 2025. Millrose is a holding company with no operations of its own and operates through its subsidiaries, including Millrose Holdings.
The accompanying audited combined financial statements included in Part II, Item 8 of this Form 10-K
relate to the Predecessor Millrose Business and were derived from the combined financial statements and accounting records of Lennar. These audited financial statements reflect the combined historical results of operations, financial position and
cash flows of the Predecessor Millrose Business as they were historically managed by Lennar in conformity with GAAP. Therefore, the historical combined financial information may not be indicative of Millroses future performance and does not
necessarily reflect what Millroses combined results of operations, financial condition and cash flows would have been had Millrose operated as a separate, publicly traded company during the periods presented, particularly because of changes
that Millrose expects to experience in the future as a result of its separation from Lennar, including changes in the financing, cash management, operations and cost structure of Millrose. The audited financial statements include certain assets and
liabilities that were historically held at the Lennar parent level, but are specifically identifiable or otherwise allocable to the Predecessor Millrose Business. For further discussion, see Note 2 to the Combined Audited Financial Statements of the
Predecessor Millrose Business.
111
Table of Contents
Results of Operations for the Years Ended December 31, 2024 and 2023
Years Ended December 31,
(In thousands)
2024
2023
Change
% Change
Revenues
$
$
$
%
Cost of sales
Gross profit
Salaries, general & administrative expenses
(246,221
)
(209,792
)
(36,429
)
(17
)
Loss before income taxes
(246,221
)
(209,792
)
(36,429
)
(17
)
Provision for income taxes
Loss
$
(246,221
)
$
(209,792
)
$
(36,429
)
(17
)%
Revenues
For each of the fiscal years ended December 31, 2024 and 2023, the Predecessor Millrose Business had no revenues, as all finished
Homesites were transferred to the Predecessor Millrose Businesss parent company, who sold those homes to Lennar customers.
Cost of Sales
For each of the fiscal years ended December 31, 2024 and 2023, the Predecessor Millrose Business had no cost of sales.
Gross Profit
For each of the fiscal
years ended December 31, 2024 and 2023, the Predecessor Millrose Business had no gross profit.
Salaries, General and Administrative Expenses
While the Predecessor Millrose Business had no gross profit during the fiscal year ended December 31, 2024 and 2023, salaries,
general and administrative expenses have been allocated to it from Lennar based on a specific identification basis or, when specific identification is not practicable, a reasonable proportional cost allocation method primarily based directly on
headcount, usage, or other allocation methods depending on the nature of the services. Salaries, general and administrative expenses amounted to $246.2 million for the year ended December 31, 2024, as compared to $209.8 million for
the same prior year period. These allocated expense amounts for both fiscal years include expenses from operating and employee compensation costs for dedicated regional and divisional land teams tasked with acquiring and developing the land
inventories. The $36.4 million increase between salaries, general and administrative expenses from fiscal year ended December 31, 2023 to fiscal year ended December 31, 2024 is primarily due to an increase in headcount and an increase
in the compensation cost per employee allocated from Lennar since the prior year period.
The Predecessor Millrose Business had salaries,
general and administrative expenses allocated to it from Lennar from the period of January 1, 2025 until February 7, 2025, when Millrose became an independent public company following the Spin-Off.
However, Millrose is not required to reimburse Lennar for the allocated general and administrative expenses. Expense amounts recognized by the Predecessor Millrose Business (as shown in the table above) are not representative of the amounts that
would have been reflected in the financial statements of Millrose had Millrose operated independently of Lennar during the periods presented.
Provision for Income Taxes
For each of
the fiscal years ended December 31, 2024 and 2023, the Predecessor Millrose Business recorded no tax provision. See Note 7 to the Combined Audited Financial Statements of the Predecessor Millrose Business for more information.
112
Table of Contents
Loss
For the fiscal years ended December 31, 2024 and 2023, the Predecessor Millrose Business had losses of $246.2 million and
$209.8 million, respectively. The loss the Predecessor Millrose Business recognized in each of these two fiscal years was solely due to the salaries, general and administrative expenses allocated to it by Lennar.
The Predecessor Millrose Business will recognize losses allocated to it from Lennar from the period of January 1, 2025 until
February 7, 2025, when Millrose became an independent public company following the Spin-Off. Loss amounts recognized by the Predecessor Millrose Business (as shown in the table above) are not
representative of the amounts that would have been reflected in the financial statements of Millrose had Millrose operated independently of Lennar during the periods presented.
Liquidity and Capital Resources Prior to the Spin-Off
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to fund investments and operations,
make distributions to our stockholders and other general business needs. At December 31, 2024, the Predecessor Millrose Business had no cash on hand. Millrose did not have any business operations through its subsidiaries until the completion of
the Spin-Off and therefore did not require cash for any operations prior to the Spin-Off. No change in the cash balance is reported during the periods presented as all
cash is considered to have been provided and/or returned to Lennar within each period.
The Predecessor Millrose Businesss debt at
December 31, 2024 and December 31, 2023 was $24.2 million and $32.6 million, respectively. The Predecessor Millrose Businesss debt consisted of promissory notes for the acquisition of land and community development district
bonds, with the interest rate of 0.0% and various maturity dates through 2028. The Predecessor Millrose Business had no third-party financing instruments such as credit facilities, term loans and commercial paper programs at December 31, 2024
or December 31, 2023. See Liquidity and Capital Resources Following the Spin-Off for a description of the Credit Agreement.
Cash Flow Summary for the Years Ended December 31, 2024 and 2023
The Predecessor Millrose Businesss cash flows from operating and financing activities for the years ended December 31, 2024 and
2023, as reflected in the Combined Financial Statements, are summarized as follows:
Years Ended December 31,
(In thousands)
2024
2023
Cash from (used in):
Operating activities
$
(917,194
)
$
(865,120
)
Financing activities .
917,194
865,120
Cash, end of period
$
$
Cash Flows from Operating Activities
For the fiscal year ended December 31, 2024, cash used in operating activities was $917.2 million, primarily consisting of loss of
$246.2 million, stock-based compensation of $14.9 million, an increase in inventory of $716.1 million, which was partially offset by an increase in accounts payable, and accrued expenses of $30.2 million.
For the fiscal year ended December 31, 2023, cash used in operating activities was $865.1 million, primarily consisting of loss of
$209.8 million, stock-based compensation of $10.1 million, an increase in inventory of $641.9 million and a decrease in accounts payable and accrued expenses of $23.6 million.
113
Table of Contents
All cash used in operating activities for both the fiscal years ended December 31, 2024
and 2023 was allocated to the Predecessor Millrose Business by Lennar and was not generated by the Predecessor Millrose Business itself.
Cash Flows
from Financing Activities
For the year ended December 31, 2024, cash provided by financing activities was $917.2 million,
primarily consisting of transfers from Lennar of $930.7 million and debt repayments of $13.5 million.
For the year ended
December 31, 2023, cash provided by financing activities was $865.1 million, primarily consisting of transfers from Lennar of $883.8 million and debt repayments of $18.7 million.
All cash from financing activities for both the fiscal years ended December 31, 2024 and 2023 was allocated to the Predecessor Millrose
Business by Lennar and was not generated by the Predecessor Millrose Business itself.
Millrose Following the
Spin-Off
The following discussion describes expected components of our results of
operations and expected liquidity and capital resources, in each case following the Spin-Off. Given our lack of independent operating history, our results of operations, financial condition and cash flows in
the future may be completely different from what is described above in the periods presented with respect to the Predecessor Millrose Business, particularly because of changes that we expect to experience in the future as a result of our separation
from Lennar, including changes in the financing, cash management, operations and cost structure of Millrose. We cannot provide any assurance as to what our results of operations, financial condition and cash flows may be in the future following the Spin-Off.
Components of Results of Operations Following the Spin-Off
Revenues
Millroses
financial results and source of income is currently entirely dependent on Lennars exercising its Purchase Options and performing and satisfying all of its obligations to Millrose under the Lennar Agreements. The Option Deposits with respect to
the Transferred Assets and the Supplemental Transferred Assets comprise substantially all of Millroses initial source of operating capital. The Option Deposits with respect to any Future Property Assets, the Monthly Option Payments with
respect to the Transferred Assets, the Supplemental Transferred Assets and any Future Property Assets, and the Takedown Price payments with respect to the Transferred, the Supplemental Transferred Assets and any Future Property Assets in connection
with any exercise of Purchase Options will serve as the primary source of revenue for Millrose (through Millrose Holdings) on an ongoing basis.
In the future, if and to the extent Millrose (directly or through its subsidiaries) enters into HOPPR agreements with any Lennar Related
Ventures or Other Customers, Millroses revenues will also be expected to include income from any such future relationships with such Lennar Related Ventures and Other Customers. There can be no guarantee that Millrose will be able to attract
new customers and provide the HOPPR (the Recycled Capital HOPPR or otherwise) to any Lennar Related Ventures or Other Customers, and there is the possibility that Millroses business will remain limited to its relationship with
Lennar.
Land Sales
If Lennar
exercises its Purchase Option pursuant to the Lennar Agreements, Millrose will record revenues from land sales equal to the Takedown Price of the purchased property. In the event Millrose has any HOPPR agreements with any Lennar Related
Ventures and Other Customers in the future, Millrose will record revenues from land sales in connection with any exercises of purchase options under such potential future HOPPR agreements, in amounts that will be dependent on the terms of such
potential future HOPPR agreements.
114
Table of Contents
Cost of Sales
If Lennar exercises its Purchase Option pursuant to the Lennar Agreements, Millrose will record cost of sales equal to the basis of the
purchased property plus historical development costs. In the event Millrose has any HOPPR agreements with any Lennar Related Ventures and Other Customers in the future, Millrose will record cost of sales in connection with any exercises of
purchase options under such potential future HOPPR agreements, in amounts that will be dependent on the terms of such potential future HOPPR agreements.
General and Administrative Expenses
Following the Spin-Off, Millroses general and administrative expenses are largely comprised of
the Management Fee paid to KL pursuant to the Management Agreement. Millroses general and administrative expenses do not include personnel-related expense, including salaries, benefits and share-based compensation for any employees, as
Millrose and its subsidiaries do not employ any personnel. All employees are employed by KL and their salaries are paid by KL. Millrose is not required to reimburse KL for any personnel; the cost of all personnel supplied by KL to Millrose and each
of its subsidiaries is covered by the Management Fee that we pay to KL under the Management Agreement. All compensation and fees paid to members of our Board are also paid by KL and covered by the Management Fee, with no separate costs to us. The
only fees not covered by the Management Fee are fees incurred for services in connection with extraordinary litigation and mergers and acquisitions and other events outside Millroses ordinary course of business, including, in certain
circumstances, costs associated with the ownership and maintenance of land. Any such expenses that are not covered by the Management Fee are paid for by Millrose and recorded as general and administrative expenses or other expenses, as appropriate.
See Part III, Item 13. Certain Relationships and Related Transactions, and Director IndependenceTransactions with our ManagerManagement Agreement for more information.
Liquidity and Capital Resources Following the Spin-Off
We expect that our liquidity moving forward after the Spin-Off will be derived from (i) cash flows
from our Operations which are further described below in this section above Components of Results of Operations Following the Spin-Off and (ii) debt financing under our Credit Agreement
entered into on February 7, 2025, which provides for a revolving credit facility with commitments in an aggregate amount of $1.335 billion as described in this section under Debt. To support its accelerated growth, Millrose is
actively seeking to secure additional financing. We believe that our existing cash on hand, cash generated from operations and available capacity under the Credit Agreement will be sufficient to meet our liquidity needs in the short and long-term.
Our ability to satisfy our liquidity requirements depends on our future operating performance, which is affected by prevailing economic conditions, market conditions in the real estate industry and other factors, many of which are beyond our
control.
Debt
Credit Agreement
On the Distribution Date, Millrose Properties, Inc. (for purposes of this section only, the Borrower) entered into a credit
agreement with the lenders party thereto and JPMorgan Chase Bank, N.A., as a lender and as administrative agent for the lenders (the Credit Agreement). The Credit Agreement provides for a revolving credit facility with commitments in an
aggregate amount of $1.335 billion, of which $450 million has been borrowed as of March 25, 2025. Availability under the Credit Agreement is subject to a borrowing base updated quarterly (or, at the Borrowers option, monthly), which
is calculated by reference to the value of certain real property assets, with advance rates that vary by asset category, and unrestricted cash and cash equivalents, with adjustments as specified in the Credit Agreement. The revolving credit facility
may be used by the Borrower to borrow loans or obtain standby letters of credit.
Loans under the Credit Agreement bear interest at the
Adjusted Term SOFR Rate (as defined in the Credit Agreement) plus an applicable margin at the per annum rate of (i) 2.00%, if the Leverage Ratio (as defined in the
115
Table of Contents
Credit Agreement) is less than or equal to 0.30 to 1.00, (ii) 2.25% if Leverage Ratio is greater than 0.30 to 1.00 and less than or equal to 0.40 to 1.00, and (iii) 2.50% if the Leverage Ratio is
greater than 0.40 to 1.00. At the Borrowers option, loans may instead bear interest at the Alternate Base Rate (as defined in the Credit Agreement) plus an applicable margin at the per annum rate of 1.00%, 1.25% or 1.50%, depending upon the
Leverage Ratio.
Obligations under the Credit Agreement are secured by pledges by the Borrower of (i) the Promissory Note and
(ii) the equity interests of Millrose Holdings. In addition, the Credit Agreement requires the Borrower to pledge (i) certain future promissory notes similar to the Promissory Note that Millrose may enter into with future subsidiaries and
(ii) the equity interests of any future subsidiaries whose equity interests are not pledged for the benefit of the Promissory Note or any other similar promissory note or notes.
As of the date of this Form 10-K, there are no guarantors under the Credit Agreement. In certain
circumstances, the Credit Agreement requires the Borrower to cause certain future subsidiaries of the Borrower that are not Taxable REIT Subsidiaries (as defined in the Credit Agreement) to become guarantors.
The Credit Agreement includes affirmative and negative covenants applicable to the Borrower and its subsidiaries, including limitations
regarding indebtedness, liens, dividends and other restricted payments, investments, asset sales, transactions with affiliates, restrictive agreements, mergers and other fundamental changes, permitted lines of business, financial contracts, and
designation of unrestricted subsidiaries. The Credit Agreement contains financial covenants, tested quarterly, consisting of a maximum Leverage Ratio, a minimum interest coverage ratio, and a minimum tangible net worth. The Credit Agreement also
requires the Borrower to maintain its status as a REIT.
The Credit Agreement contains events of default, including if KL shall cease to
be the Borrowers manager and a replacement manager reasonably acceptable to the required lenders is not appointed within 90 days.
The Credit Agreement is scheduled to mature on February 7, 2028.
Promissory Note
As part of a
recapitalization of Millrose Holdings prior to the Distribution, on February 6, 2025, Millrose Holdings issued to Millrose (for purposes of this section only, Lender) the Promissory Note in an initial principal amount of
$4.8 billion that was executed by Millrose Holdings and each of the Initial Property LLCs (for purposes of this section only, Millrose Holdings and the Initial Property LLCs, and following the amendment described below, the Supplemental
Property LLCs, collectively, Note Borrower). The Promissory Note is secured by the Mortgages (as defined and described below) and by a pledge by Millrose Holdings of 100% of its membership interests in each Initial Property LLC. Millrose
has the right to advance additional amounts to Note Borrower to increase the principal balance and for each additional advance, Note Borrower and Millrose will negotiate in good faith to determine the interest rate applicable to such additional
advance.
Interest on the Promissory Note is due and payable monthly in arrears on the first business day of each month and bears interest
at a rate of 7.5% per annum, compounded monthly. The principal amount of the Promissory Note and all accrued but unpaid interest will be paid in full on the last day of the calendar month that contains the five year anniversary of the Promissory
Note; provided, however, that the maturity date will automatically be extended for a period of one year commencing on the first day following the then-applicable maturity date on each subsequent maturity date unless either Millrose or Millrose
Holdings has provided written notice at least 180 days prior to the then-applicable maturity date that such maturity shall not be extended.
During a Pause Period, Note Borrower may elect for a portion of the interest payable under the Promissory Note to accrue and be added to the
principal balance on the applicable payment date rather than being paid in cash to Millrose (for purposes of this section only, the PIK Interest). The amount of interest that Note Borrower may elect to become PIK Interest may be no
greater than the amount by which the Monthly Option
116
Table of Contents
Payment is reduced because it is calculated based on the fixed rate equal to 50% of the Applicable Rate for the applicable Property (the Pause Rate) as opposed to the Applicable Rate
during the Pause Period. After such an election, interest will accrue on the aggregate principal balance (including the PIK Interest) at the interest rate on the Promissory Note.
The Promissory Note contains certain events of default (for purposes of this section only, a Note Event of Default), upon which
the principal balance, as well as any accrued but unpaid interest thereon, shall automatically mature and be due and payable immediately, without presentment, demand, diligence, protest, notice of acceleration, or other notice of any kind, which
Note Borrower expressly waives.
We intend to amend the Promissory Note effective as of February 10, 2025, to reflect the updated
principal balance of $5.0 billion associated with the Supplemental Transferred Assets Transaction and to add the Supplemental Property LLCs as Note Borrowers. In the event that Millrose Holdings or another TRS of Millrose acquires additional land
assets, the Promissory Note may be further amended to reflect such acquisitions. Alternatively, Millrose Holdings or another Millrose TRS may issue one or more additional promissory notes that are similar to the Promissory Note.
Mortgages
In connection with the
Promissory Note, on February 6, 2025, each of the Initial Property LLCs delivered fully executed mortgages with respect to the Homesites that they own in favor of Millrose to secure the Promissory Note. Additionally, in connection with the
Supplemental Transferred Assets Transaction, each of the Supplemental Property LLCs intend to deliver fully executed mortgages with respect to the Homesites that they own in favor of Millrose to secure the Promissory Note. The Mortgages were not
recorded initially, but each Initial Property LLC and Supplemental Property LLC is required to comply with Millroses request to amend the Mortgages so that they may be recorded if Millrose so requests.
The Homesites covered by the Mortgages will automatically be released from the applicable Mortgage upon (a) payment in full of the
Promissory Note or (b) the occurrence of a closing of such Homesite in accordance with the Master Option Agreement. Additionally, any new real property that the Property LLCs acquire while any portion of the Promissory Note remains unpaid or
unsatisfied shall automatically be subject to the lien of the Mortgages or of similar mortgages or deeds of trust.
Pledge and Security Agreement
In connection with the Promissory Note, Millrose Holdings entered into a Pledge and Security Agreement with Millrose on
February 6, 2025, pursuant to which Millrose Holdings pledged a first priority perfected, continuing security interest in and lien on 100% of its membership interests in each Initial Property LLC and in all proceeds thereof (for purposes of
this section only, the Pledged Collateral) as collateral for Note Borrowers performance of its obligations under the Promissory Note and Mortgage. Except during the continuance of a Note Event of Default, Note Borrower will have
the right to receive all distributions, interest and proceeds in respect of the Pledged Collateral.
We intend to amend the Pledge and
Security Agreement effective as of February 10, 2025, to reflect the Supplemental Transferred Assets Transaction, including adding the membership interests in the Supplemental Property LLCs as pledged assets. In the event that Millrose Holdings or
another TRS of Millrose acquires additional land assets, the Pledge and Security Agreement may be further amended to reflect such acquisitions. Alternatively, Millrose Holdings or another Millrose TRS may enter into one or more additional pledge and
security agreements that are similar to the Pledge and Security Agreement.
Debt to Equity Ratio Limit Right
In addition to the Credit Agreement, Millrose may seek to pursue other debt and expects to have access to a certain amount of debt and equity
capital at least a portion of which is intended to be available for use in
117
Table of Contents
financing transactions with new customers. However, there is no guarantee that such sources of additional capital will be obtained on acceptable terms or at all or will be sufficient to cover all
of Millroses business growth initiatives. As such, Millrose may also seek additional third-party financing to satisfy any additional capital needs or raise capital through equity and debt issuances into the market. Additionally, any
third-party financing arrangements Millrose enters into is subject to the Debt to Equity Ratio Limit, unless Millrose obtains the prior approval of Lennar.
Secured Financing Collateral Consent Right
In addition to the Credit Agreement, from time to time, Millrose may enter into various secured financing arrangements, which may
include but are not limited to secured or collateralized loans, or any other transactions where assets may be pledged or used as collateral to secure the financing instrument, whether or not the security interest is perfected. In such cases,
Millrose may use the land assets it holds through its subsidiaries in its Real Estate Portfolio or the proceeds from customers exercises of purchase options relating to the land assets in Millroses Real Estate Portfolio as collateral to
secure the financing. While Millrose may, at its discretion, enter into any secured financing arrangements it so chooses (subject to the Debt to Equity Ratio Limit), Millrose is prohibited from granting or selling any security interest whereby the
assets pledged pursuant to such security interest include both Transferred Assets, Supplemental Transferred Assets or Future Property Assets held pursuant to the Lennar Agreements and Future Property Assets of Other Customers (i.e., mixing the
assets into one collateral pool) without Lennars prior written consent.
REIT Tax Election and Income Taxes
We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Code and expect to qualify as a REIT. To qualify as a REIT, we
must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income, as defined by the Code, to our stockholders. Taxable income from certain non-REIT qualifying activities is derived through a TRS and is subject to applicable U.S. federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the years ended
December 31, 2024 or 2023.
We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such
a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. We anticipate that we will continue to qualify to be taxed as a REIT for U.S. federal income tax purposes, and we intend to continue to be organized
and to operate in a manner that will permit us to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to
stockholders. As a REIT, we will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year
are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years.
If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate
income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash
available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years
following the year in which we failed to qualify to be taxed as a REIT.
We evaluate the accounting and disclosure of tax positions taken
or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are more-likely-than-not (greater than 50 percent probability) of being sustained by
the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our
118
Table of Contents
management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. We have no examinations in
progress and none are expected at this time. We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon
examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be
realized upon ultimate settlement. We had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2024. We and our subsidiaries are subject to U.S. federal income tax as well as income tax of various
state and local jurisdictions. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our combined statements of operations and comprehensive income (loss).
Dividends
We did not declare or pay any
cash dividends on our common stock in the year ended December 31, 2024. We intend to make regular dividend payments of at least 90% of our REIT taxable income to holders of our common stock out of assets legally available for this purpose.
However, under currently applicable IRS guidance, approximately 80% of these dividends may be paid in the form of stock dividends, rather than in cash. Dividends will be authorized by our Board and declared by us based on a number of factors
including actual results of operations, dividend restrictions under Maryland law or applicable debt covenants, our liquidity and financial condition, our taxable income, the annual distribution requirements under the REIT provisions of the Code, our
operating expenses and any other factors our Board deems relevant. Subject to certain exceptions, distributions received from us will not be qualified dividends and will therefore be taxed at ordinary income rates to the extent of our current or
accumulated earnings and profits. On March 17, 2025, our Board declared a dividend of $0.38 to be paid to holders of Class A common stock and Class B common stock as of the close of business on April 4, 2025, and will be paid on April
15, 2025.
Inflation
The real estate
market has not been affected significantly by inflation in the past several years due to increases in rents nationwide. Inflation may affect the overall cost of debt, as the implied cost of capital increases. The Federal Reserve, in response to or
in anticipation of continued inflation concerns, could continue to raise interest rates. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate derivatives.
Seasonality
The residential housing
market goes through cyclical periods of market upturns and downturns, frequently corresponding to changes in interest rates and other related conditions. While in some cases, the HOPPR we provide (including the initial Recycled Capital
HOPPR we provide to Lennar, and potentially to certain Lennar Related Ventures in the future) is intended to be the Recycled Capital HOPPR that will continue through periods of weak residential housing markets, in the future we may
provide the HOPPR with individually negotiated features (which may not be the same features as the Recycled Capital HOPPR) to Other Customers. Not every version of the HOPPR we expect to provide in the future (particularly with
Other Customers) will provide us with the same stability and reliability when the residential housing market goes through a period of market depression. Our business, financial condition and results of operations may be significantly impacted by any
such HOPPR arrangements we may enter into in the future.
Off-Balance Sheet Arrangements
As of December 31, 2024 and December 31, 2023, we had no off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
119
Table of Contents
Emerging Growth Company
Millrose is an emerging growth company, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we
are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with
the new or revised financial accounting standards. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying
with new or revised financial accounting standards. We have elected not to opt in to such extended transition period.
We could remain an
emerging growth company until the earliest of (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to the registration statement related to the Distribution and
declared effective January 17, 2025, (2) the last day of the fiscal year in which our annual gross revenues exceed $1.235 billion, (3) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of
our most recently completed second fiscal quarter, or (4) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. It is likely that we
will cease to be an emerging growth company in 2026.
Critical Accounting Policies and Estimates
We believe that our critical accounting policies are those that require significant judgments, assumptions and estimates by management about
matters that are inherently uncertain and because they are important for understanding and evaluating our financial results. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is
complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our audited combined financial statements. Our significant accounting policies that
management believes will be critical once we commence operations are fully described in Note 2 to the Audited Combined Financial Statements of the Predecessor Millrose Business. Listed below are those policies and estimates that we believe are
critical and require the use of significant judgment in their application. Our accounting policies have been established to conform with GAAP. The preparation of the financial statements in accordance with GAAP requires management to use judgments
in the application of such policies. These judgments will affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the
comparability of our results of operations to those of companies in similar businesses.
Land and Impairment
Finished homesites, land and land under development are included within inventories. Inventories are stated at cost unless the inventory within
a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventories also include Horizontal Development costs, capitalized interest, and real estate taxes. Horizontal Development costs incurred
after land purchase are capitalized if pertaining to Horizontal Development and getting land ready for its intended use of vertical construction.
120
Table of Contents
At each reporting date we will review our inventory for any indication of impairment. If an
indication of impairment exists, recoverability will be tested by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not exceed the carrying
amount (i.e., the asset is not recoverable), the next step would be performed, which is to determine the fair value of the asset and record an impairment charge, if any.
We estimate the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the
inventory is evaluated, such as the projected margins and timing of future land sales, as well as an appropriate discount rate, which may differ materially from actual results if market conditions or our assumptions change.
We believe that the accounting related to inventory valuation and impairment is a critical accounting policy because: (1) assumptions
inherent in the valuation of our inventory are highly subjective and susceptible to change and (2) the impact of recognizing impairments on our inventory could be material to our combined financial statements.
Accounting Treatment for the Spin-Off
Millrose has assessed the Spin-Off as a nonreciprocal transfer of assets from Lennar to its
stockholders and will therefore be accounted for under ASC 845 Nonmonetary Transactions . Millrose has further assessed the Business Assets to be transferred as meeting the definition of a business under ASC 805 Business Combinations
and will therefore record the assets acquired and liabilities assumed from Lennar based on the carrying value of these items as they were reflected on Lennars books and records as of the closing of the transaction.