Millrose Properties, Inc.: Form 10-Q for the period ended Mar 31, 2025

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our accompanying unaudited condensed consolidated financial statements and the notes thereto included in “Part I, Item 1. Financial Statements” in this Form 10-Q and the audited combined financial statements of the Predecessor Millrose Business and the notes thereto included in the 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-Q, 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” in our Form 10-K and “Part II, Item 1A. Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” herein for a discussion of the risks, uncertainties, and assumptions associated with these statements.

As further described in Note 1. Description of Business to our unaudited condensed consolidated financial statements included in “Part I, Item 1. Financial Statements” of this Form 10-Q, we completed the Spin-Off from Lennar on February 7, 2025. The financial information presented herein (i) for the periods prior to the February 7, 2025 Spin-Off is that of the Predecessor Millrose Business and is derived from the consolidated financial statements and accounting records of Lennar, and (ii) for the periods after the February 7, 2025 Spin-Off is that of Millrose and its subsidiaries. Millrose was formed on March 19, 2024 and has operated as an independent company since the Spin-Off on February 7, 2025.

Our Business

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 HOPP’R to Lennar, Lennar Related Ventures and Other Customers. Millrose purchases and develops residential land and sells finished homesites back to homebuilders by way of option contracts with predetermined costs and takedown schedules. Millrose intends its “first of its kind” public vehicle to be attractive to homebuilders seeking to implement an asset-light strategy. As fully developed homesites are taken down by the homebuilder, capital is recycled into future land acquisitions for homebuilders, providing each customer with uninterrupted access to capital. Through our 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 Kennedy Lewis Land and Residential Advisors LLC (“KL” or the “Manager”), pursuant to the Management Agreement between Millrose and KL entered into February 7, 2025 (the “Management Agreement”).

The Spin-Off and Related Transactions

On February 7, 2025 (the “Distribution Date”), we completed our Spin-Off from Lennar through a distribution of approximately 80% of Millrose’s outstanding common stock to holders of Lennar common stock as of the close of business on January 21, 2025. In connection with the Spin-Off, we received a contribution from Lennar of approximately $5.5 billion in land assets, representing approximately 87,000 Homesites, and cash of approximately $1 billion, which included $585 million of cash deposit liabilities related to option contracts with Lennar.

On February 10, 2025, we completed the acquisition of land consisting of approximately 25,000 Homesites through the acquisition of 100% of the outstanding stock of RCH Holdings, Inc., a newly formed parent holding company of Rausch, for approximately $859 million in cash, which is net of option deposits funded by Lennar and other holdbacks.

Invested Capital Activity for the First Quarter 2025

Invested capital is a non-GAAP financial measure that represents the balance on which monthly cash option fees are paid by counterparties. Invested capital includes certain components of our unaudited condensed consolidated financial statements related to (i) homesite inventory and other related assets and (ii) liabilities. Management uses invested capital as a measure of the capital deployed and believes that the figure is useful to investors because it serves as the basis for generating option fees and other related income. The most directly comparable GAAP financial measure is homesite inventory and other related assets as presented in the Company’s condensed consolidated balance sheets. This non-GAAP measure is presented solely to permit investors to more fully understand how our management assesses underlying performance and is not, and should not be viewed as, a substitute for GAAP measures, and should be viewed in conjunction with our GAAP financial measures. The table below reconciles GAAP reported homesite inventory and other related assets to invested capital as of March 31, 2025 and summarizes invested capital activity during the quarter:

(in thousands)

(1) Includes Homesite inventory contributed by Lennar at Spin-Off and acquired from Rausch, less option earning deposits and other holdbacks.

(2) Reduction in investment balance from homesite sales pursuant to option agreements associated with the applicable category shown.

(3) Includes land acquisitions after February 10, 2025, net of option earning deposits.

(4) Based on average option rate and/or loan interest rate weighted by investment balance, assumes SOFR rate as of March 31, 2025.

During the three months ended March 31, 2025, we funded $635 million for land acquisition and development and received $680 million in net takedown proceeds under the Master Program Agreement. Funding for Other Agreements during this period was $350 million at a weighted average yield of 11.7%. On a total portfolio basis, the weighted average yield was 8.7% as of March 31, 2025.

Properties as of March 31, 2025

As of March 31, 2025, our Homesite assets consisted of 876 properties (also known as communities) in 29 states across the United States, totaling approximately 111,181 Homesites, with an approximate aggregate value of $6.7 billion of Homesite inventory. Of the Homesites owned as of March 31, 2025, we expect that total Takedown Prices of all Homesites to be approximately $10.9 billion, and the total estimated development costs of Homesites to be approximately $4.6 billion. The properties are geographically located in the United States.

As of March 31, 2025, our property assets are collectively located across 29 U.S. states. Approximately 46% of the property assets are concentrated in three states (California, Florida, Texas) in terms of number of Homesites and approximately 37% 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 March 31, 2025, the below table shows the location, number of properties, number of underlying Homesites and expected total Takedown Prices of our properties across 29 U.S. states and as set forth in the relevant Project Addenda:

(1) Or prospective Homesites if fully entitled, as applicable.

(2) Excludes properties, Homesites, and Takedown Prices for investments associated with development loans.

(3) Totals may not foot due to rounding.

The below table is a summary of our pools of properties included in our property assets as of March 31, 2025:

(1) Number of Homesites excludes investments associated with development loans.

(2) There is currently no pooling amongst third party assets.

(3) Homesite inventory less deposits, deferred tax liability, and other holdbacks on post-spin acquired assets.

(4) Project costs exclude investments associated with development loans.

(5) Totals may not foot due to rounding.

As of March 31, 2025, the Homesites within the Master Program Agreement were included in 32 separate pools, in accordance with the applicable Multiparty Cross Agreements. The average number of properties per pool was 27 and the aggregate sum of all option deposits Lennar has made, or is obligated to make with respect to a new pool of Future Property Assets, shall not at any time exceed $50 million with respect to pools of the Transferred Assets and $25 million with respect to pools of Future Property Assets. Pools will be established with primary consideration given to diversity within pools across geographies, communities, and home types. Future Homesite option contracts outside of the Master Program Agreement with Lennar may or may not contain pooling arrangements. As of March 31, 2025, Homesites outside of the Master Program Agreement do not have a pooling arrangement.

Components of Results of Operations

The following is a summary of the key components of our operations for the three months ended March 31, 2025:

Options Fee Revenues and Other Related Income

Our primary source of revenue is monthly option payments from Lennar and Other Customers in consideration for maintenance of a purchase option in respect to a Property. We also derive other related income from interest earned on the outstanding loan balance of development loans secured by residential property.

Costs

Operating Expenses: Our operating expenses after the Spin-Off are composed of Management Fees paid to KL for management and advisory services. The fee is calculated as 1.25% of Tangible Assets (as defined in the Management Agreement) (the “Management Fee”). All employees are employed by KL and their salaries are paid by KL; therefore, we do not record personnel related expenses, including salaries, benefits, and share-based compensation for any employees. All cash compensation paid to our Board of Directors (the “Board”) and certain general and administrative expenses are covered by the Management Fee. The Management Fee does not cover offering expenses, costs incurred for services in connection with extraordinary litigation and mergers and acquisitions and other events outside of Millrose’s ordinary course of business, and, in some 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 are recorded as general and administrative expenses or other expenses, as appropriate under GAAP.

Operating expenses prior to the Spin-Off include salaries, general and administrative expenses. These expenses have been allocated from Lennar based on a reasonable proportional cost allocation method primarily based directly on headcount, usage, or other allocation methods depending on the nature of the services.

Other Income and Expenses: We record interest income from our cash as other income as it is not part of the primary activities of the business. Other expenses also include interest expense related to our Revolving Credit Facility (as defined below) with commitments of $1.335 billion.

Results of Operations

The following discussion describes the results of operations for the three months ended March 31, 2025 versus the three months ended March 31, 2024. The financial data includes the combined results of operations for the Predecessor Millrose Business prior to the Spin-Off and the Millrose business after the Spin-Off. The results of operations include activity related to the acquired Rausch land assets from the February 10, 2025 acquisition date through March 31, 2025. We have a single operating and reportable segment in accordance with GAAP and our operations are conducted in the United States.

(in thousands)

Overview of Net Income (Loss)

Our net income was $39.8 million for the three months ended March 31, 2025, compared to a net loss of $56.9 million for the three months ended March 31, 2024. Our net income for the three months ended March 31, 2025 includes post Spin-Off income of $64.8 million, partially offset by pre-spin net loss of $25.0 million related to sales, general, and administrative expenses attributable to the Predecessor Millrose Business. The increase in net income for the three months ended March 31, 2025 compared to March 31, 2024 is due to (i) revenues earned after the Spin-Off and (ii) lower actual operating expenses after the Spin-Off versus an allocation prior to the Spin-Off, partially offset by (a) higher net interest expense, and (b) higher tax provision.

Option Fee and Other Related Income

Option fees and other related income was $82.7 million for the three months ended March 31, 2025, compared to $0 for the three months ended March 31, 2024. For the three months ended March 31, 2025 prior to the Spin-Off and for the three months ended March 31, 2024, the Predecessor Millrose Business did not have revenues, as all finished Homesites were transferred to the Predecessor Millrose Business’s parent company, who sold those homes to Lennar customers.

Management Fee Expense

Management fee expense for the three months ended March 31, 2025 was $12.1 million, compared to $0 for the three months ended March 31, 2024. Management fee expense represents the costs for KL management services after the Spin-Off and incurred through March 31, 2025.

Sales, General and Administrative Expenses from Pre-Spin Periods

Sales, general and administrative expenses from Pre-Spin periods were $25.0 million for the three months ended March 31, 2025, compared to $56.9 for the three months ended March 31, 2024. For the first quarter of 2025, the expenses were allocated by Lennar for the periods January 1, 2025 to the Spin-Off, which is the driver for the decrease as compared to the first quarter of 2024 which included sales, general, and administrative expenses for the full quarter. There were no sales, general and administrative expenses recorded after the Spin-Off.

Other Income and Expense

Other income and expense was a net expense of $1.5 million for the three months ended March 31, 2025, compared to $0 for the three months ended March 31, 2024. Other income and expenses for the three months ended March 31, 2025 includes interest expense for the Revolving Credit Facility entered into after the Spin-Off and interest income from the Company’s cash accounts after the Spin-Off. The Predecessor Millrose Business did not have other income and expenses for three months ended March 31, 2025 prior to the Spin-Off and for the three months ended March 31, 2024.

Net Income (Loss) Before Income Tax Expense

Net income from operations before income tax was $44.2 million for the three months ended March 31, 2025, compared to a net operating loss of $56.9 million for the three months ended March 31, 2024. Our net income from operations before taxes includes post Spin-Off net income before taxes of $69.1 million, partially offset by pre-spin net loss of $25.0 million related to sales, general, and administrative expenses attributable to the Predecessor Millrose Business. The increase in operating income is due to (i) revenues earned after the Spin-Off and (ii) lower operating expenses which due to lower management service fees after the Spin-Off compared to sales, general, and administrative expenses allocated prior to the Spin-Off, partially offset by higher net interest expense as a result of the Revolving Credit Facility.

Income Tax Expense

The provision for income taxes for the three months ended March 31, 2025 was $4.4 million, compared to $0 for the three months ended March 31, 2024. The first quarter 2025 tax provision resulted in an overall effective tax rate of 24.8%. There was no income tax expense for the Predecessor Millrose Business for the three months ended March 31, 2024 due to offsetting changes in the valuation allowance against its deferred taxes that reduced income tax and effective tax rate to zero. See Note 9. Income Taxes to the unaudited condensed consolidated financial statements for more information.

Liquidity and Capital Resources

As of March 31, 2025, we had $89.5 million cash on hand and approximately $1.0 billion capacity under our Revolving Credit Facility. Our primary sources of liquidity are cash flows from operations and debt financing under our Revolving Credit Facility of $1.335 billion. We believe that our existing cash on hand, cash generated from operations and available capacity under the Revolving Credit Facility 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.

Cash Flows

Our cash flows for the three months ended March 31, 2025 and 2024 are presented below. The financial data includes the results of cash flows for the Predecessor Millrose Business prior to the Spin-Off, which is derived from the financial statements of Lennar; and the Millrose business after the Spin-Off, which is derived from the accounting records of Millrose.

(in thousands)

Cash Flows from Operating Activities

For the three months ended March 31, 2025, net cash from operating activities was $21.3 million. Our cash sources were $59.0 million consisting of option fee income of $32.9 million and interest income of $1.1 million, and pre-spin adjustments of $25.0 million. Our cash used was $37.7 million and consisted of our Management Fee payment to KL of $12.1 million, interest payments on our Revolving Credit Facility of $0.6 million, and Predecessor Millrose Business pre-spin-off net loss of $25.0 million.

For the three months ended March 31, 2024, net cash from operating activities was $182.3 million, primarily consisting of inventory takedowns of $232.1 million, and stock-based compensation of $7.1 million, which was partially offset by net operating loss of $56.9 million. All cash from the operating activities for the three months ended March 31, 2024 was allocated to the Predecessor Millrose Business by Lennar and not generated by the Predecessor Millrose Business itself.

Cash Flows from Investing Activities

For the three months ended March 31, 2025, net cash used in investing activities was $606.2 million. Our cash used was $1.837 billion, consisting of payments to acquire Rausch land assets of $858.9 million and investments in Homesite inventory and other related assets of $978.5 million. Our cash sources were $1.231 billion, consisting of option deposit payments from Lennar at Spin-Off of $584.8 million and takedowns of Homesite inventories and other related assets of $646.4 million.

Cash Flows from Financing Activities

For the three months ended March 31, 2025, net cash from financing activities was $674.4 million. Our cash sources were $865.1 million, consisting of cash contributed by Lennar at Spin-Off of $415.1 million and Revolving Credit Facility drawdowns of $450.0 million. Our cash used was $190.7 million, consisting of Spin-Off costs of $75.1 million, Revolving Credit Facility financing payments of $9.6 million, repayment of Revolving Credit Facility debt of $100.0 million, and payment on seller notes of $6.0 million.

For the three months ended March 31, 2024, net cash used in financing activities was $182.3 million, consisting of principal payment on debt of $16.1 million and transfers to Lennar of $166.2 million. All cash from the financing activities for the three months ended March 31, 2024 was allocated to the Predecessor Millrose Business by Lennar and not generated by the Predecessor Millrose Business itself.

Revolving Credit Facility

On the Distribution Date, we entered into a credit agreement with a consortium of lenders with JPMorgan Chase Bank, N.A., as administrative agent for the lenders (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility (the “Revolving Credit Facility”) with commitments in an aggregate amount of $1.335 billion, of which $450 million has been borrowed, and $100 million has been repaid, as of March 31, 2025. Availability under the Credit Agreement is subject to a borrowing base updated quarterly (or, at our 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 us 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 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 our 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 us of (i) the Promissory Note (as defined below) and (ii) the equity interests of Millrose Holdings. In addition, the Credit Agreement requires us 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 March 31, 2025, there were no guarantors under the Credit Agreement. We may elect to join certain of our subsidiaries to the Credit Agreement as guarantors from time to time, and in certain circumstances, the Credit Agreement requires us to cause certain of our future subsidiaries 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 us and our 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 us to be in compliance with all REIT requirements. As of March 31, 2025, we were in compliance with all covenants under the Credit Agreement.

The Credit Agreement contains events of default, including if KL shall cease to be our 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.

See Note 7. Debt Obligations to our unaudited condensed consolidated financial statements included in “Part I, Item 1 Financial Statements” of this Form 10-Q for further description.

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 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 Millrose’s 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 may not cause its debt to equity ratio to exceed 1:1 (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 Millrose’s 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 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 Lennar’s prior written consent.

Dividends

On March 17, 2025, our Board declared a dividend of $0.38 to be paid to holders of its Class A common stock and Class B common stock as of the close of business on April 4, 2025, which was paid on April 15, 2025. 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. While we do not plan to do so, under currently applicable Internal Revenue Services 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.

Effects of Inflation and Seasonality

See discussion in the section “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K.

Promissory Note

As part of the recapitalization of Millrose Holdings prior to the distribution, on February 6, 2025, Millrose Holdings issued to Millrose a promissory note (the “Promissory Note”) of approximately $4.8 billion that is secured by a pledge of all equity interests in the Initial Property LLCs and unrecorded mortgages on the Transferred Assets.

We intend to amend the Promissory Note effective as of February 10, 2025, to reflect the updated principal balance of $5.1 billion associated with the Supplemental Transferred Assets Transaction and to add the Supplemental Property LLCs as borrowers under the Promissory Note. 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 delivered 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 Millrose’s 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 (as amended, the “Pledge and Security Agreement”), 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 Borrower’s 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.

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 our TRSs and is subject to applicable U.S. federal, state, and local income and franchise taxes. During the three months ended March 31, 2025, we recorded consolidated income tax expense of $4.4 million, which was attributable to our TRSs. We had no significant taxes associated with our TRS for the years ended December 31, 2024 or three months ended March 31, 2024.

We believe we qualify for taxation as a REIT under the Code, 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. In addition, our TRSs are fully subject to applicable U.S., federal, state, and local income and franchise taxes.

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 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 management is required to analyze all open tax years, as defined by the applicable 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 evaluate our tax positions 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 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 or March 31, 2025. 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).

Off-Balance Sheet Arrangements

We do not have any 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.

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. We have elected not to opt in to such extended transition period.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with GAAP which requires management to make estimates and assumptions that affect our reported amounts of assets and liabilities, including our contingent liabilities, as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Our actual results may differ from these estimates. 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 financial statements.

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. Listed below are the significant accounting policies and estimates that we believe are critical and require the use of significant judgment in their application. Our accounting policies are more fully described in Note 2. Basis of Presentation and Significant Accounting Policies of the notes to the condensed consolidated financial statements included in “Part I, Item 1 Financial Statements” of this Form 10-Q.

Revenue Recognition

Revenues related to monthly option payments from customers under our option contracts are recorded on a monthly basis over the period that the performance obligation to provide the exclusive purchase option is satisfied. Option fees are billed by the Company monthly and are due from customers in the following month. Cash payments received for option deposits are recorded as a liability and are applied to the total takedown price paid by the customer. If customers do not exercise their purchase options, the deposits are forfeited and the Company records the deposits as income. Payments received when customers exercise their purchase options and acquire Homesites from the Company are recorded as a reduction of the Homesite inventory carrying value on the balance sheet as of the date of the sale.

The Company also derives other related income from interest earned on the outstanding loan balance of development loans secured by residential property. The Company records the revenue on a monthly basis as the interest is earned. All interest earned is paid-in-kind.

Inventory

The Company accounts for Homesite inventory in accordance with ASC 360, Property, Plant, and Equipment. Homesite inventory is classified as land under development, or homesites finished. The Company’s Homesite inventory is stated at cost and is monitored for indicators of impairment. The Company reviews for indicators of impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indicators are identified, the inventory is written down to fair value. The cost of inventory includes land acquisition costs, land development costs, and other costs directly attributable to Homesite development. Finished Homesites are classified as inventories until they are sold to customers through option contracts with predetermined costs and takedown schedules. At the time of sale, the book value of the Homesite is removed from the balance sheet.

The Company classifies development loan receivables as inventories, in accordance with ASC 310, Receivables. The associated interest earned on development loans is structured as paid-in-kind interest and is also recorded as inventory. The development costs are recorded at the cost to acquire the principal portion less principal payments. The Company reviews its development loan receivables for impairment in accordance with ASC 326, Financial Instruments - Credit Losses.

Accounting for Spin-Off from Lennar

The Company assessed the Spin-Off as a nonreciprocal transfer of assets from Lennar to its stockholders and accounted for it under ASC 845 Nonmonetary Transactions. The Company further assessed the assets transferred from Lennar as meeting the definition of a business under ASC 805 Business Combinations and recorded the assets acquired and liabilities assumed based on the carrying value of these items as they were reflected on Lennar’s books and records as of the closing of the transaction.

Accounting for Acquisition of Rausch Land Assets

The Company assessed the acquired land assets as not meeting the definition of a business under ASC 805 Business Combinations and accounted for the transaction as an asset acquisition. Under ASC 805 Business Combinations, the cost of acquisition is allocated to the assets acquired on a relative fair value basis and no goodwill is recognized.

Recent Accounting Standards

For discussion of recently issued accounting standards, see Note 2. Basis of Presentation and Significant Accounting Policies to our unaudited condensed consolidated financial statements included in “Part I, Item 1 Financial Statements” of this Form 10-Q.

We are exposed to market risk related to changes in interest rate and other market changes that affect our debt obligations and market sensitive investments. Interest rate changes may affect (i) the market for new homes, and therefore on the likelihood that purchase options will be exercised, (ii) debt obligations for our Revolving Credit Facility, and (iii) the ability to obtain other long-term debt used to maintain liquidity, fund capital expenditures and expand our investment portfolio and operations. We seek to limit the impact of interest rate changes to earnings and cash flows and to lower our overall borrowing costs. In the future, we may use derivative instruments to hedge exposures to changes in interest rates on land secured by our assets on the value of the land we own. There have been no material changes from the market risk disclosure set forth in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in the Form 10-K.

As of March 31, 2025, we have $350 million outstanding borrowings under the Revolving Credit Facility.

Borrowings under our Revolving Credit Facility bear interest at a Term SOFR rate, plus 0.10% (the “Adjusted Term SOFR Rate”), plus an applicable per annum spread rate of 2.00%-2.50% based on the Leverage Ratio, as defined in the Credit Agreement. All outstanding principal is due and payable upon termination of the Revolving Credit Facility. Variable changes in interest rates related to the Term SOFR Rate are generally not expected to affect the fair value of outstanding borrowings on our Revolving Credit Facility but do affect our earnings and cash flows. Assuming no change in the amount outstanding as of March 31, 2025, the impact on interest expense of a 1% increase or decrease in the average interest rate would be approximately $0.4 million for the three months ended March 31, 2025 and $3.5 million on an annual basis over twelve months.

For additional information regarding our market risk, refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Form 10-K.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of the period covered by this Form 10-Q as required by paragraph (b) of Rule 13a-15 or 15d-15 of the Exchange Act. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2025 and provided reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

Our Chief Executive Officer and Chief Financial Officer evaluated for changes in internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that occurred for the quarter ended March 31, 2025. Prior to the Spin-Off, the Predecessor Millrose Business relied on processes and internal controls over financial reporting performed by Lennar. After the Spin-Off, Millrose became an independent company and responsibility for these processes and controls were transferred to KL, the Manager for Millrose. These changes are not expected to materially affect or have an adverse impact on our ability to maintain adequate internal controls over financial reporting. Following the Spin-Off, new corporate and governance functions will continue to be implemented in order to meet the regulatory requirements of a stand-alone company.

In addition to the other information set forth in this Form 10-Q, you should carefully consider the risks contained in “Part I, Item 1A. Risk Factors” of our Form 10-K and in other documents we file with the SEC, in evaluating Millrose and its business. There have been no material changes in our risk factors from those described in our Form 10-K. The risks described in the Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or future results.