Hello, everyone. Thank you for joining us and welcome to the Milrose Properties Second Quarter Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Jesse Ross, Milrose's Head of Financial Planning and Analysis. Jesse, please go ahead.

Good morning, and thank you for joining us to discuss Milrose Property's second quarter 2026 results. Joining me on the call today are Darren Richman, our Chief Executive Officer and President, Robert Nitkin, our Chief Operating Officer, Garrett Rosenblum, our Chief Financial Officer, and Stephen Hensley, our Senior Market Risk Analyst. Before we begin, I'd like to remind everyone that today's discussion may include forward-looking statements and references to non-GAAP financial measures. These statements are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied. For a more complete discussion of these factors, as well as reconciliations of non-GAAP measures, please refer to our earnings release and investor presentation, both of which are available on our investor relations website. With that, I'll turn the call over to Darren.

Thank you, Jesse, and good morning, everyone. Milrose delivered another strong quarter. We grew invested capital, boosted recurring AFFO, deepened builder relationships, and expanded the range of solutions our permanent capital platform provides. Demand for what we do has never been higher, even as builders continue to navigate a fourth consecutive year of mortgage rates above 6%, elevated incentives, and a full-year 2026 delivery guidance moving lower across the largest public builders. In this environment, as we said before, builders are balancing four competing objectives simultaneously. Maintaining sales pace through pricing and incentive strategies, protecting profitability in a more competitive selling environment, preserving and growing their future community count, and limiting capital tied up in long-duration land ownership. Those priorities have made capital efficiency a necessity, and our permanent capital platform was created to respond to that very need. Home builders cannot simply stop their production activity because near-term demand moderates. The communities that they expect to deliver in 2028 and 2029 require land acquisition and development decisions today. The Milrose platform allows builders to continue investing for long-term growth while preserving balance sheet flexibility and improving capital efficiency. We believe this is more than a cyclical response to today's market. It reflects a structural evolution in how builders think about capital allocation. That evolution is playing out visibly across the sector, with public builders owned and controlled lot positions trending low for four consecutive quarters. Builders are not chasing land at any cost. They are right-sizing land inventory to match demand and are now more regularly outsourcing ownership to third-party capital providers like ourselves. Turning to our second quarter results, our invested capital reached approximately $8.8 billion at quarter end. Importantly, we recycled approximately $1 billion dollars during the quarter capital returned from builder takedowns and development loan repayments and redeployed it into approximately 1.1 billion of new opportunities at underwriting standards that have not moved. That velocity of deployment held to a consistent underwriting bar is what a mature permanent capital platform is designed to produce. There were no option terminations across the platform this quarter, and in fact, zero option terminations since the inception of Mill Road's platform. Every counterparty has honored every option contract as scheduled. Against a backdrop where several public builders have continued to record walk-away charges on parcels they chose to abandon, the durability of our portfolio reflects both the quality of our underwriting and the strength of our builder relationships. We now serve 18 third-party counterparties, including several of the nation's largest homebuilders, with approximately 32% of invested capital deployed outside of our founding Lenore Master Program Agreement. We added two new counterparty relationships this quarter. Among them is a new land banking relationship with JPI, a wholly owned subsidiary of Sumitomo Forestry, which represents our first expansion into multifamily assets. This is a meaningful new use case for the platform and opens additional runway across the residential housing ecosystem. Beyond expanding our counterparty set, we are also finding new ways to deploy capital across the platform. In May, we announced our intent to provide land banking capital in support of Dream Finders Homes, proposed acquisition of Beezer Homes. While there is currently no agreement in place between those two parties, we believe the announcement illustrates a broader strategic role Milrose is beginning to play, not just supporting organic growth at our counterparties, but facilitating capital efficient consolidation across the industry. With M&A activity accelerating across the home building sector, we expect further opportunities to demonstrate that capability. AFFO for the quarter was $127.6 million, or 77 cents per diluted share, driven by higher recurring option fee income on growing invested capital base. That figure absorbed a first day of quarter early repayment of approximately $284 million of development loans, which Garrett will unpack in more detail. Our run rate AFFO exiting the quarter was approximately 80 cents per share at the high end of our previously provided exit run rate guidance. At the same time, we continue looking for opportunities to improve our business internally. Our technology platform and operating infrastructure have matured, and we have turned increasing attention to how our business operates it at every level. We are focused on making sure every dollar of capital is working as hard as possible, and we expect that focus to show up in our results over time. We maintain a strong capital foundation with approximately $1.4 billion of available liquidity and a conservative balance sheet. Finally, we declared our sixth consecutive quarterly dividend increase, raising the dividend to $0.77 per share. The dividend is fully supported by recurring AFFO and represents an annualized yield of approximately 8.8% on book equity. We believe the consistency of our dividend growth reflects the durability of our earnings model and our confidence in the platform's long-term trajectory. With that, I'll turn the call over to Rob for an operational update.

Thank you, Darren. Our platform had another strong quarter across capital deployment, portfolio management, and capital recycling. We remain focused on deploying capital into high-quality opportunities while maintaining the underwriting discipline that defines our business and on making the platform more productive as it scales. We ended the quarter with approximately 143,771 home sites across 877 communities in 30 states, serving 19 counterparties after adding two new relationships during the quarter as darren mentioned we're excited about a new land banking relationship with jpi a wholly owned subsidiary of sumitomo forestry which represents another expansion of the use cases for the milrose platform across the residential housing ecosystem the continued diversification of the portfolio beyond our foundational and our relationship reflects the growing adoption of our permanent capital solution across the home building industry. Our counterparties continued to perform, and we again saw no option terminations across the portfolio amidst approximately $1 billion of net repayment proceeds in the quarter. While it's easy to make broad statements about the national housing market, our continued strong performance is a reminder that housing is highly local and property specific. Housing profitability can vary widely by location, product type, and land basis. That's why our data-driven, systematic approach to underwriting is so crucial. As you'll hear further from Stephen Hensley, we track home sales in real time and benchmark against proprietary lot pricing data sets, adjusting for specific submarkets and lot sizes. That quantitative discipline is what underpins the durability of the portfolio and our confidence in it. Capital recycling was again a defining feature of the quarter. Roughly $1 billion came back to us from takedowns and development loan repayment. We redeployed all of it and more into approximately $1.1 billion of new deals with a modest revolver draw funding the difference. Operational execution remains one of our key differentiators. The combination of our technology platform, experience team, and disciplined processes let us evaluate a high volume of opportunities efficiently and proactively manage risk across a geographically diverse portfolio. As we scale, we keep sharpening those processes to drive further efficiency and ultimately stronger returns for our shareholders. That scale continues to strengthen our competitive position. Managing a portfolio of this size requires sophisticated systems, deep market knowledge, and operating infrastructure built over many years, capabilities that become increasingly valuable as builders seek experienced institutional capital partners. That same scale and infrastructure also position us to support capital-efficient M&A across the industry. As Darren noted, the potential opportunity with DreamFinders Homes is one example of how our platform can help facilitate strategic transactions. And with industry consolidation accelerating, we're optimistic about further opportunities to demonstrate that capability going forward. Turning to portfolio composition, the Lenore Master Program Agreement continues to provide a stable foundation representing approximately 68% of invested capital. The remaining 32% is deployed through our other agreements, which remain the primary driver of growth and diversification across counterparties and geographies. These other agreements generated a weighted average yield of approximately 10.6% during In today's market, we've prioritized higher quality opportunities, stronger builders, less development complexity, and a greater margin of safety. A mixed shift towards lower-risk assets strengthens the durability of our recurring income. These option rates are generally floating and subject to contractual floors, which protect the yield on our invested capital if benchmark rates decline, while remaining poised to benefit in the event that benchmark yields increase going forward. Looking ahead, our priorities are unchanged. Disciplined capital deployment, prudent portfolio management, and expanding relationships with high-quality counterparties. We continue to explore additional applications for the platform that meet our criteria for AFFO accretion. Our pipeline is active, our opportunity set continues to grow, and we remain as focused on how the business operates as we are on the capital we deploy. With that, I'll turn the call over to Stephen, who will provide you an update in the housing market, and why our constructive stance has not changed.

Thanks, Rob, and good morning, everyone. I'll start with a brief operational and macro update on the housing industry, followed by our view on the industry and how we are navigating current market conditions. Builders continue to exercise disciplined cost control and spec inventory management in a challenging market. Incentives, while still elevated, appear to be trending in the right direction. Cycle times have also broadly recovered from the post-COVID supply chain disruptions. We view these as constructive developments for the industry, as they indicate builders are iterating their operating models in real time. Leaner spec inventory and improved cycle times are giving builders more flexibility to match starts with demand as it materializes, rather than being forced to discount aged, completed homes, a dynamic that is supporting margins even without a meaningful improvement in top-line demand. We also see a very disciplined land market, with public builders owned and controlled lot positions trending lower for four consecutive quarters. This is a meaningful positive. Rather than chasing land at any cost to defend volume, builders are right-sizing land inventory to match current demand. Just as notably, underwriting hurdles have not budged even as builders continue to transact. Over the past four quarters, new Millrose transactions have carried an average underwritten gross margin of approximately 21%, a standard that is held consistent across every price point. The steadiness of that underwriting bar, even amid a softer demand backdrop, is a clear sign that builders are prioritizing return discipline over growth for growth's sake. The inventory picture across the industry is constructive, with existing home inventory stabilizing and new home standing inventory declining. Existing home supply, in particular, has stabilized meaningfully from a year ago when it was growing rapidly, especially in Florida and Texas. The simultaneous growth of existing and new inventory placed considerable pressure on the industry in the second half of 2025, but much of that pressure has since subsided. This combination is constructive for the industry because it removes a key source of competitive pressure builders were facing on two fronts at once. growing resale competition and a new home market carrying its own elevated standing inventory. With existing home supply no longer expanding rapidly and new home standing inventory working lower, builders face less competing supply and fewer completed unsold homes of their own, supporting a more stable footing than the environment that prevailed a year ago. Consumer confidence and affordability constraints remain the primary factors shaping industry conditions with mortgage rates fluctuating meaningfully through the quarter. affordability is frequently cited as the defining headwind and at a headline level that framing is fair but treated as one uniform constraint it obscures how bifurcated the market actually is demand strength varies enormously by sub market by price point and by product type often meaningfully within the same msa the right question is not whether affordability is a headwind it is but where within that headwind a specific asset can still perform We believe what ultimately matters is the ability to curate product that finds willing buyers. That starts well before the home is ever built, with the right land in the right location at the right basis, and extends through creating the right product for that specific sub-market, whether that's age-targeted communities or homes engineered around an optimized cost structure. When those elements come together, demand follows, even in a market where affordability is a headline concern. The demographics reinforce this. Today's buyers skew older and carry more accumulated wealth, and several powerful economic trends continue to support the balance sheet of the U.S. consumer. The ongoing transfer of wealth from the baby boomer generation, historically high employment, steady wage growth, and strong asset and equity performance. These are durable tailwinds concentrated among precisely the buyers driving today's transactions. This is why we underwrite deal by deal rather than to a market average. A generalized read on affordability would tell you to be cautious everywhere. Our approach with vast proprietary data sets and an unmatched land pricing data set tells us where demand is real, where land basis and product line up, and where a specific asset can outperform regardless of the broader narrative. Our scale of approximately 877 communities across 30 states serving 19 counterparty relationships gives us a unique advantage of being able to underwrite diligently at a local level. That discipline and insight is what lets us navigate a bifurcated market with confidence. I'll now pass the call off to Garrett to discuss our financial performance.

Thank you, Stephen, and good morning, everyone. Our second quarter results reflect what happens when permanent capital meets disciplined underwriting. Every dollar we deploy translates directly into recurring income for our shareholders. For the second quarter, we reported net income of approximately $125.9 million, or $0.76 per diluted share, driven primarily by $195.4 million in recurring option fee income generated from our growing invested capital base, together with $1.5 million in development loan income. As we've discussed previously, Adjusted Funds from Operations, or AFFO, remains the best measure of the recurring earnings power of our business. AFFO for the quarter was approximately $127.6 million, or 77 cents per diluted share, reflecting continued growth in recurring option fee income on a higher average invested capital base. On the first day of the quarter, approximately $284 million of development loans were repaid early. We redeployed that capital during the quarter into new opportunities at our current underwriting standards. Because the repayment occurred at the start of the quarter, reported AFFO reflects a partial period of reinvestment. Our run rate AFFO exiting the quarter was approximately 80 cents per share at the high end of our exit run rate AFFO guidance range and a better representation of the platform's underlying earnings power of the fully redeployed base. Book value per share was $35.24 at quarter end. Management fee expense totaled $29.9 million, calculated transparently at 1.25% of gross tangible assets. Interest expense was approximately $40 million, and income tax expense was approximately $2.5 million. During the quarter, we declared our sixth consecutive quarterly dividend increase, raising the quarterly dividend to 77 cents per share, or approximately $127.9 million in the aggregate. The dividend continues to be fully supported by our recurring earnings and reflects our confidence in the long-term cash-generating ability of the platform. On the balance sheet, we ended the quarter with approximately $9.7 billion of total assets and approximately $8.8 billion of invested capital. Our debt-to-capitalization ratio remained approximately 30%, and we are in the process of finalizing a deal with our lending partners to reduce the borrowing rate on a revolving credit facility by 25 basis points in exchange for a fee. We ended the quarter with approximately $485 million outstanding under our revolving credit facility, $34 million of cash, and approximately $1.4 billion of available liquidity, providing ample financial flexibility to support our active deployment pipeline. With that, I'll turn the call back to Darren.

Thanks, Garrett. Before we open the lineup for questions, I'd like to leave you with a few closing thoughts. This quarter reinforced what the numbers have shown every quarter since inception. Demand for our permanent capital solution remains robust. Our partnerships are durable. Our underwriting capability is differentiated by proprietary technology and institutional scale, and the platform keeps growing. Those fundamentals continue to position as well, regardless of where we are in the housing cycle. We are deeply engaged with our homebuilder counterparties. The quarter continued to demonstrate that there are ways to deploy our platform creatively in response to builder needs while generating returns that meet our standards. We expect to continue finding those opportunities and fulfill an expanding role as a strategic capital partner to homebuilders. Before I close, a word on the broader picture. The United States remains structurally short several million housing units, and the process of moving raw land through zoning, entitlement, and development approvals has never been more difficult or more time-consuming. That scarcity is not cyclical. It is a durable secular tailwind. It supports the underlying value of the land that Milrose already owns, all of which benefits from all necessary entitlements and discretionary approvals. It is one of the most important and most underappreciated features of this platform. Those secular tailwinds are offset in the near term by cyclical headwinds, elevated mortgage rates, and what is broadly labeled affordability. As Stephen mentioned, affordability is a composite statistic that obscures the ways the market is actually adjusting. Buyers are getting older, homes are getting smaller, and a substantial wealth transfer from older to younger generations is quietly supporting demand at the point of sale. It is unquestionably a tough market, particularly at the first-time buyer segment, but the builders are meeting it with the ingenuity and age-old tools, including rate buy-downs, product makeshifts, community-level incentives, and floor plans that are right-sized for current market conditions. Looking ahead, we remain focused on disciplined capital deployment, deepening our counterparty relationships, and expanding the ways this platform serves the residential housing ecosystem. Our pipeline is active, our opportunity set continues to grow, and our underwriting standards remain unchanged. I'd like to thank our builder partners for their continued trust and our shareholders for their continued support. We have built something that did not exist before, and we are just getting started. We appreciate your interest in Milrose and look forward to updating you on our progress next quarter. With that, operator, please open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of Julian Bluen with Goldman Sachs. Julian, your line is open.

Please go ahead. yeah thank you for taking my question um i just wanted to check generally how should we think about the yields on the multi-family land banking deals are they sort of similar to the non-lenar activity and then do you foresee sort of similar additional structures with other developers going forward yeah sure rob thank you for the question julian and good morning everyone so to your first question, yes, the yields of that multifamily product are totally consistent with, you know, the rest of our other agreements, you know, land banking deals outside of the Linar Master Program agreement.

So certainly accretive to our yields. And as we said, something that we're really excited about to use a very similar structure and economics of our just bread and butter land banking product to another certainly very large portion of the home building market. And then, you know, in terms of going forward, yeah, I think we're certainly looking forward to, you know, potentially do more of that. And anywhere that we can get the yield and the earnings, you know, that's accretive to our AFFO and help provide capital efficiency for residential developers, we'll certainly evaluate that, you know, within the constraints of all of our risk evaluations and underwriting.

Yeah, I'd add, Julian. This is Darren. Look, it's incumbent upon us to continue to disrupt ourselves, disrupt the market, and develop new use cases for land banking. It all starts with making sure we're protecting capital and we have additional margin of safety in everything we do. So making sure we're at first protecting capital and then getting the returns that we and our investors have come to expect.

But I would think in the next months and quarters, we'll continue to push out and find new structures and new use cases to deepen our relationships with our existing partners, as well as to find ways of targeting a new class of partner. got it thank you um and then i i was wondering are you sort of setting aside deployment capacity for the proposed dream finders visa deal or or put another way if sort of another opportunity came your way would you be willing to sort of pivot to supporting that deal um and sort of taking your leverage to you know the the the 33 or slightly above that sort of limit you've set Yeah, it's a good question.

And quite, quite candidly, it's something that we as a management team continue to think through. What is an appropriate leverage target? We're not changing anything today on this call. But when we put the leverage target in place, it was very much into the unknown. we didn't know what the uh how the portfolio would behave we didn't know how our systems would function relative to the behavior of the portfolio and we didn't know um how the non-lenar you know third party deals would come together and what the duration of those deals would look like and if you go into the the prepared materials the slides that we prepared you'll see on page nine that the average duration associated with the non-Lenar deals is certainly lower than the Lenar deals. And we haven't had one builder walk away or threaten to do so. So we have a lot more comfort in the consistency. We've always had comfort, but we have a lot more comfort in the consistency of the timing of the cash flows. So we are definitely thinking through what is an appropriate target we always thought about leverage in terms of downside protection and making sure we can inoculate our debt in the ordinary course regardless of the market conditions and that that isn't changed you know we want to make sure that we never put ourselves in a position where we're destabilizing our asset base because of leverage but in view of kind of some of those facts that i just spoke about we are thinking through you know what is an appropriate leverage target uh in the ordinary course we certainly feel more comfortable which we've talked about in the context of m a taking our leverage target beyond the 33 because a lot of the land that we've acquired in roush coleman and in land c was much more developed quick turning so we know that if if we pause our purchases we'll be able to generate cash rather quickly to pay down debt to answer your specific question about where we kind of husbanding cash you know reserving cash to make it available that certainly is part of our our priority of of of capital deployment And so we're definitely thinking through an eye towards capital deployment for the entire year. And what we've seen in other M&A, the timing isn't certain over any month, but over the year, we have a high degree of predictability. I don't know, Rob, if there's anything you'd add.

No, I think just reiterating that we've had a billion dollars in net takedown proceeds, including the development loan repayment this month. We've had similar sort of substantial takedown proceeds, as we've talked about in the past, as you can see in the materials, since the founding of the company. I think we've seen, as Darren alluded to, generally faster turning, more mature, faster velocity of cash generation across the portfolio, again, with no option terminations than we initially thought we might encounter before the company existed. And so that's going to inform the way we think about capital planning and leverage going forward. Okay, great.

Thank you so much.

Your next question from the line of Eric Wolf with Citigroup. Eric, your line is open. Please go ahead.

Hey, thanks and good morning. I guess to follow up on the multifamily, I guess is there a certain LTV that you're underwriting to? I'm just curious, you mentioned the structure a couple times being similar, so I was curious about the LTV that you're underwriting to in general and whether the structure will have deposits, term fees, cross pooling, sort of similar to what you had in the home building space, because obviously you look at some of your peers in the REITs space, the apartment REITs. They've had this preferred and MES lending business and have had to take back a good number of assets over the last couple of years. So just trying to understand how you're going to structure the security enhancement, the risk mitigation, and how you're thinking about the risk here versus the home building side.

Yeah, sure, Eric. It's Rob. Happy to answer. So it's focused on the land and the horizontal improvements, right? So it is almost identical in structure to the rest of our land banking agreements. It's just obviously a different product with effectively rather than, you know, individual home sites. It's obviously single property, more in structure. Think of it as like our Yardley business, you know, with Taylor Morris, we've described in the past single tax lot, ultimately, where, you know, it includes, you know, many of the features you mentioned, just as all of our land bank contracts do deposits, you know, a fixed option rate on the investment balance works exactly the same way. And ultimately, you know, just like in our, our single family, you know, bread and butter home building business, we're evaluating what the ultimate value of the community is, making sure there is enough, you know, development margin for the counterparty in that transaction, such that they're financially incentivized to, you know, take down the land once it's fully developed from us. And if for whatever reason they don't, we make sure that net of the deposit we hold from the counterparty, you know, we feel really good about our net land basis that we would own it free and clear in that scenario. So it's a great relationship. It's a great organization. We have a huge amount of respect and have really enjoyed working with the JPI team. And we're looking forward to a lot of good things there, but yeah, totally consistent in structure with the rest of our business.

But Eric, it's Darren. Maybe to your question, this isn't a one size fits all. It all starts with the land. It starts with the basis relative to the selling price of the units. It's uh part of our due diligence is like plan b c and d what would we do with the land if we were to take it back who else uh could we bring in to transition that land to bring it to its intent you know the the project to bring it to its intended use so um we're going to be very very selective as to what projects we consider in multi-family um for many of the reasons that at least the trust to your question would suggest.

Makes sense. And they're all for sale, not rental, or would you consider rental as well?

No, they are rental. That's JBS.

They are rental.

Okay.

Okay. And then if you look at the 80 cents, I think you're guiding to for quarterly AFO run rate. Can you just talk about sort of what that implies in terms of average invested capital, weighted average yield, and sort of where that brings your leverage, especially since I think he kind of made some comments before about a maybe temporary willingness to go above that 33% leverage level?

Yeah, the way to think about that is that's just the math. If you use, you know, the yield we're at today and our portfolio on the last day of the quarter, right, on June 30th, if the portfolio just behaved exactly with those investment balances at those yields and that same cost of debt annualized, that's, you know, that's what we're going forward. You know, that's what we're communicating, sort of the quarter end run rate. And so ultimately what that's really showing you is that the difference between the natural kind of linear ramp of the portfolio over the quarter, particularly with a little noise from that early development loan repayment, gives you a sense of where we are today. And so it doesn't take into account any information or expectation about the third quarter so far or any changes.

Got it. And then I guess this last question, you know, about the leverage levels, you know, I think we've talked in the past about potentially getting investment grade rating. I guess, have you received any guidance from the ratings agencies in terms of what do they want to see, whether it's sort of leverage levels or other, you know, things that they're looking at to determine whether investment grade rating is appropriate? And then you think through like the benefit of of having an investment grade rating? Is it, is it sort of worth it in terms of the reduced debt spread? Or do you think it actually is probably better just to have a little bit of a higher spread and have that flexibility to be able to, to lever up a bit?

Yeah. Um, it's a, it's a really good question. Um, the investment grade rating is important to us. Uh, it, it is among our priorities. We think the business itself and the consistency of the business justifies it. We're not here to front run the agencies in terms of what their own opinions are and where they ultimately get to. But I do think as we continue to operate the business and the way we've operated it with the consistency that the business has shown with the debt levels that we're discussing, It certainly puts us in a very good position to argue for investment grade. Having said that, as we said, making sure we have ample financial flexibility to operate the business. We ourselves are learning how the portfolio behaves. You know, we now have five full quarters of watching the portfolio come together in terms of the existing Lennar land and how it's performed, as well as building out our counterparty relationships organically in the ordinary course and then through M&A. And so we have more insight today than we did at the time that we were spun out. And so we want to make sure that we're being very thoughtful, just like we are in terms of like de-bottlenecking some of the systems and processes inside of the company. We're thinking about making sure that we're being as optimal. We're optimizing our leverage profile relative to the performance of the portfolio. So, to answer your question, investment grade is important to us. It is a priority among a number of priorities. We're not going to do anything to jeopardize kind of the posture of the portfolio. We have no announcements to make today to push us outside of that 33% debt cap. We're just, you know, being as transparent as we have been in the past in terms of relooking at our portfolio. and rethinking our leverage target in view of the actual operating history we've had. And again, this operating history, though recent, has occurred, as Stephen talked about, against a backdrop for the last two years of an uncertain and volatile housing market. So we've gotten a chance to see how the portfolio behaves at a time when the markets have dealt us, you know, the sector, a number of headwinds. So we've been able to watch this portfolio behave under scrutiny.

Got it. Thanks for the detail.

Your next question from the line of Craig Kuchera with Lucid. Craig, your line is open. Please go ahead.

Yeah. Hey, good morning, guys. I think the last few quarters you thought you might deploy a net $2 billion of capital by year end.

Can you give us some insight into your pipeline and what you think you will deploy, or is it too difficult at this point yeah sure well maybe just to reiterate the way we framed it is we sort of had two different scenarios we talked through in terms of our guidance one was one billion dollars of that increase you know assuming we didn't raise equity you know given given the the leverage constraints that we set for ourselves and then two billion dollars you know it's sort of the natural pipeline and what it would result in um you know if we could so if we were unconstrained if we were unconstrained exactly by capital um but you know what while on the one hand we know we lived in a finite capital world, although thinking through that, you know, particularly from a leveraged perspective, as Darren alluded to, nothing's changed but our expectations for the pipeline. You know, we certainly have some potential lumpy M&A opportunities that we're optimistic about. It's unclear if those are going to happen. But generally speaking, pipeline is still strong. We're just seeing as much demand, you know, as ever from builders who need to maintain, even in this environment, a good multi-year land control pipeline and plan for years out and they're looking for a capital efficiency in doing so and more and more see the value of a large institutional diversified public and transparent platform to be their partner. So nothing's changed about the general view of the pipeline. It's just we continue to evaluate all the opportunities we're seeing in the context of our capital plan that we're through.

Yeah. And maybe to just fill out what Rob said, there's more demand for capital than there is capital available. So, it allows us to be thoughtful and patient in deploying those dollars. But we are sort of on pace organically relative to the expectations that we set. I think, you know, we were just talking about this as a management team. Organically, we're probably putting plus or minus $400 million to work per quarter. With M&A, that number is probably closer to 500. And M&A has become part of our roster and of our backlog. So there's nothing that stops us from achieving that $2 billion target, again, unconstrained by capital that we've talked about. It really is just making sure that we are not over-levering our balance sheet, and we're not going to do anything dilutive, as we've talked about, from an equity capital raise perspective.

Okay, that's helpful. I found the JPI opportunity to be very interesting. I mean, the addressable market and multifamily development is very large. Do you see expansion into the sector as a core strategy going forward, or was this more of a one-off?

I think we're being opportunistic. You know, I would hesitate to call it a core strategy at this point. I mean, we're continuing to be focused on being a holistic solution to home builders and a capital efficiency solution to home builders. Well, we are, you know, students and the hands of the single family residential for sale market right now. But, you know, we would be remiss if we didn't think about the entire residential opportunity as a way to use the structure we've created and the benefits we've created. We really like this particular partner. We like the specific deal that we were able to come to with them, and they found a lot of benefit in it. It's highly accretive to us and our earnings, and also presents a really good risk-weighted We feel really good about the strength of their balance sheet, certainly, their financial backing, and their development aptitude. So I would say at this point, we're being opportunistic. We're certainly spending more time thinking about that large addressable market. but I wouldn't think of it as a wholesale strategy change in any way just yet.

Yeah, we're seeing – one last point. We're seeing across the board, and this is in our land banking business as much as across the entire spectrum, is there is more of a need for capital today with the banks pulling back and receding from this sector. And so it gives us a lot more opportunity to create structures that are downside protected and produce the returns that we're looking for. And I believe we're going to continue. I mean, I'm very optimistic about what's ahead of us in terms of expanding our product set to deepen our relationships with our home builder counterparts. parts and to make sure we're adding value where there is opportunity and using our footprint and our relationships to the benefit of our shareholders. So I think there's absolutely an expansion of our product suite. And, you know, we're in the lab tinkering today and hopefully we'll have more to say over the next months and quarters as to filling out a product suite that is complementary to our existing business and also deepens our relationship with our home builder counterparts.

Got it. And does that contemplation of a new suite of products, does that include anything outside of residential, perhaps other types of commercial development such as retail or industrial?

No, I think it's all very much within the residential real estate market. This was created as a permanent capital vehicle for the benefit of the residential, mostly single family, but there is an opportunity to multifamily now, but it really is meant to be an extension of the markets and the customers that we're doing business with every day.

Okay, great. Just one more for me, for Garrett. I think your income tax expense was down this quarter. I think it was about 2% of pre-tax. I think the last year or so it's been closer to 4% or 5%. How should we think about that going forward?

Going forward, I would say as far as that's going to be the more normalized run rate, it was basically changes in allocation of taxable income. It was based on updated market assumptions and third-party analysis.

Yeah, when we say like de-bottlenecking and optimizing, you know, it includes every aspect of our business, taxes, cash management. You know, we are now in the process of refining all our processes, our systems, every element that sits on our balance sheet, making sure that our cash is working for us as productively and optimally as possible. And taking a look at our tax reserve policy was certainly included in that.

Okay, thank you. That's it for me.

Your next question from the line of Ryan Gilbert with BTIG. Ryan, your line is open. Please go ahead.

Thanks. Good morning, everyone, and thanks for taking my questions. The first one's on the other agreement yield, and it sounded like the tick down to 10.6 from 10.7 in the quarter was a mix shift to higher quality opportunities. I just wanted to confirm that that was the case, and then if we should expect any further mix shift ahead in 3Q and 4Q.

Yeah, that's right. And I would not, you know, I wouldn't draw any trends from that. You know, there's always going to be a little bit of volatility as the mix changes around in the portfolio. You know, 10 base points one way or the other. So I wouldn't extrapolate the trend.

But yeah, you have it, Greg. okay great and then i know it's just been uh a month or a month and a week at this point but has the move up in rates in july um shifted builder demand for land banking or how you're thinking about underwriting new opportunities given we're you know at kind of a six seven five plus 30 or fixed yeah this darren we um i spoke about this on the last call but but the and we spoke about it in our prepared remarks the the move in rates which is having an impact on

affordability is really having an impact at the first time segment of the market this is where there's probably the most competition uh going on uh and what what is kind of paradoxically happening is that as there's more and more volatility in rates and it's impacting prices and demand, we're seeing more and more builders, not in the last five weeks, but I'd say on a macro basis, deciding to use off-balance sheet financing rather than pulling this land onto their balance sheet at such an uncertain time that it's causing them to want to tie down land because they don't want to make decisions today that are going to impact their community count three to five years from now and so the only way to really bridge that divide of near-term volatility and not wanting to lose ground three to five years from now is by using more and more off-balance sheet third-party solutions so there's nothing to speak to in the last five weeks that has changed behavior um our our own baseline view is that rates are going to be elevated uh and that you know that that is watch will be wrong but but our own view at least you know in terms of planning for our business is that rates will be uh elevated um for the you know for the in the into the distant future i don't know steven if there's anything you'd add Yeah, I would just add that, you know, obviously rates are have been a bit volatile lately.

But, you know, that really only impacts a certain segment of the buyer profile and consumer that's out there. There is still a vast, you know, buyer set that is less impacted by some of the volatility and the affordability constraints that that the rates are causing, which, you know, we sort of alluded to in the prepared remarks. So, you know, I think it's important to understand that there's, you know, different segments to the consumer out there today and we're seeing builders you know adjust in real time to try to make um try to you know target those buyers a little bit more and be a little more flexible on the entry level side so you know they're always iterating and and i don't think that that's going to change much in in the short term um there's still you know some pretty you know strong demographic tailwinds and other things that we alluded to in the remarks that that support the general demand for for housing across the board okay got it and i think that

probably answers my next question but i'm going to ask anyways which is i i thought the underwritten gross margin of 21 that you mentioned in the prepared remarks was really interesting since it's uh above where most of the the builders have um reported reported so far and i'm wondering if you can expand on on how they're achieving that 21 under in gross margin um given i i would assume they're underwriting flat incentives. Is that a function of value engineering and the vertical construction or are land values trending down? I think we've heard from most of the builders that land valuation has been pretty stable. So, yeah, just expanding on how we're getting to a 21% gross margin would be really helpful.

Yeah, Stephen, actually, why don't you start and I'll finish. Sure, yeah. I mean, I think it really has been a number of different factors that are playing into that first being the lower cost structure that that builders have been able to realize especially with our you know strong counterparties they're you know they've got the scale they're they're larger builders that can you know demand a little bit better cost structure so we're underwriting to that um you know another thing too is we've seen you know some modest improvements and incentive levels over you know the past 12 months or so which is benefiting that margin as well and then you know we've also seen a little bit of a mixed shift in our underwriting and new transactions where we've got you know nearly 50 percent of the new transactions that we've had were located in the southeast you know think north carolina georgia tennessee you know and those in those regions you know home values have held up better demand has held up better and you know builders are able to underwrite a little bit more um well there than other parts of the country just given the you know current market conditions in that region well darren i don't know if you had anything else to add on that yeah i mean um our we've been underwriting to this margin profile uh for as long as milrose has been public and certainly longer for Kennedy Lewis.

So this margin profile is something that we prioritize. So this isn't new, and this assumes no home price appreciation. This is kind of flat, the status quo, the existing environment in each of the markets where we own land. So we wanted to make sure we were giving transparency into our underwrite, into the quality of the portfolio, into the margin profile. And the home builders themselves are reworking their own business lines to de-bottleneck, to bring costs down. And there is, it's probably on the margin of margins where land values are correcting and the builders can take advantage of that. but mostly it's they're taking advantage of cost um deflation uh in other parts of their business okay great thanks very much your final question from the line of eric wolf with city group eric your line is open please go ahead hey thanks for taking the follow-ups um so understood jpi all run full um i guess are you considering you know sort of condo projects as well with other partners

i kind of remember i thought you were maybe doing one right now but my i guess my overall question is it sounds like the multi-family piece right now is being structured similar in the sense that it's all land and horizontal construction costs so perhaps differs a bit from how you're you're approaching btr but would you also consider you know financing the vertical construction on the multi-family side as well yeah sure hey eric well we certainly considered it and if you remember as we talked through in the past, you know, our Yardley transactions with Taylor Morris, and that does include the vertical.

So to the extent the builder uses accretive, we're happy to evaluate that and do that. But yeah, on JPI, it is multifamily. We, you know, certainly spend a lot of time on the horizontal cost structure that's slightly unique to a, you know, single tax parcel multifamily property. But also, you got to remember, it has the benefit that rather than relying on you know on a second order an ultimate home buyer to come and buy it you know we ultimately look to the balance sheet of a really financially strong counterparty um for the takedown to buy that lot back from us and and develop so there's puts and takes either way um but we're definitely open to any way that we can get our capital to work again accretively for us whether that's vertically or just horizontally um as jpi is only horizontal but But first goal is protect the capital, make sure that we're protected from a downside, but within those constraints, maximize our yield and our accretion.

And then last question, I guess, is there a potential to sort of sell off pieces of these option agreements, I guess, potentially, you know, lower yields to enhance the yield on what you're retaining, or would that not sort of work under your structure or make it sort of overly complicated? Just wondering if that could be a sort of source of capital as you expand and to other partners?

I don't know exactly what you're referring to, but if you're saying like to sell off first loss pieces or to lever it, we're not going to do it on a one-off basis. The leverage profile is really going to come from our balance sheet. There may be opportunity to optimize our balance sheet in the future, but for right now, we're just using our revolver and the notes that we've raised to provide that leverage profile.

Yeah, that makes sense. That was my question. Was it like sell first loss or some other piece that you felt was sort of mispriced in the market, but that makes sense. Thank you.

Thank you, Eric.

We have one final question from the line of Ryan Gilbert with BTIG. Ryan, your line is open. Please go ahead.

Hey, thanks for taking my follow-up, guys. I wanted to ask one on terminations, and it's been great to see that there have been no terminations to date, and not a surprise either, given the structural and operational features that you've put in place to minimize the risk of terminations. And also, builders have been telling us that finished lot supply is still pretty tight. But I'm just wondering if you could give us some insight into your contingency planning or how you would to address a termination if we do start to see some in the event that the market gets worse from here?

Yeah. I mean, it's probably a really good reminder to everybody on this call that because it hasn't happened doesn't mean it won't happen. And we certainly think through, as I was saying, in the context of JPI, but certainly for our more traditional business, what is plan B, C, and d if we do get terminations and it all starts with regardless of the credit enhancements that that may or may not exist it all starts with the land itself it starts with the underwriting it starts with our 45 person team who is in the underwriting and the asset management part of the group it it starts with steven hensley making sure that we have a full appraisal of the community that we're considering buying into. And again, we're using all of our real-time indicators. So the nearly 300,000 home sites that we own as a company as Kennedy Lewis, not just Milrose, is giving us real-time information in terms of sales, pace, pricing, margin. We're underwriting to a 20-plus percent gross margin, which we talked about. um and um and our we benefit from a deposit historically that deposit was closer to 20 to 25 percent today in our portfolio it's closer to 10 and really the difference is um it's just credit enhancement we're we're sort of agnostic as to if it's going to be a big deposit or people want to pull it really depends upon how they um do they want to sit with idle cash or not um and so So we've already thought through as part, maybe to get to your direct answer, who builds adjacent? Who else could we bring in? If it's a midsize builder that walks away, almost unquestionably, a bigger builder can build at a margin profile to make land work that maybe a midsize builder couldn't make work. so we're constantly thinking about what is our contingency plan including today there's a whole world of btr and scattered site rental and all of which was carved out of the most recent regulation so we we feel very good about the quality of our portfolio we feel very good about the basis we feel good about the backdrop of how hard it is to get land approved for development we've actively picked where our land is located what communities we want to be invested in at what margin profile and who else we could bring in to the extent a builder did walk away for whatever reason that we could make that land work either with them on an on a modified schedule or with somebody else who comes in and merchant builds great thanks so much appreciate it there are no further questions at this time i will now turn the call back to darren richmond ceo and president for closing remarks yeah i want to thank everybody for their participation today i'll acknowledge that this call is probably the longest one we've had which i think is great it underscores the interest in our business and the nuances associated with um with the business we're happy to provide uh as much information as people like on this call or feel free to get to any one of us after. We look forward to speaking with you inter-quarter and in the next quarter conference call. So thank you.

This concludes today's call. Thank you for attending. You may now disconnect.