Long-Term Housing Undersupply And AI Underwriting Will Support Strong Future Performance

Catalysts

About Millrose Properties

Millrose Properties provides institutional land banking and homesite capital solutions to large homebuilders across the United States.

What are the underlying business or industry changes driving this perspective?

• Expanding national relationships with 12 homebuilder counterparties and growing penetration of existing programs, such as the Yardly build to rent partnership, position Millrose to steadily increase option fee income and total revenue as more communities are brought under its model.
• Persistent housing undersupply and policy focus on improving affordability are supporting higher production volumes from builders, which reinforces Millrose's role as a just in time homesite capital provider and is expected to support sustained growth in deployed capital and earnings.
• Ongoing enhancements to the proprietary technology and data platform, including AI driven underwriting and real time risk monitoring, are intended to reduce credit losses, improve pricing discipline and support structurally stronger net margins over time.
• The recent shift from short term bridge financing to $2 billion of long dated, investment grade rated senior notes and a disciplined cap on leverage provide funding visibility that enables Millrose to pursue larger, higher yielding transactions, supporting AFFO growth and more stable dividend coverage.
• Growing use of development loan receivables and flexible capital structures alongside option agreements allows Millrose to capture a wider share of the builder capital stack, which is expected to raise blended portfolio yields and support faster growth in AFFO per share.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Millrose Properties's revenue will grow by 39.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 52.8% today to 61.8% in 3 years time.
• Analysts expect earnings to reach $685.3 million (and earnings per share of $4.15) by about December 2028, up from $216.8 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 11.8x on those 2028 earnings, down from 24.3x today. This future PE is lower than the current PE for the US Specialized REITs industry at 28.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Millrose's growth is tied to sustained high housing production. A prolonged downturn in homebuilding caused by weaker demand or tighter mortgage affordability could slow homesite takedowns and new transaction funding, reducing option fee income and overall revenue growth.
• The strategy relies on very low credit losses and on builders continuing to honor option agreements. A severe housing cycle or builder specific stress could lead to project terminations or impaired collateral recoveries, pressuring net margins and earnings.
• Competition from other institutional or private capital providers could erode Millrose's pricing power and spreads over time, particularly if its data and technology advantages are replicated. This would compress portfolio yields and weaken net margins.
• Millrose has increased its use of long term debt and targets up to a 33% debt to capitalization ratio. Higher interest rates or a future ratings downgrade could raise funding costs or limit access to credit markets, squeezing AFFO and constraining earnings growth.
• The platform depends heavily on complex proprietary technology and AI driven underwriting at large scale. Operational failures, data quality issues or cyber risks could impair risk monitoring and deal execution, leading to mispriced risk, higher credit losses and weaker earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $38.6 for Millrose Properties based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $685.3 million, and it would be trading on a PE ratio of 11.8x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $31.7, the analyst price target of $38.6 is 17.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.