管理層發言
Hello, everyone. Thank you for joining us and welcome to the Millrose Properties Second Quarter Earnings Call. After today's prepared remarks, we will host a Q&A session. Please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Jesse Ross, Millrose's Head of Financial Planning and Analysis. Jesse, please go ahead.
Good morning. Thank you for joining us to discuss Millrose Properties second quarter 2026 results. Joining me on the call today are Darren L. Richman, our Chief Executive Officer and President; Robert Nitkin, our Chief Operating Officer; Garett Rosenblum, our Chief Financial Officer; and Steven Hensley, our Senior Market Risk Analyst. Before we begin, I would 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 risks 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 will turn the call over to Darren.
Thank you, Jesse. Good morning, everyone. Millrose 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 percent, elevated incentives, and a full-year 2026 delivery guidance moving lower across the largest public builders. In this environment, builders face 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 need. Homebuilders 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 Millrose 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 rightsizing 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 $8.8 billion at quarter-end. Importantly, we recycled $1 billion during the quarter—capital returned from builder takedowns and development loan repayments—and redeployed it into $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 Millrose'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 32 percent of invested capital deployed outside of our founding Lennar 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. It 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 DreamFinders Homes' proposed acquisition of Beazer Homes. While there is currently no agreement in place between those two parties, we believe the announcement illustrates a broader strategic role Millrose 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 homebuilding, we expect further opportunities to demonstrate that capability. AFFO for the quarter was $127 million or $0.77 per diluted share, driven by higher recurring option fee income and a growing invested capital base. That figure absorbed a first-day-of-quarter early repayment of $284 million of development loans, which Garett will unpack in more detail. Our run-rate AFFO exiting the quarter was $0.80 per share, at the high end of our previously provided exit run-rate guidance. At the same time, we continue looking to improve our business internally. Our technology platform and operating infrastructure have matured, and we have turned increasing attention to how our business operates 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 position with $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 8.8 percent 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 will turn the call over to Robert 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 144,000 homesites across 877 communities in 30 states, serving 19 counterparties after adding two new relationships during the quarter. As Darren mentioned, we are 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 Millrose platform across the residential housing ecosystem. The continued diversification of the portfolio beyond our foundational Lennar agreement reflects the growing adoption of our permanent capital solution across the homebuilding 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 is 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 is why our data-driven, systematic approach to underwriting is so crucial. As you will hear further from Steven Hensley, we track home sales in real time and benchmark against proprietary lot pricing datasets, 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 $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, experienced team, and 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. With industry consolidation accelerating, we are optimistic about further opportunities to demonstrate that capability going forward. Turning to portfolio composition, the Lennar Master Program agreement continues to provide a stable foundation, representing 68 percent of invested capital. The remaining 32 percent 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 10.6 percent during the quarter. In today's market, we have prioritized higher-quality opportunities—stronger builders, less development complexity, and a greater margin of safety. A mix shift toward 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 will turn the call over to Steven, who will provide you an update on the housing market and why our constructive stance has not changed.
分析師問答
Thanks, Robert, and good morning, everyone. I will 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 rightsizing 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 21 percent, a standard 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. 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 factor 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 submarket, 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 submarket, whether that is 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 datasets and an unmatched land pricing dataset—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 will now pass the call off to Garett to discuss our financial performance.
Thank you, Steven, 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 have 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 $0.77 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, $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 $0.80 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 percent 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, raising the quarterly dividend to $0.77 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 $8.8 billion of invested capital. Our debt-to-capitalization ratio remained 30 percent and we are in the process of finalizing a deal with our lending partners to reduce the borrowing rate on our 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 will turn the call back to Darren.
Thanks, Garett. Before we open the line up for questions, I would 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, and our underwriting capability is differentiated by proprietary technology and institutional scale. The platform keeps growing. Those fundamentals continue to position us 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 Millrose already owns, all of which benefits from 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 Steven 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 builders are meeting it with ingenuity and time-tested tools including rate buydowns, product mix shifts, 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 would 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 Millrose 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 Q&A session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 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 standby while we compile the Q&A roster. Your first question is from the line of Julien Blouin with Goldman Sachs. Julien, your line is open. Please go ahead.
Yes. Thank you for taking my question. I just wanted to check, generally, how should we think about the yields on the multifamily land banking deals? Are they similar to the non-Lennar activity? And then do you foresee similar additional structures with other developers going forward?
Sure. This is Robert. Thank you for the question, Julien, and good morning, everyone. To your first question, yes—the yields of that multifamily product are consistent with the yields of our other agreements, meaning land banking deals outside the Lennar Master Program Agreement. It is accretive to our yield and uses a very similar structure and economics as our core land banking product applied to a different portion of the residential market. In terms of going forward, we are certainly open to doing more of that. Anywhere we can get yields and earnings that are accretive to AFFO and help provide capital efficiency for residential developers, we will evaluate it within the constraints of our risk evaluations and underwriting.
I would add, Julien, that it is incumbent upon us to continue to disrupt ourselves and develop new use cases for land banking. It all starts with protecting capital and ensuring we have an adequate margin of safety in everything we do. We will continue to prioritize capital protection first, then returns for our investors. Over the next months and quarters, we will continue to push out and find new structures and use cases to deepen relationships with existing partners and target new classes of partners.
Got it. Thank you. And then I was wondering, are you setting aside deployment capacity for the proposed DreamFinders-Beazer deal? Put another way, if another opportunity came your way, would you be willing to pivot to supporting that deal and taking your leverage to the 33 percent or slightly above that limit you have set?
It is a good question and something we continue to think through as a management team: what is an appropriate leverage target. We are not changing anything today on this call. When we put the leverage target in place, there were unknowns about how the portfolio would behave, how our systems would function relative to the behavior of the portfolio, and how third-party deals would come together and what their duration would look like. If you review our prepared materials, you will see the average duration associated with the non-Lennar deals is lower than the Lennar deals. We have not had one builder walk away or threaten to do so, and we have more comfort in the consistency of timing of cash flows. We are thinking through an appropriate leverage target, which has always been about downside protection and making sure we can support our debt regardless of market conditions. We never want to destabilize our asset base because of leverage. Given the evidence we've observed—faster turning, more mature deals, quicker cash generation—we are re-evaluating the target. We would also contemplate taking leverage beyond 33 percent in the context of M&A because much of the land we have acquired from prior acquisitions was more developed and quicker turning, so pausing purchases could let us generate cash quickly. We continue to be thoughtful and prudent about capital planning.
I would just reiterate that we had about $1 billion in net takedown proceeds including the development loan repayment this quarter. We have seen substantial takedown proceeds historically since the founding of the company. We've seen generally faster-turning, more mature, quicker-velocity cash generation across the portfolio, again with no option terminations. That informs the way we think about capital planning and leverage going forward.
Okay. Great. Thank you so much.
Your next question is from the line of Eric Wolfe with Citi. Eric, your line is open. Please go ahead.
Hey, thanks and good morning. To follow up on the multifamily, is there a certain LTV that you are underwriting to? I ask because you mentioned structure being similar to the rest of the agreements. I was curious about whether the structure will have deposits, term fees, cross-collateralization similar to what you had in the homebuilding space. Some peers in the REIT space who have done preferred and mezzanine lending have had to take back assets. How are you structuring security enhancement and risk mitigation here versus the homebuilding side?
Happy to answer. The focus is on land and horizontal improvements, so it is almost identical in structure to our land banking agreements—just a different product with a single tax lot rather than individual homesites. Think of it like our Yardley business with Taylor Morrison: a single parcel structure. It includes many of the features all of our land bank contracts have—deposits, a fixed option rate on the investment balance, and similar contractual protections. Ultimately, we evaluate the ultimate value of the community and make sure there is enough development margin for the counterparty so they are financially incentivized to take down the land once it is developed. If they do not, net of the deposit we hold, we feel comfortable about our net land basis and owning it free and clear in that scenario. We have a strong relationship with JPI, respect their organization, and are looking forward to working with them.
To add to that, the approach is not one-size-fits-all. It starts with the land and the basis relative to selling prices. Part of our diligence is developing contingency plans: where else could we bring in a partner if needed? Larger builders can often build at margins that make land work even if a smaller builder could not. Investment-grade protection is important. We will continue to be thoughtful about optimizing leverage relative to portfolio performance. We have no announcements to change the 33 percent cap today, but we are re-evaluating based on real operating history.
Thanks for the detail.
Your next question is from the line of Craig Kucera with B. Riley Securities. Craig, your line is open. Please go ahead.
Hey, good morning, guys. 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?
Sure. We framed guidance with two scenarios. One was a $1 billion net increase assuming we did not raise equity given the leverage constraint we set for ourselves. The other was $2 billion, which is the natural pipeline if we were unconstrained by capital. Nothing has changed about our expectations for the pipeline; we remain constrained by finite capital. We have some potential lumpy M&A opportunities we are optimistic about but unclear if they will happen. Pipeline demand is strong—builders need to maintain a multiyear land control pipeline and are increasingly seeing the value of an institutional, diversified platform like ours. We continue to evaluate opportunities in the context of our capital plan.
To add, there is more demand for capital than there is capital available, which allows us to be thoughtful and patient in deploying dollars. Organically, we are probably putting roughly $400 million to work per quarter; with M&A, that number is closer to $500 million. M&A has become part of our backlog. There is nothing preventing us from achieving the $2 billion target if unconstrained by capital. It is a matter of not overlevering the balance sheet and avoiding dilutive equity raises.
On JPI, we are being opportunistic. I would hesitate to call multifamily a core strategy at this point—we remain focused on being a holistic, capital-efficient solution for homebuilders in the single-family for-sale market. That said, the multifamily addressable market is large, and this JPI transaction is highly accretive and presents an attractive risk-weighted return. We like the partner and their balance sheet. We are spending more time thinking about the broader market, but this is not a wholesale strategy change yet.
We are seeing a broader pullback from banks in the sector, which creates more opportunity to create downside-protected structures that deliver our target returns. I am optimistic about expanding our product set to deepen relationships with homebuilder counterparts and add value within the residential ecosystem. We are experimenting with product ideas and hope to have more to say in the coming months and quarters.
Does that contemplation of a new suite of products include anything outside of residential—perhaps retail or industrial?
No. Our focus remains squarely within the residential real estate market. The vehicle was created for the residential market—mainly single-family, with multifamily as a complementary use case. We aim to extend solutions for the markets and customers we work with daily.
Okay. One more for Garett: I think your income tax expense was down this quarter—about 2 percent of pretax versus closer to 4 to 5 percent previously. How should we think about that going forward?
Going forward, I would expect a more normalized run rate. The quarter's lower tax expense reflected changes in allocation of taxable income based on updated market assumptions and third-party analysis. As part of debottlenecking and optimizing the business, we are refining processes across cash management and tax reserve policy to ensure cash is working as productively and optimally as possible.
Okay. Thanks. That is it for me.
Your next question is from the line of Ryan Gilbert with BTIG. Ryan, your line is open. Please go ahead.
Thanks. Good morning. First, on the other-agreement yield: it sounded like the tick down to 10.6 percent from 10.7 percent was a mix shift to higher-quality opportunities. Can you confirm that and say whether we should expect further mix shift in Q3 and Q4?
Yes, that is right. The small change was driven by mix shifting toward higher-quality, lower-risk opportunities. I would not draw any large trend from a 10-basis-point move—there will always be some volatility as the portfolio mix changes.
Given the move up in rates in July, has builder demand for land banking shifted or has your approach to underwriting new opportunities changed given current mortgage rates?
The move in rates, which affects affordability, has had the most impact on the first-time buyer segment, where competition is highest. As rates and volatility have increased, many builders prefer off-balance-sheet financing over pulling land onto their balance sheets during such uncertain times. They do not want to make decisions today that will affect their community count three to five years from now. Using off-balance-sheet third-party solutions helps bridge that divide, enabling them to preserve long-term optionality without increasing near-term balance-sheet risk. Our baseline planning assumes rates will remain elevated for some time, and that informs our underwriting and product design.
I would add that rate volatility primarily impacts certain buyer segments. There remains a large buyer base less impacted by affordability constraints because of demographics and accumulated wealth. Builders are adjusting in real time to target buyers who are less rate-sensitive and iterating product and pricing accordingly. We expect that behavior to continue in the near term.
That helps. I have one on the underwritten gross margin. You indicated a 21 percent underwritten gross margin across new transactions, which is above where many builders have reported. Can you expand on how you are achieving that 21 percent margin? Is it value engineering in vertical construction, or are land values trending down?
It is a combination of factors. First, many of our counterparties are larger builders with scale who can achieve a lower cost structure. We underwrite to that improved cost structure. Second, incentives have modestly improved over the past 12 months, which benefits margins. Third, there has been a mix shift in new transactions—nearly 50 percent of new transactions were in the Southeast (North Carolina, Georgia, Tennessee), where home values and demand have held up better. Those regional dynamics support stronger underwriting outcomes.
To add, we have been underwriting to this margin profile for a long time. This is not dependent on home price appreciation; it is based on current market conditions in the communities where we own land. Builders have been reworking their operations to debottleneck and reduce cost. On the margin, where land values are adjusting downward, builders can take advantage of cost improvements elsewhere in their business. Our underwriting discipline and margin targets are consistent and deliberate.
Okay. Great. Thanks very much.
Your final question is from the line of Eric Wolfe with Citi. Eric, your line is open. Please go ahead.
Thanks for taking the follow-ups. Regarding multifamily, are you considering condo projects as well with other partners? I thought you might be doing one right now. Also, would you consider financing vertical construction on the multifamily side as well, or is the focus just horizontal?
We would certainly consider financing vertical construction where it makes sense. Remember our Yardley transaction with Taylor Morrison included vertical construction. For JPI, the current structure is focused on horizontal work, which is slightly unique for a single tax parcel multifamily property. Each opportunity is evaluated on its merits. We look at the counterparty's balance sheet and development aptitude—if vertical financing is accretive and protects capital, we will evaluate and execute it.
Got it. Last question: is there potential to sell off pieces of these option agreements—perhaps sell lower-yield pieces to enhance the yield on what you retain—or would that be overly complicated under your structure? Could that be a source of capital as you expand to other partners?
If you mean selling first-loss pieces or similar, we are not going to do that on a one-off basis. Our leverage profile is managed from our balance sheet today. There may be opportunities to optimize our capital structure in the future, but right now we are using our revolver and our note financings to provide leverage. We will not take actions that complicate the structure unnecessarily or jeopardize the portfolio.
Got it. Thanks.
We have one final question from the line of Ryan Gilbert with BTIG. Ryan, your line is open. Please go ahead.
Thanks for taking my follow-up. On terminations: it's been great to see there have been no terminations to date. Can you provide insight into contingency planning—how you would address a termination if we started to see some in a weaker market?
That is a good reminder that the absence of terminations to date does not mean it could never happen. We think through contingencies continuously. It starts with land selection and underwriting, plus our asset-management team and real-time data on sales, pace, pricing, and margin across our portfolio. We underwrite to a 20-plus percent gross margin and benefit from deposits. Historically, deposits were 20 to 25 percent; today the portfolio average deposit is closer to 10 percent, reflecting different credit enhancements. We develop plan B, C, and D: who could build adjacent; which larger builders might step in to develop land a smaller builder cannot; or whether we could modify timelines with existing counterparties. There are also other end uses, such as build-to-rent or alternative residential products. Ultimately, our contingency planning focuses on protecting capital and ensuring that if take-backs occur, we can either transition land to another builder or monetize it without undue losses.
Great. Thanks so much. Appreciate it.
There are no further questions at this time. I will now turn the call back to Darren L. Richman, CEO and President, for closing remarks.
I want to thank everybody for their participation today. I will acknowledge that this call is probably the longest one we have had, which underscores the interest in our business and the nuances associated with it. We are happy to provide as much information as people like on this call, and feel free to reach out to any of us after the call. We look forward to speaking with you inter-quarter and on the next quarterly conference call. Thank you.
This concludes today's call. Thank you for attending. You may now disconnect.