Pure Cycle Q2 2025 Earnings Report

Pure Cycle EPS Results

• Actual EPS: $0.03
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Pure Cycle Revenue Results

• Actual Revenue: $4.00 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Pure Cycle Announcement Details

• Quarter: Q2 2025
• Date: 4/9/2025
• Time: After Market Closes
• Conference Call Date: Thursday, April 10, 2025
• Conference Call Time: 8:30AM ET

Pure Cycle (NASDAQ:PCYO) designs, constructs, operates, and maintains water and wastewater systems in the Denver metropolitan area and Colorado Front Range in the United States. It operates in two segments, Wholesale Water and Wastewater Services, and Land Development. The company engages in the wholesale water production, storage, treatment, and distribution systems; wastewater collection and treatment systems; development of 930-acre master-planned community; oil and gas leasing business; and construction and leasing of single-family homes. It serves domestic, commercial, and industrial customers in the Eastern Denver metropolitan region. Pure Cycle Corporation was incorporated in 1976 and is based in Watkins, Colorado.

Pure Cycle Q2 2025 Earnings Call Transcript

Key Takeaways

• Strong Q2 performance: Q2 FY25 revenues were $4.0 million with a 38% gross margin driven by robust mineral royalties and tap fees, lifting year-to-date revenue and net income above prior seasonal trends.
• Segment highlights: The water utility business gained on tap fee receipts even as oil & gas deliveries softened, land development advanced with three concurrent phases delivering ~1,300 residential and 100 rental lots, and single-family rentals maintained high occupancy and margins.
• Robust balance sheet: Over $20 million of total liquidity (including $17 million in cash and investments), significant restricted cash for infrastructure letters-of-credit, and a $25 million bond receivable underpin continued project funding and share repurchase capacity.
• On-track guidance and outlook: Management reaffirms FY25 targets of ~$31 million in revenue and >50% gross margin, projects stronger Q3/Q4 lot deliveries, and expects an I-70 interchange permit by year-end to enable future commercial development.
• Long-term growth roadmap: With only 20% of the 5,000-home Sky Ranch build-out complete, 60,000-connection tap capacity (~$2.3 billion in potential fees), and plans for new land acquisitions, Pure Cycle is poised for sustained expansion across its integrated water, land, and rental segments.

Presentation

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Good morning. I'd like to welcome you all to our second quarter fiscal year twenty twenty five earnings call. For those of you that are listening on the phone, I think most of you have connected through this through our website, but we do have a deck for this that is on our landing page of the website. So if you go to purecyclewater.com, you can click on that link, and that'll take you directly to the presentation. And I can walk you through the presentation as we move through our slides.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

With me today is our CFO, Mark Spizale, as well as our controller, Serena Finnegan. So I'd like to thank them for joining us early morning, and really wanna welcome you all to the call. I'll get started. Well, first thing we'll do is and it's a slide here. Talk a little bit about our forward looking statements.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Statements that are not historical facts contained or incorporated by reference in this presentation are forward looking statements. I think you're all familiar with the forward looking statements. With that said, certainly want to, highlight, our leadership team. The the success is driven by, you know, the people that we get to work with, both in terms of our management as well as our board of directors. We have a a great board of directors which bring a tremendous amount of experience and guide and leadership to the company, and it certainly helps to to be at this the helm, in calm waters and and and rough, seas.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And I'm not exactly sure where we are with this market, but, it it is, accompanying to have a great leadership team as well as a great board of directors to help, steward the company through, managing these assets. I wanna jump right into the financials here and see if we can highlight our second quarter. We had a terrific quarter, so we really wanna highlight our financial performance. Again, just continuing to exit execute on monetizing our assets, both our water assets as well as our land assets and then our single family rental assets. So taking a look at it, quarter q two quarter, about $4,000,000 in revenue, about a million and a half, about a 38% gross margin.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

A large portion of that margin is really gonna be from the royalty income. We continue to see a very strong performance out of our mineral royalties that we have when we acquired the Sky Ranch property. Really flowing down to the bottom line with continued net income and earnings per share. So both our three months and our six months year to date were about $10,000,000, 9 point 7 million dollars in revenue, gross profit. So, again, a very, solid growth mark gross margin around 50 plus percent, and then continuing growth in our earnings per share.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Taking a look at that, it's q over q, and so this kinda gives you a performance as most of you know who follow the company. Your second quarter is usually our most, our softest quarter, and and it really is a seasonal issue. You know, we are in the construction business where we construct, and deliver lots for our home builder customers, and, that's a little bit more challenging in Colorado in the winter months. But, again, we see, you know, solid performance on, this quarter over our trending quarters for the last three years. The the profit in that's probably gonna be a seasonally adjusted issue, and that's kind of a timing of how we're recognizing some of this revenue on a percent complete basis.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

But nothing really of concern on the q over q on the gross profit. Just really continuing to develop these lots. We've got three phases under construction at at simultaneously, and so really investing in that segment for us so that we can continue to drive revenue. Taking a look at net income, again, that's really gonna be a a solid performer, really indicative of both having three phases under construction at the same time as well as some of that royalty income that's coming in from oil and gas just because that's a high you know, it's almost a % profit margin for us on that. So we get to roll that right down to the bottom line on that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And then continued growth on earnings per share, so that's a quarter over quarter performance on earnings per share. This will really drive into year to date and really kinda showing you year to date both in terms of prior fiscal year as well as our guidance. We had guidance for fiscal twenty five at around 30 close to $31,000,000. We're about $10,000,000 into that, and that's about where we are. You know, we're we're on track to meet that goal knowing that q two is that seasonally adjusted, and q three and q four usually are a high high growth areas just because of how we sequence our lot deliveries on each of these phases.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Taking a look at gross profit also, you know, we're on track for that in terms of our guidance as well. Year to date net income, again, you know, really solid continuing performance in all segments of the business, whether that's land development, water utilities, as well as single family rentals, and then earnings per share. So we about 20¢ earnings per share, a little bit shy of about 50% of our guidance, but really looking to meet that guidance through our fiscal year end. So if we want to break this down by each individual segment, taking a look at our water utility segment, Very good quarter for us on that. That's largely driven by the receipt of tap fees.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

As we open up each new phase of our development, that's when we start to recognize a lot of those capital fees that we have for the water business. And so we get those tap fees in. Those are paid by our home builder customers at the time of building permit applications. And so we have probably about half of the tap fees receded from filing five, which we delivered sort of end of last fiscal year, last summer. And I'd say we've got close to maybe 75 vertical homes in there.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So the builders are very aggressive. They're getting out there, building their building a number of spec homes as well as homes that are sold. They have model homes up in both the filing four, which is our phase two a, as well as some of those in two b, which is with the more active one. What you'll note in this segment for water utilities is oil and gas deliveries are a little bit weak. That's what we did forecast.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

We knew that that was gonna be a little bit weaker than we had last year, and that was predominantly because most of our operators really working on a large block of well permits. And I think there's more than 200 well permits under production both for the Lowry Ranch and and the surrounding areas of the Lowry Range. So we've got a lot of that activity that is gonna occur in fiscal twenty twenty five, which will start drilling probably late twenty five, early '20 '6 to see a bit more of that activity in in fiscal year twenty twenty six. But, again, the water utility segment doing great, continue to add new customers to the segment, so we continue to build that recurring revenue segment for that. This is kind of a little bit of a comparison of the oil and gas, which we did forecast.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

That was gonna be a bit softer. And so, you know, you see that by comparison over year over year activities. Oil and gas, as you know, very, very it's a very, very it's a variable segment, and and a lot of times, it really is a a both global price comparison to how the price of oil is, to how quickly these operators dial this up. The field itself continues to just perform great for all the operators, and I think that it's derisked. They have a very high degree of certainty as to how each of these wells perform.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

We can see that in terms of our royalties off of the wells that were drilled on Sky Ranch in 2024. And so, you know, you see a lot of that continuing activity where they will continue to invest in that based on their, their permits and and kind of their their internal processes to how they wanna deploy their capital. But very good segment for us, very high margins for us, and and it continues to allow us to monetize and pull forward some of that infrastructure that we continue to invest in our water utility segment. Moving on to land development. This kinda highlights each of the phases.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

We have four phases that that force but, actually, we expanded. So we added another fifth phase. So you'll see a two e coming up in the presentation in our second, round of act investments into infrastructure for Sky Ranch. But this really illustrates where we're at in terms of, three phases concurrently going on. We have phase two b, which is we delivered those lots last summer, and we have a bit of a punch out items on some landscaping issues and things like that that will round out the rest of, this year as as we roll into the spring.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

But that's where most of the, builders are are currently going vertical. They've got, you know, a number of homes that are that are up, available for sale or at at various components of that. And it seems like once they finish those homes that that, you know, there's a ready and and robust market for those. And I think that's attributable mostly to price point that we find ourselves in that entry home segment, and and I think that's the most attractive segment in the market, not only in the Denver area, but nationally. But this also highlights where we're at with the other, phases of this.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Two c, two d really how highlights both the lots for sale as well as our single family rental lots. And so as you see those cumulating on, each individual phase, we have 17 units that we've got under contract that, are at various phases of permitting and and starting up construction in phase two b. And then we're rolling into phase two c, where we deliver the the the overlap grading. We finished the utility side and really now down to the curving gutter and the paving side of that. And so that should deliver by fiscal year end.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So that will that we're currently about 48% complete there. That'll that'll, round up to the mid nineties by fiscal year end. And then, you know, we finished the grading on phase two d and have started our utility work on that. So we're midway through our, lot delivery contract structure where we get, payments from our homebuilders on increments of phases of delivery. So, about 1,300 lots on the for sale side and about a hundred lots on the single family rental side.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So it gives you kinda a very strong picture of how we're accelerating the development of these land assets and and delivery of lots. And then the single family rental, highlighting that q over q performance, really not a lot of change there. We still have the same fourteen fourteen homes that have have been completed. Our rentals are still very strong, so we continue to have a high occupancy rate there. And then, again, very great margins on how we do that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And and I think we've talked about this a lot in the past on why this is so attractive, and it really is, a formulation of of being able to roll in the equity value that we have on the land side as well as the water utility side, being able to deliver these lots where our homebuilders who are our partners on buying the lots are also our partners on helping us build these homes. And so they have a a great delivery device on building the homes. And then, you know, we have the advantage of keeping that equity within the lot themselves and and renting them out at the full fair market value of those assets. So the book value of those assets are about 80% of the fair market value of those assets. So we very much continue to enjoy a great segment on the single family rentals.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Just wanna quickly review kind of, you know, take this up a few after the the financial performance and and really highlight kinda how the company is structured, how we look at each of these individual segments, and and how they interrelate to each other. And, you know, at a DNA level, most of you know we're a water utility company. We have a portfolio of water rights that we have, acquired many, many years ago, some more than thirty years ago. And then we take those water. We bring that to properties, both properties that we own as well as properties that are in our service area and properties that others own that we can be delivering that as a water utility service, both water and wastewater service.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And then in some cases where we have the land, we actually are developing that land. So right now, that's that's confined to the Sky Ranch community. It's about 5,000 single family connections. We're about 20% built out there. But that allows us to be able to vertically integrate ourselves and do the horizontal infrastructure.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

That's a very valuable component in the marketplace because there are very few people that are doing that. Home builders really prefer having, you know, a a fixed fee where they have someone that will deliver that lot for them. And so we partner with them to deliver those lots. They sell those they build the home, sell those. That generates a water customer for us.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And then in a portion of that portfolio, they also build that home for us, and then we rent that out as a single family business. So each of these segments interrelate to each other. They're really building on each other, and and they're complementing each other. So, one does really feed into the next, and I think it has a great business value added proposition for both us and our shareholders. Let me drill down to each of these very specifically.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

I'll try and go through these quickly because I know many of you know this. Our water segment, if you just look at the balance sheet side of our water segment, you know, that has about $65,000,000 in total assets, kinda breaks itself out in terms of the water rights, the bricks and mortar of the pumps and the wells and the pipes, and the water treatment facilities, that that deliver that potable water. Our portfolio allows us to provide service to about 60,000 connections. So we're very early stage in monetizing this portfolio and getting, our our our share value out of that, but, we continue to add connections each year. Take a look at the system capacity.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, we we have more capacity. We are fortunate to be able to stay ahead of that capacity where we're developing water wet water deliveries in it in greater than the the portable demand for those services are. And and what we use that excess capacity for is typically providing that service to industrial applications such as oil and gas. And then taking a look at our our portfolio capacity in terms of the capital fee, how many taps that 60,000 taps can generate. You know, we're very, very early on in that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, we have, tap fee capacities that can generate about two little more than $2,300,000,000 worth of that, and and that's about a 50% margin business on the capital side as well as on the operating side. So gives you guys a a pedal amount of what that water segment can do for us. Taking a look at our land segments. Land segments, you know, we have constructed about $77,000,000 of lot sale revenue since we started the project, and we're about 20% built on that. So we still have a a ton of pedal left in the land development segment.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And and, again, that's a very good gross margin segment. The reason I think that's gross margins as good as it is is probably because of the bot. We we acquired Sky Ranch in at at a good price, you know, at a fair price at the time when a lot of people weren't interested in buying it. We bought it in 02/2010 during the Great Recession And and really take a look at monetizing that asset being opportunistic about our capital allocation and how we look for additional opportunities. And and so with a a a very uncertain market out there, you know, that sometimes presents great opportunities for those that are well positioned, and we think that we are well positioned for that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So we hope to see if we can continue to add to this portfolio and and continue to expand in the land development segment. This is just a little bit of highlight of each of the phases that are subcomponents of that. We completed phase two a. All those homes are fully fully occupied. Phase two b, as you can see there, there's about 70 homes that are up and constructed.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Phase two c, you can see some of the alleyways being poured, many of the streets that are graded out. And and so a lot of the utility package there has been complete, and we'll we'll really have that strong push to deliver those finished lots before fiscal year end together with the weather. So we time that out such that we can be in that season where we can do the concrete and asphalt where we're not competing with mother nature on that. And then phase two d, that's fully graded, and equally, we're gonna get the utilities in there and look to see if we can get those lots finished by the end of the calendar year. Sometimes we have to race against mother nature.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

It depends on whether or we get an early season winter in October versus a late season winter after after November time frame. So we'll continue to press on twos two d, and then we will have another phase of this. We have a sub phase of that, which is about another 50 plus or minus units that are phase two e, which we are planning right now. And then we'll extend those opportunities to our existing portfolio of builders. This kinda highlights the overall capacity of our land assets.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And as I mentioned, we're about 22 developed if you take a look at the residential side. So we've delivered about 1,300 single family residential lots through phase two. Our commercial lots, we have about 800 single family equivalent commercials. We we're just converting those to a commercial. Those are done a little bit differently.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Those are usually priced per square foot as opposed to per lot, but this allows us to do some forecasting to give you guys a a comparison as to how the overall opportunity relates in the land development segment. And so combined, you know, we look at that being a a very strong performance. If the overall combined performance about that 18% right there around close to 20% of the build out of Sky Ranch when you combine both the residential and the commercial. Single family rentals, highlighted some of the opportunities there and really the attractive nature of it, and it's maximizing the land development as we continue to provide value to the community for what it is that we do on, you know, the parks, the open space, partnering with our national charter, National Heritage Academy for schools. It generates continued recurring revenue.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So each unit provides close to little more than $30,000 a year in recurring revenue on the, on the rental side. And it it really does leverage the market demand and produces great returns for the company. So we will continue to invest in this segment. You'll see a little bit more acceleration on that through the latter phases of this as we continue to build up the size of phase two. Some of the metrics on our existing portfolio.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, this really highlights the difference between fair market value and really the balance sheet impact. So we have about 5,300,000.0 of of capital costs on that and a fair market value of about $2,000,000 on that. So we still have a lot of a lot of un a lot of appreciated assets on there that are that are not able to discern through the balance sheet. This is kind of a highlight of where we're headed with that single family, portfolio. So, you know, you're you're gonna see phase two grow substantially here in two c, b, c, and d.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So we're gonna we're gonna move from about 1,400 homes close to a hundred homes on that. And and, really, this is some of the metrics that will drive to that. And and the fortunate thing for us on this one is because of the equity value that we have in the land and the water utility, you know, this is a great one where we can leverage that portfolio. We have, relationships with three different banks that, are very excited to help, with this portfolio and and really give us a lot of that capital and a little bit of leverage to be able to capitalize on on using that above our balance sheet capacity. So we're very excited about that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, one of the great things about the company is our balance sheet and our liquidity position. So you take a look at where we're at, you know, between the the cash that we have. We have more than $20,000,000 of liquidity. You know, we have cash and investments right at 17,000,000. The restricted cash that we have and and how that's used is we we secure lines of credit, letter of credits for the county on our performance of building out the infrastructure on delivery of the land segment.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And and the reason that the county likes to do that is that they are allowing us to get building permits, in some cases, in advance of finishing some of the the back end side of the land development. You know, some of the the most all of the all of the roads, curves, and gutters and water sewer storm, all that stuff is completed. But some of the landscaping and things like that that, you know, usually come in seasonally, as long as we assure the county through a letter of credit that we'll complete all that stuff, then they're they're they're releasing those building permits to us early. And that's really advantageous to our own builders because we can concurrently build those homes while we're doing that landscaping. And so, you know, there's a there's really no very, very little risk on that restricted cash.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Really, we do count that as a component of our balance sheet. And then, again, we talk a lot about this note receivable from the reimbursable. So not only do we receive revenue from the sale of lots from our home builder partners, but a lot of the infrastructure that we complete, we do get reimbursed for that. We get reimbursed from that from the local municipality as they issue bonds. And so we had a a bond offering in 2024 that gave us it was about a $25,000,000 bond offering, paid that down, but that's a a nice liquidity element for us.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So when you take a look at the overall liquidity company, you know, we're in great position not only to navigate challenging markets, and I'm not sure if this is a challenging market, but it does give us not only great a great port a great asset base there, but also opportunities to continue to invest into land and water assets. Talk a little bit about outlook, and and this is kinda repeat of slides from our fiscal year end. So, you know, we take a look at our short term outlook, and that's kind of a three to five year outlook. Know, customer growth, so development of, Sky Ranch up to about 2,500 units, consistent tap sales, through the remaining phases of that. And then as those customers come online, you know, it increases the overall return revenue.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

We've got annual, tap fees that increase, year over year, and so you've seen that, as we continue to add new connections to the system. And then longer term, you know, with the build out of Sky Ranch, we've really kinda tried to highlight what we have in the book, what we have in our portfolio for full build out monetization of these segments. And so they're very attractive returns for us on that. You know, that build out of Sky Ranch could be in that seven year range. So it depends on kinda how we build out that commercial segment and some of our participation in there.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And so we like opportunities where we can joint venture some of that commercial opportunities. We are working on, yeah, those commercial opportunities as well as developing new interchange right there at the interstate where we've got some some mill levies that are set aside for that so that that can come off of an independent bond financing. But that's a project that we're looking at in this short term aspect that will increase the overall accessibility of the site as well as the commercial opportunities. Land development, you know, steady lot sales through the next five years. We continue to increase our lot margins, and I think that's largely because most of the heavy lift is complete.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, we've got most of the off-site infrastructure. I think the last remaining key element will be that interchange, and so we do have a bonding teed up and ready to go for that that will cover that cost. And then, excuse me, we really still have the most valuable land yet to come, which is gonna be the commercial development, and we wanna continue to look at all of our opportunities on the commercial side. And single family rentals, we we talked significantly about that. But, you know, going from what we have today to maybe more than 200 homes and and and continuing to look at the strength of that, so 200 plus homes through the build out of Sky Ranch.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And and we would look to do each of these elements in a future acquisition. So to the extent that we continue to expand our land portfolio, we look at all three of these segments being able to be contributors to what it is that we're looking for. This will be a little bit of the the guidance on what we had for 2025. So you take a look at the trailing three years and how we're continuing to accelerate and really grow our revenues year over year and and really look at not only another good year in 2025, but then, you know, how we look at that short term aspect where we're starting to bring in some of that commercial land development and and the punch that that's gonna have for, the company revenue as well as earnings per share. So, really continue execute and highlight the value of these assets.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Again, shareholder value, kind of a little bit both year fiscal year guidance, short term guidance and then build out guidance for Sky Ranch. And again, that build out, you know, is sort of what we have in inventory. That's not something that we need to grow. It's really just to execute on, continuing to build out Sky Ranch. We continue to be in the market.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So, you know, our share repurchases, you know, I'd say that in q three, as we're rolling into that, you know, this this this current market was a bit choppy, and and, you know, we we continue to have a bid in there to buy those shares. But we're also continuing to look at, you know, opportunities for reinvesting into land and other opportunities. And and oftentimes, when you get turbulent times, you know, it it does it does create some of those opportunities. And I will say that we've had, you know, an increase in the interest level on some of our target acquisitions. So, you know, we wanna we wanna make sure that we have both capital to invest in the three phases that we've got under construction right now.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And then as, you know, these opportunities present themselves with an acquisition really to to be in a position to perform on that, and and, you know, those are those are kinda how we look at our capital stack on that. So with that, what I'd like to do is open it up to questions. I think what we'll do is we'll make everybody's mic live. If if we get some feedback or something like that, we may change that format. But if anybody's got a question, you can either raise your hand in the in the the the the The bar.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Bar up there. And then we can we can identify you. You can call out or or just kinda sing out, and we'll see if we can't have an orderly q and a here. So with that, we'll open up the, mic. And if anybody's got a question, go ahead and, sing out.

[Marc Spezialy, VP, CFO, Principal Accounting Officer & Principal Financial Officer at Pure Cycle]

So you have the ability to unmute yourself. It's not disabled.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yep. I see everybody.

[Analyst]

Mark, Bill Miller. Good morning.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Good morning, Bill.

[Analyst]

So getting back to the recurring themes, where do we stand on I 70? We keep talking about it.

[Analyst]

It's gonna be great. But when do you think that will come to any kind of fruition? Secondly, we've talked historically about acquisitions, and you say there's a little bit more appetite on part of the seller. And is that gonna result in some transactions sometime, or are we just still talking about people that are reluctant to sell their land because you've done so well?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, let me take the the the so the your first question was about I 70. Yeah. So so that interchange, you know, there's a there's a I know this is gonna surprise y'all, but there's a there's a pretty robust regulatory climate when you take a look at this. And so we've been together with Arapahoe County, who's kind of our partner on this. They're really the sponsor, but we've been working on the 16 o one, which is the permit regulation for that for the past three years.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

We're about ready to submit that 16 o one to CDOT. It it'll take them, you know, call it four or five months to review that. But I think we're forecasting that we'll be in a position to get clearance on a permit for construction of the interchange by the end of this year. And then I think what we would do is we go to market for those bonds end of this year, first part of twenty twenty six, and really start construction of that. We have an existing interchange, so it really won't be a gap in that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So it's it's one of those ideal scenarios where we can build an inner excuse me. We can build an interchange without any disruption. You know, we'll keep the existing interchange. They'll be about 600 feet apart, but we're we're moving the interchange along the alignment of the section lines, which is really what CDOT wanted. So that's what we really look for.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

We'll we'll look to see that happen. We, you know, we think that that's gonna be a a very orderly transition of that infrastructure. As it relates to acquisitions, you know, it it it that we we we are we we keep very close to target acquisitions and the owners of that. And, you know, the the opportunities are there. The sellers, you know, just have different different personal requirements as to when when it makes sense for them to try and and sell, whether that's, you know, estate planning or or just lifestyle issues that they're looking for.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And, you know, one of the things that I can say is that I I I can't highlight the fact that, you know, we we are the beneficiary of an uncertain time with Sky Ranch. You know, we were in a great position at the time to be able to buy Sky Ranch when nobody else wanted to buy land. And so, you know, usually, it there's you know, opportunities are created by uncertainty or change of circumstances, and, you know, this has been a a a very interesting time. So we'll see if that yields any interest for sellers to, you know, move forward with the with the transaction at that time. I I can't give you any guidance because I don't have it.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

If I if I if I add something under contract, I might be able to tell you that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

But it's it it it is the number one thing that we're well, it's the number two thing that we're looking at. The number one thing that we're looking at is continuing to invest and accelerate the development of Sky Ranch. The number two thing that's important to us on the capital stack would be continued acquisitions in land, emphasis in land more than water. But to the extent that water is is strategically oriented to our existing portfolio, then we would be interested in that. But and then, you know, continuing to invest into the company through the share repurchase.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

But yes. Yeah. You know, the land acquisition, is very foremost on what we're looking for.

[Marc Spezialy, VP, CFO, Principal Accounting Officer & Principal Financial Officer at Pure Cycle]

Just be before we go into the next question, so we have allowed you guys to unmute yourself, but I we don't have the ability to unmute you. So if you are on the computer, you'll still have to click the mic microphone button to get on mute. And if you're on the phone, you could dial 6, as well as making sure your phone's not on mute.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Looks like we have a question from Nigel.

[Geoffrey Scott, President at Scott Asset Management]

Hey. How are doing, guys?

[Analyst]

Looks like a a a decent quarter for the for the seasonality issues. One piece of information I find very helpful is is essentially what your builders are telling you about demand. So if you could just give us a a little bit of a an update on on demand in the Denver real estate market overall. Is your price point advantage holding up against that market? And I'm a little puzzled because I've always perceived that it'd be a very heavy rental demand.

[Analyst]

A little puzzled even in a winter quarter as to why there isn't isn't demand happening on the family rental side. So just wanted a quick update from you on on the demand situation there as well.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yep. Good question. You know? And and you're right. I think our big biggest opportunity is our price point.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, one of the things that we have seen is a push for affordability, from the administration and, you know, component of that is gonna be the interest rate environment. And so I think interest rates have they've been all over the map, but they've been trending a little bit softer, allowing that price point in there. And a lot of the builders, you know, when interest rates went from three to seven, found themselves in a position of really competing by buying down that interest rate and and offering the incentives as an interest rate environment. And I think that that has kind of that that's burned off. I think that buyers out there are are are more acclimated to this being the current, interest rate environment, or the normal interest rate environment rather than to have an expectation to try and time that out.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And so as a as a component of consumer sentiment, I think that's a that's a favorable outcome both for the builders as well as, you know, for people that are delivering these lots. You know, we can we can take a look at, you know, a number of investments that are being made and and and there's a number of projects that continue to focus in the I 70 Corridor. And so the majority of all of the development activity, whether that's gonna be master plan communities, whether that's gonna be infill projects, or any of that stuff, is really concentrated in that I 70 Corridor. So we find ourselves in the right segment of the market, not only in terms of the price of the delivery, but also, you know, where most of that development is occurring. You know, traffic, throughputs, and and I will tell you, you know, our builders, we've got the 70 homes out there, they're they're building like crazy, and they're building on spec.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And so they have a lot of confidence to put that investment in there and an understanding of, okay. This is the right price point for us to be able to take that inventory. And so those are all those things that are and and and having three phases under construction at the same time, all of that activity is really giving a lot of x a lot of incentives for Sky Ranch to be among the high performers out there. And and so we'll see how that continues to absorb over the next eighteen months, but, you know, that's really what we're trying to do is hit that market. Your second question relative to the single family rentals, we had a bit of a a bit of a gap between phase two a and phase two b, and that was when interest rates went up.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And our builders asked us for, you know, a a ninety day pause on delivering some of those lots, and that's gapped us out on that. And so we really we we would we we are seeing very strong demand for each of these units that we're bringing online. And the problem is is that we we, you know, we've been trying to get these permits and and phases online. And so delivering the phase two b last summer, we went straight into contracting for another 17 units. And then the the the county updated their building code.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And so I think our builders some of our builders got grandfathered in, so that's where they have, like, that 75 units out there. Some of the builders were in the process of making those applications. And so a lot of those things are getting released right now. And so a a lot of the inventory of the 17 homes that we have in that phase are gonna come online now. And so a little bit of a gap there.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

It wasn't certainly from a market standpoint or from a desire standpoint. It's just a little bit of timing variance on that. And then we're we're teed up for the rest of the phases to be able to continue to accelerate that.

[Analyst]

So you're expecting a stronger environment in terms of sales and rentals through this calendar you gave us last year?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Very much so. Yes. Go ahead.

[Marc Spezialy, VP, CFO, Principal Accounting Officer & Principal Financial Officer at Pure Cycle]

Mark?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So we got a 917

[Marc Spezialy, VP, CFO, Principal Accounting Officer & Principal Financial Officer at Pure Cycle]

Okay. Looks like

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

in 2446.

[Marc Spezialy, VP, CFO, Principal Accounting Officer & Principal Financial Officer at Pure Cycle]

had a question.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Okay. The the the the 2446, you're on mute, so you'll have to take your you have to hit your mute button. If anybody else has got a question, is that did I did I hear Elliot? Mark? Breaking in? Yes.

[Elliot Knight, CEO at Knight & Associates]

Yes. This is Elliot. Can you hear me?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

I can.

[Elliot Knight, CEO at Knight & Associates]

I'd like to go back to your answer to question number one when you said that your second most important priority is to acquire new land. And just for those who may not have heard your February call, which was recorded hang on just a minute. Okay. Which was recorded and is available on the website. You had a luncheon meeting, and it was available on Zoom, and it is now available on the website.

[Elliot Knight, CEO at Knight & Associates]

It was long. It lasted an hour and a half, but it was filled with information. For those who didn't hear it, the thesis, if I can call it a thesis, was what happens, how valuable is Pure Cycle if they are unable to make another land acquisition? I'm not going to try to summarize what the answer to that was, but it was a very impressive number. And so anyone who is seriously interested might want to take the time to watch that call because there was a wealth of information available.

[Elliot Knight, CEO at Knight & Associates]

So I don't have a question, but I just want people to know that that aspect is available if they're interested.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yeah. No. I I appreciate that. You know, one of the challenges that we have is, you know, I think we're a partial victim of our own success because we have acquired these assets, and I think we've done a very good job of acquiring assets that are, you know, favorably valued for us. And then also, you know, been able to be good stewards of that over time, and the market of those assets have appreciated significantly.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And, you know, not only is that call, you know, a little bit helpful for some of that, but, you know, when we try to articulate some of these numbers and we take a look at the back half of these slides, you know, that really also tries to monetize this. It's tough for us to be able to give you, you know, full guidance on that, but what we can do is say, hey. Here here is what we make per lot. Here is what we do on the water side. Here is what we're doing on the single family rental side.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Here's how that generates the the monetization of those legacy assets as well as here's what it does on the recurring revenue side. And so, you know, I would say and and the company has had a a strong disconnect between what certainly we believe the value of those assets are and what the market capitalization is for that. And and, you know, we try and allocate some of that money to to to, you know, bridge some of that gap in there. Well, as an I see.

[Elliot Knight, CEO at Knight & Associates]

Well, I was gonna say, Mark, is just as a tease, if you like it, to those who are listening who didn't hear it, you came up with with actually, the analysts on the call came up with impressive numbers for what the pile of cash the company would have with Sky Ranch fully developed with roughly 85% of its undedicated water reserves not still undedicated and available for sale. And you also came up with a number for ongoing revenues per share at the end of the development of Sky Ranch. So it was very specific, and it was very helpful.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Well, I appreciate that. Jeff. I see Jeff Scott's got his hand up, and I see his his smiling mug.

[Geoffrey Scott, President at Scott Asset Management]

Morning. How are you?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Matt, by the way. Good morning.

[Geoffrey Scott, President at Scott Asset Management]

Elliot, I think I'll take some credit for the the the luncheon analysis, but I wanna

[Elliot Knight, CEO at Knight & Associates]

ask You were Jeff, you were brilliant. You were brilliant.

[Geoffrey Scott, President at Scott Asset Management]

You just made my whole day, Elliot.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

That's on the back. Keep you going.

[Geoffrey Scott, President at Scott Asset Management]

Mark, I wanna ask a couple of of chicken and egg questions.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yep.

[Geoffrey Scott, President at Scott Asset Management]

I'm assuming that the development of the interchange is is the egg and that the commercial development is kind of the chicken. The the value of the commercial development goes up after there's an interchange in there. Is that basically correct?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yeah. I I think that is true. I mean, I I will say that I think the the value of the commercial you know, we have an existing interchange. The new interchange gives you more capacity. It's it's it's a a freer flow of traffic.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

But, you know, it it it the the proximity and the location along I 70 give you both of those elements. But the the interchange is kind of a component that we do need as as we continue to build out. And what we've tried to do on that, Jeff, does commercial needs a certain amount of demand from the residential side. And so we've been we've been bringing that up at the same time as we're paralleling the permitting for that interchange so that we don't have a gap out in that issue where we have the demand from the residents, but not the infrastructure for the traffic capacities.

[Geoffrey Scott, President at Scott Asset Management]

Right. I'm I'm assuming that the demand for the commercial will go up when they see a bigger and better interchange. Absolutely.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Okay. I would not argue with that thesis.

[Geoffrey Scott, President at Scott Asset Management]

Okay. That was the first chicken and egg. The second one is was kind of interesting because I think for the first time, you said that the the land acquisition is a higher priority than additional water right acquisition. I I don't think I've ever heard you actually say that before. Is that because the what you'll be able to do with land is is is going to be faster than what you're gonna be able to do with additional water?

[Geoffrey Scott, President at Scott Asset Management]

I mean, you have water for 60,000 units. You don't have land for 60,000 units. So presumably, you have water in inventory, and in order to utilize that water, you need additional land. Is that the is that the the correct interpretation of the chicken and egg?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yep. Exactly right. You know, I think we're longer on the water side than we are on the land side and really wanna be more aggressive on the land side.

[Geoffrey Scott, President at Scott Asset Management]

Okay. Thank you. That's all I had.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Okay. Thanks for chiming in. And, dude, thanks for your your your comments and kinda the filter that you as a shareholder and and really a long term shareholder have in terms of the company and and, you know, really aligning with kind of how we think about the world and, you know, how we steward some of these assets was very helpful in that in that in that February call. So keep up the good work.

[Geoffrey Scott, President at Scott Asset Management]

Thank you.

[Operator]

I was just trying to ask a question.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Who is? Ah.

[Analyst]

Yes.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yes.

[Analyst]

Hi. I'm tuning late, so this question has been answered. Let me know. I'm interested in how the school is doing. I think it's a a key component of the of the entity.

[Analyst]

So tell us about the school. I'll go back on mute.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Okay. Great. It is a great question, and you're right. You know, having a local school, having a k twelve campus, you know, right in the middle of what it is that we're doing, tremendous value. I I will say our partner on that, National Heritage Academy, great partner in that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, we are their first k 12 campus, and they have they have other campuses that are k eight. They have high school campuses, but we're the full, you know, k 12 model. And so we're looking at, breaking ground on the high school of that later this year, for the delivery of high school in the 2026, '20 '20 '7 year. And so what we've got is the the existing k eight system. They'll go k nine next year because they wanna make sure that they can continue to keep the kids there as they as they start there.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And then, you know, have that high school for, you know, full build out on that. So the capacity of the full k 12 model will be something like, like, 1,700 kids. So, you know, you know, it'll accommodate all of the all of the kids in Sky Ranch. Full build out of Sky Ranch plus a little bit more so that we can, you know, service some of the surrounding areas. But wonderful group.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, I think the overall feedback on on, you know, part of I I I chair the the the the school board on that. So I I I attend a lot of the the parent conferences that they have there, and the feedback that I get is, you know, the school's just terrific asset for the community, you know, a terrific model. They love they love kind of the NHA model, you know, how they deliver the education, the the moral focus that they have. Everything that they do, you know, I think is a terrific opportunity. And I'm learning a ton about schools as well.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

It's great. I I I thank you for your continued support on that school. I know you you continue to reach out with me on that and and continue to touch on that. So thank you for that support.

[Marc Spezialy, VP, CFO, Principal Accounting Officer & Principal Financial Officer at Pure Cycle]

There's one caller that ends in 6841.

[Marc Spezialy, VP, CFO, Principal Accounting Officer & Principal Financial Officer at Pure Cycle]

You're off mute. I don't know if you had a question.

[Analyst]

Thank you. Yeah. Thank you. This is Greg Bennett, one of your shareholders. Washington, D.

[Analyst]

C. Or the new administration has talked about affordable housing and the need for it. They've also talked about the possibility of using federal land or giving federal land for affordable housing. My question is, do you have water near or is there a land near our properties that could be federal land that you could basically obtain for a dollar? And and then with the agreement that you would create affordable housing? Thank you.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, there there there that's a good question. We we are not adjacent to any federal land, but I will say that, you know, our service area is owned by the state, state of Colorado. And and, you know, state of Colorado recognizes as much as, the federal government the importance of affordable land and affordable housing. And so, you know, while we don't control the land, our water and our service area are all on that state lands. It is a massive inventory of land.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

It's 24,000 acres of property. It's located in that I 70 corridor. You know, it's probably the single most valuable asset that the state of Colorado owns in the state land board. Clearly, you know, they're attenuated to not only the affordability aspect, but what they do do with that land generates revenue for the public education system, the k 12 public education system. So, you know, those are those are great opportunities for us to partner with them.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, we'll we'll provide the utilities regardless of whether or not we develop the land in conjunction with them or somebody else develops that land. And and so they're currently evaluating, you know, what opportunities they might wanna consider for that. They've taken a look at that land, at various segments over the last thirty years as to, you know, what the inventory and the carrying capacity of that are. And and we'll see. You know, that's a that's an opportunity.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, we look at other land areas for us to be able to acquire or partner with and be able to monetize and develop that land by bringing our water to it. And then also, you know, carrying that forward within our model where we're developing the horizontal infrastructure. And then, you know, we've looked at inventory portion of that for single family rentals. But you're right. Land is a critical component to the overall development.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And then, you know, just interest rates. And I think the as much as the federal government has the opportunities to take a look at its lands, you know, the the current administration really does have a focus on trying to do something about affordability, and interest rates are a key element of that. And, you know, much to maybe their frustration, they don't have as much control over interest rates as they would like. But, you know, certainly, policy does influence interest rates.

[Analyst]

Has the state of Colorado ever granted or, sold land for a purpose like public housing?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You bet. You bet. They they they, you know, they've sold land. They they have all their their their interest, they they sell land. They buy land.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

They trade it out. You know, they have commercial properties where they have office buildings that they are for lease. They have multifamily opportunities where they've participated in either land or vertical side and then just selling land. They you know, predominant drivers for their land interest are have been oil and gas and and grazing. But, you know, they own about 3,000,000 acres throughout the state of Colorado, and and this is one of those pieces of their portfolio.

[Analyst]

What is how how close is their land to your Sky Ranch or your interchange? Is there anything that's nearby, or is it

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Oh, yeah. It's very close. Yeah. It's it's it's it's four miles directly south. So when you take a look at and and we have a lot of these images on our website, you'll see, you know, where we show our service area and the proximity of our service area.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And in fact, some of our presentations will have sort of some drone imaging where you see on one side of the road, you have a bunch of developed houses on the other side of the road. It's kinda vacant land, and that's where the state that that's where the Lowry Ranch starts. And so the metro area has grown out to the the Lowry Ranch, and and so it's a you know, it is ideally positioned for opportunities.

[Analyst]

Okay. Final question. Sky Ranch, the build out, you don't need to acquire any land in order to continue growing for the next, what, five years, is it? The absorption of Sky Ranch would take five years?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yeah.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

I would say most of the residential should be wrapped up in that that cycle. Some of the commercial may still tail on depending on how we how we participate in that. But you're right. We know, that's baked in. You know, you take a look at that guidance set, you know, where we think we can monetize both the land and the land, the water, and the single family rentals on that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

That $600,000,000 really is just what we own at Sky Ranch.

[Analyst]

Okay. I guess one of the concerns investor may have is that you you're tying up capital in the rental units. And if you do make another land acquisitions provided on the deal you get, that that's capital that won't get a return for five years possibly. But I don't know if you wanna comment on that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yeah. The cycle of land development. Certainly, you know, you're not you're not wrong. When you buy raw land, the time to entitle it and start developing it could be a little bit longer. You know, the issue for us is to make sure that, you know, we allocate that capital so we're not over our skis that we can actually continue to invest in the land development at Sky Ranch.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And, you know, I think we're ideally positioned to do that. And to the extent that we get a a large enough land acquisition that would would be beyond what our liquidity position might wanna support, you know, that's something that we can take a look at monetizing our single family rental portfolio. And we can bundle that up and sell that out and be able to use that rather than our equity to be able to acquire some land interest and replace it. So it's a very attractive investment, not only because of the tax advantages to it, but the equity carryforward and then the ability to monetize it in the event that there's an opportunity to do that.

[Analyst]

You're suggesting, like, a ten thirty one exchange where you exchange Something like that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yep.

[Analyst]

Or yeah. Okay.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yep.

[Analyst]

I don't wanna you for everything. Thank you for the call.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You bet. Any any other color I can layer in?

[Daniel Kozlowski, Independent Director at Pure Cycle]

Yeah. Mark?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Please.

[Daniel Kozlowski, Independent Director at Pure Cycle]

This is Dan Kozlowski calling in, board member. Not available today due to a scheduling conflict, but, good good good call. I think this is one of the the better calls and, you know, good quarter in a seasonally slow time. But, again, I think it speaks to the robustness of the model where, you know, these slower quarters are less slow and, still stacking on some, you know, earnings growth, which is great. Just a couple observations.

[Daniel Kozlowski, Independent Director at Pure Cycle]

I kinda listened today, and and the the caller questions, I think, are at a higher level. And everyone's kinda really understanding the the the business model better and better each quarter, so that's great. So just to pivot off a few things. I mean, the interchange process, I'm glad you brought that up today and and spoke about it because it is a big opportunity. I mean, if you just drive out there, you see there's, you know, there's a there's a fine off ramp and, I I guess, call it an interchange today.

[Daniel Kozlowski, Independent Director at Pure Cycle]

But but, obviously, the ability to control and and work with Arapahoe County and and, you know, have the outcome of that interchange be favorable towards our sections that that we're gonna develop, a lot of it commercially, is is really a a huge opportunity. I know you've got a lot of time time to work on that, and more disclosure today, I think, is good. You know, it's it's it's slowed us down a little bit to do some, you know, regulatory caps and and how all that works, in the past. But, you know, once that is in process and moving, know, I think it'll free us up to make us more flexible in terms of pacing of absorption, and, you know, maybe you can comment on that a a touch if you want. But and also a second part of that is how do you think about commercial, you know, in terms of your classic retail commercial build out, the grocery stores, the drug stores, the, you know, the the soft the software that goes around a community versus going either earlier or at the same time and and doing it in an aesthetic way, but but adding, like, an industrial, you know, warehousing, that type of thing that could also be sellable at really good prices really at any time.

[Daniel Kozlowski, Independent Director at Pure Cycle]

So Yep. Maybe just a little more color on on how you're thinking about the classic retail software versus, you know, the industrial, you know, warehousing that that there's always huge demand on I 74?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yep. Yep. All good questions and and really good things to kind of throw a little color into this. And and so the interchange, I think, is is a great asset, great opportunity, and and one that we've been planning for, you know, since we started construction of the project. So, you know, we're we're well positioned on that.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And it's a long lead cycle, so, you know, we have we have really been early to try and get that through the system and through that process both with the county as well as CDOT. And I do think it you know, as as Jeff sort of highlighted in in his chicken and egg sort of analogy is that it does it does open up. While it's not constraining some of the commercial activity, I think commercial activity really is a lag of some of the residential activity. We did wanna time those two out such that when the residential was good, that we didn't have any any constraints on the transportation, and then the attractiveness of having a bigger, you know, you know, fuller scale interchange on that. So that's that's an important component on it.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

As it relates to some of the commercial and and one of the things that that, you know, Dan's been been super engaged in helping us really kinda color into some of the the communication style of how we can how how we can translate the value of the company to investors. But one of the other opportunities, and I talk about this all the time in terms of the strength of the board, but, you know, one of our board members is, know, very dialed in on the commercial. You know, he he works with a a local family office that that does commercial all over the all over the Denver area. And and they have developed tons of grocery models with Kroger and King Soopers as their brand here in Colorado as well as bolting into that, the commercial that goes around that, whether that's gonna be, you know, your fast casual, whether it's gonna be, you know, other types of office, medical office, and then building into box store where you can get the retail side, whether that's gonna be big box like Home Depot or Walmart or Sam's or Costco type models, and and then, you know, also in the industrial side.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So, you know, while while we you know, that's something that is key for the company to keep their pulse on, You know, we also have veteran experience on that that help guides us. And so Jeff Sheets is the the board member on that who brings that value to the company. And and, really, you know, we sought that that expertise as we continue to build that board portfolio out such that they could assist us on that. And and, really, through his help and participation, we've developed a commercial model for that that really accommodates all of those. All of those things that Dan was talking about, whether you have space, because we've got about a 60 acres.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And so we have space for the light industrial, for this big distribution center. You know, that that does provide tremendous success value that brings a lot of that revenue into the reimbursable side. We have, components of that for multifamily where we've got apartment complexes, and and we've talked with a number of different, apartment developers, and various models where we can help participate with that. And, you know, that model looks something like where we bring our water, we bring our land in the equation, somebody goes vertical with that. We get it fully leased out and then sell it as a package, and our exit becomes fully developed.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

You know, when you've got a fully improved lot for a particular use like a multifamily. And that could be anywhere between 500 and a thousand units of multifamily depending on how that configuration goes. And then, you know, the the the grocery, the fast casuals, the services, you know, the fuel, all that stuff gets built right around that. And those are all extremely, you know, high value, land interest where we can keep some of those units available working with, partnering with commercial developers, and and then getting those facilities leased out and then selling those to maybe REITs and other that types of entities that really participate in that cash flow. So, you know, as much as we look at all those options, we look at those options with some degree of expertise.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Somebody who's done it, who's who's spent their career. He's got thirty years doing specific commercial development in the Denver area. And so, you know, we're very excited about that. We're very excited about that guidance. We're very excited about that opportunity.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

So good question, Dan, and and a nice way to kinda highlight, you know, how we're transitioning from, you know, a core of strictly residential to moving into that commercial side.

[Daniel Kozlowski, Independent Director at Pure Cycle]

Okay. Just a few other observations, generally. You know, I think this finished lot approach that you chose to take, you know, starting back in phase phase one or phase a, you know, I I think is is understood somewhat by the market, by the long term shareholders. But but the attractiveness even in tie and we talk about times like these. I mean, the mark there's there's always stuff going on.

[Daniel Kozlowski, Independent Director at Pure Cycle]

Right? Whether it's interest rates moving up or down or COVID or, you know, the change of administrations with different viewpoints on how to attack, opportunities and challenges of the country. You know, it seems always more volatile when you watch social media or CNBC. But but but the reality is homebuilders, you know, they have pretty good businesses, and they're pretty good at managing their risk. And so and they earn a lot of money.

[Daniel Kozlowski, Independent Director at Pure Cycle]

You know? They've they've they've they've been good stocks for, you know, a decade or longer. And I think the bottom line is they're they're pretty good at managing their risk, and and what they really desire is the ability to put down their cash on on lots and and go vertical quickly. And our model, which was slightly more capital intensive for us to finish all the lots out, is just highly attractive to you know, if if they're looking at their entire nationwide portfolio, obviously, they're like Colorado. I look at their Colorado portfolio, you know, you you continually you know, as you develop these phases and sub phases, you're showing up with buildable lots, right, right away.

[Daniel Kozlowski, Independent Director at Pure Cycle]

And and those are the ones where even when the home builders, you know, will go through ninety day pauses or whatnot, they want because they can buy from us and go vertical and and and have lower carrying costs. And it's the way we chose to approach the business, but it really protects the business in back to that times like these. Meaning, people are cautious, but if they can buy and go vertical, it's just a huge leg up on on on sort of the sustainability and consistency that we're delivering. And I I think that's understood by half the people that look at Pure Cycle, but there's another half that's newer to it.

[Daniel Kozlowski, Independent Director at Pure Cycle]

And and, you know, I gotta think in the market, you know, when our stock price is bouncing around along with the homebuilders and other people, it's not completely appreciated, you know, how much so when we talk about demand, yeah, there's general demand in the Colorado market, but there was a lot it just strikes me, and I've watched it for five years. There's always demand for these finished lots. And and and that's that's key here for people to understand the call and and otherwise. Maybe you can come on that in a in a in a minute. And then the second thing that I'd say is partially understood, but not not fully.

[Daniel Kozlowski, Independent Director at Pure Cycle]

And it's the the nature of Sky Ranch and any development is the cash flow is just very much back end loaded. You know? So if we if all we did on Sky Ranch is develop a thousand lots, you know, we're gonna do many thousands. But it was a it was just a thousand lots. I think what we had seen was the first five hundred were, you know, pretty good, and then the last 500 would be massively cash flow generative, right, as you're winding down the, you know, a smaller a smaller project.

[Daniel Kozlowski, Independent Director at Pure Cycle]

And all that cash comes over the transom, and I and I I've just done some rough math on it.

[Daniel Kozlowski, Independent Director at Pure Cycle]

It just seems very disproportionately cash flow generative in the second half of the project and as you're closing it out. And and a lot of developmental projects are The last 30%, it just goes straight into your pocket. You know, that but but Sky Ranch is big. So it's, you know, 3,500, 4 thousand, you know, homes and then the commercial, and and it's it's really back end loaded when all that cash comes over the transom.

[Daniel Kozlowski, Independent Director at Pure Cycle]

And now that we're, you know, inch inching up on 1,500 lots, we're inching up on that halfway mark. As we come over the the halfway development of Sky Ranch, the cash flow dynamics, the margin structure, all of it really blossoms. And, you know, I think that's gonna, you hopefully surprise people as we get, you know, another twelve, eighteen, twenty four months down, you know, down the path. And so much of the cash flow payoff from this will again, I'll use the word blossom, you know, in the in the back half. And we're not we're pretty close to the back half now.

[Daniel Kozlowski, Independent Director at Pure Cycle]

So that's, I think, exciting. I'll I'll stop there on those two comments if you do have anything to add.

[Analyst]

Yeah. Yeah.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Good comments, and and you're right in terms of our homebuilder partners. You know, the thing that that they like is, you know, they they wanna be able to sell their sell their home before they buy their lot. And, really, we're delivering this stuff just in time for them so that their capital allocation is as good as it can be. And there's very few people that do that. Right?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

There's very few people that are in a position to do that. Most developers are you know, they they sell platted lots, particularly in the Denver market. They sell platted lots, a paper lot, and then they force the developer to put that infrastructure in. And so the developer has to put that capital in upfront, and they they're IRR driven. Right?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Their whole block is IRR driven. They want velocity. And so if they have projects where they can choose to build spec homes, they're gonna build them in an area where they don't have to do the horizontals. You know? That that allows them a much more favorable rating.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And and, really, that's why I think we've had such good success with all of our builders and the renewed aspect of it. And then, you know, the portfolio builders who want to be in Sky Ranch. And so as we open up phase three and we go into the next 1,500 lots, you're right. You're gonna see an acceleration of that. Right?

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

We're not seeing you know, most master plan communities grow on a bell curve. And, you know, you start out slow. You get up to a certain point where you're delivering a lot, you know, kind of the max number of lots. And I'd say, then then you come down and tail off and are milking the the residual value of each of the remaining lots. And and while we haven't peaked in that bell curve, you know, we're on the upper side of that, And you've seen that by accelerating, you know, the lit lot deliveries from 250 lots a year to something like 500 lots a year.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And that's gonna that's gonna go directly into, you know, monetizing that asset. You're right. If if you took a look at, you know, any master plan community, they you know, we continue to build that value. And when you look at our balance sheet, you know, you see, you know, more than twice our liquidity is in the note receivable. Well, if we were on the back end of that, that would all be moved over into the cash side.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And so that note receivable really is that's the assessed value of the community grows. That's where you get best reimbursables, and you get that high value of monetizing the final lots in there. So it is cyclical in terms of how you stagger out the overall development, but, you know, you can see from the balance sheet that continued growth. Then I think the disconnect there might be that people just are like, well, you know, I I wanna see more of, you know, the lot deliveries. I wanna see more of execution on the commercial side.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

I wanna see and and all that stuff is is right within, you know, our business plan and how we're going to execute. So you're right. Our enthusiasm's high. You know? We we continue to try and and communicate that to the marketplace, and, you know, it the market has its own cyclical natures of it.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

And, you know, we wanna be we wanna be as transparent as we can. Looks like Jeff had a he wanted to weigh in on one of that observations.

[Geoffrey Scott, President at Scott Asset Management]

No. I was just going to take Dan's thought process one step further. He said that the the builders need something that they can go vertical on quickly. The other thing they need is is demand. And that article that I sent you yesterday on Link 56 had to do really with the growth of of Denver going eastward and out by the airport.

[Geoffrey Scott, President at Scott Asset Management]

That was a a you know, the article came from, I think, the Denver Business Journal. So you know? And it talked about the Link 56 development out there. You said it was, I think, 10 miles away, but nevertheless, there's going to be a population shift eastward. And anything that that brings people closer to Sky Ranch is going to ultimately increase the value.

[Geoffrey Scott, President at Scott Asset Management]

Yep. There was the, you know, things like the the a large land purchased by Microsoft for a campus that I had that's the first time I had heard of that. But it's that kind of of development over the next, fill in the blank, decades that's just going to enhance the value of Sky Ranch going forward. As part of that, it said that Target had acquired land for, I I wanna say, a four acre retail outlet for $7,000,000. I don't know the details of that and how much was how much for the it was a 40,000 square foot store.

[Geoffrey Scott, President at Scott Asset Management]

They may have had to buy some parking and stuff like that. But $7,000,000 for four plus acres is a pretty substantial investment for somebody like Target. And I I I wish that would translate into value at at, you know, 2 plus million dollars an acre for for Sky Ranch. But, anyway, Dan, that it if Mark can forward you that article, I don't know if you've seen it or not, but I thought it was very interesting. That's all I had.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Yeah. No. It's great. You know? And and

[Daniel Kozlowski, Independent Director at Pure Cycle]

It it keeps coming. I mean, I I've made this point, I think, maybe a couple calls ago. But, you know, if you look at Denver historically, you know, I '25 and I '70 kinda bisect Denver and and where they hit, you know, was kind of the old, the old, you know, twenty, thirty years ago, the old industrial kind of epicenter of of Denver. And that's all moved eastward now, and that was triggered by the beginning of that was triggered back around February when the airport opened up and then the Angie's Medical Center. And and the whole the whole I you know, I think the epicenter of Denver now for the future is really E 470 and I '70.

[Daniel Kozlowski, Independent Director at Pure Cycle]

So it's moved eastward, what is that, probably 12 miles or so. And that's you know, because DIA is right there, you know, three or four miles, and and that's why all the industrial or light industrial warehousing, Amazon center that's there is all to the east. And and it's so that's and Sky Ranch is sitting right in the middle of that development to the east. And then our water is sitting right there too. You know?

[Daniel Kozlowski, Independent Director at Pure Cycle]

Water, we always talk about water's interesting business. You know? It's water's very valuable, but it's really is your water in the right place, and our water is in the right place. It's coming right over the top of us. And that just leads me to my last, observational point I'll make, and then then I'll but I'll I'll cut off.

[Daniel Kozlowski, Independent Director at Pure Cycle]

But, yeah, the state land board, you know, owns this unbelievable piece of property. Now it's 40 square miles, but it's, you know, Lowry Ranch. And I would just note that we've been impressed with the way the state landlord is evolving their views and some of the human capital the state landlord has added over the last year or eighteen months with, you know, real high level real estate development expertise on on the board. And you have to think if they're adding that sort of talent and expertise, you know, they they certainly are aware of the opportunity they have with the Lowry Ranch over time. And, you know, I know, Mark, you've you've gotten, you know, closer with them and and built a great relationship, and, you know, it's all there for the taking whenever the state wants to, you know, begin to to to monetize that in a thoughtful, progressive way for for the community and, you know, help with this, maybe, low income or entry level entry level housing. And so it's pretty exciting, and I think you've Barclay done a great job building those relationships, and the state land board's doing a great job, you know, bringing in high level talent to, you know, to evaluate all the opportunities. So, again, I think that's, you know, it's been a long process.

[Daniel Kozlowski, Independent Director at Pure Cycle]

We got a long history, but it's really on the up and up. And and I think it's a tip of the cap to mark for his his patients as well as his, you know, relationship building there. So good work on that. I'll sign off. You know, good quarter.

[Daniel Kozlowski, Independent Director at Pure Cycle]

It should be a good good rest of the year, and nice work.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Great. Thanks. Pat's on the back like that. Keep me going. Okay.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Well, if there's no other comments, certainly, if anybody's got something that they they didn't get a chance to ask or, you know, wanna just drill down privately, you know, go ahead and give me a call. I'm always available. And, you know, we we do like doing these kind of road investor meetings, so we'll try and see if we can set something up and maybe in the Midwest or maybe on the West Coast. I've got some some good friends and shareholders on the West Coast that have been itching for us to come out and organize a sit in. And and I and I will tell you, I mean, this format is very helpful, you know, where we can we can we can have engage in a dialogue and interact interactive dialogue like this.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

But, you know, it it and I think the reaction was some of the folks that attended the meeting in New York. They they were just overwhelmed, you know, when you when you when you see it, when you, you know, roll out maps and you kind of get that that tangible evidence as to how the Denver market's positioned and where I seventy is and how the growth of the metropolitan area goes, it really it really does provide a very compelling argument as to what it is that we're doing, not only what we have in inventory, but what our opportunities are with the portfolio. So we'll continue to reach out and and and continue to really expand that knowledge base and and that outreach to not only our existing portfolio, but folks that may be new to this story. So with that, I will go ahead and sign off. And thank you all for your continued sponsorship and confidence in your invested capital. So take care, and we'll be in touch.

[Analyst]

Thanks, Juan.

[Mark Harding, President, CEO, Principal Executive Officer & Director at Pure Cycle]

Thanks, all.

Participants

Executives

• Mark Harding, President, CEO, Principal Executive Officer & Director
• Marc Spezialy, VP, CFO, Principal Accounting Officer & Principal Financial Officer
• Daniel Kozlowski, Independent Director

Analysts

• Analyst
• Geoffrey Scott, President at Scott Asset Management
• Elliot Knight, CEO at Knight & Associates