Pure Cycle Spotlights Sky Ranch Cash Flows, Lowry Upside at Investor Day

Key Points

• Sky Ranch is expected to drive meaningful cash flow, with Pure Cycle planning for 250 to 350 residential units a year and management saying that could translate into roughly $20 million to $30 million in annual revenue for the next seven years.
• The company highlighted Lowry as a long-duration growth asset tied to Denver’s eastward expansion, with robust oil and gas activity now underway and the broader area potentially representing a 50-year inventory of land.
• Pure Cycle also outlined its commercial development and capital-return plans, saying the Sky Ranch interchange project may be delayed to 2029, while the company expects to become more aggressive on share buybacks over the next 12 to 18 months.

Pure Cycle NASDAQ: PCYO used its annual investor tour and fireside chat to emphasize the physical scale of its assets east of Denver, with Mark Harding focusing much of his commentary on the company’s Lowry service area, Sky Ranch development and the timing of future residential and commercial cash flows.

Harding said the company’s goal with the tour was to give investors a clearer view of assets that can be difficult to assess through balance-sheet descriptions and earnings presentations. He said the visit focused more heavily this year on the company’s water service area, the origin of its water and development activity around Lowry, rather than only on Sky Ranch.

Lowry Activity and Denver Growth

Harding described oil and gas activity at Lowry as “fairly robust,” noting that tour participants saw multiple pad sites at different stages of activity. He said one pad site had recently completed fracking, another was being prepared for fracking, another was being graded for a rig and another was being drilled. Harding identified SM as the dominant operator at Lowry and GMT as another operator backfilling its position.

He also used the tour to show how Denver’s growth continues to move east, in part because the metropolitan area cannot expand west. Harding said development south of Lowry is constrained by thousands of five-acre lots, while parts north of Lowry are affected by landfills and open space. He said the positioning helps illustrate the significance of Lowry and the surrounding service area as Denver’s expansion continues.

In response to a question about potential development at Lowry, Harding said the property is in unincorporated Arapahoe County, the same entitlement jurisdiction the company works with at Sky Ranch. He said the larger complication is ownership: the property is owned by the Colorado State Land Board, which manages land for K-12 education beneficiaries. Harding said the State Land Board must weigh multiple possible uses, including education, minerals, oil and gas and urban development.

Harding characterized Lowry as a long-duration opportunity, saying 40 square miles represents “a 50-year inventory of land,” though he added that not all of it would be developed or conserved.

Sky Ranch Residential Development

At Sky Ranch, Harding said the company continues to plan around what homebuilders will need 18 to 36 months ahead rather than focusing only on current conditions. He said Pure Cycle is generally trying to deliver lots on a just-in-time basis for builders, with residential production expected to run between 250 and 350 units a year, or around 200 units in a slower year. He said that level of activity could generate $20 million to $30 million in annual revenue for the company for the next seven years.

Harding said the number of builders at Sky Ranch has increased from three at the start to seven now, reflecting shifts in demand and inventory planning. He said builders typically want more lots when the market is strong and fewer when it slows, while Pure Cycle tries to avoid overextending its own capital.

Asked about Sky Ranch’s competitiveness, Harding said Arapahoe County setback rules are an advantage because they allow homes to be built on smaller lots than in some other jurisdictions. He said that can lower land costs for builders while allowing buyers to purchase similar square footage at a lower price point.

Commercial Development and I-70 Interchange

Harding said the commercial opportunity at Sky Ranch is tied closely to the planned I-70 interchange. He said Pure Cycle remains in the permitting process with the Colorado Department of Transportation and the county, and expects to be in position to receive CDOT approval on related agreements by the end of the year.

From there, Harding said the company would move from 30% design to full design, a process he estimated could take four to five months, before seeking bids. He said the company expects to look to the bond market and hopes to issue construction bonds in the fall of next year. Construction could take six to 12 months, he said.

Harding said prior expectations for interchange-related commercial activity may be delayed by about a year, shifting some expectations from 2028 to 2029. However, he also said he would not be surprised to see some commercial transactions in late 2027 once the interchange construction contract is awarded. He said commercial users are likely to want critical mass in nearby residential density before committing.

Harding estimated the commercial component at Sky Ranch at roughly 1,600 to 1,800 lot tap equivalents, which he said would be additive to the residential development.

Single-Family Rentals and Capital Allocation

Deb, who Harding said runs the company’s single-family rental segment, said rentals remain a minority of homes at Sky Ranch and that most homes sold in the community are owner-occupied. She said rental demand has been supported by military relocations tied to Buckley Space Force Base, families seeking access to the K-12 school campus and employees connected to Denver International Airport.

Harding said the board continues to evaluate the single-family rental segment and its returns. He said the company initially forecast roughly a 10% return on investment, but would like returns in the mid- to high-teens. At minimum, Harding said the segment needs to outperform the company’s overall return on equity, which he put at around 9%.

On capital returns, Harding said Pure Cycle is likely to become “a lot more aggressive” on buybacks over the next 12 to 18 months. He said dividends are part of the longer-term equation, though not likely this year. Harding also said the company expects reimbursement opportunities from the Sky Ranch tax base, including a potential refinancing of a 2022 bond in 2027 that could create $10 million to $15 million of payback.

Valuation and Water Assets

Harding said book value is a poor measure of Pure Cycle’s value because many assets have long-held, low historical cost bases. He said the company internally looks more at the sum of its parts, including Sky Ranch residential land, commercial land, tap fees and recurring utility revenue.

Using simplified figures, Harding said 5,000 lots at $100,000 per lot would imply $500 million of land development value, while 5,000 taps at $40,000 each would imply $200 million. He also said 5,000 water connections could produce about $8 million of recurring annual revenue, using a range of roughly $1,500 to $1,700 per connection per year.

Harding said Pure Cycle’s water assets are difficult to monetize through outright sale because of Colorado’s anti-speculation doctrine and because their value is tied to the utility franchise, service area and customer base. He said the company’s most recent water acquisition was around $20,000 per acre-foot and noted that Pure Cycle’s tap fees are $40,000, while some surrounding providers charge more than $60,000.

About Pure Cycle NASDAQ: PCYO

Pure Cycle Corporation NASDAQ: PCYO is a Colorado-based utility and real estate development company focused on water resource management and land development along the Front Range. The company's core operations involve the acquisition, treatment and distribution of potable water, as well as the collection and treatment of wastewater, serving suburban and rural communities in the Denver metropolitan area. Pure Cycle holds substantial water rights and operates distribution and treatment facilities under a regulated utility model, providing essential services to residential and commercial customers.

In addition to its water utility business, Pure Cycle engages in real estate development, leveraging its water assets to create fully serviced residential communities.

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