Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the pure cycle Corporation's fiscal year and fourth quarter and that 2019, Cisco result call. All lines have been placed under listen only mode and the full will be open for questions and comments on the presentation.
Require assistance throughout the conference. Please press star zero on your telephone keypad to reach a life operator.
At this time it it's my pleasure as it turned for over to your host Mark Harding, President CFO and director Sir the floor is yours.
Thank you.
I'd like to welcome you all to our fiscal year end 2019 earnings call. Some.
Housekeeping matters, we do have a slide deck to this presentation. So if you log onto our website at <unk> recycled water Dot com. If you go into the Investor Tab, and then you'll see there slide deck. It will show you the hot.
No fiscal year end slides and then you can follow along on track with me as I worked through the presentation.
I'll try and note the transition of the slide you have to progress through the presentation.
So with that we'll start with our first slide which is the second actually our second slide which is our safe Harbor statement, which is a forward looking statement that references the discussions and that's a presentation, which will include some forwardly looking for cats and also some reports of our filing.
So that we had just recently today so most of your familiar with the Safe Harbor statement.
What I'd like to do is just for a quick overview for those new to the company or listening into the first time.
Give you kind of a brief overview of the company what it is a we do kind of where we get some other revenue from our assets and then drill down specific on some of the yearend activity and maybe I look forward as to what we're gonna have to get accomplish in 2020.
We generate revenue really from two business segments and while they have two different distinct segment that a DNA level, where a water utility that owns a substantial portfolio water you end up water shortage region.
In addition to what we do on the utility side. We also developed land in a mixed use master plan community and what we really identify as one of the most attractive submarkets in the Denver Metropolitan area. It's a long a primary interstate we have to understates the cross sector by sector. The ER the city one east West.
Which is the idea of any corridor, which is why we run a portion of our property.
And then also we deliver a significant amount of water to the oil and gas industry and then finally, we generate some revenue from some mineral oh interest that we own through some oil and gas royalties from oil and gas leaks.
So we have about 27000 acre feet up water that portfolio, we use in almost everything that we do whether that's that we provide domestic or irrigation water to our customers who are we use that water supply for industrial water sales.
If you move to slide for kind of an overview of the water utility. We look at this is a cradle to grave, where we own the water as a resource itself.
We produce that water through wells in diversion structures, we treat it we store we distributed to our customers our customers will use that water supply.
They pay us for that on a metered water that we deliver to each individual home or business, we collect that waste water back they pay us to collect that waste water back we treat that waste water through our water reclamation facilities and then we reuse that water for outdoor irrigation purposes. So we are really a use and reuse system. So we.
He credit those returns flows that don't come directly back to us through in irrigation return flow system, but look to be able to use and reuse our systems true advanced water treatment processing.
If you move to slide five just like five we'll give you kind of an overview of the water utility assets. The amount of water. We have about 27000 acre feet of water. You know we have a number of surface wells and deeper I prefer wells, we have storage both raw water storage.
And treated water storage, we have under them or miles of distribution lines.
To water reclamation facilities and pump stations and everything that accompanies what what you'd normally find in water utility.
Our assets span sort of the reach of the entire Arapahoe County area. So the width of Arapahoe County, being more than 20 miles and then really have exclusive franchise service areas to about 24000 acres of surface area of state owned property called the Lowry range as well as what we're working on with the property that we.
And then we're developing at Sky Ranch.
How we generate revenue if you move to slide six we generate revenue on utility side through two sources. One is a onetime connection fee. So we get paid to connect to our water and wastewater systems. Our water connection fees are about 26 six.
And our Super connection fees or about 46 centers. So they combined to be about 31000 per connection that we add whether that connection is day residential connection or a business connection. We all agreed that out to what would be the standardizing amount of water for single family home.
And then we get the recurring revenue. So this is sort of that annual annuity that we get from delivering water and wastewater service, we get about $1000 per here [laughter] excuse me a thousand dollars per year per water connection and about $500 per year Upper Stewart connection and if you look at the capacity that we have we yeah.
The made that we can serve about 60000 connections with our water portfolio. So that gives you kind of a topline capacity both in terms of the connection charges as well as the annual usage Chargers.
If you move to slide.
Seven.
HM.
Eight I'm sorry.
I've got my numbering wrong here.
Sure Yeah.
What I want to do is kind of overview Sky ranch, so in our land development segment.
Sky Ranch or is it either property that we only on about 930 acres right along the Interstate it's a got about a half a mile a frontage along the Interstate it's located about 16 miles east of downtown Denver about four miles directly south of the Denver International Air.
<unk>, our zoning is for about 3400 residential units and about 2.3 million square feet up commercial retail light industrial space, along the Interstate and in our world, we try and translate that into how many connections that will allow us to serve so we look at.
That property alone as being about 5000 connections were the water service connections and then you can correlate that also to the number of lots that you do we'll likely see residential lots in that 3400 connection is worth and then commercial square feet Oh in terms of all land absorption you can kinda use that other 1600.
Lots for commercial they may not go in that area. We may look at that a little bit differently in terms of <unk> price per square foot as we develop that commercial out, but it's a good way to translate how that a land development would like to monetize for us.
The next slide kinda define where we're actually in the Denver Submarket, we find ourselves in one of the more attractive areas in land development, It's near major Metropolitan employment centers, We've got terrific transportation access that can provide families. One of the most affordable community then the Denver Metro area and so our.
Target market really is data entry level buyer, where they can come in families can build or buy homes that are anywhere ranging from 1800 square feet, maybe up to 3500 square feet with a tri level walk out based.
On some of our lots that back up to some of our open space areas and prices in the Denver Merit Metro area for entry level product or about 350000. So this is one of the most affordable Master plan communities in the region.
Moving to the next slide what I wanted to do is includes some information about the Denver area has master plan communities and we subscribe to a real estate tracking service called Metro study and they come out with quarterly updates and they they just recently came out with a quarterly update in the last two weeks and there was some statistics in here.
Wanted to share with you all because it does relate to.
What's happening in the Denver market in Master plan communities on what they did is they reported on the statistics for the top 60 Master plan communities in the greater Denver, M.S. say, the Metropolitan study area and the interesting statistics are the maturity of most of these master plan communities, what they're seeing yeah.
As the majority of these master plan communities are nearly built out and so what they find is that there's a real lack of new master plan community, starting and that's a stunning statistic hearing you can kind of see all of the top 60 of them and really the top 30 are you know more than.
90% built out if you get to the next 30, you know those are going to average out to be maybe 70% built out. So what that means is there's just it's been slow to start for these new master planned communities that other graphic there what kind of give you an indication and this is really those master plan communities in our Submarkets. So if you look.
Good.
That graphic in there that's really towards the right hand side of the page should we start to look at.
Traditions, and told gay cost savings and Collins reach all of those are kind of neighboring Master plan communities right next to that that bubble area that that light a red Bluff malaria, which is gonna be our sky Ranch location and these are master plans that are actually closing out as of this year and so the over.
We're all market and our particular submarket seems to be very timely and are bringing this product online at this time. So I did want to shared that with you because that doesn't have to be a stunning statistic that was just recently released so.
Let me detail a little bit more about our land development segment and really how it highlights what we also do in the water utility side and the value that we had not only to the land but.
Also in the water segment and as we look at land in the Metropolitan area. One of the statistics in one of the dilemma is that you have to face right up front is anytime you want to go for zoning in the Denver area, you really have to demonstrate water availability and that becomes an increasingly difficult thing to do not only for.
Existing annexed areas that may have some legacy annexation far before there were a relationship is thought to tie land use and water availability.
But what you look out is the value water creates for a new property and any land entitlements and so our ability to develop land concurrently with water utilities allows us to manage inventories on both where we can manage the inventories on how much capacity, we build in our water utility.
He whether that's in our wastewater system or a water delivery system and then how many how much capacity, we haven't available Watson and those two investments because there's such a big large scale investments as you bring a community on line the ability to control both of those on a concurrent basis gives you a very nice advantage. It allows you to optimize.
Delivery of both of those on a real time basis as you can.
In taking a look at the 5000 connections at Sky Ranch or water utility, where we take a and got a $30000 per connection represents about 130 million in taffy revenue.
In the water tap the revenue 124 million a waste water tap besides combine about 155 million in water and wastewater revenue and then serving those 5000 connections that generates about $7.5 million year over year revenue from that 1500 dollar per connection per year and this is this is just what we control were vertically integrated and so young.
The land, we on the water utility and delivery of that water to those customers. So that's a very significant component for us to be able to continue to deliver that and deliver that in time for the market and the end demand for the market, where we're not waiting on a third parties the developer to deliver that land in the developers not waiting for the utility to delay.
Over capacity in the utilities very synergistic relationship.
Let's move on to slide 11, and talk a little bit about kind of the delivery of the first phase rollout.
What we have I guess I classify that as we've done very well on our first helping better than forecast and probably ahead of all three of our builders projections and so how we're very pleased with our results in the thing not only on our teams delivery of the lot you know on and what we're doing in managing the project in house, but also.
Ours, our contractors and subcontractors didn't work very hard to make sure that we're delivering all aspects of the utility side to this as well as the land development side and so as of today. We've delivered approximately 277 finished lots and that's fully finished lots that lots that have everything.
Attributable to does so we've been paid for the full finished lots and then another 95.
Platted lots in and what utility lots and we have two types of contracts with our builders, we have one contract where one of our builders just pays us for the finish line. The full finished lot ready to build ready to get a a building permit for and then our two other builders pay us on a progress payment basis, and so that 95 losses with one of the builder.
Is it pays us and we've gotten to milestone deliveries of that as a fiscal yearend, we really get delivered the to 55, but this is kind of what we've done since that fiscal year end. So we've got a tremendous amount of activity going on in the land segment and.
Finishing out this calendar year.
In addition to the deliveries we've got 136, a building permits which means we've got 100 in 36 water wastewater taps the builders must pay their water and wastewater tab at the time a building application. So we're seeing a nice absorption and our tap the connection revenues and really.
Because of the number of sales, we probably got a dozen homes completely finished in occupied so we have residents out there and nearly 80 plus homes under construction and so the absorption on this seems to be about seven or eight homes, a month little bit more or less depending on the builders.
So with that kind of absorption really all three of our builders have asked us to roll forward our lot deliveries as quickly as we can and so some of the lots that may have had a contractual take down in maybe as far out as 2022.
Our being rolled forward and we should complete all of our lots by end of fiscal year 2020, So we're going to roll. The remaining if you look at our year end report. We had 255 finished lots will roll forward. The other 251 finished lots by the end of August 2020.
If you move to the next slide there's some or some kind of aerial shots of a whats occurring in the area gives you a little bit of a metric in and home sales is a very fluid number you know as of the yearend. We were reporting approximately 60 homes sold I think that numbers up.
Close to 100, now and you know, we're averaging six probably closer to eat.
Oh homes per builder per month, just kinda defines a lot sales. So we get paid per our builder contracts from our homebuilder customers and that's about on average 70000, depending on the size of the lot a in the location a lots and then in addition to what we collect from the homebuilders we have public in permanent.
Reimbursables and what that entails is we are constructing public improvements which include drainage ways roads, curbs and gutters and and those are our developed by us their turned over to another governmental entity and they qualify for public improvement Reimbursables and we have a taxing entity with the municipality.
That will issue municipal bonds to reimburse us for a portion of those reimbursable. So if you take a look at the total revenue that we receive from lots sales on this land development segment, that's closer to about $100000 a lot and a portion of that being 30000, if that comes from the public improvements in some went when they issue does munis.
Bob.
So if you take a look at the first phase we stand to look at about $50 million that might be a little bad or a little bit light because we might see a little bit more public improvements in this first phase because we were little bit weighted with some off site infrastructure, we had a little bit larger drainage infrastructure because the drain. This is in the low spot. So we started.
The low spot being that we wanted that to be where waste water reclamation facility is gonna be.
And so we had a little bit higher or higher investment in that so we'll see maybe a little bit extra revenue attributable to that so we'll get money from our builders as well as a little bit more money, maybe as much as $10 million more up to closer to $60 million in first phase because of the the weighted investment in some of that public <unk>.
For structure and then if you equate out that number two all 5000 units. If we kept the price. The same you know that would be about a half a billion dollars I think we do have some pricing leverage we've got a very successful start to this thing I think the homebuilders are doing very well and so you know next phase will take a look a little sharper pencil to that now that we've established them.
Okay.
Speaking of the next phase or if you turn to slide 13 or talk about that and we're going to take the next phase, which will be additional residential units as well some commercial so it'll be that shaded area. There's about 480 acres, which includes about 155 acres hundred 60 acres.
Commercial retail light industrial we'll have some multifamily uses in there some more detached a single family product and maybe some attached single family product really to diversify the product and where we might have three homebuilders in this first phase.
Because of the product segmentation and then then multiple different types of offerings here, we may have as many five or six builders in the next phase depending on you know the level of interest in and we want to keep that inventory number per builder in that maybe two to three year range. So that they're not even trying too much and we're not inventorying.
And holding aside some of that capacity. So we're looking at kind of maybe eight or 900 residential units in this area and then maybe <unk> in total all two and a half million square feet at the commercial space it'll take a while for some of that commercial space to absorb but that presents a terrific opportunity because it.
As opposed to selling a lot we're selling that land by the square foot. So that's an attractive mechanism for us than that.
You know in the second phase, we may be seeing as many as somewhere 2500 to 3000, a single family equivalent connection so that would give you some pairing in terms of the how we equate that out in terms of the water happy.
Moving on to the next phase slides 14, we'll talk a little bit about some of our oil and gas activity. So we.
We do provide water or for the oil and gas industry for fracking purposes.
We've got a area of interest here, that's a known as the Niobrara oil shale formation. So it's a very prolific oil shale.
And the rock has tremendous capacity operators in this area of spent more than $2 billion exploring leasing developing wells and pipelines in a in a lot of infrastructure in this area and the interesting thing about it is it sits right on top of where our water is so for operators looking too.
Obtain water supplies, it's a very cost effective way for us to transfer water from our system to their pad site. So its a very good relationship because we are long on water. A there are very water active warner intensive or use of that.
There's been about 130 wells drilled to date and I'd say, that's probably just a very very beginning of a field and so when you look at over 200 square miles and have 130 wells out there they're really just getting started on this and a lot of that money. That's been spent has been spent on gas and oil collection system. So they put that.
Investment in there with the confidence that the oil it's a very oil rich play and that they're very confident of the yield of this field.
I'm getting a little bit ahead, but on the next slide you know talk a little bit more about sort of pad spacing and this being a stack play you know what when when we're supplying water for these fracs, they're using a tremendous amount of water. So the current designs for their fracs are using about 15 million gallons of water for every for.
So that they are every well that they do and that generates about $200000 to the company per well. So we're really excited to have that opportunity and really.
Look to extend that service to multiple operators, we probably have as many as for different operators in this field now and we expect to see water sales in this area continue for the foreseeable future. This could be decades worth of opportunity for us as they continue to drill in this field.
So let's move on to some of the number crunching for those of you that are following the company for a number of years I'd say 2019, you know candidly is gonna be a tipping point for pure cycle or you know we increased our revenues almost 350% so moving from about $7 million to.
20, little more than $20 million.
And then increased our income of old stuff thousand percent. So we're moving away from what was five 400 and some thousand on haulers and modest revenue in 2018 to more than 5 million dollar almost $5 million in 2019.
Taking a look at where those revenues are coming from you know breaks it down substantial revenues for delivery of these lots or in the land development segment.
We expect to deliver the remaining 250 lots in 2020. So if you take a look at that on our average price of $70000 that may be 17, $18 million worth of Ah runway for coming fiscal year, taking a look at the municipal tap revenue, we as a fiscal yearend had about 113.
I mean taps who've done quite well since then a I'd say, we probably take a look at a total of 200 taps if you're looking for some guidance for 2020 200 caps for 2020.
And taking a look at the industrial water sales that kinda continues to go bump along you know, Colorado tortured relationship with trying to get in the way of oil and gas companies and so some of the regulatory ER opportunities now where a the state legislature push down.
Around the ability for local jurisdictions to regulate there what oil and gas wells, a separate and independent of the Colorado oil and gas Commission. So what we're seeing is it's a little bit longer to permit wells. Unfortunately, we find ourselves in a county, that's it that's oil and gas friendly so I think.
You know, while I think we didn't maybe 25 wells in 2019, we'll probably see and that was inline with what we did in 2018, maybe one well more than we did in 2018, but I think we'll probably see maybe a little softening of that for 2020, and maybe forecast 20 wells in that area.
But what this presents is sort of decades of opportunity and I think you know you're looking at maybe each operator, getting one or two rigs dedicated to the field and so you sort of say this this number could be a substantial number over the next 30 years for US and then our oil and gas royalties you know we.
Still are generating about 20.
Thousand dollars a month, so still relatively modest, but we've only got one well into our formation and we did a grants the operator that we have a lease loop relationship with a pad side for an additional 10 wells. So we've got some requirements and some timelines for them to construct those 10 wells.
The next two sheets Ah.
17 of give you the balance sheet Ah you know growing the overall total assets to the company.
Taking a look at the income statement, we're very proud of that 2019 income statement really 20 cents a share on the income per diluted share of about 4.8 million income after taxes.
And so that will conclude kind of the prepared remarks, what I'd like to do is open it up to the to the audience. Your second question and answers. So if the <unk> moderator can give you some instructions as to how to dialing in on some questions I'd be happy to take some questions.
Yes of course, thank you the floors topic for questions. If you do have a question. Please press star one on your telephone keypad at this time, maybe Crescent has been answered you can remove yourself from the Cuba pressing one.
Our using a speaker phone we asked them opposing your question you pick up your handset supervised favorable sound quality again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad at this time, please hold while we pull for questions.
And we do have our first question from Anthony.
Please state your question.
Hi, Mark Congratulations on the numbers are a couple of quick questions.
First off can you describe the legal relationship between pure recycle and municipalities that are are you gonna be paying your back for this reimbursables are they the ones that are and direct contact with the or what the customers do they do the billing do you do the billing yourself how does that work.
So let me bifurcate that out between the ER.
The utility side as well as the land development side. So we're a wholesaler of water to eat caused by municipal political subdivision called the range you Metro District, and then the range you district contracts with us to operate maintain and do all the rebilling. So we do all of that billing or to those customers and we get 100 per.
End of the tap fee revenue in 98% of the usage revenue. So that's how that relationship works with a the water side on the land development side that well we have is what we call in Colorado developer districts. So we have Sky Ranch metropolitan districts, and we have a number of those and then those district consolidate into this.
Sky Ranch community Authority Board. So that's the Sky Ranch cab when you read through our financial statements, you'll see references to those and we control the board of directors for that but it is a political subdivisions of stayed in Colorado and we sit on those boards by virtue of a land ownership provision so we own the land within Sky Ranch.
It allows us to sit on those boards and that's the taxing entity and so in Colorado. What we have is a mechanism whereby growth must pay its own way. So every development area, we'll have something like what we have here, where it will have the jurisdictional areas and it will build the roads the curves together as a drainage everything that's gonna.
To be attributable to providing homes in that area.
And then those mill levies from the homes and the value DSS value for those improvements then our qualified for public improvement Reimbursables and so that's the relationship where we're not the legal entity, it's a taxing legal entity from the customers those customers as though as the mute.
Just spalletti as the community builds out and they have an electric and then they can become elected officials up those districts and participate in that governance with us on those districts and then have the ability and our mill levies are set on a pre determined area. If we need to increase then we have to go back to the vote her electric to increase though.
And so that's kind of the relationship on the land development side between us and the municipalities.
And when do they reimburse here when they when they start charging the real estate taxes remember they can raise debt against that is there a timing lag whats how can we understand that a little bit better.
That's a great question and so there's there's kind of I I'll break it up into three areas where people look at this they can be very early in those financings were oftentimes a developer doesn't have the capital to start to develop it and so the way. They would do that is they would say I'm going to build deaths and I'm gonna have assessed value in a couple of years.
So what they do as they go to the bond market early and they get you know very high interest rate because that would be a high risk a bond and then they use those proceeds to plow that into some of that infrastructure. So I would say that's an early financing and then there's kind of a a late stage financing where a developer wouldn't wait until.
So the project built out they've got all the homes built they've got all the assessed value and then they bonded and then they would get a very low interest rate and so somewhere between those is the optimum one and so that's where we looked at it is to say, okay. Where's the optimum scale for being far enough along into your development that you'll get a very favorable interest.
Grade while at the same time be able to leverage the total assess value that's gonna be from your build out and so you know what we saw was that this thing was going very successful the district or retain citicorp the municipal division to citicorp to be able to come in and give a financial analysis of.
What the opportunity for bonding is and they came back and said listen this is a terrific. You know absorption here you can go to market it anytime and you're not going to you're not going to improve your interest rate by holding a couple of years, just because you've got a lot of momentum going and so the board of directors or sort of elected to have them go ahead and engage them.
To start that process in there in that process right. Now so you know pending a successful conclusion that process, you'll see a an announcement about some of those reimbursables coming back to US you know within a.
This fiscal year.
Awesome and then one unrelated first of all thank you and much clearer and then unrelated question did I hear you say that in fiscal 2020, we should expect 200.
Top connections.
Yeah.
Okay.
Alright, Thanks for a company that my questions.
Thank you and your next question comes from Dorsey Guard that they pay a question.
Hi, I'm, Mark Dorothy Hi, George.
Hi, where you commented on a tax situation that you have a loss carry forward or whats worth to situation there.
How do you know we're in that high quality problem, we're gonna have to start using some of those so yes, we do have some a and allow us to carry forward we have about seven.
That's about right.
No.
2 million left okay. So we've been willing a willing that tax provision down over the last few years and I think so carrying forward.
We'll be using some of that in 2019 and then in 2020, we'll have to 2 million Uh huh.
Yeah. Okay. So so we'll see I think we're going to use up the you know for almost 5 million. So that got somebody said and that's where I had that place place holder is that we had seven is bringing use about five of them not for the 2019 and then we'll have about 2 million left.
And our checks over two or lets just president.
[laughter] Okay. Thank you.
[noise].
Thank you again, ladies and gentlemen, I think you have a question. Please press star one I know telephone keypad at this time.
And we do have our next question from John Rosenberg. Please state your question.
Yeah, Hi, good afternoon high Mark Thanks for taking my question Josh.
Getting back to the a the see a b.
Do you guys had announced congratulations on all your in process a financing I pulled up some information could you tell me a little bit about what what do we what are you looking at or what will the CBB issuing I'm seeing some issues like a like a it looks like a seven in five ace and a 5% coupon.
Issue.
You are allowed to talk about that now rabbit.
Yeah, I can I can tell you what that what's what's been filed in the public market. So there's a yeah lemon area limited offering memorandum. So you got to have acronyms in here. So we've got aplomb, that's been filed and the initial forecast was to be something like $10.8 million in senior bond and then about 1.7 million in subordinate.
Bonds and the ways more net bonds work as you know.
Excuse me and cascading revenue flows as the mill levies go to fund the senior bonds.
And then once those those that services are fully funded then they go to fund the subordinate bonds and the relationship between the senior bonds in the subordinate bonds really are a function of build out. So if you issued late stage bonds, where the community was fully built out those would all be senior bonds. If you issued early stage bonds. They went almost all be subordinate bonds, because there's no senior bonds.
That have existing mill Levy, so that's where we found ourselves kind of in that in that area that allowed us to have a good senior position than a relatively small subordinate position because of a very good visibility to build out and the number of connections and then the total assess value.
So then they go they build all these things and and once they've got them. They put together that that marketing memorandum. They go to the market then they see kind of where the market demand is for that and so the interest rate sensitivity. There are kind of estimates and so if I look in my world to say you know if we got 5% that's kind of <unk> expectations and I'd be side.
Satisfied if we got more than 5% interest rate then maybe I look at it and say the market was a little weak and they you know they were they were dialing back on the risk factor and then if we got less than 5% I'd say the market really looked at our project with some favre and we're willing to pay a premium and so we'll see.
See how that prices out and you will see final numbers come to that flom and that was there'll be the actual interest rates. Okay. I see thank you. So I was I was looking I'm looking at the coupons or prospective coupons are two different structures I don't know if there was the same.
Ah ones one has a.
Call with a sinking fund provision the others just to call provision.
And one is around seven in five Ace wants a 5% I was wondering what you had their day to having a five day the 19th this month.
In the memorandum and I was wondering what you would tend to come to market with if you're looking at 5% money or maybe even a little bit less system, if the bonds trade up if the.
They come issued above par or you know if you're looking at having to go to market for seven Inphi base, but those you're telling me those are basically.
Kind of markers out there right now that's right those are placeholders, okay, great alright, well. Thank you very much and ER and best of luck going forward. Thank you very much.
Thank you.
Thank you. Your next question comes from Bill Cunningham. Please state your question.
Hi, Mark <unk>.
Some questions on the bonds as well the interest rate or how does that impact cure cycle I assume the bonds are being serviced by the taxes by the homeowners. So it seems if I'm understanding things correctly that the interest rate doesn't really.
Directly affect pure cycle in any.
Manner is that correct.
That is correct. So that's not our debt interest rate that's gonna be the municipalities debt interest right and it does have a indirect effect to us because if they get a lower interest rate on the same assessed value then they have more bonding capacity and so if the interest rate goes down then they can go for more money with the same assess value and.
Pay more of the Reimbursables and Okay look at it in this particular first phase and that's kinda and then let me drill down on a question that I I'm pretty sure you're going to ask the next question, which is you know how much of the first phase of Reimbursables are we going to get back with this bond we won't get them. All back you know, we think we'll have about $25 billion.
We're suppose in this first phase and we May only get back 10 million in this first phase and that's because when you look at property taxes in Colorado, Colorado is what we call a sales tax incentive state and so we have very modest property tax very modest income tax, but relatively high sales tax.
And so when you look at where that revenue comes from for cities. The municipalities, it's weighted to commercial development in fact.
We get four times the amount of revenue from the same avi in commercial than we do in residential and so while this first phase is just residential and it really won't allow us to pay back all of the public improvements we have a very large commercial that pace four times.
The amount of tax money on the same Avi that will then catch up and pay for the.
Residential components that were unfunded by property taxes.
So we still have that balance accruing.
So that that 25 million as we build out that first days, if and I'm just I'm speaking hypothetically, if we get 10 million back on this first days just because the round numbers.
If we get 10 million back on this first phase we will still have that 15 million that we'll continue to accrue interest as a reimbursable for future phases and future bond offerings.
Okay and now this first 10 million when use when the bonds are sold and you get reimbursed is all about reported as as income to pure cycle.
To the extent that we haven't already taking it out of inventory. It is if we still have money is left in inventory then we netted out against the inventory now so you'll see some of that tax advantage there, but looking through if we're gonna if it really will wash out period over period, because if it comes in and are all physical year. It all.
Becomes taxable.
Okay. So they'll full 25 million ultimately, we'll just or whatever the the exact number ends up being in totality will be income to pure cycle right.
Correct, particularly if you look at the second 15, you know so the second 15 will will have recorded all of our basis in that first 506 lives. So that next 15 is 100% income it drops at the bottom line okay.
Okay. Thank you.
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Thank you and again, ladies and gentlemen, if you do have a question. Please press star one of your telephone keypad at this time.
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And there appears to be no more questions at this time.
Okay, well I certainly want to encourage all of you. If you think of a question that you didn't get in are you had some technical difficulties dialing in don't hesitate to give me a call or if you listen to this on the replay.
Certainly reach out some upcoming or news will have a shareholder meeting coming up in January So January 15th or you'll see a proxy statement will file that probably within the next couple of weeks. So you'll see an announcement on our proxy about oh, the shareholder meeting the time to location those sorts of day.
And if you're if you're headed any whereby dodge through Dodge come by and see us we'd love to meet you.
And then I just want to say you know what I really think our board I want to thank our management team.
For a really strong effort, putting together a great a year end, we've executed very well I think certainly the builder market has been very buoyed by it if I. If it's a number of interest that I get from builders that aren't in our first phase or any indication that this I'm certainly sky ranch.
Made a significant splash in the Denver, ammo say and we'd like to continue that success with our next filing a where in the late stages of our our Ah permits with that and we'd like to get those in kind of being a position to start breaking ground on that sometime late next spring to be able to you know work the dirt get those lots delivered.
And then being a position of delivering finished lots for spring of 2021, which should carry through sort of the build out of all the Holmes, who you know we're going to deliver lots in 2020, but it'll take the bill there's a little bit to finish out building 506 homes out there Ah, but you know we'd like to have a seamless transition and be able to.
Carry forward to the next day, so very exciting for the company very exciting in a a rewarding for all of our shareholder so I want to thank you all for your support.
So with that I'll go ahead and sign out and look forward to catching up at the all soon.
Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time reading.
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