Q2 2021 Pure Cycle Corp Earnings Call
Home page welcome to the pure cycle Corporation second quarter 2021 earnings call at this time. All participants are in a listen-only mode a question answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad, please note. This conference is being recorded. I will now turn the conference over to your host president and CEO you may begin
Too much and I'd like to welcome you all to our second quarter. So. Six months period ending February 28th 2021 earnings call just some housekeeping items for those of you who are dialed in but want to follow the presentation on our deck. If you jump over to our website at pure cycle water.com on the front page of that. There will be a link where you can click on to the earnings presentation and you can follow it along with us.
So with that I will start the presentation with the first order of business, which is to get the lawyers out of the room or at least satisfy them and note that this is our Safe Harbor statement Thursday and statements that are not historical facts contained or Incorporated by reference in this presentation are forward-looking statements. I'm sure you're all familiar with Safe Harbor statements and forward-looking statements. So to give those of you who are new to the company and and and we've got a number of new folks who have either I called in to inquire about the company or had participated in one of the conference's that we've done recently. I'll give you kind of a brief overview of the business Enterprise and we'll drill down on some of the specifics of each of our segments and then I'm going to turn the call over to our CFO Kevin mcneel who will give you guys a highlight of our impressive earnings over the Dead.
Quarters so over the 6-month. So with that the company operates in three complimentary business segments a Water Resource segment where we own water rights in a watershed area and then develop those water rights for our own use and as a waterproof also water provider for other customers Land Development segment where we own property in Georgia right part of the Denver area and the I-70 Corridor, which is one of the fastest-growing quarters in the metropolitan area and then a new segment that we recently announced is a single family rental Bill to rent segments and I'll drill down a little bit more specifics on that as we go through the presentation.
Highlighting our water segments. We are sort of what we Define as cradle-to-grave where we have a large water portfolio in the water short area, you know the part of the country where you can actually own water as a property asset so we own about twenty nine thousand acre-feet of water rights and that enables us to provide service to an estimated sixty thousand connections and wage find our connections as sort of the equivalent of a residential connection. And then we also develop the wells the diversion structures off of the surface water streams that treat it took it out to the customers. We collect that back. Once the customer is used it we process that through Water Reclamation facility and then we reuse that water supply either through irrigation customers where we sell that water to irrigation clients, or we sell that water to oil and gas customers for industrial use. So we use and reuse that water supply we get home.
To be instruments for that we get paid a one-time connection fee a very substantial fee for our connection charge.
Just we get about twenty seven point seven $27 for the water side and about $48 for the suicide surrounded numbers around $32,000 for our connection fees. And if you do math on the capacity of the portfolio, that's about 2 billion dollars in revenue and then there's about a 50% margin in that business cuz we are going to build the brick-and-mortar all of the infrastructure that deliver that to all of our customers and then we get monthly Water and Sewer bills. So we collect about $1,500 per connection per year combined Water and Sewer revenues and I'm doing the math again on our estimated capacity of 60,000 connections that build-out that generates about ninety million dollars a year-over-year revenue and that's about another 50% margin business when you're working through operating and maintaining the system.
I do want to highlight. This is kind of our team Keystone accept our new Waste Water Reclamation facility. And what this does is it's 100% reuse facility long. It takes one hundred percent of the waste water that comes into that facility treats it back to a standard that we can reuse that for outdoor irrigation and Colorado has some very specific regulations that govern the ReUse of that water supply for parks and open space irrigation. So we do do that. We have dual distribution system within the Sky Ranch Community that allows us to deliver that directly dog parks and open space as well as bring that back to our storage facility for use for industrial and gas customers.
This is a little bit about a customer connections and an idea of where they are where they're coming from and and sort of their projected growth rate. And so we've got a growing customer base. Although if you look at our capacity, it's 60,000. We're in a very very small number. We're just beginning in terms of our customer growth, but we are growing quite rapidly year-over-year on our connections both you to what we're doing is Sky Ranch as well as our other service areas in Elbert County, which is a project that we acquired the service to a couple of years back. We provide both residential and Commercial connections down into Albert County on that. So if you take a look at this as kind of a projection build out of just the 5,000 connections for Sky Ranch. We're kind of projecting that over the next day eight or nine years.
Moving on kind of a a graphic that illustrates the growth in our investments in our water utility asset. So we continue to add to our portfolio of assets that deliver that serves both in terms of the infrastructure on the diversion and and and all elements of that storage Distribution Systems those sorts of things. So this will continue to grow this will be that 50% capacity that we used to invest those tapped. He's into the brick-and-mortar of the utility segment business.
Um, so I'm going to spill over into the second segment Our Land Development segment, which really incorporates, uh us as a master planned developer in the Denver metropolitan area. We acquired a thousand acres of property and number of years ago. We acquired that at the right time, you know, you always want to buy right but, you know, acquiring raw land break middle and the depth of the the Great Recession certainly took a lot of courage and and we're grateful to our shareholders in our board for the confidence they place in us for making those Investments, but it was a good buy and and total the project can accommodate up to Thirty Four Hundred residential units and a couple of million square feet of commercial development. And when you equate doubt that commercial development in terms of sfes, we're projecting that to be in that $1,600 single-family equivalents on the Utility side. And so that that metric will come into play a little bit later as I detail what the bill. Capacity is, correct.
But we believe that that build up capacity is around 5,000 single family connections. And we equate that both not only in terms of the utility segment, but also on the real estate what we look to them realize in terms of the revenue potential on the real estate highlighting a little bit of our successes on this we started our first phase which is about 509 single-family Los we did that about eighteen months ago. I'm almost two years ago. We've got just shy of three hundred residents out there now a little over a hundred homes under construction. And so that had exceeded the expectations of both are Builders as well as our models and it's mostly been because of the product, you know, we have an entry-level product out here. It's one of the it is I think we bought the the most affordable master planned community in the Denver metropolitan area. And if it's not the most affordable among the most affordable master planned communities in the metropolitan are dead.
We're projecting that the available Lots in this first phase will be sold out by the end of this year. We've recognized our full revenue on the lot delivery of about thirty-seven million dollars two days and we've recognized about 11 and 1/2 million of cat fee revenues two days total should inches way up to about fourteen million as the balance of apps are applied for by each of our buildings. And these are three production builders in our first phase moving on to kind of highlight a little bit of our second phase. We've got about 9,000 Lots in our second phase. So about twice the size of our first phase we broke ground in February of 2021. And our our our dirt crew is out there grading our first days of these Lots right now. They're about half through grading the first 230 Lots. So we hope they them to be done in about end of May time frame and Thursday.
mobilize all the utility Crews
Start to deliver Lots later this year if you take a look at our lot revenue for phase two we did have a a substantial increase from our pricing and the first phase mostly just cuz we were looking to break in a market and a first phase and we're getting into a little bit more pricemetrix here where we had about a 30% increase in our overall lot costs. And so we're estimating a lot revenues about seventy eighty two point six million. This phase has a number of different product lines are first phase was pretty homogeneous. We had single-family detached Lots which were anywhere from forty eight hundred square foot of 5200 square feet. They're either 45 or 50 foot lot Frontage pretty standard lot delivery for our production Builders. And this one will have a number of different products will still have those same four or five fifty foot Lots, but we'll have paired products or townhome product will have a duplex product will have some alley loads in both the 40 foot off.
Sizing and the 35-foot sizing so it'll be much more attractive to a broader range of buyers. So when we look at the absorption on this one, we don't look at it necessarily by the Builder, but we look at it by the the product class and we have six different product classes in this next phase tapi revenues again are here illustrate about 21 and 1/2 million and then the reimbursable cost at about 48 million volts get back through reimbursements from the local municipality the Sky Ranch Metropolitan District of the Sky Ranch Community Authority board.
Doing some math Warsaw here. This is kind of an illustration of both how filing one Stacks up how filing to looks to project itself out. And then what the balance of it's going to look like in the balance is really taking the remaining $36 which we convert that sixteen hundred commercial lot into residential lots. And so that was that that forecast here just going to have that same Revenue projection that we would have at a residential level as well as the same cost projection. We think we're going to do better than that because they make commercial land is more valuable and it has certainly more often sees on delivering utilities to it. But for comparison purposes is kind of gives you a feel for what's the pedal left in Sky Ranch. And so if you're looking at this, we probably got about another hundred fifty million in total revenue over six $65 million. So we got maybe eighty million dollars worth of margin in in the phase two that's available and then the name
Space you know that that can carry us up to about six little over six hundred million dollars with about call it a hundred fifty million dollars worth of costs in there and some of those effects he's in there in terms of the the tapis and the last delivery costs so very attractive margins and what we're looking at for the rest of the Sky Ranch and so, you know that compares and you can just you can kind of take a look at that from a discount Factor, but you know, we're projecting that over this say the next eight to ten years that'll give you a kind of a an analysis of how fairly the stock is price.
moving on into
Our new discussion topic and I do want to spend a little bit of time on this cuz this is exciting for us. It's a bill to rent we're actually going to contract with our our portfolio home builders to be able to build these homes for us so that we can continue to have them be our Builder on this. We're not competing with them. We really are just saying we're going to hold back on this lot and then we're going to be your first customer on those lot. So as they're building blocks that we reserve the blocks for they have the opportunity to be able to come in and build for us on that and and really it's it's a nice model for us cuz it allows us to capitalize on the highly appreciated land cost as well as the long-standing investment that we have in the utilities. And if I look to try and highlight why we think this is important and why these this is a good segments out for us. This is kind of an illustration to some of the demands statistics about how home values continue to go and and then the constrained inventory that we see in terms of home prices wage.
Then we also see a a significantly constrained inventory of entry level home prices here in Colorado. If you took a look at these statistics before the recession roughly 50% of all homes that were started in the Denver area. We're in that entry level product category. And today that number is Fallen to less than 4% So tremendous demand for life or what it is that we're doing out there and then just some statistics about you know, the price appreciation of the home values, you know, this the competitive listings. I think you all seen the headlines about you know, that every time you list a property you're getting above you're getting multiple offers above your asking price. And and so what that tells us, is there significant appreciation for these laws and and how we translate that, you know, we're looking at you know, why Sky Ranch, you know, the Denver population continues to be among the top in the country in terms of her birth.
Darius for for residential growth we think the Sky Ranch our our our our entry price product is the right location. We we've got a tremendous land plan that Thursday that incorporates parks and open space and and a new charter school that we've approved that that our local school district has approved and we've been working with them for a number of years to really bring them investment into the community and then the commutes to employment center. So Sky Ranch is the perfect location for something like this particular model and how we look to capitalize on Thursday is to take a look at you know, we're we're able to deliver the vertical side of this for about three hundred thousand dollars a little bit more than $300,000 off $450,000 home. So that's the incremental cost of the investment into the bill to rent that's compared to just selling the the the lot and the tap
And what we were able to do.
Is line up interest rates attractive interest rates for that additional cost. So, you know, when we went to this, we took this, uh opportunity to our board. They said that we might consider it but you can't use any of our cash and you're got it you got to find a way to be able to fund the incremental component of the vertical cost which we were able to do with that package type money. And so we've lined up some financing for about three point seven-five for this bill to rent and then if you look at the metrics on it if we're renting that out as a $450,000 home a rental income there at about $28 a month. And so that generates about 33000 over the year and then we've got our cost in here, but what this ultimately does is it has positive cash flow of another $15,000 per single family connection. And when you add that to the $1,500 single-family connection on a utility model just becomes dead.
Very creative to the income statement. So the advantage on this bill to rent if you take a look at the next slide it allows us to be able to grow both the balance sheet and the income statement the positive the creative cash flows that are going to be recurring cash flow to the income statement of $15,000 per connection. And then also taking a $450,000 market value am seeing that continue to appreciate and so if you show just some some modest appreciations on those home values, you've got a great asset appreciation. So we're going to we're going to kind of add this to the portfolio with our second second filing here and we've got about a hundred Lots reserve for that. It'll be incremental so we'll have, you know, start out with a dozen that'll be in our first case. We'll kind of role that forward with each incremental phase and and and we were also able to add three New Lots to our first filing so we are actually under construction for our first three units of that and so as we wage,
Continue to update you on that and one of the things that we'd like to do is also try and have an investor day here this summer where we as we can all open up and travel for those of you that are out of town have an opportunity to come out and see not only the successes of their first phase see the construction of our second phase see what we're looking at in terms of our our Builder rent down as well and then you know more on kind of a water utility segment and some industrial and gas activity as that's kind of instance way back. So they'll be a bit more information about that as we come a bit closer to the summer and get some dates that will circulate out to everybody.
So with that as a lead-in, I do want to highlight the fact that you know, there still is an attractive oil and gas opportunity for us to sell water to oil and gas operators. You know, there's been a significant investment into this field that's been be risked. So they do have a very strong understanding of the the production efficiencies of this field and and there's thousands of Wells that are looked to be drilled in here and we continue to see an increase in the amount of water usage per well. So our current operator is using about $250,000 worth of water for each well that they have in this capacity and and really what they look to do is try and stay ahead of the growth of the metropolitan area. So they're going to be working their way from sort of the west side of this map over to the east of the tape can maintain the spacing that the the new the setback requirements the state of Colorado has and Ed.
you know, Colorado has had a
Fairly dysfunctional relationship with oil and gas but I think they've come into a fairly workable framework for operators to be able to get what they need to get done and be a safe distance and setback requirements for residential communities that that's where they're encroaching into the residential Community. There's an expectation that they'll be in a safe operating distance. And so, you know, we find ourselves in a part of the formation that's attractive. But also where development hasn't quite come out to that yet. So I think there's a good relationship and we find ourselves kind of in a better part of that field for operator. So we do have a a rig that was relocated here here this spring and its drilling additional Wells and so we will continue to deliver war with them and you start to see that on our income statement as we go forward. Okay. So what I'm going to do is move over to the financial results here. I'm going to turn the call over to a job.
McNeil he's our CFO and he's been kind of really working this side of the the company and and and optimizing what we're doing on that and I'll I'll let him highlight what we've done one. Great big Mark and welcome everybody for thanks for joining us this afternoon. I'm going to highlight a few items won't go line-by-line obviously on the balance sheet or p&l on the side door on the 2023 the top three graphs really show you the three those three major items Revenue gross. Margin. Net income and where we're at in the six months ended February 28th compared to the last couple of years to give you a gauge on how we're doing compared to where we were the last few years. The bigger item. I want to highlight is the bottom section and this is related to the reimbursable as I noted in Prior calls up until now we've felt those reimbursables or contingents of payment of them until they weren't recorded our books anywhere. We we were waving and deferring some of the wage
Income in project management fee Revenue, but this quarter going into to the current year with the development second development filing progressing the mill Levy changes growing a sustained tax base from the first filing we did analysis and determined that that was actually collectable. And so now we believe under under us gaap guidance is considered probable that will collect this based off. We were able to recognize about 19 million of project of other income related to the reimbursables along with one point five million of project management fees and one point four million of interest income which really brought this up with what's really occurring and you know, it's a back in track and gets our gross margins more in line with what was expected. What what is truly going on in the in the first phase progressing next slide. I'll just highlight a couple of items in the balance sheet with cash or maintaining up pretty good cash balance lost to start you. You'll see that start coming down the next quarter as we continue with with development of the second phone number.
But then we'll start getting some Milestone payments.
Like this year versus last year are metered water usage of about a hundred thousand, which is really predominately due to the Sky Ranch growth. There's about three hundred homes built out there as Mark pointed out earlier. There are some additional revenue from oil and gas operations. And then the the one that you know, the big decline is obviously the land of the lot fee Revenue which that's going down because filing one is substantially completed all those laws so violent who's going to go and expect those revenues will start being recognized later during this year as permit or its class and let utilities and everything get installed. So that was really it obviously I get to the end of the some questions answer then you have other questions. You can feel free to reach out to mark for myself. And with that. I'll turn it back over to my great so a couple of highlights their life, you know, one of the things about you you can't be on an earnings call where somebody doesn't talk about what impacts The Cove good has off.
The next slide is the the income statement which all of this will obviously you show up in our our 10-q which will be filed tomorrow morning highlight. Just a couple of items. You can see for the six months ended 6:30 this year versus last February.
Has on your Enterprise and and I would say, you know, the one impact that it did have was kind of a delay in processing our approvals for our second phase and it was just you know, that was unavoidable sending in these very detailed complex designs and Engineering documents over to the county when they were trying first to figure out how they could get their people work remotely and then secondly how to have the time lines for processing these applications work with public hearings and things like that that really what we would like to have these overlap a bit better than it get we were set up to do that by how we started all these and just didn't work out to time that way but we do feel optimistic that that will be better managed going forward. If I were to say what the covered impacts of the company have been that would be the one that I would highlight, you know Staffing wise, you know, we've been able to maintain our staffing here in the authors.
You know through rotating occupancy levels and and we're building that back up. So most of our team does does come into the office and most of our team in the field has been consistently be working in the field delivering water Wastewater services. So with that let me go ahead and turn it back over to the moderator and see if we can add a little color to some questions that you all might have.
Thank you at this time. We will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad a confirmation total indicate your line as in the question Q. You may press star to if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key. Our first question is from Tucker Anderson pack of all advisors. Please proceed with your question mark are good to hear from you guys are getting recognized a few questions. Could you could you talk about any color on when and how you may proceed with the commercial development?
Yeah, so, you know.
We have added some board strength here and and probably have one of the best guys who handles commercial opportunities for one of the local private developers here in town who really would not be competing on anything that we're doing and and so his name's Jeff sheets. And And he as well as Patrick Byrne who was really off most of his career have pulled the have both come into our questions on this is to say they've never regret they've never had a situation where they wouldn't regret selling their commercial. They always wanted and could never convince their management teams to hold that commercial until the full value got there. Now. There's there's a delicate balance between you know, how do you hold for value and how you present value that value that you're holding for? And so right now, you know, we've been in touch with a lot of the commercial uses whether that's yep.
B grocery anchors or your big box stores to get them on to get on their map such that we know that what their requirements are. But, you know, they're sort of thing. Listen, we see you. This is a perfect place. We really like The Interchange off the interstate. So all those things are great and they're just really wanting a little bit more density on the rooftops out there. So, I would probably put this at later stage of the second phase and and by later stage, maybe that's when we're you know that we've got five hundred units just the 900 maybe when we get more like a thousand units up which probably isn't that long Tucker given the absorption that we've seen and if we take a look at that same absorption in the second phase that we saw the first page of we're looking at it at maybe five units per product type per month. So that might be $30 per month. That could be sometime next summer, you know summer of 2012.
To that we would start looking at that and start really getting into those lease opportunities. We want to be sort of delivering the full pad site. We don't want to have somebody take us out of the property and then do a pad site and then sell it to somebody we want to get to the pad site for the actual end-user. And so if I give you that analysis, that's how we think we can optimize both that foul you change as well as the present value of the sale of those commercial properties. That's great color of the follow-up I would have to that is as develop more of the residential does does it make the remaining residential lots more attractive and perhaps your pricing better if you have like let's say an operating grocery store and some basic amenities for the people who are residing at Sky Ranch. And is that also an additional consideration?
It is it is very much a digital consideration. And actually you you're you're touching on one of the key points why we went to this bill to rent because everything that we're doing that we're otherwise going to do is going to continue to increase the value of those homes. And so for example getting a charter school operator on there getting commercial out there getting you know roadway improvements getting a Rec Center getting all of the theme parks and amenities up every time we do that that increases not only the value of the lot but the value of the home if it increases the value of $100,000 lot by 5% that's great for us, but wage increases the value of a $450,000 home by 5% that's almost four and half times greater for us. So that's why we like that.
Yep. Yeah.
Directors is very interesting. And if I could ask just a couple more questions, I don't want to take up all your time is your bill to read financing specific mortgage financing for that project or is it off is it financing that has recourse to your general balance sheet it is directly related to the the residential units not against the balance sheet. And the the only other question I had is is what's happening to affordability both in your Sky Ranch development in general and then the Denver area in particular with the other pressure on Builders with the cost of things like that. And and I know for now it looks like mortgage rates are created. So I'm not including mortgage rates, but just in terms of the general delivered product cost and how that's affecting affordability their own. It is the concern in in any market and and a key concern in our Market as well and and lumber prices and and labor availability birth.
Paul are contributing to that and and that was one of the other key considerations when we were looking at the BTR model as we really wanted to partner with the national Builders because they have the best cost per square foot if I come in and custom build these it's very challenging to do that just because of that cost increase and you know, we do want to stay competitive. That's why we took a look at the second phase with a lot more publicity than our first phase and that's why you see some of the town home product because that density then adds to the assessed value which then adds to the recover ability of our reimbursables. So all those factors give us the ability to keep that keep us in the Forefront as Denver's most affordable master planned community.
Thanks, keep up the value of creation first long-term shareholders. That's all I have to say. You you have been one of those and thank you for your confidence through the years. Yeah. Good. Good. Good work.
Thank you. Our next question is from William Miller a private investor. Please proceed with your question.
Okay, Mark. I love everything you said but you haven't told me about what I think is a critical component of your future. Why aren't you going out and buying more money for your rental Endeavors? I mean that so much.
That's how much your best opportunity you have and it's got the best cash flow. It's recurring Revenue, which is what people will ultimately pay for in your stock and you've got to get more of my hand and own it now.
I am I am, you know Lock Stock & Barrel with your bill. We are we we got our Nets out we've got we've made pitches on a number of fronts for a number of property then we will keep you updated. You know, that is that is an active part of what we're doing is growing the business and you know, we're growing the business in every conceivable way that which we can control as long as that which we can buy as well as that which which we we can partner with. So whether I buy the land whether I partner with somebody who already has Zoning for land so that I get the utilities all the above are part of our growth strategy and so we are we are active in that front and I know you you as well as my board and then others want to see you know, tangible success, but well disciplined about doing it, you know, we want to be smart. We're never going to find as good a bias Sky Ranch. We know that that's not our metric but by the same token, we do have the ability to pay a little bit more than maybe somebody else would suck.
What for that land because we have water that we can combine with it. So we are aggressive out in that Marketplace and
You know stay tuned.
Well, is it a very competitive Marketplace at this time?
As you might imagine it is, you know, there are a lot of you know housing being what it is, you know, people are out there making pitches but you know, it's a little bit different for a lot of the properties that we're dead in in and around our our in and around Sky Ranch because there's not a lot of water that would go with it. So a lot of folks who might be looking at that might be looking to say well, you know, it may be worth this but you don't have any water and and so I would say, you know, we probably have a competitive advantage.
And what is going to act as a catalyst for you're actually getting something done.
Well, that's a good question. And I don't have a good answer for that. I mean it's ultimately it's a function of you know having it has to be right for the seller. So sometimes the sellers out there. There's no price. They just don't want to sell sometimes. It's a price that may be unreasonable and sometimes it's a matter of you know, we're working through some Logistics with some specific buyers or some specific sellers. So I'd say all of those metrics come into play, you know, we've talked with folks who said yeah, you know, I know but no I'm not interested in selling right now cuz where they're at in their life and they may be doing, you know, some estate planning. There are folks that you know are interested in selling but the price may be too high because they know we have water and they want to price it with our life as opposed to pricing it the way they're selling it and then there's some that you know are reasonably priced and we're trying to effectuate a transaction.
Mark what took you so long to get to the idea of of rental property.
You know, it's like my wife says I'm a slow learner. It's a gender problem. I have a I have a gender problem like that. Okay. Well now he's overcome your gender problem. I hope you'll be late go to the next phase of your issues and get some more land so that we can start factoring in what I kind of look like in three to five years. Yep excited to do that to. Okay. Great. Well done. Thanks. All your endeavors.
Thank you. Our next question is from Justin with black diamond investors. Please proceed with your question.
Hey Mark, great to hear from you. Wanted to ask a couple questions on on the rental segment. First is like could you walk me through sort of the financing process for the bill to rent construction and it seems to me like you're capitalized costs or or less than sort of the The Leverage or getting is is that right? And are you like able to recycle all of your capital?
Yes.
So typically, so I'm going to let me that's a good great question Justin. So while I well they said my board said I can't use any of our balance sheet to be able to do this. I'm bridging a bit of balance sheet to do this. So, you know, what will end up doing is will build the the unit itself and say we use our money to do that. I'll do this in terms of sort of the three units we've got under construction. So that was three units around up and say in round numbers. It's going to cost us a million dollars to build all three all three units. We will build we will pay for the million dollars and once we get cos from the county which means that the house is complete then we collateralize each one of those for the million dollars. So I'll break that up into three months and the bank will take give me the million dollars back and take the deed of trust on each of those three units to be able to do that. And so if I if I if it cost me three thousand
$20,000 330000 dollars to build the unit and they're $450,000 in terms of what the sale price is and we'll have an appraisal on that. We don't have to pay PMI insurance on that page. So it's directly related cuz we've got a good margin on that and then we can cash flow that by getting somebody in there that would pay not only or Debt Service on that but the creative margin had that positive cash flow to the bottom line.
Yep, that that that sounds wonderful. Great to hear that. And then secondly, I guess how are you thinking about the percentage of of properties that end up being built to rent vs for sale? Because that's my impression Bill to rent seems to be like the most valued creative thing. So so how are you thinking about the proportion of properties in in those categories?
Great question. And and so that's another one that the board sort of has a a strong show me mentality on it is to say okay. I'm going to give you money, you know hundred units and see how you do with the hundred units. Can you get them built? Can you get them built with what you say? You can give them build? Can you manage the the rental and get the income attributable to what the way the thing is our forecast out and if you take a look at a hundred out of fourteen hundred homes, you know that's you know less than 10% you know, you're looking at about 7% of the overall unit. If we look at the rest of the 30s the rest of the mm residential units out there if I take, you know ten to fifteen percent in there, you know, I think that's probably a balance number where it leverages the community correctly. We may have we may take a look at blocks of it in this next one. We're looking at a hundred dispatch.
You know in ones and twos around the community, but maybe we take 60 or so contiguous and we want to vary the product so that we can have a common maintenance scheme through there and took a look at some efficiencies on that side as well. So we'll very it up and and and kind of continue to build on that. But you know, if I were to say our tolerance level maybe somewhere around 3 same maybe three to four hundred units in this in in Sky Ranch and then as Mister Miller was highlighting go get some more land and do it you seem to seem to be generating some value here. So we will continue to look at other properties and continued sort of that pain to maybe 15% of that to be in a bill to rent capacity for us to keep got it. Sounds great and long terms of property management. Is that is that being done in-house or or are you finding some third property property manager or third-party property manager?
so
For the time being we think we're going to keep that in-house and one of the reasons for doing that is, you know, one of the reasons I would attribute a lot of our success on the development side is we've got a combination of doing utilities gather with Land Development and really where the efficiencies come in on this thing. When you go out and you bid Your Land Development, right? We're not going to we're not going to grade the ground or do a lot of the the utility the the retail distribution system where the dry utilities or any of that work. We did that out to the market and the market comes back a very competitive when they first did these things out and and you never can know every month saying when you're getting into Land Development, there's always surprises. So you always get these change orders and the thing that we've done successfully is, you know, we have guys that that are capable of doing this work, right? They they're they're very talented with the big Iron the loaders the excavators the equipment that needs to be able to install the facilities phone number.
Utility saving and they can do the same thing on the other side. So when it's change orders come up rather than being you know that high-priced Dollar on the change order. We take care of that and so having that team on Thursday also gives us the ability that these guys can do everything and and so we can you know, if if if we've got a plumbing issue over it, you know, so and so's house, you know, they'll be dispatched over there and it really won't be a significant intrusion into our overall business model because we have them doing productive work all the time as opposed to as if you've got a job has been agency and you've got to get a guy dispatch to go out and commute, you know an hour each way 30 minutes each way. You got a 15-minute on-site fix and another 30 minutes back that kills you in terms of the management of that. So we like that because we're already on site. We already have the talent and the resources to do that. And so that's why we live rep.
Maintaining it ourselves. We'll see maybe I'm wrong. Maybe it becomes too consuming and then you know, we sort of say either we stop into that when you get a hundred units when you get 300 units you certainly can easily stop in and have those dispatch directly on site between 0 and 300. I think we can manage that with the talent that we have.
Got it. Good and just to be sure the the financing on the bill to rent is are these fixed-rate or these variable rate loans? They're fixed drink. Okay. Then one last question for me. I guess like when you think about you know, the Acquisitions in the pipeline and the deals are looking at is there any thought to put on Leverage when you make these Acquisitions off and lower your cost of capital or are you thinking to just you know pull straight from from a cash balance?
We'll see depends on the side.
Got it. Okay, perfect. That's all the questions for me. Love the work you're doing. Thanks for talking with me. Thanks for your support.
Thank you. Our final question is from bill with new frontier Capital. Please proceed with your question. Hey, Mark, how you doing out there good to hear from you quick question on a salary range. Where is the landlords had passed with respect to the development of a portion of that property now that there's so much development in the area. And the second name. Is there any roles for you guys in helping them move forward on something?
So the landlord is actively looking at working with the county on two fronts. You know, how much of that property should be conserved, you know, you have 27,000 jobs out there and not all of it is going to be developed. And and so they've recently take some action to work with the county on you know, what's the proper percentage of what gets concerned and then month from that percentage the difference between that and the the total portfolio they want some certainty on entitlements and zoning and so, you know that that can take down a bit of time. So I think they're going to they're they just recently authorized that I think they're going to take a couple of three years to take a look at entitlements and conservation opportunities up there to get a good Land Land Development land conservation and continuing Revenue stream from the whole portfolio, but they've been more dead.
I guess proactive on taking a look at that property. Then they have in the the last say ten years of that. So we're excited to see that we we will continue to help and participate with them on that process if there's an opportunity for us to bid on Land Development opportunities. We may consider that certainly already have the the utilities there. But you know, it depends on what we have going on at the time other Acquisitions when they're looking for development of the property itself, right? Thanks.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to management for closing remarks.
So let me let me close with this. One of the things that has been helpful. And and for those of you who haven't had an opportunity to travel out here and take the tires off. There's nothing quite like seeing it and so we'll set something up probably in the mid July timeframe to be able to have everybody have the opportunity to travel out here take a look at it. Also be on the lookout for a new website. We were hoping to have that up and live for this call. But the guy just didn't the line for us on that but you'll see a new life improved website which will have a webcam on there. So you'll be able to click on that and be able to see the dirt movers the graders moving around the site and some of all the activities that we've got going on there and and and continue to have sort of that virtual presence in the marketplace as well. If anybody didn't get their question queued up from a technology.
Standpoint don't hesitate to give me a call.
We'll probably be a bit more active in the investor side of of doing a little bit more conferences and and and getting either in person or virtual conferences. So if she dies in the conference stop by say hello or give us a shout out and then if y'all have other folks that we should add to our industry mailing list don't hesitate to send those over as we're getting a bit more active on both sending out notices and Twitter and and and social media. So they'll be a bunch of more opportunities to see the company updates through that venue as well. So with that I'll bring it to a close. And again, thank you all for your continued confidence in your invested capital.
Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a great day.