Q1 2022 Pure Cycle Corp Earnings Call

Okay.

Good morning, ladies and gentlemen, and welcome to the pure cycle Corporation quarter ended November 30th 2021 earnings call at.

At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host Mark Harding, Sir the floor is yours.

Thank you very much good morning, and happy new year to all I'd like to welcome you to our.

First quarter for our fiscal year 2022 earnings call.

Just some housekeeping items, we do have a deck for this presentation you can find it on our website that pure cycle water dot com.

Can click on the.

A landing page there and then ill direct you to where the presentation is.

And so with that I'll get started.

Moving to our first slide which is our safe Harbor statement statements that are not historical facts.

Chained or incorporated by reference in this presentation are forward looking statements as that meaning from the securities and Exchange Commission.

I think most of you are familiar with the safe Harbor statement, but.

Now that we get the lawyers out of the room, what I'd like to do is.

Really all roughly overview kind of the company.

Our business segments, and then talk a little bit about the quarter and then a little bit of color about kind of our operations.

And then open it up to a better Q&A at the end here. So we.

For those of you that are familiar with the company and that was good or just kind of learning the company. We operate in kind of three complementary business segments in each of these segments actually.

Drive operations for each other segments. So it's a opportunity where we're continuing to leverage the value of our long standing assets that we've acquired in water and land development or water water water and wastewater resource development segment is that we own a portfolio of water in an area where.

You can own water rights, we develop that water on a cradle to grave model, where we own the water develop all the infrastructure that diverts it that treats it distribute it out to our customers.

In the land development segment, we own some highly attractive land in one of the hottest areas in the Denver Metropolitan area. The Eastern I 70 corridor, and we are developing that and we are building a horizontal infrastructure for a master plan community and sell lots to <unk>.

Duction homebuilders, mostly national production Homebuilders, and then also have some commercial real estate debt provide some exciting opportunities for us and then more recently single family rentals, where we're taking some of those lots that were improving we're holding them back for ourselves and we're contracting to construct homes that we actually.

List and rent too.

Families and individuals here in the Denver Metropolitan area, So I'll talk a little bit about that as well because we've got some delivery of that product and some great successes there as well.

So let me start out with the water utility segment. So we are a wholesale water wastewater provider as I mentioned, we have wells, we have treatment facilities, we have a distribution network.

We processed that water, we distribute that water to our customers.

That model generates two fee income one is a large upfront capital fee, which we called tap fees and so these are our current cap piece for both water and sewer. So they're right around 2020, almost 22 32 to $33000 per connections those are paid by the homebuilder tip.

<unk> amortized in the cost of the house and our capacity topline revenue capacity on that is about little over $2 billion and if you take the number of connections that we can serve which is about 60000 connections multiply that by the tap fee. That's how you get that.

Predominantly about a 50% margin business, because we will construct all of the facilities that.

Our necessary to handle the water utility side of that and then once we got that customer.

We generate water and sewer monthly fees and those fees are typically about 120 Bucks a month for a typical single family residential home and so that translates into about.

<unk> thousand $500 per connection per year, and then as we get that water back.

For our sustainability.

Our most cost effective new water sources to continue to use and reuse our existing water source. So we have two wastewater reclamation facilities, where we treat that water, we treat that water back to a very high quality water supply that we can then put through a separate <unk>.

Distribution system and be able to redeliver that for outdoor irrigation demand. So we've got a use and reuse model for our water utility segment.

A little bit of color on that.

Continue to grow our assets in the water and wastewater side, so you've seen a tremendous growth over the last four five years of investment into that system, which continues to develop and serve our customer base.

A little bit about our customers, we're adding about 40 customers a month, mostly through two active developments that we are working with the Sky Ranch community for ourselves and then the Albert Highway 86, which is another water utility that we acquired a couple of years ago.

This really just shows a.

Projected absorption model for the number of connections.

The 5000 connections would be a build out of just the Sky Ranch community. It certainly doesn't represent the capacity of our water portfolio, which is about 60000 connections worth.

And then we do also serve water for oil and gas operations and that's been something we've talked about <unk>.

Steadily over the more recent years.

We happen to fit on top of a very.

A very lucrative oil and gas play in the Niobrara formation and this is.

Typically referred to as the southern Wattenberg field, we have a number of operators that have lease interests here the largest of which is <unk>.

Consolidated a number of interests over time.

And really actively drilling wells in the formation. There is there are several producing formations here and so you take a look at kind of what the well capacity is for where we would be.

Servicing the water needs for that it's about in excess of 10000 wells in the capacity. So it's a very large play for us.

Looking at maybe.

A footprint.

A couple of hundred square miles in this area.

And how we sell that water.

We sell water to them at a very high rates. So their demands are very very large and they need that water in a very compressed period of time. So they want that over maybe a two or three week period.

Currently we are averaging about $250000 per well for oil and gas operations.

And we're seeing a much.

Renewed strength of activity in the oil and gas space here, So as oil has firmed up.

And I think the Colorado politics has settled down in terms of how.

The state and the operators are going to Reg.

Regulate their operations there is a lot of.

Renewed sense of certainty as to how the oil and gas operations are going to move forward. So we're glad to see a lot of that activity continue to come back for.

Our operations as well.

This slide will give you kind of a proximity of where development is to our service area. So we acquire these legacy water and land assets a number of years ago and what's happened is the Denver metropolitan areas kind of grown out to where we are and just kind of gives you a picture of kind of how how we're.

And where the metropolitan is there in relationship to our service area. We have a large surface area of 24000 acres of property. That's owned by the state of Colorado. It's owned by the State School Board, which has a fiduciary responsibility to generate revenue for the Colorado public education system and one of them.

A number of fiduciary is that they have and really just kind of gives you a proximity of where our service area not only in terms of the exclusive service area, which is the Lowry range, but also sky.

Sky Ranch as you can see that also in the pink area.

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North of our our Lowry service area, along the I 70 corridor, which is about four miles south of the airport and then some surrounding properties that are key opportunities for us to take a look at both.

Land acquisitions as well as utility operations in that quarter, and so we really like where we're at we like our positioning in the marketplace we like.

How this positions itself in terms of investment activity not only for the company, but really the region as a whole so.

Is it a little bit of context about how.

Our assets are positioned together with.

The Denver Metropolitan area.

Talk a little bit about our land development operations. This has been an exciting development for the company in more recent years, we acquired.

About 930 acre property more than a decade ago. It at the height of the housing recession.

It was an excellent acquisition for us.

It not only came with the land, but there is some of the water that we were under contract to buy when we were looking to just provide utilities to it.

Zoning on it allows us to develop up to 3200 residential lots in a couple of million square feet of commercial space, because we have an interchange right along the Interstate so that property is more ideally positioned for retail commercial light industrial uses and.

And as we look at this property, we look at it as how many connections and how many lots we can monetize and roughly converts over to about 5000 connections when you take a look at.

The commercial square footage so that's about 800 square feet.

As I referenced.

It is ideally located in really the most active development corridor.

We started development of this property a couple of years ago, and really embarked on our first phase of that which was about 509 lots. We have completed all those lots we have transferred all of those lots to our homebuilder customers.

Excuse me.

As of quarter end, we have a little bit more right now, but there is about 405 residents out there we've sold almost 480 of the 509 cap so.

We get those tap fee revenues typically at the building permit base and really we're adding about 40 connections.

And this though youll see just absorbed pretty quickly.

On the build out of that two of the three builders that we had in our first portfolio of builders are complete with their model with all of their homes.

Or at least the remaining homes are sold and are awaiting delivery I think Richmond has a few lots left they may have a maybe a D.

Doesn't or a little bit more lots left that theyre still.

Pricing out and selling to the market there I think they are building them.

On on spec so that they are optimizing their price for that but we've recognized all of our lot revenue and and nearly all of our tap fee revenue from the phase one so that's been a very successful launch for us on that.

In about spring of last year, we started our second phase in our second phase of this development will be a total of 850 lots.

And we contracted for about 800 804, exactly lots with our homebuilder customers.

And held back a few of those lots for ourselves. So we held back about 46 slots with.

With the ability to expand for some other areas.

And really reserve those locked for our single family rental market, So I'll talk a little bit more about that.

Later in the presentation, but what we're very excited about was that this particular phase also included a charter school. So we were.

Working with the local school district, the vendor School district here in Colorado to get a charter school and we're very pleased that that partnership has really.

Been a very good working relationship both for us and the Venice School District, we have.

Terrific charter operator out of Michigan National Heritage Academy.

That we're looking to build this charter school on for an opening in August of the school year August of 2023.

That will continue to add to the community in itself. It's a local neighborhood school. So we're very excited about having a local K 12 campus right in our development.

And then just a little bit more about our phase two here, we looking at the contract revenues that we have from our homebuilder partners will generate about $70 million in total.

About another $20 million in tap fees.

And then as part of what we're doing not only do we collect.

Our fees lot fees from our homebuilders, but we're also doing the horizontal development of the roads curbs and gutters. The parks open space all of those all of those public improvements and we do get those.

That investment back in the first phase those public improvements totaled about $33 million. It was a little bit weighted because we had.

Start some of that with.

Some of those roadways, which were common roadways to the entire project.

Second phase estimates about $61 million of public improvement Reimbursable.

So we have a combination of not only the $70 million in the lot revenues, but also the $60 million in the reimbursement revenues and then our costs for developing the second phase of our estimated about that $73 million. So gives you a bit of a feel for the high level economics on delivering the lots in our land development segment extreme.

Attractive opportunity for us.

Let me just this is a little bit more metrics about.

Parsing out our 850 lots, we're doing that in four sub phases, just so that we're able to incrementally deliver these blocks on a real time basis for our homebuilders and then also kind of how the lot revenues go by builders. So it gives you a bit more color about how the distributions of the slot revenues are.

Total tap fee revenues and the costs and the Reimbursable is in that so it gives you a kind of a feel for how those gross proceeds work for us.

The cumulative aspect of not only the gross proceeds but you'd need to add the reimbursable as to that as well.

And then if you take a look at how we're delivering each individual sub basis was kind of the breakdown of each of the sub base, our first sub phase one.

One of the things that we look to do three of the four homebuilders here are in a structured a contractual structure, which allows us to be able to deliver lots on an incremental basis and b.

We paid on that incremental basis, and so what happens is we call that a lot development agreement format, where each builder.

He is able to pay us when we deliver them a finished lot arent not a finished lot of plateau lots. So that the plywood lot gives them title to the property they pay us roughly a third of the finished lot base price and then as we deliver the wet utilities, we get that second third and then finding when we deliver the finished lot we get that third pain.

And then we have one homebuilder that's in what we call a finished lot agreement, where they will tell you a little bit more for us to carry that cost through to the end of the finished lot and deliver that finish line. So we've completed the first two components of the first 229 lots. So we're working on the roads curves right now and.

Expect that we will be able to deliver all 229 lots by the end of this fiscal year. So we've got a delivery dates there sort of the.

Tober August timeframe of 2022, and give you kind of a feel for how thats breaking down by each individual builders. So some metrics on that as well.

Also wanted to talk a little bit about our single family rental.

Business in one of the things that we looked at was that the value of us, creating a an attractive community. The curb appeal, what we're doing for parks and open space, what we're doing for our amenities, what we're doing for schools, what we're doing for the commercial value of all increases the value of these lots not only for custom.

<unk> and homebuilders at the time, but it also increases the value for the homeowners that come out there and they bindings and so one of the things that we looked at was being able to continue to participate on that and so the single family rental model seemed like a very attractive way for us to do that and that was kind of the fundamental investment theme on that if you took a look and you really dive.

<unk> that market.

The housing market is an extremely tight market I think thats true nationwide, but I think it's exaggerated here in the Denver market and what Youre seeing is.

Both.

Home prices increase significantly as well as the rental market for that and so these are some statistics about what we see in the rental market over the last three years. Both in terms of the median lease price. How many listings are available the price per square foot and so that really was our investment theme in.

And we started this process out with three really four lots from our first phase. So we entered into a contract with the local homebuilder to construct the first three lots.

Those lots were delivered.

And on budget and in time and in fact, we've rented each of those homes out within 14 days of lifting so.

This is a little bit of pro forma on that but the rental income on that is around $2800. A month on that so it gives you kind of an annualized basis and then we do we do have a terrific.

Team of professionals that are helping us construct a portion of our water system as well as our land development activities, which allow us to be able to operate and maintain these homes ourselves and this should give you kind of a bit of a pro forma on that where we're going to generate not only sufficient money to be able to.

Cover the vertical cost of that and what we look to do was we.

Wanted to roll forward the equity value that we have in the land and the improved a lot as well as the utilities and then finance the vertical component of that at a very attractive rate. So we were able to line up some very attractive financing for that so we were able to finance our first three homes on that be able to not only.

<unk>.

Benefit from carrying forward the vertical cost to our shareholders, but also having it be free cash flow for us on each incremental units. So.

So if you take a look at that.

<unk> cost, we self perform on some of that activity, where we were able to handle the muscle landscaping, we financed roughly the the out of pocket cost on that to our third party builder and so each of those units were about $330000 and then the appraisal value of those came in.

Significantly higher on that so it really just the delivery of a house on our lot.

Benefiting us tremendously on that so we've really finance about $1 million worth of these first three homes there their value.

The fair market value leases is estimated to be about $1 six so we've got.

Some some equity built up in each of these single family units and those units continue to appreciate in value. We've got a kind of us were seeing a year over year increase in excess of 4% on each of these units.

So with that what I'd like to do is talk a little bit about kind of the quarter and the quarter end was another terrific quarter for us we continue to monetize our assets both in terms of the land and the water assets.

But for.

$207 million in revenue.

Taking a look at our net income about a $1 $5 million and net income and about <unk> <unk> earnings.

Earnings per share on a fully diluted basis and really this is kind of showing you a little bit of how the contribution is for each of the three segments and so if you take a look at that revenue.

Blue portion of that really is representative of the water and wastewater segment. The green portion of that is the land development segment and while we don't see much because it hasnt contributed.

Contributed materially yet on the single family rentals that will continue to grow and so what we're going to want to do is kind of give you guys a feel for that.

In this particular quarter, because we're finishing out phase one and we're starting phase II, it's a little bit more weighted into the land development segment than the water utilities, but as you saw in Q1 from 2021 that was a bit more evenly distributed.

On an operational basis as we deliver each increment on the land side because the land.

The reimbursable for those.

The land development activities, so weighted that those will drive a lot of those revenues and then we get that recurring revenue both from a water utility segment as well as our single family rental segment.

Yeah.

So the other thing I wanted to do is talk a little bit about kind of how things have gone over the last five years and even more particularly over the last three years, which have been really transformative for the company, we've been monetizing our water and our land assets and driving significant value for our shareholders and.

While there is plenty to be optimistic about looking at our trajectory here, what's most encouraging to US is we're still in the early innings of this effort I mean, if you take a look for a second.

Roughly delivered 10% of the lots from our land holdings and really.

500 lots of the 5000 lots and our most valuable commercial properties are yet to come. So we're extremely excited about that we've delivered an even smaller percentage of that capacity from our water assets with excess capacity, both in our water and our wastewater systems, which will continue to drive cash flow in.

In the coming quarters and in the coming years, and then still yet and even smaller asset potential in our single family rental segment. We've only delivered three units and this past year, we are focusing on delivering another 11. This year and then continuing to grow that into some somewhere between two.

<unk> hundred 300 single family units, so looking year over year last year, we recognized what I would call significant value in earnings we were able to record our public improvement Reimbursable income and so really what that showed us was where that land development activity was driving earnings on that.

This year we're in.

Now have approximately $30 million in Reimbursable, and we expect to see significant increases in cash flow. So delivering our next 229 lots. This year, we'll be able to fully monetize all of those and then also a portion of our reimbursable from our second bond offering that we anticipate.

Later this year.

I know many of you have asked.

Appropriately so whats next how do we plan to add to our success moving forward and with that I would describe how we think about each business segment and how we prioritize our liquidity both here at the office as well as the board level and kind of three areas here kind of at the bottom of this slide.

First and foremost we look at investing our returns.

Into opportunities that we control right art are blocking and tackling at the day to day operations. We are optimizing our lot deliveries were investing in incremental expansion of our water and our water infrastructure to be able to increase capacity.

Industrial water sales to our oil and gas customers and then continuing to expand in our single family rental market typically we refinance those costs of the vertical costs with the single family, but we do have timing issues on that and so what each of these are doing are they are delivering very high margin returns to you.

And all of these are within our control and they continue to drive value each of these have liquidity demands.

That really take a portion of our cash position on a quarter over quarter basis, but the exciting thing about it is each of them have a very quick return of capital year over year, and so what youre going to see is youre going to see.

Continuing growth in the cash position of our balance sheet and I would classify this as.

Management, keeping our eye on the ball doing what we do well every day day in day out and how we build and maintain a profitable company by optimizing and increasing the returns that we have with that company.

Assets that the companies acquired second category of what we look at is M&A growth during the past three years.

We become a respected long term player in the Denver market, not only delivering outstanding financial resorts.

But if you Peel back our results what you see are not only our.

Outstanding assets, but outstanding revenue engines here in our land development segment Sky Ranch is only 10% built out and is recognized as one of the leading masterplan communities in the market and so we continue to look for other opportunities in that area are water utilities have sufficient capacities, both on the water and wastewater which will.

<unk> significant cash flows for us and it will also add an opportunity for us to be able to use that for M&A growth. So we can look at additional land acquisitions look at additional water acquisitions.

And what this has led to is it has led to what I would classify as some some balance sheet muscle for our M&A discussions having liquidity with high margin assets producing revenues.

Leading not only to just acquisition, but what probably is better described as a pipeline of acquisitions and really looking at in both segments. Both the land and the water I would say that we're going to control the single family rental side in our day to day operations, where we're doing the blocking and tackling on that side, but really.

Focus on continued opportunities in land and development and I would classify how we think about this as we want to sustainably grow the company through additional acquisitions, we're vertically integrated in very interrelated business segments with add value to each other and want to continue to drive that value.

Growing each segment sustainably waters driving the land the land is driving the single family rentals each of them are opportunities for us to create value for our shareholders.

And then finally, we acknowledge there are ways, we can continue to create value.

Through share repurchases and dividend payments and these are important drivers for shareholders and important to the company as well as our board, but we really are focused on our efforts in the first two components of this making sure that we're doing what we're supposed to be doing on a day to day basis, increasing our margins with our existing assets and the opportunities that we have with those.

And then the number of opportunities that we're pursuing on the M&A front and really continue to drive value for our shareholders. So if we have adequate capital to execute on the business activities, which is priority one and we have adequate capital to grow the company, which would be some of those acquisitions that we have in.

Priority number two then return of capital is going to be our our next and highest priority, where we continue to generate value for our shareholders through that so really that's kind of our view of.

How we've grown over the last say more recent three years and really how we look at continuing to leverage that strengthen the balance sheet on that.

This is our balance sheet and I'll, let you guys kind of dissect that we really do have a long strong bal.

Balance sheet very very low debt.

Asset potential on that again also our income statement.

Where our particular revenues are coming from not only from our water segment, but from lot sales and the single family rental which youll continue to see grow over time as we continue to add units in that space.

Little bit about our board, we have an outstanding board.

Far better than I deserve.

A terrific group of men and women that.

Continuing to provide the.

Advice and the checks and balances that you want to see for our company to be able to continue to invest and grow in this business segment.

And with that I guess I'd like to turn it back over to you all and see if you've got any questions that I can drill down on some specific color for either the quarter or what the company is looking to do rolling forward, So with that I'll turn it back over to Hollie and see if there's any questions out there.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question. Please pickup your handset listening on speaker phone to provide optimum sound quality.

Hold while we poll for questions.

Your first question for today is coming from Bill Miller. Please announce your affiliation and pose your question to provide high Mark.

Good morning Bill.

Good morning to you your freight narrowing this morning and.

Congratulations on another great quarter.

I'm just fortunate im looking at Nomura.

Please announce your fleet.

For 10 days, you have and I would think that maybe.

Rental market is by far the.

Right.

Bill.

Bill are you hearing feedback on your side, yes, I am sorry, yes, Holly I'm not sure if theres a theres a mute on your side or if there's a way that we can.

Improve that sound quality, if they try that bill.

Okay, let's try it.

Got it yes, yes, that's much better.

Hey.

But just looking at the three elements of your business land development.

Supplying water to various utilities et cetera, and then the rental market I'm surprised that is in your highest priority.

You have recurring revenue.

The best returns.

You can get good financing you get inflation protection.

The increase from the price of the homes.

And why isn't it.

Can it be a bigger part of your business you say 11, this year, which is terrific and I think youll get to.

Cool.

Two or 300 eventually.

Are you trying to accelerate that right now that's a great question.

A lot of.

What we're doing on the land side.

It's a long lead in terms of planning and getting all of the relationships with the builders setup. So when we were first looking at our phase two.

I went to the market with 850 lots, probably two two and a half years ago with our builder partners on that and really.

It was in.

In the middle of the pandemic.

Call it.

Maybe.

January February literally January February of 2020, and so we.

We were just starting to roll out the single family rental market, where that was a concept where we thought said, we're seeing a lot of increase in value in terms of these homes, which.

It's a brand new community. It can go either way right. It depends on how well the community is delivered and really the positioning that you have in the marketplace.

How does our sub market perform.

And we found that it performed.

Terrific and so.

I would say it was more us holding back some of those lots, where we were able to hold back call. It 40 plus of the lots on our build their contracts and it was kind of a late stage pullback in our discussions with our builders.

We had said okay.

850 lots here and they said, okay, we'll buy them all and here was the distribution of those lots and then as we were getting more and more analytic about the single family market.

We actually went to each of the builders and pulled back some of those locked in each of the each of the blocks that they were working with.

Not actually having delivered that single family market, just yet and so while phase II could have been stronger in that area. It was still early on for the company and frankly, we've got.

Another 3000 lots to be able to deliver in that area. So I think we will see a higher weighted portions of that where we will hold back maybe hundreds in the next phase and be able to continue to accelerate that growth and so the reason why I don't have more than 40 and that is.

Couple of years ago, when we were contracting for that it was still very early on in that process and so as we're expanding that youre going to see a higher weighted portion of that.

Okay.

And do 11 this year.

When do we see the acceleration to.

30% or 40 rental units.

Each of them each of the core each of the sub phases. We've got four sub phases, where I've pulled back 10 lots and each of those sub phases.

So youre going to see that consistently but the overlap between filing to filing three and finally, three and filing for we will have a weighted percentage of more of those lots. So while state filing too in this 850, <unk> 40 filing three might be another hundred of those.

Lots and then youre going to see us being building out the first 40 at the same time as we'll building out a portion of the next hundred so theyre going to be cumulatively in terms of how we run that each subsequent phase.

So margin three years.

Without counting acquisitions, what percentage of your revs.

Revenue and particularly.

Free cash flow is the rental market is going to be.

Great question.

It's been three years, we're executing we'd like to be in a position of having.

Maybe 50 60 units occupied and another 60 units under construction. So if you take a look at that in a short time frame that would be going from three units to maybe 100 units in a three year period.

That's going to be a function of kind of how each of these individual phases rollout as well as overlapping the next phase phase III.

Okay.

And in each of the units.

So the recurring revenue good point on that is each of these are generating about $15000.

Per unit per year in free cash flow, so that'd be that'd be a million five and free cash flow. Because my is my decimal rate there are 100 <unk>.

<unk>.

I think that's right.

Yes.

And then typically if they are about a $5 million each that's $50 million worth of asset value that we would add to the balance sheet.

Alright.

Mark just second question, you've talked consistently that having a pipeline of acquisitions.

I've been hearing after several years and.

Versus the immediacy of being able to buy back shares.

What I hope is.

Burnt in price.

Why can't you do both why cant you.

Have your cake and eat it too.

Yes.

You are very diligent about that in.

And as you see.

Our cash position fluctuates from quarter over quarter, when we're dealing with executing our existing business day to day. So we had a $20 million balance at year end, maybe a $12 million balance at quarter end and and so a lot of that quarter over quarter activity gets invested into.

To our operations and so there is some of that fluctuation once we get the next round.

Round of bond Reimbursable is out of that that will help us monetize and keep a stronger liquidity position to be able to consider some things like that but really for the time being where we're positioned with the balance sheet and the opportunities that we're pursuing on the acquisition front I think we.

We're using our liquidity to its best purpose.

So that's why we're not quite in a position, where we can do but I cant I cant im not taking you need to just yet.

Well when do you get the Reimbursable spec.

That's a good question, we're forecasting that sometime this year I think within the next fiscal year.

We've taken a look at kind of what we think is the current portion of that which is about $16 million of the $30 million. So we believe at least we will get that much back and we'll see how the next bond positions itself out.

So there's no <unk>.

<unk> for anticipating 16 million or whatever coming back and starting now.

Stock is.

Okay.

Getting their attention from me.

Investing world.

Yep.

I get it.

Frustrating for us as well and I think what we're really looking for is to make sure that we're keeping some of that.

Some of that muscle for sitting down at the kitchen table with some of these acquisitions Bill.

On the other hand, they are looking at the same dynamics you are so why are they going to sell out cheaper to sell out now.

That is that is the discussion.

Theyre looking at well is it going to be worth more tomorrow than it is today and how much more in it.

Yes.

It's a it's a it's a very private decision for landholders in the area and many of these are long.

Legacy generational landowners and so typically if they don't have it they don't want it.

And the opportunities for them are mostly state planning an intergenerational planning activity. So this does give them a way to do some some planning some tax planning some estate planning activities.

And so we're working with that together with each dynamic that each individual landowner or farm owner in the case of water.

Water supply water rights have so they're a little bit unique and everybody's got their own circumstance, but.

I would say that that certainly.

The last three years and our visibility in the Denver market has increased significantly.

Okay, well, thanks for the great quarter.

Thank you as always.

Your next question is coming from Robert Howard. Please announce your affiliation then pose your question.

Hi, it's Rob Howard from boiling point resources.

I just wanted to check in hi, Mark I, just wanted to check in on.

The wholesale water rights market.

Looking like right now.

The Denver areas there Ben.

Pricing has been kind of creeping up or what.

What's that look like.

It is it's increasingly competitive.

More costly more difficult out each year that goes by and I'll give you just one anecdotal.

Reference point, we bought a small farm.

Had about 300 acre feet of water.

It's about 30 miles north of where we're at strategically position for us on one of the tributaries that we have existing water rights at Lowry, we bought that for about call it $9000.

An acre.

Which translates into about an acre foot of that as I got about 300, or so 320 acre feet that we bought for about $10 million.

And really looking at some of the transactions and really talking with some of our neighbors right around that particular farm that's trending at about $15000. So we've seen about a 50% increase in three years on that so the wholesale market for water continues to just skyrocket on that on a per acre foot basis, and also the cost of developing.

And delivering it because you have to reach farther and farther out and one of the advantages that the company has is that our point of use for our water rights is right, where our waters originate. So we don't have a lot of that costly infrastructure and as we continue to reach farther and farther out for water, we deferred that capital costs for a number of years because we can continue.

To use a lot of it is close in and so we're really looking at a balance of making sure that we keep growing that portfolio, we keep partnering with regional entities such as the wise project that you see in our financial statements.

The disclosure in our MD&A sections, and really working with other providers to be able to.

Bear the cost of some of that infrastructure on a regional project basis.

Okay that sounds great and are there opportunities for I don't know if.

Some other entity water.

Water this year.

In the near term before you're using up all of your.

Water rights for your own internal uses do you are you able to sell stuff for a year.

Is that somewhat.

But bob or.

Just kind of be for something like that.

So we do do that on to our industrial.

Real customers, so I would say when you're when you're selling water on a onetime one off basis.

That's going to be somebody that uses water and then it doesn't have a continuing need for that a onetime use of that and that's really our oil and gas customers and they have tremendous water demands and so we continue to grow our water system.

The plumbing of our water system the wells.

The pipelines the storage reservoirs the pumping capacity all of that we continue to grow and use the oil and gas revenues to be able to finance that and then what that does for US is it leverages the margins and the opportunities that we have when we get our permanent connections when I get a residential.

Our commercial our retail customer connections that are permanent connections and they generate that tailing <unk> hundred dollars per connection per year revenue those tap the margins are much higher because we continue to incrementally expand our system for our onetime use customers oil and gas.

And so those are great opportunities and we are capitalizing on those.

Okay, great. Thanks.

Thanks for your time keep up the good work.

Thanks.

Your next question is coming from Elliot Knight. Please announce your affiliation then pose your question.

Late at night.

Knight advisors.

Elliot nice to hear you.

Are you there.

Thinking of hearing me.

On a personal note market was 29 years ago next month.

Flew out to Denver, and we met with the first time.

And I just wanted to say.

Listing.

To you today and listening to this presentation.

It is really extraordinary.

What pure cycle has become.

Now that's the end of my speech My question is.

My question is having to do with the oil and gas business.

When will started to be drilled out there we were told by the industry.

So these wells would be re fracked after about five years. So question number one is.

Whats going on have they begun re fracking.

<unk> number two.

Can you tell us what you know about the operators drilling plans.

Number of wells that are.

Planned for the next 12 months what their overall thinking is.

And number three.

Is availability of labor and Frac crews, which are said to be in short supply.

What do you know about that.

Thank you.

Thanks.

And again.

Time flies.

Remember that that debt paid days, though.

30 years ago, and I think you and many others on this call and.

And that our shareholders of this company for their continued support through the through the years here.

In the oil and gas space and your first question was Youre right a lot of these wells.

We are in shape.

<unk> deposit and so what makes us the whole thing work are fracking and well stimulation and when they go in and they do that it creates an opportunity for the oil to flow to the wellhead much much quicker and.

They do typically or that shale deposit lend itself very well for re stimulation and Colorado as a whole has seen that in probably the northern market Northern Weld County.

Niobrara area, we have not seen that yet in the southern Niobrara field and really our particular area.

Think of us as attractive if not more attractive than what you've seen in sort of the core Weld County area and really we suffered from operator issues and so we had a very we had a major in this field who came in and spent a ton of money defining the field putting infrastructure in.

And really putting it all together, but it just never was something that became big enough for them and so.

They while they did a great job on defining it and really starting the process and proving out and derisking. It they didn't they did a terrible job on developing it because it just didn't meet their threshold it didn't seem like it could compete.

Because it was too big.

The operator was too big a deal the operator was too big and so they ultimately ended up selling too.

What was a private enterprise.

So that went from conoco to a company called Crestone, which was predominantly Canadian pension fund creation, where they were going to monetize that and then crest down did a much better job about coming in and starting that production, but oil was still pretty weak during that period of time, so they werent all that aggressive about it because the <unk>.

Economic at $40, a barrel is much different than it is at $70 a barrel.

And then more recently Crestone again transferred that interest and now what we have is a combination.

A company called extraction bison and Crestone. So it was a consolidation in the group called Civitas.

So this is kind of a brand new entity.

They're they're they're publicly traded company you can look them up and take a look at what they're doing they predominantly have crestone and extraction.

Land positions and then I think bison manner.

Management and some of their development expertise in that portfolio as well so you've got a kind of a combination of those three entities I know we have one rig dedicated to this field <unk> been drilling wells, they're prioritizing drilling wells.

As close as they can with the revised Colorado setback. So they have a 2000 foot setback and so theyre prioritizing drilling wells, thus far on the west side of the play as they can so that they can get those laterals in place and then start to move east with that and so a lot of those wells are.

<unk> is close to the development urban areas a lot of them are in the city of Aurora.

And Aurora.

Depending on the water year may or may not provide water to those wells and so.

I think that we've supplied some water.

To some of those wells and Aurora supplied some water to some of those wells.

The labor shortage I don't see as being the limitation on it I think it's mostly been just.

The repositioning of the interest over the last three or four years with various operators and I think with this recent consolidation and a new entity really having a core position in this being one of their primary drivers to the company rather than.

And also ran has been maybe crestone I mean, that's a crushed stone that conoco or.

Our strengthened oil price that crestone never really had that youre going to see a much more continued activity on that if we've got one rig drilling wells continuously they can drill about 30 wells per year and whats happening are.

A lot of what Conoco did was going to be H B P. Hold by production. So they were more interested in defining maybe.

100 square mile 130000 acre lease interest that they wanted to make sure that they lock that in and drilled each of those wells in a way that they didn't have that that potential of losing each of those lease interest on that that's all done and what they are really doing is drilling 810, 12, well pad.

12, well per pad.

Drilling program and that much more efficient for them.

It also is much more efficient on delivering water, where as opposed to us doing $250000, a well and then moving to another well we're seeing.

$152 million of water deliveries per pad and so thats a significant increase in terms of how much water, they're wanting over what period of time, which is why we continue to incrementally expand our water delivery operations. Both in terms of storage and then transfer capacity so each of them.

Good.

What I would what I would characterize the oil and gas play to oil analysts such as yourself recovered oil analyst.

You had.

No.

You had some repositioning of the play the play was Derisked.

<unk> had pricing of the asset and some patients by operators to make sure that that price per barrel was at a sufficient level for them to increase their investment activity on that and then consolidation of the play so that it's really centrally focused so I think all of those things are now giving us some good.

Forward looking view of how oil and gas will play over the next five years.

Thank you very much that's great answer.

Okay.

Alright, I have no further questions.

Thanks Elliot.

Steve.

Your next question is coming from Bill Cunningham. Please announce your affiliation then pose your question.

Bill Cunningham, I'm, a private investor and occasional seeking alpha author.

Hi, Mark.

Nice to hear from my favorite seeking Alpha rider.

And your least favorite all at the same time I'm the only one.

In any case I have a couple of questions on the water.

One is I believe to the extent you get water from the Lowry range you have to pay a royalty of 10% to 12% is that correct Dennis.

That is correct, so 10% if it's delivered to.

A public entity, 12%, if it's delivered to a private entity okay.

And to the extent youre getting youre, taking it from Sky Ranch property, obviously, there's there's no royalty to pay.

Looking at your financials, and I don't see the royalties broken out separately or they are so small that they are insignificant or am I missing it.

Now.

Yes, so typically we record that net of revenue.

Okay got it.

You don't see a separate category for that so our revenue number is net of that royalty and it is pretty small right now.

Not only do we not pay royalties on Sky Ranch water, we don't pay royalty on our lost Creek water, we don't pay royalty on our whitewater and those are.

Those are the lion's share of what were using a lot of a lot of that we're delivering to oil and gas will come from Lowry and so that has a higher rate we get about three times the price that we deliver water to our residential customer delivering it to our oil and gas customers. So it almost washes out.

In terms of the revenue.

Okay. Okay. Good.

Second question has to do with the tap fees and I'm looking at the numbers.

Our phase two <unk>.

Showing over 33000 tap fees per home, but when I do the math I come up with less than 25000 per home now I think the answer is that these are less than single family equivalents, but just wanted to check on that with you.

That is correct and so when we look at.

Measure Dubai measure a metric here.

We look at that at a four acre foot equivalency and that would be what is what.

Historically, the average for a single family lot at Sky Ranch, our lots are a little bit smaller and so we're averaging about <unk> three as opposed to 0.4 and so what that does is it means we can serve more connections with the same water supply and when you look at that maybe that.

We still get the same dollar per acre foot, but when you have more connections.

And our recurring revenue model what happens is we have a fixed fee portion of that so a customer might pay $45 per month, if they use no water.

And then a consumption charge based on how much water they use and so what that what the smaller lot size and more customer connections do for US is it has more revenue potential for us on a continuing basis for that standby fee for reservation of that connection.

Okay. So it's been through the <unk>.

Builders pay different amounts for a tap fee depending upon the size of the units they are building they.

They do so we have five metrics that go into calculating each individual tap each individual a lot and it's based on size of the lot size of the house.

The number of.

Car garage. It has because then there's going to be.

Concrete portion of that which takes out irrigated portions of that how much zero escaping they have and how many square foot of the house. It is so all of those metrics go into our tap calculator and then.

It actually comes out that spits out Okay. This house on this lot. We know we know we calculate estimate the average annual demand to be this much in that then its factor 2.4 acre foot. So some of them are higher if you are.

A large lot I remember when we rolled this model out we had one homebuilder in the very first house. They came out with ended up being on a corner lot and they ended up having like a $45000 as opposed to a $25000 that means that we don't like this and I said well do you want me to fix it at 32000 and for every one of you a lot.

We will but it's not going to be in your interest to do that.

Interesting great. Thanks, and then.

I finally have a question on the commercial development, particularly on supermarket I know at one point.

Engineering that you needed 2000, rooftops for a supermarket chain to be interested in going in there you've got 500 Sky Ranch now and adding there is that.

Trailer Park Thats near you. That's another couple of hundred there is harmony almost adjacent to you. There is the whole area, where that Vista peak prep.

Prep school is where there's thousands of homes in there.

And looking at Google maps, it appears that the closest supermarket to Sky Ranch right now is over 10 miles away in a couple of stops on the Interstate away.

Wondering what the thought process might be now for at least a supermarket.

In on some of the commercial property.

We have engaged with a number of.

Number of.

Grocery retailers on that platform.

They are very interested in what it is that we're doing.

While I would like to say I could give you a timeline on that you know the.

The model would be one of them used to put their flag pole in early because they wanted to be kind of the first one in air and establish their position.

And the bigger operators now are a little bit a little bit lagged on that they want to be instead of six months early they want to be six months late but they want to reserve the site.

Okay, Yes, we're going to be there and I want to be right here, they know exactly where they want that a lot and I think we've got some land plans around that lot.

And then it's just going to be a timing of when that works for them and how that pricing works. So what I'm not interested in doing I'm not interested in selling them. The land at a lower price and then having them wait two or three years to build on it I'd, rather wait until they're ready to build on it and optimize the land value on it.

It also adds to the value I would think of the homes being sold in Sky Ranch, if theres an active supermarket there.

I guess intuitively, that's true, but honestly, that's not what we suffer from we don't suffer from enthused.

Enthusiasm in our market I think.

The price point that were in the entry level, where I would say when we started this product.

Sure.

Taylor Morrison and cave some of their first homes. They were selling at $360000 you can't buy a home out on our site for less than $500. I mean, it's it is that attractive in terms of.

The building cost the delivery cost all of those costs arent materially higher.

It's the community that we're creating out there the attractiveness of it its location its access to transportation all of those things are increasing the value of those laws.

Okay, great. Thank you very much mark.

Thank you.

Your next question is coming from Jeffrey Scott. Please announce your affiliation then pose your question.

Our markets, Jeff Scott Scott asset management, how are you.

Great Nice to hear from you Jeff.

Yes, it's been a while I haven't been around for 29 years, but I was sub $3. So I've been around for.

Some time anyway.

You bet.

Follow up on the on the commercial side.

Have you actually identified some specific land area, where that that commercial development is going to happen.

We have what we really do is leverage the interstate and the interchange on that and so we're looking at about 140 acres right up.

Not that I 70 frontage for our commercial opportunities.

What I didn't show in the deck and I will next.

Next call and I think we might have it posted on our website, but you can see we've spent a lot of time on the design work for that commercial parcel how the how the pad sites, they're going to lay out how the transportation network is going to lay out what we think about in terms of.

Square footage for building spaces, given our conversations with the various users.

We're talking with a nice supercenter for grocery in fuel and then coupling onto that youre going to see a little some pad sites available for that that are going to be local pizza dry cleaning liquor retail things like that so we've got good design.

For that so we have spent the time to land plan that.

Optimize what parking is going to need pursuant to our zoning requirements in all of that so while.

It Hasnt.

Quite monetized in terms of having the connections there the companies.

Planning for that and development of that parcel is we spent a lot of time working on that and have had some great guidance from our board. We've got some of the best commercial <unk>.

Developer in town on our board that really was instrumental in helping us lay that out make sure that we're optimizing not only the acreage there, but how that acreage gets used on.

Parking that can be co parking oriented this parking can benefit multiple retailers that type of stuff.

Okay in terms of.

Timing.

What fiscal year.

Would would be kind of targeted for <unk>.

Actual commercial building and leasing.

I would love I'd love to say it.

It can be in 'twenty two.

Doubt that's the case I think it's probably at 'twenty three type of opportunity we might have something to talk about this year, but I think.

To fruition I think it's probably still 18 months out.

Okay.

Very kind of a high level question.

The fires up toward Boulder.

It's not going to affect the population of Sky ranch, but.

You have to believe that with all the rebuilding activity that there is going to be an extensive pressure on labor and materials.

Are you starting to see that already.

Have not seen that yet.

Our production builders typically have better access to that and manage that much better.

What we would look at it as a pressure point for the company would be could we deliver our BTR.

In that segment and and really we've got a great.

Great Homebuilder that delivered our first three.

He is very very aggressive and wants to grow his business and really we're a key component of growing that business together with the fact that we compete against the production builders and the production builders in the next phase are much more positioned to be able to expand.

On that.

Building their homes next to us they may be able to expand that if they're not able to price that out competitively to our existing builder then I think we are.

We're positioned well for that not to say that.

That won't still constrained the market because you have other trades you have electricians plumbers.

All of those trades need to come out and be able to be committed to a particular area and there's another 1000 homes.

We will need to be rebuilt when you look at it.

The aggregate we're building about 15000 homes.

A year in the Denver market, so on a percentage basis as it is tragic and it's a lot of homes, but it's probably not that weighted.

Yes, I was going to say.

Labor was tight before the fires and after the fires that has to be even tighter.

Yeah.

Well I wouldn't disagree.

Okay. Congratulations I appreciate the time.

Thank you for your support.

There are no further questions in queue.

Great.

So for those that are.

Or listening to the replay our tests on this.

Something pops up that you'd want some additional information on please don't hesitate to give us a call. We do have a terrific website.

Now an award winning website.

And so.

We will continue to update that we will continue to provide color content.

Oh it is photos video footage.

Podcasts, a whole range of opportunities for us to continue outreach to the to the public and to the investment community.

On an active basis.

<unk> much.

Very active on the conferences. So I know a number of you have had.

<unk> been to some of those conferences and we spoke one on one on that we'll continue to do that to continue to.

Reach out to the market and make sure that they understand what it is that we're doing in and certainly the enthusiasm and excitement that we have for the company and we also look forward to delivering you. Some some performance on the M&A front and activities on that I know, we've been working on that for a while and not all of those are.

Within our control, but we're very excited about some opportunities that we're pursuing and hopefully we can satisfy bill Miller at that we're putting that capital to good use.

So with that again. Thank you all for your continued support and please keep in touch.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day.

And for your participation.

Thank you Holly.

Yeah.