Q1 2023 Pure Cycle Corp Earnings Call
Good morning, and welcome to pure cycle Corporation first quarter 2023 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 this conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Mr. Mark Harding.
And C I.
A P O cycle you may begin.
Thank you Jenny.
Good morning, everyone I'd like to welcome you to our first quarter.
Our earnings call for our fiscal year, 2023, and happy new year to you all.
Have a slide deck for this if you can.
Surf over to our website, if you recycle water dot com on the landing page you'll find.
Button on there where you can click on that and then we will actually forward through the slides, we will give you the ability to see.
Some of the text in the slides.
Within the presentation.
So with that I'm also joined today. This morning by Kevin Mcneill, our CFO and Dirk Glassner, who is our vice President and director of land development, who will also give you updates into some of the business segments and the financial Reportings and then at the end we will have a brief Q&A for those of you want to drill down on some of the specifics.
So with that let me first start with our Safe Harbor statement, which I'm sure. Most of you are familiar with but state.
Statements that are not historical facts contained or incorporated by reference in this presentation are forward looking statements.
So with that I'll get the lawyers out of the room and we'll start I'll just be very brief on some of the overview of the company but.
For those of you that are first timers, so to call or new to the company. We really operate on three primary business segments really that are fundamentally interconnected to each other.
DNA level as a company, we're a water and wastewater utility company, where we own water water short region here in the state of Colorado and the West.
Develop those water rights and we are a cradle to grave on the water rights, where we develop the wells the distribution system, but that water to use.
<unk>.
Both the land segment, which is.
Parcel of property that we own that were doing a land masterplan community on and we're building what's for our homebuilder customers and then we are holding back some of those lots and building homes on those for a single family rental segment as well so each of those segments really are interrelated too.
A vertically integrated platform that we have from the water utility side.
Moving on to just describe a little bit briefly about the water segment itself.
We have just that whole network of utility operations, where we have.
The diversions for the water supply whether those are taking water sources from our streams and surface water supplies are groundwater supplies are reis supplies, we treat that water we store it we.
Distribute that out to our customers were also responsible for some of the development of that distribution.
The system pursuant to our design standards for our community, which is some of the land that we have been others as well. So we have master planned service areas that are very valuable, which we will highlight a little bit later in the presentation, our customers use that water they give it back to us.
That we treat it and then we reuse it so we have a use and reuse model.
Within that we get some fee instruments for that in the water utility side, we get connection charges, which are a onetime connection fee, which between the water and the sewer tap beer around 30 to $33000 and those are paid by the homebuilder, our homebuilder customers and there is a typically added into the cost.
The home, but that grant the <unk>.
Service connection a permanent entitlement to the water supply and then we get usage fees for that so we get a base fee, which really amortizing some of the cost of operating and maintaining the system and then.
Our consumption charge, which is a tiered consumption charge and so what this tends to do is that tries to encourage conservation because the more water you use the more water.
The higher the cost of the water supply. So as you take a look at our water balance what we look to do is.
Really keep control over that drop of water, where we're taking that from the supply we're trading at we're putting it into our system. We're getting it back from our system and then we are reusing that so we do have a very close loop system, we do lose a little bit to outdoor irrigation and some have operation, but those trends are really decreasing and theres been a lot of press.
I'm sure it's something that's of UFC.
Drought and.
The vulnerabilities of water supply on the west so the company's emphasis on technology and controlling that drop of water through its continuous lifecycle is very important to our systems and we want to make sure that we're good stewards of this water supply.
Taking a little bit.
The infrastructure, we build this infrastructure, it's long lived assets water supply certainly our long lives. Those are perpetual and then you have a lot of the brick and mortar that we're building associated with that and really this is showing the growth of the company in the last five or six years really showing about 86% growth.
And the capitalized assets glass in the various categories of that infrastructure, whether that's water and wastewater treatment facilities transmission lines wells.
<unk> finished water storage.
Surface water and groundwater supplies distribution systems those all the all the components of a water utility youll find in them. So that will continue to grow as we keep seeing that.
Moving into kind of how the growth of the utility looks like current customer count.
It is up to about 250, new connections, we measure that in terms of the number of single family equivalent connections on that and so.
We have a combination of residential customers, which would be a standard single family equivalent. But then we also have commercial and irrigation connections attributable for those and so just because you might have one irrigation connection that might represent as many as.
Couple of hundred SBC, Donald Lowry, because we have large.
Irrigation requirements down there of <unk>.
<unk> and we raised that to the number of how we build those out so the number of base charges that we get from each of those.
I've talked a little bit about our residential connections at Sky Ranch, which is our development we haven't.
First phase, which is completely built out 500 homes, we are into our second phase.
Very robust tap sales in our second phase circles, those down into that a little bit, but we got 124 tests. There and then our service area that we picked up a couple of years back.
Where we have more than 200.
Connections between the residential and the commercial connections as well.
Moving on another one of our big customers on the utility side as the industrial space, where we sell a lot of water to the oil and gas industry through a number of different operators.
Our water supply or service areas and really any other.
The state of Colorado, located over a fairly prolific oil and gas field.
Got in a little bit more attention more recently.
With the sale of oil play, but we are seeing operators drill a number of.
Number of pads and the number of formations here.
Consume a tremendous amount of water for oil and gas and so we continue to see those sales. This was a distribution of how those sales go by quarter and as you can see it's kind of all over the map. There is not a lot of predictability to drill year round, a frac year round.
And a lot of this is really dependent on a permitting process.
How aggressive they are the leasehold interests in these and particularly in our particular field test changed hands, a number of times, which is pretty typical in the oil and gas industry.
Got.
It started out probably in 2000.
<unk> 16 timeframe with a lot of field assessment and field definition and now it's kind of moved into more of a well development. So they are developing the field. So that they don't do a lot of exploration. They don't do a lot of changing to it. So each rig has a much stronger capacity to draw.
More wells per pad per year, and so what we're seeing is when you get a dedicated rig out here.
And that can drill as much as 25% to 30 wells a year and they're pretty significant wells there theyre two mile lateral wells on this thing I think they are experimenting with some three mile lateral wells on it.
And so they'll continue to increase the amount of water that they are using depending on their laterals.
This is kind of illustration if you look at the right hand side of this that would be kind of the Denver metropolitan area.
Growth in the Metropolitan area, the two red areas or pink areas that you see in there those are service areas. If you look at the one.
And kind of transition between the green and the Gray there that's our Sky Ranch project, which is ideally located on the I 70 corridor.
And it really is in the strongest area of growth in the Denver Metropolitan area.
As a.
Develop are really targeting the entry level housing product, which I think in your us very well for us.
And very strong markets as well as in challenging markets.
We'll talk a little bit more about that and then our service area Lowry as the very large peak area, which continues to be really an untapped asset for us. The land is owned by the state of Colorado and trust for the public education system here and.
As one of the most unique.
<unk> of land in the country and as you can see by the picture on the left there most of the development has really come up to the border of that property.
So it depends on how.
State looks to move forward with that but thats certainly an opportunity for us over the next few years that we look forward to doing the utilities for that we're the exclusive water wastewater provider for that 24000 acres of contiguous property.
That gives you a kind of a sense of.
The utility side some of the segments that we have in there I'm going to hand, this off to <unk> to talk a little bit about Orlando element activities.
Thanks, Mark good morning.
Land development, so here's our flagship.
<unk> called Sky Ranch.
Every time I see it.
And so probably you'd always reminds me of.
The dreaded tetris piece from that game.
But this is 930 acres.
Like Mark said on the.
Developing edge of development out on the east side of Denver.
3200 residential lots of capacity and 2 million square feet of commercial capacity and we're about 15 miles east of downtown Denver.
Yes.
Yes.
<unk>, probably got about a 10 to 15 year build out that'll be heavily dependent on our market conditions, we're going to build this out in multiple phases.
Over the last probably four or five years, you've heard us talk a lot about our first phase.
The first 500 loss, that's pretty much in the books.
And we're.
Now moving onto our second phase first phases.
The block on the left side of the picture and then our second second phases kind of the middle portion of the parcel.
And then future phases.
Grow out to the east and then our commercial pieces.
<unk> block adjacent to high 70.
We plan to build about.
Average, probably about 250 lakhs per year out here.
Well later in our our schools and commercial pieces and Rec centers.
All of those things that go along with a master planned community.
So phasing.
Mentioned in phase one in the books that was 500 lots we have had our pilot program for our.
Build to rent lots that we have for occupied units in that phase.
100% complete then moving into our second phase this is 850 lots.
We're subdividing this in the four sub phases.
That's two as for two D. We are well underway in our phase Iia, that's about 80% complete and hope to have that completed.
Later, this year or beginning of two.
2024.
We've started our.
Infrastructure for phase two b.
Well I.
I hope to start that in earnest.
Quarters, two through four of this year.
And then phases, the third and fourth sub phase <unk> two dee.
We will build out in subsequent years.
Our phase Iia.
We just had our first few residents move in there so thats exciting.
Have delivered all our lots to the builder customers there.
As you saw by our water taps number on previous slides.
Those are indicative of the number of homes that are the builders have started.
Right around that 120, <unk> hundred 30 houses started and I think the builders have sold probably about.
Probably about 20% 25% of their lots and they will look to have those sold out.
The remainder of this calendar year and then we'll be looking to have that second phase come online for the next batch of lots to.
To not interrupt that.
That sales cycle.
Thanks.
Alright. So this is the details on the.
The phasing.
These are this is the <unk>.
Phase two 850 lots broken down into four sub phases, we got our lot revenues. Those numbers are what we are income from sales of the lots to builders and we have our tap revenues those are the water and sewer connection components that Mark mentioned.
Then we have our costs to develop the lots.
And then we have our reimbursable component and those are the.
Costs attributable to public infrastructure that are eligible for.
Receivable reimbursement through public dollars with.
Taxes or.
Our bonding.
The graphs on the bottom of the sheet here.
Bar graph and then the far right Pie chart.
Those are our builder.
Builder breakdown builder distributions so we have.
Our four builders in this phase and Thats by builder and then our.
That center Pie chart is our product mix so those six.
Slices of that pie represent our the different product market product segmentation, which.
We think is a good balance.
Our product offerings.
Diversity.
Alright.
Not to some market conditions here sort of the news of the day.
Start with are the good positive things.
Pent up demand for new home sales.
Theres good upside here.
Back in the 255 or six timeframe there was.
$1 $4 million in home sales.
Even in this latest up.
Swing in one or two or 'twenty, one 'twenty two we only had 600000. So I think that represents good upside for us.
And this first quarter, we've seen the mortgage rates start to stabilize kind of hovering around.
6%.
In historical norms.
Lot deliveries still trailing home starts so in other words, we are still selling more homes than we are delivering finished lots. So.
From our standpoint being in the business of selling lots.
That's good potential there I'd like to see that that demand.
We got.
Our homebuilders and Sky Ranch are all ranked nationally.
All four in the second phase or in the top 15, I think three of them are in the top 10 tumor in the top five.
So thats one.
At the top one top two even.
Good for stability and in it for the long haul <unk> certainly seen some of the market swings and are good partners and help them.
Mitigate that.
Low unemployment.
Obviously, a really important one we hope that stays positive.
House prices still appreciating by in house still a good investment.
Lower average days on the market.
Houses are still selling pretty quickly.
Those are some typical numbers there.
<unk>.
Last year, we were down in Denver lease where we are.
Under 10 days on average in houses where we're selling.
Above our asking price sight unseen.
They are asking so.
A year ago, we had that peak and even even today with some of the slowdown we are still seeing.
Based on market.
The 20th so Thats all still good.
Outlook.
Onto the bad or opportunities that we have here.
Again, the abrupt uptick in interest rates kind of shocked the system and I think we're slowly adjusting to that again, we're still.
Kind of historical norms.
What are the important metrics.
Still trending downward builder confidence is down applications for mortgages are down.
Builder.
Buyer traffic and the model homes was down home sales are all down.
And then combine that with.
Higher material and labor costs, and then our cancellations on contracts are still up.
I think at the end of the day for Us.
Houses are.
Do we need to figure out ways to kind of recalibrate that.
The land development side that we do as a link in that chain.
How do we adjust in.
For those changing markets.
And the way we do that is.
Mostly on timing.
From a timing standpoint, and that's really our challenge is trying to.
Time, our deliveries, we have a long lead time and development business.
We're probably anywhere from.
The early as six months, but most more likely a year out from when that demand.
Comes online so we have that challenge I'm trying to find the right time.
To build our locks.
And here's just the slide is a couple of the touched on the job growth chart interest rates.
And some sales information.
Mark.
We kind of pushed this over to Kevin and I will give you an update on.
Some of the rental segment and then also just that.
<unk> solid quarterly performance.
Well, thanks, Mark Thanks, Eric Yes, so our single family rental our newest division that we launched in 2021, we continue growing it.
We're up to if we got $4 is completed now as of December 15, we.
We've got 10 more under construction and those will be delivered throughout the year throughout our fiscal 2020.
Right. The four that are rented or all rented from 2800 amongst the 3000 a month pretty.
Pretty stable renters, we think so still we're very optimistic about this market.
This new segment, especially with interest rates continuing to decline those.
Home values continue to stay high and Thats slowing of that market rental rate marketing, Colorado, especially remains very strong.
This is this is some projections that we put together using our fiscal year from last year. Our 2022 results just because the first quarters.
Smaller piece to look at we projected output.
With 14 homes and 50 homes 50 would be the entire phase 246 homes, there and four homes in phase one and so you can see as our current projections, obviously, depending on cost and interest rates and everything else is about $1 billion a year, just short of $1 million a year.
Free cash flows from operations of just the rental units.
It doesn't include obviously overhead or anything like that but.
Okay.
So the financial results for the quarter wasn't the strongest quarter. We've obviously had it was.
From water wastewater standpoint, as Mark touched on earlier, we continue to invest in the water infrastructure little over $67 million now.
Reits between asset water rights themselves in supply.
We're structured to bring water to our customers. We delivered about 67 million gallons this quarter, which is down a little bit from last year, which is predominantly down because there wasn't a lot of oil and gas activity during the quarter and also construction activity was down.
The phase Iia being done and to be not really started yet.
We didn't sell as much water construction activities.
Our third bumps you touched on the land development side.
Which you'll see when we get to the balance sheet and income statement as well.
Your family rentals continued to grow.
From a true read from a growth standpoint, you can see obviously the revenue and segment revenues were down for this quarter compared to each of the last few quarters. One thing I'll point out is in the Q1 2020 quarter that was kind of anomaly, we recognized a bunch of revenue in that year to catch up some contingency that we had and also there was a.
There was a lot of lot sales at your phase one was going very strong fixed <unk> was getting ready to start. So it was just it was a great year.
This year Youll see the revenues are down predominantly again, because we've talked about the housing market slowdown.
We delayed a little bit of a phase II b in order to match our lot deliveries with their with the homebuilders sales so.
Somewhat intentional, but obviously with the housing market interest rates.
Hard to control.
From a net income standpoint, you'll see the same thing that income dropped a drop during the first quarter compared to the other quarters same reason revenues are down we were able to offset some of the revenue declines of about a little over $1 million.
In surface use and other other payments from oil and gas companies, which we think is a pretty strong indicator of a good 2023, we hope for.
Fracking and drilling continuing out throughout the rest of the year throughout our service area and then obviously those aren't diluted earnings per share.
There'll be a little more information on this coming out where we actually filed the Form 10-Q, which are due in about four or five days, which we anticipate filing here in the next few days.
Few slides few upcoming days, where we're able to shareholders meeting tomorrow, which there won't be any presentation any big presentations with some more formalities zone.
The bigs.
And then for that our 10-Q will exit the final date is January 17th will be filed before then.
We haven't seen it our ESG report, we launched in November So thats on our website gives you a little more detail into our what we're doing from an environmental standpoint, and how we're trying to be good stewards of the environment.
And so shareholder money.
And then real quickly the balance sheet income statement.
Yes.
Had a pretty good pickup in cash last year, the Sky Ranch cab.
Our bond offering and was able to repay about well over $24 million and told us of Reimbursable and so we invested that and then some short term treasuries.
<unk> and some of those interest rates continue to grow the balance sheet in terms of assets and investing in the water rights and infrastructure.
And that and then Youll see the income statement, obviously I won't spend a lot of time here it will come out in the Q and in the press release, we issued last night as a lot more information on it but you can see the revenue decline that we discussed predominantly in the land development lot sale area in that commercial water sale area, our overhead stayed fairly consistent.
We're keeping our head count strong and you can see in the other net the $1 2 million.
Other income that was basically surface use payments in future.
Anticipation of future drilling and oil and gas operations online.
That we will turn it back over to Mark for closing statements and questions. Thank you.
What are your takeaways here.
Takeaways for.
Management would be kind of the stewardship.
How we handle our business models, we've got very valuable very low cost basis legacy assets here, both in terms of the water and the land side of the equation and what we've done successfully is really make sure that we.
We.
Carefully position you all with your invested capital to market exposures and so one of the ways that we do that is through how we handle our builder contract and those of you that are familiar with the company.
This appreciation, but we have a lot delivery agreement structure, where our builders are working in partnership with us on delivery of this very expensive infrastructure.
We're in a high cost business, where we're delivering horizontal infrastructure for master planned communities and then the housing side of it the vertical sides handled by the homebuilders, but that infrastructure is very expensive and we want to make sure that neither we nor the builders our builder partners have too much exposures and softer market than we were in a softer market right now.
And really the validation of that business model is the fact that we don't have any exposure in there right. We as you saw in the presentation and Dirk highlighted we've got about 15%.
The phase II B, which.
B, the grading and the over excavation components of that that we've invested in and thats been covered by our homebuilder customers. So.
That's not.
Our significant investment in there and then as their lot deliveries and this is about pace right. This is about how many lots they want to have an inventory because they want to match the sales cycle and maybe in phase one each builder was doing seven to eight homes a month, so that absorption was pretty high.
In phase <unk>, we are seeing maybe three.
But we are still seeing that and three homes per builder. So that gives you a cycle for that we find ourselves in the right market segments, the entry level product and so as the homebuilders come out there and look for buying opportunities really highlighted the continued demand for single family homes in the marketplace.
And that's still we're seeing that in the marketplace. We're seeing that in terms of the builders in there building permits that theyre pulling and spec homes that they are building out of Sky Ranch and then also that Theyre, having said that we've got customers that have moved out there in the last.
30 day, and continuing to really see that absorption, we continue to invest value into the community. We're opening up our school, which is going to be a tremendous asset for them because of the local school.
Charter Charter school that we've partnered with a national charter operator out of Michigan National Heritage Academy.
They have a website.
<unk> Academy is a website you can.
Take a look at that but really good delivery device for education for new families out there.
And then taking a look at kind of diversity one of the things that we like and Kevin mentioned was single family rental business.
Still a ton of demand.
Four.
More space at your home.
The work balanced work from home balance Youre seeing a lot more.
Dual income families looking for more space. So that they can have offices at home and our home product we've diversified from.
Either a 45 foot lot or 45 foot locker in phase one and now we've got six different product categories, and that's enduring very well to the market segment, you have six different price points in there as opposed to just a couple of price points, depending on finishes. So a lot of those design features that we have.
In our master planned community really isn't nearing well and will stand the test in both good markets as well as headwind markets.
And then ultimately continued sales of water and industrial operations and so we're going to see a little bit of uptick in oil and gas demand, but thats really a steady steady eddy customer for us and we like.
Making sure that we supply that segment water supply and then can convert that water supply over into the portable supply. So there is a really good balance in how we are extending and developing into these assets.
And then continued growth we continue to grow the company small tuck in acquisitions of assets.
As you've heard me talk about in prior acquisitions were on the hunt for more land in.
It really kind of build our land portfolio.
Don't have anything really substantive to talk so I'm going to check some of your questions on what's the update on acquisitions for land development.
There are a number of opportunities that we're pursuing.
We're very aggressive about being doing that and one of the nice things. We have is we can be aggressive about that we have a very.
Liquid balance sheet, we've managed this capital well, we've been disciplined with our board to be making those investments and then also making investments in ourselves with the stock buyback. So those are kind of the capital allocation structures for us.
So with that I'm going to turn it over to the lovely journey in Scotland, who's waiting for her lunch and see if theres any questions that you might have on drilling down some of the detail.
Thank you very much indeed waiting for Mylan Vice trustees.
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Thank you very much.
Your first question is coming from Robert Howard from boiling point, resulting from <unk>. Your line is live.
Good morning.
Good morning, Robert just had a.
Hi, just had a quick question on the.
For the day.
New customers that are getting added on so you've talked about $500.
The annual revenue from the water customers when they come on I was just wondering at least maybe the Sky ranch.
You are adding customers and how much additional costs might there be so are the is the infrastructure and kind of everything in place. So that <unk> hundred is really kind of.
Almost all incremental or is there additional cost to kind of get layered on it.
As you are still kind of building up stock or if you've kind of reached a critical mass where maybe the costs are decreasing a lot slower than.
They were earlier in the project.
That's a good question and really we second segment some of that brick and mortar cost for adding those connections into the tap fee charges. So typically the way we see it is that.
<unk> charges.
That $33000 for a tap fee charge, we build the wells the treatment facilities all of the brick and mortar stuff that deliver that water to the customer through that capital allocation base.
And a lot of that is sub.
As early on investment that we've had and then also what we see is the oil and gas revenues tend to allow us to expand that system apart from the tap. So the way we usually look at it as that's a 50% margin business bought it becomes a little bit better margins.
Some of the oil and gas revenue, we can allocate to expanding that supply side in advance up does tap connections when we get the actual connections to 1500 dollar connection per year, which is really your point.
There are additional costs on that because we have an operating entity, where we've got chemical cost to make sure that we disinfect. The water we have lab cost because we have to continuously sample our water and make sure that our water.
It's all of the primary and secondary clean water standards. So that business. We typically also look at as a 50% business, 50% margin business and it's not so much on the capital side as it is on the operating side right. We have operators that are making sure that they are going out.
Making sure the systems operating correctly, taking a look at whatever whatever is occurring daily nightly weekly on those sorts of things. In addition to really the lab cost, but that's how that divides out there's not a significant uptick in that as a matter of fact, it's usually a little bit better on the front end because everything's <unk>.
<unk> operates the way it's supposed to.
But we really looked at those margins is about those 50% in each segment of that if that answers your question.
Yes, yes sure.
And then just that that $1500 number I think you guys have kind of been talking about that for a number of years is there pressure on that or I don't know if the market rate.
It's rare for you know in Denver, or other people charge and that amount or is there possible pressure for that going up just inflation in general.
So kind of keep customer rates flat.
Yes, and I would say theres two rates there so there'll be the there'll be the tap fee rates and then the usage rate the tap fee rate probably has a little bit more.
Upward mobility, just because of the scarcity value and as you continue to hear about the competitiveness of water right. Then the incremental cost because we have to go farther and farther out to reach for those water supplies I would say our tap fees have a little higher upside than say necessarily the <unk>.
Usage rates usage rates will continue to grow we continue to grow those for may.
Making sure that we keep up with our inflation costs as well as anticipated costs for whatever the evolving regulatory climate is going to look like but that's a little bit more inflation oriented as opposed to the value of water and water short areas in the cost of water acquiring those water rights from farther and farther.
Other areas. So when you take a look at those two revenue streams, there's probably a little more strength in the tap fee side, which is going to be our big number.
You apply that to our portfolio, we have 60000 connections worth of that but so thats over $2 billion worth of revenue potential over time as opposed to that $500. That's been a stagnant number we're probably a little bit above that that's just been a metric number that we continue to look at I would say that that continues to.
Go at about 335% per year.
Okay, Great. That's all I got thanks, a lot.
Thanks.
Thank you very much. Your next question is coming from Bill Cunningham, who is a private investor Bill Your line is live.
Mark how are you doing.
Living the Dream Bill.
Good.
On the last conference call.
Made the comment about the unusually good results, which.
As a result of lot sales.
And tap fees and we talked about how earnings are lumpy and so.
So we might not see the same in our results.
Quarter to quarter in this quarter.
<unk> exactly what you were talking about I kind of did some pinpointing out of things ahead of time to kind of figure out what your numbers might be and thought it was 50 50 as to whether you would be reporting a loss or a profit. This quarter. So it was kind of a pleasant surprise that you actually squeak through with them.
Bit of a profit so I like what he also surprised with the results being not as good as the prior quarter.
Yes.
That's true Bill.
It's cyclical in a couple of ways, one because of the way our year end reports.
It's us into.
And where we report right I mean, Denver as most of you all found out Denver is a great place to live except maybe January December January February .
Cyclically, we have and we're in the outdoor business right. So a lot of our water supplies outdoor irrigation outdoor land development activity outdoor sales for single family homes are all cyclical in the winter months. So.
It is pretty predictable.
We aren't we are grateful that we were still able to be profitable and we will continue to strive to do that quarter over quarter.
I do have a couple of particular questions.
For you one is I was looking at the tap fees are sold in the totals your 10-K.
At August 31 said that 618 caps have been sold in Sky Ranch.
Your press release said for more were sold this quarter, but then you reported a total of 70 766 caps that have been sold so far in Sky Ranch. So I'm confused on the difference between $7 66 and 622.
Yes, and really what we and this was a real strong push to normalize the number of tap connections.
There is a difference between the residential connections and then we have the cab the governmental entity that is responsible for the parks in the open space in the outdoor irrigation and they pay a tap fee, but they are only one connection and so that's the difference so what's your focus.
<unk> the number of irrigation connections, that's a higher number and so.
And we've been we've been really trying to normalize that for everybody. So that people like you really drill down into the numbers can get a feel for that $500 per connection per year amount what is that applying to and thats now we're really trying to give you all a little more clarity as this applying to that 12.
Entered 46 number of connections when we sell when we send out a bill that's not 246 bills.
There may be one customer that might have 50 of those connections, but thats that equates out to the same number of connections. So that's what we've tried to stick.
I was figuring when I went through that statistic this quarter. Unlike cutting if it is going to call me out on this thing.
I appreciate that.
But we did that with you in mind, specifically for the detail orientation as well as as well as you know Robert who came back and said, okay, I'm really tracking the $500 per connection and we really want to give the market a better clearer understanding of how to compute that number.
Okay, great. Thank you and then I also have some questions on the different builders in phase two way.
And there seems to be a big difference from builder to builder as to what Theyre doing there I mean kb.
It looks like Theyre going gangbusters, where they've sold.
Seven Ho.
<unk> already which I think is about two thirds of their total.
And challenger with their homes seems to be doing okay. Also nor has just started selling their single family homes, but there.
Townhomes are still listed as coming soon right.
And then D. R. Horton, we had talked about last quarter or I guess, they were having to do some revisions to there.
Building plans with the county and hadn't started yet so.
I'm, just wondering what might be going on with a couple of laggards here with.
Lenore Townhomes and the D R Horton homes.
Those are the two largest builders.
Eric was referring to.
And.
I'd say.
They all kind of.
Look at their own scheduling and this is new for both of those builders. This is kind of a new project that they're in.
<unk> has got they've probably got of their townhomes, They probably got 18.
Town homes under construction, so what they're really both of them.
More more more.
More lenoir than D. R. Horton are really pushing for this seasonal downtime, where they can build and then hit the market in kind of March cycle with a ton of product and they like the product that they have because it's very price sensitive product those townhome product.
Do extremely well and I think what <unk> forecasting as we want to have a good inventory of those.
I think we showed some areas of that and if we didn't do it in the earnings presentation jump on the website, because we throw up a lot of our drone shots on that you can see the bulk of the starts and the numbers out there and I think we've got more than.
Maybe 60 close to 70 vertical.
Construction out there of homes out there and you're right <unk> has done very well out there because they've got a paired product.
That higher density better price points out there challenges very competitive on a price and then important win.
They are pulling lots of taps. So we know that they've got lots of building permits that they've got teed up and then kind of line build theyre just going to throw everything they got at it do it all at once and that's pretty stylistic for the builders okay.
Great to know that when our or is actually building the townhouses right now because just looking at that yes.
Very aggressively building Wow, Okay, that's great because when you look at the website see coming soon.
Just figure that nothing has happened yet so.
They've got a four six Tak Ananda of news.
Okay, great. Thank you very much mark.
You bet.
Thank you. Your next question is coming from Bill Miller, who is a private investor Your line is life.
Marsh <unk>.
Bill.
Yes.
When they are where we are with two things one one.
One time, indicating you might buy back some of the lots.
The build to rent.
Part of your business and secondly, where do we think we hire with the I 70 development, which pushed to move it.
Some time near term.
And I wondered whether you could give us any indication of how soon that might take place.
In terms of the buyback on some of the other phases of the lots.
We're moving forward with phase two B, we're recording our Platte. This month and then we'll get a sense from the builders I think the builders were really helping to wait to see how their traffic activity was going to look for the first part of the year and so we've reached out to each of them and let them know.
No.
As you look to your close if you have.
If your absorptions extend yourselves that a little bit farther than you.
Would otherwise want to inventory, we will pull whatever number of lots back from that so all four of our builders have that offer we've made that offer to them. They are all under contract. So I've got a I've got to work with them on their cooperation but.
I'm pretty confident we're going to claw back not claw back we're going to be invited back.
A couple of those from some of the builders because it's a win win for them. They can they can not closed on that lot and then we're talking with them specifically to say, but you can still build outs on that and so that's an opportunity for them not to have it.
It really is a win win right. They can manage their cash flows so that they actually can still show positive sale.
Sales on Sky Ranch too.
To a customer that they know and they understand which would be us as opposed to waiting for traffic and contracts and cancellations.
This is a great opportunity for both us and them to really continue to build the portfolio.
And we're seeing extremely strong demand every time, we finished one of these houses and we put it up it is gobbled up I mean, we put it out on Zillow and it's just we get competitive people looking for rental on this stuff. So we still are very aggressive we still like that segment.
We're moving forward into that segment.
The question would be what can we do more in another phase.
Get out of the 850 and start another phase we can.
But that puts us in a bit more exposure.
Where we're actually inventory all of those land development opportunities and we do have a balance sheet that can do that but at the end of the day. We're also balancing that against opportunities for acquiring other land and making sure that we continue to build and grow the company. So there is a balance there.
Second question in terms of the land development side on the identity corridor, I think youre, probably referring to the Lowry project.
We continue to see a lot of pressure for.
Entitlements.
Everybody wanted more and more finished lots in the marketplace up through what was the interest rate environment and us being able to time the market, where we're delivering lots not throwing 850 lots to builders for them to inventory, but doing this on a <unk>.
Cyclical basis, where theyre, helping us pay for that pulled cost as well certainly is a proven delivery model for land development.
We will see with the weakening of.
Housing how that.
<unk> comes into impact Lowry as timing and other other land development in and around Sky Ranch that we're also looking at acquiring so we're cognizant of all of those elements, we our crystal ball isn't any clearer than the market, probably even cloud ear than some of the experts in the market, but what we tried to do.
Is make sure that we're making informed decisions with our capital allocation plan.
Well, what about buying back stock under those important decisions.
That's a great opportunity for us and if the market continues to frustrate.
Talk price, where theyre now we're ready to do that do I have do I have an answer for you what price do we buy stock I don't.
Okay sounds good keep going.
Thank you.
Okay. We have now reached the end of the question answer session.
I will now hand back over to Mark for any closing comments.
So in closing I guess I want to continue to thank you all for your continued support in <unk>.
Confidence in our.
Our business, our business model and our team here I want to recognize and give a shout out to our board of directors.
They are an outstanding group of folks that continue to give our management team very very sound and reasoned and expert advice into all business segments that we have we built a great board that has disciplines in each of these to help us continue to evaluate those decisions and make good decision.
<unk>.
For our investors and our invested capital.
As Kevin mentioned, we have our annual shareholder meeting there is not anything exciting on the shareholder.
But if you haven't voted your shares please vote them.
And.
We look forward to an update in sometime in April timeframe to give you a little bit more detail on the market. If you weren't able to ask a question or if you are listening. This on a replay don't hesitate to give me a holler.
I'd be happy to give you any color or any information that.
Would help you guide decisions and.
Ownership of the stock so with that I will close and thank you all and look forward to speaking to you again soon.
This concludes today's conference you May now disconnect. Your line at this time. Thank you for your participation.
Thank you Jamie.
Thanks, guys.
Okay got it.