Q4 2024 Pure Cycle Corp Earnings Call
Greetings and welcome to the pure cycle Corporation year end 2024 earnings call.
At this time all participants are in a listen only mode on the question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
Speaker Change: Although I would turn the conference over to your host Mr. Mark Harding, President and Chief Executive Officer of Pure cycle Corporation, Sir you may begin.
Mark Harding: Thanks very much.
Mark Harding: And I'd like to welcome you all to our two.
Mark Harding: 2020 for fiscal year end earnings call.
Mark Harding: We do have a slide deck for this call. So it is on our website. If you go to pure cycle water dotcom. It's on the landing page you can click there.
Mark Harding: And then we will know through the transition of the slides.
Yes.
Mark Harding: Technical difficulties.
Mark Harding: You can probably get it there and then you can also get it on the Investor page for the PDF version of it.
Mark Harding: So with that.
Let me get started first I want to talk about our forward looking statements I think most of you are familiar with forward looking statements.
Mark Harding: The meaning.
Mark Harding: Defined by that.
Mark Harding: Securities and Exchange Act these are statements that.
Our forecast in.
Mark Harding: Planned statements so.
You cannot rely on anything I say on the call, but anyway, you are familiar with forward looking statements.
Mark Harding: Wanted to talk a little bit about <unk>.
Mark Harding: Continuing leadership team I have the privilege of getting to work with some outstanding people here at pure cycle and they're really responsible for the key drivers of what it is that we're doing with me in the room today is mark These alley as well as $3 and again who's our controller and then we also have the <unk>.
The ability of having one of our board members that cause lots of you joined US. This morning, So I'll welcome Dan.
Mark Harding: Scott Lehman, who heads up our engineering department as well as start last night to handle hedge.
Heads up all of our land development and outstanding leadership team that continues to exemplify profession.
Professionalism in each of their disciplines.
Mark Harding: In addition to our Great management team, we have a great board of directors, we continue to punch above our weight class with our board and with the addition of our newest board member, who I think some of you.
Mark Harding: Remember I introduced in our last call that Sue Heitmann, who has a 30 year veteran.
Mark Harding: Retired KPMG partner. So she has provided terrific insights and some of the SEC reporting mechanisms that we do so we will compare as well.
Mark Harding: I'm going to do something a little bit different on this Paul I'm going to jump directly into the financials. If you've got great financials, you want to talk about them upfront and so we've been an outstanding year. This year and so we want to really highlight our financials, then I'll talk a little bit about the company for those that.
Mark Harding: That are new to the company I think most of the folks that joined the call are going to be a little bit familiar with the company, but for those of you that are new or that joined the call on a replay you can get a bit of an overview or at least how we describe the company and how we think about it and then something very new for us.
Mark Harding: Are you a little bit of foreshadow as to what we think is going to happen in the future. So a little bit of all three of those elements.
Mark Harding: Let me dive right in and talk a little bit about our.
Mark Harding: Fourth quarter results, we have had a record fourth quarter results here.
Mark Harding: Take a look at how we perform typically our fourth quarter is our best quarter and it's really not so much that we are seasonal but as we work on delivering lots just because we operate in Denver you do have some seasonality on the delivery of some of those lots in the pavement in asphalt.
Mark Harding: Concrete don't work, so well in the winter, but they do deliver.
Mark Harding: Deliver in the spring and summer and so Thats a large measure of how we time our projects out to make sure that we can time that with the building season here and make sure that we get a lot of those lot deliveries from our land development segment by taking a look at that.
Mark Harding: We generated about $12 $5 million in Q4, and that was really a function of delivering.
Mark Harding: Phase <unk>, which was about 197 loss, we retained 17 of those lots that we're going to hold for our BTR segment, and then just a record quarter in terms of gross profit.
Mark Harding: Let me translate down a little bit in terms of each of the metrics that we take a look at revenue for the year.
Mark Harding: $98 seven again thats another record year for us.
Mark Harding: Gross profit of about $20 million, which is terrific gross margins.
Mark Harding: Really benefiting from our historic acquisition of both our land and our water rights. There. So we've got 69 close to 70% gross margin on those and then net income.
Mark Harding: We earned <unk> 16, or $11 6 million and about 48 cents per share so terrific metrics for the company.
Mark Harding: Taking a look at.
That on a year over year basis, if you compare that with where we are for the last trailing three years.
Mark Harding: Clearly another great year.
Mark Harding: Last year was a bit of an anomaly just because of the.
Mark Harding: The delay that we were looking at because interest rates rose so rapidly there.
Mark Harding: First part of 2023 that some of our homebuilder partners, we're looking for us to really work with them on the inventory of our lot. So that's a bit of a gap on that but I think youre going to see that this is more typical performance for the company as we roll forward.
Mark Harding: Taking a look at the other metrics that we've got net income earnings per share.
Mark Harding: <unk>.
Mark Harding: Really put up outstanding results for these legacy assets and really I think the company has hit a tipping point, where we've reached critical mass in these investments at Sky Ranch and not only in the land side that how we really monetize bringing the water utility online and a lot of that we make these upfront investments and then we continue to add to.
Mark Harding: Actions to utilize that capacity and so that's been a great performance for us. So we're really proud of the year proud of kind of how this is rolling out for shareholder value and being able to demonstrate our execution of the business model.
Mark Harding: Take a little bit more on the financial performance. This is.
Dissection of this thing by.
Mark Harding: Each of our segments. So you take a look at our water utility segment, and we had a record year in the water utility segment I think the largest driver in this segment is going to be our oil and gas opportunities, where we're providing water to our industrial customers. We had a very very strong year. There as you can see it was a record year for us.
Mark Harding: Oil and gas at a little over $5 $5 million.
Mark Harding: Some of that on the choppy revenue came in and then our recurring revenue from our existing customers.
Mark Harding: And as we keep developing Sky ranch, we keep developing other portions of our service areas. We continue to add our customers. So you're seeing great customer growth. So we have a 21% growth rate in our CAGR for our utility customers.
Mark Harding: And we're still averaging about $500 per connection per year for our <unk>.
Mark Harding: Reuse.
Mark Harding: Our recurring revenue customers from our utility model.
Mark Harding: Taking a look at one of the things that.
Mark Harding: We've been benchmarking ourselves on and some of the things that we look at is how are we performing by segment compared to our peers and so when you take a look at our numbers in our sector performance in the water utility we benchmark our performance against some of the best in class water companies out there and so you take a look these are some of the comparisons were.
Mark Harding: You take a look at how American water and they are probably the largest public water utility company.
Mark Harding: And Europe water at global water resources really how our margins compared to some of these that are performing in that sector and you can see we're very very competitive in that the real take away from this comparison is we're really only choosing 5%.
Mark Harding: Our utility assets and so when.
Mark Harding: When you take a look at how we're doing and doing that on a return on assets with only 5% of that asset in production. It really tells a very strong story about how our assets are really delivering value to our shareholders.
Mark Harding: If I take a look at really the strongest performer in that segment for 2024 will be our oil and gas operations and this kind of just gives you an illustration by quarter. How those revenues came in but it was a pretty strong year throughout the quarter I would say it was.
Stronger in the first three quarters than in the fourth quarter.
Mark Harding: Which is really atypical because that summers, where you have a lot of that demand and we still look for continued performance from this segment.
Mark Harding: The most interesting thing about our oil and gas deliveries, our excess capacity doesn't really take away any water service from other customers and.
Denver's water constrained I think we've all talked a lot about that and that water constrained markets provides an opportunity for us having excess capacity that we can divert some of that.
Mark Harding: For use by the oil and gas industry.
Mark Harding: They are looking at continuing to expand I think they've been focusing on nearly 200, well permits on the Lowry ranch, which is going to be within our service area and so there's going to be continued strong performance in the oil and gas segment for several years to come and so we will continue to look forward to making.
Mark Harding: That water available to those customers and making sure that we keep up with that demand.
Mark Harding: Taking a look at our land development segment, here's a little bit of color on that land development segment, where.
Yes.
Speaker Change: Thank you.
Speaker Change: Excuse me.
Speaker Change: Again, we delivered our finished lots for phase two b. So a 194 lots on the for sale side.
Speaker Change: <unk> single family rental reserve lots on there. So we're about 92% complete there and really what this is illustrating for you is kind of how we've been performing in that land development segment through the years end.
Speaker Change: Really bringing online.
Speaker Change: We've developed a total of about 200 lots in total.
Speaker Change: We've got about 700.
Speaker Change: Residents now at Sky Ranch, and we've got about 700 lots currently under production. So you're seeing an acceleration of our land development segment and Youre going to see how that really monetize that asset and as most masterplan communities do they develop on a bell curve format, where you start out relatively slow because you.
Speaker Change: Got a lot of.
Speaker Change: A lot of investments coming out of the ground you continue to add units to that and then you really start to accelerate that development as you've got more and more traction in there. So you'll continue to see results in that side.
Again, another sector performance, how we stack up some of the other land developers and people that do similar types of activities and I think what this is really going to illustrate for everyone is the value of our acquisition.
Speaker Change: We ended up acquiring Sky ranch at the bottom of the market would have been at.
Speaker Change: It really historic lows for land acquisition and land trading.
The most interesting thing there is when you compare us to other developers, whether that's green brick or the Howard Hughes company are four star.
Our basis in the land continues to drive shareholder value here and the most interesting thing about it is that and I'll illustrate this later in the presentation. We're still just getting started with developing Sky Ranch. When you look at the total the totality of the residential and the commercial lots there were really only about 15%.
Speaker Change: In our in our development cycle for the land business. So.
Speaker Change: Much much more to come and I think we're very excited about those opportunities.
Speaker Change: I want to highlight a little bit about <unk>.
Speaker Change: Most recent segment to you.
Speaker Change: You heard me talk a lot about this.
Speaker Change: Our single family rentals, we continue to invest in does we continue to grow those.
Speaker Change: Our annual revenue associated with those is now starting to reach the $5 million were very early on in that base. We've got kind of that proof of concept model here, where we've got about 14 units.
Speaker Change: Completed in that segments, and we're really moving towards going up to about 200 units in there and again.
Speaker Change: Terrific margins in our single family rental segment, if you want to compare that to some of the best in class on the single family rental to American homes for rent and innovation homes again, we're very competitive with our gross margins and so when you take a look at small company like us and how we're executing on our performance side.
Speaker Change: I think where we compare ourselves to is those that are doing it well and we are proud that we're we're competitive with their rates and charges and how they perform in their asset price.
Speaker Change: So with that I'm going to kind of give you a little bit of an overview and maybe for those that are new to the company or for those that are familiar with the company how do I, how do I talk about the company to somebody that gives you a kind of an overview of some of the more.
Speaker Change: Metrics that we really focus on and how we introduce the company to others. So.
A little bit as you know we operate in three different business segments, which are all complementary. These are vertically integrated segments, where we have water in a water short area, we own about 30000 acre feet of water that can serve about 60000 connections in the important component there is.
Speaker Change: We generate revenue from that water utilities, and we get paid from two different fee instruments, we get a chassis, which has a large capital fee that's amortized into cost of the house and those staff fees have continued to grow in the metropolitan area.
Speaker Change: A lot of these therapies when we started sky ranch were around $30000 and I think that average is now closer to $40000.
Speaker Change: And then we get that recurring revenue from the customer connections and we operate and maintain those water and wastewater systems.
Speaker Change: That is complementary to the land development, because you can't develop land without having that water utility and so.
The combination of developing the water utility together with the land is a unique opportunity for us because it allows us to manage those high capital costs, those big investments that youre, making and making sure that we understand with as.
Speaker Change: Best in knowledge as we can what we need to do when we need to do it and how fast we need to do it and so when we are able to understand the land development segment as well as we do bringing those Luna units online. It also allows us to make sure that we have sufficient capacity in our water and our wastewater segment.
And then finally moving into the single family rentals, we're adding tremendous value in the communities that we're building and one of the things that we saw was just an enormous appreciation in home values and then ultimately the lots that were delivering to our homebuilders and so.
Speaker Change: Competing with our homebuilders, because we're really not looking to do that we want to be able to.
Speaker Change: To benefit from those investments that we're making on the utility side as well as those investments that we're making on the land development side, and then bring single family rental units online.
Growing and ever appreciating market for single family rentals.
Speaker Change: For folks that just choose to rent.
Speaker Change: Where our rentals are on average around 2800 to $3000 a month are brand new homes. So we've got a high retention rate on our rental customers and it's really a terrific segment for us because it allows us to carry forward the equity appreciation that we have buying the land right. So we've got a very.
Speaker Change: Low basis in the land cost as well as the.
Speaker Change: The low basis and the the legacy asset that we are in the water system. So it's a terrific segment for us and one that continues to grow.
Speaker Change: Let me drill down a little bit more into the water segment and talk a little bit about kind of why we're so excited about that when you take a look at the overall segments about $65 million on the balance sheets and the important drivers here are going to be what we have booked these assets for we've been working on these assets for more than 30.
Speaker Change: Years.
Particularly the acquisition of the water rights portfolio and these are these are reported at book value. You. All know that gap allows you to just record that at cost in half.
Speaker Change: Having an asset that can serve 60000 connections and the ability to generate more than $2 billion in top line revenue with a 50% margin that you have got booked at $14 million really understates. The asset we continue to invest into that water system capacity. So that we can provide water.
Speaker Change: Two our onetime customers, which are oil and gas customers and making sure that they have sufficient supplies when they need those supplies and so that's kind of where you see that $40 million investment and then also in our wastewater system.
Speaker Change: If you look at some of that system capacity. This year, we were a little bit better be used a little bit more than 50% of our developed capacity, but it does tell you that we still have pedal left.
Speaker Change: And the ability to continue to meet the demands.
Speaker Change: This oil and gas customers and then as we add new connections at Sky Ranch, when we're delivering lots, we had that capacity ready and available for those customers.
Speaker Change: Taking a look at just the build out portion of the chassis portfolio again, we're just getting started just about 2% of that debt.
Speaker Change: Capacity of 60000 connections. So we're very excited about how we continue to grow this water utility segment.
Speaker Change: Talk a little bit about land development, how we positioned ourselves through the land development.
Speaker Change: We did buy this land right we bought in 2010, and we're very patient about that but bought it at the at the bottom of the market.
Speaker Change: Cost basis in the land is around $4 million in total loss sales to date, so close to $80 million and again, our gross margins in this area just because the land basis is.
So attractive and that we continue to maintain very attractive gross margin margins in our land business.
Speaker Change: I want to highlight kind of what we've got going on and you've heard me talk about phase, one which was our initial entry into the market and that was about 500 lots and then phase II was about 800 and 880 lots and so we divided the phase two up into four sub phases and really did this.
Speaker Change: We can make sure that we deliver just in time inventory to our homebuilders and really how our business model executes as important as.
The value of the lots that we're delivering and in our segment here Sky Ranch.
Speaker Change: Really tapping into in the Denver area and entry level House, and so in Denver and entry level House is anything less than 500000 and the odd thing about it is when we took a look at this in 2010.
Speaker Change: Just before the downturn in the recession.
Speaker Change: Approximately 50% of all home starts in the Denver area. We're in that entry level space and that number has has really eroded down to less than 4% and so we are one of those communities, where homebuilders can come in they can build an affordable product and really attract that that bulk of the buyer.
Speaker Change: Market.
Speaker Change: <unk> delivered phase Iia.
Speaker Change: And we've got about seven or about all 229 of those homes R. R.
Speaker Change: Fully built and occupied.
Speaker Change: The fiscal year and for 2004 delivered the 211 lots from phase II B.
Speaker Change: We've got phase to see under construction. So we're midway on that where we've done the grading and we're doing the utility work concurrently and then we've also just because of the level of demand that we have from our builders. We've also started phase two D and so adding we really have about 500 lots under production and.
Speaker Change: Then we will have.
Speaker Change: The 211 loss from phase III.
Speaker Change: B, where homebuilders are going to be pulling taps and building permits for that so when you look at it we really have as many lots under production as we have homes existing out there. So we're going to be doubling that over the next 18 months.
Speaker Change: Taking a look at some of the.
Speaker Change: Ultimate build out projections for Sky Ranch, we divide that up into a residential component as well as our commercial component. So we have zoning for around 3200 single family equivalents.
Speaker Change: And.
Speaker Change: About 1800 single family equivalents in the commercial side.
Speaker Change: The total that we've got developed for the rest of the residential is about 22% we have yet to start the commercial and when you take a look at the project as a whole we're really only about 18% complete on that and so that kind of gives you that perspective of well as 2020 for a trend or is 2020 for an anomaly and I think just because of the <unk>.
Speaker Change: <unk> of how we're bringing this project online you're really likely to see much more consistent results coming out as a result of the <unk>.
Speaker Change: <unk> and the inertia that we've got in Sky Ranch.
Speaker Change: Talk a little bit about single family rentals little bit of the markets on that it is maximizing our land development opportunities and because we're bringing value to the community and value to each of these homes. We want to continue to do that we want to benefit from that.
Speaker Change: Great asset for us because it provides us.
Speaker Change: Valuable recurring revenue for the market and you all to get your arms around it leverages some of that market demand and it provides an enormously high return on investment. So we're very excited about how we're continuing to take a look at this.
Speaker Change: One of the things that is unique about it is and really one where nobody can compete with us in terms of the single family rentals is we are carrying forward a lot of that equity that we have from the Lotte ownership as well as the utility system.
Speaker Change: So when we partner with our homebuilder partners to build our single family rentals.
Speaker Change: We're coming in and building a house at $350000 and when that houses delivered its worth anywhere from 500 to 550, So we've got a tremendous.
Speaker Change: Equity in each of those houses and so the nice part about it is.
Speaker Change: It's a tax advantaged way for that asset to grow on the balance sheet and so not only are we delivering that but the fair market value of the 14 homes that we've got is about a 50% equity margin in there already and so you'll likely see that continue we get to rent those houses out there.
Speaker Change: Their fair market value and we continue to benefit from that.
Speaker Change: Segment.
This will give you a snapshot I think this is.
Speaker Change: A slide you've seen before but it gives you a snapshot about how many of these homes are coming online. If you look at that first phase we've got for that first line, we've got 14 homes.
Speaker Change: And occupied 17 homes in this next phase to be we'll have another 40 homes in 26 of them. So rapidly growing from 14 to 100 homes. We proved this concept out the board has given us.
Speaker Change: And enthusiastic green light to accelerate the development of this and working with our Homebuilder partners, we've got the best delivery.
Speaker Change: Home construction that we could have as they are building homes right next to us they're going to deliver homes for us and so these are proven model homes that they have that they've built.
Speaker Change: <unk> are times and so again, it's a great opportunity for both them and us where they pre sold these homes and we are happy to work with them on delivery of them.
Speaker Change: <unk>.
Speaker Change: I want to talk about.
Speaker Change: Balance sheet as you know we're very we're very.
Speaker Change: Conscientious of our liquidity and have just a terrific balance sheet, great cash position as well as <unk>.
Speaker Change: We'd note receivable from our cab.
Speaker Change: So I think this is.
Building into a record liquidity almost $57 million.
Speaker Change: Cash and note receivables and really then receivables as you've heard me talk about our that that.
Speaker Change: And that investment that we've made into the roads curbs and gutters and we get reimbursed from that from the tax base that we create at Sky Ranch in and we did have a subsequent event to that I'll talk a little bit about and some of you probably already started the press on that but again continued high performance and very conservative balance sheet protection.
Speaker Change: So one of the things I want to do.
Speaker Change: Is it going to be new for US is to give you kind of a framework for how this is going to move forward.
Speaker Change: While I have been a bit conservative in the past about giving some guidance I think we have the opportunity to tell you how we look at it and how it is going to roll forward in the future and so what we wanted to do is kind of illustrate.
Speaker Change: Not only how we've done the last couple of years, but also how we think next year is going to go because we have a lot more predictability to the segments.
Speaker Change: While we had a record year. This year, we do continue to look for that to continue and so we look for revenues to continue to increase.
Speaker Change: Modestly, but we're looking at delivering excellent results from our land development segment as well as our water segment and then continuing to build into that single family rental segment. So the some of those are going to be.
Speaker Change: Still a bit new but.
Speaker Change: Really kind of continued to grow in value not only are we growing the top line, but we're growing the bottom line as you can see we're going to have a higher.
Speaker Change: <unk> forecasting higher margins for next year.
Speaker Change: And so we want to continue to improve our margins as well as continued to deliver top line results.
Speaker Change: Taking a look at that net income again delivering better margins.
Speaker Change: Both the water segment as well as the land development segment and continuing with the single family rentals, and then continued returned to the shareholders. So.
Speaker Change: These earnings and the value of these acquisitions that we have will continue to benefit the shareholders.
Speaker Change: Well, let's take a look at kind of how we look at the company. What we do is we certainly continue to keep our eye on execution, which is the current year.
Speaker Change: We take a look at what we're doing over the next short term. So if you take a look at that whats our three to five year Horizon and then also be mindful of how we build this thing out so I want to give you kind of why we're so optimistic about this opportunity and so in the short term our customer growth looks to grow to about 2500.
Speaker Change: Accounts.
Speaker Change: Consistent tap sales are.
Speaker Change: Our tap fees are continuing to increase on an inflationary basis. So you have got.
Speaker Change: The asset protection on that and the ability to continue to grow on that and then when we look at what we look to build out just from what is already in the books on this thing is the 5000 single family.
Speaker Change: Connections at Sky Ranch, we both at residential and commercial connections.
Speaker Change: Commercial connections are more valuable than the residential conventions and so the high value.
Our asset is still yet to come we continue continue to improve our operational efficiencies as each of our segments grow and then we continue to build that value. So we're going to expand our system. Both on the Lowry ranch as well as an unincorporated.
Speaker Change: Wrap up counting parcels.
Speaker Change: If you take a look at the land development outlook again, we have.
Speaker Change: Bulk of the infrastructure already invested a lot of the heavy off site infrastructures. Some of the Big group major roadways. The drainage ways are all in and working and delivering.
Speaker Change: Results for the community, we still are working on.
Speaker Change: Interchange, so we're going to upgrade our interchange in there to give us additional capacity and we have a bond capacity within the Sky ranch cab to be able to finance that and are looking to really initiate that in the next two years and that's going to unlock just a continuation of development of the commercial as well as the residential out there.
Speaker Change: And then just buildup we are at the.
Speaker Change: The real meat of the stage if you look at the Bell curve on delivery of the land development, we're kind of moving into that part of the top portion of the bell curve. So we're really looking at delivering strong value and that land development segment, and then single family rentals again, expanding you saw in the next 18 months to 24 months.
Speaker Change: We will be moving from 14 homes up to a 100 homes terrific margins in that terrific efficiencies and giving us scale in that side and then ultimately on the long term side, we look to be in that 8% to 10%. So.
Speaker Change: I might stretch that 200 homes and put that into the $2 50 to 300 home side of it but we will continue to add to that portfolio and deliver results there.
Speaker Change: Consistent.
Speaker Change: Wanted to do is kind of recap.
Speaker Change: How did we do I mean, if you look at this on a retrospective basis, how do we do in phase one when you look at kind of a postmortem of the first 500 lots we had.
Entered the market on that we were a new build or a new player.
Speaker Change: So our entry level lot prices really were attractive they were they were attractive for us to be able to entice.
Our customer base, we were looking for National Homebuilder partners on this and so we did price them. Those lots very competitively. This is in average lot cost about $73000. When we make those investments on roads curbs and gutters, we've had a little bit higher reimbursable upfront. So there was about a 55.
Speaker Change: Dollar per lot.
Speaker Change: Reimbursable on that.
Speaker Change: And then there is non reimbursable. So there's there's improvements that you make that are on the lock themselves that you sell privately that was about $28 million.
Speaker Change: Sorry, $28000 per lot and then as you've seen.
Speaker Change: We have we do finance that Reimbursable component. So we just did get another repayment on that so we're making a good return on that as well. So when you take a look at this.
Speaker Change: Total land values, we made about $110000 per lot and then the average staff be at about $30000. So on average in our first phase we've made about $140000 per lot on that.
Speaker Change: I want to take a look at how that dissect that in the utility segment. This kind of gives you an illustration of how our tap fees compared to other water providers in the area and as you can see we're very competitive for our tap fees. In fact, we're right on that there's probably a little bit of panel room for us on the tap fees, we want to be consistent.
Speaker Change: With these therapies, we want to be competitive with these therapies.
Speaker Change: Look to our neighbors city of Aurora, and being competitive with Aurora tap fees as well as the.
Speaker Change: The overall market and you can see tap fees are approaching $60000 and some of these market segments. So the cost of water continues to grow in the metro area and really it's a function of the scarcity value.
Speaker Change: The takeaway from this is we've only developed 2% of the assets. So we still got 98% of that asset to go off the 60000 connections.
Speaker Change: Taking a look at kind of the land developments, we were at that original lot cost of about 73000 and as we've worked through phase II.
Our lot pricing for phase <unk> is now about $125000. So.
Speaker Change: Comparison basis on the same a lot that we had on phase one and the same lock that we had on phase two D. In that four year period, we're seeing maybe as much as a 50% increase in that lot cost funding that lot price.
Speaker Change: So how is <unk> going to look how is the delivery of this next.
Speaker Change: Phase of lots going to be looking compared to our first phase.
Speaker Change: Revenues are significantly higher reimbursable or.
Speaker Change: Consistent little bit inflationary up.
Speaker Change: The non reimbursable components are going to be consistent so the total land value and thats about $175000 per lot.
Speaker Change: Copies of increased a bit so getting a little bit more margin on that so as opposed to a $140000. We're looking at about $215000. Again. This is an opportunity for us to continue to develop entry level homes and our builder partners continue to do very well with these entry level pricing mechanism. So.
Speaker Change: It's a win win both for us as well as for our Homebuilder partners.
Speaker Change: A little bit on the single family rentals, we've got.
Speaker Change: About 200 of those planned we're building them.
Speaker Change: Again, as I mentioned with the strong equity component as we deliver each and one of these because we're carrying forward the land basis as well as our water basis Senate and each unit contributes about $33000 in recurring revenue per year, So youre going to see a strong acceleration of our recurring revenue associated with that and were only 7%.
Speaker Change: Complete on what we're planning on that and so when you look at this.
Speaker Change: We're looking at each of these individual components. We're really just getting started we have 2% of our water asset in production.
Speaker Change: 18% of our land development segment in business and 7% of our rentals and we're really executing well on each of those so we're very proud of these opportunities.
Speaker Change: If you look at that same comparison on how we look at things concurrently with year over year execution. How we look at next year's performance and then maybe what we're looking at on the short term. This will give you a kind of a view of how those are going to translate into results. So 'twenty 'twenty four.
Speaker Change: Sure.
Speaker Change: Record year 2025, we were looking at again exceeding that but then within a short period of time and this is going to be that kind of three to five year window. If you take a look at that how thats going to translate into the company's performance we're start.
Speaker Change: Just being at 18% of our land development business, we're starting to bring on our commercial and we're going to see some high values attributable to that and so this is kind of a foreshadow of where those revenues are likely to go in a very short term in a short period of time and.
Very exciting results here.
Speaker Change: Even more compelling and so doing the math. This is kind of what the company has in its portfolio doing the math on.
Speaker Change: That short term 2028, as well as the Buildout of Sky Ranch, what does it look like when we build outstanding range I mean, what kind of opportunity to Sky ranch present for us in terms of build.
Speaker Change: Building this company building the asset side as well as the recurring revenue and really we've structured this out so that we get tremendous recurring revenue both from the water utility as well as from the single family rental and why we're so excited about that if you look at the build out of the 5000 single family connections as Sky Ranch.
Speaker Change: We will move from where we're at today is $2 million to $5 million in recurring revenue to $15 million in recurring revenue.
Speaker Change: $15 million in recurring revenue and that number really is just still only utilizing roughly 15% of the water asset and that inventory of maybe $100 million worth of the single family rental segment business. So again tremendous growth potential here and then how does.
Speaker Change: That translate in terms of asset growth when we build that system and when we add all of those in a cash component to that we move from where we're at today at roughly $150 million asset growth almost $700 million.
Speaker Change: Almost three times our market cap.
Speaker Change: Just by executing what we have at Sky Ranch alone and so that's a bit of how we look at the business. When you look at just doing the numbers on that and how thats baked into the acquisition of the land value as well as the acquisition of the water utility segment, just tremendous opportunities for the company and so.
Speaker Change: Very excited about how that's been a.
Speaker Change: Rollout for us.
Speaker Change: Want to talk a little bit about a couple of things that happened subsequent to our year end one that you're I think you're familiar with we did have another.
Speaker Change: Another refinancing of our 2019 bonds and so the big takeaway here is one of them.
Speaker Change: In large measure.
Speaker Change: How we manage the community how we're delivering results in the community. The the appreciation of the homes in the community. We got one of those very very rare and very coveted investment grade ratings for our refinanced bonds here and so we're very proud of that.
Speaker Change: With our banking partners da Davidson Davidson to take this out to the market segments and what that enabled us to do as the initial.
Speaker Change: 500 lots were able to deliver us another $10 million of proceeds to continue to pay down debt Reimbursable bond are reimbursable on our balance sheet through these bond activities.
Speaker Change: Another subsequent event, we did have another.
Speaker Change: Land and water acquisition and this really kind of illustrates our disciplined approach to acquisitions and so this will kind of give you a proximity we bought another 400 acres, which happens to be right next to where our farms and water acquisitions that we acquired back in 2018 and.
Speaker Change: And the interesting part about this is the.
Speaker Change: The Red lines here illustrate where we've developed our pipeline infrastructure to connect these wells the two yellow.
Speaker Change: The yellow stars on there are the new wells that we got and these are already on our pipeline. So the cost of interconnecting. These are almost.
Speaker Change: Just just insignificant.
Speaker Change: Which makes it for a great consolidation on that not only did we get the land we got the water and very valuable mineral interests. This is actually up in Weld County, which is where the bulk of the oil and gas activities occurring we have tremendous activity in the southern Wattenberg field. This is the end of the the.
Speaker Change: The the nameplate.
Wattenberg field so.
Happy with this acquisition and really working with our our neighboring.
Speaker Change: Landowners to make sure that.
Speaker Change: As they take a look at transitioning in there and their family planning that we have an opportunity to get those call. So again.
Our preference is for more real estate land acquisitions in.
Speaker Change: In and around where we are with Sky Ranch and we continue to work with our neighboring landowners to make sure that they understand what our business model is in our interest level, but again this is kind of demonstrating how we look at.
Speaker Change: Continuing to grow the asset base.
Speaker Change: Thanks.
Speaker Change: Just a little bit on our stock repurchase we continue to reinvest in ourselves.
Speaker Change: Through our.
Speaker Change: Repurchase program and so we're going to be continuing to be in the market.
Speaker Change: On a progressive basis as you can see on some of these forecasts and doing the math on this thing.
Speaker Change: US trading at 910 $12 a share is a bargain and so we think it's a bargain we're going to continue to buy those shares we don't want to compete with you, but we do we do appreciate the value of what we're building and want to make sure that that's another way that we can return shareholder value.
Speaker Change: So with that I'm going to turn it back to Ali and see if we've got any questions that we can drill down on.
Speaker Change: Thank you, Sir ladies and gentlemen at this time, we will be conducting a question and answer session.
Speaker Change: I'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we pull for questions.
Speaker Change: Thank you.
Speaker Change: Our first question is.
From Elliot Knight with Knight Advisors. Your line is live.
Good morning, Mark.
Mark Harding: Morning Elliot.
One of the.
Mark Harding: Growing.
Water consumers are.
Mark Harding: Data centers.
Mark Harding: Have you had any interest.
Mark Harding: Then you have the largest dedicated water supply in the Denver area at least at one time I believe that was true and.
Mark Harding: So I would think.
Mark Harding: Data centers are going to be built.
They might have come to you.
Sure.
Mark Harding: Anything going on in that.
Mark Harding: And if the data center was built.
Mark Harding: Could it operate on non potable water as opposed to the potable water.
So good question.
Speaker Change: <unk> I'm not sure about the latter part of that on the non potable water I know the bulk of the water.
Speaker Change: Demand that they have is basically from the cooling side of it and I think scaling would make any issue about.
Speaker Change: That's a good question I don't know if it could.
Operate independently of a portable versus a non potable segment, but you are right.
Speaker Change: Theres two critical components when Youre, taking a look at a data center one is energy and the second is water and so.
Speaker Change: We have significant passage in both of those Sky Ranch is broad buildout.
Speaker Change: Utilities, there both gas and electric and then we have build out water there and so we have a commercial.
Speaker Change: Area within the development, which happens to be right along the Interstate now these are largely vacant buildings. They have a very skeletal staff for them. So they don't have to have great transportation access.
Speaker Change: And so I'm not so sure that the real estate value is as important as the other two components of it.
Speaker Change: We have reached out to some folks that do do datacenters and we have let them know that we're available to explore those types of opportunities. We haven't had a lot of traction there yet, but we have recognized that.
Speaker Change: When they do their diligence some of the key things on their diligence is water and so.
That would be a great opportunity for us to have a very strong water customer I will tell you I'm not I'm not dying for.
A large water customer because I already have a large water customer in our in our industrial customers right. They pay.
Speaker Change: That debt.
Speaker Change: That high dollar value because they are not buying a task and they pay that high consumption rate and I'm selling a ton of that excess capacity to oil and gas is paying for that.
And so whether a substitute.
Speaker Change: Data center or add a datacenter into that component love to have that.
Speaker Change: I will tell you that we continue to grow our demand segment through the industrial segment sector as well.
Speaker Change: Okay. Good. Thank you very much and this has been a great presentation very helpful looking forward.
Speaker Change: Thank you.
Thank you. Our next question is coming from Bill Miller, who is a private investor Sir your line of sight.
Mark good morning.
Great quarter, great year outlook is terrific.
Speaker Change: And so I'll go to the old question, because you say youre repurchasing common stock.
Speaker Change: Look at the year end 'twenty.
Speaker Change: Three versus year end 'twenty four we have no more shares outstanding than we did in 'twenty three.
Speaker Change: So I'm not.
Speaker Change: Not sure how to read that but maybe you can reconcile it particularly given the fact that youre incurring revenue is going to be so high.
Borrowing.
Marcus you wound you would make great sense and borrow money.
The money from the banks.
So I'm sure it would be very willing to lend it to you.
Speaker Change: Get going this ridiculous.
Speaker Change: <unk> is way under where it should be.
Speaker Change: You've outlined why it should be a great deal higher.
Speaker Change: Why not.
Speaker Change: Yes, no fair question.
Speaker Change: We do and my answer has not changed we do we do feel very strongly that we're undervalued and we do that and back that up by a share repurchase we still are balancing out keeping some dry powder. So that we can pursue these acquisitions and we did have a very nice very strategic acquisition.
Speaker Change: <unk>.
Speaker Change: It was important for us to be able to act on that and we usually have to act on them very quick basis. So that transaction came available and closed within 75 days and we want to make sure that we have that flexibility to do that bill.
Speaker Change: That doesn't necessarily consume all of our balance sheet, but as we continue to deliver three phases at once.
Speaker Change: Capital intensive program, we are reinvesting in making sure that we can accelerate the development of Sky Ranch and maintain that inventory for homebuilders and the reason. We're so sought after from the homebuilder market is how we what our business model is.
Speaker Change: And there are fewer and fewer people in the marketplace that either have the desire or the capacity to be a horizontal developer and it does require significant capital expenditures and we put that to work and we get that back very quickly, but there's a lot of velocity, so that money and so we want to make sure that we protect that is.
Speaker Change: Well.
Speaker Change: Do we want to do we want to leverage ourselves a little bit to kind of continue to go after our stock purchase program.
Speaker Change: We're going to continue to go after we really are.
Speaker Change: We're going to be acquiring that not just through this phase of authorization excuse me, but continuing.
And youre going to see that if that doesn't translate we're going to be continuing to be more aggressive so.
Speaker Change: I know, it's like my wife's cancer do can't you do it faster.
Yes, we could do it faster, but we're also making sure that we keep.
Those other opportunities as competitive as repurchasing the stock.
Speaker Change: In the program so those are.
Very very.
Speaker Change: Well deserved.
Speaker Change: Observation and maybe well deserved.
Speaker Change: Input in terms of going after a little bit more aggressively.
Speaker Change: Mark last year.
Speaker Change: Arthur station was how many shares of M&A dollars.
Speaker Change: How many shares are how many dollars did you actually.
Speaker Change: Bye.
Speaker Change: Last year.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: We're buying about.
Speaker Change: 50 60000 shares.
Speaker Change: Our year end, yes, I will concede the point, we could be more aggressive on that.
Speaker Change: And may be more aggressive on that.
Speaker Change: What we're trying to do is be anti dilutive so that as you point out that we're not.
Speaker Change: Incentive stock program that we have where we issue shares to.
Speaker Change: To our employees and management and board of directors that were repurchasing.
Speaker Change: Equal amount, we're we're not quite there, but we are.
Speaker Change: We're we're.
Speaker Change: We're looking to be there.
Speaker Change: So what's preventing you from doing it.
Speaker Change: You may prefer to Greg.
Yes, it's absolutely liquidity bill.
Speaker Change: We want to make sure that we maintain that that liquidity for and reinvesting in the business and delivering the top line results that we did this last year.
Speaker Change: I do not want to compromise that.
Speaker Change: Agree with you do you have a line of credit Mark.
Mark Harding: Yes, we do.
Speaker Change: Okay.
Speaker Change: Isn't that a source of liquidity, if it comes down and making a big acquisition or doing something extraordinary.
Speaker Change: All of those are opportunities built in.
I appreciate that and my direction will be to continue to be aggressive but conservative.
Speaker Change: Okay well.
Speaker Change: Even though I havent winners for about 10 years. So I think now would be the time.
Speaker Change: Okay.
Well I hope it all works out.
Speaker Change: Thank you. Our next question is coming from John Rosenberg.
With Laughlin Waterpark, Sir your line is live.
Yes, hi, good morning, Mark.
Mark Harding: Morning, John.
Mark Harding: Well.
Mark Harding: Thank you for the presentation and I will say that.
Mark Harding: My questions have in large part been.
Mark Harding: Answered by the prior.
People on the call or the prior investors I was going to ask you about datacenters and as always I wanted to talk about share repurchases as well I will not reiterate about the share repurchase.
Speaker Change: Deserve that this morning, you have done a wonderful job.
Speaker Change: However, going back to the data center and I have one more question after that.
Speaker Change: <unk>.
Speaker Change: Have you guys actually I realize it's a tremendous lift to actually.
Build a data center and that would not be something that the company nor its shareholders would really want to do.
Speaker Change: I just would like to emphasize that there might be some opportunities for you have the water you have the land you have opened land you have sunlight as well for a solar farm and it might really pencil out for you guys as opposed to selling another 100 or so lots I mean, I think these things generally take up anywhere from 10% to.
Speaker Change: 30 acres.
Speaker Change: Depending on their size.
Speaker Change: I don't know if you have any thoughts on that one.
Speaker Change: Yes.
Speaker Change: So.
Speaker Change: Couple of the key areas for them and you brought up a really good point.
Speaker Change: Renewable.
Speaker Change: Component, we do have 300 days of Sunshine, a year and when you take a look at data center opportunities and space requirements and water requirements.
Speaker Change: It's a good fit for.
Speaker Change: A large land area and we just happened to have a large land area in our service area, we have the <unk>.
Speaker Change: Lowry ranch and that's an opportunity.
Speaker Change: Perhaps for pursuing something in partnership with the states.
Speaker Change: Where they can get.
Speaker Change: Leases on the renewable solar farms, they do have some solar farms on the Lowry ranch out there.
Speaker Change: We certainly have the water system are capable for that and and these don't have a strong need for terrific access so putting them at a at a high real estate value next to the Interstates isn't exactly the best use of land for both development as well as the data center, but.
Having land water and power.
What are the key attributes and so those are some of the types of things that I think we'd like to.
To move along in the process the right, we're probably not going to be.
Speaker Change: Partner with the development of the data center, that's not that's not our business model, but I'd certainly love to help facilitate something like that and there is there is many ways that does can generate exciting opportunities both to the landowner as well as the service providers on that.
Speaker Change: Okay, well. Thank you that is thats a thoughtful answer.
Speaker Change: My next question involves.
Speaker Change: You mentioned, you're about two years out from redevelopment or enhancing your interchanged with I 70.
Speaker Change: And you have I believe a couple of hundred residents right now at Sky Ranch.
Speaker Change: But do you think that any of the large big box stores like a supermarket or large retailers. The commercial entities are kind of waiting for that to go ahead and start the <unk>.
Speaker Change: <unk> down a store on your property.
Speaker Change: The community.
It certainly will continue to enhance the commercial value. We do we have about 700 residents out there. So we're we're rapidly approaching and I'd love to say I knew what the magic number was for these these retailers they do share a bit of that and I think.
Speaker Change: That number continues to be around that 1500.
Speaker Change: Resident more and so having thanks, Kevin helpful having.
Speaker Change: Having 700.
Speaker Change: Living there and having 700 lots under production give us a tremendous amount of confidence that by that that that's short term range.
Speaker Change: Three to five year range that we're going to be seeing.
That commercial land come into production.
Speaker Change: Yeah.
Okay, great. Thank you well. Thank you very much I would just also like to add just for the record.
The agreement with one of the prior.
If you could get that share count down and talk about the stock being undervalued, we could see the share count going down that actually would be a great signal for public buyers.
Speaker Change: I just wanted to add that.
Speaker Change: Yes.
Speaker Change: Thank you very much great great quarter, and very excited about it.
Speaker Change: Thank you you know one of the things.
Speaker Change: And I guess, let me.
Speaker Change: Let me weigh in here.
We have a great opportunity here, having one of our board members, Dan cause laski with us and maybe.
Speaker Change: It would be helpful for yeah. He can maybe auto had a different perspective on kind of the.
Speaker Change: The performance of the company some of the assets and Dan I don't know if you want to weigh in and just give your insights on some of this.
Speaker Change: Certainly give you an opportunity to.
Speaker Change: Address our shareholders.
Speaker Change: Yes.
Hello, My name is Dan because laski served on the board for Com.
Speaker Change: For years now.
Speaker Change: Yes.
Speaker Change: I represent the largest shareholder which is <unk> capital.
Speaker Change: L P J.
Speaker Change: That had been invested with me in this.
Speaker Change: Dear cycle through.
Speaker Change: Through my firm.
Speaker Change: And just the one.
It would be helpful. I think maybe to give my perspective, I've had I've had a front row seat.
Speaker Change: Progress over the last four years.
Speaker Change: A lot of things, we can talk about but just for perspective.
I've known Mark for over 10 years now a decade.
Speaker Change: I sat down with him and probably the 2013 14 timeframe.
Speaker Change: You showed me the <unk>.
Speaker Change: Water portfolio and he showed me the really the brilliant distressed purchase of land that he made.
Speaker Change: The 2010 11 time period.
Speaker Change: The returns off that are extraordinary and I still think it's well appreciated.
Speaker Change: The competitive advantage, we have with the low basis.
Speaker Change: But it was immediately obvious to me in the share price is probably in the $3 range at the time and.
Speaker Change: Progress great.
Speaker Change: But over the last four years.
Speaker Change: Five years.
Speaker Change: I sort of sat in amazement.
Speaker Change: In board meetings and conference calls.
Speaker Change: The share price is not tracked the underlying progress of the company.
Speaker Change: And we're a wholly different business than we were.
Speaker Change: Five years ago, and by that I mean, much stronger I mean, we've gone from sort of.
Speaker Change: Yes, it's growing up.
Speaker Change: Yes.
Speaker Change: Kind of moving forward put it put it in a child analogy.
Speaker Change: From a.
Toddler two to a teenager to now an adult theatres and the company is much more muscular than it was.
Speaker Change: And for whatever reason and there is there are reasons market structure.
Speaker Change: Patents to passive.
Speaker Change: Et cetera.
Speaker Change: They might have gotten in the way a little bit of this but but overall, it's shocking to me that that.
Speaker Change: The progress has happened.
Speaker Change: More appreciated however.
Speaker Change: I think today's numbers that were put up.
The 2024 year.
Speaker Change: As a point of inflection from a wall Street perspective.
Speaker Change: We were high end potential and then we've executed on a lot of that potential proven out the business model proven out the water utility.
Speaker Change: Mechanism for monetizing our massive water portfolio.
Speaker Change: And as Mark pointed out and we were in the top of the second inning here.
Speaker Change: Yes, we put up pretty good numbers.
Speaker Change: Ro.
Speaker Change: Closer to 10%, which.
Speaker Change: In isolation.
Not apple today, but but you got to remember that's on a very limited.
Speaker Change: Fraction of our asset base that is what I would call active earning assets. So there is a lot more to come.
Speaker Change: <unk>.
Speaker Change: So with that said I mean.
Speaker Change: Factor into that.
Surprising is I would argue that here cycles asset base.
Speaker Change: Is one of the.
Speaker Change: Pound for pound I mean, we're a small company but.
Speaker Change: One of the great inflation protected assets out there.
Speaker Change: And with about a inflation that the.
Speaker Change: Our country and the world has endured over the last four or five years. It doesn't make any sense. Given if you look at if you look carefully at what we have water. Most likely has appreciated generally speaking above the high rate of inflation.
Land values, Mark laid that out very nicely.
Speaker Change: 75 to 125 K.
Speaker Change: Land in Colorado, and the I 70 corridor and it's just getting started so that's another surprising factors at the market hasn't appreciated.
Speaker Change: And that even in a conservative view this is a heck of an asset to own.
Speaker Change: From a fundamental basis.
Speaker Change: In an inflationary environment, which we may be insurer for a while.
Speaker Change: Where are the better end of that I think where inflation inflation plus so those are a few things that go through my mind.
Speaker Change: I'll just I'll just touch on that on the buyback concepts and we went from a couple of years ago now buying back shares to buy some back to this year, we bought more back.
Speaker Change: I fully appreciate we'd love to see that share count over time begin to decline year over year.
Speaker Change: But we've moved the needle a whole lot from an internal perspective of how to think about it.
Speaker Change: We need to be fair there in terms of.
Our number one goal might say are because I'm on the board was too.
Put up the kind of start putting up the kind of numbers that we put up right here.
That was the focus the focus was to generate create value generate value in the core business and for a couple of years.
Speaker Change: Covid and the rising interest rate environment and some of these external <unk>.
Speaker Change: External and almost chaos in the market right.
Speaker Change: We stayed focused on the business.
Speaker Change: And it was kind of an internal marker, we said well, let's let's skilled people the earnings power of our asset base.
Speaker Change: Progress, we made and while we did pick up the buyback and it continues to grow each year.
Speaker Change: We're now at a point where.
Speaker Change: A lot of things that are disposal back to the point that we're much more muscular than we were three or four years ago. We've got recurring revenue starting to scale. Some of the things we highlight single family rentals for example.
Speaker Change: I mean, we have <unk> home so that's not.
Speaker Change: <unk> itself it seems small, but what you what I think what a lot of investors like to see is some of the proven out, but then has a long runway that chicken, Florida.
Speaker Change: And the move from 14 to 140, you can pencil out and it probably won't stop there there'll be other opportunities. So all of this all is conspires to what we think is.
Speaker Change: Position peer cycle for more recurring revenue more opportunities and it's not been loss and our partners homebuilders, who have done extraordinarily well in phase one at either the project had to be one of their most profitable projects in their portfolio during that time period.
Speaker Change: Everyone, who has done business with us.
Speaker Change: Hedge has come out in any great form and Thats something were proud of.
Speaker Change: And it's helping us.
Speaker Change: Negotiations going forward.
There's people in the area, who have watched us carefully again grow up from and they are starting to see that we're here.
Speaker Change: We're open for business.
We have the scarce resource that is needed for growth in Colorado, and the I 70 corridor the water.
Speaker Change: And now we have development expertise has been proven and is generating returns and I think we will generate increasing returns going forward. So.
Speaker Change: That's a little bit of my perspective.
Speaker Change: But.
Speaker Change: I can ask some questions and mark too.
Speaker Change: Just and how he thinks about the world one of the things.
Speaker Change: I think people should appreciate about mark.
Speaker Change: As you know he may be one of the foremost experts on water in the west and certainly in Colorado is going to have this for 30 years. He knows every pipeline every every ditch every every inch of this of this geographic area.
Speaker Change: And he has added a lot of value to the water portfolio.
Speaker Change: And if you look at our balance sheet.
Its balance sheets by nature, a convoluted in terms of when.
Speaker Change: When you buy something you keep it on the books at that price and.
Speaker Change: And then if you ever monetize that of course, you get market value for it.
Speaker Change: When I look at the balance sheet I see the water assets on there to a certain number which is certainly low.
Versus probably fair market.
Speaker Change: And even though land as we talked about.
Speaker Change: So our balance sheet is as more and more again I use the word must be with much more muscular than it appears at first glance.
Speaker Change: And that's a little bit of the point, we're trying to get through and at the end of the day, Mark and I talk didn't want to address the board as well.
Speaker Change: Just put up the numbers.
Speaker Change: Put up record earnings in a quarter in a year and keep it going and Thats I think why this is such a point of inflection for long term shareholders like myself and others on the call.
Speaker Change: No.
Speaker Change: Yes.
Mark Harding: Mark as you think about it Sky Ranch is going well, how do you think about.
On development projects.
Mark Harding: If you compare.
Mark Harding: Your expectations in the first project first phase.
Mark Harding: The returns the cash flows versus what it will look like as you get in this quarter too you get over the mid way point, you get to the back half.
Speaker Change: How did those return metrics kind of.
Speaker Change: Play out in your view.
Good question.
Speaker Change: We entered the market for land development.
We had not been in that space introducing ourselves.
Speaker Change: I would say fairly familiar with the water utility space, but as we enter the land development space.
Speaker Change: We wanted to partner with all the National Homebuilders right, we were really looking for.
Speaker Change: High caliber portfolio homebuilders and in doing that.
Speaker Change: The land was well positioned in the IC 70, Florida being along the Interstate was what we knew that the land itself has tremendous opportunity, but we were the next project in the growth in the Metropolitan area. It was inevitable, we can only grow one direction in the Denver area, we can only grow Citi.
Speaker Change: This had great transportation access, but could we execute there was there was an unknown from.
Speaker Change: The Richmond, and the Taylor Morrison in AAV and Pulte and.
Speaker Change: And the big homebuilders, whether or not.
Speaker Change: This isn't an easy business.
Speaker Change: As you heard me talk about protecting the liquidity there is a higher velocity of money and you've got to invest that money you've got to get those.
Speaker Change: Those roads in you've got to get the.
Speaker Change: Ladies and all that sort of stuff and so we wanted to make sure that they did well in that first phase.
Speaker Change: Pricing was entry level pricing for them to make sure that they got a high value in there and I think they all did well you might be right. This might be one of their more valuable projects in that first phase.
Speaker Change: And not only are they doing well in the first phase they are doing well in the second phase.
Speaker Change: Being able to deliver a finished lot not forcing the homebuilders to have to put that investment in there is a tremendous value for them.
Speaker Change: We are dying breed in that just because of the velocity of the money in and how that capital flows and so.
Speaker Change: I hear the the opportunity for us to continue to reinvest in the share purchase and what we're really looking for is making sure that the market understands that opportunity on the annual revenue and converting those lots of converting those SaaS converting those single family.
Speaker Change: Homes into productive assets for shareholder returns. So there's there's multiple there's multiple shots on goal here, where we are.
Speaker Change: We're really looking to partner with all of the.
Speaker Change: The high high performers in this industry to deliver those results. So that's how we look at that.
Speaker Change: Yes.
Speaker Change: That to US is from my perspective.
Speaker Change: When you start.
Speaker Change: Theres other successful projects in our area.
Speaker Change: But we were somewhat pioneers and had to be careful as you're moving east and proving out the locale.
We're always.
Speaker Change: By the speed limit really 760 miles from downtown and so at 60 miles an hour of Youre there at 60 minutes.
Speaker Change: We sort of.
Speaker Change: Sure.
Speaker Change: D in developing the I 70 corridor and you see it just to be just to the west of US here the big industrial players of today, Amazon warehouses et cetera, the logistical epicenter of Denver has shifted from $25 972, two really.
Speaker Change: $4 70 and.
Speaker Change: And I 70.
Speaker Change: And we're right there we're right there and.
Speaker Change: Job growth and we've talked about and shoots medical facility one of the elite.
Speaker Change: Medical facilities in the World is really close to us.
Speaker Change: Which Denver International Airport, which is.
Speaker Change: The largest fastest growing airport maybe the world.
Speaker Change: Certainly the top three.
Speaker Change: Huge.
Speaker Change: The fourth largest in the United States Humphrey United out for southwest.
Speaker Change: That's four miles away from us so the logistical epicenter E.
Speaker Change: Job growth is right next to us and again, we're still pretty close to downtown so.
Speaker Change: From a timing perspective, Denver congestion from the south and the north is quite quite large now and from our area.
Speaker Change: It's closer to <unk> so.
Speaker Change: Yes, so so so I think there is.
As you get to the back half of my question was around you can see we develop it we get phase one done we have to entice builders. They come in they have huge margins on it and they're happy partners.
Speaker Change: As we move to phase II phase III now it's now the collective.
Speaker Change: Effort.
Speaker Change: And we've proven out the community.
There's been a lot of small things that don't come up in a press release or a conference call. The building of a school.
Very efficient billing of the school on site.
Speaker Change: So what are the newer schools in the area as the Sky Ranch Academy that was something Mark really.
Speaker Change: Did an expert job of bringing that together and not really costing us in as much capital.
Speaker Change: And this is probably the single greatest value add communities is having a school kids can work with their backpacks.
Speaker Change: Facility. So this is a reason why the lots are so much more valuable in phase II phase III phases, and they werent phase one.
Speaker Change: So there is in the cash flows once you use you have to wind it up and then you begin to monetize it and I think this is again point of inflection where youre starting to see the monetization as the project matures Tom for pound is.
Speaker Change: As mortgage credit.
Quite attractive.
Speaker Change: Critical mass is kind of a word I like to use I think we're hitting that critical mass at Sky Ranch and a lot of different ways integrated our water portfolio.
Speaker Change: On the water expertise Marc can you talk a little bit about this under I think it's under appreciated.
Mark Harding: What you bring to the table and then how you how you've added value to the water portfolio, certainly central section, but but more recently last five years, we do a look back.
Speaker Change: Years ago, I think the overall water rights' portfolio with smaller it's bigger it's grown materially.
If you can update us on those.
Speaker Change: You've made some very.
Speaker Change: Very strategic yet small is small from the sense of people on the outside looking at it but very small but very powerful.
Speaker Change: Acquisitions up in Weld County that have increased the overall value of the water portfolio. The blended portfolio can you talk a little bit about that how your perspective.
Speaker Change: What you are proud of.
How the future might look in the water acquisition front. So good question and as.
Speaker Change: Youre right, we continue to build that water portfolio and really leverage our ability to kind of.
Speaker Change: Develop water supplies in all areas.
Speaker Change: And water isn't just single dimensional you know not all water is treated the same you have you have renewable water components, which are surface water supplies in.
Speaker Change: Colorado is blessed to have mother nature store, our water for us for six months of the year.
Speaker Change: But she has a sense of humor and she gives it to us in 45 days and so the elements of the water assets that we have there that are hard to get your arms around and appreciate without being so in depth into water.
Speaker Change: Our storage our ability to store water at Lowry and we.
Speaker Change: Half.
Speaker Change: Literally maybe 30000 acre feet of water storage Reits out Lowery, two reservoirs, which are probably the most valuable reservoir sites in the metropolitan area and that's because it's one it's we're on the eastern plains and by being on the eastern flank is flat and you don't have a lot of relief.
Speaker Change: Out there and we do have some unfortunate sites that have relief on the Lowry ranch that we have.
Speaker Change: Really engineered and put a lot of effort into over the last few years to make sure that that asset develops and continues to build in our portfolio. You mentioned a couple of the water rights that we're acquiring.
Speaker Change: Weld County, and again Thats another <unk>.
Speaker Change: Renewable surface water component that.
Speaker Change: Is available when there is a lot of water and a wet year, but.
Speaker Change: There is some climate issues associated with that and we need to be prepared for the variability of water as a water community and so Colorado is probably tip of the sword on being able to.
I understand the importance of that and plan for being able to use all your supplies renewable water supplies groundwater supplies and then most importantly, and this is something that we're very proud of is how we manage our wastewater in a reuse supplies, where we're bringing in where we built one of the <unk>.
Speaker Change: Leading water reclamation facilities in the country. There is probably one of five facilities in the country that has a zero discharge.
Speaker Change: Water reclamation saw 100% a 100%.
What goes into that plant comes back out as usable water supply.
Speaker Change: And we use that we've used that store that in a reservoir treat that bring it back into an irrigation system, where we have our demands met for irrigation and we get to sell that water multiple months and so when you look at it it's hard to get that sense of value that we're creating that but by the same token we're doing cutting.
Speaker Change: Cutting edge stuff on the water utility side between.
Speaker Change: Combination of our groundwater supplies, our surface water supplies of storage supplies and a reuse supplies, we're building that water utility and probably one of the most.
Speaker Change: Advanced ways that water utilities take a look at it and we're doing it on the front end, we're not having to retrofit some of this stuff, where it's harder and harder for water utilities capitalize on some of these things and so.
Speaker Change: Only being at 2% of that asset is frustrating.
Speaker Change: We will continue to see some acceleration of that but.
Speaker Change: Those are going to continue to pay dividends in perpetuity. The thing that's most exciting.
Speaker Change: I often referred to about the water businesses in 100 years.
Speaker Change: To be doing the same thing that we're doing with this asset right.
Speaker Change: Yes.
Speaker Change: Absolute essential asset for our daily lives and then the business community and in the.
Speaker Change: The primary businesses that we focus on whether that land development, whether that single family rental.
Speaker Change: It is a component that won't be obsolescence it wont be out of style it won't.
Speaker Change: The technology won't inundated so we continue to look at that dividend.
Speaker Change: Opportunity and continue to look at the opportunity to develop this asset for <unk>.
Speaker Change: Centuries, so that's an exciting component of it.
Speaker Change: We will continue to make those investments.
Speaker Change: Concurrent with the growing that system.
Speaker Change: Yes and to add to that.
Speaker Change: I think the water in the west in general storage.
In some ways, it's the wall the whole world had cheap water.
Speaker Change: Two thirds of the Earth as or more is water, so theres water, but the cheap water that was available for <unk>.
Speaker Change: Last century, that's kind of gone.
Speaker Change: There is no more cheap water and a cheap why are we seeing like new market price of water today versus where it could go.
Speaker Change: Go higher so we've got a fixed supply in the west and you've got growing demand.
Speaker Change: People are moving to the whole mountain region Denver.
Speaker Change: Denver is the capital of the Mountain region.
Speaker Change: Growing city, that's going to be a monster.
Speaker Change: Our municipality.
Speaker Change: In the decades to come.
Speaker Change: And so it has all of the key attributes.
Speaker Change: But the gating factor to growth residential for affordable housing entry level new bills.
Speaker Change: It's water and we have it.
Speaker Change: And so it's coming and it's.
Speaker Change: It's coming through the numbers, we put up this is not just it's not just out there somewhere we just we just showed you it's each year the demand for our loss is high.
Speaker Change: And single family rental business.
Speaker Change: Forever.
Speaker Change: Alongside that so we have opportunities to other things just to touch on there.
Speaker Change: The conservation efforts that pure cycle has employed for the for the public good for the for the good of this full water shortage of the states grappling with the region's grappling with.
Speaker Change: Mark said, some really interesting things.
Speaker Change: Do you use that water as efficiently as possible the recycling that he just talked about I mean, we're on the cutting edge of that and I think that's really appreciated by our neighbors by our partners.
Speaker Change: So we're we're a high quality water provider and then we've got the deep reservoir of inventory of water rights in Westwater building.
Speaker Change: So those are some things I think about another question Mark on the land development side.
Interest rates have moved considerably over the last 24 months 36 months.
Speaker Change: Historically people have held land.
Speaker Change: And speculators maybe.
Speaker Change: East of Denver.
Speaker Change: How does that look and feel to you in terms of people's carrying costs to hold that land and is that now.
Speaker Change: Obviously, it's more costly where someone to whole land.
Speaker Change: The opportunity cost or.
Speaker Change: 789, 10, and 11% in some different types of fixed income hedge that shaken loose or changed the attitude of some of the folks that might want to be.
Speaker Change: Anymore.
Speaker Change: Yes, selling land or co developing or we're moving quicker.
Given the higher interest rates, there's obviously higher interest rates, obviously have well should in theory, you have somewhat of a mitigating effect on on.
Speaker Change: Mortgage rates et cetera, but with another powerful part is that the opportunities in front of us.
Speaker Change: Sure. The increase here is those carried costs have risen considerably for.
Speaker Change: Our neighbors.
Speaker Change: I think that's true.
Speaker Change: It's hard to gauge motivations by each individual seller in some of the attractive portions of where we're at in the Denver Metropolitan area, whether thats. The IC 70 corridor or specifically in rapid county, Theres, some large land assemblage and some of that.
Speaker Change: Some of those land assemblages have been held by homestead families.
Speaker Change: And so.
Speaker Change: Each year, it ticks, along and it gets older the family Patriarch get older. The.
The interest level of what they want to do and the opportunity cost as you mentioned about what they can do with that change and so much like the strategic opportunity that we saw with the farm acquisition. This quarter, we want to be well positioned for that and so some of that some of that capital that we keep on our balance sheet is really.
Speaker Change: So that we can be very strategic disciplined and opportunistic.
Speaker Change: Sometimes it just has to be there and it has to be available.
And we want to make sure that we get that call that we respond to those opportunities.
Speaker Change: We can incentivize some of those folks by being a good buyer being a ready buyer.
Speaker Change: Okay.
Speaker Change: Yes so.
Speaker Change: As I think about this just to close on my end I cut my teeth 25 years ago in the business.
Speaker Change: Janus capital.
Speaker Change: Time, we were the largest shareholders of broker Hathaway.
Speaker Change: And so given documented Warren Buffett.
Speaker Change: So thinking about about investing in and to me. This is just the classic old.
Speaker Change: Old School, Matt Jordan, modern algo, driven passion, driven deal, but a true investment where theres scarce supply there is obviously scaling demand.
Speaker Change: The scarce asset that we own the water and.
Speaker Change: Time is our friend here.
Speaker Change: Back to the inflationary protection plus.
Speaker Change: And.
Speaker Change: It's really interesting and we're creating value now on the income statement as you saw in 'twenty four and sell this quarter, you'll see in 'twenty, five and beyond as mark laid out but.
But I think what's underappreciated is the value kind of the value creation and appreciation of our assets on the balance sheet. So while we're going to flow through income and cash flow going forward consistently.
Don't Miss the fact.
The value of our water portfolio, which mark continues to curate.
Speaker Change: And scale is.
Speaker Change: Probably appreciated in a much greater rate than inflation and that will lead to future monetization of course, but it's.
Speaker Change: Its pretty real and demand in my view, having kind of box each of this for five years and been involved for Ken.
Speaker Change: So that I.
Speaker Change: I think just to close.
Speaker Change: Thus lines I've heard on pure cycle is that pure cycles water water looking for land.
Speaker Change: Development co development opportunities.
Speaker Change: The opportunities in the water as a solution for a lot of whether it be municipalities or.
Speaker Change: Neighbors of ours, who are looking to create value and so were water looking for land in most of our peers are.
Speaker Change: Land or <unk>.
Speaker Change: And in need of water.
Speaker Change: And that's that's a good setup.
Speaker Change: If you could share.
Speaker Change: So we hope to continue to be a positive force in helping Colorado grow.
Dewey and responsible things with our water and.
Speaker Change: Creating value and helping Colorado with their affordable affordability constructs and challenges.
Speaker Change: With the best new build entry level.
Speaker Change: Housing development and housing development company in the area.
That should be coming our way.
Speaker Change: So I'll close on that.
Speaker Change: Maybe I'll add one more thing Youre right about these numbers.
Speaker Change: We've put forth.
Speaker Change: Our.
Speaker Change: Going to happen.
Speaker Change: Share buyback becomes increasingly attractive.
Speaker Change: I think it speaks to how many attractive opportunities that we are considering going forward, our patients, but but don't take that past patients for <unk>.
Speaker Change: Other than we wanted to show the numbers and show the power of the business model that we mark manage it has with his team and the board our chairman Patrick Byrne.
Speaker Change: There is an extraordinary job.
Speaker Change: Leading the board.
Speaker Change: And.
Speaker Change: All in.
Speaker Change: It's not lost on us that the value disconnect. So stay tuned more to come.
Speaker Change: Thanks, Dan and again.
Speaker Change: Really appreciate the strength and the caliber of our board in.
Speaker Change: Their engagement with the company they bring a tremendous value to the company.
Speaker Change: And we're the beneficiary of that.
Speaker Change: <unk>.
Speaker Change: While we are probably running long on our call. We're going to go ahead and wrap this up if you didn't get a chance to.
Speaker Change: So weigh in on this thing or you're hearing about listening to this on a rebroadcast or a replay.
And has some.
Speaker Change: Something that piqued your interest or.
Speaker Change: You want to drill down on some specifics don't hesitate to give me a call. If you guys are new to the story and want to do some due diligence on it and I don't see us it shows much better than it than at present and so well.
Speaker Change: We'll probably have another investor day every summer so that you get the opportunity to understand why everybody wants to move out to Denver.
Speaker Change: And why everybody wants to move at Sky Ranch.
Speaker Change: I want to thank you all again.
Speaker Change: We are very proud of.
Speaker Change: Of this year.
Speaker Change: Continuing development of the assets that we have and we're very awkward.
Speaker Change: Very optimistic about what's ahead of us. So thank you all for your attention and for your loyalty and then for your Investor confidence So with that I'll turn it back out and close the call.
Speaker Change: Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Speaker Change: Thanks, Alex.