Q2 2025 Pure Cycle Corp Earnings Call
This meeting is being recorded and or transcribed.
You are not allowed to unmute, to raise your hand, press star 5. Good morning. I'd like to welcome you all to our second quarter fiscal year 2025 earning stall.
For those of you that are listening on the phone, I think most of you have connected through this through our website, but we do have a...
Jack for this that is on our landing page of the website. So if you go to Pure Cyclewater.com, you can click on that link and I'll take you directly to the presentation and I can walk you through the presentation as we move through our slides.
With me today is our CFO , Mark Spezialy, as well as our controller, Serena Finnegan, so I'd like to thank them for joining us early morning and really want to welcome you all to the call. I'll get started. Thank you very much.
has a slide there.
Talk a little bit about our forward-looking statements, statements that are not historical facts contained or incorporated by reference in this presentation are forward-looking statements. I think you're all familiar with the forward-looking statements with that said.
Certainly want to highlight our leadership team is the successes driven by you know the people that we get to work with both in terms of our management as well as our board of directors. We have a great board of directors which bring a tremendous amount of experience and guide leadership to the company and it certainly helps.
that helm in calm waters and rough seas. And I'm not exactly sure where we are with this market, but it is comforting to have a great leadership team as well as great board of directors to help Stewart the company through managing the staff staff.
I want to jump right into the financials here and see if we can't highlight our second quarter we had a terrific quarter
Taking a look at it.
Quarter, Q2 Quarter, about $4 million in revenue.
about a million and a half, about a 38% gross margin, a large portion of that margin is really going to be from the royalty income. We continue to see a very strong performance out of our mineral royalties that we have when we acquire the Sky Ranch property.
in revenue, gross profit. Again, a very solid growth margin around 50 plus percent and then continuing growth in our earnings per share.
Bigging to look at that is Q over Q and so this kind of gets you a performance as most of you know who follow the company or second quarter is usually our most our softest quarter and it really is a seasonal issue. You know we are in the construction business where we construct and deliver lots for our home builder customers and. [inaudible]
on this quarter over our trending quarters for the last three years.
The the profit in that's probably going to be a seasonally adjusted issue and it's kind of a timing of how we're recognizing some of this
Revenue on a percent complete basis, but nothing really of concern on the Q over Q on the gross profit, just really continuing to develop these lots. We've got three phases under construction at simultaneously, and so really investing in that segment for us so that we can continue to drive revenue.
Taking a look at that income again, that's really going to be a solid performer really indicative of both having three phases under construction at the same time as well as some of that royalty income that's coming in from oil and gas just because that's a high, you know, it's almost 100% profit margin for us on that so we can roll that right down to the bottom. And so we're going to be able to do that right now.
Line on that and then continued growth on earnings per share so that's a quarter of a quarter performance on earnings per share .
This will really drive into year-to-date and really kind of showing you year-to-day both in terms of prior fiscal year as well as our guidance. We had guidance for fiscal 25 and around 30 close to $31 million. We were about $10 million into that.
And that's about where we are. We're on track to meet that goal. Knowing that Q2 is that seasonally adjusted in Q3 and Q4 usually are high growth areas just because of how we sequence our lot of deliveries on each of these phases.
Taking a look at gross profit also, you know, we're on track for that in terms of our guidance as well [inaudible]
Your date and income.
Again, really solid continuing performance in all segments of the business, whether that plan, development, why do you tell these as well as single family rentals.
and then Ernigs for Share. We have about 20 cents Ernigs for Share, a little bit shy of about 50% of our guidance but really looking to meet that guidance through our fiscal year end.
So if we want to break this down by each individual segment, taking a look at our water utility segment
A very good quarter for us on that. That's largely driven by
And I'd say we've got close to maybe 75 vertical homes in there. So the builders are very aggressive. They're getting out there building their building a number of spectacles as well as homes that are sold. They have the model homes up in. [inaudible]
Both the filing four, which is our phase two A, as well as some of those in two B, which is with the more active ones.
Segment for Water Utilities is oil and gas deliveries are a little bit weak, that's what we did forecast.
We knew that that was going to be a little bit weaker than we had last year and that was predominantly because most of our operators really working on a large block of well permits. Yes.
And I think there's more than 200 well permits under production, both for the Lowry Ranch and the surrounding areas of the Lowry Range.
So we've got a lot of that activity that is kind of occurring fiscal 2025, which will start drilling, probably late 25, early 26 to see a bit more of that.
Activity in fiscal year 2026. But again, the water utility segment doing great continue to add new customers to the segment so we continue to build that recurring revenue segment for that.
This is kind of a little bit of a comparison of the oil and gas, which we did forecast. That was going to be a bit softer. And so, you know, you see that by comparison over a year over year activities, oil and gas as you know, very, very, it's a very, very. very.
Comparison to how the price of oil is, how quickly these operators dial this up. The field itself continues to just perform great for all the operators. And I think that it's the risk they have a very high degree of certainty is how each of these wells perform. We can see that in terms of our royalties, also the wells that were drilled on Sky Ranch in 2020. [inaudible]
and so you see a lot of that continuing activity where they will continue to invest in that based on their permits and their internal processes how they want to deploy their capital. Thank you very much.
Very good segment for us, very high margins for us, and it continues to allow us to monetize and pull forward some of that infrastructure that we continue to invest in our water utility segment.
Moving on to land development, this kind of highlights each of the phases.
We have four phases that actually we expanded, so we added another fifth phase, so you'll see a 2e coming up in the presentation in our second round of investments into infrastructure for Sky Ranch, but this really illustrates where we're at in terms of
Three faces, concurrently going on. We have Phase 2b, which is, we delivered those lots last.
Summer, and we have a bit of a punch out items on some landscaping issues and things like that that will round out the rest of this year as we roll into the spring. But that's where most of the builders are currently going vertical. They've got a number of problems that are that are up available for sale or at various. Yes.
components of that and seems like once they finish those homes that you know there's a ready and robust market for those and I think that's attributable mostly to price point that we find ourselves in that entry home segment and I think that's the most attractive segment. So let's go ahead and see what we can do.
and then we're rolling into phase 2C where we delivered the overlock grading, we finished the utility side and really now down to the curving gutter and the paving side of that. So that should deliver by fiscal year end. So that will
that we're currently about 48% complete there, that'll round up to the...
Mid 90s by fiscal year end and then we finished the grading on phase 2D and has started our utility work on that so we're mid way through our lot delivery. Thank you very much.
Contract Structure, where we get payments from our home builders.
on increments of phases of delivery. So about 1300 lots on the four sales side and about 100 lots on the single family rental side. So it gives you kind of a very strong picture of how we're accelerating the development of these land assets and delivery of lives.
Change there. We still have the same 14, 14 homes that have been completed. Our rentals are still very strong.
So we continue to have high occupancy rate there and then again very great margins on how we do that. And I think we've talked about this a lot in the past on why this is so attractive and it really is. [inaudible]
a formulation of being able to roll in the equity value that we have on the landside as well as the water utility side.
Being able to deliver these watch where our home builders...
and then we have the advantage of keeping that equity within the lot themselves and renting them out at the full-fair market value of those assets. That's all.
The book value of those assets are about 80% of the fair market value of those assets, so we very much continue to enjoy a great segment on the single family rentals.
Just want to quickly review, kind of, you know, take this off a few after the financial performance and really highlight kind of how the company is structured, how we look at each of these individual segments and how they interrelate to each other and, you know, at a DNA level. Most of you know, we're a water utility company. We have a portfolio of water rights. [inaudible]
that we have acquired many, many years ago, some more than 30 years ago.
The Delivering .
that as a water utility service, both water and wastewater service.
fixed fee where they have someone that will deliver that lot for them. And so we partnered with them to deliver those lots. They sell those, they build the home, sell those that generate the water customer for us.
I mean drill down to each of these very specifically, I'll try and go through these quickly because I know many of you know this.
or Water Segment. If you just look at the balancing side of our Water Segment, you know, that has a foul.
$65 million in total assets kind of breaks itself out in terms of the water rights, the brick and mortar of the pumps and the wells and the pipes on water treatment facilities.
that deliver that portable water. Our portfolio allows us to provide service to about 60,000 connections. So we're very early stage in monetizing this portfolio and getting our share value out of that, but we continue to add connections each year.
Big a look at the system capacity. You know, we have more capacity. We are fortunate to be able to stay ahead of that capacity where we're developing water, wet water deliveries in. We have more capacity to stay ahead of that capacity.
Catch that 60,000 taps can generate, you know, we're very very early on in that Yeah.
You know, we have a happy capacities that can generate about two little more than $2.3 billion worth of that and that's about a 50% margin business on the capital side as well as on the operating side so gives you guys a pedal amount of what that water segment can do for us. [inaudible]
Taking a look at our land segment. Land segment, you know, we have...
Constructed about 77 million dollars of lot sale revenue since we started the project and we're about 20% built on that so we still have a ton of pedal left in the land development segment and again that's a very good gross margin second. So, let's start the project.
The reason I think that's gross margins as good as it is is probably because of the ball. You know, we we acquired
at the time when a lot of people weren't interested in buying and we bought it in 2010 during the great recession.
and really take a look at-
Opportunistic about our Catholic allocation and how we look for additional opportunities. And so with a very uncertain market out there that sometimes presents great opportunities for those who are well positioned. And we think that we are well positioned for that. So.
We hope to see if we can continue to add to this portfolio and continue to expand in the land development segment.
Sub-components of that. We've completed Phase 2A.
All those homes are fully occupied.
Phase 2V, as you can see there, there's about 70 homes that are up and constructed.
Phase 2C, you can see some of the alleyways being poured, many of the streets that are graded out and so a lot of the utility packets there has been complete and will really have that strong push to deliver those finished lots before fiscal year end.
Together with the weather, so we time that out, step-step, we can be in that season where we can do the concrete and asphalt where we're not competing with mother nature on that [inaudible]
and then Phase 2D. That's fully graded and equally we're going to get the utilities in there and look to see if we can't get those lots finished by the end of the calendar year. [inaudible]
Sometimes we have to race against modern nature, it depends on whether or not we get an early season winter in October versus late season winter. [inaudible]
after November time for himself. We'll continue to press on 2D and then we will have another phase of this. We have a sub phase of that which is about another 150 plus or minus units.
that our phase 2E, which we are planning right now, and then we'll extend those opportunities to our existing portfolio of guns.
This kind of highlights the overall capacity of our land. As I mentioned, we're about 22% developed if you take a look at.
Through Phase 2 You.
We're just converting those to a commercial, those are done a little bit differently, those are usually priced per square foot, as opposed to per lock, but this allows us to...
to some forecasting to give you guys a comparison as to how the overall opportunity relates in the land development segment. And so, combined.
you know, we look at that being a very strong performance if the overall combined performance about that 18% right there around close to 20% of the build out of Sky Ranch when you combine both the residential and the commercial.
Single Family Rentals. The final line is some of the opportunities there and really the attractive nature of it and it's maximizing the land development as we continue to provide value to the community for what it is that we do on the parks, the open space.
partnering with our National Charter National Heritage Academy for schools. It generates continued return revenues. Each unit provides close to a little more than $30,000 a year in recurring revenue on the rental side.
and it really does leverage the market demand and produces greater returns for the company. So we will continue to invest in this segment. You'll see a little bit more acceleration on that to the latter phases of this as we continue to build up the site, the phase two. Thank you.
Some of the metrics on our existing portfolio.
Capital costs on that and a fair market value, about $2 million on that. So we still have a lot of appreciated assets on there that are not able to discern through the balance sheet.
This is kind of a highlight of where we're headed with that single family portfolio. So, you know, you're going to see face to grow substantially here in 2C, BC and deep. So we're going to. We're going to.
We're going to move from about 1,400 pounds close to 100 pounds on that and really this is some of the metrics that will drive to that. And the important thing for us on this one is because of the equity value that we have.
Give us a lot of that capital and a little bit of leverage to be able to capitalize on using that above our balance sheet capacity. So we're very excited about that.
Um, you know, one of the great things about the company is our balance sheet and our liquidity position. So you take a look at where we're at, you know, between the cash that we have, we have more than $20 million of liquidity, you know, we have,
and cash and investments, right? It's 17 million. The restricted cash that we have and how that's used is...
We secure lines of credit, letter of credits for the county on our performance of building out the infrastructure on delivery of the land segment. And the reason that the county likes to do that is that they are allowing us to get the building permits.
In some cases, in advance of…
Water Superstorm, all that stuff is completed, but some of the landscaping and things like that that you know usually come on in seasonally
As long as we assure the county through a letter credit that will complete all that stuff, then they're releasing those building permits to us early and that's really advantageous. [inaudible]
to our home builders because we can concurrently build those homes while we're doing that landscaping and so you know there's a there's really no very very little risk on that recipe cash really we do count that as component of our balance sheet. And then again we talk a lot about this never-receivable problem, the reimbursable so not only do we receive revenue from the sale of loss from the home builder partners but a lot of the infrastructure that we complete.
We do get reimbursed for that.
We get reimbursed from that from the local municipality.
As they issue bonds and so we had a bond offering in 2024 that gave us, it was about a $25 million bond offering paid that down but that's a nice liquidity element for us so when you take a look at the overall liquidity company. Thank you very much.
to continue to invest into land and water assets.
Talk a little bit about Outlook, and this is kind of repeated slides from our fiscal year end, so we take a look at our short-term Outlook and that's kind of a three to five year Outlook customer growth, so development of Sky Ranch up to about 2500 units.
Consistent cap sales through the remaining phases of that. And then as those customers come online, you know, it increases the overall concern that they do.
with Jack.
Daniel Tapes, that increased year over year, and so you've seen that as we continue to add new connections to the system.
And then longer term, you know, with the build-out of Skyran, she really kind of tried to highlight
What we have in the book, what we have in our portfolio for full build out monetization of these segments and so they're very attractive returns for us on that. Thank you very much.
You know, that build out of Sky Ranch could be in that seven year range.
So it depends on how we build out that commercial segment.
Millemies that are set aside for that so that that can come off of an independent bond financing, but that's a project that we're looking at in this short term aspect that will increase the overall accessibility of the site as well as the commercial opportunity. Thank you very much.
Land Development, you know, steady lot sales to the next five years. We continue to increase a lot margins and I think that's largely because most of the heavy lift.
We really still have the most valuable land yet to come. It's going to be a commercial development. And we want to continue to look at all of our opportunities on the commercial side.
and single family grandchildren.
We talked significantly about that, but you know, going from what we have today to maybe more than 200 homes.
and continuing to look at the strength of that, so 200 plus homes through the Bill
and we would look to do each of these elements in a future acquisition. So, to the extent that we continue to expand our land portfolio, we look at all three of these segments being able to be contributors to what it is that we're looking for.
S.O.B.
and a little bit of the guidance on what we had for 20 minutes.
25, so you take a look at the trailing three years and how we're continuing to accelerate.
Yeah, shareholder value kind of a little bit for both.
year, fiscal year, guidance, short-term guidance, and then build out guidance for SkyRansion. Again, that build out is sort of what we have in input, if not something that we need to grow. It's really just to execute on continuing to build out SkyRansion.
We continue to be in the market, so I'm in our share of repurchases.
Current Market was a bit choppy.
and we continue to have a bit in there to buy those shares but we're also continuing to look at opportunities for re-investing into land and other opportunities and oftentimes when you get. Thank you very much.
turbulent times, you know, it does create some of those opportunities and I will say that we've had, you know,
an increase in the interest level on some of our target acquisition. So we want to make sure that we have both.
Capital to invest in the three phases that we've done under construction right now. And then as you know, these opportunities present themselves with an acquisition really to be in a position to perform on that and. And.
You know, those are those are kind of how we look at our capital stack on that. So with that [inaudible]
Oh, the bar up there.
and then we can identify you, you can call out, or just kind of sing out and we'll see if we can't have an orderly Q and A here. So with that, we'll open up the mic, and anybody who's got a question go ahead and sing out.
So you have the ability to unmute yourself.
Thank you, everybody.
March, Bill Miller. Good morning. Good morning, Bill.
So getting back to the recurring themes
Speaker Change: Where do we stand on I-70? We keep talking about it, it's going to be great, but when do you think that will come during counter-folution?
Secondly, we've talked historically about act decisions, and you say there's a little bit more appetite on part of the seller.
Speaker Change: Some transactions sometime, we're just still talking about people who are reluctant to sell their land because you've done so well
Speaker Change: Um, you know, let me take the so that your first question was about I 70. Yeah, so that entertains, you know, there's a there's a
Speaker Change: I know this is going to surprise you all, but there's a pretty robust regulatory climate when you take a look at this. And so we've been together with the Raphael Downey, who is kind of our partner on this. There's really the sponsor, but...
Speaker Change: We've been working on the 1601, which is the Permanent Regulation for that for the past three years. We're about ready to submit that 1601 to CEDA. It'll take them, you know, call it far five months to review that, but I think we're forecasting that we'll be in a position
Yet clearance on a permit for construction of the interchange of the interchange.
Speaker Change: by the end of this year, and then I think what we would do is we go to market for those bonds end of this year, first part of 2026 and really start construction of that. We have an existing interchange, so it really won't be a gap in that, so it's one of those.
Hey, excuse me.
Speaker Change: We can build an interchange without any disruption, you know, we'll keep the existing interchange with the new interchange.
Speaker Change: There'll be about 600 feet apart, but we're moving the interchange along the alignment of the section lines, which is really what C dot wanted. So that's what we really look for. We'll look to see that happen. We think that that's going to be a very orderly transition of that infrastructure. We'll look to see if we can do that.
As it relates to acquisitions, you know, we [inaudible]
Speaker Change: We keep very close to target acquisitions and the owners of that.
Speaker Change: When it makes sense for them to try and sell, whether that's, you know, estate planning or just lifestyle issues that they're looking for, and you know, one of the things that I can't say is that I, I, I, I, I
Speaker Change: and highlight the fact that we are the beneficiary of an uncertain time with Sky Ranch. We were in a great position at the time to be able to buy Sky Ranch when nobody else wanted to buy land.
Speaker Change: You know this has been a very interesting time so we'll see if that yields any interest for sellers to you know move forward with with a transaction at that time. I can't give you any guidance.
Speaker Change: because I don't have it. If I had something under contract, I might be able to tell you that but it is being number one thing that was number two thing.
Speaker Change: We're looking at the number one thing that we're looking at is continuing to invest.
Speaker Change: Emphasis in land more than water, but to the extent that water is is strategically oriented to our existing portfolio, then we would be interested in that. And then, you know, continuing to invest into the company through the share reproach aspects.
Speaker Change: Yes, you know, the land acquisition is very formalist on what we're looking for.
Speaker Change: Just before we go into the next question so we have allowed you guys to unmute yourself but we don't have the ability to unmute you So if you are on the computer, you'll still have to click the microphone button to get on you and if you're on [inaudible] get on you and if you're on the computer, you'll still have to click the microphone button
Speaker Change: The phone, you can dial a star of six, as well as making sure your phone's not on mute.
Looks like that question from Nigel.
Hey, how are you doing guys?
Speaker Change: looks like a decent quarter for the seasonality issues. One decent information I find very helpful is essentially what your builders are telling you about demand.
Speaker Change: So, if you could just give us a little bit of an update on demanding the Denver real estate market overall, is your price point of advantage?
Speaker Change: holding up against that market. And I'm a little puzzled, because I've always perceived that it'd be a very heavy rental demand, a little puzzled even in a winter quarter as to why there isn't...
Speaker Change: Isn't demand happening on the family rental side? So just want in a quick update from you on on the demand situation there as well
Speaker Change: Good question, you know, and you're right. I think our biggest opportunity is our price point. You know, one of the things that we have seen is a push for affordability from the administration and, you know,
Speaker Change: Component of that is going to be the interest rate environment and so I think interest rates have...
Speaker Change: They've been all over the map, but they've been trending a little bit softer, allowing that price point in there and a lot of the builders.
Speaker Change: You know when interest rates went from three to seven, found themselves in a position of really competing by buying down that interest rate and offering the incentives as an interest rate environment. And I think that that has kind of that that's burned off.
I think they're buyers out there are [inaudible]
Speaker Change: are more acclimated to this being the current interest rate environment or the normal interest rate environment rather than to have an expectation to try and find that out. And so, as a component of...
Speaker Change: Consumer Sediment, I think that's a favorable outcome, both for the builders, as well as for people that are delivering these blocks.
Speaker Change: You know, we can take a look at a number of investments that are being made and
Speaker Change: and there's a number of projects that continue to focus in the I-70 corridor.
Speaker Change: Development Activity, whether that's going to be master playing communities, whether that's going to be in-field projects or any of that stuff that's really concentrated in that I-7 Decorder. So, we find ourselves in the right-
of the market.
Speaker Change: Not only in terms of the price of the delivery, but also where most of that development is occurring.
Speaker Change: You know, traffic, throughput, and I will tell you, you know, our builders, we've got of the 70 homes out there, they're building like crazy and they're building on stack.
Speaker Change: and so they have a lot of confidence to put that investment in there and an understanding of okay, this is the right.
Speaker Change: Price point for us to be able to take that inventory. And so those are all those things that are and and having three phases under construction at the same time. All of that activity is really giving a lot of a lot of. And so that's the end of that.
Speaker Change: Incentive for Sky Ranch to be among the high performers out there and so we'll see how that continues to absorb over the next 18 months, but you know that's really what we're trying to do is hit that part
Your second question relative to the single family rentals.
Speaker Change: We had a bit of a gap between base 2a and base 2b and that was when Interstrakes went off and our builders after that burp.
Speaker Change: you know, a 90-day pause on delivering some of those loss, and that's gaped us out on that. And so we really, we would
Speaker Change: We are seeing very strong demand for each of these units that we're bringing online, and the problem is, is that
Speaker Change: The County updated their building code and so I think our builders, some of our builders got grandfathered in so that's where they have like that 75 units out there some of the builders were in the process of making those applications.
Speaker Change: And so a lot of those things are getting released right now and so a lot of the inventory of the 17 homes that we have in that phase
Speaker Change: We're going to come online now. And so a little bit of a gap there wasn't certainly from a market standpoint or from a desire standpoint is just a little bit of timing variance on that. And then we're teed up for the rest of the phases to be able to continue to accelerate that.
Speaker Change: So you're expecting a stronger environment in terms of sales and rentals through the
Very much so, yes.
Elliot, got a question. Okay.
Speaker Change: 2446, you're on mute, so you'll have to take your-
Speaker Change: You have to hit your mute button. If anybody else has got a question, is that, did I hear Elliot? More
Yes. Yes, this is Elliot. Can you hear me? I guess.
I'd like to go back.
to your answer to question number one.
The most important priority is to acquire new land.
Speaker Change: You have a luncheon meeting and it was available on Zoom and it is now available on the website.
for those who didn't hear it.
Speaker Change: What happens? How valuable is Pure Cycle if they are unable to make another land acquisition?
Speaker Change: I'm not going to try to summarize what the answer to that was.
Speaker Change: but it was a very impressive number and so anyone who was seriously interested might want to take the time to watch that call because there was a wealth of information available. [inaudible]
Speaker Change: So I don't have a question, but I just want people to know that that asset is available if they're interested.
Speaker Change: Yeah, no, I appreciate that, you know, one of the challenges that we have is
has done a very good job.
Speaker Change: of acquiring assets that are, you know, favorably valued for us. And then also, you know, been able to be good stewards of that over time. And the market of those assets have appreciated
Speaker Change: You know, not only is that call, you know, a little bit helpful for some of that, but you know, when we try to articulate some of these numbers and take a look at the back half of these slides.
You know, that really also tries to monetize this.
The monetization of those [inaudible]
Speaker Change: Legacy App that says, well, it's just what it does on the return revenue side. And so, you know, I would say and the company has had a strong disconnect between what certainly we believe the value of those assets are and what the market capitalization is for that. And we try and allocate some of that money to bridge some of that gap in there. [inaudible]
Mark: What I was going to say, Mark, is just as a
Mark: Cheese, if you like it to those who are listening who didn't hear it.
you came up with
with actually the analysts on the call came up with
Mark: Impressive numbers for what the pile of cash the company would have with Sky Ranch fully developed with roughly 85% of its undenicated water reserves.
Mark: not still undeticated and available for sale and you also came up with a number for ongoing revenues per share at the end of the development of Sky Ranch.
So the day...
It was very specific and it was very helpful.
I appreciate that, Geoff.
Speaker Change: if you just got Scott Scott in the stand-up and it is.
Smiling mug
Good morning. How are you? I'm good morning [inaudible]
Speaker Change: Elliot, I think I'll take some credit for the lunch and analysis, but I want to get you were brilliant, you were brilliant
Speaker Change: You just made my whole day, Elliot. That's on the back. Keep you going.
Speaker Change: Mark, I want to ask a couple of chicken egg questions.
I'm assuming that
Speaker Change: The development of the interchange is the egg and that the commercial development is kind of the chicken.
Speaker Change: The value of the commercial development goes up after there's an interchange in there. Is that basically correct?
Speaker Change: Yeah, I think that is true. I mean, I will say that I think the the value of the commercial
Speaker Change: You know, we have an existing interchange. The new interchange gives you more capacity. It's, it's, it's a, a freer flow of traffic. Um, but
Speaker Change: You know, the proximity and the location along I-70 give you both of those elements but the interchange is kind of a component that we do need as we continue to build out and what we try to do on that job because
Commercial needs a certain amount of demand.
Speaker Change: from the residential side. So we've been bringing that up at the same time as we're paralleling the permitting for that interchange so that we don't have.
Speaker Change: a gap out in that issue where we have the demand from the residents but not the infrastructure or the traffic capacities.
Speaker Change: Right, I'm assuming that the demand for the commercial will go up when they see a bigger and better interchange.
Absolutely. Okay, but we're not arguing with that piece of...
I don't think I've ever heard you actually [inaudible]
Let's say that before. Is that because-
Speaker Change: The what you'll be able to do with land is going to be faster than what you're going to be able to do with additional water. I mean you have water for 60,000 units.
Um...
Speaker Change: You don't have land for 60,000 units. So presumably you have water and inventory and in order to utilize that water you need additional land. Is that the correct interpretation of the chicken and egg?
Speaker Change: Yep, exactly right. You know, I think we're longer on the water side than we are on the land side and really want to be more aggressive on the land side.
Okay, thank you. That's all I had.
Speaker Change: Okay, thanks for chiming in. And thanks for your comments and kind of the filter that you as a shareholder and really a long-term shareholder have in terms of the company and
Speaker Change: You know, really aligning with kind of how we think about the world and you know how we should work some of these assets was very helpful in that. Thank you.
and that in that February call. So...
Keep up the good work.
Thank you.
Speaker Change: Talks about the train after question. Who is Bob?
Ah.
Speaker Change: Yes, I tune in late. So this question has been answered. Let me know. I'm interested in how the school is doing. I think it's a key component of the of the entity. So tell us about the school. I'll go back on mute.
Okay, great.
Speaker Change: It is a great question and you're right. You know, having a local school, having a K-12 campus, you know, right in the middle of what it is if we're doing.
Speaker Change: tremendous value. I will say our partner on that national heritage academy, a great partner in that, you know, we are their first K-12 campus and they have other campuses that are K-8, they have high school campuses, but we're the bull K-12 model. And so we're looking at breaking ground on the high school of that later this year for the delivery of high school in the 2026, 2027 year.
Speaker Change: I think 1700 kids, so it'll accommodate all of the kids in Sky Ranch, full build out of Sky Ranch, plus a little bit more so that we can service some of the surrounding areas. But wonderful group, I think.
Speaker Change: The overall feedback on, I'm, you know, part of, I, I chair the, uh,
Speaker Change: The school board on that, so I attend a lot of the-
Speaker Change: The parents' conferences that they have there and the feedback that I get is you know the school's just terrific asset for the community, you know a terrific model they love. Thank you very much.
Speaker Change: They love kind of the NHA model, you know, how they deliver [inaudible]
Speaker Change: the education, the moral focus that they have, everything that they do.
Speaker Change: You know, I think is a terrific opportunity and I'm learning a ton about schools as well. So it's great. I thank you for your continued support on that. Thank you for your continued support on that.
Speaker Change: School. I know you you continue to reach out with me on that and continue to touch on that. So thank you for that support.
There's one caller that ends in 6841, you're off mute.
I don't know if you had a question.
Greg Bennett: Yeah, thank you. This is Greg Bennett, one of your shareholders.
Greg Bennett: Washington DC, or the new administration has talked about affordable housing and the need for it. They've also talked about the possibility of using federal land or giving federal land for affordable housing. Thank you very much.
Greg Bennett: Thank you. That's a good question. We are not adjacent to any federal land, but I will say that.
Greg Bennett: You know, our service area is owned by the state of Colorado, and you know, the state of Colorado recognizes as much as the federal government the importance of affordable land and affordable housing.
a massive inventory of land. It's 24,000 acres.
Greg Bennett: of Property is located in that I-70 corridor, you know, it's probably the single most valuable asset that the state of Colorado owns and the state landlord. Clearly, you know, they're attenuated to not only the affordability aspect but what they do do with that land generates revenue for the public education system, the K-12 public education system. So. So.
Greg Bennett: You know, those are those are great opportunities for us to partner with them. You know, we'll provide the utilities regardless of whether or not we develop the land in conjunction with them or somebody else develops that land. And so they're currently evaluating, you know, what opportunities they might.
Greg Bennett: I want to consider for that. They've taken a look at that land at various segments over the last 30 years as to, you know, what the inventory and the carrying capacity of that are. And we'll see, you know, that's that's an opportunity. You know, we look at other land areas for us to be able to acquire or partner with. [inaudible]
Greg Bennett: and be able to monetize and develop that land by bringing our water to it.
Greg Bennett: As much as the federal government has the opportunity to take a look at its lands, you know, the current administration really does have a focus on trying to do something about affordability and interest rates are key elements of that, and...
Greg Bennett: You know much to maybe their frustration they don't have as much control over interest rates as they would like but you know certainly policy doesn't influence interest rates. [inaudible]
Speaker Change: That is the state of Colorado ever granted for a sold land for a purpose like public housing.
Speaker Change: and interest have been oil and gas and grazing, but they own about 3 million acres throughout the state of Colorado, and this is one of those pieces of their portfolio.
What is how close is [inaudible]
Speaker Change: They're a land to your sky ranch or your interchanges. Is there anything that
Speaker Change: Nearby, or is it? Oh, yeah, it's four miles directly south
Speaker Change: So when you take a look at, and we have a lot of these images on our website, you'll see, you know, where we show our service area and the proximity of our service area. And in fact, some of our presentations will have sort of some drone imaging where you see on one side of the road, you have a bunch of. [inaudible]
Speaker Change: But developed houses on the other side of the road is kind of vacant land and that's where the state that that's where the Lowry Ranch starts and so the metro area has grown out to the Lowry Ranch and so it's a, you know, it is ideally positioned for opportunities. [inaudible]
Speaker Change: Okay. Final question, SkyRans, to build out, you don't need to acquire any land in order to continue growing for the next five years as the absorption of SkyRans would take five years.
Speaker Change: Yeah, I would say most of the residential should be wrapped up in that cycle. Some of the commercial may still say, well, I'm depending on how we how we participate in that.
Speaker Change: But you're right, you know, that's baked in. You know, you take a look at that guidance set, you know, where we think we can monetize both the land and the land, the water and the single family rentals on that at $600 million really is just what we own at Sky Ranch.
Speaker Change: Okay, I guess one of the concerns the investor may have is that you're tying up capital and the rental units and if you do make another land acquisition. Thank you very much.
Provided on the deal, you get that- [inaudible]
Speaker Change: That's capital that won't get a return for five years, possibly, but I don't know if you're going to come in on that [inaudible]
Speaker Change: Yeah, the cycle of land development, certainly, you know, you're not-
Speaker Change: You're not wrong when you buy raw land the time to entitle it and start developing it could be a little bit longer.
Speaker Change: You know, the issue for offices to make sure that, you know, we allocate that passable so we're not over our skis and we can actually continue to invest in the land development of sky ranking. Thank you.
Speaker Change: and I think we're ideally positioned to do that and to the extent that we get a large enough planned acquisition.
Speaker Change: and be able to use that rather than our equity to be able to acquire some land interest So it's a very attractive
Speaker Change: Investment, not only because of the fact advantages to it but the equity carry forward and then the ability to monetize it in the event that there's an opportunity to do that.
Speaker Change: You're suggesting like a 1031 exchange where you exchange something like that, yeah, okay, I don't want to enough. Thank you for everything. Thank you for the call.
Any other color I can play her in?
Yeah, Mark.
Lee.
This is Dan Kozlowski calling in board member Ah, what's that?
Speaker Change: Did do a scheduling count, but a good call. I think this is one of the better calls and a good quarter and a seasonally slow time, but
Speaker Change: Again, I think it speaks to the robustness of the model where these slower quarters are less slow and still stacking on some earnings growth, which is great.
Speaker Change: He's a couple observations, I kind of listen today and
Speaker Change: to call their questions, I think are at a higher level and everyone's kind of really understanding the business model better and better each quarter. So that's great. So just to pivot off a few things. I mean, the interchange process, I'm glad you brought that up today and spoke about it because it is a big opportunity.
Speaker Change: And if you just drive out there, you see there's a there's a
Speaker Change: I guess you call it an interchange today, but obviously the ability to control and work with Rappho County and have the outcome of that interchange be favorable towards our sections
Speaker Change: in the past, but once that is in process and moving, I think it'll free us up to...
Speaker Change: Make us more flexible in terms of pacing, of absorption, and maybe you can comment on that at a touch if you want.
Speaker Change: Um, but and also a second part of that is how do you think about commercial, you know, in terms of your classic retail commercial build out the grocery stores, the drug stores, the, you know, the soft.
Speaker Change: You know, Warehouse and that type of thing that could also be...
Sellable at really good prices, really at any time.
Speaker Change: So maybe just a little more color on on how you're thinking about the classic retail software versus you know, the industrial, you know, warehousing that there's always huge demand on I-74.
Speaker Change: Yep, yeah, all good questions and really good things, kind of.
Speaker Change: Drill Low Color into this. And so the interchange I think is a great asset, great opportunity. And one that we've been planning for, you know, since we started construction of the project, so you know, we're well positioned on that. [inaudible]
Speaker Change: and it's a long lead cycle, so we have...
Speaker Change: We have really been early to try and get that through the system and through that process, both with the county as well as C.Dots.
Speaker Change: And I do think it, you know, as Geoff sort of highlighted in his chicken and egg.
Speaker Change: sort of analogy is that it does it does open up while it's not constraining some of the commercial activity I think commercial activity really is a lag of some of the residential activity we did a lot of time those two out [inaudible]
Speaker Change: such that when the residential was good, we didn't have any constraints on the transportation and then the attractiveness of having a bigger, you know, you know, fuller scale interchange on that. So that's an important component on it.
Speaker Change: as it relates to some of the commercial and one of the things that, you know, Dan's been been super engaged in helping...
Speaker Change: How we can translate the value of the company to investors but one of the other opportunities and I talk about this all the time in terms of the strength of the board but you know what of our board members is you know very dialed in on the commercial.
Speaker Change: You know, he works with a local family office that does commercial all over, all over the Denver area.
and they have developed...
Speaker Change: tons of grocery models with Krotter and King Supers at their brand here in Colorado, as well as bolting into that, the commercial that goes around that, whether that's going to be...
Speaker Change: You know, you're a fast casual whether it's going to be, you know, other types of office, medical office.
And then, you know, also in the industrial side, so...
you know.
Speaker Change: Wow, that's something that's key for the company to keep their posts on.
You know, we also have...
Speaker Change: Veteran Experience on that that helped guide us and so Geoff Sheath is the board member on that who bring that value to the company and really you know we saw that that expertise as we continue to build that portfolio out.
such that they could assist us on that, and really...
Speaker Change: or the Light Industrial, or this big distribution center, you know, that does provide tremendous success value that brings a lot of that revenue into the reimbursable sides.
Speaker Change: We have components of that for multi-family, where we've got apartment complexes and we've talked with a number of different apartment developers and various models where we can help participate with that. That model looks something like where we bring our water, we bring our land in the equation, somebody goes vertical with that, we get it fully leased out in the cell at the package. [inaudible]
Speaker Change: and our exit becomes fully developed. You know, when you've got a fully improved lot for a particular use, like a multi-family and that could be anywhere between 500 and 1000 units of multi-family depending on how that configuration goes.
Speaker Change: and then the grocery, the fast casuals, the services, the fuel, all that stuff gets built right around that and those are all.
Speaker Change: Partnering with commercial developers, and then getting those facilities leased out and then selling those to maybe REITs and other types of entities that really participate in that cash flow so you know as much as we look at all those options. Thank you.
Speaker Change: doing specific commercial development in the Denver area. And so, you know, we're very excited about that. We're very excited about that guidance. We're very excited about that opportunity. So good question, Dan, and a nice way to kind of highlight, you know, how we're transitioning from, you know, a core of strictly residential to moving into that commercial side. [inaudible]
Speaker Change: Okay, just a few other observations generally. You know, I think it's finished lots.
Um...
Speaker Change: that you chose to take starting back and phase one or phase A. You know, I think it is understood somewhat by the market by the long-term shareholders, but the attractiveness even in time.
Speaker Change: We talk about times like these. There's always stuff going on, whether it's interest rates moving up or down, or COVID, or the change of administrations with different viewpoints on how to attack opportunities and challenges of the country.
Speaker Change: You know, it seems always more volatile and you watch social media or CNBC but but but the reality is homebuilders and they have pretty good businesses and they're pretty good at managing their risk [inaudible]
Speaker Change: put down their cash on lots and go vertical quickly. And our model, which was slightly more capital intensive for us to finish all the lots out.
Speaker Change: It's just highly attractive to, you know, if they're looking at their entire nationwide portfolio, obviously like Colorado, look at their Colorado portfolio, you know, you you continually. [inaudible]
Speaker Change: You know, as you develop these phases and sub phases, you're shown up with buildable lots, right? Right away. And those are the ones where even when the homebuilders, you know, we'll go through 90 day pauses or whatnot. .
Speaker Change: They want because they can buy from us and go vertical and have lower carrying cost. And it's the way we chose to approach the business, but it really protects the business.
Speaker Change: in back to that times like these, meaning people are cautious, but if they can buy and go vertical
Speaker Change: It's just a huge wake up on and sort of the
Speaker Change: Sustainability and Consistency that we're delivering. And I think that's understood by half the people that look at Pure Cycle, but there's another half that's newer to it. And, you know, I got to think in the market, you know, in our stock prices bouncing around, along with the homebuilders and other people.
Speaker Change: That's not completely appreciated, you know, how much. So when we talk about demand, you have there's general demand in the calendar of market, but there's a lot, it just strikes me and I've watched it for five years. There's always demand for these finished lots.
Speaker Change: and that's key here for people to understand the call and otherwise. Maybe you can come on that in a minute and then the second thing that I'd say is
Parsley Understood Understood.
Uh, but not not fully.
and it's the...
The nature of Sky Ranch and any development.
Is
Speaker Change: The cat flow is just very much back in loading, you know, so if we have all we did on Sky Ranch has developed a thousand miles, you know, we're going to do.
many thousands, but
Speaker Change: It was just a thousand lots, I think what we had seen was
Speaker Change: First 500 were, you know, pretty good. And then the last 500 would be
Speaker Change: Massively Casually Generative, right? Is your one knee down the, you know, a smaller, a smaller project.
Speaker Change: and all that cash comes over the trans and I've just done some rough math on it. It just seems very disproportionately cashflow generative.
Speaker Change: in the second half of the project and as you're closing it out
Speaker Change: and a lot of developmental projects are like that. The last 30% that just goes straight into your pocket. But Sky Ranch is big. So it's 3,500, 4,000 homes, and then the commercial. And it's really back in load is when all that cash comes over the transom. [inaudible]
Dolphin of Sky Ranch
Speaker Change: The cashflow dynamics, the margin structure, all of it, really blossoms. And I think that's going to hopefully surprise people as we get another 12, 18, 24 months down the path. And so much of.
The cash flow payoff from this.
Speaker Change: Well, again, I'll use the word blossom, you know, in the back half. And we're not even pretty close to the back half now. So that's I think exciting. I'll stop there on those two comments if you have anything to add. [inaudible]
Speaker Change: Yeah, you know, good comments and your rights in terms of our home building partners, you know, the thing that did.
Speaker Change: They like is, they want to be able to sell their home before they buy their lot.
Speaker Change: and really we're delivering this stuff just in time for them so that their capital allocation is as good as it can be. And there's very few people that do that, right? There's very few people that are in a position to do that. Most developers are, you know, they sell platted lots.
Speaker Change: particularly in the Denver market, they sell plat and lots of paper a lot, and then they force the developer to put that infrastructure in, and so the developer has to put that capital in up front and they're IRR driven, right? Their home blog is IRR driven, they want velocity. Thank you very much.
Speaker Change: and so if they have projects where they can choose to build spec homes, they're going to build them in an area where they don't have to do the horizontal. That allows them a much more favorable rating and really that's why I think we've had such good success. Thank you very much.
Speaker Change: with all of our builders in the renewed aspect of it. And then, you know, the portfolio builders who want to be in Sky Ranch. And so as we open up Phase 3 and we go into the next 1500
Speaker Change: Then you come down and tail off and are milking the residual value of each of the remaining lots and while we haven't peaked in that Velcro, you know, we're on the upper side of that [inaudible]
Speaker Change: And you've seen that by accelerating, you know, the lot deliveries from 250 lots a year to something like 500 lots a year and that's going to that's going to go directly into you know monetizing that asset. [inaudible]
Speaker Change: on liquidity is in the note deceivable. Well, if we were in the back end of that, that would all be moved over into the cash side. And so that note deceivable really is, as the assess value of the community grows, that's where you get those reimbursables. And you get that high value of monetizing the final lot in there. So it is cyclical in terms of the time you see.
You know, I want to see more of-
Speaker Change: We continue to try and communicate that to the marketplace and the market has its own cyclical nature of it. We want to be as transparent as we can.
Speaker Change: Look back, Geoff had a, he wanted to weigh in on one of that observations.
Jeff: The article came from, I think the Denver Business Journal, and it talked about the link 56 development out there. You said it was
There was the, you know, things like the, the, a large, [inaudible]
Jeff: Land Purchased by Microsoft for a campus that I had that's the first time I had heard of that but it's that kind of development over the next film of the blank decades. [inaudible]
Jeff: that's just going to enhance the value of Sky Ranch going forward.
Jeff: As part of that, it said that target had acquired land for, I want to say a four-acre
Jeff: Retail Outlet for $7 million. I don't know the details of that and how much
Jeff: was how much for the st- there was 140,000 square foot store. They may have had to buy some parking and stuff like that, but $7 million for
Four Plus Acres
Thank you.
is a pretty substantial investment for somebody like Target.
Jeff: and I wish that would translate into value at, you know, two plus million dollars an acre for Sky Ranch. But anyway, Dan, if Mark can for you that article, I don't know if you've seen it or not, but I thought it was very interesting. That's all I had.
Jeff: It keeps coming. I mean, I've made this point, I think maybe a couple calls ago, but...
Jeff: Industrial kind of epicenter of Denver. And that's all moved eastward now. And that was triggered by the beginning of that was triggered back around 2000 when the airport opened up. And then anxious medical center. And the whole, the whole
Jeff: I think the epicenter of Denver now for the future is really E470 and I70. So it's moved Eastward
What is that? Probably 12 miles or so.
Jeff: and that's D.A.'s right there, three or four miles, and that's why all the dust drill.
Jeff: or Light Industrial Warehouse, the NAM is on center that's there, is also the East, and it's, so that's in Sky Ranch, the city right in the middle of that development to the East.
Jeff: Now it's 40 square mile house but it's you know a lorry ranch and I would just note that we've been impressed with
Jeff: The way the state landlord is evolving their views and some of the human capital the state more is added over the last
Year 18 months with your real...
Jeff: High-level real estate development expertise on the board, and you have to think if they're adding that sort of talent.
and expertise, they certainly are aware of.
The opportunity they have with the Lowry Ranch over time.
Jeff: and I know Mark, you've gotten closer with them and built a great relationship and it's all there for the taking whenever the state wants to begin to monetize that in a thoughtful, progressive way for the community and help with this.
Libby Low-Incomer, Entry Level.
Jeff: Entry Level Housing. And so it's pretty exciting. And I think you've argued in a great job building those relationships and state landlords doing a great job. And so it's a great job.
Bring it in.
Jeff: High-level talent to evaluate all the opportunities. So, again, I think that's been a long process. We've got a long history, but it's
Speaker Change: really on the up and up, and I think it's a tip of the cap to Mark for his.
Jeff: his patients as well as his, you know, relationship building there. So good work on that. I'll sign off, you know, good quarter should be a good, good rest of the year and nice work.
Jeff: Okay, well, if there's no other comment, certainly if thought anybody's got something that they didn't get a chance to ask or want to just drill that in privately.
Jeff: You know, go ahead and give me a call. I'm always available and, you know, we do like doing these kind of road investor meetings. We'll try and seek we can't set something up and maybe in the Midwest.
Jeff: or maybe on the West Coast. I've got some good friends and shareholders on the West Coast that have been itching for us to come out and organize a sit-in, and I will tell you, I mean...
This format is very helpful, where we can…
Jeff: We can have to engage in a dialogue and interactive dialogue like this but I think the reaction was some of the folks that attended the meeting in New York that they were just overwhelmed
When you see it, when you...
Jeff: You know, roll out maps and you kind of get that tangible evidence as to how the Denver market's positioned and where I said many is and how the growth of the metropolitan area goes. [inaudible]
Jeff: It really does provide a very compelling argument as to what it is that we're doing, not only what we have in inventory, but what our opportunities are with the portfolio. So, we'll continue to reach out and
Jeff: and continue to really expand that knowledge base and that outreach to not only our existing portfolio, but folks that may be new to the story. So with that,
Jeff: I will go ahead and sign off and thank you all for your continued sponsorship and confidence in your invested capital. Take care and we'll be in touch.
Thank you, Mark.
Thanks all.
Speaker Change: The meeting will start shortly. You are not allowed to unmute. This meeting is no longer being transcribed. This meeting is no longer being recorded.