Pure Cycle Corporation (NASDAQ:PCYO) Q4 2024 Earnings Call Transcript

Pure Cycle Corporation (NASDAQ:PCYO) Q4 2024 Earnings Call Transcript November 14, 2024

Operator: Greetings, and welcome to the Pure Cycle Corporation Year-End 2024 Earnings Call. At this time, all participants are on a listen-only mode, and a question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now 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. Good morning, and I’d like to welcome you all to our 2024 fiscal year-end earnings call. We do have a slide deck for this call, so it is on our website if you go to purecyclewater.com. It’s on the landing slide page, you can click there, and then we will note through the transition of the slides. And if you have any technical difficulties you can probably get it there. And then, you can also get it on the Investor Page for the PDF version of it. 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. The meaning as defined by the Securities and Exchange Act, these are statements that are forecast and planned statements of — you cannot rely on anything I say in the call.

Anyway, you’re familiar with forward-looking statements. Want to talk a little bit about our 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 Marc Spezialy, as well as Cyrena Finnegan, who is our Controller. And then, we also have the privilege of having one of our Board members, Dan Kozlowski join us this morning. So, welcome, Dan. But Scott Lehman, who heads up our engineering department, as well as Dirk Lashnits who heads up all of our land development; An outstanding leadership team that continues to exemplify professionalism in each of their disciplines. In addition to a 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 remember I introduced in our last call, that Susan Heitman, who is a 30-year veteran, retired KPMG partner. So, she’s provided terrific insights in some of the SEC reporting mechanisms that we do. So, we welcome her as well. I’m going to do something a little bit different on this call. I’m going to jump directly into the financials. If you’ve got great financials, you want to talk about them upfront. So, we’ve had an outstanding year this year. And so, we want to really highlight our financials. And I’ll talk a little bit about the company for those 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 of at least how we describe the company, and how we think about it. And then, as something very new for us is just give you a little bit of foreshadow as to what we think is going happen in the future. So, a little bit of all three of those elements. Let me dive right in and talk a little bit about our fourth quarter results. We’ve had record fourth quarter results here. If you take a look at how we performed, 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 a lot, just because we operate in Denver, you do have some seasonality on the delivery of some of those lots.

And the pavement and asphalt and concrete don’t work so well in the winter, but they do deliver in the spring and summer. And so, that’s 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. But taking a look at that, we generated about $12.5 million in the Q4. And that was really a function of delivering Phase 2D lots, which was about 197 lots. 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. Let me translate that a little bit in terms of each of the metrics that we take a look at, revenue for the year, $28.7 million.

Again, that’s another record year for us. Gross profit about $20 million, which is terrific gross margins, 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, where we earned $11.6 million and about $0.48 per share, so, terrific metrics for the company. Taking a look at that on a year-over-year basis, if you compare that and where we are for the last trailing three years, clearly another great year. Last year was a bit of an anomaly just because of the delay that we were looking at because interest rates rose so rapidly there in the first part of 2023 that some of our homebuilder partners were looking for us to really work with them on the inventory of our lots.

So, that’s a bit of a gap on that. But I think you’re going to see that this is more typical performance for the company as we roll forward. Again, taking a look at the other metrics that we’ve got, net income, earnings per share continuing to 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 in lot of that, we make these upfront investments. And then, we continue to add connections 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.

Take a little bit more on the financial performance. This is a dissection of this thing by 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. I know oil and gas is a little over $5.5 million, some of that on the tap fee revenue came in, and then, our recurring revenue from our existing customers. 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. And we’re still averaging about $1,500 per connection per year for our reuse or our recurring revenue customers from our utility model. Taking a look at one of the things that 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 and 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 where we take a look at how American Water and they’re probably the largest public water utility company, and, York Water and Global Water Resources.

Really how are 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 takeaway from this comparison is we’re really only using 5% of our utility assets. And so, when you take a look at how we’re doing and doing that on a return on asset, 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. 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’d say, it was stronger in the first three quarters than in the fourth quarter, which is really atypical because that summer is where you have a lot of that demand.

And we still look for continued performance from this segment. The most interesting thing about our oil and gas deliveries are our excess capacity doesn’t really take away any water service from other customers. Denver’s water constrained. I think we’ve all talked a lot about that. And that water constrained market provides an opportunity for us having excess capacity that we can divert some of that for use by the oil and gas industry. 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 continue to look forward to making that water available to those customers and making sure that we keep up with that demand.

Taking a look at our land development segment, here’s a little bit of color on that land development segment where, excuse me. Again, we delivered our finished lots for Phase 2D. So, 194 lots on the for sale side, 17 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. And really bringing online, we’ve developed a total of about 1200 lots in total. We’ve got about 700 residents now out 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 you’re going to see how that really monetizes that asset. And as most master plan communities go, they develop on a bell curve format where you start out relatively slow because you’ve got a lot of investment 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. We ended up acquiring Sky Ranch at the bottom of the market. We’ve been at really historic lows for land acquisition and land trading. And the most interesting thing there is when you compare us to other developers, whether that’s Green Brick or the Howard Hughes Company or Forestar, 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 totality of the residential and the commercial lots there, we’re really only about 15% in our development cycle for the land business. So, much, much more to come and I think we’re very excited about those opportunities. I want to highlight a little bit about our most recent segment, who you heard me talk a lot about, is our single-family rentals. We continue to invest in those, we continue to grow those. Our annual revenue associated with those is now starting to reach the half a million dollars. We’re very early on in that phase. We’ve got kind of that proof of concept model here, where we’ve got about 14 units completed in that segment, and we’re really moving towards going up to about 200 units in there, and again, 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 America Home for Rent and Innovation Homes, again, we’re very competitive with our gross margins in those. And so, when you take a look at a small company like us and how we’re executing on our performance side. I think where we compare ourselves to is those that are doing it well. And we are proud that we’re competitive with their rates and charges and how they perform in their asset prime. 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’s new, give you kind of an overview of some of the more metrics that we really focus on and how we introduce the company to others.

So, a little bit — as 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 30,000 acre feet of water that can serve about 60,000 connections. And the important component there is how we generate revenue from that water utility segment. We get paid from two different fee instruments. We get a tap fee, which is a large capital fee that’s amortized in the cost of the house. And those tap fees continue to grow in the metropolitan area. A lot of these tap fees, when we started Sky Ranch, were around $30,000. And I think that average is now closer to $40,000. And then, we get that recurring revenue from the customer connections and we operate and maintain those water and wastewater systems.

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 you’re making and making sure that we understand as best of 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 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 we’re delivering to our homebuilders. And so, without competing with our homebuilders, because we’re really not looking to do that, we want to be able 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. And there’s a growing and ever-appreciating market for single-family rentals for folks that just choose to rent, where our rentals are on average around $2,800 to $3,000 a month. They’re 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 rights.

So, we’ve got a very low basis in the land cost, as well as the low basis and the legacy asset that we have in the water system. So, it’s a terrific segment for us and one that continues to grow. 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 segment, it’s about $65 million on the balance sheet. 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 years, particularly the acquisition of the water rights portfolio. And these are recorded at book value. You all know that GAAP allows you to just record that at cost. And having an asset that can serve 60,000 connections and the ability to generate more than $2 billion in top line revenue with a 50% margin that you’ve got booked at $14 million really understates the asset.

We continue to invest into that water system capacity so that we can provide water to our one-time customers, which are our 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. If you look at some of that system capacity, this year we were a little bit better. We used a little bit more than 50% of our developed capacity, but it does tell you that we still have pedal left and the ability to continue to meet the demands of this oil and gas customers. And then, as we add new connections at Sky Ranch when we’re delivering lots, we have that capacity ready and available for those customers.

Taking a look at just the build-out portion of the tap fee portfolio, again, we’re just getting started, just about 2% of that capacity of the 60,000 connections. So, we’re we’re very excited about how we continue to grow this water utility segment. Talk a little bit about land development. How we positioned ourselves for the land development. We did buy this land right. We bought it in 2010. And we’re very patient about that, but bought it at the real bottom of the market. Our cost basis in the land is around $4 million dollars. And total lot sales to date close to $80 million. And again, our gross margins in this area, just because the land basis is so attractive in that, we continue to maintain very attractive gross margins in our land business.

I want to highlight what we’ve got going on. You’ve heard me talk about Phase 1, which was our initial entry into the market. And that was about 500 lots. And then, Phase 2 was about 880 lots. And so, we divided the Phase 2 up into four sub-phases. And really did this so that 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. Our segment here, Sky Ranch, is really tapping into, in the Denver area, an entry-level house. And so, in Denver, an entry-level house is anything less than $500,000. And the odd thing about it is, when we took a look at this in 2010, just before the downturn in the recession for approximately 50% of all home starts in the Denver area were in that entry-level space.

And that number has really eroded down to less than 4%. And so, we’re one of those communities where homebuilders can come in, they can build an affordable product. And really attract that bulk of the buyer market. Delivered Phase 2A, and we’ve got about all 7 – or about all 229 of those homes are fully built and occupied. The fiscal year for ’24 delivered the 211 lots from Phase 2D. We’ve got Phase 2C 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 2D. And so, adding, we really have about 500 lots under production. And then, we’ll have the 211 lots from Phase 2D, 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. Taking a look at some of the ultimate build-out projections for Sky Ranch, we divide that up into our residential component as well as our commercial component. So, we have zoning for around 3,200 single-family equivalents, and about 1,800 single-family equivalents in the commercial side. The total that we’ve got developed for the residential is about 22%. We’ve 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 gives you that perspective of, well, is 2024 a trend or is 2024 an anomaly? And, I think just because of the dynamic 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 velocity and the inertia that we’ve got in Sky Ranch.

Talk a little bit about single-family rentals, little bit of the markets on that. It’s 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. It’s a great asset for us because it provides us that valuable recurring revenue for the market you want 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. One of the things that is unique about it is — and really one where nobody can compete with us in terms of these single-family rentals is we are carrying forward a lot of that equity that we have from the lot ownership as well as the utility system.

And so when we partner with our homebuilder partners to build our single-family rentals, we’re coming in building a house at $350,000. And when that house is delivered, it’s worth anywhere from $500,000 to $550,000. And so, we’ve got a tremendous equity in each of those houses. And so, the nice part about it is 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 at their fair market value. And we continue to benefit from that segment. This will give you a snapshot. I think this is 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 — that first line, we’ve got 14 homes in occupied, 17 homes in this next phase. 2D, we’ll have another 40 homes and 26 homes, so, rapidly growing from 14 to 100 homes. We’ve proved this concept out. The Board has given us an enthusiastic green light to accelerate the development of this. And working with our homebuilder partners, we’ve got the best delivery of home construction that we could have. As they’re building homes right next to us, they’re going deliver homes for us. And so, these are proven modeled homes that they have that they’ve built thousands of 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.

Want to talk about balance sheet. As you know, we’re very conscientious of our liquidity. And have just a terrific balance sheet, great cash position, as well as liquid note receivable from our tap. So, I think this is a — building into a record liquidity, almost $57 million of cash and note receivables, and really then receivables, as you’ve heard me talk about, are 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. And we did have a subsequent event to that. We’ll talk a little bit about it. And some of you probably already started the press on that. But again, continued high performance and very conservative balance sheet protection. So, one of the things I want to do, this is going be new for us, is to give you kind of a framework for how this is going to move forward.

While I’ve 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’s going roll forward in the future. And so, what we want to do is kind of illustrate not only how we’ve done the last couple of years but also how we think next year is going to go, as we have a lot more predictability to these segments. And 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 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 still a bit new, but really going to continue 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 – we’re forecasting higher margins for next year. And so, we want to continue to improve our margins as well as continue to deliver top line results. Taking a look at that net income, again, delivering better margins off both the water segment as well as the land development segment, and continuing with the single-family rental and then continued return to the shareholders. So, these earnings and the value of these acquisitions that we have will continue to benefit the shareholders. Want to 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.

We take a look at what we’re doing over the next short term. So, if you take a look at that, what’s our three- to-five year horizon, and then also be mindful of how we build this thing out. So, 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 2,500 accounts, consistent tap sales, our tap fees are continuing to increase on an inflationary basis. So, you’ve got 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 book on this thing is the 5,000 single-family connections at Sky Ranch. We both have residential and commercial connections. Commercial connections are more valuable than the residential connections.

And so, the high value of our asset is still yet to come. We 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 in unincorporated Arapahoe County parcels. If you take a look at the land development outlook again, we have both of the infrastructure already invested a lot of the heavy offsite infrastructures. Some of the big group, major roadways, the drainage ways are all in and working and delivering results for the community. We still are working on 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. And then, just build up. We are at 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 thick part of the top portion of the bell curve. So, we’re really looking at delivering strong value in that land development segment. And then, single family rentals, again, expanding. You saw in the next 18 months to 24 months, we’ll be moving from 14 homes up to 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, I might stretch that 200 homes and put that into the 250 to 300 home side of it.

But we’ll continue to add to that portfolio and deliver results there. Consistent, what I want to do is kind of recap how did we do? I mean, if you look at this on a retrospective basis, how did we do in Phase 1? When you look at kind of a postmortem of the first 500 lots, we had entered the market on that. We were a new builder, a new player. And so, our entry-level lot prices really were attractive, right? 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 those lots very competitively. This is an average lot cost about $73,000. When we make those investments on roads, curbs and gutters, we had a little bit higher reimbursables up front. So, it was about a $55,000 per lot reimbursable on that.

And then, there’s non-reimbursable. So, there’s improvements that you make that are on the lot themselves that you sell privately. That was about $28 million, I’m sorry, $28,000 per lot. And then, as you’ve seen, 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, total land values, we made about $110,000 per lot, and then the average tap fee at about $30,000. On average, in our first phase, we made about $140,000 per lot on that. You want to take a look at how that dissects out in the utility segments. This gives you an illustration of how our tap fees compare 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 pedal room for us on the tap fees. We want to be consistent with these tap fees. We want to be competitive with these tap fees. We look to our neighbors, City of Aurora, and being competitive with Aurora tap fees as well as the overall market. You can see tap fees are approaching $60,000 in 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. The takeaway from this is we’ve only developed 2% of the asset, so we’ve still got 98% of the asset to go off these 60,000 connections. Taking a look at kind of the land developments, we were at that original lot cost of about 73,000. And as we’ve worked through Phase 2, our lot pricing for Phase 2D is now about $125,000.

So, on a comparison basis on the same lot that we had on Phase 1 and the same lot that we had on Phase 2D, in that 4-year period, we’re seeing maybe as much as a 50% increase in that lot cost or in that lot price. So, how is 2D going to look? How is the delivery of this next phase of lots going to be looking compared to our first phase? Lot revenues are significantly higher. Reimbursables are consistent, a little bit inflationary up. The non-reversible components are going to be consistent. So the total land value in that is about $175,000 per lot. Tap fees have increased a bit, so it’s getting a little bit more margin on that. So, as opposed to $140,000, we’re looking at about $215,000. 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 mechanisms.

So, it’s a win-win both for us as well as for our homebuilder partners. Little bit on the single-family rentals. We’ve got about 200 of those planned. We’re building them, again, as I mentioned, with a 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 in it. And each unit contributes about $33,000 in recurring revenue per year. So, you’re going to see a strong acceleration of our recurring revenue associated with that. And we’re only 7% complete on what we’re planning on that. And so, when you look at this, when we’re looking at each of these individual components were really just getting started. We have 2% of our water asset in production 18% of our land development segment in business and 7% of our rentals.

And we’re really executing well on each of these. So, we’re very proud of these opportunities. If you look at that same comparison on how we look at things concurrently with year-over-year execution. We look at next year’s performance and then maybe what we’re looking at on the short-term. This will give you kind of a view of how those are going to translate into results. So, 2024, a record year, 2025, we’re 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 that’s going to translate into the company’s performance, we’re start with 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 period of time and very exciting results here, even more compelling. And so, doing the math, and this is kind of what the company has in its portfolio, doing the math on that short-term 2028, as well as the build-out of Sky Ranch. What does it look like when we build out Sky Ranch? I mean, what kind of opportunity does Sky Ranch present for us in terms of 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 5,000 single-family connections at Sky Ranch, we’ll move from where we’re at today at $2 million-$2.5 million in recurring revenue to $15 million dollars in recurring revenue, $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 a $100 million worth of the single family rental segment business, so, again, tremendous growth potential here. And then, how does that translate in terms of asset growth? When we build that system and when we add all those and the cash component to it, we move from where we’re at today at roughly $150 million asset growth almost to $700 million, almost three times our market cap, 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 that’s 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, very excited about how that’s going to roll out for us.

I want to talk a little bit about a couple of things that happened subsequent to our year end. One or two, I think you’re familiar with. We did have another refinancing of our 2019 bonds, and so, the big takeaway here is, in large measure, how we manage the community, how we’re delivering results in the community, 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 bumps here. And so, we are very proud of that, working with our thanking partner, DA Davidson, to take this out to the market segment. And what that enabled us to do is the initial 500 lots. We are able to deliver us another $10 million of proceeds to continue to pay down that reimbursable bond that are reimbursable on our balance sheet due to these bond activities.

Another subsequent event, we did have another land and water acquisition, and this really illustrates our disciplined approach to acquisitions. And so, this will kind of give you approximately we bought another 400 acres, which happens to be right next to where our farm and water acquisitions that we acquired back in 2018, and the interesting part of this is the red lines here illustrate where we developed our pipeline infrastructure to connect these wells, the two 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 just insignificant, which makes it for a great consolidation on that, not only we get the land, we got the water and very valuable mineral interest.

This is actually up in Wells County, which is where the bulk of the oil and gas activities are occurring. We have tremendous activity in the Southern Wattenberg Field. This is indeed the nameplate Wattenberg Field. So, happy with this acquisition, and really working with our neighboring landowners to make sure that as they take a look at transitioning in their family planning that we have an opportunity to get those calls. So, again, our preference is for more real estate land acquisitions 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, and our anxious level. But again, this is demonstrating how we look at continuing to grow the asset base.

Just a little bit on our stock repurchase, we continue to reinvest in ourselves through our repurchase program. And so, we are going to be continuing to be in the market on a progressive basis, as you can see on some of these forecasts and doing the math on this thing, illustrating at $9, $10, $12 a share is a bargain. And so, we think it’s a bargain. We are going to continue to buy those shares. We don’t want to compete with you, but we do appreciate the value of what we are building, and want to make sure that that’s another way that we can return shareholder value. So, with that, I’m going to turn it back to Ali, and see if we got any questions that we can drill down on.

Q&A Session

Operator: Thank you, sir. Ladies and gentlemen, at this time we will be conducting our question-and-answer session. [Operator Instructions] Our first question is coming from Elliot Knight with Knight Advisors. Your line is live.

Elliot Knight: Good morning, Mark.

Mark Harding: Morning, Elliot.

Elliot Knight: One of the growing water consumers are datacenters. And have you had any interest? I think then you have the largest undedicated water supply in the Denver Area, at least at one time I believe that was true. And so, I would think if datacenters are going to be built they might have come to you. Anything going on in that area, and if a datacenter was built, could it operate on non-potable water as opposed to potable water?

Mark Harding: So, a good question, I’m not sure about the latter part of that, on the non-potable water. I know the bulk of the water demand that they have is basically from the cooling side of it. And I think scaling would make an issue about — that’s a good question. I don’t know if it could operate independently of a potable versus a non-potable segment, but you’re right. There’s two critical components when you’re taking a look at a datacenter. One is energy and the second is water. And so, we have significant capacity in both of those. Sky Ranch has brought — build-out utilities there, both gas and electric. And then, we have build-out water there. And so, we have a commercial 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. And so, I’m not so sure that the real estate value is as important as the other two components of it. We have reached out to some folks that 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 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 dying for a large water customer, because I already have a large water customer in our industrial customers, right?

They pay that high dollar value because they’re not buying a tap. And they pay that high consumption rate. And I’m selling a ton of that excess capacity to oil and gas who’s paying for that. And so, whether I substitute a datacenter or add a datacenter into that component, love to have that. But I will tell you that we continue to grow our demand segment through the industrial sector as well.

Elliot Knight: Good. Thank you very much. And this has been a great presentation, very helpful looking forward.

Mark Harding: Thank you.

Elliot Knight: Thank you.

Operator: Thank you. Our next question is coming from Bill Miller, who is a Private Investor. Sir, your line is live.

Bill Miller: Mark, good morning.

Mark Harding: Good morning, Bill.

Bill Miller: Great quarter, great year. Outlook is terrific. And so, I’ll go to the old question. Because you say you’re repurchasing common stock, but when I look at the yearend ’23 versus yearend ’24, we have now more shares outstanding than we did in ’23. So, I’m not sure how to read that. But maybe you can reconcile it, particularly given the fact that your recurring revenue is going to be so high. Borrowing, not that you need to, would make great sense and borrow money from the bank, so I’m sure I’d be very willing to lend it to you and get going. This is ridiculous. Valuation is just way under what it should be. And you’ve outlined why it should be a great deal higher. So, why not —

Mark Harding: Fair question. Yes. No, no fair question. We do and my answer has not changed. 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 where it was important for us to be able to act on that. And we usually have to act on a very quick basis. So, that transaction came available and closed within say 75 days. And we want to make sure that we have that flexibility to do that, Bill. That doesn’t necessarily consume all of our balance sheet. But as we continue to deliver three phases at once, that’s a capital intensive program.

We are reinvesting and making sure that we can accelerate the development of Sky Ranch and maintain that inventory for our homebuilders. And the reason we’re so sought after from the homebuilder market is what our business model is. 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 to that money. And so, we want to make sure that we protect that as well. Do we want to leverage ourselves a little bit to kind of continue to go after a stock purchase program? We’re going to continue to go after it. We really are. We’re going to be acquiring that, not just through this phase of offers — excuse me, but continuing and you’re going to see that if that doesn’t translate, we’re going to be continuing to be more aggressive.

So, I know it’s like my wife, can’t you 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 in the program. So, those are very, very well-deserved observation and maybe well-deserved input on terms of going after a little bit more aggressively.

Bill Miller: But Mark, last year, your authorization was how many shares or how many dollars? And, how many shares or how many dollars did you actually buy last year ending in August?

Mark Harding:

— : We’re not quite there, but we’re looking to be there.

Bill Miller: So, what’s preventing you from doing it? I mean you made the first acquisition.

Mark Harding: No, it’s absolutely liquidity, Bill. We want to make sure that we maintain that liquidity for reinvesting in the business and delivering the top-line results that we did this last year. And I do not want to compromise that.

Bill Miller: I agree with you. Do you have a line of credit, Mark?

Mark Harding: Yes, we do.

Bill Miller: Okay. Well, isn’t that the source of liquidity if it comes down to making a big acquisition or doing something extraordinary?

Mark Harding: All those are opportunities, Bill. And I appreciate that. And my direction will be to continue to be aggressive but conservative.

Bill Miller: Okay. Well, I’m not going to win that argument. I haven’t won it for about 10 years. So, why would I think now would be the time? Well, I hope it all works out.

Operator: Thank you. Our next question is coming from John Rosenberg with Loughlin Water Partners. Sir, your line is live.

John Rosenberg: Yes, hi. Good morning, Mark.

Mark Harding: Good morning, John.

John Rosenberg: Well, thank you for the presentation. And I will say that my questions have, in large part, been answered by the prior people on the call, by the prior investors. I was going to ask you about datacenters. And as always, I wanted to talk about the share repurchase as well. I will not reiterate about the share repurchase. You don’t deserve that this morning. You’ve done a wonderful job. However, going back to the datacenter, and I have one more question after that. Have you guys actually — I realize that it’s a tremendous lift to actually build a datacenter. And that would not be something that the company nor its shareholders would really want to do. But I just would like to emphasize that there might be some opportunities for you.

You have the water. You have the land. You have open land. You have sunlight as well for a solar farm. And it might really pencil out for you guys as opposed to selling another hundred or so lots. I mean, I think these things generally take up anywhere from 10 to 30 acres, depending on their size. I don’t know if you have any thoughts on that, but I just wanted to add that.

Mark Harding: Yes. And so, a couple of the key areas for that — and you brought up a really good point, the renewable component. We do have 300 days of sunshine a year. And when you take a look at datacenter opportunities and space requirements and water requirements, it’s a good fit for a large land area. And we just happen to have a large land area in our service area. We have the Lowry Ranch, and that’s an opportunity perhaps for pursuing something in partnership with the states, where they can get leases on the renewable solar farms, they do have some solar farms on the Lowry Ranch out there. We certainly have a water system capable for that. And these don’t have a strong need for terrific access. So, putting them at a high real estate value next to the interstates isn’t exactly the best use of land for both the development as well as the datacenter, but having land, water, and power are the key attributes.

And so, those are some of the types of things that I think we would like to move along in the process. You are right; we are probably not going to be a partner with the development at the datacenter. That’s not our business model. But I certainly love to help facilitate something like that. And there is many ways that those can generate exciting opportunities both with the landowners as well as the service providers on that.

John Rosenberg: Okay, thank you. That is a thoughtful answer. My next question involves, you mentioned you are about two years out from redeveloping or enhancing your interchange with I70. And you have, I believe, a couple hundred residents right now at Sky Ranch. Do you think that any of the large, the big box stores like super market or large retailers, the commercial entities are waiting for that to go ahead and start the plug down and store on your property and serve the community?

Mark Harding: It certainly will continue to enhance the commercial value. We have about 700 residents out there. So, we are rapidly approaching. And I would love to say I knew what the magic number was for these retailers. They do share a bit of that. And I think that number continues to be around that 1,500 residents more. And so, — [multiple speakers]

John Rosenberg: I see. Thank you. That’s helpful.

Mark Harding: Yes. Having 700 living there, and having 700 lots under production give us a tremendous amount of confidence that by that short-term range, that three to five-year range that we are going to be seeing that commercial land coming to production.

John Rosenberg: Okay, great. Thank you. Well, thank you very much. I would just also like to add just for the record, in agreement with one of the prior followers, if you could get that share count down and talk about value, if we could see the share count going down, that actually would be a great signal for public buyers. So, I just wanted to add that.

Mark Harding: Yes, I get it.

John Rosenberg: Thank you very much, great quarter and very excited about your progress.

Mark Harding: One of things — and let me weigh in here, we have a great opportunity here having one of our Board members, Dan Kozlowski with us, and maybe it would be helpful for — he can maybe add a different perspective on kind of 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, and certainly give you an opportunity to address our shareholders.

Dan Kozlowski: Yes. Hello. My name is Dan Kozlowski. I served on the Board for four years now. I represent the largest shareholder, which is Plaisance Capital LP. So, they have invested with me in Pure Cycle through my firm. And it would be helpful I think, maybe to give my perspective. I had a front row seat to progress over the last four years. So, there’s a lot of things we can talk about, but usual perspective, I’ve known Mark for over 10 years now, a decade, I sat down with him in probably the 2013-14 timeframe, and he showed me the water portfolio, and he showed me really the brilliant purchase of land that he made in 2010-11 time period, and returns of that. It’s extraordinary. I still don’t think it’s well-appreciated, the competitive advantage we have with the low basis, but it was immediately obviously to me the share price is probably in the $3 range at the time, and progress great.

But over the last four years, five years, I sat in amazement in board meetings and conference calls that the share price has not tracked the underlying progress of the company, and we are a wholly different business than we were five years ago, but much stronger. I mean, we have gone from growing up from moving forward, putting in a child analogy from a toddler, to a teenager, to now an adult and we’re much more muscular than it was. And for whatever reason and there are reasons, market structure, passive, et cetera. It might have gotten in the way little bit of this, but overall, it’s shocking to me that the progress is now more appreciated. However, I think today’s numbers that we have put up, the 2024 year, is a point of inflexion from a Wall Street perspective, because we were high-end potential, and we have executed on a lot of that potential, proven out the business model, prove out the water utility mechanism for monetizing our massive water portfolio.

And as Mark pointed out, we are in the top of the second ending here. And yet, we put pretty good numbers. Our RLE is closer to 10%, which in isolation it’s not apples today, but you got to remember that’s on a very limited fraction of our asset base, that is, what I would call, active earning assets. So, there is a lot more to come. So, with that said, another factor that’s surprising is, I would argue that Pure Cycle’s asset base is one of the counterpoint, I mean, we are a small company, but one of the great inflation-protected assets out there, and with the bout of inflation that the country in the world has endured over the last four, five years, it doesn’t make any sense, given if you look at carefully at what we have, water most likely has appreciated, generally speaking, above the high rate of inflation.

The land values, Mark laid that out very nicely, 75K to 125K, land in Colorado and the I70 corridor is just getting started. So, that’s another surprising factor that the market has appreciated that even in a conservative view, this is heck of an asset to own from an environmental basis in an inflationary environment, which we maybe having for a while. We are in the better end of that. I think we are inflation-plus. So, those are few things that go through my mind. I’ll just touch on the buyback concept. Every once in a couple of years ago, not buying back shares, to buying some back, to this year we bought more back, we really appreciate, we love to see that share count over time begin to decline year-over-year. But we moved the needle a lot from an internal perspective of how to think about it.

But we need to be fair there in terms of, our number one goal, and I say, are, because I’m on the Board, was to put up the kind of numbers that we put up right here. That was the focus. The focus was to create value, generate value in the core business, and for a couple of years was COVID and then the rise in the interest rate environment, and some of these external income, external almost chaos in the market, right, we stayed focused on the business, and was kind of an internal marker, we said, well, let’s still keep the earnings power of our asset base in all progress we’ve made. And what we did pick up to buy back and it continues to grow each year. We are now at a point where a lot of things are back to the point that we are much more muscular than we were three or four years ago.

We’ve got recurring revenue starting to scale. Some of the things we highly, single-family rentals, for example, I mean, we have 14 homes, so that’s not in and of itself it seem small, but I think what a lot of investors like to see is something proven out that has a long runway that you can pour down. And the move from 14 to 140, you can pencil out, and it probably won’t stop there. There will be other opportunities. So, all of this conspires to what we think, position Pure Cycle for more recurring revenue, more opportunities, and it’s nothing lost in our partners, homebuilders who have done extraordinarily well, and Phase 1 project had to one of their most profitable projects in their portfolio during that time period. Everyone is doing business with us as we integrate for them.

And that’s something we are proud of, and yes, it’s helping us in negotiations going forward, there is people in the area who have watched us carefully, again, grow up from — and they’re starting to see that we’re here, we are open to business, we have the scarce resource that is needed for growth in Colorado in the I70 corridor, the water. And now we have development expertise that’s been proven and is generating returns, and I think we will increase returns going forward. So, that’s all about my perspective. But you can ask me questions too just how we think about the world. One of the things that people appreciate about Mark is, he maybe one of the foremost experts on water in the West, and certainly in Colorado. He has been at this for 30 years.

He knows every pipeline, every ditch, every inch of this geographic area. And he is out of the water value to the water portfolio. And if you look at our balance sheet, balance sheet by nature are convoluted in terms of — when you buy something, you keep it on the books with that, price, and then if you ever monetize it, of course you get market value for it. But when I look at the balance sheet, I see the water assets on there, a certain number, which is certainly low versus probably fair market, and even lands, we talked about. So, our balance sheet is much more muscular than it appears at first glance. And that’s a little bit of the point we are trying to get through, and at the end of the day, Mark and I talked, and what we talked with the Board is like, what, let’s put up the numbers, let’s put up record earnings in a quarter, in a year, and keep it going, and that’s why this is such a point of inflexion for our long-term shareholders like myself and others on the call.

So, yes, maybe Mark, as you think about, Sky Ranch is going well, how do you think about on development projects, if you compare your expectations in the first project, first phase, the returns, the cash flows versus what it would look like as you get in quarter two, you get to the midway point, you get to the back-half, how do those return metrics kind of play out in your view?

Mark Harding: Good question. As we entered the market for land development, we had not been in that space introducing ourselves, I would say, I’m fairly familiar with the water utility space, but as we enter the land development space, we wanted to partner with all the national homebuilders, right, we are really looking for a high caliber portfolio of homebuilders, and in doing that, the land was well-positioned in the quarter, being along the interstate was, we know that the land itself had 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 to the East, this has great transportation access, but could we execute, there was unknown from the Richmans, and the Taylor Morrison, and KB, and Pulte, and the big homebuilders, whether or not this isn’t an easy business.

It is, as you hear me talk about on protecting the liquidity, there is a higher velocity of money, and you’ve got to invest that money, you’ve got to get those roads in, you’ve got to get the utilities in, all that sort of stuff. And so, we wanted to make sure that they get well in that first space. In the lot pricing, 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. And not only are they doing well in the first phase, they’re doing well in the second phase. Us being able to deliver a finished lot, not forcing the homebuilders to have to put that investment in there is a tremendous value for the company.

We are dying greed in that just because of the velocity of the money and how that capital flows. And so, I hear the opportunity for us to continue to reinvest and the share purchase, and what we are really looking for is making sure that the market understands that opportunity on the annual revenue and converting those lots, converting those taps, converting those single-family homes into productive assets for shareholder returns. So, there is multiple shots on goal here, where we are really looking to partner with all of the high performers in this industry to deliver those results. So, that’s how we look at it.

Dan Kozlowski: Yes. And I think on that too is, from my perspective, when you start there is other successful projects in our area, but we were some of the pioneers and had to be careful as you’re moving East and proving out the — by the speed limit we are only 60 miles from downtown and so at 60 miles an hour, you are there in 16 minutes. We are key in developing the I70 corridor, and you see it just to left of us here, the big industrial players of today, Amazon warehouses et cetera, the logistical at the center or Denver has shipped from I25 to I70 to really E4 70 and I70. And we are right there. And as job growth, we talked about Anschutz Medical Facility, one of the lead medical facilities in the world is really close to us.

DIA, which Denver International Airport, which is the largest fastest-growing airport maybe in the world, certainly the top three, it’s huge, it’s the fourth largest in the United States, Home for United, Home for Southwest, that’s four miles away from us. So, the logistical epicenter, i.e. job growth is right next to us. And again, we are still pretty close to downtown. So, from a timely perspective, Denver congestion from the south and the north is quite large now, and from our area it’s closer than it looks. So, yes, so I think there is — as you get to the back-half, my question was around, did you see — we develop, that we get Phase 1 done, we have to entice builders to come in, they have huge margins on it, and they’re happy partners.

As we move to Phase 2, Phase 3, now it’s a collective effort, and we have proven out to community, there’s been a lot of small things that don’t come up in our press release or conference call, the building of a school, very efficient, building of the school on site. So, the newer school in the area is the Sky Ranch Academy. That was something Mark really did an expert job of bringing that together, and narrowly costing us much capital, and it’s probably the single greatest value-add to the communities is having a school, just to walk with their backpacks to their facility. So, this is the reason why the lots are so much more valuable in Phase 2 and Phase 3, than they were in Phase 1. And the cash flows, once you get up and then you begin to monetize it.

And I think this is again, inflexion, you are starting to see the monetization as the project matures pound-for-pound is quite attractive. Critical mass is kind of where I like. I think we are hitting that critical mass at Sky Ranch in a lot of different ways, integrating a lot of portfolio. And expertise, Mark, can you talk a little about — I think it’s underappreciated, what you bring to the table and then how you have added value to the water portfolio, and certainly since inception, but more recently, last five years. You do a look-back, years ago; I think the overall water rights portfolio was smaller. It’s bigger now, it’s grown materially. Maybe you can update us on those. You’ve made some very strategic, again, small — it’s small from the sense of people on the outside looking at it but very — it’s small but very powerful acquisitions up in Weld County that have increased the overall value of the water portfolio on the blended portfolio.

Can you talk a little bit about how that, your perspective, what you’re proud of, and how the future might look in the water acquisition front?

Mark Harding: So, big question, and this — you’re right, we continue to build that water portfolio and really leverage our ability to develop water supplies in all areas. And water isn’t just single-dimensional, not all water is treated the same. You have renewable water components, which are surface water supplies. And Colorado is blessed to have Mother Nature store our water for us for six months of the year. 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 that are hard to get your arms around and appreciate without being so in-depth into water are storage; our ability to store water at Lowry. And we have literally maybe 30,000-acre feet of water storage right side of Lowry in 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 Plains, it’s flat. You don’t have a lot of relief out there. And we do we have some fortunate sites that have relief on the Lowry Ranch, that we have 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 up in County. And again, it’s another renewable surface water component that is available when there’s a lot of water in a wet year, but there’s 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 understand the importance of that and plan for being able to use all your supplies, renewable water supplies, ground water supplies.

And then most importantly, and this is something that we’re very proud of is how we manage our waste water and our reuse supplies, where we’re bringing and where we built one of the leading water reclamation facilities in the country, it’s probably one of five facilities in the country that has a zero-discharge water reclamation, so 100%. 100% of what goes into that plant comes back out as usable water supply. 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 times. And so, when you look at it, it’s hard to get that sense of value that we’re creating in it. But by the same token, we’re doing cutting-edge stuff on the water utilities side, between domination of our ground water supplies, our surface water supplies or storage supplies, and our reuse supplies; we’re building that water utility in probably one of the most advanced ways that water utilities take a look at.

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 to capitalize on some of these things. And so, only being at 2% of that asset is frustrating. We will continue to see some acceleration of that, but those are going to continue to pay dividends in perpetuity. The thing that’s most exciting that I often refer to about the water business is, in 100 years we’re going to be doing the same thing that we’re doing with this asset, right? It’s an absolute essential asset for our daily lives, and in the business community, and in the primary businesses that we focus on, whether that’s land development, whether that’s single-family rental, it’s a component that won’t be [obsoletted] (ph), it won’t be as style, it won’t — that the technology will innovate it.

So, we continue to look at that dividend opportunity and continue to look at the opportunity to develop this asset for century. So, that’s an exciting component of it, and we’ll continue to make those investments concurrent with growing that system.

Dan Kozlowski: Yes. I mean to add to that, I think the water in the West, general storage, in some ways, it’s — the whole world had cheap water. Two-third of the earth or more is water. So, there’s water, but the cheap water that was available for the last century, that’s kind of gone. There’s no more cheap water. And by cheap water, which mean like market price of water today versus where it could go and it needs to go higher. So, you’ve got a fixed supply in the West, and you’ve got growing demand. People are moving to the whole mountain region. Denver is the capital of the mountain region, and it’s a growing city that’s going to be a monster of a municipality in the decades to come, EIA and shoots. I mean it has all of the key attributes.

But the gating factor to growth, residential for affordable housing, entry-level new build, it’s water, and we have it. And so, it’s coming. And it’s — and you can see it’s coming. You see the numbers we put up this. It’s not just out there somewhere. We just showed you, it’s here. The demand for our lots is high and the single-family rental business can grow forever alongside that. So, we have opportunities. Two other things just to touch on there, the conservation efforts that Pure Cycle has employed for the public good, for the good of this whole water shortage that the state is grappling with, the region is grappling with. We — Mark has done some really interesting things to 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. So, we’re a high-quality water provider and then we’ve got the deep reservoir of inventory of water rights and wet water building. 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. Historically, people have held land, land speculators, maybe east of Denver. How does that look and feel to you in terms of people’s carrying cost to hold that land? And has that — obviously, it’s more costly for someone to hold land when the opportunity costs are 7%, 8%, 9%, 10%, 11% in some different types of fixed income. Has that shaken loose or changed the attitude of some of the folks that might want to be more interested in selling land or co-developing or moving quicker given the higher interest rates.

There’s obviously higher interest rates obviously have a — or should, in theory, have somewhat of a mitigant effect on mortgage rates, et cetera. But another powerful part is that the opportunities in front of us should increase here as those carrying costs have risen considerably for our neighbors.

Mark Harding: I think that’s true. It’s hard to gauge motivations by each individual seller and some of the attractive portions of where we’re at in the Denver metropolitan area, whether that’s the I-70 corridor or specifically in Arapahoe County. There’s some large land assemblages. And some of that — some of those land assemblages have been held by homestead families. And so, each year ticks along and it gets older, the family patriots get older, 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 capital that we keep on our balance sheet is really so that we can be very strategic, disciplined and opportunistic.

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 and that we can incentivize some of those folks by being a good buyer, being a ready buyer.

Dan Kozlowski: Okay. Yes. So, as I think about this, just to close on my end, I cut my teeth 25 years ago in the business and Janus Capital the time we were one of the largest shareholders of Berkshire Hathaway. And so, Kim and Doc and Warren Buffett thought thinking about investing. And to me, this is just a classic old school, not sort of modern algo-driven, passive-driven deal, but a true investment where there’s scarce supply, there’s obviously scaling demand of the scarce asset that we own, water. And time is our friend here and speaking back to the inflationary protection plus. And it’s really interesting. And we’re creating value now on the income statement, as you saw in ’24, you saw this quarter, you’ll see it in ’25 and beyond, as Mark laid out.

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 that the value of our water portfolio, which Mark continues to curate and scale is probably appreciating at a much greater rate than inflation. And that will lead to future monetizations, of course. But it’s pretty real, in my view, having had a box seat to this for five years and been involved for 10. So, I think just to close, one of the best lines I’ve heard on Pure Cycle is that Pure Cycle is water looking for land, development, co-development opportunities and the water is a solution for a lot of — whether it be municipalities or again, neighbors of ours who are looking to create value.

And so, we’re water looking for land. And most of our peers are — who have land or land in need of water. And that’s a good setup. That’s a good setup. So, we hope to continue to be a positive force in helping Colorado grow, doing responsible things with our water and creating value and helping Colorado with their affordability constructs and challenges. We’re the best new build entry-level housing development and housing development company in the area, and that should be coming our way. So, that’s — I’ll close on that, and maybe I’ll add one more thing. You’re right about it. And these numbers, as we’ve put forth are going to happen, the share buyback becomes increasingly attractive. I think it speaks to how many attractive opportunities that we are considering going forward, our patience.

But don’t take that past patience for anything other than we wanted to show the numbers and show the power of the business model that we — Mark manages with his team and the Board, our Chairman, Patrick Beirne, does an extraordinary job leading the Board. And all in, we — it’s not lost on us that the value disconnects, so, stay tuned and more to come.

Mark Harding: Thanks, Dan. And again, really appreciate the strength and the caliber of our Board and their engagement with the company. They bring a tremendous value to the company, and we’re the beneficiary of that. So, while we’re probably running long on our call, we’re going to go ahead and wrap this up. If you didn’t get a chance to weigh in on this thing or you’re hearing about — listening to this on a rebroadcast or replay and have something that piqued your interest or 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 diligence on it, come out and see us. It shows much better than it presents. And so, 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 and why everybody wants to move out to Sky Ranch.

So, anyway, I want to thank you all. Again, we are very proud of this year, of the continuing development of the assets that we have, and we are 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.

Operator: Thank you. This does conclude today’s conference. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.

Mark Harding: Thank you, Ali.