Pure Cycle Corporation Stock

Yes. I'm Mark Harding, and I'd like to welcome you all. What we try and do each year is give an opportunity for folks to come out and kick the tires and then it's getting harder and harder to get out and sort of visit companies and with technology, what it is today and our ability to kind of show visually it through earnings presentations and investor presentations and whatnot, the actual company visit is sort of waning.

But what I always like really is the opportunity to show it because when we describe it, when we report it on the balance sheet, you get a picture of it. But when you actually come out and have an opportunity to see what's going on, on the development side, what's going on, on the water utility side, a perspective of the growth of the Denver area and some of what we still continue to be the value -- our secret value, which is our service area, Lowry and those sorts of things, it does give you a different perspective. And as much as we try and describe that perspective, seeing it, driving it, getting that actual imagery is truly valuable.

And I know a lot of you either on the call or who listen us on the replay have had that opportunity to see it. But one of the things that we did this year that we wanted to concentrate a little bit different on just because there's a lot to see is taking a look at our service area, taking a look at where our water originate, what's going on, on the borders of the property, what's going on, on the property.

And what we were able to see today is a pretty sizable amount of oil and gas activity. We saw a pad site that had 10 or so wells that had just finished fracking. We see them rigging up on another pad site because they're going to be fracking that probably starting next week. We see a pad site being developed, a pad site being graded out where they're going to bring a rig to. We saw a pad site where the rig was. So they're drilling that, and that one will start to frac probably -- these fracs last around 2 months.

And so I think there'll be a little bit of overlap between -- because there are 2 different operators. We got one operator, SM, which is fracking the one starting next week. And then we got GMT, which is drilling and they're doing the other pad site. And so we've got really kind of 2 operators on Lowry. SM has the dominant position out there. So GMT is kind of backfilling in with their position. But it gives you a perspective of kind of the oil and gas industrial side of it, which is fairly robust. And it's been a while since I've talked about it being robust. And I always -- I always temper my remarks because as soon as I say that, then they end up saying, "Oh, yes, we finished that pad site, but we're going to move on to another one before we do this one." And they're not always as predictable as both we would like, and I'm sure you would like to give you guys some certainty as to how the cash flows are going to come in.

And then take a look at some of the development that is pressuring this particular area. And you've heard me talk in the past how Denver kind of lives on a notion where we can't grow west and we just can't. And really, the focus of the metropolitan area has been to grow east and even growing east, one of the things that shows as you drive it is boy, there's a lot more barriers to where growth can occur than you might think. When you take a look at the south side of our service area, a lot of land, but it's all chunked up, right? There's 5-acre lots and there's thousands of 5-acre lots that make it absolutely impractical for any real substantive growth to occur on the south side of Lowry.

When you take a look at sort of the north side of Lowry and what's going on with some landfills and open space areas, there's a real gap there. And it really shows you kind of positioning of the metropolitan area and how much growth has occurred in the metropolitan area over the last 30 years. And then we're -- take that tour of Sky Ranch, show you the various phases of how they come online, how builders actually stage their production, how they're going to take down lots, how they're going to build their inventory, how they sell their inventory and how we phase that, and giving them various components of that inventory cycle so that they're building what they have for the next year. We're building what they're going to want in the next year. We're planning what they're going to want in the third year.

And so a lot of our activities aren't as much about what's going on today. Somebody often wants to know, well, how's business today? And I'm not the right guy to ask that. My filter isn't how business is today. Marc the right guy, our CFO, Marc easily is the right person to ask on how business goes today. But 100% of my focus is how is business going to be in 18 months? How is business going to be in 36 months? And what do I need to be doing such that we are going from what our team is doing today to what our customers are going to want in 18 months to where I need to be preparing for the next phase in sort of that 36-month cycle.

And it shows like that, right? I mean when you go out and see it, you sort of say, that makes sense now. I wouldn't have otherwise appreciated that, that is what you're working on, not for today. Those lots are going to be available summer next year. And then you see, oh, I see that. That's what you're going to work to do for 2028 and then some of that other stuff.

And then also, what are some of those what are some of those variables that we look to try and either do to develop, to acquire, to partner with on other land opportunities and how do those position themselves in the metropolitan area and where is growth in those areas. So that was what the [indiscernible] was today. And I think we focused probably 60% on non-Sky Ranch stuff and maybe a little bit and whatever that little bit was, was pretty quick on what's actually occurring on Sky Ranch that gives us the world of how cash flows are going to be as we roll into year-end, how cash flows are going to be in fiscal 2027. And so we saw a bunch of that.

But we really don't have a strong agenda item here today. I'm going to put our 2 guests here who were -- we had a couple of folks that canceled on us on a last-minute basis. But Dan Aronson out of Minneapolis, he's a long-term holder. He's been on the tour several times. JB, kind of new first-time tour, knows the story pretty well and maybe give them a couple of sentences about what you saw, what you didn't like, what you liked.

Thanks, Mark. A couple of comments on -- and for those of you who have taken a tour in the past, I was originally out here when the phase -- the first phase was being developed and you see a water treatment facility in -- there's a lot of open land around. But Sky Ranch over the years, it's really starting to develop and become a substantial community.

The opening of the high school, seeing that what was open land a year or 2 ago with a full -- not just the high school, but fields behind it and where you've got Phase 2E and the grading work being done adjacent to that, you can see where the commercial takes place and how it's all filling in.

And on the -- just the -- as you mentioned, to be able to go out and see where development stops, where the development is right on the edge of Pure Cycle service territory, it's the natural extension. And I'll just echo you. I mean, I've been out here before and you see, okay, well, there's one rig here. There's some pads that might be drilled. It's pretty extensive, the amount of industrial development in the oil and gas industry, and that's being phased in. So...

Yes. What stood out to me the most was certainly seeing how as Denver expands powered that you are the very next stop for further development over by Lowry. And yes, previously, we had sort of underwritten it as nice to have the upside optionality, and we'll see if it ever happens, but certainly felt like a much more concrete opportunity. So that was most useful. And also the commercial area over at Sky Ranch, the compelling location of that and both for the surrounding areas as well as how it fits so nicely for the broader community there. That was the second thing.

Let me ride on that a little bit because I know there's always -- I've always foreshadowed that commercial and upgrading that interchange is important for a lot of that big users that are going to look like that. And the interesting thing is we kind of have a lock on that for a while. When we build that interchange, there's not a lot of competing land that's going to benefit from that.

When you build something at the highway, both north and south components benefit from that. But in our particular case, that's not going to be true because there's the railroad, which in terms of entities that are challenging to deal with, I mean, it starts out as railroads, federal government and then local government.

I mean -- and so somebody else has to build that infrastructure over that before those lands come into play. But the commercial off the interstate sort of stuff is going to be ours for a while. And so that does give us a nice value proposition. The people that we get engaged both a commercial and a retail broker, commercial, industrial and retail brokers to really get out there and represent us in that. That's not something that -- that's a different business, right? It's not something that we can do in-house. We -- that's not -- those folks just don't do with the landowner. They deal with the institutional people and they look at it on a national scale.

And these guys are competing multistate for particular projects. And we've got a lot of feedback from them in the few months that they've been engaged about the competitiveness of our particular property, the interchange access to it, the interstate frontage of it and where there's just not a lot of competing opportunities for the same types of uses that we would have on our particular site.

So just a quick update on some of that interchange type activity. We continue to work on that permitting process. We're the applicant with CDOT, with the county, which is our jurisdiction. And so we should be in a position of getting that CDOT's approval on all of those agreements by the end of the year. That's our pathway on that.

We go from a 30% design up to the full design, which will take us maybe 4 or 5 months because it's not anything new other than the hard part is the first 30%. Now that the 80% is the bid docs as to what type of concrete you using and how much rebar you're using, all those sorts of things, important things, but I think that, that's a fairly streamlined process so that we can get to a design where we can send that out to bid.

We go to bid with that at the same time, we're going to go look to the bond market and hope to be in a position of issuing those bonds for the construction of that sometime in the fall of next year and then let that construction -- I always think it goes -- should go faster than it does. So I think it should take 6 months. They'll probably tell me it takes a year, but it's in that range.

And the nice thing about that is then that really does open up a lot of those commercial users because it's going to take them a little bit. They're going to want to plant the flag. They want to get the land. They want to get -- we have it zoned, but they need specific use, building permits, those sorts of things. And that might take them that 6 months, 6- to 9-month time window. And everything should -- in a perfect world, everything should time itself out correctly by the time it's opened, and you got a bunch of people that are breaking ground on that commercial component.

The value for us in that is -- and I've described this as you'll see Sky Ranch continue to build out. And we've got, call it, 1,000 homes occupied. We probably got up to 1,500 homes that are sold or under contract with homebuilders. And so those will continue to build out. And we continue to produce that out somewhere between 250 and 350 units a year. And maybe we dial it down to 200 in a slow year, we dial it up to 350 in a robust year to kind of work on being a just-in-time lot delivery customer for our homebuilders.

And that will generate that $20 million to $30 million a year in revenue to the company. And then that will continue to go for the next 7 years. But the stack here is once that commercial comes online, that's going to be a similar absorption where we've got roughly 1,600, 1,800 lot tap equivalencies in the commercial component that will be additive to it.

So it's -- I'd love to say that this linearly would grow on that scale, but it likely is a step growth, right? We'll see a function where that commercial will be layering on top of the residential. And it will have its own little bell curve. We'll start out with a few transactions and then it will grow up to a bunch of transactions and then it will tail off at maturity. So you'll see a lot of that type of activity on a stacking basis.

And then whether it's that we provide water to another surrounding development, whether we have an acquisition on some of the surrounding vacant land out there, whether some of the stuff starts to break free on the state landlord properties, all that becomes additive to those 2 stacks. And so that's how this scales over time is that you have those step function scales that don't wait it for us to tell everybody, "Oh, you know what, we're going to absorb the next 3,000 units in 3 years, not 6 years or not 9 years." It's going to absorb, and we're going to go as fast as the market will take it. But what we do have is kind of a layering of monetization of the various components of what we have. So that kind of really is some of the interesting things that we would facilitate that.

So what we can do is we'll unmute everybody at the same time. If you've got something in background on yours, you can mute your own mics on that, but we'll just open it up and see if anybody -- this is kind of a fireside chat. If you have any questions, just go ahead and hauler out. If you had any follow-up from our earnings call last week, happy to color into some of that stuff as well. So just turn it over to the team here.

We're waiting for somebody. Mark, can you comment on -- for Sky Ranch specifically, on the -- on your customers, our customers, the homebuilders, the competitiveness of the product at Sky Ranch versus other developments that they're working on within the Denver metropolitan area. And I ask that in the sense that my impression is that the consumer, the homebuyer can buy a similar or the same product at Sky Ranch for less than they can at another development. I'm just sort of curious as to if you have a thought as to -- or observation as to how the developers, the builders look at Sky Ranch versus their other developments in the area.

Good question. And I would say that, that is true. I mean, homebuilders, they really -- each builder will segment themselves into a particular phase of the market and their product is almost the same across multiple price ranges and the location might vary one way or another. Lot sizes might vary one way or another.

And one of the big advantages that I think we have at Sky Ranch in a county that we really haven't talked about that the builders love is setback requirements, right? So in a lot of jurisdictions, the setback requirements are 10 feet. from property such that you get a 20-foot setback between homes, which means you've got to have a bigger lot.

In Arapahoe County, we have a 5-foot setback requirement. So we have the ability to be closer to lot line to lot line development in Arapahoe County. What that means is it's a smaller lot, which means it's a smaller cost for the real estate for the homebuilder on that basis. And so it was -- it used to be an impediment to be closer to your neighbors. And I think that's kind of blurred away through the marketplace because what they're looking for is to max out the square feet.

And what they want is, can I hit that same house on a smaller lot at a lower price, because if there are 4 walls, if they get 2,800 square feet and they have 10 feet of yard versus 5 feet of yard, they don't really look at the yard. They're looking at the 2,800 square feet. And that's what their buying mentality looks for. And so that's one of the big advantages that we have being in the jurisdiction that we have. So setback requirements are shorter and smaller.

And then even then, we can get even variances beyond the 5-foot setback as long as we get fire-rated walls, it would be like you'd be a paired product that has a fire rated, whatever the hour rated of the fire the building material is between that. And so there's ways for us to be even closer on that where some of the homebuilders are looking and saying, geez, I'd really like to try this product, and it's very innovative because what they're doing is they're getting an active side, which is going to be the open part. They might have a patio front door and a passive side, which would be nothing but wall. And the 2 passive sides are going to be closer together, but the 2 active sides, so you can imagine almost like a duplex that's got just a small area in between it, but they're detached houses.

And again, it's a price point stuff. It's affordability stuff. And it's our ability to work with them on that product innovation, and we can deliver much more flexibility than any of the other jurisdictions. Our other jurisdictions is primarily City of Aurora, and they just don't allow that. And so it gives us a bit of perspective on bigger house, same size house, smaller lot, much, much cheaper, and that's a big deal for them.

A good question. I mean we never really get to talk about the innovation of the actual home product that we are able to do and the homebuilders -- and this is a double-edged sword because when they start to hear it, they're like, "Oh my God, we want to do this, and we want to do that." And I'm like, "Oh my gosh, I can give you some of that." But if you want all of that, then it becomes your product specific.

And now I'm like, okay, I need you before I go out there and get all that. I need you to be there, making sure that they're there if we're getting that type of product. Yes, it can be crossing over to other builders if we got that setback variance, and we know we can do that. But when we start to go at the design stage, they get very interested and just like every pretty bureau to tell you they're going to be there. I want to go after dinner.

Anybody on the call, we've got a good attendance here. So...

Mark, this is -- I don't know if you can hear me.

Yes, we can.

Okay. Great. This is Vishal from Bard Associates. If you look back like last 10 years, I'm sure a few things did not go per your expectations and a few things sort of went ahead. But if you can talk about that, the highlights and the low lights and do you -- and also like do you think where the development and everything is where you thought you would be here? Or is it a bit slower because of the setbacks or it's faster because of the things which happened?

Great. So I'm going to -- good question. What's the last -- since we started, say, we've been in Sky Ranch for 6 years. And you say, okay, what went well? What were the tailwinds? What were the headwinds? The tailwinds were we were a breakout, right? We were the next part of the Denver Metro area. And you don't know. You don't know how that's going to go, right?

And so when we first broke ground on this thing, we had 3 national homebuilders. We had Richmond, we had KB and we had Taylor Morrison. And we were starting out with 500 lots, and they all said, okay, I just want -- I want 30 lots. And you sort of say, okay, I'm breaking ground here, and I've got a lot of off-site infrastructure and you all want to commit to 100 lots, and I've got 500 lots here, and I got to build the infrastructure for 500 lots.

And so that took a little bit of -- that took -- you're pulling your pants on something like that, getting started on that. We do it, we get it going. And they open up and they said, okay, not 100 lots. I want all 500 lots, and I want it tomorrow. And so that was a big surprise for us, right? And that was entirely driven by the price segmentation, right? They drop in, they were able -- they knew what the footprints were. They didn't know -- they knew what they could price their models out, but they didn't know if people were going to come to the next level of development, right? It was the next step out in the metropolitan area.

And what they found was holy crap, everybody wants [ Bronx ]. And so that's how it started. And then all of a sudden, COVID, right? And nobody knew what to do for COVID. So we fortunately had their full commitments on that. And there was this giant hush that went through the marketplace on the sales side because nobody could get out of the house to buy a house.

And then it sort of settled down after about 3, 4 months, and it was just another gold rush. Everybody is like, okay, not only am I looking for price, but I'm now getting out of challenge. I don't want to be in an urbanized area. And everybody that might have been in a higher density development now wanted, I can't get on the elevator. I'm never going to get on another elevator again. And so they were actually -- you had this flight to the suburban model. And because technology started to really ratchet into it, people didn't need to live downtown. They didn't need to live where they were going to commute every day to an office.

And so that then you had an unusual cycle and then a little bit of an acceleration, right? There was a bunch of stuff that people were wanting to do. And I would say that took us from, say, 2022 to 2024 as fast as you can build more, more, more. And I was just like, well, I know I can hear you. But I'm willing to do that, but here's the dollars. And here's the -- and they're like, well, no, just more, we'll get there. And I'm like, no, we're going to get there before we do that.

And so you try and take it on a disciplined approach. I could have delivered more if I speculated more in '23. right? And then '24 still looked great. So we dialed it up a little bit in '24. Everybody was there. They said, yes, yes, yes. We want more. We want more lots. And then '25 started to come in and then the new administration came in and things got a little wonky and they're like, well, about that next phase. I'm not so sure. And I'm like, well, we're already under contract. Well, yes, but my inventory is not rolling as fast. And what we were able to do on that side of it that, again, taking lemons and making lemonade out of it is when some people started to slow down, we had some bridesmaids sitting on the sidelines saying, "Hey, if anybody isn't interested in moving forward, your price point works." That's what we want.

And so instead of having 4 builders, now we have 7 builders. And we're still not trying to deliver more than what they want in their annual inventories, right? Everybody would prefer to say, I'm going to buy the lot when I sell the house. And they say, well, I'll let you do that if you can make me younger, right? That's just a real hard timing. But what we're doing for our customers is as close to that as anyone can do, right? We don't chunk off more than they want to take down, and we're creating this rolling inventory on a master plan.

And so what's happened over the last, say, 5 or 6 years are a few headwinds, a few unpredictables, but what we've really done is established the mark in it. And growth in the Denver area has gone to us. In some areas, it's gone past us. And so we're not what I would still call infill, but we're also not the breakout community. And so we went by a couple of breakout communities on the 2.

And you sort of look at it and say, okay, they're grading a lot of lots, hoping that the market is going to be there. And I think -- personally, I think they're over their skis on what they've got, but that's okay. They'll have a little bit of inventory. Some builders will come in there and do that. But what we try to do is not be over our skis, and we try and not trying to have to catch up on that demand. And so there's a delicate balance there.

What's it going to look like on the next 3, 4 years? It's going to be -- we're going to be disciplined enough to do it on the same scale as our builders. And now with all the infrastructure in, we got all the backbone roads in and a major off-site infrastructure in such that if somebody comes in and says, okay, for those 2028 deliveries, I don't want 30 lots, I want 90 lots. That's something we can dial up and dial down into now having the backbone infrastructure.

It was a little chunky on the front end when we wanted to do -- we had the backbone that would have supported it at 500 units, and they only wanted 100 units, and it worked out well for us. I'd say that's luck rather than skill. But now it's going to be just be -- just be in that just-in-time basis. And if the demand picks up, maybe our pricing picks up in a way that helps support that, I think they'd be comfortable paying that price.

The homebuilders themselves have tried to get as close as they can to not close on those lots. And to the extent that they are, they're closing with land banking it, which it's not -- that's the creation of the affordability challenge because then you've got double-digit interest costs on a land bank and they've got $2 billion on the balance sheet that they're earning 3.5% on it. And so that's just a weird dynamic on the homebuilding company, but that's kind of the preference on their IRR versus gross margin.

But I don't know if that -- if that gave you enough color on that.

Yes. No, that's great.

I'll jump in. This is Darren with [indiscernible]. You mentioned volume output you expect to remain around 200 to 250 lots per year, but also the number of builders have grown from 3 at the start to 7 now. And so that implies less lots per builder. If you could kind of provide some color on that, is that macro related, Denver specific, Sky Ranch specific? Why do you expect less lots per builder moving forward?

So builders will be very predictable. They're going to want less lots when the market is slow and more lots when the market is hot. And they just only want to pay for the lots that are when the market is slow, but they want us to build lots for when the market picks up. And so that's where we kind of temper that out is to say, okay, fine. We'll have -- we'll inventory, maybe some of the grading costs on that and then before we move because we like to flow fund our land development deals where we really get them 1/3, 1/3, 1/3, where the first 1/3, they get the plat, they get the physical title to the land, and they think 1/3 of the total lot cost in that payment.

And then I take that 1/3 and I use that to do off-sites, grading and wet utilities. And then they pay me the next 1/3 so that I can use that money to do the paving roads and gutters and then I eat last. And so when things are good, they're happy to pay that second 1/3 in the first 1/3 just to make sure that that's there. When things are bad, they're like, okay, can you take that first 1/3 and then I'll pay you that second 1/3 after you got the lots graded. And we don't want to get overextended on that.

So I can dial that up from when we started this, they were at 30 lots per builder per year. In 2023, 2024, they were moving up to 60, 70 lots per builder per year. And then they dial back down in 2025 to say I'd rather be at 30. And then I'm still -- I still have that 250 lots. And if they all want 30, then that's 7 as opposed to 4. And so that's that flex in and out.

But what happens is if I'm only developing 250 lots at a time and they move back up from 30, 40 to 70, 80, then those that come in first, get that the lots that are going to be finished. And so it may be that you see it dial back down to 4 builders if the market gets hot and then we'll dial back up and for the 4 builders and then the 7 builders that come in and then the market will swing back down. And so it's in that -- if you see a cycle there, we want to draw that linear line right through the middle of that cycle and have us have a little bit of inventory, have them have a little bit of inventory. So it's that right balance.

Awesome. Can I ask a follow-up question on the actual composition of those because you guys got critical mass now in Sky Ranch. You've got a number of SFRs. You're going to build up in the next few months will be upwards to close to about 70. And I know you've commented on the previous calls, change regulations, be a little bit of a pause here and cut back from the initial about 100 that you were looking at doing. Aside from Sky Ranch, do we know those who are buying what is the owner-occupied percentage within Sky Ranch versus those who rent out units. Obviously, the company rents, but are there private owners that are renting out units as well?

Yes, that's a great question. I'm going to punch that over to Deb. Deb Saya, she runs the SFR segment for us.

So the last time we looked at that, about 4 weeks old, the data I'm spinning out at you. There were 62 rentals in Sky Ranch that was as ours were being built. So there were 30 above our numbers, which went down. There were 50 when we looked about a year ago, was it a year ago, the last Board meeting -- Annual Board meeting, yes.

Right. And so I mean -- and those are going to be mom-and-pop dentists buying a rental unit, and it's sort of 1s and 2s or somebody that got relocated and they wanted to -- or they had a family change and needed a bigger house, smaller house either way to keep the house, those types of...

But it's a minor -- almost everything that's being sold is owner...

Yes, predominantly.

It helps with the understanding a little bit of the characteristics, not being part of the community, understanding part of the characteristics of the community.

Yes. And Deb, you might comment. I know a lot of the folks that are -- so we have a couple of value propositions on it. When we were first getting going on it, you had somebody coming in that got relocated over to Buckley, Air Force Base, right? And Deb comes in and say, "Hey, I got this guy, and he's asking about a military discount." And I'm like, okay, sure. We'll give them a military discount. The guy wants to put up a card and said, "Hey, anybody that wants to Sky Ranch is your place." And so unbelievable amount of military relocates come and live in Sky Ranch. I doubt it because we gave them a military discount, maybe. And it was just thank you for your service discount.

But oh my gosh, we're 5 minutes away -- 10 minutes away from Buckley. So we got a lot of folks, and that's a transient high-caliber renter and they're always probably going to rent as opposed to buy just because they're mobile and we get a lot of people that come here that are coming here for the school, specifically, either they were out of district commuting into it and renting out of district and then parents are like, oh my god, why am I renting this house 30 minutes from the school when I could rent a house and be 2 minutes from the school. So we get a lot of that action as people are really the value of the school, the value. I can't tell you the opportunity of having a K-12 campus right on walkable distance for all your kidos is super valuable in the community.

The school brings in grandparents as well, large number on the for sale side as well as just from being at the school. And the other big draw is DIA. So we have a lot of DIA staff members. Same thing kind of happened with an airline pilot, posted it on their like company chat and we get calls. Mark is right, the first military guy actually stuck our information on the bulletin board. And then as it progressed, the wides got us on the Facebook page and all of that. So we do have -- that's probably the largest population of tenants that we have.

And the SFR segment as a whole, we've had a lot of discussion at the Board level and really looking to make sure that we understand that segment. We get good -- we need to know what the rate of return is on that particular segment. We stood it up. I think we did a good job standing it up. We operate it in-house. Deb does a fabulous job of making sure they're leased. They are -- we're delivering units months ahead, and she's got them rented before -- I mean, this is a weird dynamic and good -- great for people to look ahead of that.

But when I was renting a house, it was, okay, we need to move on the weekend, go find a place to live. And that's what it was just-in-time sort of deal, and that doesn't seem to be the case. We get these things leased far ahead of them being completed and have just a solid occupancy record here. And the basis of it really is tax advantage because we're holding a lot of that equity between the lot, the tap and what's going on in that, which doesn't show on the balance sheet.

So when you start to look at the optics of it, is that a great segment or not? We think it is. But we also need to make sure it is. We need to report back to the shareholders to say, here's what we now know this segment to return. And if it's not, then we'll take a look at, okay, maybe that's not the right segment. So before we -- there was a good reason to pause it certainly because of the administration said we were the problem on housing affordability, which we're not. But at the end of the day, we also want to be fiduciary with shareholder capital here and make sure that this works.

What is the hurdle rate, Mark, with that rate of return discussion you said with the Board? Is there like a cap rate hurdle or an IRR hurdle for single-family rental?

I think we got into it on a forecast basis to say we think it's going to be in that 10% return on investment, and we want to see if that's the case. I think when you take a look at our return on equity, we're making much, much higher margins on sort of the land assets and the water assets. If I take a look at what we're doing, we might make 70% margin on the land assets. We might make 60% margin on the water assets, but we're only using 2% of that asset.

So when you take a look at that on return on equity, the overall return on equity is around 9%. And so what we want to -- our minimum would be we've got to do better than that return on equity. We'd like our return on investment to be in the mid- to high teens if we're in the low teens, but we have a great tax advantage way of keeping that asset that might juice that up a little bit, that would be worth considering. So those are going to be -- I don't know that we've got a hard fast threshold other than it's got to do better than our return on equity.

There's nothing else in the SFR. I was going to kick it back over to Lowry real quick, if that's all right.

So we spoke a moment ago about going out there and you see how the residential development has now directly abut that property. And so at least for layman's eye, it looks like the next logical step or progression is for development there. And yet the regulatory approval processes, the red tape that needs to be broken through in order to enable that to happen is different than the processes that enabled the residential development that goes all the way up to the border of that.

Could you speak a bit about maybe even if in cliff notes bullet point format, what is the process step-by-step that needs to occur for that to materialize. How does that differ from the process that enabled all the adjacent development? And accordingly, where do you maybe see some risks or some key uncertainties?

Okay. So the regulatory process, that property is in unincorporated Arapahoe County. And so the neighboring jurisdiction is City of Aurora. So City of Aurora controls everything that comes up to the property. Once you get on to that property, it's Arapahoe County. And I would say we know that process very well. That's exactly the same process we deal with at Sky Ranch. And so that's our entitlement jurisdiction. We know what those zoning.

And in fact, when I was talking about some of the setbacks and things like that, we think that Arapahoe County is actually more advantageous than the City of Aurora. Is Arapahoe County easier or harder to work with than the City of Aurora?

Well. Yes. Arapahoe County was by far considered the best jurisdiction to work with, say, 5, 7 years ago. And then everybody Arapahoe County retired. I mean every department had retired at Arapahoe County. And so they're actually backfilling into that staffing issue. And what does that translate into? It's a little bumpier than it was a few years ago. But our relationship with them and their experience with us doing exactly what we say we're going to do, exceeding expectations, solving problems.

We didn't -- we solved the problem of schools. We brought our own schools. We solved the problem of the interchange. We didn't wait for somebody else -- the county or anybody else to say, somebody else will build that. Well, growth has to pay its own way. So we do that, they do that. So when you take a look at the actual zoning and entitlements is through Arapahoe County. The biggest complication or the big thing that's different on Lowry than it is in any other property is the owner. It's owned by the State of Colorado. It's owned by the State Land Board. It's a trust for K-12 education beneficiaries.

And so they have different metrics than anybody else, right? They're fiduciary for school funding in perpetuity. And this is -- and they say this, but this is what -- this is their single most valuable asset in their portfolio of 3.5 million acres of land all over the state. And it's a very diverse piece of property, right? It has any number of opportunities for use and revenue. And so when the landlord looks at that, they're looking at all uses.

What education uses do we have there? What mineral uses do we have there? You saw that they were very active about monetizing their minerals out there. So they've got the oil and gas leased out there and it's being drilling. They're looking at it, okay, what are the setback requirements for oil and gas development and urban development. And there's a setback where oil and gas encroaches to residential, which is very big. That might be a 3,000-foot setback. But on a reverse setback, if the oil and gas facilities are there and residential encroaches to that, that might be 300 feet.

So there's an entirely different filter for them to analyze on which lands they want to look at for multi-uses and how they want to do those and the timing of those that all layer into that. And so sometimes when you have an infinite number of possibilities, it's hard to take that first step. If you only have 2 possibilities, it's binary. If you have 100 different opportunities, it's problematic. And so they've been looking at it pretty hard for a few years now.

Do I know what they're looking at? No. That's pretty close to the vest on their side. We're their partner on the water. They generate a lot of money. We're likely to become their largest revenue lessee in the next 5 years. On what they make from water utility alone because they -- a lot of our water -- not all, a lot of our water originates on that property. They get a big royalty on that. And so we continue to be that steward of those systems and continue to invest on that.

So I'd say we know the process a lot. Process can be political, right? We have change -- we're going to have change of leadership in the State of Colorado this year. So we got a new governor coming, new sheriff coming into town. It will be a Democrat, I assure you. But those are some of the interesting dynamics. The jurisdictional issues are in our favor, the ownership complicated.

But having a single for 40 square miles is a lot different than having multiple landowners. So as that ball gets rolling, you're likely to see it roll for a long time. If anything would impress you about the tour, that's a 50-year inventory of land. When you look at 40 square miles, boy, that's a lot. They're not going to develop every square inch of it. They're not going to conserve every square inch of it. And so somewhere between those 2 poles is unanswered.

And I think the next -- last 5 years, growth was continuing to get out there, but there was an inventory of land. And I think that's whittled itself away. I don't think that changes their time line because they're not -- that doesn't -- their motives are different than a private ownership. Good question.

Back to the callers. Anybody else? Any color that they'd like an observation on.

Mark, in your annual letter, you have recurring revenue sort of kind of a step-up from '26 to '28. And I assume that you make the assumption that the I-70 interchange will be completed by then. And I say, yes, I just want to make sure, is that like -- has it delayed a little bit? Or do you think still that's...

No, you're right. That is exactly right. When I think about writing that letter, it gets published and when you get to read it and then when we actually get to put -- that was a 2024, '25 view, and I thought we'll be done with that by 2028. Given where we were with the actual design because we were up to our eyeballs on the design and see that review and oh, the ramp has got to be this and it's got to do that and it's got to have this and the deck has got to look like this. And so I'm looking at all of these decisions being made about the actual interchange thinking, okay, great, that will allow me to get to this, to get to this, to get to this. And it's probably a year delay.

So when you take a look at all of what I thought was going to happen in 2028, I think that's probably a 2029. But what I think will happen, and we were talking about this on the tour is every commercial retail -- all of those businesses need a certain critical mass of density that are within x geography. They put a pin in and they draw a circle around it and they say, I've got to have this type of demographic around that circle. And that usually is around that 1,500 homes or more. And that will kind of -- that will coincide.

So if it happened, we might have been a year ahead of that curve with some of that density development. I think our commercial users are going to like for us to be that one more year mature before they put their flag down, but then they're going to be putting their flag down, knowing that, that's going to be the case in '28 and it takes them -- '28, '29, and it takes them that amount of time to get there approvals and through the process.

And so I still think you're going to see a little bit of feathering between the residential aspects of what we're doing and then the commercial aspects layering on to that. Those bell curves, what I'd like to do is have those bell curves, the meat part of those 2 bell curves lining up, but that's not always going to be the case.

So just to clarify that, are you saying that you think you'll have the first cash inflows from commercial development by the beginning of 2029?

I'm going to be out there a little bit and qualify it by this forward-looking statement, but I think we're going to have those in before that, before 2029. Just because they're going to want to buy that. They're going to want -- they're not going to go through all the entitlement work on the plot plan and the building code and all that other stuff on an option, and a loathe options. So I'm much more inclined to say, either buy it or wait.

And so I think we'll see some of those transactions. I wouldn't be shocked if we get some in late 2027. Once we green light. Yes. Once I contract for somebody to put that interchange in, it might take them. I think it takes them 6 months. It's going to -- they're going to tell me it's going to take them 12 months. But once they see that award of contract, they're going to be going hard. I just -- that's my -- that's -- I'm not saying that. My commercial guys are saying that, too.

Great.

But I like your 2029 date, and I'll say that and give you a surprise on the upside.

Can you share a little bit of thought or update on the Board's thought on returning capital at some point to investors, priorities as investors, at some point, we'd like to get paid. You always have growth, growth, growth, but you got a company -- we have a company here that is profitable, that has a very solid balance sheet and is probably in the next year or 2 going to become very liquid absent a significant investment in future growth. What's that look like?

Yes. That's a softball. Thanks. Yes. No, great question. And there's -- trust me, there's nobody more frustrated about the share price than this side of the table and the Board and the company.

So if we look at our capital stack, what we've done is continue to invest into the assets, right? We invest into our water system because we make a pot full of money selling water to oil and gas. And I sell almost 5x the amount physical wet water to oil and gas that I do to my domestic guys, and they pay a premium, right? They pay 4x what my residential customers pay. So that's great money and it's great margin, and we want to continue to invest into that system. It does 2 things for us. It generates cash flows on that. And secondly, it allows us to flip that switch and our margins on our tap fees become very, very high because I don't need the facilities to do that on the water side. Oil and gas has already paid for that.

And so you see -- are we building shareholder capital? Yes, we are. We keep expanding that system. God damn it, it doesn't translate into share price. And that's frustrating. Our legacy basis in the assets are awesome, but they also don't translate well into an index or into somebody saying, "Oh, I get it. These assets just -- here's how many and here's how many you're going to do it over this period of time."

Second stack is if we're -- water -- and I'll put that first stack being both water and land, right? We want to put some land money out there. And this is a very capital-intensive business, right? Every phase that we do is around $20 million. And $20 million is a lot, and you like to flow fund that. But when your customer is out there saying, yes, I want to buy those lots, but you need to hold them until they're finished. And I'm like, but if you don't buy them when I finish them, I'm sad. And so we try and work that relationship out. So we're not too far over our skis, but they want us to be over our skis. And it's -- trust me. And I'm like [indiscernible] again, but no. And so that's a bit of a feathering.

And so you saw that this year, right? This year was a classic example where we actually got ahead and that was weather related, but we got ahead of the flow funding. And you saw our liquidity go down to like $5 million when our liquidity is usually at $14 million, $15 million. And so having that flexibility produces tremendous dividends, but you got to have that cushion in there. Could we use debt to do that? We probably could. So there's an opportunity for us to use a little bit more leverage and a little difference on your balance sheet.

But I was also here when that wasn't the case. And sometimes mule remembers the last down cycle more than it remembers the opportunistic side of it. But we're a bit conservative on that side, and I'll admit that. But now with a big assessed value, and you guys saw that today, but you see not 500 homes, but you see 1,100 homes and you start to see a bunch of stuff going on. Well, that contributes to the value of the community, the tax base of that community. That tax base then allows us to be paid back that $60 million that the taxpayers owes on that. And you're going to see that accelerate. And so that's an opportunity for us to do that.

We think that's going to happen this year. We think that's going to happen next year, specifically because we get these 5-year increments and I think we'll refinance a 2022 bond that we did in 2027, which will create a chunk of change. I think there's $10 million, $15 million worth of payback there, and we'll still have a solid balance sheet. So you're going to start to see us be a lot more aggressive in the next 12 to 18 months on buybacks because that would be my next step.

And then we're a water utility, water utilities, people that -- our peers, when we benchmark peers, somebody types us in and they say, "Oh, it's a water utility company. Why the hell don't they pay a dividend?" We are a water utility company, but we're not a regulated dividend cost of capital predictable side. And so I think dividends are part of the equation. I don't think it's this year, but I think it's soon that, that becomes a component of the equation. I like buyback more than I like dividends as a consumer, I'm a shareholder, and I'd rather pay -- I'd rather not double tax that income on it, but those are what I think the capital stack is going to look like.

And I did talk a bit about that on our call last week is that I do think that we're going to be more aggressive. We're going to give you -- we don't want to compete with you guys because we think things are going to go fantastic over the next 18 months, and you're going to want to pick up some of that public float. And so -- but we're going to be in there a little bit more. So good question, and thanks for putting me on the spot.

Could you expand on that a touch? And you mentioned it at the start of the call, and you've said it, I think, several times over the last year or so about potential acquisitions and kind of how land acquisitions for development maybe fits into that capital allocation decision?

Yes. And so there's 2 schools of thought, asset-light, asset heavy. I'd love to say that we have the ability to choose between that, but we're a halo company. We're a heavy asset company, and we're cognizant of that. And so when we look at an acquisition, the opportunity for us to buy an asset and wait 10 years for it to develop is less interesting. If I can pay more for that and start developing it tomorrow, then I'd like that much better. And so somewhere between those 2 goals relates to our ability to buy or acquire property. Most of the types of acquisitions are the first part. We buy it, we wait 10 years. And so I think our discipline is to say, I'd rather wait 9 years before I buy that. The seller of that may not be as interested in that.

And so -- where some of those opportunities have surfaced, we've passed because they're too far out, and we don't think that, that prospect goes away. We certainly like venturing. We certainly like having somebody right next to us, and they can inventory the land, we do the development and the water and bring up the value that way. That's probably not our sandbox. These guys, they're generational owners of this land. And they may have the same pickup truck they've had for 40 years, and they've rebuilt that engine 3 times. And you know what, they're going to die in that truck because it's just -- if they don't have it, they don't want. And it's all next-generation type stuff.

And what happens typically on that is somebody needs to die. And then the next generation says, "Okay, I want to sell it." And that's happened a couple of times. And then there's still generational owners all around us, and they call me up and say, "Hey, what is this pipeline I see you building near my property." Not through my property, but near my property. I'm fortunate to know a number of really good, good individuals who are driven by just value propositions. And so those things -- those will come up, but -- has anything broken free that has been the right time for them and us? No. Is it for lack of price? No. It's really not price.

If I offer them an absurd amount of money, they get -- they step aside. But then at the same token, I have a lot of our capital tied up and it wouldn't translate for too long. And I think you guys would beat me up for it. I know my Board would beat me up for it. Marc would beat me up for it. So let's not -- my wife would prefer that, that not happen.

We've debated this a bit in our office, right? You see how the Sky Ranch has done, it's done great, right? On the other hand, there's almost a case that the tracker is a little bit thin because it's just been Sky Ranch and perhaps some nuances to that property, very importantly, including the timing in which you bought it, right, in a down market may have contributed to the success of that, right? So then the risk that, all right, if we're going to try to repeat this going forward, how much confidence do we have in that, right?

And I know one of the narratives that I've heard is that, well, you pair the land development alongside the water assets, that provides an advantage. On the other hand, I'm not sure how much money you're leaving on the table for the builders, maybe you will [indiscernible], whatever. I guess what I'm trying to say is, if you go into that, why do you think that is an advance? Why are you uniquely positioned to successfully develop this land, especially at a time when there's probably going to be more competition for those parcels than there was at the outset of the Sky Ranch?

I think we provide value on that basis, but we don't have to be the developer, right? So in addition to us looking at acquisitions for land and bringing our water to that land, we also look at just utilities, right? I'm okay.

Yes.

You're big. Because I've got a system that's built. And if they come to me and say, "Hey, guess what, I want your water, but I want to develop the land," hell, yes. I mean there's great opportunities for that. If they say, "I want your water and I'm going to bring my land to it and just give me your water so I can get my land zone and I'm going to sell it to a third party," maybe not. That's not what I want to do.

But if they're ready to go and develop and they have the capability of developing it and they say, I say, okay, I'm going to give you my water. And if you're going to develop in the next 18 months, 2 years, that's worth doing. If you say you're not going to develop for 10 years and I have to allocate my water to it, I'm going to look for another day who wants to go out and not just say, when I have nothing else to do, I'll go.

Got it. Yes. Perfect. Exactly what I was hoping to hear.

But that's a feather, right? You kind of got to -- because I get asked that lot. Give me a water service contract. Just that. Well, you've got all this water. And I'm like, yes, when are you going to develop? Well, we just want to get zone it. And I'm like -- and then what, well, we're going to sell it. I'm like, I want to be you.

Mark, in the Board and [indiscernible] and yourself, like which -- we have all these numbers floating around, which metric is the best sort of number or maybe there are several to sort of track like the value created. Is it book value per share? Because I think -- yes, that's like 6, 7 years, it has doubled. So that's kind of good. But I'm just thinking internally or which one is a good way to measure the value creation.

Yes. I'd say book value is the worst because we've owned these assets forever. And look at Sky Ranch as an example, right? We bought that for -- our land basis in that is $4 million, $5 million as our land basis. We're going to make $500 million on that. So when you look at the book value of that in the highly appreciated asset side that we have, it's the worst indicator. And is that what the market is valuing us as? Because there's not human beings, you're the only human beings left that look at companies, right? Now it's all quants and computers and AI that just looks at it from a book value transaction standpoint. And they don't quite appreciate the fact that these assets have appreciated heavily.

Our water assets, our total capital count in the water assets is $20 million. It's going to generate $2.5 billion, $3 billion. It's $20 million. I bought it 35 years ago. And so costing -- Enron solved that cost basis. And there's no way to really mark that to market on the appreciation of the asset. And so that's one of the challenges that we have is to how to communicate that to the marketplace. And when you show that you're making 70% margins on 2% of your asset, then it just leads to the question of when does 2% go to 5%, when does 5% go to 20%? What's the scale and the time line because that's -- there's a cost to that and making sure that, that happens.

Most of the way the company looks at it is the sum of the parts, and we take a look at what's Sky Ranch residential going to value to? What's Sky Ranch commercial going to value to? What's Sky Ranch water utility, the tap fees and the usage revenue. Those are all very predictable to value, right? I've got 5,000 single-family lots, and we break that up into, say, there's 3,400 residential lots, 1,600 commercial lots. And that's just to keep the math easy. I'm not exactly sure if it's going to go that way.

We make $100,000 a lot on the residential side, we think we make 1.5, 2x that on the commercial side. If you just value 5,000 lots at $100,000 a lot, that's $500 million on the land development side. We get $40,000 a tap. We've got 5,000 taps. So that's $200 million. We don't get -- and JB asked a great question on that when you go through the numbers and you're asking and you're sort of saying, okay, you're making -- when I look at the number of taps you sell and the revenue you generate off the taps, you're not actually getting $40,000 a tap. And he's right because we're not selling a full tap.

So a lot of these smaller -- like when you get a townhome, a townhome might get 0.4 tap. And what that does is it gives me that customer and then I still have more water to sell another tap to. And so you look at some of our residential homes in there had to buy 1.5 taps because the lot size was bigger. And so we apportion taps by every individual lot. And some of them are more, some of them are less. But on average, you look at that being 5,000 tap connections. And so that's easy to value.

We're getting about -- we usually use a metric of about $1,500 per connection per year. That's probably closer to $1,700 per connection per year now. And you look at 5,000 connections on that, that's going to be about $8 million year-over-year revenue. Those are 3 segments of value in the company. Very predictable, all within our control, no blue sky. All that stuff is very predictable. And you can come up and say, okay, that's $800 million present value of that over some sensitivity analysis. it sure has hell of a lot more than $250 million market cap.

And so that's where it's frustrating from our perspective. It's so obvious on what's in our book that we're undervalued. And everybody is like, well, if you're that undervalued, buy your own shares. And we do. And we also look to try and make sure that, that $800 million comes in, and we use that capital so that we're not going to use our denominator for any portion of that. And if you take any comfort from us, last time I did shares was in 2010. So we're not an issue. We're grateful that you guys are there to take a look at what we're doing and agree with us. We wish there were more.

Right. Yes. I mean just on the defense of book value, it's like in the past, what has the cash earnings been added to the depressed book value. That's kind of -- it's a backward-looking metric. But -- and it's a decent performance, by the way. So I don't think even on the backward-looking metric. So -- but I hear what your thoughts are, which is $800 million versus $250 million and that will produce a huge IRR in any time frame.

Yes. And you're not wrong. I mean everybody that sort of looks at what we're making per year and the times earnings, we're trading where we should be trading.

Right. Great.

I'd hate that, that's true. It is. But I also know what I just described to you is also true. And so somewhere between those 2, when you start to see -- and to your point, your question earlier, what's the last 5 years and what's the next 5 years and how do we look at those 2 differently, the last 5 years got us to where we are organically slowly, incrementally. The next 5 years are going to be a higher degree of step functions because much more comes online in that period of time.

We're far -- we're not -- and to the point, I'm not infill yet, but I'm also not new growth. And that's what shows well. And you see it. I mean, we do the drones and you can kind of get a feel for it. But there's nothing quite like pulling off to the side of the road and taking a perspective on it all.

If I could follow-up on the water rights a little more. You mentioned 60,000 taps at $40,000 a taping $2.4 billion opportunity, but there's obviously kind of an IRR play there. And so I'd be curious to hear kind of, first, how you guys think about comparable prices on acre feet of water today? And then also just how liquid are those assets, right? There's a lot of infrastructure. It's going to take the right buyer for those. And so what would the opportunity kind of be like there to actually unlock that value potentially?

Good question. I mean when we first got into this, and I'll portion that to a couple of different areas. 35 years ago, water rights were selling $4,000, $5,000 an acre foot. Tap fees, which really try and portion the cost of developing that water utility were $7,000, $8,000. And we show this in some of our slides. I can't remember if it's earnings slide. I have 2 -- a couple of different decks out there. When I talk to people who are not familiar with the story, I don't focus so much on the quarterly earnings.

But there's a slide out there, I think, in maybe one of the investor things that starts to take a look at tap fees and it compares our tap fees to tap fees elsewhere of surrounding water providers. And tap fees -- our tap fees are at 40, but there are many providers that are north of $60,000 a tap. And where is that cycle going to go? It's going to go up, right? All of the low-hanging fruit, which means all the close-in water is developed. And every incremental water project is a $1 billion water project.

And so it's -- the tap fees, when you take a look at the time value of money and the discount back for all of those absorption of those tap fees, I often make the argument, I'll make the argument again, that the increase in the value of the tap fees will compensate the discount factor on. Now it doesn't always work that way because you got to get a tangible value today. If somebody willing to pay that for that today.

When you take a look at our water assets, and to your point, can we bifurcate out and sell our water assets? That's a very hard thing to do. And really, it's because Colorado is very adverse to that, right? We have these very strict anti-speculation laws about private capital Wall Street coming in and cornering the public water asset market. And I say -- the road out of town is littered with billionaire carcasses trying to do that. It's very, very difficult for you to speculate in water. Yes, it's an asset class and lots of people buy farms. But when you're buying and selling water on an open competitive market, it's very hard.

And what we've built here is the franchise of a water utility. And so as much as we'd like to say, "Oh, let's just carve off and sell a bunch of acre feet," the water that we're not going to sell for 30 years, let's monetize that and sell that today. It's very hard to do that because if you do that, then it really compromises who, how and where you're going to be able to use that water. And the buyer of that won't have that certainty. And then when they dig into it, it's going to be very hard for them to do that. It's going to be very hard for them to replace us as the water utility. They're not going to be able to get a franchise water utility like we have. They won't have a service area. They won't be able to transfer it to another parcel of land because they won't have the service plans, the approved service areas to do that.

So the stack on being able to do that value is in the actual utility itself. Is that to say I can't sell water? No, I can, but it's harder to do than to do the service model. And the value of what we offer is all of those together, not just the asset that underpins the value.

And then I sort of described the fact that my most recent water acquisitions because while I would say we're active in buying it, we are very, very picky and are buying it very selectively. My last acquisition, which has been a couple of years, but it was at right around that $20,000 an acre foot price. And if I think it's worth $20,000 a long ways from where we're at, what's it worth for somebody with a franchise utility and a service area and customers. That's the chain that values this.

I don't know if I answered your question. I went off on a different tangent.

No, that's great.

Well, if there's no other questions, maybe what I'll do is just kind of wrap it up. We'll post it on our website. And certainly, if as you think about it and say, "Gosh, I wish I would have asked this." Don't hesitate, give me a holler. We will continue to do this. And if your plan so entail, pop by. It doesn't have to be on Investor Day. Pop by, kick the tires, take a look at it, look under the hood. I think you'll like what you see. Thank you, all.

Thank you.

Good morning, everyone, and welcome to Pure Cycle Corporation's Third Quarter 2026 Earnings Presentation. We've started the presentation with everybody on mute as our CEO, Mark Harding, goes through our financial results. At the end of the presentation, we will open up the lines for Q&A.

And with that, I'll turn the mic over to our CEO, Mark Harding.

Thank you, Marc, and I'll add my welcome as well. With me is Marc Spezialy, who's our CFO, and he'll give you kind of the detail on some of the technology questions as we get into the Q&A portion of this. Also with me is our Controller, Cyrena Finnegan. So if you guys have any drill-down questions on the accounting, I'll share the mic with her and have her walked through some of those.

As Marc sort of announced, this is our Q3 presentation, and we're delighted to be able to bring you some very solid results here. As we start the presentation, we'll start with our forward-looking statement. I'm sure most of you are familiar with that, but statements that are not historical facts contained or incorporated by reference in this presentation are forward-looking statements. continuing on. It's my pleasure. And really, the company's benefit to continue to work with a great management team, a ton of experience on this team and really bringing value to the shareholders on a day-to-day basis. At the Board update on board composition, we had a couple of resignations of 2 Board members that are regulated to a 13D filer on the Board that you've likely seen, there's no drama with these. They represented an SPV vehicle, which holds about 13% of the stock and are working really in the best interest of the limited partnerships for the SPV and then combining with the restrictions that come on with the Board.

So I think we'd like to acknowledge their service and their contributions and thank them for their efforts and wish them the very best. Taking a little bit on the overview. Another great quarter and continued execution of our business. Most notable really was refreshing of our liquidity after accelerating the development time line of our Phase II, we had kind of 2 phases that we're kind of developing at the same time. And because of the mild winter, we really did continue to reinvest on that, accelerate that, deliver those lots a little bit early, allow a couple of our new builders to get a head start on what we were looking at on delivery of that product towards this summer.

So that really has seen a refresh on that, and you'll continue to see that through year-end. But we still have almost a little more than 7 consecutive years of profitable quarter-over-quarter and really execution of monetizing our highly appreciated assets with on the balance sheet and carrying that through to the income statement.

Let me dive right in on the Q3 results, taking a look at revenue, $8.2 million in revenue, $4.3 million in gross profits. That takes a look at about a 52% margin on revenue to gross profit. So we do have a real highly appreciated asset base that really continues to drive shareholder value. Net income and earnings per share are reflective of our percent complete revenue recognition in advance of Phase 2 ahead of a typical seasonal schedule. So you do see very strong Q3 results that really are carrying that momentum from Q2. And so there's kind of -- is a bit more indicative of sort of an even flow revenue and earnings cycle, which is not all that typical for us just because of the seasonality of the construction schedules here in Colorado.

Moving over to total revenue and total gross profit for year-end. And as that relates to our yearly guidance, we're a little ahead of our schedule on guidance as we would typically do, and that's really, again, to that seasonality issue, but we really are optimistic and looking forward to a very strong year-end as well. So this gives you kind of a feel for where we're at year-to-date. Taking a look similarly with net income and earnings per share for our yearly guidance, also favorable for the Q3 typical guidance and then also looking to finish the year strong and be able to deliver within forecast or maybe a wee bit more than what we were looking at on the forecast side.

With those as detailed on the quarters and certainly willing to drill down on those with some Q&A on that, I do want to just give you a quick update for those of you that are new to the company and talk a little bit about why we think this is such a great company and why we think what it is that we're doing is very unique in the marketplace. Certainly, the water side, we're able to capitalize on owning water rights, and that's very specific to most of the Western United States, very specifically in Colorado. Colorado is probably the tip of the sword on defining ownership interest in water. And how do we do that? We really provide water, domestic water, which is your our potable water supply to retail customers, that's homeowners, businesses, industrial complexes. We also provide raw water for industrial uses. That's primarily in oil and gas, and we do have a very active oil and gas field right on top of where our water supplies originated. So that's a very efficient framework for both us on the profit side as well as the operators because very lower -- much, much lower costs and then being able to transport that from source to pad sites.

And then we continue to add customers to our systems, and those connections are very sticky customers because in 100 years, you're still going to be doing the same thing with water that you're doing today. Taking a specific look on total water revenues were strengthened by better-than-expected industrial water sales compared to last year specifically and look to finish the year strong in that. And really, that was a function last year when the fact that most of our main operators in our particular area of the field were really accumulating a number of permits, well permits. And so they do have all those through the Oil and Gas Commission here in Colorado and then really have been executing that. I think it timed out very well for them with the price of oil. So I think a lot of that activity is looking to be strong not only this year, but also over the next several years.

Tap fees also are strong, a little bit stronger than they were previous years, year-to-date as well as the year to finish. And that's mostly because we have several phases that came online and were delivered in 2026. So you're likely to see continued strength in the tap fees, not only through this fiscal year but also next year. Taking a look at the industrial water sales, that gives you a little bit of picture. We have strong year, probably not as strong as what we saw in 2024, and that was just a record year for us in that. But we will see a pretty good year, real strong year for us as we complete this year. And still, again, as I said, really look to see continued strength in that over the next several years as drill out the remaining wells that they've already permitted. And then they'll continue to take a look at other well pad sites within this field just because of the size of the field. It's a very large field, and we have a very broad ability to supply water to most of this area.

Next slide really shows that we continue to invest in our business segment on the water side, making sure that we have capacity for our industrial customers as market conditions for oil and gas continue to dial up. And as most of you know, the oil and gas industry likes them to be at their beck in call. Sometimes they call, sometimes they don't, but they do pay a premium for that availability. And so we continue to make sure that we're investing in that production capacity. We still have a little bit of peddle left in that. And so as they continue to dial up that drilling program and the opportunity to capitalize on the price of oil, we certainly are ready to meet that demand and look forward to that demand because that's a very high-margin business for us.

Let me move on to our Land Development segment. As most of you know, we also, in addition to being a water utility, we bring that water to land interest. And that land interest really is really increasing the value of land through water availability here in the Denver area. And so water can be worth as much as 3x the value of the land. And what we are able to do is acquire land interests and also develop the water utility for those customers that we're developing a lot for. This year was a very good year for us in developing lots. We delivered approximately 430 lots in the last 18 months. So that was kind of a dial up that you heard us talk about probably in 2024 time frame when the market was much stronger. I wouldn't say it's not still doing well, but it's not as strong as it was in 2024. But we were moving into our next Phase II E, which is a bit smaller and than our usual phases, we typically are looking at around 230 to 250 lots per phase and 2E, just because of its size is right around 159, 160 lots compared to our average lot size.

But we continue to really pace our finished lot work where we're investing in that land to pace that with the housing absorption. So I think that, that's going to time itself very well with kind of the headwinds that are in the housing market. And really, it's just a good housing market, really good segmentation for us at the entry-level product. But there is a consumer confidence issue within most of the homebuyers in the market today. Also showing strength through Q3 unlock deliveries, almost 70% better than last year, and that was really moderated by a very mild winter. But I think that, that will even out as we get into our year-end and realize the percent complete for what we had under contract. But we do look to deliver strong results through our fiscal year-end.

Breaking this up a little bit, taking a look at the phases as we have been talking about this, each of these phases, we have a portfolio of builders. And really, our business model here is to really try and match deliveries to our homebuilder customers for an annual inventory. We want to make sure that we don't over invest into what is a very expensive lot delivery mechanism that ends up creating a high inventory for our home builders. And then we also want to make sure that we can match the demand for lots and houses together with the supply of delivering those finished lots because there's a long lead cycle on delivering these finished lots. And so we took great care to make sure that we're pacing that deliveries together with the homebuilder customers. This sort of shows you kind of completion of each of these 2 phases. And it really shows you that pacing of about 230 lots per year.

If you take a look at kind of the acceleration through Phases to CD and E, which is now in progress. That kind of gives you a feel for a little bit of that increase in revenues and gross profits for that. And it really was very attractive home deliveries in Phase II. You can see we've got very strong development of those. So I'd say maybe 1/3 of all those lots are vertical right now. And we're seeing probably 25% of all of the inventory that our homebuilder partners have are sold homes that are occupied. So very strong sales at that entry level price point. That Phase 2b that really delivered ahead of schedule and allowed some of our new builders to get vertical.

We have 2 new builders to the portfolio, Pulte and Oakwood Homes. And then they're getting their model homes up and into the market. And then Phase 2, which is right across the street from our school, which really is our next phase. That will be delivering for summer 2027, but it shows you the grading activity on that. This kind of illustrates how we phase our development schedules. And the way we like to deliver this with our homebuilder customers is that we have what we call a flow fund type contract where we are delivering a plate. So homebuilders get the title to a plant where they pay 1/3 of that lot cost and then that allows us to fund the grading work activity in the wet utilities and then the second payment after wet utilities allows us to finish the lots and then we really wait to take our margins on the finished lot delivery. But we still look to do that.

Phase 2 is a little bit unique in that. We got started on that one just to make sure that we're capitalizing on the cyclical seasonal weather out here, but really seeing how we can continue to match our customers' cash flows to the product delivery cash flows. Very proud to work with our charter development partners, National Harrods Academy, on our school campus. And this just is a terrific asset for the community. We've got a K-12 campus just finishing the high school for opening this August, and we're thrilled that all of the residents here can have a local school that is accessible, it's walkable and really provides a terrific opportunity. And we continue to get feedback from the community that this is the reason, one of the primary reasons that they are relocating to the community. And so this is just a terrific asset for us.

I want to talk and give everybody a little bit of update. This is what we try to do to kind of give you some focus about where the metropolitan area is and where the company operates. Our sandbox really is right on the path of development in the Denver Metro area. As many of you know, we sort of live on a notion where we can't move to the West, given the terrain on that side. And really, all development activity is growing to the east, and it shows you where Sky Ranch is positioned right along Interstate 70 there. That's the blue parcel in there. We're just a terrific location on that. That's primarily why we continue to see strength in what we would otherwise have as a more challenging housing market. And then also our service area at [indiscernible] parcel, but it's one of -- it's probably their single most valuable parcel and there's just a tremendous amount of development activity going on all around the quarter itself down 3/4 of that property. And so it kind of gives you an appreciation for the magnitude of our service area, which is 24,000 acres and where our service area together with our development projects are on the growth of the Metropolitan area.

Taking a look at our single-family rental aspect. We did have a bit of a as we foreshadowed in Q2, pivot on some of that as Washington was looking to, I guess, update institutional ownership of homes what we were taking a look at was building this segment up to about 100 homes through Phase II and really did do a bit of a pivot on that. We revised our segment so that we can moderate that expansion we're able to push back some of the loss that we have for reserve to some of our homebuilder customers and then really, we're concentrating on building the homes out that we had contracted for. So instead of looking at bringing 100 -- up to 100 units online, we're backing that off into in the high 60s, low 70 unit time frame. And that's -- there are several reasons for that. One, we wanted to make sure that we understood what that regulatory climate was going to look at. And then secondly, we also wanted to make sure that we really could define the return on investment for that. And so we'll be able to get a better feel as a mature segment causing this at this level, take a look at maybe monetizing homes, a few of these volumes to check and mark-to-market, what our assumptions are on the rate of return on that and then make an assessment on how the portfolio stands to carry forward.

Taking a look at how that's scaling, we're delivering. We have 30 -- almost 40 homes completed now. We've got another 30-ish homes under contract that will deliver through probably calendar year 2026 that will bring us right around that 70 home unit. The strong advantages of this, we're seeing tremendous demand on the rental side. In fact, we've got most -- I think almost every one of these homes are leased as they deliver. And in some cases, we've got homes leased that won't deliver until October, November time frame. So our real marketing program for this and the acceptance of people understanding that we do have a portfolio here that is an institutionally owned portfolio where we have our team that can continue to rent these and maintain these really does provide a stable income stream for us on a recurring revenue basis. So those are the positive aspects of it. The negative aspects would have been how the government is going to regulate this.

I think that's settled down a little bit, so it gives us a little bit of comfort, but we still want to get a good measure on what that rate of return is. It's a little bit of a metric on continued growth in that segment. So you can see that, that continues to appreciate with the home deliveries. And we have a tax advantage of the appreciation of the asset compared to the fair market value and the book value of those assets. So those do give us some really attractive tax-advantaged ways to hold the portfolio so it will be just kind of how we were looking at growing that and really see that scaled back from where we were taking as much as 30% off of that from where we were near to get. I want to talk a little bit about shareholder value, capital allocation. We continue to really reinvest within the company. And so you see strong appreciation on the balance sheet, good growth in the asset portfolio.

The big story, and I know you hear me talk about this often, but the big story on the asset side is really the legacy assets and the cost basis that we have on both the water and the land assets. And we acquired the water very many, many, many years ago at a very, very low basis on that, and it has just a tremendous opportunity to continue to drive shareholder value and similarly with Sky Ranch and the land assets. Those are very small cost allocations on the balance sheet, but they drive a tremendous amount of revenue on the income statement. And then as I mentioned on the first part of that, the liquidity continues to strengthen. And that will continue through year-end and also may give us the opportunity to strengthen our shareholder buyback program.

What we really like to highlight here is our continued diversification of revenues and revenue mix for stability and resiliency in under any market conditions. We have great revenues from water side, from the land development side and then from the single-family rental side. And all of those have different industry segments that don't while they're related, they don't quite overlap. And so if you have strength in one and weakness in another, it really allows us to have a very stable balance sheet and income statement. So we very much like the diversification that we have on our asset base.

Moving over to shareholder value, building recurring revenues, continuing to add shareholder value through asset growth. So you'll see those continue to grow year-over-year, and we have just a nice growth curve on that for us over the last several years. Profitability, this is kind of what we were looking to do on guidance for you and a lot of you have seen this through each presentation, but we look very, very strong to meet our expectations, maybe exceed those on our fiscal year guidance, but we'll see how the fourth quarter comes in. Valuation sensitivity is kind of where our guidance was, gross revenues between $20 million and $32 million, earnings per share in that $0.50 range, plus or minus, upside timing acceleration really some of the things that I think everyone is looking forward to is kind of the commercial.

We do have some local commercial opportunities that really aren't right next to the interchange that we're in the market for. We do have some strong representation by Cushman and Wakefield on both the commercial, retail and then Cushman team on the industrial side. Look to have continued improvement in oil and gas on our industrial water sales and then just continuing to execute on the land development and a utility set, continue to reinvest in our sales through share repurchases. And while our priority continues to be invested in our business segments, and that does take a tremendous amount of liquidity, which you saw and that given liquidity in Q2 really wasn't anything other than our acceleration ahead of our typical flow fund agreement, but it does allow us to continue our balance sheet and our liquidity give us those options to capitalize on that when that occurs.

And so we do that, but we also continue to take a look at share repurchases, and we will see how the liquidity continues to build. And as that builds, we'll continue to be more aggressive with those share repurchases to continue to return value to the shareholders. A bit of an update on the interchange. We continue to work with our governmental partners with the county, Repo County on getting that permit. This is a county project together with Taro Department of Transportation, on the design side and getting the permitting process on that. We look to have that. We've submitted each of the phases of the permit to CDOT on that for their comments and modifications. So we look to get that into them sometime towards the end of the summer and then hopefully be in a position of getting that permit issued sometime early next year with the opportunity to start construction of that interchange in late 2027, which really will give us a tremendous opportunity to open up the commercial and really stack into the revenue side.

We've got a very good growth story on delivering residential lots. And so you take a look at that, and we're at that $25 million a year stack on being able to do that and continue to work that through on the build-out side, but which might be another years or so. But then when you can layer in that similar amount of revenues from commercial that almost has that doubling effect of our revenues. And so that will continue to supercharge what it is that we're doing. Also wanted to just give you all a quick video tour here, and this is just a continued visual representation of what is that we're doing, where it is that we're at along the metro area if it doesn't be who are new to the story, but just a gardens community.

We're able to -- that gives you a feel for where we're at on the metropolitan area, how we're looking at delivering our original Phase I, Phase II A, B, C and D are represented here as we're approaching, that's what we have a space to see if you a feel for that's kind of depressed market demand, right? So you see each of our builders that are taking a look at their product. They've got inventory, they're building that inventory. They're selling that. That gives you a view of some of the 2D homes there with Pulte and then Oakwood is get started this summer as well with some of their lots. There in the background, you'll see our storage reservoir for irrigation water supply 100% of the wastewater that goes into all these houses is process and then we use that water supply to provide that to the parks in the open space.

And then that gives you a deal comment into where we are with Phase 2E. That's our 2027 deliveries. So you'll see that activity is the grading activity on what we're doing and then also kind of our opening of the high school and that full campus there. So just terrific opportunities gives you a good visual for that. We do have -- just to remind you all, we do have an Investor Day next week, next Wednesday, and a number of you have RSVP. We look forward to seeing you. But this is an opportunity for us to really kind of give you guys a 2 or what it is that we're doing, have you come kick the tires. This year is going to be a little bit different. We're going to start here at our offices and then we're going to take a tour of the Lowry property. And then from that, you get a very good perspective of some of the oil and gas development that's going on, on the Lowry property as well as where that service area positions itself in the growth of the metropolitan market and trying to get a better flavor for the importance and the value of our service area.

So with that, we'll open up the lines and see if we can drill them on any other color for the presentation. So I'll turn it back over to Marc and can give you kind of the instructions on how to do that. And see if we can answer your questions.

Thanks, Mark. Yes, we should -- we've opened up the lines now. [Operator Instructions]

Mark, it's Elliot. You made a comment at the beginning of the presentation, you said why we think this is such a great company. In my opinion, what makes it such a great company is that it will have so much unallocated in the way of water reserves once Sky Ranch is fully developed. So let me probe just a little bit on that. In earlier presentations, in the charts that were presented, there was a chart that said at full build-out, the assets -- pure cycles assets would total approximately $65 to $675 million. I had to estimate that from the chart and that -- most of that was going to be cash. Is that no comparable figures are shown and just series of charts, is that $650 -- $75 million still a reasonable estimate?

Yes. Let me tell you how to think about that. And so what you -- what we look to try and illustrate and this has always been one of the challenges for the company is -- when you take a look at our land and our water balance sheet assets, they're relatively modest, right? Our water rights we have valued on the balance sheet at around $30 million. And when we collect $40,000 per cap, and we can collect -- we show we can serve 60,000 connections from that portfolio. And we're probably a little conservative with that. But let's just say it's 60,000 connections. That shows about $2.5 billion worth of water revenue. And then we get that $1,500, $1,700 per connection per year, and that's about $100 million year-over-year revenue.

So that gives you the gross potential on that. On to your question about the $650 million that we've shown on previous slides and how we've given that guidance, that -- how we come to some of that guidance on that just -- let's take a look at Sky Ranch. We know we have 5,000 connections at Sky Ranch. So that's our sounding. And that splits out as to 3,400 residential units, and then we -- at the 2 million square feet of the commercial space, we have portion that to 1,600 call it, lots and connect. So that's how you get to the 5,000 units at Sky Ranch. And if you take a look at 5,000 times $40,000. That gives you the math on how we're going to get to the tap fee revenue. That's $200 million worth of tap fee revenue. And then on average, we're making $100,000 per lot.

So if you take a look at 5,000 lots and you take a look at 200 or $100,000, that's $500 million. So that's kind of where that math comes wrong. That's what we make on Sky Ranch. And Sky Ranch as an asset is $5 million on our balance sheet. So that shows you the magnitude of the earning power of these legacy assets. So that's -- you're correct, and that's kind of how we portion out those numbers.

Okay. Now based on the 3,000 -- approximately 3,000 acre feet of water that you have bought since you began using the 30,000 acre feet, Sky Ranch is fully developed. Is it reasonable to say and think that the company with Sky Ranch fully developed still has about 30,000 acre feet of undeveloped water. Is that reasonable?

Yes, that's reasonable. I mean, we do take a look at continuing to diversify the portfolio. And so I guess we have added to that. We've added to that by buying some farms up in Weld County that bring some very valuable renewable water supplies. You've added to that by virtue of our water court decree that we just got finalized, and you heard us talk a little bit about really, that's at Lowry, very local, very convenient for us to develop that out. And so yes, while we talk in terms of how many units we can serve that 60,000 units. And we really haven't updated that with our acquisitions, but we kind of want to balance out the portfolio with renewable supplies and groundwater supplies and reuse supplies to make sure that all of that is sustainable.

But we do think we have 30 -- a strong 30,000 acre feet and a strong, very conservative number on 60,000 connections. So it gives us a great opportunity to continue to expand that portfolio, which we look to either at Lowry or at other areas around Sky Ranch. And that's where the majority of the growth in the Denver Metro area is coming and is on top of it. There's just not a way that Denver just doesn't grow on top of Sky Ranch and Lowry and all the surrounding properties in and around or Apple County because there's no other place to grow.

And that's illustrated by the fact that the borders of Denver have moved 6 miles closer to lower and are now adjacent to it. from the time I began following the company in the late 1990s. But what I am suggesting is that the same kind of math that you spoke of in coming up with the $65 million, $75 million figure, also needs to be applied to the 30,000 acre feet, call it, 60,000 taps and that's where the value lies because we're dealing with a company that only has 24 million shares.

Yes.

I'm not arguing with you. I'm just trying to explain how I look at it and why I think it's such a great company.

Well, I do appreciate that color. And I agree with you. I mean, we do have tremendous value in these assets and the water is the water segment alone continues to really drive a lot of that value, both in terms of what we're doing at Sky Ranch, and we vertically integrated ourselves there. as well as the next opportunities, whether that's properties neighboring to styrene, whether we acquire those properties, whether we utility provider for those properties, whether Lowry brings some of that land and inventory for the state of Colorado.

All those are continuing opportunities. And the nice thing about it is it's something that we have control, right? We have the exclusivity on our service area. Water is continuingly valuable and increasing in value as tap fees continue to go up. We've talked often about the fact 30 years ago, tapes were $6,000, and they're most that map and continuing to rise because the incremental cost of water continues to go up. because we have to reach farther and farther routes in the next supply. So all those metrics and all those dynamics are really weighing into the fact that this is a tremendous opportunity. And I can be fair to the market and saying, yes, that's all true, and it's been true for the last 5 years, but the stock has been flat for the last 5 years. That's a bit of a mystery. Are we mispriced? Certainly, we think so. Maybe you would agree and others would agree.

But at the end of the day, the market does what the market does, and if we continue to generate value on that and we create liquidity, we're going to continue to reinvest in ourselves and we're going to continue the share buyback. So you're going to see a little bit more of that activity. And to the extent that the market doesn't see the same things that we see, we'll be more aggressive about it. And that's a great opportunity, right? When you have that kind of margin potential on your assets and the opportunity to continue to generate those and we will continue to lower that dynamic. So you'll look to see a bit more of that through this year and into next year. And then as we continue to really accelerate this with the commercial development and other water supply contracts that we look to bring online and the possibility of Lowry is going to get very exciting for us.

One question about Lowry and the size of Lowry. I've heard 24,000 acres, I've heard 26, 000 and I've heard 27,000. Which is it?

Now it's -- so the total footprint of Lowry is around 27,000 acres. Our exclusive service rights to it are 24,000. So there is -- there are 3,000 plus or minus acres that got added to Lowry after we had our service -- our exclusive service rights and those 3,000 acres are not obligated to get service from us but certainly have the opportunity of getting service from us. So we try and represent accurately that our exclusive service area. If you read that in our 10-K, we're very specific that, that's 24,000 acres and that the accuracy of the reporting of the size of Lowry is 27,000 acres.

So that's the difference is there is a portion of Lowry that's not part of our exclusive agreement. But certainly, we have the capacity and the ability to serve those -- should those come online.

And for those of us who live on the East Coast, to put that many acres in the perspective, 44,000 acres is the size of 28 central parks in New York City, almost the size of 2 Manhattan Island. It's huge.

It is huge. For those of you listening that are from Texas, you'd probably say, yes, that's a fair size range.

I think also for those who will be joining us on Investor Day next week, we will be spending some time exploring that, that we haven't done in the past.

[Operator Instructions]

Well, I'm going to take side as an absolute enthusiasm for delivering a great quarter and rolling into a great year-end and that the rest of you are really saying, I say my [indiscernible] for coming out and seeing you all, but we would love to see you to have the opportunity to jump out and spend a day with us. It's a great tour. It really does give you an appreciation for the scale of what is that we're doing. Here we are, a little $250 million company that really does carry walks softly and carries a really big stick in kind of the value of these assets. And what we're really looking to do is continue to drive reinvestment into monetizing these assets and then bringing in that shareholder value.

I'll take one question from the last 4 figures, 1214.

Mark, this is [ Jeff Scott ]. A couple of quick questions. Are the expenditures on the interchange might be reimbursable?

Yes, yes. And very specifically, we've had -- we've reserved some of the bonding capacity of the mill levies as well as some impact fees that the County is looking to adopt which really is a function of letting growth pay its own way. But we'll pledge those to the interchange. We think we have the bonding capacity explore that within the cab. We wait and see how that comes down as we get that and what the cost of the interchange is going to be. We have an estimated cost of the interchange being in that $40 million range, and we have a preliminary indication that our bonding capacity would match that.

So we would not -- we may not. We're expecting not to have to advance any of those funds. But to the extent that there is a change in the cost or weakening in -- which would be a higher interest rate or something like that and the net proceeds for those bonding capacities that we if there's any obligation for the company, it's relatively light, but whatever we would have, it would be reimbursable.

Okay. The receivable balance is now [ $50 million ], I think. Is there some maximum amount that you would let that go to before you would get into the bond market?

No. What we really try to do is be in the bond market as quickly as possible. And so what we try to do each of the times that we go into the bond market, where we're getting money back on those reimbursables. We will bond out a new phase. And if you all if you remember and this is a great question because the confusing side about how we fund this is how much the company puts into it as compared to when does those bonding proceeds from the cap come into it.

So I'll give you this illustration, and I thank you for that question because I did mean to want to try and talk a little bit about that is that when we started Phase 2, we richly started Phase 2, and we had zoning for around 850 units, and that was in 2022. And so we went to the bond market with those 850 units, and we generated some $25 million worth of bond proceeds. And that allowed us to reimburse a portion of what was Phase 1 money that we advanced. And then when we go into Phase 3, we'll take a look at that same aspect. We'll issue bonds in likely 2028 for Phase 3 box because we're going to have the final lot deliveries of Phase 2 which is that 159 lots in summer of 2027. But the interesting thing is that these bonds typically have a 5-year call premium that burns off. And so we'll do another refinancing of those 2022 bonds, which will give us available moneys to repay a portion of that $59 million.

So we're looking at getting some $8 million to $10 million in 2027 of that $60 million repay and then the 2027, 2028 bonds for Phase 3 will give us another $25 million, $28 million that we can repay a portion of that back. So what that world of the story is, it accrues as you start up to that time number, right? And I'd say $60 million is pretty sizable in the grand scheme of things. And that really does show you a deposit of shareholder value in there that really is going to start coming back over the next 3 years. That is going to come back in some big chunks. And so we want to make sure that we time our liquidity and ultimately, share repurchases if the market doesn't understand where that value is, we're going to see that.

You're going to start to see us get a lot more aggressive about that just because those proceeds are now starting to become that. And I'll give you a little bit of foreshadow on that 2027 refinancing is we bonded out 850 homes. We were able to actually increase the density on that up to around 1,100 homes. So there's going to be significantly more assessed value in that refinancing than when we start. And so that's how you see a lot of that accrual coming back, and you're going to start to see that balance significantly lower over the next 2 years.

Okay. I appreciate the color. Has there been a flattening of the tap fees and wastewater fees?

[indiscernible] assume. Has it stayed [indiscernible]

No. I would say of the monthly fees, the recurring fees, those go up relatively modestly. That may go up 2.5%, 3% per year. Tap fees grow up in a step function. And so we have not seen a re -- they go up automatically 2.5%, 3% per year, but then we go out and we reevaluate the markets of those tapes and we're doing that this year. So you're likely to see a little bit of that step increase in 2027 as well.

Okay. Well, what I'm going to do is I'm going to kind of wind this down. Again, if you can carve out some time, we'd love to see you next week. Just give us a shout and let us know if you have any travel specifics, we're right by the airport. So it's easy to get in and out and so be a great tour this year, a bit different than previous years, and I think you'll get a very strong really hands-on view of what it is that we're doing. If you're on the call and technology didn't get you to the question that you might have had don't hesitate to give me a shout. Happy to answer any questions and really drill down on anything specific.

But again, I want to reemphasize where we are in the position of kind of the assets of the company couldn't be more thrilled with where we're at with the liquidity that we're going to be generating over the next couple of years and really opportunities to deliver significant share value on this thing and really start to monetize kind of that share position. So with that, I will close out and hope you all have a great summer.

Good morning, everyone, and welcome to Pure Cycle Corporation's Second Quarter 2026 Earnings Call. As in prior quarters, we'll start the call with a presentation from our CEO, Mark Harding, and then we'll provide time for questions and answers afterwards. [Operator Instructions] So we'll start the earnings call with a presentation [indiscernible] questions and answers. Without further ado, I'd like to introduce Mark Harding, our CEO.

Thank you. Good morning, everyone. My wingman today are Marc Spezialy, our CFO; and our Controller, Serena Fingan. So if you have any questions, we'll have a solid team to weigh in on all of the details here. For those of you that are looking at this, we do have a deck for this. It's on our website. I think it's on our landing page, you can click on that and then we'll be able to advance through the presentation and give you the details on it.

So with that, I'll start. And start with our forward-looking statements, statements that are not historical facts contained or incorporated it reference in this presentation are forward-looking statements as that is the meaning of the Securities and Exchange Act. Most of you are familiar with that. [indiscernible] want to continue to emphasize the team that we get to work with an outstanding team of professionals that really bring their game every day. And so it helps drive value for the corporation. So continued shout out to our management team.

Also, our Board of Directors, I do want to welcome our newest Board of member, Dan Rohler and look forward to working with him. He is actively engaged and really working with the directors and the team. So we look forward to working with him. Let's take a look at kind of the investment snapshot here. We continue to deliver shareholder returns and returns on our assets through consistent and profitable results continuing our street with a 27th continuous profitable quarter here. We're growing our revenues, our recurring revenues and durable revenues through all 3 business segments.

We continue to grow our asset base by delivering lots to our national homebuilder customers as close to a just-in-time basis and really doing that to really match market demands and we do see a lot of cyclical nature in the housing market. Water is a little bit more tempered in that, but we continue to really focus on our assets and monetizing our assets and build shareholder value really through our strong balance sheet and strong liquidity position.

Let's dive right into the results, really had a great order and this year has been a more tempered year to be able to even out our revenues and our cash flows on this, and that's really been a function of a very, very mild winter for my fellow skiers the morning the loss of ski season, but we're celebrating the opportunity for us to really do a lot of the work that we can't do seasonally in the winter by a lot of the concrete work and the asphalt work. So what you see is kind of a more even paced development, where we're able to -- through our cost of completion on our project, be able to even out these cash flows on it.

So quarter-over-quarter revenue this first 6 months, about $5.1 million in revenue, about $2.8 million in gross profit. And really, those are driven by those percent completions on delivering our lots to our customers. We're about as much as 6 months ahead of schedule on some of the lot deliveries on that. And so a lot of our builders are equally thrilled with that because they were able to get out in the field and put up some model homes for this spring season.

Taking a look at net income and earnings per share. Again, those are going to match really exceeding our guidance typically on the quarter-over-quarter just because of the advancements on our projects on that. So net income, a little over $1 million earnings per share, about $0.05 per share. And really, this is up by about 36%, really driven by all segments, mostly land but water as well as single-family rentals. We're adding a few more of our rental segments in there, and we'll have a little bit more color on that later, but also seeing a bit of an uptick in our water through industrial water sales to oil and gas operators this year, taking a look at just the comparison to our guidance, our full year guidance. So we're right at that 50% our guidance through halfway through the year.

So that's a bit unusual for us just because the winter quarters usually our weakest year or weakest quarter of the year just because of the seasonality of weather out here. And so we're about $14.3 million in total revenue of our close to $30 million forecast or guidance and then profit at about $9 million to our about $19 million guidance on that. So really terrific results year-over-year.

Moving to net income and earnings per share also we see those pacing more evenly through the year. Margin results are showing a bit more moderated because we have advancements and investments into the delivery of lots slightly ahead of our contract delivery. So those will normalize through the rest of the year and really kind of help us temper those [indiscernible].

So specifically, with the quarter end results, what I'd like to do is kind of drill down to each of these segments and talk a little bit about what it is that each of these are driving for us. One of the things I recently heard was an acronym called a [ halo ], which is used to describe some companies that -- in the context of this, it's a heavy asset, low obsolescence, and I found that pretty descriptive over our company and you can't get a more low obsolescence asset than water utilities. And so we'll drill down on the water utilities and talk specifically about what we're seeing in that growth and margin opportunities.

We really deliver water to customers kind of in 3 various segments. We have our domestic deliveries, which is your portable water that we deliver to residential and commercial users. We have our industrial segment, which delivers water to our oil and gas operators. And then we have continued customer growth, which is our connection fees, and those are onetime fees that are paid by our homebuilder customers and then that just adds to the customer growth of the overall segments.

Taking a look at revenues on a quarter year-to-date basis, we continue to see some customer growth corresponding revenues driven by the connection fees, which is really adding new customers to the system. Our oil and gas revenues are up this year, and I think we'll see a very strong performance in industrial water sales and then just monthly water and wastewater sales continue to grow, and that's really a function of continued growth in the rates as well as the number of customers for that.

Detailing out the industrial segment. Our oil and gas sales are up significantly over last year's primarily because last year was largely a permitting year for our operators, mostly our largest operator who was working to secure as many as 200 permits in and around our service area and really, that's translated into increased drilling and increased fracking this year, which is really turning out quite well for them, given the rise in oil prices, so they couldn't have timed that better for bringing a lot of that new supply online.

The outlook looks very good for this year. I think we'll exceed our guidance that we had taken a look at this year. And I think it's going to continue into the future, right? We see rigs that we have a dedicated rig to our service area, which is drilling some of those 200 well permits, and that will probably take them somewhere around the 3 years to drill all those wells. Our revenue per well continues to strengthen. We do have a multiyear contract with our operators to deliver these water supplies. So it allows us to do some strength in planning and then also making sure that our infrastructure is capable of not only meeting our industrial, but the domestic demands on that.

One of the things that we like to highlight in our Water segment is the capacity that we have and the fact that we continue to grow and developing this capacity, but yet we're still only using a small fraction of our portfolio while we generate significant revenues from this segment and really at very attractive margins when we're really looking at that variable demand for oil and gas, they do have a preferential pricing on that where we do get a premium on that to make that water supplies available to them as they need that in the volumes that they need.

Let me move into highlighting our land development segment. This is a nice area of our high school at Sky Ranch that's being constructed. So we're very excited about that. It will really deliver not just -- it's a full K-12 campus. So we've got the primary school, which is a Ka as well as our high school there. And really, a lot of the relocation and customer feedback on buying in the community is a function of the school campus that we have here. We're delighted to continue to work with our charter school operator National Heritage Academy or Terrific Partners in bringing educational excellence at Sky Ranch.

Talking a little bit about how we're delivering a lot. So this fiscal year, really focusing on punching out Phase II, which was about 228 lots and we're about 95% complete with that and then also Phase IId, which we're almost 80% complete on that. And really, that's the big advancements for this quarter. over the winter months, we were able to get a lot of that infrastructure in the ground. Very proud of our portfolio of homebuilder customers, all of the major homebuilders including the Lennar, D.R. Horton, KB Taylor Morrison, Challenger, Pulte, [indiscernible] all bring entry-level homes to the Denver market. Phase II started out with about 780 homes, but through some product alignments and diversification, that's really grown to about a little over 1,000 lots in that area. So we do see a significant uptick in our density out of Sky Ranch, and that's terrific for us.

Not only does that allow us to deliver more lots but allows us to increase the assessed value, which really has an impact on generating additional capacity, bonding capacity within the district to repay our reimbursables on that, which you see us continue to grow.

Let's drill down a little bit on that land development by phase, period-over-period, the revenues really did crush it. We really are generating significant Q2 revenues, more of a function of that mild winter and an opportunity for us to kind of turn up the volume and get that payment down and finished those lots so that the homebuilders can get those building permits and really start getting their model homes up for the selling season. We do see an uptick in traffic out of Sky Ranch. All our builders are seeing an uptick on that and a little bit more of a conversion to that.

There's lots of reasons that housing has variable demands, whether that's interest rate sensitivities, and we see a little bit of volatility in the interest rate segment. I think that still is the #1 incentive that our homebuilders are offering is a mortgage buydown. I think they're hitting that sweet spot of trying to buy down those mortgages right below that 5% range. So that 4.99%. So when you see a lot of that adjustment from the Federal Reserve on interest rates, that may not have as big an impact on this particular segmentation of it just because that's the primary incentive that our homebuilders are offering or first-time buyers in converting those into sales.

The pace of our land development will normalize through the rest of the year. We really do have a little bit to complete in that Phase II and then are really moving into grading the next phase, which is going to be [ 2E]. That's about another -- we've got another good slide on kind of the visual aspect of completing out each of these. And so as you see, you can see that in the lower left cell there where -- we've got a number of homes that are up and constructed for that Phase IIC and then Phase IID, while it's a little bit out of the picture on this, we do have model home lots being developed in there. So we have really 2 active phases that are complete where they're developing lots. So we've got about maybe 430 lots available for homebuilders to really tap the market on a variety of products.

We've got all phases of the products, whether they are standard for task 45-foot front load, 45-foot rear-load, 35-foot rear-load, duplexes, townhomes. We really have a very strong portfolio diversity of product type out there is really creating opportunities for almost every type of home buyer in that.

Moving on to kind of the development time line here. This gives you kind of an overview of our phasing. And as most of you know, most of our contracts are geared towards a system of developing a portion of the infrastructure in phases and then having -- once that's complete, having our homebuilder customers reimburse us and support the next phase of the development activity. And so we get payments at the Platt stage, which is when we finish the recorded flat and there's a real property interest that they acquire.

And then a second payment, which is at the completion of wet utilities, once we're done with the water sewer and storm facilities on the phase and then finally, that third payment at finished lot pays. And so that's where you saw some of those lots being pulled forward on being able to finish a number of those lots on Q2. As I started to allude to, we are starting Phase II. So our grading contractors mobilizing on site will be hitting that this month. And really, those are about 160 lots that we're looking for delivery and continuing pacing that so that each of our builders can have a year's worth of inventory. Those will be 2027 lots. So we expect those to deliver sometime in the summer of 2027.

That Phase IIE here is to give you kind of an orientation of where that's at it's directly across the street from our school. And this is really more of an infill site. We have most of the infrastructure done on that. A lot of the road network is done. Most of the main lines on the water and the sewer system are already in place. That kind of gives you a -- that's our water -- our peak hour water storage tank and comp station. They're in the picture as well, but that's a very streamlined process for us to be able to bring this online. It's about another $14 million in lot revenues, correspondingly $4.3 million in tap fees and about $240 million in recurring revenue from the number of comers that we have on that.

This was kind of a celebratory opportunity for us, together with National Heritage Academy, really on a groundbreaking for that and really partnering with our local school district, the [ bentoschool district ] as well as the National Heritage Academy to bring this K-12 campus to our development.

I wanted to show a continuing -- one of the most underappreciated assets I think we have in our portfolio is our service area. And as many of you have heard me talk through the years, the Denver Metro area continues to grow out on the Eastern planes, we really live on an ocean. We can't grow West as a metropolitan area. So really moving to the east side of it. This really kind of gives you an illustration of the level of activity that's occurring around our service area on the Lowry Ranch. As you all know, the State of Colorado owns the Lowry property, it is owned in the school trust, and they develop their assets to generate revenue for the public education system here in the state of Colorado.

And there's a couple of parcels that really just highlighted here, one on the south side of the property, and that kind of gives you -- that bottom picture is an orientation looking north and then it's a very active development on that. That's about a half section 320 acres. And then also properties that you've seen the -- what's occurring on the west side with all the development from the city of Aurora that's on the west side, but then also projects starting on the north side of the property as well. And so there's substantial opportunities all around the property, and it's well positioned for whenever the state looks to find opportunities for the Lowry range, we are the exclusive water and wastewater provider for this particular property.

And having been able to develop Sky Ranch, I think we can demonstrate that we would love to partner with them on opportunities for land development should that occur, but we really do want to kind of give you perspective of kind of the growth of the metropolitan area and how that grows in relationship to where some of our assets are, whether that's Sky Ranch or whether that's our service area at [indiscernible].

Moving into our third segment, single-family rental. There's a bit of an update in what I probably call a realignment for a couple of reasons in the single-family rental segment, as many of you know. The current administration has had some strong comments about corporate ownership of homes I probably would push back a little bit on that on kind of the justification for that. But they were sort of concerned about corporate ownership and what that is doing to housing affordability. And so we took a strong look at how we were positioning the growth trajectory of this particular segment and really decided to slow our growth of this segment and take a look at these assets in a couple of ways. We wanted to really get a strong look at what the return on the investment is for these segment assets.

And as they settle in, as we've got them constructed as we've got them leased out. We really want to understand, well, what are these -- what is the return for this particular asset? And is that going to meet an acceptable level of threshold here for the company and making sure that, that delivers the returns that the shareholders are looking for in that. And so what we've done is push back a number of those lots that we were having, our homebuilder customers build for us. And as an illustration here, this kind of shows you the lots that were identified in blue are the ones that are either constructed or under construction. And so that will settle up to be about 60 units.

The lots that we have that are kind of highlighted in this light yellow, light green color, those are the lots that we kind of reevaluated and we're able to resell back to each of the homebuilders that are building their product classes in there. And so what we've done is kind of pared that back from a growth strategy up to about 90 units and really scale that back to about 60 units. And so that will allow us to have a little stronger performance on the revenue from the Land Development segment because we're getting about $100,000 to $110,000 a lot on that.

So we'll see that come back to the company and then really take a look at really what the performance is on this segment, be able to get our returns on that and really report that to you. And make a decision as to how this segment continues in the future. So that's been really the key realignment here is to take a more measured growth approach to our single-family rentals on that.

We've got 19 homes completed to date and they are all completely rented. We are seeing extremely strong demand for rentals in this unit. So I'm very optimistic about the continued performance of it. Each of the homes as we bring them on market are already rented. I think we've got homes rented for home deliveries that we're seeing up through August right now. So we do continue to see that as a strong performer in the segment. And then this will instruct us on how the appreciation of the homes are going as we continue to add value to the community, not only from the schools, but then all the commercial development and open space and trails and the recreational opportunities that we deliver. We are seeing continued strong growth of these home values, and that's an opportunity for us to really measure that within the overall segment.

One of the most attractive features of the single-family rentals is our recurring revenues and the asset appreciation. So period-over-period, revenues are up 20%, mostly as a result of additional units. We continue to see growth in the monthly rentals on this. And what we really like to do is make sure that we get all these units fully leased and have a 100% occupancy on that.

[indiscernible] the growth trajectory. This is kind of how each of the phases of performance. And this is a bit of an update from our previous position on that where we were growing up to about 90 homes. And I think we really took a look at that and payer back almost all of the units in Phase II [indiscernible] on of the units in Phase IIC, really just as a reactionary element to some of the pressures that this segment was receiving on ownership, corporate ownership and then also opportunities to demonstrate to you all what the return of this segment is going to look like.

Talk a little bit about shareholder value, our assets and kind of what we have in use and really a little bit about where we're headed. As most of you know, we are extremely hawkish about our equity, with our last issuance being more than 15 years ago. And so we really do fund our operations through our balance sheet. If you take a look at really all of the components of this, we maintained a strong balance sheet. I believe our assets are significantly more valuable than the recorded value. And that's mostly because they're legacy assets. They've been acquired many, many years ago, more than more several decades ago. And taking a look at each of these individual segments, if you take a look at our Water segment, we have about $74 million or, call it, $75 million in total assets, and that's about 44% of the total assets of the company.

But then when you take a look at kind of what's developed and what that contribution is, that's only about 4% developed. So you see how that kind of the pedal that we have left in the water segment and really the opportunity that we have to continue to grow that segment in our business. Land segments, we acquired Sky Ranch in 2010. It's about a $5 million acquisition of the land. We did get some water beneath that as well. And then taking a look at kind of the developed land for sale, how we do the percent completion on that, that represents about 6% of our total assets, and it's about 20% developed. So while we continue to generate strong returns year-over-year on that, we still have a good amount of land that we have developed more homes and then the commercial value on that.

So really terrific opportunities to continue to grow the land development segment. And as many of you know, we continue to look for other opportunities in the land development segment.

Taking a look at our single-family home segment. That's a relatively small segment, about a total of 5% of the total assets and had a little detailed discussion about that on kind of how we're going to really mark that performance of that segment. But really, the biggest opportunity for us here is our total liquidity here. And taking a look at the cash and receivables, it's about a 44% asset. And largely held in that note receivable from the municipality where we continue to develop the infrastructure, those public improvements are reimbursable to us. And we take a look at building the assessed value through adding additional homes there.

Our next opportunity for monetizing some of that assets likely to be in 2027, where we're taking a look at financing and refinancing. We'll have a financing on the interchange. As many of you know, we talked about kind of how we're going to construct a new interchange on the interstate there, but also being able to refinance some of the Phase 2 bonds and really capitalize on the opportunity we financed our first bonds on Phase 2 at about 780 units and growing that to the [ 1,030 units ] gives us an opportunity to have a significant reimbursement for refinancing those bonds now that they'll be mature and more assessed value than we originally planned in the first financing. So that will be a great opportunity for us moving forward.

The low obsolescence the recurring revenue really come from water and wastewater revenues and rents from our single-family home rental segments. And so you do have strong sticky revenue on those sides and really a lot of the growth revenue from selling lots to national homebuilders as well as the connection charges to add our customer growth into our Water Utility segment. talk a little bit about shareholder value. We consistently grow our balance sheet and income statement quarter-over-quarter year after year. and really generate kind of leading -- industry-leading margins from all segments, whether that's going to be the water segment the land development segment and the single family rental segments.

And so we're very targeted to continue to monetizing our assets, taking a look at where we're at in our guidance. So we're taking a look at our guidance for 2026 at about $2.7 million in recurring revenue and asset growth, bringing that a little over $160 million. So those still look strong. Profitability trends. We continue to build shareholder value on really each of these segments and really on pace for delivering our fiscal year-end results. We will share some guidance on 2027 at our Q3 as we get a little bit clearer picture of kind of how the Phase IIE is going to come along and tap fees and the oil and gas deliveries for fiscal '27 become a little clearer for us.

Taking a look at kind of that total gross revenue, our guidance is going to be in that $26 million to $30 million range. We're still supporting that earnings per share in that same range $0.43 to $0.52. And upside in some of that acceleration of that is really going to be probably the timing of the delivery of lots as well as, I think, oil and gas, and so we'll have a lot -- a much stronger year in selling industrial water sales just because of the permitting that was done last year and really, I think the strength and the price of oil will really reinforce the fact that our operators are going to really try and capitalize on that, keep those rigs in active service on our service area in and around our service areas.

So we don't have just the 1 operator, we do have several operators that are looking at programs and multi-well pad sites this year. So we believe we'll have a strong performance on that industrial segment.

We continue to reinvest and repurchase shares. I believe our stock is undervalued, significantly undervalued. We are we're encouraged by some of the recent strength in the stock and really do believe that the assets do have continued support and really focused on continuing to deliver that shareholder value. And some of the ways of doing that are really going to be kind of the development of our commercial opportunities, getting this interchange completed, we're really at the final stages of that permitting process, and getting that into [ CDOT and Rabo County ] who are regulatory agencies here, but it does allow us to accelerate not only the commercial opportunities, but also continuing on the residential side. So that's another thing to keep a look out in the next fiscal year.

And then also I did want to kind of give you a revised video. We're trying to kind of keep this video as part of our format to kind of share with you the progress that we make. So it's about a minute long, but I'll give you kind of an opportunity to see -- gives you a perspective. That should be an all white picture there in the background, and it's just not. So that gives you an illustration of kind of the dry year that we've had and [indiscernible] also gives you kind of a picture. You can see the landscaping is fairly dry throughout the community. It's pretty typical, but I think that we're going to have a challenged year for some of our water supplies and other providers.

I think we're strong in our position in our portfolio, but other providers are going to see very seasonal water deliveries. Just kind of drills in on that Phase IIC number, we probably got more than 1/3 of these homes permitted and started and then it also gives you kind of where we're taking a look at IID, where you've got homebuilders really starting construction activity on that project as well. And really, this is the unusual aspect. We would not expect to have all these roads paved and these lots available for that. But we were able to capitalize on that this year with the mild winter. And so that's a great opportunity for us and our homebuilders.

And then moving into kind of Phase IIb, we're nearly complete here. We probably only got maybe half a dozen home lots that are yet to be constructed in that phase, and then this kind of rolls up into a good view of the high school and construction progress on that. We've enjoyed that opportunity as well. They are ahead of schedule with the mild winter that we've had as well. So that will open up in August for our toolkit for the next '26, '27 school year. So that's exciting for us. And then ultimately, kind of a shot at where we're going to be with that interchange in our commercial properties up there in that area.

So we are actively marketing our commercial properties. We've got both retail and industrial brokers engaged and are seeing some exciting opportunities. We're out there pitching a lot of the retail and some industrial opportunities for distribution centers, a number of different types of uses, whether that's going to be a heavy water user or just access to that Interstate is a terrific asset for us.

So with that, I guess I'll -- those are our prepared remarks. So what I'd like to do is open it up for Q&A. I think the easiest way to do the Q&A is if you want to on Mike and just shout out a question and then we'll coordinate seeing how that technology works for everyone. So with that, I'll turn it over to you all.

Mark, I've got several questions for you. Most important on your last call, you made it clear that completion of the new interchange is very important. You sound encouraged, could you give us a real -- a detailed update?

Yes, drilling down in then. So the interchange, we have -- we've been working on that. It's -- government always has an acronym for it, and then Colorado, it's called the 1601 permit process. And so you do that in conjunction with the [indiscernible] Department of Transportation, and it's a comprehensive effort, right? You go through every component of your interchange design, what the load capacities are going to be, what the traffic movements are going to be what the distance setbacks are for signals to the interchange and environmental aspects of it.

And so we're now at about a 30% design of that interchange. So we really have a solid idea of how that's -- the cost estimates are going to be and then really how do you fund that. So it's a private permit, the Sky Ranch will be a permit for that. And then we work together with Arapaho County because they'll be the administration of that. It's in the jurisdiction of Arapaho County. We should be submitting that 1601 seat. We submitted every component of that as we go along for their review and their concurrence.

So what we hope to do is have that ready sometime this June and then really be in a position of going to final design on that. That will probably take through the end of the year and then take a look at funding that bonding of that. We've got specific mills that have been set aside within the community to be able to bond that. So we have that as a component of the 1601 and then start construction in 2027 with a completion in 2028. So that would be the time line.

Okay. That slipped a little bit from completion in 2028 because on the last call, I think you were thinking in late 2027?

Yes. that probably has slipped just a little bit, but we continue to be able to deliver each individual phase. So I think we'll still -- we won't really miss any of our cadence on lot deliveries on that. I think what we've tried to do is work on currently with some of our commercial opportunities [indiscernible] lead time as well, and we want to make sure that we can bring those online as we're constructing the interchange.

Okay. On your last call, you mentioned data center -- no mention of it today. Could you please update us anything you can tell us there?

Yes. We -- it's not that we are not continuing to pitch that. But Colorado is probably not as attractive as a state on some of these larger hyperscale or data center type opportunities, and it's really twofold. One, a lot of these -- the ones that we were very active [indiscernible] really are looking for tax incentives and so the state had the bill before the legislature, they have 2 competing bills. They have 1 bill that is seeking incentives and 1 bill that's seeking to disincentivize and Colorado just has a dysfunctional relationship with itself on being able to set a consistent policy.

But they are heavy water users, which is something that we certainly have an opportunity to support, but they're also heavy power users and Colorado probably is a little more challenged than other areas on bringing on additional power, particularly gas turbine-based power in the area. So those are the risk elements that some of the data centers that we have been marketing to are sharing with us. We still like the opportunity. There still are data centers that are being built in this area. And so we'll compete with that and see where it lands.

But it's not just the data centers. We have water and bottling opportunities. Those are going to be heavy water customers, that we're pitching to and then just overall distribution centers and things like that for our commercial industrial opportunities.

Okay. Last question. I was delighted to see that you've added another 1,600-plus acre feet of water. You acquired little bits and pieces of water, I think in the last few years. The company continues to say it has 30,000 acre feet of water. It must have more than that. Doesn't it -- how much does it have?

We do. We do. You're set to heat tabs on that. We probably increased that portfolio about 10%. And so we're maybe closer to 300 or 3,000 acre feet of water. And correspondingly, we do have the ability to probably provide service to more than 60,000 connections, and those are very important metrics. Those are longer tail on it. But when you take a look at how we scope that opportunity, we talk about $40,000 a connection charge of $60,000, which is about $2.5 billion, and that number is probably [indiscernible] consider. It's probably closer to $3 billion worth.

But those are longer lead that kind of carries us out and continues to add to the real depth of that segment of the business and as we get closer to that 25,000 connections within the company, we can really detail out really how much more of that we have to serve. And I think couple of areas for that, the Denver area growing out in and around Sky Ranch in and around [indiscernible] which is our service area, are really the key opportunities for us to continue to add to that portfolio -- that customer on that portfolio.

I see Jeff's got to stand up.

Quick question. The -- as I recall, you were going to wait for the commercial development until the [indiscernible] was actually finished. Did I understand that you're currently actively marketing the commercial opportunities?

We are. Yes.

Is that an acceleration of what you had wanted to do?

Well, I think we had that time line. And as Elliot kind of highlighted, we were looking at getting that 1601 permit kind of this summer, and I think we'll look to get that towards the end of the year. but we already set that up in motion, right? We want to be in front of these users. It's not something that you can just directly turn on and say, okay, get out there and start building your building or your retail use or whatever it is. We really want to make sure that it is a highly attractive site, and we want to be regionally specific. We want all of those folks that are looking at sites and interchanges to be appreciating what it is that we're putting into this opportunity and put it into their scope and planning.

And we do have some capacity to get started on it. It's not 100% conditioned on the interchange being developed. We have an existing interchange, it does have service capacities, and we do have opportunities where we can add maybe it would be a nontraffic sensitive type user to the site, someone like a distribution center that would have the appreciation. Okay, we can use the existing interchange to get our building permitted and started. And then as that gets completed, really would have that truck traffic.

So that's what we were trying to do is parallel that process and make sure that this doesn't have that long lead time and really deliver just in time.

Mark, just quick. Do you have any expectation on the timing of the next receivables?

Great question. we'll take a look at what that capacity is from the 2022 bonds. And so those typically have a 5-year call provision, and so that's where they start to burn off in 2027. And taking a look at really the differential that we had in our first filing and our second filing, we think they're somewhere around $10 million to $12 million worth of additional reimbursables from refinancing just what we've already financed there.

And then as we move into Phase II, we'll take a look at because that will be that 2027 time frame as well as we complete that interchange and really start processing permits into Phase III, that could be as much as $20 million. So -- and I think we got about $10 million of refinancing of one bonds and then probably another in of fresh financing moving into Phase III.

Awesome. And then can you talk about the builders' appetite for lots right now, delivered the current phase ahead of schedule, we know new home demand spend kind of sluggish given interest rates. So I guess I'm just wondering, is there any risk of an air pocket between this phase and then starting the next phase if it takes a while for the builders to deliver the lots that you delivered ahead of schedule? Like how does that impact the timing of starting the next phase?

That's a great question. And so really, what we saw as a result of kind of this pull back in the market. And I'd say consumer confidence is the #1 factor on decisions to buy houses. Interest rates always impact that, but that's -- that's not, I think, in our segment, where homebuilders are able to buy down mortgages and at an entry-level point, that's a little less costly for them. When you're buying down a mortgage at maybe a point at $450,000 home there's a lot less than if you're buying down that point at $800,000 home. And so that sensitivity for us isn't so much in interest rate but more consumer confidence.

And so what we were able to do is pull in new homebuilders to the portfolio. We had 4 homebuilders -- 4 national homebuilders that were part of the portfolio as we started Phase II. We now have a -- and those 3 new ones that are in the mix on this thing are really -- there is a filing 2D. And so they have 1 year inventory, and we're looking at 2027 in deliveries and sell. They may not be in IIC but they're in IID. And then the other 4 were in IIC and IID. And so they're a little bit long on that annual inventory, but the other ones are a little short on that annual inventory. And so that gives us the opportunity to roll Phase IIE on because they're the ones that want those '27 deliveries working on the '26 deliveries that they already have.

And so that's an opportunity for us to bring in more builders. And we really like having that yearly deliveries for them and a number of builders in there. So they're bringing diversity of products. So it's not cannibalizing the market. It's really having an opportunity where we have a very robust portfolio builders.

[Operator Instructions].

[Operator Instructions].

There was a question in the chat related to a slight decline in some reoccurring revenue from 2025 to 2026. We -- I looked into that and it looks -- we have some commercial customers non-oil and gas that are off site of Sky Ranch that are governmental buildings that could fluctuate from year to year. And that looks like what it's what's causing that slight decline. Obviously, we're not seeing a decline on the average house per residential house in Sky Ranch nor are we forecasting any kind of decline there even with water restrictions that are coming forward. So it happens to be just a slight anomaly between some off-site customers that are showing that slight decline.

Well if there aren't any other [indiscernible].

A couple of quick questions for you. One, on the land acquisition. Any updates from any of the potential spots you're looking at and -- or from Lowery, I know you discussed Lowry, but nothing else except for just the fact that everything is built out already, and we need to -- that's the next logical spot. And then secondly, when it comes to stock buyback, I know you guys have been buying back stock, but really just to maybe offset the -- not to reduce share count. Any thoughts to stepping that up at a quicker pace with the stock still sitting here?

A couple of good questions. We are taking a look at new acquisitions really, there are a number of land areas in and around Sky rands and other areas. And -- and there's a soft way of taking a look at that. Where we go out and we buy a land and hold that in inventory and -- is that the best use for our shareholder capital because some of those projects would be very long stemmed in being able to do that. And there's some we're trying to get -- I think our priority opportunities where we can either get those in a partnership, get those in away -- acquisitions in a way where that doesn't become a big drain on tying up shareholder capital for many, many years on that.

And so there's still opportunities in there. Most of those guys really aren't that excited about that type of structure. And so what we want to do is time those out if we've got an opportunity that we can buy a cheap land, but that land doesn't look to turn over for 7 to 10 years. That may not be our highest priority. There are opportunities where that has gone up. And we sort of said, well, we like that land interest, and we might not be the buyer today, but we might be the buyer in 5 years and it doesn't matter where we may have to pay a little bit more in 5 years, but it's also 5 years closer to when that would be looking for development. So we're really being disciplined about that type of opportunity.

Did highlight, Lowry, and those are -- we continue to see great opportunities there. That is controlled by the state, and we'll work with them and whatever their time line is on something like that. So we'll be reactionary to that. On the share buyback, we took a look at what our trading windows are and we wanted to open up some flexibility on that to be able to be more aggressive on particular areas. There's certainly a lot of restrictions on the windows that we can repurchase those shares and -- we want to be a little bit more flexible for that. And so we did modify our window of trading activity.

And then really, Craig, I think our continued focus is capital stack to be in a position to reinvest in the company. And this -- our balance sheet and liquidity and our flexibility here has been really demonstrated by being able to do that this winter and having the capital to be able to do that. And so you did see a real change in the liquidity where we were dropping that liquidity down substantially because we did deliver in advance of those. And as that comes back and that liquidity continues to reimburse. There are opportunities for us to increase our share buyback, and that's something that we continue to evaluate, and we will take advantage of as appropriate. [indiscernible].

[Operator Instructions].

Yes. This is Greg Bennett. Could you go through the economics of the -- you're deemphasizing the rental program, but what are the -- what is the return unlevered rate of return in the rental program. I mean you're -- am I correct the loan that you have against these properties is a floating rate loan. And yes, I'm just curious, you've never mentioned what the places rent for or what the capital you have tied up in you go through the economics of that?

Yes. Yes. I mean, so I'll give you kind of a high-level version of that. So typically, what we see is we're carrying forward some of that equity in the lot and the water. And so when we go out and we contract with our homebuilders to build those homes, they're coming in around $350,000 is really the cost that, that vertical construction is on that home. The home typically appraises somewhere in that $530,000 range. So we have about $180,000 margin in there. And a lot of that's just kind of the equity value of that. We do have a credit instrument for that. It's a fixed rate credit instrument, not a variable rate one.

So we do have a facility that we're using that credit facility and not our cash to be able to do that. It's about a 6.5% credit facility. So our first few were done in a very low credit facility, right around that 4.5% rate. So it was much better at that rate. The rentals on these cover the debt service on that and provide us a margin. So typically, these homes are renting around $3,000. I'll just use that as a kind of a round number. some are a little lower, some are a little higher, depending on the number of bedrooms and the square feet of that.

And so when you take a look at all of those, we don't have a lot of holding costs on those. And so our rate of return on that somewhere in the 8% to 10% range, but we want to dial that in. We want to see, okay, is that -- how is that performing? What is the capital creation of those homes. If those homes are appreciating at 4% or 5%, together with the rental incomes we want to see what those segments are performing out and making sure that, that meets our investment threshold.

So that's really the pause of continued growth of that segment is to get a good handle on how that segment is performing and report that out and make a determination of management and the board level as to is that adequate? And do we want to keep moving forward with it.

Okay. Second question on -- you mentioned in your comments in the oil and gas segment, the impression I got is that you contracted out for the drilling companies. Are these all -- is that firm take-or-pay or let's just say oil prices go down to $60 a barrel or $50 a barrel, are these -- is the contract a take-or-pay? Or can they say, no, we're not going to take the water, we've decided to slow down our drilling operation?

Yes, great question. The oil and gas companies really will pay a premium for you to be at their back end call. And so when we when we price our spot oil and gas or industrial deliveries, that's about 3x, 3x what we price it out at our residential customers. But the downside of that is that sometimes they help back on that call. And so no, we don't have a very fixed amount of take or pays and we're one of the very few providers that can dial up and dial down on their systems, and that makes us very attractive to them. And so the premium that I think we charge them for that flexibility is really good for them and good for us.

And as you saw last year, we had relatively weak oil and gas deliveries compared to 2023 time frame or 2024 time frame. And so it is a variable demand. It is hard for us to forecast because they do -- it takes a significant amount of lead time for them to get their permits in line, get their rigs committed. And so what we will see is we will see some pretty robust demand through 2026, and we will see a pretty healthy opportunity in 2027, given what they've already what they drilled to date. And so I think we're pretty we're pretty confident about the next 2 years on that. But forecasting out beyond that, as you highlight, is a real function of how oil and gas is doing in the overall commodity index.

Okay. And final question, and I'm in a car, but I didn't see your slide, but in the very beginning of your presentation, you gave an area view, I guess, of Aurora or some of the properties, I guess, that are south of Sky Ranch that were undergoing -- my impression was there were undergoing development of home sites. Is that correct?

That is correct.

Yes. So the stuff that's been permitted south of the Sky Ranch that actively being developed. What's the time -- I mean, how many units is that? What's the absorption? Is that thousands of units? Is that like a 5-year plan for -- these are other companies or it's Aurora. But what's the time frame to get all those years?

Yes. And so just that -- you're correct. And there's a lot of land in and around this area, right? The I-74 is probably be highest development corridor in the metro area. And it had reasons for that being the case. One, it has transportation. Secondly, it has available land. And so there are on a number of projects, which are thousands of residential units, and they're all around our area.

And the Denver area is adding around 15,000 to 17,000 units a year. And I would say this submarket is probably 1/3 to 40% of that domain, whether it's in Aurora, whether it's in IncorporApple County, it really is the strongest development segment in that area, and it will continue to be that way. It will add 6, 000 or 7,000 units a year in this corridor for the next 50 years, right? There's no other area to develop. So we worry less about how we compete necessarily a Sky range to the next development. I think we have a lot of advantages that bring us into a higher performing master plan community than other areas.

But at the end of the day, it's all going to absorb. And so this happens to be we're targeted in the right segments of the Denver Metro area. We're offering the right product. We're offering the right model for delivery of lots to our homebuilder customers. So we worry less about is that project can absorb in conjunction with our project absorbing and are we going to see any competition in that area. I would say that's not the biggest metric for us. What we really want to do is be the right developer being that we are doing a horizontal work. We're doing it exactly the way our customer wants it with annual lot deliveries. We're adding to the builder portfolio so that we have all of the builders in our projects and whether we have 1 project at Sky Ranch.

But we have multiple projects where there are other Sky Ranch 2, Lowry, any of the other projects, we want to make sure that -- we continue to pay those deliveries and maintain what will be a very long tail of land development.

Yes. I guess my question was more when do other parties have to come to you for water -- if you don't own the [indiscernible]?

Yes. I misunderstood that. So they're in the city of Aurora, which as you can see, most of the land directly south of Sky Ranch is in the city of Aurora. They will not come to us, right? They will get their water from the city of Aurora. Those land areas that are not incorporated into the city and the corporate or Apple County, low rate, they will get their water from us. And so I would say it's maybe an even split of opportunities that are going to be competing with us that are going to get their water from Aurora and opportunities that we are competing for to be the developer or just the water utility provider because they're in unincorporated [indiscernible].

whether we develop it or another developer develop, is it.

Mark, I think I figured out my [indiscernible] here. Congratulations to you and the team on another solid quarter here. So following up on the question with regard to water. You've got capacity. Obviously, you've got great variability with industrial water sales. What -- can you just refresh us what the opportunity, what your obligations are to WISE and what the opportunity there is, especially if I think you alluded to earlier in your comments that this might be a challenging year when it comes to water supplies and other areas. Do you have the ability to sell through the WISE program or draw from the WISE program.

We do have the ability to draw from the WISE program. So that's an addition, as Elliot identified earlier, that's one of the acquisitions of water supply that's added to the portfolio. We get about, I think, our full subscription in there is about 900-acre feet of water. That system is fully built. We have capacity within that system. So we have, in addition to the 900-acre feet, we have 3 MGD of pipeline capacity in there. And the -- WISE is a kind of a partnership among 12 different water providers in the Denver metro area. And what we've done over the last several years is -- there are opportunities where we want more water, like if we have very heavy oil and gas demands in the winter and other of the WISE participants do not have real high water demand because their summer irrigation season hasn't quite kicked in. There are opportunities for us to get more water out of WISE.

And then sometimes when the heavy irrigation season is going on and we have light oil and gas or industrial water deliveries, our domestic deliveries are relatively modest. They're probably 5% of the total capacity that we deliver in any given year, we have opportunities to sell water to the otherwise participating. So we go both ways. WISE, where we're able to trade for more water or trade or less water in that opportunity within WISE.

Is there opportunities for that to expand? Yes. We're looking at partnerships and regional partnerships for storage. As many of you who have been following the company for a long time now, we have some very valuable storage reservoirs. And so those are opportunities for us to develop and store other water supplies as our partners look to develop those water supplies had a higher treatment capacity where we can deliver more than our subscription that [indiscernible] into that. So that will grow over time for opportunities for us to expand and it would be a spot water type market, but opportunities for -- as oil and gas over the next 10 years starts to mature out. And if they recycle in and refrac those wells, that will continue to build in the next cycle of the development of this [indiscernible] formation.

And then also opportunities for us to be spot and peak water deliveries to other WISE participants. So we look at all those opportunities and that interconnect of that system is a very important aspect of that.

Well, terrific questions, and I want to thank you all for your continued engagement. We continue to really pace the development of our assets and really are looking forward to built out at Sky Ranch. We're looking forward to continuing to expand in the land development and really monetizing our service area and more water opportunities and really building this in. So we couldn't be more excited about our runway and really the market penetration that we seen as a utility provider in the [indiscernible] as well as the land developer in the Denver area. And so I think that's going to continue to generate really handsome returns for us and returns to the shareholders.

So -- if you didn't get on the call, if you're listening to this on a rebroadcast and a question arises, certainly don't hesitate to give us a call. We will have our Annual Investor Day this coming in July. So -- do we have a date set on that? I think it's [indiscernible] third week of July. So be on the lookout for that. I think it's typical on a Wednesday. I know I did get 1 shareholder that was looking for combining that with a Friday activity, but we'll send some information out as it gets a little bit closer to that. But again, thank you all for your continued investor confidence, and we look forward to the next steps. Thank you.

Good morning, everyone, and welcome to PureCycle Corporation's First Quarter 2026 Earnings Call. We have had a great start to the year, and we're excited to share with you guys our results for the first quarter. A couple of housekeeping notes. The earnings presentation is on our website. So if you're listening on a phone or on replay, you can download the slides from our website. [Operator Instructions]

And with that, I will turn over the call to our President and CEO, Mark Harding.

Thank you, Mark, and I'll add my welcome.

As Mark sort of foreshadowed, we've had a very good first quarter. Typically, our first quarter is usually a little more challenging just because of weather issues and -- for those of you that are watching for ski reservations. We've had a pretty dry year and a good weather year. So it's allowed us to really advance a lot of our construction projects out of Sky range.

So with that, let me go ahead and start the presentation. Our first slide is always our forward-looking statement, which includes the fact that statements are not historical facts contained in the reference in this corporation are forward-looking statements. I'm sure most of you are familiar with are forward-looking statements, wild fire. I always want to give a shout out to our management team. And here with me is Marc Spezialy as well as Cyrena Finnegan, our Controller, then that they have any specific questions that they'd be able to weigh in on. a great team of professionals that continue to really provide leadership to the company and really all segments of what it is that we're doing as well as our Board of Directors. We have a terrific board, very heavy weight [indiscernible] for a company our size and all are really engaged and provide significant contributions to the company, but I want to give a shout out to our team and let you know their continued support and engagement.

As most of you know, this is just a quick investment snapshot. We've got a continuing streak of profitable quarters. So we're very thrilled that we continue to deliver profitability and shareholder value. We operate in all 3 business segments, land development, water utilities and single-family rentals, and they're all doing great. We have good visibility with our land development. We're really really striving to continue to develop and build our recurring revenue base.

And then our great balance sheet continue to build, fortify our strong balance sheet and continue to invest in our business lines. as well as grow the business and create shareholder value. So really a solid diversification of the company's activities. Let me jump into the quarter results. And as you see from a revenue side, a great quarter on the revenue, Q1, really, I think it was a record setting Q1 for us just because of the seasonality issues. And what we really see on the highlights are we brought in 2 new homebuilders to our portfolio that are really engaged in Phase ID, which is what we're working on. We punched out completion of Phase II at the end of our fiscal year last year and continuing through with Phase II, and we'll talk a little bit more about 2E coming up.

But due to the weather, we were able to get a lot of the curves and even asphalt down in the November, December time frame, which is really unheard of here. So we're about 80% done with the roads in 2D, and that's about 5 or 6 months ahead of schedule. So really capitalizing on the weather, and we really kept our contractors engaged on the site so that as we continue to have that whether we'll be able to capitalize on that. Moving over to the profitability side. Net income and earnings per share, significant increases in net income and earnings per share, and that's a result of the progress on Phase II.

So you see a significant uptick in both of them. So we're very pleased to be able to continue to deliver those results and streamline our revenues throughout the year. And this would be a more typical even flow of those earnings and those revenue streams. But with the seasonality, we kind of have those variability factors. [ During ] the first quarter, we achieved about 1/3 of our fiscal year forecast. So we're ahead of schedule on what our guidance was, take a look at that great start, bringing in a little over $9 million in revenue and then about $6.2 million in gross profit. So terrific results from our management team and our operators and folks in the field. Year-to-date results, net income earnings per share similarly.

We're ahead of our guidance. We've got about 37% of our full year guidance on that. So terrific terrific opportunity to continue to deliver that and then really moving forward from how we're looking at developing the land side of it really being able to be in a position to deliver more results on Phase III, continuing to produce those lots for [indiscernible] other customers.

So I really want to take those results and parse those out a little bit for everyone. So we can separate that out into the 3 segments and show you kind of what the contributions are for each of those segments, breaking them down into the water utility segment. As most of you are familiar with, we really have 2 revenue sources, 2 classes of customers. We have our domestic customers, which is where we deliver water and wastewater to residential units. So those are customers that are at Sky Ranch. They're at other projects that we provide water service to in other areas. And then we have our industrial customers, where we provide water to the oil and gas industry, primarily fracking wells that they're drilling. And then around [indiscernible] County, we have done wells in other counties, but the bulk of our activity really centers around Roble County and the Lowry Ranch, which is our service area.

And then in the new [indiscernible] in the water and the wastewater side, we kind of have 2 different forms of revenues. We have the recurring monthly revenues where we're doing that on a metered basis. And then we also have the capital component of that, which are connections which are really connecting to our waste from our homebuilder customers, our homes, businesses to each individual system connection and those are through the form of cap fees, and they're high capital costs, which are usually incorporated into a mortgage or the development of that business. And so those are the 2 revenue streams attributable to that. When you parse out that data, we continue to see strong customer growth of the recurring revenue. So we get a 22% customer CAGR. So we're very pleased about continuing to grow that recurring revenue.

And while we had a record quarter overall, the water segment, a little bit softer than normal, and that was primarily attributable to just the timing of getting building permits getting some of those tap fees and then also taking a gap in the oil and gas deliveries. We had our oil and gas operators concentrating on building a portfolio of well permits. And we'll see that sort of tick up the rest of the year.

We've got a number of wells that have been drilled and completed and then they're just starting fracking later this month. and be fracking most of the year. So you're going to see a substantial uptick in that. You take a look at that in comparative quarters through the last couple of years, that shows you really kind of the variability of the oil and gas side, but we do expect that to pick up for the rest of the year. taking a look at kind of that 1 specific industry on the oil and gas side, they fluctuate.

And that, as I said, it really is a function of kind of permits and getting the sites constructed. They're building these large multi-well pad sites that will have somewhere between 10 and 20 wells on each of these pad sites. So they're really concentrating their activity to a pad site and they have the directional drilling on these pad sites. But as you see some of the trending in that, this is kind of an annual snapshot of how we look for oil and gas revenues and as an illustration in 2024, they were pretty evenly distributed through the quarters.

I think you're going to start to see a little bit of that similar activity of the quarterly distribution for the rest of the quarter for us in fiscal 2026. What we do like to do is kind of give you a feel for capacity. How much how much water is available for our high-volume customers like the oil and gas customers as well as where we're at on continuing to invest into the company's assets.

So what we like to try to do is make sure that we have a steady pace of investment in water and wastewater infrastructure for our customers. and balance that out with sort of the need for that portfolio. And this kind of shows you, we do have a substantial amount of capacity that we've invested in. And if [indiscernible] to look at it just for the quarterly area really didn't use all that much of it just because of that oil and gas variability. So we're really only using about 3% of our overall water portfolio and then taking a look at the capacity that we have for annual production, we can produce about 2,800 acre feet, and we really only use about 150-acre feet of that. So it does give you a sense of kind of what the pedal strength is on our water portfolio litigated and our water system. Let's take a look at our land development segment.

We're -- this aerial shot is illustrative of high school that is under construction. So we're very pleased to see that being coming out of the ground, and that will be completed in time for our kids for the fall of 2026. In our Land Development segment, you've heard us talk a lot about the various phases. Phase I, which we did complete last fiscal year, we're midway, a little bit more than midway on Phase 2. And we have a percent completion methodology for how we recognize revenue on that. continued lot protection for Phase IID and then also moving into Phase III, which will be about another 160 lots, but we'll start grading on that sometime in the March time frame and really enjoying some of that good weather so that we can continue to [indiscernible] that pavement and curves and gutters for delivering those lots.

If you take a look at the lot development revenue, this is really where the strength of the quarter came from is really building into that Phase Ib. We're complete with Phase I really kind of highlighting some of this, if you want to take a look at the number of homes that are being good. And that's really kind of a tuning of housing market. And I know there's a lot of press out there about the housing market and the strength of the housing market and how interest rates are impacting that. But we're seeing substantial continued support for what it is that we're doing.

I think that's largely indicative of our market segmentation as an entry-level product. Taking a look at the homes completed or under construction in Phase IIb, which is really going to balance out the inventory for each of our homebuilders out at the project. We've got about 85% of Phase IIb completely built out, taking a look at Phase II, which is what we just delivered we have on our newer homebuilders, going vertical with a strong portion of their portfolio. And then we even have a lot of our new builders into the portfolio already starting homes in Phase I, even though we haven't fully completed 2D.

We have completed enough of the -- much of that infrastructure where we've got all of the water, sewer storm, curves and gutters and access for that for them to start in 2D before we deliver all of those finished lots. And so what you're seeing is we typically had annual lot deliveries for what was a portfolio of 4 buildings. And they try and manage out that inventory so that they don't take any more inventory than what they foresee is for an annual year of production. And as we -- as the market sort of slowed, what we saw was that there was availability for other builders in there. So we moved our portfolio up to 7 national homebuilders working on that.

So that gives us a strong portfolio builders that each of them are continuing to maintain their desired level of inventories, and we can continue to pace our development of the project so that we're continuing to accelerate the monetization of the land side. This is kind of an illustration of sort of the snapshot, the visual snapshot of each of the phases from the stock bases from Phase 2 here, some nice aerials, reset [indiscernible] activities, each of our entry-level segmentations on these and a lot of product diversity where we have a 35-foot lot, 40-foot lot, 45-foot lot on the standard [indiscernible], but then we have segmentation into product, which is a townhome product -- I'm sorry, a duplex product and then also townhome product that really offer a variety of price points for the entry-level market. The land development time line. This is kind of an illustration of how we do the accounting for that, right? There's 3 basic phases that we deliver lots to our own builder customers. And that's out of plate where you've got a severable title instrument to the individual lot and we typically get a third of our revenue for the lot payment on that.

Then we do the grading and wet utilities with that money to deliver that progress payment and then finally, moving into the roads, curves and gutters to get the finished lot payment. So that kind of shows you a phasing of that. And it really shows you how we layer in the phasing by quarters. And really, I think the key area for us this year was being able to really substantially do a bunch of finished lots in this Q2, which typically doesn't happen for us just because of seasonality. I want to really talk a little bit. We were able to expand and amend our interchange access permit with CDOT and really got us another phase. We've been talking about a lot of these uses for 2, which started out as about 850 lots.

And I think we have the flexibility to get about another 180 lots in there. And so this Phase 2 is about 159 lots [indiscernible] area of where that's going to look. It's right across the street from the school there. And so we'll start grading on this spring, and you're going to start to see a bit more overlap in that chart we had before on how we deliver those lots to our build to customers.

As I mentioned, the key milestone was the start of reduction at the high school. And so this gives us a full K-12 campus on site, which is very -- it's a high and it's most of our homebuilder customers really in the feedback that they're getting from their purchasers, the school and one of the key elements that are driving people to Sky ranks just because it's a local school [indiscernible] for everybody, a terrific asset for us. What we always like to highlight is kind of some of the key areas of where the vendor metropolitan area is growing and kind of gives you a perspective.

I think this is a graphic that many of you have seen before, but it kind of gives you the fact that we really grow 1 direction, right? We can't grow West just because of the mountains. And and we find ourselves in really the most attractive submarket of the Denver met [indiscernible] area along the I-70 corridor, if you're looking at the mapping on the right of this illustration, that black line at the top is the interstate shows you where Sky Ranch is positioned on that. And then the pink area is really our service area, the lower branch, and what we're seeing is more and more development occurring around orders of the Lowry Ranch. And so we're excited about continuing to expand our operations out of the Lowry property as the state of Colorado determines what it is that they're looking for and how they'd like to monetize that asset for the school trust.

I want to give you an update on single-family rental segments. We've got 19 homes now completed and all rented. So that segment continues to recurring revenues. We've got another 40 units under contracts. And what we're trying to do is pace how those really hit the market. We're trying to phase those as around 4 or 5 units coming online each month, and that will start beginning in May and then bringing those units online so that we make sure that we can get them leased and continue to really offer an opportunity for those who are looking for a house but are running into the affordability challenges. That continues to be one of the key issues in the housing market is the affordability.

Taking a look at some of the individual performance on there, continued growth in the rentals adding more units online as well as capital appreciation of those assets, very tax advantaged segment for us because retain the equity of the lots and the water service connections in there and those houses continue to grow in value as we continue to add value to the overall community. Little bit about kind of the phasing of how we're looking at bringing these units online for each of these different phases from the first Phase 1, which we completed several years ago up to what we're looking for in 2E, so bringing online about 100 units for that.

I'll talk a little bit about our capital allocation and kind of how we're building that continued shareholder value. We really want to emphasize each of these segments, the water segment, where we're growing assets in each of these segments through investing in them, whether we're investing into the brick-and-mortar of the land segment, whether we're investing into pumps and pipes and diversion structures for our water segment and then building our home inventory for single-family liquidity.

We continue to grow the balance sheet in all 3 of these segments and then really take a look at protecting and preserving the balance sheet so that we can have that liquidity for continuing to invest in our each business segment and deliver recurring revenues for our customers. how that looks.

We drive shareholder returns through those recurring revenues on more single-family units and a diversified mix of revenue from tap fees to industrial water fees, we have oil and gas royalties, which were really -- they were very strong last year. We continue to build our earnings. And really, each of these segments kind of build value from each other. So there's a vertical integration in some of those segments that give us where we get value to one we're adding to Shareholder value just reiterates our fiscal year guidance as well as give you some interim and build-out forest revenues for our asset growth.

So when you take a look at kind of the segment of the revenues, the lot of recurring revenue as well as single ininal revenues, gives you a snapshot of how we're building that through the portfolio as well as what that asset growth is. We've talked substantially about kind of bringing on that asset value from Sky Ranch, building out the rest of the residential projects as well as the commercial projects. So great opportunities, and we continue to execute on that. trending.

This illustrates the profitability trend in our fiscal year guidance and kind of the near-term outlook. So again, we want to stay on pace with that. We've got a great quarter on delivering ahead of schedule and had results on fiscal 2026. And then this kind of shows you as we get that interchange constructed, how we look to open up and unlock the balance of the portfolio value. Valuation and sensitivities. Our fiscal year guidance was in that $26 million to $30 million range. earnings per share of $0.43 to $0.52 per share and kind of the upside and the timing acceleration for delivering some of those lots and how we might continue that trend, continuing to reinvest in ourselves with our share buyback program and balance the liquidity needs of the company and how we're investing into each of our land assets against what we continue to believe is an undervaluation of the company's current trading products.

What I also wanted to do a bit of a new slide this quarter and really kind of illustrating, you've heard us talk about the interchange, its importance and kind of how it's phasing and what we're looking to do is get that permit finalized with the county and state sometime early half of this year and then really take a look at bonding opportunities with some mill levies that we reserve at the projects and start construction on that in 2027.

This is kind of what it looks like, and how we're going to orientate to the overall development. We're in the existing interchange will go away, we'll realign that along with section line, give it kind of a diamond interchange capacity here. And so this is obviously an important component for us to continue to build into Phase III as well as bringing online the commercial opportunities for that. Taking a look at a little bit longer range outlook, the commercial [indiscernible] really provide a lot of the high-value land and a lot of the AB, that assess value is really where the public improvement renters get their strength on us not having to advance those funds, getting reimbursed.

I think our receivable on -- that's currently around $50 million. And so the combination of the assessed value, Colorado is what we define as a sales tax incentive state. So we get literally 4x the tax revenues from commercial assess value as we do residential assess value. And then in this particular case, we get public improvement fees on that, which is really sales tax receipt on that. So those 2 are significant revenue drivers. And so this kind of gives you a feel for some of the land planning that we're doing there with some grocery anchors and then taking a look at a flexibility structure like this, where -- what we're looking at is maybe offering opportunities for us to partner with others that might be high water users, some of the current activity. We've engaged local real estate commercial industrial real estate brokers that are very active in data centers.

And we have a very unique opportunity here at Sky Ranch. And together with Pure Cycle, given the fact that we have a high availability of water, so we can really distinguish ourselves for these high water use and high water intensive type users. So we'll see how that develops over the next few months, a year or so. So with that, those are our prepared remarks, and maybe what we can do is open it up to some questions and get a little bit of color if you'd like on kind of things are rolling along. [Operator Instructions] Mark?

Very interesting to see you put the estimates of earnings out there. There was 1 pretty obvious blank, and that was for fiscal '27. What should we be thinking about in terms of estimated earnings range for fiscal '27?

'27 is going to be a large component of Phase III and then taking a look at how we roll into some of the interstate construction and some of the other segments. So I think it's going to look a lot like the last couple of years. that's not going to be a real breakout year in 2027, but we really think that breakout year is going to be more once we get the interchange complete and get that commercial online and into development. There are opportunities to do non high-traffic commercial users out there that we're marketing to. But as we continue to grow traffic, we have that obligation to kind of continue to build that infrastructure.

Okay. So probably $0.75 a share is too high for fiscal '27 is what I think you're saying.

Yes. I'm going to say that, that would be a good clear guidance. But when we take a look at that commercial and bringing all that in that 2028 time frame, you really do supercharge because what we're really going to see, we're going to see delivery of lots on the residential side. And then we think we double up on that revenue stream on the delivery lots on the commercial side.

Okay. Refresh my mind I can't remember whether on TAP sold, the pretax margin is 50% or 60%, which is it?

That's a great question. When we look at it on the aggregate, if you look at the build-out of what will be 60,000 units of it we believe that margin is around 50% because we have to continue to build that system. In a more short-term basis, I think we're seeing a lot more margin on those because we kept ahead on developing capacity on that. And so when we're looking at year-over-year in the last couple of years and the next couple of years, those margins might be a little bit higher on that. But when we look at it on an average build-out if you take 40,000 -- $40,000 apply to 60,000 taps at $2.4 billion revenue potential on that. That's usually about -- it's going to cost us about $1.2 billion to build that system out. But I think near term, because we have that excess capacity, those actual realized margins are going to be higher than that 50%.

Okay. So when you in the past have talked about, we're going to have to spend $1 billion. That $1 billion -- is it amortized in the cost when is the 50% pretax margin after including amortization of that $1 billion that you talk about?

That's including.

Yes.

It is included.

Mark Tucker Anderson. First, I'd like to take a minute as long as you guys get ice provide it to shout out hello to my old friend early at night. A couple of questions. First, what do you see as the opportunities for water acquisition at this point? As you've talked about in the past, you're always on the lookout for adding to your water acquisition and opportunities for you utilizing that water. Could you talk about that broadly?

You bet. I'd say we've got a very strong water portfolio right now. And when we take a look at water acquisitions because we always do, and one of the ones that folks are are constantly knocking on doors with projects. I think we're content with where our portfolio is today. and our acquisitions are really going to be strategic where they are adjacent to our existing portfolio, right? They provide the most economies of adding to it in the synergies around where we've got our investments today.

So I would say our appetite for water acquisitions is probably -- it has to be the right water right. It has to be in the right location. And so I'd say we're more cautious about water acquisitions, then I think we would otherwise be in maybe some of the other areas like land. We'd be more aggressive on land acquisitions than water acquisitions right now just because we want more portfolio on vertically integrating that value because when we buy that land, we have one that we can serve it. We have infrastructure that is there that we can serve it and then building into the land portfolio and the single-family rental portfolio, that really, that drives all 3 segments where a water acquisition would be nice. It will be valuable because we're not making anymore. And in fact, it's getting dryer and dryer.

So the existing water rights continue to illustrate value. But it's a bit -- we already have a [indiscernible] portfolio there. So Tucker, I would say, they have to be the right water right in the right location.

Well, you've just segue into the next topic on my question list here, and that is what's happening in the area of land acquisitions given sort of tension between 1 building, having slowed down substantially, but you still being in a fairly rapidly growing area where, as you pointed out, you can only grow in so many directions.

And are you seeing -- are you more optimistic, less optimistic or sort of the same in terms of your potential for land acquisitions?

I'm more optimistic. I'd say conversations that we've had with the landowners through the years and where they were previously or where they are today are much more interesting and much more active. So I would say I'm more optimistic about where that sits for us to expand our portfolio and really show a stronger runway of beyond the $600 million, $700 million that we think we're going to monetize out of Sky Ranch.

I look forward to that, although my baseline comparison is always going to be the effectiveness of Sky Ranch. And I'm not expecting you to buy anything quite that attractive at this point.

Well, you're right about that. And I hate to see the economy that leads us to what it would look -- what it looked like when I did acquire Sky Ranch.

Third, in terms of -- I found the data center comment interesting. Where in your area, are there potential locations of data center and data centers? And how does that sort of fit in with your service area?

Great question. And we spent a bit of time working on this data center opportunities. There's a lot, a lot of money sitting, waiting for ready-to-go sites. And there's really -- there's 3 metrics for data center. What are the property location, availability of power and availability of water. And I'd say we have -- the advantage that we have is we have the water side. And a lot of these cities and municipalities really don't want that type of user just because it doesn't grow their AV is [indiscernible]. They end up having to commit [indiscernible] 700 homes worth of water, 1 user, and that user is not going to have the same tax base as that 700 homes worth but -- and so we have the ability of providing that water to them for long. It's a good allocation for us. The sizing of it is less important. They can move around, but they do need to be close to water. They do need to be close to power. And because of Sky Ranch location really does check all those boxes. And so we have had conversations with specific users. We've had engagement with Cushman and they're one of the largest brokers that are managing it or data centers.

So we're very opistic that, that might lead to a great opportunity for us.

And last, my question is, in your market, what's happening to price appreciation general in the Denver market on existing homes. And two, is your first phase and maybe your 2 phases been in existence long enough so that you're starting to see resales and how those resales compare to the owner's original cost?

Yes. We are seeing great appreciation on the resales in Sky Ranch. And I think that's attributable to -- when we broke into the market, we had a very attractive lot value, which allowed our homebuilders to have a very attractive home price. And so some of the Phase 1 home prices are up as much as 30%, 40%. Since they were built, which is terrific for the community, terrific for the [indiscernible] owners. On average, home appreciation is in that 4% to 5%. On a national average, I'd say we're seeing a little bit stronger performance on that at Sky Ranch because you're getting more amenities, you're getting schools, you're getting a more mature community on that and there's less inventory at this price point. And so if you bought a house for 30,000, that appreciation is going to -- there's still no homes for sale sub-500.

And so there's a lot of opportunity for appreciation of those homes sub-$500 million.

So that makes Sky Ranch -- that's one of the real traction for your existing builders [indiscernible], in fact.

It is. It is. I'd say that's why in a relatively weak market. And you can see in some of the local press where a lot of homebuilders are dropping a lot of projects in around the metropolitan area, but we're getting new homebuilders in our existing project. Thanks, Mark. Keep up the good work.

This is [indiscernible] from Surplus Asset Management in Stockholm, Sweden. So I have 2 questions. And the first one was, on the guidance range, it would be interesting to hear you elaborate a little bit around the 2 different. It was quite broad outcomes. The guidance range that you provided [indiscernible]

You know what that's going to be is really a flex into how much oil and gas we get in there, we -- they pay us to be at their [indiscernible] call, right? Pay us a lot of high rate for delivering raw water and they want a ton of water but they go from 0 to 100 in days, right? So sometimes it depends on how the rig availability is, how -- what I do know is they have all their permits lined up and then they constructed their pad sites, and so it's a matter of keeping that rig on site. So they drilled 10 wells on 1 pad site. They're currently drilling, I think, another dozen wells on another pad side.

So we see some -- we see some -- there's some foreseeability into 20 -- between 20 and 35 wells on that. And so that's kind of the -- that's the range on that because it is a high high-margin opportunity for us.

Okay. Great. The other question was around water assets. If you have seen water prices starting to creep up and I think that's the general trend. And what's the pricing on what assets right now? And what would be the kind of the worth of the water, if you mark it to market, so to say.

Yes. Great question. And there's 2 benchmarks for that. We continue to see strength in appreciation in the tapes. So our tap fees over the last, say, 3 or 4 years have increased around 6%, 7% per year. So we're up north of around $42,000 a year in our water and wastewater connections. And then when taking a look at just the straight cost per acre foot, we bought some water in a strategic location, our first arm that we bought in that location was about 4 years ago, 4 or 5 years ago.

We paid about $9,700 per put for that. And most recent transactions are north of $20,000 an acre foot. So that gives you kind of 2 different benchmarks actual acre foot purchases as well as the strength of the service model that we have and providing service on those 60,000 connections.

Maybe I'll just take a second, too. I know you got -- I don't know if you were asking specifically about our guidance in fiscal 2028, kind of where that's coming from. But a lot of what we're projecting after the interchange in 2027 is the ability to sell some of that commercial, along with Phase II. So when we add the capacity to Sky Ranch, our lot revenue will really be able to scale as long as the market holds it with some commercial lots as additional to some home lots. So in 2025, 2026, we're just selling residential lots in subphases and to kind of stay within our capacity limits of the interchange. What we can [indiscernible] 2028 and beyond is the ability to do residential as well as commercial. I don't know if that was kind of specifically what your question was related to. But that's really the big change that you see in some of the guidance that we're we're expecting in the future. So I don't know if you want to comment on that or...

That's a good clarification.

[Operator Instructions]

In the meantime, if nobody has a question, would you talk a little bit, Mark, about what's going on at the Lowry Ranch your comments suggested again that building is right up to it. I know you don't speak for the land board nor do you want to. But do you have any sense at all as to whether they are giving thought to starting to develop that land commercially because we have an exclusive there, and it's 20x the size of Sky Ranch.

Those are the correct stacks. So you're right. We continue to believe that's our most valuable asset, right? How you monetize water it's nice to buy water right, but it's very hard to kind of monetize water rights other than providing serve. And our model of providing service, we are investing in infrastructure. We have a franchise service area at the Lowry Ranch. It is one of the most unique properties in a country, right? There's no property like having 27,000 acres of continuous land right next to a metropolitan area. And when we got into this 30 years ago, and I see my my good friend, Dick [indiscernible] on the call, who was 1 of our -- a back to 1990. And you were around in 1990. As Tucker was very closely after that. But it was so far away [indiscernible], right? You take a look at -- the migration of the Denver area over that period of time in surrounding Lawrie, and where the landlord was looking and kind of monetizing and generating revenue for those assets back in 1990 and where that opportunity is 30 years later, it just has tremendous value, and it's really an asset for the public education, the K-12 public education system here.

It's -- I can't help but be excited about all of the activities surrounding it. And really, the significant opportunities that the state has with it. But it is their asset. It is an asset that they look at holistically and saying we want to do everything we can and everything possible with that, that some of those lands are going to be -- some those are going to be for a multi-revenue use purpose. Some of those lands are going to be to develop. And so the magnitude of the challenge for them on that is really just to figure out what the best way to use it. And it's hard when you're taking a look at, how I'm not going to eat this elephant. And it's one of my time. You can't look at it holistically. It's 27,000 acres, you've got to scale it back and look at what am I going to -- what are the opportunities with some of the most in-demand parcels? And how do we look at that and how do we want to continue to participate with that. One of the things that we've done and increase our portfolio as we have the ability to help develop it.

Whereas in 30 years ago, we were just looking at the water utility side and now our portfolio looks at we can help develop the land. We can develop the infrastructure. We can develop the open space, we can develop recreational uses. We can develop a whole bunch of things that would -- we check all the boxes that they're looking for on that. And so how do we match those up with their needs, their wishes and their time line. And we're very active on that. but we're not trying to over our [indiscernible] ahead of them on that high. So we want to be partners. We want to be colistin it, and we also want to make sure that we are a strong advocate for their wishes and their desires for the property.

I was interested in that the slide that had commercial development on it. I think it was the first time, wasn't it?

Yes, yes. that's kind of wanted to kind of give you 2 things because we talked about that interchange all the time. And to give you a relative perspective the importance of that relative to the overall project.

From a practical projective, is the commercial development dependent on the new interchange?

It is. Yes.

And what's the timing on the interchange realistic in?

So I think we get that -- we've been working on that permit over the last 3 years with the county and CDOT. We're fairly close to getting the [indiscernible] and the submittal on, it's going to be like 2,000 pages of you name it, engineering sideways, designs, permitting traffic control everything associated with it. And then they -- each stage of that over the last 3 years, they reviewed, they commented, they've kind of set the parameters on it. And then -- so we'll get that into them sort of this spring, they'll review it in its completeness, then we move forward to final design concurrently with that, and the bonding of that later in the year, and we look to go to bid for the interchange sometime end of the year and be under contract for construction in 2027.

Yes. And it will only take probably 6, 9 months -- probably 9 months to construct. It's not -- as you saw, it's not a hugely complex one, and we're able to take advantage of existing off-ramps. So we're just really constructing a new bridge, wider bridge, longer ramps to the new one.

So if things went according to that plan, it would be completed construction beginning of 2028 calendar?

Yes. Yes.

Okay. You didn't look any mentioned public comments and opportunities for the public to delay or stop. Is that going to be an issue.

That's a good question. I'm not sure that there is a comment period for that because it's just replacing an existing interchange. So if it were a new interchange, it might be a little bit different process because we're just -- it's an existing interchange replacement upgrade.

So I just wanted to ask on the dissenter potential. A lot of people don't like living near data centers. And so how are you thinking about where this location would be within Sky Ranch. And then also, obviously, a good way to unlock some of that water capacity, but would you be able to monetize at the same rate as like a single-family home. So if there's -- if the data center is 500 single-family homes, would you able to charge them a similar rate for that?

Good questions, both of them. On the first one, location, we're sort of tucking -- if we look at the site that we're currently evaluating, it would be tucked up into kind of that top corner of the commercial parcel. So no would be living next to them. Next to it being a relative term. What is next to it -- is next to it being a few hundred feet, is next to it being quarter. So that's kind of the separation that we would see between that land use and our residential land use. So I do think we've got a good spacing and a good offering opportunity for that. We're not just looking at that 1 site. We're looking at other sites that are going to be remote, where we could get water to them on a more remote basis and maybe it's where power is more accessible in a more remote location. These data centers are not site-specific. And quite frankly, being next to the interstate isn't what they would otherwise need. They don't need that kind of assets that we have that site at that site zoned, permitted, ready to go with all of the water out there is super attractive, right?

So a lot of these are -- what's the availability? What's your time line? Can we jump into a site sooner rather than later? And so all those things are attractive for Sky Ranch because it's already ready to go. As it relates to what that water supply line looks like, that's a little bit -- there's a lot of nuances in that because they don't need full pot of water, right? They don't need that same level of service that they're not going to be drinking that water supply. So -- we've had conversations with them about water quality, raw water service that might have a little bit of a price incentive for them where we don't have the same level of cost. We don't have the same level of water quality monitoring, those sorts of things.

So that 1 is TBD. We do want to capitalize on the value of our water supply. But we are cognizant of the fact that we're very long on lot supply. And maybe we have a supply agreement with them for a period of time that would be look 1 way and maybe get that water back in another way to give them some incentives so that we're not losing 60,000 units worth of capacity, but then we're also using that water in the interim. So there's all of those opportunities with that type of customer.

Well, there's no other thoughts on the quarter. Don't hesitate if you listen to this on [indiscernible] or your technology didn't work or you got distracted and had run up something else, don't hesitate to give me a [indiscernible]. We're continuing to really accelerate the company, and we're very excited about where we're at. We're excited about execution, and we're excited about how things are going to look for the coming quarters and coming years. So thank you all for your continued support, and we wish you very best in the new year.

Thanks, Mark.

Thanks all.

Okay. Good morning, everyone, and welcome to Pure Cycle's Year End Investor Presentation. If you please mute your line as Mark Harding goes through the present and then at the end, we'll -- we have a video, and then we'll open it up to Q&A. So with that, I'll hand it off to Mark Harding.

Thank you. Thank you, Marc. Welcome, everyone. We're delighted to share with you our fiscal 2025 earnings presentation this morning. With me today is our CFO, Marc Spezialy; and our Controller, Cyrena Finnegan. So if you have any tough questions, we'll have them help weigh in on the answers for all that. But we really are excited to give you kind of some insights as to how we were working through the fiscal year, and it's been an exciting year in a couple of fronts that we'll detail.

First, I want to get the lawyers out of the room and remind everybody that this presentation includes forward-looking statements. I'm pretty sure you're all familiar with the forward-looking statement caveat in this. So with that, we'll get to highlighting the important thing. The most important thing is I get the privilege of working with just an outstanding team of professionals.

Marc, together with Cyrena and then those folks that kind of grind out day in and day out to make sure that our -- we stay on track and really have a good customer experience in all three of our business segments. So great to work with them. And then just to remind everybody that we punch above our weight with our advisers and our Board of Directors.

We've got a great team, highly experienced and specialized Boards of Directors that continue to really emphasize how best-in-class performance is for each of our business segments. So we're privileged to work with a great team. And you, from a shareholder standpoint, should get a lot of comfort as to the continuity and really the caliber of the company's Management and Directors.

Let me start out with kind of some of the themes for this presentation. And I'd say continued profitability where you've got 25 straight quarters of profitability and this quarter and this year is no different.

Really continued growth in each of the revenue segments, especially in the recurring revenue segments, and that's really one of the most important components of what it is that we're doing, building a stable earnings from both water and wastewater, our land development side, our rental income from our single-family homes.

So terrific continued growth in that. Also, in our land development, resiliency, our business model. And when you see changing market dynamics as we've seen this year, you stress test your business model. And one of the things that we're going to highlight is kind of the flexibility of our business model to be able to risk on, risk off, turn the volume up, turn the volume down to really match our customers' needs in that segment.

And that's the most -- that's the highest delivery segment for that. So that flexibility continues to demonstrate its use and its resiliency in our business model. And then our capital position and liquidity, continued strong stewardship of shareholder capital. So we'll continue to emphasize those positions and make sure that we have a solid foundation for delivering results year-over-year.

Okay. With that, let's dive right into the Q4 results. And as all of you know, our Q4 is typically our strongest quarter, and that has a lot to do with seasonality and really how we deliver because of the -- our weather conditions here in Colorado, concrete and asphalt paving really do cycle themselves into making sure that you get that down before our winter season.

Our perfect cycling would be kind of Q1, end of November, but our year-end happens to be end of August. So sometimes that works to our advantage. Sometimes things spill over from year-over-year. So revenue for Q4, again, it was our highest quarter, slightly down, mostly due to the housing headwinds and pushing some of that revenue recognition from our percent completion into Q1 2026.

So both revenue and gross profit up, but slightly off from what we saw in 2024. Taking a look at net income and earnings per share, again, profit margins are still remaining. And really, that is some of the diversity to the company's revenue streams, and we'll talk a little bit more about that. But Q-over-Q in Q4, again, our highest quarter and solid performance on both our net income and earnings for the quarter.

So let's take a look at kind of how that normalizes itself for the overall year-end performance. Year-end, slightly below expectations. And again, that was mostly due to the headwinds of housing pushing some of the percent complete. And so as most of you know, we operate on a percent complete because we develop lots over about a year's delivery schedule.

Sometimes that works within our fiscal year, sometimes that carries over. And last summer, I think what we look to do is really dial up some of those deliveries. So we had as many as three different phases of our land development going on at the same time, delivering what we were looking for in 2024 and then having two phases in 2025 and spilling over into 2026, delivering at the same time.

So strong results again, but slightly below expectations on revenue and gross profit. But then moving into kind of the thing that matters the most is our net income and earnings per share, which actually exceeded our expectations. So again, the most important metric is earnings per share, slightly above what our forecast was. And that's largely due to oil and gas royalty income coming in much stronger than projected. And the reason for that was we had the completion of an additional 7 -- 6 or 7 wells into the largest portion of our royalty estate and those wells came online and started producing in 2025.

And that really did exceed that expectation. We knew that those were there, but you never have clear visibility as to the price of oil and then how that's going to result in. And so one of the things that we continue to show is that diversity of revenues to the company where we have multiple shots on goal here and are able to drive revenue and earnings from our assets in a number of different ways.

Let me go over kind of the earnings bridge of where that -- where the headwinds and tailwinds came in from each of the revenue sources. So our forecasted net income was right around $12.5 million, slightly lower revenue from our land development segment, and that wasn't that we lost that revenue. It was really more that it was pushing into 2026. Some of that was Q1 2026, but some of that's going to be in the first half of 2026.

Slightly higher costs of revenue, and that's really driven by a little bit by tariffs, a little bit by inflation. So we saw a little bit of slightly higher costs on that, but then lower G&A expenses. So those things that we can control, particularly when we have a headwind type environment, we pay a lot of attention to SG&A. And then we're given a little bit of tailwind from royalties on the oil and gas to allow us to bring that net income -- even not only above -- slightly above that forecast but continuing to drive earnings to the company.

I want to move into kind of taking the view up a few feet and really highlight each of the business segments so that you get a flavor for not only where our investments are going, but how each of these segments are performing. So in our Water Utility segment, really the main drivers there are where we get our revenue from. And so the recurring revenue side of it, we have a little over 1,600 commercial connection points on there out of a total of 60,000 potential given our water portfolio.

So we're just getting started on that. Industrial water sales, water sales to oil and gas customers and then connections, and that's largely driven by our land development business, and we get tap fee revenue that's attributable to that and delivering high margins there as we continue to invest year-over-year into our water system and really deploy that capital that we're receiving from maybe some of the one-time sales to oil and gas to make sure that we get high margins and continued profitability into our tap fee connections.

If you look at kind of how that portfolio -- our water portfolio performs. We've talked about this a number of times. We believe we can serve 60,000 connections, probably can be a little bit stronger than that given the trending in the amount in water consumption per single-family equivalent, but we continue to really pace our guidance on this at 60,000 connections. And as most of you know who are familiar with the company, we get two fee incomes from that. We get a large [ whomp ] upfront capital fee component and our tap fees now, our combined water and wastewater tap fees are right around that $40,000 mark.

So those continue to grow and appreciate based on the scarcity value of water and the cost of incrementally delivering those supplies, which are farther and farther out and harder and harder to bring on board. And then annual revenues. And our annual revenues are pretty consistent. We're probably growing that a bit. That's about $1,600 per connection per year.

And so when you take a look at that, the connection of 60,000, that's about $2.5 billion worth of top line revenue, cost us about $1 billion to build that full system over time and then our connections year-over-year revenue. So overall, we're still a very small fraction of our total capacity, close -- a little over 2.5% of what we're really deploying depending -- compared to our capital and our capacity.

And then the production year-over-year. We continue to invest in that system. We had a pretty light year, which we knew that was a forecastable gap in oil and gas deliveries. So we still have plenty of pedal on what we've developed in our production capacity to deliver that water as that water increases. And we look to see a bit of increase in that in 2026. As that applies to kind of fiscal year-end year-over-year, really, the interesting thing about the water side is some of the diversity in the mix of customers.

When you take a look at that, we're sort of looking at the domestic customers, which is that dark blue, and that will be what we're delivering to that 1,600 connections year-over-year, some of the oil and gas deliveries and then the tap fee deliveries, which are attributable to our land development segment. And so while our overall revenues stay in line, the mix of that, as you can see, between year-over-year is variable.

And so you're going to see a diversity there that allows us to kind of continue to grow that asset base, not only from the recurring standpoint, but also in capitalizing on other business segments and being able to put some of that idle capacity to use either through oil and gas or in the development side. And then good customer growth. Again, we've got about a 22% CAGR on our customer growth.

So we continue to really leverage out building that recurring and perpetual customer growth in the recurring revenue side. Just a small snapshot of the oil and gas side. We did have a forecastable decline for oil and gas deliveries in 2025, and that was largely due to a strong push of permitting oil and gas wells on the Lowry Ranch in our service area. And oil and gas operators have close to 200 permits now that they're actually drilling.

So we have a drill rig that is, for the time being, committed to drilling nothing but pad sites on the Lowry Ranch. And so we do see for 2026, a significant increase in oil and gas deliveries for that segment. So you'll look forward to seeing some of that action in 2026. Let me move over to the Land Development segment. Taking a look at each of the phases of that, one of the carryovers on Phase 2C.

So we did deliver the 228 lots of Phase 2C that we had forecasted for 2025. And we had a small about $800,000 of deferred revenues that spilled over into Q1, and that was a function of sort of the regulatory climate in permitting and getting some lot templates on some of the lots that we had for one of our builders, but that did come in, in Q1.

Overall, sales in Land Development were off then from our expectations, and that was largely attributable to some of the headwinds that we're seeing in housing and really trying to provide that customer service to our homebuilders and making sure that we're pairing inventories at appropriate levels where we're not overinvesting in roads, curbs and gutters, and they're not inventorying finished lots beyond sort of those annual increments that we like to deliver them to and they like to receive in.

Taking a look at 2026, we're working on completing Phase 2D. And so we'll see -- we're about 43% on that. So that was some of the rev rec in 2025, but you'll see the completion of that rolling into 2026 and then visibility from there, taking a look at not only 2D, but 2E, which is going to be the next phase. On the land development side, this is kind of a breakout of which phase is contributing to the revenue streams.

As we had this Phase 2, we subphased that out. We initially had that sub phased into four sub phases, but we were able to add a fifth one with that with this 2E. But it really does show you that bulk of '25 deliveries was from Phase 2C and some of those forecastable revenues that we had that we were able to dial down just a bit because of the housing headwinds will push into the first half of Phase 2D on that.

And so it gives you kind of the total land development revenues and how those occurring for the trailing three fiscal years. So it kind of gives you a profile of some of the developments and really how that's maturing, and you're seeing this slide where we're carrying it forward on not only the land development side, but then kind of how that vertically integrates ourselves into the water side from the tap fees.

We haven't fully received all the tap fees from Phase 2b. So we still have some contribution on those -- from those deliveries, which were in 2024, that will come in, in '26 and then taking a look at 2C and 2D on the tap fees for that and then also single-family rentals. And last year was a bit of a struggle for us on single-family rentals. Again, another regulatory issue for us as the county, which is our jurisdiction, updated their building codes and really had difficult time processing homebuilder permits on that.

And so we're through that phase. Most of our homebuilders have got what we call Masters approved. So each housing plan will be approved and then they can build that same house, different elevations so that they change the look of that, but the building department's approval of that Master allows them to build that on any number of different lots. And so each of our builders have got their Masters approved, which still accelerate into our single-family rentals.

So you'll see a substantial increase in the number of single-family rentals in 2026 and into 2027. I'll highlight a little bit more of that later. What I wanted to do is this will help illustrate kind of how our percent completion works. And most of our builder contracts are structured in a [ Flow ] Funding Agreement where we get paid in three installments. We get paid once we do the Plat, which is a recordable property interest to an individual lot.

It's a paper lot, but it is that they own that address lot. And then we use those funds to be able to really do the land development side. So we're really working in a partnership with our homebuilder partners to be able to deliver these on a real-time basis. As we complete the wet utilities, which includes the overlot grading and the overexavation for the soils, then we make that second payment.

And then as we deliver the roads, curbs and gutters, we get that finished lot payment. And so this kind of shows you some of the timing of how those payments go and really that work product over the POC. And sometimes those will span quarters, sometimes those spans year-end. And when you take a look at delivering each of these individual increments of lots, it's not always clean enough to deliver in one fiscal year, but it does deliver in a year, and that year may be 12-month period as opposed to matching with our fiscal year.

But that kind of gives you an illustration of how some of that -- how we can dial up and dial down to the market depending on how the strength of that market goes. This is kind of the location of where our next phase is going to be. So it's going to be directly across that Phase 2E, and that's about another 150 lots that will be directly across from the high school.

The important component of this is we're really almost complete with most of the major infrastructure on that. The roadways were complete pursuant to some of the other phases. So this should be a high-margin area because most of the off-sites and arterials are all completed and the roadways are completed, the water, sewer, all that system expansions are already to this property.

So that will be a nice phase for us. One of the key milestones for 2025 was really groundbreaking for high school. And as you can see from that aerial drone shot, it's right adjacent to our primary school. So it's a full campus. It's a full K-12 campus and really excited to continue to work with National Heritage Academy.

There, our charter partner and really -- that's one of the high-value commodities for our development here is that we've got a full walkable K-12 campus right on site for the development and outstanding delivery of education here at Sky Ranch. So we're very grateful for that. We're very grateful for our charter, which is the Bennett School District and our partnership with Bennet School District on bringing this education system to Sky Ranch.

I continue to want to kind of illustrate our service area and kind of where Sky Ranch is in the metropolitan area. And so the map on the right here, the black line at the top of that really is the I-70 corridor. And Sky Ranch is the development in the blue there, and that kind of illustrates really where we are. We talked often about the fact that Denver really situates itself on kind of an ocean-like framework because we can't grow West.

And so all the growth is concentrated to the Eastern Plains area. And really, our assets, whether it's our land development assets or our service area are located in the most ideal section of the Denver metropolitan area. And the aerial to the right really kind of shows the encroachment of development on our service area.

This is owned by the State of Colorado and its development and its revenue opportunities really benefit the education system here in Colorado, the K through 12 education system, but you can continue to see all of the development that surrounds the surface area for that. So our assets are ideally positioned in the right location, and we continue to really look forward to how these will grow and monetize over time, both for the State Land Board as well as to expand our systems.

As I mentioned, we want to talk a little bit about single-family rentals. And so this kind of illustrates where that portfolio of single-family rentals are. A, that 2 Phase -- sorry, Phase 2a really was where we had the 14 units. We have about 4 units in filing 1, but then 10 units in A and really the acceleration of how B, C, D and E are going to add to the portfolio. And so with that bit of a delay because of the building code upgrade, we have about 40 homes under contract now that are delivering from several of our homebuilders.

And what we've tried to do is pace that out so that they can deliver those on 5 units a month. We had 5 units delivered in Q1 of 2026. And of the deliveries, those delivered in late October, I think we've got three of those leased. Two of them are on the market, but we're continuing to show strength in the rental market on single-family rentals. And then those will pace out and deliver those units through fiscal 2026.

Steady rental income stream from that. We really like that asset-light appreciation model where we can lever up the vertical cost of that and continue to keep our balance sheet clean and strong. So this is what you're going to see in 2026 and the real story for performance on 2026 is continued pacing with our land -- our homebuilder partners and our land segment and then acceleration of growth in the single-family rental segment.

It's a bit of the fiscal year performance year-over-year. So we're seeing a slight increase in growth on the rents. But for the most part, our occupancy is very, very low. I think we've got a 97% occupancy for the portfolio to-date and then continued asset appreciation.

The nice thing about this segment is -- we carry forward the equity of the lots as well as the water utility side and then are leveraging up the vertical cost of that and really have a nice relationship on that because we have a high loan-to-value ratio there and then that asset continues to appreciate together with the market.

We're seeing continued growth in that, not only just because of housing growth, but also because of the continued investment that we have in the community. This will kind of show you the growth of each of the phases and how we do that. And so that Phase 2b, where we were looking for a stronger growth in 2025, really pushed over into 2026. So we'll have a bit more than the 31 homes.

We'll probably have 40 homes accelerate in that area. And then how it continues to grow from Phase 2b and C. So those are where we're looking for, for '26. And then continuing on through the second phase. And if you take a look at this whole portfolio as it relates to the overall development, we're looking at being in that 8% to 10% of the total homes.

And so if we have about 3,000 single-family equivalent units out there, somewhere in that 250 to 300 homes would be our target for this portfolio. Talk a little bit about stewardship of shareholder capital and our balance sheet. We continue to invest into these assets. So you'll see continued asset growth and strength to the company. Water segment is around $68 million, land development segment.

That continues to mature. So as we're bringing assets into the portfolio, we're also taking them off our balance sheet because we're selling them. But we continue to make sure that we maintain liquidity.

And as our capital stack goes, we want to make sure that we're investing into monetizing these legacy assets that we acquired over the years and really generate the high-margin incomes from each of the segments and then continuing to build into our single-family rental and continuing to maintain a strong liquidity portfolio, really balanced out between our cash, which is inclusive of restricted and unrestricted.

And the restricted cash is really just letters of credit that we have for performance to the local municipality on the roads, curbs and gutters. It's how we warranty out those during our 1-year warranty period. And then the note receivable that we get as that comes in periodically in sort of increments as we build assessed value within the community, more homes, more assessed value, more tax revenue that's available for us to issue bonds through the local municipality and reimburse us for all of those receivables.

And then a small amount of debt, our debt is really attributable to most of the single-family home rental side of the business. So continued strong balance sheet. Capital allocation, if you take a look at how that composite makes itself up, cash and investments and the note receivable and then just growth in the infrastructure, making sure that our water systems continue to grow so that we can continue to add those recurring customers.

And then we continue to reinvest in ourselves, probably a little more conservative in 2025, mostly because of the housing headwinds and wanting to make sure that we're pacing. We had a lot of chips on the table last summer, really dialing up the absorption of our lots. And we wanted to make sure that we weren't pushing our homebuilder customers into a risk profile that really shifted most of that from our risk to their risk.

So we wanted to balance that out. So we were a little bit more conservative than I think we would have otherwise been, but we continue to reinvest in the share repurchase program. Give you kind of a profile of how we were performing quarter-over-quarter in that.

And then the diversity, I think one of the things that we want to continue to emphasize is the number of ways that we generate revenue from these assets, whether that's on the Utility segment, where we have a number of segments, subsegments in there, whether that's the domestic side of the business or the industrial side of the business, rental income revenue from our single-family homes, and you're going to see a strong acceleration of that, land development and the synergies that we get on doing just a fantastic job of the Master Planned Community and adding value to the community and really partnering with our homebuilder customers and then making sure that we are good stewards of your capital.

Taking a look at kind of how we see things rolling out not only this year, but then how it's going to roll out through a midyear forecast as well as a builder forecast. I think we tried to foreshadow some of this last year, but 2026, if you take a look at the recurring, we do have an expectation of continued recurring revenue growth, not only from our water customers, but also some of our single-family rental.

And that's going to become a better -- a bigger component of our recurring revenue. You're going to see that continue to accelerate where we're going up to 100 units in Phase 2 and then maybe up as many as 250 to 300 units through build-out. And so that will continue to add to the asset growth. So when you take a look at how that translates, that asset growth is a tremendous opportunity for the company and particularly compared to the percent of each of these assets that we're currently developing.

And so as we can accelerate that development, we do that, and we try and pace that with making sure that our inventories are appropriate. This is a little bit more highlight on kind of how the profitability trends from each of our business segments, the Water, the Land Development and then also kind of continued emphasis on recurring revenues. So you'll see that continued growth.

We're looking at 2026, depending on sort of these housing headwinds, that might be slightly down from 2025. We do believe we have some pedal in the oil and gas deliveries this year. So we'll see how that goes. We didn't want to be overly optimistic just because of the visibility of the price of oil, but we're really optimistic about continued monetization and continued growth in this segment.

And really, the transition going up to this -- what would be a tantamount change to the monetization of these assets are we continue to pace our growth on the residential side. But moving into 2028 with the delivery of our interchange, which we're working through in the permit process, but we're fairly close to getting that finalized. And we'll work through the financing of that through the Metro District.

So we reserved some bonding capacity in that to make sure that we have the funds that are available to bond that out in 2026, start construction of that in 2027 and then really layer in and almost double the deliveries of our Land Development revenues maintaining the same pace with our residential development, but then also delivering a like amount of equivalent lots for our commercial development.

And then the valuation on those commercial lots, we're forecasting that to be about 2x the valuation of our residential lots. So that's the real delta in how we look to change the composition of the land development and how we're almost doubling that land development -- a little more than doubling that land development revenue is because of the bringing online that commercial lots.

And that's a function of two things. One is going to be rooftops. Most of the commercial players are going to want a certain number of rooftops to be able to generate revenues from what their investments are going to be, but then also access and making sure that we have a large volume of transportation access and really capitalizing on our location being right on the Interstate with an interchange, an exit ramp right where our project is.

So that's kind of how we gain some leverageability and some scalability to the Land Development and the Water Development side of the businesses. Valuation sensitivity. So 2026, our gross revenue, we're going to show a range there of 26% to 30%, and that's going to be a function of some of that sensitivities on lot deliveries as well as some of the industrial water sales activities.

So a range of earnings per share that corresponds to that. Upside and the timing of the acceleration is really going to be how we look to deliver and maintain those inventories of lots so that we're not investing into that -- the capital cost of delivering those in advance of having those deliveries for our homebuilder customers.

And really, we started out with delivering this project with -- started out with 3 builders, 4 builders, and now our portfolio is closer to 7 builders. And so each of the builders would like to maintain a year's worth of inventory, which allow us to have a bit more of an acceleration to our Land Development side that serves more diversity of product mix.

And so as the community continues to mature, we look forward to continuing to serve the whole portfolio of our builders. Short-term outlook, I won't spend a lot of time. I think we've covered a lot of what this is. But our Water segment growth, we're going to take a look at the 3- to 5-year period where we're going to get up to about half of our total water recurring customers. Sky Ranch in total will be about 5,000 total connections. So we look to see that come into about that 2,500 units.

Land Development side, we should get to -- we're right around that 18% of complete. So we'll probably get closer to 30%. So we're looking at doubling of that. And then once we've got that commercial in play, you'll see that accelerate through the longer term. So build-out of Sky Ranch is in that 7- to 10-year window. But in the short-term, we look at kind of getting up to about that 30% and then having a faster acceleration once we're layering into the commercial component.

And then single-family rental, we see up to about 100 units in this short-term outlook. Longer term, this kind of gives you a perspective of the total build-out. And then when you take a look at our build-out potential, really monetizing our net revenues from land development get close to $700 million.

And the recurring revenue is going to be around that $15 million, $16 million. And that's really a function of kind of the -- you take a look at a $250 million market cap and really what we've got in production of our assets it really is the story for us. We've got a tremendous asset here. We're very aggressive about making sure that we're building this thing out and monetizing it and making sure we can do that as quickly and as profitably as we can.

So one of the things we're going to do is give you kind of a video tour here. And really, this will kind of give you a view. I'll probably try and stop and kind of highlight a couple of the areas on there. So if we want to get that started, this will be an aerial representation. As you can see, this is our first phase. And so this was the more mature side of the community. It really kind of gives you -- stop it right here.

It gives you kind of a profile of where we're at relative to the metropolitan area and the growth of the metropolitan area. You see the mountains there in the background, and that's what we get to wake up to every day, which is wonderful. But the other key aspect here is if you see kind of at the top of the development there, hard to illustrate, I don't know if you can see the cursor where our wastewater treatment plant is right there.

And really, that's a unique asset in and of itself because 100% of the water that comes from our community is treated and reused. And so you don't see any stream that's discharged to that. We bring that back. We reuse 100% of that water supply either through irrigating our open space, which you can see our beautiful open space here for our community or taking that back and selling that to our individual customers.

So if you continue on, on that, you'll see panoramic view of kind of the continued growth. We'll stop it right here. And this kind of gives you a perspective of really the deliveries of the phases of the land development segment. Right to the left there, where the cursor is, that was Phase 2A, and that delivered in 2023. And then to that, the next slide, that's 2B. And then what we delivered in 2026 was 2C. You can see the roads, finished lots. You can see some vertical homes just starting in that from one of our new builders. I think those are Taylor Morrison lots in there.

And then you can kind of see 2D under construction where we're really starting -- we're finishing up the wet utilities there, and we'll be moving into roads, curbs and gutters on that. Continuing on, we'll see kind of that -- all the land you can see that's farmed there, that continues to be our portfolio. So that's the continued growth of the project. And so that will be our build-out, plenty of inventory of land that we have on the residential side.

So that will continue to grow on the residential side. And then you can kind of get a perspective of how our infrastructure is there. We've got most of the main roadways developed. That's the Boulevard area. Stop where the cursor is, that's kind of the oil and gas and that we bring all our water, our treated water back to that reservoir there at the top, and that maintains the flow for our irrigation system.

And those are kind of some of our oil and gas wells that we have in the site. So Colorado has a rich history of coexisting with oil and gas and residential and commercial development. We can see kind of rolling into Phase 2E there right next to 2E rolling right there, roll right into there. That's our water tank, but that Phase 2E will be between our water tank and the school.

That gives you kind of a sense of -- there's our primary school and then the construction of the high school. And it kind of shows you we've got most of the road network developed for that. We'll have a little bit of extension on the road up through the high school and continuation of one of the Boulevards. And so this kind of gives you a good feel for that campus is right in the middle of where we're looking to go, right in the middle of all of Sky Ranch.

There you go. So really accessible for all the students to be able to walk there. This is kind of a view of the commercial area, right? So we're really flying into that 150 acres, which is adjacent to the Interstate. It gives you a strong profile of what the transportation access is and the value of that transportation access. Up in the top of that is the airport. So it kind of gives you a feel for how close we are to the airport. We're 4 miles directly south of the airport.

And then kind of where that Interchange is going to go, it's going to go straight along the alignment of the Boulevard there, where the -- yeah, so where the existing Interchange is, we'll keep that up and operating. We'll build the other Interchange and then we'll ultimately remove the existing Interchange, but it gives you kind of a flavor for really all of the physical features of the Sky Ranch development.

So with that, what I'm going to do is kind of turn it over and see if there's any questions. We'll open up everybody's mic. And I guess if you have a question, just shout it out. We can't mute them. Yeah, you have to unmute. So the technology here is just unmute your mic and then shout it out and we'll drill down on some of the details or raise a hand and you can type it in the comment section.

[Operator Instructions] But yeah, this concludes obviously, our slides. So we'd like to provide this opportunity to anybody who has questions. [Operator Instructions] I see that you're on mute. Are you able to talk just so we know everything is working.

Greg, can you unmute and see if your mic works [indiscernible].

I'm testing this out. Does it work?

There you go. Okay. At least I know we're working.

Yeah. Anyway, this is Greg Vennett. I'm one of your long-time shareholders. I just wanted to test it to see if people are having problems with the technology. I came in late in the call, so I'll have to relisten to the replay in order to call you back and ask questions.

One quick question. Has -- and maybe you said this in the beginning, but with -- has housing sales in your areas slowed down due to affordability or -- I guess my sense is the builders are still building. So if you could answer that, that would be great.

That's a good question because really, you have two variables in the housing industry. And I think Denver is probably on the high side of unaffordability. When you take a look at most housing markets and Denver is in probably the top 10 cities of housing markets, people generally take a look at Denver is pretty high in affordability.

And that has been a challenge for us. I would say that's also one of our strengths because we have that entry-level price point and of all of the markets that the builders are looking to serve, when you have an interest rate-sensitive market and when you're looking to buy down interest rates on higher mortgages, the incentive packages that they can offer really have more impact on an entry-level house than they do at kind of a move-up house.

And so I would say the resiliency of our builders and our project is strengthened by the fact that we are in that affordable market segment. And that's not saying much when you have to say affordability is anything less than $500,000. That's still a high, high number for an entry-level house, but we are one of -- probably in that 4% of homes that are delivered on an annual basis are in that affordable price segment.

So that's why I think we're performing slightly better than maybe some of the other master planned communities and then also our business model being able to time that out. So yes, housing has some headwinds. We've probably managed that a little bit better just because of how we can deliver lots on an incremental basis.

I also want to point out sorry, Greg.

No, sorry, go ahead and point it out.

[Operator Instructions]

On acquisitions and land acquisitions and where you are on those? And any progress throughout the quarter? I know it's hard to time when you're going to have the ability to acquire land and at what price you're willing to pay for it. And then additionally, on the commercial side, I know you have a big hockey stick in '28, but is there anything that's materialized with any commercial players throughout the last couple of quarters?

[ Craig Weinert, ringing an E ]. Good questions. As you take a look at these acquisitions, as we have commented, we really do have our nets out, and we're saving a bit of liquidity just for that. And I'd love to be very detailed about that, but I would say our conversations continue to strengthen with our target areas of acquisitions. It's an interesting profile. If you had the nation as potential acquisitions, your sandbox is much, much bigger.

Our sandbox is very small and very targeted. And that's on purpose because we think that that's where we can provide the best leverage on that. And yes, we would like to be as aggressive. We do have the ability to probably pay more for land than any other developer just because of our ability to bring value to that land from our water portfolio, but we also like to make sure that we're paying for that on land acquisitions that we find to be appropriate for the timing of development.

And so we're balancing that out to give you that flavor for it. And I'd say I'm more optimistic this year than I was last year, but I say that every year. So we hope that we can see some movement in that area. To your second question in terms of the commercial, we are in the market. We do have listings with the commercial folks that really represent 70%, 80% of the transactions that are in the Denver area.

We are seeing interest from a lot of those. Our interest in the commercial is to go directly to the end user. There are a lot of folks that like to get between us and the end user. And really, those aren't as interesting to us as really going strictly to the end user on that just because of value propositions. And our balance sheet is strong, but we want to make sure that we maintain some flexibility to participate in some of that on the commercial side.

So whether we sell the land, whether we partner and participate in some of those horizontal improvements are the types of structures that we're looking at for some of those commercial transactions. Understanding, Craig, that those are going to take some lead times. And so there may be transactions that we're pursuing that would be in 2026, 2027 that would really start to monetize and show that scale of revenue growth in 2028.

I would just add to that, though, the growth you're seeing that we're projecting in 2028 is mostly a factor of being able to open up Phase 3 with the interchange and less to do necessarily with some of the timing. So we still have a strong portfolio of commercial lots that aren't really showing up in the projections yet.

It's interesting because the near-term weakness that you're seeing from some of the homebuilders may be a long-term benefit for you guys in that the land may not be as expensive as it was when things were so hot.

I think that's true. And as much as I'd like to say, we're very disciplined in what we pay. And it's also a function of having people -- all of the folks that we talk to usually come back with -- and it's an appropriate retort to a land acquisition is, look, it's going to be worth more tomorrow than it is today. And when you get cycles and a lot of these folks have seen cycles in the past and some of these cycles are short-lived in months.

Some of these can be long-lived in terms of several years. And so if they're close to looking at selling and they see a cycle, regardless of price, I think that that's a psychological determination for is to say, listen, it's time, we need to move on. And that's really, I think, what we're seeing more than a function of, oh, we can capitalize on a weak market and benefit there. I want to be disciplined, but I also want to make sure that this is a transaction that works for both them and us. And sometimes that's more timing than it is [ amount ].

Mark, let me ask you a question. This is Greg Vennett again. For land acquisitions, you're basically -- it's dirt. And are you looking at acquisitions where they don't have any access to water and you're the value creator or would you guys consider buying dirt that already has access to water?

I would say we would probably wait those acquisitions where we can bring added value for water. I feel very confident about our land development segment and really building that value in the land development.

So if we were, for example, buying a piece of property that we're in an incorporated area where we were getting water service -- water and wastewater service from another provider, we would still do well in that scenario, but it wouldn't give us the vertical integration of leverage on accelerating not only that segment and monetizing investments in land, but also monetizing investments in water.

Not to say that we wouldn't consider that, but I think that there's plenty of opportunity for us to be more aggressive on acquisitions where we can bring water to the table.

So the person who owns that dirt now, are you the only logical provider of water or can they get water from somebody else? Is there competition? Are you the only provider? Is that your moat?

I would say we're the best provider, but we're not the only, right? I mean they come out -- they can go out and find water themselves and do the heavy lift of building a water utility. That's probably not any of the land interest that we're seeing. It isn't a picnic. And it's -- as you've seen through what we've done over the last 30 years, it's a difficult and expensive proposition to build your own utility.

But there's competition from the neighboring city, City of Aurora. That's probably our only competition. So if they don't look to value our providing water service to them, they would have to consider an annexation. And that carries with it its own risks and its own costs, which then weigh into kind of the cost of land. And so we can deliver lots much cheaper in unincorporated Arapahoe County than any developer could deliver in the City of Aurora just because of our structure.

And I think that continues to emphasize the price of a home and the affordability of that home. So when other people look at it, they have to look at it through the full development cycle and sort of say, am I competing for developing $800,000 homes or am I competing for developing $400,000 homes, which is what we're looking at. And so we have a competitive advantage to doing that, which then translates into being the best choice.

So a new home in the Aurora area is $300,000 or $200,000 more than Sky Ranch. Is that the way?

It will vary. But I would -- some of the newer projects that are getting started in Aurora are getting started at that much, much higher price point. Some of the homes that are directly adjacent to us might only be $60,000 or $70,000 more.

So you'll run that -- you'll run a gamut on that. But we certainly have the better location. We have better cost basis. We have better utility rates. Overall structure is much cheaper and much more efficient in unincorporated than it is in the incorporated area.

The future for commercial development, along I-70 where you're going to build the interchange, is there other commercial development that you see in the future that could be competition for you or are you the bull's eye? Do you have the bull's eye -- commercial property?

So interchanges benefit all land in the area, and we have kind of a strong footprint in there, but there are other lands that are adjacent to us that we don't own that are looking to develop, and they will have to pay their pro rata share of the cost of that interchange, too. We might be advancing that.

But ultimately, as they come online, they'll have to reimburse us for our covering that cost upfront. And so that was our structure is that we wanted to make sure our timing was our timing and that we would be advantaged in there and then somebody else coming in there would have that cost component as well.

That would -- they would have that off-site investment, which would accelerate some of the reimbursable repayments to us as that competition came online. So we wanted to equalize that to say we weren't carrying them. But at the end of the day, as they come online, I think we have the competitive advantage.

Mark, can you hear me? [ It's Matt Reiner at Aranda ]. A question on Slide 34, the profitability trend slide. When I look at 2026, I mean, it seems like every category, the revenue is up a little bit, but yet the earnings forecast is down a little bit.

And I'm just trying to -- is it the margin differences between the different segments? Is it -- I mean, it seems like you're buying back some shares. So I don't think it's a share count thing. So just curious as to what I'm kind of missing there.

Yeah. And so the -- you're right. What we're sort of looking at is the 2025 had a high profitability because of kind of the oil and gas, and that's almost 100% margin. And even though we're increasing the revenues in both land development and water, it's not -- we're not likely to see the same earnings per share bump that we saw in 2025 because of that profitability of the oil and gas royalties. That's the real differentiator.

I think the comparison -- yeah, the comparison from '24 to '26 will be pretty analogous in it. '25, we were delighted that we exceeded our forecast because you never want to put a forecast out there and not meet it on the earnings per share. And so we were excited to do that. And that really came through the diversity of the revenue streams of the company.

[Operator Instructions] Okay. Well, if we have no other questions here, I know we'll post the presentation for those of you that are going to hear this on a rebroadcast or listen to it again and inspire a question. Certainly don't hesitate to give me a call and we can drill down on any of the questions. Again, really want to emphasize the value of our leadership team, our management team and really all the employees in the company.

We have a great group of professionals that bring their A game each and every day and allow us to really fine-tune the delivery of this. The businesses that we're in, all three of these businesses are about as capital intensive as you can be in a business segment. And you're investing into hard assets, you're investing into inflation-resistant assets that really continue to monetize.

And sometimes you have a little bit of excess capacity in a water or sewer system that then you can help monetize that through delivery to your industrial customers. Some of those investments that we have in big infrastructure, whether that's going to be Boulevards or whether it's going to be land horizontal developments of grading or even an Interchange, those do come back to us.

And so we're very cautious about how we make sure that we can finance those and carry those forward so that we can really deliver these lots on an on-demand basis. And while that development cycle can take a year from the time you break ground to the time you get a building permit, that's pretty quick in this world of land development, and we're pleased to be able to kind of match those inventory deliveries with our homebuilder customers.

So the resiliencies and really the timing have really tested and really shined in kind of what -- when you get these markets that have headwinds, can you not only deliver -- continue to deliver your product, but also match those deliveries to what your customers are looking for. So we see a lot of that performance this year, and we're thrilled to continue to advance on monetizing each of these segments. So with that, I'm going to close out and wish you all happy holidays as we close out the year.