Good morning, ladies and gentlemen, and welcome to the Pure Cycle Corporation quarter ended November 30, 2021 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mark Harding. Sir, the floor is yours. Thank you very much. Good morning and Happy New Year to you all. I'd like to welcome you to our Q1 for our fiscal year 2022 Earnings call. Just some housekeeping items. We do have a deck for this presentation. You can find it on our website at purecyclewater.com, and you can click on the landing page there, and it'll direct you to where the presentation is. With that, I'll get started. Moving to our first slide, which is our safe harbor statement. Statements that are not historical facts contained or incorporated by reference in this presentation are forward-looking statements as that meaning from the Securities and Exchange Commission. I think most of you are familiar with the safe harbor statement, but now that we can get the lawyers out of the room, what I'd like to do is really I'll roughly overview kind of the company, our business segments, and then talk a little bit about the quarter and then a little bit of color about kind of our operations. And then open it up to a bit of Q&A at the end here. For those of you that are familiar with the company, and those that are just kinda learning the company, we operate in kind of three complementary business segments. Each of these segments actually drive operations for each other segment. It's a opportunity where we're continuing to leverage the value of our long-standing assets that we've acquired in water and land development. Our water and wastewater resource development segment is that we own a portfolio of water in an area where you can own water rights. We develop that water on a cradle-to-grave model where we own the water, develop all the infrastructure that diverts it, that treats it, that distributes it out to our customers. In the land development segment, we own some highly attractive land in one of the hottest areas in the Denver metropolitan area, the Eastern I-70 Corridor. We are developing that, and we're building horizontal infrastructure for a master planned community and sell lots to production home builders, mostly national production home builders, and then also have some commercial real estate that provides some exciting opportunities for us. More recently, single-family rentals, where we're taking some of those lots that we're improving, we're holding them back for ourselves, and we're contracting to construct homes that we actually list and rent to families and individuals here in the Denver metropolitan area. I'll talk a little bit about that as well, because we've had some delivery of that product and some very great successes there as well. Let me start out with the water utility segment. We're a wholesale water wastewater provider. As I mentioned, we have wells, we have treatment facilities, we have a distribution network. We process that water. We distribute that water to our customers. That model generates two fee incomes. One is a large upfront capital fee, which we call tap fees. These are our current tap fees for both water and sewer. They're right around almost $22,000 or $32,000-$33,000 per connection. Those are paid by the home builder, typically amortized in the cost of the house. Our capacity, top- line revenue capacity on that is little over $2 billion. If you take the number of connections that we can serve, which is about 60,000 connections, multiply that by the tap fee, that's how you get that. That's predominantly about a 50% margin business because we'll construct all of the facilities that are necessary to handle the water utility side of that. Once we've got that customer, we generate water and sewer monthly fees, and those fees are typically about $120 a month for a typical single-family residential home. That translates into about $1,500 per connection per year. As we get that water back, you know, for our sustainability, our most cost-effective new water source is to continue to use and reuse our existing water source. We have 2 wastewater reclamation facilities where we treat that water. We treat that water back to a very high quality water supply that we can then put through a separate distribution system and be able to redeliver that for outdoor irrigation demand. So we've got a use and reuse model for our water utility segment. A little bit of color on that. You know, we continue to grow our assets in the water and the wastewater side. So you've seen a tremendous growth over the last four or five years of investment into that system, which continues to develop and serve our customer base. A little bit about our customers. We're adding about 40 customers a month, mostly through 2 active developments that we are working with, the Sky Ranch community for ourselves and then, the Elbert & Highway 86, which is another water utility that we acquired a couple of years ago. This really just shows a projected absorption model for the number of connections. Really, the 5,000 connections would be a build-out of just the Sky Ranch community. It certainly doesn't represent the capacity of our water portfolio, which is about 60,000 connections worth. Then we do also serve water for oil and gas operations, and that's been something we've talked about steadily over in more recent years. We happen to sit on top of a very lucrative oil and gas play in the Niobrara formation, and this is typically referred to as the Southern Wattenberg field. We have a number of operators that have lease interests here, the largest of which is consolidated a number of interests over time, and really actively drilling wells in the formation. There are several producing formations here, and so you take a look at kind of what the well capacity is for where we would be servicing the water needs for that. It's about, you know, in excess of 10,000 wells in the capacity, so it's a very large play for us. We're looking at maybe a footprint of a couple hundred square miles in this area. How we sell that water, you know, we sell water to them at a very high rate. Their demands are very, very large, and they need that water in a very compressed period of time, so they want that over maybe a 2- or 3-week period. Currently, we're averaging about $250,000 per well for oil and gas operations. You know, we're seeing a much renewed strength of activity in the oil and gas space here. As oil has firmed up, and I think the Colorado politics have settled on in terms of how the state and the operators are going to regulate their operations, there's a lot of a renewed sense of certainty as to how the oil and gas operations are gonna move forward. We're glad to see a lot of that activity continue to come back for our operations as well. This slide will give you kind of a proximity of where development is to our service area. You know, we acquired these legacy water and land assets a number of years ago, and what's happened is the Denver metropolitan area has kinda grown out to where we are. This kind of gives you a picture of kind of how we're positioned, you know, where the metropolitan is there in relationship to our service area. We have a large service area. We have 24,000 acres of property that's owned by the State of Colorado. It's owned by the Colorado State Land Board, which has a fiduciary responsibility to generate revenue for the Colorado public education system, one of a number of fiduciaries that they have. Really just kinda gives you a proximity of where our service area, not only in terms of our exclusive service area, which is the Lowry Range, but also Sky Ranch, as you can see that also in the pink area, a little bit North of our Lowry service area along the I-70 corridor, which is about 4- miles south of the airport. Then some surrounding properties that are key opportunities for us to take a look at both land acquisitions as well as utility operations in that corridor. We really like where we're at. We like our positioning in the marketplace. We like how this positions itself in terms of investment activity, not only for the company, but really the region as a whole. Gives you a little bit of context about how our assets are positioned together with the Denver metropolitan area. Talk a little bit about our land development operations. This has been an exciting development for the company in more recent years. We acquired about a 930-acre property more than a decade ago at the height of the housing recession. You know, it was an excellent acquisition for us. It not only came with the land, but some of the water that we were under contract to buy when we were looking to just provide utilities to it. The zoning on it allows us to develop up to 3,200 residential lots and a couple million sq ft of commercial space because we have an interchange right along the interstate, so that property is more ideally positioned for retail, commercial, light industrial uses. As we look at this property, we look at it as how many connections and how many lots we can monetize and roughly converts over to about 5,000 connections when you take a look at the commercial square footage. That's about 1,800 sq ft. As I referenced, it's ideally located in really the most active development corridor. We started development of this property a couple of years ago and really embarked on our first phase of that, which was about 509 lots. We have completed all those lots. We have transferred all those lots to our home builder customers. Excuse me. As of the quarter end, we have a little bit more right now, but there's about 405 residents out there. We've sold almost 480 of the 509 taps. We get those tap fee revenues typically at the building permit phase. Really we're adding about 40 connections a month in this, so you'll see this absorb pretty quickly on build-out of that. Two of the three builders that we had in our first portfolio of builders are complete with their model, with all of their homes, or at least the remaining homes are sold and are awaiting delivery. I think Richmond has a few lots left. They may have maybe a dozen or a little bit more lots left that they're still pricing out and selling to the market. I think they're building them on spec so that they're optimizing their price for that. We've recognized all our lot revenue and nearly all of our tap fee revenue from the phase one, so that's been a very successful launch for us on that. In about spring of last year, we started our second phase. Our second phase of this development will be a total of 850 lots. We contracted for about 804 exactly lots with our home builder customers and held back a few of those lots for ourselves. We held back about 46 lots with the ability to expand for some other areas and really reserve those lots for our single-family rental market. I'll talk a little bit more about that later in the presentation. What we were very excited about was that this particular phase also included a charter school. We were working with the local school district, the Bennett School District here in Colorado, to get a charter school. We're very pleased that partnership has really been a very good working relationship, both for us and the Bennett School District. We have a terrific charter operator out of Michigan National Heritage Academies that we're looking to build this charter school on for an opening in August of the school year, August of 2023. That will continue to add to the community in itself. It's a local neighborhood school, so we're very excited about having a local K12 campus right in our development. Just a little bit more about our phase two here. We're looking at the contract revenues that we have from our home builder partners will generate about $70 million in total, about another $20 million in tap fees. As part of what we're doing, not only do we collect our fees, lot fees from our home builders, but we are also doing the horizontal development of the roads, curbs, and gutters, the parks, the open space, all of those public improvements, and we do get that investment back. In the first phase, those public improvements totaled about $33 million. It was a little bit weighted because we had to start some of that with some of those roadways, which were common roadways to the entire project. This second phase estimates about $61 million of public improvement reimbursables. We have a combination of not only the $70 million in the lot revenues, but also the $60 million in the reimbursement revenues. Then our costs for developing the second phase are estimated about that $73 million. Gives you a bit of a feel for the high-level economics on delivering the lots in our land development segment. Extremely attractive opportunity for us. This is a little bit more metrics about parsing out our 850 lots. We're doing that in 4 subphases, just so that we're able to incrementally deliver these lots on a real-time basis for our home builders. Also kind of how the lot revenues go by builders. It gives you a bit more color about how the distributions of those lot revenues are, the total tap fee revenues and the costs and the reimbursables in that. It gives you kind of a feel for how those gross proceeds work for us. The cumulative aspect of not only the gross proceeds, but you need to add the reimbursables to that as well. If you take a look at how we're delivering each individual subphase, this is kind of the breakdown of each of the subphase. Our first subphase, one of the things that we look to do, three of the four home builders here are in a structure, the contractual structure, which allows us to be able to deliver lots on an incremental basis and be paid on that incremental basis. What happens is we call that a lot development agreement format, where each builder is able to pay us when we deliver them a finished lot, or not a finished lot, a platted lot, so that the platted lot gives them title to the property. They pay us roughly a third of the finished lot price. Then as we deliver the wet utilities, we get that second third, and then finally, when we deliver the finished lot, we get that third payment. Then we have one home builder that's in what we call a finished lot agreement, where they'll pay a little bit more for us to carry that cost through to the end of the finished lot and deliver that finished lot. We've completed the first two components of the first 229 lots. We're working on the roads and curbs right now and expect that we'll be able to deliver all 229 lots by the end of this fiscal year. We've got a delivery date there, sort of the August timeframe of 2022, and give you kind of a feel for how that's breaking down by each individual builder. Some metrics on that as well. We also want to talk a little bit about our single-family rental business. One of the things that we looked at was that, you know, the value of us creating an attractive community. The curb appeal, what we're doing for parks and open space, what we're doing for amenities, what we're doing for schools, what we're doing for the commercial value, all increases the value of these lots, not only for customers and home builders at the time, but it also increases the value for the homeowners that come out here and they buy these. One of the things that we looked at was being able to continue to participate on that. The single-family rental model seemed like a very attractive way for us to do that. That was kind of the fundamental investment theme on that. If you took a look and you're really dissecting that market, you know, the housing market is an extremely tight market. I think that's true nationwide, but I think it's exaggerated here in the Denver market. What you're seeing is both home prices increase significantly as well as the rental market for that. These are some statistics about what we see in the rental market over the last three- years both in terms of the median lease price, you know, how many listings are available, the price per square foot. That really was our investment theme. We started this process out with three, really four lots from our first phase. We entered into a contract with a local home builder to construct the first three lots. Those lots were delivered on budget and on time. In fact, we rented each of those homes out within 14 days of listing. This is a little bit of pro forma on that, but the rental income on that is around $2,800 a month on that. It gives you kind of an annualized basis. You know, we do have a terrific team of professionals that are helping us construct a portion of our water system as well as our land development activities, which allow us to be able to operate and maintain these homes ourselves. This gives you kind of a bit of a pro forma on that, where we're gonna generate not only sufficient money to be able to cover the vertical cost of that. What we looked to do was, we wanted to roll forward the equity value that we have in the land and the improved lot as well as the utilities, and then finance the vertical component of that at a very attractive rate. We were able to line up some very attractive financing for that. We were able to finance our first three homes on that, be able to not only benefit from carrying forward the vertical cost to our shareholders, but also having it be free cash flow for us on each incremental unit. If you take a look at that, capitalized costs, we did self-perform on some of that activity where we were able to handle the most of the landscaping. We financed roughly the out-of-pocket cost on that to our third-party builder. Each of those units were about $330,000. Then the appraisal value of those came in, you know, significantly higher on that. Really just the delivery of a house on our lot is benefiting us tremendously on that. We've really financed about $1 million worth of these first three homes. Their value, the fair market value of these is estimated to be about $1.6 million. We've got some equity built up in each of these single-family units, and those units continue to appreciate in value. We're seeing a year-over-year increase in excess of 4% on each of these units. With that, what I'd like to do is talk a little bit about kind of the quarter- end. Quarter- end was another terrific quarter for us. We continue to monetize our assets both in terms of the land and the water assets. About $4.27 million in revenue. Taking a look at our net income, about $1.5 million in net income and about $0.06 earnings per share on a fully diluted basis. Really, this is kind of showing you a little bit of how the contribution is for each of the three segments. If you take a look at that revenue, you know, the blue portion of that really is representative of the water and the wastewater segment. The green portion of that is the land development segment. While we don't see much, because it hasn't contributed materially yet on the single-family rentals, that will continue to grow. What we're gonna wanna do is kind of give you guys a feel for that. In this particular quarter, because we're finishing out phase one and we're starting phase two, it's a little bit more weighted into the land development segment than the water utility. As you saw in Q1 from 2021, that was a bit more evenly distributed on an operational basis, you know, as we deliver each increment on the land side, because the land and the reimbursables for those land development activities are so weighted that those will drive a lot of those revenues. We get that recurring revenue, both from our water utility segment as well as our single-family rental segment. The other thing I wanted to do is talk a little bit about kind of how things have gone over the last five- years and even more particularly over the last three- years, which have been really transformative for the company. We've been monetizing our water and our land assets and driving significant value for our shareholders. While there's plenty to be optimistic about looking at our trajectory here, what's most encouraging to us is we're still in the early innings of this effort. I mean, if you take a look for a second, we've roughly delivered 10% of the lots from our land holdings and really, you know, 500 lots of the 5,000 lots and our most valuable commercial properties are yet to come. We're extremely excited about that. We've delivered an even smaller percentage of that capacity from our water assets with excess capacities both in our water and our wastewater systems, which will continue to drive cash flow in the coming quarters and in the coming years. Then still yet, an even smaller asset potential in our single-family rental segment. We've only delivered 3 units in this past year. We were focusing on delivering another 11 this year and then continuing to grow that into somewhere between 200 and 300 single-family units. Looking year-over-year, last year, we recognized what I would call significant value in earnings. We were able to record our public improvement reimbursables as income. Really what that showed us was where that land development activity was driving earnings on that. This year, we now have approximately $30 million in reimbursables, and we expect to see significant increases in cash flow. Delivering our next 229 lots this year, we'll be able to fully monetize all of those. Then also a portion of our reimbursables from our second bond offering that we're anticipating later this year. I know many of you have asked, appropriately so, you know, what's next? You know, how do we plan to add to our success moving forward? With that, I would describe how we think about each business segment and how we prioritize our liquidity, both here at the office as well as the board level, in kind of 3 areas here, kind of at the bottom of this slide. First and foremost, we look at investing our returns into opportunities that we control, right? Our blocking and tackling, our day-to-day operations. We're optimizing our lot deliveries. We're investing in the incremental expansion of our water and our water infrastructure to be able to increase capacities for industrial water sales to our oil and gas customers, and then continuing to expand in our single-family rental market. Typically, we refinance those costs of the vertical costs of the single family, but we do have timing issues on that. What each of these are doing are they're delivering very high- margin returns to you. All of these are within our control, and they continue to drive value. Each of these have liquidity demands that really take a portion of our cash position on a quarter-over-quarter basis. The exciting thing about it is each of them have a very quick return of capital year-over-year. What you're gonna see is a continuing growth in the cash position of our balance sheet. I would classify this as, you know, management keeping our eye on the ball, doing what we do well every day in, day out, and how we build and maintain a profitable company by optimizing and increasing the returns that we have with the assets that the company's acquired. Second category of what we look at is M&A growth. During the past three- years, you know, we've become a respected long-term player in the Denver market, not only delivering outstanding financial results, but if you peel back our results, what you see are not only outstanding assets, but outstanding revenue engines here. In our land development segment, Sky Ranch is only 10% built out and is recognized as one of the leading master planned communities in the market. We continue to look for other opportunities in that area. Our water utilities have sufficient capacities, both in the water and wastewater, which will add significant cash flows for us, and it will also add an opportunity for us to be able to use that for M&A growth. We can look at additional land acquisitions, look at additional water acquisitions. What this has led to is it's led to what I would classify as some balance sheet muscle for our M&A discussions. Having liquidity with high- margin assets producing revenues is leading not only to just acquisition, but what probably is better described as a pipeline of acquisitions and really looking at it in both segments, both the land and the water. I would say that, you know, we're gonna control the single family rental side in our day-to-day operations, where we're doing the blocking and tackling on that side, but really focus on, you know, continued opportunities in land and development. I would classify how we think about this as, you know, we wanna sustainably grow the company through additional acquisitions. We're vertically integrated in very interrelated business segments, which add value to each other and wanna continue to drive that value, growing each segment sustainably. Water's driving the land. The land is driving the single-family rentals. Each of them are opportunities for us to create value for our shareholders. Finally, you know, we acknowledge there are ways we can continue to create value through share repurchases and dividend payments. These are important drivers for shareholders and important to the company as well as our board. We really are focused on our efforts in the first two components of this, making sure that we're doing what we're supposed to be doing on a day-to-day basis, increasing our margins with our existing assets and the opportunities that we have with those, and then the number of opportunities that we're pursuing on the M&A front and really continue to drive value for our shareholders. If we have adequate capital to execute on the business activities, which is priority one, and we have adequate capital to grow the company, which would be, you know, some of those acquisitions that we have in priority number two, then return of capital is gonna be our next and highest priority, where we continue to generate value for our shareholders through that. Really, that's kind of a view of, you know, how we've grown over the last, say, more recent 3- years, and really how we look at continuing to leverage that strength in the balance sheet on that. This is our balance sheet, and I'll let you guys kind of dissect that. You know, we really do have a long, strong balance sheet, very, very low debt to asset potential on that. Again, also our income statement, where our particular revenues are coming from, not only from our water segment, but from lot sales and the single-family rental, which you'll continue to see grow over time as we continue to add units in that space. A little bit about our board. You know, we have an outstanding board, you know, far better than I deserve. You know, a terrific group of men and women that are continuing to provide the advice and the checks and balances that you wanna see for a company to be able to continue to invest and grow in its business segment. With that, I guess I'd like to turn it back over to you all and see if you got any questions that I can drill down on some specific color for either the quarter or what the company's looking to do rolling forward. With that, I'll turn it back over to Holly and see if there's any questions out there. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Bill Miller. Please announce your affiliation, then pose your question. Hi, Mark. Good morning, Bill. Good morning to you. You're bright and early this morning. Congratulations on another great quarter. I'm just looking at the opportunities you have, and I would think that maybe the rental market is by far the- Bill, are you hearing feedback on your side? Yeah, I am. Sorry. Yeah. Holly, I'm not sure if there's a mute on your side or if there's a way that we can improve that sound quality. Okay, try that, Bill. Okay, let's try it. Got it? Yeah, that's much better. Okay. Just looking at the three elements of your business, land development, supplying water to various utilities, et cetera, and then the rental market. I'm surprised that is near highest priority because you have recurring revenue, it's by far the best returns, you can get good financing, you get inflation protection with the increase in the price of the homes. Why isn't it gonna be a bigger part of your business? You say 11 this year, which is terrific, and you think you'll get to, what? 200 or 300 eventually. Why aren't you trying to accelerate that right now? That's a great question. You know, a lot of what we're doing on the land side, it's a long lead in terms of planning and getting all of the relationships with the builders set up. You know, when we were first looking at our phase two, I went to the market with 850 lots, probably two and a half years ago with our builder partners on that. Really, you know, it was in the middle of the pandemic, call it maybe literally January, February of 2020. We were just starting to roll out the single-family rental market where that was a concept where we thought—said, "You know, we're seeing a lot of increase in value in terms of these homes." Which, you know, a brand new community, it can go either way, right? It depends on how well the community is delivered and really the positioning that you have in the marketplace. How does our sub-market perform? We found that it performed terrific. I would say it was more us holding back some of those lots where we were able to hold back, call it 40+ of the lots from our builder contract. It was kind of a late stage pullback in our discussions with our builders. You know, we had said, "Okay, this, we have 850 lots here." They said, "Okay, we'll buy them all." Here was the distribution of those lots. Then as we were getting more and more analytic about the single-family market, you know, we actually went to each of the builders and pulled back some of those lots in each of the blocks that they were working with, not actually having delivered that single family market just yet. While phase two could have been stronger in that area, it was still early on for the company. Frankly, we've got another 3,000 lots to be able to deliver in that area. I think you'll see a higher weighted portions of that where we'll hold back, you know, maybe 100 in the next phase and be able to continue to accelerate that growth. The reason why I don't have more than 40 in that is a couple of years ago when we were contracting for that, it was still very early on in that process. As we're expanding that, you're gonna see a higher weighted portion of that. Okay. If you're only gonna do 11 this year, when do we see the acceleration to 30 or 40 rental units? Each of the sub phases, you know, we've got 4 sub phases where I've pulled back 10 lots in each of those sub phases. You're gonna see that consistently. The overlap between filing 2 and filing 3, and filing 3 and filing 4 will have a weighted percentage of more of those lots. While phase—filing 2 in this 850 is 40, filing 3 might be another 100 of those lots. You're gonna see us building out the first 40 at the same time as we're building out a portion of the next 100. They're gonna be cumulatively in terms of how we roll out each subsequent phase. Mark, in three- years, without counting acquisitions, what percentage of your revenue and particularly free cash flow is the rental market gonna be? Great question. You know, if in three- years we're executing, you know, we'd like to be in a position of having, you know, maybe 50, 60 units occupied and another 60 units under construction. So if you take a look at that in a short time frame, you know, that would be going from 3 units to maybe 100 units in a three-year period. That's gonna be a function of kind of how each of these individual phases roll out as well as overlapping the next phase three. Okay. Recurring revenue- The recurring revenue, good point on that is, you know, each of these are generating about $15,000 per unit per year in free cash flow. You know, that'd be $1.5 million in free cash flow, is my decimal right there, 100 to 15,000. I think that's right. Then typically, if they're about a half million dollars each, that's, you know, $50 million worth of asset value that we would add to the balance sheet. All right. Now, Mark, just a second question. You've talked consistently about having a pipeline of acquisitions, but I've been hearing that for several years. Mm-hmm. Versus the immediacy of being able to buy back shares at what I hope is a bargain price, why can't you do both? Why can't you have your cake and eat it too? Well, you know, I mean, you are very diligent about that. You know, as you see, you know, our cash position fluctuates quarter-over-quarter when we're dealing with executing our existing business day to day. You know? We have a $20 million balance at year-end, maybe a $12 million balance at quarter- end. A lot of that quarter-over-quarter activity gets invested into our operations. There is some of that fluctuation. Once we get the next round of bond reimbursables out of that will help us monetize and keep a stronger liquidity position to be able to consider some things like that. Really, for the time being, where we're positioned with the balance sheet and the opportunities that we're pursuing on the acquisition front, I think we're using our liquidity to its best purpose. That's why we're not quite in a position where we can do both. I can't have my cake and eat it too just yet. Well, when do you get the reimbursables back? That's a good question. You know, we're forecasting that sometime this year. I think within the next fiscal year. We've taken a look at kind of what we think is the current portion of that, which is about $16 million of the $30 million. We believe at least we'll get that much back, and we'll see how the next bond positions itself out. There's no appetite for anticipating the $16 million or whatever coming back and starting now when the stock is, you know, seemingly, getting no attention from the investing world? Yep. No, I get it. It's frustrating for us as well. You know, I think what we're really looking for is to make sure that we're keeping some of that muscle for sitting down at the kitchen table with some of these acquisitions, Bill. On the other hand, they are looking at the same dynamics you are, so why are they gonna sell out cheap or sell out now? That is the discussion. You know, they're looking at, you know, well, is it gonna be worth more tomorrow than it is today, and how much more? It's a very private decision for landholders in the area, and many of these are long, you know, legacy, generational landowners. Typically, if they don't have it, they don't want it. The opportunities for them are mostly estate planning and intergenerational planning activities. You know, this does give them a way to do some planning, some tax planning, some estate planning activities. You know, we're working with that together with each dynamic that each individual landowner or farm owner in the case of water supply, water rights have. They're a little bit unique, and everybody's got their own circumstance. I would say that certainly the last three- years and our visibility in the Denver market has increased significantly. Okay. Well, thanks for the great quarter. Yep. Thank you, as always. Your next question is coming from Robert Howard. Please announce your affiliation, then pose your question. Hi. It's Rob Howard from Boiling Point Resources. Just wanted to check in. How are you, Rob? Hi, Mark. I just wanted to check in on what the, you know, the wholesale water rights market is looking like right now in the Denver area. Have prices been kind of creeping up or, you know, what's that look like? It is. It's increasingly competitive. It's more costly, more difficult each year that goes by. I'll give you just one anecdotal reference point. We bought, you know, a small farm had about 300 acre-feet of water. It was about 30- miles North of where we're at, strategically positioned for us on one of the tributaries that we have existing water rights at Lowry. We bought that for about, call it $9,000 an acre, which translates into about an acre-foot of that. I got about 300 or so, 320 acre-feet that we bought for about $10 million. Really looking at some of the transactions and really talking with some of our neighbors right around that particular farm, that's trending at about $15,000. We've seen about a 50% increase in three- years on that. The wholesale market for water continues to just skyrocket on that on a per acre-foot basis. Also the cost of developing and delivering it 'cause you have to reach farther and farther out. One of the advantages that the company has is that our point of use for our water rights is right where our waters originate. We don't have a lot of that costly infrastructure. As we continue to reach farther and farther out for water, you know, we defer that capital cost for a number of years because we can continue to use our water that's close in. We're really looking at a balance of, you know, making sure that we keep growing that portfolio. We keep partnering with regional entities such as the WISE Project that you see in our financial statements from the disclosure in our MD&A sections and really working with other providers to be able to, you know, bear the cost of some of that infrastructure on a regional project basis. Okay. That sounds great. Are there opportunities for, I don't know, if some other entity is short water, you know, this year or you know, in the near term before you're using up all of your water rights for your own internal uses. Are you able to, you know, sell stuff for a year and is that somewhat profitable or what could the margins kind of be for something like that? We do that to our industrial customers. I would say when you're selling water on a one-time, one-off basis, you know, that's gonna be somebody that uses water and then doesn't have a continuing need for that, a one-time use of that, and that's really our oil and gas customers. They have tremendous water demands. We continue to grow our water system. The plumbing of our water system, the wells, the pipelines, the storage reservoirs, the pumping capacity, all of that we continue to grow and use the oil and gas revenues to be able to finance that. What that does for us is it leverages the margins and the opportunities that we have when we get our permanent customer connections. When I get our residential, our commercial, our retail customer connections that are permanent connections, and they generate that $1,500 per connection per year revenue. Those tap margins are much higher because we continue to incrementally expand our system for our one-time use customers, oil and gas. Those are great opportunities, and we are capitalizing on those. Okay, great. Thanks for your time. Keep up the good work. Thanks. Your next question is coming from Elliot Knight. Please announce your affiliation, then pose your question. Elliot Knight Advisors. Elliot, nice to hear you. Mark, hi there. Speaking of hearing me, on a personal note, Mark, it was 29- years ago next month that I flew out to Denver and we met for the first time. I just wanna say, listening to you today and listening to this presentation, it is really extraordinary what Pure Cycle has become. Now, that's the end of my speech. My question is having to do with the oil and gas business. When wells started to be drilled out there, we were told by the industry that these wells would be refrac'd after about 5- years. Question number 1 is, what's going on? Have they begun refrac'ing? Question number 2 is, can you tell us what you know about the operators' drilling plans, number of wells that are planned for the next 12- months, what their overall thinking is? Number three is availability of labor and frac crews, which are said to be in short supply. What do you know about that? Thank you. You bet. Thanks. Again, you know, time flies. I do remember that fated day though 30- years ago, and I thank you and many others on this call and that are shareholders of this company for their continued support through the years here. In the oil and gas space, your first question was, you know, you're right. A lot of these wells, you know, we're in a shale deposit, and so what makes this the whole thing work are fracking and well stimulation. When they go in and they do that, you know, it creates an opportunity for the oil to flow to the wellhead much, much quicker. You know, they do typically. Or that shale deposit lends itself very well for restimulation. Colorado as a whole has seen that. In probably the Northern market, in the Northern Weld County, Niobrara area. We have not seen that yet in the southern Niobrara field. Our particular area, I think is as attractive, if not more attractive than what you've seen in sort of the core Weld County area. We really suffered from operator issues. We had a major in this field, who came in, spent a ton of money defining the field, putting infrastructure in, and really putting it all together, but it just never was something that became big enough for them. You know, they. While they did a great job on defining it and really starting the process and proving out and de-risking it, they did a terrible job on developing it 'cause it just didn't meet their threshold. It just didn't seem like it could compete because it was too big. The operator was too big, not the field. The operator was too big. They ultimately ended up selling to what was a private enterprise. That went from Conoco to a company called Crestone, which was predominantly a Canadian pension fund creation where they were gonna monetize that. Crestone did a much better job about coming in and starting that production, but oil was still pretty weak during that period of time. They weren't all that aggressive about it because, you know, the economics at $40 a barrel is much different than it is at $70 a barrel. And then more recently, Crestone again transferred that interest, and now what we have is a combination of a company called Extraction, Bonanza, and Crestone. It was a consolidation in the group called Civitas. This is kind of a brand-new entity. They're a publicly traded company. You can look them up and take a look at what they're doing. They predominantly have Crestone and Extraction land positions, and then I think Bonanza management and some of their development expertise and that portfolio as well. You've got a kind of a combination of those three entities. I know we have one rig that's dedicated to this field. They've been drilling wells. They're prioritizing drilling wells as close as they can with the revised Colorado setbacks. They have a 2,000-foot setback, and they're prioritizing drilling wells as far on the west side of the play as they can so that they can get those laterals in place and then start to move east with that. A lot of those wells are concentrated as close to the developed urban areas. A lot of them are in the city of Aurora, and Aurora, you know, depending on the water year, may or may not provide water to those wells. You know, I think that we've supplied some water to some of those wells and Aurora supplied some water to some of those wells. The labor shortage, I don't see as being the limitation on it. I think it's mostly been just the repositioning of the interest over the last three or four years with various operators. I think with this recent consolidation and a new entity really having a core position and this being one of their primary drivers to the company rather than an also-ran as in maybe Crestone, I mean, not Crestone, but Conoco or, you know, a strengthened oil price that Crestone never really had, that you're gonna see a much more continued activity on that. If we've got one rig drilling wells, continuously, they can drill about 30 wells per year. What's happening are, you know, a lot of what Conoco did was gonna be HBP, hold by production. They were more interested in defining maybe a 100-square-mile, 130,000-acre lease interest that they wanted to make sure that they locked that in and drilled each of those wells in a way that they didn't have that potential of losing each of those lease interests on that. That's all done. What they're really doing is drilling 8-, 10-, 12-well pad, 12-well per pad drilling program, and that's much more efficient for them. It also is much more efficient on delivering water, whereas as opposed to us, you know, doing $250,000 a well and then them moving to another well, we're seeing, you know, $1.5 to $2 million of water deliveries per pad. That's a significant increase in terms of how much water they're wanting over what period of time, which is why we continue to incrementally expand our water delivery operations, both in terms of storage and then transfer capacity. Each of those could, you know, what I would characterize the oil and gas play to an oil analyst such as yourself or a recovered oil analyst is, you know, you had some repositioning of the play. The play was de-risked. You've had pricing of the asset and some patience by operators to make sure that that price per barrel was at a sufficient level for them to increase their investment activity on that, and then consolidation of the play so that it's really centrally focused. I think all of those things are now giving us some good forward-looking vantage view of how oil and gas will play over the next five- years. Thank you very much. That is a great answer. I have no further questions. Thanks, Elliot. Best to you. Your next question is coming from Bill Cunningham. Please announce your affiliations, then pose your question. Bill Cunningham. I'm a private investor and occasional Seeking Alpha author. Hi, Mark. Bill, nice to hear from my favorite Seeking Alpha writer. Your least favorite, all at the same time. I'm the only one over there. In any case, I'll have a couple of questions on the water. One is, I believe to the extent you get water from the Lowry Range, you have to pay a royalty of 10%-12%. Is that correct? That is correct. 10% if it's delivered to a public entity, 12% if it's delivered to a private entity. Okay. To the extent you're taking it from Sky Ranch property, obviously there's no royalty to pay. I've been looking at your financials, and I don't see the royalties broken out separately. Are they so small that they're insignificant, or am I missing it? No. Yeah, typically we record that net of revenue. Okay. I mean, you don't see a separate category for that. Our revenue number is net of that royalty. Okay. It is pretty small right now. Mm-hmm. Not only do we not pay royalty on Sky Ranch water, we don't pay royalty on our Lost Creek water, we don't pay royalty on our WISE water, and those are the lion's share of what we're using. A lot of the water that we're delivering to oil and gas will come from Lowry, and so, you know, that has a higher rate. We get about three times the price that we deliver water to our residential customer, delivering it to our oil and gas customers. It almost washes out in terms of the revenue. Okay. Okay, good. Second question has to do with the tap fees, and I'm looking at the numbers for phase two. You're showing over $33,000 in tap fees per home. When I do the math, I come up with less than $25,000 per home. Now, I think the answer is that these are less than single family equivalents, but just wanted to check on that with you. That is correct. You know, when we look at a metric here. Mm-hmm We look at that at a 0.4 acre-foot equivalency, and that would be, you know, what was historically the average for a single family lot. At Sky Ranch, our lots are a little bit smaller, and so we're averaging about 0.3 as opposed to 0.4. What that does is it means we can serve more connections with the same water supply. When you look at that, maybe that's, we still get the same dollar per acre-foot, but when you have more connections, in our recurring revenue model, what happens is we have a fixed fee portion of that. A customer might pay $45 per month if they use no water, and then a consumption charge based on how much water they use. What the smaller lot size and more customer connections do for us is it has more revenue potential for us on a continuing basis for that standby fee for reservation of that connection. Okay. Do the builders pay different amounts for a tap fee, depending upon the size of the unit they're building? They do. We have five metrics that go into calculating each individual tap, each individual lot, and it's based on size of the lot, size of the house, the number of, you know, car garage it has, because then there's gonna be a concrete portion of that which takes out the irrigated portions of that, how much xeriscaping they have, and how many square foot of the house it is. All of those metrics go into our tap calculator, and then they- Mm-hmm You know, it actually comes out and spits out, okay, this house on this lot, we know. We calculate, estimate the average annual demand to be this much, and that then is factored to 0.4 acre-foot. Some of them are higher if you have a large lot. I remember when we rolled this model out, we had one home builder, and the very first house they came out with ended up being on a corner lot, and they ended up having, like, a $45,000 tap as opposed to a $25,000 tap. They said- Ah. Well, we don't like this." I said, "Well, if you want me to fix it at $32,000 for every one of your lots, we will, but it's not gonna be in your interest to do that. Interesting. Great. Thanks. I finally have a question on the commercial development, particularly on supermarket. I know at one point you were mentioning you needed 2,000 rooftops for a supermarket chain to be interested in going in there. You know, you've got 500 in Sky Ranch now and adding there's that trailer park that's near you, that's another couple hundred. There's Harmony, you know, almost adjacent to you. There's the whole area where that Vista Peak prep school is, where there's thousands of homes in there. Mm-hmm. Looking at Google Maps, it appears that the closest supermarket to Sky Ranch right now is over 10- miles away and a couple of stops on the interstate away. I'm wondering what the thought process might be now for at least a supermarket going in on some of the commercial property. We have engaged with a number of grocery retailers on that platform. They are very interested in what it is that we're doing and you know, while I would like to say I could give you a timeline on that, you know, the model would be one of them used to put their flagpole in early because they wanted to be kind of the first one there and establish their position. Mm-hmm. The bigger operators now are a little bit lagged on that. They wanna be instead of six months early, they wanna be six months late, but they wanna reserve the site, you know? They say, "Okay, yes, we're gonna be there, and I wanna be right here." You know, they know exactly where they want their lot. You know, I think we've got some land plans around that lot. Then it's just gonna be a timing of when that works for them and how that pricing works. Okay, great. You know, what I'm not interested in doing, I'm not interested in selling them the land at a lower price and then having them wait 2, 3 years to build on it. I'd rather wait until they're ready to build on it and optimize the land value on it. Yeah. Well, it also adds to the value, I would think, of the homes being sold in Sky Ranch if there's an active supermarket there. Yes, intuitively that's true. Honestly Mm-hmm That's not what we suffer from. We don't suffer from excess enthusiasm in our market. I think, you know, the price point that we're in, the entry level, you know, where I would say when we started this product, you know, there were Taylor Morrison and KB, some of their first homes, they were selling at $360,000. You can't buy a home out on our site for less than $500,000 now. I mean, it's that attractive in terms of, you know, the building cost, the delivery cost. All those costs aren't materially higher. It's the community that we're creating out there, the attractiveness of it, its location, its access to transportation. All those things are increasing the value of those lots. Okay, great. Thank you very much, Mark. Thank you. Your next question is coming from Geoffrey Scott. Please announce your affiliation, then pose your question. Mark, it's Jeff Scott Asset Management. How are you? Great. Nice to hear from you, Jeff. Yeah, it's been a while. I haven't been around for 29- years, but I was sub $3, so I've been around for some time anyway. You bet. Follow up on the, on the commercial side. Have you actually identified a specific land area where that commercial development is gonna happen? We have. You know, what we really do is leverage the interstate and the interchange on that. We're looking at about 140 acres right up that's got that I-70 frontage for our commercial opportunities. What I didn't show in the deck, and I will next call, and I think we might have it posted on our website, but you can see we spent a lot of time on the design work for that commercial parcel, how the pad sites are gonna lay out, how the transportation network's gonna lay out, what we think about in terms of square footage for building spaces, given our conversations with the various users. You know, we're talking with, you know, a nice super center for grocery and fuel, and then, and coupling onto that, you know, you're gonna see a little, some pad sites available for that that are gonna be, you know, local pizza, dry cleaning, you know, liquor, retail, things like that. We've got good designs for that. We have spent the time to land plan that, to optimize what parking's gonna need pursuant to our zoning requirements and all of that. While it hasn't quite monetized in terms of having the connections there, the company's planning for that and development of that parcel has. We spent a lot of time working on that and have had some great guidance from our board. We've got, you know, some of the best, commercial developer in town on our board that really was instrumental in helping us lay that out, make sure that we're optimizing not only the acreage there, but how that acreage gets used on, you know, parking that can be co-parking oriented. You know, this parking can benefit multiple retailers, that type of stuff. Okay. In terms of timing, what fiscal year would be kind of targeted for actual commercial building and leasing? You know, I'd love to say, you know, it can be in 2022. I doubt that that's the case. I think it's probably a 2023 type opportunity. We might have something to talk about this year, but I think, you know, it comes to fruition, I think it's probably still 18- months out. Okay. A very kind of high-level question. The fires up toward Boulder, it's not gonna affect the population of Sky Ranch, but you have to believe that with all the rebuilding activity that there is going to be an extensive pressure on labor and materials. Is that? Are you starting to see that already? Have not seen that yet. You know, our production builders typically have better access to that, and manage that much better. You know, what we would look at as a pressure point for the company would be, could we deliver our BTRs in that segment? Really, we've got a great home builder that delivered our first three. You know, he's very aggressive and wants to grow his business, and really we're a key component of growing that business. Together with the fact that he competes against the production builders, and the production builders in the next phase are much more positioned to be able to expand on that. You know, if they're building their homes next to us, they may be able to expand that. If they're not able to price that out competitively to our existing builder, then, you know, I think we're positioned well for that. Not to say that, you know, that won't still constrain the market because you have other trades. You know, you have electricians, you have plumbers. You know, all of those trades need to come out and be able to be committed to a particular area. You know, there's another 1,000 homes that will need to be rebuilt. When you look at it, you know, in the aggregate, we're building about 15,000 homes a year in the Denver market. On a percentage basis, it's tragic and it's a lot of homes, but it's probably not that weighted. Yeah. I was gonna say, you know, labor was tight before the fires, and after the fires it has to be even tighter. Yeah. Yeah, well, I wouldn't disagree. Okay. Congratulations. I appreciate the time. Thank you for your support. There are no further questions in queue. Great. For those that are listening to the replay or cast on this, if something pops up that you'd want some additional information on, please don't hesitate to give us a call. We do have a terrific website. It's now an award-winning website. You know, we will continue to update that. We will continue to provide color content, photos, video footage, podcast, a whole range of opportunities for us to continue outreach to the public and to the investment community. You know, on an active basis, we're very active on the conferences, so I know a number of you have been to some of those conferences, and we've spoke one-on-one on that. We'll continue to do that, to continue to reach out to the markets and make sure that they understand what it is that we're doing and certainly the enthusiasm and excitement that we have for the company. We also look forward to delivering you some performance on the M&A front and activities on that. I know we've been working on that for a while, and not all of those are within our control, but we're very excited about some opportunities that we're pursuing. Hopefully, we can satisfy Bill Miller that we're putting that capital to good use. With that, thank you all for your continued support and please keep in touch. Thank you, ladies and gentlemen. This does conclude today's Conference Call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation. Thank you, Holly.