Pure Cycle Corp (PCYO) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Pure Cycle Corporation second-quarter 2007 earnings conference call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded for replay purposes. At this time, I would now like to turn the call over to Mr. Mark Harding, President of Pure Cycle. Please proceed, sir.

Thank you, Anika. I would like to welcome you all to our second-quarter February 28, 2007 conference call. As with previous conference calls, you can access the slides through the company's Web site if you can link in through there. You can advance the slides yourself. I'll try and note the transitions of slides as I work through the presentation. And then after the presentation, we will have a question-and-answer session in the event that you'll have some specific questions.

We have had a fairly extraordinary six months ended February 27, and a lot of that information we'll go through here. If you will advance to the first page, we have our Safe Harbor Statement, which discloses that certain statements -- presentations are purely historical information, including estimates and projections and forecasts. So for purposes of forward-leading statements, these are merely just comments and representations. Actual results may differ significantly.

Getting into the significant events for 2007, most notably one of the things that we had done this change our auditors so we have new auditors -- GHP Horwath, who is a regional firm here in the Denver metropolitan area, with operations in western states around here and a number of public company clients.

Obviously, the Company has had some significant changes in its accounting. And these resulted in restatements to our fiscal year 2006 10-K, and then also our first-quarter 2007 -- first-quarter financial statements. And I'll specifically highlight what those restatements were and what those impacts were to our financial statements.

I want to describe a little bit about the activities relating to our Arkansas River Water acquisition, and some sale of nontransferable water assets that we have from that acquisition.

I also want to talk about some investments that the Company has into some new technology for development of wells in the Denver Basin Aquifer. We have as a portion of our portfolio Denver Basin Aquifer, which is located on the State Land Board's Lowry Range. And we are making some investments into technologies that will improve the well production for those formations.

Also want to update you all as to the activities of the State Land Board and their development and conservation proposals on the Lowry Range, and then overview our financial results for the six months ended.

If you will advance to the next slide -- talk a little bit about accounting. Some of the mechanical items are that the Company will begin depreciating assets, which were part of the acquisition of the High Plains water. And that's going to be about $90,000 of depreciation expense per quarter. So you will see a non-cash depreciation expense beginning to accumulate in our financial statements, and mostly in our P&L.

On the restatement itself, the Company sought concurrence from the SEC dating as far back as December of last year on some of the items as it related to the accounting for the Arkansas acquisition. And as a result of that, the staff of the SEC had some objections to the two real particular areas where we accounted for that transaction.

One of those was that they disagreed with our putting the contingent liability from the payments that remained with High Plains A&M. One of the things that we had looked at was whether or not the Company needed to disclose an indirect guarantee as a result of some $14 million worth of liability that High Plains A&M continued to have as a result of the transaction from their purchase of these water assets.

And due to our really describing what that transaction was and discussion about some of the collateral that the Company held in reserve pending the payment of those obligations by High Plains A&M, they felt that it was inappropriate for us to put that on the balance sheet. So part of the restatements resulted in us removing that $14 million contingent obligation, and also a contra-equity receivable in the equity account on that.

So we did reduce that liability. It really was never a Company liability, but it was really an item of how we would disclose that to the reader.

The second part of that restatement was how we valued the Tap Participation Fee. Now if I can briefly describe what the Company paid in consideration for this asset, it really came down to two particular elements. One was that we issued some equity, 3 million shares of stock which were able to value.

But then secondly, we granted the sellers a right to participate in future revenues from the Company. And that was the right to participate in 10% of the next 40,000 taps.

Now how you account for that contingent liability was what we had taken a look at. And through the Company's research as well as our auditors' research, we accounted for that with some guidance from something known as FAS 141, which allowed us to use a residual value method, in that you took a look at the value of the known considerations in the transaction.

And the known considerations that we knew about were we knew what it was that we bought and what the value of that was. We knew what the equity was. And the difference between that was what we valued the Tap Participation Fees. And that's the 66 million. And that was really a residual value methodology.

And the SEC really objected to that methodology of valuing it. It wasn't that it was wrong; it was just that they felt that there was a different way of accounting for that that would have been more accurate. And what they were looking for was that the Company would use a methodology for valuing that using a discounted cash flow value, and being able to try and forecast what that payment stream would be and present value that back over some period of time, and then be able to treat that as a financing instrument, so that the Company would accrue interest expense in its -- imputed interest expense in its P&L over time.

So having gone through that exercise with the SEC, we proposed a methodology which they did not object to, which resulted in us lowering that liability by about $20 million. And the impact of that to the Company's financials is you'll see going forward a non-cash imputed interest expense of about $1.1 million per quarter. So we'll talk a little bit more about that.

If you want to change and advance to the next slide, the next slides really highlights what the impact of that is to the 10-K restatement. Taking a look at what we originally reported -- investments in water system, which is the $124.9 million, and then the adjustment to that, which is the reduction of the present value of the Tap Participation Fees.

So the restatement was about $104 million. The Tap Participation Fee payable -- that liability went from $66 million down $20 million to $45.6 million. And then the removal of the contingent liability and the contra-equity associated with the debt that was owed by High Plains A&M.

If you advance to the next slide, one of the things that that tries to do is talk about the restatement of the 10-Q impact. And really, that's going to show the adjustment relative to the interest expense and the depreciation expense associated with each of those adjustments -- investment in water, the first part in the table there really shows the balance sheet implications mostly from the 10-K restatements with the accrued interest expense associated with that -- and then the non-cash interest expense and the depreciation expense associated with those on a go-forward basis.

What this will do for us is that it will impact the Company's P&L significantly, because it will show a higher net loss per common share as a result of this non-cash interest expense accrual. So those are going to be some of the impacts of the restatement, and some of the reasons for that restatement.

If you advance to the next slide, it really talks a little bit about how we did this evaluation of the Tap Participation Fee. This became the sticking point in our discussions with the staff at the SEC. And the real issue was how to resolve present valuing this, because we didn't have a real good feel for how and when these taps would get added over a historical period.

So the Company took a look at a number of different valuations of this ranging, from straight-line absorption to a bell-shaped curve absorption based on the master planned community. So a host of other things to take into account -- estimates of market conditions, supply and demand for new homes, population growth along the front range, tap fee increases over our rate base district and other factors which are beyond our control.

But ultimately, it gave us a fairly reasonable average of what that may estimate itself to be. We know that number is not going to be a correct number, as much as we knew also the $66 million was not a correct number. But we need to have a methodology, an accounting methodology that presents fairly how this will be accounted for, and how it will accrue over time. And so those two elements really are what the Company worked with staff on, worked with some valuation methodologies to come up with a figure that the staff was not objectionable to.

So with that, let me move on and talk a little bit more about some of the significant events and some of the activities of the Company. Arkansas River update -- let me talk with you a little bit about the disposition of some of the water associated with that transaction.

In addition to picking up the actual Arkansas River shares, which were identified by the shares that we own in the Fort Lyon Canal, Another water asset that we picked up in that acquisition was also some shares of water from the Lower Arkansas Water Management Association.

And those shares are specifically reserved for use in the Arkansas Valley. They're not the same as the Arkansas senior water shares. And as such, the Company would not be able to take those and transfer those out of the Arkansas River Basin, or transfer them out of the Arkansas Valley for users either in the Colorado Springs market, which is in the Arkansas Basin, or into the Denver metropolitan area, based on the consumptive use of -- the historic use of the Arkansas water.

So with that, the Company really identified those as held for sale, and have sold the majority of those assets. We sold about 510 of the 550 shares that we have in that for around $900,000. And pursuant to our agreement with the High Plains A&M, High Plains A&M with get the proceeds of those sales, but the Company gets dollar-for-dollar credit against its tap participation fee.

So that resulted in the credit of about a little over 1,000 taps -- 1,035 water taps under the tap participation fee. So lowering that tap participation fee from 40,000 down to 30,965 is the results of the disposition of those non-strategic water shares.

The Company still has a few shares left, about 45 shares left. And that's valued at around $78 million. And again, those are held for sale as assets as we find opportunities for the Company to dispose of those assets to users in the valley.

Moving on to the next slide. I want to talk a little bit about some technology that we're very excited about. We have been working with a number of oil patch firms to identify opportunities to expand the development of water resources in the Denver Basin Aquifers.

And one of those methodologies has shown some very good promise for us. And we entered into an operating agreement and formed a limited liability company called Well Enhancement and Recovery Systems. And it's really a three-party operating agreement with Hydro Resources, which is a well driller out of Houston, and they drill the majority of wells in the Denver Basin formation together with the Company; and Ryan Clark, who is a shareholder of the Company, but an independent investor in this LLC -- to look at developing some technologies that will increase the productivity of the wells.

What we see is the opportunity of using some of this technology. And we were working with an oilfield services group called BJ Services that have operations here in the state of Colorado to take a look at how we would increase the porosity and the permeability of the formation.

And they have extensive experience about frac-ing wells, whether it's a hard frac or a hydro frac, a water frac -- and then the ability for us to be able to manage those fracs. And that is what we are really exploring is the use of developing a specialized tool together with some known technologies from the oil patch to be able to increase the productivity of that.

The Company has invested about $30,000 in initial capital contribution, and probably only needs about another $40,000 in that to make that technology viable. And not only are we looking to use that for our own purposes, but also looking to use that for others in the Denver Basin, where we can go in and assist other municipalities who have existing infrastructure, who have existing wells, to be able to help them improve their system and improve their ability to deliver water through their existing infrastructure.

So we're very excited about that. We should have a rollout of that technology sometime in the third quarter and an opportunity to use that with some existing municipalities here in the Denver area. So I will keep you apprised as to the developments in that and how that looks to increase not only our own production ability but also an opportunity for us to provide additional services to water providers in the area.

If we can advance to the next slide, which will be a pretty busy slide, but we try to inculcate a lot of the activities that are occurring on Lowry Range with the State Land Board and the surrounding areas. As we discussed earlier, in December of 2006, the State Land Board had selected a preferred development partner, Lend Lease Communities, which is an Australian-based Master Planned developer, with operations in over 40 countries worldwide, to help them develop approximately 4,000 acres of property on the Lowry Range. And you can identify that by the section that is outlined in the green dotted border.

Our relationship with the State Land Board will cover two of those six sections. So approximately 1,300 acres of the 4,000 acres are within our relationship, and balance of that property is external to that.

And the reason for that being is that the State Land Board at the time they entered into this relationship on the water leases was they didn't actually own that property. They acquired that property subsequent to that.

We have been in discussions with the State Land Board and Lend Lease about opportunities where the Company can provide service to that, and we'll see how those discussions mature over time. We are very early in that process.

As you can identify in the blue shaded region as well, that is an area that the State Land Board has looked at, about 17,000 acres, as an opportunity to provide that property for conservation opportunities, and they have got a preferred development team, which is called the Arapahoe Grasslands team, which is a combination of the neighboring city of Aurora, the Trust for Public Lands, the Nature Conservancy Districts, and I think Military Affairs, to be able to take that property and find some conservation uses for that property.

And then lastly, there is another 5,000 acres of property there that they've identified as the water resource area, which really incorporates the bulk of the water resources that we're developing in conjunction with the State Land Board -- three reservoir sites, as well as the Coal Creek drainage area. And the State Land Board is looking to defer discussion on that for further evaluation about the integration of the water resources plans and how that affects the overall development area.

The Company is in discussions, as I mentioned, with the State Land Board, with Lend Lease, and with the neighboring city of Aurora, Aurora Waters, to talk about a number of opportunities with the Lowry Range, which include service areas that are not covered under the State Land Board agreement -- those other four sections. We would like to win that business, not only with the State Land Board, but with Lend Lease Communities. We think we have a superior product to offer to them. We think we have infrastructure that is available to serve that, and would hope to be able to negotiate service to those four sections as well.

Also, taking a look at a more broad view of water resources in that area, together with the State Land Board's desires to position this property and these opportunities more regionally, in taking a look at joint water storage opportunities and reservoirs, and the development of the State Land Board's water resources more regionally, not necessarily just exclusively for uses on the State Land Board property.

We are still very early in those discussions. But we will keep you apprised as to any developments as it relates to those key areas.

Advance to the next slide, I'll talk a little bit about Sky Ranch. Sky Ranch -- we continue to work with the developer of Sky Ranch, Neumann Homes, together with their local development partner, Icon Investments, on project timelines. I do know that the owners are evaluating some of the options for the property, which may include sale or partnering of that property, taking a look at that to transition it to maybe somebody that would have a broader interest in that. I know Neumann is looking at some of their investments on a national scale and taking a look at where they need to direct some of those investments, whether they want to continue to expand their operations here in Colorado, or take a look at some of their other markets. But I think they're more heavily impacted in some of the other markets that they are serving on the real estate softening than they are necessarily in Denver, and are looking at options for this particular project.

The property continues to experience development along the borders of it and neighboring the city of Aurora. Some of the key elements of this that are disclosed in our financial statements are that the Sky Ranch option payments are past due. They are responsible for making annual option payments to us to maintain their position to use the Company's export water for service to that property beyond the initial 1,500 single-family units. The Company's service agreement does remain in effect with that, and we do have an installment sale contract where we're purchasing the groundwater beneath that property. And we will use that water in conjunction with our export water to provide service to the ultimate buildout of that project.

So we're still monitoring this project. We're still working together with the owners of that property for any guidance that they need from us or any opportunities that we can give them for making this project attractive for a project start.

Moving on to the next slide, one of the things we want to talk about is where tap fees are going this year. And we will announce through this call that our tap fees for 2007 will increase another 19% to $20,000. As this illustrates, we have seen a tremendous increase in tap fees -- nearly doubling of our tap fees over the last five years. And this really is the market's best measure for identification of the value of water resources and the difficulty with developing new water supplies.

The way we set our rates and charges, we don't unilaterally set our rates and charges. Pursuant to our agreement with the State Land Board, the Company is obligated to provide a market-based pricing mechanism where we go out and we and we poll the average of three surrounding water providers, and their average represents the Company's rates and charges for the coming year. And this really is indicative of the change in water prices amongst our rates base districts. So it really does continue to emphasize and reflect the value of this asset in the Company's business enterprise.

Let me update you a little bit about the Denver housing market statistics as we try to do on all of our calls. Some of the concerns and opportunities relative to the Denver housing market -- Colorado still faces a very high foreclosure rate. Colorado Division of Housing estimates that foreclosures have more than doubled since 2003.

And the highest percentage of those foreclosures are in two areas. One is in the entry-level housing market, housing starts less than $100,000. But interestingly, the highest concentration of defaults is actually not in the Denver metropolitan market. It's in areas that are significantly outside the Denver market, up in the northeast part and the southern part of the state.

So the Denver metropolitan market, while we're experiencing high foreclosures similar to what the rest of the country is experiencing, mainly because of some of the creative financing products that came down with low or 0 down and highly adjustable mortgage rates in an increasing interest rate market really are causing some of these first-time buyers that got in maybe a little bit more house than they think they could afford or needed.

30-year mortgage rates continue to be low -- not historic lows, but they're still very modestly priced at just over 6%.

Taking a look at -- advancing to the next slide, some of the annual housing starts -- we try and track the housing starts. We're going to be transitioning from the Denver metropolitan statistics to a more front range market measure, which will include really a little broader view of the Denver metropolitan area.

But as last year closed out, the housing starts year-to-date were about 25,000 single-family starts compared to around 30,000 single-family starts for previous year 2005. And then just on the comparable statistics for the Denver metropolitan market, 2006 came in a little bit softer than was projected -- about 16,000 units versus a projected start of around 20,000 units, which were in line with 2005.

Part of that is going to be softening of the market. Part of that is going to be some very seasonal issues because we had a very difficult weather here in the last part of the year. We had very strong Denver-based snows towards the end of last year, which I think will have significant impact in the number of housing starts trailing off in that fourth quarter.

Forecast for '07 in this area is going to be right around 18,000 single-family starts. So while we have a softening of the market, we still have a very sustainable single-family market that continues to add to the marketplace.

Some of the area opportunities -- we have, much like the national picture, a very strong employment growth. Denver area has added around 20,000 new jobs, which is consistent with our average over the past 10 years.

Unemployment rates remain very low, not only nationally, but particularly low here in Colorado and the Denver metropolitan area. We're at about 4.1% unemployment rate compared to a national average of about 4.4%.

So with that, those are kind of a broad brush overview of some of the operations and update statistics about our activities. Let me talk a little bit about the financial results.

Water deliveries are down a little bit, mostly because of seasonality issues and a very wet winter, where we had a lot of excess water. So we're down about 28% in terms of our water deliveries.

Water usage revenues were down about 12%. And sometimes those are a little bit different because of timing variances in rates and how the rates -- how much water you use in any given month.

Moving on to the revenue slides, revenues are down about 4%. And that's attributable in part to the sale of non-water-related assets from the Arkansas River acquisition. So we have got water deliveries down 28%, but our revenues are in line or slightly down than they were six months' previous reporting period.

Taking a look at our G&A expenses. Our G&A expenses are significantly higher. They are about $600,000 higher than last year. Some of those were going to be expected. Some of those are not expected. About $300,000 of those, half that increase is going to be anticipated costs associated with accounting and legal issues from the restatement, and the acquisition of the High Plains water assets. And so those will probably be nonrecurring charges.

But some of the recurring charges that will be increased in the overall water assessments are going to be the Fort Lyon water assessment, which we had as a known budgetary issues, and then franchisees fees, which are also known budgetary issues.

Advancing to the next slide, take a look at the net loss. Our net loss is going to look a little skewed here. And that's primarily as a result of the issues from the restatement due to increase of the imputed interest expense and some depreciation expenses associated with that.

So you will see about $3 million, maybe $2.8 million of that, or $2.8 million on an annualized -- no, I'm sorry; it will be around $4.8 million on an annualized basis of interest expense and depreciation expense associated with our net loss.

Taking out -- the next slide really tries to take out the imputed interest expense cost of that. So taking out the imputed interest, we're about twice of what we had in fiscal '06. And some of that is going to be again nonrecurring costs associated with the High Plains acquisition.

Taking a look at the Company's cash position -- continue to monitor our cash. We are about $2 million in cash and cash equivalents as compared to $3.1 million from the previous year.

Taking a look at investments in water systems. These are going to be sort of the asset acquisition side. And really, the change in that is -- this is a restated number, so the change in that really does reflect the restatement of the 10-K -- and attributable almost exclusively to the acquisition of the High Plains, and then a little bit from the Arapahoe County Fairgrounds water system. And then lastly, total assets, again attributable to the High Plains acquisition.

Wrapping up the financial performance section, total equity also increased. And that equity is a result of the new shares from the acquisition.

So with that, I guess what I'd like to do is open it up to you all for questions and answers, and see if this anything I can clarify about either the activities or some of the restatement issues.

(OPERATOR INSTRUCTIONS) Robert Kirkpatrick, Cardinal Capital Management.

Mark, you had a registration statement for sale of some stock awhile back. What is the update on that? Is that active, is that not active?

Good question, Rob. In December of last year, we filed an S-3 selling shareholder registration statement which we had to withdraw prior to it being effective. And then since that time, we have been in that consultation with the SEC staff regarding those accounting issues on the Arkansas River.

Now that we have concluded that, we do anticipate that we would refile an S3 registration statement. So you will likely see a new registration statement shortly. But yes, it is something that we did have to withdraw prior to becoming effective.

Great. And then any other opportunities for us to find a way to reduce and then reverse the cash burn that is going through the Company?

We're very conscious of our capital reserves. And we do monitor the capital reserves together with the timing of development, where we would start to generate substantial revenues on that.

We have incurred a little higher-than-expected cost this fiscal year. We run a relatively efficient operating overhead here, and so we're very conscious of that, and try to be good stewards of the invested capital.

I think we're projecting our overhead to be right around $1.2 million per year. And so we're conscious of the needs to continue to evaluate reserves together with timing of revenues and timing of how these development projects come online.

And to the extent that we would need to take a look at additional operating capital, we will evaluate that in the months ahead to make sure that the Company continues to be fiduciary -- one, fiduciary with that, but then secondly, maintain adequate reserve so that we can fund our operations.

(OPERATOR INSTRUCTIONS).

I know that the restatement had a little bit of complexity, but if you distill it down, it really wasn't as complex as it took. One of the reasons that it took so long is really reviewing some of the methodologies for how we wanted to account for that.

And it didn't come about through anything other than there was just a number of different ways that -- the literature really guides you for these types of transactions. We had selected one that I thought we had strong guidance for from other similar type transactions, and really had concurrence from a number of accounting professionals.

But the SEC took a look at that and really had other options for doing that. And it really -- the statistics of how the Company operates, the mechanisms and the actual agreement itself is as it was before. The Company really did try and formulate an agreement where we were acquiring these assets so that the selling share -- selling group was able to participate not only in the monetization of that asset within the Company by directly becoming a shareholder, but also that the Company didn't assume any of that debt obligation. And so us being able to structure that as a participation in those revenue streams was an attractive mechanism for that.

So it was just a method of how we valued that. I know that that's a little bit confusing for folks, but it really was just a method for accounting.

Roger Liddell, Ingalls & Snyder.

A question on Neumann. And this may be under discussion, where you would prefer to comment at a future point, and then I accept, and I'll drop the question. But I was uncertain what the implications were of your comment about the option that is in default -- what payments in default.

Is there a practical significance to that, and is there any -- separately, is there any texture that you would want to put beyond the wording that you used in your prepared remarks regarding the Neumann situation?

That's a good question, Roger. One of the things that we structured with that transaction was we wanted to purchase the water beneath the property as an opportunity to develop a portion of that supply.

And that supply was not adequate to provide water service to the overall property development. They were looking for a higher density than they would have otherwise had water supply for. So it was the Company's ability to bring new water to the equation that was the mechanism that entitled them to get their zoning from Arapahoe County, which is where they are located.

We have an existing agreement with them that, notwithstanding what they do or don't do necessarily on the export water, we continue to be responsible for providing water service to the 1,500 units that their water supply would have otherwise provided water service to -- because the Company has a strong inventory of those water supplies.

And one of the things that we structured in the relationship with Neumann, much like we have with all of our developers, is the developer was going to be at price risk. So notwithstanding that they didn't start development on any given date, they were also not guaranteed the current tap price. They would have to pay tap fees based on the then-outstanding tap fees.

So at any stage of the development, whether they start development in 2007, whether they start development in 2008, they're going to have to pay whatever that price is as they take those taps down. And as it goes on, as it continues to go on time, the Company certainly continues to realize the benefit of those tap increases as [view] our development partner, the State Land Board in terms of the royalty relationship. And the Neumann Home really had access to that existing water supply.

Now because they are in arrears in payment for some of those option payments, does it jeopardize their project as a whole? Technically, it can. In all likelihood, the company can find a relationship to work with, either Neumann as they go forward, or another developer as they go in on how that supplemental -- the export water gets brought into the equation.

But we really have been flexible in trying to work with Newman in finding ways that either make it more attractive for them to start to project in the event that they want to move forward with that or any other new owner of that.

So I hope that clarifies the question. While they are in default, we still have the continuing obligation to provide service to them.

That clarifies; thank you. And a follow-up, if I could, regarding Lend Lease. I believe they are a highly reputable and large and capital-strong entity. So is there any buffeting that they are suffering by virtue of what's happening in different markets?

That's a good question, and one that I really don't know that I can answer on behalf of Lend Lease. I certainly know that they're very excited about the Denver market. They could have -- and do have opportunities worldwide to make investments. And they have been very selective about their investments in United States.

And that they chose Colorado, that they chose Denver for investment says a lot about what their view of Denver and the Colorado markets to be, and also what they think of the opportunities relative to the Lowry Range.

I think they're looking at not only the Denver market, but they had opportunities for a number of proposals in the Denver market. And that they chose the State Land Board one was a very interesting investment for them -- one that we're excited about, because not only are they a good group to work with, but they develop a very unique and very highly attractive product. They're environmentally sensitive. They take advantage of the [leads] building program.

They have a whole bunch of very attractive features that I think will bring some excitement to this particular project. And I know it's something they are very excited about -- we are very excited about, and I know that the Land Board and staff at the Land Board are very excited about it.

[Gus Allen], [G.A. Financial].

I have not been on each of your conference calls for a couple of quarters. But in reading the 10-Q, there's a paragraph or two about the Paradise Water situation. And I'm wondering what your sense is of that property, and kind of a number of questions that follow through depending on what you feel is going to happen here, and what kind of risk we have in losing the property?

That's a good question. Let me bracket that a little bit just for some of the other listeners.

The Paradise asset is little bit different asset. That's a conditionally decreed asset, which is a little bit different than our Denver-based assets and the Arkansas assets.

And what happens with conditionally decreed asset are that every six years, applicants that have those conditional decrees have to show that they're continuing to diligently pursue the development of those water supplies in order to maintain those decrees.

The original decrees for that asset date back to the 1960s. So that asset, and the Company in its ownership of that asset, have gone through several diligent periods. We are currently in a diligent period now.

We did have a couple of objectors to that diligent period. And objectors to that would say, their objections are -- we want clarification from the Company about its development plans and what its development objectives are for that particular asset.

Now that asset is an asset that will be used on the western slope. It's not asset that is going to be available for us to use in the Denver market, mostly because of the stipulations that were made on that asset previously. But it does allow the Company to explore opportunities for developing that asset in those markets on the western slope.

And there's very attractive markets on the western slope, whether that is to capitalize on the active retirement communities that are growing up in the Mesa area or along the Grand Junction area, or taking a look at augmenting some of the irrigation opportunities in those areas as well. And one of the things that the Company may look to is, is there an opportunity for us possibly to relocate some agricultural operations from maybe the Arkansas Valley, if we have got farming interest and want to continue to farm down in the Arkansas Valley.

And we can provide an opportunity where we can do some rotational crop following, where we will rotate some of the crops out there. And some farmers may want to choose to continue to farm in other markets, that we may be able to offer them an opportunity to lease water on the Paradise asset and farm some areas on the western slope as well. So we're going to explore a lot of different opportunities relative to that asset that really do provide a very attractive opportunity for us in developing that asset.

Where we are in the diligence case is we have met with a number of the objectors to that. I think we have got some proposals in front of them as far as what we would look to do not only in the next few years, but also maybe an opportunity to work with some of them in providing some water to their interest.

So I'm very encouraged by the progress that we have made there. I can't give you any assurances that we will resolve those issues satisfactorily. But I'm very optimistic that we have made some very good progress in the last six months on that.

At this time, there are no additional questions.

Well, I would like to thank you all for your continued support. And if anything comes to you that you thought you might want to ask or didn't get a chance to, please feel free to give me a call.

Ladies and gentlemen, this concludes the presentation. You may now disconnect. Thank you and have a good day.