Pure Cycle Corp (PCYO) 2018 Q2 法說會逐字稿

Greetings, and welcome to Pure Cycle Corp Second Quarter 2018 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mark Harding. Thank you. You may begin.

Thanks very much. Good morning or good afternoon, depending on what part of the country you're in. I'd like to welcome you all to our mid-year earnings call. Got a slide deck for this call, which you can all find on our website. So if you go to purecyclewater.com, and you go over to the investor page, then there'll be an icon that'll allow you to click open the presentation and follow along with us on the presentation. I will try and note the transition of the slides as we walk through the presentation.

So with that, I'd like to get started. We have some prepared remarks, and then we'll open it up to some Q&A towards the end of the call. So first slide is always to get the lawyers out of the room. So it's our safe harbor statement that say that statements are not -- that are not historical facts contained in this corporation are forward-looking statements in the context of the meaning with Private Securities Reform Act of 1995. You all, I'm sure, are very familiar with that.

So we'll move on to kind of an overview of the company, and I'm going to blow by this pretty quickly because most of you will be familiar with the company and kind of where -- what operations that we play with. But we are a water utility company. We have a portfolio of water that we own or control. So water out west is one where you can own that asset as a real property asset. We generate revenues on that from selling water to customers, both residential customers, commercial customers as well as industrial customers. A large segment of that is to the oil and gas industry. And then we also own some oil and gas royalties where we receive some mineral royalties from oil and gas interests beneath the properties that we have.

Moving onto the fourth slide. So we're sort of cradle to grave on the water utility. We own the water, the wells that divert that to treat it and distribute it to our customers. They use it, they turn it into a liability, we collect that. We reprocess that water, and then we reuse that water for irrigation and industrial uses. We -- our portfolio can serve about 60,000 connections and the metrics on that. We generate revenue from that. Tap fees, which are a onetime capital fee, and then we also generate revenue from monthly water and sewer bills. So we typically get about $30,000 per connection on the water and the wastewater side on the tap fees and about $1,500 per connection annually in water and wastewater revenues.

Transitioning to the next slide. Really, what we want to talk about more specifically is the development side. We have about 1,000 acres, 930 acres of land located in a very good location in the Denver metropolitan area, right along the interstate. We're about 4 miles south of Denver International and about 16 miles just due east of downtown Denver. Nice piece of property. We got a diamond interchange at the property, which gives us good transportation access. The property is zoned for about 4,400 residential homes, and that's a mix of detached single-family homes, attached paired product and multifamily homes as well as about 1.3 million square feet of commercial area.

Moving on to the next slide. Kind of gives you an overview of where we position ourselves in the metropolitan area. Very good project for us. We've got a lot of employment centers in and around our area. So our target for this is going to be kind of entry-level housing. And some of the logistics that are important to those buyers are going to be access to transportation and access to employment centers. So you have the Denver airport, which is the largest employer in the state, that's about 35,000 jobs; we have an Amazon distribution center, about 1,000 jobs; we have some convention center hotels that are opening up in the fall that are very big employers as well, as many as 3,000 jobs. So really, most of the concentration of activity in the Denver area is concentrated in this I-70 corridor it, so we're very excited about bringing this project online.

Transitioning to the next slide. Really, I want to detail out a little bit about what's going on. We did open construction on that. We're very excited about being underway, doing our over excavation and our overlot grading of these lots. The over excavation and grading component of this will probably last about 3 months. So we are actually grading the entire 150 acres as the mass balance works us on how you deliver these lots and the efficiency of delivering these lots because you have some cut and fill and moving the dirt so that -- it's very difficult to move that for one specific neighborhood. So the plan on that is to do the over ex and the grading for -- well, not the over ex, some of that over ex will be in phases, but the overlot grading will be for the entire 155 acres or the entire 500 lots.

We're concentrating the over excavation, which is really a soil-mitigation issue. So Colorado has some expansive soils. This particular site is really what we would call marginal on its expansive soil. But most of the builders are responsible for their own evaluation, an independent evaluation of whether or not each of their individual lots requires this type of soil-mitigation procedure, and they handle that cost themselves. They use the same contractor that we use for our overlot grading under a separate agreement with them. But we're concentrating our activity to this brown area, which really will deliver about 220 lots. So we're looking at not only the dirt work on that on the over ex, but we'll have the utilities. All wet utilities, which will be water, sewer, storm; dry utilities, which will be communication and electric; all kind of configured for that first 220 lots.

If we have that over ex probably by sort of mid- to late June, we'll be done by that time frame, we'll be letting contracts probably later this week for some of the wet utilities to get the water sewer and storm drain facilities in, some of the channel way work done. A lot of the electrical probably following shortly thereafter, really to just build to getting some sites that are available. So working with our 3 builders, we want to try and deliver some model home lots. So we have the ability for them to start construction on those sometime later this year, and then, really, work on production of those starting for the next building season, starting in January. But we will have sort of delivery of lots later this year where there'll be buying -- some of them will be buying just -- in 2 of the 3 builder cases, we have lot-development agreements, which means we get progress payments. One payment when we deliver sort of platted lots, one payment when we get the completion of the wet utilities, and then a third payment upon completion of the finished lot. And then with one builder, finished lot deliveries directly. So look to see some of that activity in follow-on quarters later this year and then really rolling into first quarter of next year.

The overlot grading is going very well. Sometimes when you get started on that, in the winter particularly for seasonal issues out here in Colorado, you can be influenced by bad weather. And while the East Coast -- all of our friends and the investors on the East Coast have had horrific year in dealing with weather issues, ours has been very mild. So you guys would getting all of our snowpack this year. So most of our contractors are probably even a little ahead of schedule on some of those deliveries, so we're excited about maintaining that delivery schedule.

Moving on to the next slide. Talk a little bit about where do we go from here. We're really working on the first 500 lots. And I think we've got a very good execution on how we're delivering those first 500 lots, but we're also looking at -- this is a bigger project. We've got about another 800 acres to deliver on this, and how do we phase some of that activity? So this will give you a little bit of work that we've been doing on that phase.

So we're looking at the second phase, which will be starting with some of the commercial up by the interstate and then slowing down into more residential and cluster-type development for a number of different builders. We have probably 3 -- well, we have 3 builders in our first phase, and we're looking at adding additional builders in there to maybe as many as 6 different homebuilders as well as some commercial-type builders where they're building commercial and retail installations up along the interstate. So we're working our way through our land plan on this one. Hope to show that to some of our builders later this spring, early summer, to start getting engaging level of interest and finalize that plan for submittal and working that through the process through this year. And then being in a position to where we can take a look at kind of multiple phases going on at the same time as we're starting to deliver lots for our first phase, we can start working on some of the grading activities for our second phase. So that'll give you the high-level of some of the development activity and really some of the areas of focus of what it is that we're doing on that.

Let me move on a little bit and talk a little bit about another major activity for us, which is really providing water to the oil and gas industry for well stimulation, and some of the activity that we're seeing this year. So we've got multiple operators in the field now. There's just been a little bit more competition for drilling out these leases. So we've got as -- I think as many as 3 different -- 3, maybe even 4 different operators in this area that are looking at some of the well activities. Our more well-established operator is kind of more active than the others, and they're projecting out kind of the highest number of wells, maybe as many as 20 wells. And then we'll probably get 3 to 8 wells from some other operators in the field, so we'll see how that activity looks. So we're projecting somewhere around 23 wells as a conservative estimate for the fiscal year.

Average sales on these wells. So some of the newer entrances in here are actually using some alternate design, frac design concepts, which use a little bit more water. So on average, I think we're seeing about $150,000 per well. We historically have seen about $100,000 a well, but -- so this added technology and how they plan and stage these fracs are sort of evolving, and I think that has something to do with both the technology as well as this field specific. So very excited about that. Good -- we had some good operating results for the first 6 months. We'll highlight a little bit later, but this field seems to be a very active field for development. Most of this activity continues to be HBP, hold-by-production type drilling. We haven't seen a whole lot of field development. And the real -- the difference between HBP and field development field will be the number of wells per pad, where you can see as many as a dozen wells per pad, which makes it very efficient for them on drilling and fracking activity, and then, correspondingly, a heavy water use for us on a transfer of water to those operations.

The next slide really talks a little bit about the field. Multiple formations, multiple drilling activities, and then kind of the revenue that we see on the water activity per well.

Moving on to the next slide. This is really just kind of a follow-up report card on our Wild Pointe acquisition. So that continues to go very well. We had -- gosh, I lost my number on this -- the number of tap fees on that, so forgive me while I catch up to my presentation. So we've got continuing builder activity on the project. So we've got 2 types of development out there, residential development, which I think there's still probably about another 60 to 70 lots available from the residential activity. That's kind of seasonally-derived where you have a little bit of activity. We only had a couple of tap sell deliveries. As you see, those taps are about $15,000 a tap and that's because the water system is already fully developed. So we're getting -- typically, we see about a 50% margin in that from the water supply to the water infrastructure. So all that water infrastructure was already capitalized by the previous developer we acquired this from.

Usage fees out there are fairly seasonal. So what we see is kind of the tail end of last year's irrigation fees and then really a limited amount of in-house demand over the winter. So those typically spike over the summer just because of those seasonal deliveries. But still very, very happy with the acquisition. It continues to perform in line with our forecast of the model assumptions on the acquisition itself. And we still do have our nets out for other opportunities. I know that, that question comes up as to where are the opportunities, and we try and focus those in areas where our current assets are. So we are still talking with a number of opportunities in that area to kind of add those acquisitions.

Next slide is going to talk a little bit about our WISE system. We continue to highlight this because it's part of our major infrastructure and delivery here. So in addition to pipeline capacity where we have about 3 mgd of capacity on our transmission line that goes really along the southern portion of the Denver metropolitan area. We also get some water out of that. So that allows us to expand our water service obligations, both for our residential as well as our industrial customers. And then as we look at the regional opportunities here, really, the advantage of this system and this cooperative is that we're interconnected with 13 different area water providers, and it enhances opportunities amongst all of us for our infrastructure, our supply capacities, our storage capacities. So we look to expand upon this system and these opportunities over time as well as we look at how our systems grow and how our opportunities mature over time.

So we'll go to Slide 13, which will be kind of the bullet on the quarter. So we kind of summarize it out. Our income, almost up twofold over prior year income, so about $2 million. Good portion of that, $1.6 million, is going to come from frac revenues. So that kind of shows you where that activity is. I think we'll see continued strength here, maybe even a little bit of growth in this opportunity just because it's a little -- they don't have quite as much activity over the winter months as they do over the summer months. So we'll see if we have sustained opportunities here, going to still round out for a very good year-end for us.

Our municipal water, wastewater service is kind of in line with last month. Some seasonality in here, but, really, there's no variable differences in the increase here. Tap fee revenues, again, some of those taps are attributable to Wild Pointe, some of those taps are attributable to an existing customer, which came into the system as well, added existing capacity in the system. And then some of our oil and gas royalty revenues. So those are down a little bit, and then it continues to be sort of operational issues with the wells themselves. As these wells continue to mature, the operators continue to refine how they are operating. And we still are under a gas-driven well. So I think we're one of the last wells still yet not to have a pump jack on this system. So it still produces good royalty revenue, about $25,000 a month, as they get a full month worth of operation.

The last 2 sheets are really our balance sheet and income statement. I won't go through those. You guys can look through those. We still have a very good liquidity position. We have about $24.5 million on liquidity in that. So we feel we have sufficient capital to fund the development of lots out at Sky Ranch. And we try and make sure that we have a good cushion in reserve in case there's any variances in timing of deliveries or otherwise. But we're very excited about being able to deploy those capital and be able to push out some of that for returns and our shareholders.

So with that as a summary, let me turn it back over to our moderator and see if we can have some questions that you all might have to drill down on some of the specifics of what it is that we're doing.

(Operator Instructions) Our first question is from Bill Smith with William Smith Co.

With the announcement of Aurora Highlands and aerotropolis and the agreements with Adams in Arapahoe and Denver counties, what impact do you think that could have on Pure Cycle and on your water over the next several years? 60,000 -- I think you're talking -- 60,000 residents, I think is what they're talking about, a whole new city itself.

Yes. It -- what that really illustrates, Bill, and thanks for the question. The aerotropolis, if some of you have been following the local press on that, it's really a development. It's, I would say, 3 miles west of our border. So it really is very close to where Sky Ranch is, and it has a couple of advantages. Certainly, if it's in the city of Aurora, they're going to get their utilities from the city of Aurora. But what really is -- it shows you is the emphasis that the I-70 corridor is receiving, from almost every segment, whether that's residential, whether that's commercial, whether that's employment, all of the energy is really being spent in this corridor, which that's the tide that lifts all boats. So we're very excited about that. They're not in the ground, so they've got a few, I'd say, maybe a couple years before they start breaking ground on some of their major developments. That's not to say that they don't have some builders that are already working on projects that are either adjacent to or in proximity to that particular development, but what it really does is it brings more demand for activity in the corridor. Second side of it is it's going to expand the Aurora utility system and then there's opportunities for us to participate in regional assets, whether that's extensions or expansions to the WISE agreement or whether that's storage opportunities or number of other areas. So we will wait to see what happens with additional opportunities as it relates to utilities where Aurora, Denver and the South Metro Group can work together on efficiencies on delivering water utilities to the region as well. So it's a very exciting project. It's very exciting for us because it's bringing more investment into the corridor. I think those price points will be a little bit higher than ours just because of the level of what that overall project is looking for. So we don't look at it as a direct competitor to our loss out at Sky Ranch, but it does certainly add more emphasis to it.

I mean, in terms of selling water, you have 27,000 or 28,000 acre feet of water that can service 60,000 homes at $30,000 a tap and the $1,500 a sewer in fees. Isn't that a new market for your water assets then? Wouldn't that be a new market?

I would say -- yes, probably not, Bill. Mostly because it's going to be in the city of Aurora. So those are utilities that are going to be provided by the city of Aurora. But there are a lot of adjacent properties to that. So what -- and the reason we're excited about the energy that, that produces for the I-70 corridor is it puts more of those lands into play. And so those are opportunities for us to be able to extend service to the adjacent properties where they don't get their utilities from the city of Aurora, and they would logically be extending our system in -- very cost effective for us to extend our system to the adjacent properties and be able to incrementally provide water and sewer service to them. Not necessarily aerotropolis, but a lot of the adjacent properties.

And would that maybe bring into play the reservoir that you've kind of gone back and forth on over a number of years with Aurora? Could that bring that into play in terms of the storage capacity that they might require?

It could, it could. It just grows that system. And so whether it's our storage, whether it's our supply capacity, whether it's our peaking capacity, there could be not just storage but many other opportunities as you look at regional cooperation.

Okay. What do you think your revenues could be over the next, say, 2 years, with the activities that you have now and what you're looking going forward? What just -- do you have any thoughts on what that might be?

Look, the thump in the room was my controller falling off this chair, going no, no, no. Good question. Difficult for us to -- what we look to -- I'll give you the areas of our revenues. So take a look at the oil and gas stuff. So I think our oil and gas revenues continue to strengthen. So this year, first 6 months, we got $1 million, $1.5 million. I think we get a little better for the next 6 months. So maybe we get between $3 million and $4 million in the oil and gas revenue this year. Where does that project for the next 2 years? We're still in HBP drilling. So oil continues to remain strong. I think you start to convert over to some more field development. So that number could strengthen very nicely for us. I hate to give guidance on that, but you can do your own sensitivity analysis on that and say, okay, if we did -- if we had 2 rigs doing HBP wells, that could be as many as 40 to 50 wells a year. So you can do the math on that and see how that sustains itself over a period of time. So that's kind of the oil and gas activity. As we develop lots, we're going to be selling lots. We'll get some revenue for lots this year. I don't want to give too much guidance on that. We have contractual issues with the builders and they'll be buying x number of lots. And I don't have those numbers off the top of my head, but let's say we sell -- we'll have more revenue coming in, in the various stages. So I can say, on the lot development agreements, we might have -- we might sell 100 lots in the lot development side. We might sell 50 or 75 lots on wet utilities and then might sell maybe 50 lots on finished lot deliveries in 2 of the lot delivery agreements, and then maybe 25 to 35 finished lot deliveries with another builder. So those are at that $70,000 to $75,000 number. And then we'll get -- build -- as they apply for building permits, then we'll get those tap fees attributable to those, and then the recurring revenue following up on those. So it starts to ramp pretty quickly because when we're getting a couple hundred lot sales over a period of time at -- between the real estate side and the tap fee side, that could be close to $100,000. And then you combine that into the oil and gas revenues, things start to look very exciting.

Yes. And one other question. The 6 builders, you started with 3, it sounds like you have potential up to 6 now. Was there a reason that, that's been expanded? Is it to accelerate development? Or what was the reason for that?

Yes, so 2 reasons. One is that we'll have a bigger footprint on the second phase of this. So instead of us having 500 units, we might have as many as 2,500 units. And there'll be a cross section of products. So we'll have standard detached products, which we have now. We'll have some sort of alley load product, which is going to be a higher clustering of density. We'll have paired product, which is going to be side-by-side units. There are some builders that have very nice product that they want to build in a paired product standpoint. And then we'll have maybe multifamily builders. So you got a number of different players that are in each of those segments in addition to the portfolio of standard detached single-family homebuilders. So it's just -- it's not that we're ramping up, it's just that we have more product offerings to make available to the market.

(Operator Instructions) Our next question is from Bill Miller, private investor.

The -- just looking at your balance sheet, your outline of what cash flows could be, you're going to have a great deal of cash. I guess I have 2 questions. One, what are you going to try to emphasize as we look at over 3 to 5 years? Recurring revenue? Lot sales, which are onetime? And with the recurring revenue, which we hope you're going to generate, why aren't you thinking about, and maybe even at this time, going to buy back stock? Dividend, I don't care about, but buying back stock, I do care about. Is that something that is on the table? Or is it off the table? Or you're going to have to wait for a while? Or what are the elements that go into that decision? And when do you think it'll take place?

Boy, that's a good, probing question. A tough one. So that's -- nobody can be -- nobody can accuse you of giving me a softball here, Bill.

I wouldn't want to. You're used to softball questions.

Well, yes, yes. Sure, sure. So let me talk ideologically or philosophically. Certainly, the high-quality problem is, we're going to have a good balance sheet to consider options with. So we're thrilled about that, and we're thrilled about, really, demonstrating that return for our shareholders. And then it becomes how effective are we going to utilize that. Are there other opportunities for us to invest into -- that magic word of yours is recurring revenue. Are there opportunities to invest in where a company can utilize its assets for more of those recurring revenues? And those are sort of the acquisition side of things where we can find opportunities to connect existing systems, be able to leverage our supply capacity to bring new supply to them and expand the number of connections that we get, beyond just Sky Ranch. Sky Ranch is great. We're vertically integrated there. We can control the timing and develop and bring that -- those customers online into the market, but we'd like to have more Sky Ranches going on concurrently. So there's opportunities, as Bill Smith brought up, with neighboring property owners where we might be able to be -- expand our systems and have multiple projects going on at the same time and organically serving new connections, but then how about existing connections? And so kind of like what we saw with Wild Pointe. Are there opportunities for us to pick up existing systems and be able to serve water to them as well as manage and maintain their existing operations? So that's probably the first area of interest to management and to our board. As we look at -- if we can find opportunities there, we build a continuing balance sheet and find out opportunities where we can return those back to our investors. The value of our stock is important. If the market isn't able to appreciate what all you folks understand and appreciate by seeing the capacity and the opportunity with holding this stock, then that's certainly an option. Buying back shares on an undervalued stock is certainly something -- I can't speak for the board. Those are board-level decisions. Notwithstanding whatever it is that I think is a good idea, they're going to make that as a policy issue. And then lastly is a dividend. We're a water utility company, and people own water utility companies because they also provide dividends. And so we look at dividends from recurring revenue as opposed to the capital base, but there's opportunities for that. So all of those options are on the table, and we'd like to be able to discuss those with the high-quality problem of having the money to do something about it.

Mark, do you think there are a lot of opportunities for recurring revenues in the metropolitan Denver area where they have a good system, but guess what? Their housing is expanding faster than their water supply, and therefore, you can sell them new and higher quantities of water? Or do you have to buy the whole system?

So buying the whole system or operating the system, there's a number of ways that you actually can do that, that don't require them having a transfer deed ownership but you get the same effect. That's kind of how we structured the Wild Pointe acquisition. Yes, there are a lot of those opportunities in the metropolitan area. We're careful about how we look at those, how we model those, what type of investment we need to bring to the table in order to make those transactions work. A lot of times it's much beyond just the existing system itself. They have other -- sometimes these are deferred maintenance systems, and so when we look at them, we sort of say, we would need to make these investments. And it's a matter of walking them through the realities of what it is that they have and what we can bring as value to the equation. Certainly, our ability to operate systems is a value, but they're operating their systems to a certain degree. A lot of times they'll rob Peter to pay Paul. And if there's something going on in public works that needs capital as opposed to the public water utility, sometimes those crossover. And it's piggy bank for them that may or may not be -- it has a short-term opportunity but a long-term deferred maintenance opportunity. So we evaluate those situations as well. So it's a very dynamic process. Acquisitions, you would think acquisitions are all about price, but they're not. Not in this industry. There's a lot more factors that going to evaluating those systems. So I do -- I'm excited about those. Hopefully, we'll have some of those opportunities that we can announce this year, but we're fairly selective about how it is that were going after those.

Mark, why can't you increase the price of your water? It's becoming an increasingly scarce commodity even without droughts, which you're having. So why can't you increase the price?

So pricing is a sensitive topic for us and our customers. When you take a look at the price that a homeowner pays, you're in a fairly monopolistic environment. I mean, we don't -- it's not a monopoly, but that customer has a hard time replacing your water supply. So we're cost-sensitive about those rates per Kgal on our users. We try and attribute that to the actual usage per individual house so they get actual -- not only in terms of the tap fee, but also, it's easy for us to be able to say, "Okay, this is the metered deliveries to that particular house." If you take a look at some of those customers, they don't pay tap fees that are sort of at the market on that. That's mostly going to be our oil and gas customers. And we're delivering continued value to them. So as we add more system capacity, we make more of our system available for their use. We add assets to that, and as it relates to pipelines and reservoirs, then all that stuff really does go into our calculus on the rate that we charge them. So I would say, we do see rate increases and we see rate increases each year for those customers. The perceptual value or scarcity value in a drought year versus a wet year, we try not to market our pricing based on that type of activity. But when you have sustained dry years, you have more assets that come into play so then that naturally comes into the pricing equation of what it is that you're selling your water for. So we do have a very sensitive customer in that. And we also have a very sophisticated pricing methodology that really connects, both the commodity being the water supply as well as the infrastructure that's delivering that so that somebody's paying the appropriate rate. I will tell you unequivocably (sic) [unequivocally], and this is again -- this is categoric in our industry is that people don't appreciate the value that they get in getting clean water to a single-family house. The amount of technology and investment and sophistication that goes into that, we should be paying 3x what we are for the privilege of getting clean water, and there's not a water manager or a CEO of a water company that wouldn't tell you the same thing. But by the same token, it's one of those commodities that people assume to have value for. So there's a delicate balance there.

So what do you think? Will you be able to increase the price with inflation or with some other...

No. We do better than inflation just because of the assets that we continue to add into the equation. So I can't say that you can plan on a 6%, 7% increase in water rates over time. You may see that. You may see that in the tap fee. You may see that less more of a cost-of-living index as it relates to the monthly fees, but as more development continues to constrain the market and continues to make water availability even more scarce, those tap fees are going to go up, Bill. And they're going to go up for everybody. That's not going to just go up for us. So on a comparative market, getting your tap connections from Pure Cycle as compared to getting your tap connections from any of other 100 different water providers in the Denver area are all going to go up more.

And what about the commercial properties? Can you charge them more?

While we typically gauge that based on the amount of water used. And I'm agnostic as to if that's single-family house or a bottling plant or a brew pub, they're going to pay the same rate based on the amount of water. So the customer is agnostic to us, it's just a use calculation.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back over to Mr. Harding for closing remarks.

Okay. Actually, let's see if we can take one more call or one more question.

Yes, we did just get one in there. This is Bill Cunningham, private investor.

I'm actually looking at trying to sort out from an analytical point of view the potential profitability of Phase I, and I'm looking at Slide 7, where you have your infrastructure costs, et cetera, on the right-hand side there. And I guess, for starters, you're collecting -- you ultimately collect a little over $100,000 per lot, with $70,000 or so for the payment from the builder and another $30,000 or so for the tap fees. Is that right?

Right, that's right.

Okay, so we're talking gross $50 million there. Then I'm looking at the cost items. The Monaghan Road, $2 million, that will actually -- it's going to be a benefit to Sky Ranch for more than this particular section. Is that correct? Or probably put down on...

Yes, so I mean -- that's right, that's right. Some of these investments -- most of the off-site investments, actually the -- 4 of the 6 that are really labeled here, do benefit more than just our first 500 lots.

Yes, that's exactly where I was going with my questioning. So probably fair to say, no more than half for the Monaghan Road, $2 million would be allocated to this section, maybe even less than that?

Well, that -- yes, I mean, that's certainly the full cost of it and then the capacity can be, probably about maybe another 30% at some point. So what we're doing on Monaghan, if we start to drill down on the lease on this, we're building 3 of the 6 lanes on that and those 3 lanes will handle traffic up to about 800 units rather than 500 units, to give you just some capacity numbers.

Okay. And then the drainage, it looks like that's entirely this section that's impacted by it.

It is. But it receives drainage from the other section. So as you see that line, that line continues on and it goes upfront. So the size of the pond is actually for the full drainage allocation.

Okay. So this will be a minimal expense probably in some of the other sections which you develop?

Exactly right. That's what it exactly translates to.

Okay. And then the wastewater facility and the water-storage treatment facilities, are they going to be for the entire Sky Ranch or just for (inaudible)?

No, they're in their master plan locations, but they do have some micro phasing in them as well. So the wastewater plant can handle probably about 1,000 connections. Similarly the water and wastewater are really designed for about 1,000 connections on this phase. And as you always know, on construction projects, it's more expensive to come out of the ground. So it's not as though the next 1,000 connections cost us another $5 million. I think our build-out for the wastewater treatment plant is somewhere around $12 million. So the next increment is much, much smaller than the first increment.

Okay, good. And then, obviously, the overlot grading is pretty straightforward, that's $15,000 a lot.

Right.

And then the roads curbs, other utilities. Actually, it's all utilities, right? Because it's your sewer and water connections that are in that number?

That is. That's the retail system.

Excuse me?

That's the retail system in all the streets of the subdivision itself.

Yes. And what's your responsibility for the water and sewer lines? Is it to the homes? Or is it to the property lines?

To the property line.

So if any of you who wanted to ask a question didn't quite get in or the technology wasn't allowing you in, certainly feel free to give me a call. I have been dilatory on not being out on the road much over the last 6 months. So hopefully as things get more open, it'll free up a little bit of time for me to get out to the various markets, New York, Boston, Chicago out to the West Coast as well, just kind of meet with folks and kind of catch them up a little bit, not only of what we're doing and also maybe what it is that we're planning for our second phase.

One of the things that we're going to try to do is have a -- kind of have a day here, for those that have an interest can come here. There is nothing like seeing this in -- with your own eyes. Seeing the greater, seeing the streets come in, seeing some lots being delivered. So that's something that we'll put some thought into. We'll send out, maybe, some invites to the markets or press release, and then, really, kind of collect some interest on folks that might like to come out and do a day here, see what's going on not only on the residential side but see a little bit more on our system, see a little bit more -- some of how we're delivering water to the oil and gas industry and those sorts of things. So be on the lookout for something towards the late -- latter part of the spring for a date, sometime this summer on that.

So with that, I want to continue to thank you all for your support and confidence in management as well as our Board. And if you have anything that comes up, don't hesitate to give me a holler.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.