Pure Cycle Corp (PCYO) 2026 Q1 法說會逐字稿

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

Also, we ask that you stay muted until our Q&A session.

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

Thank you, Marc, and I'll add my welcome. As Marc sort of foreshadowed, we've had a very good first quarter. Typically, our first quarter is usually a little more challenging just because of weather issues. And for those of you that are watching for ski reservations, we've had a pretty dry year and a good weather year. So it's allowed us to really advance a lot of our construction projects out of Sky Ranch.

So with that, let me go ahead and start the presentation.

Our first slide is always our forward-looking statement, which includes the fact that statements are not historical facts contained in reference in this corporation are forward-looking statements. I'm sure most of you are familiar with our forward-looking statements qualifier.

Always want to give a shout out to our management team. And here with me is Marc Spezialy; as well as Cyrena Finnegan, our Controller, in the event that they have any specific questions that they might be able to weigh in on. But a great team of professionals that continue to really provide leadership to the company and really all segments of what it is that we're doing as well as our Board of Directors. We have a terrific Board, very heavyweight Board for a company of our size and all are really engaged and provide significant contributions to the company. But I want to give a shout out to our team and let you know their continued support and engagement.

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

We're really striving to continue to develop and build our recurring revenue base. And then our great balance sheet, we continue to build, fortify our strong balance sheet and continue to invest in our business lines as well as grow the business and create shareholder value. So really a solid diversification of the company's activities.

Let me jump into the quarter results. And as you see from a revenue side, great quarter on the revenue. Q1, really, I think it was a record-setting Q1 for us just because of the seasonality issues. And what we really see on the highlights are we brought in two new homebuilders to our portfolio that are really engaged in Phase 2D, which is what we're working on. We punched out completion of Phase 2C at the end of our fiscal year last year and continuing through with Phase 2D, and we'll talk a little bit more about 2E coming up.

But due to the weather, we were able to get a lot of the curbs and even asphalt down in the November, December timeframe, which is really unheard of here. So we're about 80% done with the roads in 2D, and that's about five or six months ahead of schedule. So really capitalizing on the weather, and we really kept our contractors engaged on the site so that as we continue to have that weather, we were able to capitalize on that.

Moving over to the profitability side, net income and earnings per share, significant increases in net income and earnings per share, and that's a result of the progress on Phase 2D. So you see a significant uptick in both of those. So we're very pleased to be able to continue to deliver those results and streamline our revenues throughout the year. And this would be a more typical even flow of those earnings and those revenue streams. But with the seasonality, we kind of have those variability factors.

Through the first quarter, we achieved about a third of our fiscal year forecast. So we're ahead of schedule on what our guidance was. Take a look at that great start, bringing in a little over $9 million in revenue and then about $6.2 million in gross profit.

So terrific results from our management team and our operators and folks in the field.

Year-to-date results, net income, earnings per share, similarly, we're ahead of our guidance. We've got about 37% of our full-year guidance on that. So terrific opportunity to continue to deliver that. And then really moving forward from how we're looking at developing the land side of it, really being able to be in a position to deliver more results on Phase 2E continuing to produce those lots for our homebuilder customers.

So I really want to take those results and parse those out a little bit for everyone, so we can separate that out into the three segments and show you kind of what the contributions are for each of those segments, breaking them down into the Water Utilities segment.

As most of you are familiar with, we really have two revenue sources -- two classes of customers. We have our domestic customers, which is where we deliver water and wastewater to residential units. So those are customers that are at Sky Ranch. They're at other projects that we provide water service to in other areas.

And then we have our industrial customers where we provide water to the oil and gas industry, primarily for fracking wells that they're drilling in and around mostly Roble County. We have done wells in other counties, but the bulk of our activity really centers around Roble County and the Lowry Ranch, which is our service area.

And then in those revenues in the water and the wastewater side, we kind of have two different forms of revenues. We have the recurring monthly revenues where we're doing that on a metered basis. And then we also have the capital component of that, which are connections, which are really connecting to our water system from our homebuilder customers, our homes, businesses to each individual system connection and those are through the form of tap fees, and they're high capital costs, which are usually incorporated into a mortgage or the development of that business. And so those are the two revenue streams attributable to that.

When you parse out that data, we continue to see strong customer growth of the recurring revenue. So we get a 22% customer CAGR. So we're very pleased about continuing to grow that recurring revenue. And while we had a record quarter overall, the Water segment, a little bit softer than normal, and that was primarily attributable to just the timing of getting building permits, getting some of those tap fees and then also taking a gap in the oil and gas deliveries. We had our oil and gas operators concentrating on building a portfolio of well permits. And we'll see that sort of tick up the rest of the year.

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

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

And as an illustration in 2024, they were pretty evenly distributed throughout the quarters. I think you're going to start to see a little bit of that similar activity of the quarterly distribution for the rest of the quarters for us in fiscal 2026.

What we do like to do is kind of give you a feel for capacity, how much water is available for our high-volume customers like the oil and gas customers as well as where we're at on continuing to invest into the company's assets. So what we like to try to do is make sure that we have a steady pace of investment in water and wastewater infrastructure for our customers and balance that out with sort of the need for that portfolio. And this kind of shows you we do have a substantial amount of capacity that we've invested in.

And if you took a look at it just for the quarterly area, really didn't use all that much of it just because of that oil and gas variability. So we're really only using about 3% of our overall water portfolio and then taking a look at the capacity that we have for annual production, we can produce about 2,800 acre feet, and we really only used about 150 acre feet of that. So it does give you a sense of kind of what the pedal strength is on our water portfolio and our water system.

Let's take a look at our Land Development segment. We're -- this aerial shot is illustrative of high school that is under construction. So we're very pleased to see that being coming out of the ground, and that will be completed in time for our kids for the fall of 2026.

In our Land Development segment, you've heard us talk a lot about the various phases. Phase 2C, which we did complete last fiscal year. We're midway, a little bit more than midway on Phase 2D, and we have a percent completion methodology for how we recognize revenue on that. Continued lot protection for Phase 2D and then also moving into Phase 2E, which will be about another 160 lots, but we'll start grading on that sometime in this March timeframe. And really enjoying some of that good weather so that we can continue to do some of that pavement and curbs and gutters for delivering those lots.

If you take a look at the Land Development revenue, this is really where the strength of the quarter came from is really building into that Phase 2D. We're complete with Phase 2C, really kind of highlighting some of this, if you want to take a look at the number of homes that are being built. And that's really kind of a function of the housing market.

And I know there's a lot of press out there about the housing market and the strength of the housing market and how interest rates are impacting that. But we're seeing substantial continued support for what it is that we're doing. And I think that's largely indicative of our market segmentation as an entry-level product.

Taking a look at the homes complete or under construction in Phase 2B, which is really going to balance out the inventory for each of our homebuilders out at the project, we've got about 85% of Phase 2B completely built out.

Taking a look at Phase 2C, which is what we just delivered. There's -- we have one of our newer homebuilders going vertical with a strong portion of their portfolio.

And then we even have one of our new builders into the portfolio already starting homes in Phase 2D, even though we haven't fully completed 2D, we have completed enough of the -- much of that infrastructure where we've got all the water, sewer, storm, curbs and gutters, and access for that for them to start in 2D before we deliver all of those finished lots.

And so what you're seeing is we typically had annual lot deliveries for what was a portfolio of four builders. And they try and manage out that inventory so that they don't take any more inventory than what they foresee is for an annual year production. And as we -- as the market sort of slowed, what we saw was that there was availability for other builders in there. So we moved our portfolio up to seven national homebuilders working on that. So that gives us a strong portfolio of builders that each of them are continuing to maintain their desired level of inventories, and we can continue to pace our development of the project so that we're continuing to accelerate the monetization of the land side.

This is kind of an illustration of sort of the snapshot, the visual snapshot of each of the phases from the sub phases from Phase 2 here, some nice aerials with certain activities, each of our entry-level segmentations on these and a lot of product diversity where we have a 35-foot lot, 40-foot lot, 45-foot lot on the standard detach, but then we have segmentation into paired product, which is a townhome product -- I'm sorry, a duplex product and then also townhome products that really offer a variety of price points for this entry-level market.

The Land Development timeline, this is kind of an illustration of how we do the accounting for that, right? There's three basic phases that we deliver lots to our homebuilder customers. And that's at a plaque where you've got a severable title instrument to the individual lot, and we typically get a third of our revenue for the lot payment on that. Then we do the grading and wet utilities with that money to deliver that progress payment.

And then finally, moving into the roads, curbs, and gutters to get the finished lot payment. So that kind of shows you a phasing of that, and it really shows you how we layer in the phasing by quarters. And really, I think the key area for us this year was being able to really substantially do a bunch of finished lots in this Q2, which typically doesn't happen for us just because of the seasonality.

I want to really talk a little bit. We were able to expand and amend our interchange access permit with CDOT and really got us another phase. We've been talking about a lot of these subphases for 2, which started out as about 850 lots. And I think we have the flexibility to get about another 180 lots in there.

And so this Phase 2E is about 159 lots. This is an aerial of where that's going to look. It's right across the street from the school there. And so we'll start grading on this spring, and you're going to start to see a bit more overlap in that chart we had before on how we deliver those lots to our homebuilder customers.

As I mentioned, the key milestone was the start of production of the high school. And so this gives us a full K-12 campus on site, which is very -- it's a high advantage. Most of our homebuilder customers really -- and the feedback that they're getting from their purchasers, the school is one of the key elements that are driving people to Sky Ranch just because it's a local school, it's walkable for everybody. It's a terrific asset for us.

What we always like to highlight is kind of some of the key areas of where the Denver metropolitan area is growing and kind of gives you a perspective. I think this is a graphic that many of you have seen before, but it kind of gives you the fact that we really grow one direction, right? We can't grow west just because of the mountains, and we find ourselves in really the most attractive submarket of the Denver metropolitan area along the I-70 corridor.

If you're looking at the mapping on the right of this illustration, that black line at the top is the interstate I-70 shows you where Sky Ranch is positioned on that. And then the pink area is really our service area, the Lowry Ranch. And what you're seeing is more and more development occurring around the borders of the Lowry Ranch. And so we're excited about continuing to expand our operations out of the Lowry property as the State of Colorado determines what it is that they're looking for and how they'd like to monetize that asset for the school trust.

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

Taking a look at some of the individual performance on there, continued growth in the rentals. That's because adding more units online as well as capital appreciation of those assets. It's a very tax-advantaged segment for us because we retain the equity of the lot and the water service connections in there, and those houses continue to grow in value as we continue to add value to the overall community.

Little bit about kind of the phasing of how we're looking at bringing these units online for each of these different phases from the first Phase 1, which we completed several years ago up through what we're looking for in 2E. So bringing online about 100 units for that.

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

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

How that looks? We drive shareholder returns through those recurring revenues in Water, Single-Family units, and a diversified mix of revenue from tap fees to industrial water fees. We have oil and gas royalties, which were substantially -- they were very strong last year. We continue to build our earnings. And really, each of these segments kind of build value from each other. So there's a vertical integration in some of those segments that give us where we get value to one, we're adding value to all.

Shareholder value reiterates our fiscal year guidance as well as gives you some interim and build-out forecast revenues for our asset growth. So when you take a look at kind of the segment of the revenues, the Water recurring revenues as well as Single-Family Rental revenues, gives you a snapshot of how we're building that through the portfolio as well as what that asset growth is. We've talked substantially about kind of bringing on that asset value from Sky Ranch, building out the rest of the residential projects as well as the commercial projects. So great opportunities, and we continue to execute on that.

Trending. This illustrates the profitability trend and our fiscal year guidance and kind of the near-term outlook. So again, we want to stay on pace with that. We've had a great quarter on delivering ahead of schedule and ahead of results on fiscal 2026. And then this kind of shows you as we get that interchange constructed, how we look to open up and unlock the balance of the portfolio value.

Valuation and sensitivities. Our fiscal year guidance was in that $26 million to $30 million range. Earnings per share, $0.43 to $0.52 per share and kind of the upside in the timing acceleration for delivering some of those lots and how we might continue that trend.

Continuing to reinvest in ourselves with our share buyback program and balance the liquidity needs of the company and how we're investing into each of our land assets against what we continue to believe is an undervaluation of the company's current trading price.

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

But this is kind of what it looks like, and how it's going to orientate to the overall development. We're -- the existing interchange will go away. We'll realign that along the section line and give it kind of a diamond interchange capacity here. And so this is obviously an important component for us to continue to build into Phase 3 as well as bringing online the commercial opportunities for that.

Taking a look at a little bit longer-range outlook. The commercial parcels really provide a lot of the high-value land and a lot of the AV. That assessed value is really where the public improvement reimbursables get their strength on us not having to advance those funds, getting reimbursed. I think our receivable on that is currently around $50 million. And so the combination of the assessed value, Colorado's what we define as a sales tax incentive state. So we get literally 4 times the tax revenues from commercial assessed value as we do residential assessed value.

And then in this particular case, we get public improvement fees on that, which is really a sales tax receipt on that. So those two are significant revenue drivers. And so this kind of gives you a feel for some of the land planning that we're doing there with some grocery anchors and then taking a look at a flex building structure like this, where what we're looking at is maybe offering opportunities for us to partner with others that might be high water users.

Some of the current activity, we've engaged local realtor -- real estate -- commercial, industrial real estate brokers that are very active in data centers, and we have a very unique opportunity here at Sky Ranch and together with Pure Cycle, given the fact that we have a high availability of water, so we can really distinguish ourselves for these high water use and high water-intensive type users. So we'll see how that develops over the next few months, year or so.

So with that, those are our prepared remarks. And maybe what we can do is open it up to some questions and get a little bit of color if you'd like on kind of how things are rolling along. So if you're on mute or if you're not on mute and you've been quiet, thank you. And just go ahead and shout out.

And if you've got a question, we'll try and give you some detail.

Mark?

Yes, Elliot.

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

Good question. '27 is going to be a large component of Phase 2E and then taking a look at how we roll into some of the interstate construction and some of the other segments. So I think it's going to look a lot like the last couple of years. It's not going to be a real breakout year in 2027, but we really think that breakout year is going to be more once we get the interchange complete and get that commercial online and into development.

There are opportunities to do non-high-traffic commercial users out there that we're marketing to. But as we continue to grow traffic, we have that obligation to kind of continue to build that infrastructure.

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

Yeah. I wouldn't say that that would be a good clear guidance. But when we take a look at that commercial and bringing on that in that 2028 timeframe, you really do supercharge because what we're really going to see, we're going to see delivery of lots on the residential side, and then we think we double up on that revenue stream on the delivery lots on the commercial side.

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

That's a great question. When we look at it on the aggregate, if you look at the build-out of what will be 60,000 units of it, we believe that margin is around 50% because we have to continue to build that system.

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

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

That's included,

Yes, it is included.

Okay. Thank you very much.

You bet.

Mark. Tucker Andersen. Can you hear me?

I can, Tucker. Nice to hear from you.

First, I'd like to take a minute as long as you guys were nice enough to provide it to shout out hello to my old friend, Elliot Knight.

Anyway, a couple of questions. First, what do you see as the opportunities for water acquisition at this point? As you've talked about in the past, you're always on the lookout for adding to your water acquisition and opportunities for utilizing that water. Could you talk about that broadly?

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

So I would say our appetite for water acquisitions is probably it has to be the right water. It has to be in the right location. And so it -- I'd say we're more cautious about water acquisitions than I think we would otherwise be in maybe some of the other areas like land.

We'd be more aggressive on land acquisitions than water acquisitions right now just because we want more portfolio on vertically integrating that value because where we buy that land, we have water that we can serve it. We have infrastructure that's there that we can serve it and then building into the land portfolio and then Single-Family Rental portfolio, that really -- that drives all three segments where a water acquisition would be nice.

It will be valuable because we not make it anymore. And in fact, it's getting dryer and dryer. So the existing water rights continue to illustrate value. But it's a bit -- we already have a deep portfolio there.

So Tucker, I would say they have to be the right water right in the right location.

Well, you've just segued into the next topic on my question list here, and that is what's happening in the area of land acquisitions given the sort of tension between homebuilding having slowed down substantially, but you still being in a fairly rapidly growing area where, as you pointed out, you can only grow in so many directions. And are you seeing -- are you more optimistic, less optimistic, or sort of the same in terms of your potential for land acquisitions?

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

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

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

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

Great question. And we spent a bit of a time working on this data center opportunities. There's a lot, a lot of money sitting, waiting for ready-to-go sites. And there's really -- there's three metrics for data center. Where are the property location, availability of power, and availability of water.

And I'd say we have -- the advantage that we have is we have the water side. And a lot of these cities and municipalities really don't want that type of user just because it doesn't grow their AV as fast. They may end up having to commit 700 homes worth of water to one user, and that user is not going to have the same tax base as that 700 homes worth would.

And so we have the ability of providing that water to them. We're long. It's a good allocation for us. The siting of it is less important. They can move around, but they do need to be close to water. They do need to be close to power. And because of Sky Ranch's location, it really does check all those boxes. And so we have had conversations with specific users. We've had engagement with Cushman, and they're one of the largest brokers that are managing sites for data centers. So we're very optimistic that, that might lead to a great opportunity for us.

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

Yeah. We are seeing great appreciation on the resales in Sky Ranch. And I think that's attributable to when we broke into the market, we had a very attractive lot value, which allowed our homebuilders to have a very attractive home price. And so some of the Phase 1 home prices are up as much as 30%, 40% since they were built, which is terrific for the community. It's terrific for those homeowners.

On average, home appreciation is in that 4% to 5% on a national average. I'd say we're seeing a little bit stronger performance on that at Sky Ranch because you're getting more amenities, you're getting schools, you're getting a more mature community on that, and there's less inventory at this price point. And so if you bought a house for $430,000, that appreciation is going to -- there's still no homes for sale sub-$500,000. And so there's a lot of opportunity for appreciation of those homes sub-$500,000.

So that makes Sky Ranch then -- that's one of the real attractions for your existing builders in effect?

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

Thanks, Mark. Keep up the good work.

Thanks, Tucker. Good to hear from you.

Hi, Mark and team, this is Joakim from Circulus Asset Management in Stockholm, Sweden. How are you?

Great to see you.

Thanks a lot. So I have two questions. And the first one was on the guidance range. It would be interesting to hear you elaborate a little bit around the two different -- it was quite broad outcomes.

Say that again.

The guidance range that you provided here.

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

They're currently drilling, I think, another dozen wells on another pad site. So we see some -- there's some foreseeability into 20 -- between 20 and 35 wells on that. And so that's kind of the -- that's the range on that because it is a high-margin opportunity for us.

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

Great question. And there's two benchmarks for that. We continue to see strength and appreciation in the tap fees. So our tap fees over the last, say, three or four years have increased around 6%, 7% per year. So we're up north of around $42,000 a year in our water and wastewater connections. And then when taking a look at just the straight cost per acre foot, we bought some water in a strategic location. Our first farm that we bought in that location was about four years ago -- four or five years ago. We paid about $9,700 per acre foot for that, and most recent transactions are north of $20,000 an acre foot.

So that gives you kind of two different benchmarks, actual acre foot purchases as well as the strength of the service model that we have and providing service on those 60,000 connections.

Okay. Thanks a lot, and have a nice day.

You, too.

Maybe I'll just take a second, too. I know you got -- I don't know if you were asking specifically about our guidance in fiscal 2028 and kind of where that's coming from. But a lot of what we're projecting after the interchange in 2027 is the ability to sell some of that commercial along with Phase 3. So when we add the capacity to Sky Ranch, our lot revenue will really be able to scale as long as the market holds it with some commercial lots as additional to some home lots.

So in 2025, 2026, we're just selling residential lots in subphases and two to kind of stay within our capacity limits of the interchange. What we kind of see in 2028 and beyond is the ability to do residential as well as commercial. I don't know if that was kind of specifically what your question was related to. But that's really the big change that you see in some of the guidance that we're expecting in the future. So I don't know if you want to comment on that.

Yeah, that's a good clarification.

Yeah. Thanks a lot. That's super helpful.

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

Those are the correct stats. So you're right. We continue to believe that's our most valuable asset, right? How do you monetize water? It's nice to buy water right, but it's very hard to kind of monetize water rights other than providing service. And our model of providing service, we are investing in infrastructure.

We have a franchise service area at the Lowry Ranch. It is one of the most unique properties in the country, right? There's no property like having 27,000 acres of continuous land right next to a metropolitan area.

And when we got into this 30 years ago, and I see my good friend, Dick Guido, on the call, who is one of our -- it dates back to 1990. And Elliot, you were around in 1990 as likely Tucker was very closely after that. But it was so far away from Denver area, right?

You take a look at the migration of the Denver area over that period of time and surrounding Lowry and where the landlord was looking at kind of monetizing and generating revenue for those assets back in 1990 and where that opportunity is 30 years later, it just has tremendous value.

And it's really an asset for the public education, the K-12 public education system here. It's -- I can't help but be excited about all of the activity surrounding it and really the significant opportunities that the state has with it. But it is their asset. It is an asset that they look at holistically and saying we want to do everything we can and everything possible with that, that some of those lands are going to be conserved.

Some of those lands are going to be for a multi-revenue use purpose. Some of those lands are going to be developed. And so the magnitude of the challenge for them on that is really just to figure out what the best way to use it. And it's hard when you're taking a look at how am I going to eat this elephant. And it's one bite at a time.

You can't look at it holistically. It's 27,000 acres, you've got to scale it back and look at what am I going to -- what are the opportunities with some of the most in-demand parcels and how do we look at that and how do we want to continue to participate with that.

One of the things that we've done and increased our portfolio is we have the ability to help them develop it. Whereas in 30 years ago, we were just looking at the water utility side. And now, our portfolio looks that we can help develop the land, we can develop the infrastructure, we can develop the open space, we can develop recreational uses. We can develop a whole bunch of things that would check all the boxes that they're looking for on that.

And so how do we match those up with their needs, their wishes, and their timeline. And we're very active on that, but we're not trying to get over our skis ahead of them on that either. So we want to be partners. We want to be a catalyst in it, and we also want to make sure that we are a strong advocate for their wishes and their desires for the property.

Thank you.

Mark, can you hear me?

I can.

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

Yeah. I just kind of wanted to kind of give you two things because we talk about that interchange all the time and to give you a relative perspective of the importance of that relative to the overall project.

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

It is, yeah.

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

So I think we get that -- we've been working on that permit for the last three years with the county and CDOT. We're fairly close to getting that submittal. And, you know, it -- the submittal on it is going to be like 2,000 pages of -- you name it, engineering, rights of ways, designs, permitting, traffic control, everything associated with it. And then they -- each stage of that over the last three years, they've reviewed, they've commented, they've kind of set the parameters on that.

And then -- so we'll get that into them sort of this spring. They'll review it in its completeness. Then we move forward to final design concurrently with that and the bonding of that later in the year. And then we look to go to bid for the interchange sometime end of the year and be under contract for construction in 2027.

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

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

Yeah.

Okay. You didn't talk any -- mention public comments and opportunities for the public to delay or stop. Is that going to be an issue?

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

Okay, that's all I have. Thanks, Mark.

Yeah. Good to see you, Geoff.

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

Good questions, both of them. On the first one, location, we're sort of talking -- if we look at the site that we're currently evaluating, it would be tucked up into kind of that top corner of the commercial parcel. So nobody would be living next to it.

Next to it being a relative term, what is next to it, is -- next to it is being a few hundred feet, is next to it being 0.25 of a mile. So that's kind of the separation that we would see between that land use and our residential land use. So I do think we've got a good spacing and a good buffering opportunity for that.

We're not just looking at that one site. We're looking at other sites that are going to be more remote where we could get water to them on a more remote basis and maybe it's where power is more accessible in a more remote location. These data centers are not site-specific. And quite frankly, being next to the interstate isn't what they would otherwise need. They don't need that kind of access.

That we have that site, that site is zoned, permitted, ready to go with all of the water out there is super attractive, right? So a lot of these are -- what's the availability? What's your timeline? Can we jump into a site sooner rather than later? And so all those things are attractive for Sky Ranch because it's already ready to go.

As it relates to what that water supply might look like, that's a little bit -- there's a lot of nuances in that because they don't need full potable water, right? They don't need that same level of service that -- they're not going to be drinking that water supply.

So we've had conversations with them about water quality, raw water service that might have a little bit of a price incentive for them where we don't have the same level of cost. We don't have the same level of water quality monitoring, those sorts of things. So that one is TBD. We do want to capitalize on the value of our water supply, but we also are cognizant of the fact that we're very long on water supply and maybe we have a supply agreement with them for a period of time that would be look one way and maybe get that water back in another way to give them some incentives so that we're not losing 60,000 units worth of capacity, but then we're also using that water in the interim.

So there's all of those opportunities with that type of customer.

Thanks, Mark.

You bet. Great question. Well, if there's no other thoughts on the quarter, don't hesitate if you listen to this on rebroadcast or your technology didn't work or you had a -- you get distracted and to run up something else, don't hesitate to give me a hello. We're continuing to really accelerate the company, and we're very excited about where we're at. We're excited about execution, and we're excited about how things are going to look for the coming quarters and coming years.

So thank you, all, for your continued support, and we wish you very best in the new year.

Thank you, Mark.

Thanks, all.