What changed in this filing

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Item 1. Business

2023-11-15 compared with 2022-11-14 · 149 added, 179 removed, 344 unchanged (49% of the section changed)

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Unless otherwise specified or the context otherwise requires, any reference to “Pure Cycle,” the “Company,” “we,” “us” or “our” is to Pure Cycle Corporation and its wholly-owned subsidiaries on a consolidated basis.

We are a diversified water resource and land development company.

At our core, we are a wholesale water and wastewater service provider that develops land we own into master planned communities.

Our newest business is the development of single-family homes held for rental purposes.

Both the land development and single-family home rental lines of business generate customers and usage fees for our water and wastewater resource development business.

Over the past 30+ years, we have accumulated a large portfolio of valuable water rights and land interests along the Front Range of Colorado.

We have added an extensive network of wholesale water production, storage, treatment and distribution systems, and wastewater collection and treatment systems that we use to serve domestic, commercial, and industrial customers in the eastern Denver metropolitan region (the illustration below notes the general area of our land and water assets).

We are a diversified water and wastewater service provider, land developer, and home rental company.

We provide wholesale water and wastewater services in the Denver Colorado area as well as develop land we own into master planned communities and develop single-family homes for rent.

Each of our businesses, providing water and wastewater services, land development and single-family home rentals generate attractive recurring monthly income.

For more than 30 years, we have accumulated and continue to accumulate a portfolio of valuable water rights and land interests along the Front Range of Colorado.

We have added an extensive network of wholesale water production, storage, treatment and distribution systems, and wastewater collection and treatment systems that we operate and maintain to serve domestic, commercial, and industrial customers in the eastern Denver metropolitan region (the illustration below notes the general area of our land and water assets).

Our primary land asset, known as Sky Ranch, is in one of the most active development areas in the Denver metropolitan region along the rapidly developing I-70 corridor, and we are developing lots at Sky Ranch for residential, commercial, retail, and light industrial uses.

Sky Ranch is zoned to include up to 3,200 single family and multifamily homes, parks, open spaces, trails, recreational centers, schools, and over two million square feet of retail, commercial and light industrial space, all of which will be serviced by our water and wastewater resource development segment.

Our newest line of business is our single-family rental business where we build single-family homes for rental purposes in Sky Ranch under annual lease agreements.

We plan to expand this new line of business to more than 200 rental units over the next several years.

Through our land development segment, we develop master planned communities creating value and opportunity for investors, homeowners, water customers, and businesses along the busy I-70 corridor of the Denver metropolitan area.

More recently we have retained lots in our Sky Ranch development for our single-family rental business where we build single-family homes for rent under annual lease agreements.

With 14 homes currently owned and rented, we continue to expand this new line of business which may include more than 200 rental homes at Sky Ranch over the next several years.

Through our land development segment, we develop master planned communities creating value and opportunity for homeowners, and businesses who also become water and wastewater customers along the busy I-70 corridor of the Denver metropolitan area.

Our land development segment was borne from our desire to capitalize on the increase in the value water provides to raw land in the Colorado Front Range.

Our land development activities provide a strategic complement to our water and wastewater resource development business, and vice versa.

A significant component of any master planned community is its ability to bring high quality domestic water, irrigation water, and wastewater services to the community.

Having control over the water resources in conjunction with developing the land enables us to efficiently build and maintain infrastructure for potable water and irrigation water distribution, wastewater and storm water collection,

roads, parks, open spaces, and other investments.

It also enables us to efficiently align construction and delivery of these investments with phased take-down commitments from our home builder customers, minimizing significant excess capacity or downtime with these significant investments.

By being the landowner, land developer, and water/wastewater provider, we believe we offer a more efficient development process, with more competitive lot pricing, which results in a more affordable and marketable product.

Our water and land assets are designed, constructed, operated, and maintained by us.

Our water and land activities are each a distinct line of business which are operated as separate, but cohesive business segments.

We refer to these segments as our water and wastewater resource development segment and our land development segment, both of which are described in greater detail below.

In March 2021, we launched a new line of business which will be referred to as our single-family home rental line of business.

During Phase 1 of the development of Sky Ranch, we retained ownership of four residential lots, on which we built or are building single-family homes which we own, maintain, and rent to qualified renters.

We have contracted for the construction of ten homes with a reputable home builder in Phase 2A, and we expect these homes to be completed and ready for renters at various dates throughout our fiscal 2023.

We anticipate that this single-family home rental business will become our third segment when it is material to our operations.

Our land development activities provide a strategic complement to our water and wastewater resource and service business, and vice versa.

One of the most significant components of any master planned community in Colorado is its ability to bring high quality domestic water, irrigation water, and wastewater services to the community.

Having control over the water resources in conjunction with developing the land enables us to efficiently build and maintain infrastructure for potable water and irrigation water distribution,

wastewater and storm water collection, roads, parks, open spaces, and other investments.

It also enables us to efficiently align construction and delivery of these investments with phased take-down commitments from our home builder customers, minimizing expensive excess capacity or downtime with these significant investments.

By being the landowner, land developer, and water/wastewater provider, we believe we offer a more efficient development timeline, with more competitive lot pricing, which results in a more affordable and marketable for sale and for rent home product.

Our rental homes, water and land assets are designed, constructed, operated, and maintained by us.

Our water, land development and home rental activities are each a distinct line of business which are operated as separate but are cohesive business segments.

We refer to these segments as our water and wastewater resource development segment, our land development segment, and our single-family rental segment all of which are described in greater detail below.

To date, within our three business segments, we have sold or have contracted for sale with national home builders approximately 1,350 lots, we have constructed and operated and maintain the water and wastewater systems with capacity to serve approximately 2,500 residential equivalent units and we have constructed and are renting 14 homes.

Water and Wastewater Resource Development Segment

We own or control the water and infrastructure required to (i) withdraw, treat, store and deliver water (i.e., water rights, wells, diversion structures, pipelines, reservoirs and treatment facilities required to extract and use the water);

(ii) collect, treat, store and reuse wastewater (i.e., we design, build, and operate water treatment and wastewater reclamation facilities);

and (iii) treat and deliver reclaimed water for irrigation use (i.e., we use and reuse our valuable water supplies through non-potable irrigation systems to irrigate parks and open spaces).

Our water supplies, which can be used in our exclusive service area and other areas along the eastern I-70 corridor, enable us to add significant value to our land development segment by bringing water to land that does not have water for development and enhance the value of that land, as well as our water resources, to a greater extent than either a traditional water utility or land developer can.

We own or control the water supply and infrastructure required to (i) withdraw, treat, store and deliver water (i.e., water rights, wells, diversion structures, pipelines, reservoirs and treatment facilities required to extract and use the water);

(ii) collect, treat, store and reuse wastewater (i.e., we design, build, operate and maintain water treatment and wastewater reclamation facilities);

and (iii) treat and deliver reclaimed water for irrigation and industrial use (i.e., we use and reuse our valuable water supplies through non-potable irrigation systems to irrigate parks and open spaces).

Our water supplies, which can be used in our exclusive service area (further described below) and other areas along the eastern I-70 corridor, enable us to add significant value to our land development segment by bringing water to land that does not have water for development, enhancing the value of that land, as well as our water resources, to a greater extent than either a traditional water utility or land developer can separately.

Having a valuable portfolio of water in a water short region provides us with a competitive advantage over other land developers who may be required to buy expensive water, pay significant fees to another water provider, in lieu of buying water, and/or wait for a city to annex property and extend costly water and wastewater infrastructure to the property before development can begin.

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Our largest customer is the Rangeview Metropolitan District (Rangeview District).

We have the exclusive right to provide water and wastewater services to the Rangeview District’s customers in its exclusive 24,000-acre service area in the southeastern Denver metropolitan area pursuant to various agreements that are described in greater detail below.

We have the exclusive right to provide water and wastewater services to the Rangeview District’s customers in its exclusive 24,000-acre Lowry Ranch Service Area in the southeastern Denver metropolitan area pursuant to various agreements that are described in greater detail below.

As of August 31, 2023, through the Rangeview District, we provide service to more than 1,100 single-family equivalent (SFE) water connections and more than 885 SFE wastewater connections.

These connections are located mainly in the southeastern metropolitan Denver area on the Lowry Range, at our Sky Ranch development and other nearby areas where we have acquired service rights.

These connections are located mainly in the southeastern metropolitan Denver area on the Lowry Ranch, at our Sky Ranch development and other nearby areas where we have acquired service rights.

With the water rights we own and control, we believe we can serve an estimated 60,000 SFEs.

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For some instances herein, as context dictates, the term “acre-feet” (which is approximately 326,000 gallons) is used to designate an annual decreed amount of water available during a typical year.

In addition to our domestic customers, we provide raw water for oil and gas operations.

In addition to our domestic customers, we provide raw water for industrial oil and gas operations.

Multiple operators lease more than 135,000 acres in and adjacent to our Service Area with more than 100 wells and miles of oil and gas collection lines.

Sales of water to industrial customers in the oil and gas industry are unpredictable and fluctuate dramatically.

In late 2021 and throughout 2022, we saw a significant recovery in the oil and gas markets, and this resulted in additional water sales to oil and gas clients in our fiscal 2022 and 2021.

Sales of water to industrial customers in the oil and gas industry are unpredictable and fluctuate dramatically but provide a high margin attractive revenues for our water assets.

Beginning in late 2021 and continuing through 2023, we saw a significant recovery in the oil and gas markets, and this resulted in additional water sales to oil and gas clients in our fiscal 2023 and 2022.

Land Development Segment

In 2010 we purchased approximately 930 acres of land known as Sky Ranch.

The illustration on the next page provides our planned overall layout of Sky Ranch.

In 2010 we purchased approximately 930 acres of land along the I-70 corridor known as Sky Ranch.

The illustration below provides our planned overall layout of Sky Ranch.

We acquired Sky Ranch with the intention of selling lots to home builders to add value to our core water and wastewater operations by adding the ultimate purchasers of the homes as our water customers.

Sky Ranch is being developed in phases over several years, which began in June 2017, when we entered into agreements with three national home builders to sell the initial 505 residential lots at Sky Ranch (referred to as Phase 1), and has continued when in February 2021, we entered contracts with four national homebuilders for approximately 850 residential lots, in what we call Phase 2 of the Sky Ranch Development.

We have divided Phase 2 into four subphases that we refer to as Phases 2A, 2B, 2C and 2D.

The Phase 1 lots and the lots being developed in Phase 2A and 2B are shown in the map below.

Sky Ranch is being developed in phases over several years, which began in June 2017, when we entered into agreements with three national home builders to sell the initial residential lots at Sky Ranch (referred to as Phase 1) and has continued to expand as we sell lots to national homebuilders now up to 1,350 residential lots.

We divided our land development into phases now working on Phase 2 which is further divided into subphases that we refer to as Phases 2A, 2B, 2C and 2D to optimize the delivery of infrastructure and lots to our home builder customers on a real time basis without excess inventories of lots and homes.

Illustrative map of the Sky Ranch Master Planned Community

As of August 31, 2022, we have delivered to homebuilders all 505 lots in Phase 1 and 219 lots in Phase 2A of the Sky Ranch development.

In addition, we retained four lots in Phase 1 for our single-family rental business and ten lots in Phase 2A for the single-family rental business (bringing total lots to 509 in Phase 1 and 229 in Phase 2A).

As of August 31, 2022, homebuilders have built and sold 473 homes at Sky Ranch, with another approximately 90 homes under construction.

In addition, we completed three rental units, which have been rented since November 2021, and began construction on the next eleven units.

All Phase 1 lots in Sky Ranch are complete and all public improvements have been accepted by the various governmental entities that will control and maintain the infrastructure.

In February 2021, we broke ground on Phase 2 lots at Sky Ranch, which will include 850 residential lots, for which we have contracted to sell 804 finished lots to four homebuilders who will construct attached and detached single-family residential homes.

We retained 46

lots which we will use in our single-family rental business.

As of August 31, 2022, we have closed on the 219 lots in Phase 2A sold to the home builders and are completing landscaping and other items required under the sales contracts.

We believe we will complete all our required construction items in Phase 2A in the next twelve months.

We believe it will take three years to complete all construction and sell all the finished lots in all four subphases of Phase 2, depending on the market conditions and permitting process.

As disclosed in March 2021, a new Charter School, Sky Ranch Academy, was formed for the purposes of partnering with the Bennett School District 29J to operate a new K-12 Charter School to be located at Sky Ranch.

Sky Ranch Academy has partnered with National Heritage Academy (NHA) to operate the charter.

NHA brings more than 25 years of experience providing educational services at 100 schools in nine states, educating more than 60,000 students including four other schools in Colorado.

Sky Ranch Academy is expected to open in August 2023.

As of August 31, 2023, we have delivered to homebuilders 738 finished lots, retaining 14 lots for our single-family rental segment, are under construction on 211 lots scheduled for delivery in fiscal 2024, and have under contract an additional 410 lots scheduled for delivery in 2025/2026 at Sky Ranch.

As of August 31, 2023, homebuilders have built and sold 596 homes at Sky Ranch, with approximately 90 additional homes under construction.

All Phase 1 lots in Sky Ranch are complete and all public improvements (roads, parks, open spaces, storm drain facilities, etc.) have been accepted by the various governmental entities that will control and maintain that infrastructure.

As part of our land development activities, we formed a new Charter School, Sky Ranch Academy, for the purpose of partnering with the Bennett School District 29J to operate a new K-12 Charter School to be located at Sky Ranch.

Sky Ranch Academy has partnered with National Heritage Academy (NHA) to operate the charter, NHA brings more than 25 years of experience providing educational services at more than 100 schools in nine states, educating more than 60,000 students including five other schools in Colorado.

Ranch Academy opened in August 2023 serving grades K-7.

We anticipate the opening of the high school which will serve grades 9-12 for the school year 2025.

Single-Family Rentals

The past several years the housing market and home prices in Colorado grew at double-digit rates.

In recent months this growth has tapered in many markets, specifically in higher priced homes.

As mortgage rates increase, and the average price of homes in Colorado continues to increase, we believe rental units are increasingly necessary to provide affordable housing options to the growing population in Colorado.

During the past several years the housing market and home prices in Colorado grew at double-digit rates.

In recent months this growth has tapered off in many market segments, specifically in higher priced homes.

As mortgage rates increase, and the average price of homes in Colorado continues to rise, we believe rental homes are increasingly attractive to provide affordable housing options to the growing population in Colorado.

Additionally, more than any other time in the USA, we have seen a shift from people having to rent to people choosing to rent.

We believe this shift will continue to shape the housing market for the foreseeable future.

To capitalize on the growing single-family rental market, in 2021 we launched our single-family rental division.

We contracted with a local semi-custom home builder to construct four single-family detached homes on four lots in Phase 1 at Sky Ranch that we retained for use in our rental division.

Three of the homes were completed and rented in November 2021.

With the initial success of our first three rental homes, during fiscal 2022, we began construction on eleven more homes we will use in our rental division upon completion (expected to be completed and ready for rental at various dates throughout our fiscal 2023).

These rental units represent the initial investment into what we expect to become our third operating segment as we expect to add 46 homes in Phase 2 with the ability to add more than 100 more units in the near term.

We believe having ongoing recurring rental income, in a community we are heavily involved with, which is experiencing double digit growth in home values provides tremendous upside potential for growing our balance sheet and diversifying our recurring revenue streams.

To capitalize on the growing single-family rental market, we launched our single-family rental division.

We contracted with a local home builder to construct 14 single-family detached homes at Sky Ranch that we retained for use in our rental division.

These rental homes represent the initial investment into our third operating segment as we expect to add 65 homes in Phase 2 with the ability to add more than 200 homes as Sky Ranch builds out.

We believe having ongoing recurring rental income, in a community which is experiencing double digit growth in home values and in which we are actively involved adds value to the community and provides tremendous upside for growing our balance sheet and diversifying our recurring revenue streams.

Our Water Assets

We use our valuable and growing water and land assets to conduct our water and land development operations.

We use our valuable and growing water and land assets within our water and land development operations.

Our water assets are summarized in the table below and further discussed in this section:

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(1) Pending completion by the “Land Board” (defined below) of documentation related to the exercise of our right to substitute 1,650 acre-feet of our groundwater for a comparable amount of surface water.

(2) We have the exclusive right to use this water to provide water services to customers on and off the Lowry Range, as described further below.

(2) We have the exclusive right to use this water to provide water services to customers on and off the Lowry Ranch, as described further below.

(3) Amount of WISE water available for our use may vary by year and is described in greater detail below.

Rangeview Water Supply

The Rangeview Water Supply consists of 26,985 acre-feet of tributary surface water, non-tributary groundwater, and not non-tributary groundwater.

Additionally, the Rangeview Water Supply has 26,000 acre-feet of adjudicated reservoir sites.

The Rangeview Water Supply consists of 26,985 acre-feet of tributary surface water, non-tributary groundwater, and not non-tributary groundwater, and approximately 26,000 acre-feet of adjudicated reservoir sites.

Terminology typically used in the water industry that may help readers understand water rights are detailed below.

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● Tributary Surface Water – water on the surface of the ground flowing in a stream or river system.

The Rangeview Water Supply is principally located in the southeast Denver metropolitan area at the “Lowry Range,” which is land owned by the State Board of Land Commissioners (Land Board) and is described below.

The Rangeview Water Supply is principally located in the southeast Denver metropolitan area at the “Lowry Ranch,” which is land owned by the State Board of Land Commissioners (Land Board) and is described below.

We acquired our Rangeview Water Supply through the following agreements:

● The 1996 Amended and Restated Lease Agreement between the Land Board and the Rangeview District, which was superseded by the 2014 Amended and Restated Lease Agreement, dated July 10, 2014 (Lease), among us, the Land Board, and the Rangeview District;

● The 1996 Service Agreement between us and the Rangeview District, which was superseded by the Amended and Restated Service Agreement, dated July 11, 2014, between us and the Rangeview District (Lowry Service Agreement), which allows us to provide water service to the Rangeview District’s customers located on the Lowry Range;

● The Agreement for Sale of non-tributary and not non-tributary groundwater between us and the Rangeview District (Export Agreement), pursuant to which we purchased a portion of the Rangeview Water Supply that we refer to as our “Export Water” because the Export Agreement allows us to export this water from the Lowry Range to supply water to nearby communities;

● The 1997 Wastewater Service Agreement between us and Rangeview District (Lowry Wastewater Agreement), which allows us to provide wastewater service to the Rangeview District’s customers on the Lowry Range.

The Lease, the Lowry Service Agreement, the Export Agreement, and the Lowry Wastewater Agreement are collectively referred to as the “Rangeview Water Agreements.”

We provide wholesale water service and wastewater service to customers located both on and outside of the Lowry Range, including customers of the Rangeview District and other governmental entities, and industrial and commercial customers.

We provide wholesale water service and wastewater service to customers located both on and outside of the Lowry Ranch, including customers of the Rangeview District and other governmental entities, and industrial and commercial customers.

Pursuant to service agreements with Rangeview (including the Lowry Service Agreement, the Lowry Wastewater Agreement and the Non-Lowry Service Agreement described below), we design, construct, operate and maintain the Rangeview District’s water and wastewater systems that are used to provide water and wastewater services to the Rangeview District’s customers located within the Rangeview District’s exclusive service area, and other approved areas.

Subject to the terms and conditions of our agreements with the Rangeview District, we are the exclusive water and wastewater provider to the Rangeview District’s customers.

For the Rangeview District’s customers located on the Lowry Range, we operate both the water and the wastewater systems during our contract period on behalf of the Rangeview

District, which owns the facilities for both systems.

At the expiration of our contract term in 2081, ownership of the water system facilities located on the Lowry Range used to deliver water to customers on the Lowry Range will revert to the Land Board, with the Rangeview District retaining ownership of any wastewater facilities located on the Lowry Range.

The water system and related facilities used to deliver water to customers off the Lowry Range (including Export Water) will remain with us and the Rangeview District.

The Rangeview Water Agreements grant us the right to use approximately 26,000 acre-feet of surface reservoir capacity to provide water service to customers both on and off the Lowry Range.

For the Rangeview District’s customers located on the Lowry Ranch, we operate both the water and the wastewater systems during our contract period on behalf of the Rangeview District, which owns the facilities for both systems.

At the expiration of our contract term in 2081, ownership of the water system facilities located on the Lowry Ranch used to deliver water to customers on the Lowry Ranch will revert to the Land Board, with the Rangeview District retaining ownership of any wastewater facilities located on the Lowry Ranch.

The water system and related facilities used to deliver water to customers off the Lowry Ranch (including Export Water) will remain with us and the Rangeview District.

In addition to our valuable water rights, the Rangeview Water Agreements grant us the right to use approximately 26,000 acre-feet of reservoir capacity in two valuable surface reservoir sites to provide water service to customers both on and off the Lowry Ranch.

Fairgrounds Water

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In June 2022, we purchased 370 acre-feet of designated groundwater.

All the Lost Creek Water has been changed for use as municipal/industrial water, additionally we have filed an application with the Colorado Water Court to use the Lost Creek Water to augment our municipal/industrial water supplies at the Lowry Range.

Our plans are to consolidate our Lost Creek Water with our Rangeview Water Supply to provide service to the Rangeview District’s customers both on and off the Lowry Range.

The Lowry Range Property

The Lowry Range consists of nearly 26,000 acres, or 40 square miles, of primarily undeveloped land in unincorporated Arapahoe County.

Our plans are to consolidate our Lost Creek Water with our Rangeview Water Supply to provide service to the Rangeview District’s customers both on and off the Lowry Ranch.

The Lowry Ranch Property

The Lowry Ranch consists of nearly 26,000 acres, or 40 square miles, of primarily undeveloped land in unincorporated Arapahoe County.

It is located 20 miles southeast of downtown Denver and is one of the largest contiguous parcels under single ownership next to a major metropolitan area in the United States.

Pursuant to our agreements with the Land Board, we, together with the Rangeview District, have the exclusive rights to provide water and wastewater services to 24,000 acres of the Lowry Range.

Pursuant to our agreements with the Land Board, we, together with the Rangeview District, have the exclusive rights to provide water and wastewater services to 24,000 acres of the Lowry Ranch.

The Rangeview District

The Rangeview District is a quasi-municipal corporation and political subdivision of the State of Colorado formed in 1986 for the purpose of providing water and wastewater services to the Lowry Range and other approved areas.

The Rangeview District is governed by an elected board of directors.

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The current directors of the Rangeview District are Mark W.

Harding (our President, Chief Executive Officer, and a director), Kevin B.

McNeill (our Vice President and Chief Financial Officer), Scott E.

Lehman (an employee of ours), Dirk Lashnits (an employee of ours), and one independent board member.

Harding (our President, Chief Executive Officer, and a director), Scott E.

Lehman (an employee of ours), Dirk Lashnits (an employee of ours), one independent board member, and one vacancy.

Pursuant to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year.

Harding, McNeill, Lehman, and Lashnits have all elected to forego these payments .

Harding, Lehman, and Lashnits have all elected to forego these payments .

Land Board Royalties and Fees

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The Land Board does not receive a royalty from wastewater services.

When we develop, operate, and deliver water from our Rangeview Water Supply, the Land Board receives royalties on the gross revenues

at a rate of 12% from water delivered to all customers located on the Lowry Range and to all private customers located off the Lowry Range and 10% from public entity customers located off the Lowry Range.

In the event that (i) metered production of water used on the Lowry Range in any calendar year exceeds 13,000 acre-feet or (ii) 10,000 acres of land on the Lowry Range have been rezoned to non-agricultural use, finally platted and water tap agreements have been entered into with respect to all improvements to be constructed on such acreage, the Land Board may elect, at its option, to receive (in lieu of its royalty of 12% from customers on the Lowry Range), 50% of the collective net profits (ours and the Rangeview District’s) derived from the sale or other disposition of water on the Lowry Range.

When we develop, operate, and deliver water from our Rangeview Water Supply, the Land Board receives royalties on the gross revenues at a rate of 12% from water delivered to all customers located on the Lowry Ranch and to all private customers located off the Lowry Ranch and 10% from public entity customers located off the Lowry Ranch.

In the event that (i) metered production of water used on the Lowry Ranch in any calendar year exceeds 13,000 acre-feet or (ii) 10,000 acres of land on the Lowry Ranch have been rezoned to non-agricultural use, finally platted and water tap agreements have been entered into with respect to all improvements to be constructed on such acreage, the Land Board may elect, at its option, to receive (in lieu of its royalty of 12% from customers on the Lowry Ranch), 50% of the collective net profits (ours and the Rangeview District’s) derived from the sale or other disposition of water on the Lowry Ranch.

To date, neither of these conditions has been met, and such conditions are not likely to be met any time soon.

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We do not currently anticipate selling our Export Water.

Annual Production Fee – We are also required to pre-pay the Land Board a minimum annual water royalty of $46,000 per year, which is credited against earned royalties each year.

Annual Production Fee – We are also required to pre-pay the Land Board a minimum annual water royalty of approximately $46,000 per year, which is credited against earned royalties each year.

Annual Rent – We pay the Land Board annual rent under the Lease of $8,400, which amount is increased every five years based on the Consumer Price Index for Urban Consumers.

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Effective, January 1, 2023, WISE water increased to $6.48 per thousand gallons, which will be in effect for all of calendar 2023.

In addition, we pay certain system operational and construction costs.

In addition, we pay certain system operational and construction costs, which is subject to the percentage of Rangeview District’s share (approximately 9%).

If a WISE member, including the Rangeview District, does not need its WISE water each year or a member needs additional water, the members can trade and/or buy and sell water amongst themselves.

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Pursuant to a 1982 agreement, the Rangeview District may purchase water from East Cherry Creek Valley Water and Sanitation District’s (ECCV) Land Board system.

ECCV’s Land Board system is comprised of eight wells and more than ten miles of buried water pipeline located on the Lowry Range.

ECCV’s Land Board system is comprised of eight wells and more than ten miles of buried water pipeline located on the Lowry Ranch.

In May 2012, we entered into an agreement to operate and maintain the ECCV facilities allowing us to utilize the system to provide water to commercial and industrial customers, including hydraulic fracturing for oil and gas wells.

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Water usage fees are based on a tiered pricing structure that provides for higher prices as customers use greater amounts of water.

The water usage fees for customers on the Lowry Range are noted in the tables below:

Current Lowry Range tiered potable water usage pricing structure

The water usage fees for customers on the Lowry Ranch are noted in the tables below:

Current Lowry Ranch tiered potable water usage pricing structure

Base charge per SFE per month

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30,000 gallons and above

Current Lowry Range tiered non-potable water usage pricing structure

Current Lowry Ranch tiered non-potable water usage pricing structure

Base charge per SFE per month

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30,000 gallons and above

The figures in the table above reflect the amounts charged to the Rangeview District’s end-use customers on the Lowry Range.

Pursuant to the Lease, the amounts charged by the Rangeview District to its end-use customers on the Lowry Range cannot exceed the average of similar rates and charges of three surrounding municipal water and wastewater service providers.

In exchange for providing water service to the Rangeview District’s Lowry Range customers, we receive 98% of the usage charges received by the Rangeview District relating to water services after deducting the required royalty to the Land Board (described above at Rangeview Water Supply – Land Board Royalties and Fees ).

The amounts charged by the Rangeview District to its end-use customers off the Lowry Range are determined pursuant to the Rangeview District’s service agreements with such customers and such rates may vary.

In exchange for providing water service to the Rangeview District’s customers off the Lowry Range, we receive 98% of the usage charges received by the Rangeview District relating to water services after deducting any required royalty to the Land Board.

The royalty to the Land Board is required for water service provided utilizing our Rangeview Water Supply, which includes most of our current customers off the Lowry Range except those at the Elbert & Highway 86 Commercial District (also known as “Wild Pointe” described below).

We sell bulk water at a rate of $14.76 per thousand gallons to commercial and industrial customers via hydrant meters or metered fill stations.

The figures in the table above reflect the amounts charged to the Rangeview District’s end-use customers on the Lowry Ranch.

Pursuant to the Lease, the amounts charged by the Rangeview District to its end-use customers on the Lowry Ranch cannot exceed the average of similar rates and charges of three surrounding municipal water and wastewater service providers.

In exchange for providing water service to the Rangeview District’s Lowry Ranch customers, we receive 98% of the usage charges received by the Rangeview District relating to water services after deducting the required royalty to the Land Board (described above at Rangeview Water Supply – Land Board Royalties and Fees ).

The amounts charged by the Rangeview District to its end-use customers off the Lowry Ranch are determined pursuant to the Rangeview District’s service agreements with such customers and such rates may vary.

In exchange for providing water service to the Rangeview District’s customers off the Lowry Ranch, we receive 98% of the usage charges received by the Rangeview District relating to water services after deducting any required royalty to the Land Board.

The royalty to the Land Board is required for water service provided utilizing our Rangeview Water Supply, which includes most of our current customers off the Lowry Ranch except those at the Elbert & Highway 86 Commercial District (also known as “Wild Pointe” described below).

We sell hydrant water at a rate of $14.76 per thousand gallons to commercial and industrial customers via hydrant meters or the Company’s water fill stations.

We also collect other immaterial fees and charges from customers and other users to cover miscellaneous administrative and service expenses, such as application fees, review fees, reinspection fees, and permit fees.

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In exchange for providing water service to the Rangeview District’s customers using the Rangeview Water Supply (other than taps to Sky Ranch, which are exempt), we receive 98% of the Rangeview District’s tap fees and the Land Board receives the remaining two percent as a royalty.

In exchange for providing wastewater services, whether to customers on or off the Lowry Range, we receive 100% of the Rangeview District’s wastewater tap fees.

In exchange for providing wastewater services, whether to customers on or off the Lowry Ranch, we receive 100% of the Rangeview District’s wastewater tap fees.

Construction and Special Facility Funding Fees

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Each well utilizes between 10 and 20 million gallons of water during the hydraulic fracturing process, which equates to selling water to between approximately 100 and 200 homes for an entire year.

With a large percentage of the acreage surrounding the Lowry Range in Arapahoe, Adams, Elbert, and portions of Douglas Counties already leased by oil companies, we anticipate continuing to provide water for drilling and hydraulic fracturing in the future.

Service to Customers Not on the Lowry Range

In addition to customers on the Lowry Range, we have an agreement with the Rangeview District to be its exclusive water and wastewater service provider throughout its service area.

This includes the design, construction, operation and maintenance of water and wastewater systems to serve the Rangeview District’s customers located outside the Lowry Range service area (for example Wild Pointe and Sky Ranch) (Non-Lowry Service Agreement).

In exchange for providing water and wastewater services to the Rangeview District’s customers that are not on the Lowry Range, we receive 100% of water and wastewater tap fees, 98% of the water usage fees, and 90% of the monthly wastewater service and usage fees received by the Rangeview District from these customers, after deduction of royalties due to the Land Board, if applicable (i.e., if we use a portion of the Rangeview Water Supply, such as the Export Water, to provide service to such customers).

With a large percentage of the acreage surrounding the Lowry Ranch in Arapahoe, Adams, Elbert, and portions of Douglas Counties already leased by oil companies, we anticipate continuing to provide water for drilling and hydraulic fracturing in the future.

Service to Customers Not on the Lowry Ranch

In addition to customers on the Lowry Ranch, we have an agreement with the Rangeview District to be its exclusive water and wastewater service provider throughout its Service Area.

This includes the design, construction, operation and maintenance of water and wastewater systems to serve the Rangeview District’s customers located outside the Lowry Ranch Service Area (for example Wild

Pointe and Sky Ranch) (Non-Lowry Service Agreement).

In exchange for providing water and wastewater services to the Rangeview District’s customers that are not on the Lowry Ranch, we receive 100% of water and wastewater tap fees, 98% of the water usage fees, and 90% of the monthly wastewater service and usage fees received by the Rangeview District from these customers, after deduction of royalties due to the Land Board, if applicable (i.e., if we use a portion of the Rangeview Water Supply, such as the Export Water, to provide service to such customers).

We are currently not using the Rangeview Water Supply at Sky Ranch, but we may do so in the future, in which case water usage fees to be collected for such service would become subject to the Land Board royalty.

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With the property acquisition, we also acquired nearly 830 acre-feet of water beneath Sky Ranch and approximately 640 acres of oil and gas mineral rights.

Sky Ranch is located 16 miles east of downtown Denver, four miles north of the Lowry Range, and four miles south of Denver International Airport.

Sky Ranch is located 16 miles east of downtown Denver, four miles north of the Lowry Ranch, and four miles south of Denver International Airport.

Sky Ranch is zoned for residential, commercial, and retail uses, including up to 3,200 homes and more than two million square feet of commercial, retail, and light industrial development.

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The development of Sky Ranch will occur in multiple filings and phases which will take several years to complete.

Phase 1 of Sky Ranch included more than 150 acres and has a total of 509 detached single-family residential lots.

Of the 509 lots, we sold 505 finished lots to homebuilders, all of which were sold as of August 31, 2021, and retained the remaining lots for use in our single-family home rental business.

In February 2021, we began construction on Phase 2 of the development, which will include 850 lots of which we have contracted to sell 804 lots to home builders for detached and attached single-family homes, and the remaining 46 lots we plan to use for our single-family home rental business.

Phase 2 is approximately 250 acres and will be constructed in four subphases which we refer to as Phase 2A, 2B, 2C and 2D.

Development activities for Phase 2A, consisting of 229 lots, began in February 2021, and by August 31, 2022, we had substantially completed construction and transferred 219 lots to the four homebuilders.

We retained ten lots in Phase 2A on which we are constructing units for our single-family rental business.

The total sales price for the 804 lots sold to the homebuilders is $65.0 million, which is subject to price escalations depending on development timing which are not included in that figure.

The total sales price for the 219 lots in Phase 2A is $18.4 million.

Our preliminary total cost estimates for developing all 229 lots in Phase 2A is $20.4 million, with

approximately $17.8 million of that estimated to be spent on public improvements which are eligible for reimbursement by the Sky Ranch CAB.

As of August 31, 2023, homebuilders have built and sold 596 homes at Sky Ranch, with approximately 90 homes under construction.

The total sales price for the 785 lots sold to the homebuilders in Phase 2 is $65.3 million, which is subject to price escalations depending on development timing which are not included in that figure.

The total sales price for the 219 lots in Phase 2A is $18.4 million, which were completed in fiscal year 2022.

See below for a description of the conditions that may limit our ability to receive reimbursables and a definition of the Sky Ranch CAB.

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lots ready for building permits to construct homes) to each of the home builders.

We build, or contract to build, the roads, curbs, wet and dry utilities, storm drains, parks, open spaces, and other related improvements as part of a fully master planned community.

We build, or contract to build, the roads, curbs, wet and dry utilities, storm drains, parks, open spaces, and other related improvements as part of a master planned community.

Each builder is required to purchase water and wastewater taps for each lot from the Rangeview District at the time a building permit is issued.

The cost of the water and wastewater tap for a lot depends on the size of the lot, the size of the house, and the amount of irrigated landscaping.

Pursuant to the Non-Lowry Service Agreement, we receive all the water and wastewater tap fees from tap sales at Sky Ranch and 98% of the ongoing monthly water and wastewater service revenues.

Pursuant to the Non-Lowry Service Agreement, we receive all the water and wastewater tap fees from tap sales at Sky Ranch and 98% of the ongoing monthly water and 90% of ongoing monthly wastewater service revenues.

Public improvements, such as roads, parks, and water and sanitary sewer mains, storm sewer, and drainage improvements, that are shared by all homeowners in the development and not specific to any private finished lot are ultimately owned by the governmental metropolitan district or other municipality that is responsible for the maintenance of the improvements.

Upon completion and acceptance of certain public improvements by the “Sky Ranch Districts” or the Sky Ranch CAB (both of which are defined below), we are entitled to receive reimbursement for the verified public improvement costs.

Pursuant to certain agreements with the Sky Ranch Districts and the Sky Ranch CAB, on their behalf we construct public infrastructure such as roads, curbs, storm water, drainage, sidewalks, parks, open space, trails etc., which costs are reimbursed to us by the Sky Ranch CAB, through funds generated by the Sky Ranch Districts through taxes, fees, or the issuance of municipal bonds.

Pursuant to certain agreements with the Sky Ranch Districts and the Sky Ranch CAB, on their behalf we construct public infrastructure such as roads, curbs, storm water, drainage, sidewalks, parks,

open space, trails etc., which costs are reimbursed to us by the Sky Ranch CAB, through funds generated by the Sky Ranch Districts through taxes, fees, or the issuance of municipal bonds.

See Note 2 and Note 5 to the accompanying consolidated financial statements regarding treatment and recognition of these public improvement costs.

Pursuant to our service agreements, we are required to construct all required wholesale water and wastewater improvements (i.e., a wastewater reclamation facility, water supply, storage, treatment, and other wholesale facilities) for the provision of water and wastewater service to the property.

As of August 31, 2022, we have completed the required wholesale facilities and other infrastructure to provide water for the first 900 homes and wastewater for over 2,000 homes at Sky Ranch.

As of August 31, 2023, we have completed the required wholesale facilities and other infrastructure to provide water and wastewater for over 2,000 homes at Sky Ranch.

The most significant wholesale facility built was the wastewater reclamation facility, which cost $10.2 million and has a designed capacity to provide wastewater for more than 2,000 single-family homes before requiring expansion.

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The current directors of the districts are Mark W.

Harding (our President, Chief Executive Officer, and a director), Kevin B.

McNeill (our Vice President and Chief Financial Officer), Scott E.

Lehman (our employee), Dirk Lashnits (an employee of ours), and one independent board member.

Harding (our President, Chief Executive Officer, and a director), Scott E.

Lehman (our employee), Dirk Lashnits (an employee of ours), two independent board members, and one vacancy.

Pursuant to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year.

Harding, McNeill, Lehman, and Lashnits have all elected to forego these payments.

Harding, Lehman, and Lashnits have all elected to forego these payments.

Sky Ranch Community Authority Board

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Advances and verified costs expended by us for expenses related to the construction of the agreed upon public improvements are reimbursable to us by the Sky Ranch CAB.

No repayment is required of the Sky Ranch CAB for advances made or expenses incurred related to the construction of public improvements unless and until the Sky Ranch CAB and/or Sky Ranch Districts generate sufficient funds from property taxes, fees, or the issuance of bonds in an amount sufficient to reimburse us for all or a portion of advances or other public improvement expenses incurred.

fees, or the issuance of bonds in an amount sufficient to reimburse us for all or a portion of advances or other public improvement expenses incurred.

Unpaid advances accrue interest at the rate of 6% annually.

The Sky Ranch CAB agrees to exercise reasonable efforts to issue bonds to reimburse us subject to certain limitations.

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● In November 2019, the Sky Ranch CAB issued bonds and repaid $10.5 million;

● In January 2021, the Sky Ranch CAB repaid $0.4 million from unencumbered funds resulting from a budget surplus in 2021

● In May 2022, the Sky Ranch CAB repaid $0.1 million from unencumbered funds resulting from a budget surplus in 2022

● In January 2021, the Sky Ranch CAB repaid $0.4 million from unencumbered funds resulting from a budget surplus;

● In May 2022, the Sky Ranch CAB repaid $0.1 million from unencumbered funds resulting from a budget surplus;

● In August 2022, the Sky Ranch CAB issued bonds and repaid $23.6 million;

● In April 2023, the Sky Ranch CAB repaid $0.5 million from unencumbered funds resulting from a budget surplus;

● In June 2023, the Sky Ranch CAB repaid $0.4 million from unencumbered funds resulting from a budget surplus.

Prior to our fiscal 2021, the reimbursable expenditures we funded were expensed through land development construction costs, and project management revenue and interest income were not recognized as the reimbursement was deemed contingent on a sufficient tax base and/or the issuance of municipal bonds for collectability to be considered probable.

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The current directors of the Sky Ranch CAB are Mark W.

Harding (our President, Chief Executive Officer, and a director), Kevin B.

McNeill (our Vice President and Chief Financial Officer), Scott E.

Lehman (our employee), Dirk Lashnits (our employee), and one independent board member.

Harding (our President, Chief Executive Officer, and a director), Scott E.

Lehman (our employee), Dirk Lashnits (our employee), one independent board member, and one vacancy.

Pursuant to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year.

Harding, McNeill, Lehman, and Lashnits have all elected to forego these payments.

Harding, Lehman, and Lashnits have all elected to forego these payments.

Oil and Gas Leases

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During the years ended August 31, 2023 and 2022, we received $0.3 million and $0.5 million in royalties attributable to these wells.

In September 2017, we entered into a three-year Paid-Up Oil and Gas Lease with Bison Oil and Gas, LLP (Bison Lease) for the purpose of exploring for, developing, producing, and marketing oil and gas from 40 acres of mineral estate we own adjacent to the Lowry Range, and we received an up-front payment of $0.2 million.

The up-front payment received pursuant to the Bison Lease was being recognized into revenue ratably over a three-year period, which expired in September 2021, and was not extended.

In July 2019, we entered into an Agreement on Locations of Oil and Gas Operations covering approximately 16 acres at Sky Ranch with the operator of the Sky Ranch O&G Lease (OGOA).

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To extend its rights under the OGOA for one additional year, the oil and gas operator paid us $75,000, which is being recognized into income over the term of the extension.

The operator may extend the OGOA for one additional year after that for a total of five years.

In July 2023, the operator paid us an additional $75,000 to extend its rights under the OGOA for one additional year, which is being recognized into income over the

term of the extension.

This was the final extension allowed under the OGOA for a total of five years.

As of August 31, 2023, no wells have been drilled.

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Water supplies and water storage reservoirs are competitively sought throughout the west and along the Front Range of Colorado.

We believe that regional cooperation among area water providers in developing new water supplies, water

storage, and transmission and distribution systems provides the most cost-effective way of expanding and enhancing service capacities for area water providers.

We believe that regional cooperation among area water providers in developing new water supplies, water storage, and transmission and distribution systems provides the most cost-effective way of expanding and enhancing service capacities for area water providers.

We continue to seek opportunities for developing water supplies and water storage opportunities with other area water providers.

As we continue expanding and developing our Rangeview Water Supply, we anticipate needing a significant number of high-capacity deep water wells.

These wells would be drilled into one or more of the three principal aquifers located beneath the Lowry Range, and, as with our current wells, the water would be delivered to central water treatment facilities for treatment prior to delivery to customers.

Continued development of our Lowry Range surface water supplies will require facilities to divert surface water to storage reservoirs to be located on the Lowry Range, additional treatment facilities to treat the water prior to introduction into our distribution system(s), and additional surface water diversion facilities designed with capacities to divert the surface water when available (particularly during seasonal events such as spring run-off and summer storms) for storage in reservoirs constructed on the Lowry Range.

We estimate the full build-out of water and wastewater facilities (including diversion structures, transmission pipelines, reservoirs, and water treatment facilities) to develop and deliver our portfolio of water would cost in excess of $900 million, and would accommodate water service to customers located on and outside the Lowry Range.

These wells would be drilled into one or more of the three principal aquifers located beneath the Lowry Ranch, and, as with our current wells, the water would be delivered to central water treatment facilities for treatment prior to delivery to customers.

Continued development of our Lowry Ranch surface water supplies will require facilities to divert surface water to storage reservoirs to be located on the Lowry Ranch, additional treatment facilities to treat the water prior to introduction into our distribution system(s), and additional surface water diversion facilities designed with capacities to divert the surface water when available (particularly during seasonal events such as spring run-off and summer storms) for storage in reservoirs to be constructed on the Lowry Ranch.

We believe this build out would occur in phases over many decades, and we believe tap fees would be sufficient to fund the required infrastructure costs.

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This enables us to incrementally develop infrastructure to produce, treat and deliver water to customers based on their growing demands.

During fiscal 2022 and 2021, combined, we invested over $9.0 million in plant and facilities that interconnect the Rangeview District, WISE, and Sky Ranch water and wastewater systems to provide water and wastewater services to our growing customers at Sky Ranch and elsewhere.

During fiscal 2023 and 2022, combined, we invested over $9.2 million in infrastructure, including wells, pipelines, appurtenances for the WISE, and Sky Ranch water and wastewater systems to provide water and wastewater services to our growing customers at Sky Ranch and elsewhere.

We expect to continue to invest in water rights and facilities as our customer demands grow.

We continue developing our Sky Ranch property, including finishing lots for home builders, building additional water and wastewater infrastructure for residential and commercial development at the property, and having homes constructed for our single-family home rental business.

During the years ended August 31, 2022 and 2021, for Phases 1 and 2A we invested $11.5 million and $7.3 million in our Sky Ranch land which included $2.0 million and $2.5 million of expensed costs related to the delivery of finished lots and $9.5 million and $4.8 million of costs for public improvements which we expect to be repaid by the Sky Ranch CAB.

During the years ended August 31, 2023 and 2022, for Phases 2A and 2B we invested $9.8 million and $11.5 million in our Sky Ranch land which included $1.9 million and $2.0 million of expensed costs related to the delivery of finished lots and $7.9 million and $9.5 million of costs for public improvements which we expect to be repaid by the Sky Ranch CAB.

Additionally, we spent approximately $3.8 million and $0.9 million on construction costs related to our single-family rental business.

Phase 1 was our first project as a land developer and was done ahead of our original schedule and on budget.

We anticipate Phase 2A, which broke ground in February 2021, to incur a total of $20.4 million of construction costs to deliver the lots (of which we estimate $17.8 million is for public improvements which we expect to be repaid by the Sky Ranch CAB).

Phase 2A is planned to be complete in the next year and has been funded by the $18.4 million of total fees paid under our lot sales agreements and will be further funded by the reimbursements from the Sky Ranch CAB of public improvements, which we estimate to be $17.8 million.

Phase 2A, which broke ground in February 2021, incurred a total of $21.2 million of construction costs to deliver the lots (of which we estimate $18.5 million is for public improvements which is to be repaid by the Sky Ranch CAB).

During the years ended August 31, 2023 and 2022, we sold 90 and 154 water and wastewater taps at Sky Ranch to homebuilders, which generated $2.7 million and $4.5 million of tap fees.

As of August 31, 2023, we have sold 703 water and wastewater taps at Sky Ranch in Phases 1 and 2A.

Based on current prices and engineering estimates, we believe Phase 2 of Sky Ranch will produce more than $24.0 million in water and wastewater tap fee revenue and cash over the next 3-5 years.

Our first three rental units at Sky Ranch were completed and rented in November 2021.

We have begun construction on the next eleven rental units and plan to build more than 36 additional rental units over the next several years in Phases 2B-D.

We anticipate building these units concurrent with construction of homes in Phase 2.

We design and price rental units closer to the start of construction and currently do not have an estimate of the costs to construct or potential returns of the future rental units.

Based on current prices and engineering estimates, we believe Phase 2 of Sky Ranch will produce additional tap fee revenue of $20.6 million in water and wastewater tap fee revenue and cash over the next 3-5 years.

Our first three rental homes at Sky Ranch were completed and rented in November 2021.

During fiscal 2023, an additional 11 homes were completed and rented as they became available.

We plan to build 55 additional rental homes over the next several years in Phases 2B-D.

We anticipate building these homes concurrent with construction of homes in Phase 2.

We design and price rental homes closer to the cost of construction.

The 14 homes constructed to date have an average construction cost of approximately $350,000 and have a market value of more than $500,000 each.

We plan to develop additional water assets within the Denver area and are exploring opportunities to utilize our water assets in areas adjacent to our existing water supplies.

Additionally, we continue to source additional land acquisitions that could be paired with our water to provide additional growth to both our land development and water and wastewater segments.

Additionally, we continue to source additional land acquisitions that could be paired with our water to provide additional growth to each of our business segments.

Growth in Colorado

Despite the impacts of COVID-19, Colorado has continued to grow.

Colorado continues to grow.

According to the 2021 census report, Colorado added over 744,000 residents from 2010 to 2021, a growth of 14.8%, bringing the Colorado population to nearly 5.8 million, which is projected to grow to more than 8.7 million by 2050.

A Statewide Water Supply Initiative report by the Colorado Water Conservation Board estimates that the South Platte River basin, which includes the Denver metropolitan region (and our Sky Ranch community), could require an additional

400,000 acre-feet of water by the year 2030 due to continued growth.

What makes this difficult for land developers and builders is that Colorado law requires developers to demonstrate they have sufficient water supplies for their proposed projects before zoning applications will be considered.

This means developers and builders must solve their own water problems prior to development rather than wait for cities and municipalities to solve the problem.

This means cities, municipalities, developers and builders must demonstrate water availability prior to development.

This indicates that water will continue to be critical to growth prospects for the region and the state, and that competition for available sources of water will continue to intensify.

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We believe our ability to pair our water to our land and our in-house expertise for operating our systems allowed us to provide home builders with an affordable and sustainable master planned community that allowed our builders to quickly satisfy the increased demand from home buyers.

We believe our affordable community will continue to grow even in the slowing housing market we are experiencing in the later months of calendar 2022.

We believe our affordable community will continue to grow even in the slowing housing market we experienced in fiscal 2023 and continue to experience in fiscal 2024.

Growth in the Denver area has trended east with significant activity occurring along the I-70 corridor, an area which enjoys excellent transportation infrastructure with I-70, rail access, and Denver International Airport (DIA).

The region has significant employment centers, including DIA, the University of Colorado Anschutz Medical Campus, an Amazon fulfillment center, the Rocky Mountain Regional VA Medical Center, Buckley Space Force Base, and more, creating demand for residential, retail, and commercial development opportunities.

This tremendous growth, coupled with the low new and resale inventory, along with a shift in lifestyle choices from home ownership to renting, has pushed the single-family rental market into double-digit growth.

This tremendous growth, coupled with the low new and resale home inventories, along with a shift in lifestyle choices from home ownership to renting, has pushed the single-family rental market into double-digit growth.

Although this market has existed for decades, the focus has shifted from individuals owning the units to commercial institutions buying large blocks of houses for rentals.

The single-family rental space is now the fastest growing segment in the U.S.

The single-family rental space is now among the fastest growing segments in the U.S.

housing market.

Demand for rental has been steadily increasing due to current demographic trends related to Gen-Y and baby boomers;

Demand for rental units has been steadily increasing due to current demographic trends related to Gen-Y and baby boomers;

however, migration patterns related to COVID-19 have accelerated that demand.

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The single-family rental market is estimated at $3.4 trillion, compared to $3.5 trillion for the multifamily market, and institutional investors make up less than 2% of the market compared to 55% for the multifamily market.

As more young families, families with children, and retirees look to rent single family homes with yards and upscale amenities on a long-term basis, more investors are looking to the single-family rental markets to expand their portfolios and grow their capital.

As more young families, families with children, and retirees look to rent single family homes with yards and recreational amenities on a long-term basis, more investors are looking to the single-family rental markets to expand their portfolios and grow their capital.

In addition to actively seeking to expand our land holdings for development purposes, we also market our water supplies and services to developers and home builders that are active along the Colorado Front Range as well as other area water providers in need of additional supplies.

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We believe that raw or reclaimed water supplies provide the lowest cost, most environmentally sustainable water for outdoor irrigation.

We expect our systems to include an extensive water reclamation process in which essentially all effluent water from wastewater treatment plants will be reused to meet non-potable outdoor irrigation water demands.

We expect our systems to include an extensive water reclamation systems in which essentially all effluent water from wastewater treatment plants will be reused to meet non-potable outdoor irrigation water demands.

Our dual-distribution systems demonstrate our commitment to environmentally responsible water management policies in our water-short region.

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Under these fixed-price contracts, the contract prices are established in part based on fixed, firm subcontractor quotes on contracts and on cost and scheduling estimates.

These quotes or estimates may be based on several assumptions, including assumptions

about prices and availability of labor, equipment and materials, and other issues.

These quotes or estimates may be based on several assumptions, including assumptions about prices and availability of labor, equipment and materials, and other issues.

Increased costs or shortages of skilled labor, concrete, steel, pipe, and other materials could cause increases in development costs and delays.

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While we contract with third parties for our labor and materials at a fixed price, which we believe allows us the ability to mitigate the risks associated with shortages of and increases in the cost of labor and building materials, other unforeseen factors may arise which could increase our costs.

As a result of the COVID-19 pandemic, we have continued to enforce many safety measures to protect the health and well-being of our employees, customers, business partners, and their families.

While state and local mandates have been for the most part removed, we continue to encourage voluntary vaccinations and healthy practices such as hand washing, disinfecting, and social distancing when necessary.

While we have transitioned back to a more traditional in office work environment, we continue to offer flexible work arrangements to employees and consultants while maintaining our efficiency with the use of video conferencing and electronic data sharing platforms.

We were informed that our builder customers also took precautionary measures to ensure the safety of their employees, customers, business partners, and their families.

These measures varied by builder.

The most dramatic impact on our operations was and continues to be delays in the permitting process, inspections, and other activities requiring governmental agencies due to expansive work restrictions that continue to be imposed on their operations.

Mainly, we experienced delays in the permitting process through the county which delayed the start of construction of Phase 2A of the Sky Ranch development.

We expect COVID-19 to continue to play a role in potential delays related to the further subphases in Phase 2 at Sky Ranch due to continued changing governmental orders.

Water and Wastewater Services

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(iii) specific terms related to our provision of ongoing water and wastewater services to our local governmental customers as well as the governmental entities’ end-use customers.

Although we have exclusive long-term water and wastewater service contracts for 24,000 acres of the Lowry Range, Wild Pointe, and Sky Ranch pursuant to our service agreements, providing water and wastewater service is subject to competition.

Although we have exclusive long-term water and wastewater service contracts for 24,000 acres of the Lowry Ranch, Wild Pointe, and Sky Ranch pursuant to our service agreements, providing water and wastewater service is subject to competition.

Alternate sources of water are available, principally from other private parties such as farmers or others owning water rights that have historically been used for agriculture, and from municipalities seeking to annex new development areas in order to increase their tax base.

Our principal competition in areas close to the Lowry Range is the City of Aurora.

Our principal competition in areas close to the Lowry Ranch is the City of Aurora.

Principal factors affecting competition for water service include the availability of water for the particular purpose, the cost of delivering the water to the desired location (including the cost of required taps), and the reliability of the water supply during drought periods, and the political climate for additional annexations.

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Competition among developers and projects is determined by the location of the real estate, the market appeal of the development plan, the cost and value of the end product, the developer’s ability to build, market and deliver projects on a timely and cost effective basis, and the availability of water to serve the project.

Residential developers sell to home builders, who in turn compete based on location,

price/value, market segmentation, product design, and reputation.

Residential developers sell to home builders, who in turn compete based on location, price/value, market segmentation, product design, and reputation.

Commercial, retail, and industrial developers sell to and/or compete with other developers, owners, and operators of real estate for a limited number of potential buyers.

We believe we have exceeded the market’s expectations with the delivery of our Phase 1 lots at Sky Ranch and have demonstrated the ability and expertise to continue to deliver lots in a large-scale master planned community.

We believe we have exceeded the market’s expectations with the delivery of our lots at Sky Ranch and have demonstrated the ability and expertise to continue to deliver lots in a large-scale master planned community.

Environmental, Health and Safety Regulation

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In 2009, Colorado adopted Article 13 to the Colorado Primary Drinking Water Standards to establish monitoring and compliance criteria for the Groundwater Rule.

We have implemented measures to comply with the Groundwater Rule.

Clean Water Act

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Employees and Human Capital

We currently have 35 employees, all of whom are full-time, and all are located in the USA.

As of August 31, 2023, we employed 38 full-time employees, and all are located in the USA.

None of our employees are represented by a union or covered by a collective bargaining agreement.

We have not experienced any work stoppages, and we consider our relationship with our employees to be good.

Approximately 37 percent are employed in our water and wastewater segment, approximately 42 percent are employed in our land development segment and approximately 21 percent are employed for support and other functions.

We are committed to creating a strong team environment where employees always treat customers and each other with respect, and where each of us practices the basic principles of integrity, flexibility, honesty, trust, and stewardship:

principles we believe go hand-in-hand with achieving success.

Compensation and Benefits Program

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We believe that an equitable and inclusive environment with diverse teams produces more creative solutions, results in better, more innovative services and is crucial to our efforts to attract and retain key talent.

During 2022 we created and filled a new position that is helping to align our employees and our board members around dimensions of diversity, such as gender, race, ethnicity, sexual orientation or other shared attributes, which we believe help build community and enable opportunities for development.

We continue to focus on building a pipeline for talent to create more opportunities for workplace diversity and to support greater representation within Pure Cycle.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business