What changed in this filing

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Item 1A. Risk Factors

2023-11-15 compared with 2022-11-14 · 114 added, 113 removed, 385 unchanged (37% of the section changed)

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Risks Related to the Impacts the Economy and External Forces May Have on Our Operations

Our business, operations and financial condition and results may be impacted by the ongoing effects of the COVID-19 pandemic to varying degrees.

The ongoing COVID-19 pandemic continues to have a material adverse impact on local and global economies.

We have continued to enforce many safety measures enacted to protect the health and well-being of our employees, customers, business partners, and their families.

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

We planned to begin delivering finished lots in Phase 2A at Sky Ranch in fiscal 2021;

however, because of delays in inspections, delays in the permitting process and other activities requiring governmental agencies and the expansive work restrictions imposed on their operations, we did not deliver finished lots in Phase 2A until fiscal 2022.

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

The ongoing COVID-19 pandemic poses the risk that we or our employees, governmental agencies permitting our projects, suppliers, consumers, and other business partners, including our home builders, may be prevented from conducting business activities in the ordinary course should the United States, the state of Colorado, or local governmental authorities once again implement restrictions.

New shutdowns or other restrictions could adversely impact the availability or cost of materials, our ability to hire and retain qualified employees, and the availability of qualified subcontractors, which could limit our business operations or increase our costs.

The duration of the COVID-19 outbreak and its ultimate impact on us and on the global economy cannot be determined with certainty.

The COVID-19 pandemic could result in significant declines in global financial markets, higher default rates, and a substantial economic downturn or recession.

The extent to which COVID-19 will continue to affect us will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19.

Given the significant economic and financial market disruptions associated with the COVID-19 pandemic, our results of operations could be adversely impacted.

Our operations are concentrated in the Front Range area of Colorado;

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The timing and amount of these revenues will depend in part on housing developments being built near our water assets.

The development of the Lowry Range, Sky Ranch and other properties is subject to many factors that are outside our control.

The development of the Lowry Ranch, Sky Ranch and other properties is subject to many factors that are outside our control.

If wholesale water sales are not forthcoming or development in our targeted service areas is delayed or curtailed, we may need to use our capital resources, incur additional short or long-term debt obligations, or seek to sell additional equity.

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The residential housing market is impacted by federal and state personal income tax rates and provisions, and government actions, policies, programs and regulations directed at or affecting the housing market, including the Tax Cuts and Jobs Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies.

In 2019, housing starts in Colorado declined compared to housing starts in 2018.

However, from 2020 to 2022 housing starts as well as home prices in Colorado increased.

Although the number of new home starts continues to be better than during the last economic downturn, if the recovery of the Colorado housing market reverses, we could experience declines in the market value and demand for our lots and rental units, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

For example, from 2020 to 2022 housing starts as well as home prices in Colorado increased.

In 2023 due to raising interest rates, the demand for new home starts has weakened in the Colorado housing market, and we could experience declines in the market value and demand for our lots and rental homes, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Significant competition from other development projects could adversely affect our results.

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The single-family home rental market is also highly competitive.

There are numerous companies and individuals that own rental homes in the Sky Ranch area which may have more experience than we do renting single-family homes, better locations, and better pricing.

There are numerous companies and individuals that own rental homes

in the Sky Ranch area which may have more experience than we do renting single-family homes, better locations, and better pricing.

If we are unable to rent the homes at rates that cover our costs or are unable to manage the properties and expenses incurred to manage the properties, the impact to our business, results of operations, cash flows and financial condition could be materially negative.

Our operations could be adversely impacted i ncreases in material, labor, supplier, logistics and other operating costs, or supply chain delays and shortages, which could cause lower margins or lost sales and adversely impact our business, financial position, results of operations and cash flows, and component price volatility and availability, as well as supplier concentration.

Our operations could be adversely impacted by i ncreases in material, labor, supplier, logistics and other operating costs, or supply chain delays and shortages, which could cause lower margins or lost sales and adversely impact our business, financial position, results of operations and cash flows, and component price volatility and availability, as well as supplier concentration.

The market prices for certain materials and components we purchase, primarily steel and PVC piping, have been volatile.

steel index prices alone increased 100 percent during calendar 2021.

In addition, some supplies are subject to long lead times.

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Our continuing development of Sky Ranch requires significant cash expenditures.

We have advanced the Sky Ranch CAB $42.1 million for construction of public improvements in Phases 1 and 2 at Sky Ranch and expect to advance another $4.3 million for the completion of the Phase 2A public improvements.

We have advanced the Sky Ranch CAB $50.8 million

for construction of public improvements in Phases 1 and 2 at Sky Ranch and expect to advance another $11.7 million for the completion of the Phase 2A and 2B public improvements.

The Sky Ranch CAB is not required to repay us for advances made or expenses incurred for improvements at Sky Ranch unless and until the Sky Ranch CAB and/or Sky Ranch Districts generate sufficient funds from either tax revenues, fees or by issuing bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred.

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We have historically depended on a limited number of employees to administer our operations, interface with governmental entities, market our services, and plan and implement the construction and development of our assets.

The execution of contracts for lot sales and the continued development of Sky Ranch, including our single-family home rental business, have increased the size and complexity of our business.

The execution of contracts for lot sales and the continued development of Sky Ranch, including our single-family home rental business, and the expansion and maintenance of our water and wastewater systems, have increased the size and complexity of our business.

The success of our current business and future business development and our ability to capitalize on growth opportunities depends on our ability to attract and retain additional experienced and qualified persons to operate and manage our business.

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We may be unsuccessful in managing our operations and growth.

The rates that the Rangeview District is allowed to charge customers on the Lowry Range for water services are limited by the Lease with the Land Board and our contract with the Rangeview District and may not be sufficient to cover our costs of construction and operation.

The prices charged by the Rangeview District for water service on the Lowry Range are subject to pricing regulations set forth in the Lease with the Land Board.

The rates that the Rangeview District is allowed to charge customers on the Lowry Ranch for water services are limited by the Lease with the Land Board and our contract with the Rangeview District and may not be sufficient to cover our costs of construction and operation.

The prices charged by the Rangeview District for water service on the Lowry Ranch are subject to pricing regulations set forth in the Lease with the Land Board.

Both the tap fees and usage rates and charges are capped at the average of the rates of three nearby water providers.

Annually, the Rangeview District surveys the tap fees and rates of the three nearby providers, and the Rangeview

District may adjust tap fees and rates and charges for water service on the Lowry Range based on the average of those charged by this group.

Annually, the Rangeview District surveys the tap fees and rates of the three nearby providers, and the Rangeview District may adjust tap fees and rates and charges for water service on the Lowry Ranch based on the average of those charged by this group.

We receive 100% of tap fees and 98% of water usage fees charged by the Rangeview District to its customers after the deduction of royalties owed to the Land Board.

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Both increased customer demand and increased water conservation may also impact the overall cost of our operations.

If the costs for construction and operation of our wholesale water services, including the cost of extracting our groundwater, exceed our revenues, we would be providing water service to the Rangeview District for use at the Lowry Range at a loss.

The Rangeview District may petition the Land Board for rate increases;

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We have no long-term contractual commitments that will ensure these sales continue in the future.

The oil and gas industry has periodically gone through periods when activity has significantly declined due to low oil and gas prices, reduced world-wide demand and other impacts to the world-wide economy such as the COVID-19 pandemic, which have a negative impact on the water we sell to these operators.

Further sales to this customer base as well as renewals of our oil and gas leases in the future are impacted by ballot initiatives, new federal and state legislation, regulations by multiple federal and state agencies such as the U.S.

Environmental Protection Agency, the Colorado Oil and Gas Conservation Commission (COGCC), the Colorado Department of Public Health and Environment (DPHE), and the Colorado Air Quality Control Commission (AQCC), local zoning rules, court interpretations of laws and regulations at all levels of government, fracking technologies, the success of the wells, and the price of oil and gas, among other things.

The oil and gas industry has periodically gone through periods when activity has significantly declined due to low oil and gas prices, reduced world-wide demand and other impacts to the world-wide economy such as the COVID-19 pandemic, which have had a negative impact on the water we sell to these operators.

Further sales to this customer base as well as renewals of our oil and gas leases in the future may be impacted by ballot initiatives, new federal and state legislation, regulations by multiple federal and state agencies such as the U.S.

Environmental Protection Agency, the Colorado Energy and Carbon Management Commission (formerly the Colorado Oil and Gas Conservation Commission (COGCC)), the Colorado Department of Public Health and Environment (DPHE), and the Colorado Air Quality Control Commission (AQCC), local

zoning rules, court interpretations of laws and regulations at all levels of government, fracking technologies, the success of the wells, and the price of oil and gas, among other things.

We could see increased opposition and tougher oversight of oil and gas operations, which could reduce the demand for water for fracking and reduce our associated water sales as a result of the enactment and implementation of multiple state bills over the last several years targeting the siting of, emissions from, and chemicals used in oil and gas production, such as Senate Bill 19-181 (SB 19-181) (increased local and state government oversight of oil and gas siting and environmental impacts), SB 22-198 (fees on oil and gas wells for an orphaned well fund), HB 22-1361 (audits of and reporting on oil and gas taxes and emissions), HB 22-1244 (toxic air emissions reporting, permitting, and controls from certain sources, which may be more stringent than the federal Clean Air Act), HB 22-1348 (disclosure of chemicals used in oil and gas operations and ban on use of added perfluoroalkyl or polyfluoroalkyl chemicals), and HB 22-1345 (ban on PFAS in oil and gas products).

The oil and gas industry, and associated demand for water for fracking, may also be impacted by the adoption of new state regulations, such as:

(i) new fees and financial assurance requirements for oil and gas facilities adopted by COGCC in 2022;

(ii) new GHG intensity standards for oil and gas operators adopted by the AQCC in December 2021;

(iii) new or revised reporting and emission reduction requirements for GHGs, ozone precursors, and hydrocarbons from oil and gas operations and industrial wastewater treatment, as well as regional haze limit, adopted the AQCC in 2022;

(iv) the new initial list of toxic air contaminants identified by the DPHE in 2022 as a first step in implementing HB 22-1244;

and (v) a new proposed rulemaking announced by the DPHE in October 2022 to verify that oil and gas production sites are reducing GHG emissions.

The oil and gas industry, and associated demand for water for fracking, may also be impacted by the adoption of new or revised state regulations in recent years, such as:

(i) Colorado Energy and Carbon Management Commission fees and financial assurance requirements for oil and gas facilities (adopted in 2022);

(ii) AQCC GHG intensity standards that will become more restrictive over time and apply to upstream oil and gas operations, including well sites and production facilities (adopted in 2021), and related “verification” and monitoring requirements (adopted in July 2023) ;

(iii) AQCC reporting and emission reduction requirements for GHGs, ozone precursors, and hydrocarbons from oil and gas operations and industrial wastewater treatment, as well as regional haze limit (adopted in 2022);

(iv) a list of toxic air contaminants identified by the DPHE in 2022 as a first step in implementing HB 22-1244;

and (v) additional maintenance, monitoring, and emissions regulations on the upstream and midstream oil and gas industry facilities in AQCC Regulation Numbers 7 and 22 .

Recent federal laws and regulatory initiatives may also impact the oil and gas industry and thus associated water demand and sales.

For example, the federal Inflation Reduction Act imposes of a fee on methane emissions from oil and gas facilities, and it increases certain corporate taxes that could impact the oil and gas industry.

For example, the federal Inflation Reduction Act of 2022 imposes of a fee on methane emissions from certain oil and gas facilities, and it increases certain corporate taxes that could impact the oil and gas industry.

The Inflation Reduction Act also increases the amount of federal property available for oil and gas leasing, which could impact the desirability of developing oil and gas on private property.

In addition, the EPA has proposed a new rule “New Source Performance Standards” rule to regulate methane emissions from the oil and gas industry.

In addition, the EPA proposed a new rule “New Source Performance Standards” rule to regulate methane emissions from the oil and gas industry (initially proposed in 2021;

supplemental proposal in 2022).

Other future potential laws, regulations, or ballot initiatives may also impact oil and gas development and, therefore, our water sales.

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Nonetheless, we may need to seek additional water supplies to prove our supply can last for 300 years as our non-renewable supplies are depleted.

risk of owning non-renewable supplies, if we are unable to obtain sufficient replacement supplies, it would have a material adverse impact on our business and financial condition.

While the acquisition of Lost Creek water, a renewable “surface” water right that is diverted from an alluvial aquifer that is hydrologically connected to the surface water system, mitigates some of the risk of owning non-renewable supplies, if we are unable to obtain sufficient replacement supplies, it would have a material adverse impact on our business and financial condition.

Additionally, the cost of developing and withdrawing water from the aquifers is expected to increase over time, and we may not be able to recover the increased costs through our rates and charges.

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Any business interruption or other losses might not be covered by insurance policies or be recoverable through rates and charges, and such losses may make it difficult for us to secure insurance in the future at acceptable rates.

Development on the Lowry Range is not within our control and is subject to obstacles.

Development on the Lowry Range is controlled by the Land Board, which is governed by a five-person citizen board of commissioners, each appointed for a four-year term by the Colorado governor and approved by the Colorado Senate.

The Land Board’s focus with respect to issues such as development and conservation on the Lowry Range tends to change as membership on the Land Board changes.

Development on the Lowry Ranch is not within our control and is subject to obstacles.

Development on the Lowry Ranch is controlled by the Land Board, which is governed by a five-person citizen board of commissioners, each appointed for a four-year term by the Colorado governor and approved by the Colorado Senate.

The Land Board’s focus with respect to issues such as development and conservation on the Lowry Ranch tends to change as membership on the Land Board changes.

In addition, there are often significant delays in the adoption and implementation of plans with respect to property administered by the Land Board because the process involves many constituencies with diverse interests.

In the event water sales are not forthcoming or development of the Lowry Range is delayed or abandoned, we may need to use our capital resources, incur additional short or long-term debt obligations, or seek to sell additional equity.

In the event water sales are not forthcoming or development of the Lowry Ranch is delayed or abandoned, we may need to use our capital resources, incur additional short or long-term debt obligations, or seek to sell additional equity.

We may not have sufficient capital resources or be successful in obtaining additional operating capital.

Because of the prior use of the Lowry Range as a military facility, environmental clean-up may be required prior to development, including the removal of unexploded ordnance.

Army Corps of Engineers has been conducting unexploded ordnance removal activities at the Lowry Range for more than 30 years.

Continued activities are dependent on federal appropriations, and the Army Corps of Engineers has no assurance from year to year of such appropriations for its activities at the Lowry Range.

Because of the prior use of the Lowry Ranch as a military facility, environmental clean-up may be required prior to development, including the removal of unexploded ordnance.

Army Corps of Engineers has been conducting unexploded ordnance removal activities at the Lowry Ranch for more than 30 years.

Continued activities are dependent on federal appropriations, and the Army Corps of Engineers has no assurance from year to year of such appropriations for its activities at the Lowry Ranch.

We have limited experience with the development of real property.

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The funds we are advancing to the Sky Ranch CAB for construction of public improvements might not be repaid, which would negatively impact our income, gross margin on selling lots, and cash flows.

Since the start of development at Sky Ranch, we have advanced the Sky Ranch CAB $42.1 million for construction of public improvements and expect to fund an additional estimated $4.3 million to complete the buildout of public improvements in Phase 2A.

At August 31, 2022, of the amounts advanced to the Sky Ranch CAB, $13.9 million has not been repaid, excluding interest.

Since the start of development at Sky Ranch, we have advanced the Sky Ranch CAB $50.8 million for construction of public improvements and expect to fund an additional estimated $11.7 million to complete the buildout of public improvements in Phases 2A and 2B.

At August 31, 2023, of the amounts advanced to the Sky Ranch CAB, $24.9 million has not been repaid, including interest.

We expect these amounts will be repaid by the Sky Ranch CAB.

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The ability and obligation of the Sky Ranch CAB to reimburse us is dependent on sufficient home sales and commercial development occurring at Sky Ranch to create a tax base that would enable the Sky Ranch CAB to issue bonds to pay for the improvements.

If development at Sky Ranch is

delayed or curtailed for any reason, including regulatory restrictions, a downturn in the economy or default by one or more of the builders at Sky Ranch, the Sky Ranch CAB may not have sufficient revenues to issue bonds.

If development at Sky Ranch is delayed or curtailed for any reason, including regulatory restrictions, a downturn in the economy or default by one or more of the builders at Sky Ranch, the Sky Ranch CAB may not have sufficient revenues to issue bonds.

Supply shortages and risks related to the demand for skilled labor and building materials could increase costs and delay closings.

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inadequacies in components purchased from building supply companies;

and shortages delays in availability, or fluctuations in prices of building materials.

and shortages or delays in availability, or fluctuations in prices of building materials.

Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, constructing new rental homes.

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We may purchase additional land parcels for development, construction, or other purposes.

As noted above, land development and construction require significant cash expenditures before positive cash flows can be generated from the sale of lots, rental of homes, and water and wastewater tap fees.

As noted above, land development and construction require significant cash expenditures before positive cash flows can be generated from the sale of lots, rental of homes, and water and

wastewater tap fees.

If there is considerable lag time between when we acquire the land and when we begin selling finished lots or renting homes, we may generate significant operating losses.

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sales absorption rates below management expectations;

a decrease in the value of homes

or the underlying land due to general market conditions, actual or perceived risks due to proximity to oil and gas drilling operations, or other reasons;

a decrease in the value of homes or the underlying land due to general market conditions, actual or perceived risks due to proximity to oil and gas drilling operations, or other reasons;

and a decrease in projected cash flows for a project.

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Rental home construction can involve substantial up-front costs before a home is available for rent and generates income.

In addition to the up-front costs, building rental homes involves potentially significant new risks to our business, such as delays or cost increases due to changes in or failure to meet regulatory requirements, including permitting and zoning regulations, failure of lease rentals on newly-constructed properties to achieve anticipated investment returns, inclement weather, adverse site selection, unforeseen site conditions, construction materials and labor and other risks described below.

labor and other risks described below.

We may be unable to achieve our objective of building new rental homes that generate acceptable returns and, as a result, our growth and results of operations may be adversely impacted.

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For example, as detailed further below, the COGCC adopted regulations that took effect in 2021 which implement SB 19-181 by imposing minimum distances between new oil and gas drilling operations and residences, schools, and childcare centers.

SB 19-181 also empowers local governments to enact regulations that are stricter than state requirements pertaining to the surface impacts of oil and gas operations.

SB 19-181 also empowers local governments to enact regulations that are stricter than state requirements pertaining

to the surface impacts of oil and gas operations.

Thus, local zoning or other regulations may seek to create stricter setbacks from oil and gas drilling operations or impose other restrictions on the use of land.

For example, Arapahoe County adopted new oil and gas regulations in November 2021.

As these state setback regulations are implemented, and to the extent that these regulations are enacted, the value of the land that we already own or the availability of land that we are looking to acquire may decline, either of which may adversely impact the financial position, results of operations and cash flows of our business.

For example, Arapahoe County adopted oil and gas regulations in November 2021 and amended those regulations in 2023 to include, among other things, a one-mile setback from existing and planned reservoirs, subject to certain exceptions that may allow a 2,000-foot setback.

That 2,000-foot minimum setback is proposed to increase to 3,000-feet in a proposed rule under consideration by Arapahoe County as of as of November 2023.

Arapahoe County is also considering increasing the setbacks from occupied structures, platted lots, outside activity areas, and water bodies, as well as other proposed rules to address soil contamination, noise, and air pollution from oil and gas facilities.

Similarly, in 2021, Adams County adopted a rule requiring oil and gas facilities to be set back 2,000 feet from residences, schools, and certain waterbodies.

As these state and local setback regulations are implemented, and to the extent that additional regulations are enacted, the value of the land that we already own or the availability of land that we are looking to acquire may decline, either of which may adversely impact the financial position, results of operations and cash flows of our business.

In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained depends on factors beyond our control, such as changes in federal, state, and local policies, rules and regulations and their interpretations and application.

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For example, local and state governments have broad discretion regarding the imposition of development fees for projects under their jurisdictions, as well as requiring concessions or that the property developer and/or home builder construct certain improvements to public places such as parks and streets or fund schools.

New building code laws and regulations may also impact our costs of construction.

For example, HB 22-1362, enacted in 2022, requires the Colorado Energy Office to identify, and local governments to adopt by 2025, more energy efficient and low carbon building codes.

New building code energy laws and regulations may also adversely impact our costs of construction.

For example, HB 22-1362 requires the Colorado Energy Office to identify by 2025, and local governments to adopt by 2026, more energy efficient and low carbon building codes.

In addition, HB 21-1286 requires large (50,000 square feet) multifamily, commercial, and public buildings to meet energy performance and greenhouse gas standards, and the Colorado AQCC adopted implementing regulations in August 2023.

Further, HB 23-1161 establishes water and energy efficiency standards for a range of appliances, which could impact appliance costs and, relatedly, costs for finishing new buildings.

HB 23-1233 requires the adoption of regulations to wire multifamily buildings to be solar-ready and electric vehicle-ready, which could negatively impact our costs.

Municipalities or state water agencies may restrict or place moratoriums on the availability of utilities, such as water and sewer taps, which could have an adverse effect on our business by causing delays or increasing our costs.

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(i) finalized a rule in December 2021 pertaining to monitoring of PFAS in drinking water;

(ii) is developing a proposed National Drinking Water Regulation for publication by the end of 2022 for PFOA and PFOS, with a final rule expected in 2023;

(ii) issued a proposed rule in March 2023 to establish regulatory levels for PFOA, PFOS, PFNA, PFHzS, PFBS, and GenX chemicals in drinking water;

(iii) issued a proposed rule in August 2022 to designate two of the most widely used PFAS as hazardous substances under CERCLA, or Superfund;

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These new regulatory initiatives addressing PFAS in drinking water could impact the water side of our business.

With respect to service of customers on the Lowry Range, the Rangeview District’s rates might not be sufficient to cover the cost of compliance with additional or more stringent requirements, or we may be required to reserve more water than necessary for use on the Lowry Range to ensure the proper level of service to Lowry Range customers.

If the cost of compliance were to increase, we anticipate that the rates of the nearby water providers that the Rangeview District uses to establish its rates and charges would increase to reflect

these cost increases, thereby allowing the Rangeview District to increase its rates and charges.

With respect to service of customers on the Lowry Ranch, the Rangeview District’s rates might not be sufficient to cover the cost of compliance with additional or more stringent requirements, or we may be required to reserve more water than necessary for use on the Lowry Ranch to ensure the proper level of service to Lowry Ranch customers.

If the cost of compliance were to increase, we anticipate that the rates of the nearby water providers that the Rangeview District uses to establish its rates and charges would increase to reflect these cost increases, thereby allowing the Rangeview District to increase its rates and charges.

However, these water providers may not raise their rates in an amount that would be sufficient to enable the Rangeview District (and us) to cover any increased compliance costs.

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and how we address contamination.

With respect to wetlands in particular, the U.S.

Supreme Court’s forthcoming interpretation in Sackett v.

Environmental Protection Agency of the Clean Water Act’s applicability to certain wetlands may impact our permitting requirements.

With respect to wetlands, the U.S.

Supreme Court’s 2023 decision in Sackett v.

Environmental Protection Agency narrowed federal jurisdiction over wetlands under the Clean Water Act and related permitting requirements, which could simplify our permitting requirements for building near some wetlands.

However, it is expected that further clarifications and changes may arise through implementing federal regulations, additional litigation over application of the Court’s decision, and/or state laws and regulations.

Government agencies may initiate audits, reviews, or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant.

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It is possible that new standards could be imposed that will require additional capital expenditures or raise our operating costs.

With respect to service of customers on the Lowry Range, the Rangeview District’s rates might not be sufficient to cover the cost of compliance with new requirements.

With respect to service of customers on the Lowry Ranch, the Rangeview District’s rates might not be sufficient to cover the cost of compliance with new requirements.

Although we would expect the rates of the nearby water providers that the Rangeview District uses to establish its rates and charges to increase to cover increased compliance costs, such rates may not cover all our costs and our costs of complying with new standards or laws could adversely affect our business, results of operations or financial condition.

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Laws and regulations related to climate change, greenhouse gases, and energy may adversely affect us by directly and indirectly increasing the cost of or restricting our planned future growth activities.

In addition to the numerous above-discussed state and federal laws and regulations adopted in the past year regulating the siting of, emissions from, and chemicals used in oil and gas production, Colorado also enacted HB 22-1362 in 2022, which requires the adoption of energy efficient and low carbon building codes by 2025.

Our future housing development costs could be impacted by HB 22-1362, in conjunction with previously enacted energy efficiency legislation such as HB 19-1231 (energy and water efficiency standards for certain new appliance and plumbing fixtures) and HB 19-1260 (energy efficient building codes).

Likewise, the cost of operating and maintaining our multifamily housing developments may be impacted by the implementation of 2021 Colorado law HB 21-1286, which requires owners of large (50,000 square feet or more) commercial, multifamily, and public buildings to annually report energy usage starting by December 1, 2022.

There are also ongoing regulatory and legislative efforts to implement two major greenhouse gas bills enacted in 2019—HB 19-096 (requiring GHG emissions reporting by certain entities pursuant to AQCC regulations) and HB 19-1261 (setting ambitious statewide greenhouse gas emissions reduction goals), as well as the Colorado Governor’s 2021 Colorado Greenhouse Gas Pollution Reduction Roadmap identifying strategies to reduce greenhouse gas emissions from a variety of sources, including buildings, transportation, and oil and gas mining and production.

For example, pursuant to 19-096 the AQCC has adopted and updated its Air Regulation Number 22 and Regulation Number 7 requiring reporting and reduction of GHGs and ozone precursors from certain categories of emitters, such as industrial wastewater treatment facilities and oil and gas operators.

A variety of state legislation, regulations, and policies have been enacted in recent years relating to energy, climate change, greenhouse gas emissions reporting and controls, land use, and energy efficient building codes, in addition to the numerous above-discussed state and federal laws and regulations adopted in the past year regulating the siting of, emissions from, and chemicals used in oil and gas production.

For example and as mentioned above, HB 22-1362 requires energy efficient and low carbon building codes to be adopted by the state and local governments by 2025 and 2026, respectively.

Further, HB 21-1286 requires large (50,000 square feet or more) commercial, multifamily, and public buildings to annually report energy usage and reduce the buildings’ GHG emissions by 7% by 2026 and 20% by 2030.

The AQCC adopted regulations implementing HB 21-1286 in 2023.

Additionally, HB 23-1233 will require multifamily buildings to be solar-ready and electric vehicle-ready.

Our future housing development costs and the cost of operating and maintaining our multifamily housing developments could be negatively impacted by HB 22-1362, HB 21-1286, and HB 23-1233, in conjunction with HB 23-1161 (appliance efficiency standards) and earlier enacted efficiency standards for appliances, plumbing fixtures, and buildings (e.g., HB 19-1231, HB 19-1260).

Colorado has also enacted ambitions GHG reduction targets, initially with HB 19-1261 and recently made yet more stringent with SB 23-016, which aims to reduce the state’s overall greenhouse gas emissions 100% below 2005 levels by 2050 and includes a series of interim targets.

These legislated targets could lead to additional regulation impacting the housing development, water, and oil and gas industries in the future, which could increase our costs.

There are also ongoing efforts to implement these greenhouse gas targets, other bills (e.g., HB 19-096, requiring GHG emissions reporting by certain entities pursuant to AQCC regulations;

SB 23-1210, requiring the Colorado Energy Office to create a “carbon management roadmap”), and the Colorado Governor’s 2021 Colorado Greenhouse Gas Pollution Reduction Roadmap identifying strategies to reduce greenhouse gas emissions from a variety of sources, including buildings, transportation, and oil and gas mining and production.

For example, pursuant to 19-096 the AQCC adopted and updated its Air Regulation Number 22 and Regulation Number 7 requiring monitoring, reporting, and reduction of GHGs and ozone precursors from certain categories of emitters, such as industrial wastewater treatment facilities and oil and gas operators.

In addition, at the federal level, the SEC’s proposed climate risks disclosures and greenhouse gas reporting rule could, if finalized, impose additional compliance costs on our business, as well as for the oil and gas producers with whom we do business.

As climate change concerns continue to grow, enactment of additional climate and energy legislation and regulations at the state, local, and federal levels may continue, and compliance with legislation and regulations of this nature is expected to become more costly.

In addition to the direct impacts of climate and energy-related policies, there may also be indirect impacts.

On top of the direct impacts of climate and energy-related policies, there may also be indirect impacts.

Energy-related initiatives affect a wide variety of companies throughout the United States and the world and, because our operations are dependent on significant amounts of raw materials, such as pipe, steel, and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of the materials used in the development of our properties are burdened with expensive tariffs, cap and trade and similar taxes and regulations.

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These construction activities involve risks, including shortages of materials and labor, work stoppages, labor relations disputes, injuries to third parties, damages to property, weather interference, engineering, environmental, permitting, or geological problems and unanticipated cost increases.

These issues could give rise to delays, cost overruns or performance deficiencies, or otherwise

adversely affect the construction or operation of our water and wastewater delivery systems and the construction and delivery of residential lots.

In addition, we may experience quality problems in the construction of our systems and facilities, including equipment failures.

These issues could give rise to delays, cost overruns or performance deficiencies, or otherwise adversely affect the construction or operation of our water and wastewater delivery systems and the construction and delivery of residential lots.

In addition, we may experience quality problems in the construction of our systems and facilities, including equipment

We may not meet the required deadlines under our sale and construction contracts.

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Enacted in 2019, SB 19-181 authorizes local governments to approve the siting of oil and gas locations and regulate the surface impacts of oil and natural gas development through local requirements that may be more stringent than state requirements.

SB 19-181 also changed the mission of the COGCC from fostering responsible and balanced development to regulating the development and production of natural resources and oil and gas to “protect” and “minimize” “adverse impacts to public health, safety, and welfare, including protection of the environment and wildlife resources.

SB 19-181 also requires the COGCC and the AQCC to undertake rulemakings on environmental protection, facility siting, increased inspections and public disclosures, elimination of hard caps on application fees, increasing required financial assurances, and minimizing emissions of hydrocarbons and other compounds.

The COGCC and the AQCC have promulgated several rules pursuant to SB 19-181 over the past several years, as detailed below.

Rulemaking activities by the COGCC pursuant to SB 19-181 could adversely impact our land development activities by limiting the number of lots available for land development in Colorado and could adversely impact our water sales for fracking by limiting the land available for oil and gas production.

SB 19-181 also changed the mission of the Colorado Energy and Carbon Management Commission (or, at the time, the Colorado Oil and Gas Conservation Commission) from fostering responsible and balanced development of natural resources and oil and gas, to regulating the development and production of natural resources and oil and gas in order to “protect” and “minimize” “adverse impacts to public health, safety, and welfare, including protection of the environment and wildlife resources.

SB 19-181 also requires what is now the Colorado Energy and Carbon Management Commission and the AQCC to undertake rulemakings on environmental protection, facility siting, increased inspections and public disclosures, elimination of hard caps on application fees, increasing required financial assurances, and minimizing emissions of hydrocarbons and other compounds.

The COGCC and the AQCC have promulgated several rules pursuant to SB 19-181 over the past several years, as summarized below.

Regulations implemented by the Colorado Energy and Carbon Management Commission pursuant to SB 19-181 could adversely impact our land development activities by limiting the number of lots available for land development in Colorado and could adversely impact our water sales for fracking by limiting the land available for oil and gas production.

As a part of implementing SB 19-181, the COGCC approved a rule (Setback Rule) imposing setbacks and siting requirements for well locations.

The Setback Rule, which took effect in 2021, prohibits, without exception, working well pad surfaces from being located within 2,000 feet of a school facility or childcare center, or within 500 feet from one or more residential buildings that are not subject to a surface use agreement or waiver.

The Setback Rule also generally prohibits any well pad surface from being located greater than 500 feet and less than 2,000 feet from a residential or high occupancy building, but allows such locations to obtain an exemption from the COGCC by satisfying certain requirements (such as consent from owners and tenants) or by obtaining a COGCC finding, after a hearing, that the conditions of approval will provide “substantially equivalent protections” to a 2,000 foot setback for public health, safety, welfare, the environment, wildlife resources, and disproportionately impacted communities.

The Setback Rule also generally prohibits any well pad surface from being located greater than 500 feet and less than 2,000 feet from a residential or high occupancy building, but allows such locations to obtain an exemption by satisfying certain requirements (such as consent from owners and tenants) or by obtaining a Commission finding, after a hearing, that the conditions of approval will provide “substantially equivalent protections” to a 2,000 foot setback for public health, safety, welfare, the environment, wildlife resources, and disproportionately impacted communities.

Depending on how the Setback Rule is applied and interpreted, it could have the effect of limiting property development within 2,000 feet of a well pad surface.

As noted above, to develop oil and gas near residential or high occupancy buildings, the applicant will need an exception from the COGCC by obtaining explicit, informed consent from both the landowner and their tenants (as applicable) to the proposed oil and gas location, or by demonstrating that conditions on approval will provide “substantially equivalent protections” to a 2,000-foot setback.

Applicants who are unable to obtain such an exception may be forced to choose between using their property for oil

and gas development or for residential and commercial development.

As noted above, to develop oil and gas near residential or high occupancy buildings, the applicant will need an exception from the Commission by obtaining explicit, informed consent from both the landowner and their tenants (as applicable) to the proposed oil and gas location, or by demonstrating that conditions on approval will provide “substantially equivalent protections” to

a 2,000-foot setback.

Applicants who are unable to obtain such an exception may be forced to choose between using their property for oil and gas development or for residential and commercial development.

So, under a restrictive interpretation of the Setback Rule and its exceptions, we might have to limit drilling on our mineral rights at Sky Ranch to proceed with the occupancy densities we have planned, which would adversely affect our industrial water sales to the oil and gas industry.

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Alternatively, the Setback Rule could make such residential properties more attractive to people who prefer to live farther from oil and gas developments.

Additionally, any rules that would require the Land Board to elect between oil and gas or residential and commercial land development with respect to the Lowry Range would likely have an adverse effect on our financial condition, because we have the exclusive right to provide water service to customers on the Lowry Range, including both lessees of the oil and gas rights on the Lowry Range and future occupants of the Lowry Range if the Land Board sells the land for development.

Our business could be further impacted if local jurisdictions in which we operate, pursuant to SB 19-181, enact local setback rules or other regulations on oil and gas development that are more restrictive than the state’s.

Additionally, any rules that would require the Land Board to elect between oil and gas or residential and commercial land development with respect to the Lowry Ranch would likely have an adverse effect on our financial condition, because we have the exclusive right to provide water service to customers on the Lowry Ranch, including both lessees of the oil and gas rights on the Lowry Ranch and future occupants of the Lowry Ranch if the Land Board sells the land for development.

Our business could be further impacted by more restrictive local regulations, such as Adams County’s rule requiring oil and gas facilities to be set back 2,000 feet from residences, schools, and certain waterbodies, and Arapahoe County’s recently adopted rule generally requiring a one-mile setback from existing and planned reservoirs, as well as Arapahoe County’s proposed rule that would, if adopted, increase setbacks from occupied structures, platted lots, outside activity areas, and water bodies.

These local ordinances, as well as similar ordinances that other local jurisdictions may implement in the future, may adversely impact the buildable area and costs of our development and our clients’ development.

In addition to the Setback Rule, state agencies have recently adopted other regulations on oil and gas development as a part of implementing SB 19-181 and other recently enacted legislation such as HB 22-1244, HB 19-096, and HB 19-1261.

For example, the COGCC in recent years has adopted new rules for testing and ensuring the integrity of oil and gas flow lines and well bores and has imposed new fees and financial assurance requirements for oil and gas facilities.

For example, the Colorado Energy and Carbon Management Commission in recent years has adopted new rules for testing and ensuring the integrity of oil and gas flow lines and well bores and has imposed new fees and financial assurance requirements for oil and gas facilities.

In addition, the AQCC has, in recent years, approved rules calling for more frequent inspections of oil and gas equipment, imposing new GHG intensity standards for oil and gas operators, and requiring reporting and reduction of GHG emissions, ozone precursors, and hydrocarbons by oil and gas operations as well as industrial wastewater treatment facilities, where applicable.

Similarly, the DPHE recently proposed a new rulemaking to verify that oil and gas production sites are reducing GHG emissions, and it has published an initial list of toxic air contaminants as a first step toward regulation under HB 22-1244.

Similarly, the AQCC adopted increasingly restrictive GHG intensity standards for upstream oil and gas operations and related “verification” and monitoring requirements.

The AQCC also published an initial list of toxic air contaminants as a first step toward regulation under HB 22-1244.

These and related rulemaking activities by state agencies and local governments could lead to delays and additional costs for oil and gas operators, which, in turn, could result in a decline in oil and gas drilling activities.

A significant decline in oil and gas drilling activities in and around the Lowry Range and our Sky Ranch property would have an adverse effect on our water sales for fracking and our financial condition.

A significant decline in oil and gas drilling activities in and around the Lowry Ranch and our Sky Ranch property would have an adverse effect on our water sales for fracking and our financial condition.

Further, a significant decline in oil and gas activities throughout Colorado could negatively impact the Colorado economy, which could have an adverse effect on demand for new homes at Sky Ranch.

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For example, in 2018, Proposition 112 would have imposed a 2,500-foot setback from any building or waterway in Colorado.

Although Colorado voters rejected that measure, the influential power of even failed ballot initiatives is demonstrated by the fact that the Colorado Legislature and Governor passed SB 19-181 the following year and, pursuant to that law, the COGCC promulgated the similar, though less restrictive, Setback Rule.

While we are unaware of specific, current ballot measures that would materially threaten our business, in the future interest groups opposed to oil and natural gas development may seek additional restrictions on oil and gas development through ballot initiatives, as well as through legislation, regulation, or litigation.

Although Colorado voters rejected that measure, the influential power of even failed ballot initiatives is demonstrated by the fact that the Colorado Legislature and Governor passed SB 19-181 the following year and, pursuant to that law, the Colorado Energy and Carbon Management Commission promulgated the similar, though less restrictive, Setback Rule.

In August 2023, environmental groups submitted language for the 2024 ballot that would ban new hydraulic fracturing permits after 2030.

It is not yet clear whether this proposal will make it to the ballot, but if it does and if it were to win, that could materially threaten our oil and gas clients and, in turn, our business.

We may be subject to significant potential liabilities because of warranty and liability claims made against us.

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Additionally, the coverage offered and the availability of general liability insurance for construction defects are currently limited and policies that can be obtained are costly and often include exclusions based upon past losses insurers suffered as a result of use of defective materials used by other property developers.

As a result, our subcontractors may be unable to obtain insurance, and we may have to waive our customary insurance requirements, which increases our and our insurers’ exposure to claims and increases the possibility that our insurance will not be adequate to protect us for all the costs we incur.

As a result, our subcontractors may be unable to obtain insurance, and we may have to waive our customary insurance requirements, which increases our and our insurers’

exposure to claims and increases the possibility that our insurance will not be adequate to protect us for all the costs we incur.

Any losses that exceed claims against our contractors, the performance bonds and our insurance limits at such facilities could result in claims against us.

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Conflicts of interest may arise relating to the operation of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB.

Our Chief Executive Officer, Chief Financial Officer and two of our employees constitute the majority of the directors of each of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB.

Our Chief Executive Officer and two of our employees constitute the majority of the directors of each of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB.

These officers and employees, along with Pure Cycle, and one unrelated individual, own certain property interests in the 40 acres that constitute the Rangeview District and the acreage that constitutes the Sky Ranch Districts.

We have made loans to the Rangeview District to fund its operations.

As of August 31, 2022, total principal and interest owed to us by the Rangeview District was just over $1.1 million.

As of August 31, 2023, total principal and interest owed to us by the Rangeview District was just under $1.2 million.

Pursuant to our water and wastewater service agreements with the Rangeview District, of the net amounts retained by the Rangeview District, the Rangeview District retains two percent of the revenues from the sale of water to its end-use customers and 10% of the revenues from the provision of wastewater services to its end-use customers.

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Growth limitations or moratoriums imposed by governmental authorities could adversely affect our land development activities or the land development activities of our customers, which could adversely impact both the land development and water and wastewater segments of our business.

The State of Colorado or counties in which our service areas and properties are located may approve limitations or moratoriums on residential growth within their respective boundaries, which limitations or moratoriums could have the effect of delaying, limiting or halting development within Sky Ranch or other areas where we may provide water and wastewater services or develop land.

We are not aware of any such proposals in the areas in which we operate, but proposals have been made to limit growth in various communities along the Front Range.

The State of Colorado recently enacted HB 23-1255, which generally prohibits local governments from enacting or enforcing local housing growth-restrictions laws that would limit housing supply, development applications, or building permits.

However, under certain circumstances, local governments may implement a temporary moratorium of up to 2 years.

While this new law alleviates concerns that a local government in our planned development areas might permanently restrict new growth, a temporary moratorium could still have the effect of delaying, limiting or halting development within Sky Ranch or other areas where we may provide water and wastewater services or develop land.

Because all of the property in Sky Ranch has been platted, we do not expect future growth moratoriums to restrict Sky Ranch as currently planned;

however, if growth moratoriums or restrictions are imposed in the areas in which we provide services or develop land, it could negatively impact our ability to develop our land as planned or our customers’ ability to grow their communities as anticipated, which would also reduce the number of water and wastewater service customers we expect, which would have a negative impact on our business and financial condition.

however, if temporary growth moratoriums or restrictions are imposed in the areas in which we provide services or develop land, it could negatively impact our ability to develop our land as planned or our customers’ ability to grow their communities as anticipated, which would also reduce the number of water and wastewater service customers we expect, which would have a negative impact on our business and financial condition.

We could be hurt by efforts to impose liabilities or obligations on us regarding labor law violations by other persons whose employees perform contracted services .

The infrastructure and improvements on our water and wastewater systems and on the finished lots we sell or that we must provide pursuant to service agreements and lot development agreements are done by employees of subcontractors and other contract parties.

other contract parties.

We do not have the ability to control what these contract parties pay their employees or the work rules they impose on their employees.

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Our water supplies are subject to the risk of potential contamination, including contamination from naturally occurring compounds, pollution from man-made sources and intentional sabotage.

Our land at Sky Ranch and a portion of the Lowry Range have been leased for oil and gas exploration and development.

Our land at Sky Ranch and a portion of the Lowry Ranch have been leased for oil and gas exploration and development.

Such exploration and development could expose us to additional contamination risks from related leaks or spills.

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The Rangeview District’s or our rights under the Lease could be challenged in the future, which could require potentially expensive litigation to enforce our rights.

Our Lowry Range surface water rights are “conditional decrees” and require findings of reasonable diligence.

Our surface water interests and reservoir sites at the Lowry Range are conditionally decreed and are subject to a finding of reasonable diligence from the Colorado water court every six years.

To arrive at a finding of reasonable diligence, the water court must determine that we continue to diligently pursue the development of said water rights.

Our Lowry Ranch surface water rights are “conditional decrees” and require findings of reasonable diligence.

Our surface water interests and reservoir sites at the Lowry Ranch are conditionally decreed and are subject to a finding of reasonable diligence from the Colorado water court every six years.

To arrive at a finding of reasonable diligence, the water court must determine that we continue to

diligently pursue the development of said water rights.

If the water court is unable to make such a finding, we could lose the water right under review.

During each of fiscal 2012 and 2018, the Lowry Range conditional decrees were granted review by the water court, which determined that we and the Rangeview District met the diligence criteria.

The water court entered a finding of reasonable diligence on the Lowry Range surface water decrees in January 2019.

Our next review for reasonable diligence on the Lowry Range surface water decrees will be in January 2025.

During each of fiscal 2012 and 2018, the Lowry Ranch conditional decrees were granted review by the water court, which determined that we and the Rangeview District met the diligence criteria.

The water court entered a finding of reasonable diligence on the Lowry Ranch surface water decrees in January 2019.

Our next review for reasonable diligence on the Lowry Ranch surface water decrees will be in January 2025.

We believe we will be successful in maintaining our decrees as we continue to develop these rights.

the water court does not make a determination of reasonable diligence, the value of our interests in the Rangeview Water Supply would be materially adversely impacted.

If the water court does not make a determination of reasonable diligence, the value of our interests in the Rangeview Water Supply would be materially adversely impacted.

Our operations are affected by local politics and governmental procedures that are beyond our control.

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Cyberattacks may take various forms, including through hacking, ransomware attacks, malware, viruses and phishing scams.

In July 2021, we experienced a ransomware attack that impacted our information technology systems, which resulted in our systems being down while we implemented recovery controls of our data.

We did not experience a material loss of information and concluded that no customer or financial data was compromised.

In addition, our water and wastewater operating systems were not impacted.

As a result of the attack, we incurred an immaterial amount of expenses to increase our security including additional infrastructure investments, and remediation efforts.

A significant data security breach, including misappropriation of confidential information, could cause us to incur significant costs, which may include potential costs of investigations, legal, forensic and consulting fees, costs and diversion of management attention required for investigation, remediation and litigation, substantial repair or replacement costs.

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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 1A. Risk Factors