PURE CYCLE CORP

Previous wording

We are a diversified water resource and land development company. At our core, we are a wholesale water and wastewater service provider, and we develop land we own into master planned communities, reserving certain lots on which we build homes for our single-family rental business. 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.

Current wording

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, 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.

Previous wording

Despite this, we believe several long-term land development and housing market fundamental factors remain positive. For example, available lots and housing supply-demand remain imbalanced due to a decade-plus of underproduction of new homes in relation to population growth and low resale home inventory. While we remain confident in the long-term growth prospects for the industry given these and other factors, our future performance and strategies will depend significantly on the housing market which is impacted by the factors noted in the paragraph above. Like many other businesses, our contractors have experienced delays in receiving materials and parts, rising costs, and labor shortages. However, we have adjusted our purchases and operations in ways that we believe will reduce the impact these factors have on our construction and other activities. Specifically, we delayed the start of construction on Phase 2B to avoid incurring development costs when market demand declined and to give our home builder partners additional time to absorb lots from Phase 2A. We believe our reasonably priced lots and the low inventory of entry level housing in the Denver market will help Sky Ranch navigate the changing market better than other surrounding and significantly higher priced communities. We continue to work closely with our home builder partners to provide affordable lots for entry level homes and to deliver those lots incrementally to minimize inventories for both the Company’s construction of lots and our home builders’ ownership of finished lots.

Current wording

We believe several long-term land development and housing market fundamental factors remain positive, including favorable demographics, a lot and housing supply-demand imbalance resulting from a decade-plus of underproduction of new homes in relation to population growth, and low resale home inventory. While we remain confident in the long-term growth prospects for the industry given these factors, the current demand for new homes is subject to continued uncertainty due to many factors. The combination of higher mortgage interest rates since early 2022, several years of rising housing prices, elevated inflation, and various other macroeconomic and geopolitical concerns, has been moderating housing demand. Although interest and inflation rates have been stabilizing, we expect this moderate demand to continue into 2025. Given current conditions, we will continue to monitor market dynamics and surrounding community performance and adjust the timing of additional construction expenditures at Sky Ranch as necessary. We believe our reasonably priced (entry level) lots and the low inventory of entry level housing in the Denver market will help Sky Ranch navigate the changing market better than other surrounding and significantly higher priced communities.

Previous wording

The Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during calendar 2022 and 2023 sought to moderate persistent U.S. inflation, and the further actions it has stated it intends to take, continue to be an ongoing headwind for the housing market in 2024 as they have elevated mortgage loan interest rates and created macroeconomic uncertainty and volatility across financial markets. In addition, consumer demand for our homes and our ability to grow our scale, revenues, and returns in fiscal 2025 could be materially and negatively affected by the above-described monetary policy impacts or other factors that curtail mortgage loan availability, employment or income growth or consumer confidence in the U.S. and Colorado markets. We continue to work proactively to mitigate these impacts working with our home builder partners on timing of investment and delivery of lots; however, the potential extent and effect of these factors on our business is uncertain, unpredictable, and outside our control, and our past performance should not be considered indicative of our future results.

Current wording

Our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economics, the homebuilding industry, capital, credit and financial market conditions and a fairly stable and constructive political and regulatory environment (particularly regarding housing and mortgage loan financing policies). The continuing impact of the Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during 2022 and 2023 to moderate persistent U.S. inflation and the uncertainty in future Federal Reserve monetary policy, are expected to be an ongoing headwind for the housing market in 2025 and beyond, as they have elevated mortgage loan interest rates and created macroeconomic uncertainty and volatility across financial markets. Prolonged supply chain disruptions and other production-related challenges could extend or delay our construction cycle times and intensify construction-related cost pressures beyond our experience in 2024. In addition, consumer demand for our homes, and our ability to grow our scale, revenue and returns in fiscal 2025 could be materially and negatively affected by the above-described monetary policy impacts or other factors that curtail mortgage loan availability, employment or income growth or consumer confidence in the U.S. or in the Colorado markets. The potential extent and effect of these factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in fiscal 2024, should not be considered indicative of our future results.

Previous wording

For more than three decades we have accumulated a large portfolio of valuable water rights and land interests in 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 water demands in the eastern Denver metropolitan region. Our primary land asset, 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. We also have launched a single-family rental business where we rent homes 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.

Current wording

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. 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 services segment. Additionally, we have retained lots in our Sky Ranch development for our single-family rental business where we build single-family homes for rent, typically 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.

Previous wording

During our fiscal 2021, we began construction on the second development phase at Sky Ranch. For this phase, we entered separate contracts with KB Home, Lennar Colorado, Melody (a DR Horton Company), and Challenger Homes to sell 781 single-family attached and detached residential lots at Sky Ranch, and we retained approximately 93 lots (through such contracts and subsequent amendments) for use in our single-family home rental business. The second development phase is approximately 250 acres and is being completed in four sub-phases (referred to as Phase 2A, 2B, 2C and 2D). Due to our strong performance in the first phase of the Sky Ranch project, we were able to realize an approximate 38% increase in our average lot prices. For example, we increased our sales price for a 45’ foot lot from an average of $75,000 to $103,200 and added an escalation clause that increases the prices depending on timing of payments. The timing of cash flows includes certain milestone deliveries such as the completion of governmental approvals for final plats, installation of wet utilities, and final completion of lot deliveries.

Current wording

During our fiscal 2021, we began construction on the second development phase at Sky Ranch. For this phase, we entered separate contracts with KB Home, Lennar Colorado, Melody (a DR Horton Company), and Challenger Homes to sell 781 single-family attached and detached residential lots at Sky Ranch, and we retained approximately 93 lots (through such contracts and subsequent amendments) for use in our single-family home rental business. The second development phase is approximately 250 acres and is being completed in four sub-phases (referred to as Phase 2A, 2B, 2C and 2D). Due to our strong performance in the first phase of the Sky Ranch project, we were able to realize an approximate 38% increase in our average lot prices in Phase 2. For example, we increased our sales price for a 45’ foot lot from an average of $75,000 to $103,200 and added an escalation clause that increases the prices depending on timing of payments. The timing of cash flows includes certain milestone deliveries such as the completion of governmental approvals for final plats, installation of wet utilities, and final completion of lot deliveries.

Previous wording

In February 2021, we began construction activities in Phase 2A at Sky Ranch, which has 229 residential lots, 10 of which we have retained for use in our single-family rental business. Contracts with three of the four homebuilders include milestone payments as construction progresses, with the fourth homebuilder contract having one payment due at delivery of the finished lot (i.e., the transfer of the title). As of May 31, 2024, Phase 2A of the Sky Ranch development is approximately 98% complete, and we have received all $18.4 million of payments related to the sale of the 219 lots in Phase 2A.

Current wording

In February 2021, we began construction activities in Phase 2A at Sky Ranch, which has 229 residential lots, 10 of which we have retained for use in our single-family rental business. Contracts with three of the four homebuilders include milestone payments as construction progresses, with the fourth homebuilder contract having one payment due at delivery of the finished lot (i.e., the transfer of the title). As of November 30, 2024, Phase 2A of the Sky Ranch development is nearly 100% complete, and we have received all $18.4 million of payments related to the sale of the 219 lots in Phase 2A.

Previous wording

In March 2023, we began construction activities in Phase 2B at Sky Ranch, which is platted for 211 residential lots, 17 of which we have retained for use in our single-family rental business. Contracts with three of the four homebuilders in Phase 2B include milestone payments as construction progresses, with the fourth homebuilder having one payment due at the transfer of title of the finished lots. As of May 31, 2024, Phase 2B of the Sky Ranch development is approximately 70% complete. During the three and nine months ended May 31, 2024, we received $0 and $4.1 million which consists of the second milestone payments from the three builders with milestone payment contracts. We expect the finished lot payment for Phase 2B, which totals $9.0 million, to be received over the next 3 months.

Current wording

In March 2023, we began construction activities in Phase 2B at Sky Ranch, which is platted for 211 residential lots, 17 of which we have retained for use in our single-family rental business. Contracts with three of the four homebuilders in Phase 2B include milestone payments as construction progresses, with the fourth homebuilder having one payment due at the transfer of title of the finished lots. As of November 30, 2024, Phase 2B of the Sky Ranch development is approximately 97% complete, and we have received all $17.3 million of payments related to the sale of the 211 lots in Phase 2B.

Previous wording

In February 2024, we began construction activities in Phase 2C at Sky Ranch, which is platted for 228 residential lots, 40 of which we have retained for use in our single-family rental business. Contracts with three of the four homebuilders in Phase 2C include milestone payments as construction progresses, with the fourth homebuilder having one payment due at the transfer of title of the finished lots. As of May 31, 2024, Phase 2C of the Sky Ranch development is approximately 22% complete. During the three and nine months ended May 31, 2024, we received $3.4 million and $3.4 million, respectively, which consists of the first milestone payments from the three builders with milestone payment contracts. We expect the second milestone and finished lot payment for Phase 2C, which totals $14.4 million, to be received over the next 14 months.

Current wording

payments as construction progresses, with the fourth homebuilder having one payment due at the transfer of title of the finished lots. As of November 30, 2024, Phase 2C of the Sky Ranch development is approximately 41% complete. As of November 30, 2024, we received $3.4 million, which consists of the first milestone payments from the three builders with milestone payment contracts. We expect the second milestone and finished lot payment for Phase 2C, which totals $14.4 million, to be received over the next 9 months.

Previous wording

We recognize revenue earned under these contracts over time using the percentage of completion method which aligns the recognition of revenue with the requisite progress made on construction activities. During the three months ended May 31, 2024 and 2023, due to the construction progress in Phase 2A, 2B and 2C, we recognized $4.8 million and $3.2 million of lot sales revenue related to construction at Sky Ranch. During the nine months ended May 31, 2024 and 2023, due to the construction progress in Phase 2A, 2B and 2C, we recognized $7.9 million and $5.1 million of lot sales revenue related to construction at Sky Ranch. Due to construction progress, we have recognized a total of $18.1 million of lot sales revenue since construction began on Phase 2A, $8.6 million of lot sales revenue since construction began on Phase 2B, and $2.1 million of lot sales revenue since construction began on Phase 2C as of May 31, 2024. We expect to recognize the majority of the remaining $0.3 million of revenue for Phase 2A before the end of our fiscal 2024, the remaining $8.6 million of revenue for Phase 2B over the next 9 months and the remaining $15.6 million of revenue for Phase 2C over the next 14 months.

Current wording

We recognize revenue earned under contracts with milestone payments over time using the percentage of completion method which aligns the recognition of revenue with the requisite progress made on construction activities. During the three months ended November 30, 2024 and 2023, due to the construction progress in Phase 2A, 2B and 2C, we recognized $2.3 million and $1.9 million of lot sales revenue related to construction at Sky Ranch. Due to construction progress, we have recognized a total of $18.3 million of lot sales revenue since construction began on Phase 2A, $16.7 million of lot sales revenue since construction began on Phase 2B, and $4.1 million of lot sales revenue since construction began on Phase 2C as of November 30, 2024. We expect to recognize the majority of the remaining $0.1 million of revenue for Phase 2A over the next 3 months, the remaining $0.5 million of revenue for Phase 2B over the next 6 months and the remaining $13.7 million of revenue from all four homebuilders for Phase 2C before the end of our fiscal 2025.

Previous wording

Remaining payments for lot sales and the related revenue for Phase 2D will occur as construction of that phase occurs. We believe it will take approximately three more years to complete construction and sell the finished lots in all four subphases depending on market conditions and the permitting process.

Current wording

Remaining payments for lot sales and the related revenue for Phase 2D will occur as construction of that phase occurs. We believe it will take approximately two more years to complete construction and sell the finished lots in all four subphases depending on market conditions and the permitting process.

Previous wording

In addition to the lot sales described above, from the start of development at Sky Ranch through May 31, 2024, we have received $22.4 million of water and wastewater tap fees from the homebuilders, which is for all 509 taps sold in Phase 1 (with four being allocated to our single-family rentals), 228 of 229 taps sold in Phase 2A (with 10 being allocated to our single-family rentals) and 18 of 211 taps sold in Phase 2B (with 17 planned to be allocated to our single-family rentals). The timing of tap sales is dependent on when homebuilders request building permits. Fees charged per water tap are dependent on lot sizes and average water usage across a broad range of housing product types including duplexes and townhomes. For Phase 2 in total, we estimate water and wastewater tap fees will exceed $20.0 million.

Current wording

In addition to the lot sales described above, from the start of development at Sky Ranch through November 30, 2024, we have received $25.0 million of water and wastewater tap fees from the homebuilders, which is for all 509 taps sold in Phase 1 (with four being allocated to our single-family rentals), all 229 taps sold in Phase 2A (with 10 being allocated to our single-family rentals) and 93 of 211 taps sold in Phase 2B (with five allocated to our single-family rentals and an additional 12 planned to be allocated to our single-family rentals). The timing of tap sales is dependent on when homebuilders request building permits. Fees charged per water tap are dependent on lot sizes and average water usage across a broad range of housing product types including duplexes and townhomes. For Phase 2 in total, we estimate water and wastewater tap fees will exceed $20.0 million.

Previous wording

During our fiscal 2021, we launched a new line of business we are referring to as our single-family rental business. During Phase 1 of Sky Ranch, we retained ownership of four residential lots for use in this business. As of May 31, 2024, we have completed 14 single-family homes on these lots which we own, maintain, and have leased to qualified renters under one-year lease terms. We have expanded our single-family rentals in our second development phase of Sky Ranch by building homes on lots we did not sell to our home builder partners, which we will rent out once completed. As of May 31, 2024, we reserved approximately 93 lots in Phase 2, 10 of which are in Phase 2A and are completed and rented as of May 31, 2024. Additionally, we have reserved 17 lots in Phase 2B, which we anticipate completing in fiscal 2025.

Current wording

During our fiscal 2021, we launched a new line of business we are referring to as our single-family rental business. During Phase 1 of Sky Ranch, we retained ownership of four residential lots for use in this business. As of November 30, 2024, we have completed 14 single-family homes on these lots which we own, maintain, and have leased to qualified renters under one-year lease terms. We have expanded our single-family rentals in our second development phase of Sky Ranch by building homes on lots we did not sell to our home builder partners, which we will rent out once completed. As of November 30, 2024, we reserved approximately 94 lots in Phase 2, 10 of which are in Phase 2A and are completed and rented as of November 30, 2024. Additionally, we have reserved 17 lots in Phase 2B, which we anticipate completing in fiscal 2025.

Previous wording

For the three months ended May 31, 2024 and 2023, we generated net income of $2.8 million and $3.3 million. The increase in lot sales revenue being recognized during the 2024 quarter was offset by a decrease in water sales to oil and gas operators for drilling purposes as well as tap fee sales due to timing of completion of lots in Phase 2B. Lot sales revenue is recognized using the percentage of completion method, which is based on progress of construction. Despite increased challenges on the housing market, our land development activities showed an increase in growth over last year as we began construction on Phase 2B and 2C at Sky Ranch, which we believe is due to our entry level pricing and affordable lot costs.

Current wording

For the three months ended November 30, 2024 and 2023, we generated net income of $3.9 million and $2.1 million. The increase was primarily due to an increase in oil and gas royalty income. Total revenue was consistent during the two periods. Lot sales revenue is recognized using the percentage of completion method, which is based on progress of construction. Despite increased challenges on the housing market, our land development activities continue to perform well and increased compared to the prior year period, as we continue construction on Phase 2B and 2C at Sky Ranch. We believe the increase in lot sales revenue is due to our entry level pricing and affordable lot costs. The increase in lot sale revenue was offset by a decrease in water revenue due to decreased water sales to oil and gas operators.

Previous wording

The tables below present our consolidated results of operations for the three and nine months ended May 31, 2024 and 2023.

Current wording

The tables below present our consolidated results of operations for the three months ended November 30, 2024 and 2023.

Previous wording

Three and Nine Months Ended May 31, 2024 Results Compared to 2023

Current wording

Three Months Ended November 30, 2024 Results Compared to 2023

Previous wording

For the three months ended May 31, 2024, total revenue increased as compared to 2023, primarily due from multiple on-going Phases in 2024. During the three months ended May 31, 2024 we were developing in Phase 2A, Phase 2B and Phase 2C, resulting in more revenue being recognized. The increase was offset by a decrease in our water and wastewater tap sales period over period due to the timing of new home construction and a decrease in commercial water sales for oil and gas operations. Lot sales are recognized using the percentage of completion method and due to increased construction activity in 2024, despite the increased challenges on the housing market, construction activities increased to provide additional lots to builders. For the nine months ended May 31, 2024, total revenue increased as compared to 2023, primarily due to a significant increase in oil and gas operations in our service area resulting in a substantial increase in commercial water sales as well as an increase in our lot sales revenue.

Current wording

For the three months ended November 30, 2024, total revenue increased as compared to 2023, primarily due to multiple on-going Phases in 2025. During the three months ended November 30, 2024 we were developing in Phase 2A, Phase 2B and Phase 2C, compared to Phase 2A and Phase 2B in the three months ended November 30, 2023, resulting in more revenue being recognized. The increase was offset by a decrease in our water and wastewater sales period over period due to a decrease in commercial water sales for oil and gas operations. Lot sales are recognized using the percentage of completion method. Construction activity increased in 2025, despite the increased challenges on the housing market.

Previous wording

For the three and nine months ended May 31, 2024, total costs of revenue increased as compared to 2023, primarily due to higher costs in the land development segment as we continued developing Phases 2A, 2B and 2C of Sky Ranch, and higher costs related to the delivery of water to oil and gas operators. Costs of revenue for the water and wastewater segment did not increase in line with revenue because the water sold to oil and gas operators was lower cost water resulting in higher profits versus traditional domestic usage.

Current wording

For the three months ended November 30, 2024, total costs of revenue increased as compared to 2023, and is primarily in line with the increase in revenue.

Previous wording

For the nine months ended May 31, 2024, water deliveries increased as compared to 2023 primarily due to increased water sales to oil and gas operators. For the three months ended May 31, 2024, water deliveries decreased as compared to 2023 primarily due to decrease of water sales to oil and gas operators.

Current wording

For the three months ended November 30, 2024, water deliveries decreased as compared to 2023 primarily due to decrease of water sales to oil and gas operators.

Previous wording

For the three months ended May 31, 2024, municipal water usage was consistent with 2023. Commercial water usage revenue decreased for the three months ended May 31, 2024 compared to 2023 due to decreased water sales to oil and gas operators. For the nine months ended May 31, 2024, municipal water usage revenue increased over 2023 mainly due to increased residential customers at Sky Ranch. Commercial water usage revenue increased for the nine months ended May 31, 2024 compared to 2023 due to increased water sales to oil and gas operators.

Current wording

For the three months ended November 30, 2024, municipal water usage was consistent with 2023. Commercial water usage revenue decreased for the three months ended November 30, 2024 compared to 2023 due to decreased water sales to oil and gas operators.

Previous wording

For the three and nine months ended May 31, 2024, wastewater treatment fees increased slightly as compared to 2023 primarily due to new Sky Ranch customers.

Current wording

For the three months ended November 30, 2024, wastewater treatment fees increased slightly as compared to 2023 primarily due to new Sky Ranch customers.

Previous wording

For the three and nine months ended May 31, 2024, water and wastewater tap sales decreased compared to 2023 due to less available finished lots at Sky Ranch in 2024. Tap sales are driven by builders obtaining building permits in anticipation of home closings.

Current wording

For the three months ended November 30, 2024, water and wastewater tap sales increased compared to 2023 due to the timing of finished lots at Sky Ranch in 2025. Tap sales are driven by builders obtaining building permits in anticipation of home closings.

Previous wording

For the three months ended May 31, 2024, lot sales revenue increased as compared to 2023 due to timing of development activities and beginning of field construction on Phase 2C in 2024. For the nine months ended May 31, 2024, lot sales revenue increased as compared to 2023 due to having three phases under construction (Phase 2A, 2B and 2C) in 2024. Per lot revenue is expected to increase as we complete each of the four subphases of Phase 2. Revenue for builder contracts is recognized over time with progress measured under the percent of completion method; therefore, revenue will fluctuate due to timing of construction activities throughout Phase 2.

Current wording

For the three months ended November 30, 2024, lot sales revenue increased as compared to 2023 due to timing of development activities and the inclusion of field construction on Phase 2C for the three months ended November 30, 2024. Per lot revenue is expected to increase as we complete each of the four subphases of Phase 2. Revenue from builder contracts is recognized over time with progress measured under the percent of completion method; therefore, revenue will fluctuate due to timing of construction activities throughout Phase 2.

Previous wording

For the three and nine months ended May 31, 2024, land development construction costs increased compared to 2023 due to fluctuations in construction activity and revenue recognized during the periods compared.

Current wording

For the three months ended November 30, 2024, land development construction costs decreased compared to 2023 due to fluctuations in construction activity and the percentage of public improvement activity that occurred during the quarter.

Previous wording

As of May 31, 2024, our working capital, defined as current assets less current liabilities, was $19.6 million, which included $20.4 million in cash and cash equivalents. All our cash is maintained at high-credit quality institutions and overnight investments are made into an insured cash sweep program which provides FDIC insurance for our entire cash balance through the banks in which our cash is being held. We believe that as of May 31, 2024 and as of the date of the filing of this Quarterly Report on Form 10-Q, we have sufficient working capital to fund our operations for the next 12 months. Our expected obligations for the next 12 months are described below.

Current wording

As of November 30, 2024, our working capital, defined as current assets less current liabilities, was $20.3 million, which included $19.0 million in cash and cash equivalents. All our cash is maintained at high-credit quality institutions, and we follow a diversified investment approach for our cash and cash equivalents by maintaining such funds with a portfolio of banks in high quality, highly liquid, short-term deposits and investments, to mitigate banking concentration risk. We believe that as of November 30, 2024, and as of the date of the filing of this Quarterly Report on Form 10-Q, we have sufficient working capital to fund our operations for the next 12 months. Our expected obligations for the next 12 months are described below.

Previous wording

Phase 1 of the Sky Ranch development is complete, Phase 2 began in February 2021, which is being done in four subphases, of which Phase 2A, Phase 2B and Phase 2C are being actively developed as of May 31, 2024. We estimate total costs to complete the infrastructure (including public improvements) for all 874 lots in Phase 2 to total $74.6 million. Of this, we anticipate spending up to $19.6 million in the next 12 months, and we anticipate receiving approximately $26.3 million in milestone payments from our builder customers and completed lot payments. Additionally, we will received tap fee payments from our builder customers over the same period. The amounts we expect to spend and receive in the next 12 months are dependent on the pace of construction in Phase 2A, Phase 2B and Phase 2C. We believe water and wastewater tap fees as well as progress payments from our homebuilder customers and our existing cash balances will fund our obligations for the next 12 months.

Current wording

Phase 1 of the Sky Ranch development is complete, Phase 2 began in February 2021, which is being done in four subphases, of which Phase 2A, Phase 2B and Phase 2C are being actively developed as of November 30, 2024. We estimate total costs to complete the infrastructure (including public improvements) for all 886 lots in Phase 2 to total $80.9 million. Of this, we anticipate spending up to $26.5 million in the next 12 months, and we anticipate receiving approximately $21.4 million in milestone payments from our builder customers and completed lot payments. Additionally, we expect to receive tap fee payments from our builder customers over the same period. The amounts we expect to spend and receive in the next 12 months are dependent on the pace of construction in Phase 2B, Phase 2C and Phase 2D. We believe water and wastewater tap fees as well as progress payments from our homebuilder customers and our existing cash balances will fund our obligations for the next 12 months.

Previous wording

In calendar 2024, we anticipate entering into a contract with national home builders to construct 17 rental units at Sky Ranch in Phase 2B and 40 rental units at Sky Ranch in Phase 2C to be used in our single-family rental business. The contracted construction costs for all 17 units in Phase 2B will be approximately $6 million. As of May 31, 2024, we had incurred less than $0.1 million of these construction costs. We anticipate incurring and financing the majority of the remaining cost for Phase 2B rental units in calendar 2024.

Current wording

As of November 30, 2024, we have entered into contracts with national home builders to construct 17 rental units at Sky Ranch in Phase 2B. The contracted construction costs for all 17 units in Phase 2B will be approximately $6 million. As of November 30, 2024, we had incurred $0.3 million of these construction costs. We anticipate financing the majority of the remaining cost for Phase 2B rental units in fiscal 2025.

Previous wording

For the nine months ended May 31, 2024, we used cash as follows:

Current wording

For the three months ended November 30, 2024, we used cash as follows:

Previous wording

Our critical accounting policies and estimates are described in “Critical Accounting Policies and Estimates” within Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 of our 2023 Annual Report. The accounting policies and estimates used in preparing our interim consolidated financial statements for the three and nine months ended May 31, 2024 are the same as those described in our 2023 Annual Report. There have been no changes to our critical accounting policies during the three and nine months ended May 31, 2024. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the interim financial statements included in this Quarterly Report on Form 10-Q pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. The unaudited consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto in our 2023 Annual Report.

Current wording

Our critical accounting policies and estimates are described in “Critical Accounting Policies and Estimates” within Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 of our 2024 Annual Report. The accounting policies and estimates used in preparing our interim consolidated financial statements for the three months ended November 30, 2024, are the same as those described in our 2024 Annual Report. There have been no changes to our critical accounting policies during the three months ended November 30, 2024. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the interim financial statements included in this Quarterly Report on Form 10-Q pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. The unaudited consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto in our 2024 Annual Report.