Greetings, and welcome to the Pure Cycle Corporation Three and Nine Months ended May 31, 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to our host, Mark Harding, President and Chief Executive Officer. Thank you, sir. You may begin.

Thank you, and I would like to welcome you all to our third quarter earnings call. Just some housekeeping issues; as you are all aware, there is a deck for this call. It will be on our website. So, you can find that at purecyclewater.com. There is a couple of places to find it, they will be on the landing page where you can click on the third quarter conference call or you can navigate over to the investor page and I think it's there as well. What I'll try to do is I'll go through the presentation and I'll note the transition of the slides, so you can kind of walk through the presentation with me. Much like our previous calls, I'm going to probably skip over pretty quickly a lot of the history. I think most of you are familiar with the history of the company. To those of you who are new to the company, our website has some pretty good tutorials on that. There's a couple of good webcasts on there that will give you some listening time to get a lot of color about sort of how we got into the business, some of the assets that we've acquired through the years, and how we're kind of undertaking what it is that we're undertaking. So, you can combine that with some of the details on kind of keeping investors current through these quarterly calls. So with that, I'm going to go ahead and start. And as usual, I'm going to get the lawyers out of the room first and talk about our Safe Harbor statement and statements that are not historical facts are contained or incorporated by reference in this presentation are forward-looking statements. I'm sure you're all familiar with the forward-looking statements. Actual results…

Thank you. [Operator Instructions] Thank you. Our first question comes from Geoffrey Scott with Scott Asset Management. Please state your question.

Good afternoon, Mark.

Hi, Geoff. How are you?

Good. Thank you. I had to hop off for a minute or two. I hope I didn't miss it. Could you talk about the commercial development, the timing of it and kind of what your expectations are for the - what's going to move in there. Thanks.

Yes. Good call. Good question. The key element of commercial, where you're selling lots, you might be selling large lots, a couple lots to the acre, that type of stuff. When you really get a good commercial development, you sell your land in the square foot range. One of the things that the company recognized is that it did not have adequate expertise either at the managerial level or at the board level to evaluate commercial deals. So, our newest board member Mr. Jeff Sheets certainly brought with him about 25 years of Denver based commercial real estate development expertise. So, we're very delighted to welcome him to the board and his recruitment was very specific to that opportunity. Geoff, we really wanted to make sure that the company does capitalize on that. If I were really to highlight one of the advantages of being debt free is the fact that we have the flexibility to be patient on the commercial stuff and realize the significant value, the full value of that. We’re -- we've been approached by a number of folks that have had an interest in the commercial development, but they've been the type of players that would buy it and then sell it to somebody else, who specialize in commercial real estate development as opposed to actually developing the commercial real property. And so, we would like to eliminate that middleman by bringing on someone like Jeff with some expertise to do that. I would say that we're probably -- maybe a year out from being the guy in getting the commercial real – the commercial accounts that have an interest in there, and that's mostly because of trip traffic and things like that. So, as we start to balance out the rest of Phase 1, say…

But really the commercial development won't start for another year or so?

That's my hunch. Given the level of conversation that we've got, I I think that's still about a year out.

Okay. Thanks.

Yes.

Thank you. Our next question comes from Greg Malakowsky [ph]. Please go ahead with your question.

Hey, Mark. How are you?

Great. How are you?

Good, good, good. Just a quick question or first the comment that I had, do want to agree with the comment what you're talking about regarding the denominator, and just in general, the handling of shareholder resources. I think it's, it's definitely been a strength of the company and something that you guys have done a good job with. In respect to that and where we stand, I was just curious if maybe you could shed some light on where you're leaning in terms of, if there are acquisitions where is it more on the land side? Is it more on the water side? Are there other assets that you're kind of looking at, trying to plug into the equation. And also, I guess tangentially related to that, if you've seen any sort of shifts starting from, I mean, Denver is obviously different from New York city, but there's been talk of virus related kind of effects where people are maybe looking to potentially move out of the city to more suburban or rural areas. And if that's something that maybe you're seeing starting to come into effect in, in the area where you guys operate.

I'll take the latter part of that first, and then talk a little bit about, where our nets are out on terms of acquisitions. I think, Greg, we're probably very typical, maybe even slightly weighted to a continued suburban development model. The west, Denver particularly, but when you take a look at the bigger cities and I would not compare Denver as a big city compared to New York and some of the larger metropolitan areas, but for Colorado being the largest city in Colorado, we look at that as an urban center and it took eons , I mean, really haven't had any urban development until maybe the last 10 years where you started to see, significant multifamily projects pop up downtown, and those were -- those were long in coming and slow in acceptance. And then, I think, and this is just my crystal ball, but I think you're going to see the very same trend is that a lot of those folks, and maybe they were young, cohabitation, dual-income folks that, that started out because they wanted that, that urban lifestyle, they wanted to be downtown. They wanted to have the restaurant scene, and now as they start to mature up in the millennial segment that they really want to start to take a look at families and our -- and really we get this from our developer, from our builders too, is that they've got a lot of people who come out to look because they're climbing the walls, being locked in and finding that 700 to 800 square feet isn’t enough space when you have to be there all the time, and you have, one or multiple people working from home. And so I think that a lot of our June traffic and really the…

Okay. That's a helpful. I guess just one other kind of question relating to the jump in terms of actual household, there are people living at the community. Is that again, going quarter-over-quarter and in terms of forward-looking, is there any sort of delay incorporated just through obviously things being shut down and whatever was going on in, March, April and May is that really just more dependence on things relating to the builders and home closings versus being literally shut down from a government perspective?

I would say, we -- what our experience is that, while we did have slower closings in April and May that those buyers that would have otherwise been closing in April and May, just rushed to the site in June, so we didn't lose any. So it was just kind of a timing difference. And you may not notice it just because it occurred in a quarter, but no, I would not say that we've seen any decrease in traffic or contracts from, if you look at this schedule instead of quarter-over-quarter, year-over-year. In fact, I would say that the virus is going to be accelerating some of that demand. And that's what our builders are preparing for. It used to be that they would never develop spec homes and they always wanted to sell a home before they would actually start construction on it. And they're pulling taps and they're pulling building permits in anticipation of doing spec homes right now, just because they're getting a premium for being able to deliver those homes. So each of the builders are, I've been surprised that, given the level of traffic and they not -- they didn't like pump the brakes. They actually moved over to the pedal, the gas pedal on that.

Okay. All right. No, that's helpful. Thank you for your detail and again, obviously your awareness of, the needs to be disciplined and just the way you guys generally have handled the company, I think is excellent and worth mentioning, especially even earlier in the call. Just I don't think I've ever really heard, any executive at a company say, well, we just didn't really have the experience here. So we waited and we brought somebody in, I think that shows a great deal of humility, and it's pretty awesome from a shareholder's perspective. Usually you get a bunch of arrogant what about -- a different approach than that. So I think you guys are doing the right things. I think you're being disciplined. And again, just being very careful with the resources available, and I think that's going to continue paying off. So I want to say thank you and I'll jump back in the queue.

Thanks. I appreciate that. I live with four women, so I'm very accustomed to being told what I'm not good at.

Thank you. [Operator Instructions] Our next question comes from Tucker Andersen with Above All Advisors. Please state your question.

Hi, Mark.

Tucker, good to hear from you.

Thanks for all the good news. And as someone who participated in your last round of equity race, I can attest that you have been true to the disciplines your center would exhibit. And I guess my only disappointment is I didn't hear on this call that you were about to make the next Sky Ranch acquisition yet.

I was hopeful that I would have that on this call too, but they just didn't quite, it just didn't quite pan out. But it's we do have our nets out and while I doubt that I could find another Sky Ranch, I mean we acquired that at a scary time, which you actually helped us with. Thank you very much. We acquired that in 2010 and we acquired it when nobody wanted land. And I -- while I think a lot of people want land today and I want to be part of that and I'm going to be competitive for that. I'm not going to be as Greenspan would say irrational exuberant in how I spend your money. So we'll be opportunistic, we'll be optimistic but we won't be over irrational about it.

Yes. Couple of questions. First, could you give me a little more background on the commercial development two -- in two ways. One is a lot of the commercial development that you envisioned knowing that it depends on who shows up what I would call inward facing is it going to be commercial to serve Sky Ranch, or is it also going to be dependent on that location you talked about and will a lot of it be looking beyond the Sky Ranch community as part of their commercial area of service. And along with that, are you fully looking to monetize the commercial assets or would you be amenable if it seemed like a very good deal to a long-term ground lease on some of those.

Yes, I would be amenable to a long-term ground lease. We do like that recurring revenue and we like to stay in the game in terms of increasing the value of the property. So as we continue to invest in the community and do what we do to make it an attractive place, those ground leases, I think become attractive to you because you do get some appreciation on the real estate over a period of time and you still monetize it at a point in time. So I like those types of opportunities. We'll see how those play out. When you take a look at, where we pull from for our commercial, certainly the interstate gives us a tremendous advantage. It gives us the ability to impact from, from really more than five mile radius to the property and while 3,500 single-family units, that's a lot of density to be able to draw some of that commercial, because we have good transportation access, we'll be pulling from that sooner than the build-out of our property. Well, I think our property will create a tremendous demand at that commercial center. I think all the properties around us and the access that we provide there with our interchange gives us leverage for a broader market segment that that really will be in advance of building out our community itself. So play -- play it both ways. I think we get advantage from pulling customers from other projects and other properties miles away from our project until our project creates enough density, where we overwhelm the commercial development and hanging in there later phase on some of that stuff where we can still have some of that stuff in our pocket can continue to add value as we add density. So that's the real play. And that's what we've tried to learn from, our new director as to how to best -- look at this from a value where we can actually, have that asset where we have no debt to it. So, it's an appreciating asset and while it's not monetized for all of us to kind of Mark that to the market, I think we'll continue to show that in smaller transactions where the per square foot in the triple net lease opportunities continue to demonstrate value.

And my other question is a little more color on following residential developments. And I wasn't sure whether you were saying that the further developments you may see price points both above and below where you are now to the extent there's going to be multifamily, it takes like that in terms of the terms of a move in and how you think those price points might expand. You probably have some ideas that you are in discussion with people for the next phase

We do. We do. And so, yes, we will have detached product at a price point that'll be at and above. We'll have detached product that will actually be below because there'll be smaller lot sizes. So, you may have a 1,600 square foot house on a 32 foot lot as opposed to a 2,200 square foot house on 45 foot lot as opposed to a 2,700 square foot house on a 50 foot lot. So variety of product segmentation, and then taking a look at sort of the townhome and the attached duplex markets. Again, you'll start to see some product being the very low threes, maybe even starting in the high twos on a townhome type product that may roll up into a, three tan or something like that for that type of offering as opposed to a detached product. So it really is -- it's reaching, it's continuing to reach other buyer segments in this in kind of that entry-level market, other than just the detached segment.

Sounds exciting. Keep up the good work. I'm [indiscernible].

Well, I look forward to getting back to those muffin tops at the Harvard Club.

Anytime.

All right.

Thank you. Our next question comes from Elliot Knight with Knight Advisors. Please state your question.

Hi, Mark.

Elliot. Good to hear from you.

Well, this is very much like old home week to hear Tucker's voice on the phone. Smith Barney, alumni, both interested in this fine company. Sitting here listening to you having said how Phase 1 is selling out and is ahead of schedule. And then listening to you outline what certainly sounds like better-than-expected perspective demand for Phase 2. It begs the question as to whether or not you would be interested in or the builders would be interested in, or even if it's physically possible to accelerate the pace at which you move? Right now you're talking about grading fall 2020, lot delivery winter '21 any possibility of accelerating that timetable?

Great question. And I would love to be able to do that as would they. This is -- this will be the unintended consequence of the virus. Well, I think the private sector reacts very quickly, the public sector does not. And so if I was to limit any frustration and I mean I don't want to beat up on our local governments there, they're doing a terrific job. But working remotely for the county government and some of our storm water management agencies and things like that, the turnover of deal -- of drafts and comments far, far -- probably tripled, whereas something may have taken months it has taken 3 months. And so it hasn't been us that's deferred this to the November timeframe. We would have loved to have been in the ground late this summer and had fully intended to be, but it just -- that's one of the burdens that we have to bear on this.

Okay, understood. Thank you.

Yes.

Thank you. There are no further questions at this time. I'll turn it back to Mr. Harding for closing remarks. Thank you.

Well, again, I want to thank all of you. And I know a number of you have been with us for a long time. Certainly tracking us participating in all of the things that we've done with a high degree of patience to allow us to show you how we can monetize all this stuff and show you where the value is in our water assets and how those can actually enhance the value of land here in the arid west. And so I've been thrilled to see this thing mature to this continued cycle. I've got a lot of wind in our sale. I've got a terrific leadership, I think the company is right sized. We've got a terrific management team. We've got a terrific construction crews that have helped us deliver this project within budget and be able to pick up new tools for our toolbox to be able to do more in the next phase to make our costs and our margins much higher. So thank you for that. Thank you for your patience. Thank you for your continued support. We were going to try and have an Investor Day this summer, but with travel the way it is, the folks that are here local do call on me and do come out and see this. I continue to encourage you to come out and see it because it is darn impressive how this thing is greening up and the community with people. And it's impressive because with more people at home, you see more people than you would otherwise in the community. And the feedback that we've gotten from residents in the community, because they see our trucks, they see our guys and we're a disciplined, the guy that is laying some pipe or working on…

Thank you. This concludes today’s call. All parties may disconnect. Have a good day. Thank you.