Good day, ladies and gentlemen, and welcome to the Pure Cycle Corporation Second Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mark Harding, President and CEO. Sir, the floor is yours.

Thank you. Good morning, and I’d like to welcome you all to our second quarter of our fiscal year 2022 earnings call. We do have a deck to this presentation, which you can find on our website. So, if you go to purecyclewater.com and on the Investors page, right on the front page there that will tell you -- an icon in there that says click to join, if you could join on that. I’ll be able to direct the slides to walk you through the presentation, but that will give you kind of a little bit more tangible view of the earnings call as a whole. With me today -- you all hear my voice a lot, and so what I’d like to do is actually bring in some other voices to the call today and the folks within the organization that make things happen. We’ve got a very deep bench with some very talented folks here in the company. And so, as part of the update to our land development activities, you’ll be hearing from the Vice President of Land Development activities, Dirk Lashnits. And he’s got over 25 years of experience on land development activities, a tremendous amount of experience with some of the major homebuilders, some of them are direct partners in Sky Ranch. You’ll also be hearing from our CFO, Kevin McNeill, and he’ll be giving you an update on the financial results of the company. What I’d like to do is give you -- for those of you who are new to the company, just provide a high-level overview of kind of the land development and water and single-family rental business aspects of it. For those of you who are more familiar with the company, really highlights some of our tremendous accomplishments and really…

Good morning, everyone. I’m Dirk Lashnits, I’m the Vice President of Land Development. I’ve been at Pure Cycle here for about five years, since the onset of Sky Ranch. And as Mark mentioned, I’ve been doing development in the Front Range, Colorado for the last couple of decades. We worked on a lot of big projects around, as you may have heard of Highlands Ranch or Stapleton. [Ph] And the 930-acre site here at Sky Ranch is considered a pretty large development in the overall market area. So, on the slide here, developing 930 acres of Sky Ranch, the 3,200 residential lots kind of tying back, this is really development, kind of our vertical integration of our water assets. We’re developing our new water customers. So, on the previous slide, we saw some assets, 60,000 SFEs of water available. And this would be about -- it equates to about 3,200 of those SFEs and basically 1 lot equals 1 SFE roughly, so an average house. And you also saw the 29,580 acre feet of water, how that translates to our usage out of Sky Ranch. Sky Ranch also has a large commercial parcel that has great frontage on the I-70 corridor, the major east-west thoroughfare through the metro area. And then, our project is located on the east side of Denver, about a 20-minute drive in the town. All right. So, picture on the screen is of our first phase. This is 509 lots. We’ve sold off, transferred all 509 of them. We have 505 of those were sold to our builder partners that are shown on screen here, that’s KB, Taylor Morrison and Richmond. And then, we’ve retained 4 lots and are doing best for our build-to-rent segment. 3 of those have been completed and have tenants and are…

Thanks, Dirk. So, yes, Kevin McNeill, CFO, have been back for a couple of years now. So, the slide that’s up right here shows how these phases of Sky Ranch develop. Three of the contracts that we have with the builders are under milestone payments, which means we get paid along the way as we complete certain things, like wet utilities, streets and roads and all that. So, this really summarizes what we’re doing in the four phases. As Dirk noted, the second phase is broken into four distinct phases that we’re developing one at a time. We may overlap them here in the -- coming up in the market. But this really shows a breakdown of the revenue, lot revenue, tap revenue and reimbursable by those four separate phases and how they roll through. The second phase is progressing nicely. We’re about 57% done in this first sub phase. So now, the next slide will show where we’re at in this current sub phase, which, as Dirk noted, was about 219 lots sold to homebuilders, 229 in total, 10 of those were keeping for our single-family rental division. And what they do is they take these down in pieces as we complete stuff, like I said on the last slide. So, the first two takedowns are complete, which is platted lots and wet utilities. And then the third one is coming up which will be finished lots, which will be the three builders that are under milestone payments. And then the fourth builder, which takes -- which is DR Horton builder, they take finished lots. So, they’ll buy all their lots at one time. They don’t make milestone payments. They did pay a premium for it, to have that because we obviously take a little more risk during the development stage. And so you can see then the slide, the graph at the bottom really summarized what the different builders are building and what the lot types are because in this phase, we have a lot more different products than just front-loaded standard, the detached homes we got townhomes and we got paired homes and all those homes. So this hopefully gives you a good summary of what the different builders are building out there.

I might take it back and talk a little bit about some of the single-family rental market. And one of the things that we took a look at was how we can continue to add value to the assets that we have. And to cover this a little bit, one of the options for us is we, as a developer, are creating value in the community by what we’re doing on the horizontal land work. We’re doing a lot of the streets, curbs, gutters, but then also a lot of the amenities to the parks, the landscaping, the trails, and really amenitizing the overall product. And that’s adding value to what it is that we’re looking at out there. And so, one of the things that we thought was that as we continue to build that value, is there an opportunity for us to continue to grow the asset value as well as the income potential. And so, we took a look at that single-family rental market. And really, the dynamics of it are very compelling for us. There’s a lot of big players that have entered this market. They’re entering the market by just buying homes out there. They’re starting to get into the fact where they’re looking to buy lots and then build on those as well so that they can vertically integrate that as well. But we like it because we’re carrying forward a lot of the equity value that we have in the land itself as well as the water utilities. And so, when we’re bringing a new home on the market, we’re building that on a lot that has tremendous value in it, and how we parcel this out. I know a lot of you that are familiar with the company have asked how we…

All right. Thanks, Mark. Now for the fun stuff, the numbers. So, the top 3 graphs show 3 of the -- obviously, operating metrics that everybody looks at, revenue, operating income and net income. And what we’re looking at is for the 6 months ended February 28, 2022, compared with the prior four years just of the same periods, just to give you an idea of where we’re trending. If you look at the revenue, obviously, the 2020, the second quarter of 2020, that’s really where we started selling homes and most of the lots and taps in the first phase. So, that’s why that big jump in there. If you look at this year over last year, the same -- the quarter-over-quarter, it looks like there’s a slight decline. But last year had about $1.5 million in project management revenues that we recognized from prior years that at the time until last year, we didn’t think they were collectible based on Sky Ranch just getting started and the Metro District growing. Last year, we determined they were collectible. We recognized some project management fees that weren’t recorded before. So, that was about $1.5 million. So, if you factor that out of last year’s numbers. This year actually increased a bit by just over $1 million, which is really because Phase 2 has come on board. We had a tremendous quarter in terms of water revenue, which I’ll talk about a little further down the slide. Operating income remained consistent or right around that $3 million mark. Again, last year was slightly impacted by that project management fee. So, it has increased -- and then net income is the next big one. And it looks like we did an amazing job last year and something is going on this year,…

Before I do that, Kate, let me let me close and really kind of accent a couple of things. One of the things we’re really seeing continued execution and performance here. And often times, to somebody new to the stock, you would look at this thing and say, how are they doing this? How is it that we can generate this kind of income of the asset base? And it’s really because these are legacy assets that we’ve accumulated a number of years ago. And they are very good assets. I mean, when you take a look at inflationary times, one of the things that you want to see is hard assets. And this company is probably going to be well positioned in a hard asset play as you can get with land, water, which is one of the most sticky assets, sticky customers that you get because you have to have that water, you’re going to make sure that you continue to pay your water bills and then also single-family rental. And so, we like each of those segments. We’ve got tremendous growth in each of those segments. And so, we’re pleased to be able to really start to deliver shareholder performance. And as you saw the continuing results, one of the things that we’re pleased about is that we’ve got kind of this pattern of revenue recognition together with our development activities. Kevin was talking a little bit about how some of that started last year with the recognition of our reimbursables and what we see with the reimbursables are as we continue to add assessed values, so the homes that get built there, we have the recoverability of that through property taxes and fees that homeowners are paying. So that’s a tremendous opportunity for us to not only capitalize on how we deliver these lots to our homebuilders. The key thing is not only is the company doing well on each of these lots, but so are our homebuilder customers doing well. They’re getting a tremendous value in the appreciation of the lots and they’re delivering their home value. And we’re very pleased that they’re doing well. We’re doing well. The community is doing well. And so, this partnership of us together with national homebuilders is really executing very well. We have a great team behind us with Dirk and Kevin and the rest of the folks within the organization that keep us going day-to-day and making sure that the company executes and stays focused on what it’s doing. So, with that, we’ll turn it back over to Kate. And if you’ve got some questions, we can try and drill down on some of the specifics of what we’re doing.

Thank you. [Operator Instructions] Our first question today is coming from Elliot Knight at Knight Advisors.

Inflation is much in the news. Would you talk a little bit about how rates are being set for cap fees and monthly rates, what’s the process? What do you think the outlook is for increases from here on to protect against inflation? That’s question one. And question two is, would you give us an update of the status of the two reservoir sites the Pure Cycle controls? Thanks.

Okay. Sure. So, rates and charges for water, and we have kind of two sets of charges there. We have the capital fee, which are tap fees, which are connection charges. Those are paid by the homebuilders. They’re paid at the time of building permit. And they’re very large sheets. You take a look at $32,000, that’s a big chunk of capital that really pays for us developing our system. And the nice part about these assets are that we’ve been able to stay ahead of the infrastructure on this. So, a lot of investment has been made into that system to be able to keep us delivering that water and without any debt. And if you look at why we do what we do or how we do it so well is because we do not have debt. And we’re able to invest in those systems incrementally. We’ve been very disciplined about that. Tap fees are set really -- we have two mechanisms for setting those tap fees. In our service area, those are governed by our agreement with the State of Colorado. And those have to be an average of surrounding water providers. So, we take a look at where those water providers are developing their tap fees and the cost of developing and delivering and bringing that water to their customer base. And as you might imagine, all of the closed in water here in the state of Colorado has been developed. It’s been developed years ago. And each incremental development has to reach farther and farther out for water supplies. And that’s typically going to be reflected in the tap fees. And so, when we set our rates and charges comparable to those entities, that really does translate into the incremental cost of developing those water…

The reservoirs.

The reservoirs. That’s right. An update on the reservoirs. So, we have two very significant assets in these reservoirs. And really those are embedded value within the water utility itself. And Colorado is unique because not only do we not get very much precipitation on an annual basis, when we do get it, we get it very quickly, right? Mother Nature does a great job of storing that water for us all winter long. But we get it over a six-week period in the spring, in the spring melt. And the challenge for us here in managing the supply versus the demand is that supply is available to us far ahead of when our demand comes in. And so, being able to store that is a very unique opportunity. And these are two reservoirs that are what we call non-jurisdictional reservoirs. That’s a bit of an inside baseball talk about how you look at the time line and the permitting needs for getting those reservoirs built. We have interest from neighboring water providers and regional water providers to be able to participate in those developments and we continue to explore those. I would say, there’s not -- there’s nothing that I can point to tangibly on the scale other than we continue to work with our partners at the South Metro with the WISE system, which is what we have a portion of our water supply and developing those assets as conjunction with all of the other elements that the partners are working on, on other water supplies and treatment systems and water quality systems as well as our neighboring providers in the Denver area. So, it continues to be a significant asset for us. We continue to explore not only how we’re going to use that for our own purposes, but for regional purposes.

Okay. Going back to the tap fee though, do you see tap fees going up this year?

They will go up. We do notice our customers. They’ll probably be -- I think we’re looking at -- we’ve built in a tap fee increase of around 2.5%, a couple -- I think a year ago, so we had that incrementally in there. I think we’ve seen a higher appreciation in our surrounding water providers growth to that. But what we look to do is we continue to increase those so that we don’t have this very large increases followed by flat level increase. We want to keep that kind of increasing year-over-year.

[Operator Instructions] Our next question today is coming from Bill Cunningham with Seeking Alpha.

So yes, I’m a private investor, but I do write occasionally for Seeking Alpha. So, that description might have not been 100% perfect. In any case, your earnings this quarter were okay. But there -- if somebody is looking at the number, they’re not going to be blown away by it. But I think what might not be recognized, and correct me if I’m wrong, is that you’re kind of in a trough now where Phase 1 has basically been almost done and Phase 2 is just about to ramp up. So, the GAAP numbers don’t really fully reflect where you are right now.

That’s a fair statement. And one of the things that I think is important to highlight is that we have a number of options in generating revenues through the company. And we do have some seasonality in delivering lots in the land development business. We do have kind of weather in Colorado that prohibits a lot of the outdoor activity. We do develop. We do construct year-round. But it’s very difficult for us to get some of that pavement and concrete down in the winter months. And so, we were very fortuitous in getting all of the -- sort of the utilities and all the dirt work done in the winter time frame, both coming right up to the spring deliveries. And as you saw in that drone footage of kind of the aerial of Phase 2, we’ve got a number of roads and alleyways now. So you’re going to see tremendous activity. We still feel that we’re on pace to deliver all 229 lots. So, when you take a look at how those numbers are going to roll in, they do roll in more towards that finished lot phase with that lot delivery. We have two types of contracts. We have the incremental payment contract with three of our builders and then the finished lot delivery with one of our builders, and it really optimizes how we’re able to cash flow some of that stuff. And quarter-over-quarter, you might see us invest a bit more in our construction in process. But year-over-year, you’re going to see that continued growth. So yes, we had great revenue from oil and gas opportunities, while we were working through the winter months and positioning ourselves for a lot of the finished lot deliveries in the spring and summer. So, you will see that acceleration in Q3 and Q4.

Yes. Well, I even know with your projections even from last quarter, you were showing that kind of the revenue from the lot sales as you were finishing lots, were going to be relatively low now, and you’ve got a kind of a bigger number for a couple of quarters away, which is even your current slide show that. So, this is -- this shouldn’t be a surprise to anyone, but...

No, very predictable. You’re right. And really, the important part is one of the things that give us the flexibility of doing this is the liquidity of the company, that we have a great cash position that we have the ability to invest in those execution of the line -- the business lines and making sure that we can capitalize on efficiencies and delivering that. And so that’s why you see a little bit more investment in the winter months and then a little bit more returns as we roll into the spring and summer deliveries.

And then also, I guess anybody who’s been a long-term investor of Pure Cycle knows you have a lot of assets that have not yet been monetized. I know some of your short-term investors would like you to monetize them immediately. Even some of your longer-term investors would like you to monetize them sooner rather than later. But they also, to the extent they’re not being monetized or sold, they’re also increasing in value, I believe. And as we were listening to the conference call, I think the last year’s CPI number was 8-plus-percent. You’ve got land assets that you haven’t monetized yet. You’ve got the water rights you haven’t monetized. And even though you haven’t monetized the map, they’re basically increasing great inflation hedge, I think every year.

The challenge, when you take a look at this is that we do have these tremendous value assets that are recorded at the book value. And so, a lot of times, when you see us posting up these great returns, when we sell an asset, it’s hard to see the predictability of that on a quarter-over-quarter or year-over-year basis because until you actually do that and print that sale, you can’t recognize that revenue. But then, that makes a question for folks, when they say, well, how is it that the company is going to generate that kind of returns off of this what we would show on the balance sheet is a relatively modest asset, was just because the cost basis that we have and the time that we’ve accumulated those and continue to develop those assets.

And finally, can you go through what the status is with the models being built in Phase 2, and what’s happening there? You haven’t really mentioned much about that.

Yes. So, we’ve got four builders, each of the builders have three model home permits where they can do field construction. I’d say, KB was the most aggressive getting out there prior to some of the roads being finished. And so, they were out there that we do have a model home up for KB. We’ve got foundations being started for the other three builders. I think model homes for most of the builders, they’re looking at a thing -- look, we just want to get in production. We want as many building permits as we can get as fast as we can get them. And really, that’s a testament to the strength of the housing market here in Denver. We have -- while you can see and the press really continues to report the price appreciation of average home values here in Denver continue to grow, and it’s expensive. And the thing that we like is that we’re kind of an entry-level product basis. And it’s hard for me to say that a $400,000 home is an entry-level home. But when you compare that to the average home value getting close to $700,000, we are ideally positioned for continuing to develop these because there’s not a lot of that product in the market. So each of our homebuilders really are looking to pull the stops out and get as many permits that they can as fast as they can. And really, now that we’re -- we’ve got all our roads up and access and fire access and everything completed to that, it’s really just processing. So I know each of them have got not only their model permit in, but also starting to get their production home permits in. So, you’re going to see a tremendous amount of activity, which brings me to another thing that I wanted to mention is to let you all know that we will have an Investor Day this July. It will probably be just after the 4th of July. So, look for an opportunity for us to send that out into the market here in the next month or so. And if you can join us, you’re going to see a tremendous amount of activity on the site. It gives you really a tangible view of not only how we’re executing, but also how each of the components of this fit together, how the water fits together with the land development fits together with the single-family rental.

Great. Thank you, Mark. And I have attended most of your Investor Days, they’re always extremely informative. So, anybody who has any inclination to go, should.

Yes. I appreciate that. They are. It’s very helpful to kick the tires.

Our next question today is coming from Geoffrey Scott at Scott Asset Management.

Two questions. One, you haven’t talked at all about the commercial activity and the commercial possibilities going forward. What is the timing for it? And how has your outlook changed over the last three months? And then the second question has to do with the rise in interest rates and the future rise in interest rates. And are you expecting any slowdown at all in builder activity or visits to builder by potential purchasers and how increased interest rates may impact future bond sales? Okay. Thanks.

Great questions. So, let me take the second one first. Interest rates. We do see a rising interest rate market, and it’s sensitive to housing. That mortgage rate is a very sensitive component of it. I think that our positioning at the starter home market gives us the most flexibility. Not only is that a great asset in terms of what entry-level buyer is, but it also because of our positioning and our cost basis in this, we’re substantially less than our competitors in the City of Aurora. So, that’s our next closest master plan community. And many of our homebuilders are building in that community, which is less than a quarter of a mile away from us, and they’re building the same model homes that they’re building at Sky Ranch or same home product that they’re building at Sky Ranch for $50,000, $60,000 cheaper. And so, when you have that dynamic where we’re so competitively advantaged in there, what we’re likely to see is a lot of those buyers really are going to gravitate to our product or our development as opposed to other developments because it’s more affordable for them. If you’re in the middle market where those homes are $600,000, that interest rate sensitivity is super, super sensitive. And so, as opposed to an entry-level buyer or a move-up buyer, they’re going to find that same buyer capacity even in a slightly higher interest rate environment. Interest rates do increase the overall cost. And so, are we seeing increased costs in developing our horizontal work? We are. But the advantage for us and how we’re delivering this is a large portion of us delivering this infrastructure really is through reimbursables. And our actual cost in doing that, get reimbursed by the bonding capacity and the recoverability of…

Our next question is coming from Greg Sterling, a private investor.

Most of my calls have been -- questions have been answered, but I was just wondering about your outlook for fracking water sales for the balance of this year and going into next?

Good question. Certainly had a robust demand in the first half of the year. As we take a look at the second half of the year, oil being $90 plus certainly is an advantage in that. I know operators, and we’ve got probably 3 or 4 operators in this field are really working on permits and kind of rig availability. And so, it’s going to be a function of how quickly they can get all of those elements together. We’ve got more fracs coming up this -- in the next 60 days. I think we’ve got another 4 well pad fracs. And the fracs are actually interesting because they’re increasing in their designs as well. So, as they continue to develop the shale oil play, they continue to fine-tune how the frac design works and they’re using more water per frac on each iteration of that. And so, we see that kind of ticking up. It’s hard to say -- I hesitate to give a lot of guidance in that. You’re going to see fiscal year record revenue and frac revenue and then how we roll into next year is going to be a function of the permits and the continued strength in the market. And both of those look very good. We see not only permits in all of the areas around Sky Ranch, but to give you a heads up, we do have, I think, around 10 wells that are being permitted on Sky Ranch itself. So, we’ll likely see those get drilled in -- probably not in late ‘22, but early ‘23, I think, is when they’re scheduled. And not only will that generate frac revenue for us, but that will generate oil royalty revenue for us. And that’s a nice opportunity. We don’t highlight that often enough that we do have mineral estate on this. We have minerals states at Sky Ranch and then we have other minerals in the southeast part of the state. So, we continue to monetize that asset as well. And we look for that to correlate with the price of oil. So, you can -- as we get a little bit more of guidance in terms of rig count and things like that, we’ll certainly pass that along to you.

[Operator Instructions] Our next question is coming from Tucker Andersen with Above All Advisors.

Good to hear from you. And if I can take a moment of personal privilege, good to hear from Elliot Knight, too, I should now work with friends forever, coworkers. I apologize. I missed a few minutes of the call. So, if you covered what I’m going to ask, just tell me and I’ll go back and listen to the replay. But my question involves both, inflation and labor shortages. And are any of them affecting either your subs on the work they’re doing for you in terms of development or more likely your builders? Because I know there are a lot of builders who have really had to delay deliveries because of the labor shortages or supply chain issues and stuff like that. And they can’t get refrigerators one week and they can’t get something else next week. And so, I’m just sort of curious about what you’re seeing in the Denver area?

Great question. And it is an issue that I think has been managed fairly well amongst our -- not only the major national homebuilders, but also our local builder that’s delivering the BTRs. I think the national folks have the ability to flex their labor pool or their contractors from one project to another, and they’re doing that based on efficiencies and where they get the most permit and they can line built. So, we have not seen that really impact the delivery of homes out here. And in our BTR segment, one of the things that we were doing is working with our builder on that and saying, listen, we’ve got these that are coming down the pike, and we do want to manage the supply chain issues, and we have some flexibility to inventory some of that stuff at our office. And so we’ve got some warehouse space here and we’ve given them the green light to go ahead and preorder some of that stuff. And if that stuff comes in early, great, we can warehouse it. And if it doesn’t, that we have the ability to kind of manage inventory to deliver those to make sure that we’re really not constrained by either the supply chain issues or labor shortage issues that we want to make sure that there’s some fore planning in that. On the inflationary side, talking a little bit about that. We do think that that we will see some cost increases on delivering some of our horizontal infrastructure. But that because that’s reimbursable, we talked about this a little bit earlier, but we do get a real direct recovery on that. So, that’s not going to impact our margins, and that’s pretty unique. We’re in a position that we do know that inflation will impact some of that costing but because we have that relationship to be able to deliver that and we get our actual costs back on that, that’s a recoverable increase to us that really doesn’t impact our builders either. And so, that’s important component to them is that they’re protecting their margins too. And we’re not having to pass that along. We see it, but we’re not having to pass that along. That gets passed along more through a longer term recovery mechanism, which are going to be property taxes over a 30-year basis.

Our next question today is coming from Greg Bennett, a private investor.

I had two questions. One, the oil and gas business that you mentioned on Sky Ranch, are you in the oil and gas business? How do you structure those deals or those wells? Are you doing it through a partnership with somebody who knows something about oil and gas, or are you doing this on your own?

Neither. We really leased that out. So, we’ve got a -- we own the minerals, 640 acres of the 930 acres that we originally acquired with Sky Ranch, and then we leased that out to the oil and gas interest. And our original lease was, boy, it goes back, but it was originally leased out to Anadarko, which got assigned to Conoco, which got a assigned, which got a assigned. And so, it’s now owned by a public -- a new public company called Civitas, which is a combination of a number of companies more recently. But that we just -- we’re just a mineral estate owner, and they go in and they develop the resource, and we just get a 20% gross royalty interest. And while I’m on that, one of the things that we were very careful about when we did those leases is knowing that we have a master plan community. We were very specific about where those oil and gas sites were going to be. So, we have them located in an area that has some strong buffers against where that would be compared to residential areas to make sure that there’s not a conflict between the residential development and the oil and gas development.

And I take it that the homeowners, the new homeowners, it’s disclosed that that can happen, so that there’s no pushback from the homeowners?

It is. It is. And the setbacks are substantial because we incorporated a lot of kind of open space areas that buffer the oil and gas interest.

The water that you’re selling for oil and gas, is that on federally leased property, or is that on private property since the Biden administration seems to be pushing back on federal leases?

Yes. This is all private. There is some state interest on our service area, the 24,000 acres that we have as our service areas owned by the State of Colorado. They have leased those oil rights as well. But for the most part, it’s all private interest, private property.

Okay. I think this is my final question. 1031 exchanges for property you’re a taxpaying company now. Is that correct?

We are.

Is there a way that you could structure maybe the commercial property development to be done through a 1031 exchange that you maintain those properties and then create evergreen income on the rental from those properties?

We are looking at that. We have some very significant talent on our Board that can help us with some of the commercial opportunities. We’ve got a gentleman by the name of Jeff Sheets, who really spent years of his career managing commercial properties for one of the largest commercial developers here in Denver area and looking at some of those very transactions where we can stay in. The prevailing thinking on our commercial and I’ll give you both management as well as our Board’s directive is just because of the liquidity that the company has, it affords us an opportunity that we don’t have to chase land sales. Land sales on the residential side are appropriate because you’ve got a residential unit. But, when we’re looking at commercial, we’re looking at staying in the deal a little bit longer, we may not be choosing to do the vertical side of it or the management side of it, but there are opportunities for us to stay in that land deal on a number of transaction structures that allow us not only to optimize the land value and the increase in value from developing that commercial opportunity as well as bringing that commercial on line sooner. If we can bring that on line sooner for an operator, they can invest more in the vertical construction side of it, and then we can form some tax advantage strategies associated with that.

So, are commercial ground leases, is that something that happens in Colorado where somebody would do the vertical and you would do a ground lease for the property and then there would be no tax gain to the company, just evergreen income?

Yes. That’s right. That’s exactly what we’re looking at.

At what point do you think the commercial -- you need a certain population, I guess, out there. When might the commercial for a grocery store tenant or whatever, when might that -- what year might that come about, do you think?

Good question. We have had a number of conversations with the local -- well, with the national grocer here. The dominant market player here is Kroger. They operate through Kings, the King Soopers brand. Have had a number of conversations with them about what footprint they’re looking for, what size store they would be looking for or what size structure they’d be looking for as well as sort of the demographics on that. And they all -- it used to be where they like to pull. And so they’d be early and then pull some of that. They like to be just a little bit later in that so that they can capitalize on a larger store in this area. So, I think the grocer is probably still a couple of years out, but we still have opportunities on the light industrial and then we’re trying to balance out what type of retail component. We have a lot of pad sites that we can create for fast casual and the services, maybe some medical services where we get dental and urgent care facilities. We want to make sure that all of that kind of blends itself together. We’ve got the space for it. We’ve certainly got the access with the interstate there. And so, we want to make sure that all of that is really a continuing play. And we really do have kind of a good market share there. If you look at the site, the south side of the interstate really has the best potential on there. Typically, when you see it, there’s -- both sides of the interstate create those commercial opportunities. And the north side is a bit more challenged just spatially, right? They have the Union Pacific’s got the mainline system that rolls through there, which kind of bifurcates it, which creates a little bit more challenge of developing that on the north side. So, we very much like our competitive advantage at the interstate there and the commercial play that we see on that.

Is the exchange completely done on to the property, or does the state have to change the interstate -- the exchange to get on and off to your property?

There will need to be improvements to the interchange. And so, we’ve been working with CDOT in the county about the timing of those, the capacity of those and then how we’ve got some impact fees that will lay over for both, the residential building permits as well as the commercial building permits that help fund all of that stuff.

We have no further questions in the queue at this time.

Terrific. Well, let me just close by thanking Kevin and Dirk for kind of weighing in on this thing and really give you all the opportunity to kind of hear from some of the true talent within the organization that are really executing the results on this. So, as some of the call information was, the results of the quarter were very impressive, but we’re looking to have an even better close out on finishing up the balance of the year. So, continue to look for that. And I really do encourage you if you have a chance to come out and visit in the summer, Colorado in the summer isn’t a horrible place. It’s our best season, even though I know a lot of you folks like the winter here in Colorado for our recreational opportunities. The summer really is beautiful out here, and you’ll be able to see kind of the progress that we’re making on all fronts of the business, on the water side, really get a chance to tour our state-of-the-art water reclamation facility, see how we’re managing our oil and gas systems and delivery of raw water and reuse water to oil and gas operations, the delivery of our second phase, we’ll have broken ground on the charter school aspect and then continuing development of our single-family rental. So, all of these really do continue to add tremendous value to our shareholders. We continue to be mindful of how to communicate that to the public, so that that also has a direct correlation to the share price, which I think we all would agree that it could be significantly better, and we’re going to continue to post results quarter-over-quarter, year-over-year, so that that continues to translate into the market as well. So, with that, if you all didn’t get a chance to answer questions, certainly give me a call. I’d be happy to drill down on any of the specifics. And we will hopefully see you all in the summer. Thanks very much.

Thank you. Ladies and gentlemen, this does conclude today’s event. You may disconnect at this time, and have a wonderful day. We thank you for your participation.