About Pure Cycle

Pure Cycle Corporation (Pure Cycle) operates as a diversified water and wastewater service provider, land developer, and home rental company. The company provides wholesale water and wastewater services in the Denver Colorado area, as well as develop land the company owns into master planned communities and develop single-family homes for rent. The company continues to accumulate a portfolio of valuable water rights and land interests along the Front Range of Colorado. The company has added an extensive network of wholesale water production, storage, treatment and distribution systems, and wastewater collection and treatment systems that the company operates and maintains to serve domestic, commercial, and industrial customers in the eastern Denver metropolitan region. The company's 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 the company is 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 the company's water and wastewater services segment. More recently the company has retained lots in the company's Sky Ranch development for the company's single-family rental business where the company builds single-family homes for rent under annual lease agreements. With 14 homes owned and rented, the company continues to expand this new line of business which may include more than 200 rental homes at Sky Ranch over the next several years. Through the company's land development segment, the company develops master planned communities creating value and opportunity for homeowners, and businesses who also become water and wastewater customers along the busy I-70 corridor of the Denver metropolitan area. The company's land development segment was borne from the company's desire to capitalize on the increase in the value water provides to raw land in the Colorado Front Range. The company's land development activities provide a strategic complement to the company's water and wastewater resource and service business, and vice versa. One of the most significant components of any master planned community in Colorado is its ability to bring high quality domestic water, irrigation water, and wastewater services to the community. Having control over the water resources in conjunction with developing the land enables the company to efficiently build and maintain infrastructure for potable water and irrigation water distribution, wastewater and storm water collection, roads, parks, open spaces, and other investments. It also enables the company to efficiently align construction and delivery of these investments with phased take-down commitments from the company's home builder customers, minimizing expensive excess capacity or downtime with these significant investments. By being the landowner, land developer, and water/wastewater provider, the company offers a more efficient development timeline, with more competitive lot pricing, which results in a more affordable and marketable for sale and for rent home product. The company's rental homes, water and land assets are designed, constructed, operated, and maintained by the company. Its water, land development and home rental activities are each a distinct line of business which are operated as separate but are cohesive business segments. The company refer to these segments as the company's water and wastewater resource development segment, the company's land development segment, and the company's single-family rental segment all of which are described in greater detail below. To date, within the company's three business segments, the company has sold or has contracted for sale with national home builders approximately 1,350 lots, the company has constructed and operated and maintain the water and wastewater systems with capacity to serve approximately 2,500 residential equivalent units and the company has constructed and is renting 14 homes. Water and Wastewater Resource Development Segment The company owns or controls the water supply and infrastructure required to withdraw, treat, store and deliver water (i.e., water rights, wells, diversion structures, pipelines, reservoirs and treatment facilities required to extract and use the water); collect, treat, store and reuse wastewater (i.e., the company designs, builds, operates and maintains water treatment and wastewater reclamation facilities); and treat and deliver reclaimed water for irrigation and industrial use (i.e., the company uses and reuses its valuable water supplies through non-potable irrigation systems to irrigate parks and open spaces). The company's water supplies, which can be used in its exclusive service area (further described below) and other areas along the eastern I-70 corridor, enable the company to add significant value to its land development segment by bringing water to land that does not have water for development, enhancing the value of that land, as well as the company's water resources, to a greater extent than either a traditional water utility or land developer can separately. The company mainly provides wholesale water and wastewater services to local governmental entities that in turn provide residential and commercial water and wastewater services to customers in their communities. The company's largest customer is the Rangeview Metropolitan District (Rangeview District). The company has the exclusive right to provide water and wastewater services to the Rangeview District's customers in its exclusive 24,000-acre Lowry Ranch Service Area in the southeastern Denver metropolitan area pursuant to various agreements that are described in greater detail below. As of August 31, 2023, through the Rangeview District, the company provided service to more than 1,100 single-family equivalent (SFE) water connections and more than 885 SFE wastewater connections. These connections are located mainly in the southeastern metropolitan Denver area on the Lowry Ranch, at the company's Sky Ranch development and other nearby areas where the company has acquired service rights. With the water rights the company owns and controls, it can serve an estimated 60,000 SFEs. In addition to the company's domestic customers, the company provides raw water for industrial oil and gas operations. Multiple operators lease more than 135,000 acres in and adjacent to the company's Service Area with more than 100 wells and miles of oil and gas collection lines. Sales of water to industrial customers in the oil and gas industry are unpredictable and fluctuate dramatically but provide a high margin attractive revenues for the company's water assets. Beginning in late 2021 and continuing through 2023, the company saw a significant recovery in the oil and gas markets, and this resulted in additional water sales to oil and gas clients in the company's fiscal 2023 (the year ended August 31, 2023). Land Development Segment In 2010 the company purchased approximately 930 acres of land along the I-70 corridor known as Sky Ranch. The illustration below provides the company's planned overall layout of Sky Ranch. The company acquired Sky Ranch with the intention of selling lots to home builders to add value to the company's core water and wastewater operations by adding the ultimate purchasers of the homes as the company's water customers. Sky Ranch is being developed in phases over several years, which began in June 2017, when the company entered into agreements with three national home builders to sell the initial residential lots at Sky Ranch (referred to as Phase 1) and has continued to expand as the company sells lots to national homebuilders now up to 1,350 residential lots. The company divided its land development into phases now working on Phase 2, which is further divided into subphases that the company refer to as Phases 2A, 2B, 2C and 2D to optimize the delivery of infrastructure and lots to the company's home builder customers on a real time basis without excess inventories of lots and homes. As of August 31, 2023, the company delivered to homebuilders 738 finished lots, retaining 14 lots for the company's single-family rental segment, are under construction on 211 lots scheduled for delivery in fiscal 2024, and have under contract an additional 410 lots scheduled for delivery in 2025/2026 at Sky Ranch. As of August 31, 2023, homebuilders have built and sold 596 homes at Sky Ranch, with approximately 90 additional homes under construction. All Phase 1 lots in Sky Ranch are complete and all public improvements (roads, parks, open spaces, storm drain facilities, etc.) have been accepted by the various governmental entities that will control and maintain that infrastructure. As part of the company's land development activities, the company formed a new Charter School, Sky Ranch Academy, for the purpose of partnering with the Bennett School District 29J to operate a new K-12 Charter School to be located at Sky Ranch. Sky Ranch Academy has partnered with National Heritage Academy (NHA) to operate the charter, NHA brings more than 25 years of experience providing educational services at more than 100 schools in nine states, educating more than 60,000 students, including five other schools in Colorado. Sky Ranch Academy opened in August 2023 serving grades K-7. The company anticipates the opening of the high school which will serve grades 9-12 for the school year 2025. Single-Family Rentals To capitalize on the growing single-family rental market, the company launched its single-family rental division. The company contracted with a local home builder to construct 14 single-family detached homes at Sky Ranch that the company retained for use in its rental division. These rental homes represent the initial investment into the company's third operating segment as the company expects to add 65 homes in Phase 2 with the ability to add more than 200 homes as Sky Ranch builds out. Water Assets The company uses its valuable and growing water and land assets within the company's water and land development operations. Rangeview Water Supply The Rangeview Water Supply consists of 26,985 acre-feet of tributary surface water, non-tributary groundwater, and not non-tributary groundwater, and approximately 26,000 acre-feet of adjudicated reservoir sites. Terminology typically used in the water industry that may help readers understand water rights are detailed below. Non-Tributary Groundwater - groundwater located outside the boundaries of any designated groundwater basins in existence on January 1, 1985, the withdrawal of which will not, within one hundred years of continuous withdrawal, deplete the flow of a natural stream at an annual rate greater than one-tenth of one percent of the annual rate of withdrawal. Not Non-Tributary Groundwater - statutorily defined as groundwater located within those portions of the Dawson, Denver, Arapahoe, and Laramie Fox-Hill aquifers outside of designated basins that does not meet the definition of 'non-tributary.' Tributary Groundwater - all water located in an aquifer that is hydrologically connected to a natural stream such that depletion has an impact on the surface stream. Designated Groundwater - renewable and sustainable groundwater from certain areas of Colorado designated by the Colorado Ground Water Commission subject to management under the Colorado Ground Water Commission's rules. Tributary Surface Water - water on the surface of the ground flowing in a stream or river system. The Rangeview Water Supply is principally located in the southeast Denver metropolitan area at the 'Lowry Ranch,' which is land owned by the State Board of Land Commissioners (Land Board) and is described below. The company acquired its Rangeview Water Supply through the following agreements: The 1996 Amended and Restated Lease Agreement between the Land Board and the Rangeview District, which was superseded by the 2014 Amended and Restated Lease Agreement, dated July 10, 2014 (Lease), among the company, the Land Board, and the Rangeview District; The 1996 Service Agreement between the company and the Rangeview District, which was superseded by the Amended and Restated Service Agreement, dated July 11, 2014, between the company and the Rangeview District (Lowry Service Agreement), which allows the company to provide water service to the Rangeview District's customers located on the Lowry Ranch; The Agreement for Sale of non-tributary and not non-tributary groundwater between the company and the Rangeview District (Export Agreement), pursuant to which the company purchased a portion of the Rangeview Water Supply that the company refer to as the company's 'Export Water' because the Export Agreement allows the company to export this water from the Lowry Ranch to supply water to nearby communities; and The 1997 Wastewater Service Agreement between the company and Rangeview District (Lowry Wastewater Agreement), which allows the company to provide wastewater service to the Rangeview District's customers on the Lowry Ranch. The Lease, the Lowry Service Agreement, the Export Agreement, and the Lowry Wastewater Agreement are collectively referred to as the 'Rangeview Water Agreements.' The company provides wholesale water service and wastewater service to customers located both on and outside of the Lowry Ranch, including customers of the Rangeview District and other governmental entities, and industrial and commercial customers. Pursuant to service agreements with Rangeview (including the Lowry Service Agreement, the Lowry Wastewater Agreement and the Non-Lowry Service Agreement), the company designs, constructs, operates and maintains the Rangeview District's water and wastewater systems that are used to provide water and wastewater services to the Rangeview District's customers located within the Rangeview District's exclusive service area, and other approved areas. Subject to the terms and conditions of the company's agreements with the Rangeview District, the company is the exclusive water and wastewater provider to the Rangeview District's customers. For the Rangeview District's customers located on the Lowry Ranch, the company operates both the water and the wastewater systems during the company's contract period on behalf of the Rangeview District, which owns the facilities for both systems. At the expiration of the company's contract term in 2081, ownership of the water system facilities located on the Lowry Ranch used to deliver water to customers on the Lowry Ranch will revert to the Land Board, with the Rangeview District retaining ownership of any wastewater facilities located on the Lowry Ranch. The water system and related facilities used to deliver water to customers off the Lowry Ranch (including Export Water) will remain with the company and the Rangeview District. In addition to the company's valuable water rights, the Rangeview Water Agreements grant the company the right to use approximately 26,000 acre-feet of reservoir capacity in two valuable surface reservoir sites to provide water service to customers both on and off the Lowry Ranch. Fairgrounds Water The fairgrounds water represents groundwater rights the company acquired from Arapahoe County in conjunction with the company entering into water service agreements with the County for the Arapahoe County Fairgrounds. The company uses this water with its overall Rangeview Water Supply for supplying water services throughout the company's service area. Sky Ranch Water Supply As part of the acquisition of the Sky Ranch land in 2010, the company also acquired the 828 acre-feet of water located beneath the property. The water is being used as part of the company's overall water distribution system, which includes providing services to the Sky Ranch Master Planned Community. Lost Creek Water Supply The 'Lost Creek Water' is consisted of water rights the company acquired in 2019 and 2022 in the Lost Creek Designated Ground Water Basin. In August 2019, the company purchased 300 acre-feet of designated groundwater and 220 acre-feet of groundwater and ditch water. In June 2022, the company purchased 370 acre-feet of designated groundwater. All the Lost Creek Water has been changed for use as municipal/industrial water, additionally the company has filed an application with the Colorado Water Court to use the Lost Creek Water to augment the company's municipal/industrial water supplies at the Lowry Ranch. The company's plans are to consolidate its Lost Creek Water with the company's Rangeview Water Supply to provide service to the Rangeview District's customers both on and off the Lowry Ranch. The Lowry Ranch Property The Lowry Ranch consists of nearly 26,000 acres, or 40 square miles, of primarily undeveloped land in unincorporated Arapahoe County. It is located 20 miles southeast of downtown Denver and is one of the largest contiguous parcels under single ownership next to a major metropolitan area in the United States. Pursuant to the company's agreements with the Land Board, the company, together with the Rangeview District, have the exclusive rights to provide water and wastewater services to 24,000 acres of the Lowry Ranch. The Rangeview District The Rangeview District is a quasi-municipal corporation and political subdivision of the State of Colorado formed in 1986 for the purpose of providing water and wastewater services to the Lowry Ranch and other approved areas. The Rangeview District is governed by an elected board of directors. Eligible voters and persons eligible to serve as directors of the Rangeview District must own an interest in property within the boundaries of the Rangeview District. The company owns certain rights and real property interests, which encompass the boundaries of the Rangeview District. South Metropolitan Water Supply Authority (SMWSA) and Water Infrastructure Supply Efficiency Partnership (WISE) SMWSA is a municipal water authority in Colorado organized to pursue the acquisition and development of water supplies on behalf of its members, which include the Rangeview District. SMWSA members include 14 Denver area water providers in Arapahoe and Douglas Counties. Pursuant to certain agreements between the company and the Rangeview District, the company agreed to provide funding to enable the Rangeview District to acquire rights to water projects undertaken by SMWSA, including rights to water supplied pursuant to the cooperative water project known as WISE. WISE provides for the purchase and construction of infrastructure (such as pipelines, water storage facilities, water treatment facilities, and other appurtenant facilities) to deliver water to and among the 10 members of the South Metro WISE Authority (SMWA), consisting of the Rangeview District and nine other SMWSA members, from the City and County of Denver acting through its Board of Water Commissioners (Denver Water) and the City of Aurora acting by and through its utility enterprise (Aurora Water). In exchange for funding the Rangeview District's WISE obligations, the company has the exclusive right to use and reuse the Rangeview District's share of WISE water (approximately 9%) and infrastructure to provide water service to the Rangeview District's customers and to receive the revenue from providing those services. The company's WISE subscription entitles the company to approximately three million gallons per day of transmission pipeline capacity and increasing acre-feet of water per year as noted below. East Cherry Creek Valley System ECCV's Land Board system is consisted of eight wells and more than ten miles of buried water pipeline located on the Lowry Ranch. In May 2012, the company entered into an agreement to operate and maintain the ECCV facilities allowing the company to utilize the system to provide water to commercial and industrial customers, including hydraulic fracturing for oil and gas wells. The agreement allows the company to use the ECCV system through April 30, 2032, in exchange for a flat monthly fee and a fee per 1,000 gallons of water produced from ECCV's system, which is included in the water usage fees charged to customers. Sources of Water and Wastewater Service Revenues The company's water and wastewater resource development segment generates revenue from the following sources: monthly metered water usage and wastewater treatment fees; one-time water and wastewater tap (connection) fees; construction and special facility funding fees; consulting fees; and industrial - oil and gas operations fees. Service to Customers Not on the Lowry Ranch In addition to customers on the Lowry Ranch, the company has an agreement with the Rangeview District to be its exclusive water and wastewater service provider throughout its Service Area. This includes the design, construction, operation and maintenance of water and wastewater systems to serve the Rangeview District's customers located outside the Lowry Ranch Service Area (for example Wild Pointe and Sky Ranch) (Non-Lowry Service Agreement). Land Development Assets - Sky Ranch In 2010, the company purchased approximately 930 acres of undeveloped land in unincorporated Arapahoe County, which the company is actively developing as the master planned community known as Sky Ranch. With the property acquisition, the company also acquired nearly 830 acre-feet of water beneath Sky Ranch and approximately 640 acres of oil and gas mineral rights. Sky Ranch is located 16 miles east of downtown Denver, four miles north of the Lowry Ranch, and four miles south of Denver International Airport. Sky Ranch is zoned for residential, commercial, and retail uses, including up to 3,200 homes and more than two million square feet of commercial, retail, and light industrial development. See illustration above for the current layout of Sky Ranch. The development of Sky Ranch will occur in multiple filings and phases which will take several years to complete. As of August 31, 2023, the company delivered to homebuilders 738 finished lots, retaining 14 lots for the company's single-family rental segment, are under construction on 211 lots scheduled for delivery in fiscal 2024, and have under contract an additional 410 lots scheduled for delivery in 2025/2026 at Sky Ranch. As of August 31, 2023, homebuilders have built and sold 596 homes at Sky Ranch, with approximately 90 homes under construction. All Phase 1 lots in Sky Ranch are complete and all public improvements (roads, parks, open spaces, storm drain facilities, etc.) have been accepted by the various governmental entities that will control and maintain the infrastructure. As the land developer, the company is providing finished lots (i.e. lots ready for building permits to construct homes) to each of the home builders. The company builds, or contracts to build, the roads, curbs, wet and dry utilities, storm drains, parks, open spaces, and other related improvements as part of a master planned community. Each builder is required to purchase water and wastewater taps for each lot from the Rangeview District at the time a building permit is issued. The company has also leased the oil and gas minerals underlying the property to a major independent exploration and production company. Sky Ranch Metropolitan Districts The Sky Ranch Metropolitan District Nos. 1, 3, 4, 5, 6, 7 and 8 are quasi-municipal corporations and political subdivisions of Colorado formed for the purpose of providing services to the Sky Ranch property (Sky Ranch Districts). The Sky Ranch Districts are governed by an elected board of directors. Eligible voters and persons eligible to serve as directors of the Sky Ranch Districts must own an interest in property within the boundaries of the district. The company owns certain rights and real property interests, which encompass the current boundaries of the districts and certain of the company's employees serve on the boards of directors of the Sky Ranch Districts. Other Assets Oil and Gas Leases In 2011, the company entered into an Oil and Gas Lease (Sky Ranch O&G Lease) and Surface Use and Damage Agreement and received an up-front payment and a 20% of gross proceeds royalty (less certain taxes) from the sale of any oil and gas produced from the mineral estate the company owns at Sky Ranch. The Sky Ranch O&G Lease is now held by production, and the company has been receiving royalties from the oil and gas production from six wells drilled within the company's mineral interest. In July 2019, the company entered into an Agreement on Locations of Oil and Gas Operations covering approximately 16 acres at Sky Ranch with the operator of the Sky Ranch O&G Lease (OGOA). Arkansas River Land and Minerals The company owns approximately 700 acres of land in the Arkansas River Valley in southeastern Colorado. The company leases all these acres for dry land grazing. The company intends to sell the land in due course and have classified it as a long-term investment. The company also owns approximately 13,900 acres of mineral interests in the Arkansas River Valley. The company has no plans to sell its mineral interests. Significant Customers The company primarily provides water and wastewater services on the Rangeview District's behalf to the Rangeview District's customers. The Rangeview District accounts for the majority of the company's water and wastewater service revenue. Projected Operations The company designs, constructs, and operates its water and wastewater facilities using advanced water treatment and wastewater treatment technologies, which allow the company to use its water supplies in an efficient and environmentally sustainable manner. The company develops its water and wastewater systems in stages to efficiently meet customer demands in the company's service areas by managing capital investments required for the construction of facilities. The company uses third-party contractors to construct its facilities as needed. The company employs licensed water and wastewater operators to run its water and wastewater systems. As the company's systems expand, the company expects to hire additional personnel to operate the company's systems, which include water production, treatment, testing, storage, distribution, metering, billing, and operations management. The company's water and wastewater systems conjunctively use surface and groundwater supplies and storage of raw water and highly treated reclaimed water supplies to provide a balanced sustainable water supply for the company's customers. Integrating conservation practices and incentives, together with effective water reuse, demonstrates the company's commitment to providing environmentally responsible and sustainable water and wastewater services. Water supplies and water storage reservoirs are competitively sought throughout the west and along the Front Range of Colorado. Regional cooperation among area water providers in developing new water supplies, water storage, and transmission and distribution systems provides the most cost-effective way of expanding and enhancing service capacities for area water providers. The company continues to seek opportunities for developing water supplies and water storage opportunities with other area water providers. As the company continues expanding and developing its Rangeview Water Supply, the company anticipates needing a significant number of high-capacity deep water wells. These wells would be drilled into one or more of the three principal aquifers located beneath the Lowry Ranch, and, as with the company's wells, the water would be delivered to central water treatment facilities for treatment prior to delivery to customers. Continued development of the company's Lowry Ranch surface water supplies will require facilities to divert surface water to storage reservoirs to be located on the Lowry Ranch, additional treatment facilities to treat the water prior to introduction into the company's distribution system(s), and additional surface water diversion facilities designed with capacities to divert the surface water when available (particularly during seasonal events, such as spring run-off and summer storms) for storage in reservoirs to be constructed on the Lowry Ranch. The company's Denver-based supplies are a valuable, locally available resource located near the point of use. This enables the company to incrementally develop infrastructure to produce, treat and deliver water to customers based on their growing demands. The company continues developing its Sky Ranch property, including finishing lots for home builders, building additional water and wastewater infrastructure for residential and commercial development at the property, and having homes constructed for the company's single-family home rental business. During the year ended August 31, 2023, the company sold 90 water and wastewater taps at Sky Ranch to homebuilders. As of August 31, 2023, the company sold 703 water and wastewater taps at Sky Ranch in Phases 1 and 2A. The company's first three rental homes at Sky Ranch were completed and rented in November 2021. During fiscal 2023, an additional 11 homes were completed and rented as they became available. The company plans to build 55 additional rental homes over the next several years in Phases 2B-D. The company anticipates building these homes concurrent with construction of homes in Phase 2. The company plans to develop additional water assets within the Denver area and are exploring opportunities to utilize the company's water assets in areas adjacent to the company's existing water supplies. Additionally, the company continues to source additional land acquisitions that could be paired with its water to provide additional growth to each of the company's business segments. History Pure Cycle Corporation was founded in 1976. The company was incorporated in 1976 and reincorporated in Colorado in 2008.