Pure Cycle(US:PCYO)2021-04-14 02:50Financial Data and Key Metrics Changes - The company recognized approximately $19 million in project-related other income due to the collectability of reimbursables, along with $1.5 million in project management fees and $1.4 million in interest income, aligning gross margins with expectations [52][53] - Metered water usage increased by about $100,000, primarily due to growth at Sky Ranch, which has around 300 homes built [56] - Lot fee revenue declined significantly as the first filing is substantially complete, with revenues expected to be recognized from the second filing later in the year [57] Business Segment Data and Key Metrics Changes - The Water Resource segment owns about 29,000 acre-feet of water rights, enabling service to an estimated 60,000 connections, generating about $2 billion in revenue with a 50% margin [6][8] - The Land Development segment has a project capacity of up to 3,400 residential units and a couple million square feet of commercial development, with the first phase of 509 single-family lots nearing sell-out [15][20] - The Build-to-Rent segment is projected to generate positive cash flow of approximately $15,000 per single-family connection, enhancing the income statement [40][41] Market Data and Key Metrics Changes - The Denver area has seen a significant decrease in entry-level home starts, dropping from 50% pre-recession to less than 4% currently, indicating strong demand for affordable housing [34] - The company is positioned in a competitive market for land acquisition, with a focus on properties that include water rights, providing a competitive advantage [94] Company Strategy and Development Direction - The company aims to capitalize on the growing demand for affordable housing through its Build-to-Rent model, which allows for long-term rental income while leveraging existing land and utility investments [32][41] - The strategy includes maintaining in-house property management to ensure efficiency and cost-effectiveness in managing rental properties [116] - The company is actively seeking additional land for development, balancing between purchasing and partnering with existing landowners [91][92] Management's Comments on Operating Environment and Future Outlook - Management noted that COVID-19 caused delays in processing approvals for the second phase of development, but they remain optimistic about future management of these processes [60][62] - The company is focused on maintaining competitive pricing despite rising costs in materials and labor, emphasizing partnerships with national builders to manage costs effectively [79][80] Other Important Information - The company plans to host an Investor Day in mid-July to showcase developments and provide updates on various projects [136] - A new website is in development to enhance virtual presence and provide real-time updates on construction activities [137] Q&A Session Summary Question: When and how will the company proceed with commercial development? - Management indicated that commercial development will likely begin in the later stages of the second phase, potentially in summer 2022, as residential units are built out [73][74] Question: How does residential development impact the value of remaining lots? - Management confirmed that amenities and infrastructure improvements significantly increase the value of both lots and homes, making the Build-to-Rent model attractive [76][77] Question: What is the financing structure for the Build-to-Rent project? - The financing is directly related to the residential units and does not impact the general balance sheet, with fixed-rate loans being utilized [78][124] Question: What is the company's strategy for land acquisition? - Management is actively pursuing land acquisitions while being disciplined about pricing, focusing on properties with water rights to maintain a competitive edge [91][94] Question: How will property management be handled? - The company plans to manage properties in-house to leverage existing resources and maintain efficiency [116] Question: What is the expected proportion of Build-to-Rent properties? - Management anticipates that around 10% to 15% of the overall units will be designated for Build-to-Rent, with a focus on maintaining community balance [111][115]