Pure Cycle Corporation (PCYO) Earnings Call Transcript & Summary

Okay. For all of those that are online, welcome. We did spend the last couple of hours just going through and touring each aspect of what we're doing out here. And I will say, and it's kind of some of the things -- so for those of you that are on the tour, I'm going to be a little bit repetitive to dial some of that back. But one of the interesting things that we have at this particular time is that you can see kind of each phase of how we do, what we do underproduction, right? So we've got raw land, which you all know what raw land looks like. But then we've got Phase 2D, which is just, I'd say, 40% done. So we've done the earthwork, and what you can see now is how we develop the water, the sewer, the storm systems. And so we're in the wet utility side. So we're in that -- we carve these lot deliveries into three particular subcategories, excavation work, utility work and then the roads, curbs and gutters. So you can see the utility work going on for 230, 240 houses worth of it. It looks like a mess, right? It's a hot mess of a bunch of excavators and a bunch of piles of dirt and a bunch of bees and ants work on that side of it. And then you can see kind of where we're at on finishing a particular phase. So we've got 2C that is delivering 230 lots this month. So we're in the -- we're on freshly paved streets, and we've got the last two streets that are going to get paved next week, and we'll punch that out, and that's a delivery of 2C. And you can kind of get a feel for some of the seasonality of the business because of, we can't do that type of work in the winter because it's very temperature sensitive. What we can do in the winter is what we are doing, which is the utility work, right? We can dig ground. They -- our contractors have hardy folks that they'll work. I think there is a temperature threshold, but it's below where we want to be out, but we got that work going on. And then you can see new homes going on, so the Phase 2b, which we delivered last August of '24, and our homebuilders are vertical there. I'd say we probably got about 120 homes up. And most of the homes up, I'd say, of the homes that are vertical, 80% to 90% are sold. We've got some that are sold even before they go vertical. So it depends on the style of home and then the price points in there. We did some tour of the water facilities. One of the things that we did tour was kind of where Lowry was and the development on Lowry, which is fast encroaching. And it doesn't show as well when we show an image of it, how much the Denver area has grown to it. But we've got development, there's a 5-mile line of development that's our western edge, and what is the eastern edge of Denver. Aurora goes right up to that, and when you see it -- when you see, oh, my god, there's the house and there's is Lowry, which is our service area. And a new project going on, which is a half section, which was the last privately owned piece of property that abutted Lowry on the southern edge, big project there that's beautiful people stop. They're going to be $2 million, $2.5 million homes on that property. So you kind of get a feel for the market dynamic of kind of what we're doing there. And I open it up to the folks that were on the tour. Any questions, the observations, what struck you about what you saw that you didn't know about, anything in any of your observations? Not to put you on the spot. We have mouthfuls, so we're also having lunch here, so -- I couldn't have timed it worse.

What struck me is how much control vertical integration Mark actually have to his head. I mean this is not a company that's waiting for bureaucracy and local government and other companies to do something. It's a company that has an incredibly powerful undervalued asset with an enormous amount of power to develop it at the right pace, right, with other people's money, most.

Well, and to that point, one of the things, and I think this will really shine, and what you see in variable markets, right? So we do our own stuff. Like, I don't rely on -- none of us rely on a ton of consultants whether that's our operator team, whether that's our engineering team, whether that's our IT team, all of that stuff we have in-house. And so when we go for the next phase of the project, it's us directly. It's us directly to the planning commission. It's us directly to the county commissioners. They know us. We've made commitments to them. We have come through with all of our promises and validated everything that we're doing with them. And so from time-to-time, things get tacky, right? Housing is cyclical, land development is cyclical, water supply is cyclical. You go through dry periods, you go through wet periods. And you kind of need to make sure that you understand each component of that and evaluate the risks in each of those components. One of the risks that we came across this year that was unanticipated was county updated its building regulations, right? That should be a normal process, and it wasn't, right? I mean it was [ laboratory ] for the homebuilders who are building these homes, the exact same home in Aurora, which is right next to us. But our jurisdiction being the county, the county adopted an energy efficiency regulation that was passed by the state legislature last year. They were an early adopter. I think they regret it, but all the homebuilders had tweaked their electrical and their building plans just a little bit to conform with that, and it took them what should have taken them 3 weeks, took them 6 months, and they got -- the county got feedback. They wanted to know, well Mark, how's it going out there? And I'm like, I am glad you asked. Here's the e-mails I get. And so sharing the e-mails with them, they're like, okay, fine, let's tweak this process, let's tweak that process. Let's make this more efficient here. Let's parallel track these things, but it was painful. And it was painful for our builders. Our builders were able to lean on us. We were able to lean on our jurisdiction. It kind of delayed a little bit of the building permits for filing 5. I don't think it delayed any of the building permits for filing 6 because we're just finishing those lots, and their delay in 5 allows them to roll all those permits over in 6. And so they'll roll them over in filing 2C, they'll roll them over into 2D. So those will be pretty efficient in that. I know I highlighted this in our earnings call, but we have some -- this particular phase, and I will say it's only this particular phase is weighted to the fourth quarter. And the reason it's weighted to the fourth quarter, I tried to describe this, but I don't think I was able to get a good picture of that to all the people on an earnings call. But let me do it by virtue, I think you have this but for illustration purposes, if you look at, this is -- this shows you 2 A, B, C and D, and the coloring is the coloring of the builders. And as you can see in this particular 2C, which is what we're developing right now, we have that construction in progress, and we recognize revenue on a -- as we build the infrastructure for 3 of our 4 builders. I got a lot delivery agreements with it before, our one finished lot delivery builder is D.R. Horton. They're the big dog. They pay us a premium on the lot to buy it at the end. And in this particular filing, they have weighted number of lots. They typically have about 40, 45 lots in each phase. In this particular phase, they have 70 lots. So we have more in -- construction in progress in this fiscal year than we do normally just because of the -- that one builder in this one phase. So you'll see a lot of that catch-up in fourth quarter that when we show our guidance out there at -- what we had at that $30 million and show about half of that now. We really are anticipating to get half of that catch up at that Q4 just because of the weighted delivery of D.R. Horton.

We have a question online. Shout up. Geoff? You're on mute.

Am I good now?

Yes.

Mark, how are you?

I'm great. We've got you in your car.

Yes, I'm in Price, Utah. I had another meeting that took priority over your tour. Sorry about that.

I take no offense.

No offense. I have a couple of questions, and I'm going to be referring to the presentation. So I hope you remember it. On Page 23, Phase 2b, there were 211 homes, in the phase 115 have been sold. So 96 have been unsold. What was the selling rate during April, May, June? How many houses per month?

So builders are on average about a home a week. So we have four builders in there, you're probably looking at about 16 to 18 a month.

So 96 unsold would be approximately 6 months...

Yes, of inventory.

Okay. So it may slow down the progress on 2C a bit, but probably not too much. Is that fair?

Not too much. We've got one new builder in six, and I've got two new builders in seven. And so whatever that slowdown is, what you're going to see is you're going to see homes being built in three phases all at once. So we'll see -- I mean it's by builder. It's not necessarily -- that's the market absorption. That's the market absorption for a builder and that they do their price adjustments and their incentives based on their velocity. So when you have four builders versus seven builders, then you still might make that up.

Okay. Next question, Page 25. I think the very first time you put -- tried to put a dollar value on the commercial development $423 million. I don't remember ever having seen a number attached to that. And my question really is, how did you get to $423 million?

I did 2x the residential. [indiscernible].

So this is very much back of the inflow, whatever.

Yes. I think it's pretty conservative. And really, we did that metric based on a number of single-family equivalents in the commercial compared to the residential. And then just said, we think we'll get somewhere between 2 and 3.5x our value of the commercial lot as compared to the residential lot.

Okay. The only thing you and I can guarantee is it's not going to be exactly $423 million. What kind of range would you put on it? What kind of -- kind of ceiling?

Yes, I put it at the low end, Geoff. So I think we have pedal in that commercial. And maybe we give away some of it to incentivize some of the starting of the commercial, if I can get Kroger or somebody out there early, I'd certainly try to do. I've tried to incentivize that. They laughed at me when I did that. And so I'm not so sure that there's any real way of doing that other than executing on your residential. They're not interested in the cost of the land. They're interested in their customers. What kind of sales volume they want based on the number of rooftops.

Right. Any new guess as to when -- the timing of when that might start?

We talked a little bit about that on the tour and it's a function of two things occurring, and I think they're both kind of going to converge. One is going to be redevelopment of the interchange because it needs a bigger interchange for that commercial traffic, all the big trucks and that sort of stuff. And then getting past that threshold of about 1,500 single-family lots, and so we're right about at 1,000. And so over the next 2 years, I think both those things converge. So we're looking at having at least what they're telling us today to be the finish line in that 2027 time frame.

Okay. Is 1 acre foot really still point -- well, 2.5 SFEs.

We're getting closer to 4 with it now. And we talked about that a little bit. So what the metrics are and these are a function of a couple of things, but one is our lot sizes are smaller, and therefore, our outside irrigation is much, much smaller. And we're xeriscaping a lot of that. And so the rule of thumb 30 years ago was 0.75 an acre foot per SFE, then it worked its way down to 0.5 an acre foot, then it worked its way down to 0.4, which was the 2.5. And we've actually done our numbers on the, call it, 700, 800 customers that we have, and it's closer to 0.27 now. And so that's continuing to do two things: one, conserve water, make sure that we reuse our water supplies and then give us more connections per acre foot.

Yes. Okay. I'm trying to connect it back to what you said on Page 18 of the presentation. You said that the water rights had a book value of $31.7 million. And what would you estimate the current market value of those water rights to be?

At 60,000 connections, at the 40,000, that's $2.5 billion, and it costs me $1 billion to build that system and build-out. So I've got a $1.5 billion margin over some period of time.

You can get it done by next week?

Well, we're working on it, we will tell.

That's the tap fees.

Tap fees, that's right. And then when you take a look at, we're generating -- we're seeing a bit of growth in that $1,500 per connection. I'd say that's probably closer to between $1,600 and $1,700. 60,000 connections, that's over $100 million a year, year-over-year revenue.

And that revenue has a market value of about 6x. Would that be right?

At a 50% margin, we're probably a little stronger than that. I'd say it's probably 12.

I mean American Water sells at like 6x revenue, something like that.

Okay. I think York or some of the other ones are a little bit stronger than that, but American Water is a good comp.

Okay. I mean the tap fees is a onetime. The revenue is recurring and has a free cash flow yield on it. So that's why I was going there. Those are the three questions I had. I'm just going to make a comment. And this is, you can take it for what it's worth. I hate your share repurchases because you're competing with me, and I am desperately trying to buy and accumulate and hold. And I don't like the competition.

Yes. I absolutely cannot argue with you on that. I can also say there always seems to be shares available. And I'm never leading the market. I'm usually below the market. So I'm sweeping up. And so I must be just $0.01 more than you.

You are, in fact, about $0.01 more than me, and I wish you'd get out of the way, right? I've been around for a long time, and you should like having me as a shareholder, and you're doing everything you can to prevent me buying more.

You know what? I can tell you, I'm as long-term shareholder as you are buying those shares.

I know you are, but you're not actively buying for your own account in the market.

True.

No, I respect that, and that's a good argument against share buybacks. I can -- the other side of it is if we're not deploying that capital, and that's sitting on my balance sheet at 4.5% on government treasuries, and I'm not putting that to use through buying land and other things that it's not an awful thing to reduce that denominator. So we try and balance that out.

Yes, if you were to dividend it out, you wouldn't be competing with me.

I got it. I got it.

If you're out there deploying it by buying shares, you're competing with me. And as I said, take it for what it's worth, but I hate the competition.

Got it.

Thanks, Mark. Thank you.

Thank you, because I've got three Board members here that would love that feedback -- the exact opposite position.

I just gave my opinion.

You got it. Thank you.

Geoff, Dan Kozlowski here. Granted the share count hasn't decreased in an absolute sense in a huge way, but I don't understand your logic. I hear what you're saying, it's cute and everything. But if someone is buying back stock, someone buys 10% of the company back, you own 10% more of the company. You're getting the value over time, in theory, you're getting the value of -- you own more of the company by not buying shares. So it doesn't have any effect on your net worth. I mean it actually improves your ownership of peer. If tomorrow, Mark bought 50% of the company back, you're holding your total percentage of Pure Cycle doubles. So I don't get what you're talking about. Yes, I think you're one of the smart guys, I know, but I say that I don't see what you're talking about.

Okay. So I own 10% of the company, and you buy back 10%. My 10% has just gone to 10.9%, so 11.1%, right?

Exactly.

If I had bought that 10%, I'd now be at 20%, not 11.1%.

Well, then, yes. Right, but you're not buying it. I mean, clearly, there's no massive whale in the market buying the stock every day, and we wouldn't be at $10.

But you've prevented me from buying that...

It doesn't fit reality. I mean if you want to buy...

You have prevented me from buying that 10%.

If you want to buy whole company at $0.50 because it trades there, well, yes, sure. I mean I'm going to buy it before you do, so it's like it's just the market. And I don't really understand the logic of the company, not looking out for all of its shareholders because one shareholder wants to buy it lower. I don't -- it doesn't make sense to me. But again, we can agree to disagree. I just -- it doesn't -- I've never heard this discussion in any -- in my 25 years of investing at other companies. So I'm just -- that's just my little pushback from -- that being a reason for us not to buy or buy for competition from a very smart long-term shareholder who wants to buy more. Yes, sure, if it gets down, then you get an opportunity to buy a little more. But that's true of everybody in the market, too. And the market sets the price and the market is at $10.25 today and that kind of thing. So to Mark's point, I don't think we're pushing the stock at all. I mean he will opportunistically pick some stuff off and provide some stabilization, and we think we almost all of us in this room agree that the shares are potentially materially undervalued, so whether you buy it or we buy it or some new person buys it, I mean, I think they're getting that hell of a deal here at $10.12 and we keep it from going to $10.05 and I don't think that should get Mark's consideration lesson.

We agree to disagree.

Okay. Fair enough, fair enough. Love you, though.

Well, this is -- Mark, this was not going to be my main point, but to address the issue, and I've told this to Mark before. I think the dividend for the company would be a good idea, not because it's -- you want to pay a big dividend, but because plenty of institutions can't even buy stock, they don't pay a dividend. So simply the fact...

That's the reason to pay a dividend. And reason to pay a $0.01 dividend, not that we'll do it, but I think immediately [indiscernible] but we've talked...

No, we're going to do it.

We talked -- it will probably be in August, but I just don't know when August. So we've talked about it. Well, yes, I mean, if you just got on the Board as a dividend payer, it does open up the investable universe of dividend paying, ETFs, dividend paying.

Well, it takes the gloves off people, just didn't buy it -- because they don't buy a dividend only stock, but my observation through today was, I'm not hearing Mark throwing out a number of $500 million corporate. I did a little bit of math in my head when asking about the cost of lots earlier versus what they're selling for. And I start coming up with hundreds of millions and billions of dollars on it, a $220 million market cap stock, and it's like something -- there's a disconnect somewhere, and I'm trying to figure out, do you actually -- and I don't know if you can say it or not, but is it -- do you actually have what you believe the real book value is not -- and book value is the wrong word but the actual market value of what -- versus book value in terms of just the assets of the company alone.

Absolutely. I mean -- and you have 10 different ways to verify that in the market. If you take a look at it from the lot price, I know what that lot price is because I sell it every day. To Geoff's question about how do you value the commercial as compared to the residential, we were very conservative to say, maybe, we only get twice that value, but I think we get 3, 3.5x that value on that. But maybe we only get -- even if we get the same value that we get out of our residential lots for our commercial, we're still looking at hundreds of millions of dollars in our commercial portfolio. And then when you look at us selling taps, that's the market value of the taps and we show that tap how our taps are priced compared to surrounding jurisdictions. And when you take a look at it, our taps are 40,000. You get down to Park or Castle Rock they're 60,000. So we got pedal in that. And so it becomes a time element. So the gap there is how does the market present value that future opportunity? What's the absorption on it? And one of the things that we tried to do for all of you who've been following us for so long and know this, but we tried to just impute that value through the build-out of what is in with our control, build-out of Sky Ranch alone, and that's $600 million of net cash to the company. Is that -- that's not a 20-year horizon, that's not a 15-year horizon. That's probably a 7- to 10-year horizon. And so that's a much easier way to present value. That -- and the market is still young. Market does what the market does. I mean my analysis are you guys are dying breeds. We're nobody. This is the 30 money managers left in the U.S. and everything else trades on a program trade, some sort of metric trade or something else, but they are very -- when I used to go do non-deal road shows, I'd have 100 meetings lined up. Now you do a non-deal road show, you get 15. So the amount of money that's either managed index-wise, I mean, I think one of our largest shareholders doesn't even know they own the shares. They're index. They're a Russell Index.

To your point, Mark, the industry, the market is changing today. The dynamics of capital being allocated in the public markets is changing. More and more money every day is being passively grown. I think we all agree in this room that the stock price of Pure Cycle today does not represent the intrinsic value of the company. I think a large portion of that has to do with the fact that the company does not index well. So what is potentially in the control for management to get BlackRock to own 12%, to have Vanguard, to have others come in as indexers to own a majority of the shares to drive it closer to that fair value because today, and it's not just unique to Pure Cycle, any company, especially small cap, that does not index well, there is going to be a huge gap between the intrinsic value. And we've been -- I've been here to several investor conferences through the years and seen the development here. And you can see in the financials, the value being produced in return, at least on the balance sheet year in and year out. Yet, the stock price doesn't move. It's not getting reflected. And at some point, maybe your company is not appropriate to be in the public market.

I don't disagree. I mean when you take a look at it and I argue this all the time. When you take a look at the balance sheet and having what's legacy assets that were acquired 30 years ago at cost at one one-hundredth of their market value and then having a very liquid, strong no-debt balance sheet where we have a cash position of $20 million and a note receivable of $40 million. If we had a $60 million cash position, might look different to somebody. Somebody that would screen this, would screen this a little bit differently. But in fact, that's what we have. We have $60 million of cash on the balance sheet, $40 million of it is invested at a 6.5% interest rate. And it's like a government bond because that's what it is. It's a government receivable. But we don't get -- people don't see that, or they don't process that the same way as if you had cash in on T bills that might give you 4%. And so there's a little bit of that timing element on how we receive some of those monies, and the timing of some of this stuff is going to be back-ended in terms of that value as we get some of those commercial lot values. Those are all going to start to monetize. And so the point is, us 5 years ago -- where we are today compared to where we were 5 years ago, we were making $3 million a year 5 years ago. We're making $30 million a year, 10x, what's our share price? Exactly the same. Either, I'm a great salesman, 5 years ago and I suck at it today or the market just doesn't get it.

I think key -- the key are those half a dozen slides about projections to 2028. And if you've done those slides 5 years ago, then made it -- made the numbers, then everybody would be starting in line to believe you when you come up with the next 5 years' projections. But having done those projections and Sky will make those numbers and beat them by 2028. Then this credibility for the next round of slides and they're going to be humongous numbers with a track record, so we know how to do this.

I think that will help. I mean smart folks just say, keep your head down, do what you're doing, you're doing it right, you're seeing -- the playing field is before you, you're executing correctly, don't make any mistakes. And it will solve itself. I'm still waiting for it to show me a little better. I'm doing what I'm supposed to be doing. I want you all and the market to do what they're supposed to be doing. And it will, but it's not lost on us that it's maddening that is where we find ourselves.

Yes. I mean, part of it is just absolute market cap. And that's been chicken and egg, right? We're at where we are, just being $250 million. Some of this indexing starts at $500 million. Again, that's the estimate. So you're sort of dead in the water, not dead in the water, but you sort of we are until you get to $500 million. So stock would double. It had momentum into '28 or whatever. Then suddenly the passive comes in, all this loose supply gets soaked up. A lot of the auto buyers are in there buying it, and then it could go hard the other way. But you just -- some of -- a lot of these ETFs have minimum market caps of $500 million. So it starts there, and we're still a little bit of distance from that. So yes, how do you get it. How do you double the stock, so it doubles three more times for you. Hard question, chicken and egg. So I have a follow-up question on one of Geoff's interesting questions about, it was the water per SFE math. So when you say we've gone from 0.4 to 0.27, you and I've talked about this, but I was -- maybe I'll put it out here. The old math was, okay, we've got x amount of water. We can do 60,000 homes at 0.4. So if you go to 0.27, and I know margin safety is important and whatnot, but how outlandish is it to say, well, we just going to 0.2 down the road, does that mean you could do 120,000 future taps, or is it not that simple?

No, it is that simple.

Okay. So yes, so the math and -- Mark has kept it pretty conservative, I think, in the slide decks over the years, saying 60,000. Well, if that number was accurate, then now it's at 0.4, you go to 0.3, that bumped that number into the 75,000, 78,000, 80,000 homes and then you do a 40,000 per tap, and it could be higher than that as inflation down the road. It just becomes a time value of money thing. But the fact -- in that, let's call it story, but in that projection of possibility, then the value is going up a lot just because we can tap more homes or does the tap fee come down proportionately as somewhat as...

No, because really the tap fee is a scarcity value commodity. And so that's a market-based principle because somebody can either choose to get water service from us or not. Once you're connected to our system, that's not market-based, right? That's a little more -- that $1,500 per connection per year does not have an infinite opportunity there. We have costs, and we have sort of -- it's not regulated, but there is oversight in there to make sure that our costs and our cost of selling water are in line with others in the metropolitan area. And so we're going to -- you're not going to see the revenue per customer variance like you see that in the tap fee. You can see tap fees for $20,000, and you could see tap fees for $60,000, and that just depends on somebody's portfolio, how much water they have, how much land they have and what they want to do with that portfolio. But that monthly rate is a little bit more in line, it will continue to grow because that's still the best bargain that you're ever going to have to get thousands of gallons on demand of safe, reliable, clean water. That system is still underpriced, and we'll let that environment continue to grow. It probably grows at inflation. But there's likely things that do change that metric to force conservation. And that force conservation, what's that do for you, it makes your portfolio go farther. So maybe we're not serving 60,000 connections, we're serving 100,000 connections. We've got this perpetual loop because what we're doing is we're taking water out, we're using it, and if I sell -- we know that because of wintertime demands that there's no outdoor irrigation. If you have that year round, that customer is going to use about 0.2, 0.22 acre feet of water a year. That's our full reuse model. And so our water supplies come in, they go in, we treat it. We don't discharge it. We bring it back. We store it back into our system and then we reuse it. And so you sort of look at that model as they've been doing it on the space station for a while. Get off my soapbox on that and get down to some color and not complaining.

What about -- it is always -- you talked about here and there, but data center opportunities on the commercial side, I was just back in the west, and I went through a community and there was a debate whether to have data centers or not, it's in the upper midwest where there's an infinite amount of water. And I mean, the amount of -- I mean, the offers on the table by whomever was behind this particular project, I don't know if it's Amazon, Microsoft or somebody else. I mean there is build-out. We do have excess water, had -- has anyone approached you, but if you -- have you been able to study that? And is there an opportunity to do that anywhere around us?

I'd would say it's big money.

It's actually shockingly big money if you can get roll at it.

Right. That's not my sandbox.

Yes. No, I know. Well water is. Water is crazy thing, is -- water is such a huge component of the equation even more than electricity, I know electricity is big. I don't know if anyone has any insight here...

And honestly, the waters...

But the truth is that water is the scarce. And it's the rarer, and that's what we have [indiscernible] and I would extend a little chat with Mark about [indiscernible] on the way here. It's the opposite psychology of the way the company is currently growing. In other words, the way the company is growing, which is really smart and really efficient, is you've got in the center and prime area of your enormous monetizable land. You're developing that land contiguously, I mean inside out. And that is the best business model. It's the best way to make money. It's the most efficient way to make money. Data centers by contrast would be outside it. In other words, you're not going to put a data center next to Sky Ranch Academy. Okay, because that wouldn't be very popular. But you've got an enormous amount of land where a data center could be tucked away, right, access to unlimited water and unlimited power that would also be doing some synergistically good things. Mark...

That looked to be in fact a landlord area or that was just Lowry Ranch. Again, we have the water. So we have -- we'd be the one, the straw that would stir that drink.

Yes. Yes. And the point being that data center isn't just a very good tenant paying you as you have noticed. I mean I would say Mark that this week $52 million a year rental for one of our data center in the [indiscernible] they would not only be a good tenant, so they'd be bringing jobs to the Sky Range community and to Denver, which Denver would be very appreciative about. And you're good partners with Denver already. I mean It's a good synergistic.

Yes. And I do think that we set up well for that with particularly the Lowry property because it's a big contiguous parcel of property. The state landlord can cut a land deal where they could be part of that action, and they can -- we can develop the water, and they don't have much on the sewer side, but they have heavy power at the ranch. You've got major transmission lines that flow through there. They've upgraded the power because Arapahoe County wanted them to use electric rigs on Lowry rather than gas rigs. So they've upgraded the power through that to make sure that they have enough power for that. They have plenty of space, and then they have a variable land deal with them on that. So all of those components should lend itself well for something like a data center, but I don't know what that key is that unlocks that door for it. Does the state need to give them an incentive, a tax incentive on top of the land, on top of retailing or otherwise.

Because [indiscernible] jobs and a bigger tax base, yes to this.

No. And I'd love to engage, right? My answer is, you had me at that, right, so...

May be worth your time to go and see the conferences or something on the data center.

Yes, yes, yes...

Have the investments done?

Not yet.

Yes, I will tell you it will, yes..

The other thing that I will highlight that I think is didn't roll out exactly as planned, was our SFRs for the state filing 5, and that was a function of what we were articulating about the building permit problem. So we have 17 that were coming online in 5. And we set that up to be sequential, right? 4, 5 or 2A -- oh God, we got to standardize that, driving that to 2 A, B, C and D, which is our 4, 5, 6 and 7, right? And so we standardize that, that they roll out every year, right? And so that didn't happen. And now we're going to end up having a bit more of a roll out where we're going to have -- we got houses that are going to get built in 6 before houses that are going to get built in 5. And so you're going to see a bunch of activity on that. It's going to come out a little bit faster a little bit more lumpy than we would otherwise like it, keeps [indiscernible] at night, but we're going to figure out a way that we're going to do that and make sure that we continue to roll those out. So maybe we structured those leases as -- what you don't want is 60 leases that mature in the same month. So maybe some of them are going to be 12-month leases. Some of them are going to be 13, 14, 15, 16, so that we rotate those out. to smooth out that maturity. And we've had an enormous renewal rate. We like that. We want to continue that. But you can't plan on that, right? You got to make sure that you structure this thing correctly so that I don't have 20 units coming on -- well, if I had 200 units, 20 units are going to come up every month. Until we get to 200 units, let's wait until we get a certain percent. I want to have 60% of my inventory maturing on the same month.

We have a question from Elliot Knight.

Elliot?

You are on mute, Elliot?

Elliot, you are going to take it off of mute.

We can go to Greg.

Hi, guys...

Question from both now.

Okay. Go ahead, Eli.

You and I have known each other since 1993. Once...

Almost as long as my wife.

It was before you were married because I remember when you and Sharon were married. Anyway, and certainly, before you had your three children. Since Sky Ranch came into picture, and we've been increasingly to visualize the hidden values in the company. We've had discussions such as you had with the group earlier about values and when people are going to recognize that value. I've begun to think that a critical piece of the puzzle is for you to be able to acquire land and let's say, be able to demonstrate that there's another Sky Ranch [Audio Gap] visible in hand. Now you're not going to make the margins, I don't think that you are on Sky Ranch. But think of what that does to allow you to monetize these, I'll call them growing water reserves as the consumption per acre lot, you get more units out of it. I think that might cause the market to wake up. We had that discussion at the luncheon meeting in New York on February 13, which is available on the website. And much of that discussion, thanks to Geoff, was focused on what the company is worth without a second Sky Ranch. And it's a big number. I just -- where do you stand? How close do you think you are to the second Sky Range?

Okay. Three comments on that. One is I agree with you, it may facilitate a catalyst. Secondly, I will tell you that everyone I want to buy land for listens to our calls. So I try not to be too descriptive about what it is that we're doing on our calls on a public media. Third is we already have that for Christ sakes. I've got Lowry. And whether I buy the land, I've still got billions of dollars worth of land value out there, that people don't give us the credit for. That's Geoff's point. Don't screw it up, don't get too far over your skis on that, and we don't, right? So we're in a position where we do have some of those, and I recognize that, yes, if were -- and I'm not looking to kill it, what I did with Sky Ranch. And I didn't kill it with Sky Ranch. It took a lot of courage to do Sky Ranch because at the time, the world was on fire. And what I'm doing is I'm offering people what I think is even above the market for their land, but then they look at us and say, "Yes, but, yes but." What you can do with that land is much different than what somebody else can. We're having the water, we are having the transportation, we are having the infrastructure. And all those things are valuable and all those things are appropriate for a seller to take under consideration. And I'd love to know, I probably have a fair understanding of half a dozen people that are the sellers that we're looking for as to what they tell me, and what they believe on their value of the land and the transaction. So we're fully engaged and I am going to leave it there.

Greg?

Mark. I recently came across the company that did a water rights transaction in Southeast Colorado. It's a public company in the oil and gas industry. And it basically was the Arkansas River Valley under the Fort Lyon canal. Are you familiar with it, this transaction?

I'm very familiar with the Fort Lyon canal, but -- what's the name of the company?

It's Select Water, the ticker is WTTR. They spent $62 million to get a 35% stake in a water joint venture. So that kind of values what they bought at over $150 million. And they plan to kind of resell the water industrial uses and so forth. It just -- it struck me as like a huge number. And then I start thinking, well, why don't you peel off some of your water right portfolio and sell some just to kind of get a mark and to kind of show the public what the value of these rights are?

So I'm -- no, I'm not familiar with that transaction to the extent that you -- I will look it up, but if you have any information about it, I'd love to see it. I will tell you, we sell 95% of our industrial water for oil and gas to Select, who transfers it. Yes, reason I'm inspired by you on that comment is, we own 10,000 acres of mineral interest in the Fort Lyon system. And if Select knows something that we don't know about oil and gas in the Arkansas and in the Fort Lyon system, that's inspiring to me. And it will be inspiring to all of us because we own a ship ton of minerals down there. We owned about 60,000 acre feet of water in the Fort Lyon system for about 10 years. And we sold that primarily to start Sky Ranch, but also because it's impossible to take water out of the Arkansas and bring it into the plant and Select would know that. And so if they bought a position of water in the Arkansas in the Fort Lyon, it's not to serve the Denver Niobrara formation. That's just incredible.

Got it. There's more details in their investor deck, and yes, I look forward to kind of circling back and...

Yes, I'm going to be talking to my guys at Select.

Thanks.

Yes, that's very interesting. No, I mean, I hadn't heard that. I mean I know a lot of people think there's water plays in the Arkansas and people have speculated on it, and we included. And it took a lot of -- I lost a lot of brown hairs to owning that water down in the Arkansas for the decade that we owned it. But it's a big system, different than the plant. There's probably 8 ditch systems in the plant that control 0.5 million acre feet of water, where it would take 300 ditch systems in the plant to get to that same number. So they're very, very big systems. We went after the Fort Lyon because it's the largest ditch system in the State of Colorado. And that's -- it's an interesting play, Greg? I'm going to look into that.

Yes, Mark, also, I was kind of probing with them as to his ability to move that Water across state boundaries if -- is there the legality and he was somewhat cryptic on that. I was just curious as to -- I know that New Mexico has been restrictive on freshwater, and that there's a part of that Permian Basin that is in need of some water but...

Yes. I mean if he told you he was going to buy that water and ship it out to New Mexico or Texas, I would short Select.

Yes. Okay...

That's just not going to happen.

Not going -- I have -- that's what I figured.

Alright. Well, we're coming up on what we had is kind of our reserve time slot here. Thank you all for your continued confidence in your invested capital. We really do believe we have a value proposition and then even more importantly, I think we try to be good stewards of your invested capital. So while I know, it can go faster, it can go more aggressive and it can go 100 different ways, we try and balance that all out to make sure that what we do is make good decisions. And I've got strength of a terrific team behind me, not only at the management level, but all the way down to the guys that run the excavators and the loaders and big ditches and fix our cars, they're a great group to work with. My talent at the Board level -- our talent, our collective talent at the Board level is unparalleled for a company of our size. I'd say it's unparalleled for any company, but they are tremendous support and resource to me, and they are not lip service. Let me tell you. I end up having to [ beg for mine. No, I don't. ] But I mean, I take it that seriously to make sure that they're well informed so that their guidance and their advice is leaning on their expertise and their experiences through their careers, and it's a great relationship for how the company does do what it is that we do. So thank you for our Board. Thank you for our management. Thank you for all of the investors, and we look forward to catching you up with our year-end results and moving forward with build-out. So I'm going to close with that, and thank you all.

Thanks, Mark.

Thank all.

Thank you.