NOTE 9 – RELATED PARTY TRANSACTIONS

The Rangeview District

The Rangeview District is a quasi-municipal corporation and political subdivision of Colorado formed in 1986 for the purpose of providing water and wastewater service to the Lowry Range and other approved areas. The Rangeview District is governed by an elected board of directors. Eligible voters and persons eligible to serve as a director 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 current boundaries of the Rangeview District. On December 16, 2009, the Company entered into a Participation Agreement with the Rangeview District, whereby the Company agreed to provide funding to the Rangeview District in connection with the Rangeview District joining the South Metro Water Supply Authority (“SMWSA”). The Company provides funding pursuant to the Participation Agreement annually, which for fiscal 2021 and 2020 is an immaterial amount.

Through the WISE Financing Agreement, the Company agreed to fund the Rangeview District’s cost of participating in the regional water supply project known as the WISE partnership. During the three and nine months ended May 31, 2021, the Company through the Rangeview District, received metered water deliveries of 100 and 300 acre-feet of WISE water, paying $0.2 and $0.6 million for this water. During the three and nine months ended May 31, 2020, the Company through the Rangeview District received metered water deliveries of 0 and 400 acre-feet of WISE water, paying $0 and $0.6 million for this water. The cost of the water to the members is based on the water rates charged by Aurora Water and can be adjusted each January 1. As of January 1, 2021, WISE water was $5.77 per thousand gallons and such rate will remain in effect through calendar 2021. In addition, the Company pays certain system operational and construction costs. If a WISE member, including the Rangeview District, does not need its WISE water each year or a member needs additional water, the members can trade and/or buy and sell water amongst themselves.

To date, the Company has capitalized the construction funding pursuant to the WISE Financing Agreement because the funding has been provided to build assets which provide capacity in the WISE infrastructure. The Company’s total investment in the WISE infrastructure as of May 31, 2021, is $6.3 million.

Additionally, the Rangeview District has entered into an agreement with WISE to construct a special facility during fiscal 2021. Pure Cycle will fund the construction of the special facility and Rangeview will remit 100% of the reimbursement revenue to Pure Cycle.

In 1995, the Company extended a loan to the Rangeview District. The loan provided for borrowings of up to $250,000, is unsecured, and bears interest based on the prevailing prime rate plus 2% (5.25% at May 31, 2021). The maturity date of the loan is December 31, 2020, at which time it will automatically renew for another 12-month term. In January 2014, the Rangeview District and the Company entered into a funding agreement that allows the Company to continue to provide funding to the Rangeview District for day-to-day operations and accrue the funding into a note that bears interest at a rate of 8% per annum and remains in full force and effect for so long as the 2014 Amended and Restated Lease Agreement remains in effect. Of the May 31, 2021 balance in Notes receivable - related parties, $1.1 million includes borrowings by the Rangeview District of $0.7 million and accrued interest of $0.4 million. Of the August 31, 2020 balance in Notes receivable - related parties, $1.1 million includes borrowings by the Rangeview District of $0.6 million and accrued interest of $0.5 million.

Sky Ranch Community Authority Board

The Sky Ranch Districts and the Sky Ranch CAB are quasi-municipal corporations and political subdivisions of Colorado formed for the purpose of providing service to the Company’s Sky Ranch property. The current members of the board of directors of each of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB consist of four employees of the Company and one independent board member. Pursuant to that certain Community Authority Board Establishment Agreement, as the same may be amended from time to time, Sky Ranch Metropolitan District Nos. 1 and 5 formed the Sky Ranch CAB to, among other things, design, construct, finance, operate and maintain certain public improvements for the benefit of the property within the boundaries and/or service area of the Sky Ranch Districts. In order for the public improvements to be constructed and/or acquired, it is necessary for each Sky Ranch District, directly or through the Sky Ranch CAB, to be able to fund the improvements and pay its ongoing operations and maintenance expenses related to the provision of services that benefit the property.

The Company and the Sky Ranch CAB entered into a Facilities Funding and Acquisition Agreement (the “FFAA”) effective November 2017, obligating the company to advance funding to the Sky Ranch CAB for specified public improvements constructed from 2018 to 2023. All amounts owed under the FFAA bear interest at a rate of 6% per annum. Any advances not paid or reimbursed by the Sky Ranch CAB by December 31, 2058 for first phase and December 31, 2060 for the second phase, shall be deemed forever discharged and satisfied in full.

As of May 31, 2021, the balance of the Company’s advances for improvements, including interest, net of reimbursements from the Sky Ranch CAB, to the Sky Ranch CAB totaled $21.3 million. The advances have been used by the Sky Ranch CAB to pay for construction of public improvements. The Company submits specific costs for reimbursement to the Sky Ranch CAB which have been certified by

an independent third-party. Previously, the reimbursable expenditures funded by the Company were expensed through Land development construction costs and project management revenue and interest income were not recognized as the reimbursement was deemed contingent on a sufficient tax base and or the issuance of municipal bonds for collectability to be reasonable assured. Additionally, the Sky Ranch CAB is contractually obligated to utilize any available funds not otherwise pledged to payment of previously issued bonds, used for operation and maintenance expenses, or otherwise encumbered, to reimburse the Company. As the collectability of reimbursable expenditures incurred to date for the first development phase of Sky Ranch is determined to be probable, the Company has recognized the remaining reimbursable costs, project management fees, and interest. The Company recognized an increase of $0.6 million to the Note receivable – related party with the offsetting entry being to Project management revenue and other income during the three months ended May 31, 2021, for a note receivable balance of $21.3 million. For the second phase and beyond, the Company will continue to assess the collectability of reimbursable public improvement expenditures. The Sky Ranch CAB has an obligation to repay the Company but the ability of the Sky Ranch CAB to repay the Company before the contractual termination of December 31, 2060 is dependent upon the establishment of a tax base or other fee generating activities sufficient to recover reimbursable costs incurred. Costs incurred will be recognized as Land development inventories or Notes receivable – related party, dependent upon whether collectability is deemed to be reasonably assured. In addition to the note receivable balance of $21.3 million, the Sky Ranch CAB is obligated to refund the Company $0.5 million for the reimbursement of construction costs from the South Metropolitan Water Supply Authority (“SMWSA”).  These costs will be distributed to the Sky Ranch CAB upon the acceptance of the stormwater infrastructure by SMWSA in calendar year 2021. The Company records this reimbursable cost in Trade accounts receivable, net.

Refer to Note 4 - Revenue Recognition for a summary of reimbursable costs incurred to date, payments made from the Sky Ranch CAB, and any outstanding reimbursable amounts.

In September 2018, effective as of November 13, 2017, the Company entered into an Operation Funding Agreement with the Sky Ranch CAB obligating the Company to advance funding to the Sky Ranch CAB for operation and maintenance expenses for the 2018 and 2019 calendar years. All payments are subject to annual appropriations by the Sky Ranch CAB in its absolute discretion. The advances by the Company accrue interest at the rate of 6% per annum from the date of the advance. As of the May 31, 2021 and August 31, 2020,  the balances included in Notes receivable – related parties, related to the Operation Funding Agreement are immaterial.