NOTE 5 – WATER, LAND AND OTHER FIXED ASSETS

The Company’s water rights and current water and wastewater service agreements, including capitalized terms not defined herein, are more fully described in Note 4 to the 2024 Annual Report.

Investment in Water and Water Systems

The Company’s Investments in water and water systems consist of the following costs and accumulated depreciation and depletion:

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During the three months ended February 28, 2025 there were no additional acquisitions of water rights. During the six months ended February 28, 2025, the Company’s Lost Creek water supply increased $3.5 million, primarily from the acquisition of 378 acre-feet of ditch water in the Henrylyn Irrigation District and 300 acre-feet of groundwater rights in the Lost Creek Designated Basin.

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The Company, the Rangeview Metropolitan District (“Rangeview District”) and the State Land Board filed a Water Court Application on December 31, 2020 seeking: (1) to adjudicate 1,635 acre feet of water from the Box Elder Creek Alluvial aquifer (a new water right), (2) consolidate and enlarge certain reservoirs on the Lowry Ranch, (3) approve new places of use for existing water rights, (4) approve new places of storage for certain water rights, and (5) approve a new alternate diversion point for certain existing water rights. On February 7, 2025, the Water Court denied our new water right application of 1,635 acre feet of Box Elder Creek Alluvial aquifer water, as well as the consolidation and enlargement of certain reservoirs on the Lowry Ranch. Neither of these rulings impacted our existing water rights or existing reservoir storage sites. The Court sought additional information from the parties regarding the three claims which remain outstanding.

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Construction in Progress

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The construction in progress account represents costs incurred on various construction projects currently underway that as of the balance sheet date have not been completed and placed into service. The construction in progress account consists primarily of costs incurred relating to water facilities and Sky Ranch infrastructure being constructed, which Pure Cycle anticipates will be placed in service during the next 12 months. During the three and six months ended February 28, 2025, the Company incurred $0.7 million and $1.1 million of costs related to construction in Sky Ranch and water and wastewater construction projects. The Company capitalized $1.5 million and $2.5 million of costs as projects were completed and placed into service during the three and six months ended February 28, 2025.

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Single-Family Rental Homes

As of February 28, 2025, Pure Cycle has 14 single-family detached homes rented under separate lease agreements. Pure Cycle will begin construction on 17 additional rental homes in Phase 2B, all of which the Company believes will be available for rent in fiscal 2025. As of February 28, 2025, the Company had reserved 84 lots in Phases 2B, 2C and 2D of Sky Ranch for future rental units. When combined with the 14 units already built and rented, these additions will bring the total single-family rentals to 98. The Company expects to take approximately three more years to build and rent all these units. Based on these projections, the Company believes this could become a reportable operating segment in the future once its operations become material.