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 2022 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 nine months ended May 31, 2023, the Company acquired one alluvial well and three deep water wells in the Lost Creek Designated Groundwater Basin for $0.3 million.

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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 related to the construction of 10 homes to be used in Pure Cycle’s single-family rental business and water facilities being constructed, which Pure Cycle anticipates will be placed in service during the next 12 months. During the three and nine months ended May 31,

2023, the Company incurred $1.7 million and $4.5 million of costs related to construction of single-family rental units and water and wastewater construction projects. During the three and nine months ended May 31, 2023, the Company capitalized $0.1 million and $0.7 million of costs as projects were completed and placed into service.

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Single-Family Rental Homes

During the nine months ended May 31, 2022, the Company completed construction of the first three units being utilized in its single-family rental business. The costs of the units are capitalized and when applicable are depreciated over periods not exceeding thirty-years, which is dependent on the asset type. All three units were placed in service and leased effective November 1, 2021.

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During the year ended August 31, 2022, the Company contracted for the construction of 11 additional rental homes to be used in the rental business. The Company began construction on one single-family detached unit in March 2022 which was completed in December 2022 and rented effective December 15, 2022. For the remaining 10 units, comprised of single-family detached houses and paired homes, construction began in the summer of 2022 with estimated completion dates in the fourth quarter of fiscal 2023. During the three and nine months ended May 31, 2023, the Company incurred $1.2 million and $3.2 million related to the construction of these 11 units. Costs for the 10 units still under construction are included in the construction in progress account as of May 31, 2023.

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At May 31, 2023, the Company has reserved a total of 65 lots in Phase 2 of Sky Ranch (10 of which are in Phase 2A and under construction as of May 31, 2023) to build additional rental units.