Pure Cycle (NasdaqCM:PCYO) Q1 2026 Earnings Call January 08, 2026 08:30 AM ET Company ParticipantsJoakim Persson - Circles Asset ManagementMark W. Harding - President and CEOConference Call ParticipantsNone - Analyst 2None - Analyst 1None - Analyst 3None - Analyst 4OperatorGood morning, everyone, and welcome to Pure Cycle Corporation's first quarter 2026 earnings call. We've had a great start to the year, and we're excited to share with you guys our results for the first quarter. A couple of housekeeping no ...

Financial Data and Key Metrics Changes - The company reported strong same-property NOI growth of nearly 5%, primarily driven by a 4.7% increase in base rent [10][17] - Full-year earnings growth outlook has been raised, with anticipated same-property NOI growth of 5.25% to 5.5% and mid-7% growth for NAREIT FFO [17][20] - The dividend has been increased by more than 7%, reflecting strong performance and commitment to shareholder returns [8][17] Business Line Data and Key Metrics Changes - The same-property percent lease rate stands at 96.4%, with expectations to exceed prior peak levels due to strong demand and limited new supply [10][11] - Cash-free leasing spreads were strong at 13%, while gap rent spreads reached near record high levels at 23%, indicating effective rent growth strategies [12][52] Market Data and Key Metrics Changes - The company has successfully signed three new grocer leases in Q3, enhancing foot traffic and merchandising at key assets [11] - The leasing pipeline includes approximately 1 million square feet of leases in negotiation, indicating continued strong leasing activity [12][68] Company Strategy and Development Direction - The company emphasizes ground-up development as a key differentiator, being the only national developer of grocery-anchored shopping centers at scale [8][15] - The development pipeline is robust, with over $170 million in new projects started in Q3, bringing the year-to-date total to more than $220 million [14][15] - The company is focused on maintaining a strong balance sheet and generating significant free cash flow to fund external growth [18][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the health of the tenant base and the favorable retail environment, which supports continued above-trend same-property NOI growth [13][20] - The company anticipates a mid-3% same-property NOI growth for 2026, with expectations of similar credit loss conditions as in 2025 [19][30] Other Important Information - The company has integrated a recently acquired portfolio and is actively working to source attractive acquisition opportunities [16][45] - The balance sheet remains strong, with leverage within the target range and nearly full availability on a $1.5 billion credit facility [18][20] Q&A Session Summary Question: Can you provide some color on the 11 asset distribution transaction with your JV partner? - Management highlighted the long-term partnership with GRI and the strategic alignment of the portfolio, allowing for a mini DIK transaction to enhance ownership of high-performing assets [22] Question: What's changing from the environment that you're seeing for 2026? - Management expects credit loss provisions to remain similar to 2025, with a focus on base rent growth contributing to the mid-3% same-property NOI growth forecast [26][30] Question: How should we think about the potential on development and redevelopment starts into next year? - Management indicated confidence in finding investment opportunities, with a shift towards ground-up development as the success of the development program continues [34][36] Question: Can you provide more color on the mix of new leasing being done on the anchor side versus shops? - Management noted that the increase in anchor transactions was coincidental for the quarter and not development-driven, with a focus on maintaining strong cash rent spreads [39][40] Question: What are you seeing in the market regarding cap rates or IRRs? - Management observed a competitive market with cap rates trending lower, indicating strong demand for quality assets [44][46] Question: Can you give a sense of where you're underwriting rents for anchor and small shop versus current market rents? - Management emphasized the importance of relationships with grocers and the expertise in underwriting to ensure successful development projects [76][78]