SmartCentres REIT (TSX:SRU) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
SmartCentres REIT reported a solid Q2 2026 with a same-property NOI growth of 2.6% and a 98.1% occupancy rate, indicative of strong portfolio performance.
The company is focused on expanding its retail portfolio in alignment with major retailers like Walmart and Costco, with specific projects to be disclosed in future updates.
SmartCentres has maintained a stable financial position, with 88% of its debt at fixed rates and $965 million in liquidity, including accordion features.
Operational highlights include the successful leasing of nearly a quarter million square feet of space and strong performance of Toronto Premium Outlets, poised for a 100,000 square foot expansion.
Financial metrics showed FFO unchanged at $0.58 per unit from last year, with a minor decrease in adjusted FFO due to higher interest and administrative expenses.
The company recorded a fair value loss of $196.2 million on its investment properties due to deferred development activities but remains committed to a $200-$300 million disposition pipeline over the next two to three years.
Management expressed confidence in continued growth and operational strength, with plans to maintain a development cadence of three shopping center deliveries annually by 2027.
Full Transcript
OPERATOR
Good day, ladies and gentlemen, and welcome to the SmartCentres REIT Q2 2026 conference call. I would like to introduce Mr. Peter Slan. Please go ahead.
Peter Slan (Executive Vice President & Chief Financial Officer)
Thank you, operator, and good morning, everyone. Welcome to SmartCentres second quarter 2026 results call. I’m Peter Slan, Chief Financial Officer, and as in prior quarters, I’m joined on today’s call by Mitch Goldhar, Executive Chair and CEO, and by Rudy Gobin, our Chief Portfolio and Asset Management Officer. We’ll begin today’s call with some comments from Mitch. Rudy will then provide some operational highlights, and I will review our financial results. We will then be pleased to take your questions.
Just before I turn the call over to Mitch, I would like to refer you specifically to the cautionary language about forward-looking information, which can be found at the front of our MD&A. This also applies to comments that any of the speakers make today. Mitch, over to you.
Mitch Goldhar (Founder, Executive Chairman & CEO)
Thank you, Peter. Good morning and welcome, everyone. I will be brief so we can get to your questions. Q2 was very solid in all categories. Here are a few examples. The SmartCentres portfolio delivered on same-property NOI growth at 2.6% quarter-over-quarter, or 4.4% ex anchors. Occupancy grew to 98.1% for in-place and committed deals. Rental lifts were up 12% excluding anchors on lease extensions. Leases have been executed at higher rents in four of the six Toys R Us locations, three of which were completed by the quarter-end and one shortly thereafter.
And 86% of 2026 maturing leases were executed by the end of Q2. Our 200,000 square foot flagship Canadian Tire store in Leaside is on track, nearing completion, with turnover expected in the next few months. All in all, the portfolio continues to show its strength. This includes commitments by many of our major retailers to expand their store count in our existing portfolio as well as in our retail expansion program. In that regard, we will continue to stay on strategy, expanding our retail portfolio around our major retailers’ growth needs like Walmart, Loblaws and Costco. This expansion program continues to move forward step by step, with specific projects and details to be made available in the months ahead.
Stay tuned. At the corporate level, we continue to carefully manage our balance sheet debt and related metrics. We’ve also taken steps to insulate ourselves from potential interest rate increases, with 88% of our debt being at fixed rates. And with that, I will pass the call over to Rudy for some more operational highlights. Rudy.
Rudy Gobin (Chief Portfolio and Asset Management Officer)
Thanks, Mitch, and good morning, everyone. Q2 gained further ground from the likes of grocers, TJX banners, pharmacy, dollar stores, banks and more, leading to the signing of nearly a quarter million square feet of leases in the quarter. Occupancy returned to above 98%, with four of the six Toys R Us boxes being leased. And as Mitch mentioned, operationally the portfolio was strong, absorbing some of the best retailers in the country, replacing low rent-paying Toys locations — typically visited two to three times a year by customers — with uses like food, pharmacy and dollar stores, which are visited weekly.
These will not only provide a much stronger covenant but will also drive higher rents for the vacated units. The higher customer traffic will also drive higher sales for all other tenants within the centres, which then drives higher future rents on renewals and further same-property NOI growth. The ripple effect is immediate and impacts the entire property for years to come. This resiliency is also reflected in the 86% of the 2026 lease maturities already completed by Q2 with a rental lift of 6.6% all-in, or 12% ex anchors. Turning to cash flow, cash collection remains strong at 99% in the quarter.
Lastly, our Toronto and Montreal Premium Outlets remain at 99% — actually closer to 100% — leased and continue to excel in driving traffic with improving tenant sales and percentage rent. Toronto Premium Outlets remains ranked in the top three in sales in this country, and the planned expansion for near 100,000 square feet is now scheduled to start construction in Q4 with average rents in the triple digits. Overall, we see continuation of all of this momentum into the second half of the year. Thank you, and I’ll now turn it over to Peter. Peter.
Peter Slan (Executive Vice President & Chief Financial Officer)
Thanks, Rudy. As you’ve seen in our release, the FFO this quarter was unchanged from the comparable period last year at $0.58 per unit. FFO with adjustments, which excludes the townhome profits, transactional gains and losses, and the total return swap, was $0.54 per unit compared to $0.55 for the same period in 2025. The modest year-over-year decrease was primarily driven by higher interest expense and general and administrative expenses related to the new long-term incentive plan, partially offset by growth in net rental income.
We again maintained our distributions during the quarter at an annualized rate of $1.85 per unit. The payout ratio to AFFO remains stable at 90.5% for the rolling 12 months ended June 30, 2026. Adjusted debt to adjusted EBITDA was 9.8 times, unchanged from the previous quarter. The weighted average term to maturity of our debt, including debt on equity-accounted investments, was 2.9 years. From a liquidity perspective, we remain very comfortable with our current liquidity position. We recently extended our corporate revolver for an additional two years to 2031. As of June 30, 2026, we have approximately $715 million of liquidity, which includes both cash on hand and undrawn credit facilities, but excludes any accordion features. Including the accordion, we have $965 million.
During the quarter, we also recorded a fair value loss on our investment properties portfolio of $196.2 million. This adjustment was mainly attributable to the deferral of development activities for certain properties under development, offset by some modest discount rate changes in our income-producing portfolio. With the recent strength in our unit price, we unwound the remaining total return swap during the quarter and repaid the associated TRS debt.
As a result, Q2 will be the last quarter that we report a TRS adjustment to our FFO, other than for comparable periods. We realized a modest gain on the unwind transaction and, looking back over the four years since we initiated the swap, it generated a meaningful positive return for the REIT. As in previous quarters, we have updated our MD&A disclosure focusing on those development projects that are currently under construction. As you will see on page 17, there were nine projects under construction at the end of Q2, an increase of one from last quarter. The Vaughan Northwest townhomes were completed and removed from the list, and two additional projects were added. One is a self-storage project in Edmonton and the other is a 65‑unit rental apartment project in the ArtWalk block in the Vaughan Metropolitan Centre.
And with that, we would be pleased to take your questions. Operator,
OPERATOR
If you’d like to ask a question at this time, please dial star‑1 on your phone’s keypad. The first question is from Lauren Kelmar from Desjardins Capital Markets. Please go ahead.
Lauren Kelmar (Analyst)
Hi, good morning, everyone. Just wondering — you mentioned starting some new developments. Obviously, it looks like there’s going to be a kickoff here on the retail side in a more meaningful way. How high are you comfortable taking developments as a percentage of asset value? Hello?
Mitch Goldhar (Founder, Executive Chairman & CEO)
Yeah, yeah, sorry — you stumped us with that question. No, we’re at 12%, and the development that we’re referring to is low-rise, like single-story, with at‑grade parking for the most part. So, you know, it’s not difficult to manage because the rents commence on these developments within under a year from commencement of construction. So, you know, we’re comfortable with where things are. You know, it might fluctuate up and down just because some quarters and some years we might be developing a little bit more.
But, as I said, within a year the rents kick in. So it’s not like, you know, density where we’ll be in debt for years and years before we see the income.
Lauren Kelmar (Analyst)
Fair enough. Just confirming, you said you guys are at 12% — developments at 12% of asset value right now?
Mitch Goldhar (Founder, Executive Chairman & CEO)
Yeah, that’s right. Twelve, twelve and a half or so.
Lauren Kelmar (Analyst)
Okay, perfect. Thank you. And then this one’s a little bit ticky‑tacky, but just noticed tenant receivables have climbed up sort of modestly quarter over quarter, but now you’re kind of at levels you were at in December of 2020. ECL provision is still below, but just wondering if you could give us an idea of what’s behind that — if there’s anything really to read into there.
Peter Slan (Executive Vice President & Chief Financial Officer)
Hi, Lauren. No, that’s just seasonal with taxes — normal expenses we are incurring on the property. ECL was not, as you mentioned, unusual for the quarter. Nothing unusual in that category. And to the extent that the receivables in the first quarter, offset by the ECL, have not been adjusted yet, you’re seeing both grow. At some point when we remove it, the receivables will disappear and the ECL will disappear. And Lauren, I would just add — collections remain very, very high. And so there’s nothing from an aging perspective on those receivables to be worried about. In fact, for the last three, four, five quarters we were at 99%. We were over 99% in Q2 from a collections perspective from our tenants.
Lauren Kelmar (Analyst)
Okay, so it should slowly start to trend down then. Okay, thank you, that’s very helpful. I’ll turn it back.
OPERATOR
The next question is from Mario Saric from Scotia Capital. Please go ahead.
Mario Saric (Analyst)
Hi, good morning. Just on the capital allocation side, with the wind‑up of the TRS, does that change how you think about allocating capital? Units are still trading at about a 20% discount, give or take, to our fair value. Just curious in terms of how it changes anything, if at all.
Mitch Goldhar (Founder, Executive Chairman & CEO)
From the point of view of buying back units, we don’t have any plans. That’s what you’re asking? I mean, you know, it’s public — I buy units fairly often. I’m not suggesting it’s not a good price, but at the moment the REIT does not have any plans to buy back units.
Mario Saric (Analyst)
Okay. And then conversely, with respect to the balance sheet and asset sales, can you give us an update in terms of your conviction level in getting something done on the disposition side in ’26, and whether that $200 to $300 million disposition pipeline over the next two to three years is still intact?
Mitch Goldhar (Founder, Executive Chairman & CEO)
Very much so. I mean, things — I’d say they move all over the place from one week to the next. But more than not, things are slowly improving on that front. I mean, not so much that, you know, the economy’s pumping or anything. It’s just that I think people are feeling a little bit more — they have more visibility on, you know, the next period for good and health and that. You know, some people are back in the market, some sectors are starting to get in the mood.
So we are talking to various, but nothing at the moment worthy of announcing. But we are very much committed to that level of dispositions.
Mario Saric (Analyst)
Okay. And then just switching over to operations: you’ve done a really good job of re‑tenanting or re‑leasing for the six Toys R Us. I think it was an expected 25% higher net rent as well. Can you just maybe give us a sense of the cadence of getting the remaining two leased up?
Mitch Goldhar (Founder, Executive Chairman & CEO)
We have interest in both — some very interesting, strong interest in one of them. Real upgrade and, yeah, improved rents. And the other one there’s interest in. So we’re pretty optimistic about that.
Rudy Gobin (Chief Portfolio and Asset Management Officer)
Yeah, no, I would just say the uses that we’re looking at will be, again as I mentioned for the first four, better covenants, higher traffic generation, higher traffic for all the other tenants in the shopping centre as well. So I think it’ll be very much a big step up from the traffic that the Toys generated on site.
Mario Saric (Analyst)
Got it. And is the expected rent commencement on the four that have been leased — is it still potentially in Q4 ’26, or is that more of a ’27 event? And do you think that the other two could be producing in 2027 as well?
Rudy Gobin (Chief Portfolio and Asset Management Officer)
The two that are under negotiation will probably very likely be 2027 rent commencements in Q4, and maybe one call that may push into the early year, depending on renovation to the space. But that’s — it’s soon.
Mario Saric (Analyst)
Okay, that’s it for me. Thank you.
OPERATOR
The next question is from Sam Damiani from TD Securities. Please go ahead, Sam.
Sam Damiani (Analyst)
Thank you, and thanks, and good morning. Just on the fair value loss taken on the land, was that a reflection of any ongoing discussions on dispositions of any parcels, or is that just a choice you guys made independent of any?
Mitch Goldhar (Founder, Executive Chairman & CEO)
No, no, it wasn’t based on a negotiation. It was just based on, you know, our feeling at this point that, for a variety of reasons, those were not reflecting accurately the value at this time. So, no, those were not based on a negotiation.
Sam Damiani (Analyst)
Okay. And the fair value loss was — I’m sure it was reflective of a number of parcels — but was the bulk of it concentrated in just, you know, maybe two parcels really? How concentrated was that total provision in Q2?
Mitch Goldhar (Founder, Executive Chairman & CEO)
Yeah, I mean, it’s — no, it’s, you know, from probably in the past where we had focused our attention for potential high‑rise. And so it’s sort of across half a dozen properties or more, whereby we aren’t imminently going to do the high‑rise development there. And we think it’s not — yeah, we just don’t think it’s imminent, so thought it was prudent to make the adjustment. But it’s not one or two properties.
Sam Damiani (Analyst)
Okay, thank you. And are you seeing any green shoots in the transaction market for residential density land in Toronto?
Mitch Goldhar (Founder, Executive Chairman & CEO)
Can you say that one more time? Sorry.
Sam Damiani (Analyst)
Yeah, sorry. I was just asking: with the market for the transaction market for residential land, are you seeing any signs of it potentially improving in the near term?
Mitch Goldhar (Founder, Executive Chairman & CEO)
At the moment, I’d say we’re at the sort of moment of truth. Sometimes it’ll be clearer in the next little bit, but there have been transactions — whereas, you know, a year ago there were no transactions. So there are transactions. And the question is, does it gain momentum? That sort of depends on some of the macroeconomic issues and how people feel. But there’s still a lot of people that are in the business, both privately and institutionally, that have the capacity to buy and to think medium to long term.
So some of them are buying — not many, but at least there’s some. And we’re sort of waiting and watching to see if it picks up. So, yeah, it’ll be interesting. The next six months will probably tell the tale or certainly clarify, but it feels like there’ll be some transactions. If you ask me, intuitively I think there’s going to start to be some transactions in the next year.
Sam Damiani (Analyst)
Okay, great. Thank you. And last one for me is just, Mitch, your comments at the annual meeting about getting up to a sort of a cadence of three shopping centre deliveries or being under construction annually — how would you see the build‑up to that pace by 2027?
Mitch Goldhar (Founder, Executive Chairman & CEO)
Yeah, I mean, I think that’s still the case. Things are moving along with respect to the new retail sites and developments around various anchors in new markets across the country, and I think that would be a fair number to use as a placeholder for now — maybe arguably on the conservative side. But, you know, getting started, there’s always lots of obstacles to getting started. In terms of what we’re planning, if things go smoothly, I think that’s a fairly safe, if not conservative, number.
Sam Damiani (Analyst)
Okay, great. Thank you. And I’ll turn it back.
OPERATOR
The next question is from Pami Burr from RBC Capital Markets. Please go ahead.
Pami Burr (Analyst)
Thanks. Good morning. I just wanted to come back to the TPO expansion. What can you maybe share in terms of where leasing is at this stage? I’m just curious, are you seeing any demand from tenants that are not necessarily outlet‑type tenants, just given that there has really not been much new supply out there?
Mitch Goldhar (Founder, Executive Chairman & CEO)
Well, first of all, Simon does the leasing — and by the way, they are really good at outlet centres, so they really make us look good. And this is obviously a bit of a wonder‑child outlet centre. So the leasing is going very well, but it’s a different type of leasing program than normal. Rudy, you want to give some additional colour?
Rudy Gobin (Chief Portfolio and Asset Management Officer)
Sure. As I mentioned just a few minutes ago, the rents are in the triple digits, and the tenants that are in the centre and the value of the centre — what we found was some tenants that are in the centre, the very strong tenants, are asking to get bigger and move into the expansion area, and some other tenants are also looking to fill other spaces. So net‑net, we’re about 50% leased and plan to be over that by the time we hit construction commencement in Q4 of this year.
So things are going well. And remember, there’s a parking deck that we’re building with over 1,200 spots in that parking deck. It’ll displace some of the surface parking, but net‑net it’s going to be, I think, six or seven hundred new parking spots with the new GLA that’s coming on stream.
Mitch Goldhar (Founder, Executive Chairman & CEO)
I wanted to add, though, that they don’t try to pre‑lease it all — that’s what I mean by it’s different. They do want to stage the leasing. The interest is very strong, hence why we’re expanding. And the big rents there — I mean, the tenants do huge volumes and are very successful there — are pretty high relative to other rents in retail. But it’s just its own beast — its own thing. So everyone’s pretty happy with TPO.
Pami Burr (Analyst)
Any change to that — I think you previously cited a target yield of north of 8% — any upside to that based on what you’ve done to date, or what they’ve done to date?
Mitch Goldhar (Founder, Executive Chairman & CEO)
Yeah, we’re above 8, but, you know, we always try and be conservative with such things. So, yeah, we’re pretty comfortable with above 8 for now.
Pami Burr (Analyst)
Okay, just last one for me — coming back to the development write‑downs. I think we’ve seen these charges now for a couple years in a row. So what maybe gives you the comfort that the valuations that you’re using now are more reasonable or that they’ve bottomed out?
Mitch Goldhar (Founder, Executive Chairman & CEO)
Oh, that’s a good question. First of all, I guess part of the write‑down goes towards the value, but some of it may be partly attributable to what we think we might be able to develop in terms of the amount of density. But in terms of value for density, I’d say again — I don’t want to jinx the market — but I would say that it does feel like it’s bottomed out. I’d say it’s a little bit better than it was a year ago, so by definition it’s bottomed out and it’s starting to improve.
So, yeah, in terms of what one might pay for density, I’d say it’s definitely bottomed out at this point.
Pami Burr (Analyst)
Okay, I’ll turn it back. Thanks very much, Mitch.
OPERATOR
If anyone would like to queue up to ask a question, please dial star‑1 on your phone’s keypad. The next question is from Dean Wilkinson from CIBC World Markets. Please go ahead, Dean.
Dean Wilkinson (Analyst)
Thanks. Morning, everybody. Mitch, just going back to the TRS and your comments around that — and first, I think we all thank you for unwinding that. Should we read into that that your preference for, say, the next dollar spent would be you advancing the current development pipeline, then debt, then buying back units? And if, in fact, that is the correct order, what would cause you to maybe change your view on where you’re going to put the next incremental dollars?
Mitch Goldhar (Founder, Executive Chairman & CEO)
I mean, that’s more of a longer discussion, but we see the development as being accretive. I mean, this is not speculative development. We’re going into each one of the new developments with an anchor tenant — pre‑leased, a substantial portion of the square footage. So, you know, there’s a year of construction for this type of thing, and we’re in debt for that year, but then we’re collecting rent for the next 20, 30 years. And it’s accretive, so we see that as being a very good use of our balance sheet.
Having said that, of course, simultaneously we keep an eye on our debt levels, and if we were to make any major transactions of a disposition variety or whatever, that would go towards lowering debt. But de facto, some of it might go back into the development program, all the while keeping an eye on our various metrics. When we lower debt, it just gives us room to do whatever we think is in the best interest of the unitholders, always subject to debt metrics.
So they’re intricately weaved together, those things. But development is a great opportunity for us because that is something within our expertise and relationships and intel. So it’s accretive — we want to make the most of that. That’s really the ultimate driver of significant material growth. It’s not, you know, raising rents and praying for lower interest rates and whatever else we can do on the margins. This is robust kind of growth that we’re talking about. So that is, of course, a priority. Yes.
Dean Wilkinson (Analyst)
Yeah. Okay, nice. You’ve been consistent on that for decades, so I didn’t expect that to change. Thanks, guys. I hand it back.
OPERATOR
Thank you. There are no further questions in the queue.
Peter Slan (Executive Vice President & Chief Financial Officer)
Okay, well, thank you for participating in our Q2 call. Please feel free to reach out to any of us if you have any further questions. Have a great rest of your day and weekend. Thanks.
OPERATOR
Ladies and gentlemen, this concludes the SmartCentres REIT Q2 2026 conference call. Thank you for your participation and have a nice day.
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