SmartCentres Real Estate Investment Trst (TSE:SRU.UN) executives said the REIT closed out 2025 with continued operating momentum, supported by strong leasing demand, high occupancy and same-property net operating income (NOI) growth, while emphasizing a conservative approach to leverage and liquidity.
Portfolio performance and leasing trends
Executive Chair and CEO Mitchell Goldhar said SmartCentres posted “strong Same Property NOI growth,” “high occupancy levels,” “competitive rental lifts,” and “higher FFO,” while keeping developments on schedule and maintaining what he described as a conservative balance sheet. Goldhar added that performance across the portfolio’s sectors—retail, industrial, residential, storage and office—was seeing “healthy short and long-term growth with high tenant retention.”
Gobin said the REIT extended 88% of the 5.3 million square feet of space maturing during the year, with rental spreads of 8.4% excluding anchors and 6.3% overall. He also said quarterly cash collections remained strong at “near 99%.”
Q4 financial items and balance sheet positioning
Chief Financial Officer Peter Slan said same-property NOI growth in the fourth quarter was 2.9%, or 5.1% excluding anchor tenants, driven mainly by lease-up and renewal activity. However, results were partially offset by the impact of an expected credit loss provision “primarily associated with one retail tenant.” Slan said that excluding the credit provision, same-property NOI growth would have been 4.5% in Q4.
Slan said the change in funds from operations (FFO) in the quarter was primarily due to NOI growth and a fair value adjustment on the REIT’s Total Return Swap.
On capital structure, Goldhar said SmartCentres improved financial flexibility with over CAD 1 billion in liquidity, 90% of debt fixed rate, and “for the first time” an unencumbered asset pool of CAD 10 billion.
Slan reported adjusted debt to adjusted EBITDA of 9.7 times in Q4, up slightly from the prior quarter. He also said the weighted average debt term to maturity, including debt on equity-accounted investments, was 3.4 years, improving from 2.9 years at Q3 due largely to ventures issued during the quarter and refinancings of maturities.
The REIT maintained its distribution at an annualized rate of CAD 1.85 per unit. Slan said the payout ratio to adjusted funds from operations (AFFO) improved to 89.2% for the year ended Dec. 31, 2025.
Development activity and Toronto Premium Outlets expansion
Gobin said strong retail demand has supported SmartCentres’ efforts to “expand into complementary uses,” including medical, daycare, entertainment and sports-related facilities. He also said premium outlets continued to perform well, with improving tenant sales supporting percentage rents that are converted to base rents at lease maturities.
At Toronto Premium Outlets, Gobin said increasing demand for space has led to an 85,000–90,000 square foot expansion opportunity, with “top-end tenants already signing leases.” The plan includes a new parking deck, and Gobin said the project is underway with a construction start expected this summer.
Asked about returns, Goldhar said the REIT anticipates a “pretty healthy” return in excess of 8%, but declined to discuss total cost while construction negotiations are ongoing. Later on the call, management confirmed the 8%+ return expectation includes the parking deck. Goldhar said rent commencement could potentially be “late 2027,” but that 2028 is a reasonable timeline.
Slan also noted progress at the Vaughan Northwest townhome project, where the REIT closed on seven townhomes in Q4. He said the project has generated a cumulative margin of approximately 23% to date, with phase one nearing completion as 118 of 120 homes have now closed.
Toys “R” Us exposure and occupancy outlook
Management addressed Toys “R” Us after the retailer filed for creditor protection after year-end. Gobin said SmartCentres had already terminated six leases and taken control of the space prior to the filing, based on advanced negotiations to backfill with grocers and TJX banners. He said the REIT expects to re-lease at least half of the locations “very soon” and at higher rents.
During Q&A, Gobin said the REIT is “exchanging paper” on four of the six locations. He also provided a framework for how the vacancies could affect occupancy, indicating that if half are re-leased before the end of the quarter, the remaining impact would be about 0.3%, suggesting occupancy could move from 98.6% to about 98.3% on an apples-to-apples basis.
On 2026 same-property NOI, Goldhar said that excluding the Toys situation, management would expect results in a “similar range” to 2025. He said Toys “is gonna put a little damper on things at the beginning of the year,” with backfills likely not taking possession until around Q2, meaning the benefit would show up later in the year.
Capital recycling, retail growth pipeline, and governance update
On disposition activity, Goldhar said one previously discussed sale appeared “very much alive,” while another potential sale fell through and is now being negotiated as a lease. He added that market conditions appear to be improving for capital recycling and that the REIT hopes to pursue dispositions—“first and foremostly” potentially some non-income producing land.
Asked about deleveraging through asset sales, Goldhar said the REIT does not view its income-producing properties (IPP) as non-core, noting that the REIT developed roughly 85%–90% of the portfolio and collects over 99% of IPP rent. He said the REIT’s preference for capital raising and recycling is to sell permitted density, referencing approximately 60–70 million square feet of permitted density across owned properties. Goldhar said SmartCentres would like to sell CAD 200 million to CAD 300 million of that density over the next couple of years, “and more” if market demand supports it.
Goldhar also described a retail-led growth outlook over the next five years, arguing that population growth and limited physical retail construction over the past 12–13 years have created “catch up” demand from major retailers. He said SmartCentres is “super busy” buying new sites and pursuing approvals for new shopping centers across the country, with activity expected to start to “kick in next year” and build from there. He later suggested that retail construction starts in the current calendar year could be on the order of 200,000–300,000 square feet, with more growth after permits are in place.
Separately, management confirmed the REIT acquired land in Bolton for retail, with Goldhar saying details will be announced later and that construction is hoped to begin “sometime, hopefully this year.”
Finally, Goldhar addressed an investor question regarding agreements with Penguin. He said arrangements expired at the end of last year and were partially extended, but the voting top-up right could not be extended without unitholder approval and has therefore expired. Goldhar said negotiations for a new contract are ongoing, “going very well,” and “looking positive,” with details to be released once finalized.
About SmartCentres Real Estate Investment Trst (TSE:SRU.UN)
SmartCentres Real Estate Investment Trust is a canadian fully integrated commercial and residential REITs, with approximately 174 strategically located properties in communities across the country. The company is developing complete, connected, mixed-use communities on its existing retail properties, under it’s wholly-owned residential sub-brand, SmartLiving.
