Q2 2026 SmartCentres Real Estate Investment Trust Earnings Call

Speaker #2: The conference is now being recorded.

Speaker #3: Good day, ladies and gentlemen. Welcome to the Smart Centers V to Q2 2026 conference call. I would like to introduce Mr. Peter Slan. Please go ahead.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: This also applies to comments that any of the speakers make today.

Speaker #5: 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.

Speaker #5: Here are a few examples. The SmartCentres portfolio delivered same property NOI growth of 2.6% for the quarter, or 4.4% excluding anchors. Our occupancy grew to 98.1%.

Speaker #5: 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 ex-toys locations, three of which we completed by the quarter end and one shortly thereafter.

Speaker #5: And 86% of 2026 maturing leases were executed by the end of Q2. Our 200,000 square foot flagship Canadian tire store in Leaside/Rosedale is on track and near completion with turnover expected in the next few months.

Speaker #5: All in all, the portfolio continues to show its strengths. 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.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: And with that, I will pass the call over to Rudy for some more operational highlights. Rudy?

Speaker #6: 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.

Speaker #6: Occupancy returned to above 98%, with four of the six ex-Toys boxes locations being leased. And as Mitch mentioned, operationally, the portfolio is strong, absorbing some of the best retailers in the country replacing low-rent-paying Toys locations, which, if you recall, were typically visited only two to three times a year by customers, compared with weekly visits for food, pharmacy, and dollar stores. This will not only provide a much stronger covenant but will also drive higher rents for the vacated units.

Speaker #6: The higher customer traffic will also drive higher sales for all other tenants within the centers, which then drives higher future rents on renewals and, further, same property NOI growth.

Speaker #6: 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% x anchors.

Speaker #6: Turning to cash flow, cash collection remains strong at 99% in the quarter. And 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.

Speaker #6: 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.

Speaker #6: 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.

Speaker #6: Peter?

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: We again maintained our distributions during the quarter at an annualized rate of a dollar 85 per unit. The payout ratio to AFFO remained stable at 90.5% for the rolling 12 months and to June 30, 2026.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: As of June 30, 2026, we have approximately 715 million dollars of liquidity which includes both cash on hand and undrawn credit facilities but excludes any accordion features.

Speaker #4: Including the accordion, we have 965 million dollars. During the quarter, we also recorded a fair value loss on our investment properties portfolio of 196.2 million dollars.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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 Art Walk block in the Vaughan Metropolitan Center.

Speaker #4: And with that, we would be pleased to take your questions. Operator, can we have a question?

Speaker #5: If you'd like to ask a question at this time, please dial star one on your phone's keypad. The first question is from Lauren Kelmar from Digital Land Capital Markets.

Speaker #5: Please go ahead, Lauren.

Speaker #7: Hi. Good morning, everyone. Just wondering, you know, you mentioned starting some new developments obviously looks like there's going to be a kickoff here on the retail side in a more meaningful way.

Speaker #7: How high are you comfortable taking developments as a percentage of asset value? Hello?

Speaker #2: 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 that grade parking.

Speaker #2: For the most part. So you know, it's not difficult to manage because the rent command on these developments within like under a year from commencement of construction.

Speaker #2: So you know, we're comfortable with where things are, you know, might fluctuate up and down just because some quarters and some years we might be developing a little bit more.

Speaker #2: But as I say, within a year, the rents kick in. So it's not like, you know, density, where we will be in debt for years and years before we see the income.

Speaker #5: Fair enough. Just confirming, you said you guys are at 12% of developments are 12% of asset value right now?

Speaker #4: Yeah, that's right. 12 and a half or so.

Speaker #5: Okay, perfect. Thank you. And then this one's a little bit ticky, tacky, but just notice tenant receivables have climbed up quite a you know, sort of modestly quarter over quarter, but now you're kind of at levels you were at in December of 2020.

Speaker #5: ECL provision is still below, but just wondering if you'd give us an idea of what's behind that and if there's anything really to read into there.

Speaker #6: Hi, Trudy. No, that's just seasonal with taxes. The normal expenses we are incurring on the property—ECL, as you mentioned—were not unusual for the quarter.

Speaker #6: So nothing unusual in that category. And the extent that the ECL that we've booked in the first quarter have not been sorry, not the ECL, the receivables in the first quarter offset by the ECL, we have not adjusted that yet.

Speaker #6: So you're seeing both grow. At some point when we remove it, the receivables will disappear and the ECL will disappear.

Speaker #4: And Lauren, I would just add—it's Peter—I would just add that collections remain very, very high. And so there's nothing from an aging perspective on those receivables to be worried about.

Speaker #6: And in fact, we were you know, in the last, I don't know, three, four, five quarters, we were at 99%. We were over 99% in Q2.

Speaker #6: From a collections, from our tenants' perspective. Yeah.

Speaker #5: Okay, so it should slowly start to trend down then?

Speaker #6: Yeah. Yes.

Speaker #5: Okay. Thank you. That's very helpful. I'll turn it back. The next question is from Mario Saric from Scotia Capital. Please go ahead, Mario.

Speaker #7: Hi, good morning. Just on the capital allocation side with the wind-up of the TRS swap, does that change how you think about allocating capital units that are still trading at about a 20% discount, give or take, to your eye for us fair value?

Speaker #7: Yeah, just curious in terms of how it changes anything, if at all.

Speaker #2: From the point of view of buying back units, we don't have any plans. In fact, that's what you're asking me about.

Speaker #7: Yeah, okay.

Speaker #2: I mean, you know, I use this public. I buy units fairly often. You know, I mean, I'm not suggesting it's not a good price, but at the moment, the REIT does not have any plans to buy back stock units.

Speaker #7: Yeah. Okay. And then just 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 kind of that $200 to $300 million disposition pipeline over the next two to three years is still intact?

Speaker #2: Very much so. I mean, things I'd say, you know, they move all over the place. From one week to the next, but more than not, things are slowly improving on that front.

Speaker #2: I mean, not so much that, you know, the economy is, you know, pumping or anything. It's just that I think people are just feeling a little bit more they have more visibility on, you know, the next period.

Speaker #2: For good and ill, and that, you know, some people are back in the market, some sectors are starting to, you know, get in the mood.

Speaker #2: So we are talking to various but nothing at the moment worthy of announcing, but we are very much committed to that, you know, level of dispositions.

Speaker #7: Okay. And then, just switching over to operations, you've done a really good job of re-tenanting or releasing four of the six Toys "R" Us locations. I think it was at an expected 25% higher net rent.

Speaker #7: As well, can you just maybe give us a sense of the cadence of getting the other, the remaining two, leased up?

Speaker #2: We have interest in both. There's very strong interest in one of them—real upgrade potential and an opportunity to improve rents. And with the other one, there's interest as well.

Speaker #2: So we're pretty optimistic about that. Any other questions?

Speaker #6: 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 center.

Speaker #6: Well, as well. So I think it'll be very much a big step up from the traffic that the toys generated on site.

Speaker #7: 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?

Speaker #7: And do you think that the other two could be rent producing in 2027 as well?

Speaker #2: The two that are under negotiation will probably be very likely be 2027 rent commencements. The four.

Speaker #6: And summer in Q4 and maybe one in the call that may push into the early year. Depending on renovation to the space, but that's it's soon.

Speaker #7: Okay. That's it for me. Thank you.

Speaker #5: The next question is from Sam Damiani from TD Securities. Please go ahead, Sam.

Speaker #7: Thank you and thanks and good morning still everyone. Just on the fair value loss taken on the land, was that a reflection of any ongoing discussions on dispositions of any parcels?

Speaker #7: Or is that just a choice you guys made independent of any?

Speaker #2: No, no, it wasn't based on a negotiation. That 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.

Speaker #2: So no, it's not those were not based on a negotiation.

Speaker #7: 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? Or really, how concentrated was that total provision in Q2?

Speaker #2: Yeah, I mean, it's no, it's you know, from probably in the had focused our attention for potential high-rise, and so it's sort of across half a dozen properties.

Speaker #2: Or more. Whereby we aren't imminently going to do the, you know, the high-rise development there. And we think it's not yeah, we just don't think it's imminent.

Speaker #2: So I thought it was prudent to make the adjustment, but it's not just one or two properties.

Speaker #7: Okay. Thank you. And is there are you seeing any green shoots in the market, the transaction market for residential density land? In Toronto?

Speaker #2: Can you say that one more time? Sorry.

Speaker #7: Yeah, sorry, I was just asking with, you know, the market for the transaction market for residential land, is it are you seeing any signs of it potentially improving in the near term?

Speaker #2: It's really at the moment. I'd say we're at a sort of moment of truth. Sometimes it'll be clearer in the next little bit, you know, but there have been transactions.

Speaker #2: And so whereas, you know, a year ago there were no transactions. So there are transactions, and the question is, you know, I guess, does the game momentum and that sort of it's sort of, I guess, depends on some of the macro economic issues and how people feel, but there's still a lot of people out there in the business, you know, both privately and institutionally that have the capacity to, you know, to buy and to think long term, medium long term.

Speaker #2: 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.

Speaker #2: So yeah, it'll be interesting in the next six months. It'll probably tell the tale or certainly clarify but it feels like there'll be some transactions.

Speaker #2: If you ask me intuitively, I think there's going to be start to be some transactions in the next year.

Speaker #7: 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 cadence of three shopping center deliveries, or being under construction annually.

Speaker #7: How would you see the build-up to that pace by 2027?

Speaker #2: Yeah, I mean, I think that's still the case. I mean, things are moving along with respect to the new retail sites and, you know, developments around various anchors in new markets.

Speaker #2: New market, in new markets, across the country. And I think that would be a fair number to use as a placeholder for now.

Speaker #2: Maybe arguably on the conservative side, but, you know, getting started is there's always, you know, lots of obstacles to getting started. So but I think in terms of what we're what we're planning, you know, if things go smoothly, I think, you know, that's a fairly safe, if not conservative number.

Speaker #7: Okay, great. Thank you. And I'll turn it back.

Speaker #5: The next question is from Pammy Burr from RBC Capital Markets. Please go ahead.

Speaker #6: 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?

Speaker #6: I'm just curious, you know, 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?

Speaker #2: Well, first of all, you know, Simon does the leasing, and by the way, they are really, you know, really good at, you know, outlet sensors.

Speaker #2: So they really make us look good. And this is obviously a bit about the Wonder Child Outlet Centre. So the leasing is going very well, but it's a different type of leasing program than normal.

Speaker #2: I really want to give some additional clarity.

Speaker #6: Sure. The as I mentioned on just a few minutes ago, the rents are in the triple digits. And you know that the tenants that are in the center and the sort of the value of the center what we found was some tenants that are in the center the very strong tenants are asking to get bigger and move into the expansion area.

Speaker #6: And some other tenants are also looking to fill other spaces. So net, we're about 50% leased and plan to be over that by the time we hit construction commencement in Q4 of this year.

Speaker #6: So things are going well. And you remember there's a parking deck that we're building with over 1,200 spots in that parking deck. It'll display some of the surface parking but net it's going to be I think seven six or seven hundred new parking spots with the new GLA that's coming on stream.

Speaker #2: I wanted to add, though, that they don't try to pre-lease it all. That's what I mean by it's different like, you know, they do want to stage the leasing.

Speaker #2: The interest is very strong. So hence why we're expanding. And, you know, the big rents there, I mean, the tenants do huge volumes and make, you know, are doing are very, you know, successful there.

Speaker #2: Although the rents, you know, are pretty high relative to other rents in retail. But it's just—it's its own beast. This is its own, its own thing.

Speaker #2: So everyone's pretty happy with TPO.

Speaker #6: 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?

Speaker #2: Yeah, we're above 8, but, you know, we always try and be conservative with our such things. So yeah, we're pretty comfortable with above 8 for now.

Speaker #6: Okay, just one last question for me. Coming back to the development breakdowns, I think we've seen these charges now for a couple of years in a row.

Speaker #6: So, what maybe just gives you the comfort that the valuations that you're using now are more reasonable, or that, you know, they've bottomed out?

Speaker #2: 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, you know, partly attributable to what we think, you know, we might be able to develop in terms of the amount of density.

Speaker #2: But in terms of value for density, I'd say, again, you know, I don't want to I don't want to jinx the market, but I would say that it does feel like it's bottomed out.

Speaker #2: You know, I'd say it's a little bit better than it was a year ago. So I guess by definition, you know, it's bottomed out and it's starting to it's starting to improve.

Speaker #2: So yeah, in terms of what some what one might pay for density, I'd say it's definitely bottomed out at this point.

Speaker #6: Okay. I will turn it back. Thanks very much, Mitch.

Speaker #5: If anyone would like to queue up to ask a question, please dial *1 on your phone's keypad. The next question is from Dean Wilkinson from CIBC World Markets.

Speaker #5: Please go ahead, Dean.

Speaker #6: 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.

Speaker #6: Should we read into that that your preference for, say, the next dollar or dollar spent would be advancing the current development pipeline then debt then buying back units?

Speaker #6: And if in fact that is the correct order, what would cause you to maybe change your view on sort of, you know, where you're going to put the next incremental dollars?

Speaker #2: I mean, that's more of a discussion, I think—a longer discussion—but, you know, we see the development as being accretive. I mean, this is not, like, you know, speculative development.

Speaker #2: We're going into each one of the new developments with, you know, with an acre tenant so, you know, with a lease, you know, pre-leased.

Speaker #2: It's 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 or 30 years.

Speaker #2: So and it's accretive. You know, so we see that as being a very good use of our balance sheet. Having said that, of course, you know, simultaneously we keep an eye on our debt levels and if we were to, you know, make any major transactions of a disposition variety or whatever, you know, that would go towards lowering debt.

Speaker #2: But, you know, in a de facto it would go some of it might go back into the development program all the while keeping an eye on our various metrics.

Speaker #2: So you know, like when we lower debt, it just gives us room to, you know, do whatever. That we think is in the best interest of the unit holders.

Speaker #2: Always subject to debt metrics. So kind of they're intricately weaved together, those things. But development is a great opportunity for us because that is something you know, within our expertise.

Speaker #2: 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, you know, praying for lower interest rates and, you know, whatever else we can do on the margins. Like, this is robust kind of growth that we're talking about.

Speaker #2: So that is, of course, a priority. Yes.

Speaker #6: Yeah. Okay. Nice. And you've been consistent on that for decades. So I didn't expect that to change. Thanks, guys. I'll hand it back.

Speaker #5: Thank you. There are no further questions in the queue.

Speaker #2: 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.

Speaker #2: Have a great rest of your day and weekend. Thanks.