SmartCentres Real Estate Investment Trust

Good day, ladies and gentlemen. Welcome to the Smart Center's REACH Q4 2025 conference call. I would like to introduce Mr. Peter Slam. Please go ahead.

Good afternoon, and welcome to Smart Center's fourth quarter and full year 2025 results call. I'm Peter Slam, Chief Financial Officer, and I'm joined on today's call by Mitch Goldhar, Executive Chair and CEO, and by Rudy Gobin, our Executive Vice President, Portfolio Management and Investments. We will begin today's call with 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 also 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.

Thank you, Peter. Good afternoon and welcome, everyone. Comments this afternoon will be succinct to allow more time for your questions. Smart centers continued its strong performance in Q4, closing out 2025 with strong same-property NOI growth, high occupancy levels, competitive rental lifts, higher FFO, developments on schedule while maintaining a conservative balance sheet. At the property level, performance across all sectors throughout the country, retail, industrial, residential, storage, and office, are all experiencing healthy short- and long-term growth with high tenant retention. And in the area of retail specifically, very healthy growth. Among other things, this is translating into upgrading and expansion of our existing retail sites with stronger covenants, as well as the development and build-out of newly acquired retail sites across the country. And while the business continues to grow organically and through new income-producing developments, we will continue to carefully manage our debt and debt-related metrics. In that regard, we have improved our financial flexibility with over $1 billion in liquidity, 90% of debt being fixed rate, and for the first time, attaining an unencumbered asset pool of $10 billion, which Peter will speak to in a moment. But before that, let me turn it over to Rudy for some more operational highlights. Rudy?

Thanks, Mitch, and good afternoon, everyone. The fourth quarter was once again a standout and delivered on the momentum of the prior quarters. Tenant demand for space remained strong, delivering high-quality income across the portfolio, maintaining a leading 98.6% occupancy at year end, unchanged from the prior quarter. Same property NOI continued its strong momentum with 3.7% growth for the year and 5.6% excluding anchors. And well within the range we outlined at the beginning of the year. We 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% all-in. Cash collections remain strong at near 99% in the quarter. Strong retail demand for our high-traffic centers have allowed us to expand into complementary uses with medical, daycare, entertainment, rackets, and sports facilities. Our premium outlets continue to excel in driving traffic with improving tenant sales, and the resulting percentage rents, which we convert to base rent at maturities. At Toronto Kingdom Outlets, the increasing demand for space has developed into an expansion opportunity of 85,000 to 90,000 square feet, with top-end tenants already signing leases. This expansion will be accompanied by a new parking deck, and all of this is already underway with a construction start expected this summer. As you know, after the year end, toys file for credit protection. But prior to that, the REIT had already terminated its six leases and taken control of the space based on the advanced lease negotiations to backfill with closures and TJX banners. We expect to release at least half of these locations very soon and at higher rents. On ESG, we continue advancing several initiatives across the organization. as part of our multi-year plan, including materiality assessments, decarbonization planning, physical preparedness in response to climate change, cybersecurity improvements, and enhancing our disclosures. Overall, the business remains strong. Rents continue to grow on the foundation of an improving retail environment, greater cash flow stability, improving covenants, and an expanding footprint We expect the portfolio to continue this momentum throughout 2026. Thank you, and I'll now turn it over to Peter.

Thank you, Rudy. As you have seen in our release, same property NOI growth remains solid, increasing 2.9% for the quarter, or 5.1% excluding anchor tenants, mainly due to lease-up and renewal activities, partially offset by the impact of an expected credit loss provision, primarily associated with one retail tenant. Excluding the credit provision, same property NOI grew at 4.5% in the fourth quarter. The change in FFO this quarter was primarily due to NOI growth and a fair value adjustment on our total return swap. During Q4, we also closed on seven townhomes in our Vaughan Northwest project. This has resulted in a cumulative margin of approximately 23% for the project to date. bringing phase one of the project to virtual completion with 118 of the 120 homes now closed. We again maintained our distributions during the quarter at an annualized rate of $1.85 per unit. The payout ratio to AFFO continues to show improvement at 89.2% for the full year ended December 31, 2025. Adjusted debt to adjusted EBITDA was 9.7 times in Q4, Up slightly from last quarter, the weighted average term to maturity of our debt, including debt on equity accounts and investments, is 3.4 years, a significant improvement from 2.9 years at Q3, largely as a result of the ventures we issued during the quarter and the maturities that were refinanced. As in previous quarters, we have updated our MD&A disclosure, focusing on those development projects that are currently under construction. As you can see on page 18, There were eight projects under construction at the end of Q4, unchanged from the prior quarter. And with that, we would be pleased to take your questions. So, operator, can we have the first question on the line, please?

Certainly. We were just going to grab your name. Please stand by.

Hello, this is the operator. What's your name? Hello, this is the operator. Yes, hi, what's your name?

Sorry, our operator was Carl. He was trying to get the first question on the line for us.

This is the speaker line.

Apologies, folks. That was my bad. Mario Sarek from Scotiabank. Please go ahead.

Hi. Good afternoon. Thanks for taking the questions. Just maybe to start on the capital recycling slash allocation side, Mitch, last quarter, you talked about some potential dispositions of some vacant buildings. Can you just give us an update in terms of what your disposition targets are like in 2026 and the timing thereof?

Hey, Mario. We have something going on. One of the, I think, I don't remember exactly how it was framed last time, but there were a couple of sales that were still not done that we were anticipating. One of them seems very much alive. The other one, I think, the other one, it's actually a vacancy that, We thought we had sold, but it fell through that we're now negotiating a lease on. So that's in terms of sort of the two that were outstanding from last call. And in general, the market conditions seem to be improving for capital recycling, for dispositions. So we are... hoping to see some dispositions of, first and foremost, potentially some non-IPP, you know, some land, which we are currently, you know, starting to focus on.

What would you attribute the improved sentiment in terms of the buyer pool?

Probably, I think it's partly to do with there's, I mean, not that the world is so great, but it does feel like, you know, there's a little more visibility or a sense of visibility. Whereas, you know, a year ago, it was a lot more uncertain. People were actually sort of nervous a year ago. I don't, you know, I think that there's a little bit more, a little bit more confidence. So I think, you know, it's a big one. I guess construction prices are, you know, softening, a little bit more motivation in the sub-trade marketplace, so for certain types of construction. I think that's helping. And I'm not saying it's, you know, it's red hot or anything, but I think in terms of people making moves and, you know, opening their wallets a bit, it does feel like it's better than it was.

Okay. And speaking of construction costs, I may have missed it, but in terms of the expected expansion, the Toronto premium outlooks, can you share with us any kind of range in terms of the cost and types of returns that you think you can achieve?

um we'll really jump in there too but the returns are quite uh solid um in excess of uh we anticipate in excess of eight percent and probably we're still you know what we're still negotiating on the um on the construction so um i'd rather not i'd rather not speak to the cost um our our contractors The contractors could be listening in. We are in negotiations right now. But it looks like a pretty healthy 8-plus percent return.

Okay. My last question on the operational side, you know, you have industry-leading occupancy. You know, every time we think it can't go up any higher, it does. You look at 26, what is your – projection in terms of maintaining these occupancy? We've seen a couple of tenants face a bit of pressure. A colleague of yours highlighted a couple of beer stores, for example, that were given back, so I'm not quite sure what your exposure there would be, but how do you see the occupancy both kind of in place and committed evolving as

Well, of course, you have to say couldn't get any higher and then, of course, we have . So, you know, but, you know, this is something that's actually, frankly, you know, the least, what's the right way to say it? We were not surprised by the Tesoro situation. As you know, we already dealt with a couple of them before they declared. So if you X them out, I think you're looking at very, very, very strong occupancy levels. And we have a lot of interest in the toy spaces, better rents and better covenants and better draw and long-term leases, et cetera, et cetera. But I'll let Rudy further illuminate on that.

Yeah, the only – Mitch said it well. The only thing I'd add is, you know, we terminated those leases before the filing, so we have control of the space. because we had parties we were talking to, grocers, TJX banners, requesting those spaces. They're perfect sizes for food and for the likes of TJX banners. So we have control of all the spaces, and we are exchanging paper on, you know, four of the six of them already, which is fantastic. So we, you know, excluding that, we are expecting another strong occupancy here.

Okay, that's for me. Thank you. Thank you. The next question is from Juliano Thornhill from National Bank Financial. Please go ahead.

Hey, guys. Just kind of one question on deleveraging. I missed the tail end of the question, actually, that was asked earlier. Just with your kind of payout ratio at the mid-90s, like net debt at the high nines, has the re-given thought to, you know, more aggressively selling some of the non-core IPP, and if not, you know, why?

Well, first of all, I don't think we really have any non-core IPP. So, and, you know, it takes enormous effort to create, you know, the shopping centers, mostly shopping centers, or some of the other... forms to create in the first place. And, you know, we put a lot of thought up, you know, upfront thought into developing them. Most of them, as you probably know, we developed. Probably 85 to 90% of the portfolio, we developed it. So, you know, in the end of the day, we do all the upfront strategic thinking. And so we don't really have We didn't buy, you know, varieties of forms of retail and or whatever we could get our hands on to arbitrage, you know, IPP for debt and so on and so forth. So we don't have, you know, sort of fringe assets that are, you know, undesirable. So we don't – and, you know, it's tough to move the needle. Even if we did want to part with IPP, I mean – you know, it would be tough to move the needle in terms of cap rates, you know, and giving up that income. It's very, very good income. I mean, we collect 99 or over 99% of our IPP. So we forge on with our IPP. We do have a lot of potential, you know, PUD for disposition. So we can afford, quote, unquote, to sell PUD, and that would be our first – that's our overwhelming preference in terms of capital raising, capital recycling. It really does move the needle. But the market just hasn't been there. It seems like there is a bit of a market there now. I don't want to overstate it. We're going to test it, but that's where we're going to focus on.

Yeah, and I guess I was going to follow up this more.

So where are you kind of starting to see the land values bottom or possibly increase at all in your portfolios?

Yeah, you know, wherever we have retail land, if we haven't developed it, we could sell that, but we're obviously not going to sell that. But, you know, the mid-rise, the lower-rise, mid-rise residential areas, there's a feeling that there's some potential. There are seniors. Seniors housing seems to have life in terms of potential dispositions we're getting approached. We have excellent sites for both mid-rise, you know, high-rise for that matter, and seniors homes. So, yeah, there is a market for storage, but we're in the storage business, so we're not – not really sort of inclined to dispose of that. So those are the main categories that we think there's a little bit of life.

And so how large is that opportunity, the seniors and kind of low to mid-rise within your portfolio? Is it, you know, 20, 30% or less than that?

Oh, I mean, I'll come back to the, I'm not sure if you meant what percentage or what we have. I mean, but no, we're, I'm talking about we could sell, I mean, we have somewhere in the 60 plus or minus 60, 70 million square feet of permitted density across the portfolio on our owned properties. So what I was referring to was selling some of that. you know, some of that density, carving those out. Yeah, I guess.

I'm just trying to get to, like, a number that, you know, is reasonably realizable in the next couple of years for those two uses is kind of where I was going with the question.

Yeah, in the next couple of years, and that's a lot easier than saying the next year, but the next couple of years, I mean, we could see, you know, I mean, we'd like to sell, you know, $200 million to $300 million to worth of that over the next couple of years. And more, if there's a market for it. Thank you for your time.

Thank you. The next question is from Lorne Kalmar from Dijonais. Please go ahead.

Thanks. Good afternoon. Just two quick ones for me, and I'm really sorry if I missed it. I was just wondering, did you guys mention a same property in Hawaii outlook for 2026?

As you know, we had a 7%, and if you excluded toys from this mess, we would be in a similar range for 2026. Toys are going to put a little damper on things at the beginning of the year, so we might be a little bit lighter than we were last year because of that, but we're expecting something in that range, you know, extra toys. And because we have the backfill for the toys, which won't take occupancy right away because we'll execute some of these leases very soon, but by the time they take possession, it's probably into Q2. So you won't see it until you get closer to the end of the year where it catches up.

Okay, that's very helpful. And then I was just wondering, any updates in relation to – building out new stores for Walmart. I know you guys just opened the one in West of the GTA here. I was just wondering if there are any updates on that front.

First of all, I guess, you know, the new retail program here is really picking up in general. So I would say that is something worth noting. We are anticipating quite a bit of growth over the next, let's just say, five years in the areas of, I mean, you know, grocery, Loblaws, Sobeys, potentially Metro, Costco, TJX. you know, those are large space users. And, of course, we do have a long, you know, a longstanding relationship with Walmart, and so we anticipate that we will be also seeing some growth, in the new Walmart category as well.

As of now, I guess, though, nothing really to report on as it relates to Walmart.

Well, I think at this moment, we'll leave it at that. We hope, you know, we'll be able to expound on that. But I guess, you know, there's a lot going on in general across the board in all of the areas that I just mentioned, not just garden variety, you know, kind of growth in the new retail, new sites category of growth. So, you know, we will start to shed more light on the details of that, but I guess in the meantime, I would think of it as it's quite robust.

Okay, maybe going back to what you mentioned, the new sites for growth, obviously in the premium outlets. Any other retail developments in the immediate future for you?

Yes. Yes, quite a few. That's sort of what I'm saying is we're anticipating, you know, quite a few new acquisitions of new sites across the country. Okay, that's very helpful. Thank you.

Thank you. The next question is from Dean Wilkinson from CIBC World Markets. Please go ahead.

Thanks. Afternoon, everybody. Mitch, you get a lot of questions about what you're going to sell. I'd like to talk a little about more what you're going to keep. When you look out, you know, call it five-plus years, do you think that there is going to be a shift in the mix between retail, self-storage, and multifamily and some of the other verticals? And secondarily to that, do you think any one of those verticals could hit a size where they're potentially able to just stand on their own?

Well, listen, based just on the retail and what's going on, because, you know, what we're doing now is going to come out of the ground in the next two, three, four, five, six, seven, you know, eight, nine, ten years, okay? And it's nothing driven per se by us. It's actually being driven by, you know, the consumer. And the ones who have the closest, you know, relationship with the consumer are the retailers, like I was naming, like Loblaws and, you know, like Costco, Walmart, et cetera. And they're saying through, you know, their interest in new locations is that, you know, there's going to be, there's a huge investment, a huge commitment, a huge belief in, you know, in physical retail shopping. And, you know, you put a lot of those different retailers and ones that I haven't named that aren't maybe as large space users together and you've got a shopping center in a country that's seen very little physical retail construction in the last 12, 13 years, but a lot of population growth. So, I mean, in the eyes of these retailers, there's a lot of catch-up. So we're one of the go-tos. You know, we're one of the go-tos for that. So we're super busy, you know, buying new sites and, you know, processing approvals for the development of new shopping centers, you know, across the country. And that's going to kick in, you know, really kick in, like, you know, start to kick in next year and really kick in the year after and the year after and the year after, really kick in. Those are quick. Those take us, you know, anywhere from, you know, it takes a year basically to go from commencement of construction to lease commencement, to rent commencement. So those are really going to affect things over the next five years plus plus and drive growth. Here, as far as storage, yeah, I mean, it seems like storage is, you know, I think the honeymoon's over, but I think everyone's sober about it, which is good. I don't think anybody's doing anything irrational. So I see that continuing and holding its value. We're doing very well with stores. They do go on their own. We don't always put them in shopping centers, but we do stick them into our shopping centers where it makes sense. And the res is still very desirable as a use, but very skinny in terms of returns. I mean, multi-res and condos basically don't exist. So we'll be standing by and waiting for the planners to line up again to start recommencing that program.

Just think of that as ancillary and opportunistic, but it wouldn't be something that becomes a little more core.

Yes, I would say we wanted it to become more core. It will be more core, ultimately, because we do have a lot of permissions. But that's, in a sense, you know, five to ten years from now, it will start to become more and more core. But, yes, correct, our next five years, as it looks now, is going to be retail. It will be, you know, a nice little, you know, augmentation with storage and some, some opportunistic, to use your word, I think it's a great word, for some mid-rise, low-rise residential where we can kick it, where we can knock it out at surface parking, you know, wood construction, and, you know, very low, you know, no off-sites, very low lawn sites, you know, accretive. We will do some of that, but it won't be core.

Yeah, it's what you do for a while. That's it. I appreciate it. Thanks. Thank you.

Thank you. The next question is from Gaurav Mathur from Green Street. Please go ahead.

Thank you, and good afternoon, everyone. Just one quick question on the renewal statistics. You know, when you're looking at the renewal summary, we're noticing a few metrics that moving down a bit year on year when you look at renewal rate or both including the anchors or excluding the anchors as well as the tenant renewal rate. Could you provide some color on why that's happening just given the underlying strength in the retail strip center sector?

Gaurav, it's Peter. I wouldn't read too much into that. The biggest single driver is just the timing of when we have lease expirations during any given quarter. And so that can move around a little bit. But, you know, as Mitch and Rudy both noted earlier, we continue to see very robust demand for space in our centers. But, you know, it does ebb and flow from quarter to quarter depending on the term of each lease.

Okay. If you look at the near 90% extensions, that is consistent with the last few years as well. Perfect. Thank you so much. I'll turn it back to you later.

Thank you. As a reminder, if you'd like to queue up to ask a question, please press star 1 in your phone's keypad. The next question is from Sam Damiani from TD Securities. Please go ahead, Sam.

Thank you. Good afternoon, and thank you for taking the question. Just on the Toys R Us, how much of the six sites were paying rent for the full quarter in Q4, and how much rent do you expect to receive in Q1? Hey, Sam, Trudy. I don't have that in front of me, but some of them are co-managed with partners. So we have some of them paying rent and some of them weren't paying rent in that quarter or part rent in that quarter. So I think we disclosed a higher provision in the quarter to reflect that non-payment of rent. So that's what that was. And then early in the year, we had so much good interest from, you know, these other retailers I mentioned that we – We took advantage of terminating those leases in advance of the filing. That's always good. So it's, you know, to minimize the impact, you know, on the REIT. Okay. And so just on, you know, with the six sites now vacant, with that alone and nothing else happening, what would that do to your occupancy rate in Q1 versus Q4? Yeah, well, again, there's the in-place occupancy and there's the occupancy including executed deals. So, you know, half of those, like I mentioned, is going to be expected to be released before the end of the quarter. So it leaves another 0.3. So the 98.6 may be 98.3 on an apples-to-apples basis. That's helpful. Thank you. And just, I noticed there was an acquisition of some land in Bolton. Is that for retail? Is that adjacent to the existing Smart Centers shopping center there?

Yes, it is for retail. You know, we'll announce the details of that at some point soon, but it is, I would say, you know, part of everything that, you know, I was describing earlier about the, you know, the retail growth program. So we do have interest from strong retailers, and we anticipate starting construction there sometime hopefully this year.

And in total, with all the push on retail development, you've obviously leased a lot of space last year for new build retail. How much – I guess you got TPO, potentially the site in Bolton. How much square footage do you think commences construction in 2026 on the retail side?

Maybe this year starting to the 300,000, you know, but it's going to climb a lot after that. That's just, It takes a little bit of time to get all the permits and whatnot to go. But in terms of, like, technically in this calendar year, yeah.

That's helpful. And I did miss a part of the call at the start regarding TPO. I think I heard, you know, 8-plus percent, you know, guesstimate on the yield. That's looking at the cost, including the park aid.

Yes, yes, the whole expansion, including the additional parking. Yeah, 8 plus percent, yeah.

And rents would commence, I didn't hear that, if it was said 2028 is a reasonable timeline?

Yeah, we're hoping we can maybe pull it off in late 27, but yes, by 2028. Awesome.

Thank you, and I'll turn it back.

Thank you. We have one more question. Tammy Burr from RBC Capital Markets. Please go ahead.

Hi. Thanks, everyone. Just coming back to leverage, you know, most of your peers have really worked to drive debt to EBITDA levels down lower, and investors certainly seem supportive of that. You know, I'm just curious, you know, what do you see as the right level for the business?

And where does reducing leverage fit in terms of the priorities?

Thanks. Yeah, everything's a priority. So it's a question of, you know, balancing. I mean, you know, the market likes growth, too. The market likes long average interest. You know, the market likes strong covenants. you know, so market likes refreshing of existing shopping centers. So we, of course, balanced that because we also very much value, you know, our credit rating. So, you know, we look at all of these things. We have a lot of demand for new space. The good news is that the demand for new space is mostly, you know, single-story retail with accurate marketing, which means that, you know, within, a year or so of commencement of construction, we're usually collecting rent. So to the extent, like always, that we, you know, everybody that does rise and fall with various activities, we're in an enviable position to be able to, you know, basically balance both. But this is not a one-trick pony. We are, you know, we are minded to grow. and strengthen our network and strengthen our portfolio and our earnings. And, of course, we're not going to commit any follies as it relates to important metrics.

Okay. Maybe one follow-up, and I don't know if you can answer this one, but in terms of the agreements with Penguin,

You know, the release indicated that the voting top right has expired, but I just wanted to clarify, is that part of the discussions in the new five-year agreements? And then the second part of that is, do you expect to have the new agreements in place or at least announced by the end of the month?

Well, actually, you know, everything expired at the end of last year. and we extended the parts of it that we were able to extend, and one of them that we are not able to extend is the voting top-up. That needs unit holder approval. So that has expired and has not, you know, can't have been extended. So, but the, you know, the negotiations for a, you know, for a new contract are going on. They're going on. going very well. And, you know, in terms of what form and whatnot that takes, you know, that will be released, I guess, when it's absolutely finalized. But we're getting near the end and just looking positive.

Okay. I'll turn it back. Thanks, Mitch. Thank you. There are no further questions in the queue.

Thank you. Thank you for participating in our call. Of course, as always, please feel free to reach out to any of us if you have any further questions. Have a great rest of your day.

Thanks. Ladies and gentlemen, this concludes the Smart Center's REACH Q4 2025 conference call. Thank you for your participation and have a nice day.