Good afternoon, and welcome to SmartCentres' fourth quarter and full year 2025 results call. I'm Peter Slan, Chief Financial Officer, and I'm joined on today's call by Mitchell 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 Mitchell. 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 Mitchell, 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. Mitchell, over to you.
Thank you, Peter. Good afternoon, and welcome everyone. Our comments this afternoon will be succinct to allow more time for your questions. SmartCentres 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. 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.
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 CAD 1 billion in liquidity, 90% of debt being fixed rate, and for the first time, attaining an unencumbered asset pool of CAD 10 billion, which Peter will speak to in a moment. Before that, let me turn it over to Rudy for some more operational highlights. Rudy?
Thanks, Mitchell, 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 sq ft of space maturing during the year, with rental spreads of 8.4% excluding anchors, and 6.3% all in. Cash collections remained 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, racket 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 rents at maturities. At Toronto Premium Outlets, the increasing demand for space has developed into an expansion opportunity of 85,000-90,000 sq ft, 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 filed for creditor protection. But prior to that, the REIT had already terminated its 6 leases and taken control of the space based on the advanced lease negotiations to backfill with grocers and TJX banners.
We expect to re-lease 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 and 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 will now turn it over to Peter.
Thank you, Rudy. As you have seen in our release, Same Property NOI growth remained 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 7 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 CAD 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 accounted 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 are just going to grab your name. Please stand by.
Hello, this is the operator. What's your name? Hello, this is the operator.
Hello.
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 a speaker line.
Apologies, folks. That was my bad. Mario Saric from Scotiabank, please go ahead.
Hi, good afternoon. Thanks for taking the questions. Just maybe to start on the capital recycling/allocation side. Mitchell, 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 sales that were still not done that we were anticipating. One of them seems very much alive. The other one is. 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 then in general, the market conditions seem to be a little, you know, improving for capital recycling, for dispositions.
So we are hoping to see some dispositions of, first and foremostly, potentially some non-IPP, you know, some land, which we are currently, you know, starting to focus on.
Mitchell, what would you attribute the improved kind of sentiment in terms of the buyer pool?
Probably, I think it's partly to do with there's. I mean, not that the, you know, 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, let's say a year ago, there was a lot more uncertainty. 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 subtrade 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 some moves and opening their wallets a bit, it does, it does feel like they're, it's better than it, than it was.
Got it. Okay, and, and speaking of construction costs, I may have missed it, but in terms of the, the expected expansion at the, Toronto Premium Outlets, can you share with us any kind of range in terms of the cost and types of returns that you think you can achieve?
... We'll let Rudy jump in there, too, but the returns are quite solid in excess of—we anticipate in excess of 8%, and probably we're still—You know what? We're still negotiating on the construction, so I'd rather not speak to the cost. You know, our contractors, the contractors could be listening in. We are in negotiations right now. But it looks like a pretty healthy 8%+ return.
Got it. 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 2026, what is your projection in terms of at the very least, maintaining the existing occupancy? Like, 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 2026?
Well, of course, you have to say couldn't get any higher, and then, of course, we have Toys "R" Us. So, you know, but, you know, this is something that's actually, frankly, you know, it's, you know, the least... What's the right way to say? We were not surprised by the Toys "R" Us situation. As you know, we already dealt with a couple of them before they declared. But, 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 at 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, Mitchell 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 banner. 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 it for me. Thank you.
Okay, thank you. The next question is from Giuliano 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-nineties, like net debt at the high nines, has the given thought to, you know, more aggressively selling some of the non-core IPP? And, and if not, you know, why?
Well, first of all, I don't think we really have any non-core IPP. So, you know, it takes enormous effort to create, you know, good shopping centers, most of these shopping centers or, or some of the other forms to create in the first place. You know, we put a lot of thought up, you know, upfront thought into, into developing them. Most of them, as you probably know, we developed probably 85%-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. 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, we can afford, quote-unquote, "to sell PUD," and that would be our, 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 gonna focus on.
Yeah, and I guess I was coming by a follow-up. It's more, so where are you kind of starting to see the land values bottom or possibly increase at all in your portfolios?
Yeah, I mean, 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 low-rise, mid-rise residential... 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 really sort of inclined to dispose of that. So those are the main categories that we think there's a little bit of life.
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?
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, we have somewhere in the 60, plus or minus 60-70 million sq ft 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. Yeah. I'm just, 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, 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, CAD 200 million-CAD 300 million worth of that over the next couple of years. And more, if there's a market for it.
Okay. Thank you for your time.
Okay, thank you. The next question is from Lorne Kalmar, from Desjardins. Please go ahead.
Thanks. Good afternoon. Just two quick ones from me, and I'm really sorry if I missed it. I was just wondering, did you guys mention a same-property NOI outlook for 2026?
Hi, Lauren. As you know, we had, you know, 7%, and if you excluded toys from this mess, we would be in a similar range for 2026. Toys is gonna 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 good backfill for the toys, which won't take occupancy right away, because we'll execute, you know, 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, I think it was Oakville or just west of the GTA here. 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, you know, Loblaws, Sobeys, potentially Metro, Costco, TJ, you know, TJX. You know, those are large space users. And of course, we do have a long, you know, a long-standing 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, so 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, just maybe going back to, you mentioned the new sites for growth. Obviously, you're in premium outlets. Any other retail developments in the immediate future for you?
Yes. Yes, quite a few. I would... That's sort of what I mean, in 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. Mitchell, you get a lot of questions about what you're gonna sell. I'd like to talk a little about more what you're gonna 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, what's going on, because, you know, what we're doing now is gonna come out of the ground in the next 2, 3, 4, 5, 6, 7, you know, 8, 9, 10 years, okay?
Mm-hmm.
It's not being driven, per se, by us. It's actually being driven by, you know, the consumer. 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. They're saying through, you know, their interest in new locations is that, you know, there's gonna be. There's a huge investment, a huge commitment, a huge belief in, you know, in physical retail shopping. 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 gonna 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 take a year, basically, to go from commencement of construction to, lease commencement, to rent commencement. So those are really gonna affect things over the next five years plus, plus, and drive growth here.
As far as storage, yeah, I mean, seems like storage is, you know, I think the, 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, you know, and, and holding its value. We, we were doing very well with, with, with storage. 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, the res is, is still very desirable as a use, but very, skinny in terms of, returns. I mean, multi-res and condos-
Yeah.
Basically don't exist. So we'll be standing by and waiting for the planners to line up again to start recommence that program.
So we 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, 5-10 years from now, it'll start to become more and more core. But yes, correct. Our next 5 years, as it looks now, is gonna be retail. It'll be, you know, a nice little, you know, augmentation with this storage and some, some opportunistic, to use your word, I think it's 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, stick, you know, wood construction and, and, you know, very low, you know, no offsites, very little on-sites, you know, accretive.
We will do some of that, but it won't be core-
Yep, that'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 moving down a bit year-on-year when you're looking 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. The, 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 Mitchell and Rudy both noted earlier, we continue to see very robust demand for space in our centers. And 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 the operator.
Thank you. As a reminder, if you'd like to queue up to ask a question, please press star one on 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, thank you for taking the question. Just on the Toys "R" Us, how much of the 6 sites were paying rent for the full quarter in Q4? And how much rent do you expect to receive in Q1?
Hey, Sam, Rudy. I don't have that in front of me, but some of them are co-managed with partners. So we had some of them paying rent, and some of them weren't paying rent in that, 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'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 took advantage of terminating those leases in advance of the filing that Toys did. So it's a, you know, to minimize the impact, you know, on the REIT.
Okay. And so just on, you know, the six sites now vacant, like, that alone and nothing else happening, what would that do to your occupancy rate in Q1 versus Q4?
Yeah, if, well, again-
Square footage.
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 gonna be expected to be re-leased 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 SmartCentres shopping center there?
Yes, it is for retail. As soon, 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, the retail growth program. So, we do have interest from strong, retail retailers. And we anticipate starting construction there sometime, hopefully this year.
And then in total, with all the push on retail development, you've obviously leased a lot of space last year for new build retail. Like, 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 200,000-300,000, you know, but it's gonna climb a lot after that. That's just 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, maybe 200,000-300,000.
That's helpful. I did, I did miss the part of the call at the start regarding TPO. I think I heard, you know, an 8%+, you know, guesstimate on the yield on the, on the... That's, that's looking at the cost, including the parka de?
Yes, yes, the whole, whole, expansion, including the additional parking. Yeah, 8, 8, 8+% , yeah.
Rents would commence, I didn't hear that, if it was said. 2028's a reasonable timeline, or?
Yeah, we're hoping we can maybe pull it off in late 2027, but yes, by 2028.
Awesome. Thank you, and I'll turn it back.
Thanks.
Thank you. We have one more question. Pammi Bir 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. Market likes long, long average lease terms. You know, market likes strong covenants. Yeah, so market likes refreshing of existing shopping centers. So, we of course balance that because we also very much value, you know, our credit rating. So, 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 at-grade parking, 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's debt to EBITDA, 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 relates to, you know, 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, the release indicated that, the voting top-up right, has expired. But, I'm 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, 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 unitholder approval. So that has expired and has not, you know, been extended. So, but the, you know, the negotiations for a new contract are going on. They're 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 it's looking positive.
Okay. I'll turn it back. Thanks, Mitchell.
Thank you. There are no further questions in the queue.
Thank you. Thank you for participating in our Q4 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 SmartCentres REIT's Q4 2025 conference call. Thank you for your participation, and have a nice day.