SmartCentres Real Estate Investment Trust reported higher occupancy, continued leasing activity and stable funds from operations in the second quarter, while posting a net loss driven largely by fair value adjustments on investment properties and financial instruments.
The Toronto-based REIT said occupancy reached 98.1 per cent as of June 30, up from the previous quarter, while funds from operations (FFO) per unit held steady at $0.58 compared with the same period a year earlier. Net operating income for the quarter totalled $139.9 million, down one per cent from the second quarter of 2025, while the trust reported a net and comprehensive loss of $147 million, compared with net income of $109.2 million a year earlier.
The results reflected continued leasing activity across the retail portfolio, progress on development projects and changes in the valuation of investment properties that weighed on earnings during the quarter.
“Building on Q1, we are pleased to report continued momentum in leasing demand and operational performance in Q2,” said Mitchell Goldhar, executive chairman and chief executive officer of SmartCentres. “Occupancy moved up to 98.1% with approximately 247,000 square feet leased during the quarter and rent growth of 12.0% (excluding Anchors). Same Property NOI increased by 2.6% (4.4% excluding Anchors), with very strong customer traffic and a strengthened tenant base. As of today, four of our six vacated Toys “R” Us locations have now been leased, at higher rents, with better tenant quality and covenants.
“Our development pipeline continues to add to the bottom-line with the initial opening of two self-storage projects in Quebec. In addition, two self-storage locations in British Columbia and one location in Alberta are currently under construction which will continue to add to the growth of the portfolio. Lastly, our two Premium Outlets continue to outperform with strong sales, rental growth and 99% occupancy; and the planned expansion at the Toronto Premium Outlets remains on track for construction commencement in Q4 of this year.”
Occupancy and leasing strengthen
The REIT said its in-place and committed occupancy rate increased by 0.5 percentage points from the first quarter to 98.1 per cent. Same-property net operating income rose 2.6 per cent from the same period in 2025, or 4.4 per cent excluding anchor tenants, supported by lease-up activity and higher rents.
SmartCentres said it extended 86 per cent of leases maturing in 2026. Rent growth on those renewals reached 12 per cent excluding anchor tenants and 6.6 per cent including anchor tenants.
Leasing activity remained active during the quarter, with approximately 247,000 square feet of vacant space leased. Three former Toys “R” Us locations were leased by the end of the quarter, with another leased after quarter-end. The REIT also said demand continued for newly developed retail space across its portfolio.
Development pipeline progresses
Construction continued on a 200,000-square-foot Canadian Tire flagship store in Toronto’s Leaside neighbourhood, with delivery to the tenant expected in the fourth quarter of 2026.
The REIT also acquired a 17-acre parcel in Winnipeg for about $10.1 million as part of its retail development program. The site is expected to be anchored by a Walmart operating under a 20-year lease.
Residential development also advanced during the quarter. SmartCentres said construction of the ArtWalk condominium project in Vaughan Metropolitan Centre continued, with about 93 per cent of the 340 units pre-sold. The underground parking structure has been completed, while formwork reached the ninth floor during the quarter.
Construction also began on a 65-unit rental building within the ArtWalk development, sharing the underground parking structure and related infrastructure with the condominium project.
The REIT expanded its self-storage portfolio during the quarter with the partial opening of facilities in Montreal (Notre Dame) and Laval East, Que. Construction continued on projects in Burnaby and Victoria, B.C., both expected to open in 2027, while work began on a facility in Edmonton (Allard) and construction contracts were awarded for another Edmonton location on 127 Avenue NW. The REIT and its partner are also seeking municipal approvals for two additional self-storage sites in Ontario and British Columbia.
Fair value losses weigh on earnings
Despite stable operating performance, SmartCentres reported lower earnings because of valuation adjustments.
Net operating income declined by $1.4 million from a year earlier, primarily because fewer townhome closings were completed following the sale of the final remaining townhome unit in the Vaughan NW project during the quarter. The decline was partly offset by higher rental income generated through leasing and renewals across the commercial portfolio.
FFO per unit was unchanged at $0.58, while FFO with adjustments declined to $0.54 per unit from $0.55 a year earlier. The REIT attributed the decrease primarily to higher interest costs and general and administrative expenses, partly offset by increased rental income.
The REIT’s net loss of $147 million compared with net income of $109.2 million in the second quarter of 2025. SmartCentres said the change primarily reflected a $196.2-million fair value loss on investment properties, driven by market conditions and the anticipated timing of construction starts for certain future development properties, partly offset by lower discount rates at selected retail properties.
The quarter also included a $42.4-million fair value loss on financial instruments, primarily related to changes in the value of units classified as liabilities following an increase in the REIT’s unit price.
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