SmartCentres Real Estate Investment Trust (SRU.UN) Q2 2024 earnings summary

Executive summary

• Achieved strong leasing momentum in Q2 2024, with 272,000 sq ft of vacant space leased and in-place and committed occupancy rising to 98.2%, supported by robust tenant demand and expansions from major retailers.

• Extended or finalized over 86% of 2024 lease maturities, with 8.5% rent growth on renewals (excluding anchors), reflecting strong market demand and minimal tenant inducements.

• Mixed-use development pipeline advanced, with 57–86 million sq ft zoned, ongoing construction at ArtWalk (320 sold-out condos), and The Millway rental project reaching 88–90% leased, expected to exceed 95% by year-end.

• Completed and closed 25 Vaughan NW Townhome units, contributing $2.5 million to FFO, with further closings expected to accelerate.

• Premium Outlets in Toronto and Montreal remain fully leased, driving EBITDA and value, with Toronto among the top three performers in Canada.

Financial highlights

• Net operating income (NOI) for Q2 decreased by CAD 8 million (5.5%) year-over-year, mainly due to fewer condo closings, partially offset by new townhome closings.

• Same property NOI (excluding anchors) rose 2.2% year-over-year for Q2 and 3% for the first half of 2024.

• FFO per unit was CAD 0.50 (down from CAD 0.55 last year), with adjusted FFO at CAD 0.51 per unit; AFFO per unit was CAD 0.46.

• Distributions maintained at an annualized CAD 1.85 per unit; payout ratio to AFFO with adjustments was 96.9–98.8%.

• Net rental income and other increased by $3.3 million or 2.6% year-over-year for Q2 2024, driven by higher base rent from lease-up and renewals.

Outlook and guidance

• Leasing and renewal rate momentum expected to continue through year-end, with further rental rate increases anticipated.

• Same property NOI is expected to pick up in the second half of the year, supported by recent leasing activity.

• Capital recycling of CAD 250–300 million targeted, with most activity likely in 2025, contingent on improved market conditions and interest rates.

• Development pipeline of 57–86 million sq ft supports long-term growth, with 0.8 million sq ft under construction.

• The Millway rental project is expected to surpass 95% occupancy by year-end, with rental rates above original budget.