SmartCentres Q3 2026 Earnings: FFO per Unit Falls to $0.54 as Payout Ratio Reaches 96.8%

SmartCentres REIT reported net income and comprehensive income of $179.5 million for the third quarter of 2026, more than double the $81.0 million it reported a year earlier, and funds from operations of $0.54 per diluted unit, down from $0.59. Three things sit between those two headlines in SmartCentres Q3 2026 earnings and the business underneath them. Fair value marks explain the profit line and reach nothing else. A settled swap and a higher interest bill explain the FFO line. And that second pair carries through to the number a unitholder actually feels, the payout ratio to AFFO, which the Trust reports at 96.8% against 95.1% a year ago and attributes, in its own words, to lower FFO.

The results were released at 5:06 p.m. ET on Wednesday, November 4, after the units closed at $27.64, up 1.32% on a day the S&P/TSX Composite rose 2.28% to 36,341.40. The market’s verdict on the quarter belongs to Thursday’s session, with management due to speak to it on a call at 2:00 p.m. ET that afternoon.

The quarter beside last year’s

Three months ended September 30	2026	2025
Net income and comprehensive income	$179,477	$81,037
Rentals from investment properties and other	$220,660	$226,690
Net rental income and other	$141,847	$141,337
NOI, proportionate share	$149,296	$149,051
FFO	$98,651	$107,364
FFO with adjustments	$99,598	$101,278
AFFO	$85,205	$86,754
AFFO with adjustments	$86,152	$80,668
Distributions declared	$82,492	$82,476
Net income per unit, diluted	$0.98	$0.44
FFO per Unit, diluted	$0.54	$0.59
FFO with adjustments per Unit, diluted	$0.55	$0.56
AFFO per Unit, diluted	$0.47	$0.48
AFFO with adjustments per Unit, diluted	$0.47	$0.44
Payout Ratio to AFFO	96.8%	95.1%
Payout Ratio to AFFO with adjustments	95.8%	102.2%
Payout Ratio to cash flows from operating activities	92.4%	90.7%
Weighted average units, diluted	182,609,650	182,172,590

Source: SmartCentres Q3 2026 press release, Selected Operational, Development and Financial Information, printed page 3, except the AFFO with adjustments dollar figures, which are from the Q3 2026 MD&A, Quarterly Results and Trends, printed page 31. Dollar amounts in thousands of Canadian dollars except per unit figures and ratios. Per unit measures are the diluted figures, which is the basis the Trust’s own narrative quotes.

The profit line doubled on fair value marks

The MD&A splits the $98.4 million increase in net income into two drivers, on printed page 19, and names both:

“A $68.1 million increase in fair value adjustments on financial instruments, primarily driven by a decrease in the Trust’s Unit price; and”

“A $38.1 million increase in fair value adjustments on investment properties, primarily driven by improved leasing activities.”

The financial instruments line was a gain of $56.1 million against a loss of $12.0 million a year earlier. The investment properties line was a gain of $39.9 million against $1.8 million. Together those two movements are larger than the entire increase in reported profit.

The first runs the opposite way to intuition. Certain of the Trust’s obligations are carried as liabilities measured at fair value by reference to the unit price: units classified as liabilities, the deferred unit plan, the executive incentive plan, the long term incentive plan, the total return swap and interest rate swaps, as footnote 1 to the release’s FFO reconciliation sets out. When the unit price falls, the measured value of those obligations falls with it, and the reduction lands in income as a gain. A weaker unit price produces a higher reported profit. That is ordinary IFRS treatment, and the Trust names the cause in plain words in its own MD&A.

The property revaluation needs its nine-month context to mean anything. The $39.9 million gain in the quarter sits inside a nine-month fair value loss of $106.0 million on investment properties, against a $57.8 million loss over the same period of 2025. Nine-month net income is $162.4 million against $180.6 million, so the year is down even as the quarter doubled. The second quarter of 2026 was a net loss of $147.0 million.

Source: SmartCentres Q3 2026 MD&A, Quarterly Results and Trends, printed page 31.

Reported profit went from a $147.0 million loss to a $179.5 million profit in consecutive quarters, with two negative quarters in the last eight. FFO across the same eight quarters never left the band from $96.6 million to $107.4 million. The rent did not swing. The marks did.

FFO per unit fell five cents, and a settled swap is most of the gap

The Trust gives its own attribution on page 2 of the release:

“FFO per Unit for the three months ended September 30, 2026, was $0.54 compared to $0.59 for the same period in 2025. The decrease was primarily due to higher interest expense and decrease in fair value adjustment on TRS, which was fully settled in the second quarter of 2026. FFO with adjustments per Unit decreased to $0.55 from $0.56 for the same period in 2025, primarily attributable to higher interest expense.”

The gap between those two sentences is the story. FFO fell $8.7 million, about 8.1%. FFO with adjustments fell $1.7 million, about 1.7%. By subtraction of the Trust’s published figures, the adjustment line itself swung $7.0 million between the two quarters, from minus $6.1 million to plus $0.9 million.

The largest identified piece of that swing is the total return swap. The FFO reconciliation on printed page 6 of the release shows a gain on derivative of $5,428 thousand inside FFO in the third quarter of 2025 and nil in the third quarter of 2026. It is not coming back. The TRS receivable rolled from $86.1 million at the start of 2026 to nil, settled on a non-cash basis against the matching TRS debt of $96.0 million, which is also nil at September 30, per Note 6(a) of the interim statements. From here the comparison is clean.

The swap does not explain the year, though. Over nine months the TRS gain was $12.5 million in 2026 against $12.3 million in 2025, essentially unchanged, and nine-month FFO still fell $12.2 million to $303.2 million, with FFO per diluted unit at $1.66 against $1.73.

The interest bill is the real change

Interest expense net of capitalised interest was $49.7 million against $47.8 million, an increase the MD&A describes as “$1.9 million”. Including the Trust’s proportionate share of equity accounted investments, which is the basis FFO is struck on, the figure is $56.4 million against $53.3 million, up $3.2 million. Over nine months the GAAP figure is $147.5 million against $140.7 million. The MD&A gives the reason on printed page 30:

“The increases were primarily attributable to borrowing costs associated with unsecured debentures issued in November 2025 and higher drawn balances on the Trust’s operating credit facilities, partially offset by repayment of mortgages and TRS settlement and higher capitalized interest.”

That sentence contains something the headline FFO number hides. The swap settlement cut the interest the Trust pays at the same time as it removed the $5.4 million gain from FFO, so the two effects ran in opposite directions through different lines and the reported FFO decline is the net of them.

The composition is visible in the quarterly components. Mortgage interest fell to $4.8 million from $6.6 million, a drop of $1.8 million, while debenture interest rose to $31.6 million from $29.0 million, which the Trust’s own variance column puts at $2.65 million, and interest on the operating line and other added $1.4 million. The direction of travel is from secured mortgage debt toward unsecured debentures.

The payout ratio is where the two meet

Start with what has not moved. FFO with adjustments per diluted unit across the last eight quarters reads $0.56, $0.54, $0.55, $0.56, $0.54, $0.52, $0.54, $0.55, never outside $0.52 to $0.56 in two years. Inside that narrow range it drifts one way. Each of the first three quarters of 2026 came in a cent or two below its 2025 counterpart, and over nine months the measure fell four cents on the diluted basis, to $1.60 from $1.64. One cent in the quarter understates it.

Nor has the distribution moved. The monthly rate is $0.15417 per unit, which the Trust annualises to $1.85, and it has been unchanged since October 2019, when it rose from $0.15. Declared distributions in dollars have barely shifted for eight quarters, from $82,419 thousand in the fourth quarter of 2024 to $82,492 thousand in this one, a rise of $16 thousand year over year. So when the payout ratio moves, it is AFFO doing the moving, not the cheque.

Source: SmartCentres Q3 2026 MD&A, Quarterly Results and Trends, printed page 31.

The Trust’s primary measure, Payout Ratio to AFFO, was 96.8% against 95.1%, and page 3 of the MD&A sets out why:

“The payout ratio to AFFO for the three months ended September 30, 2026, was 96.8% compared to 95.1% for the same period in 2025. The increase was primarily due to lower FFO, partially offset by lower sustaining capital expenditures due to timing.”

Footnote 6 to the release defines the ratio as declared distributions divided by AFFO, on the REALPAC White Paper (January 2022) basis. The offset in that sentence cuts against the quarter rather than for it: sustaining capital expenditure that is lower “due to timing” is spending deferred rather than avoided, and on our reading, not the Trust’s, the ratio would have been higher still without the deferral.

Two pieces of context keep 96.8% in proportion. The ratio is strongly seasonal, running 97.0%, 83.8%, 84.3%, 95.1%, 94.8%, 86.4%, 86.7% and 96.8% from the fourth quarter of 2024 forward, with first and third quarters more than ten points apart in both of the last two years, which is why third quarter against third quarter is the only honest comparison. And the Trust publishes the smoothed version one line below the quarterly figure: on a rolling 12-month basis the payout ratio to AFFO is 90.9%.

Nor did every version of the ratio move the same way, and the swap is why they diverge. Payout Ratio to AFFO with adjustments improved to 95.8% from 102.2%, because the adjusted measure takes the 2025 swap gain out of its own denominator, which is what pushed the prior-year reading above 100%. On that basis adjusted distributable cash rose, to $86.2 million from $80.7 million, up $5.5 million, while unadjusted AFFO fell $1.5 million. The $7.0 million gap between those two readings is the same adjustment swing that separated FFO from FFO with adjustments. Payout Ratio to cash flows provided by operating activities rose to 92.4% from 90.7%. Over nine months the three read 89.7% against 87.4%, 93.7% against 92.8%, and 94.4% against 98.9%.

On the distribution itself, the Board’s position is stated on printed page 27 of the MD&A, and the conditions are the part worth reading:

“Given both existing AFFO and distribution levels, and current facts and assumptions, the Board of Trustees has indicated that barring any unexpected events, the Trust currently intends to maintain its monthly cash distribution levels.”

The intention is expressed against existing AFFO levels, and AFFO is the variable that moved this quarter. For a reader who owns this for the monthly income, how much room a distribution has above the cash flow funding it is the whole question, and it is the measure we rank Canadian REITs on in Best Canadian REIT Stocks.

Source: SmartCentres 2021 and 2025 Annual Information Forms, Distribution History, printed pages 55 and 59.

Rents are higher on a slightly smaller portfolio

The release’s highlight bullet discloses its own basis, reporting occupancy of “98.2% as at September 30, 2026, a 10 bps improvement from the prior quarter”. The narrative paragraph above it is looser, describing a quarter “highlighted by continued leasing momentum, growing occupancy and solid Same Property NOI growth”. The comparison absent from both is the year-over-year one. The same eight-quarter table in the Q3 2026 MD&A, printed page 31, puts in-place and committed occupancy at 98.6% a year earlier, and in-place occupancy, the measure counting only space actually occupied, at 97.6% now against 98.4% then. Occupancy rose sequentially on the committed measure. Against a year ago it is lower on both.

What the Trust is getting for the space did improve. The in-place net retail rental rate excluding Anchors was $24.67 per occupied square foot against $24.09, about 2.4% higher. Same Properties NOI grew 2.5% in the quarter, or 3.8% excluding Anchors, against 2.6% and 4.6% a year ago. Renewals are being signed above expiring rents: renewal rent growth excluding Anchors is 11.8% against 8.4% a year earlier, a spread 3.4 points wider, while the figure including Anchors is 6.8%. Both are period to date on the full calendar 2026 expiry cohort as at September 30, covering about 89% of this year’s maturities, not figures for the quarter alone. Roughly 104,000 square feet of vacant space was leased during the quarter and about 408,000 year to date, alongside executed leases on approximately 330,000 square feet of new-build retail space, part of a pipeline of seven projects either under construction or at initial siteworks that includes a 200,000 square foot Canadian Tire flagship in Toronto’s Leaside due for delivery to the tenant in the fourth quarter.

Same Properties NOI growth of 2.5% and total portfolio NOI growth of about 0.16%, from $149.1 million to $149.3 million, are bridged in the Trust’s own table on printed page 23 of the MD&A. Total portfolio NOI before adjustments of $149,296 thousand against $149,051 thousand becomes $150,686 thousand against $147,266 thousand after three adjustment lines, for lease termination income, net profit on residential closings and “other adjustments”, which footnote 2 defines as “items such as adjustments relating to royalties, straight-line rent and amortization of tenant incentives”. Taking out NOI from acquisitions, dispositions, Earnouts and developments then leaves Same Properties NOI of $149,398 thousand against $145,735 thousand, an increase of $3,663 thousand. Of that increase, $245 thousand came from the base portfolio before adjustments, $3,175 thousand from the three adjustment lines, the largest of them other adjustments at $2,066 thousand, and $243 thousand from the acquisitions and developments line. The distance between 2.5% and 0.16% is therefore mostly the adjustment lines rather than the property subset.

Net rental income and other was $141.8 million against $141.3 million. What the broader figures do show is a portfolio slightly smaller than it was: gross leasable retail, office and industrial area is 35,390 thousand square feet against 35,593 thousand, across 201 properties rather than 197, with an average lease term to maturity of 4.2 years against 4.4. The self-storage operating portfolio reached 16 facilities, with Montreal and Laval East substantially completed in the quarter.

The revenue line needs its own care. Rentals from investment properties and other fell to $220.7 million from $226.7 million, which looks like a 2.7% decline and is not an operating one. Residential sales revenue and other was $6.9 million in the third quarter of 2025 and minus $18 thousand this year, on the GAAP basis, following the completion of all townhome closings at Vaughan NW in the second quarter. Excluding residential, the comparable figures are $220.7 million against $219.8 million, up about 0.4%. The earnings effect was far smaller than the revenue effect, because most of that revenue decline came with a matching fall in cost of sales: net profit on residential closings, on the proportionate basis the Trust uses in the same page 23 bridge, was $649 thousand this quarter against $841 thousand a year ago, a fall of $192 thousand.

Leverage rose while Adjusted EBITDA shrank

Debt to Aggregate Assets was 45.1% at September 30 against 44.4% both at the start of the year and a year earlier. Adjusted Debt to Adjusted EBITDA rose to 9.9 times from 9.7 at year end and 9.6 a year ago, and the denominator is part of the reason: Adjusted EBITDA on a rolling 12-month basis fell to $561.4 million from $564.8 million, a variance of $3.4 million the Trust reports on printed page 23. Separately, balance sheet debt rose to $5.29 billion from $5.18 billion a year earlier. Those two ratios are the ones that exclude the $33.0 million of cash on hand, per the release’s own footnote.

The TRS distorted this comparison too. On a basis that strips the TRS debt and receivable out of both periods, Debt to Aggregate Assets reads 45.1% against 44.0% at December 31, 2025, where the headline pair is 45.1% against 44.4%, so the underlying increase in leverage is wider than the headline shows. The covenant limit the MD&A sets beside it is 65%.

The weighted average interest rate on the debt is 4.03%, up from 4.00% at year end and 3.94% a year ago, struck on the Trust’s proportionate basis including equity accounted investments, where total debt is $5.74 billion. Interest coverage slipped to 2.5 times from 2.6, a measure we walk through alongside the payout ratio in our guide to financial ratios. Diluted NAV per Unit is $35.49, against $35.93 at year end and $35.70 a year ago, and total unencumbered assets rose to $10.20 billion.

The weighted average term of debt is 3.0 years, longer than the 2.9 years of a year ago and shorter than the 3.4 years at the start of 2026. Both reference points matter, because a book that turns over inside roughly three years is refinancing continuously. On October 14, after quarter end, the Trust issued a further $150.0 million principal amount of its existing Series AC senior unsecured debentures at a 3.599% coupon maturing June 12, 2029, priced at $985.47 per $1,000 of principal, plus $300.0 million principal amount of Series AE senior unsecured debentures at a 4.795% coupon maturing January 15, 2032. Net proceeds repaid $150.0 million of borrowings maturing in October 2026, repaid revolving operating facilities and are otherwise for general corporate purposes.

Those two coupons show what the maturity profile costs. A third of the principal went out at 3.599% on a bond maturing in 2029. The two thirds that bought maturity out to 2032 went at 4.795%. Extending is the expensive end, and with an average term of three years the Trust will keep buying it. Where rates go from here is part of that arithmetic, and a December Bank of Canada hike is currently priced at close to a coin flip, which we worked through this morning in our piece on the odds of a December Bank of Canada rate hike.

What the quarter leaves a holder with

At the November 4 close of $27.64, inside a 52-week range of $25.01 to $30.90, the units trade at roughly a 22% discount to the Trust’s own stated diluted NAV per Unit of $35.49, which is our arithmetic on those two figures. The close and the range are from StockAnalysis.

Reported profit doubled because the unit price fell and because properties were marked up inside a nine-month write-down, and none of that reaches FFO. FFO per unit fell five cents largely because a settled swap took $5.4 million of gain out of the comparison, and that problem is now behind the Trust. What is left underneath is the interest bill, which the Trust names as the cause of the decline in FFO with adjustments per unit: one cent in the quarter, four cents over nine months. The payout ratio is where that lands. It is 96.8% of AFFO against 95.1%, flattered by capital expenditure deferred on timing and smoothed to 90.9% over a rolling year, on a distribution that has not changed since 2019 and a Board intention expressed against existing AFFO levels.

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Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Company figures are SmartCentres REIT’s own, from three documents released 2026-11-04 at 17:06 ET and byte-verified the same evening: the Q3 2026 press release (printed page equals PDF page), the Q3 2026 MD&A (65 PDF pages, printed page equals PDF page minus 3) and the Interim Condensed Consolidated Financial Statements (printed page equals PDF page minus 3). Each document restarts its own page numbering, so every citation names the document as well as the printed page. FFO, FFO with adjustments, AFFO, AFFO with adjustments, NOI and the payout ratios are the Trust’s own non-GAAP measures on the REALPAC White Paper (January 2022) basis, and FFO and FFO with adjustments are kept strictly separate throughout because they differ in the same quarter and can move in opposite directions. Per-unit figures print in the filings as unlabelled basic/diluted pairs; the piece uses the DILUTED figure throughout, which is the basis the Trust’s own narrative quotes. The release labels $141,847 thousand as NOI and footnotes it non-GAAP while the MD&A calls the same figure net rental income and other and footnotes it GAAP, and the release’s own table lists NOI separately at $149,296 thousand; the piece uses net rental income and other for the first and NOI for the second. The payout ratio to AFFO is strongly seasonal, so only the third-quarter-to-third-quarter comparison is used (96.8% against 95.1%) and the sequential comparison to Q2 2026’s 86.7% is not. Five-year distributions per unit are from the Trust’s 2021 and 2025 Annual Information Forms, Distribution History, printed pages 55 and 59. No quarterly analyst consensus is quoted and no beat or miss against the Street is asserted. The conference call falls on 2026-11-05, the day after the release, so no words are attributed to any executive. Unit close, day move and 52-week range are from StockAnalysis; the S&P/TSX Composite level and day move are Yahoo Finance; analyst targets are StockAnalysis with data from S&P Global Market Intelligence, last updated 2026-08-14 and labelled as such in the piece. Aggregators are credited in plain text and never linked. The only derived figures are the NAV discount, the total NOI growth rate, the rental rate change and the per-unit scale of the interest increase, each labelled in the piece as ours.