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SmartCentres REIT’s Dividend: A Safe Bet in a Rocky Retail Landscape?

Wesley ParkTuesday, May 20, 2025 12:45 pm ET

3min read

The retail real estate sector has been a battleground for investors in recent years, with rising interest rates and shifting consumer habits creating uncertainty. Yet SmartCentres REIT (TSX: SRU.UN) has just declared a dividend of CAD 0.15417 per unit for May 2025, annualizing to CAD 1.85—a payout that management claims remains sustainable despite the headwinds. Let’s dissect whether this dividend is a sign of strength or a risky bet in an era of economic fragility.

The Numbers That Matter: A Dividend Backed by Gritty Fundamentals

First, the dividend itself: at 83.8% of AFFO (Adjusted Funds From Operations), this payout ratio is a dramatic improvement from the 101.4% it reported in Q1 2024. That’s music to my ears. When a REIT’s dividends are covered by its core operating cash flow (i.e., a payout ratio below 100%), it’s a green light that management isn’t overextending. The AFFO per unit has jumped to CAD 0.55 in Q1 2025 from CAD 0.46 a year ago, thanks to soaring net operating income (NOI) and disciplined cost control.

But let’s not stop there. The occupancy rate is a staggering 98.4%—up from 97.7% in Q1 2024—and lease renewals are commanding an 8.4% rent increase (excluding anchor tenants). That’s not just a good quarter; it’s a sign of tenant demand in their retail portfolio. Even as big-box retailers shutter stores, SmartCentres’ focus on mixed-use developments (retail, residential, self-storage) is creating a moat.

The Elephant in the Room: Interest Rates

Here’s where the skeptics pounce. The Bank of Canada’s rate hikes have pushed SmartCentres’ weighted average interest rate to 3.93%—a slight tick up from last quarter but still down from 4.17% in Q1 2024. The interest coverage ratio (EBITDA-to-interest expense) is a稳健 2.5x, but that’s a hair below last year’s 2.6x. If rates climb further, this metric could get squeezed.

However, the REIT has CAD 9.59 billion in unencumbered assets, giving it ample collateral for refinancing debt. Plus, nearly 60% of its debt is fixed-rate, shielding it from short-term rate spikes. Compare this to peers with more variable-rate exposure, and SmartCentres looks disciplined.

The Secret Sauce: Development Pipeline Firepower

The real story here isn’t just today’s dividend—it’s what’s coming. SmartCentres isn’t just sitting on properties; it’s building them. The Vaughan NW Townhomes are 90% sold, generating a 21% profit margin, and the ArtWalk Condo is 93% pre-sold. Meanwhile, three self-storage facilities are set to open in Q2 2025, with three more in the works for 2026. These developments aren’t just revenue streams—they’re proof that SmartCentres can pivot to higher-growth segments like residential and self-storage, which are less volatile than traditional retail.

And let’s not forget the CAD 35.51 net asset value (NAV) per unit, which is up from CAD 35.71 in Q1 2024. While NAV dipped slightly from year-end 2024, it’s still a solid buffer against declining property values.

The Bottom Line: Buy Now—or Wait?

The dividend is safe—for now. The payout ratio is under control, occupancy is rock solid, and the development pipeline is firing on all cylinders. But investors must ask: Can this momentum survive if rates hit 5% or higher?

My call: Buy here, but keep an eye on the rearview mirror. At a current yield of roughly 5.4% (based on the recent unit price of CAD 34.25), this is a yield that competes with bonds—and with better growth prospects. The diversification into self-storage and condos gives it a hedge against retail’s ups and downs.

Final Verdict: A Dividend to Double Down On—But Stay Vigilant

SmartCentres isn’t a “set it and forget it” investment, but in a world of shaky REITs, this one has the balance sheet and execution to keep paying. If you’re in for the long haul and can stomach some volatility, this dividend is worth owning. Just don’t forget to check in on those interest rates—and those construction cranes—every quarter.

ACTION ITEM: Consider buying SRU.UN units now, but set a trailing stop-loss at 10% below your entry price to protect against sudden rate shocks or occupancy drops. This is a dividend stock that’s worth sweating over—but not panicking over—yet.

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