SmartCentres outperform (CIBC)EQUITY RESEARCH February 9, 2023 Earnings Update SMARTCENTRES REAL ESTATE INVESTMENT TRUST Putting The Pandemic Behind Us Our Conclusion SRU reported a strong end to the year, demonstrating continued operational resilience in both good (or better) times and bad. Coupled with positive leasing momentum, occupancy continues to remain robust (indeed, back to pre pandemic levels) as tenants continue to covet the REIT’s high-quality space. With a largely stabilized portfolio supported by a rock-solid national tenant base (notably Walmart), SRU’s extensive development pipeline remains a key driver of future growth. Having one of the most extensive and advanced development pipelines within our coverage universe, in excess of 41MM sq.ft., the REIT is in an enviable position of being on the cusp delivering significant gains on such developments as ArtWalk, Transit City 4 and 5 and The Millway, which are expected to make significant progress in 2023 (we note the transactional gains thereto are not currently factored into our FFO estimates). We believe that with the Units trading at ~20% discount to our forward NAV (vs. a 5% historical discount), there remains substantial upside from these levels. We maintain our Outperformer rating, and increase our NAV and price target to $34.50 and $34.00 respectively off an unchanged 6.25% cap rate. Key Points Earnings Results: SRU reported diluted FFO per unit of $0.60 ($0.54 when excluding the impact of ECL, TRS, and other items), ahead of both consensus and our estimate ($0.52). Balance Sheet: Debt/Total Assets was 43.6%, a slight improvement from 42.9% in Q4/21. Furthermore, the REIT had ~$839MM in available liquidity (as measured by undrawn credit facilities and cash on hand). Debt Rolls: The REIT has ~$401MM in debt (~$201.3MM secured debt at 4.46% and ~$200MM of unsecured debentures at 3.9%) maturing in 2023 at an average rate of 4.2%, representing ~8% of its total debt stack. We believe refinancing risk may pose a more intermediate headwind for the broader REIT universe and may serve to temper FFO/unit growth in the near term. We estimate refinancing rates to be in the mid-5% range. ESG Update: SRU published its inaugural ESG report during the quarter, demonstrating its commitment towards being a responsible steward in protecting and maximizing long-term value. The REIT currently has 36 BOMA Best certified buildings (25%), and has laid out a three-year plan to further develop its ESG governance and management structures, report to GRESB, and aim for 85% of its shopping centre portfolio to be BOMA Best. Subsequent Events: Together with PCVP, SRU entered into an agreement to dispose ~6.4 acres of land located in VMC for gross proceeds of $95.6MM ($58.4MM proportionate share), with proceeds used to primarily reduce indebtedness. Outperformer SRU.UN-TSX, Sector: Real Estate Current Price (2/9/23): C$27.43 Price Target (12-18 mos.): C$34.00 Previous: C$33.00 Stock Performance and Key Indicators TSX Composite Index vs. SRU.UN-TSX (Source: FactSet) Dean Wilkinson, CFA Douglas Go up to CIBC Estimates and Valuation (Dec. 31) 2021 2022 2023 2024 FFOPS 2.19A 2.11A 2.17E 2.23E Prior 2.03E 2.14E AFFOPS 2.07A 1.99A 2.02E 2.08E Prior 1.91E 2.03E 2.11E FFOPS Q1 Q2 Q3 Q4 2022 0.51A 0.50A 0.49A 0.60A Prior 0.52E 2023 0.52E 0.54E 0.56E 0.55E Prior 0.51E 0.55E 0.54E Valuation 2021 2022 2023 2024 P/FFOPS 12.5x 13.0x 12.6x 12.3x P/AFFOPS 13.3x 13.8x 13.6x 13.2x Net Asset Value: C$34.50 Shares O/S: 178.1M Market Cap.: C$4,885M Float: 141.0M 52-wk Range: C$25.14 - C$33.37 Div. / Yield: C$1.85/6.74% Feb-20 Aug-20 Feb-21 Aug-21 Feb-22 A