Why I am Holding SmartCentres REIT in my TFSA

Disclosure - stock analysis was performed by ChatGPT's "Deep Research" agent. Post was written by a human with sections taken from ChatGPT's analysis. I am not an investment analyst and this post should not be taken as investment advice.

What SmartCentres Actually Is

SmartCentres (SRU.UN) is a Canadian REIT built around one core idea - put a Walmart in a parking lot, surround it with necessity retail, and collect rent. That's not a knock, it is a model that works. With 198 properties and 98.6% occupancy across Canada, the portfolio is about as full as a retail real estate portfolio gets.

The tenant mix leans heavily toward things Canadians still physically show up for - groceries, discount retail, pharmacy, liquor, Canadian Tire, and the like. It's not a mall story. It's a "people need to buy toilet paper and milk" story. That's a more durable proposition than it might sound in a world obsessed with e-commerce doom.

The Income Case

At the time of writing this post, SmartCentres pays $0.154 per unit every single month, or $1.85 annualized. It has never cut that distribution since inception. As of early 2026, the yield sits around 7% and units trade at roughly a 26% discount to net asset value.

Here's what actually matters to a TFSA income investor - coverage has been quietly improving:

In 2022, the payout ratio was 96.9%, which is tight. By 2025 it's 89.2%, which is better. Why does this matter? The lower the payout ratio, the more cash stays in the business which provides a cushion and some cash for improvements. The distribution didn't grow, but the cushion underneath it did. That's what "improving coverage" looks like in practice.

Why the TFSA Is the Right Wrapper

If you hold SmartCentres in a taxable account, you have to care about how distributions are classified - other income, capital gains, return of capital. That matters for your tax return. In 2025, roughly 80% of the distribution was classified as other income.

In a TFSA, none of that matters. The monthly cash just compounds tax-free. SmartCentres units are a qualified TFSA investment (TSX-listed REIT), and the distribution tax breakdown is essentially irrelevant once you're inside the account. That's one of the cleanest TFSA pairings available for a yield-focused investor.

The Risks You Can't Ignore

The income case is solid. But let's be honest about what you're buying into.

Walmart concentration is high. One tenant, Walmart Canada, accounts for 22.8% of gross rental revenue and 40.2% of leased area. That's not necessarily a problem today, because Walmart isn't going anywhere. But it means your distribution is meaningfully tied to the health of one relationship. If Walmart ever restructures, consolidates, or renegotiates leases aggressively, SmartCentres feels it immediately.

The distribution hasn't grown since 2020. Six years flat. Coverage has improved, but if you need income that keeps pace with inflation, this isn't delivering that right now. You're getting stability, not growth.

Leverage is real. Debt to aggregate assets sits at 44.4%. There are significant refinancing blocks in 2027 ($1.05B+), 2028, and 2029. In a stable or falling rate environment, this is manageable. If rates stay elevated or spike, the refinancing cost rises and distribution growth potential shrinks further.

Governance is more complex than average. Founder Mitchell Goldhar holds about 21% of units and has ongoing related-party service arrangements with SmartCentres through his Penguin Group. An Independent Committee was established in 2023 to oversee these transactions, which is an improvement. But the structure still requires you to trust that oversight is working. For most investors that's fine. For investors who want a clean, uncomplicated REIT with no founder-related arrangements — this one isn't it.

So Should You Hold It?

I hold SmartCentres in my TFSA. I have been holding shares for over 12 years now. After digging into the numbers, I'm keeping it — but I'm not treating it as a sleep-and-forget position.

The case to hold is straightforward - monthly income that has never been cut, improving coverage, near-full occupancy, and a tenant mix that holds up in economic downturns. The yield is real and the discount to NAV suggests the market is pricing in more fear than the fundamentals currently justify.

The case to think hard before going heavy - Walmart concentration, flat income since 2020, material debt maturities ahead, and governance complexity. None of these are deal-breakers individually. Together, they mean this is a medium-risk holding — not a bond proxy, not a set-and-forget core position for someone who can't tolerate volatility.

If this is one REIT in a diversified income portfolio, it earns its spot. If it's your only income holding and you're counting on it to fund your life — you're taking on more concentration risk than the yield justifies. And this is why I am diversifying.

Build the freedom before you need it.