Morguard North American Residential Real Estate Investment Trust Q1 Earnings Call Highlights

Key Points

• Q1 results were largely stable but FFO fell 7.6% to CAD 21.4 million (CAD 0.41/unit) and proportionate NOI declined as higher vacancy in both Canada and the U.S. offset rent growth.
• The REIT entered the quarter with CAD 4.6 billion in assets and ~CAD 81 million cash, expects roughly CAD 200 million in available liquidity after planned refinancings, and maintains a debt-to-gross-book-value ratio of about 39%.
• Morguard REIT and Morguard Corporation plan to jointly invest CAD 1 billion for ~20% of a CAD 5 billion, 106-property TD Asset Management portfolio, with closing targeted in the second half of 2026 while allocation details remain under due diligence.

Morguard North American Residential Real Estate Investment Trust TSE: MRG.UN reported largely stable first-quarter 2026 results, with management pointing to higher vacancy in both Canada and the U.S. as a key operational headwind while highlighting rent growth, a conservative payout ratio, and plans to close a large Canadian portfolio investment in the second half of the year.

Financial position and liquidity

Chris Newman, CFO, said the REIT ended the first quarter with total assets of CAD 4.6 billion, up from CAD 4.5 billion at December 31, 2025. Newman attributed the change primarily to “a change in the U.S. dollar exchange rate and a fair value increase on the REIT’s income-producing properties.”

The REIT finished the quarter with approximately CAD 81 million of cash on hand and CAD 37 million advanced to Morguard Corporation. Newman added that, including three Canadian refinancings expected to close in the second quarter—anticipated to provide up to CAD 87 million of additional net proceeds before financing costs—the REIT expects liquidity of roughly CAD 200 million.

As of March 31, 2026, mortgages payable had a weighted average term to maturity of 4.6 years, down from 4.8 years at year-end 2025, while the weighted average interest rate remained unchanged at 4.07%. Newman also said the debt-to-gross-book-value ratio declined to 39% from 39.5%, and the IFRS net asset value per unit was CAD 44.76.

Results: net income flat, FFO down

Net income for the three months ended March 31, 2026 totaled CAD 38.2 million, compared with CAD 38.3 million in the prior-year period. Newman said the CAD 0.1 million decrease was “primarily due to offsetting non-cash changes.” IFRS net operating income was CAD 20.8 million, consistent year over year.

On a proportionate basis, proportionate NOI declined 4.2% versus 2025. Newman said NOI in Canada decreased by CAD 0.3 million, or 1.7%, “mainly due to higher vacancy and a decrease in ancillary revenue,” partially offset by higher average monthly rent (AMR) and lower operating expenses driven largely by lower gas expense.

In the U.S., NOI decreased by $0.3 million, or 1.2%, which Newman attributed mainly to higher vacancy. He said the decline was partly offset by higher AMR and ancillary revenue, along with lower operating expenses “primarily from tax rebates received on successful appeals.” Newman added that foreign exchange reduced proportionate NOI by CAD 1.5 million.

Interest expense increased by CAD 0.4 million year over year, which Newman linked to higher mortgage interest due to increased principal and higher rates associated with refinancings.

Funds from operations (FFO) for the quarter totaled CAD 21.4 million, down CAD 1.8 million, or 7.6%, from 2025. FFO per unit decreased by CAD 0.03 to CAD 0.41. Newman attributed the decline to a combination of lower proportionate NOI (in local currency), lower interest income, and higher interest expense, partly offset by lower trust expense and current income tax. He said foreign exchange had a CAD 0.02 per-unit negative impact, while unit repurchases under the REIT’s normal course issuer bid contributed a CAD 0.01 per-unit positive impact.

Newman said the REIT’s FFO payout ratio was 48% for the quarter, calling it “a very conservative level, which allows for significant cash retention.”

Operations: rent growth offset by higher vacancy

On the operating side, Newman said average monthly rent in Canada rose to CAD 1,872 as of March 31, 2026, a 3.9% increase from the prior year. The Canadian portfolio turned over approximately 1.6% of suites during the quarter and achieved AMR growth on suite turnover of 8.3%.

However, occupancy in Canada ended the quarter at 91.6%, down from 96.4% a year earlier. Newman said occupancy was lower “primarily due to increased competition from existing buildings in the area as well as newly built apartment rentals entering the market,” adding that management believes conditions will improve as new supply is absorbed and incentive-driven competition moderates.

In the U.S., Newman said AMR increased 2% year over year to $1,924 at quarter-end. U.S. occupancy was 91.7%, down from 95.6% a year earlier, which Newman attributed to “the accommodation of tenant relocations and affordability.” He said management expects “modest AMR growth while maintaining stable occupancies throughout the portfolio.”

During the question-and-answer session, John Talano, SVP, U.S. Operations, discussed market-level trends. He said the REIT is seeing “some really good occupancy” in Chicago and Washington, D.C., with “over 3% increases” lease-over-lease in both markets for the quarter. Talano described those as the REIT’s strongest markets heading into the summer, while noting that the Gulf South and Florida “has been pretty flat,” even as the portfolio posted a 2% overall increase.

In Canada, Ruth Grabel, VP, Canadian Operations, told analysts leasing activity has “definitely picked up,” consistent with typical spring seasonality. She said move-ins are exceeding move-outs, which she called a positive sign, and that the REIT reduced rents on select one-bedroom units to help stabilize occupancy. Grabel also said incentives remain in the market, noting competition is offering “up to two months free rent.” Asked whether occupancy should improve given the move-in trend, Grabel said, “Yes, it’s our expectation,” while Paul Miatello, SVP, added that any improvement “may be moderate,” but the REIT is seeing “some positive trends.”

Capital spending and TDAM portfolio investment

Newman said total capital expenditures for the quarter were CAD 11.5 million, including in-suite and tenant improvements and various building projects, such as garage renovations, common area work, mechanical, plumbing, electrical, and energy initiatives.

He also reiterated previously announced plans for the REIT and Morguard Corporation to jointly invest CAD 1 billion in a Canadian multi-suite residential real estate portfolio owned by TD Asset Management. Newman said the acquisition would represent an approximate 20% undivided interest in a 106-property portfolio valued at approximately CAD 5 billion. He said the parties are progressing through due diligence, including determining property allocations to the REIT, and continue to anticipate closing in the second half of the year.

Pressed on potential asset allocation, Miatello said management was not ready to provide specifics given the ongoing diligence. He said the teams are reviewing geographies, cash yields, development potential, cap rates, and capital requirements, among other factors, before determining the investment split between Morguard Corporation and the REIT. Miatello added that while the portfolio is “largely stabilized,” stabilized status would be “one of many criteria” considered in allocation decisions.

About Morguard North American Residential Real Estate Investment Trust TSE: MRG.UN

Morguard North American Residential Real Estate Investment Trust is an open-end real estate investment trust. The REIT invests in multi-suite residential rental properties in Canada and the United States. The REIT operates into two reportable segments, Canada and the United States. The United States contributes to the vast majority of revenue.

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