Morguard Real Estate Inv. Q1 Earnings Call Highlights

Key Points

• Q1 NOI was essentially flat at CAD 25.6 million versus CAD 25.7 million a year ago as improved retail performance offset office softness, but overall occupancy fell to 84.8% (from 87.7%) largely due to two former Hudson’s Bay store failures.
• Office NOI weakness was driven by about 84,000 square feet returned in Ottawa and Vancouver; management expects those vacancies could be filled “in the next year or two” and does not see broader near‑term downsizing risk.
• The trust ended the quarter with CAD 61 million in liquidity and CAD 218 million in unencumbered assets, plans to reissue a roughly CAD 159 million convertible debenture maturing end‑2026, has cut mortgage rates to 4.7% (from 5.4%) and is pursuing redevelopment spending at St. Laurent (CAD 6.2m spent to date; CAD 25–30 million expected total).

Morguard Real Estate Inv. TSE: MRT.UN reported first-quarter 2026 results that management said were in line with expectations and largely consistent with the prior year, as improved retail performance helped offset softness in office net operating income tied to two notable tenant move-outs.

First-quarter performance and portfolio trends

Chief Financial Officer Andrew Tamlin said the REIT generated net operating income (NOI) of CAD 25.6 million in the first quarter, slightly below CAD 25.7 million in the first quarter of 2025. Tamlin noted that year-over-year comparisons include the loss of income related to two failed Hudson’s Bay (The Bay) stores that impacted 2025 results, though he said the REIT has added “other quality tenants” over the past 12 months and benefited from “positive leasing spreads throughout 2025,” supporting retail NOI.

Tamlin described continued momentum in the community strip portfolio, which posted 2.2% same-store growth, adjusting for one asset affected by a failed Peavey Mart. He added that the REIT remains focused on “short-term options” for the two former Bay spaces, while broader initiatives—particularly at St. Laurent—are receiving additional redevelopment attention.

Overall occupancy at March 31, 2026 was 84.8%, down from 87.7% a year earlier. Tamlin attributed the decline primarily to the Bay failures at Cambridge and Ottawa, along with the office vacancies discussed on the call. He said management expects occupancy to rise in coming quarters as new leasing deals are completed.

Office vacancies and outlook

On the office side, Tamlin said NOI declined primarily because about 84,000 square feet of space was returned to the landlord in two separate instances in recent months at assets in Ottawa and Vancouver. He emphasized that other office properties are seeing “either similar or improved occupancy from a year ago,” which he linked to a broader trend of companies implementing return-to-office policies.

During the question-and-answer session, management said it expects the Ottawa and Vancouver vacancies could be filled “in the next year or two,” describing the buildings as well-located and in “pretty good areas” that should remain in demand. Management also said it was not currently concerned about additional office downsizing or material non-renewals in the near term.

Tamlin also provided an update on Penn West Plaza, saying occupancy remains “in the range of 80%.” He said the REIT expects NOI at that property to be about CAD 2 million higher in 2026 than 2025, with the benefit showing up in the final three quarters of the year as certain inducements booked in 2025 “start to burn off.”

Looking ahead, Tamlin said the REIT expects retail results to remain stable in 2026, even as it works through a full year without Bay income. He also said the REIT anticipates “continued softness” in office numbers during 2026 while the Ottawa and Vancouver vacancies are addressed, though he expressed cautious optimism that increased touring activity could translate into leasing deals in 2026 and 2027.

Financing, liquidity, and debt

Tamlin said the trust ended the quarter with CAD 61 million in liquidity, down from CAD 68 million at the end of 2025. He also highlighted CAD 218 million in unencumbered assets and said the REIT sees up-financing opportunities in 2026.

Interest expense fell by CAD 400,000 in the quarter, which Tamlin attributed mainly to lower rates achieved on mortgage renewals. The REIT renewed two mortgages totaling CAD 27 million in 2026 to date, lowering the weighted average interest rate from 5.4% to 4.7%, according to management.

Variable-rate debt represented about 22% of total debt at quarter-end, up slightly from 21% at the end of 2025. Tamlin said the financing market has “opened up more in the last year,” with lower spreads on attractive assets and lenders showing increased willingness to consider office lending opportunities.

Asked about a CAD 159 million convertible debenture maturing at the end of 2026, management said it is looking to complete a new debenture issue later in the year. Management said the new issue would likely carry a higher interest rate than the current debenture but would be “approximately the same amount, give or take,” depending on market conditions and timing.

Development and leasing initiatives in retail

Management provided several updates on retail leasing and development projects, including a strategic re-merchandising initiative at St. Laurent. Tamlin said current spending of CAD 6.2 million includes tenant build-outs for Sephora and H&M, which are now open and have received “very positive reviews” regarding their impact. He said total spending is expected to reach CAD 25 million to CAD 30 million as the REIT pursues additional tenant upgrades and works to activate the former Sears space, with the next phase of the project expected to be announced shortly.

In response to a question about the former Hudson’s Bay space at St. Laurent, John Ginis, Vice President of Retail Asset Management, said the REIT executed a deal to backfill the lower level with Urban Behavior. Ginis said the tenant took occupancy “today” and is expected to open within three to four days. He added that Urban Behavior has operated successfully at the shopping center in the former Sears space for about four years.

Ginis also said the REIT is working on leasing the upper level of the former Sears at St. Laurent and hopes to announce that transaction in the second quarter. For the former Bay space at Cambridge, he said the configuration is more challenging because it is a two-level space in a single-level mall, but management is working through documentation to lease the lower portion of that box.

Elsewhere in the retail portfolio, Tamlin said two No Frills grocery deals are underway:

• Parkland Mall in Red Deer: a new No Frills opened in the fourth quarter of 2025, with a CAD 1.5 million cost, activating previously vacant space.
• Saskatoon: a new No Frills is planned to open, with an estimated cost of about CAD 5 million.

Tamlin also said the REIT will re-tenant the former Peavey Mart box at an open-air retail asset in Airdrie with a gym operator, representing a combined spend of about CAD 1.5 million. He said the project is expected to be “quite accretive” to income beginning in 2027.

Renewals and leasing spreads

During Q&A, TD Cowen’s Linda Wang asked about retail renewal uplifts in the first quarter, noting that management reported a -9% uplift on renewals for enclosed regional centers and +2% for community strip centers. Management said the first quarter typically shows this kind of pattern due to seasonal turnover from “Christmas-type tenancies” coming off the rent roll, describing it as more temporary than structural. Management said it expects uplifts to return, though it did not provide a specific figure for the remaining quarters of 2026.

In closing remarks, Tamlin said management continues to see “strong fundamentals” in retail leasing and believes office fundamentals “have changed for the better,” citing high-quality office buildings in major Canadian markets and a significant base of government tenants.

About Morguard Real Estate Inv. TSE: MRT.UN

Morguard Real Estate Investment Trust is a closed-end trust that owns, manages, and invests in a diversified real estate portfolio of commercial properties across Canada. The company has three reportable segments namely Retail, Office, and Industrial. It generates maximum revenue from the Retail segment.

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