Morguard Real Estate Inv. Q2 Earnings Call Highlights

Key Points

• Q2 performance exceeded expectations: Net operating income rose 5.5% year over year to $27.1 million, supported by 7.5% combined same-asset growth and resilient retail results.
• Saint Laurent redevelopment is advancing: Morguard has invested approximately $6 million to date and plans to spend $25 million to $30 million overall, with Uniqlo, Sport Chek and Splitsville among the expected additions.
• Occupancy and liquidity improved but capital needs remain: Overall occupancy increased to 85.2%, while the REIT held $61 million in liquidity and expects to use its full $35 million 2026 operating capital reserve.

Morguard Real Estate Inv. TSE: MRT.UN reported second-quarter results that Chief Financial Officer Andrew Tamlin said exceeded expectations, supported by combined same-asset growth of 7.5% and continued strength in its retail portfolio.

Net operating income rose 5.5% year over year to $27.1 million in the second quarter from $25.7 million in the prior-year period. Year-to-date net operating income increased 2.5% from 2025 levels. Tamlin said retail performance remained resilient, while office results reflected both improving demand and the effect of several significant vacancies.

Retail growth and Saint Laurent redevelopment

The REIT’s community strip portfolio generated same-store growth of 5.9% in the quarter and 2.4% year to date, with occupancy effectively at 100%. Enclosed malls produced same-asset growth of 2.5% for the quarter and 3% year to date.

Tamlin said the trust expects retail results to remain stable through the remainder of 2026 despite working through lost Hudson’s Bay income. He cited solid tenant traffic and sales per square foot, as well as positive leasing spreads achieved during 2025, as support for retail net operating income.

At Saint Laurent, Morguard is pursuing a strategic merchandising program intended to add nationally recognized brands and expand existing tenants. The trust has spent approximately $6 million to date on development work, including build-outs for Sephora and H&M, which are now open.

The broader Saint Laurent program is expected to require $25 million to $30 million in spending. It includes plans to activate the former Sears space and demolish a former Sears parking deck that Tamlin said is no longer needed and has exceeded its useful life.

• Uniqlo is nearing completion of a 12,600-square-foot location expected to open early in 2027.
• The former Sears box will house a relocated Sport Chek and a new Splitsville entertainment venue, both expected to open in about one year.
• Urban Behavior opened in May in the lower level of the former Hudson’s Bay space at Saint Laurent.

John Ginis, Vice President of Retail Asset Management at Morguard, said Saint Laurent’s foot traffic has risen about 10%, while sales productivity among small-bay inline tenants has also increased approximately 10%. He said the trends have supported constructive renewal discussions and positive leasing spreads at the mall.

Regarding the former Hudson’s Bay space at Cambridge Centre, Ginis said the trust was working through options for the two-level box and was pursuing a potential transaction. He said Morguard hoped to be in a position to announce an arrangement for at least the lower level during the third quarter, though no deal was binding at the time of the call.

Office vacancies offset by improving leasing trends

Office results included the loss of 84,000 square feet of space returned to the landlord at two Ottawa and Vancouver properties at the beginning of the year. Tamlin said the trust believes those vacancies will be short-term because the buildings are located in favorable urban markets.

He added that other office properties have maintained or improved occupancy from a year earlier, which he said is consistent with companies implementing return-to-office policies. Penn West Plaza also contributed to results, with net operating income increasing $1.2 million in the second quarter as the property moved beyond an initial period of 2025 lease-up inducements. The building remained approximately 80% occupied.

Tom Johnston, Senior Vice President of Western Office Asset Management, said lease rates for a British Columbia government tenant at Seymour were established several years ago and were in the high teens. He noted that the Province of British Columbia typically extends leases well before their expiration dates.

Occupancy, liquidity and capital plans

Overall occupancy was 85.2% at the end of the second quarter, up 40 basis points from 84.8% at the end of the first quarter. Retail occupancy increased 60 basis points and office occupancy rose 100 basis points sequentially. Tamlin said the trust expects occupancy to continue increasing as additional leasing transactions are completed.

The trust had $61 million of liquidity at quarter-end, unchanged from the first quarter and down from $68 million at the end of 2025. It also held $219 million in unencumbered assets and sees potential financing opportunities in 2026 and 2027.

Interest expense declined by $240,000 year over year in the second quarter, primarily due to lower rates on mortgage renewals and short-term borrowings. Morguard renewed four mortgages totaling $103 million during 2026 at a slightly higher average renewal rate. Variable-rate debt represented about 22% of total debt at quarter-end, compared with 21% at the end of 2025.

Morguard maintained its 2026 operating capital reserve at $35 million. Cash capital spending totaled $11.4 million during the second quarter, and Tamlin said the trust expects to spend the full reserve by year-end.

Additional retail projects and renewals

The REIT said it expects a new No Frills store at The Centre in Saskatoon to open in early 2027, with development costs of approximately $5 million. A No Frills store at Parkland Mall in Red Deer opened during the fourth quarter of 2025 after a $1.6 million investment to activate vacant space.

Morguard also plans to re-lease a former Peavey Mart space at an open-air retail property in Airdrie to a gym operator. The project is expected to involve approximately $1.5 million in combined spending and to contribute to REIT income beginning in 2027.

Looking ahead, Tamlin said 764,000 square feet is scheduled for renewal in the final two quarters of 2026. For tenants with more than 10,000 square feet, he said only one smaller tenant was considered at risk of not renewing. The outlook for 2027 renewals was similarly limited to a few smaller office-industrial tenants.

In response to a question on $64 million of land held for development, Tamlin said the assets represent longer-term development opportunities and entitlement efforts. He said there were no additional active projects beyond those discussed on the call.

About Morguard Real Estate Inv. (TSE:MRT.UN)

The Trust is a closed-end real estate investment trust, which owns a diversified portfolio of 45 high quality retail, office and industrial income producing properties in Canada consisting of approximately 8 million square feet of leasable space.

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