Morguard North American Residential Real Estate Investment Trust Q4 Earnings Call Highlights

Morguard North American Residential Real Estate Investment Trust (TSE:MRG.UN) reported on its fourth-quarter and full-year 2025 results, highlighting higher full-year net income and funds from operations, continued mortgage refinancing activity, and a year of softer occupancy in both Canada and the U.S. amid competitive leasing conditions.

Balance sheet, refinancing activity, and capital allocation

Chief Financial Officer Chris Newman said the REIT ended Q4 2025 with total assets of CAD 4.5 billion, down from CAD 4.6 billion at December 31, 2024. Management attributed the change primarily to a shift in the U.S. dollar exchange rate, partially offset by a fair value increase on income-producing property.

The REIT finished the quarter with about $115 million of cash on hand and $12 million advanced to Morguard Corporation.

During 2025, the REIT refinanced maturing mortgages for gross proceeds of CAD 245.6 million at a weighted average interest rate of 4.92% and a weighted average term of 5.3 years. The refinanced mortgages had previously carried a balance of CAD 186.7 million at a weighted average rate of 3.29%, resulting in net proceeds of CAD 58.9 million before financing costs.

Looking to 2026, management said the REIT has seven mortgage maturities:

• Canada: Three maturities, with an agreement in place that could provide additional net proceeds of up to CAD 86.6 million before financing costs and a weighted average term of 11.2 years.
• United States: Four mortgages scheduled to mature in the second half of 2026.

Newman added that mortgages payable carried a weighted average term to maturity of 4.8 years at December 31, 2025, down from 5.2 years a year earlier, while the weighted average interest rate rose to 4.07% from 3.8%. The REIT’s debt-to-gross debt value ratio was 39.5% at year-end, slightly lower than 39.7% at December 31, 2024.

Management also discussed ongoing unit repurchases and distributions. The REIT repurchased about 1.4 million units under its normal course issuer bid (NCIB) at an average price of CAD 17.40. Newman said IFRS net asset value per unit was CAD 44 at December 31, 2025, which management cited as supporting the attractiveness of repurchases. The REIT also previously announced an increase to its annual cash distribution of CAD 0.03 per unit (up 3.95%) to CAD 0.79 per unit from CAD 0.76 on an annualized basis.

In the Q&A, management said unit buybacks remain “always on the table,” though the REIT “took a slight pause in the fall” as it evaluated capital allocation. Management also said it is evaluating acquisition opportunities in both the U.S. and Canada, noting that opportunities have become more “accretive” than during the prior environment of very low cap rates.

Income statement: net income up, NOI growth, and higher interest expense

For the year ended December 31, 2025, the REIT reported net income of CAD 111.5 million, up from CAD 99.4 million in 2024. Newman said the increase was primarily due to a CAD 37.2 million decrease in fair value loss on Class B LP units, partially offset by a CAD 22.5 million decrease in fair value gains on real estate properties.

IFRS net operating income (NOI) rose to CAD 189.7 million, an increase of CAD 8.3 million, or 4.6%, versus 2024. On a proportionate basis, management said NOI increased 4.1% year over year, with the following drivers:

• Canada: NOI increased CAD 0.4 million, or 0.6%, primarily from average monthly rent (AMR) growth net of higher vacancy, partially offset by higher operating expenses.
• U.S.: NOI increased $3.3 million, or 3.9%, driven by AMR growth and higher ancillary revenue, net of higher vacancy, alongside lower operating expenses, primarily from lower property taxes.
• Foreign exchange: A change in FX increased proportionate NOI by CAD 3.7 million.

Interest expense increased by CAD 8.9 million versus 2024, primarily due to higher interest expense on mortgages (up CAD 8 million) from higher principal balances and higher interest rates following refinancings. Partially offsetting that, Newman said other income increased by CAD 3.6 million, largely from interest income on cash held or amounts advanced to Morguard Corporation through the credit facility.

FFO, payout ratio, and per-unit drivers

The REIT reported basic funds from operations (FFO) of CAD 94.1 million for 2025, up CAD 4.2 million, or 4.7%, compared with 2024. FFO per unit increased by CAD 0.14 to CAD 1.79 per unit from CAD 1.65 per unit.

Management attributed the per-unit change to several factors, including the impact of unit repurchases under the NCIB (a CAD 0.06 per unit positive impact) and lower current tax incurred on U.S. subsidiaries (a CAD 0.03 per unit positive impact). Newman also said that, on a proportionate basis in local currency, increased NOI and interest income were more than offset by higher interest expense and trust expense, for a net negative impact of 0.1 cents per unit.

The REIT’s FFO payout ratio was 42.7% for 2025, which management characterized as conservative and supportive of cash retention.

Operating trends: AMR gains, occupancy pressure, and outlook comments

Operationally, Newman said average monthly rent in Canada increased to CAD 1,851 at December 31, 2025, representing 4.5% growth compared with 2024. The Canadian portfolio turned over about 11.2% of suites during the year and achieved AMR growth on suite turnover of 13.4%.

Canadian occupancy ended Q4 2025 at 93.3%, down from 97.2% at the end of 2024. Management attributed the decline primarily to increased competition from existing buildings and newly built rental supply. Management said it expects conditions to improve as new supply is absorbed, incentive-driven competition moderates, and immigration levels begin to recover. In response to analyst questions, management said leasing activity improved in January, incentives appear to be easing, and the REIT is aiming to return to roughly 95% occupancy by the end of the year, while noting that inventory still needs to be absorbed.

In the U.S., the REIT reported AMR of $1,930 at the end of Q4 2025, up 1.2% versus 2024. U.S. occupancy was 91.3% at December 31, 2025, down from 93.8% a year earlier, which management said reflected tenant relocations and affordability challenges. Management said it is positioned for “modest AMR growth” while maintaining stable occupancy across the portfolio, while noting the need for more active leasing and resident retention efforts than in prior periods.

Property taxes, expense items, and value-add renovations

During the Q&A, management addressed strong Q4 same-property NOI growth in the U.S., saying it was influenced by property tax true-ups in Chicago. Management said final Chicago property tax bills—received on a one-year lag—led to an analysis of accruals and a difference that benefited results, including about $1 million (in U.S. dollar terms) tied to 2024’s portion. Management described property tax impacts as “lumpy,” noting Chicago’s triennial cycle and ongoing tax appeals across the portfolio, where savings can also arrive with a lag.

On the Canadian side, management said utilities expense declined year over year and attributed this to the removal of the carbon tax on gas as well as energy efficiency programs, while adding that consumption was generally stable year over year despite colder weather.

Management also provided an update on a value-add renovation program at Village Crossing Apartments in West Palm Beach. The REIT completed the first building of 27 units and said seven were occupied. A second building is underway and expected to be completed within 30 to 40 days. Management said it plans to renovate roughly 70 to 75 additional units before year-end, aiming to front-load work into spring and summer leasing season. The units are existing units in a 1984-vintage property undergoing extensive renovations, including kitchens, bathrooms, appliances, HVAC, and resilience-related upgrades such as roofs and impact windows and doors.

For 2025, the REIT reported total capital expenditures of CAD 64.1 million, spanning in-suite and tenant improvements, exterior building projects, garage renovations, common areas, mechanical, plumbing and electrical work, and energy initiatives.

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.