Morguard North American Residential Real Estate Investment Trust (TSE:MRG.UN) reported higher third-quarter net income, supported primarily by fair value gains on its income-producing properties, while operating income and funds from operations declined amid higher vacancy, expenses and interest costs.
For the quarter ended Sept. 30, 2026, net income totaled $31.1 million, compared with $12.5 million a year earlier. Chief Financial Officer Chris Newman said the increase was mainly attributable to a higher net fair value gain, partially offset by increased deferred income taxes.
IFRS net operating income was $53.7 million, down $0.4 million, or 0.7%, from the prior-year quarter. On a proportionate basis, NOI declined 1.7% as both the Canadian and U.S. portfolios experienced higher vacancy and operating costs.
FFO Declines as Financing Costs Rise
Basic funds from operations were $19.7 million, down $2.6 million, or 11.8%, from the third quarter of 2025. FFO per unit declined to $0.38 from $0.43.
Newman said the decline reflected lower proportionate NOI in local currency, lower interest income, higher interest expense and higher current tax, partly offset by lower trust expenses. Interest expense increased $1.8 million from a year earlier, primarily due to higher mortgage principal balances and interest rates following refinancings.
The REIT’s FFO payout ratio was 52.4% for the quarter. Management also announced a 2.5% increase in its annual cash distribution, raising it by $0.02 per unit to $0.81 annually from $0.79.
The REIT ended the quarter with total assets of $4.8 billion, up from $4.5 billion at the end of 2025. Newman attributed the increase to changes in the U.S. dollar exchange rate, a fair value increase on income-producing properties and higher cash balances resulting from refinancings.
- Cash on hand totaled about $172 million at quarter-end.
- The REIT had $100 million available under its revolving credit facility with Morguard Corporation.
- Debt to gross book value was 40.1%, compared with 39.5% at Dec. 31, 2025.
- Mortgages payable had a weighted average term to maturity of 5.3 years and a weighted average interest rate of 4.28%.
During the quarter, the REIT refinanced a mortgage secured by two Pensacola, Florida, properties for $45.6 million at a 6.33% rate for 10 years. It also prepaid an $8.6 million mortgage on a New Orleans residential property.
Canadian Portfolio Acquisition Advances
The REIT said it has advanced its planned joint acquisition with Morguard Corporation of a Canadian multi-suite residential portfolio. Its share of the transaction carries a gross purchase price of about $478 million and represents an approximately 22% undivided interest in 60 properties.
Management has completed due diligence and waived related purchaser conditions. The deal is expected to close in a single tranche, subject to Canada Mortgage and Housing Corp. and lender approvals.
Senior Vice President Paul Miatello said the allocation of assets between the REIT and Morguard Corporation was based on the acquisition criteria of each organization, including asset stabilization, yields and capital requirements. He said a number of higher-yielding assets were allocated to Morguard Corporation to better support that company’s distribution pattern.
Miatello said the acquisition will broaden the REIT’s geographic diversity in Canada, though comparisons with the existing portfolio are difficult because rents and market conditions vary across the acquired locations. He noted the portfolio includes assets in Southern Mississauga, Edmonton and Kitchener-Waterloo. On an equity-investment basis, the transaction is close to evenly split between Morguard Corporation and the REIT, he said, although the gross acquisition price is weighted more toward Morguard Corporation because of higher leverage and a higher price per suite in its portion.
Occupancy Softens in Canada and the U.S.
In Canada, average monthly rent increased 2.2% from a year earlier to $1,878 as of Sept. 30. The Canadian portfolio turned over approximately 12.1% of suites during the first nine months of 2026 and generated average monthly rent growth of 7.2% on turnover.
Canadian occupancy ended the quarter at 93.8%, compared with 94.3% a year earlier. Newman said occupancy was affected by competition from newly built rental properties and lower immigration levels. Management expects conditions to improve as new supply is absorbed and incentive-driven competition moderates.
Vice President of Canadian Operations Ruth Grabel said availability was near the reported 94% occupancy level at the time of the call, excluding future move-outs. Leasing activity had slowed with the approach of winter but remained active, she said.
Grabel attributed improved occupancy in Southern Mississauga to the completion of garage restoration projects, some absorption at competing new properties, business activity including IT companies, and tenants returning from condominium rentals. She said incentives in the market were generally declining, with some competitors offering two months of free rent on select units while one month free was becoming more common.
In the U.S., average monthly rent rose 0.7% to $1,953, while occupancy fell to 91.4% from 92.5% a year earlier. The REIT cited tenant relocations, affordability pressures and increased home buying as factors.
Senior Vice President of U.S. Operations John Talano said activity was stable but slower than in prior years. The portfolio recorded approximately 2,200 move-outs and 2,300 move-ins during the quarter. He said Chicago occupancy remained strong, while Colorado and New Orleans were softer, though those markets represent relatively small portions of the portfolio. Talano said the REIT expects occupancy to remain stable through the seasonally slower winter leasing period.
Capital Spending and Refinancing Outlook
For the first nine months of 2026, total capital expenditures were $45.1 million. Spending included in-suite and tenant improvements, exterior projects, garage renovations, common-area mechanical, plumbing and electrical work, and energy initiatives.
Newman said all of the REIT’s existing 2028 mortgage maturities are in the U.S. The next U.S. refinancings are scheduled for June, July and September. He said U.S. all-in financing rates had settled at roughly 6% after a late-September spike in U.S. Treasury yields, while Canadian 10-year financing rates were roughly 4.25% to 4.5%.
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.
