Good afternoon, ladies and gentlemen, and welcome to the Morguard North American Residential REIT 2025 Q4 R esults Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, February 12, 2026. I would now like to turn the conference over to Chris Newman, Chief Financial Officer. Please go ahead.
Thank you for joining us today. With me here is President and CEO, Angela Sahi, SVP Paul Miatello, SVP Legal Counsel Beverley Flynn, SVP U.S. Operations John Talano, and Ruth Gorall, VP of the Community and Operations. As is customary, I will provide comments on the REIT's financial position and performance. In terms of our financial position, the REIT completed the Q4 of 2025, with total assets amounting to CAD 4.5 billion, lower compared to CAD 4.6 billion from December 31, 2024. This was mainly driven by a change in the U.S. dollar exchange rate, partly offset by a fair value increase on the REIT's income-producing property. The REIT finished the Q4 with approximately $115 million of cash on hand and $12 million advanced to Morguard Corporation.
The following is a brief summary of the REIT's notable achievements throughout 2025. During the year, the REIT refinanced maturing mortgages for gross proceeds of CAD 245.6 million at a weighted average interest rate of 4.92% for a weighted average term of 5.3 years. The maturing mortgages had a balance of CAD 186.7 million at a weighted average interest rate of 3.29%, resulting in net proceeds of CAD 58.9 million before financing costs. Looking ahead to 2026, the REIT has seven mortgage maturities, three maturities in Canada, which we have an agreement in place, providing additional net proceeds of up to CAD 86.6 million before financing costs for a weighted average term of 11.2 years.
In the US, there are 4 mortgages scheduled to mature in the second half of 2026. Also, during 2025, the REIT continued to be active under its NCIB, repurchasing approximately 1.4 million units at an average unit price of CAD 17.40. The REIT's IFRS net asset value per unit at December 31, 2025, is CAD 44, making the NCIB plan an appealing use of capital. As announced previously in November, the REIT increased its annual cash distribution by CAD 0.03 per unit, an increase of 3.95%, bringing the distributions to CAD 0.79 per unit from CAD 0.76 per unit on an annualized basis.
As at December 31, 2025, the REIT's mortgages payable had an overall weighted average term to maturity of 4.8 years, a decrease from 5.2 years at December 31, 2024, and the weighted average interest rate increased to 4.07% from 3.8% at December 31, 2024. The REIT's debt to gross, gross debt value ratio was 39.5% at December 31, 2025, a slight decrease compared to 39.7% at December 31, 2024. Turning to the statement of income, net income was CAD 111.5 million for the year ended December 31, 2025, compared to CAD 99.4 million in 2024.
The CAD 12.1 million increase in net income was primarily due to a decrease in fair value loss on Class B LP units of CAD 37.2 million, partially offset by a decrease in fair value gain on real estate properties of CAD 22.5 million. IFRS net operating income was CAD 189.7 million for the year ended December 31, 2025, an increase of CAD 8.3 million or 4.6% compared to 2024. On a proportionate basis, proportionate NOI for the year ended December 31, 2025, increased by 4.1% compared to 2024 and comprised of the following: NOI in Canada increased by CAD 0.4 million or 0.6%, mainly due to AMR growth net of higher vacancy, partially offset by an increase in operating expenses.
NOI in the US increased by $3.3 million, or 3.9%, mainly due to AMR growth and an increase in ancillary revenue, net of higher vacancy, and a decrease in operating expenses, primarily from lower property taxes. The change in foreign exchange rate increased proportionate NOI by CAD 3.7 million. Interest expense increased by CAD 8.9 million for the year ended December 31, 2025, compared to 2024, primarily due to an increase in interest expense on mortgages of CAD 8 million from higher principal and interest rates on the completion of the REIT's refinancings. Partially offsetting the additional interest on mortgages was an increase in other income of CAD 3.6 million, primarily from interest income earned on cash held or advanced to Morguard Corporation on the credit facility.
The REIT's 2025 performance translated into basic FFO of CAD 94.1 million, an increase of CAD 4.2 million or 4.7% compared to 2024. And on a per unit basis, FFO for the year ended December 31, 2025, increased by CAD 0.14 to CAD 1.79 per unit, compared to CAD 1.65 per unit in 2024 due to the following: On a proportionate basis in local currency, an increase in NOI and interest income was more than offset by an increase in interest expense and trust expense, which had a net 0.1 cents per unit negative impact.
The decrease in current tax incurred on the REIT's U.S. subsidiaries had a CAD 0.03 per unit positive impact, and the impact from the units repurchased under the REIT's NCIB had a CAD 0.06 per unit positive impact. The REIT's FFO payout ratio of 42.7% for the year ended December 31, 2025, represents a very conservative level, which allows for significant cash retention. Operationally, the REIT's average monthly rent in Canada increased to CAD 1,851 at December 31, 2025, a 4.5% increase compared to 2024, reflecting the quality of our Canadian portfolio. For the year, the Canadian portfolio turned over approximately 11.2% of suites and achieved AMR growth on suite turnover of 13.4%.
Occupancy in Canada finished the Q4 of 2025 at 93.3%, compared to 97.2% at December 31, 2024, and was lower primarily due to increased competition from existing buildings in the area, as well as newly built apartment rentals entering the market. Management believes market conditions will improve as new supply is absorbed, incentive-driven competition moderates, and immigration levels begin to recover. While in the U.S., AMR increased by 1.2% compared to 2024, having an average monthly rent of $1,930 at the end of the Q4 . Occupancy in the U.S. of 91.3% at December 31, 2025, was lower compared to 93.8% at December 31, 2024, primarily due to a combination of tenant relocations and affordability.
Moving forward, management is well positioned for modest AMR growth while maintaining stable occupancies throughout the portfolio. During the year ended December 31, 2025, the REIT's total CapEx amounted to CAD 64.1 million. That included revenue-enhancing in-suite and tenant improvements, exterior building projects, garage renovations, common area, mechanical, plumbing, and electrical projects, as well as energy initiative expenditures. At this time, I'll turn the call back over to the moderator to answer any questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Jonathan Kelcher of TD Cowen. Your line is already open.
Thanks, good afternoon. First question, just on the U.S. portfolio. Q4, you guys had pretty strong same property NOI growth there. That was mostly driven by margin expansion. Was there anything one-time in there that may not repeat going forward?
Yeah, I'll handle that and then pass over to John Talano. So in Q4, final bills were received in Chicago for property taxes, and Chicago bills on a one-year lag. So, we received those bills in Q4. We then went back and analyzed our accruals, and there was a difference. And this is typical. Like, we conservatively accrue for our taxes based on, you know, projections and consultants advice. We're also continuing, you know, looking for appeals and reassessments. So, through that year, we ended up receiving our final bills. And yes, in Q4, there was approximately $1 million that represented 2024's portion in U.S. dollar terms.
Okay. That's, that's helpful. And then so I guess that, that may repeat, may not repeat based on, on 2025.
We concluded a triennial cycle, so, you know, it gets lumpy typically every three years, and not necessarily. It's also based on our estimates. You know, we do conservatively, you know, accrue for, you know, typically taxes go up, so we accrue for a little bit of an increase. But hard to say. I would say we just went through a lump, and sometimes it's good, sometimes it's bad. I feel a few years ago, we did the same thing. You know, we're hoping that we realigned our accruals and this time next year, we're closer to the final bills.
Jonathan, the only thing I would add to that is we're also aggressively appealing everything. Not just in Chicago, but all over the portfolio. So when we get those tax savings, they come in lumps as well. And often, you know, they could be one or even two years behind.
Okay, fair enough. And then, John, just while you're speaking, maybe talk to us about where you think the recovery in the U.S. market is right now. You're... Looks like you're starting to recover, but it's a little lumpy or a little jumpy, actually, in terms of occupancy up and down by quarter and year-over-year.
Yeah, I actually just got back from an NMHC not this Thursday, but last Thursday. The view overall is positive. Interestingly, the darling of the discussions was Chicago, which we've been in and obviously operating in for years. So, you know, folks are talking about that again. The Sun Belt, you know, in different markets, you know, whether it be Texas or Atlanta, you know, parts of Florida, even North Carolina, you know, they have seen just tremendous supply over the last, you know, three or four years. But that is being absorbed. So we still have a housing shortage. I think the general opinion is optimistic. You know, for me, I'm finally seeing deals that make sense again.
And, you know, that is exciting, and there's also, you know, some opportunities. There isn't, I don't, I don't believe there's gonna be an onslaught of folks that are in big trouble, so I don't think we're gonna see, you know, huge savings. But, you know, I think there's gonna be a window where we can purchase below replacement value and be able to, you know, sit for, you know, 12, 16 months on those opportunities and be in a really good spot. So, I'm excited about it. I think, you know, this year will be telling. Our occupancy is down a little bit as well, but it's in pockets, and we're absolutely working through those as well.
So, you know, gone are the days when you didn't have to try to lease. We're very focused on actively marketing and leasing and doing a great job of retaining our residents. But, you know, that's the business we're in, and we think we do it better than most, so we're positive for sure.
Okay. And then just on, you said acquisition opportunities, what type of property like, what sort of class type of property and geographic location would you guys be looking at? So where are you seeing deals?
Well, and we are... You know, we're starting to see it. Honestly, I'm seeing deals in the Sun Belt that are starting to look appealing again. These are markets that folks are worried about, honestly. It's Denver, it's North Carolina, some in Georgia. But again, I think long term, we are, and actually, Tampa is another one that I started to see some deals in that are starting to make sense. You know, these are markets that are good markets where people want to live. There's positive, you know, demographic flow into those markets as well, with good job growth. It's just they were overbuilt for a period of time, and that's gonna present some opportunities.
Okay, thanks. I'll turn it back.
Your next question comes from Jimmy Shan of RBC Capital Markets. Your line is already open.
Thanks. Just to follow up on that last comment, in terms of the U.S. deal from the Sun Belt, so what, how would you define in terms of you seeing as a deal in terms of cap rate and however you think about that?
Well, at the peak, we were seeing deals trade, you know, at in the 3% and 4% on pro forma, which, like, didn't make sense. And now we're seeing garden style, you know, garden style walk-up deals, in those markets that are trading in the high 5s or, you know, a few even, well, 5s, you know, mid-5% to high-5% range. But, you know, it all depends on market, it all depends on, on location and type of product. But, I'm seeing some really good quality stuff in, in regions that are, you know, difficult to get into, but in, in more core locations, and that's what we'd like to see. We don't have anything actively that we're pursuing in the U.S.
And I can't speak for Canada acquisitions, but you know, we're starting to see some things that actually could make sense in the, you know, mid- to longer-term.
Okay. So maybe just in terms of the cash deployment then, how are you guys thinking about, because you have a lot of cash, after the refinancing, how are you looking to deploy that cash, given, given the comment that John just made?
Hey, Jimmy, this is Anne Lewis. So we're constantly looking and evaluating both the U.S. and Canada. As John mentioned, nothing actively pursuing in the U.S. right now. But again, we're finding opportunities in Canada that we didn't see similar to John's conversation. You know, we were looking at sub-3 cap rates before, but we are finding opportunities now, and that are more accretive. And we're hoping to look for an acquisition opportunity to deploy some of those funds.
What about, what about unit buyback? Is that also part of the plan for this year?
Yeah, I think it's always on the table. So it just depends on how we wanna allocate our capital and we know that's always a great choice. It's just we did take a slight pause in the fall. You know, our activity was a little bit lower. So it's really just to trying to see how to best deploy our next steps with that capital.
Okay. Last question, just in terms of the Toronto assets, or even starting to sell the assets, can you give a bit of an update on-
What's happening in that little node? I know there's been a lot of new supply competing. Is it getting better, kind of, generally speaking, what's happening there?
Hi. Yes, it is getting a little bit better. We have seen increased leasing activity in the month of January. It slowed down just recently, just because of the bad weather. And also the incentives that are being offered, we're seeing that being reduced as well. So overall, we're seeing a slight improvement in the market. And you know, we're also able to increase our overall rent on turnover, as we had said, like 13.4%, for last year. So again, we are seeing a bit of an improvement going forward.
Mm-hmm. Do you think you'll be able to get back to sort of that 95% this year? Occupancy.
We certainly hope to by the end of the year. You know, right now there is a lot of inventory that we need to absorb, and we are. But, you know, it's also offset by tenants moving out. But definitely we do see an improvement going forward.
Okay. Thank you.
Your next question comes from Alexander Leon of Desjardins. Your line is already open.
Hey, good afternoon, everyone. Maybe just sticking on the leasing discussion, in the Canadian portfolio, I'm wondering if you can provide any commentary on, the tenure of leases that have been turning over in recent quarters? I'm just trying to get a sense of some of the deceleration in the, the new leasing spreads, whether that's a function of, just the softening market rents or just the different vintage of leases rolling.
Yeah, it's more a function of different vintages of leasing rolling. So if I look at, like, Mississauga for the year, our uplift on rent on average is between, like, 12% and 20%. So it really depends on, as you said, the length of occupancy for any particular tenant. In Toronto, it's much higher. It's almost, you know, between 30% and 48%. So we do have a lot of long-term tenants at these properties. The turnover rate in the past has been quite low. So really, this gives us an opportunity to increase our revenue going forward.
Okay, great. That's good color. My next question is on the, the utilities expense in the Canadian portfolio. It was down pretty substantially year-over-year, despite the colder weather this quarter. So, I'm wondering if you could maybe quantify how much of that decrease would have been due to the removal of the carbon tax?
So for gas, it is quite a reduction, I believe. We can get back to you with the exact percentage, but there is a reduction in consumption as well. So we've implemented some energy efficiency programs that it assisted us in reducing the consumption along with carbon tax.
Okay, great. And then maybe last one for me-
Consumption is fairly stable, right? Sorry about that. Yeah.
Yeah.
Consumption is fairly stable year over year.
Even though the weather has been a bit colder than prior years, it really-
Right.
You know, consumption did you know, like 1% or 2%. We can get back to you with the exact number.
Okay. Yeah, no problem. And then last one for me, just on the U.S. portfolio. I want to ask about the value add program at Village Crossing Apartments. I think that was a fairly decent sized program in West Palm Beach. I'm wondering, when you expect that one to be completed?
Sure. We actually just completed our first building of 27 units, and seven of those are now occupied. We are well on our way of our second building. We expect those to be done within 30-40 days from today. So that'll be 50 of the 189 units. And then we have 70-75 units more, roughly planned before the end of the year. We're trying to front load those, to hit the spring leasing season, over the spring and summer. So that is the strategy today.
Okay, that's great. And just to confirm, these units, are these additional units or are these units that are already reflected in the portfolio and are going to show up as, like, improved occupancy?
They are not net new, so they preexist. It's 1984 vintage that we are completely renovating. So, this is not a lipstick renovation. We are redesigning kitchens and bathrooms and all new appliances, HVAC, soup to nuts, completely modernizing. This is an asset that we believe in long term, and we are maintaining its relevance with the competition. So, we've invested some significant capital in resilience, specifically roofs and impact windows and doors. This will be the final push for the renovations and capital spend.
Okay, thanks for that. That's it for me.
Ladies and gentlemen, as a reminder, if you have a question, please press star one. There are no further questions at this time. I would hand over the call to Chris Newman for closing remarks. Please go ahead.
Okay. Thank you, again, for joining us. We look forward to speaking with you next time at our Q1 meeting. Thank you. Bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.