Good afternoon, ladies and gentlemen, and welcome to the Morguard North American Residential REIT 2026 results conference call. At this time, all participants are only in listening mode. Following the presentation we will proceed to question-and-answer session. If you need any assistance, please press star zero for the operator. This call is being recorded on Friday, May 1st, 2026. I will now turn the conference over to Chris Newman, CFO. Please go ahead.
Thank you. With me here today is Angela Sahi, President and CEO, Paul Miatello, SVP, Beverley G. Flynn, SVP and General Counsel, John Talano, SVP, U.S. Operations, and Ruth Grabel, VP, Canadian Operations. As is customary, I'll provide comments on the REIT's financial position and performance. In terms of our financial position, the REIT completed the first quarter of 2026 with total assets amounting to CAD 4.6 billion, higher compared to CAD 4.5 billion at December 31st, 2025. This was mainly driven by a change in the U.S. dollar exchange rate and a fair value increase on the REIT's income-producing properties. The REIT finished the first quarter with approximately CAD 81 million of cash on hand and CAD 37 million advanced to Morguard Corporation.
Including the three Canadian refinancings expected to close during the second quarter, which will provide up to CAD 87 million of additional net proceeds before financing costs. The REIT will have liquidity of roughly CAD 200 million. As at March 31st, 2026, the REIT's mortgages payable had an overall weighted average term to maturity of 4.6 years, a decrease from 4.8 years at December 31st, 2025, and the weighted average interest rate remained unchanged at 4.07% compared to December 31st, 2025. The REIT's debt to gross book value ratio was 39% at March 31st, 2026, a decrease compared to 39.5% at December 31st, 2025. The REIT's IFRS net asset value per unit at March 31st, 2026 was CAD 44.76.
Turning to the statement of income, net income was CAD 38.2 million for the three months ended March 31st, 2026, compared to CAD 38.3 million in 2025. The CAD 0.1 million decrease in net income was primarily due to offsetting non-cash changes. IFRS net operating income was CAD 20.8 million for the three months ended March 31st, 2026, consistent compared to 2025. On a proportionate basis, proportionate NOI for the three months ended March 31st, 2026, decreased by 4.2% compared to 2025 and is comprised of the following: NOI in Canada decreased by CAD 0.3 million or 1.7%, mainly due to higher vacancy and a decrease in ancillary revenue, partially offset by an increase in AMR and a decrease in operating expenses primarily due to lower gas expense.
NOI in the U.S. decreased by $0.3 million or 1.2%, mainly due to higher vacancy, partly offset by an increase in AMR and ancillary revenue and a decrease in operating expenses primarily from tax rebates received on successful appeals. The change in foreign exchange rate decreased proportionate NOI by CAD 1.5 million. Interest expense increased by CAD 0.4 million for the three months ended March 31st, 2026, compared to 2025. This is primarily due to an increase in interest on mortgages from higher principal and interest rates on the completion of the REIT's refinancing. The REIT's Q1 2026 performance translated into basic FFO of CAD 21.4 million, a decrease of CAD 1.8 million or 7.6% compared to 2025.
On a per unit basis, FFO for the three months ended March 31st, 2026, decreased by CAD 0.03 to CAD 0.41 per unit compared to CAD 0.44 per unit in 2025 due to the following. On a proportionate basis in local currency, a decrease in NOI, lower interest income and an increase in interest expense, partly offset a decrease in trust expense and current income tax, had a CAD 0.02 per unit negative impact. In addition, the change in foreign exchange rate had a CAD 0.02 per unit negative impact, and the impact from units purchased, repurchased under the REIT's NCIB had a CAD 0.01 per unit positive impact. The REIT's FFO payout ratio of 48% for the three months ended March 31st, 2026, represents a very conservative level, which allows for significant cash retention.
Operationally, the REIT's average monthly rent in Canada increased to CAD 1,872 at March 31st, 2026, a 3.9% increase compared to 2025, reflecting the quality of our Canadian portfolio. During the period, the Canadian portfolio turned over approximately 1.6% of its suites and achieved AMR growth on suite turnover of 8.3%. Occupancy in Canada finished the first quarter of 2026 at 91.6% compared to 96.4% at March 31st, 2025, 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 and incentive-driven competition moderates.
While in the U.S., AMR increased by 2% compared to 2025, having an average monthly rent of $1,924 at the end of the first quarter. Occupancy in the U.S. of 91.7% at March 31st, 2026, was lower compared to 95.6% at March 31st, 2025, primarily due to the accommodation of tenant relocations and affordability. Moving forward, management is well positioned for modest AMR growth while maintaining stable occupancies throughout the portfolio.
During the three months ended March 31st, 2026, the REIT's total CapEx amounted to CAD 11.5 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. As previously announced, the REIT and Morguard Corporation agreed to jointly invest CAD 1 billion in a Canadian multi-suite residential real estate portfolio currently owned by TD Asset Management. The acquisition will represent an approximate 20% undivided interest in the portfolio of a 106 properties valued at approximately CAD 5 billion. We are progressing through due diligence, including determining individual property allocations to the REIT. We continue to anticipate closing the transaction during the second half of the year. At this time, I'll turn the call back to the moderator for any questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have any questions, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please put the handset before pressing any keys. First question comes from Golden Nguyen-Halfyard from TD Securities. Please go ahead.
Hi, everyone. My first question is just on the U.S. portfolio. Could you talk a bit about some of your larger markets and which ones you expect to have pricing power over this renovation season? I recall in the past you've mentioned targeting 5% vacancy to be able to push these rents.
Sure. Hey, it's John Talano.
John Talano, go ahead.
Sure. Right now we're seeing some really good occupancy in our Chicago markets as well as D.C. We are getting for the quarter over 3% increases there, lease -over -lease in both markets. Those are definitely tight, and we expect that to go into the summer. Again, those are probably our strongest markets. The Gulf South, Florida in general has been pretty flat. You know, we're still showing a 2% increase overall, but definitely seeing tight markets up in the northern assets.
Thanks for that color. Just one more from my end. On the TDAM portfolio acquisition, nice to see that announced back in February. I know you're still finalizing the allocation of assets, but are you able to provide a general idea of what parts of the portfolio you think you'll get?
Yeah. Hi, it's Paul Miatello here. I mean, we're not gonna comment because we're just not there yet. Like, in terms of our due diligence, the team is working, you know, through a process on the entire portfolio. As you can imagine, that's quite involved. You know, around 106 properties, between site tours, legal due diligence, all the documentation. It's a lot to chew on. We're just not quite there yet and can't really comment. Suffice it to say, you know, we are looking at the allocation of properties, you know, looking at geographies, looking at cash yields, looking at development potential, looking at cap rates, looking at capital requirements.
You know, looking at all the criteria, and then we'll make decisions on where we invest and then the allocation between MRC and MRG. That, that's about as much as we can say at this time.
Okay. Fair point. Thanks for the color. I'll turn it back.
Thank you. As a reminder, if you have any questions, please press star one now. Next question comes from Jimmy Shan with RBC Capital Markets. Please go ahead.
Sure. Just a follow-up on that. On the property allocation, I realize you don't, you're not quite there yet, but, it sounds, Paul, like you're saying that if a property is more stabilized, it'll likely go to MRG. Is that how you guys are thinking about it?
I mean, Well, sorry, Jimmy.
No, go ahead.
I mean, that could be one of the criteria, I think is what I'm saying. This is a mature portfolio, like stabilized. You know, obviously there's headwinds in the market right now, but the portfolio, you know, is largely stabilized. But yeah, definitely your example is one of many criteria we would use to make that determination.
Okay. Is it that you guys would own different pool, an economic interest in different pools of assets between MRG and MRC? Is that kind of the thinking?
Again, I mean, still ultimately to be determined. You know, without guiding you too much, I mean, Combined, we're making a 20% interest in the portfolio. If we decided to split, for example, a 20% interest in every asset, MRG would own 10% of the asset, MRC would own 10% of the asset. You know, the interest to get [audio distortion] is pretty small, if you know what I mean. We are sort of, you know, cognizant of how we invest and how those allocations are gonna work. Again, we're getting into the meat of it now. Again, it is just a little too early to comment more than that.
Okay. Just generally then, how is the transition going on? Where are you in terms of the management of the Property Management portfolio? Is that still too early as well?
That's really an MRC question, right? The Property Management, MRG is not a party to that arrangement. Maybe we could talk about that separately, not on the MRG call.
Okay. Okay,
I mean, to give you like a 15-second sound bite, I mean, we being MRC, we are in the process of onboarding the portfolio. It's happening in waves and tranches. We today, May 1st, just talked through the second tranche of onboarding. Again, we'll keep the conversation MRG.
Okay. On the Canadian portfolio, we saw occupancy drop a little bit more this quarter. I guess, are you seeing any signs of improvement? Is the competitive environment, the new supply you talked about, is it still, sort of a lingering issue? How you see that evolving over the course of the year?
Hi, Jimmy. It's Ruth. For leasing activity has definitely picked up, but it usually does during the spring months, and we're actually seeing that right now. Our move-ins are exceeding our move-outs, which really is a positive sign as well. What we've done in order to stabilize our occupancy is we have reduced some rents on some one-bedroom units, on select units, in order to stabilize the occupancy.
Instead of providing incentives, you guys are reducing the rent. Is that?
We're still providing incentives as our competition is. It's still like up to two months free rent. We're monitoring our competition just to be in line, but we definitely are seeing a pickup in leasing activity and leases.
It sounds like potentially, given move-ins are greater than move-outs, we should see a bit of an improvement in occupancy. Is that your expectation?
Yes, it's our expectation.
Yeah.
At this moment.
Right.
It may be moderate, but we're, you know, at least we're seeing some positive trends.
Right. Okay. Okay. That's it for me. Thank you.
Thank you. We have no further questions. I'll turn the call back over to Chris Newman for closing comments.
Okay. Thank you everyone for joining us, and we look forward to speaking with you next quarter. Thanks.
Ladies and gentlemen, this concludes your conference call. We thank you for participating, and we ask that you please disconnect your lines.