Afternoon, ladies and gentlemen, and welcome to the Morguard North American Residential REIT 2026 third quarter results 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, October 29th, 2026. I would now like to turn the conference over to Chris Newman, CFO. Please go ahead.
Thank you, and welcome everyone to this quarter's conference call. With me here today is Angela Sahi, President and CEO; Paul Miatello, Senior Vice President; Beverley Flynn, Senior Vice President and General Counsel; John Talano, Senior Vice President, U.S. Operations; and Ruth Grabel, Vice President, Canadian Operations. As is customary, I'll provide comments on the REIT's financial position and performance. In terms of our financial position, Morguard North American Residential REIT (the REIT) completed the third quarter with total assets of $4.8 billion, higher compared to $4.5 billion at December 31st, 2025. The increase in total assets was due to a change in the USD exchange rate, a fair value increase on the REIT's income producing properties, and an increase in cash from refinancings completed during the year.
During the third quarter, the REIT completed the refinancing of a mortgage secured by two properties located in Pensacola, Florida, in the amount of $45.6 million at an interest rate of 6.33% and for a term of 10 years. As well, the REIT prepaid a mortgage at a residential property located in New Orleans in the amount of $8.6 million. The REIT finished the third quarter with approximately $172 million of cash on hand and $100 million available under the REIT's revolving credit facility with Morguard Corporation. Mortgages payable ended the quarter with a weighted average term to maturity of 5.3 years, an increase from 4.8 years at December 31st, 2025, and a weighted average interest rate of 4.28%, higher compared to 4.0% at December 31st, 2025.
The REIT's debt-to-gross-book-value ratio was 40.1% at September 30th, 2026, higher compared to 39.5% at the start of the year. In addition, the REIT is pleased to announce an increase in its annual cash distributions of $0.02 per unit, an increase of 2.5%. This will bring distributions to $0.81 per unit on an annualized basis from the current level of $0.79 per unit. To provide a transaction update, the REIT has advanced its previously announced joint acquisition with Morguard Corporation of a Canadian multi-suite residential portfolio, with the REIT's share having a gross purchase price of approximately $478 million, representing an approximate 22% undivided interest in 60 properties. Management has completed its due diligence review and related purchaser conditions have been waived. The transaction is expected to close in one tranche subject to the timing of CMHC and lender approvals.
Turning to the statement of income. Net income was $31.1 million for the quarter ended September 30th, 2026, compared to $12.5 million in 2025. The $18.6 million increase in net income was primarily due to a higher net fair value gain, partly offset by an increase in deferred income taxes. IFRS net operating income was $53.7 million for the three months ended September 30th, 2026, a decrease of $0.4 million or 0.7% compared to 2025. On a proportionate basis, proportionate NOI for the three months ended September 30th, 2026, decreased by 1.7% compared to 2025 due to the following. NOI in Canada decreased by $0.4 million or 2.5%, mainly due to higher vacancy, an increase in amortization of rental incentives, and an increase in operating expenses, partially offset by an increase in AMR.
NOI in the U.S. decreased by USD 0.6 million, or 2.8%, mainly due to higher vacancy and an increase in operating expenses, primarily from higher R&M and payroll costs, partly offset by an increase in AMR and ancillary revenue. The change in foreign exchange rate increased proportionate NOI by $0.2 million. Interest expense increased by $1.8 million for the three months ended September 30th, 2026, compared to 2025, 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 Q3 2026 performance translated into basic FFO of $19.7 million, a decrease of $2.6 million or 11.8% compared to 2025. On a per unit basis, FFO for the three months ended September 30th, 2026, decreased by $0.05 to $0.38 per unit compared to $0.43 per unit in 2025 due to the following.
On a proportionate basis in local currency, a decrease in NOI, mainly from higher vacancy, lower interest income, an increase in interest expense, and an increase in current tax, partly offset by a decrease in trust expense, had a net $0.05 per unit negative impact. The REIT's FFO payout ratio of 52.4% for the three months ended September 30th, 2026, represents a very conservative level, which allows for significant cash retention. Operationally, the REIT's average monthly rent in Canada increased to $1,878 at September 30th, 2026, a 2.2% increase compared to 2025, reflecting the quality of our Canadian portfolio. During the first three quarters of the year, the Canadian portfolio turned over approximately 12.1% of its suites and achieved AMR growth on suite turnover of 7.2%.
Occupancy in Canada finished the third quarter of 2026 at 93.8%, compared to 94.3% as of September 30th, 2025, and was lower primarily due to increased competition from new rental buildings and lower immigration levels. Management believes market conditions will improve as new supply is absorbed and incentive-driven competition moderates. While in the U.S., AMR increased by 0.7% compared to 2025, having an average monthly rent of $ 1,953 at the end of the third quarter. Occupancy in the U.S. of 91.4% as of September 30th, 2026, was lower compared to 92.5% as of September 30th, 2025, primarily due to a combination of tenant relocations, affordability, and increased home buying. As we enter the slower fall and winter leasing seasons, management expects occupancy to stabilize with a combination of modest suite turnover and moderate AMR growth.
During the nine months ended September 30th, 2026, the REIT's total CapEx amounted to $45.1 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 for any questions.
Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star then the one on your touchtone keypad. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are 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 with TD Cowen. Your line is now open.
Thanks. Good afternoon. Just on the TDAM acquisition, could you maybe give us a little bit of color on how you guys decided to divide the portfolio between MRG and MRC?
Yeah. Hey, Jonathan, it's Paul. Sure, I'll start that one. Essentially, we're looking back to acquisition criteria that fits for the respective organizations. So, one of the first filters we kind of went through was looking at assets that are stabilized, looking at yields, looking at capital requirements. So, in general, a number of the higher-yielding assets went into MRG, which again, responsible thing to do so that would better support MRG's distribution pattern. So, yeah, at a high level, we were looking at acquisition criteria that sort of fits each respective organization.
Okay. That's helpful. When this deal closes, when we look ahead for 2027, how does this portfolio compare to the current Canadian portfolio for MRG in terms of occupancy, rental rates, margins?
So yeah, it's Paul again. I'll start that one. You can tell from looking at the disclosures we've made, geographically, we're in a lot of different markets for MRG, right? This transaction really expands the geographic diversity of what will be MRG's Canadian portfolio going forward, right? So in some respects, a little bit hard to compare. I would say on comparable occupancy, there's still some headwinds, as we all know, in the market today. So I would say that this portfolio is not immune to some of those headwinds. Rents obviously really vary by market. It's a little difficult. We've got one property in Southern Mississauga in the portfolio that's being acquired and four in Edmonton, and then there's Kitchener-Waterloo as well, right? So, there's limited overlap in terms of the existing Canadian portfolio versus what we're acquiring. On rents, it's difficult to make comparisons.
Okay. Fair enough. Just last for me on also on the Canadian portfolio, just on the operations. You guys had a pretty nice rebound in occupancy in Q3 versus Q2. How do you see that trending over the next, well, I guess over Q4 and into Q1 as we get into the tougher seasonally weaker leasing season?
Hi, it's Ruth. Right now our availability is very close to what our reported occupancy is for Q3. So we're at 94%, but that's not taking into account any future vacancy, like move-outs. So we're trending pretty much in line as we are right now. As you mentioned, it's a slower season with winter, although the weather is cooperating right now. We are seeing a little bit of a slowdown with leasing activity, but there is activity, and we do have completed some leases to date.
Okay. That is it for me. I will turn it back. Thanks.
Your next question comes from Jimmy Shan with RBC Capital Markets. Your line is now open.
Yeah, thanks. Just to follow up on the TDAM portfolio. Maybe just in terms of the operating metrics, maybe is there any metrics you could offer to give us a sense of the growth profile of the portfolio relative to the existing Canadian portfolio? And sort of like where is in-place rent versus market, or what is the turnover rent growth for the Ontario assets, just for us to get a sense of that.
Yeah, I am not sure at this point. There is a lot of operating metrics we are going to release, Jimmy. I am not sure if we have turnover, Chris or Ruth.
Yeah. There's not too much information at the moment. These are still privately owned assets and we do not have, or at least the MRG group does not have access to that. But aside from operating metrics, there's a debt figure that we gave you, and for modeling high interest rate, you can use the market interest rate as we will be mark-to-market the assumed debt. So that might assist on some of the metrics.
Yeah, on the rent growth profile, I would sort of revert back to the answer somewhat that I gave to Jonathan. We are in a lot of different markets here. So that rent growth profile, again, specifically compared to what MRG owns today in Canada, it is going to vary fairly significantly by province and by sub-market.
Okay. In terms of the allocation, would you say, I understand the filter that you went through, but would you say it covers 70%, 80% of the overall TDAM portfolio? Is it substantially, other than maybe a few assets, the majority was fairly evenly split? Would that be a fair characterization of the allocation?
Are you talking about even split between MRC and MRG of what was acquired?
Yes.
By equity investment, yes, it is fairly, very evenly split. You have got higher leverage on the MRC portfolio that is being acquired. You have got higher price per door on the MRC portfolio. So when you look at the gross acquisition prices, you will see a disparity where it is skewed towards MRC, but on an equity basis, it is very close to 50/50.
Okay. Last, just turning to the U.S. portfolio. It looked like the occupancy did slip from Q2. I know, I think last quarter it seemed like there was a bit of leasing momentum. Maybe just some color, like did it stall? Is that more seasonal? Any color you could provide there?
Sure. It is John Talano. In general, things have been relatively flat. I would say we are seeing more move-outs in our markets that are less affluent. So I would say there is a little bit higher pressure there. But all of the assets have been stable. We did have a very busy quarter. We actually moved out 2,200 units and moved in roughly 2,300 units. So it was very active. Things are slowing down, but we are having some great occupancies in Chicago. Markets that have been a little bit soft, I would say, are Colorado and New Orleans. Both those are small assets in general. Not a whole lot of units there. But otherwise, I would say it has been stable, but a little bit slower than in past years.
Okay. Would your expectation be that that occupancy stay where it is? Or you would expect a little bit of improvement over the next few months?
Yeah. I would say it is stable. I think I am optimistic, except I do believe we are going into slower leasing seasons that is more impactful in Chicago and D.C. going into winter, right? Certainly, the holidays will be slow, but I expect things will be pretty good in the Sun Belt.
Okay. That is it for me. Thanks.
Your next question comes from Alexander Leon with Desjardins. Your line is now open.
Hey, good afternoon, everyone, and thanks for taking my questions. Just a couple on the debt side. I am wondering if you can provide a distribution of the 2028 mortgage maturities between Canada and the U.S?
Yeah. That is pretty easy. It is 100% U.S., so there is no Canadian refinancings in our existing portfolio. There is a little bit on the TDAM acquisition. There is a little bit there, but we will release that information towards when we close.
Okay, great. And then maybe just where you guys are seeing financing rates right now for Canada and the U.S. Would that 6.33% that you did in Pensacola, would that be fairly stable right now?
No, it is a little bit of a high mark. We caught a high spike in the USTs in late September, so it settled back down to around 6% all-in rates. So that is where we are today. It could go up or down depending on what the USTs do moving forward. But our next U.S. refinancing is in June. So we have June, July, and September. So we still have some time. And again, in Canada, there are no upcoming refinancings. But rates are roughly between 4.25% and 4.5% for 10 years.
Okay. That is it for me. Thanks a lot.
Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Sumayya Syed with CIBC. Your line is now open.
Thanks, everybody. Just wanted to follow up on the occupancy on the Canadian portfolio. Southern Mississauga saw a nice improvement there, and just wondering what drove that pickup. I think last quarter you guys mentioned a major employer potentially returning, or was it some capital project that wrapped up? Any color there?
It is a combination. You are correct. There were some capital projects that were completed, the underground garage restoration projects that we had at three or four of our buildings. In general, some absorption from the new properties that we were competing against. We saw that they had leased up some of their smaller units, so that drove those prospective tenants to our portfolio. You are right, there were some businesses that moved in. We are still seeing some IT from IT companies. As well, we saw some people coming back that previously were renting condos are now returning to our portfolio. So a wide range of reasons, and we were successful in increasing our occupancy.
Okay. In terms of incentives, what are you seeing there in the last couple of months of leasing, and if there has been any change in competitive behavior from other landlords and owners?
It is a combination. Some people are offering two months on select units. On average, I am seeing the posting being reduced to one month free rent. We are also, on select units, we are at two months free rent. Right now, because our occupancy is higher, we are offering one month free rent. We are also giving our teams a leeway in order to close a lease. If they feel they are losing a prospective, it might be two months on a 14-month lease. Mostly the incentives are being reduced.
Okay. Thank you. I will turn it back.
Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to Chris for closing remarks.
Okay. Thank you everyone for joining us. We look forward to talking to you at our next call.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.