Morguard Real Estate Inv. (TSE:MRT.UN) reported fourth-quarter 2025 results that Chief Financial Officer Andrew Tamlin said were “very much in line with expectations,” with stable retail performance offset by continued weakness in office and a notable net operating income (NOI) decline tied largely to one Calgary asset.
Fourth-quarter NOI pressured by Penn West Plaza transition
Tamlin said fourth-quarter NOI declined to CAD 29.1 million, down from CAD 33.5 million in the same period of 2024, primarily due to results at Penn West Plaza in Calgary.
He quantified the impact of that adjustment as CAD 16 million over 11 months in 2025. While the rent reset reduced income, management said it is pleased with the transition, noting Penn West Plaza’s occupancy reached 81%, which Tamlin described as strong for the Calgary market. He added that “significant inducements,” including free rent and free operating costs, were also affecting results as the REIT worked to secure tenants.
Retail described as stable, but The Bay closures create near-term headwinds
Tamlin said retail results were stable during the quarter, with “good rental growth on lease renewals” across malls and retail strips. However, he noted 2026 will include “a partial year of the missing Bay income” following Hudson’s Bay Company’s creditor protection filing and subsequent lease disclaimers.
According to Tamlin, The Bay filed for creditor protection under the Companies’ Creditors Arrangement Act on March 7, 2025. Morguard REIT had two Bay locations totaling 290,000 square feet of gross leasable area (Cambridge Centre in Cambridge and St. Laurent in Ottawa), generating approximately CAD 1.5 million in annualized gross rent.
The Cambridge lease was disclaimed in the second quarter. The St. Laurent lease had been subject to a bid by Ruby Liu Commercial Investment Corp., but Tamlin said the Ontario Superior Court rejected that proposal on October 24, and the St. Laurent lease was ultimately disclaimed on November 27, 2025. Management said it is pursuing future opportunities for the spaces and organizing short-term tenants to replace some of the lost income.
Despite The Bay’s failure, Tamlin emphasized “lots of positives” in retail. He cited strong tenant conversations with national brands and noted that the high cost of building new retail space is pushing retailers toward existing locations. He also said, with one exception, the REIT’s community strip centers were 99% occupied, and sales and traffic at enclosed malls remained strong.
Development and merchandising initiatives highlighted at St. Laurent and other malls
Tamlin said the REIT has begun a strategic merchandising program at St. Laurent to add nationally recognized brands and support tenant expansions. Current development spending totaled CAD 6.4 million, including build-outs for Sephora and H&M, which are now open and have received “very positive reviews” regarding their impact.
He said the REIT ultimately expects to spend CAD 25 million to CAD 30 million as it continues upgrading the tenant mix and works to “activate the former Sears space” at the property, with further details to be shared as plans progress.
On the call’s lone analyst question, Vice President of Retail Asset Management John Ginis clarified that the CAD 25 million to CAD 30 million program refers to work over the next two years to repurpose a portion of the former Sears anchor box at St. Laurent (which also includes a former Bay box). For the former Bay space—approximately 160,000 square feet over two levels—Ginis said management is pursuing short-term activation of both levels, targeting “fashion-focused” retailers from recognized brands, and expects to execute a solution “in the next few months.”
Ginis added he hopes the Bay backfill can begin contributing NOI in 2026, while NOI tied to repurposing the former Sears space would not arrive until 2027.
Elsewhere in the portfolio, Tamlin highlighted two grocery-related projects:
- A new No Frills store opened at Parkland Mall in Red Deer during the fourth quarter, with a cost of CAD 1.5 million and activation of previously vacant space.
- A second No Frills is expected to open at The Centre in Saskatoon in early 2027, with an estimated cost of approximately CAD 5 million.
Tamlin also noted that renewal discussions with a provincial government tenant at Petroleum Plaza in Edmonton remain stalled, with no update on timing or a renewed lease.
Balance sheet, interest expense, and valuation impacts
On liquidity, Tamlin said the REIT ended the year with CAD 68 million of liquidity, down from CAD 81 million at the end of 2024. He also cited CAD 219 million in unencumbered assets and said management believes it has adequate liquidity to fund current development initiatives, with “some up financing opportunities” expected in 2026.
Interest expense declined CAD 1 million year over year in the quarter due primarily to lower short-term variable rates, and was down nearly CAD 4 million for the full year. Tamlin said the trust renewed eight mortgages totaling CAD 166 million in 2025, reducing the average interest rate on those loans from 5.4% to 4.95%. Variable-rate debt rose to 21% of total debt at quarter end from 15% at year end.
He also said the REIT continues to focus on deleveraging, noting total debt has declined by more than CAD 100 million over the last four years.
In property valuation, Tamlin reported CAD 20 million of fair value losses in the quarter and CAD 62 million of losses for the year, largely attributed to the office asset class.
Occupancy at December 31, 2025 was 85.1%, down from 86.6% at the end of September and 91.2% at the end of 2024. Tamlin attributed the sequential decline primarily to the vacancy created by The Bay’s departure at St. Laurent, and the year-over-year drop to increased vacancy at Penn West Plaza alongside the disclaimed Bay leases at Cambridge and St. Laurent.
Outlook: stable retail, cautious office optimism
Looking ahead, Tamlin said the REIT expects retail results to remain stable in 2026, while office may see continued softness as vacancies are addressed in certain markets. He said leasing teams have observed increased touring activity in major urban areas as companies push employees back into offices, and management is “cautiously optimistic” this will translate into leasing later in 2026 and into 2027.
On 2026 lease maturities, management said most of the 1.6 million square feet up for renewal has already been contracted. Tamlin said every retail tenant larger than 20,000 square feet is either renewed or expected to renew, including a Walmart and a Canadian Tire each exceeding 100,000 square feet. He added there is only one office tenant larger than 10,000 square feet the REIT does not expect to renew, and noted major office renewals including 164,000 square feet in Montreal and 110,000 square feet in Vancouver.
In response to a question on renewal spreads, Ginis said 2025 uplifts were approximately 5% for enclosed malls and 9% for community/grocery-anchored strip centers, while noting that forward results depend on market factors. Tamlin closed by reiterating confidence in retail fundamentals and improving office sentiment, emphasizing the REIT’s focus on building long-term value for unitholders.
About Morguard Real Estate Inv. (TSE:MRT.UN)
Morguard Real Estate Investment Trust is a closed-end trust that owns, manages, and invests in a diversified real estate portfolio of commercial properties across Canada. The company has three reportable segments namely Retail, Office, and Industrial. It generates maximum revenue from the Retail segment.
