Morguard Real Estate Inv. (TSE:MRT.UN) said its third-quarter results met expectations, with stable retail performance, improving overall occupancy and continued leasing activity across its portfolio, while management evaluates financing options for a convertible debenture maturing at year-end.
Net operating income totaled CAD 27.3 million in the third quarter, compared with CAD 31.3 million a year earlier. Chief Financial Officer Andrew Tamlin said the year-over-year decline primarily reflected a one-time property tax refund received in 2025 related largely to vacant space. Third-quarter NOI increased slightly from the second quarter.
Retail Results Remain Steady
Tamlin said the REIT has continued to add retail tenants across the portfolio over the past 12 months. Its community strip-center portfolio generated 2.5% same-store growth year-to-date and was operating at effectively 100% occupancy.
While the company is working through lost income associated with Hudson’s Bay locations, Tamlin said retail fundamentals remain positive. Traffic and sales per square foot across the portfolio have been solid and generally rising in recent years, he said.
The REIT is advancing a strategic remerchandising program at St. Laurent Centre. The current development spending totals about CAD 10 million and includes tenant build-outs for Sephora and H&M, both of which are now open. Management expects the full program to require CAD 25 million to CAD 30 million as it adds further tenants and activates former Sears space.
John Ginis, vice president of retail asset management, said the St. Laurent initiative began in 2024 and is expected to conclude by the end of 2027 or early 2028. The program includes work on former anchor spaces and the reconfiguration of mall space for larger-format retailers.
Uniqlo’s 12,600-square-foot premises at St. Laurent Centre have been completed, with an opening scheduled for early 2027. The former Sears box will also be re-tenanted by Sport Chek and Splitsville, with both tenants expected to open next summer or fall. Sport Chek is relocating from elsewhere in the property, while Splitsville will add an entertainment offering.
At Cambridge Centre, Ginis said Zellers has leased approximately 65,000 square feet on the lower level of the former Hudson’s Bay premises under a five-year lease. Zellers has taken occupancy and is expected to open before the end of November. The upper level of the former two-storey Bay location remains vacant as the REIT evaluates its options.
Office Occupancy and Leasing
The REIT’s overall occupancy was 85.8% at the end of the third quarter, up 100 basis points from 84.8% at March 31. Retail occupancy increased 150 basis points, mainly due to enclosed malls, while office occupancy also improved by 150 basis points from the first quarter.
Tamlin said two larger office vacancies in Vancouver and Ottawa account for 84,000 square feet of vacant space. Management expects those vacancies to be short-term because the buildings are located in urban areas with demand. Other individual office properties have either maintained or increased occupancy compared with a year earlier, which Tamlin said is consistent with companies implementing return-to-office policies.
Penn West Plaza continued to improve after the initial period of leasing inducements provided in 2025. NOI at the property increased CAD 1.6 million year over year through the end of the third quarter, and the building remained approximately 80% occupied.
Management said it expects occupancy to continue rising as additional leasing transactions are booked. It also characterized the decline in industrial occupancy as temporary. Of the remaining 610,000 square feet of retail and office leases up for renewal in the final quarter of 2026, Tamlin said every tenant occupying more than 10,000 square feet has either renewed or is expected to renew.
Financing and Capital Plans
The trust ended the quarter with CAD 54 million of liquidity, relatively unchanged from the prior quarter but down from CAD 68 million at the end of 2025. It also had CAD 225 million of unencumbered assets and potential up-financing opportunities.
During 2026, Morguard REIT renewed five mortgages totaling CAD 114 million at a slightly higher average rate. Variable-rate debt represented about 22% of total debt at quarter-end, compared with 21% at the end of 2025. Tamlin said management was discussing the remaining mortgage renewals with lenders and expected potential for modest additional up-financing during the year.
The REIT is considering how to address its CAD 159 million convertible debenture maturity at the end of the year. Tamlin said investment bankers have proposed a full renewal, but management is also evaluating other financing alternatives, potentially including the use of unencumbered assets. He said the company expects to provide an update during the fourth quarter.
The operating capital reserve remains set at CAD 35 million for 2026, unchanged from 2025. The year-to-date reserve equaled CAD 26.25 million through nine months, while actual cash spending totaled CAD 17.8 million. Tamlin said the REIT expects spending to approach the full reserve by year-end because capital expenditures are typically weighted toward the latter part of the year.
Additional Development Updates
A No Frills grocery store opened at Parkland Mall in Red Deer during the fourth quarter of 2025, activating previously vacant space at a cost of CAD 1.5 million. A second No Frills store is planned for The Centre in Saskatoon in early 2027, with an estimated cost of CAD 5 million.
The REIT is also re-tenanting the former Peavey Mart space at its open-air retail property in Airdrie, Alberta, with a gym operator. The combined spending is expected to be about CAD 1.5 million, with the project anticipated to be accretive to income beginning in 2027.
In response to shareholder questions, Tamlin said residential opportunities continue to progress but that management is not actively pushing development plans because it views the current market as unfavorable. He also said the REIT’s parent has indicated it intends to continue its distribution reinvestment plan through the end of 2026, after which it will be assessed annually.
Regarding Petroleum Plaza, Tamlin said the government tenant remains in overhold and is paying higher rent, which benefits the REIT. However, the related financing is in a shorter-term arrangement that has had a negative financing impact, though management views the net position as favorable because of the higher overhold rent.
About Morguard Real Estate Inv. (TSE:MRT.UN)
The Trust is a closed-end real estate investment trust, which owns a diversified portfolio of 45 high quality retail, office and industrial income producing properties in Canada consisting of approximately 8 million square feet of leasable space.
