Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Minto Apartment REIT 2023 Q3 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the star, then the number two. Before we begin, I want to remind listeners that certain statements about future events made in this conference call are forward-looking in nature. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially.
Please refer to the cautionary statements on forward-looking information in the REIT's news release and MD&A, dated November 7th, 2023, for more information. During the call, management will also reference certain non-IFRS financial measures. Although the REIT believes these measures provide useful supplemental information about its financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see the REIT's MD&A for additional information regarding non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Thank you. Mr. Li, you may begin your conference.
Thank you, operator, and good morning, everyone. I'm Jonathan Li, President and Chief Executive Officer of Minto Apartment REIT. With me on the call is Eddie Fu, our CFO, and Paul Baron, our SVP Operations. I will start the call by discussing some highlights from the Q3, as well as recent corporate developments. Eddie will review our financial results and liquidity, and I will conclude with our development, pipeline, and business outlook. Then we will be pleased to take your questions. Our financial performance was strong during the Q3, as our urban portfolio continued to benefit from robust market conditions across all of our markets, and our keen focus on FFO and AFFO per unit is starting to positively impact our results. We achieved solid same-property revenue and NOI growth, record gain on lease, and experienced turnover in line with historical norms.
All of this despite a slowdown in our furnished suites business, primarily resulting from the protracted writers and actors' strikes. Excluding this impact, the Same-Property revenue growth in our unfurnished suite business increased by 7.8% over Q3 2022. Our normalized FFO per unit and AFFO per unit increased by 4.4% and 5.3%, respectively, compared to Q3 last year. The growth in cash flow per unit continued to accelerate relative to our last quarter and is evidence that our disciplined capital allocation decisions and focus on reducing our variable rate debt exposure has positioned us well to deliver FFO and AFFO per unit growth even in the current high interest rate environment. Turning to slide four, we announced another piece of good news yesterday.
Our Board of Trustees has approved a CAD 0.015, or 3.1% increase to our annual distribution. We are very proud that the REIT has now increased distributions in every year since its inception. Current increase highlights our confidence in our business outlook for 2024, while also balancing prudent capital management by maintaining a conservative AFFO payout ratio. We are encouraged by the recent announcements by the federal and Ontario governments, which are clearly designed to help increase rental housing supply. Finally, we continue to work towards the sale of our two remaining non-core assets located in Edmonton, which remains subject to financing assumption approval by CMHC and the lender. Asset sales continue to be an attractive source of capital for us, and we will continue to opportunistically pursue select asset sales.
However, there can be no assurance that a definitive agreement will be executed. Now, I'll invite Eddie Fu to discuss our Q3 financial and operating performance in greater detail. Eddie?
Thank you, John. Turning to slide five. Same property portfolio revenue was CAD 37 million, an increase of 5.8% from Q3 last year, reflecting higher occupancy, higher average rents, and reduced promotion amortization for unfurnished suites. Same property portfolio NOI increased 6.9% year-over-year to CAD 24 million, and NOI margin increased by 60 basis points to 64.8%. The increase in NOI reflected increased revenue from unfurnished suites, which outpaced higher operating expenses and lower revenue from furnished suites. FFO was CAD 15.7 million, or CAD 0.239 per unit, and AFFO was CAD 14 million, or CAD 0.2139 per unit. After adjusting for one-time insurance recoveries in the prior period, normalized FFO and AFFO per unit increased by 4.4% and 5.3%, respectively, compared to last year.
The normalized AFFO payout ratio was 57.3%, a reduction of 110 basis points compared to Q3 2022. Turning to slide six. This chart highlights the strong growth in quarterly gain on lease and average monthly rent that we have achieved over the last four years and is evidence of strong industry fundamentals. Average monthly rent is growing rapidly quarter-over-quarter, and gain on lease has exceeded 16% for four consecutive quarters. Moving to slide seven. We signed 510 new leases in the Q3. The average monthly rent on new leases increased 17% to CAD 2,130. The embedded gain on lease potential at quarter-end also increased to 17.7%, representing CAD 24.9 million of annualized incremental revenue growth. Moving to slide eight.
Annualized same property turnover was 26% in Q3, which was more in line with historical norms compared to the first two quarters of 2023. Turnover was particularly strong in Alberta, where the availability of affordable homes in the province and tenant departures arising from the loss of promotions granted in the past allowed tenants to consider other housing options. Ottawa saw increased turnover from new supply in the downtown core, while Montreal turnover was driven by movement in the student population. Toronto saw reduced turnover as tenants opted to stay in place due to rising market rents. Despite the high turnover, we maintained consistent occupancy as move-ins kept pace with move-outs, allowing us to capture Gain on Lease and end the period with a closing occupancy of 97.8%. On slide nine is a brief update of our furnished suite portfolio.
Average monthly rent increased to CAD 6,250 per month. However, our furnished suite revenue decreased by 17.9% over Q3 last year, driven by lower occupancy. At Minto Yorkville in Toronto, the writers and actors strikes halted production in the film industry, which is one of our primary tenant groups impacting occupancy. The writers strike has been resolved. However, the actors strike remains active. In Ottawa, we saw fewer contract extensions at Minto One80five, as government activity remains slower than historical norms. Given the strong demand and high occupancy in the unfurnished suites within those buildings, we are assessing further conversions from furnished suites to unfurnished suites to optimize yield. Moving to slide 10. Operating expenses for the same property portfolio increased 3.8% compared to Q3 last year, as we are working diligently to contain controllable expenses.
Property operating costs increased in Q3 due to higher salaries and wages, as well as increased insurance premiums and repair and maintenance costs. The 5.8% increase in property taxes was driven by changes in assessed values in Montreal, and utility costs were lower due to a 21% decline in average natural gas rates. On slide 11, we repositioned 33 suites in the Q3, which generated an ROI of 8.8%. We expect to reposition 110-120 suites this year, which is at the upper end of our prior estimate, but it is a reduction from the 259 suites repositioned last year due to a decrease in vacancy and reduced turnover. Slide 12 provides an overview of the financing initiatives we have completed since the spring to reduce variable rate debt.
During the Q3, we upward financed CAD 44.9 million of term debt secured by an Ottawa property. The transaction generated CAD 24.1 million of incremental proceeds that were used to pay down a portion of the credit facility. Overall, in 2023, we have secured CAD 402.7 million in CMHC insured financing, generating incremental net proceeds of CAD 97.9 million that were used to pay down our credit facility. Overall, these initiatives have significantly lowered the interest cost variability in our business, with the remaining variable rate debt reduced to 10% of total debt. As I mentioned last quarter, we are exploring upward refinancing for three additional properties, and we will carefully consider the impact that each potential financing has on FFO per unit by considering a variety of factors.
Turning to slide 13, you will find our key debt statistics. The maturity schedule of our term debt remains well balanced over the next several years, as the chart shows. Over the next six years, term debt maturities represent no more than 9% of total debt. As of September 30th, 2023, the weighted average term to maturity on our term debt was 6.16 years, with a weighted average effective interest rate of 3.3%. 90% of the debt was fixed rate and 77% was CMHC insured. Total liquidity was approximately CAD 138 million at quarter end, and debt to gross book value was 42.8%. I'll now turn it back over to John to wrap up.
Thanks, Eddie. Moving to slide 14, you'll find an update on our development pipeline. Our Richgrove intensification and the first phase of our Leslie York Mills projects are under construction, with stabilization expected in 2026. Construction is also ongoing on four projects on which we have convertible development loans with exclusive purchase options. Stabilization of these properties is expected between late 2024 and 2026. When the remaining CDL properties come up for purchase, we will evaluate them carefully in the context of the prevailing market conditions, our cost of capital, and our access to capital. On slides 15 and 16, you can find updates and pictures of the projects in our pipeline. I'll conclude with our business outlook on slide 17 before we take your questions. Our operating performance has been consistently strong over the last several quarters.
We are generating solid year-over-year growth in Same-Property Portfolio revenue and NOI, and our debt reduction initiatives have provided more predictability in our interest costs and has positioned us to deliver cash flow per unit growth. Going forward, we will continue to prudently manage our business with a focus on the following: growing FFO and AFFO per unit, exploring attractive refinancing opportunities, making disciplined capital allocation decisions, driving enhanced returns from capital recycling, reducing our credit facility balance where possible, and exploring alternatives to fund growth with strong consideration for FFO and AFFO per unit. We are confident that executing on these strategies will enable us to drive strong returns for unitholders. That concludes our presentation this morning, and we would be pleased to answer any questions. Operator, please open the line for questions.
Thank you. Ladies and gentlemen, should you wish to ask a question, please press star one on your telephone keypad. Should you wish to cancel your request, please press star two. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. If you are using a speakerphone, please get to handset before pressing any keys. One moment please, for your first question. Your first question is from Jonathan Kelcher from TD Cowen. Please ask your question.
Good morning. First question, just on the furnished suites. I guess normally there's a seasonal drop-off in revenue in Q4 from that portfolio, but I guess with the Q3 weakness, how should we think about that seasonality playing out this year?
Hey, John, it's Paul speaking. So certainly saw the business at Yorkville impacted by the strikes this year. The good news is that I think the actors are getting closer to settling, monitoring that one closely, though. For us, we saw a bit of an uptick in October, but anticipate a large recovery, probably a few quarters after that strike is settled. So I'd say soft for the remainder of the year. John, anything you want to add to that?
Sorry, go ahead, John.
Well, I was going to say, like, so if the occupancy year-over-year was down 15% or 20%, whatever it was, I don't have it right in front of me, should we think about a similar decrease versus Q4 last year or a little bit less, maybe because the movie business sort of doesn't run right through right through Christmas?
Yeah, I would say similar. We do see that seasonal retraction in that business, and don't expect that pickup happening in Q4.
I think in occupancy, Jonathan, similar or slightly below where we are today is probably a reasonable estimate for where we go over the next quarter or two, given the winter months. And I think, I guess the way we're thinking about it is, the furnished suites represent a nice little bit of upside going forward for us. And, you know, we're hopeful that the strength in our unfurnished suite business kind of carries us through the day like it did in this quarter.
No, for sure. And then just, secondly, on your development projects, and you lay out what you need to, the remaining spend, but can you maybe give us the cadence you sort of expect on that? Can we maybe just divide it by number of quarters to stabilize, or how should we think about that? And secondly, do you have all your equity commitments into those projects, so is the rest just going to be funded on the construction lines?
I think, I mean, for our two remaining on-balance sheet, for Leslie York Mills and Richgrove, I think you can think of 2024 as being about CAD 12 million total for those two in terms of our equity requirements going forward, which will be funded by the revolver.
Okay. The rest of the spend, obviously, just on the lines?
The rest would be spent on a construction financing.
Yeah. Yeah, sorry, that's what I meant. Okay, thanks. I'll, I'll turn it back.
Thanks.
Thank you. Your next question is from Mike Markidis, from BMO. Please ask your question.
Hey, guys. Two quick ones from me. I guess first, just looking at the slide here, it shows same-property performance versus total portfolio. And if I remember correctly, it's only going to be Niagara West and The International that are in the excluded from same-property. But it looks like they—if that's correct, it looks like they would have detracted a little bit from the growth trend. So I guess the question being, how are those properties performing versus expectation? And, you know, perhaps why, if I'm correct, would they be performing at a slower growth rate than the rest of the portfolio?
Hey, hey, Michael, thanks for the question. You know, I think, I think compared to underwriting from a revenue and NOI perspective. It outperformed by quite a bit. Average rents are significantly higher than our pro forma. And ROI margins are, I think, a notch above or pretty consistent. We were hurt, obviously, from the financing perspective as we carried some variable rate debt for a long period of time, which would have impacted sort of our IRR calculations. In terms of the growth, then, you know, I think we're going to have to look into that and get back to you. I'm not a hundred percent sure if you can make that connection that you're pointing out.
If you don't mind, let us just dig into that and we can get back to you.
Yeah, yeah. Of course. No worries.
Yeah.
Okay, and then the second one for me is just looking out to 2024. You know, the strength you guys are seeing is really broad-based. I think your leasing spreads are basically within stone's throw of each other in Q3 for your four geographic segment. But if you just look across the regions, you know, which of the four parts of your portfolio, I guess, would you be more constructive on? And which, if any, would you be a little bit more cautious on heading into next year?
Yeah, I think we are very happy with our portfolio construction across, especially, Toronto, Calgary, and Ottawa. You know, we might lighten up a little bit Ottawa, if we're able to, but from a property perspective, being urban, being downtown, being new, we're very happy with how our portfolio is positioned. Probably has less to do with the market and more to do with our real estate. I think we see kind of disproportionate upside is probably Montreal, as you know, the rental market is probably not as strong, or at least the rent growth hasn't been as strong as other areas of Canada, but the embedded rent continues to be very strong, and we have additional upside if we can increase occupancy at the same time.
So I think just there's more natural torque in our Montreal portfolio than there is in the rest of our portfolio. We're pretty bullish everywhere.
Okay, that's great, Colin. Thanks. I'll turn it back.
Thank you. Your next question is from Kyle Stanley, from Desjardins. Please ask your question.
Thanks. Good morning, guys. You know, your turnover spread continued to expand this quarter. You know, in your view, you know, it sounds like the strength is pretty broad-based, as you mentioned, but are you beginning to hit any affordability thresholds in any of your markets? Or do you think there's still more room for rents to grow?
I mean, you've got, I mean, I think there's two questions in there. One is the turnover, so which I guess I'll address, and then the second is kind of growth and how, how sustainable is it? You know, turnover, I would say it was pretty consistent with historical norms. We, we were a little bit surprised as a team that it was as high as it was in Q3, but we're encouraged because we're able to, we were able to immediately fill up the move-outs with move-ins, which allowed us to capture some gain on lease, which maybe we didn't think about. We, you know, we, we, it wouldn't have been available if the turnover was lower. But I think going forward, we, we still expect turnover to slow in Q4 and Q1 in the colder winter quarters.
I think our, you know, I won't say guidance or estimate, but the way we think about turnover for 2023 and 2024 probably hasn't changed, i.e., it'll be slower than what it was and lower than what it was in the past. In terms of the growth continuing, you know, we haven't seen any cracks yet. We're obviously constantly looking out for them. The good news is that the embedded rent in our portfolio continues to grow and stay in the mid-teens, so that should continue to support our growth going forward for the foreseeable future. You know, we don't think gain on lease can grow by 17% forever, so we do expect it to moderate, but it will likely moderate in line with whatever our embedded rent is at that time. And, you know, we know that's going to happen at some point.
We don't think it's anytime soon, but that's one of the reasons why we're looking ahead and really focused on cost containment. So we are in a position to deliver NOI growth, even though our revenue growth might decelerate. Like it'll still grow, but it might decelerate from where it is now at some point. But we don't see that happening in the near future, and I think we're well-positioned to keep on delivering both NOI growth and cash flow per unit growth.
Okay. No, thank you for that. And just my second question kind of relates to your debt refinancing. So, you know, what is the cadence of your debt maturities next year? Would it be fairly spread out over the year or maybe more concentrated in a specific quarter? And then secondly, you know, with the refinancing activity, you know, where do you see your variable rate debt as a percentage of your total debt stack, trending during the year?
Good morning, Mike. Eddie here. In terms of the 2024 maturities, you know, we have approximately CAD 75 million coming due next year. It would be portion Q1 and then early Q2. When it comes to a revolver, so we're at 10% of our variable of our debt stock right now, which we have made huge strides since the beginning of the year. As you can call that, we were in the 25%, 26%. So we think that with refinancings and our capital commitments-
...We're aiming to be at the end of the year, at least, probably the low teens, is what we will manage. But it also depends on, you know, the refinancings, what the rates are at the time, and how much we could get on the upward refi. You know, we're obviously super cognizant of the rates right now. You know, CMHC is around, you know, 5% today, fluctuated in the last three or four weeks as high as five and a half. And if you look at some of our disclosures, you know, our exit rates on some of these mortgages are fairly low, weighted average, low threes. So we're mindful of that and making sure that we can try to optimize the capital we can achieve on the refinancings.
Okay, perfect. Thank you for that. I'll turn it back.
Thank you. Your next question is from Gaurav Mathur from Laurentian Bank. Please ask your question.
Thank you, and good morning, everyone. I'll just stay on that line of questioning on the debt. As you're looking to refinance, could you provide some color on what the lenders are saying and where you see spreads be as far as the 2024 mortgage maturities are concerned?
Good morning, Gaurav. Well, in terms of spreads, and I, I just, you know, went over some of the rates, you know, CMHC today, so I just start with these are—these existing mortgages are CMHC insured. We'll be looking to refinance them, and the rates today would be around 4.9%. These financings are the ones that are due early January. We're in the process of working on them. You know, we're looking to get our certificate of insurance. It'll give us a little bit of time to close on those. Usually, we have about six months to lock in our rate, and we'll be looking at the yield curve and seeing how pricing looks between now and then when they're due.
As I mentioned, in terms of the exit rates on some of these mortgages, you know, we're looking at low threes right now. So that spread is, you know, as mentioned, super focused on that spread and how to narrow that gap.
Okay, great. And then, you know, what does that mean for your debt to gross book value, as you sort of complete these refinancings? Is there a certain range that you're targeting, say, by the end of the year and for 2024?
Well, I guess if all things being equal, you know, if we refi and upper refi, whatever we could get on that, you know, it's highly likely we'll take those funds and, and pay down our higher and more expensive debt, which is our revolver, which is carrying at around 7.2%. So net debt to GBV would probably be relatively the same, probably a little bit of a spike because of, you know, financing fees and the premiums-
Mm-hmm.
It would still be around the same territory, around whatever, 42% or so.
In terms of a target, you know, I would say we don't have an official target. I think as a general approach, the lower the better, but we also recognize that we have cash flow commitments that we need to pay.
Mm-hmm.
The source of that is going to be the revolver. So I think, like many folks who aren't raising any equity, including us, you could probably expect our revolver balance to tick up a little bit as we pay some of that, some of those cash flows going forward. But you know, that's one of the reasons why we're looking at some asset sales. And to be honest, you know, we didn't buy Fifth + Bank, so there's also a CDL repayment that's going to come at us in early 2024 .
Right. Well, thank you for the call, gentlemen. I'll turn it back to the operator.
Thanks.
Thank you. Your next question is from Jimmy Shan, from RBC Capital Markets. Please ask your question.
Thanks. So, there, there's been some news recently about developers potentially getting into trouble in a few of the development projects. So maybe with respect to those CDLs with NPI, for our peace of mind, can you talk about the five loans and how the development projects are progressing relative to budget, et cetera, and whether you see any issues at all with any of them?
Yeah, sure. I mean, I'll, you know, they're all very well advanced, right? Like, Lonsdale Square is going to be the first one that is virtually completed. Well, not virtually completed. We're finishing the exterior, and we're finishing the interior. You know, I think first occupancy will probably be by the middle of 2024 type thing, stabilization back half of 2024. Pretty similar timeline for 810 Kingsway, which is now called The Highland. Maybe a month or two behind Lonsdale Square. But again, those are all virtually funded, and there's not a lot of incremental equity or anything else to complete it. Not that different story from 88 Beechwood, I think, which you walked through.
We topped off that building in October, middle of October, and, you know, it's almost—it's virtually fully funded too, in terms of, senior debt as well as the CDL draws, and there's only a tiny bit of equity that we need to put into that. So... And then University Heights is the only other one in Victoria. That's a long-term sort of project. You know, it's like five towers, and I think the first one will be done in the next 18 months or so. So longer timeline on that one, we are a 45% owner in that one. And if you think about the read, you know, we are completely insulated from this risk, right?
We just get an interest payment for the money that we lend, and if anything goes awry, we don't have to do anything. We don't have any other exposure other than the CDL. So we feel pretty good.
Okay. And maybe on the flip side, like, are you seeing, or maybe NPI seeing any potential opportunity to step in in a few of those development projects that with, you know, broken cap structure or anything like that? Is that something that's seems to be bubbling up a little bit now in the news? B ut, I'm wondering if you're seeing that at all.
Yeah, yeah. Look, I think we are going to see some interesting opportunities. I think the folks who are very well capitalized will be much better positioned than others. I would call Minto a private company, very well capitalized. You know, they might not be able to pursue every single transaction that they want because everyone is hunkering down a little bit and making sure that things are penciling out and maybe taking a little bit more time as they assess risk over the long term and through the short term. So you always want to be prudent, you always want to be safe. I think they're going to make the right decisions for them.
And, you know, I don't know if they're going to be more aggressive or less aggressive, but I think there will be opportunities for them going forward.
Yep. Thank you.
Thank you. Your next question is from Matt Kornack, from National Bank. Please ask your question.
Hey, guys. Just quickly back to operations. Can you give us a sense as to how your non-rent-controlled assets are performing and if you're still seeing market rent growth for those properties?
Hey, Matt. Yeah, still seeing great growth. I think most notably, Niagara and obviously the Alberta market. We are experiencing a little bit more turn, but as John noted earlier in the call, backfilling quite quickly. For us, you know, as the leasing season, you know, enters the colder months, it's really continuing to tighten up occupancy. So we have some tactical promotions on some of the more expensive units at Niagara. But otherwise, just continuing on this occupancy trajectory.
It makes sense. And then on that front, just quickly, the spread between average in-place occupancy and end-of-period occupancy was a bit higher. I assume that has to do with the amount of turnover in the quarter, but should we see for kind of the slower months, that average occupancy converge more to the end-of-quarter occupancy?
Yeah, we, I mean, we hope so. I guess what we could say is that our end of October or our October occupancy stats, both closing as well as average, are pretty consistent with September. So we're pretty pleased with that progress so far. You know, like, so the first month of three months in a quarter, you know, no, no, no real bad news yet. So we're, we think it's a pretty good foundation for us to keep putting our heads down and hopefully, hopefully, generating a nice Q4.
And just last question. You mentioned Montreal. We've seen kind of a steady progression there on occupancy, and rate has continued to be pretty strong, stronger than I think, some would have expected, given the occupancy. But, is the anticipation that that kind of continues on a slow and steady pace, or should we expect that it's more of a spring leasing season next year, uptick?
I think slow and steady, so possibly a small improvement, a very small improvement in the remainder of the year, but really happy with the performance of that portfolio. Occupancy now above 95%. Broadly speaking, I know you know that market well, but it remains affordable to alternatives of Toronto or Vancouver. Where we're really focused from a leasing activity standpoint is some availability at Haddon Hall in Le 4300. Rockh ill and Le Hill-Park are very tight. But as John noted, the opportunity remains very robust in this market with those healthy spreads.
Yep. No, fair enough, and mortgage rates are high, so,
Yeah.
Renting makes more sense. Okay. Thanks, guys.
Thank you.
Thank you. Once again, please press star one should you wish to ask a question. Your next question is from Mario Saric, from Scotiabank. Please ask your question.
Hi, thank you, and good morning. I just wanted to come back to the comments on the turnover. I think, John, you mentioned that it was a bit higher than expected. Based on your kind of tenant exit discussions and whatnot, what's your best guess in terms of the driver behind it?
Yeah. Hey, Mario. Thanks for your question. We have... It's not really a best guess. I think we kind of know, and so we can give you some background there. I think in Calgary, what drove it was, you know, there are a number of affordable home alternatives in that market, is one. Number two, so people are moving out to go to those homes. Number two, there was some promotion running off for some people that made it more expensive because there's now no more promotion, so some of those folks left. You know, and a little bit of detail, a lot of some folks left to actually rent with someone else with a roommate to just make it more affordable. So, you know, those were the three main reasons.
The occupancy stayed pretty constant, so that's good for us. Ottawa, there is a little bit of competition right in that downtown node of 185 Lyon as well as The Carlisle. So we saw some people moving around for that. Again, good news is our occupancy remains constant, so we were able to backfill. And in Montréal, it was up a little bit turnover, but it was we have noticed a little bit of movement in the student population. But again, occupancy even ticked up in that market. So the good news is we are able the move-ins were able to keep up with the move-outs, again, allowing us to capture a little bit more gain on lease than what we had anticipated.
Okay, well, that's really helpful. And then, just maybe for Eddie, on the credit facility, I think it stood at CAD 117 million or so at the end of the quarter. I know there's a bunch of puts and takes with potential dispositions, developments and so on, but, in an ideal world, based on your outlook over the next six months, how should we think about that balance six months out, in terms of quantum? Where would you like to see it go?
Thanks, Mario. Ideally, I would like to see it as low as possible, given it's our most expensive piece of debt. But over the next six months, you know, we, as mentioned, we have refinancing opportunities in the front half of the year. So, you know, we would expect that we use any upward proceeds to pay that down, so that would dip a little bit. But we still have our capital commitments, CDL advances, developments, and CapEx, and those would be primarily funded from the revolver, so some of that will then bring that up a bit. So overall, over the next six months, I would actually think it'd be pretty, pretty flat from what it is today.
Hey, Mario, I think the wild card here for us is the potential for asset sales. And it impacts, you know, a few strategic decisions for us, right? Like, if we're able to get to the finish line on some incremental asset sales, it really provides us a lot more flexibility in terms of some of the refinancings that we're looking at, and maybe give us a bit more time to lock in maybe a lower rate in the future. So there's a lot of moving parts, can't control a lot of these moving parts, and they're all interconnected. So I think you're going to see us try to just be nimble and try to minimize our revolver balance going forward.
Got it. Okay. And then speaking of interconnectedness, and the facility and whatnot, can you give us your updated thoughts? I know it's a year out, but can you give us your updated thoughts on the pros and cons of acquiring Lonsdale and Highland, and, you know, how that decision is related, if at all, to your credit facility balance, and your ability to sell assets?
Yeah, sure. So I think we're going to look at Lonsdale and the Highland through the same lens that we looked at Fifth + Bank, which, you know, we terminated. The main options we're looking at are maybe we don't buy them, maybe we sell some assets to fund it, maybe we buy them, or maybe we buy them with a partner. And I'd say everything will depend on—like, really, the main driver for our decision-making is basically, it's very simple, right? It's like, what's the cap rate compared to what the long-term 10-year financing rate is? Like, that spread will either give you a very diluted transaction if it's wide, or as that spread narrows, you know, that dilution shrinks. So that's at a high level, kind of, the high level math we're kind of looking at.
I would say the only difference between how we looked at Fifth + Bank and how we might look at those two assets is that these two assets are in a market that is very strategic for us. It's in a market in Vancouver that is very difficult to enter, period. And if you do enter it, it's usually very expensive. And so for us, we want to enter the market where it's not a scenario where we're going to enter every auction process and pay the highest price and enter the market. That's not what we're doing. We actually have a partner who is developing out there or in pre-development, and we actually have, you know, a potential path to owning a platform with scale, you know, at a price that isn't the highest price, so if you include the discounts.
So we're not going to do that at any cost. We're highly cognizant of the math, and we're highly cognizant of delivering cash flow growth going forward. So, and maybe there's a nice, creative way for us to do it, to minimize any potential dilution, right? Like, if we're able to sell some assets at a cap rate that makes sense, pay down expensive revolver, you know, have that run through our business for two or three quarters, generate some accretion, and then maybe, maybe that's the accretion that we can play with in terms of, of, of funding some of the dilution going forward from, from, from expanding into the West, right? So no decisions have been made. We're. We still have some time where many things can change, including cost of debt, including cap rates, cap rate, including a bunch of things.
So, you know, we're biding our time, and you know, we think we'll do what's in the best interest for our shareholders.
Great. Yeah, all of that makes sense, John. Thank you for that. Just, just to follow up quickly, the total CDL commitment on the two is CAD 34 million, and like as you mentioned earlier on in the call, it's pretty much there already. What would the incremental, like, equity requirement for Minto be, at kind of where valuations are today, if you were to proceed and, and buy them?
Eddie, he's asking about the incremental equity required to purchase the asset.
Incremental. So for Lonsdale and the Highland, we'd be looking at around CAD 30 million combined equity required to close.
Perfect.
Did you get that, Mario?
Okay.
CAD 30 million .
Yeah. CAD 30 million, got it. Thank you.
Thank you. There are no further questions at this time. Please proceed.
Thanks, operator, and thanks everyone for your time. We really appreciate the commitment. We know it's a really, really busy time and a lot of conflicts with other calls, too. So we're looking forward to talking to everyone in early March of 2024. Take care.
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.