Minto Apartment Real Estate Investment Trust
TSX:MI.UN
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Minto Apartment Real Estate Investment Trust
Earnings Call Analysis
Summary
Q3-2023
In Q3 2023, Minto Apartment REIT showcased a notable performance with a 5.8% increase in same property revenue and a 6.9% rise in NOI, attributing to higher occupancy and average rents. The unfurnished suite business grew by 7.8% despite a furnished suite slowdown due to industry-wide strikes. Year-over-year, normalized FFO and AFFO per unit climbed by 4.4% and 5.3%, respectively. The REIT also announced a 3.1% uptick in annual distribution, signifying confidence in the future. A substantial gain in lease potential was noted, with new leases surging by 17% in average monthly rent. Operational efficiency continued as variable rate debt exposure decreased, strengthening the REIT's financial resilience amid high interest rates.
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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 Third Quarter Financial Results Conference Call. [Operator Instructions] Before we begin, I want to remind listeners that certain statements about future events made on 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 7, 2023, for more information. During the call, management will also reference certain non-IFRS financial measures. Although the believes these measures provide useful supplemental information about its financial performance, they are not recognized measures and do not have standardized meaning under IFRS. Visit MD&A for additional information regarding non-IFRS financial measures, including our conciliation 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 third quarter 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 third quarter 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 active 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 4. We announced another piece of good news yesterday. Our Board of Trustees has approved a $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 2 remaining noncore 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 third quarter financial and operating performance in greater detail. Eddie?
Thank you, Jon. Turning to Slide 5. Same property portfolio revenue was $37 million, an increase of 5.8% from Q3 last year, reflecting higher occupancy, higher average rents and reduced promotion amortization for [indiscernible]. Same-property portfolio NOI increased 6.9% year-over-year to $24 million and NOI margin increased by 60 basis points to 64.8%. The increase in NOI reflected increased revenue from unfurnished fees, which outpaced higher operating expenses and lower revenue from furnished fees. FFO was $15.7 million or $0.239 per unit, and AFFO was $14 million or $0.2139 per unit. After dusting for onetime 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 6. This chart highlights the strong growth in quarterly gain ones and average monthly rent that we achieved over the last 4 years and is evidence of a strong industry fundamentals. Average monthly fee revenue is growing rapidly quarter-over-quarter and gain on need has exceeded 16% for 4 consecutive quarters. Moving to Slide 7. We signed 510 new leases in the third quarter. The average monthly rent on new leases increased 17% to $2,130. The embedded gain-to-lease potential at quarter end also increased to 17.7%, representing $24.9 million of annualized incremental revenue growth. Moving to Slide 8. Annualized same-property turnover was 26% in Q3, which was more in line with historical norms compared to the first 2 quarters of 2023. Turnover was particularly strong in Alberta, where the availability of affordable homes in the problems and tenant departures arising from the loss of promotions granted in the past, allow tenants to consider other housing options. Minto saw the increased turnover from new supply in the downtown core, while [indiscernible] turnover was driven by movement in the student occulation. Toronto saw reduced turnover attended often to stay in place due to rising market rents. Despite the high turnover, we maintained consistent occupancy as move-ins kept pace with Loomans, allowing us to capture at ones and end the period with a closing occupancy of 97.8%. On Slide 9 is a brief update of our furthest portfolio. Average monthly rent increased to $6,250 per month. However, our first week revenue decreased by 17.9% over Q3 last year, driven by lower occupants. At Minto Yorkville in Toronto, the writers and actors shrinks halted production in the film industry, which is one of our primary tenant groups impacting occupancy. The right of strike has been resolved. However, the after students remains active. In Toronto, we saw fewer contract extensions at Minto on upon as government activity remains slower than historical more. Given the strong demand and high occupancy in the unfurnished suites within those buildings, we are assessing further conversions from further suites to unfurled 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 reaches as well as increased insurance premiums and repair and maintenance costs. A 5.8% increase in property taxes was driven by changes in South Poles 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 third quarter, which generated an NOI of 8.8%. We expect to reposition 110 to 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 September. Slide 12 provides an overview of the financing initiatives we have completed since described to reduce favorable rate debt. During the third quarter, we upward find $44.9 million of term debt secured by an Ottawa property. The transaction generated $24.1 million of incremental proceeds that we used to pay down a portion of the credit facility. Overall, in 2023, we have secured $402.7 million in CMHC and trip financing, generating incremental net proceeds of $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 an upward refinancing for 3 additional properties, and we will carefully consume impact that each potential financing has an at 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 6 years, term debt maturities represent more than 9% of total debt. As of September 30, 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% of the CMC insurance. Total liquidity was approximately $138 million at quarter end and debt gross book value was 42.8%. I'll now turn it back over to Jon 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 4 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. [Operator Instructions] Your first question is from Jonathan Kelcher from TD Cowen.
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?
Jon, it's Paul speaking. So certainly, I 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 it say soft for the remainder of the year. John, anything you want to add to that?
Sorry, go ahead, Jon.
Well, I was going to say so if the occupancy year-over-year was down 15% or 20%, whatever it was, they 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 Christmas?
Yes, 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 2 given the winter months. And I think, I guess the way we're thinking about it is the furnish suites represent a little bit of upside going forward for us. And we're hopeful that our -- to strengthen our unfunded suite business kind of carries us through today like it did in this quarter.
No, for sure. And then just secondly, on the -- on your development -- 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 when maybe just divide it by a number of quarters to stabilize? Or how should we think about that? And secondly, you have all your equity commitments into those projects? Is the rest is going to be funded on the construction lines.
I think, I mean, for our 2 remaining on balance sheet for Leslie or mills and Rich Grove, I think you can think of 2024 as being about $12 million for total for those 2 in terms of our equity requirements going forward, which will be funded by the revolver.
Okay. And the rest of the spend, obviously, just on this.
The rest on construction financing.
Your next question is from Mike Markidis from BMO.
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, Tony going to be Magestand international that are in the -- excluded from same property. But it looks like the -- that's correct. It looks like they would have detracted a little bit from the growth trends. So I guess the question being, how are those properties performing versus expectation and perhaps why, if I'm correct, would they be performing at a slower growth rate than the rest of the portfolio.
Michael, thanks for the question. I think compared to underwriting from a revenue and NOI perspective, it outperformed quite a bit. Average rents are significantly higher than our pro forma and NOI margins are, I think, a tick above or pretty consistent. We were heard, obviously, from a financing perspective and we carry some variable rate debt for a long period of time, which would have impacted sort of our IRR calculations. In terms of the growth, and I think we're going to have to look into that and get back to you. I'm not 100% sure if you can make that connection that you're pointing out. If you remind just to get that...
Yes, yes, of course, No. Okay. And then the second one for me is just looking out to 2024, the strength you guys are seeing is really broad-based. I think the leasing spreads are basically stones drove each other in Q3 for your 4 geographic segment. But if you just look across the regions, which are the 4 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?
Yes. I think we are very happy with our portfolio construction across especially Toronto, Calgary and Ottawa, we might lighten up a little bit [indiscernible] but from a property perspective, being urban being town now, 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 where we see kind of disproportionate upside is probably Montreal has -- the rental market is probably not as strong, or at least -- 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 to work in our Montreal portfolio than there is in the rest of our portfolio. We're pretty bullish everywhere.
Your next question is from Kyle Stanley from desjardins.
Your turnover spread continued to expand this quarter. In your view, 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 -- I mean, I think there's 2 questions in there. One is the turnover, which I guess I'll address in the second is kind of growth and how sustainable is it. turnover, I would say it was pretty consistent for historical norms. 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. It wouldn't have been available if it sort over was lower -- but I think going forward, we still expect turnover to slow in Q4 and Q1 in the colder winter quarters. And I think our -- I won't say guidance or estimate. But the way we think about driver for 2023 and 2024 probably hasn't changed, i.e., it will be slower than what it was lower than what it was in the past. In terms of the growth continuing, we haven't seen any cracks yet. We're obviously constantly looking out for them. The good news is 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. We don't think gain to 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 we know that's going to happen at that point. We don't think of any time soon. But that's one of the reasons why we're looking ahead and really focused on not containment. So we are in a position to deliver NOI growth even though our revenue growth might decelerate like it will 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 we think we're well positioned to keep on delivering most NOI growth and cash flow per unit growth.
Okay. And just my second question kind of relates to your debt refinancing. So what is the cadence of your debt maturities next year? Would it be fairly spread out over the year or maybe more concentrated in the specific quarter. And then secondly, with the refinancing activity, where do you see your variable rate debt as a percentage of your total debt stack trending during the year.
Here. In terms of the 2024 maturities, we approximate $75 million coming due next year, it would be for Q1 and then early Q2. And when it comes to a revolver, so we're at 10% of our variable of our debt stack right now, which we have a huge stride at the beginning of the year, as we saw that we were in the 25%, 26%. So we think that with refinancings and our capital commitments that 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 the refinancing, what the rates are at the time and how much we could get on the upward refi. That we're obviously super cognizant of the rates right now. CDs around 5% today fluctuated in the last 3 or 4 weeks, as the highest 5.5%. And if you look at some of our disclosures, our exit rates on some of these mortgages are fairly low weighted average of low 3s. So we're mindful of that and its sure that we can try to optimize the capital we can achieve a lot of refinancing.
Thank you. Your next question is from Gaurav Mathur from Laurentian Bank.
Thank you, and 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 seeing and where you see spreads be as part of the 2024 mortgage maturities are concerned.
In terms of the spread that I just -- what over some other rates, CMHC today, so acquisition to start with. These aren't our CEC insured. We're 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. We're looking to get our certificates of insurance. I'll give us a little bit of time to close on those usually with about 6 months to walk in our rate. And we'll be looking at the yield curve and seeing how pricing looks between now and then when they're doing. As I mentioned, in terms of the exit rates on some of these mortgages, we're looking at both 3s right now. So that spread is we're potential super focused on spread and how do we narrow that gap.
Okay. Great. And then 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 all things being equal, if we refi and up a refi wherever we could get on that, it's higher likely we'll take those funds and take down a higher and more expensive debt, which is a revolver, which is carrying at around 7.2%. So net debt to GDP would probably be relatively the same, probably a little bit of a spike because of financing fees and premiums, but will still be around the same territory of whatever, 0.2% or so.
In terms of the target, 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. And 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 amount to tick up a little bit as we pay some of that -- some of those cash flows going forward. But that's one of the reasons why we're looking at some asset sales. And to be honest, we didn't buy it a bank. So there's also a CDL repayment that's going to come at us in early 2024.
Your next question is from Jimmie Shan from RBC Capital Markets.
So there's been some news recently developers potentially getting into trouble in a few of the development projects. So maybe with respect to those CDLs with NPI for Pisa, can you talk about the 5 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?
Yes, sure. I mean they're all very well advanced, right? Like Lawndale is going to be the first one. That is virtually completed -- well, not virtually completed. We're finishing the exterior. We're finishing the interior. I think first occupancy will probably be by the middle of 2024 type thing, stabilization back half pretty similar time line for A10 Kingsway, which is now called the island, maybe a month or 2 behind low sales were. 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 DDA Beachwood, I think which you walked through. We talked off that building in October, middle of October. And it's almost -- it's virtually fully funded to 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. It's like 5 towers, and I think the first one will be done in the next 18 months or so. So longer time on on that one, we are only a 45% owner in that one. And if you think about the REIT, we are completely insulated from this risk, right? We just get an interest payment for the money that we lend. And if anything goes right, 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 then 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 broken cap structure or anything like that? Is that something that seems to be bubbling up a little bit now in the news, but I'm wondering if you're seeing that at all?
Yes. 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 into private company, very well capitalized. They might not be able to pursue every single transaction that we want because everyone is hunkering down a little bit and making sure the things are penciling out and maybe taking a little bit more time as they assess risks go for long term and after the short term. So we always want to be prudent. You always want to be safe. I think they're going to make the right decisions for them. And I don't know what they're going to be more aggressive or less aggressive, but I think there will be opportunities for that going forward.
Your next question is from Matt Kornack from National Bank.
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.
Yes, still seeing great growth. I think most notably, Diacor and obviously the Alberta market. We are experiencing a little bit more churn. But as Jon noted earlier in the call, backfilling quite quickly. For us, as the leasing season 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 Niagra, but otherwise, just continuing on this occupancy trajectory.
Okay. 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?
Yes. I would hope so. I guess what we could say is that our end of October, 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. Like over the first month of 3 months in a quarter, 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 generate 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?
Think low and [indiscernible] 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 at targets of Toronto or Vancouver, where we're really focused from a leasing activity standpoint, in some availability at Hatala 4,300, Rock Hill and La Hill Park are very tight. But as Jon noted, the opportunity remains very robust in this market with those healthy spreads.
Yes. Fair enough, and mortgage rates are high. So something makes more sense.
[Operator Instructions] Your next question is from Mario Saric from Scotia Bank.
I just wanted to come back to the comments on the turnover. I think, Jon, you mentioned that it was a bit higher than expected based on your kind of tenant discussions and whatnot. What's your best guess in terms of the driver behind it?
Yes. Mario, thanks for your question. We have -- it's not really a best guess, I think we got to know. And so we can give you some background there. I think in Calgary, what drove it was there are a number of affordable loan alternatives in that market is one. Number two -- so people are moving out to go to those. 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 left. 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 that -- those were the 3 main reasons in Calgary. The good news, as you see is 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 Lion as well as to Carlyle. So we saw some people moving around for that. And again, good news is our occupancy remains constant, so we were able to backfill. And in Montreal, it was up a little bit turnover, but it was -- we've noted a little bit of movement in the student population. So -- but again, occupancy even picked up in that market. So the good news is we're able -- the move-ins were able to keep up with the move-outs, again, allowing us to capture a little bit more gains lease than what we had anticipated.
Okay. That's really helpful. And then just maybe for Eddie, on the credit facility, I think it stood at $117 million or so in 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 6 months, how should we think about that balance 6 months out in terms of Quantum, where would you like to see it go?
Thanks, Mario. Ideally, I would like to see the loan loss vote, given it's our most expensive piece of debt. But over the next 6 months, we have mentioned, we have refinancing opportunities in the front half of the year. So 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 delists CDL fans development and CapEx, and those would be primarily funded from the revolvers. So some of that wiltebring that up a bit. So overall, over the next 6 months, I would actually think it'd be pretty flat from what it is today.
Mario, I think the wildcard here for us is the potential for asset sales and it impacts 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 refinancing 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 looming parts, and they're all interconnected. So I think you're going to see us try to just be nimble and trying to minimize our revolver balance going forward.
Got it. Okay. And then speaking of interconnectiveness in the facility and whatnot. Can you give us your updated thoughts on not to year out, but can you give us your updated thoughts on the pros and cons of acquiring Lane and the Highland and how that decision is related, if at all, to your credit facility balance and your ability to sell assets.
Yes. Sure. So... I think we're going to look at an sale and the Highland through the same lens that we looked at just a bank, which 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 -- is very simple, right? It's like what's the cap rate compared to what's the long-term 10-year financing rates? Like that spread believe gives you a very dilutive transaction if it's wide or as that spread narrows that dilution strengths. So that's at a high level kind of the high level that we're kind of looking at, I would say, the only difference between how we look at VistanBank and how we might look at those 2 assets is that these 2 assets are in a market that is very strategic for us. And 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. It's not a scenario where we're going to enter every auction process at say the highest price and enter the market. That's not what we're doing. We actually have a partner who is developing out there for in free development, and we actually have a potential path to owning a platform with scale at a price that is at a higher 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 for 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 you were able to sell some assets at a cap rate that makes sense, pay down expensive revolver, have that run through our business for 2 or 3 quarters, generate some accretion and then maybe that the reason that we could play with in terms of funding some of the dilution going forward from expanding to the West, right? So no decisions have been made where we still have some time where many things could change, including cost of debt, including cap purchase GAAP rate, including a bunch of things. So we're buying our time, and we think we'll do what's in the best interest for our shareholders.
Great. All that makes sense, just a follow-up quickly. The total CDL commitment on the 2 is $34 million. And as you mentioned earlier on in the call, it's pretty much there already. What would the incremental like equity requirement for Minto be kind of where valuations are today, if you were to proceed with that be?
[inidiscernible] Talking about the incremental equity required to purchase.
Incremental... For London in the Highland, we'd be looking at around $30 million combined that required to close.
You get that? $30 million?
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 2024. Take care.
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.