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Welcome to the Melcor REIT First Quarter 2023 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Naomi Stefura, Chief Financial Officer. Please go ahead.
Thank you. Good morning, and welcome to our conference call and webcast for the first quarter 2023. With me on today's call is Randy Ferguson, Senior Vice President of Investment Properties for Melcor REIT. I will begin today's call with some mandatory statements, and then I'll walk you through a few financial highlights. Afterwards, I'll turn the call over to Randy to walk through our operational highlights. Our goal is to keep our remarks to a brief high-level review of the quarter and then open up the call for your questions. If you have not reviewed the materials related to this call, including the management's discussion and analysis and the financial statements, they are available on the Investor Relations section of our website at melcorreit.ca and on sedar.com.
Certain statements made during this call may be forward-looking. For a complete discussion of items that may cause actual results to differ, please refer to the Business Environment and Risks section of our annual MD&A. Second, we reported financial results in Canadian dollars and in accordance with IFRS. We supplement our financial reporting with nonstandard measures, including FFO, AFFO, ACFO and NOI. We believe these measures are important in evaluating our performance, but caution listeners that they may not be comparable to similar measures presented by other companies. These nonstandard measures are defined and reconciled in our press release and in the MD&A.
I will now walk everyone through some of the financial highlights of our results for Q1 2023. Our portfolio continues to produce stable results despite rising cost inflationary pressures. On February 1, 2023, we successfully closed on the sale of Kelowna Business Center, an office building located in Kelowna, BC. This asset has been owned by Melcor REIT since its inception in 2013 and prior to that had been owned by Melcor Developments since 2006.
Revenue in the quarter was stable compared to Q1 2022, while net operating income was down 3% as a result of rising costs. ACFO was down 35% at $3.78 million or $0.13 per unit. ACFO in the quarter was impacted by a few key items. One significant impact on the calculation was an increase in our normalized capital expenditures and normalized tenant incentive and leasing costs. Normalized amounts are estimated by looking at our trailing 5-year actual spend plus 5-year projected spend.
We have seen increases in spend required to attract and retain key tenants as well as increases in our capital budgets to maintain our buildings. In Q4 2022, we increased our quarterly normalized reserve amount, which is now reflected in our 2023 estimates, thereby decreasing ACFO. We have held our monthly distributions at $0.04 per unit for a quarterly payout ratio of 92% of ACFO. As of March 31, 2023, we have $3.3 million in cash and $25.6 million in undrawn liquidity under our revolving credit facility.
During the quarter, we were able to increase capacity on our credit facility in 2 ways. One, in February 2023, we signed an amending agreement on our credit facility to increase our limit from $35 million to $50 million. Two, we also used the net cash proceeds from the sale of Kelowna Business Center to reduce the amount drawn on the facility.
I will now turn the call over to Randy to speak to our portfolio's operations and performance.
Thank you, Naomi, and good morning, everyone. I'm very pleased to share Melcor REIT's first quarter 2023 operational results. While our effort is to produce stable financial results, we have achieved some wins with leasing, notwithstanding we're in a challenging market. To date in 2023, we have 196,449 square feet of renewals and holdovers, which yields a retention rate of over 95%. We have also signed 25,328 square feet of new leasing and occupancy at the end of the quarter was 88%, up 0.3% over year-end.
We have further commitments for an additional 47,000 square feet plus of upcoming renewals. This will bring our committed occupancy up to almost 90%. We are excited and motivated by this progress. As we move through 2023, we're focused on ongoing value add through the leasing program and ongoing stewardship through our property management services.
So we'd like now to open the phone lines and take your questions.
[Operator Instructions] The first question comes from Tom Callaghan from RBC Capital Markets.
Maybe just to start off, Randy, on the leasing side, obviously, some good progress there in the first quarter. Just curious, on the office leasing done, what does kind of the term look like from tenants there in terms of lease term? And really what I'm trying to get a sense is, are tenants kind of still in a wait-and-see mode? Or have they perhaps starting to get a little more comfortable with respect to space requirements going forward?
That's a great question, Tom. And what we're finding on the office side in renewals, we're finding tenants looking spent a lot of -- they've rationalized their thinking. They're looking for longer-term leases and looking at settling in. We see the trends. We're working with companies who have figured out what their work model is going to look like. And it's really gratifying to see that office is still playing a central role in all of that. But settling into longer term, a lot less ask for short-term renewals these days.
Got it. That's great. And then maybe just a bit of an update on how you're thinking about kind of remaining maturities over the course of the rest of the year there. Are there any kind of lumpy amounts or just how you see that playing out?
I think that was directed at...
Sorry, financing maturities versus leasing...
Sorry. Just yes, leasing, on the leasing side, the leasing maturities, yes. Just kind of how you're thinking about the rest of the year.
I was looking at Naomi and she was looking at me. We have some rollover in our government sector. We have a 40,000 square foot lease rolling over. We have a soft -- I shouldn't say soft. We have a letter from the government telling us that they want to renew in 50% of that space. In terms of other big spaces, we have a couple of rollovers that are in that 80,000 square foot range.
We've already received notice on 1 of the 2 for renewal, and we fully expect to look at the other. I think our rollover that goes to vacancy is going to be more on people sizing down. We've seen a little bit of that, where somebody has said, I'd like to give you back half my space or I'd like to move down to a floor in a smaller space and sign on long term. So we've seen a little bit of that rationalization. But in terms of the wholesale exit, no, I think this year is going to be quite good.
Perfect. And then, Naomi, maybe on the financing side now. I know there was one renewal there in the first quarter. Is that rate pretty much indicative of where you kind of see costs today pending any further movements in the yields or benchmarks?
Yes. I think that's probably fair. I think that was a pretty typical asset with sort of typical occupancy. It was office. So I think like as far as like in a benchmark, it's probably reasonable to use that.
Okay. Okay. And then one last one for me, and I'll hand it back. But just -- I know the disposition in the first quarter there was a bit of an opportunistic deal. Just curious, are there any other assets in the portfolio that you might see as noncore and potentially look to sell, should markets improve? Or is it more if dispositions were to occur in the future, it would be more kind of these one-off opportunistic type deals?
I'd like to say a little of both. We have -- one of the things we watch really carefully in terms of how the properties are performing is how much additional capital need to go toward them as they age. So if we're anticipating a, let's call it, an office building of a certain age, and it looks like there's going to be a capital run and it no longer is going to actually contribute positively to our yield.
We'll look at the market and see if the market has an appetite. If it doesn't, we move forward. If it does, we may well put that property on the market. So the scrutiny is on all of the assets from that regard. Each time we move a property of age out the door, we've younged up our portfolio and become more efficient from a CapEx point of view. So we're looking at it carefully all the time.
[Operator Instructions] The next question comes from Alexander Augimeri from CIBC.
I was wondering if you could provide some clarity on how you plan on renewing or repaying the 2023 expiring debt. Maybe some information too with respect to the pricing and loan-to-value ratios.
So I think looking at sort of our 2023 expiries, there's probably more net proceeds than there would be sort of in any sort of net repayments. I think we sort of look at a 60% loan to value as the maximum we would be sort of looking for. So there may or may not be small cases where that would require a small pay down, but there are enough offsetting sort of potential net increases in that amount. All the sort of expiring rates, as you can imagine, are sort of sub-5. And so we would probably be seeing, as to the previous question, a bit of an uptick in sort of that 5-year rates looking at that first mortgage that was done at sort of mid-5s in a sort of interest rate perspective. I'm not sure if that helps answer your question. Anything further?
This concludes the question-and-answer session. I would like to turn the conference back over to Randy Ferguson for any closing remarks. Please go ahead.
Thanks very much. It's my privilege always to thank our leasing operations and property management teams for the work they do every day with our customers and with our properties and also to extend our gratitude to our finance, admin, HR, communications and IT teams for their commitment in supporting maintaining, improving our platform. And thank you all for taking the time to visit us and review our results. We know your time is valuable, and we do appreciate you taking that time. We look forward to reporting on the year as a whole when we meet next -- sorry, half the year when we meet next, and thanks for joining us today. Take care.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.