Keppel Pacific Oak US REIT (CMOU.SI) Earnings Call Transcript & Summary

Good morning, and welcome to Keppel Pacific Oak US REIT's First Half 2025 Financial Results Webcast. My name is Zack, and I represent KORE on the Investor Relations front. Before we begin, let me introduce the management team on the session. We have CEO, Mr. David Snyder. As announced in April this year, Mr. Andy Gwee has stepped down as Chief Financial Officer on 16th June 2025 to assume a new role in Keppel. We would like to take this opportunity to thank Andy for his contributions to KORE, having played a critical role in the REIT since its listing and to wish him success in his new role. Ms. See Ai has taken over Andy's role and is also joining us on this session. She has been with KORE since 2018, shortly after listing. We will start off the webcast with an overview of KORE's financial and operational performance for the first half of 2025, followed by a question-and-answer session. Before we begin, we would like to run through some housekeeping. [Operator Instructions] Without further ado, I will hand the time over to the CEO, Mr. David Snyder.

Good morning, everyone, and thank you for joining us today. Let's go ahead and start on Slide 2. Here, we present KORE's first half 2025 key highlights. We leased more than 281,000 square feet of space in the first half of 2025, equivalent to 5.9% portfolio NLA. The majority of the leases were signed in Bellevue, Redmond, Denver and Dallas. Portfolio of committed occupancy was 88.2% as of June 30, 2025, a slight decrease from last quarter and December 2024 due to some of the known vacates we have previously noted. Rental reversion was a positive 3.3% for the second quarter 2025. Positive result was driven by leases in Dallas, Bellevue, Redmond and Bellaire Park in Houston. Rental reversion for the first half of 2025 was a positive 0.5%. NPI was 3.2% lower year-on-year, mainly increased repair and maintenance expenses as well as amortization of leasing commissions, partially offset by lower property taxes. In the first half of 2025, no distribution has been declared in accordance with the recapitalization plan. And I will now hand it over to Ai to elaborate on KORE's financial performance.

Thank you, Dave. I will now provide an update on KORE's financial performance for the first half of 2025. Income available for distribution was 16.2% lower in the first half of 2025 mainly due to a decrease in adjusted NPI. The lower adjusted NPI was largely driven by lower rental income resulting from higher fee events due to timing differences in leases completed for the respective periods as well as increased repair and maintenance expenses, offset by newer proposition. Additionally, there was also higher other expenses largely due to higher professional fees and accrued withholding tax resulting from unitholders U.S. tax form. Slide 4 is a snapshot of our balance sheet at 30th June 2025 and 31st December 2024. As at the end of June 2025, total assets was $1.4 billion and NAV was [ $0.70 ]. Moving on to Slide 5 on KORE's capital management. KORE's aggregate leverage maintained at 23.7% as at 30th June 2025. The all-in average cost of debt was 4.45% per annum or 4.32% per annum when excluding the amortization of the upfront debt financing costs. KORE's current interest coverage ratio is 2.5x, and both sensitivity scenarios for ICR remain above the regulatory requirement of 1.5x. The rated average term to maturity of KORE's debt stands at 2 years. 25.7% of KORE's loans have been hedged and early week's increase in SOFR translates to approximately $0.89 million decrease in income available for distribution per annum. I will now pass the time back to Dave to provide updates on KORE's operational performance.

Thanks, Ai . Slide 6 highlights some of the reasons why we invest in the key growth markets we do and not in the gateway cities. These key growth markets have increased attractiveness to companies and individuals because of their low income tax rates, lower cost of living, better employment opportunities and more attractive lifestyles, among other factors. Six of our 8 markets are in the top 25 markets to watch in 2025. Moving to Slide 7. Here, you can see the changes in committed occupancy by property. This quarter, KORE's committed occupancy dipped slightly to 88.2%, with 6 out of 13 properties having had stable or increased occupancy. For this quarter, we managed to backfill some of the known vacates that we've been mentioning for some time. For the third and fourth quarter, we do still have some significant known vacates at The Plaza Building, Bellaire Park and Westmoor. We continue to hope to end 2025 with occupancy in the mid- to high 80% range. As you can see on Slide 8, KORE's occupancy rate remains well above the U.S. average, the average of the gateway cities and I would note, both of our peers in Singapore who were below 80% occupancy as of the first quarter of 2025. Let's move to Slide 9. The second quarter of 2025 saw us lease around 155,000 square feet of space or 3.2% portfolio NLA, bringing the total lease space for the first half of 2025 to around 281,000 square feet or 5.9% of the portfolio. New leases represented 35.3% of the space leased during the first half of the year with renewals making up another 47.6%. The big news is that 17.1% of the space leased was from expansions by existing tenants, which is encouraging and reflective of what we're seeing and hearing about in the U.S. in terms of business plans for growth. Our built-in average annual rental escalation of 2.6% continues to provide growth for KORE. Slide 10 highlights KORE's geographic and industry diversification, which you are all familiar with and which remain consistent. Turning to Slide 11. Here, we highlight our relatively low tenant concentration risk, which you're also all very familiar with, including how much lower it is than our peers, whose top 10 tenant concentrations are about 50% higher. Turning over to the submarket outlook on Slide 12. Office fundamentals remain relatively sound in KORE's key growth markets. The projects under construction in Bellevue and Redmond continue to primarily represent Amazon and Microsoft-related development, while the Mountain los Colinas represents the build-to-suits for Wells Fargo and [Cristo's] Health. Next, let's move on to the market outlook on Slide 14. This new slide highlights estimates by JLL of where various markets are in the property clock cycle. Ideally, we would like our markets to be toward the bottom of the bottoming phase or early in the rising phase at this stage of the U.S. economy. Dallas, Nashville, Bellevue, Redmond, which are listed in Seattle, Austin and Houston are fortunately at that stage. Denver is the only location of ours that still has some room to fall, but that may not reflect some of the positives in our submarket in the Northwest, which might put it closer to the bottom. All in all, this is good news for our portfolio's future growth opportunities. On Slide 15, we have seen more data points supporting a broad-based leasing recovery with firm demand and higher rents. Office-using industries have been resilient to date in spite of uncertainty arising from the Trump administration's trade policy shifts, which have increased economic uncertainty and lowered the probability of monetary easing. Regardless, strong signals remain that office demand will bounce back even further as macroeconomic headwinds abate. Tenant requirements in the U.S. market grew by 5.8% quarter-over-quarter and currently reflect the highest levels of active demand since the fourth quarter of 2021. In the same vein, the slowdown in leasing activities in the first half of 2025 show signs of being a temporary disruption that will return to a path of recovery in the second half of the year. We continue to see increased office attendance policies with an average weekly in-office requirement of 3.8 days. Office traffic, as indicated by cell phone data, has grown to 72.6% of the pre-pandemic average, corroborating the strengthening of return to office trend. This figure was at 67% in 2024 and 52% in 2022, for reference. Even with the job market somewhat softening this year, the finance and tech sectors are leading the charge and pushing for office returns. Some examples are JPMorgan Chase in the first quarter and Bank of New York Mellon in the second quarter. Many of the largest companies in those sectors have implemented 5-day in-office policies. In transactions market, groups that had deprioritized the office sector are beginning to consider acquisitions. Institutional groups comprise more than 25% of acquisitions in the second quarter, the highest share of the buyer pool since mid-2022. We also observed that executed rents on leases being signed are continuing to trend upwards, and concession rates have stabilized after a significant run-up in the past decade. So we did not see a big increase in concessions in our portfolio during that time frame. Slide 16 highlights several U.S. economic fundamentals. All indicators remain relatively stable at the end of June as the effects of tariffs have been limited at least so far, and the Federal Reserve has held at federal funds rate constant despite every pressure from President Trump to cut the rate to below 4%. Moving on to Slide 17. Gateway cities and the states in which they are located continue to lose luster with California and New York being troubled by political turmoil. California has lost over 54,000 jobs in the first quarter of 2025 largely due to deportations ordered by President Trump. New stricter laws on immigration have also led to multiple riots in Los Angeles. If these protests continue, California's GDP can be expected to take a $275 billion hit due to its heavy reliance on immigrant labor. In over New York City, the winning of New York's Mayoral Democratic primary election by Zohran Mamdan, a socialist Democrat, has led to uncertainty. There is concern by business owners who believe his socialist viewpoint will lead to unfavorable policies. Firms are also considering shifting to more business-friendly markets, such as Miami, Dallas or Nashville. There also renewed questions about whether Wall Street executives would stay in New York or if Mamdan's plans for the city would send more financiers to states such as Florida and Texas. Higher taxes, crime and fears of rising antisemitism have all been cited as concerns. Finally, on Slide 18, we close off with a summary of KORE's unique value proposition, including its strategic presence in several of the fastest-growing states in the U.S., its exposure to the fast-growing TAMI and medical and health care sectors, our highly diversified portfolio with low tenant concentration risk as well as our resilient operations with built-in average rental escalations for further organic growth. And that wraps up the presentation. So back to you, Zach to start the Q&A.

Thanks, Dave. [Operator Instructions] First, we have Derek.

Can you hear me?

We can hear you just fine.

I just wanted to ask a few question. Firstly, I'm just looking at your demand profile, right? So you mentioned that some optimism with regards to expansion. There's also strong renewals at certain sites. Could you just give us a little bit more color on where -- where are the expansions coming from? And just some more color on that would be great. The cities are essentially -- yes.

We have, I think, 5 different expansions over the course of the quarter, which was pleasant to see. It was at a mix of buildings. I'm trying to dig up something here that's going to show me where those were. So we had Denver, we had Bellevue. Those are both with technology companies. We had another expansion in Austin with a professional services company. And then we had expansions in Houston. I guess the other 2 were both in Houston. But those were other types of finance and insurance, that sort of thing. So there's a mix, which is good. At this point, we'd love to see expansions in the tech companies in those sorts of markets, which we are, as well as some professional services and other types where that growth actually speaks even better about maybe the overall U.S. economy, when we're seeing in some of those other industries that are maybe not as dynamic in the first place.

I see. I see. Okay. And how about TIs at this moment in time for, let's say, if you could split up the TIs that you probably have to provide for renewals and new leases? Was it a range for us to get a sense?

So we haven't seen much change for a while. So our average TI across the portfolio is, call it, $10 or $11 a foot per foot per year on new. And then on renewals, it's about half that, so somewhere between $5 and $6 a foot. But realistically, I think we've spent less than that in general across the course of this year. We've had a number of leases this year where we've had 0. I think we've had one that's been above that average. Everything else has been at or well below those averages I just gave you. So I think we're looking pretty good on the TI front. And a decent portion of that is for smaller leases where we've had previous spec suites we've built and moved somebody into it where we really don't have to spend much, if anything, to put a tenant into that space. So hopefully, we'll continue to see some good look on that front. But for the larger spaces that we've got, that we've told people are known vacates and things like that, some of those are going to have those standard types of TIs when they come back because those big spaces will need to get refitted out for different tenants and maybe even different types of tenants. But at this point, things are going really well for us on the TI front.

Okay. Got it, got it, got it. Sorry, just 2 more. I mean you mentioned about known vacates, right? So largely, in Seattle, if I'm not wrong, and Iron Point, right, you mentioned. But for your Seattle buildings, especially for Plaza and Bellevue, how long do you think -- are we seeing enough demand to bring occupancy back up? Or do you think it will still be a long drawn kind of like affair in regards to occupancy trends going forward?

Yes. So for Plaza Buildings, when UIPath eventually, finally, we think vacates -- I don't know, they've been building out the space for a long time. I think they expired in April, and they continue to be month-to-month as they're trying to build that space. So we've enjoyed that. That space, along with the other large spaces at Plaza may take a little while. Our estimate is that, that's 2026 leasing for much of what's happening at Plaza. Some of that space -- I mean, UIPath's space is 2 full floors at Plaza Buildings and it's stunning. So if we were to find the right tenant, the good news is there's nothing really to be done. It will be low TIs. But to find full-floor tenants is much more complicated than finding smaller 3,000, 4,000, 5,000 square footers. So we've had good success with the spec suites we built out at Plaza on the fifth floor in our greenhouse. So 2 of those were signed, a couple more of those are signed or about to be signed. I think 5 of them are essentially negotiated with the 6th with some interest. So I think we're in good shape on that front. But it will take a little while there. Denver is interesting. We had an expansion in Denver. We had a company that moved from our 105 building into Westmoor and took over about half of the space that we're getting back in -- at the end of October. And so that's a plus. But they're now thinking sometime in the next 6 to 9 months, they might want the other half of that space. So I think Denver is looking more positive than we had previously thought. But things change and not everybody gets what they want, and people don't always expand as quickly as they think, but we remain relatively hopeful there. And in Plaza, what I would tell you is once we get to the time where we're doing budgets, if we haven't leased some of those full floors, we're going to pick another full floor at Plaza. And we'll do something similar to not quite as high end probably as the greenhouse, but something similar. We'll build another full spec floor out there. And we know we'll lease those much more quickly than full floors. But if -- and maybe we might do that to a couple of floors if we think that makes sense. So we'll keep working on that. Sacramento, the market is still strong. So let me be clear. Downtown Sacramento is not strong. We're not in downtown. But the submarket that we are in is still strong with over 90% leased for the submarket. So our problem has been numerous in a row for the last several years large tenants vacating. And they've been in a few different industries, a couple that have been related for like mortgage-type companies and a couple of related sets. And then we had a company called Pro Unlimited that vacated a significant space. So -- and some banking in general. And so they vacated, but we're starting to see some interest in that market and even for some larger spaces. I think our success there most recently has been in our spec suites that we built out last year. Those were all leased. We leased some other smaller space in that building. But we've now got some interest that's running anywhere from 7,000 square feet to something that -- there's a potential tenant there that might be 28,000 square feet. So we don't know yet if those things are going to come to roost. But we've got some movement there at least. So we're feeling better about that. It's not that we've ever had a problem really. The market's been somewhat strong. There hasn't been a lot of new demand in it for -- since we started losing tenants, but the others are still 95% occupied because their leases roll at different times. So I think we're seeing that sort of return to normalcy there, and I think we'll start to see some movement in that location, much like we've seen in Austin. We were at Westech 360. We started to see a lot of momentum. It's not going to pick up maybe that quickly, but we expect to start seeing some momentum there, and we expect to continue to see that in Austin where leasing has been going very well at Westech 360.

Got it. Got it. Sorry, just one very quick one. Could you just give us a guidance on your CapEx? I remember last quarter, you mentioned about $50 million to be spent, right? So is this still the case or...

That is still the plan. So the $50 million we expect will still be spent. It's not all going to end up being paid in cash before the end of the year, much like last year, we had some carryover. I think we talked about that at year-end last year. We'll have some carryover. The projects will be started or maybe even finished but not all build. But we do think that the current projects that are underway or about to be started now will spend that $50 million. I mean to give you an example, the U.S. Bank building, which is part of Plaza Buildings in downtown Bellevue, we have a complete redo of that lobby scheduled for this year. And it just takes forever with the city to get all the approvals that we need. So we have not started that work, which we thought would be well underway by now through no fault of our own, just dealing with getting approvals. So we'll spend that money. It's just much later in the year and might push into next year for some of the payments. We're still hopeful we'll get the work done this year. But just the easiest example I can give of why some of this stuff just isn't being spent at the pace we might have thought it would be spent.

Okay. Got it. Got it. Got it. So I think it's something that you want to keep that float on your balance sheet, essentially, that's how I should think about it, $50 million, just in case you need to use it.

I think we will. And the biggest piece of it, I mean, I think, I don't have it right in front of me, but I think the biggest piece of that is for TIs. And so that's money you really hope that we spend as do we, right? That means new leasing. That means we end the year where we hoped for in terms of occupancy and the rest. So that is all -- and so leasing has been a bit slower than I had hoped for this part of the year. But again, I mentioned some of the comments earlier. We've seen a bit of a pickup. We certainly leased more in second quarter than first. We're seeing that across the U.S., and we expect second half of the year to be better. So hopefully, we will sign leases that have TIs that total everything we budgeted. That work won't all get completed before the end of the year, but the leases will hopefully get signed if things are going well.

Thanks, Derek. Vijay, you're up next.

Good to see the tariff years have receded and lots of green shoots appearing. Just a couple of questions from me. Firstly, on the refinancing front, has there been any progress for the refinancing of the fourth quarter and 2026 loans? On the same vein, any changes to your DPU payout possibly looking at second half? Is there any guidance on 2026? Is there any guidance you can provide?

I'm going to go ahead and let Ai Lynn take a stab at these questions for you, my friend.

On your first question on the refinancing, we are actually currently still in active discussions with the banks, with existing and new lenders as well and some finally -- finalizing some terms for some of them. Basically, we can't say much now, but when we have good news, we will let you know.

That's a positive.

Truly active discussions. We expect to have some good news on that front by next quarter, although we may not have good news on all of it by then. But we will almost certainly have some. And then in terms of starting a distribution, I think on that front, we're still on target for first half 2026 as we had announced back when we announced that whole plan, the recapitalization plan.

Dave, earlier you guided there could be a possibility of second half dividend payout. Is it still there?

I think I was pretty clear that, that was completely dependent upon getting all the refinancings done, which have not occurred. So that is still a possibility. If that were to happen, that we might do something for -- some portion of the second half of the year, we will see where we fall on refinancings. But if that's all done early, then yes, there still remains the possibility that we could restart a bit early.

Okay. So if refinancing is announced, there would be some possibility of payout in the second half as well as the first half, the payout is still on track for 2026 onwards.

You got it.

Any guidance in terms of what kind of early indications which you can give at this point of time in terms of payout or something?

When we do restart, it will be something that is substantially smaller than what our full distributions used to be. That's something we intend to start low and declare an amount that we're confident will continue and that will continue to grow over time as well. So I can't give better guidance than that, but it's going to be a relatively small number. But the target we have is the set of distribution that will be consistent across all 4 quarters of a given year or the 2 halves of the year, if you will and then in future years grow until we get back up somewhere up into that 80% to 90-ish percentage range over time.

So it will be a start small and then ramp up over the years to a more consistent range.

Yes. But we want to be consistent and growing. We want to be a lot like the U.S. REITs where you saw they had a lot of issues in the U.S. and all that, but you didn't see any of the big U.S. office REITs cutting distributions. We want to do the same thing. We're going to get people to understand what we're doing and why in that front because they deserve to sort of know. And the fluctuations that we see in distributions in Singapore really don't give unitholders the ability to sort of count on what's coming. We want to restart a distribution and from that point forward, have people be able to, barring some really wildly bad circumstance, count on those distributions as we move forward. So we'll start a little bit lower. We'll build up, but those will be declared and consistent throughout each year. So we expect the 2 halves to be the same distributions. And then as I said, for the first several years, that would then grow year-over-year.

Got it. Got it. On the leasing front, I mean, I look at JLL data and other consultant's data. First half was quite strong in terms of overall U.S. office market, but your portfolio seems to have softened a bit. If you look at Slide 9, I think the leasing front has been a bit slow. Any specific reason why this is so? And can you also guide in terms of what would be the known vacates and occupancy outlook for the end of the year? Earlier, we were looking at high 80s, but it seems to have gone to mid-80s. Is that something -- a conservative range? Or what should we look at?

Yes. I think last quarter, I was talking about mid- to high 80s last quarter as well because we've got -- I talked about significant nonvacates last quarter. We're still sitting on about, call it, 170-some-thousand square feet of known vacates in the portfolio, so about 3.6% of NLA. And that's just the big tenants. And we'll have some small amount of small tenants that we'll lose. But most of those we typically replace relatively quickly compared to the big spaces. So if you apply that, you can do that math. So that kind of gives you a floor, and then we hope to be above that. Leasing has picked up. Let's keep in mind that we're starting at a much higher lease rate than the U.S. average. So it's not that our leasing is poor. It's other folks have been at really low leasing percentages. And we've got, and I'm trying to find it here, a percentage of where U.S. office leasing was. And it's supposed to be somewhere for me to be able to look at, but I think someone will pull it up for me here in just a second. I've got a slide that shows kind of an average of U.S. office REITs that we've looked at. And we're significantly above those guys. So we're starting from a different place. So the fact that we've got some concerns and things like that -- so they just pulled it up for me. So the U.S. REITs that we average, which isn't every U.S. office REIT, but it's all the ones that are comparable to us as well as a lot of the big boys like SL Green and stuff like that, are averaging about 84% of occupancy. So the strengthening that we're seeing in the U.S. is going to help lift them up towards us. We're going to have a temporary drop here, but we won't have all of that vacant at the end of the year. So we'll still -- in my mind, I would expect to be above where we find these U.S. REITs and we'll certainly still be outperforming our Singapore competitors, who are in very different places than we are. But it's just -- it has been a slow quarter for us. So we've been beating the U.S. average leasing, I mean, quarter after quarter after quarter after quarter because our markets are strong and our buildings are really strong as well. All we're seeing right now is a little bit of a slowdown. In terms of some of our leasing, we've got some folks that are just taking longer to sign leases. I've got some leases that are sitting out for a signature that have been sitting out for a signature for several months. And they tell us that leases are coming, but -- and we know they can't leave the space. And in the case of 1 tenant, they don't have a choice, but they still haven't signed. So some of that slowness is just a little bit of people concerned about what's going on with tariffs and everything else. And then people just want to feel safe and confident before they sign what's a long-term commitment for them. But we do expect second half to be stronger. We've got a couple of pretty decent prospects for a couple of chunks of space that if we can sign those would be certainly helping us get back up towards the higher end of the range in the 80s. But if you figure we're somewhere between 85% and 88% at the end of the year, which I'm -- I'm pretty sure that's the same range I gave last quarter. I know we've said it wouldn't be anything -- couldn't be above 88% just due to the number of vacates that are going to happen in the fourth quarter. I think that gives you the range that we're looking at. And we do feel pretty good about being within that range. And the hope is really to be somewhere in the mid- to the high end of that range.

Got it. One last question. I think in terms of return to office trends, maybe can you give some guidance about the physical occupancy in your portfolio? And the rent seems to have turned a corner. Is this sustainable?

I think the rent is definitely sustainable for us. I really don't see rents declining at this point from where they are. That doesn't mean that we wouldn't have negative rental reversions continuing in certain buildings where the market rents have remained flat where we've had growth in our leasing -- our leases, rather. So they've had the built-in growth that's taken them above that. But in terms of the actual market rent decline, I don't think we have a market where there is much potential of future decline, obviously, unless there's a downturn or something bad that happens. So rent is definitely moving in the right direction. We've had some real positives even like Plaza Building. We've hit rent levels on some of the spec suites that are numbers that we probably didn't think we were going to see for a couple more years, just given that it's been quite slow and rough. So we're doing quite well on the rental front. In terms of physical occupancy, our portfolio is about 77% right now. So if you figure 90% occupied and deduct out people that are traveling for work, that are on vacation, that are out sick, that have meetings, the whole list of reasons why people aren't in the office on a given day, that takes you down to about this level. So I mean I think we feel really good about where we're at physically. And I think the statistic that I gave earlier in the presentation itself, which I'm going to try to dig up here, but may take me one -- oh, I think I know where the page is, just a matter of my fingers getting there. 72% is -- of the pre-pandemic average is the office traffic based on cell phone data. That's for the U.S. So I think that's a really, really positive number. That is showing you that all these businesses and government agencies that have told people to be back in the office have gotten what they've asked for. And that's dramatically better than where we were in 2022, which was 52%. It's 5% higher than the end of 2024. So that's a lot of really good movement, especially when you're already that high. And again, you take those other factors I talked about for reasons why people aren't in the office, you're getting to something that's in the high 80s percent of occupancy to get to a 72% physical occupancy. We feel pretty good about all of that.

Thanks, Vijay. John, you're up next.

So my first question relates to outlook for the office market. Are you feeling more confident that recovery will strengthen in the second half? And what are some of the positive catalysts that you are seeing for the office market?

So I think we're feeling pretty good about second half. I mean I think office recovery is just going to continue. So I mean as we look through the end of '25 into '26, I think we expect to see good leasing momentum, not just for us but across the U.S., which is good for us since unfortunately, regardless of the fact that we've been beating every U.S. average you can think of, including U.S. office REITs for forever, we still trade poorly because nobody gives us any credit for it. Once they start to see the rest of the U.S., maybe we'll start to get some of the credit that we have deserved for all these years. We've been way above everybody else that you can think of in terms of occupancy and performance. So I think that's looking good. Some of the things that we see are articles that we're seeing and people we're talking to, where we're seeing a lot more expansion going on in the U.S. A lot of businesses saying, we see growth in the future. And that's even with all that crazy that's been going on with tariff talks and everything else. We've seen that move to a very large percentage of U.S. businesses saying they expect to see growth. We've seen significant growth just this quarter with 5 expansions, within the portfolio, one of those folks telling us they may take just as much space again. So that's definitely moving in the right direction. And we're seeing it across the U.S. We're seeing it in the portfolio. We found out another large tenant of ours is going to be touring some other space that we're going to have. We've got a significant vacate of a big piece of a portfolio that will be coming in 2026. And they've been -- a potential tenant touring one of our existing tenants in another building is going to be touring that space this week, I think. And so we're really -- and it's a big space. So that's the med space at Westpark. And we've got 2 folks that have already expressed some interest in that. It's a big space that they conceivably in both cases, we take all of it. We don't know if we're going to get it all back. But that's pretty positive. We're seeing that elsewhere. We're seeing a few other tenants telling us they're looking to expand. We're seeing tenants coming to us and talking about early renewals and extensions. The reason -- there's only 2 reasons why a tenant would do that. Number one, they need space immediately, and they want an expansion and extension or number two, they see the market strengthening, and they want to try to lock in today's lease rates rather than wait until their lease expires in maybe 3 years. And they know lease rates are going to be worse, so they want to try to negotiate something now. And so we're seeing that -- we got one of our significant tenants that's pushing us on that front as well right now. So it's an interesting time. Things are definitely across the board feeling better and stronger than they have.

Some of these potential expansion that you are looking at, which industry sector are they from?

That's primarily tech where we're hearing it in terms of expansion. That's where a lot of that would come from and that's not surprising to me. But we did have a couple this last quarter that were professional services and others that were doing some expansions as well. So we'll see as we go through. But I expect to see it sort of in general. It's going to be -- it's not industry specific, there's companies that are doing well driving this. And so I think we'll see it kind of across the board with various different types of companies, expanding with tech leading the way, though.

Sorry, earlier, you mentioned nonvacate -- square footage for nonvacate. I missed the number.

I don't think I gave the actual number because off the top of my head, I probably don't know the actual number. But it's the meta space. So I mean it's top 10. I'm just trying to find our top 10 so I can -- earlier, the known vacates is what you're asking, not that one. Yes. So known vacates total was 170,000-ish, call it, 170,000-ish square feet.

Yes. And last question, could you share, let's say, if you were to get a new U.S. dollar loan, what would be the interest rate now? And then if you could guide us on average cost of debt, say, by end of the year, where do you see that trending?

I just appreciate you asking Ai another question. That's fantastic.

Yes, John. So for 5-year loan, the pricing currently is about 200 to 250 bps. For a 3-year loan, it's about 118 to about 220 bps for a new loan. In terms of where our interest rate will be as at year-end, it will come range about 4.8%. But do bear in mind that we do have IRS debt of about $100 million that we'll be rolling off in 3Q this year. That's why there will be an increase in [indiscernible].

Thanks, John. We have a question from the public webcast. How do you see the big beautiful billing rental demand in the city's KORE is [indiscernible]?

I don't think the big beautiful bill -- just one way of looking at it is given -- I don't think there's much in there that's going to have any particular impact. The biggest piece of that bill is sort of stabilizing personal income tax rates and a little bit to the business tax. So it just gives, I guess, people and businesses a little bit of comfort that tax rates aren't going to change. But tax rates aren't going to impact our markets any more than anybody else's market. That's sort of a nationwide impact. So I don't really think there's anything that we're going to see from that, that's going to do much to increase, decrease demand anywhere, more specifically within our markets.

Thanks, Dave. Next question is, what is the progress on the recapitalization plan, noting that first half 2025 leverage is at 43.7% compared to second half 2023 at 43.2%?

Well, the leverage level really doesn't have much to do with the recapitalization plan. So those percentages just are what they are. Recapitalization plan is making sure that we reinvest in the portfolio so that we build out spaces, maintain occupancies and maintain operating cash flow, if you will, income, that sort of thing. So we've been doing well on that front. In terms of leasing, I mean, we're still head and shoulders above U.S. averages, much farther than that above our peers or competitors here in Singapore depending on how you want to look at them. So that's been going well. And in terms of getting to a point where all of the refinancing is done, we're progressing -- Ai already addressed the fact that we're in discussions on all of the 2025 and 2026 maturities. With those various lenders, we hope to have at least some good news on that front in the third quarter. And that leverage is going to fluctuate -- if you think about it, when you refinance one loan with another, your leverage doesn't change. So nothing we're doing on that aspect is going to change leverage. What could potentially change leverage is if we're able to get the leasing up, get it really strong. If that's the case and we've got strong future income, valuations could potentially improve at the end of the year, which would decrease that leverage ratio. If interest rates were to come down and cap rates were to come down, that would also increase valuations, which could help decrease that leverage ratio. I don't know that either 1 of those 2 things is going to happen. I'm feeling a lot less optimistic about rate cuts today than I was maybe 6 or 9 months ago, given that we're seeing a whole bunch of 15% tariff rates being set with most of the industrialized world. That is going to drive some inflation. So I don't think the Fed has any reason to cut rates. And I'm not sure that the Fed cutting rates is going to actually change the long end of the curve anyway. So I think from that perspective, not a lot of hope. From the perspective of leasing, if we've got a strong second half like we expect, I do think there's the chance at this point that we could see improvements in valuations at the end of the year. I think declines are a lot less likely. They could certainly happen. We're not the individual appraisers, and we're going to have a whole like 13 different individuals that are out there setting cap and discount rates. And some of them may be more pessimistic, some may be more optimistic. We'll see where valuations come in. I think we'll feel a little closer to that in the third quarter. But I think our expectation at the moment is that they remain relatively flat, which would mean year-end leverage would remain relatively flat to today as well.

Thanks, Dave. Just checking in the analysts on the call if there are any further questions. We have one question on public webcast. Are you refinancing leverage to Fed funds rate on the 10-year UST. If Fed cuts and yield curve steepens, would that be negative?

So I think the question being asked is what rate are we tied to and then if the Fed cuts rates, is that going to have any effect. Is that essentially what they're asking? Well, Ai go ahead and answer that.

Yes. So if the Fed cuts rate, our rates are actually tied to SOFR. So if the rates do cut with cut rates, we will see a cut in our rate as well.

Any further questions from the analysts? Okay. Then I think we are good. We have come to the end of the session. I believe we've answered most of the questions, including the ones on the public webcast. If we have not managed to address your questions during this session, please feel free to get in touch with us. Thank you for joining us, and have a good day.

Thanks very much, everybody. We appreciate your time.