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

Good morning, everyone, and thank you for joining Keppel Pacific Oak US REIT Full Year 2025 Financial Results Webcast. My name is Sheryl, and I represent Investor Relations for KORE. Joining me today are our Chief Executive Officer, Mr. David Snyder; and our Chief Financial Officer, Ms. Ai See. Before we begin, let me run through some housekeeping matters. For analysts joining us via Microsoft Teams -- today's session will begin with a summary of key highlights, followed by an overview of our financial performance, portfolio updates and market outlook. We will then open the floor for Q&A. Without further ado, I will now hand the time over to our CEO, Dave.

Good morning, and thanks again for joining us today. Before I begin today's full year results presentation, I would like to briefly address a couple of other announcements we released this morning relating to our name change and recent developments relating to our U.S. asset manager and a substantial unitholder. As you may have read from the announcements, Pacific Oak Capital Advisors, or POCA, KORE's outsourced U.S. asset manager, has had its advisory services terminated by Pacific Oak Strategic Opportunity REIT or STRATOP, with effect from January 31, 2026. As outlined in the announcement, we have been evaluating options for some time and are already in late-stage negotiations with a third-party U.S. asset manager to enter into a new asset management outsourcing arrangement. We expect a seamless handover of the asset management function during this transition as the current asset management team headed by Jeff Raider, our Head of Asset Management, continues to oversee the assets now and is expected to move to the new asset manager once the agreement is finalized. We also highlighted in the announcement that STRATOP holds a 6.14% stake in KORE and has disclosed its intention to pursue a plan of liquidation. As of today, the manager is not aware of any sale of KORE units by STRATOP. STRATOP has reached out to us, and we have put them in touch with the financial institution for further discussions regarding any potential sale of their units, including potentially via block trades or other structured transactions. Any sale that crosses the relevant substantial unitholding thresholds would require the appropriate disclosures. I would like to reiterate and reassure all unitholders that the management remains totally focused on strengthening operations, leasing space and improving cash flow, supported by our diversified portfolio in key U.S. growth markets and our disciplined capital management approach. Our commitment to delivering sustainable value to our unitholders remains unchanged, and we expect to continue to have the same people and tools available to us to assist us with achieving our goals. In addition, you will have seen that we are changing our name to CRE U.S. REIT to better reflect our operations going forward. The new name also marks a refreshed chapter for us as we emerge from a challenging period and conclude our recapitalization plan with the early resumption of distributions. Now that I've addressed this morning's announcement, let's move to Slide 2 for an overview of our 2025 performance and some key highlights of the U.S. office market. We are pleased to update that following our latest refinancing exercise, we have fully addressed all 2025 and 2026 term loan maturities. With these refinancings addressed, the Board has recommended a distribution per unit of USD 0.025 for the second half of 2025. This marks the completion of our recapitalization ahead of the initial distribution resumption timeline, which was the first half of 2026 that was set when the plan was implemented in February of 2024. This decision was reached after carefully considering the REIT's cash flow position, capital commitments and liquidity needs. While modest, this early resumption reflects our confidence in the underlying fundamentals of the portfolio and marks a meaningful step towards rebuilding long-term distribution stability. We have begun with a conservative payout ratio with the aim of increasing it to a much higher but sustainable level, aligned with long-term portfolio performance over time. Our portfolio valuation remained stable at USD 1.3 billion compared to a year ago as expected. Turning to leasing. Portfolio occupancy stands at 87.2%, supported by robust leasing activity with approximately 622,000 square feet of leases signed during the year, which represents about 13% of our net lettable area. Full year rental reversion was a positive 6.8%. I will cover leasing trends and demand drivers we're seeing later in the presentation. In the broader U.S. office market, recovery momentum continues to build, and I will touch on the market outlook in a subsequent section as well. Slide 3 highlights how KORE has maintained consistent operational performance over time, including throughout the COVID-19 pandemic and the structural shifts in the U.S. office market. Occupancy has remained consistently high and continues to outperform both the broader U.S. market, key gateway cities as well as our SGX-listed U.S. office peer group. This is underpinned by sustained robust leasing activity. Over the past 5 years, we have averaged approximately 678,000 square feet of leases annually, reflecting sustained tenant demand for our well-amenitized properties and the proactive efforts of our leasing and asset management teams. Notably, adjusted NPI today is higher than it was pre-COVID and has remained stable even as the U.S. office market continues to undergo structural shifts. KORE's consistent performance is a testament to our focus on developing and maintaining properties that provide the amenities, space and services that tenants desire in our markets that continuously outperform the broader U.S. market. Our disciplined operations and prudent financial management, all of which have enabled us to navigate both short-term disruptions and longer-term market shifts. Moving on to Slide 4. Despite market volatility and ongoing structural changes in the U.S. office sector, KORE's portfolio valuation has remained resilient. While there have been adjustments in cap rates and asset values across the market, our proactive asset management and strong leasing performance have helped mitigate the impact. Assets that generally saw declines in their valuations were Plaza Buildings, Westmoor Center, 105 Edgeview and Maitland Promenade 1 and 2. Of these, all but Maitland were expected based on occupancy. This was offset by the increases from 125, Bellaire Park and Westech 360. Overall, portfolio valuation remained stable year-on-year at USD 1.33 billion. After accounting for the capital expenditures and tenant improvements incurred during the 2025 year, a fair value loss of USD 40.5 million was recorded. With that, I will now hand it over to Ai See to elaborate on KORE's financial performance and capital management.

Thank you, Dave. Slide 6 is a summary of KORE's financial performance for the second half of 2025 and full year 2021. Net property income of $80.7 million for financial year 2025 was higher than 2024 by 3% -- excluding the noncash adjustments such as amortization of straight-line rent, lease incentives and amortization of leasing commission, which have no impact on the income available for distribution. Adjusted net property income was 0.3% higher year-on-year at $83.7 million. This was mainly due to higher other operating income, recoveries income and reduction in property taxes, partially offset by the lower cash rental income from higher free rents due to timing differences in leases completed for the respective period. Finance and other trust expenses of $33 million for 2025 was higher than 2024 by 6%, mainly attributable to the expiration of interest rate swaps in 2025. higher professional fees and accrued withholding tax resulting from the suspension of distribution, partially offset by the impact of lower floating interest rates during the year. Income available for distribution for 2025 was $43 million. On the back of our successful yearly refinancing efforts, the manager is pleased to declare a distribution of $0.25 per unit. Slide 7 is a snapshot of our balance sheet. As at end December 2025, total assets remained stable at approximately $1.39 billion. NAV also held steady at USD 0.68 per unit. Moving on to Slide 8, which outlines our debt-related metrics as at 31st December 2025. Aggregate leverage stood at 44.1% and all-in average cost of debt was 4.66% per annum or 4.53% per annum, excluding the amortization of the upfront debt financing costs. Our interest coverage ratio remained healthy at 2.5x and both sensitivity scenario shows the ICR staying above the regulatory requirements of 1.5x. The weighted average term to maturity of cost debt stands at 1.5 years and 64.4% of our loans were hedged. A 50 bps increase in SOFR translates to approximately $1.22 million increase in income available for distribution per annum. Slide 9 provides an update on our refinancing efforts. KORE addressed all 2025 and 2026 term loan maturities following execution of term loan facilities of $115 million and $37.5 million in December and January, respectively. The chart on the bottom left reflects the updated debt maturity profile post refinancing. Assuming the loan was refinanced as at 31st December 2025, KORE's weighted average term to maturity would be 2.1 years. We continue to engage with prospective lenders to commence early refinancing of loans maturing in 2027. Slide 10 provides an overview of our distribution details. Unitholders can expect to receive their distribution on 30th March. We would like to remind non-U.S. unitholders to ensure that the W form is valid and up to the date to avoid the 30% U.S. withholding tax on distributions. We would like to also thank our unitholders for their patience and continued support as we work to strengthen KORE's capital position during the recapitalization period. I will now pass the time back to Dave to provide updates on KORE's operational performance.

Thank you, Ai. Moving on to Slide 12. In the fourth quarter of 2025, we continue to see healthy leasing momentum across the portfolio. New and expansion leases made up 59% of space signed in the fourth quarter. The majority of demand was largely driven by tenants from both the professional and the medical and health care sectors. Rental reversion for the full year was 6.8%, largely driven by a government lease renewal at 125 in Dallas in the third quarter of 2025. Meanwhile, rental reversion for the fourth quarter was negative 0.6%, mainly due to a new lease also at 125 that immediately replaced an expiring tenant. However, the new lease was without any tenant improvements or free rent, which actually make it a very good lease from an overall economic perspective. KORE's built-in average annual rental escalation of 2.6% continues to provide a steady base for organic growth. In 2026, we have 14% of NLA expiring. Of this space, known vacates make up about 4.1% of portfolio NLA with the largest space at 124,000 square feet or 2.6% of portfolio NLA coming back from Meta at West Park as has been previously announced. We're actively working on backfilling these spaces and investors can take comfort from our historical leasing track record. We remain confident of ending the year with occupancy in the mid-80s or higher. Fiscal 2025 saw a substantial amount of known vacates amounting to around 311,000 square feet or 6.5% of the portfolio, including several large blocks. Despite this, the team remained focused and proactive in driving leasing activity, and we will continue building on this momentum. I will now walk you through key occupancy movements across our assets for the quarter. At the Plaza buildings, known vacate returned approximately 43,000 square feet and asset enhancement and repositioning works for the building are underway. At Great Hill Plaza, we had a known vacate of approximately 23,000 square feet, of which 13,000 square feet has already been backfilled. Westmoor Center, an existing aerospace tenant expanded by approximately 24,000 square feet reflecting sustain sector-driven demand in Denver, a major U.S. hub for aerospace innovation and talent. Other key occupancy movements included an own vacant by a tenant of approximately 14,000 square feet of Makel,ile at Iron Point, we secured 2 tenants who collectively took up about 22,000 square feet of space. Slide 14 highlights how active we are on the asset enhancement front to support leasing occupancy. Completed works for the year included a spec suite floor with shared amenity space at the Greenhouse at 19,000 of the Plaza buildings and lobbygradeller Park and at Building 5 at Westmoor Cer.ddal amenities introduced for onsite coffee and pastry bar at a newly constructed tenant Lounge West Park, Pickleball court at the Plaza buildings a new cafe operator at Westmoor Center and an expanded cafe area at Maitland Promenade 1 and 2. In addition, several enhancement project are underway. First floor renovation and building of a full floor spec suite at 1000 of the Plaza buildings, the refresh of the outdoor spaces at Great Hills Plaza, Westech 360 and Iron Point as well as upgrading of tenant amenity spaces at Westech 360 and Bridge Cross. These initiat underscore KORE's continued focus on maintaining high-quality, well-amenitized assets that attract and retain tenants. A key part of our active leasing strategy is our spec suite program. These move in renting spaces give tenants 2 major benefits, speed and a clear modern workplace vision. For us, they lease faster, require less rent free time and most importantly, lower our long-term capital requirements. Most spec suites are under 7,500 square feet, but in many cases, they can be combined to meet larger tenant needs. We've already delivered full floor spec suites at Iron Point, 1800 West Loop and the 10900 building at the Plaza buildings and are now building out the post at the 10 800 building at the Plaza buildings as well. Individual spec suites in appropriate sizes will continue to be planned and built at selected properties where we anticipate demand, ensuring we stay ahead of tenant requirements. On Slide 16, we illustrate how our active enhancement and spec suite strategy plays out in practice with a case study of 1100 Point. After a long-term tenant vacated at full building in mid-2023, we launched an asset enhancement and spec suite program to reposition the property. We identified suites under 3,000 square feet as the optimal size for smaller tenants seeking flexibility and collaborative requirements. The project was completed at the end of 2024. As part of the upgrade, we introduced 25% more open spaces and refreshed amenities, including multi-room conference areas, cardium training studios and self-service snacking and convenience spaces, all designed to support modern workplace needs. To date, we successfully leased all of the spec suites built, clear evidence of strong demand for moving right spaces. Occupancy at Iron Point has also increased meaningfully, rising from 68.9% at the end of '24 and as low as 54.4% in 2025 after a vacate to 80.4% today. KORE's portfolio remains well diversified across geographies and industries. A majority of our portfolio by MDI is in growing tech hubs such as Bellevue, Redmond and Austin as well as Denver, which is a major beneficiary of the expanding aerospace and advanced technologies ecosystem. We have a well-diversifi tenant base across the TAMI as well as the medical and health care sectors, which helps to underpin income stability. The table on Slide 18 shows our top 10 tenants. The Meta vacating space in the first quarter of 2026 is no longer included in our top 10 tenant list. U.S. Homeland Security has emerged as a new top 10 tenant following taking additional space at 125 in the fourth quarter. No single tenant accounts for more than 4% of KORE's cash rental income, underscoring our low tenant concentration risk. Collectively, KORE's top 10 tenants contribute only approximately 29% of total cash rental income. Let's take a look at what's happening in the U.S. office market on Slide 20. Despite some recent news layoffs by some large companies like Amazon, we're seeing early but clear signs that the U.S. office market is moving into the start of an expansionary cycle. Leasing activity continued to improve in the fourth quarter, reaching post-pandemic highs with full year volumes up more than 5%. Demand is increasingly concentrated in newer well-sized buildings where tenants are consolidating and upgraded. The market saw 2 consecutive quarters of positive net absorption with fourth quarter demand coming in strong. At the same time, overall inventory continues to contract. Base current construction is more than 20% below the 2011 historic low, marking the tightest pipeline we've seen in over 3 decades. Ongoing demolitions and convergence mean the market remains in a net negative supply position. This trend is expected to persist beyond 2026 as redevelopment activity continues to outpace construction. These supply-demand dynamics are translating into gradually improving vacancy rates and healthier net absorption trends, reinforcing our optimism for sustained recovery as we head into 2026. We're seeing similar stabilization on the capital market side as well. Transaction activity has strengthened for several quarters and major refinancings of stabilized assets are being completed again, a clear signal of improving lender and investor confidence. Slide 21 shows the structural shifts we're seeing in the U.S. office market. These trends are directly influencing where demand is going and more importantly, they align very well with KORE's portfolio positioning. First, office attendance is improving. Employees are coming back more consistently, and companies are becoming far more intentional and firmer about enforcing return to office policies. 97% of Fortune 100 employees are now subject to hybrid full-time office mandates averaging around 4 days per week in the office. Amazon isn't alone in using batch-wpe data to monitor attendance. Samsung is being created a manager-facing dashboard that shows employees days in time in building. And hybrid teams onsite presence will detract and may influence performance reviews and compensation. Financial institutions are taking equally strong steps. Bank of America issued warning notices to staff for noncompliance. At JPMorgan, employees have shared that senior leaders can view an internal dashboard showing the percentage of eligible days each person spends in their office. Second, the quality continues. Companies are prioritizing amenity rich and well-located buildings that meaningfully improve employee experience, places where teams actually want to show up. This is where leasing activity has been strongest and where KORE's assets already have a competitive edge. Third, lifestyle markets continue to outperform. A recent JLL report highlighted the growing outperformance of office assets in lifestyle markets. These locations continue to benefit from demand for well-located amenity-rich workplaces in more affordable and high quality of life environments. This trend reaffirms KORE's early strategic focus on growth markets with vibrant lifestyle appeal. These submarkets have consistently outperformed the U.S. average in traditional gateway cities, positioning our portfolio for long-term resilience and growth. Building on the flight to quality trend we discussed earlier, Slide 22 shows the resilience of highly amenitized offices since 2020. By updating outdoor spaces, enhancing food and beverage options, creating shared spaces and adding experiential programming, landlords can capture the growing demand for lifestyle office. At KORE, we've continued to be ahead of this trend. Our highly amenitized, well-located assets continue to command premium rents, strong leasing demand and investor interest. Moving ready space is another advantage. Today, 85% of our properties feature tenant lounges, conference rooms and fitness centers. 77% offer food and beverage options, of which 39% are with full val or foodservice and 38% with substantial grab-and-go markets. And 62% of our portfolio includes outdoor spaces that enhance the tenant experience. Just this year, we introduced a new cafe provider at Westmoor and redoing the food and beverage options as well as building a sports court at Bridge Crossing. At 10800, the Plaza buildings as part of the repositioning of the lobby, we are introducing golf simulator. Our amenity-rich assets position us to capture strong demand and sustain strong rents in this evolving market. The past 5 years have shown that traditional office models and sale CBDs are not working. Today's workforce values experience and outcomes. They want quality, amenities and vibrant locations. This has fueled the rise of lifestyle office markets, which are mixed-use regions with moderate density, strong transit, diverse property types and walkability. Slide 23 shows what is driving the trend behind these lifestyle markets. First is demographic momentum. pandemic-driven migration from CBDs to affordable high-quality areas creating demand. As rates rose, renters to lifestyle markets and developers follow with multifamily housing attracting both residents and employers. Second is post-pandemic vibrancy.tendant rebounded faster in these markets, which offer live workplay ecosystems. Workplace flexibility also means employees and employers want convenience and amenities, which boost leasing performance. Third is crime perception. Inemicd crime spikes and widespread retail closures, density and safety of many urban cores. Even as crime normalizes, safety concerns linger pushing demand towards secure vibrant locations. Now let's talk about these lifestyle market trends align with KORE strategy. This has actually been our strategy and our message for many years. Our portfolio is concentrated in 18-hour cities and other lifestyle markets that offer vibrant entertainment, outdoor recreation, great food and beverage options and a strong sense of community. These cities provide lower living costs and favorable tax environments compared to traditional gateways like Los Angeles, San Francisco, New York or Chicago. We're also supported by strong talent pool, thanks to proximity to top universities, a hallmark nearly all of our markets. Our footprint with cities like Austin, Nashville, Dallas, Bellevue/Redmond, Houston and Denver sits squarely on the lifestyle map. These markets comb dynamic economies with cultural vibrancy and live work play ecosystems, which tenants increasingly value. Orlando adds unique draws like Disney Universal Lights and Beaches reinforcing its appeal. Sacramento, which is state capital of California benefits from a strong talent pool which is attracted to lower cost of housing as compared to the Bay Area, along with close proximity to mountains parks and o beautiful outdoor spaces. For unique market positioning is given us a competitive edge. These markets benefit from demographic momentum post-pandemic vibrancy and perceptions of safety, all driving office demand today. They combine affordability, strong job growth and quality of life, all critical for companies navigating hybrid work and talent retention. Slide 25 highlights estimates by JLL where various markets are in the property class cycle. KORE markets are predominantly in the early stages of the rising phase of the U.S. office market. Denver is the only location of ours that still has some room to fall, and that may not reflect some of the positives in our submarket in the Northwest, which might play closer to the bottom. Overall, this position is good news as it signals strong future growth opportunities for our portfolio. Slide 26 outlines the key drivers that continue to support leasing demand across KORE's markets. First, sustained demand for technology and AI companies continues to be a major engine of growth. Bellevue and Redmond remain 2 of the strongest tech hubs supported by robust leasing activity from major bankers, including Microsoft and Amazon. We're also seeing continued expansion from major tech players such as OpenAI, TikTok, Robinhood, Snowflake, Zoom and Meta. Next, we're seeing renewed momentum in biotech, supported by AI-enabled innovations and improving capital markets activity. Denver Boulder corridor ranks one of the top 20 global clusters for life sciences R&D and remains one of the fastest-growing U.S. life science hubs. This strengthens long-term demand for flexible innovation-oriented space in the region. Denver is also a major beneficiary of increased federal spending for the defense sector. Region is the top-tier aerospace other ranked #1 nationally in aerospace deployment per capita. Mastro a tenant at Westmoor Center has tripled their space with us this year. Fourth, push forward AI and nuclear energy to power AI growth is growing additional ecosystem activity across key Texas markets. Austin, in particular, is projected to become the largest U.S. data center market by 2028, supporting broader demand for R&D office and innovation-related space. Our tenant Terra Power has entered into an agreement with Meta to partner in the development of power supporting data centers. Finally, strong health care and medical office ecosystems continue to support leasing in a couple of our markets. Houston is one of the world's largest medical center, Nashville's national health care industry with more than 900 health care companies. These deeply entrenched health care ecosystems provide long-term stability and structural demand for medical and back-office support functions. Our priorities remain unchanged. We continue to focus on portfolio optimization and asset enhancement initiatives to maintain high occupancy and rent rates. We'll continue spec suite conversions and targeted upgrades to enhance leasing appeal and futureproof assets. When opportunities arise in the future, we'll redeploy capital from noncore investments into debt reduction and higher-growth assets while pursuing value-accretive investments in markets with strong fundamentals. All these initiatives are supported by prudent capital management, proactive refinancing, balance sheet discipline and effective hedging to mitigate interest rates volatility. In closing, I would like to reiterate what makes KORE stand out against its peers. We're strategically focused on key U.S. growth markets in cities that combine livability, affordability and access to skilled talent. These are very markets benefiting from labor migration and corporate relocations, which continue to fuel leasing demand. Our portfolio fundamentals remain robust. Occupancy has consistently stayed well above 85% since our IPO listing days, outperforming the national average in gateway cities and significantly outperforming our competitors. We're anchored by exposure to fast-growing sectors like TAMI and medical and health care, which has resilience to our income streams. Operationally, we've maintained discipline. Strategic investments and upgrades and spec with proactive leasing and maintain healthy cash flows and help preserve capital values. We are confident that the U.S. office market gradually recovers, KORE is well positioned to ride the after. Our future-ready portfolio is aligned with structural shifts in tenant. We remain committed to delivering sustainable distributions and resumption this quarter is a good start. And that wraps up the presentation.

[Operator Instructions] Jonathan, you want to ask your question?

I appreciate the resumption of distribution. Our first question relates to U.S. Homeland Security. Could you share the space contracted and then the WALE? And then is there any rental escalation? Secondly, could you share with us your -- what's your expectation on portfolio occupancy by end 2026? And where do you see improvement coming from?

All right. Thanks, Jonathan. U.S. Homeland Security took space at 125 in Dallas. They took a full floor. They're already in the building. This is a different division within Homeland Security. So it makes things a little interesting sort of trying to figure out how to talk about it because we have Homeland security, but it's completely different divisions. In this case, it's a typical government lease. It does not really have escalations. It's got a 5-year term, I believe. And at that point, we would do some renegotiation. But from a government perspective, that's a very short term. Our other government leases tend to be longer and they tend to have an escalation clause in them that happens towards the middle. In this case, it's quite short. I'm not sure that it actually does. In terms of occupancy for the end of 2026, we expect to be in the midrange of the 80%. So that will be 85-plus percent. We would hope to be somewhere close to where we are today. We've talked a bit about already some of the known vacates that we're going to have within the portfolio, and that's going to have an impact. As we look into 2026, known vacates as a percentage of the portfolio or a percentage of that 14% that's rolling about pretty close to 4.5% at this point. And that is -- the biggest piece is going to be Meta, which is rolling in the first quarter. So we've got a fairly significant hit occupancy in Q1. We expect to grow through that into Q2 and later on into the year and hopefully get back to somewhere approximating where we are today. But that would require quite a bit of leasing given the substantial known vacates, but we are seeing good momentum. So somewhere in that 86% or above would be the target, certainly above 85%. We're very early in the year. So we'll be able to get more specific as we move through the year and have more information and data to base those projections on.

We now move on to Vijay.

I'll just go ahead. First question is on the sponsor liquidation. Maybe can you walk us through what impact do you expect on this liquidation from a KORE perspective, especially in terms of asset management since the manager has been with you for quite some time. How will the change in asset manager impact the portfolio, plus also on the borrowing funds, all the loans would need redemption? And also if you employ new asset manager, would the cost be similar, especially considering the cost inflation in the U.S.

Okay. Let's see if we can try to address all of that. You got quite a few things there, Vijay, but they all tie together. So maybe we'll start with the first couple of things. One, there is no change in our sponsorship. We continue to have the same 2 sponsors that we have had all along, which would be Keppel and KPA. What we're seeing here is a change in asset management that we're expecting to see happen. So none of the loans have any provisions that would be triggered by this because the sponsorship has not changed. But in further answer to that question, as long as Keppel remains part of the sponsorship, there would be no trigger of any of the conditions in any of our loans. So just to be clear, there's nothing changing in sponsorship, even if there were, it wouldn't cause any defaults under any of the loan agreements that are in place. In terms of what's going on, the issues that have gone on have been related to Pacific Oak, which is our outsourced asset manager, which is a related company to KPA controlled by the same folks. They manage for 2 different REITs, one us, the other Pacific Oak Strategic Opportunity R, I believe was the full name. And they are no longer managing for that REIT as of January 31. So that's all that's happened there. And we know what we know via the same filings others REIT, and that's where we pulled the data from. In terms of us and our outsourcing of asset management, -- as of today, we continue to be outsourcing asset management to Pacifico Capital Advisors or HOKA as we talked about at the call. We have our asset management team headed by Jeff Raider and some other individuals there that handle all of our asset management. Everything continues as status quo at the moment. We have -- because we were aware some of this might be coming for Pacifico, we've been in discussions for some time with a third-party asset management group in the event we thought it prudent or necessary to make a move. And we're now to the point where we do believe that will be the case. So we've been discussing with that group as part of the negotiations and discussions for them to take the entire asset management team as well as some of the critical accounting personnel on board so that we could have a seamless transition and a seamless move forward on our asset management and accounting front, quite frankly, both are important asset management, obviously drives the bottom line more, but we want to make sure we can continue to report those other obligations as well. So at this point, at this stage of where we are, the anticipation is we will sign an agreement with a new asset manager at some point in the not-too-distant future here that we would transition. That transition would include the transition of all of our asset management and some accounting personnel, so we could hit the ground running without missing a beat. So we don't expect any impact on asset management, accounting reporting or anything else as we move forward. And we expect there will be a smooth transition as part of that once we get to the point where we're ready to sign agreements after we finish the diligence and work through some of the rest of the process of details.

Got it. Just one clarification. The sponsor remains the same in the 6%, which is currently available in the market, is it done by the asset manager? I mean is asset...

No, that's a great question. I'm glad you asked it. I addressed it earlier, but I'm sure that it is not clear to many folks out there. So the sponsor, KPA had -- is the sponsor and 50% owner of the REIT manager. The units that were held by the sponsor were held via Pacific Oak Strategic Opportunity REIT. So that the REIT itself is the one that owns those units that are the 6.14% stake. That REIT in the same filing that made the announcement about terminating their asset management with HOKA made an announcement that they were going to be liquidating their portfolio. So that REIT, we expect, will be selling a substantial portion, if not all, of those units. We don't have visibility into any of that as we're not part of that REIT, nor does anybody involved with our REIT have any visibility anymore into what Strategic Opportunity REIT is doing since HOKA is no longer the asset manager for it. So they will do what they will do with those units, but we do anticipate a sale. We do hope that they'll find some ways to do some block trades and some other things as they do that to find an orderly way to sell the units that they anticipate selling.

Okay. Got it. Just one more question. Thank you for the assumption of dividends in the second half. Looking ahead in terms of 2026, 2027, how should we look at dividend payout?

Well, I think the easiest way to describe it would be a steady increase over time to get to a sustainable level. I think we've talked in the past that we'd like to get to something approximating around 80% over time. That's going to take several years. It's going to grow steadily. But we're still in a time frame where there's still -- we'd like to see some future improvement in markets in the U.S., certainly transaction markets, refinancing markets and the rest. So we're going to be careful and cautious as we move forward, but we would expect to see a substantial increase on year-over-year growth as we move out in the future.

Next we Derek to ask this question.

I just wanted to ask a couple of questions. So back to Nij's questions around Pacific right. So should we think that the sponsor would not look to sell manager, right? That's not something that we should be looking at.

That is not something that I have had discussions with the sponsor about. So I can't comment on what the sponsor may or may not choose to do at this point. I don't believe -- to my knowledge, they're not in discussions right now about doing that. So that's about the best I can comment. I don't have a lot of information. But currently, there are no agreements or anything in place related to them changing the sponsorship.

Got it. Got it. So just to get this clear and out of the way, essentially the reason behind you changing the asset manager was because of nonperformance or was because the fund is liquidating. What's the real reason behind it...

Yes. So the reason is essentially what we announced, which is we've known for a while there were some issues with strategic opportunity REIT and that, that could have some negative impacts for Pacific Oak. That has come to fruition with them being terminated as the manager. That causes a significant reduction in the income from that entity, which primarily really had 2 drivers, strategic opportunity REIT and KORE. And so in terms of the health of the organization, they have some of their people over time, and we just have some concerns about their ability to retain the talent that is in place there that we really need for our operations. And were they to lose some of that with some of the other things that are going on, we had some concerns about whether they would be able to replace those people with people of equal skill levels. And so to be prudent, we've been exploring for quite some time in the second half of this year, at least -- this past year at least, what some options might be. We've explored that with the Board. We've explored a number of options. We put together quite a list of ways this might be handled that the Board has gone through. But we have, at this point, determined that the best path forward is to find another asset manager that's hopefully a bigger organization, a stronger organization where having one thing like this happen wouldn't put them at risk for us and trying to make sure that we've got an organization that's willing and able to bring our team on. That wasn't an absolute path to have, but boy, was that a really strong thing that I wanted to see. And the group that we're working with was actually thrilled, and I'm not overstating there, thrilled to bring on our asset management team. They know them well. And so this is -- we expect going to be a very big win-win across the board for KORE, for the new asset management company once we get to that point and for the asset management and accounting teams as well.

Got it. And we are not anticipating changes in how fees are charged or will there be some savings, some Q or too premature to talk about it?

So for the REIT, it's not going to make a difference. The REIT pays a set of fees to the REIT and those fees do not change. So when the REIT manager negotiates a new outsourcing agreement with another provider, that is on the REIT manager's die and has nothing to do with unitholders. So yes, completely no effect on unitholders or the income of the REIT itself.

Okay. Okay. Got it. Got it. Okay I going back to numbers, right? Could you give us an updated forecast for your CapEx requirements for 2026?

Derek, I can't believe that it took getting to you. I can't believe Jonathan did announce that. DJ didn't announce that, took 3 people to get to the question I knew was coming. So you win the prize. Yes, we have been looking at capital. We've talked about -- we get a lot of questions about this every quarter. When we were asked last year, we said, well, we'd love it if we saw a slight decline, but we don't know if that will be the case. We've completed our analysis of capital, and we're coming in basically on top of where we were in 2025. So in 2025, we had $50 million for capital. coming in basically on top of that at about $51 million for capital for this year. And I do want to give a little bit more color on that, though, because I think the thing -- the reason -- a big reason why I think you're asking, and I think the thing that a lot of people are focused on is what is this ongoing CapEx spend at the buildings for building improvements and that sort of thing. And as that was a portion of this last year, that amount was about $18 million of the $15 million for building improvements, meaning all these things we're doing to rebuild out lobbies, things where we have to make major replacements to a building like putting a new roof on 1800 West Loop, all those big capital items that are periodic and happen, but we were also doing all these enhancements to amenities and everything else in the buildings, and we kept saying, we will get a lot of this done and that will start to fall. While total capital didn't fall this year, it's consistent. That number last year of $18 million has fallen to $9 million for this year. So half basically. So we have seen a substantial fall off there. What does that mean in terms of the rest? It means there's a lot more going in, in terms of leasing. And so what that means is for TI leasing commissions combined, that's up fairly substantially for our 2026 budget. And that's because we actually are at a lower occupancy today than we were last year, and we're budgeting to be able to get ourselves back up to the level that we'd like to see. Now I mean, we're trying to be realistic about where we'll actually end the year, but we wanted to budget for basically the hopeful targets that we have. And we're going with the mid-80s or higher. I'd like to be in the higher 80s, and we have a budget that should provide for leasing up to that level, whether we can achieve it or not, it will be interesting to find out. We're going to push ourselves really hard, and we feel like we've got the right things in the right places. And hopefully, that differentiation between building improvement and leasing commissions and TIs gives some comfort that we are moving the way we have sort of predicted we would. We're accomplishing what we wanted to. And hopefully, that gives some comfort around that number staying relatively flat versus coming down because the key piece that we anticipated would come down debt.

Okay. was about $50 million this year, roughly?

Yes. So call it, $51 million is where I think we're going to end up for the year.

Okay. Out of which $9 million is building improvements.

Correct. And all the rest goes towards leasing. So there's a mix in there of spec suites, TIs, leasing commissions, all the regular things. But all the rest of that is what we would tend to call good news money.

Okay. So just to reconfirm, just if I look -- work through the numbers, right, so assuming that -- because you're doing the capital improvements, and I think this is periodic in nature, it's coming off, right? And if you think about it, if the majority of your capital needs going forward is largely TIs, is it right to assume that, let's say, assuming 15% of your leases up for renewal per year, we're looking at about $35 million, $40 million requirements?

It's hard to predict it exactly because in large part, it depends on in the future, whether we've got renewals or new leases. Typically, on larger spaces, new leases are going to take more significant TIs. Renewals are going to be -- sometimes they might be significant if somebody really needs to revamp their space. But generally speaking, a renewal is going to be much lower TIs. And so it's hard to predict as we go forward, what's going to happen there. We do know for 2026, we have several -- we've got a handful of some large known vacates, like I mentioned earlier, that make up a fairly significant portion of the total space that's maturing this year, a little bit about 4.5%. We'll have some others that vacate upon expiry, but it's not going to be a massive percentage of the 14% hopefully. So we've budgeted based on that for this year as we get closer to 2027, we'll be able to have a better feel for what we expect in '27 for renewals versus vacates, and that will dictate where we think that falls.

Got it. Got it. Sorry, just very quick 2 more questions. One is on valuations. I noticed that the dip in valuations probably also aligned to those that you saw a dip in occupancy. Was this largely driven by valuers assuming vacates and et cetera. So that's the real driver to where valuation has moved. Is that the right assumption?

Yes. I mean I think that's fair for most of the properties where we saw it fall off. The one here that really looks odd is Maitland. Maitland is doing really well. Leasing was strong. We feel really good about the market. The appraiser had a different view. I'm sure if we wanted, we could have pushed on the appraiser and made some arguments and tried to convince them, but we don't do that. When we've got appraisals, we will point out errors and we sort of live with what they're doing. So that one looks odd to us. The rest of the ones that are down really seem to track with where the occupancy is. So I think that's a good conclusion. There's also been some change in discount rates, but that's had an impact on a few buildings. But overall, it really does -- when you look at it, generally track where occupancy is and where you would expect to see it. Plaza had to come down. I mean there's really no choice there. Westmoor had to be coming down. I think it was expected 1,800 would come down a bit. Maitland, like I said, is a little bit odd. And Edview is not unexpected with some minor occupancy changes there and less term on the lease for the tenant that makes up the vast majority of that building. So most of this really seems to be in line. And you could argue things could be a little lower or a little higher for a few of these, but you've got it.

Got it. Got it. Got it. Sorry, last one for me, right? I think the last one is on your debt refinancing. I think Ai really did a great job. I hope I could have delivered you the $50 million, but I couldn't. But just looking at the 2027.

I don't think going to stop asking. Don't think...

Yes. We look at the 2027 debt, right? I'm sure discussions are underway, but I'm looking at your increase in cost of debt. I'm assuming that your credit spreads have increased. So should we be imputing increased interest costs going forward as you roll off some of this debt in 2027? I'm just wondering what is the base case we should be putting in.

Okay. So let me just probably just give you some numbers, okay? So assuming that the SOFR remains as it is now, we probably see all-in interest rate of about 5% at the end of 2026, right? So from 2027, same thing assuming similar SOFR, it will go up to about 5.4%, 5.5%. And this is also mainly because we have a number of IRS that will probably drop off in 2027 as well. So yes, to your question, you will see an increase in interest, although probably we will expect further rate cuts, but because of all the IRS that will be dropping off, you will see an increase in the rates.

Derek, you could get DBS to give us some loans with no margin, no costs and things like that, and then we could actually bring it down.

Yes.

Okay. I'll take the question from Paul.

Just some questions on the refi that you did. Did you mention that were there any change in terms compared to the previous facility?

There are no change in the terms. So basically...

Margins or anything?

Margin actually dropped a bit. So it was good news for us because the margins actually dropped a bit.

Can you touch a bit on the sentiment of the bankers? Obviously, they did the refi for you, so they are positive, but just some sensing of what makes them more positive and also they dropped your margins.

Okay. They are actually the same banks that did our refinancing. So basically, the banks that the relationship banks that we have, although I would say that they are still a bit more cautious. Some banks are still a bit more cautious, obviously, because of the Manulife issue and some of the banks by that. Also, we are also looking at the U.S. market. I think some of the banks are looking to see a full recovery market rather than recovery market. But all in all, the banks that did our refinancing are largely our relationship banks. Yes. So it was quite good for us.

Just one last one. On the IRS that is dropping off, what were the rates then and what were the rates now?

Are you referring to the 2025 IRS that dropped off?

Yes, yes. I mean that's causing your rates to rise.

Yes. Okay. So the IRS that dropped off in 2025, it was about 26% of our IRS. And this is actually -- we did it at a very, very low rate, one of the lowest rate that we have for all IRS Yes. So it's like below 1% -- so that's why you see a huge increase.

Okay. And if you creep up to 26%, 27%, then it probably just creeps up to 1 point something, then 2-point something. Is that how to understand the IRS?

No. So at that point in time when we locked in the loan, the 26% of this IRS, it was at below 1%. So now at the current market, if you want to enter into a new IRS, I think the current rate for a 3-year IRS will be about 3.5%, which is pretty high...

Okay. Now we'll answer some questions from the webcast. First question is how do you expect occupancy to move on the Plaza buildings through the year?

Thank you to whoever brought that question to our attention. So Plaza, at this point, has obviously had some significant occupancy reduction, which we had forecast for 2025. It happened a little bit later than we anticipated, which was good in terms of income and revenue throughout the year, but the tenants that were going to vacate have now all vacated. We have some tenancy expiring in 2026, about 10% of Plaza buildings, I believe, is expiring during the year. I don't have any large tenants of that on my known vacate list. So I'm not anticipating major changes there. We have 2 buildings at Plaza. We're changing the names as we move forward to 1800 and 10 900, which are their addresses. We have historically referred to them as Plaza and U.S. Bank. For sake of ease for those that are here that probably heard them by those names. The U.S. Bank building, we are doing a complete renovation, gut renovation of the lobby of that. It used to be a U.S. bank branch for the vast majority of the space. And we are completely redoing that, putting in some really nice tenant amenities. That's where we're going to do the golf simulator. We'll have some meeting rooms, some very cool other spaces, seating areas, putting in some ground floor office space as well. doing the whole look and feel, it did not used to feel like a great lobby. It was basically a weird little space and an elevator, and that was it. It's now going to feel like a really attractive lobby, and that coincides with getting back all the space. We wanted to be able to start leasing it. We also are taking a full floor in that building that we have gotten back over the last year, and we are going to convert that to a full floor of spec suites, much like we did in the other Plaza building. The other building was called the greenhouse. And this building, it's going to be called the post. So that will have a number of spec suites built out. They'll have their own set of amenities, a little bit smaller amenities than we built into the greenhouse and the other building. This building has a smaller floor plate. And so we're trying to be wise with the space. But we anticipate getting that built out and fully leased up in 2026. So I would expect occupancy is going up at Plaza buildings over 2026, if only for that point. But we have also started to see -- it was a really strong fourth quarter in the city of Bellevue. There were several very big, I would say, exciting for the market leases that were signed. And so I think Bellevue in general is going to be seeing some occupancy trending significantly in the right direction. And hopefully, we'll be the beneficiary of some of that as we're looking to fill a number of full floor spaces and maybe one of those would even be potentially a 2-floor sort of a tenant. But we've got a number of full floors, which require some larger tenancies, call it, the 15,000 to 25,000-ish sort of a range between the 2 buildings. They have different floor plate sizes. So we'll be looking for that. And if we're not finding tenants in that size during the year, we will likely target another floor and do another full floor of spec suites because those have multiple advantages for us. Number one, it has an upfront cost, it's a bit higher to build a spec suite because it's just got much higher-end finishes, but it is long-term work in the sense that we do have smaller spaces that we know are going to meet the needs of multiple tenant types. So while we may spend a bit more upfront, our retenanting costs are really minimal. And to the tune of carpet and paint and because in most cases, we've got polished concrete floors, there's not a lot of carpet and there's not a lot of paint. There's no ceiling grids are out for a lot of it, and we'll have some exposed ceilings that really high-end space. So we can turn those over without much capital cost. And Plaza buildings is our best example of where the spec suite program started within our portfolio. We've got spaces in there that are on their third, fourth or fifth tenant where we spent maybe $10, maybe $20 max to do paint and carpet to put another tenant in. So it's been done 3, 4, in one case, I believe, 5 times now and very little additional cost. So the long-term cost goes way down. Typically, we're going to get a bit of a bump in rent, so a slightly higher rent. And the space typically requires less downtime because tenants can take it very quickly. Space is already built out, rent starts more quickly. So there's a lot of economic reasons for us why that's good. It also helps to really show tenants what space in our building can look like. So if we've got a bigger tenant that might want to take a half a floor or a floor, we can show them those spec suites and say, you just tell us what you need, we can deliver this product for you. And we've got teams in place to build this out. They know how to do it, they can do it quickly. So lots of advantages to spec suites. So we expect it to go up. somewhat driven by spec suites, hopefully, with some other leasing, but we're doing all the right things there to make that happen.

Thanks,. Next question will be what are the current cap rates that you are seeing in the market? And where do you think the U.S. office market cap rate would be at the end of 2026?

Well, that one, I'm going to say we've taken the question, and we don't have an answer for you because there are no cap rates across the U.S. They're market and building specific. There's no way to answer a question with a general cap rate for the U.S. I mean it's going to depend on asset quality, asset location, occupancy, forecast for the market, quality of tenancy, you name it, there's a million things that go into cap rates. So what I can say is that we've seen the overall hold relatively steady. coming into the end of 2025, at least for our portfolio discussions we've had with others, there are some minor changes, but we did not see some of the major upticks in cap rates that I think we're all familiar with in a couple of the prior years. That, I think, is probably a thing of the past. I think what we're seeing, and I think the answer that's the helpful thing for -- if we generalize the question a little bit differently is what's happening with cap rates? And I think the answer is they seem to have stabilized. If we do see treasury rates come down during the year, I think we could see cap rates compress a little bit. But the Fed rate setting doesn't necessarily change what happens with treasuries. The long-term rates are not driven by the Fed. They're doing the Fed funds rate, and that's a very near-term, short-term rate. And so we have seen at times where long-term rates come down when they lower, we've seen long-term rates go up when they lower. So it's hard to really predict what's going to happen with, say, your 10-year treasury, which is typically your base rate for a cap rate, but certainly seems to be steady at this point.

Okay. We'll take the next question. Is management able to share the rough range of expiring rents for Meta?

Yes. So the meta rents that are expiring are basically right around $23, which is fairly similar to what we've got in place at Westpark, which is around $22 a foot. The interesting thing for Westpark is it is one of our locations where we have a lot of tenants that use first floor space for production testing, could be lab, could just be typical industrial and then they'll have office above that. So the mix of space that a tenant is utilizing and how they're doing that is going to make rents be a little bit different because we charge an industrial rate and we charge an office rate. And so the mix of space that somebody takes there can cause some significant differences. So that's the blend rate that we have for Meta in the portfolio. It's pretty close to the average in place. Asking rates on average are somewhere in that 21, 22-ish sort of a range, but it really is going to fluctuate based on how much space is of an industrial purpose versus office. So Meta has some interesting lab space that they have that is purpose-built. -- some really high-end lab space. So their space is certainly built out a bit differently than average within Westpark. -- certainly higher end in some ways. So depending on the tenancy that we find, they may or may not be at those sorts of rates. So if there's folks looking to utilize some of that, we may find some tenants that are willing to pay what Meta was or higher, we may be slightly below. It really is going to depend on usage, but it shouldn't be too far off from what Meta is paying. I'm asking the second half of what I figure was a 2-part question here. I just didn't see the follow-up or didn't hear it in what was just read to me, but I figured I'd give you the complete answer.

Thanks, -- we have one last question. How have net effective rents for our assets moved since first half 2025? And where do we see them moving over 2026?

Yes. It's an interesting question. I think most people are concerned about effective rents because they're concerned about what they have at least heard that has occurred in the U.S. marketplace during COVID through potentially last year, which would be people giving outsized free rent periods to try to attract tenants into their space and people giving outsized TI or tenant improvement allowances to try to attract people to the space. The good news is in our portfolio, even during COVID, we did not do that or participate in that. So our TIs have remained consistent. We're not utilizing those as a way to try to buy tenants into our space. So we're giving the same TI allowances in the same ranges that we had pre-COVID, except we had significant run-up in costs due to inflation during COVID, where inflation was a bit out of control for a few years. So if you were to take our pre-COVID costs or TIs that we were giving and at about 25% for that COVID run-up and then just normal inflation adjust that since the last couple of years, we've been doing the same TIs with no real change. Our free rents have remained at 1 month per year of a lease, typically, we have certain buildings in certain market, well, we have one blended market of Bellevue, Redmond and the buildings up there where it's between 1/2 and 1 month of free rent per year of the lease, so actually even less. So in terms of what we've done, we haven't done anything that's affecting net effective rent or driving it down. So when we talk about our face rates, we feel comfortable just talking about those because we're not making changes to free rent and TIs that would affect that. We do occasionally talk about some leases that we signed where there was incredibly low TIs, and we accepted a lower rent rate. But we actually call those out on these calls most of the time when that's something of effect. So for now, those have remained relatively flat. Rents in general have started in some markets to increase slowly. We anticipate seeing a bit more of an increase, maybe 1% or 2% of an increase as we move into 2026. So I think we saw net effective rents pretty flat in 2025 and expect a minor increase going into 2026 with the hope as the market continues to recover as we continue to hopefully see discipline. maybe bank imposed discipline on builders, we should hopefully not see massive increases to the availability in the markets. There will be some space that continues to be taken out, both for conversion to office, which there's only a limited amount of space that, that can work for as well as just being removed because it is no longer viable space. So hopefully, we'll see some pressure going in the right direction. Some markets have seen it. We've certainly seen rent growth at some of our properties like Westpark through COVID and beyond. We hope to continue to see 2026 moving in the right direction. So hopefully, that answers that question.

Thanks, Dave. We have no more questions -- further questions. So we shall now end our webcast session here. Ladies and gentlemen, thank you so much for your time and joining us, and have a pleasant day.

Thanks very much, everybody.