KORE US REIT (CMOU.SI) Earnings Call Transcript & Summary

We have CEO, Mr. David Snyder; and CFO, Mr. Andy Gwee. We will start off with the webcast with an overview of KORE's financial and operational performance for full year 2024, followed by the question-and-answer session. Before we begin, we would like to run through some housekeeping. [Operator Instructions] I will now hand the time over to the CEO, Mr. David Snyder.

Thanks, Lilian. Good morning, everyone, and thank you for joining us today. Let's go ahead and start on Slide 4 of the presentation. Here, we present KORE's full year 2024 key highlights. We ended the year with our portfolio committed occupancy going back up to the 90% level, an increase from last quarter's 88.7%. The majority of the leases signed were in the Seattle, Bellevue/Redmond, Denver and Orlando markets. In 2024, we leased a total of 938,655 square feet of space, equivalent to 19.6% of the portfolio NLA. Our portfolio value remained stable year-on-year at $1.33 billion as of 31st December 2024. Taking into consideration capital expenditures and tenant improvements for 2024, there was a fair value loss of $46.7 million. The aggregate leverage is well within regulatory limits at 43.7% with an interest coverage ratio of 2.6x. Adjusted NPI was 4.7% lower year-on-year, and income available for distribution came in 8.8% lower than 2023. For the second half of 2024, there is no distribution declared in connection with our recapitalization plan. On Slide 5, we summarize our property valuation. There was generally an increase in capitalization and discount rates across the portfolio, though these were partially or fully offset by higher rental rates and occupancy at many of the properties, which achieved stable or higher valuations. Year-over-year change was actually up $0.1 million for the entire portfolio, driven by MAS. But including capital spent, the loss was $46.7 million. I will note that 3 properties recovered all of their capital spend and one with no capital increase by the very $0.1 million that was the net change for the year. Needless to say, we are pleased with the result, which was in line with our expectations and substantially better than our peers that already announced their valuation. And we hope this will help alleviate concerns some in the market have had regarding our valuation risk. With that, I'll turn it over to Andy.

Thanks, Dave. On Slide 7 is a summary of our financial performance for the second half of '24 and the full year '24. For the full year, adjusted NPI was down 4.7% year-on-year, and that's mainly due to the higher vacancy at the Plaza Buildings and Iron Point, which Dave has -- which as you can see from the movement in the vacancy and Dave has already highlighted or [indiscernible] shown that. And year-on-year, there is also an increase in the repair and maintenance expenses. Income available for distribution reduced by 8.8% year-on-year, and that's mainly due to the lower cash NPIs plus the higher financing costs. On Slide 8 is a snapshot of our balance sheet as at the end of full year. NAV is at USD 0.69 with total assets at USD 1.4 billion. Slide 9 is our capital management slide. So our aggregate leverage was 43.7% and interest coverage ratio was 2.6x. All-in average cost of debt was 4.45% per annum or 4.33% per annum when excluding the noncash amortization of upfront debt financing costs. Weighted average term to maturity of our debt stands at 2.4 years. As of 31st December 2024, 100% of the loans were unsecured with about 90% maturing between 2026 and 2028. Moving to Slide 10. On the left-hand side, you can see the sensitivity to changes in the floating rate. So 66.6% of our noncurrent loans have been hedged and every 50 bps change in interest rate translates to a change of about USD 1 million in income available for distribution. On the right side, in November last year, MAS announced the requirement for the step-up disclosure on ICR. Although the disclosure only applies for financial period ending on or after 31st December 2025, we have opt to include the additional sensitivity analysis ahead of the requirement. So as you can see, in both scenario 1 and 2, our ICR remains well above the regulatory requirement of 1.5x. And then with that, I'll hand over back to Dave.

Thanks, Andy. Our investment focus on key growth markets continues to be supported by strong demographic trends. And as you can see on Slide 12, all but one of our markets were in the top 20 markets to watch in 2024. And we haven't yet seen that list updated for 2025. What is drawing companies and individuals to these cities are their low income tax rates, lower cost of living, better employment opportunities and more attractive lifestyles, among many other factors. And our strong relative valuation results speak to both our markets and our investment leasing decisions. Slide 13 illustrates the changes in committed occupancy by property. This quarter, KORE's committed occupancy increased to 90% from 88.7%, as 10 out of 13 properties had stable or increased occupancy. We continue to have a large volume of known vacates in 2025, including a couple of large ones in the first quarter at Plaza and Westmoor, with more to come at Westmoor later in the year. So occupancy will fall in the first quarter and will face more pressure later in the year. Much like in 2024, we hoped to end the coming year with occupancy in the high 80% range. As you can see on Slide 14, KORE's occupancy rate remains well above the U.S. average the gateway cities in both of our peers and in Singapore. Moving on to Slide 15. Leasing momentum continued to be strong in the fourth quarter of 2024 with around 217,000 square feet of space leased, representing 4.5% of portfolio NLA. The total lease space for 2024 of 938,655 square feet or 19.6% of portfolio NLA is the highest we have achieved in a year since the IPO and has surpassed pre-COVID levels. Our built-in average annual rental escalation of 2.6% will continue to contribute some organic growth to the portfolio. Rental reversion for the fourth quarter was positive 1.7%, mainly due to 2 major new leases that we signed at Maitland Promenade and One Twenty Five, partially offset by Plaza and Westmoor. The rental reversion for full year 2024 was negative 0.5%, mainly due to renewals at The Plaza Buildings, Bellevue Tech Center and Westmoor Center, partially offset by One Twenty Five and Maitland. Slide 16 highlights KORE's geographic and industry diversification. Our portfolio is anchored by the tech hubs of Bellevue/Redmond, Austin and Denver, which contribute approximately 67% of NPI. With about 51% of our tenants by NLA coming from the sectors of TAMI and medical and health care, our industry-focused diversification continues to allow us to leverage on these growing segments. Turning to Slide 17. Here, we highlight our relatively low tenant concentration risk. This key differentiator is driven by the fact that we have over 390 distinct tenants with no tenant exceeding 4% of portfolio cash rental income. The total contribution from our top 10 tenants is less than 30% of CRI. The majority of our top 10 tenants continue to be from established TAMI firms located in the markets of Nashville, Denver and Bellevue/Redmond. On Slide 18, you'll find a comparison of the last 12 months rent growth at the national level as well as in our key growth markets and gateway cities. Our key growth market average has now returned to exceeding the U.S. average by 0.2% after previously being on par with it in the last quarter. The gateway cities continue to underperform, but they are positive. And the back-to-office trends are now impacting many of the gateway cities and their physical occupancies are on the rise, they're nowhere near our markets, and their overall occupancy should be improving as well. Turnaround in gateways is one of the key factors we have postulated will lead to an improved perception of the overall U.S. office market, which should help us as well as hopefully begin an increase in lending to U.S. office which would benefit the entire industry and eventually lead to the transaction market reopening. Moving on to Slide 19. Here are the rent growth projections for the next 12 months. The rent outlook for KORE's key growth markets is projected to be 0.3%, below the national average of 0.6%, but well above the negative 0.2% outlook for gateway cities. Slide 20 shows comparison of the forecasted 12-month rental growth for our markets over several years in green against the actual average growth of KORE's key growth markets during those actual time frames in blue. KORE's portfolio rent growth has remained relatively stable during and post-COVID regardless of the fluctuations in CoStar's projections, demonstrating the resilience of the portfolio and overall strength of its markets. Let's move on to the market outlook on Slide 22. This slide highlights several U.S. economic fundamentals, which indicate broad resilience in the U.S. economy. I'm sure you're all familiar with the information and the only big question on all of our minds is what will the Fed do in 2025. And if I knew the answer to that, I'd be making a lot more money doing something else. So rather than postulate, I will just move on. On Slide 23, we note that the U.S. office sales market is still not in a recovery phase. While recent rate cuts have introduced more liquidity, capital markets have not recovered. Office CMBS delinquency rates have surged by more than 250 basis points since Q3, marking the sharpest increase in recent years as asset valuations remain under extreme pressure for the lack of meaningful improvement. On a positive note, the overall sales investment volume increased by roughly 30% year-on-year, primarily driven by portfolio sales or office alternatives, such as life science, medical office, data center and the like. However, when we exclude these categories, single assets, traditional office sales increased by only 10% year-over-year, matching 2010 levels of liquidity. We hope Trump's back-to-office push, the trends we've been experiencing in our markets for some time regarding back-to-office and the improvements that seem to be happening in the gateways and elsewhere will lead to improvements by the end of the year. Moving on to Slide 24, you'll see the general leasing activity in the U.S. by sector. The TAMI sector, which includes technology, advertising, media and information, remains one of the key drivers of leasing recovery. This aligns with KORE's investment thesis, which focuses on the fast-growing TAMI, medical and health care sectors across key growth markets in the U.S., while obviously having numerous typical office using tenants in sectors like financial services and insurance as well. On Slide 25, we cover the broad-based leasing recovery, supported by return-to-office trends and organic demand growth. In Q4, net absorption turned positive for the first quarter since Q4 2021 and marked the second quarter of occupancy gains since the onset of the pandemic in 2020. Next, we see the leasing momentum variance among different geographic regions is beginning to narrow as recovery becomes more widespread. Sunbelt markets are still leading the way with over 95% of pre-pandemic activity over the past 6 months. The gateway markets have recovered significantly, now reaching 76% of pre-pandemic levels in the second half of the year. In terms of interstate migration, Sunbelt states, such as Texas, North Carolina, South Carolina, Florida and Tennessee, continue to be the most popular destinations for relocations. We also observed that office attendance policies have evolved with many companies establishing regular office attendance requirements in recent years. According to Fortune 100 office attendance policies, hybrid work arrangements now dominate with employees typically required to be in the office 3.5 to 4 days per week as of fourth quarter of 2024. On January 20, the Trump administration issued a memorandum to the heads of federal departments and agencies, to as soon as practicable, get their employees back to their respective duty stations full time. And a friend of mine who works with the federal government was told last week to be back in the office full time by February 24. As of today, that date just got changed to February 10. Turning to industry trends. While artificial intelligence companies are a major driver of new demand, finance and legal firms have stabilized and begun expanding in key markets, including the Sunbelt and New York. Lastly, office using employment levels remain above pre-pandemic levels, reinforcing the positive trajectory in leasing activity. Slide 26 provides a recap of KORE's unique value propositions, including a strategic presence in several of the fastest-growing states and strongest markets 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 substantial built-in average rental escalations for future organic growth. Finally, but very importantly, we hope unitholders will understand that while distributions to unitholders are slated to be suspended until the end of 2025, KORE would have to bear the withholding tax based on the proportion of unitholders who failed to submit their U.S. withholding forms and certificates. This would negatively impact KORE's unitholders by reducing the income that could be retained. Therefore, the manager would like to strongly urge all unitholders to continue to submit the relative tax forms to reduce KORE withholding tax burdens. It is possible that once distributions resume, those that didn't complete their forms would have their distributions withheld to cover the amounts paid by KORE. Thank you for your time and attention. With that, I'll turn it back over to Lily.

Thank you, David. We will now start the Q&A session. [Operator Instructions] We have John.

Two questions. Firstly, relating to occupancy, significant improvement at Plaza, Bellevue Tech Center and also Maitland Promenade. Could you share some color in terms of any sizable new tenant and which industry sector they are from? And then secondly, could you share currently what's the physical occupancy for your portfolio? Was there any improvement in 4Q? And where do you see physical occupancy headed by end of 2025?

Yes. Thanks, John. So Plaza buildings, I think you mentioned is one of those that we saw some improved occupancy. And I just want to point out before we get too far into this that we do have some known vacancy coming up in Plaza in the first quarter, which will bring it back to maybe more consistent to where it previously was. But in terms of some of the new leasing and I'm looking for the detail right here on Plaza, for Plaza Buildings, we had just a couple of tenants, one of pretty good size at about 12,000 square feet, another 2,000 square footer. In terms of what types of companies those were, that I don't have at my fingertips for those, but I think both of those are technology of some sort. So I don't have the details, but they're both tech companies of one variety or another. I think you also talked about BTC. So that was a medical tenant that we brought in for BTC that we're seeing in there. I think we also have showing up in at least the way we're showing occupancy, a technology company as well that we've picked up there. And I think you also talked about Maitland. That's correct. So Maitland, we had an interesting pharmacy, so medical health care sort of a tenant called AssistRx that is taking a lot of space. I mean, in fact, all the space at Maitland that we picked up was due to that one lease. And so that's interesting. They're more of a pharmacy delivery sort of a company. So it's not like they'll be servicing folks right out of our building, but they will be doing all their deliveries and all their back office there. So that was a big win for us. We really liked their business model. We like what they're going to be doing. And they're taking an awful lot of space in a couple of different locations, including the known vacates that we had coming up in that building in some other space that might have otherwise been difficult to use or reuse. We're able to connect a bunch of different spaces at that building on the first floor that they took all up, which was super convenient for us. So that was a big win.

Bellevue BTC, the improvement is quite significant. I think something like 8 percentage points. So the 2 tenants must be quite sizable.

So yes, I mean, they're fairly sizable, but the big thing there is really not those 2 tenants. It's actually an expansion by TerraPower, our existing tenant. So they picked up about 18,000 more square feet in the building adjacent to the building that they fully lease. They continue to take additional space at that location. So while we did build out their headquarters for them there in one full building, they've now taken a couple of spaces, and we wouldn't be surprised if they take more in the future and the building adjacent to it as space becomes available.

And with regards to physical occupancy?

Physical occupancy is about 72%. So it's maybe slightly down from where we were in the third quarter by about a percentage or so. But these numbers are not exactly completely scientific in the way in which we calculate them. So I'd say we're in a push. So we're above 70%, which is, at that point, let's just call it, we're 3.5 days in the office, which is basically exactly where 70% sits. So we're somewhere right around that. So we're pretty happy with that performance.

And it's up at least in the Q4.

Well, yes, I mean Andy does raise a good point. Fourth quarter, not only -- it has a lot of holidays and a ton of vacation time. So it typically is physically occupied less. So he raised a very good point. We've got Thanksgiving in the U.S., which is typically 2 to 3 days, most people take off, which is not celebrated here. And then for Christmas to New Year's, you'll find a lot of people are off work, not just a day before Christmas or something like that, probably the majority of the Americans take off the weekend from 20th itself. So that's a good point.

Yes. I mean, with the federal government moving to 5 days a week and then a lot of the large, big corporate like Amazon also moving to 5 days a week. Would you -- what's your expectation in terms of like physical occupancy and portfolio occupancy towards the end of 2025?

I think physical occupancy is going to remain for us within the 70% to 80% range. Much like I've talked about before for folks. Pre-COVID, if you were in a 90% occupied building, you probably only had something around 80% physical occupancy because people have vacation time, people are home sick, people travel for work, people go to meetings and seminars. So your physical occupancy is never anywhere near your actual occupancy. So for us, if we're still somewhere, call it, if we're working at 90% as our occupancy number, then I think somewhere between 70% to 80% is where we'll still continue to sit for physical occupancy. Maybe ticks up a little bit more into the higher 70s, maybe even hit 80% periodically, but I think that's the right range. And hard to change a range like that, regardless of how many employers are bringing people back just due to normal life and business sorts of circumstances. So if we're in that sort of a range, I think we're going to feel good about that towards the end of the year. In terms of how back-to-office is going to drive leasing occupancy, that sort of thing, it's harder to say. For most of the markets that we're in, we've had most of our tenants in the office most of the time. I mean, as you know, and some that follow us know, we've had very high physical occupancy compared to the most U.S. location, certainly compared to gateway for years, even immediately following COVID, even during parts of the pandemic. So we've done quite well there. So I don't think we're going to see a pickup. We are seeing that happen in the gateways. I think I touched on it in my comments. They're seeing more physical occupancy. They're seeing more leasing. We're seeing more leasing volume in general in the U.S. And I think we'll continue to see expansions occurring by businesses that are growing, and that will be across various types of industries. So overall, I think occupancy for the U.S. as a whole should be ticking up. That should be a good thing. We should see that through all of 2025 and hopefully, we'll see an acceleration during 2025.

Okay. So for physical occupancy, 70% to 80% is already back-to-normal situation, normalized?

Yes. I think that is pretty normal. I don't think you would have seen it much above 80% and 90% occupied portfolio prior to pandemic.

Next, we have Derek, you may ask your question.

Can you hear me?

We can.

A few questions from me. So I just wanted to get a -- reflect your thoughts around your top 10 tenants. What are they, at this point in time, indicating to you? Are they likely to stay? Or is there anything that we should take a note for 2025? This is my first question.

So for the top 10 tenant list -- I'm trying to pull up on the top 10 tenant list, I'm not quite sure why I'm not finding it, but I just did. When we look through that, we don't have any that are expiring at the moment in 2025. So I think the nearest term that we're going to have on that list that's expiring and I guess the only one in West Park. And Meta had the opportunity to do some downsizing. I think it was about a year ago, a little bit over a year ago in that portfolio. And the only thing we got back from them was one extra kitchen that they were no longer using, they had multiple kitchens within their space. So my view would be if they planned on downsizing, giving back space, that sort of a thing, we have probably gotten back more of what they were allowed to give us. At that time, we did not. We also -- just as a refresher for -- I think you know this, we probably have people listening that don't. They have a major testing facility for Oculus that they purpose-built into one of the large spaces that they have with us. To our knowledge, that doesn't exist anywhere else, and they haven't been trying to build that somewhere else to the best of what we can gather. So our expectation is that while there might be some thoughts on their part about maybe not needing 100% of the office space, we, at this point, fully expect them to be renewing in the location for -- we would expect the majority of the space, potentially all of the space, but we have not had detailed discussions with them about that as of yet.

Got it. Got it. Great. Okay. Then maybe if I were to broaden the discussion, right? So we look at occupancies, I think you mentioned Plaza, you expect to see some weakness in the coming subsequent quarters. But how about -- how should we look at occupancies as a portfolio? I mean, there are some sticky -- there are some weak ones in my view, Iron Point, for example, Westech 360. What are your thoughts around bringing them up towards a more optimal level?

Well, you're just going to try to put me on the spot right away, aren't you? Well, I think we can try to answer those as best we can here. So for Iron Point, that one is an interesting one. The market is actually quite strong. We're below market occupancy there, and that's because we got a couple of big spaces back, as you probably recall, very quickly over -- towards the early part of last year, I guess, we had several tenants that have vacated there for various reasons. Some have been because they're in mortgage finance. Significantly, that's a big piece of it. And that has not been a real good business in the U.S. for a while. So that one actually closed its stores. We've had a couple of others, one that's significant in [indiscernible] has been an issue for us. That's another area that in that part of California hasn't been doing incredibly well. So we've had some hits there. But we have redone our tenant amenity center there, which is located within one of the several buildings that we have on the campus. That amenity center is now, I would say first rate for anywhere in the world, not just for Sacramento, certainly not for Folsom. In Folsom, it is, by far, the best. Its fantastic little food area, kind of meeting area, place for people that gather, eat drink, whatever, take lunches and breaks, breakroom, if you will, real nice conference room, the fitness center, went from being not bad to very nice. So along with that, we're able to lease a bunch of space in that building. What we're left with now is one single building that's adjacent to that and then quite a bit of space in our large 3-storey building. The issue we have is what we need are some big tenants for any or all of those spaces. And so that's a matter of finding the right tenants, which will take a little bit of time. It is conceivable we will break up some of those spaces and multi-tenant potentially that stand-alone building. It breaks up well into something for 3 tenants. So we'll give a little bit of time here maybe. But I think the expectation is we will work on doing that. So I would say occupancy here probably hovers to where it is to up some amount. I would think it's conceivable we could hit an 80% at Iron Point by the end of the year if we were fortunate in finding at least one fairly large tenant. But otherwise, we'll be just working on just blocking and tackling, as we'd say, in the U.S., doing the basics to bring that up bit by bit. The other one, I think you mentioned was Westech 360. And on that one, I've got a very different sort of view. I think we're going to have a good year at Westech 360. Austin, seems to be doing better. We've had some momentum at that property. Every spec suite that we've been building, we've been having success in leasing, and we've got some others. The most recent one was leased before it was completed. So for that one, my hope is to be into the mid-80s for that. Well, my expectation is to be into the mid-80s for that. My hope is that we push above that level by the end of the year. I maybe put a little pressure on Jeff Rader if he's listening in, but I'm not too worried about that because we feel good about what we're doing. We've completed the lobby renovations. We've got some excellent buildings and excellent space right there. And one of our 2 really nice green sorts of locations. I mean, we've got deer running around the property, it's tons of greenery, beautiful views out most every window, central courtyard where the deer even come with a bunch of nice spots for people to sit, eat lunches, do all that sort of thing, what you can do in maybe 6 months of the year in Austin, you wouldn't want to do it in the middle of summer outside, but the rest of the year, it's nice. So we're hopeful for that one to see some good change.

Got it. Got it. Okay. Dave, just quickly, I'd move on to, can you just give us a guidance on TIs for this year? How is it trending? I understand there are some expiries and you've got cash on the balance sheet, right? So I think sufficient to pay for the TIs that you expect to pay for this year.

Yes. So are you asking just TI or you mean all of the capital expenditures as the whole?

Include CapEx. I just want to get a sense between the breakdown between TIs and whatever CapEx that you have planned.

That's what I figured. So I mean the total of that number for 2025 is going to be right at $50 million, which is, I think, what we were guiding to for the last year or so. Our budget for all of those things, including leasing commissions, the whole works is $50 million for 2025. We've got a little bit of carryover on things that weren't spent. We may have started work on other things. We just haven't completed the projects from 2024, which will carry of what we'll be paying this year as well. We won't spend all that $50 million in 2025 because obviously, some of that is going to face the same issues at the end of 2025, and we'll make the payments into 2026. But we're figuring that $50 million. We've got -- between cash on hand and available facilities, we've got the ability to cover all that, especially once you count in the expected income from the portfolio, which, I mean, again, was the main reason for what we did with the dividend suspension was to provide that capital. So between all those sources, we've got the $50 million covered.

Got it. Got it. Got it. Okay. Just one last one for me. I understand, Vijay, I'm sorry, for hogging the mic. But your property values were stable, and I think it's a positive surprise. And could you give us a sense of what valuers are saying? Did cap rates move or what's driving the stability in asset values?

So we did have cap rates that went up. I mean on a direct cap method, we had -- 7 of the properties had increases in their cap rates. For those -- for terminal cap rates, we only had 4 go up. So when you look at a more stabilized way of doing this, we didn't have too many of our valuers that saw a need to increase cap rates with the risk-free rate remaining pretty stable and our portfolio remained stable. We didn't see a big increase. And the ones that we did see an increase in terminal cap rates, it kind of makes sense based on where occupancies and other things are or where we've seen some recent vacancy. Discount rates, though, on the other hand, we did see 8 of those go up. We saw a couple come down, a few remain flat. But again, not a huge impact from all of that because we've got higher market rents. We've seen some rental growth in a couple of these markets as well. Occupancy is better than those appraisers would have expected last year. And so we've got a lot of positive things going on within the portfolio. And we've got some pretty good stability aside from those known vacates that I've mentioned at Plaza and Westmoor. A lot of the leasing that's been done is now starting to contribute or will be in 2025 at some point. A lot of leases that we've signed have been forward leases. In other words, things that will start in '25, maybe even '26, which gives appraisers a lot more comfort into the future. So all of that was able to kind of maintain value where we were last year. We wish we could have recovered all of the capital that we spent this year. We still think that capital was well spent. Had we not spent it, I can tell you, we wouldn't have achieved anywhere near the leasing that we did for the year of 19%, which was, I think, pretty amazing. In most people's minds that's kind of an unthinkable amount of leasing that was achieved in 1 year. So we feel good. We hope this is now the bottom. We hope for 2025, and we can't forecast it. We can't tell people this is what will happen. But we hope for 2025, the capital we spend will get recovered at our year-end valuations because the market should stabilize. Hopefully, interest rates will get a little bit better regardless of what the Fed does. Hopefully, we'll see some stability. Hopefully, that's going to be a positive trend. And once we see banks coming back in, which we expect to see sometime this year, that should lead to a market that stabilizes more and more transactions, more other things that will lead to more stabilization even on the valuation front. So -- but hopefully, a pretty good answer for your question.

Then Vijay. Sorry to keep you waiting. You can ask your questions now.

Happy New Year and congrats on a very decent set of results in, I would say, a challenging market. Are you able to hear me?

Yes, we can. Thank you very much, and Happy New Year to you.

Yes. I think a couple of follow-up questions. My first question is in terms of overall strategy. I think a lot has changed during the last quarter in terms of Trump election, people coming back to office, more stringent mandate, interstate outlook. Overall, how has this changed your outlook for 2025? Is there any change in strategy in terms of divestments you would look at or a distribution time line, which investors should look out for?

At this point, Vijay, I think it's way too early to see a change. I'm not even sure Trump necessarily understand all the things that he's got in motion, that change by the minute. We had -- apparently, we were going to be starting 25% tariffs on Canada and Mexico on Tuesday morning. And that's been postponed a month. We're going to see a lot of this kind of stuff happening. So at this point, we're not making any changes in our overall plans or outlook for the year. There's arguments to be made on all kinds of sides about what's going to happen to inflation. People are pretty clear, and I would be in their same camp that if a whole bunch of tariffs get put on, inflation is going to go up. People have some concerns about the fact that what happens if Trump actually convinces a whole bunch of federal workers to quit and/or retire. What does that do to unemployment and that sort of thing? And is that going to put pressure on things? Quite frankly, I'm not sure why that would be the serving thing. I think if we saw that pressure put on unemployment, it would give the Fed the cover they need to actually reduce rates, which would be good for us. So I think we would treat that as a positive. We look at it as a positive that we are not getting those tariffs going on today, but we'll wait and see what a lot of these other actual implementation items look like versus the way they're talked about and maybe can talk more clearly on that in the future. But for now, we're going business as usual with the hope that we will see at least a couple of cuts by the Fed with the expectation that there may be none, and we'll run our business that way and continue to invest in the properties as we need to, to drive leasing. To the extent that we see the ability to bring in more tenants and that sort of thing from Trump's push, which -- the one benefit for us, and we don't expect to see more government entities coming into our buildings, given the locations that we're at. We have several GSA tenants. We don't expect more. Quite frankly, we don't want more. They're not great leases. But that will benefit other markets. That's going to benefit, I think, D.C., to some degree. Even as Trump talked about pushing folks out into other markets, which I think would be good for the U.S. as a whole. That will benefit other markets that have a significant amount of government employees and things like that to get them back into the office. And any strengthening there is going to help the market in terms of making banks more comfortable lending, making people more comfortable buying, and that is what we really need to see and hope to see by the end of this year. So as of now, we have no goals or intent to divest during 2025. I think we've talked about wanting to be able to do that by 2026. And I think the trends that we're starting to see, including Blackstone making a big announcement about an acquisition they'd like to make in New York as well as some other transactions that seem like they might be happening and some lenders that may be entering the market, that all bodes well for transaction on picking up some time probably in the second half of 2025, which would be right on target for what we've kind of projected and talked to people about for the last year plus, which would lead to us being in a good place to divest a building or two in 2026 as we hope to.

Got it. So the focus would be on occupancy improvement and resumption of distribution in 2026 remains the same.

Sorry, I forgot to answer that last piece. Yes, for resumption of distribution, we haven't seen anything that would change our original intent on that, which would be resumed in 2026. So you are correct. Thank you.

Okay. I think, again, just back to the question in terms of return to office and more people coming back. Have you seen any instances where your tenants give back a bit more space and now taking back that space? Or any tenants taking up more space just because they are calling more people to offices in your building, especially in Seattle?