• American Assets Trust, Inc. Reports First Quarter 2022 Financial Results

    Source: Nasdaq GlobeNewswire / 26 Apr 2022 15:15:33   America/Chicago

    Net income available to common stockholders of $10.5 million for the first quarter, or $0.18 per diluted share.

    Funds From Operations per diluted share increased 50% year-over-year for the first quarter to $0.57 per diluted share.

    Increased 2022 FFO per diluted share guidance to a range of $2.13 to $2.21 with a midpoint of $2.17.

    SAN DIEGO, April 26, 2022 (GLOBE NEWSWIRE) -- American Assets Trust, Inc. (NYSE: AAT) (the “company”) today reported financial results for its first quarter ended March 31, 2022.

    First Quarter Highlights

    • Net income available to common stockholders of $10.5 million for the first quarter, or $0.18 per diluted share.
    • Funds From Operations ("FFO") increased 50% year-over-year to $0.57 per diluted share for the first quarter.
    • Same-store cash Net Operating Income ("NOI") increased 18.3% year-over-year for the first quarter.
    • Increased 2022 FFO per diluted share guidance to a range of $2.13 to $2.21 with a midpoint of $2.17, an approximately 2% increase over the initial 2022 guidance midpoint of $2.13.
    • Leased approximately 104,000 comparable office square feet at an average straight-line basis and cash-basis contractual rent increase of 18% and 13%, respectively, during the first quarter.
    • Leased approximately 78,000 comparable retail square feet at an average straight-line basis and cash-basis contractual rent increase of 14% and decrease of 6%, respectively, during the first quarter.

    Amended and Restated Credit Facility

    • In January 2022, the credit facility was amended and restated to, among other things, increase the borrowing capacity to $400 million, extend the maturity date for revolving line of credit and $100 million term loan to January 5, 2026 and January 5, 2027, respectively and transition from LIBOR to SOFR.

    Acquisition Activity

    • Acquired Bel-Spring 520 on March 8, 2022, consisting of approximately 93,000 square foot, multi-tenant office campus located less than five minutes away from downtown Bellevue, Washington for approximately $46 million.

    Financial Results

    Net income attributable to common stockholders was $10.5 million, or $0.18 per basic and diluted share for the three months ended March 31, 2022 compared to $1.3 million, or $0.02 per basic and diluted share for the three months ended March 31, 2021. The year-over-year increase in net income attributable to common stockholders is primarily due to (i) a $2.4 million net increase in income at our Waikiki Beach Walk - Embassy Suites due to increased tourism into Hawaii, (ii) a $4.9 million net increase in retail revenue (including the retail portion of our mixed-use portfolio), due to tenants who changed to alternate rent or cash basis of revenue recognition (with some of these tenants later reverting back to contractual basic monthly rent), and (iii) a $4.3 million debt extinguishment charge related to the repayment of the company's Senior Guaranteed Notes, Series A on January 26, 2021, not incurred in 2022.

    During the first quarter of 2022, the company generated FFO for common stock and common units of $43.8 million, or $0.57 per diluted share and unit, compared to $29.1 million, or $0.38 per diluted share and unit, for the three months ended March 31, 2021. The increase in FFO from the corresponding period in 2021 was primarily due to an increase in revenue at our Waikiki Beach Walk - Embassy SuitesTM, and an increase in revenue in our retail segment. Additionally, there was an increase in FFO from our recent acquisitions of Eastgate Office Park and Corporate Campus East III in July 2021 and September 2021, respectively, and Bel-Spring 520 in March 2022. Additionally, there was an increase in FFO related to the above described 2021 debt extinguishment charge.

    FFO is a non-GAAP supplemental earnings measure which the company considers meaningful in measuring its operating performance. A reconciliation of FFO to net income is attached to this press release.

    Leasing

    The portfolio leased status as of the end of the indicated quarter was as follows:
                    

     March 31, 2022December 31, 2021March 31, 2021
    Total Portfolio   
    Office91.5%90.4%91.4%
    Retail92.2%92.6%90.8%
    Multifamily94.8%96.0%91.9%
    Mixed-Use:   
    Retail94.3%89.6%88.2%
    Hotel72.8%66.4%47.5%
        
    Same-Store Portfolio  
    Office (1)95.6%93.6%93.7%
    Retail92.2%92.6%90.8%
    Multifamily94.8%96.0%91.9%
    Mixed-Use:   
    Retail94.3%89.6%88.2%
    Hotel72.8%66.4%47.5%


    (1) Same-store office leased percentages excludes (i) One Beach Street due to significant redevelopment activity; (ii) Eastgate Office Park which was acquired on July 7, 2021; (iii) Corporate Campus East III which was acquired on September 10, 2021; (iv) Bel-Spring 520 which was acquired on March 8, 2022 and (v) land held for development.

    During the first quarter of 2022, the company signed 39 leases for approximately 257,700 square feet of office and retail space, as well as 295 multifamily apartment leases. Renewals accounted for 80% of the comparable office leases, 94% of the comparable retail leases, and 60% of the residential leases.

    Office and Retail
    On a comparable space basis (i.e. leases for which there was a former tenant) during the first quarter of 2022 and trailing four quarters ended March 31, 2022, our retail and office leasing spreads are shown below:

      Number
    of
    Leases
    Signed    		Comparable
    Leased
    Sq. Ft.    		Average Cash
    Basis %
    Change Over
    Prior Rent     		Average
    Cash
    Contractual
    Rent Per
    Sq. Ft.    		Prior Average
    Cash
    Contractual
    Rent Per Sq. Ft.    		Straight-Line
    Basis %
    Change Over
    Prior Rent
    Office

    		Q1 202210104,00012.5%$77.58$68.9417.6%
    Last 4 Quarters38228,00013.1%$61.25$54.1619.1%
            
    Retail

    		Q1 20221678,000(5.8)%$35.05$37.2013.5%
    Last 4 Quarters81365,000(10.8)%$39.43$44.20(1.6)%

    Multifamily
    The average monthly base rent per leased unit for multifamily properties for the first quarter of 2022 was $2,217 compared to an average monthly base rent per leased unit of $2,174 for the first quarter of 2021, which is an increase of approximately 2%.

    Same-Store Cash Net Operating Income

    For the three months ended March 31, 2022, same-store cash NOI increased 18.3% compared to the three months ended March 31, 2021. The same-store cash NOI by segment was as follows (in thousands):

     Three Months Ended (1)   
     March 31,   
     2022 2021 Change
    Cash Basis:      
    Office$29,488 $26,291 12.2%
    Retail 16,694  16,290 2.5 
    Multifamily 8,021  7,107 12.9 
    Mixed-Use 4,602  1 460,100.0 
    Same-store Cash NOI$58,805 $49,689 18.3%


    (1) Same-store portfolio excludes (i) One Beach Street, due to significant redevelopment activity; (ii) Eastgate Office Park which was acquired on July 7, 2021; (iii) Corporate Campus East III which was acquired on September 10, 2021; (iv) Bel-Spring 520 which was acquired on March 8, 2022 and (v) land held for development.

    Same-store cash NOI is a non-GAAP supplemental earnings measure which the company considers meaningful in measuring its operating performance. A reconciliation of same-store cash NOI to net income is attached to this press release.

    Credit Facility

    On January 5, 2022, our credit facility was amended and restated to, among other things, increase the revolving line of credit from $350 million to $400 million, extend the maturity date of the amended $400 million revolving line of credit to January 5, 2026 (with two, six-month extension options), and extend the maturity of the $100 million term loan ("2022 Term Loan A") included within the credit facility to January 5, 2027 (with no further extension options). On January 14, 2022, the company entered into interest rate swap agreements that are intended to fix the interest rate associated with the 2022 Term Loan A at approximately 2.70% through January 5, 2027, subject to adjustments based on our consolidated leverage ratio.

    Balance Sheet and Liquidity

    At March 31, 2022, the company had gross real estate assets of $3.6 billion and liquidity of $473.6 million, comprised of cash and cash equivalents of $73.6 million and $400.0 million of availability on its line of credit. At March 31, 2022, the company has only 1 out of 31 assets encumbered by a mortgage.

    Dividends

    The company declared dividends on its shares of common stock of $0.32 per share for the first quarter of 2022. The dividends were paid on March 24, 2022.

    In addition, the company has declared a dividend on its common stock of $0.32 per share for the second quarter of 2022. The dividend will be paid in cash on June 23, 2022 to stockholders of record on June 9, 2022.

    Guidance

    The company increased its 2022 FFO per diluted share guidance to a range of $2.13 to $2.21 per share, an increase of approximately 2% at midpoint from the initial 2022 FFO per diluted share guidance range of $2.09 to $2.17 per share.

    The company's guidance excludes any impact from future acquisitions, dispositions, equity issuances or repurchases, debt financings or repayments. Management will discuss the company's guidance in more detail on tomorrow's earnings call. The foregoing estimates are forward-looking and reflect management's view of current and future market conditions, including certain assumptions with respect to leasing activity, rental rates, occupancy levels, interest rates, credit spreads and the amount and timing of acquisition and development activities. The company's actual results may differ materially from these estimates.

    Conference Call

    The company will hold a conference call to discuss the results for the first quarter of 2022 on Wednesday, April 27, 2022 at 8:00 a.m. Pacific Time (“PT”). To participate in the event by telephone, please dial 1-877-868-5513 and use the pass code 8999043. A telephonic replay of the conference call will be available beginning at 2:00 p.m. PT on Wednesday, April 27, 2022 through Wednesday, May 4, 2022. To access the replay, dial 1-855-859-2056 and use the pass code 8999043. A live on-demand audio webcast of the conference call will be available on the company's website at www.americanassetstrust.com. A replay of the call will also be available on the company's website.

    Supplemental Information

    Supplemental financial information regarding the company's first quarter 2022 results may be found on the "Financial Reporting" tab of the “Investors” page of the company's website at www.americanassetstrust.com. This supplemental information provides additional detail on items such as property occupancy, financial performance by property and debt maturity schedules.

    Financial Information
    American Assets Trust, Inc.
    Consolidated Balance Sheets
    (In Thousands, Except Share Data)

     March 31, 2022 December 31, 2021
    Assets(unaudited)  
    Real estate, at cost     
    Operating real estate$3,440,692  $3,389,726 
    Construction in progress 159,066   139,098 
    Held for development 547   547 
      3,600,305   3,529,371 
    Accumulated depreciation (868,848)  (847,390)
    Real estate, net 2,731,457   2,681,981 
    Cash and cash equivalents 73,573   139,524 
    Accounts receivable, net 7,876   7,445 
    Deferred rent receivables, net 85,551   82,724 
    Other assets, net 112,677   106,253 
    Total assets$3,011,134  $3,017,927 
    Liabilities and equity     
    Liabilities:     
    Secured notes payable, net$110,976  $110,965 
    Unsecured notes payable, net 1,538,052   1,538,238 
    Unsecured line of credit, net —   — 
    Accounts payable and accrued expenses 68,797   64,531 
    Security deposits payable 8,280   7,855 
    Other liabilities and deferred credits, net 79,142   86,215 
    Total liabilities 1,805,247   1,807,804 
    Commitments and contingencies     
    Equity:     
    American Assets Trust, Inc. stockholders' equity     
    Common stock, $0.01 par value, 490,000,000 shares authorized, 60,522,043 and 60,525,580 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively 605   605 
    Additional paid-in capital 1,454,746   1,453,272 
    Accumulated dividends in excess of net income (226,474)  (217,785)
    Accumulated other comprehensive income 7,063   2,872 
    Total American Assets Trust, Inc. stockholders' equity 1,235,940   1,238,964 
    Noncontrolling interests (30,053)  (28,841)
    Total equity 1,205,887   1,210,123 
    Total liabilities and equity$3,011,134  $3,017,927 

    American Assets Trust, Inc.
    Unaudited Consolidated Statements of Operations
    (In Thousands, Except Shares and Per Share Data)

     Three Months Ended March 31,
      2022   2021 
    Revenue:   
    Rental income$96,986  $81,130 
    Other property income 4,484   2,856 
    Total revenue 101,470   83,986 
    Expenses:   
    Rental expenses 24,145   18,246 
    Real estate taxes 11,429   11,354 
    General and administrative 7,142   6,823 
    Depreciation and amortization 30,412   27,501 
    Total operating expenses 73,128   63,924 
    Operating income 28,342   20,062 
    Interest expense (14,666)  (14,005)
    Loss on early extinguishment of debt —   (4,271)
    Other (expense) income, net (162)  (53)
    Net income 13,514   1,733 
    Net income attributable to restricted shares (155)  (137)
    Net income attributable to unitholders in the Operating Partnership (2,836)  (339)
    Net income attributable to American Assets Trust, Inc. stockholders$10,523  $1,257 
        
    Net income per share   
    Basic income attributable to common stockholders per share$0.18  $0.02 
    Weighted average shares of common stock outstanding - basic 60,038,683   59,984,335 
        
    Diluted income attributable to common stockholders per share$0.18  $0.02 
    Weighted average shares of common stock outstanding - diluted 76,220,220   76,165,872 
        
    Dividends declared per common share$0.32  $0.28 

    Reconciliation of Net Income to Funds From Operations
    The company's FFO attributable to common stockholders and operating partnership unitholders and reconciliation to net income is as follows (in thousands except shares and per share data, unaudited):

     Three Months Ended
     March 31, 2022
    Funds From Operations (FFO)  
    Net income$13,514 
    Depreciation and amortization of real estate assets 30,412 
    FFO, as defined by NAREIT$43,926 
    Less: Nonforfeitable dividends on restricted stock awards (153)
    FFO attributable to common stock and units$43,773 
    FFO per diluted share/unit$0.57 
    Weighted average number of common shares and units, diluted 76,224,367 

    Reconciliation of Same-Store Cash NOI to Net Income
    The company's reconciliation of Same-Store Cash NOI to Net Income is as follows (in thousands, unaudited):

     Three Months Ended (1)
     March 31,
      2022   2021 
    Same-store cash NOI 58,805  $49,689 
    Non-same-store cash NOI 2,473   25 
    Tenant improvement reimbursements (2) 158   69 
    Cash NOI$61,436  $49,783 
    Non-cash revenue and other operating expenses (3) 4,460   4,603 
    General and administrative (7,142)  (6,823)
    Depreciation and amortization (30,412)  (27,501)
    Interest expense (14,666)  (14,005)
    Loss on early extinguishment of debt —   (4,271)
    Other (expense) income, net (162)  (53)
    Net income$13,514  $1,733 
        
    Number of properties included in same-store analysis 27   25 


    (1) Same-store portfolio excludes (i) One Beach Street, due to significant redevelopment activity; (ii) Eastgate Office Park which was acquired on July 7, 2021; (iii) Corporate Campus East III which was acquired on September 10, 2021; (iv) Bel-Spring 520 which was acquired on March 8, 2022 and (v) land held for development.
    (2) Tenant improvement reimbursements are excluded from same-store cash NOI to provide a more accurate measure of operating performance.
    (3) Represents adjustments related to the straight-line rent income recognized during the period offset by cash received during the period and the provision for bad debts recorded for deferred rent receivable balances; net change in lease receivables (solely with respect to Q2 2020 through Q4 2021), the amortization of above (below) market rents, the amortization of lease incentives paid to tenants, the amortization of other lease intangibles, and straight-line rent expense for our lease of the Annex at The Landmark at One Market.

    Reported results are preliminary and not final until the filing of the company's Form 10-Q with the Securities and Exchange Commission and, therefore, remain subject to adjustment.

    Use of Non-GAAP Information
    Funds from Operations
    The company calculates FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("NAREIT"). FFO represents net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, impairment losses, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures.

    FFO is a supplemental non-GAAP financial measure. Management uses FFO as a supplemental performance measure because it believes that FFO is beneficial to investors as a starting point in measuring the company's operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year-over-year, captures trends in occupancy rates, rental rates and operating costs. The company also believes that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare the company's operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of the company's properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of the company's properties, all of which have real economic effects and could materially impact the company's results from operations, the utility of FFO as a measure of the company's performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the NAREIT definition as the company does, and, accordingly, the company's FFO may not be comparable to such other REITs' FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of the company's performance. FFO should not be used as a measure of the company's liquidity, nor is it indicative of funds available to fund the company's cash needs, including the company's ability to pay dividends or service indebtedness. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

    Cash Net Operating Income
    The company uses NOI internally to evaluate and compare the operating performance of the company's properties. The company believes cash NOI provides useful information to investors regarding the company's financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level, and when compared across periods, can be used to determine trends in earnings of the company's properties as this measure is not affected by (1) the non-cash revenue and expense recognition items, (2) the cost of funds of the property owner, (3) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP or (4) general and administrative expenses and other gains and losses that are specific to the property owner. The company believes the exclusion of these items from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating the company's properties as well as trends in occupancy rates, rental rates and operating costs. Cash NOI is a measure of the operating performance of the company's properties but does not measure the company's performance as a whole. Cash NOI is therefore not a substitute for net income as computed in accordance with GAAP.

    Cash NOI is a non-GAAP financial measure of performance. The company defines cash NOI as operating revenues (rental income, tenant reimbursements, lease termination fees, ground lease rental income and other property income) less property and related expenses (property expenses, ground lease expense, property marketing costs, real estate taxes and insurance), adjusted for non-cash revenue and operating expense items such as straight-line rent, net change in lease receivables (solely with respect to Q2 2020 through Q4 2021), amortization of lease intangibles, amortization of lease incentives and other adjustments. Cash NOI also excludes general and administrative expenses, depreciation and amortization, interest expense, other nonproperty income and losses, acquisition-related expense, gains and losses from property dispositions, extraordinary items, tenant improvements, and leasing commissions. Other REITs may use different methodologies for calculating cash NOI, and accordingly, the company's cash NOI may not be comparable to the cash NOIs of other REITs.

    About American Assets Trust, Inc.
    American Assets Trust, Inc. is a full service, vertically integrated and self-administered real estate investment trust ("REIT"), headquartered in San Diego, California. The company has over 50 years of experience in acquiring, improving, developing and managing premier office, retail, and residential properties throughout the United States in some of the nation’s most dynamic, high-barrier-to-entry markets primarily in Southern California, Northern California, Washington, Oregon, Texas and Hawaii.  The company's office portfolio comprises approximately 4.0 million rentable square feet, and its retail portfolio comprises approximately 3.1 million rentable square feet. In addition, the company owns one mixed-use property (including approximately 94,000 rentable square feet of retail space and a 369-room all-suite hotel) and 2,112 multifamily units. In 2011, the company was formed to succeed to the real estate business of American Assets, Inc., a privately held corporation founded in 1967 and, as such, has significant experience, long-standing relationships and extensive knowledge of its core markets, submarkets and asset classes. For additional information, please visit www.americanassetstrust.com.

    Forward Looking Statements
    This press release may contain forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: the impact of epidemics, pandemics, or other outbreaks of illness, disease or virus (such as the outbreak of COVID-19 and its variants) and the actions taken by government authorities and others related thereto, including the ability of our company, our properties and our tenants to operate; adverse economic or real estate developments in our markets; our failure to generate sufficient cash flows to service our outstanding indebtedness; defaults on, early terminations of or non-renewal of leases by tenants, including significant tenants; difficulties in identifying properties to acquire and completing acquisitions; difficulties in completing dispositions; our failure to successfully operate acquired properties and operations; our inability to develop or redevelop our properties due to market conditions; fluctuations in interest rates and increased operating costs; risks related to joint venture arrangements; our failure to obtain necessary outside financing; on-going litigation; general economic conditions; financial market fluctuations; risks that affect the general retail, office, multifamily and mixed-use environment; the competitive environment in which we operate; decreased rental rates or increased vacancy rates; conflicts of interests with our officers or directors; lack or insufficient amounts of insurance; environmental uncertainties and risks related to adverse weather conditions and natural disasters; other factors affecting the real estate industry generally; limitations imposed on our business and our ability to satisfy complex rules in order for us to continue to qualify as a REIT for U.S. federal income tax purposes; and changes in governmental regulations or interpretations thereof, such as real estate and zoning laws and increases in real property tax rates and taxation of REITs. While forward-looking statements reflect the company's good faith beliefs, assumptions and expectations, they are not guarantees of future performance. For a further discussion of these and other factors that could cause the company's future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the company's most recent annual report on Form 10-K, and other risks described in documents subsequently filed by the company from time to time with the Securities and Exchange Commission. The company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes.

    Source: American Assets Trust, Inc.

    Investor and Media Contact:
    American Assets Trust
    Robert F. Barton
    Executive Vice President and Chief Financial Officer
    858-350-2607


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