American Assets Trust, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• General Strategy: Approach every cycle with mindset to stay nimble, thoughtful, and true to strategy, investing in high-quality assets and maintaining balance sheet strength.
• Office Portfolio: Focus on fundamentals like financial strength, operational excellence, and completed renovations. Leasing activity ongoing, with 102,000 sq ft leased in Q2.
• Retail Portfolio: Strong performance backed by healthy consumer demand. Executed significant new and renewal leases with positive rent spreads.
• Multifamily Portfolio: Navigating competitive leasing environment in San Diego, but communities demonstrated stability. Genesee Park acquisition performing as expected.
• Mixed-use (Waikiki): Despite NOI decline, Embassy Suites leads competitive set in RevPAR. Retail component of mixed-use shows growth.
• Dividend and Sustainability: Board approved $0.34 per share quarterly dividend for Q3; published 2024 sustainability report highlighting environmental, social, governance, and human capital initiatives.

Segment Performance

• Office: Ended Q2 at 82% leased; same-store office (excluding One Beach and La Jolla Commons III) ended at 87% leased. Same-store office cash NOI was flat in Q2 and up over 2% year-to-date. Approximately 102,000 square feet of leasing completed, with comparable rent spreads decreasing 2% on a cash basis and increasing 10% on a straight-line basis.
• Retail: Ended Q2 at 98% leased with same-store cash NOI growth of 4.5%. Executed over 220,000 square feet of new and renewal leases in Q2, with spreads increasing over 7% on a cash basis and 22% on a straight-line basis.
• Multifamily: Ended Q2 approximately 94% leased. Achieved rent increases of 7% on renewals and 4% on new leases for a blended rent increase of 6%. Excluding Genesee Park acquisition, rent increases were 6% on renewals, 2% on new leases for a 4% blended increase.
• Mixed-use (Waikiki Beach Walk): NOI declined 5% compared to Q2 last year, driven by softer performance at Embassy Suites. Retail component NOI grew 7% year-over-year, but hotel was down approximately 15% due to lower paid occupancy, RevPAR, and rate competition.

Guidance

• Increased full-year 2025 FFO per share guidance range to $1.89 to $2.01, with a midpoint of $1.95, an increase of $0.01 from initial guidance. Assumes stable environment and sustained tenant demand.
• Outperforming toward the high end would require office/retail tenants to meet rent obligations, multifamily exceeding expectations, and tourism recovery in the last half of the year.

Risks

• Waikiki Hotel: Soft domestic leisure demand, rate competition, global economic uncertainty impacting hotel performance. Elevated labor costs and room expenses affecting margins.
• Multifamily Competition: New supply in San Diego creating a more competitive leasing environment.

Question and Answer

• Q: Regarding guidance, any changes to same-store NOI growth outlook?

A: Still on track, some segments may outperform/underperform; office possibly better, hotel potentially worse.

• Q: Leasing pipeline for One Beach and La Jolla Commons III?

A: Increased touring activity. One Beach seeing larger deal sizes, La Jolla Commons III to see acceleration with completed amenities and conference center.

• Q: Thoughts on multifamily renewals vs new leases spread?

A: San Diego and Portland markets differing; San Diego has saturation but properties in unbeatable locations.

• Q: Hotel demand from Japan?

A: Tough to predict, but Oahu tourism from Japan is incrementally picking up, but geopolitics and economic uncertainty impact. Still outperforming competitive set in RevPAR.

• Q: Leasing upside pipeline?

A: Predominantly office, with La Jolla Commons III, One Beach, and suburban Bellevue assets contributing to ~$0.30 upside, including signed leases not yet commenced.