American Assets Trust, Inc. Q4 FY2025 earnings call

• Adam Wyll noted 2025 FFO per share $2, 3% above initial expectations, portfolio-wide same-store NOI ended slightly positive. Office made progress leasing newer and redeveloped space, retail was stable with low vacancy, multifamily worked through new supply, hotel in Waikiki had softer year. Priorities for 2026: drive office leasing, maintain retail momentum, manage multifamily supply cycle, operate hotel prudently, strengthen balance sheet. - Robert Barton discussed 2025 FFO per share $0.47 and $2 for full year, same-store cash NOI changes by segment, liquidity, leverage, dividend payout ratio, 2026 guidance including FFO range and factors driving it

Office: Portfolio-wide same-store NOI slightly positive for the year, office portfolio ended the quarter 83% leased, same-store office NOI increased just over 1% for the quarter and nearly 2.5% for the full year; Retail: Ended the year at 98% leased, 26% of portfolio NOI, fourth quarter leasing totaled 43,000 square feet, leasing spreads 7% cash and 22% GAAP for the year; Multifamily: Ended the year 95.5% leased, excluding the RV Park, achieved approximately 1% net effective rent growth year-over-year, operating conditions influenced by new supply; Mixed-use: Declined 6.7% in 2025 versus 2024 due to softer Waikiki hotel demand, higher operating expenses

2026 FFO per share guidance range $1.96 to $2.10, midpoint $2.03, ~1.5% increase over 2025. Same-store cash NOI for all segments combined excluding reserves expected to increase 2.2% in 2026. Non-same-store cash NOI from La Jolla Commons III and Genesee Park expected to contribute ~$0.03 per share. Credit reserves budgeted to reduce 2026 FFO by ~$0.04 per share. G&A budgeted to decline contributing ~$0.04 per share. Interest expense expected to increase, other income lower, nonrecurring termination fees not included, 2026 GAAP adjustments expected to increase FFO, no contribution from Del Monte Center

Macro uncertainty persists, public market valuation may not reflect intrinsic value, office market conditions normalize at different paces, multifamily influenced by new supply, credit reserves set due to macro environment uncertainty

Q: Appreciate all the detail. Maybe I wanted to start with the office portfolio. I noticed that TIs, especially for renewals were elevated. I guess I'm curious if that's the strategic decision you're making there, more reflective of a weak demand environment, concerns about AI? And what can you tell us about the conversations for your upcoming expirations? The rents on some of those, I think, are pretty elevated. Curious kind of how that compares to current market.

A: Let me kick that off, and I'll hand it over to Steve real quick. And hello, Haendel, nice to have you on the call today. As you know, it's true that office leasing today obviously carries a higher capital burden than pre-pandemic, mainly from whether that's amenities or TIs, commissions and the investment needed to deliver space that's move-in ready. And we expect that to moderate over time as occupancy improves and availability tightens, particularly in our better buildings and submarkets. The pricing power and the concession levels will tend to normalize. But Steve's got some more specific information in particular to our portfolio that he can share on that front. Steve Center: Haendel, good question. And there's a really positive answer to it. Really, it skewed high because of Autodesk going as long as they could on the second floor, which is a critical space for them. They approached us to add term early. So their lease wasn't up for a couple of years, but that second floor is critical to them. So they came to us and said, would you extend? And we did that at almost -- well, a very positive rate, and we gave them $35 a foot TIs to do so. And that's a big -- that's 45,000 feet. So added to that Smartsheet did the same thing. They extended their second floor space, which is where the company gathers. They extended it by 6 years. They came to us early, said, this is a critical space for us. We want to rejigger it. And so we need some money to do that, and we want to go 6 years longer. So when you strip those two renewals out of the metric on the TIs, the remainder is at $6.41, versus $31. So I would agree... Adam Wyll: Yes, those two don't create a trend. Those are an anomaly.

Q: I wanted to also ask about the balance sheet, Bob. I know you've got some pretty good liquidity on hand. The leverage is still sitting here at kind of 7x plus EBITDA. You mentioned the 5.5x target. I guess I'm curious if there's any sense of time line to get there? I'm presuming that's going to come from kind of internal cash flow. But just curious kind of what the steps and potential time line to get to that target. Any thoughts there would be appreciated.

A: Haendel, good question. The time line is really -- as soon as we lease up La Jolla Commons III and One Beach, and Steve will have more information on that in a few minutes. But the sooner we can get those properties leased up, we will be at the very low end of 6x. And then from there, we'll work down to the 5.5x. We were at 5.5x before COVID. So a lot of things have happened. But anyway, that's the time line.

Q: Adam, just going back to some of the comments you made in your initial remarks, I understand the frustration with the stock. And obviously, it seems front and center for you guys. I guess just curious on kind of what some of the steps you might be willing to take there beyond the kind of the execution as you laid out? Are you open to any strategic asset sales to capture that arbitrage between where the private market is, where your stock is trading? Any asset sales? I mean, anything that perhaps you see that you can -- from an action perspective, steps you could take to really reinvigorate the stock, the multiple?

A: Yes, that's a good question. It's a billion-dollar question. Look, Haendel, we continue to be pragmatic on asset sales. If we can sell an asset at a price we think reflects long-term value and redeploy those proceeds to improve the balance sheet, or fund higher return opportunities, we'll do that. But we're not going to sell assets at a discount just to check a box either. So the main messaging for us is more so discipline. And as retail continues to perform well and office really seems to be improving from what we're seeing, we feel like we have time on our side to be selective. So to kind of force that issue is not something we're going to do. But we'll continue to look at opportunities. The bar is high for us to find something to buy. We would certainly need a compelling basis, durable cash flows, a clear path to value creation. And at today's pricing and financing levels, that's a much narrower set for us. So we're just trying to be smart with what we've got and not chase external growth for the sake of activity.

Q: First, I just wanted to ask about the guidance assumptions in the office segment first related to the 86% to 88% year-end lease rate. Relative to where you ended the year, 83.1% for the total portfolio. Where are you today pro forma what's been leased already year-to-date, including One Beach Street where it sounds like there's been some good progress and all of the known move-outs that you discussed? I'm just trying to get a sense for how much of that target is speculative in nature as you move through the year.

A: So right now, I think Adam mentioned it, we've got -- we signed 68,000 feet in 11 deals already this year. And we have another 13 deals in lease documentation for a total of 214,000 feet. And then behind that, we've got another 235,000 feet of proposals that I'd put better than 50-50. So the pipeline is significant. They're in that 86% to 88%. There is speculative leasing. But we've had some really interesting positive surprises lately. For instance, we had a full floor tenant in Portland that was a known move-out that came back and said, we're no longer interested in moving to the suburbs. We're back to being committed to the downtown market. And so we have RFPs to renew them, and downsize them, slightly in the existing space that they're in. And also our First & Main property is a candidate for them as well. But candidly, we think we're going to get a letter of intent today that makes First & Main not a viable alternative anymore. So that's one example. We've had tenants come out of nowhere that turn into leases, looking at a spec suite, touring it 1 week and then we're in leases the next. That happened at Torrey Reserve. That happened -- we had a tenant that thought they were going to be purchased. This is City Center Bellevue, a 7,000-foot space. They thought they were going to be purchased. They turned it down, took additional VC money. And now they signed a lease for 7,000 feet there. And we had another one do the same thing at City Center. So we're seeing a lot of positive surprises, and we're fortunate we've been making the investment to make these spaces ready to move into because we're reaping the benefits of that now. So to that end, at La Jolla Commons III, for example, we spec-ed out the fourth floor and with a lease that we have out for Signature, we have one space left on that floor. We're delivering the fifth floor spaces later this year, end of summer, early fall. We've already leased one of them, and we're in play on a handful of others. So the spec suite development and delivery leads to very quick lease -- we can convert to leases and cash flow. And so I think we're speccing about 44% of our vacancy right now. And so with these experiences I'm telling you about and the pipeline we've got ahead of us, we're feeling pretty good.

Q: And then is there additional leasing assumed in the non-same-store portfolio, I guess, primarily La Jolla Phase III as it pertains to the guidance? I guess I would have thought that the contribution from lease-up could be potentially more meaningful. What's assumed in the guidance for lease-up at La Jolla Phase III?

A: Yes. Well, what we said -- I mean, is driven primarily by the two assets, La Jolla Commons III and Genesee Park. So La Jolla Commons III, I think Steve touched on that just a minute ago. So -- yes, we've put approximately -- the two assets together was approximately $0.03 per share of FFO that's contributing on the non-same-store cash NOI. Adam Wyll: And Todd, as we -- this is first-generation space at La Jolla Commons III. So we're not reflecting those rents until they commence and those are later in the year.

Q: Okay. Got it. Right. So there's concessions initially. I guess, Bob, yes, you've talked about $0.30 of FFO from the combination of La Jolla, One Beach, and I think the Bellevue redevelopments. Can you sort of provide an update as to how much of that is expected to be online in '26, versus how much more there is to come beyond '26 from that -- from those assets and the lease-up and stabilization?

A: Yes, we can put something together, but I don't -- kind of put those numbers together with the activity that Steve has just recently seen at One Beach. I think it's going to be positive, significantly positive. But Steve, do you want to mention anything on that? Steve Center: Well, sure. The first lease signed at One Beach, 13,000 feet roughly on -- that's going to commence April 2. That's when we move them in. And then that same tenant is taking the rest of the floor. That lease commences February 1 of next year. And there's 2 months of free rent on that one. So you're going to get a bunch of cash flow next year from that one. The spec suites are -- at La Jolla Commons III are going to produce revenue this year. We've got a larger tenant for 25,000 feet that we're in lease documentation with that will take us to -- and one spec suite in play that will take us to 50% leased. The small spec suite 4,000 feet, that rent will commence immediately as soon as we sign the lease. And then the larger deal will take some time to build out. That's going to be a tenant build that will start paying rent next year. And then let's talk about 14Acres or Eastgate. We've got a spec suite program in place there, but we've got several deals that are signed already, or in the process of being signed that will kick in. So we've made really good progress there. That's one where we have known move-outs that are offsetting that progress, but we're leasing the spaces that we're delivering in spec conditions. So that's another big contributor. Robert Barton: Yes. So Todd, just to get back to your question on that $0.30 that we had talked about on one of our presentations, and we'll update that in the next month or so. But basically, I stick to that $0.30. It's just a question of timing. Steve Center: 14Acres in Q4, we signed two deals totaling 19,000 feet. At La Jolla Commons III, we signed three deals totaling 17,500 feet. One Beach, we signed the 13,000 footer, and we just signed yesterday the remainder of that third floor. So that's just some color on Q4 and where we are right now.

Q: Most of my questions have already been asked. But I guess just going -- maybe speaking a little bit to the credit reserves of $0.04 that you guys have baked in the guidance. Can you kind of just talk about that? I know you mentioned half office, half retail, but are these sort of tenants that are -- have a looming bankruptcy? Or are you guys, just sort of, baking in some sort of conservatism as we get into 2026 here?

A: Yes, Dylan. So on the retail side, which we mentioned is a steadier part of the portfolio. We're not really seeing much of a broad-based deterioration in tenant health right now. And so our watch list is manageable. We're keeping an eye on a theater in one of our projects and maybe a few on the fringe like pet supply companies. But other than potentially mom-and-pops, there's nothing on the radar that we're expecting. So we're just kind of taking a kind of a generalized reserve on retail. And then on the office side, it's kind of a hybrid of credit reserve and speculative leasing reserve. Like we're ambitious in our office leasing expectations and the credit quality, of course, but we want to be measured, too. So there's no specific office tenant that we have kind of acute concerns about. But we're just going to take a reserve because things fall out throughout the year every so often, and we just want to model appropriately.

Q: That's helpful. And then maybe just touching on the office side of things. You guys mentioned expectations for a big jump in office lease percentage this year. I guess, how do you guys sort of envision the path back to sort of 90% plus occupancy? Do you guys view that as sort of being able to do that in the next sort of 2 years? Or is that sort of more a longer-term goal in your guys' mind?

A: I would say 2 years is reasonable. Adam Wyll: I mean it's within the realm of reason for sure, but we don't want to overpromise that. That's our goal to get back to the 90% threshold, but we're going to take it a year at a time or quarter-to-quarter and get there. But we're really poised to do it. Now we've made the investment in the spec suites. There'll be -- everything we're doing is completed this year. So we've got really -- a lot of great inventory that's not going to take a bunch of time to deliver. So we're anticipating some good results.