American Assets Trust, Inc. Q3 FY2026 earnings call

• Financial Results: Reported FFO of 56 cents per diluted share, beating internal projections by 5 cents. This outperformance was largely driven by one-time items, including property tax refunds and the collection of a previously reserved office receivable.
• Leasing Momentum: Completed ~124,000 sq ft of office leasing with positive rent spreads. Entered Q4 with ~210,000 sq ft of executed but non-commenced leases. Spec suite program shows strong pre-leasing velocity (42% pre-leased before completion).
• Office Stabilization: Significant progress made on stabilizing La Jolla Commons Tower 3 (out for signature on two floors) and 1 Beach Street in San Francisco (exchanging proposals on remaining space). These transactions are key to improving occupancy at these major assets.
• Macro Environment: Acknowledged persistent inflation and higher interest rates impacting borrowing costs. All current debt is fixed-rate or swapped until March 2027. New construction starts are near historic lows, reinforcing the value of existing coastal assets.
• Capital Allocation: Board declared a quarterly dividend of 34 cents per share. Dividend payout ratio was elevated due to large tenant improvement reimbursements, but coverage is expected to improve as capital spending moderates and new leases commence.
• Balance Sheet: Ended quarter with ~$590 million in liquidity ($90M cash + $500M revolver). Net debt-to-EBITDA was 6.4x (quarterly annualized), above the long-term target of 5.5x.

• Office: Same-store cash NOI increased 7.9% year-over-year (4.8% excluding one-time items). Portfolio occupancy ended at approximately 86%, up nearly 400 basis points from the prior year.
• Retail: Same-store cash NOI increased 9.6% year-over-year (6.3% excluding one-time items). Portfolio occupancy was 98%. Achieved record average rental rates.
• Multifamily: Same-store cash NOI increased 10.2% overall (10.8% excluding RV park; 4.9% excluding tax refunds). San Diego communities were 97% leased and 95% occupied with 4% rent growth.
• Mixed-Use/Hotel: Same-store cash NOI increased 3.9%. Embassy Suites at Waikiki Beachwalk saw hotel NOI rise to approximately $3.1 million from $2.6 million a year ago, driven by an 13.3% increase in RevPAR.

• Raised full-year 2026 FFO guidance midpoint to $2.07 per diluted share (previously $2.03), representing a 2% increase.
• Updated full-year range to $2.04–$2.10 per diluted share (previously $1.96–$2.10).
• The upward revision reflects Q3 outperformance, leasing momentum, and one-time benefits like tax refunds and receivable collections.
• Management indicated potential to perform toward the upper end of the range if retail tenants meet obligations, multifamily outperforms, or the hotel segment delivers stronger results than currently anticipated.

• Interest Rate Exposure: Borrowing costs are expected to increase as fixed-rate debt matures in March 2027 and term loan swaps expire in January, impacting the 2027 outlook.
• Tenant Credit Risk: Approximately half a penny per share of FFO is reserved for tenants considered at risk, particularly in the retail sector, contingent on their ability to meet rent obligations amid inflationary pressures.
• Hotel Volatility: Waikiki Beachwalk hotel performance is sensitive to tourism trends and rate competition; while Q3 was strong, Q4 historically sees lower performance, and visibility has decreased due to shorter booking windows.
• Execution Risk: Several significant office leasing transactions (La Jolla Commons, 1 Beach Street) remain unexecuted and subject to completion; failure to finalize these could impact occupancy targets and stabilization timelines.

Q: Todd Thomas asked about confidence levels in executing pending office leases (La Jolla Commons, 1 Beach Street) and how rents compare to initial underwriting. / A: CEO Adam Wyll stated high confidence in short-order execution for La Jolla Commons, though more cautious on 1 Beach Street until documentation is issued. Leasing Executive Steve noted rents at La Jolla are within expectations, while 1 Beach Street is exceeding them. He clarified that 35% of signed-but-not-commenced rent starts in Q4, 60% in H1 2027, with no major conditions expected to delay commencement.