Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- American Assets Trust Inc (AAT, Financial) successfully issued a 10-year $525 million bond at a 6.15% coupon, which was more than four times oversubscribed, enhancing liquidity and financial flexibility.
- The company's retail segment achieved its highest average base rent per square foot since its IPO, with positive leasing spreads and strong tenant sales growth.
- The multifamily portfolio showed stable performance with high occupancy rates and increased average base rents, particularly in San Diego.
- The office portfolio experienced positive net absorption with new leasing activity outpacing renewals for the first time since 2019.
- American Assets Trust Inc (AAT) declared a quarterly dividend of 33.5 cents per share, reflecting solid financial performance and confidence in future prospects.
Negative Points
- The office segment faced challenges with some right-sizing of existing tenants and small office closings, although these were offset by new leasing activity.
- Interest expense increased due to the new bond issuance, impacting FFO by approximately $0.03 per share in Q3 2024.
- The mixed-use portfolio experienced a decrease in NOI due to lower occupancy and higher expenses at the Embassy Suites Waikiki.
- Higher operating expenses at multifamily properties reduced FFO by approximately a penny in Q3 2024.
- The company faces uncertainty in the broader economic environment, including interest rates, elections, and consumer spending, which could impact future performance.
Q & A Highlights
Q: Can you provide more details on the office leasing activity, particularly the non-comparable leases?
A: Steve Center, Senior Vice President of Office Properties, explained that these leases were vacant for more than six months, so there was no prior rent to compare. One lease was for a new floor at La Jolla Commons Three, and another was a full-floor deal at Eastgate Office Park. Tenant improvements are in line with new long-term deals, around $10 to $15 per square foot per year of term.
Q: What is the near-term outlook for the office portfolio, and do you have a target occupancy rate for the coming years?
A: Steve Center noted that while it's premature to provide specific figures, the company is optimistic about the future. They have turned a corner with positive net absorption and increased new leasing activity. Known move-outs are being addressed with backfills, and they expect 2025 to be better than 2024.
Q: What is your interest in acquisitions, and how would you potentially fund them?
A: Ernest Rady, Chairman and CEO, stated that they have several options for managing debt and making acquisitions. They are focused on staying in their current markets, which they know well, and will consider opportunities as they arise.
Q: Can you discuss the performance expectations for your multifamily and retail assets in Q4 and into 2025?
A: Ernest Rady expressed caution due to economic uncertainties but emphasized that their assets are in excellent condition. They have upgraded several multifamily properties and maintain their retail assets in top shape. While the future is uncertain, they expect to perform as well as or better than their peers.
Q: Regarding the $0.30 of FFO upside from La Jolla Phase 3 and other projects, when do you expect these to stabilize?
A: Robert Barton, CFO, mentioned that about $0.18 of the upside is from La Jolla Commons, with the rest from suburban office markets. It's too early to provide a detailed forecast, but they will offer guidance for 2025 in the next quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
