American Assets Trust, Inc.

Good morning, and welcome to the American Assets Trust, Inc.' 's second quarter 2025 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. I would now like to turn the call over to Meliana Leverton, Associate General Counsel of American Assets Trust. Please go ahead.

Thank you, and good morning. The statements made on this earnings call include forward-looking statements based on current expectations, which statements are subject to risks and uncertainties discussed in the company's filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, as actual events could cause the company's results to differ materially from these forward-looking statements. Yesterday afternoon, American Assets Trust's earnings release and supplemental information were furnished to the SEC on Form 8K. Both are now available on the investor section of its website, AmericanAssetsTrust.com. It is now my pleasure to turn the call over to Adam Weil, President and CEO of American Assets Trust.

Good morning, everyone. At American Assets Trust, we approach every cycle with the same mindset. Stay nimble, stay thoughtful, and stay true to our strategy. Investing in our high-quality assets, maintaining balance sheet strength, and creating long-term value for our shareholders. That consistency has carried us through challenging environments before, and we believe it continues to serve us well today as we navigate elevated interest rates, persistent inflation, tariff uncertainty, and evolving tenant demand. In the second quarter of 2025, our results came in just above our own expectations. FFO per diluted share was $0.52, and same store, cash in a Y, was approximately flat for Q2 and up 1.4% year-to-date compared to the prior year. These results reflect steady performance in a mixed operating environment and underscore the resilience of our portfolio and the value of our disciplined approach to asset management. Turning to the portfolio, our office portfolio ended the quarter 82% leased, and our same-store office portfolio, which excludes OneBeach and La Jolla Commons III, ended the quarter 87% leased. Same store office cash NOI was approximately flat for the quarter and up over 2% year to date as compared to the prior year. We completed approximately 102,000 square feet of leasing during the quarter with comparable rent spreads decreasing 2% on a cash basis and increasing 10% on a straight line basis. Notably, the negative cash basis rent spread was primarily attributable to a deal backfilling a 12,000 square foot first and main space with just two months of downtime, no TIs, and a lower start rate than the prior tenant, but with 5% annual bumps. We entered Q3 with solid momentum, including approximately 17,000 square feet of executed leases and an additional 111,000 square feet in active lease documentation. Leasing interest continues to build across our office portfolio, reflected in growing prospect engagement and inbound RFP volumes. Across our office portfolio, demand remains concentrated in less than full floor requirements, and winning in this environment depends on several fundamentals. Ownership with the financial strength to fund tenant improvements and commissions, a reputation for operational excellence and responsive service, completed renovations and amenities, availability of move-in ready suites requiring only light customization, hands-on construction management that minimizes cost and schedule uncertainty, in an efficient, solutions-oriented lease negotiation process because time kills deals. Of course, our near-term focus remains on driving occupancy, enhancing the tenant experience, and positioning the portfolio to perform well under current utilization patterns, even if broader office attendance has reached a near-term equilibrium. We remain confident in our coastal high-barrier markets over the long term, as employers continue to prioritize high-quality, collaborative, and amenitized environments to support productivity and talent retention. In fact, this year, two of the world's largest real estate brokerage firms, neither of which represent us as a landlord, chose our San Diego properties for their new headquarters in the market. We view this as a meaningful validation of the quality, positioning, and upkeep of our office portfolio and the strength of our tenant experience. In retail, our portfolio continues to perform well, backed by healthy consumer demand in our trade areas. We ended the quarter 98% leased, with same-store cash and OI growth of 4.5%. We 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. Rent collections remain strong in all tenants on our reserve list, including at-home and and Carmel Mountain Plaza were current through Q2. Meanwhile, we're actively engaged with at-home and a mutually beneficial lease structure moving forward for their sole location in San Diego. In addition, in Q2, we backfilled the former party city space at Gateway Marketplace with rents approximately 30% above prior levels. We continue to see durable demand for our retail centers, which are supported by strong local employment and favorable demographics. With limited new supply and consistent foot traffic, we expect these trends to continue. Our multifamily portfolio performed in line with expectations, and San Diego recently delivered new supply as created a more competitive leasing environment, and we are navigating elevated operating costs and increased concessions. Still, our communities demonstrated strong stability, ending the quarter approximately 94% leased. We achieved rent increases of 7% on renewals and 4% on new leases for a blended rent increase of 6%. Excluding our new Genesee Park acquisition, rent increases were 6% on renewals, 2% on new leases, or a 4% blended increase, and an approximately 2% increase in net effective rents compared to the same quarter last year. Occupancy at Pacific Ridge temporarily dipped just below 85% at the beginning of July due to the seasonal student turnover, but it is expected to rebound above 90% by the end of August. The community remains at about 92% leased right now. And as previously disclosed, we acquired Genesee Park based on our conviction in the long-term fundamentals of the coastal San Diego market, the opportunity to meaningfully mark-to-market rents, and the potential for future densification. We're pleased that the asset continues to perform in line with our underwriting assumptions. Up in Portland, Haslo and Haith ended Q2 91% least, with blended rent growth of approximately 1%. While the market continues to work through elevated supply and a slower pace of job growth, were encouraged by steady leasing activity and solid retention. Competition from suburban product remains a factor, but with occupancy holding in the low 90s and signs of stabilization emerging, we see plenty of room for improvement, hopefully in the quarters ahead. At our fee-owned mixed-use Waikiki Beach Walk in Oahu, where we are pleased to report no damage or injuries from the tsunami warning last night, NOI declined 5% compared to Q2 last year, driven by softer performance at our embassy suites. While the NOI of the retail component grew 7% year-over-year, the hotel was down approximately 15%, reflecting lower paid occupancy and rep bar amid ongoing softness and domestic leisure demand, heightened rate competition across Waikiki, and global economic uncertainty. Elevated labor costs and room expenses also impacted margins during the quarter. That said, our embassy suites continue to lead its competitive set in REVPAR, underscoring the strength of the asset, its prime location, and its appeal to value-driven travelers. We remain confident in the property's long-term positioning as the market stabilizes. A few final items. I'm pleased to share the board approved a quarterly dividend of $0.34 per share for Q3, payable on September 18th to shareholders of record as of September 4th. This reflects our continued confidence in the long-term stability and cash flows of the portfolio. And additionally, in Q2, we published our 2024 sustainability report, highlighting our progress and commitments across environmental, social, governance, and human capital initiatives. We remain proud of the role our company plays in advancing responsible business practices. In closing, while external conditions remain dynamic, we will continue to manage with flexibility and a long-term view of always grounded in the fundamentals that have served us in our portfolio well across countless cycles. Our team is known for executing with this discipline and foresight. On behalf of the management team, including Ernest, who is joining us today, thank you for your continued support.