American Assets Trust, Inc.

Good morning, everyone, and welcome to the American Assets Trust Inc.' 's third quarter 2025 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touchtone phones. To withdraw your questions, you may press star and two. I would now like to turn the floor 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 8-K. 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.

Thank you. Good morning, everyone, and thank you for joining us today. At American Assets Trust, we remain focused on executing with discipline and consistency. Our vertically integrated platform, high-quality coastal portfolio, and thoughtful approach to capital allocation continue to provide resilience and opportunity. As always, we remain focused on creating long-term value for shareholders across cycles. For the third quarter, funds from operations came in at $0.49 per diluted share, just ahead of our internal projections, supported by continued leasing progress, disciplined expense management, and minimal utilization of our bad debt reserves. Portfolio-wide, same store NOI was slightly down for Q3 and is up almost 1% year-to-date, which candidly is tracking with what we've characterized as a transition year. Collections remain strong and our teams continue to execute to the best of our abilities across all asset classes. The broader economic backdrop remains mixed. Interest rates have shown signs of stabilizing after two years of volatility. Inflation has moderated but remains above long-term targets. and consumer confidence has softened, perhaps less than some had feared. At the same time, capital markets activity remains relatively subdued for commercial real estate. Against this backdrop, our strategy of owning irreplaceable coastal assets, maintaining a strong balance sheet, and operating through a fully integrated platform continues to serve us well, underscoring the durability of our long-term approach. Turning to portfolio updates, the office sector remains selective, and we remain very part of that select set. Tenants are focused on well-located, amenitized, and institutionally managed assets, and our portfolio is designed to meet those demands. Our office portfolio ended the quarter 82% leased, with our same-store office portfolio 87% leased, and 5% of the office portfolio includes signed leases that have not commenced paying cash rents. Same-store office NOI increased positively for the quarter, ahead of expectations, and despite almost 160,000 square feet of known move-outs at First and Main, Torrey Reserve, and 14 Acres. We completed approximately 180,000 square feet of office leasing during the quarter, with comparable rent spreads increasing 9% on a cash basis and 18% on a straight-line basis, reinforcing that our best-in-class buildings continue to attract tenants, even in a competitive environment. Importantly, while the time it takes to finalize office leases has lengthened, Across our markets, we are not losing deals as a result. Tenants are simply being more deliberate. Along those lines, entering Q4, we have over 25,000 square feet of signed leases and another 56,000 square feet in lease documentation, with proposal activity over several hundred thousand square feet. At our new La Jolla Commons Tower 3, following quarter end, we executed leases or have leases and documentation for another 8% of the space, with proposals out on another 15%. Momentum is clearly building with increased tours and RFP activity, and we remain optimistic that additional leasing will follow. Meanwhile, the new Travis Swycard restaurant, opening later this year, will further enhance the already robust amenity package at the campus. Combined with a scarcity of large blocks of Class A space and UTC, we believe this positions us well to capture demand in one of the healthiest office submarkets in the country. At One Beach Street in San Francisco, we saw continued touring activity and are in active negotiations for portions of the building. While San Francisco continues to evolve through its recovery, there are encouraging signs of improved tenant engagement at the highest quality properties such as ours, and we are confident that selective demand will find its way to our assets. It's only a matter of time. Our retail portfolio continues to perform well thanks to strong consumer spending across our centers. Nationally, retail availability remains near record lows. New construction is virtually nonexistent, and asking rents have continued to rise. At quarter end, our retail portfolio is 98% leased, with 2% signed but not commenced paying cash rents. We executed over 125,000 square feet of new and renewal leases in Q3, with spreads increasing over 4% on a cash basis and 21% on a straight-line basis. Same Store NOI was about $400,000 less than the comparable period, largely reflecting the amount and timing of expense reimbursements, as well as lost rents from Party City and reduced rent from at-home due to their bankruptcy. Nevertheless, tenant sales and foot traffic remain solid, supported by favorable demographics, resilient employment, and limited news supply in our markets. Our focus remains on securing best-in-class retailers, maintaining high occupancy, and continuing to drive rent growth over time. In multifamily, performance in San Diego reflected the dynamics of a market working through new supply. Rent growth has decelerated, yet our blended average rents remain positive, and occupancy improved as we exited the quarter, higher than a year ago, even as we enter the seasonally slower leasing period. At quarter end, our San Diego communities, excluding our RV park, were 94% leased. which is closer to 95% lease today based on recent leasing momentum. Same-store performance was notably impacted by higher concessions, military-related deployments and move-outs, impacting almost 30 units in our South Bay assets, a reduction in international student occupancy at Pacific Ridge tied to recent administration policies, and the timing of certain property expenditures. We achieved rent increases of 5% on renewals and 2% on new leases, for a blended increase of 4%. Excluding our new Genesee Park acquisition, rent increases were a 3% blended increase. In Portland, Haslo on 8th ended the quarter 91% leased and delivered slightly positive blended rent growth of 1%. Although the market continues to absorb new deliveries and faces affordability challenges, we are encouraged by steadying leasing activity and strong retention. Looking ahead, the 4,000-seat live music venue under construction across the street from Hasolo, scheduled to open in 2027, will add vibrancy and help drive continued demand. We recognize there is still room for improvement in multifamily lease percentages and rent levels, and our teams remain focused on driving occupancy and capturing long-term rent growth. At Waikiki Beachwalk, our retail component continues to perform in line with expectations while our embassy suites lagged due to softer tourism and heightened rate competition in Oahu. Arrivals have been below prior year levels, reflecting both a stronger dollar and increased competition from other destinations. In addition, the hotel has been further impacted by labor and utility cost pressures, and our guest base, which is more cost-conscious, has felt the effects of economic uncertainty more acutely. Of note, in the past three months, more than a half billion dollars of leased fee interest beneath major Hawaii hotels have changed hands, a yield of 4% or lower. This activity underscores the long-term strength and scarcity value of owning the fee simple under all of our Hawaii assets. We remain confident in the long-term appeal of this irreplaceable property and our managing costs and revenue opportunities carefully in the interim. Our priorities are unchanged to convert leasing momentum across our office portfolio, including La Jolla Commons and One Beach, into signed leases, sustain positive leasing spreads in office and retail leasing, and support stable occupancy and rent growth in our multifamily portfolio as supply is absorbed. At the same time, we are managing expenses tightly and preserving flexibility to capitalize on future opportunities. All of this reflects our disciplined, resilient approach to creating long-term value for our shareholders. Finally, I am pleased to share that the Board approved a quarterly dividend of $0.34 per share for Q4 payable on December 18th to shareholders of record as of December 4th. In closing, I want to thank our teams across the company for their dedication and execution. Their hard work continues to position American Asset Trust to execute across cycles. With that, I'll now turn the call over to Bob.

Thanks, Adam, and good morning, everyone. For the third quarter, FFO was $0.49 per diluted share. Net income attributable to common stockholders was $0.07 per diluted share. And total revenue was $110 million for the quarter. Results were generally stable sequentially, with modest variability by segment, largely reflecting known office move-outs, expenses, timing, and softer tourism trends in Hawaii. Specifically, the 3 cent decline in FFO from Q2 to Q3 reflects five things. First, slightly lower office contribution due to a previously disclosed lease expiration at 1st of May, and a tenant termination at City Center Bellevue, which, despite being cash positive with an immediate backfill, resulted in a gap impact from writing off remaining straight line rent. Second, Retail results reflected timing of property tax refunds recognized in Q2 that did not repeat in Q3. Third, lower family base rent at Pacific Ridge from summer student move-outs and at Haslow from Portland oversupply, along with higher operating expenses portfolio-wide. Fourth, softer tourism and rate pressure in Oahu, and fifth, partially offset by a $1.1 million lease termination fee recognized in the quarter. Let's talk about same-store cash NOI. For all sectors, same-store cash NOI combined decreased by 0.8% in the third quarter of 2025 compared to the same period in 2024, which was generally in line with our expectations for a transition year. Ranking Q3 out by segment and each as compared to Q3 2024, our same-store office portfolios NOI increased by 3.6%, benefiting from rent commencements and higher rents at our city center Bellevue property and the expiration of rent abatements at Tory Reserve. Our same-store retail portfolios NOI declined by 2.6%, driven by credit-related loss of rents mentioned by Adam, as well as timing of expense reimbursements. Our same-store multifamily portfolios NOI declined by 8.3%, reflecting supply headwinds in San Diego and expense pressure at select properties. Our same-store mixed-use portfolios NOI declined by 10%, primarily driven by lower-than-anticipated occupancy an average daily rate at Embassy Suites Waikiki. Specifically, and compared to Q3 2024, paid occupancy for Q3 2025 was lower by 5.5%. Rev par for Q3 2025 was $298, down 11.7%. ADR for Q3 2025 was $381, down 5.4%. and net operating income for Q3-25 was approximately $2.7 million down $0.9 million. These results are similar to other hotels in our comp set in Waikiki, Hawaii. We view these macroeconomic pressures as near-term and not reflective of long-term fundamentals, and we remain confident in the long-term performance of our Hawaii hotel. In fact, according to preliminary figures from the Japan National Tourism Organization, the number of Japanese nationals traveling overseas in August 25 reached 1.6 million, up 14% year over year. This was the highest monthly outbound volume so far this year. Compared to pre-pandemic August 2019 levels of 2.1 million, outbound traffic has now recovered to nearly 80%. The trajectory of outbound travel is clearly upward. August's strong performance reflects pent-up leisure demand during the summer holiday season, following fuel surcharges and increasing seat capacity by trans-2 national carriers. Hawaii continues to be one of the most aspirational overseas destinations for Japanese travelers. and recovery trends in the outbound market directly benefit our property as well as the other properties in Waikiki and surrounding islands. Forward-looking trends from JAL and ANA Airlines suggest sustained demand for Q4, and we anticipate this momentum to carry into winter and spring 2026. As outbound volume nears pre-pandemic levels, Hawaii is well positioned to capture an outsized share of the recovery given its strong brand equity, culture affinity, and increasing promotional activity. Let's talk about liquidity now. Turning to the balance sheet, as of the end of the third quarter, we had total liquidity of approximately $539 million, consisting of roughly $139 million in cash and cash equivalents. $400 million of availability under our revolving line of credit. Our net debt to EBITDA ratio was 6.7 times on a trailing 12-month basis and 6.9 times on a quarter annualized basis. And we remain committed to reducing leverage toward our long-term target of 5.5 times or lower. Our interest coverage and fixed charge coverage ratios were both approximately 3.0 times on a trailing 12-month basis. Let's talk about 2025 guidance. We are raising our full year 2025 guidance range to $1.93 to $2.01 per FFO share with a midpoint of 1.97 cents per share. This represents 2 cent increase from our prior guidance midpoint of $1.95 issued in the second quarter of 2025. The upward revision largely reflects year-to-date performance. Outperformance towards the high end of the range would depend on consistent rent collections from tenants currently reserved for credit exposure, increased demand and continued expense discipline in multifamily, strengthening near-term travel trends at our Embassy Suites Waikiki, Together, these levers represent upside potential, and we will continue to monitor each closely as the year progresses. As a reminder, our guidance in these prepared remarks include the impact of any future acquisitions, dispositions, equity issuances or repurchases, and debt refinancings or repayments, except for those already disclosed. We remain committed to transparency and will continue to provide clear insights into our quarterly results. and the key assumptions that inform our outlook. Additionally, please note that any non-GAAP financial metrics discussed today, such as net operating income or NOI, are reconciled to the most directly comparable GAAP measures in our earnings release and supplemental materials. I'll now turn the call back over to the operator for Q&A.

Ladies and gentlemen, at this time we'll begin that question and answer session. Once again, to ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you kindly pick up your handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Todd Thomas from KeyBank Capital Markets. Please go ahead with your question.

Hi, good morning, everyone. This is AJ on for Todd. Appreciate you guys taking my questions. Adam, maybe starting with you, I appreciate your comments just in the opening remarks around the leasing pipeline. But just maybe pulling on that thread a little more. Would you just provide an update with regards to the anticipated timeline to stabilize the La Jolla Commons 3 and One Beach Street assets?

Yeah, sure. I'll have Steve offer a little bit more insight. But what we are seeing lately, as I mentioned, is a lot more activity. And so though it's really difficult to pin actual stabilization date, we feel the momentum is carrying us to that date a little quicker than it had been in the past quarters. But, Steve, maybe you can add a little bit more color on both of those.

Sure. We, as Adam mentioned, we signed a lease with an international bank just last week, and then we have two others in lease documentation. One is a technology company in the legal field, and the other is a very high-end insurance company. And then we've got two other proposals totaling actually 17,000 feet. And we've got two other competitors for this one 9,000-foot spec suite. And then along those lines, we're building out more spec suites. We've got another several spec suites under construction. And delivering spaces that are ready to go has really borne fruit. The bank that we signed went into a spec suite with minor modifications, and the other tenants that are prospects are largely tenants that need the space sooner than later. So building the space out, having it ready to go, with minor modifications is really playing out well. And the tenants that are signing leases are paying the rents. They want the best, and they're paying up for it. So we're hitting our numbers on the rent side. So we're very encouraged by that. And as Adam said, the activity is picking up. And with the completion of the restaurant and a major conference center that we're adding to the campus, we think the Momentum in 26 is going to be really solid. As it relates to One Beach, we're excited. We just converted our first deal to lease documentation yesterday. We're getting that lease out today, and we hope to sign it, gosh, by the end of the quarter. We expect to. We've got another prospect for the same space, actually, and so we're playing that out. And we've got robust tour activity. Really, it's turning into an AI hub. The North Waterfront is in Jackson Square. There's one pivotal tenant that signed at least two blocks away that really is creating some gravity in that location. And it's interesting. We talked to the CEOs of the two firms competing for the same space. They both live in the neighborhood. They can walk to work. So it really is turning out to be this new hub, and it's a great location. They love it. Furthermore, both firms looked at a bunch of space. They looked at competing projects, and they considered that all to be commodity space. And when they got to One Beach, They said, this is different. This is the first one we've been willing to step up and make an offer on. So we're encouraged by that feedback. And so, as Adam said, we're more positive about stabilization of both. We can't predict exactly when, but it's sooner than we would have said last time we talked.

Understood. I appreciate that color, Steve. Well, I guess sticking with leasing, you know, you guys are speaking about leases in the quarter. Any known move-outs, I guess, as we look to 26 that we should be aware of?

Oh, sure. Well, they're not known yet. We've got some that we're forecasting. It's about 180,000 feet of those tenants that are up in the area. You know, one case is, let's see, Genentech. They're in three floors currently. They're considering getting back a floor, although we question whether that happens. So that'll play out in the next six months or so. We've got a full floor health care clinic at Lloyd 700 that we know is coming back. So we've got 108,000 feet that's up in the air. We don't know for certain how that's going to play out, but we've got really strong leasing activity behind it. And so we've been able to really fight really well against those tides where we're We're swimming upstream, so to speak, but we only went backwards 10 basis points this quarter after losing 70,000 feet of known givebacks this quarter. So our new leasing activity is accelerating, and the known givebacks this quarter are down to about 23,000 or 24,000 feet. So we think that's going to flip in our favor from an occupancy standpoint next year.

Perfect. I appreciate that. And then maybe, Bob, switching to you just real quick on the balance sheet, just with leverage ticking up in the quarter. Would you just provide some thoughts on the company's current leverage profile and perhaps plans and a timeline to get back to under six times on a net debt to EBITDA basis, you know, closer to your long-term five and a half times long-term target?

Yeah, from our perspective, you know, we have a plan on how to get there, and the plan really is leasing up One Beach and La Jolla Commons 3. And with that, you know, we'll have approximately $0.30 of additional FFO. We'll be back in the game, and all the debt ratios will get closer to 6, if not below 6 by then. So we feel pretty confident about it. You know, we've met with all three of the rating agencies, and they continue to give us a stable outlook. They understand. And even the rating agencies, all three of them have commented in their own information that they share with the public is that it's generally the expectation from their standpoint is it's generally 18 months out on leasing up office, high-quality office. If it's commodity, forget it. But if it's high-quality office like our portfolio, we have a good shot of even beating that. So we'll see. We'll take one step at a time. We feel positive about it. It's just a timing thing. That's all it comes down to.

Sure. I appreciate the time, guys. Thank you. Thanks, AJ.

And our next question comes from Rennie Pyre from Green Street Advisors. Please go ahead with your question.

Hey, good morning, everyone. Thanks for taking the question. So I know you've mentioned the multifamily portfolio having been weighed on by, you know, higher deliveries in San Diego in addition to higher concessions. Just trying to get a sense of where you think that segment finishes out the year. Are you expecting some relief on the concessions front? I believe you've mentioned some stronger leasing recently in the portfolio. So trying to get a sense of where same-store NOI might finish the year out.

Yeah, I mean, well, just to start, the San Diego multifamily, we think that market remains fundamentally resilient. But as I mentioned, the near-term NOI is impacted by the higher operating expenses and some of the elevated supply issues. We have had some incremental leasing success. Maybe Abigail can share that with you high level. I'm not sure that we've modeled that end of year end NOI projections yet. So we just want to be careful about what we say on that front. But Abigail, do you have commentary perhaps on the incremental leasing we've seen over the past few weeks in our San Diego multifamily?

Hi, good morning. Now, we are currently 95% leased, and at the end of the quarter, specifically over at Pacific Ridge, we have seen a recent uptick with USD's students securing tenancies for their upcoming winter and spring semesters, which is really encouraging for us because going into what's traditionally a slower leasing season, we're finding that people are securing their units earlier, sooner, rather than later. And then also, at our other communities, we're finding that leasing is moving forward strongly, specifically over at Loma Palisades and at Genesee Park. Leasing over there has picked up, and we're upwards of 96%, 97% leased, again, in what's usually a historically slow leasing period for us. We really attribute that, as Adam mentioned, to well-maintained communities. Our properties are in the best zip codes in San Diego. And then we also have just incredible team members who are operating these communities. we remain optimistic with our leasing through the end of the year and the end of the quarter.

Yeah, Rennie, we expect stability to improve as supply is absorbed and expenses normalize. So that's the expectation looking out.

Yeah, one last question, Rennie. You have all three of us talking here on this. Is that in San Diego, remember that you have the Pacific Ridge, which is right across from USC, So we do take a dip on the move out of tenants from July, August, June, July, August. So that's our dip every year. And then we generally come back strong after that. But it's, you know, Abigail is doing a great job keeping the occupancy up. We're as competitive as anybody in San Diego when it comes to rate. But I think overall, I think people are feeling... you know, that there is pressure on the operating expenses. It's not just us, it's other multi-family as well. And I think with the competition, especially with compared to Mission Valley, you know, there are concessions. So we're doing the best we can, and I don't think we're dissimilar from any other multi-family out there.

Great. Appreciate all that, Collin. And then maybe a question for Steve primarily. Good quarter on the office leasing front. Was hoping you could give some detail around which tenant industries you're seeing the most active in market. That'd be very helpful.

You know, well, in San Francisco, it's AI. And there's an emergence of new co-working operators in AI. But it's really AI-driven for the most part there. We're seeing some of that in Bellevue as well. But we're also seeing a broad range base of other types of tenants. So we've got a technology firm that's in the legal industry that's in leases at Tower 3. We've got an insurance company I mentioned earlier at Tower 3 that's ultra high-end net worth people that they cater to. Let's see, we've got finance. We've got a company that's for a four and a half and it's at first in Maine and in Portland. And They just did evaluation of the dental practice that we're doing an assignment on. So it's interesting. It's just a broad swath of really good quality tenants, law firms. Law firms, yeah.

Great. Thank you for all the answers.

Thanks for having me.

Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from Ronald Camden from Morgan Stanley. Please go ahead with your question.

Hey guys, this is Matt on for Ron. Um, was just curious, you guys talked a little bit about the tenant types that are interested in leasing space. Could you talk about the leasing trends between the different sub markets? Would you say there's any markets that are seeing more concentrated interest or if it's just kind of widespread?

It's, it's a flight to quality. So I wouldn't talk about it market to market. It's really every market's mixed. not all ships are rising so it's really the activity is gravitating towards uh to the best properties but also space that's ready to go that's the biggest trend i'm seeing is tenants don't want to wait for tis every every tenant rep broker we talk to we tell them our strategy of spec suites and having spaces ready to go said we're spot on and and the results speak for themselves we've got about i think 38 of the deals we've done year to date have been in spec suites We're doing about 40% of our vacancy in spec suites. And these are smaller spaces. Our average space is 3,000 to 4,000 feet. So it's low risk. We build them out. They're ready to go with minor modifications at most. And that design will last longer than the tenancy. And if you look at our TIs on our renewals, they're very low because we've built out the spaces and they don't require a whole lot of work to re-let them.

Got it, thanks. And then just as a follow-up to that, could you just talk a little bit about how we could think about the office occupancy trajectory over the coming quarters? You guys are seeing momentum in leasing and just kind of wondering how that actually builds into the occupancy as we get into 26. Thanks.

New leasing is about 70% of our activity right now, so that bodes well for making up any known givebacks that are coming. Q3 is a light-known give-back quarter, so we should make good ground up. And, you know, we've now recognized we're no longer looking at the same store. It's really that 82% is the whole portfolio, including Tower 3 and including OneBeach. So it is what it is. OneBeach alone will really put a big dent in that. Tower 3, as I said, the momentum is building, and I think 26 is going to be a real strong year. So I think we'll go positive. We'll go positive in 2026. I can't tell you how far. We'll see how those known good backs play out. But the new leasing is strong. Adam mentioned several hundred thousand feet of proposals. That's the biggest number we've had that I can remember in our current leasing activity for the year. If we finish out the quarter as expected, it'll be our second best year since I've been here since 2018.

Matt, we'll have more visibility into that with our next call in terms of occupancy expectations in the office sector. Yeah. We'll have Doug in a little deeper on that through here.

Got it. Thanks for the time, guys. Thank you. Thank you.

And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Adam for any closing remarks.

Thank you for your continued support. We hope you enjoyed the call as much as we did and hope you have a great day. Thanks, everybody.

And with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.