American Assets Trust, Inc.

Good morning and welcome to the American Assets Trust, Inc.'s third quarter 2026 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 Meleana Leaverton, 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 Investors section of its website, AmericanAssetsTrust.com. It is now my pleasure to turn the call over to Adam Wyll, President and CEO of American Assets Trust.

Good morning, everyone, and thank you for joining us today. We delivered a solid third quarter at American Assets Trust with encouraging operating results and continued progress on leasing across our portfolio. That performance came against a less predictable economic backdrop, with long-term interest rates moving meaningfully higher and inflation proving More persistent than many had expected. Despite these headwinds, the quarter demonstrated the durability of our high-quality coastal real estate and the strength of our vertically integrated operating platform. Periods like this reward patience and discipline, and our approach of making measured decisions, allocating capital thoughtfully, and maintaining a long-term perspective continues to serve us well. For the third quarter, we generated 56 cents of FFO per diluted share, Approximately 5 cents ahead of our internal projections. Portfolio-wide, same-store cash NOI increased 8.3% for the quarter and is up 2.3% year-to-date. Quarterly growth was positive across all four operating segments, with results benefiting, in part, from certain one-time items, primarily property tax refunds in the collection of a previously reserved office receivable. Excluding those items, same-store cash NOI growth was 5.1%. Based on these results and our outlook for the balance of the year, we are raising our full year 2026 FFO guidance to $2.07 per share at the midpoint, a 2% increase from our prior midpoint. Before turning to the portfolio, a word on the macro environment. Persistent inflation continues to put upward pressure on interest rates, affecting real estate owners through borrowing costs, asset values, and transaction activity, and we are no exception. Today, all of our debt is fixed rate or swapped to fix with no maturities until March 2027. However, as we refinance that maturity and our term loan swap expires in January, we expect our borrowing costs to increase, and we'll reflect that in our 2027 outlook in February. We have ample liquidity and multiple avenues to address the maturity, allowing us to be deliberate about timing and execution. At the same time, the underlying fundamentals of our real estate remain healthy, New construction starts across our property types or at or near historic lows in many of our markets, and higher financing and construction costs make new development even harder to justify. That reinforces the long-term value of our coastal assets. And while inflation pressures operating costs, contractual rent escalations, expense recoveries, and more frequent repricing in our multifamily and hotel businesses help us offset those pressures. Turning to portfolio updates. Office touring and prospect activity held up well across our markets, particularly for well-located, amenitized buildings backed by financially strong ownership. That is where we compete. Larger leasing decisions can still take time, but our pipeline remains healthy, and so far we have not seen the move in rates materially affect tenant decision-making. The fundamentals continue to vary by market. UTC and Del Mar Heights are among San Diego's most sought-after office submarkets, with very limited new competitive supply. San Francisco is benefiting from a more active technology and AI tenant base with growing demand for quality space. Bellevue is showing improving conditions in its best locations and Portland remains more selective, but we continue to win more than our fair share of deals. Across all four markets, leasing activity has been steady and we're seeing consistent tenant interest in our properties. Our office portfolio ended the quarter approximately 86% leased, up nearly 400 basis points from a year ago and 140 basis points sequentially. During Q3, we completed approximately 124,000 square feet of leasing with comparable cash rent spreads of 2.1% and straight line spreads of 8.2%. We entered the fourth quarter with approximately 210,000 square feet of executed leases representing about 12 million in annualized base rent that has not yet commenced. Additionally, we have another 132,000 square feet in lease documentation and proposals outstanding on approximately 178,000 square feet. Our focus is on getting those signed leases paying rent while continuing to convert our pipeline into executed leases. Our spec suite program is an important part of that leasing effort. Tenants increasingly want high quality move-in ready space and our ability to deliver it helps shorten the leasing cycle. Since the beginning of 2024, 42% of our spec suite square footage has been pre-leased before construction was finished. More than 50% has leased within three months of completing construction and more than 75% within six months. We'll take that batting average. At La Jolla Commons Tower 3, we are out for signature as of this morning for two full floors totaling approximately 41,000 square feet with a high credit quality perspective tenant. We're also in documentation for an additional 3,600 square feet on another floor. Assuming both leases are executed, the building would be approximately 72% leased. We expect to finalize both leases in the near future. This reflects the type of tenant demand we anticipated when we developed Tower 3, and with few competing large blocks of quality space in UTC, we like our positioning for the remaining space. At 1 Beach Street in San Francisco, we are exchanging proposals on the remaining space on the second floor. If completed, that transaction would bring the property to 82% leased. The building's waterfront setting, distinctive character and quality have resonated with prospects. The spec suites we built on the first and second floor are doing exactly what we hoped, helping convert touring activity into active proposal negotiations. In the north waterfront submarket home to 1 Beach Street, vacancy is roughly 19%, well below the citywide rate of nearly 28%. Taken together, these negotiations represent meaningful progress towards stabilizing two of our most significant office investments. To be clear, these transactions are not yet executed and remain subject to completion. Assuming they are completed, as currently contemplated, along with our other expected leasing activity, we now anticipate ending 2026 between approximately 84% and 86% leased across our office portfolio. The next step is getting these transactions finalized and converting our broader leasing activity into commenced rent and cash flow. Our retail portfolio continues to perform well, ending Q3 at 98% leased, consistent with the high occupancy levels we've sustained over time. With limited new retail construction, healthy demand for well-located space, and our exposure to affluent established trade areas, we like the positioning of this portfolio. During the quarter, we executed approximately 108 thousands square feet of leases with comparable cash spreads of 7.4% and straight line spreads of 16.8%. Tenant health is strong, our watch list is short, and our leasing teams are pursuing opportunities to improve tenant mix and grow rents as space turns over. Although we are watching the consumer closely, particularly as inflation and higher interest rates affect household budgets, these properties are important locations for our tenants