American Assets Trust, Inc. quarterly report, Q3 FY2022

Vollständiges Dokument

American Assets Trust, Inc. — Q3 2022 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2022. The filing combines American Assets Trust, Inc. and its operating partnership, American Assets Trust, L.P.; the consolidated operating business is conducted through the partnership. The company is a REIT focused on office, retail, multifamily and mixed-use properties. At quarter-end it owned or controlled 31 operating properties across six states and held land or construction in progress at three properties.

Financial performance and position

  • Q3 revenue: $111.0 million, up 13% from $98.3 million. Rental income was $105.5 million, up 12%.
  • Q3 earnings: Operating income was $31.0 million versus $27.7 million; net income was $16.4 million versus $12.9 million. Net income attributable to common stockholders was $12.8 million, or $0.21 per share, compared with $10.0 million, or $0.17 per share.
  • Nine-month results: Revenue was $316.6 million, up 16%; net income was $43.5 million versus $26.1 million. Common-stockholder net income was $33.9 million, or $0.56 per share, versus $20.2 million, or $0.34 per share.
  • Property operating income / NOI: $71.1 million in Q3, up 9%, and $204.0 million for nine months, up 13%. NOI as a share of total property revenue was approximately 64.0% in Q3 versus 66.3% a year earlier, and 64.4% for nine months versus 65.9%.
  • FFO: $47.9 million, or $0.63 per diluted share/unit, in Q3; $136.2 million, or $1.79, for nine months. FFO is a non-GAAP supplemental measure, not a substitute for GAAP earnings or cash flow.
  • Cash flow: Nine-month operating cash flow was $140.9 million, up from $129.6 million. Investing used $139.6 million and financing used $77.4 million; cash declined $76.1 million to $63.4 million.
  • Balance sheet and debt: Total assets were $3.01 billion and liabilities were $1.81 billion at September 30. Debt carrying values were $74.6 million secured notes, $1.539 billion unsecured notes and $33.9 million drawn on the unsecured line. The company itself holds no debt; debt is held by the operating partnership.
  • Distributions: $0.32 per share/unit in Q3 and $0.96 for the first nine months, compared with $0.30 and $0.86 in the respective 2021 periods.

Material changes versus the prior comparable period

  • Q3 same-store property revenue increased 10%; same-store property operating income increased 7%. For nine months, same-store property operating income rose 9%.
  • Hotel recovery at Waikiki Beach Walk lifted mixed-use revenue and operating income: Q3 hotel occupancy was 84.2% and revenue per available room was $335, versus 77.9% and $240 in Q3 2021. Nine-month figures were 78.6% and $286, versus 64.3% and $175.
  • Multifamily revenue benefited from higher rents and occupancy over the nine-month period; average occupancy was 93.4% versus 90.6%, and average monthly base rent was $2,294 versus $2,149.
  • Acquisitions of Eastgate Office Park, Corporate Campus East III and Bel-Spring 520 contributed to office revenue growth. Bel-Spring 520, a roughly 93,000-square-foot Bellevue office campus, was acquired in March for approximately $45.5 million before closing costs and prorations.
  • Operating costs grew faster than revenue in several areas: nine-month property expenses rose 20%, including rental expenses up 27%. Q3 general and administrative expense increased 23%, partly from compensation and stock-based compensation.
  • Nine-month interest expense was nearly unchanged year over year. The prior-year period included a $4.3 million loss on early debt extinguishment, which did not recur in 2022.

Outlook, risks and unusual items

  • Management provided no specific numerical earnings or FFO guidance. It intends to pursue same-store growth, selected acquisitions, and development or redevelopment opportunities, including potential La Jolla Commons and Lloyd Portfolio phases and projects at Waikele Center and One Beach Street. Timing depends on market conditions and expected risk-adjusted returns.
  • Management described liquidity as strong and said available cash, operating cash flow and credit-facility capacity were expected to meet near-term needs. It also cautioned that financing access, tenant collections, market conditions and project costs could affect plans.
  • The $111 million City Center Bellevue mortgage was repaid in September and replaced with a $75 million, five-year non-recourse mortgage at a fixed 5.08%, maturing October 1, 2027. The revolving facility has $400 million of capacity; $36 million was drawn at quarter-end.
  • $150 million of Term Loans B and C mature March 1, 2023. The filing reports covenant compliance at September 30, 2022. Management states that swaps effectively fix the rates on the $250 million of term loans; it estimates cash-flow hedges will reduce interest expense by about $1.1 million over the following 12 months.
  • Q3 leasing included 13 office leases covering 59,461 square feet, with comparable leases showing average increases of 23.7% on a cash basis and 34.7% on a GAAP basis. Twenty-one retail leases covered 79,033 square feet; comparable leases showed a 6.8% cash-basis increase. These signed leases may commence later, and the filing notes tenants may not take possession or pay all contracted rent.
  • Risks include tenant defaults or non-renewals, economic and interest-rate changes, COVID-19 effects, development and financing execution, and geographic and tenant-industry concentration. Southern California represents a significant geographic concentration; office and retail tenants generated 48.4% and 23.6% of nine-month revenue, respectively. No tenant exceeded 10% of rental revenue.
  • Unusual or contingent items include accelerated recognition of approximately $1.2 million of tenant-improvement overages in Q3 following a tenant’s early departure; a prior-year $1.6 million retail property-tax refund; and a potential Embassy Suites franchise termination payment of up to $5.4 million if specified obligations are not met. Del Monte Center groundwater remediation continues, with remaining work expected to be funded by seller escrow, though additional costs could arise.
  • Management reported no material litigation expected to adversely affect the company and no material changes to previously disclosed risk factors. Disclosure controls were deemed effective.

Important facts for investors to verify

  • Whether the March 2023 $150 million term-loan maturity will be refinanced, repaid or extended, and the cost and availability of financing.
  • Whether operating cash flow and remaining credit capacity can support debt service, distributions, and elevated capital and redevelopment spending; cash fell to $63.4 million during the nine-month period.
  • How much 2022 revenue and NOI growth reflects durable same-store performance versus acquisitions, hotel recovery, cost recoveries and accelerated tenant-improvement revenue.
  • Whether expense growth, office occupancy of 90.7%, and multifamily occupancy of 93.0% affect margins or leasing plans; compare these with the filing’s reported rent increases and lease commencements.
  • Progress, remaining costs and potential liabilities for development projects, Del Monte Center remediation and the hotel’s franchise and management agreements.