American Assets Trust, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; filed May 3, 2013. The unaudited results are compared with Q1 2012. The company is a REIT owning retail, office, multifamily and mixed-use properties in several U.S. markets.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $62.2 million | $55.4 million | +12% |
| Property operating income / segment profit (NOI) | $41.1 million | $35.4 million | +16% |
| Income from continuing operations | $4.9 million | $2.8 million | +76% |
| Net income attributable to company stockholders | $3.2 million | $1.9 million | +74% |
| Basic and diluted EPS | $0.08 | $0.05 | — |
| FFO attributable to common stock and units | $21.8 million; $0.38 per diluted share/unit | $18.0 million; $0.31 | — |
| Cash from operating activities | $25.7 million | $18.5 million | +$7.2 million |
Revenue growth reflected acquisitions completed in 2012, improved multifamily occupancy and stronger hotel revenue per available room. Same-store rental revenue increased 2%, while same-store property operating income increased 4%. Office same-store operating income fell 2%, mainly due to lower leasing and construction-related parking impacts at the Lloyd District Portfolio. Retail, multifamily and mixed-use segment profit increased.
Operating expenses rose 5% to $21.1 million; depreciation and amortization increased 15% to $17.0 million and interest expense rose 6% to $14.7 million. The prior-year comparison included $107,000 of income from discontinued operations following the December 2012 sale of 160 King Street; Q1 2013 had none.
Financial position, cash flow and debt
- At March 31, 2013, cash and cash equivalents were $44.0 million; total assets were $1.824 billion and total liabilities were $1.145 billion.
- Secured notes payable were $1.044 billion carrying value ($1.057 billion principal). All outstanding debt was fixed-rate; weighted portfolio rate is not stated in the filing text. Fair value of secured notes was $1.119 billion.
- The revolving credit facility had no borrowings and $226.2 million of maximum available borrowing capacity. The company reported compliance with its debt and credit-facility covenants.
- Investing activities used $9.7 million, including $9.9 million of capital expenditures; financing activities used $14.5 million, including $12.1 million of dividends paid. Cash increased $1.5 million during the quarter.
- Quarterly dividend declared was $0.21 per common share, unchanged from Q1 2012. FFO per diluted share/unit was $0.38.
Material changes, outlook and risks
- The operating portfolio had 23 properties at quarter-end, versus 21 a year earlier. Growth included City Center Bellevue, One Beach Street and Geary Marketplace; these acquisitions were important contributors to reported revenue and office growth.
- Management expected short-term needs to be met from operating cash flow, cash reserves and, if necessary, the credit facility. Long-term needs could be funded through operating cash flow, secured or unsecured debt, and equity issuance. The filing provides no quantified earnings or FFO guidance.
- Debt maturities are concentrated in the near term: the Alamo Quarry Market loan has an anticipated repayment date in January 2014, followed by substantial maturities in 2014 and 2015. Refinancing or repayment requirements are a key liquidity consideration.
- Risks include economic and leasing conditions, tenant defaults or non-renewals, interest rates, financing access, development execution, insurance and environmental matters. Twelve properties are in Southern California, and retail tenants generated 35.6% of Q1 revenue.
- Potentially significant items include a $6.6 million accrual for California transfer taxes, ongoing groundwater remediation at Del Monte Center (management believed escrow funds sufficient), and possible hotel franchise termination payments of up to $5.9 million if specified conditions are breached. Management said litigation was not expected to have a material adverse effect; no material legal proceeding was identified.
- Disclosure controls were deemed effective, and the filing reported no material change in internal control over financial reporting. No material changes to annual-report risk factors were reported.
Important facts for investors to verify
- Whether acquisitions or same-store operations account for future growth, especially given 2% same-store rental revenue growth and weaker same-store office performance.
- Refinancing plans and terms for 2014–2015 maturities, and the availability of the stated credit-facility capacity.
- Capital spending and development requirements, including the increase in Q1 capital expenditures versus the prior year.
- Progress on Del Monte Center remediation, the transfer-tax accrual and compliance with Embassy Suites franchise requirements.
- Dividend sustainability relative to recurring cash generation, debt service and property investment needs; FFO is a non-GAAP measure and is not cash available for dividends or debt service.