Business context and reporting period
American Assets Trust, Inc. is a REIT whose operating business is conducted through American Assets Trust, L.P. This summary covers the fiscal year ended December 31, 2023; the filing also reports fourth-quarter results. The portfolio comprised 31 operating properties across office, retail, multifamily and mixed-use, with approximately 7.2 million rentable square feet, 2,110 residential units (including RV spaces) and a 369-room hotel. The company owned 78.8% of the Operating Partnership.
Financial and operating performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $441.2 million | $422.6 million | +4% |
| Net operating income (NOI) | $277.2 million | $270.2 million | +3% |
| Operating income | $121.7 million | $114.7 million | +6% |
| Net income | $64.7 million | $55.9 million | +16% |
| Net income attributable to AAT stockholders | $50.4 million | $43.5 million | +16% |
| Basic and diluted earnings per share | $0.84 | $0.72 | +$0.12 |
| FFO attributable to common stock and units | $183.4 million; $2.40 per diluted share/unit | $178.6 million; $2.34 | FFO per share/unit +3% |
| Cash from operating activities | $188.8 million | $179.1 million | +$9.7 million |
NOI margin was approximately 62.8% and net margin approximately 14.7% in 2023, calculated from reported totals. These are derived measures, not company-reported margins. Fourth-quarter revenue was $112.5 million, operating income $29.4 million, net income $13.5 million and net income attributable to AAT stockholders $10.5 million ($0.17 per share). Comparable fourth-quarter 2022 figures were $106.0 million, $27.1 million, $12.4 million and $9.6 million ($0.16 per share), respectively.
Material changes versus 2022
- Revenue growth was led by multifamily (+7%), mixed-use (+10%) and retail (+4%) rental revenue; office rental revenue increased 2%. Office occupancy declined to 86.0% from 88.9%, while retail, multifamily and mixed-use retail occupancy rose to 94.3%, 92.3% and 95.1%, respectively.
- Property expenses rose 8% to $164.0 million, faster than revenue growth, including a 10% increase in rental expenses. NOI increased 3% to $277.2 million.
- Interest expense, net, increased 11% to $64.7 million, primarily reflecting higher costs on the amended $225 million term loans; general and administrative expense rose 12% to $36.0 million.
- Other income improved by $8.3 million, largely due to a $6.3 million net settlement received in January 2023 related to building systems at Hassalo on Eighth and higher interest and investment income. This boosted reported net income.
- No property acquisitions or dispositions occurred in 2023. Cash used in investing fell to $89.9 million from $166.3 million, mainly because 2022 included the Bel-Spring 520 acquisition and greater development spending.
Debt, liquidity and capital
At December 31, 2023, total debt principal was $1.70 billion, versus $1.65 billion a year earlier. Balance-sheet cash and cash equivalents were $82.9 million, up from $49.6 million; the company reported no restricted cash. No balance was outstanding on the $400 million revolving line of credit at year-end, within a $500 million credit facility that also includes a $100 million term loan. The filing states that the company was in compliance with debt covenants.
Debt maturities include $100 million in 2024, $425 million in 2025, $425 million in 2027 and $750 million thereafter. The $225 million Term Loans B and C mature January 5, 2025, with one conditional 12-month extension option. Interest-rate swaps effectively fix rates on $325 million of term loans, but refinancing and interest-cost exposure remain important risks. Annual dividends were $1.32 per share/unit in 2023, up from $1.28; total dividends and distributions paid were $101.6 million. The company had $250 million of remaining capacity under its ATM equity program and a universal shelf registration statement, but had not sold shares under the ATM through year-end.
Outlook, risks and unusual items
- No numerical earnings, FFO or revenue guidance is provided. Management expects 2024 leasing activity at a similar level to prior years and anticipates overall positive rental-income increases, while noting that individual lease outcomes may be positive or negative.
- Management expects 2024 capital expenditures to decrease from 2023 as La Jolla Commons development is expected to reach completion in the first quarter. Future spending depends on leasing, redevelopment, development and acquisition opportunities.
- Management describes potential redevelopment at La Jolla Commons and Lloyd Portfolio and redevelopment at Waikele Center as opportunistic and dependent on market conditions and acceptable risk-adjusted returns.
- Office exposure is material: approximately 53% of 2023 NOI came from office properties. Risks include work-from-home trends, leasing demand and the concentration of properties in California, Washington, Oregon, Texas and Hawaii. The three largest office tenants represented 30.6% of office annualized base rent.
- Other material risks include substantial debt and refinancing needs, higher operating and insurance costs, tenant defaults or vacancies, retail anchor/co-tenancy provisions, natural disasters and potentially inadequate insurance. Earthquake exposure is notable; 57% of portfolio gross leasable area is in California.
- Del Monte Center remains under groundwater remediation, with monitoring expected for five to seven years. The company expects seller-funded escrow to cover remaining costs but could bear any shortfall. No material litigation liability was accrued at year-end.
- A separate subsequent event: the company reported a net settlement of approximately $10 million entered into January 2, 2024, relating to building specifications at an office project in University Town Center, San Diego. This is distinct from the $6.3 million Hassalo on Eighth settlement recognized in 2023.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and AAT, Inc.’s internal controls. No real estate impairment charges were recorded in 2021–2023.
Important facts for investors to verify
- Review the 2024 and 2025 debt maturities, extension conditions, refinancing plans and current liquidity; confirm the credit facility’s available capacity and covenant headroom.
- Track office occupancy, leasing spreads, tenant improvement costs and exposure to major tenants, particularly as leases expire; 2024 expirations represented 8.8% of annualized base rent in the office, retail and mixed-use retail portfolios.
- Assess whether revenue growth can outpace property expense growth, and distinguish recurring operating performance from settlement proceeds and other nonrecurring income.
- Confirm the timing, final costs and expected operating contribution of La Jolla Commons completion and other proposed development or redevelopment projects.
- Monitor cash available for dividends after capital expenditures, debt service and leasing costs; FFO is a supplemental non-GAAP measure and is not cash flow available for dividends or debt service.
- Review the status of Del Monte Center remediation, insurance coverage and exposure to regional natural disasters, as well as the January 2024 settlement terms and cash receipt.