American Assets Trust, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. American Assets Trust, Inc. is a REIT and the general partner of American Assets Trust, L.P.; the Operating Partnership holds substantially all assets and debt. The company owned 78.8% of the Operating Partnership at year-end.
Business context and performance
The company owns, operates, acquires and develops office, retail, multifamily and mixed-use properties in California, Oregon, Washington, Texas and Hawaii. At year-end, its portfolio included 30 operating properties, about 7.1 million rentable square feet of office and retail space, 2,112 residential units (including RV spaces), and a 369-room hotel. Office properties generated about 55% of property operating income.
Financial highlights
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $375.8 million | $344.6 million | +9% |
| Net operating income (NOI) | $246.1 million | $223.5 million | +10% |
| Operating income | $99.9 million | $88.6 million | +13% |
| Net income | $36.6 million | $35.6 million | +3% |
| Net income attributable to AAT stockholders | $28.4 million | $27.7 million | +3% |
| Basic and diluted EPS | $0.47 | $0.46 | +2% |
| FFO attributable to common stock and units | $152.3 million | $143.5 million | +6% |
| FFO per diluted share/unit | $2.00 | $1.89 | +6% |
| Dividends declared per share | $1.16 | $1.00 | +16% |
NOI was approximately 65% of revenue. NOI and FFO are non-GAAP supplemental measures and should not be treated as substitutes for GAAP earnings or cash flow.
Cash flow, balance sheet and debt
- Cash from operating activities was $168.3 million, up from $127.0 million. Investing activities used $312.3 million; financing activities provided $144.4 million. Year-end cash and cash equivalents were $139.5 million.
- At December 31, 2021, net real estate was $2.682 billion and total assets were $3.018 billion. Notes payable and line of credit totaled $1.649 billion net of debt issuance costs; principal debt obligations were $1.661 billion.
- Scheduled principal payments included $211 million in 2022, $150 million in 2023, $100 million in 2024 and $200 million in 2025. The company reported compliance with debt covenants.
- At year-end, the $350 million revolving facility had no balance outstanding; a $100 million term loan was outstanding. On January 5, 2022, the company replaced the facility with a $500 million unsecured facility: a $400 million revolver maturing in 2026, subject to extensions, and a $100 million term loan maturing in 2027.
- At December 31, $250 million was variable-rate debt; management estimated a 1 percentage-point rate increase would raise annual interest expense by about $1.0 million. A subsequent swap was intended to fix the new term loan’s rate at approximately 2.80%, subject to leverage-based adjustments.
- Construction-related commitments were $115.3 million, including $109.4 million due within one year; total listed contractual obligations were $2.180 billion.
Material changes versus prior year
- Revenue growth reflected the July and September acquisitions of Eastgate Office Park and Corporate Campus East III in Bellevue, Washington, for approximately $125 million and $84 million, respectively; together they contributed about $7.0 million of 2021 revenue after acquisition.
- Same-store NOI increased 4% to $227.8 million. Office same-store NOI rose 1%, retail 9%, and multifamily 3%. The mixed-use segment’s improvement reflected hotel recovery; it was excluded from same-store results.
- Hotel occupancy improved to 66.4% from 51.3%, and RevPAR increased to $185 from $127. Multifamily average occupancy rose to 92.1% from 88.5%, while average base rent per unit edged down to $2,160 from $2,166.
- Office occupancy at year-end declined to 90.4% from 93.0%; retail occupancy rose to 92.6% from 90.7%, and multifamily occupancy to 96.0% from 86.2%.
- Comparable office leases signed during 2021 had an 8.2% cash rent increase overall. Comparable retail leases had an 11.2% cash rent decrease, with new comparable retail leases down 33.4% and renewals down 4.1% on a cash basis.
- Interest expense increased 10% to $58.6 million. A $4.3 million loss on early extinguishment of debt arose from repaying $150 million of Series A notes with a make-whole premium; the company issued $500 million of 3.375% senior notes due 2031.
Outlook, risks and unusual items
- Management provided no formal numeric earnings or FFO guidance in the supplied filing text. It expected 2022 leasing activity at a level similar to prior years, with overall positive rental income increases, while cautioning that individual lease changes could be positive or negative. It expected 2022 capital expenditures to rise, particularly for La Jolla Commons development, One Beach Street renovations and tenant improvements.
- Management said liquidity was strong and expected operations, cash on hand, the ATM program, credit facility and capital-market access to fund operations, debt service and capital spending. It noted projects or acquisitions could be delayed or limited if market conditions deteriorate.
- For fourth-quarter 2021 rent due, the company reported collections to date of approximately 100% for office, 97% for retail and 97% for multifamily; it collected about $0.5 million, or 96%, of deferred rent repayments due in the quarter. COVID-related lease modifications affected approximately $3.9 million, or 1%, of rent originally contracted for 2021.
- Key risks include office demand changes from remote and flexible work, tenant defaults or lease expirations, retail anchor and co-tenancy provisions, pandemic-related disruption, and geographic concentration in markets exposed to economic downturns and natural disasters. The three largest office tenants represented 30.9% of office annualized base rent; no tenant exceeded 10% of total revenue.
- Earthquake insurance may not cover all losses. Del Monte Center groundwater remediation is expected to require monitoring for five to seven years, funded by seller escrow; additional work beyond remaining escrow funds could create company costs. No material legal proceedings were identified, and no impairment charges were recorded for 2021.
- The company reported no off-balance-sheet arrangements. Its $250 million at-the-market equity program had no shares issued by year-end.
Most important facts for investors to verify
- Reconcile reported revenue and NOI growth into same-store performance, acquisition contribution and recovery-related effects, especially retail rent collections and hotel results.
- Review debt maturities, the terms and available capacity of the January 2022 credit facility, covenant headroom, and sensitivity to rates and refinancing conditions.
- Assess lease rollover and tenant concentration, including the 2022 office and retail expirations and the largest office tenant exposures.
- Evaluate planned development and redevelopment spending against cash generation, construction commitments and potential equity issuance under the ATM program.
- Monitor pandemic-related concessions and collections, office attendance and leasing trends, retail rent spreads, and the remaining remediation requirements at Del Monte Center.