American Assets Trust, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. American Assets Trust is a REIT operating through American Assets Trust, L.P.; the Operating Partnership held substantially all assets and debt. The portfolio comprised 28 properties across office, retail, multifamily and mixed-use, including a 369-room hotel.
Financial performance and liquidity
Amounts below are in millions except per-share data. Comparisons are with Q1 2019.
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $96.7 | $85.3 | Up 13% |
| Property operating income (NOI) | $63.1 | $55.5 | Up 14% |
| Operating income | $28.8 | $28.8 | Essentially flat |
| Net income | $15.5 | $15.2 | Up 2% |
| Net income attributable to AAT stockholders | $12.1 | $11.1 | Up 9% |
| Diluted EPS | $0.20 | $0.24 | Down 17% |
| FFO attributable to common stock and units | $42.8 | $35.7 | Up 20% |
| FFO per diluted share/unit | $0.56 | $0.56 | Unchanged |
| Net cash from operating activities | $45.4 | $36.8 | Up $8.5 |
Total revenue growth included La Jolla Commons, acquired in June 2019. NOI margin was approximately 65% in both periods. Higher depreciation and amortization contributed to flat operating income; growth in weighted average shares contributed to lower diluted EPS. Interest expense was $13.5 million, versus $13.3 million.
At March 31, cash and cash equivalents were $52.4 million, plus $4.5 million restricted cash. Debt carrying value was approximately $1.307 billion: $110.9 million secured and $1.196 billion unsecured. The $350 million revolver had no balance at quarter-end. A $51.0 million secured-debt repayment in March accounted for the decline in secured notes. The company paid $22.9 million in dividends and distributions; the declared dividend was $0.30 per share/unit.
Operating cash flow exceeded investing outflows of $23.9 million, including $20.5 million of capital expenditures and $3.4 million of leasing commissions. Financing outflows were $74.1 million, chiefly reflecting secured-debt repayments and distributions. Cash and restricted cash declined by $52.6 million during the quarter.
Material changes and operating drivers
- Office revenue increased substantially, mainly due to La Jolla Commons and higher same-store rents. Office same-store NOI rose 33.2%.
- Retail same-store NOI fell 21.3%; total retail NOI also reflected the absence of prior-year lease termination income. Retail occupancy was 95.2%, compared with 97.1%.
- Multifamily NOI declined 7%, mainly due to higher personnel and repair costs.
- Mixed-use NOI declined 24%. In March, COVID-19-related travel restrictions and cancellations reduced hotel occupancy to 75.4% from 91.8%; revenue per available room was $242 versus $290.
- Rental revenue rose 20%, while other property income fell 45%, largely because the prior-year period included noncash retail lease termination fees.
Outlook, risks and unusual items
- Management said it could not reliably estimate the pandemic’s overall financial impact. It expected COVID-19 to materially affect results across business segments and forecast a substantial reduction in hotel revenue through at least Q2 2020.
- As of April 27, 2020, the company reported collecting approximately 94% of April office rent, 47% of retail rent and 94% of multifamily rent due. It had received significant rent-deferment requests, primarily from retail tenants, and was assessing them individually.
- On April 7, after quarter-end, the Operating Partnership drew $100 million on its revolver to bolster liquidity, leaving $250 million available. Management said it had no presently anticipated need for the additional liquidity but might draw more.
- Management described liquidity as strong and anticipated meeting needs through operating cash flow, cash reserves and credit availability. It cautioned that development timing, acquisitions, spending and dividend policy could be revisited if conditions deteriorated. No numeric earnings or FFO guidance was provided.
- Debt maturities include a $100 million term loan due January 2021 and $150 million senior notes due October 2021. Management reported compliance with applicable debt covenants at March 31.
- Interest-rate swaps had a $7.0 million liability at quarter-end, versus a $0.9 million net swap asset position at year-end 2019; the quarter included a $6.1 million unrealized loss on swaps in other comprehensive income.
- The company reported no material legal proceeding expected to have a material adverse effect. It disclosed ongoing groundwater remediation at Del Monte Center, funded by seller escrow believed sufficient, and a potential hotel franchise termination payment of up to $7.5 million if specified conditions are breached.
Most important facts for investors to verify
- Subsequent rent collection, tenant deferment and modification outcomes, especially for retail tenants and the Waikiki hotel.
- Availability and terms of revolver borrowings, covenant headroom and refinancing plans for 2021 maturities.
- Whether the $0.30 dividend remains supported by rent collections, cash flow and debt obligations.
- Underlying same-store performance, separating the La Jolla Commons acquisition and prior-period lease termination income from recurring trends.
- Capital spending and leasing commitments, including pandemic-related development delays and tenant improvement costs.