American Assets Trust, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The company is a REIT owning retail, office, multifamily and mixed-use properties; it reported 23 operating properties across its markets. Amounts below are in millions unless noted.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total revenue | $65.3 | $60.8 | $190.4 | $172.3 |
| Property operating income (NOI) | $42.1 | $38.2 | $124.0 | $108.5 |
| Operating income | $21.4 | $18.2 | $60.7 | $51.7 |
| Net income | $6.3 | $4.3 | $15.7 | $9.8 |
| Net income attributable to company stockholders | $4.2 | $2.8 | $10.5 | $6.4 |
| Basic and diluted EPS | $0.11 | $0.08 | $0.27 | $0.17 |
| Operating cash flow | — | — | $74.5 | $55.4 |
- Revenue rose 7% in Q3 and 10% year to date; NOI rose 10% and 14%, respectively. NOI margin, calculated as NOI divided by revenue, was approximately 64.5% in Q3 versus 62.9%, and 65.1% year to date versus 62.9%.
- Q3 stockholder-attributable net income increased 50%; nine-month income increased 66%. Results from discontinued operations were zero in 2013, compared with $0.3 million for Q3 2012 and $0.7 million for the first nine months of 2012.
- Growth reflected contributions from City Center Bellevue and Geary Marketplace, acquired in 2012, as well as stronger multifamily occupancy and hotel revenue per available room. Same-store NOI increased 3% for the quarter and 6% year to date.
- Cash and cash equivalents were $65.7 million at September 30, up from $42.5 million at December 31, 2012. Nine-month investing cash use was $35.2 million, primarily capital expenditures; financing cash use was $16.1 million, including $36.6 million of dividends, partly offset by stock issuance proceeds.
Balance sheet, debt and distributions
- Total assets were $1.841 billion, including net real estate of $1.666 billion. Total liabilities were $1.150 billion.
- Secured notes payable were $1.044 billion carrying value, predominantly fixed-rate debt. The revolving credit facility had no balance outstanding at September 30; maximum allowable borrowing was $224.3 million. The company reported compliance with debt covenants.
- On October 8, 2013, the company prepaid the $92.3 million Alamo Quarry Market mortgage using a credit-facility draw. At November 8, $93.0 million was outstanding on the facility.
- Declared dividends were $0.21 per common share per quarter, or $0.63 for the first nine months of 2013.
Outlook, risks and notable items
- No formal earnings or FFO guidance was provided. Management said it remained cautiously optimistic about leasing trends and expected leasing volume through the rest of 2013 to be in line with historical averages, with overall positive rental-income increases; it cautioned that signed lease rents could rise or fall and tenants might not take possession or pay as contracted.
- Lloyd District redevelopment broke ground in Q3: planned scope includes about 47,000 square feet of retail and 657 multifamily units alongside existing office space. Estimated cost is approximately $192 million, with $14 million incurred; completion is expected in 2015 and stabilization in 2017.
- Torrey Reserve redevelopment is adding approximately 81,500 square feet of office space. Estimated cost is $34 million, with $18 million incurred; stabilization is expected in 2015.
- Development timing, costs and returns depend on market conditions; management may delay projects, limit acquisitions, reduce spending or reconsider the dividend if conditions deteriorate. Other stated risks include tenant defaults or nonrenewals, weaker rents or occupancy, financing availability and interest rates, geographic and retail-sector concentration, environmental matters, and maintaining REIT qualification.
- Contingencies include ongoing groundwater remediation at Del Monte Center, funded by a seller-funded escrow that management believes is sufficient; approximately $6.6 million accrued for California transfer taxes, subject to taxing-authority agreement; and potential Embassy Suites franchise termination payments of up to $6.2 million if specified obligations are not met. Management did not expect pending legal matters to have a material adverse effect.
Most important facts for investors to verify
- Whether post-quarter credit-facility borrowing and upcoming mortgage maturities can be refinanced or repaid on acceptable terms.
- Actual development spending, leasing progress, completion timing and stabilization prospects for Lloyd District and Torrey Reserve.
- Whether occupancy and same-store rental trends improve, particularly given lower reported retail and office leased percentages year over year.
- The extent of potential exposure from transfer taxes, Del Monte Center remediation and hotel franchise requirements.
- How much of revenue growth is recurring same-store performance versus acquisitions, and whether cash generation supports capital needs and distributions.