American Assets Trust, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. Financial statements are unaudited. The company is a REIT owning retail, office, multifamily and mixed-use properties; its portfolio included 23 operating properties and land at five properties held for development or under construction.
Financial highlights
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $62.9 million | $56.1 million | $125.1 million | $111.6 million |
| Operating income | $19.4 million | $16.6 million | $39.3 million | $33.5 million |
| Net income | $4.6 million | $2.6 million | $9.4 million | $5.5 million |
| Net income attributable to company stockholders | $3.1 million | $1.7 million | $6.3 million | $3.5 million |
| Basic and diluted EPS | $0.08 | $0.04 | $0.16 | $0.09 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $45.7 million | $35.3 million |
- Q2 property-level NOI, a non-GAAP measure, was $40.8 million, up 17%; six-month NOI was $81.8 million, up 16%. Same-store NOI increased 5% for both periods.
- Q2 total revenue increased 12%; six-month revenue increased 12%. Growth was largely related to acquisitions, including City Center Bellevue and Geary Marketplace, alongside higher multifamily rents and occupancy and improved hotel revenue per available room.
- Six-month investing cash outflow was $22.1 million, including $21.2 million of capital expenditures and $1.3 million of leasing commissions. Financing cash outflow was $2.7 million. Cash and cash equivalents were $63.3 million at June 30, 2013.
- Rental income increased 11% in both reported periods. Same-store rental income rose 2% in Q2 and 2% for six months; same-store office rental income declined 2% in both comparisons.
Debt, liquidity and capital
- Secured notes payable had a $1.044 billion carrying value ($1.056 billion principal); all outstanding debt was fixed-rate. Interest expense was $14.7 million for Q2 and $29.5 million for six months.
- The revolving credit facility had no borrowings outstanding. Maximum allowable borrowing at June 30 was $227.8 million; its stated facility commitment was $250 million, subject to borrowing-base limits. The company reported compliance with debt covenants.
- Total assets were $1.837 billion, total liabilities $1.140 billion and total equity $696.5 million. Dividends declared were $0.21 per share per quarter, or $0.42 for the six months.
- An at-the-market equity program launched in May 2013 allowed up to $150 million of share sales. By June 30, 718,714 shares had been issued for $25.2 million gross proceeds; $124.8 million of capacity remained.
Changes, outlook and risks
- Stockholder-attributable net income rose 82% in Q2 and 78% for six months, while total revenue rose 12% in each comparison. Reported growth reflects acquisitions and should be distinguished from same-store performance.
- Management provided no specific earnings or operating guidance in the supplied filing text. It said short-term needs were expected to be met with operating cash flow, cash reserves and, if needed, the credit facility; longer-term needs could be funded through operations, debt and equity issuance. Access to financing was not assured.
- Near-term debt refinancing is a key item: the $92.8 million Alamo Quarry Market loan has a stated January 8, 2014 maturity/anticipated repayment date. Other large maturities include Waikele Center in 2014 and several loans in 2015.
- Risks include economic and property-market weakness, tenant defaults or non-renewals, vacancies and lower rents, interest-rate and operating-cost changes, financing access, development execution, geographic concentration and REIT qualification. Twelve properties were in Southern California; retail tenants represented 36.5% of six-month revenue.
- Unusual or contingent items include approximately $6.6 million accrued for expected California transfer taxes, with no assurance taxing authorities will accept the estimate; ongoing groundwater remediation at Del Monte Center, expected to be funded by seller escrow, though overruns could create exposure; and potential franchise termination payments of up to $6.0 million for the Embassy Suites hotel based on performance through June 30.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- How the company plans to refinance or repay the Alamo Quarry Market loan due in January 2014, and subsequent 2014–2015 maturities.
- Whether same-store office leasing and occupancy stabilize; office occupancy was 92.9%, versus 94.7% a year earlier, and same-store office rental income declined.
- How much reported growth came from acquisitions versus recurring same-store operations, and the returns generated on increased development and capital spending.
- Future ATM share issuance, its effect on per-share results, and the use of proceeds.
- Actual costs and resolution of California transfer-tax matters and Del Monte Center remediation, plus progress on the hotel product-improvement obligations.