American Assets Trust Inc (AAT) Q2 2024 Earnings Call Highlights: Strong Retail and Multifamily ...

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  • FFO (Funds From Operations): $0.6 per share for Q2 2024.

  • Net Income: $0.2 per share for Q2 2024.

  • Same-Store Cash NOI Growth: 2.1% year-over-year for Q2 2024.

  • Retail Portfolio Leasing: 95% leased with a 6% increase on a cash basis and a 34% increase on a straight-line basis for Q2 transactions.

  • Multifamily Portfolio Occupancy: 89% occupancy and 95% leased in San Diego communities.

  • Multifamily Same-Store NOI Growth: 9.5% year-over-year for Q2 2024.

  • Mixed-Use Portfolio NOI Growth: 2.2% year-over-year for Q2 2024.

  • Liquidity: $515 million, including $115 million in cash and $400 million available on a revolving line of credit.

  • Leverage: Net debt to EBITDA of 6.4 times on a quarter annualized basis.

  • 2024 FFO Guidance: Increased to $2.48 to $2.54 per share.

  • Office Portfolio Leasing: 86.6% leased with 18 leases totaling approximately 96,000 rentable square feet executed in Q2.

Release Date: July 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • American Assets Trust Inc (NYSE:AAT) exceeded expectations in Q2 2024, prompting an increase in full-year guidance.

  • The company announced a quarterly dividend of $0.335 per share, reflecting strong financial performance.

  • Retail sector achieved a 95% lease rate with positive leasing spreads, indicating strong demand and limited supply growth.

  • Multifamily portfolio saw a 9.5% increase in same-store NOI, with high occupancy and minimal concessions.

  • Office portfolio leasing activity increased, with new leasing outpacing renewals for the first time since 2019.

Negative Points

  • FFO per share decreased from Q1 to Q2 2024 due to a one-time litigation settlement in Q1.

  • Office utilization rates remain below pre-pandemic levels, with some markets like Bellevue and Portland at 60% to 75%.

  • Multifamily occupancy dipped to 89% due to seasonal student move-outs, affecting rental rates.

  • San Francisco office market remains challenging, impacting leasing prospects at One Beach.

  • Net debt to EBITDA ratio is at 6.4 times, above the company's target of 5.5 times or below.

Q & A Highlights

Q: Are there any General and Administrative (G&A) impacts expected from the recent leadership announcement, and what are your strategic priorities as you transition to the CEO role? A: Adam Wyll, President & Chief Operating Officer, stated that there are no anticipated G&A impacts this year as changes will be effective from January next year. The strategy remains consistent with the past, focusing on value creation.

Q: Can you provide details on the lease termination fee received this quarter and any implications for the office segment? A: Adam Wyll explained that the lease termination involved a life science tenant with financial difficulties. The termination was mutually beneficial, allowing American Assets Trust to reclaim well-built, below-market space, which they are optimistic about re-leasing.

Q: What is the current leasing activity in the office segment, and how does it impact leasing CapEx? A: Steve Center, Senior Vice President of Office Properties, noted that new leasing activity has outpaced renewals for the first time in years. Despite increased costs, CapEx remains at historical averages due to strategic management of tenant improvements.

Q: How is American Assets Trust managing upcoming debt maturities, and are there plans for refinancing? A: Robert Barton, Executive Vice President & Chief Financial Officer, stated they are monitoring the market for the right time to refinance $425 million due in 2025, aiming to secure favorable terms before year-end.

Q: What are the prospects for leasing at La Jolla Commons III and One Beach? A: Steve Center reported strong leasing prospects at La Jolla Commons III, with significant interest and low vacancy in the submarket. However, One Beach in San Francisco faces challenges due to the current market conditions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.