Business Overview
American Assets Trust, Inc. (AAT) is a full-service, vertically integrated, and self-administered real estate investment trust (REIT) that owns, operates, acquires, and develops high-quality office, retail, multifamily, and mixed-use properties in attractive, high-barrier-to-entry markets primarily located in Southern California, Northern California, Washington, Oregon, Texas, and Hawaii.
Company History
American Assets Trust, Inc. was formed on July 16, 2010, but did not have any operating activity until the consummation of its initial public offering and the related acquisition of certain assets of a combination of entities owned and/or controlled by Ernest S. Rady and his affiliates on January 19, 2011. At the time of its formation, the company acquired entities owning various controlling and non-controlling interests in 17 properties and the property management business of American Assets, Inc. owned by Ernest Rady and his affiliates. This initial portfolio provided the company with a strong foothold in its core markets of Southern California, Northern California, Washington, Oregon, and Hawaii.
Over the years, American Assets Trust has strategically grown its portfolio through selective acquisitions and developments, taking advantage of its experienced management team's expertise across various real estate asset classes. Some key milestones include the acquisition of Timber Springs in Bellevue, Washington in 2022 and the development and opening of One Beach Street in San Francisco in 2024.
The company has faced challenges such as navigating economic and market conditions, including the COVID-19 pandemic, which impacted operations and tenant demand across its portfolio. However, American Assets Trust was able to maintain relatively high occupancy levels and generate positive same-store NOI growth during this period, demonstrating the resilience of its diversified, high-quality assets and the capabilities of its management team.
Portfolio Overview
As of December 31, 2024, the company's portfolio has grown to 31 properties, comprising 12 office properties, 12 retail shopping centers, 6 multifamily properties, and a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center. The company's core markets include San Diego, the San Francisco Bay Area, Bellevue, Portland, and Oahu, Hawaii, all of which are known for their strong real estate fundamentals and high barriers to entry.
Financials
American Assets Trust's financial performance has been impressive, with the company reporting record total revenue of $457.9 million and net income of $72.8 million for the year ended December 31, 2024. The company's funds from operations (FFO) per diluted share, a key metric for REITs, increased 8% year-over-year to $2.58 in 2024, marking the highest FFO per share since the company's IPO in 2011.
The company's diversified portfolio and focus on high-quality assets in desirable markets have been the key drivers of its success. In 2024, the office, retail, multifamily, and mixed-use segments contributed 47.1%, 23.8%, 14.3%, and 14.8% of the company's total revenue, respectively. The retail and multifamily segments performed particularly well, with same-store cash NOI growth of 5% and 6%, respectively, in 2024.
For the fourth quarter of 2024, American Assets Trust reported revenue of $113.5 million and net income of $11.6 million. However, these results reflect a decline in net income compared to the prior year quarter, primarily due to lower termination fees and a decrease in revenue at the Embassy Suites hotel.
The company's operating cash flow for 2024 was $207.1 million, with free cash flow of $136.9 million. American Assets Trust's portfolio of office, retail, multifamily, and mixed-use properties was 89.1% leased as of December 31, 2024, generating $273.8 million in annualized base rent.
Liquidity
Looking ahead, American Assets Trust is well-positioned for continued growth. The company has a strong balance sheet, with a net debt to EBITDA ratio of 6.0x as of December 31, 2024, and ample liquidity of $826 million, including $426 million in cash and cash equivalents and $400 million of availability on its revolving line of credit. The company's debt-to-equity ratio stands at 1.73, with a current ratio and quick ratio of 5.92.
Strategic Initiatives and Future Outlook
The company is actively pursuing strategic initiatives to enhance its portfolio and drive long-term value creation. In 2025, the company expects to complete the lease-up of its recently developed properties, including One Beach Street in San Francisco and La Jolla Commons Three in San Diego, which are currently 19% and 93% leased, respectively. Additionally, the company announced the sale of its Del Monte Center in Monterey, California, for $123.5 million, and the acquisition of a multifamily community in San Diego, which it believes has significant upside potential.
For 2025, American Assets Trust has provided FFO per share guidance in the range of $1.87 to $2.01, with a midpoint of $1.94. This represents a decrease of approximately 24% compared to the 2024 actual FFO per share of $2.58. The key drivers for the decrease include:
- $0.15 per share decrease from non-recurring termination fees in 2024
- $0.13 per share decrease from non-recurring litigation income in 2024
- Flat to slightly positive same-store cash NOI growth across all sectors in 2025
- $0.04 per share decrease from the lease-up of the non-same-store office properties (One Beach Street and La Jolla Commons Three)
- $0.05 per share decrease from credit reserves
- $0.06 per share increase in interest expense
- $0.04 per share decrease in other income
- $0.07 per share decrease in GAAP adjustments
- $0.11 per share decrease from the disposition of Del Monte Center
- $0.02 per share increase from the multifamily acquisition
While the 2025 FFO guidance represents a decrease from 2024 due to the loss of certain one-time revenue items and increased interest expense, the long-term outlook remains promising. The company's focus on maintaining a strong balance sheet, prudent capital allocation, and enhancing its portfolio through accretive acquisitions and development projects positions it well to navigate any near-term headwinds and deliver sustained growth in the years ahead.
Segment Performance
Office Segment: As of December 31, 2024, AAT's office portfolio consisted of 12 properties with a total of approximately 4.1 million rentable square feet available for lease. These office properties were 85% leased as of the end of 2024. During 2024, AAT signed 67 office leases for 398,510 square feet at an average rental rate of $52.32 per square foot during the initial year of the lease term. Of these leases, 45 were comparable leases where there was a prior tenant, with an increase of 6% in cash basis rent and an increase of 13% in straight-line rent compared to the prior leases.
Retail Segment: AAT's retail portfolio consisted of 12 properties with a total of approximately 3.1 million rentable square feet available for lease as of December 31, 2024. These retail properties were 94.5% leased at the end of 2024. During 2024, AAT signed 95 retail leases for 428,980 square feet at an average rental rate of $38.32 per square foot during the initial year of the lease term. Of these leases, 80 were comparable leases where there was a prior tenant, with an increase of 4.5% in cash basis rent and an increase of 25% in straight-line rent compared to the prior leases.
Multifamily Segment: AAT's multifamily portfolio consisted of 6 apartment properties, as well as an RV resort, with a total of 2,110 units including 120 RV spaces available for lease as of December 31, 2024. These multifamily properties were 91.8% leased at the end of 2024. The average monthly base rent per leased unit as of December 31, 2024 was $2,680.
Mixed-Use Segment: AAT's mixed-use property consists of approximately 94,000 rentable square feet of retail space and a 369-room all-suite hotel. As of December 31, 2024, the retail portion of the mixed-use property was 90.5% leased, and the hotel had an average occupancy of 85.9% for the year. The Waikiki Beach Walk Embassy Suites hotel delivered its highest ADR to date in 2024.
Geographic Distribution
American Assets Trust's properties are primarily located in Southern California, Northern California, Washington, Oregon, Texas, and Hawaii. As of December 31, 2024, Southern California accounted for 57.1% of the company's net rentable square feet. Washington, Oregon, and Texas accounted for 14.1%, 13.4%, and 8.1% respectively, while Hawaii accounted for 7.2% of the net rentable square feet.
Conclusion
American Assets Trust's diversified portfolio, experienced management team, and strategic initiatives make it a compelling investment opportunity for investors seeking exposure to the high-quality, income-generating real estate sector. Despite near-term challenges reflected in the 2025 guidance, the company's strong market positions, focus on high-barrier-to-entry markets, and proven track record of value creation position it well for long-term growth. As the company continues to capitalize on growth opportunities in its target markets, it is poised to deliver consistent and attractive returns for its shareholders.