American Assets Trust, Inc. (NYSE:AAT) is a full-service, vertically integrated and self-administered real estate investment trust (REIT) that owns, operates, acquires and develops high-quality retail, office, multifamily and mixed-use properties in attractive, high-barrier-to-entry markets primarily in Southern California, Northern California, Washington, Oregon, Texas and Hawaii.

Financials

The company reported strong financial results for the first quarter of 2024, with funds from operations (FFO) of $0.71 per share, up from $0.57 per share in the prior-year quarter. Net income attributable to common stockholders was $0.32 per share for the first quarter of 2024, compared to $0.27 per share in the first quarter of 2023. For the full year 2023, the company reported annual net income of $50.4 million, annual revenue of $441.2 million, annual operating cash flow of $188.8 million, and annual free cash flow of $105.8 million.

Business Overview

The company's diversified portfolio, which includes 12 retail shopping centers, 12 office properties, a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center, and 6 multifamily properties, has proven to be a source of resilience in the face of market challenges. As of March 31, 2024, the company's operating portfolio was comprised of 31 properties with an aggregate of approximately 7.2 million rentable square feet of retail and office space, including the retail portion of its mixed-use property, 2,110 residential units (including 120 RV spaces) and a 369-room hotel. Additionally, the company owned land at three of its properties that it classified as held for development and/or construction in progress.

Office Portfolio

The company's office portfolio, which accounts for 46.7% of total revenues, has seen a rise in office utilization across its over 4 million square feet of office properties since year-end. The company's tenants and their employees have cited the upgraded and repositioned buildings, functional outdoor spaces, fitness centers, integrated technology and conference centers, and cafe offerings at its office campuses as key drivers of the increased usage. The company's office portfolio is approximately 86.4% leased as of the end of the first quarter of 2024, up 40 basis points from the prior quarter.

Retail Segment

In the retail segment, which comprises 23.5% of total revenues, the company is approximately 95% leased and has already renewed more than half of the retail lease expirations in its portfolio this year, with none remaining in excess of 5,000 square feet that aren't pending execution. The company's comparable retail leasing spreads have maintained a positive trajectory, with a 2% increase on a cash basis and a 22% increase on a straight-line basis for first quarter 2024 deals.

Multifamily Portfolio

The company's multifamily portfolio, which accounts for 14.7% of total revenues, has also performed well, with its San Diego communities ending the first quarter of 2024 with an occupancy percentage of 95% and a leased percentage of 97%. While the company saw leases on vacant units rent at an average rate of approximately a 5% decrease from prior rents, it was able to achieve an average 6% increase on renewed units, resulting in a blended average just over flat, with minimal concessions offered. Net effective rents for the company's San Diego multifamily leases are now 7.5% higher year-over-year compared to the first quarter of 2023.

Mixed-Use Segment

The company's mixed-use segment, which includes the retail portion of its Waikiki Beach Walk property and the 369-room Embassy Suites™ Hotel, contributed 15.1% of total revenues in the first quarter of 2024. The hotel portion of the mixed-use property saw a significant increase in occupancy and revenue per available room (RevPAR) in the first quarter of 2024 compared to the prior-year period, with occupancy of 89.8% and RevPAR of $320, up from 81.9% and $302, respectively, in the first quarter of 2023.

Liquidity

The company's conservative balance sheet and ample liquidity provide it with the financial flexibility to navigate the current market environment. As of March 31, 2024, the company had liquidity of approximately $499 million, comprised of $99 million in cash and cash equivalents and $400 million of availability on its revolving line of credit. The company's leverage, as measured by net debt to EBITDA, was 5.7x on a quarter annualized basis and 6.4x on a trailing 12-month basis, with an interest coverage ratio of 4.1x on a quarter annualized basis and 3.6x on a trailing 12-month basis.

Outlook

Looking ahead, the company has increased its 2024 FFO per share guidance range to $2.24 to $2.34, with a midpoint of $2.29 per share, up from its previous guidance range of $2.19 to $2.33 with a midpoint of $2.26 per share. The increase in guidance is primarily attributable to stronger-than-expected performance in the company's office and multifamily segments.

Conclusion

The company's diversified portfolio, conservative balance sheet, and experienced management team have positioned it well to navigate the current market environment. While the company faces some headwinds, such as the ongoing impact of the COVID-19 pandemic on its hotel operations and the potential for rising interest rates, its focus on high-quality, irreplaceable assets in attractive markets and its proactive approach to managing its portfolio and balance sheet should enable it to continue delivering value to shareholders.