Executive Summary / Key Takeaways

• Strategic Resilience in Dynamic Markets: American Assets Trust (AAT) leverages its vertically integrated platform and high-quality, diversified portfolio across office, retail, multifamily, and mixed-use properties in high-barrier-to-entry coastal markets to deliver consistent performance despite macroeconomic headwinds.
• Operational Excellence as a Differentiator: AAT's in-house expertise in development, leasing, and property management, coupled with a strategic "spec suite" program, provides a competitive edge, particularly in the selective office market, by offering move-in ready spaces that accelerate lease-up and cash flow.
• Disciplined Capital Allocation for Long-Term Growth: Recent capital recycling, including the sale of Del Monte Center and the acquisition of Genesee Park Apartments, underscores a strategic shift towards markets offering greater operational efficiencies and significant value-add potential, even if it entails near-term FFO adjustments.
• Leverage Reduction and FFO Upside: While 2025 FFO guidance reflects a "reset" due to non-recurring items and increased interest expense, management has a clear plan to reduce net debt-to-EBITDA towards its 5.5x target, with an anticipated $0.30 per share FFO upside from the stabilization of key office developments like La Jolla Commons III and One Beach Street.
• Diversified Portfolio Stability: Despite segment-specific challenges such as new multifamily supply in San Diego or softer tourism in Hawaii, AAT's balanced portfolio and focus on strong fundamentals in its core markets are expected to drive long-term rent growth and stable occupancy.

The Foundation of Integrated Real Estate Excellence

American Assets Trust, Inc. (AAT) operates as a full-service, vertically integrated, and self-administered real estate investment trust (REIT), a structure that has been foundational to its strategy since its initial public offering in January 2011. This model, built upon over 55 years of experience from its predecessor, American Assets, Inc., allows AAT to maintain substantial in-house expertise across asset management, property management, development, leasing, and financing. The company's portfolio comprises 31 operating properties across office, retail, multifamily, and mixed-use segments, strategically concentrated in dynamic, high-barrier-to-entry coastal markets such as San Diego, San Francisco, Bellevue, Portland, and Oahu. This geographic focus and diversified asset base are central to AAT's overarching strategy: to create long-term value for shareholders by owning irreplaceable assets and maintaining a robust balance sheet.

AAT's operational model itself serves as a critical differentiator, akin to a technological edge in the real estate sector. Its vertically integrated platform provides tangible benefits, enabling streamlined operations and potentially superior margins through efficient management across diverse asset classes. This comprehensive in-house capability allows AAT to control the entire lifecycle of its properties, from acquisition and development to leasing and ongoing management, ensuring quality and responsiveness. For instance, the company's "spec suite" program in its office portfolio is a direct outcome of this integrated approach. By proactively building out move-in ready spaces, AAT addresses a key tenant demand for immediate occupancy with minimal upfront capital investment and downtime. This strategy has proven highly effective, with approximately 38% of year-to-date deals and 40% of current vacancy being addressed through spec suites, accelerating lease-up and cash flow. This operational agility and foresight distinguish AAT from more specialized competitors who may lack the integrated expertise to execute such nuanced strategies efficiently.

The broader real estate landscape presents a mixed picture, yet AAT's strategic positioning aims to capitalize on prevailing trends. In the office sector, a flight to quality is evident, with tenants prioritizing well-located, amenitized, and institutionally managed assets. Return-to-office mandates are gaining traction, with average days in the office for Fortune 100 companies increasing to 3.7 days in Q1 2025. Nationally, office demand is nearing pre-pandemic levels, and quarterly net absorption turned positive for the first time in three years. The retail sector continues to exhibit strength, characterized by near-record low availability, virtually non-existent new construction, and rising asking rents. Multifamily markets, while facing new supply in some areas, are supported by affordability constraints limiting homeownership and sustained rental demand. These macro trends underscore the importance of AAT's focus on high-quality, well-managed properties in desirable locations.

Competitive Positioning and Operational Acumen

In a competitive landscape populated by specialized REITs, AAT's diversified, vertically integrated model offers a distinct advantage. Compared to retail-focused giants like Simon Property Group (SPG), AAT's mix of office, multifamily, and mixed-use properties provides greater resilience against sector-specific downturns and e-commerce pressures. While SPG excels in retail scale and market share, AAT's ability to bundle services and create integrated community developments in its core markets allows for a more stable revenue stream and enhanced tenant appeal. Similarly, against office-centric players like Vornado Realty Trust (VNO) and Boston Properties (BXP), AAT's diversified portfolio mitigates risks associated with evolving work patterns and offers broader market exposure. AAT's in-house construction and property management teams, coupled with its "spec suite" program, enable it to deliver tailored solutions quickly, a critical factor for tenants who are increasingly unwilling to spend capital upfront on tenant improvements. This operational capability, backed by a strong balance sheet, allows AAT to maintain an edge in attracting and retaining high-quality tenants, as evidenced by its ability to secure new leases even in competitive submarkets.

In the multifamily segment, where Equity Residential (EQR) is a pure-play competitor, AAT's properties benefit from "unbeatable locations" in San Diego's "best ZIP codes" and experienced management teams. While new supply in San Diego has led to decelerated rent growth and increased concessions, AAT's focus on well-maintained communities and strategic acquisitions like Genesee Park, with significant mark-to-market rent potential, positions it for long-term outperformance. In Portland, despite ongoing supply absorption, AAT's Hassalo on Eighth community maintains solid occupancy and retention, with future developments like a 4,000-seat live music venue expected to drive demand. The company's ability to execute on capital improvements and offer ready-to-go spaces is a testament to its integrated operational model, which directly supports its competitive standing by enhancing property appeal and reducing tenant downtime.

Financial Performance and Strategic Capital Allocation

AAT's financial performance in 2024 marked a significant milestone, achieving its highest FFO per share since its IPO, alongside record total revenue, NOI, and average monthly base rents across its core segments. The Waikiki Beachwalk Embassy Suites also delivered its highest Average Daily Rate (ADR) in 2024. For the nine months ended September 30, 2025, AAT reported total revenue of $326.12 million, with a net income of $67.15 million.

The company's gross profit margin stands at 61.60%, operating profit margin at 34.75%, and net profit margin at 13.99% on a trailing twelve-month basis.

Operating cash flow for the trailing twelve months was $207.11 million, with free cash flow at $136.90 million, demonstrating robust cash generation capabilities.

The third quarter of 2025 saw FFO at $0.49 per diluted share, slightly exceeding internal projections, driven by leasing progress and disciplined expense management. However, portfolio-wide same-store NOI was slightly down for Q3 but remained up almost 1% year-to-date, aligning with expectations for a "transition year." Segment-specific performance varied: same-store office NOI increased by 3.6% in Q3 2025, benefiting from rent commencements and higher rents at City Center Bellevue. In contrast, same-store retail NOI declined by 2.6%, impacted by credit-related rent losses from bankruptcies (Party City, At Home) and timing of expense reimbursements. Multifamily same-store NOI declined by 8.3% due to supply headwinds in San Diego and expense pressures, while mixed-use NOI decreased by 10% due to softer tourism in Oahu.

AAT has actively engaged in strategic capital recycling to optimize its portfolio. In February 2025, the company sold Del Monte Center for $123.5 million, generating net proceeds of approximately $117.8 million and a gain on sale of $44.5 million. This divestiture was driven by a strategy to concentrate capital in core markets for greater economies of scale. Shortly thereafter, AAT acquired Genesee Park Apartments, a 192-unit multifamily community in San Diego, for $67.9 million. This acquisition, funded primarily by the Del Monte proceeds, offers substantial value-add potential through operational improvements and long-term redevelopment, with vacant units leasing at a 40% increase from average in-place rents. This strategic reallocation, while potentially dilutive to near-term yields, reflects a clear focus on long-term value creation.

Outlook, Guidance, and Risk Assessment

AAT's full-year 2025 FFO guidance has been raised to a range of $1.93 to $2.01 per diluted share, with a midpoint of $1.97, reflecting year-to-date performance. This outlook, however, represents a "reset" from 2024's record FFO, primarily due to the absence of non-recurring revenue-generating items from prior years (e.g., $0.15 from termination fees, $0.13 from litigation income). Other factors contributing to the 2025 FFO adjustment include increased interest expense ($0.06 per FFO share) due to the issuance of 6.15% senior notes and the discontinuation of capitalized interest on La Jolla Commons III, as well as conservative credit reserves ($0.05 per FFO share).

Management anticipates same-store office cash NOI to decrease by approximately 1% in 2025, primarily due to known move-outs, while retail is expected to increase by 1.6%, and multifamily by 2.7%. The mixed-use segment's NOI is projected to remain flat. For the Embassy Suites Waikiki, 2025 guidance includes a 5% increase in revenue, a 7% increase in operating expenses (due to inflation), a 2% increase in occupancy, a 4% increase in ADR to $384, and a 6% increase in RevPAR to $337. The company's FFO is expected to potentially bottom or inflect mid-to-late 2025, with new lease commencements scheduled for late 2025 and early 2026. AAT projects approximately $0.30 of additional FFO per share from the stabilization of its key office developments, La Jolla Commons III and One Beach Street, which is also central to its plan to reduce the net debt-to-EBITDA ratio towards its long-term target of 5.5x or lower. As of Q3 2025, this ratio stood at 6.7x on a trailing 12-month basis.

Key risks to this outlook include continued macroeconomic uncertainty, particularly the impact of inflation and interest rate volatility on capital markets and tenant demand. The office sector's recovery remains selective, and while AAT's "spec suite" strategy is effective, a prolonged slowdown in leasing could impact occupancy targets. In multifamily, new supply in certain markets could continue to pressure rent growth and increase concessions. The mixed-use segment in Hawaii faces ongoing challenges from softer tourism, a strong U.S. dollar, and heightened rate competition, though management views these as near-term pressures. The company also maintains credit reserves for certain office and retail tenants, highlighting potential risks to rent collection. Changes in trade policies and potential government shutdowns also pose risks to tenant stability and operating costs.

Conclusion

American Assets Trust stands as a compelling investment thesis, rooted in its vertically integrated operational model and a high-quality, diversified portfolio strategically positioned in resilient coastal markets. While 2025 marks a transitional period with a reset in FFO guidance due to non-recurring items and increased interest expenses, the company's disciplined capital allocation, exemplified by the Del Monte sale and Genesee Park acquisition, underscores a clear commitment to long-term value creation. AAT's operational differentiators, such as its successful "spec suite" program and in-house expertise, provide a competitive edge in attracting and retaining tenants, particularly in the selective office market.

The path to achieving its long-term leverage targets and unlocking significant FFO upside is directly tied to the successful lease-up and stabilization of key developments like La Jolla Commons III and One Beach Street. Despite facing macroeconomic headwinds and segment-specific challenges, AAT's diversified asset base and strategic focus on high-barrier-to-entry markets position it for sustained rent growth and stable occupancy. Investors should monitor the progress of office lease-up, the recovery of Hawaii tourism, and the company's continued execution on its capital recycling initiatives as key indicators of its trajectory towards enhanced shareholder value.