American Assets Trust(AAT) - 2022 Q3 - Quarterly Report

Report Information Filing Details This quarterly report for American Assets Trust, Inc. and its Operating Partnership as of September 30, 2022, confirms both entities have filed all required reports, with American Assets Trust, Inc. classified as a Large Accelerated Filer and the Operating Partnership as a Non-Accelerated Filer - This report is the quarterly report for American Assets Trust, Inc. and its Operating Partnership as of September 30, 2022, with both entities having filed all required reports[1][3] Filer Categories | Entity Name | Filer Category | | :------------------------ | :--------------- | | American Assets Trust, Inc. | Large Accelerated Filer | | American Assets Trust, L.P. | Non-Accelerated Filer | Registered Securities | Registrant Name | Class | Ticker | Registered Exchange | | :------------------------ | :-------------------- | :------- | :--------------- | | American Assets Trust, Inc. | Common Stock, $0.01 par value per share | AAT | New York Stock Exchange | | American Assets Trust, L.P. | N/A | N/A | N/A | EXPLANATORY NOTE Combined Report and Entity Structure This report combines the quarterly reports of American Assets Trust, Inc. (REIT parent and sole general partner) and its Operating Partnership (holding most assets and operations) to reflect a single operating unit view, with separate disclosures for differences in non-controlling interests, capital, earnings per share/unit, and liquidity - This report combined the quarterly reports of American Assets Trust, Inc. (REIT parent company and sole general partner) and its Operating Partnership (which holds substantially all assets and conducts business operations)[7][8][11] - The combined report aims to better reflect management and analysts' view of the business as a single operating unit, enhancing efficiency and reducing redundant disclosures[9] - The two entities differ in non-controlling interests, equity/partners' capital, earnings per share/unit, and liquidity and capital resources, which are separately disclosed in the report[12][13] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the consolidated balance sheets, comprehensive income statements, equity/partners' capital statements, and cash flow statements for American Assets Trust, Inc. and its Operating Partnership as of September 30, 2022, and December 31, 2021, with detailed notes Consolidated Financial Statements of American Assets Trust, Inc. American Assets Trust, Inc.'s consolidated financial statements as of September 30, 2022, show a slight decrease in total assets and equity, a slight increase in total liabilities, significant growth in net income and basic EPS for the nine months, but reduced cash and cash equivalents, and a shift to net cash used in financing activities American Assets Trust, Inc. Consolidated Balance Sheet Key Data (USD thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | Change % | | :------------- | :------------ | :------------- | :--------- | :------- | | Total Assets | 3,008,577 | 3,017,927 | (9,350) | -0.31% | | Total Liabilities | 1,810,854 | 1,807,804 | 3,050 | 0.17% | | Total Equity | 1,197,723 | 1,210,123 | (12,400) | -1.02% | | Net Real Estate | 2,735,784 | 2,681,981 | 53,803 | 2.00% | | Cash and Cash Equivalents | 63,431 | 139,524 | (76,093) | -54.54% | American Assets Trust, Inc. Consolidated Statements of Comprehensive Income Key Data (USD thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | Change % | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | Change % | | :--------------------------------- | :------------------- | :------------------- | :------- | :------- | :------------------- | :------------------- | :------- | :------- | | Total Revenue | 111,023 | 98,286 | 12,737 | 12.96% | 316,648 | 274,081 | 42,567 | 15.53% | | Operating Income | 31,003 | 27,669 | 3,334 | 12.05% | 87,661 | 74,154 | 13,507 | 18.22% | | Net Income Attributable to American Assets Trust, Inc. Stockholders | 12,772 | 10,041 | 2,731 | 27.20% | 33,877 | 20,239 | 13,638 | 67.39% | | Basic Earnings Per Share | 0.21 | 0.17 | 0.04 | 23.53% | 0.56 | 0.34 | 0.22 | 64.71% | | Dividends Declared Per Share | 0.32 | 0.30 | 0.02 | 6.67% | 0.96 | 0.86 | 0.10 | 11.63% | American Assets Trust, Inc. Consolidated Statements of Cash Flows Key Data (USD thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | Change % | | :--------------------- | :------------------- | :------------------- | :--------- | :-------- | | Net Cash Provided by Operating Activities | 140,892 | 129,632 | 11,260 | 8.69% | | Net Cash Used in Investing Activities | (139,634) | (263,345) | 123,711 | -46.98% | | Net Cash (Used in) Provided by Financing Activities | (77,351) | 168,303 | (245,654) | -145.96% | | Cash and Cash Equivalents at End of Period | 63,431 | 173,639 | (110,208) | -63.47% | Consolidated Financial Statements of American Assets Trust, L.P. American Assets Trust, L.P.'s consolidated financial statements as of September 30, 2022, align with the parent company's assets and liabilities, differing primarily in capital structure, showing significant net income and basic EPS growth for the nine months, but reduced cash and cash equivalents, and a shift to net cash used in financing activities American Assets Trust, L.P. Consolidated Balance Sheet Key Data (USD thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | Change % | | :------------- | :------------ | :------------- | :--------- | :------- | | Total Assets | 3,008,577 | 3,017,927 | (9,350) | -0.31% | | Total Liabilities | 1,810,854 | 1,807,804 | 3,050 | 0.17% | | Limited Partners' Capital | (36,542) | (30,138) | (6,404) | 21.25% | American Assets Trust, L.P. Consolidated Statements of Comprehensive Income Key Data (USD thousands, except per unit data) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | Change % | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | Change % | | :--------------------------------- | :------------------- | :------------------- | :------- | :------- | :------------------- | :------------------- | :------- | :------- | | Total Revenue | 111,023 | 98,286 | 12,737 | 12.96% | 316,648 | 274,081 | 42,567 | 15.53% | | Net Income Attributable to American Assets Trust, L.P. | 16,214 | 12,750 | 3,464 | 27.17% | 43,007 | 25,698 | 17,309 | 67.36% | | Basic Earnings Per Unit | 0.21 | 0.17 | 0.04 | 23.53% | 0.56 | 0.34 | 0.22 | 64.71% | | Distributions Declared Per Unit | 0.32 | 0.30 | 0.02 | 6.67% | 0.96 | 0.86 | 0.10 | 11.63% | American Assets Trust, L.P. Consolidated Statements of Cash Flows Key Data (USD thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | Change % | | :--------------------- | :------------------- | :------------------- | :--------- | :-------- | | Net Cash Provided by Operating Activities | 140,892 | 129,632 | 11,260 | 8.69% | | Net Cash Used in Investing Activities | (139,634) | (263,345) | 123,711 | -46.98% | | Net Cash (Used in) Provided by Financing Activities | (77,351) | 168,303 | (245,654) | -145.96% | | Cash and Cash Equivalents at End of Period | 63,431 | 173,639 | (110,208) | -63.47% | Notes to Consolidated Financial Statements Notes to consolidated financial statements detail significant accounting policies, real estate acquisitions, lease intangibles, fair value of financial instruments, derivatives, other assets/liabilities, debt, capital, equity, income taxes, commitments, leases, rental income/expense, related party transactions, and segment reporting - The company is a vertically integrated REIT, owning and managing 31 office, retail, multifamily, and mixed-use properties across Southern California, Northern California, Washington, Oregon, Texas, and Hawaii[42][44] - On March 8, 2022, the company acquired the multi-tenant office park, Bel-Spring 520, in Bellevue, Washington, for $45.5 million in cash[58][59] - As of September 30, 2022, the Operating Partnership repaid $111 million of the mortgage loan on the City Center Bellevue property and obtained a new $75 million five-year non-recourse mortgage loan at a fixed rate of 5.08%[81] - As of September 30, 2022, the Operating Partnership complied with all financial covenants in its loan agreements[82][86][93] Segment Profit (Nine Months Ended September 30, USD thousands) | Segment | 2022 | 2021 | Change | Change % | | :------- | :----- | :----- | :------- | :------- | | Office | 111,468| 100,438| 11,030 | 10.98% | | Retail | 51,908 | 49,374 | 2,534 | 5.13% | | Multifamily | 23,680 | 21,179 | 2,501 | 11.81% | | Mixed-Use | 16,963 | 9,564 | 7,399 | 77.36% | | Total | 204,019 | 180,555 | 23,464 | 12.99% | Capital Expenditures (Nine Months Ended September 30, USD thousands) | Segment | 2022 | 2021 | Change | Change % | | :------- | :----- | :----- | :------- | :------- | | Office | 80,824 | 48,471 | 32,353 | 66.75% | | Retail | 9,422 | 4,817 | 4,605 | 95.60% | | Multifamily | 3,572 | 4,117 | (545) | -13.24% | | Mixed-Use | 649 | 1,392 | (743) | -53.38% | | Total | 94,467 | 58,797 | 35,670 | 60.67% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operating results for the three and nine months ended September 30, 2022, covering forward-looking statements, business overview, acquisitions, key accounting policies, same-store results, outlook, COVID-19 impact, leasing, capitalized costs, operating performance, liquidity, off-balance sheet arrangements, cash flows, and non-GAAP financial measures - The company anticipates growth in earnings, Funds From Operations, and cash flow through same-store portfolio growth, property development and redevelopment, and property acquisitions[159][160][161] - In Q3 2022, office leasing saw cash and GAAP average rent growth rates of 23.7% and 34.7%, respectively; retail leasing had cash average rent growth of 6.8% and GAAP growth of 27.7%[164][165] Total Property Revenue (USD thousands) | Period | 2022 | 2021 | Change | Change % | | :------------------- | :----- | :----- | :------- | :------- | | 3 Months Ended Sep 30 | 111,023| 98,286 | 12,737 | 12.96% | | 9 Months Ended Sep 30 | 316,648| 274,081| 42,567 | 15.53% | Total Property Expenses (USD thousands) | Period | 2022 | 2021 | Change | Change % | | :------------------- | :----- | :----- | :------- | :------- | | 3 Months Ended Sep 30 | 39,915 | 33,110 | 6,805 | 20.55% | | 9 Months Ended Sep 30 | 112,629| 93,526 | 19,103 | 20.43% | Net Income Attributable to American Assets Trust, Inc. Stockholders (USD thousands) | Period | 2022 | 2021 | Change | Change % | | :------------------- | :----- | :----- | :------- | :------- | | 3 Months Ended Sep 30 | 12,772 | 10,041 | 2,731 | 27.20% | | 9 Months Ended Sep 30 | 33,877 | 20,239 | 13,638 | 67.39% | Funds From Operations (FFO) Attributable to Common Stockholders and Unitholders (USD thousands) | Period | 2022 | 2021 | | :------------------- | :----- | :----- | | 3 Months Ended Sep 30 | 47,945 | N/A | | 9 Months Ended Sep 30 | 136,240| N/A | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discloses the company's market interest rate risk, including sensitivity analysis for fixed and variable-rate debt, and strategies to manage these risks through interest rate swap and lock agreements - As of September 30, 2022, the company had $1.38 billion in fixed-rate debt, with an estimated fair value of $1.24 billion[271] - If interest rates increased by 1.0%, the fair value of fixed-rate debt would decrease by approximately $51.2 million; if rates decreased by 1.0%, fair value would increase by approximately $66.5 million[271] - As of September 30, 2022, the company had $250 million in variable-rate debt, but its interest rate was effectively fixed due to interest rate swap agreements, so a 1.0% change in market interest rates would not alter annual interest expense[272] - On July 25, 2022, the company entered into a $75 million interest rate lock agreement for the City Center Bellevue property's mortgage loan, at a fixed rate of 5.08%[273] Item 4. Controls and Procedures This section discloses the effectiveness of disclosure controls and procedures for American Assets Trust, Inc. and its Operating Partnership as of September 30, 2022, with management concluding they are effective and no material changes to internal control over financial reporting occurred during the period - American Assets Trust, Inc. and its Operating Partnership's disclosure controls and procedures were assessed as effective as of September 30, 2022[275][279] - During the reporting period, neither entity identified any changes that materially affected internal control over financial reporting[276][280] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings deemed to materially impact its business, financial condition, or results of operations, though it anticipates various claims in the ordinary course of business - The company is not currently involved in any legal proceedings deemed to have a material impact on its business, financial condition, or results of operations[281] Item 1A. Risk Factors During this reporting period, there were no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - There were no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021, during this reporting period[282] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During this reporting period, the company had no unregistered sales of equity securities or use of proceeds - During this reporting period, there were no unregistered sales of equity securities or use of proceeds[282] Item 3. Defaults Upon Senior Securities During this reporting period, the company had no defaults upon senior securities - During this reporting period, there were no defaults upon senior securities[284] Item 4. Mine Safety Disclosures This disclosure item is not applicable to the company - This disclosure item is not applicable to the company[284] Item 5. Other Information During this reporting period, there was no other information requiring disclosure - During this reporting period, there was no other information requiring disclosure[285] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q report, including an amended credit agreement, CEO and CFO certifications, and XBRL interactive data files - Exhibits include the Third Amended and Restated Credit Agreement dated January 5, 2022[286][287] - Exhibits also include certifications of the Chief Executive Officer and Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act and 18 U.S.C. §1350[286] - XBRL Interactive Data Files (including instance document, taxonomy extension schema document, calculation linkbase document, label linkbase document, presentation linkbase document, and definition linkbase document) are also filed as exhibits[286] SIGNATURES Report Signatures This report was signed by Ernest Rady, Chairman and CEO, and Robert F. Barton, Executive Vice President and CFO, on behalf of American Assets Trust, Inc. and its Operating Partnership on October 28, 2022 - This report was signed by Ernest Rady (Chairman and Chief Executive Officer) and Robert F. Barton (Executive Vice President and Chief Financial Officer) on behalf of American Assets Trust, Inc. and its Operating Partnership[289] - The signing date is October 28, 2022[290]