American Assets Trust(AAT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for American Assets Trust, Inc. and its Operating Partnership, including detailed notes Consolidated Financial Statements of American Assets Trust, Inc. American Assets Trust, Inc. reported total revenues of $217.5 million and net income of $28.1 million for the six months ended June 30, 2023 Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $3,012,460 | $2,987,881 | | Total Liabilities | $1,836,344 | $1,802,356 | | Total Equity | $1,176,116 | $1,185,525 | Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $109,721 | $104,155 | $217,475 | $205,625 | | Net Income Attributable to Stockholders | $11,983 | $10,582 | $28,119 | $21,105 | | Diluted EPS | $0.20 | $0.18 | $0.47 | $0.35 | Consolidated Cash Flow Highlights - Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $98,118 | $86,057 | | Net cash used in investing activities | ($49,086) | ($112,479) | | Net cash used in financing activities | ($13,894) | ($52,352) | | Net increase (decrease) in cash | $35,138 | ($78,774) | Consolidated Financial Statements of American Assets Trust, L.P. The Operating Partnership's financial statements mirror the parent company's, with key differences in the capital section's presentation - The primary distinction in the L.P.'s financial statements compared to the parent REIT is the presentation of equity, where limited partners' interests are shown as 'Limited partners' capital' and the parent's interest as 'General partner's capital', while in the REIT's statements, limited partners' interests are classified as 'Noncontrolling interests'[11][27] Consolidated L.P. Income Statement Highlights (in thousands, except per unit data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $109,721 | $104,155 | $217,475 | $205,625 | | Net Income Attributable to AAT, L.P. | $15,207 | $13,434 | $35,684 | $26,793 | | Diluted EPU | $0.20 | $0.18 | $0.47 | $0.35 | Notes to Consolidated Financial Statements Notes provide detailed explanations of accounting policies, business structure, property portfolio, debt, and segment performance - The company operates as a vertically integrated REIT with 31 properties as of June 30, 2023, concentrated in office, retail, multifamily, and mixed-use sectors, with operations carried out through its Operating Partnership (AAT, L.P.), which is a variable interest entity (VIE) consolidated by the company[41][42][48] - The company operates in four business segments: Office, Retail, Multifamily, and Mixed-Use, with the Office segment generating the highest profit at $73.5 million for the six months ended June 30, 2023[152][153][155] - American Assets Trust, Inc. does not hold any indebtedness directly, as all debt is held by the Operating Partnership, though the parent company guarantees the L.P.'s obligations[80] Total Debt of American Assets Trust, L.P. (in thousands) | Debt Type | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Secured notes payable, net | $74,623 | $74,578 | | Unsecured notes payable, net | $1,613,663 | $1,539,453 | | Unsecured line of credit, net | $0 | $34,057 | | Total Debt | $1,688,286 | $1,648,088 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, including revenue growth, operational results, leasing, liquidity, capital resources, and non-GAAP measures Results of Operations Total property revenues increased by 5% for Q2 2023 and 6% for the six-month period, driven by retail and mixed-use segments Comparison of Q2 2023 vs Q2 2022 (in thousands) | Metric | Q2 2023 | Q2 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Property Revenues | $109,721 | $104,155 | $5,566 | 5% | | Total Property Expenses | $39,797 | $37,140 | $2,657 | 7% | | Net Income | $15,397 | $13,588 | $1,809 | 13% | Comparison of Six Months 2023 vs 2022 (in thousands) | Metric | Six Months 2023 | Six Months 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Property Revenues | $217,475 | $205,625 | $11,850 | 6% | | Total Property Expenses | $78,934 | $72,714 | $6,220 | 9% | | Net Income | $36,063 | $27,102 | $8,961 | 33% | - The significant increase in 'Other income, net' for the six-month period was primarily due to a net settlement payment of approximately $6.3 million received in January 2023 related to building systems at the Hassalo on Eighth property[239] Leasing Activity Q2 2023 saw significant office and retail leasing activity, with varied changes in cash and GAAP rental rates - Office Leasing (Q2 2023): Signed 120,365 sq. ft. Comparable renewal leases (119,307 sq. ft.) saw a cash rental rate decrease of 3.5% and a GAAP basis increase of 4.5%[179] - Retail Leasing (Q2 2023): Signed 121,955 sq. ft. Comparable renewal leases (96,955 sq. ft.) saw a cash and GAAP rental rate increase of 2.9% and 2.1%, respectively[180] Liquidity and Capital Resources The company's liquidity relies on L.P. distributions, with the L.P. maintaining strong cash reserves and access to an ATM program - American Assets Trust, Inc. (the REIT) is dependent on distributions from the Operating Partnership (L.P.) to fund its primary cash requirement: paying dividends to stockholders[241][243] - The Operating Partnership had $84.7 million in cash and cash equivalents as of June 30, 2023, with short-term liquidity met by cash from operations and its credit facility[251][252] - The company has an active at-the-market (ATM) equity program with the capacity to issue up to $250 million in common stock, though no shares were sold in the six months ended June 30, 2023[106][249] Non-GAAP Financial Measures (NOI & FFO) The company utilizes NOI and FFO as key supplemental performance measures, reporting increases for the six months ended June 30, 2023 NOI Reconciliation (in thousands) | Period | Net Operating Income (NOI) | Net Income (GAAP) | | :--- | :--- | :--- | | Three Months Ended June 30, 2023 | $69,924 | $15,397 | | Three Months Ended June 30, 2022 | $67,015 | $13,588 | | Six Months Ended June 30, 2023 | $138,541 | $36,063 | | Six Months Ended June 30, 2022 | $132,911 | $27,102 | Funds from Operations (FFO) (in thousands, except per share data) | Period | FFO Attributable to Common Stock & Units | FFO per Diluted Share/Unit | | :--- | :--- | :--- | | Three Months Ended June 30, 2023 | $45,034 | $0.59 | | Six Months Ended June 30, 2023 | $95,414 | $1.25 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, with most debt fixed or hedged by swap agreements - As of June 30, 2023, the company had $1.4 billion of fixed-rate debt, where a 1.0% increase in interest rates would decrease its fair value by approximately $39.3 million[269] - The company had $325.0 million of variable-rate debt outstanding, but its interest rate risk is managed as this debt is effectively fixed by interest rate swap agreements[269][271] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - Management concluded that as of June 30, 2023, the disclosure controls and procedures for both American Assets Trust, Inc. and American Assets Trust, L.P. were effective[273][276] - No material changes to internal control over financial reporting occurred during the quarter for either entity[274][277] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material effect on its business - The company states it is not currently involved in any material legal proceedings[278] Item 1A. Risk Factors No material changes to previously disclosed risk factors were reported for the quarter - No material changes to risk factors were reported for the quarter[279] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[279] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files