American Assets Trust(AAT) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved its highest ever FFO per share at $2.40 for the year, a 3% increase from 2022, and a compounded annual growth rate of approximately 7% since its IPO in 2011 [9] - Total revenue reached its highest ever, with over a 4% increase from 2022, and net operating income (NOI) also hit a record high, reflecting a 3% increase from the previous year [9][10] - The company declared a quarterly dividend of $0.335 per share, marking a 1.5% increase from the previous dividend [8] Business Line Data and Key Metrics Changes - The office portfolio was 86% leased at the end of Q4, a decrease of 80 basis points due to known move-outs [33] - Retail leasing spreads showed a 7% increase on a cash basis and a 13% increase on a straight-line basis for Q4 deals, with a 6.5% increase on a cash basis and a 15% increase on a straight-line basis for all of 2023 [13] - Multifamily communities in San Diego experienced a blended rent growth of approximately 1%, with net effective rents over 5% higher year-over-year compared to Q4 2022 [15][16] Market Data and Key Metrics Changes - The retail sector, comprising 27% of the portfolio NOI, is about 95% leased, with only 6% of retail GLA expiring this year [13] - The office market is facing challenges due to a shift towards hybrid work, but premium properties in strong markets continue to perform well [39][40] - The multifamily market in the Pacific Northwest remains sluggish, with some properties experiencing flat to slightly down rents year-over-year [15] Company Strategy and Development Direction - The company focuses on maintaining a strong balance sheet with ample liquidity and increasing dividends, while also making disciplined business decisions to support long-term growth [5][8] - There is an emphasis on enhancing properties through capital improvements to retain existing tenants and attract new ones, particularly in high-demand areas [10] - The company is optimistic about the eventual rebound of Asian tourism, particularly from Japan, which is expected to positively impact revenue [25][64] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience despite economic volatility and uncertainty, highlighting the strength of its portfolio and management team [6][7] - The company anticipates organic growth opportunities through lease-ups of new developments and prudent expense management [7] - There is cautious optimism regarding the return of Japanese tourists, which is seen as a key driver for future revenue growth [64][66] Other Important Information - The company reported liquidity of approximately $483 million at the end of Q4, with a leverage ratio of 6.5x net debt to EBITDA [20] - The 2024 FFO per share guidance is set between $2.19 and $2.33, reflecting a potential decrease from 2023 due to various factors including expected declines in same-store cash NOI [21][30] Q&A Session Summary Question: Can you talk about the office leasing in a little bit more detail? - The office leasing has seen longer-term commitments, with a weighted average lease term of 96 months for year-to-date leases [42] Question: Are the lease expirations in '24 concentrated in certain assets or submarkets? - Lease expirations are evenly split among San Diego, Portland, and Bellevue, with San Diego showing strong activity [48] Question: Can you discuss the schedule for cost capitalization and expenses? - Cost capitalization for One Beach will continue until July 2024, while La Jolla Commons will capitalize through the end of 2024 [51] Question: What could cause the high end of the guidance range to come true? - Success in leasing the 317,000 square feet pushed out to 2025 and lower interest expenses could drive performance towards the high end of the guidance [56] Question: What is the outlook for Hawaii and tourism recovery? - The recovery is uncertain and largely depends on the Japanese yen's strength, but management believes it is only a matter of time before tourism rebounds [64][66]