American Assets Trust(AAT) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2025, the company reported FFO per share of $2.00, which is approximately 3% above initial expectations [3] - Fourth quarter FFO per share was $0.47, a decrease of approximately $0.02 compared to Q3 2025, primarily due to non-recurrence of termination fees recognized in Q3 [20][21] - Same-store cash NOI for the full year increased by 0.5% compared to 2024, with office segment increasing by 2.3% and retail by 1.2%, while multifamily declined by 3.2% [21][22] Business Line Data and Key Metrics Changes - The office segment showed continued progress with same-store office NOI increasing just over 1% for the quarter and nearly 2.5% for the full year [8][21] - Retail segment ended the year at 98% leased, with fourth quarter leasing totaling 43,000 sq ft and positive cash and GAAP leasing spreads [11] - Multifamily segment ended the year 95.5% leased, achieving approximately 1% net effective rent growth year over year, despite competitive leasing conditions [12][13] Market Data and Key Metrics Changes - In West Coast office markets, signs of stabilization and gradual improvement in leasing activity were noted, particularly in San Diego and San Francisco [5][6] - The overall office portfolio ended the quarter 83% leased, with same-store office portfolio at 86%, up about 150 basis points from Q3 [7][11] - Retail availability is expected to remain near record lows nationally, supporting asking rents [12] Company Strategy and Development Direction - The company aims to drive office leasing by converting prospect activity into signed leases and maintaining retail momentum by managing expirations and focusing on tenant quality [18] - The strategy includes managing through the multifamily supply cycle with disciplined revenue management and cost control [18] - The company is focused on maintaining a strong balance sheet and improving valuation over time [17][18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macro uncertainty but believes coastal infill locations and high-quality real estate position the company to capture demand as it materializes [5] - The outlook for 2026 includes a FFO guidance range of $1.96-$2.10 per share, with a midpoint of $2.03, reflecting a conservative approach to leasing velocity and market conditions [25][32] - Management expressed frustration with the current share price, indicating that the public market valuation does not reflect the intrinsic value of the company's assets [16] Other Important Information - The company declared a quarterly dividend of $0.34 per share for the first quarter, with expectations to maintain the dividend at current levels [17] - Liquidity at the end of the fourth quarter was approximately $529 million, with a leverage ratio of 6.9x on a trailing twelve-month basis [23][24] Q&A Session Summary Question: Inquiry about elevated TIs for renewals and demand environment - Management acknowledged that higher capital burdens for office leasing are expected to moderate as occupancy improves and availability tightens [36] Question: Timeline to achieve target leverage of 5.5x - Management indicated that leasing up La Jolla Commons 3 and One Beach would help achieve the target leverage [40] Question: Potential strategic asset sales to improve stock valuation - Management stated they would consider asset sales at favorable prices but would not sell at a discount just to check a box [42][43] Question: Guidance assumptions for office segment lease rates - Management reported that 68,000 sq ft has been signed in 11 deals year-to-date, with a significant pipeline of additional leasing activity [48] Question: Credit reserves and tenant health - Management clarified that the credit reserves are a conservative measure and not indicative of specific tenant concerns [84]