American Assets Trust, Inc. Reports Fourth Quarter and Year-End 2014 Financial Results

FFO Per Share Increases 5% Year-Over-Year for the Three Months and Year Ended December 31, 2014

Same-Store Cash NOI Increases 4.4% and 1.9% Year-Over-Year for the Three Months and Year Ended December 31, 2014, Respectively

SAN DIEGO, Feb. 17, 2015 (GLOBE NEWSWIRE) -- American Assets Trust, Inc. (NYSE:AAT) (the "company") today reported financial results for its fourth quarter and year ended December 31, 2014.

Financial Results and Recent Developments

  • Funds From Operations increased 5% year over year to $0.42 and $1.62 per diluted share for the three months and year ended December 31, 2014, respectively, compared to the same periods in 2013
  • Increasing the lower end of 2015 annual guidance 1% to a range of $1.67 to $1.73 of FFO per diluted share, a 1% increase over the prior midpoint
  • Net income available to common stockholders increases 50% and 43% to $7.0 million and $21.8 million, for the three months and year ended December 31, 2014, respectively, compared to the same periods in 2013
  • Same-store cash NOI increased 4.4% and 1.9% for the three months and year ended December 31, 2014, respectively, compared to the same periods in 2013
  • Leased approximately 139,500 comparable office square feet at an average cash-basis and GAAP-basis contractual rent increase of 20% and 32%, respectively, during the three months ended December 31, 2014
  • Leased approximately 37,000 comparable retail square feet at an average cash-basis and GAAP-basis contractual rent increase of 2% and 8%, respectively, during the three months ended December 31, 2014
  • Signed 25 retail and office leases for approximately 255,800 square feet during the three months ended December 31, 2014

During the fourth quarter of 2014, the company generated funds from operations ("FFO") for common stockholders of $25.7 million, or $0.42 per diluted share, compared to $23.0 million, or $0.40 per diluted share, for the quarter ended December 31, 2013. For the year ended December 31, 2014, the company generated FFO for common stockholders of $97.6 million, or $1.62 per diluted share, compared to $89.0 million, or $1.54 per diluted share, for the year ended December 31, 2013. The increase in FFO from the corresponding period in 2013 was largely due to a decrease in interest expense as a result of the company's payoff of the outstanding mortgages at Alamo Quarry Market and Waikele Center during the fourth quarter of 2013 and 2014, respectively. The increase for the year ended December 31, 2014 was also attributed to a net termination fee received for a canceled acquisition during the second quarter of 2014.

Net income attributable to common stockholders was $7.0 million, or $0.16 per basic and diluted share for the three months ended December 31, 2014 compared to $4.7 million, or $0.11 per basic and diluted share for the three months ended December 31, 2013. For the year ended December 31, 2014, net income attributable to common stockholders was $21.8 million, or $0.52 and $0.51 per basic and diluted share, respectively, compared to net income attributable to common stockholders of $15.2 million, or $0.38 per basic and diluted share for the year ended December 31, 2013. The increase in net income attributable to common stockholders for the year ended December 31, 2014 was largely due to a decrease in interest expense and receipt of a termination fee as noted above.

FFO is a non-GAAP supplemental earnings measure which the company considers meaningful in measuring its operating performance. A reconciliation of FFO to net income is attached to this press release.

Portfolio Results

The portfolio leased status as of the end of the indicated quarter was as follows:

December 31, 2014 September 30, 2014 December 31, 2013
Total Portfolio
Retail 98.6% 98.7% 97.0%
Office 91.4% 89.9% 89.8%
Multifamily 97.1% 96.4% 96.4%
Mixed-Use:
Retail 99.6% 99.5% 97.8%
Hotel 79.8% 82.6% 87.2%
Same-Store Portfolio
Retail 98.6% 98.7% 97.0%
Office 95.3% 94.1% 91.6%
Multifamily 97.1% 96.4% 96.4%
Mixed-Use:
Retail 99.6% 99.5% 97.8%
Hotel 79.8% 82.6% 87.2%

During the fourth quarter of 2014, the company signed 25 leases for approximately 255,800 square feet of retail and office space, as well as 154 multifamily apartment leases. Renewals accounted for 100.0% of the comparable retail leases, 66.7% of the comparable office leases and 47.4% of the residential leases.

Retail and Office

On a comparable space basis (i.e. leases for which there was a former tenant) during the fourth quarter of 2014, our retail and office leasing spreads are shown below:




Q4 2014

Number of
Leases
Signed

Comparable
Leased Sq.
Ft.
Average Cash
Basis %
Change Over
Prior Rent

Average Cash
Contractual
Rent Per Sq. Ft.
Prior Average
Cash
Contractual
Rent Per Sq. Ft.
GAAP Straight-
Line Basis %
Change Over
Prior Rent
Retail 11 37,000 2.1% $ 36.26 $ 35.52 8.4%
Office 6 139,500 19.6% $ 30.02 $ 25.10 31.6%

Multifamily

At December 31, 2014, the average monthly base rent per leased unit was $1,503 compared to an average monthly base rent per leased unit of $1,422 at December 31, 2013, an increase of 5.7%.

Same-Store Operating Income

For the three months and year ended December 31, 2014, same-store property operating income increased 4.4% and 1.9%, respectively, on a cash basis compared to the corresponding periods in 2013. For the three months and year ended December 31, 2014, same-store property operating income increased 4.6% and 1.6%, respectively, on a GAAP basis compared to the corresponding periods in 2013. The same-store property operating income by segment was as follows (in thousands):

Three Months Ended (1) Year Ended (1)
December 31, December 31,
2014 2013 Change 2014 2013 Change
Cash Basis:
Retail $ 18,025 $ 17,578 2.5% $ 68,680 $ 69,107 (0.6)%
Office 10,803 9,967 8.4 42,472 40,048 6.1
Multifamily 2,730 2,587 5.5 10,877 10,208 6.6
Mixed-Use 4,963 4,837 2.6 21,978 21,908 0.3
$ 36,521 $ 34,969 4.4% $ 144,007 $ 141,271 1.9%
GAAP Basis:
Retail $ 18,684 $ 17,839 4.7% $ 70,767 $ 69,601 1.7%
Office 11,746 11,180 5.1 46,317 46,048 0.6
Multifamily 2,730 2,587 5.5 10,877 10,208 6.6
Mixed-Use 4,878 4,771 2.2 21,732 21,475 1.2
$ 38,038 $ 36,377 4.6% $ 149,693 $ 147,332 1.6%
(1) Same-store portfolio excludes (i) Torrey Reserve Campus and Lloyd District Portfolio due to significant redevelopment activity during the period and (ii) land held for development.

On a same-store basis, retail property operating income increased for the three months ended December 31, 2014 compared to the same periods in 2013 primarily due to the increase in percentage leased in 2014. On a same-store basis, retail property operating income decreased on a cash basis for the year ended December 31, 2014 primarily due to the expiration of the Foodland Super Market lease at Waikele Center on January 25, 2014.

On a same-store basis, office property operating income increased for the three months and year ended December 31, 2014 compared to the same periods in 2013 primarily due to new leases at The Landmark at One Market and City Center Bellevue. The increase in operating income was partially offset by the expiration of the Treasury Tax Administration lease at First & Main during the fourth quarter of 2013. At December 31, 2014, approximately 45,000 square feet, or 63% of the square footage vacated by the Treasury Tax Administration, has been leased to new tenants. The difference between operating income on a cash basis and GAAP basis for the year ended December 31, 2014 is attributed to the expiration of below market leases at City Center Bellevue in 2014.

On a same-store basis, multifamily property operating income increased for the three months and year ended December 31, 2014 compared to the corresponding periods in 2013 primarily due to an increase in average occupancy and average monthly base rent during 2014.

On a same-store basis, mixed-use property operating income increased for the three months and year ended December 31, 2014 compared to the corresponding periods in 2013 primarily due to an increase in the percentage leased and annualized base rent per leased square foot at the retail portion of our mixed-use property. The increase in operating income was partially offset by the lower occupancy at the hotel portion of our mixed-use property in connection with the hotel room refresh project completed for both hotel towers during the second and fourth quarters of the year ended December 31, 2014. Our average hotel occupancy for the year ended December 31, 2014 was 79.8% including rooms not available during the refresh project. Excluding rooms not available during the refresh project, our average hotel occupancy for the year ended December 31, 2014 was 89.7%. The difference between operating income on a cash basis and GAAP basis for the year ended December 31, 2014 is attributed to the expiration of above market leases at the retail portion of our mixed-use property during 2013.

Development

Our redevelopment efforts at Lloyd District Portfolio and Torrey Reserve Campus are ongoing. Both projects remain within budget and on schedule, with the newly completed building at Torrey Reserve Campus being ahead of schedule on leasing activity. Projected costs of the redevelopment at Lloyd District Portfolio are approximately $192 million, of which approximately $135 million has been incurred to date. We expect to incur the remaining costs for redevelopment of the Lloyd District Portfolio in 2015. We expect the Lloyd District Portfolio redevelopment to be stabilized in 2017 with an estimated stabilized yield of approximately 6.25% to 7.25%, based on initial estimates. Projected costs of the redevelopment at Torrey Reserve Campus are approximately $34 million, of which approximately $32 million has been incurred to date. We expect to incur the remaining costs for this project in 2015. We expect the Torrey Reserve Campus redevelopment to be stabilized in 2015 with an estimated stabilized yield of approximately 8.6%. Our redevelopment and development opportunities are subject to market conditions and actual results may vary.

Private Placement of Notes

On October 31, 2014, we entered into a note purchase agreement with a group of institutional purchasers that provided for the private placement of an aggregate of $350 million of senior guaranteed notes, of which (i) $150 million are designated as 4.04% Senior Guaranteed Notes, Series A, due October 31, 2021 (the "Series A Notes"), (ii) $100 million are designated as 4.45% Senior Guaranteed Notes, Series B, due February 2, 2025 (the "Series B Notes") and (iii) $100 million are designated as 4.50% Senior Guaranteed Notes, Series C, due April 1, 2025 (the "Series C Notes", and collectively with the Series A Notes and Series B Notes, are referred to herein as, the "Notes"). The Series A Notes were issued on October 31, 2014. The Series B Notes were issued on February 2, 2015 and the Series C Notes are expected to be issued on April 1, 2015, subject to customary closing conditions. Upon issuance, the Notes will pay interest quarterly on the last day of January, April, July and October until their respective maturities.

Prior to closing of the Series A Notes, we entered into a one-month forward-starting interest swap to reduce the interest rate variability exposure of the projected interest cash outflows under the then-prospective private placement of the Series A Notes described above. As a result, net of the settlement of the forward-starting interest rate swap, the fixed interest rate in accordance with GAAP for the Series A Notes is approximately 3.88% per annum, through maturity.

Balance Sheet and Liquidity

At December 31, 2014, the company had gross real estate assets of $2.1 billion and liquidity of $309.4 million, comprised of cash and cash equivalents of $59.4 million and $250.0 million of availability on its line of credit.

For the year ended December 31, 2014, we issued 2,710,067 shares of common stock through our at-the-market ("ATM") equity program at a weighted average price per share of $33.84, resulting in net proceeds of $90.7 million. We intend to use the net proceeds primarily to fund our development activities at Torrey Reserve Campus and Lloyd District Portfolio. As of December 31, 2014, we had the capacity to issue up to an additional $32.3 million in shares of common stock under our ATM equity program.

Dividends

The company declared dividends on its shares of common stock of $0.2325 per share for the fourth quarter of 2014. The dividends were paid on December 26, 2014.

In addition, the company has declared a dividend on its common stock of $0.2325 per share for the quarter ending March 31, 2015. The dividend will be paid on March 27, 2015 to stockholders of record on March 13, 2015.

Guidance

The company increased its guidance for full year 2015 FFO per diluted share to a range of $1.67 to $1.73 per share from the prior range of $1.65 to $1.73 per share, an increase of 1% over the prior midpoint. The company's guidance excludes any impact from future acquisitions, dispositions, equity issuances or repurchases, future debt financings or repayments, except that guidance includes the remaining issuance of the company's existing ATM equity program in 2015. The company will discuss key assumptions regarding the guidance tomorrow on the conference call.

The foregoing estimates are forward-looking and reflect management's view of current and future market conditions, including certain assumptions with respect to leasing activity, rental rates, occupancy levels, interest rates and the amount and timing of acquisition and development activities. The company's actual results may differ materially from these estimates.

Conference Call

The company will hold a conference call to discuss the results for the fourth quarter and year end of 2014 on Wednesday, February 18, 2015 at 8:00 a.m. Pacific Time ("PT"). To participate in the event by telephone, please dial 1-866-515-2915 and use the pass code 41733126. A telephonic replay of the conference call will be available beginning at 12:00 p.m. PT on Wednesday, February 18, 2015 through Wednesday, February 25, 2015. To access the replay, dial 1-888-286-8010 and use the pass code 64481999. A live on-demand audio webcast of the conference call will be available on the company's website at www.americanassetstrust.com. A replay of the call will also be available on the company's website.

Supplemental Information

Supplemental financial information regarding the company's fourth quarter and year end 2014 results may be found in the "Investor Relations" section of the company's website at www.americanassetstrust.com. This supplemental information provides additional detail on items such as property occupancy, financial performance by property and debt maturity schedules.

Financial Information
American Assets Trust, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)
December 31, 2014
(unaudited) December 31, 2013
Assets
Real estate, at cost
Operating real estate $ 1,931,698 $ 1,919,015
Construction in progress 195,736 67,389
Held for development 9,390 9,013
2,136,824 1,995,417
Accumulated depreciation (361,424) (318,581)
Net real estate 1,775,400 1,676,836
Cash and cash equivalents 59,357 48,987
Restricted cash 10,994 9,124
Accounts receivable, net 6,727 7,295
Deferred rent receivables, net 35,883 32,531
Other assets, net 53,401 57,670
Total assets $ 1,941,762 $ 1,832,443
Liabilities and equity
Liabilities:
Secured notes payable $ 812,811 $ 952,174
Unsecured notes payable 250,000
Unsecured line of credit 93,000
Accounts payable and accrued expenses 50,861 37,063
Security deposits payable 5,521 5,163
Other liabilities and deferred credits, net 55,993 58,465
Total liabilities 1,175,186 1,145,865
Commitments and contingencies
Equity:
American Assets Trust, Inc. stockholders' equity
Common stock, $0.01 par value, 490,000,000 shares authorized, 43,701,669 and 40,512,563 shares issued and outstanding at December 31, 2014 and 2013, respectively 437 405
Additional paid-in capital 795,065 692,196
Accumulated dividends in excess of net income (60,291) (44,090)
Accumulated other comprehensive income 92
Total American Assets Trust, Inc. stockholders' equity 735,303 648,511
Noncontrolling interests 31,273 38,067
Total equity 766,576 686,578
Total liabilities and equity $ 1,941,762 $ 1,832,443
American Assets Trust, Inc.
Unaudited Consolidated Statements of Income
(In Thousands, Except Shares and Per Share Data)
Three Months Ended
December 31,

Year Ended December 31,
2014 2013 2014 2013
Revenue:
Rental income $ 63,210 $ 61,425 $ 246,078 $ 242,757
Other property income 3,268 3,220 13,922 12,300
Total revenue 66,478 64,645 260,000 255,057
Expenses:
Rental expenses 17,773 18,206 68,267 68,608
Real estate taxes 5,910 5,334 22,964 21,378
General and administrative 4,603 4,537 18,532 17,195
Depreciation and amortization 15,666 16,161 66,568 66,775
Total operating expenses 43,952 44,238 176,331 173,956
Operating income 22,526 20,407 83,669 81,101
Interest expense (12,569) (13,776) (52,965) (58,020)
Other income (expense), net 89 276 441 (487)
Net income 10,046 6,907 31,145 22,594
Net income attributable to restricted shares (115) (139) (374) (536)
Net income attributable to unitholders in the Operating Partnership (2,907) (2,086) (9,015) (6,838)
Net income attributable to American Assets Trust, Inc. stockholders $ 7,024 $ 4,682 $ 21,756 $ 15,220
Net income per share
Basic income attributable to common stockholders per share $ 0.16 $ 0.11 $ 0.52 $ 0.38
Weighted average shares of common stock outstanding - basic 43,192,168 39,836,104 42,041,126 39,539,457
Diluted income attributable to common stockholders per share $ 0.16 $ 0.11 $ 0.51 $ 0.38
Weighted average shares of common stock outstanding - diluted 61,097,425 57,788,365 59,947,474 57,515,810
Dividends declared per common share $ 0.2325 $ 0.2200 $ 0.8925 $ 0.8500

Reconciliation of Net Income to Funds From Operations

The company's FFO attributable to common stockholders and operating partnership unitholders and reconciliation to net income is as follows (in thousands except shares and per share data, unaudited):

Three Months Ended Year Ended
December 31, 2014 December 31, 2014
Funds From Operations (FFO)
Net income $ 10,046 $ 31,145
Depreciation and amortization of real estate assets 15,666 66,568
FFO, as defined by NAREIT $ 25,712 $ 97,713
Less: Nonforfeitable dividends on incentive stock awards (41) (137)
FFO attributable to common stock and units $ 25,671 $ 97,576
FFO per diluted share/unit $ 0.42 $ 1.62
Weighted average number of common shares and units, diluted 61,407,083 60,256,335

Reported results are preliminary and not final until the filing of the company's Form 10-K with the Securities and Exchange Commission and, therefore, remain subject to adjustment.

Use of Non-GAAP Information

The company calculates FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, impairment losses, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures.

FFO is a supplemental non-GAAP financial measure. Management uses FFO as a supplemental performance measure because it believes that FFO is beneficial to investors as a starting point in measuring the company's operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. The company also believes that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare the company's operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of the company's properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of the company's properties, all of which have real economic effects and could materially impact the company's results from operations, the utility of FFO as a measure of the company's performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the NAREIT definition as the company does, and, accordingly, the company's FFO may not be comparable to such other REITs' FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of the company's performance. FFO should not be used as a measure of the company's liquidity, nor is it indicative of funds available to fund the company's cash needs, including the company's ability to pay dividends or service indebtedness. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

About American Assets Trust, Inc.

American Assets Trust, Inc. (the "company") is a full service, vertically integrated and self-administered real estate investment trust, or REIT, headquartered in San Diego, California. For over 40 years, the company has been acquiring, improving, developing and managing premier retail, office and residential properties throughout the United States in some of the nation's most dynamic, high-barrier-to-entry markets primarily in Southern California, Northern California, Oregon, Washington and Hawaii. The company's retail portfolio comprises approximately 3.1 million rentable square feet, and its office portfolio comprises approximately 2.7 million square feet. In addition, the company owns one mixed-use property (including approximately 97,000 rentable square feet of retail space and a 369-room all-suite hotel) and over 900 multifamily units. In 2011, the company was formed to succeed to the real estate business of American Assets, Inc., a privately held corporation founded in 1967 and, as such, has significant experience, long-standing relationships and extensive knowledge of its core markets, submarkets and asset classes. For additional information, please visit www.americanassetstrust.com.

Forward Looking Statements

This press release may contain forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. While forward-looking statements reflect the company's good faith beliefs, assumptions and expectations, they are not guarantees of future performance. For a further discussion of these and other factors that could cause the company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the company's most recent annual report on Form 10-K, and other risks described in documents subsequently filed by the company from time to time with the Securities and Exchange Commission. The company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes.

Investor and Media Contact:
American Assets Trust
Robert F. Barton
Executive Vice President and Chief Financial Officer
858-350-2607

Source:American Assets Trust, Inc.