American Assets Trust, Inc. Reports Third Quarter 2020 Financial Results and COVID-19 Operational Update
10/27/2020 - 04:15 PM
Net income available to common stockholders of $5.0 million and $24.8 million for the three and nine months ended September 30, 2020, respectively, or $0.08 and $0.41 per diluted share, respectively
Funds From Operations per diluted share decreased 23% and 9% year-over-year for the three and nine months ended September 30, 2020, respectively, or $0.44 and $1.48 per diluted share, respectively
Collected 89% to date of rents that were due during the third quarter
SAN DIEGO, Oct. 27, 2020 (GLOBE NEWSWIRE) -- American Assets Trust, Inc. (NYSE: AAT) (the “company”) today reported financial results for its third quarter ended September 30, 2020.
Third Quarter Highlights
Net income available to common stockholders of $5.0 million and $24.8 million for the three and nine months ended September 30, 2020, respectively, or $0.08 and $0.41 per diluted share, respectively Funds From Operations decreased 23% and 9% year-over-year to $0.44 and $1.48 per diluted share for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019 Same-store cash NOI decreased 2.7% and 2.9% year-over-year for the three and nine months ended September 30, 2020, respectively. Excluding lease termination fees, same-store cash NOI would have been (3.4)% and (3.7)% for the three and nine months ended September 30, 2020, respectively Increased same-store cash NOI to $50.1 million for the three months ended September 30, 2020 compared to $42.4 million for the three months ended June 30, 2020 For the three months ended September 30, 2020, we have collected 98% of office rents, 73% of retail rents (including the retail component of Waikiki Beach Walk) and 94% of multifamily rents, that were due during the third quarter Totals collections increased to 89% in the third quarter compared to 83% in the second quarter Leased approximately 55,000 comparable office square feet at an average straight-line basis and cash-basis contractual rent increase of 11% and 7% , respectively, during the three months ended September 30, 2020 Leased approximately 71,000 comparable retail square feet at an average straight-line basis and cash-basis contractual rent decrease of 4% and 6% , respectively, during the three months ended September 30, 2020 Embassy Suites Waikiki hotel average occupancy increased to 66% in the third quarter compared to 17% in the second quarter Financial Results $5.0 million , or $0.08 per basic and diluted share for the three months ended September 30, 2020 compared to $12.9 million , or $0.22 per basic and diluted share for the three months ended September 30, 2019. For the nine months ended September 30, 2020, net income attributed to common stockholders was $24.8 million , or $0.41 per basic and diluted share compared to $32.9 million , or $0.63 per basic and diluted share for the nine months ended September 30, 2019. The year-over-year decrease in net income attributable to common stockholders is primarily due to the increase in reserve for bad debts of rent receivables of approximately $9.8 million primarily at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center, and Waikiki Beach Walk Retail, a decrease in lease termination fees at Carmel Mountain Plaza attributed to the termination of our former ground lease, and a decrease in revenue at our Waikiki Beach Walk Retail and Embassy Suites Hotel due to the COVID-19 pandemic causing a decline in occupancy, partially offset by an incremental increase in revenue from the acquisition of La Jolla Commons on June 20, 2019 and an increase in annualized base rents at The Landmark at One Market, Lloyd District Portfolio, City Center Bellevue, and Torrey Point.
During the third quarter of 2020, the company generated funds from operations (“FFO”) for common stockholders of $33.3 million , or $0.44 per diluted share, compared to $43.0 million , or $0.57 per diluted share, for the third quarter of 2019. For the nine months ended September 30, 2020, the company generated FFO for common stockholders of $112.4 million , or $1.48 per diluted share, compared to $112.5 million , or $1.63 per diluted share, for the nine months ended September 30, 2019. The decrease in FFO from the corresponding period in 2019 was primarily due to the increase in reserve for bad debts of rent receivables of approximately $9.8 million primarily at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center and Waikiki Beach Walk Retail, a decrease in lease termination fees at Carmel Mountain Plaza attributed to the termination of our former ground lease, and a decrease in revenue at our Waikiki Beach Walk Retail and Embassy Suites Hotel due to the COVID-19 pandemic causing a decline in occupancy, partially offset by an increase in revenue from the acquisition of La Jolla Commons on June 20, 2019 and an increase in annualized base rents at The Landmark at One Market, Lloyd District Portfolio, City Center Bellevue, and Torrey Point.
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.
Leasing
The portfolio leased status as of the end of the indicated quarter was as follows:
September 30, 2020 June 30, 2020 September 30, 2019 Total Portfolio Office 93.8% 94.4% 94.7% Retail 95.0% 94.7% 98.0% Multifamily 87.5% 85.1% 90.5% Mixed-Use: Retail 87.8% 95.7% 98.0% Hotel 52.8% 46.4% 92.1% Same-Store Portfolio Office (1) 96.1% 96.4% 94.5% Retail (2) 94.2% 93.8% 97.7% Multifamily 87.5% 85.1% 90.5%
(1) Same-store office leased percentages includes the 830 building at Lloyd District Portfolio which was placed into operations on August 1, 2019 after renovating the building. Same-store office leased percentages excludes One Beach Street due to significant redevelopment activity. (2) Same-store retail leased percentages exclude Waikele Center, due to significant redevelopment activity.
During the third quarter of 2020, the company signed 31 leases for approximately 130,600 square feet of office and retail space, as well as 697 multifamily apartment leases. Renewals accounted for 100% of the comparable office leases, 100% of the comparable retail leases, and 45% of the residential leases.
Office and Retail
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. Straight-Line Basis % Change Over Prior Rent Office Q3 2020 9 55,000 6.7% $46.01 $43.11 10.8% Last 4 Quarters 35 357,000 21.8% $49.37 $40.53 31.7% Retail Q3 2020 21 71,000 (6.2)% $29.29 $31.23 (3.6)% Last 4 Quarters 57 190,000 (3.3)% $36.32 $37.57 3.5%
Multifamily 6% .
Same-Store Cash Net Operating Income 2.7% and 2.9% , respectively, compared to the three and nine months ended September 30, 2019. The same-store cash NOI by segment was as follows (in thousands):
Three Months Ended (1) Nine Months Ended (2) September 30, September 30, 2020 2019 Change 2020 2019 Change Cash Basis: Office (3) $ 27,026 $ 23,841 13.4 $ 61,452 $ 53,270 15.4 % Retail (3) 11,171 15,221 (26.6 ) % 34,730 44,878 (22.6 ) Multifamily 6,967 7,367 (5.4 ) 21,789 23,353 (6.7 ) Mixed-Use — — — — — — Same-store Cash NOI (3) $ 45,164 $ 46,429 (2.7 ) % $ 117,971 $ 121,501 (2.9 ) %
(1) Same-store portfolio excludes (i) Waikele Center due to significant redevelopment activity; (ii) One Beach Street due to significant redevelopment activity; (iii) Waikiki Beach Walk - Embassy Suites™ and Waikiki Beach Walk - Retail, due to significant spalling repair activity; and (iv) land held for development. (2) Same-store portfolio excludes (i) Waikele Center due to significant redevelopment activity; (ii) La Jolla Commons, which was acquired on June 20, 2019; (iii) One Beach Street due to significant redevelopment activity; (iv) Waikiki Beach Walk - Embassy Suites™ and Waikiki Beach Walk - Retail, due to significant spalling repair activity; and (v) land held for development. (3) Same-store cash NOI for the three and nine months ended September 30, 2020 includes cash lease termination fees received of $1.1 million and $1.8 million , respectively. Excluding lease termination fees for the three and nine months ended September 30, 2020, office same-store cash NOI would have been 15.0% and 15.7% , respectively. (4) Excluding lease termination fees for the three and nine months September 30, 2020, same-store cash NOI would have been (3.4)% and (3.7)%, respectively.
Same-store cash NOI is a non-GAAP supplemental earnings measure which the company considers meaningful in measuring its operating performance. A reconciliation of same-store cash NOI to net income is attached to this press release.
Balance Sheet and Liquidity $3.2 billion and liquidity of $405.3 million , comprised of cash and cash equivalents of $155.3 million and $250.0 million of availability on its line of credit, which the company believes is sufficient to meet the company's short-term liquidity requirements. At September 30, 2020, the company has no debt obligations maturing during the remainder of 2020; and only 1 out of 28 assets encumbered by a mortgage. The company has exercised its option to extend the maturity date of its $100 million term loan from January 9, 2021 to January 9, 2022. As a result, the company has $150 million of debt obligations maturing in 2021.
Dividends
In addition, the company has declared a dividend on its common stock of $0.25 per share for the fourth quarter of 2020. The dividend will be paid in cash on December 24, 2020 to stockholders of record on December 10, 2020. The company maintained the dividend of $0.25 per share in the fourth quarter based on the company's rent collection in the third quarter.
COVID-19 Operational Update
Operations 2% of the rent originally contracted for the three months ended September 30, 2020. Furthermore, as of September 30, 2020 and specific to the impact of COVID-19 on our retail sector (including the retail component of Waikiki Beach Walk Retail and Embassy Suites Hotel) for the three months ended September 30, 2020, we have recorded an allowance for doubtful accounts against accounts receivable of approximately 21% and an allowance for doubtful accounts against deferred rent receivables (straight-line rent receivables) of approximately 11% .
Rent Collection for the Third Quarter of 2020 and October 2020 (1)
July August September Q3 Average October Office 98.3% 98.7% 97.5% 98.2% 97.4% Retail 80.0% 75.9% 82.6% 79.4% 77.3% Multifamily 94.4% 94.6% 94.2% 94.4% 94.3% Mixed-Use (2) 34.2% 28.2% 28.2% 30.3% 24.5% Average 89.3% 88.4% 89.0% 88.9% 87.4%
(1) Data as of October 27, 2020. (2) Includes only the retail portion of Waikiki Beach Walk Retail and Embassy Suites Hotel.
Rent Deferrals $7.0 million of recurring rents related to second and third quarters of 2020. The weighted average payback period of the deferral agreements is approximately 28 months. Revenue from approximately 80% of tenants with deferral agreements is recognized on a straight-line basis.
Conference Call www.americanassetstrust.com . A replay of the call will also be available on the company's website.
Supplemental Information www.americanassetstrust.com
Financial Information American Assets Trust, Inc. Consolidated Balance Sheets (In Thousands, Except Share Data)
September 30, 2020 December 31, 2019 Assets (unaudited) Real estate, at cost Operating real estate $ 3,147,237 $ 3,096,886 Construction in progress 81,485 91,264 Held for development 547 547 3,229,269 3,188,697 Accumulated depreciation (730,705 ) (665,222 ) Net real estate 2,498,564 2,523,475 Cash and cash equivalents 155,327 99,303 Restricted cash 1,231 10,148 Accounts receivable, net 12,018 12,016 Deferred rent receivables, net 68,752 52,171 Other assets, net 108,222 93,220 Total assets $ 2,844,114 $ 2,790,333 Liabilities and equity Liabilities: Secured notes payable, net $ 110,913 $ 161,879 Unsecured notes payable, net 1,196,547 1,195,780 Unsecured line of credit, net 99,049 — Accounts payable and accrued expenses 71,837 62,576 Security deposits payable 6,530 8,316 Other liabilities and deferred credits, net 93,256 68,110 Total liabilities 1,578,132 1,496,661 Commitments and contingencies Equity: American Assets Trust, Inc. stockholders' equity Common stock, $0.01 par value, 490,000,000 shares authorized, 60,282,929 and 60,068,228 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 603 601 Additional paid-in capital 1,443,764 1,452,014 Accumulated dividends in excess of net income (164,462 ) (144,378 ) Accumulated other comprehensive income 1,034 5,680 Total American Assets Trust, Inc. stockholders' equity 1,280,939 1,313,917 Noncontrolling interests (14,957 ) (20,245 ) Total equity 1,265,982 1,293,672 Total liabilities and equity $ 2,844,114 $ 2,790,333
American Assets Trust, Inc. Unaudited Consolidated Statements of Operations (In Thousands, Except Shares and Per Share Data)
Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue: Rental income $ 80,759 $ 93,147 $ 252,059 $ 249,634 Other property income 3,615 5,215 11,167 18,160 Total revenue 84,374 98,362 263,226 267,794 Expenses: Rental expenses 19,208 23,989 58,757 66,611 Real estate taxes 11,491 10,942 31,497 29,263 General and administrative 6,438 6,479 19,937 18,495 Depreciation and amortization 26,914 26,568 80,869 69,733 Total operating expenses 64,051 67,978 191,060 184,102 Operating income 20,323 30,384 72,166 83,692 Interest expense (13,302 ) (13,734 ) (40,105 ) (40,212 ) Gain on sale of real estate — — — 633 Other income (expense), net (531 ) (131 ) (261 ) (410 ) Net income 6,490 16,519 31,800 43,703 Net income attributable to restricted shares (87 ) (92 ) (260 ) (277 ) Net income attributable to unitholders in the Operating Partnership (1,365 ) (3,565 ) (6,778 ) (10,553 ) Net income attributable to American Assets Trust, Inc. stockholders $ 5,038 $ 12,862 $ 24,762 $ 32,873 Net income per share Basic income attributable to common stockholders per share $ 0.08 $ 0.22 $ 0.41 $ 0.63 Weighted average shares of common stock outstanding - basic 59,825,174 59,441,887 59,757,709 52,239,668 Diluted income attributable to common stockholders per share $ 0.08 $ 0.22 $ 0.41 $ 0.63 Weighted average shares of common stock outstanding - diluted 76,118,032 75,832,435 76,115,456 69,010,772 Dividends declared per common share $ 0.25 $ 0.28 $ 0.75 $ 0.84
Reconciliation of Net Income to Funds From Operations
Three Months Ended Nine Months Ended September 30, 2020 September 30, 2020 Funds From Operations (FFO) Net income $ 6,490 $ 31,800 Depreciation and amortization of real estate assets 26,914 80,869 FFO, as defined by NAREIT $ 33,404 $ 112,669 Less: Nonforfeitable dividends on restricted stock awards (85 ) (255 ) FFO attributable to common stock and units $ 33,319 $ 112,414 FFO per diluted share/unit $ 0.44 $ 1.48 Weighted average number of common shares and units, diluted 76,118,264 76,117,040
Reconciliation of Same-Store Cash NOI to Net Income
Three Months Ended (1) Nine Months Ended (2) September 30, September 30, 2020 2019 2020 2019 Same-store cash NOI 45,164 $ 46,429 $ 117,971 $ 121,501 Non-same-store cash NOI 2,675 9,773 28,977 33,832 Tenant improvement reimbursements (3) 2,264 1,060 5,093 8,473 Cash NOI $ 50,103 $ 57,262 $ 152,041 $ 163,806 Non-cash revenue and other operating expenses (4) 3,572 6,169 20,931 8,114 General and administrative (6,438 ) (6,479 ) (19,937 ) (18,495 ) Depreciation and amortization (26,914 ) (26,568 ) (80,869 ) (69,733 ) Interest expense (13,302 ) (13,734 ) (40,105 ) (40,212 ) Gain on sale of real estate — — — 633 Other income (expense), net (531 ) (131 ) (261 ) (410 ) Net income $ 6,490 $ 16,519 $ 31,800 $ 43,703 Number of properties included in same-store analysis 25 24 24 24
(1) Same-store portfolio includes the 830 building at Lloyd District Portfolio which was placed into operations on August 1, 2019 after renovating the building. Same-store portfolio excludes (i) Waikele Center, due to significant redevelopment activity; (ii) One Beach Street, due to significant redevelopment activity; (iii) Waikiki Beach Walk - Embassy Suites™ and Waikiki Beach Walk - Retail, due to significant spalling repair activity; and (iv) land held for development. (2) Same-store portfolio includes the 830 building at Lloyd District Portfolio which was placed into operations on August 1, 2019 after renovating the building. Same-store portfolio excludes (i) Waikele Center, due to significant redevelopment activity; (ii) La Jolla Commons, which was acquired on June 20, 2019; (iii) One Beach Street, due to significant redevelopment activity; (iv) Waikiki Beach Walk - Embassy Suites™ and Waikiki Beach Walk - Retail, due to significant spalling repair activity; and (v) land held for development. (3) Tenant improvement reimbursements are excluded from same-store cash NOI to provide a more accurate measure of operating performance. (4) Represents adjustments related to the straight-line rent income recognized during the period offset by cash received during the period and the provision for bad debts recorded for deferred rent receivable balances; net change in lease receivables, the amortization of above (below) market rents, the amortization of lease incentives paid to tenants, the amortization of other lease intangibles, lease termination fees at Carmel Mountain Plaza, and straight-line rent expense for our lease of the Annex at The Landmark at One Market.
Reported results are preliminary and not final until the filing of the company's Form 10-Q with the Securities and Exchange Commission and, therefore, remain subject to adjustment.
Use of Non-GAAP Information Funds from Operations
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.
Cash Net Operating Income
Cash NOI, is a non-GAAP financial measure of performance. The company defines cash NOI as operating revenues (rental income, tenant reimbursements, lease termination fees, ground lease rental income and other property income) less property and related expenses (property expenses, ground lease expense, property marketing costs, real estate taxes and insurance), adjusted for non-cash revenue and operating expense items such as straight-line rent, net change in lease receivables, amortization of lease intangibles, amortization of lease incentives and other adjustments. Cash NOI also excludes general and administrative expenses, depreciation and amortization, interest expense, other nonproperty income and losses, acquisition-related expense, gains and losses from property dispositions, extraordinary items, tenant improvements, and leasing commissions. Other REITs may use different methodologies for calculating cash NOI, and accordingly, the company's cash NOI may not be comparable to the cash NOIs of other REITs.
About American Assets Trust, Inc. www.americanassetstrust.com .
Forward Looking Statements
Source: American Assets Trust, Inc.
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