UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2020
or
| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
AMERICAN ASSETS TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
Commission file number: 001-35030
AMERICAN ASSETS TRUST, L.P.
(Exact Name of Registrant as Specified in its Charter)
Commission file number: 333-202342-01
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| Maryland | (American Assets Trust, Inc.) | | 27-3338708 | (American Assets Trust, Inc.) | |
| Maryland | (American Assets Trust, L.P.) | | 27-3338894 | (American Assets Trust, L.P.) | |
| (State or other jurisdiction of incorporation or organization) | | | (IRS Employer Identification No.) | | |
| | | | | | |
| 11455 El Camino Real, Suite 200 | | | 92130 | | |
| San Diego | California | | | | |
| (Address of Principal Executive Offices) | 92130
| | (Zip Code) |
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(858) 350-2600
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
American Assets Trust, Inc. x☒ Yes o☐ No
American Assets Trust, L.P. x☒ Yes o☐ No
(American Assets Trust, L.P. became subject to filing requirements under Section 13 of the Securities Exchange Act of 1934, as amended, upon effectiveness of its Registration Statement on Form S-3 on February 6, 2015 and has filed all required reports subsequent to that date.)
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
American Assets Trust, Inc. x☒ Yes o☐ No
American Assets Trust, L.P. x☒ Yes o☐ No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
American Assets Trust, Inc.
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| Large Accelerated Filer | x☒ | | Accelerated Filer | o☐ |
| Non-Accelerated Filer | o☐ | (Do not check if a smaller reporting company) | Smaller reporting company | o☐ |
| Emerging growth company | o☐ | | | |
American Assets Trust, L.P.
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| | | | | | | | | | | | | |
| Large Accelerated Filer | o☐ | | Accelerated Filer | o☐ |
| Non-Accelerated Filer | x☒ | (Do not check if a smaller reporting company) | Smaller reporting company | o☐ |
| Emerging growth company | o☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
American Assets Trust, Inc. o☐ Yes x☒ No
American Assets Trust, L.P. o☐ Yes x☒ No
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | |
| Name of Registrant | Title of each class | Trading Symbol | Name of each exchange on which registered |
| American Assets Trust, Inc. | Common Stock, par value $0.01 per share | AAT | New York Stock Exchange |
| American Assets Trust, L.P. | None | None | None |
American Assets Trust, Inc. had 47,127,76060,067,910 shares of common stock, par value $0.01 per share, outstanding as of November 3, 2017.May 1, 2020.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2017March 31, 2020 of American Assets Trust, Inc., a Maryland corporation, and American Assets Trust, L.P., a Maryland limited partnership, of which American Assets Trust, Inc. is the parent company and sole general partner. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our” or “the company” refer to American Assets Trust, Inc. together with its consolidated subsidiaries, including American Assets Trust, L.P. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “our Operating Partnership” or “the Operating Partnership” refer to American Assets Trust, L.P. together with its consolidated subsidiaries.
American Assets Trust, Inc. operates as a real estate investment trust, or REIT, and is the sole general partner of the Operating Partnership. As of September 30, 2017,March 31, 2020, American Assets Trust, Inc. owned an approximate 73.2%78.5% partnership interest in the Operating Partnership. The remaining 26.8%21.5% partnership interests are owned by non-affiliated investors and certain of our directors and executive officers. As the sole general partner of the Operating Partnership, American Assets Trust, Inc. has full, exclusive and complete authority and control over the Operating Partnership’s day-to-day management and business, can cause it to enter into certain major transactions, including acquisitions, dispositions and refinancings, and can cause changes in its line of business, capital structure and distribution policies.
The company believes that combining the quarterly reports on Form 10-Q of American Assets Trust, Inc. and the Operating Partnership into a single report will result in the following benefits:
•better reflects how management and the analyst community view the business as a single operating unit;
•enhance investors' understanding of American Assets Trust, Inc. and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;
•greater efficiency for American Assets Trust, Inc. and the Operating Partnership and resulting savings in time, effort and expense; and
•greater efficiency for investors by reducing duplicative disclosure by providing a single document for their review.
Management operates American Assets Trust, Inc. and the Operating Partnership as one enterprise. The management of American Assets Trust, Inc. and the Operating Partnership are the same.
There are a few differences between American Assets Trust, Inc. and the Operating Partnership, which are reflected in the disclosures in this report. We believe it is important to understand the differences between American Assets Trust, Inc. and the Operating Partnership in the context of how American Assets Trust, Inc. and the Operating Partnership operate as an interrelated consolidated company. American Assets Trust, Inc. is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership. As a result, American Assets Trust, Inc. does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain debt of the Operating Partnership. American Assets Trust, Inc. itself does not hold any indebtedness. The Operating Partnership holds substantially all the assets of the company, directly or indirectly holds the ownership interests in the company’s real estate ventures, conducts the operations of the business and is structured as a partnership with no publicly-traded equity. Except for net proceeds from public equity issuances by American Assets Trust, Inc., which are generally contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of operating partnership units.
Noncontrolling interests and stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of American Assets Trust, Inc. and those of American Assets Trust, L.P. The partnership interests in the Operating Partnership that are not owned by American Assets Trust, Inc. are accounted for as partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in American Assets Trust, Inc.’s financial statements. To help investors understand the significant differences between the company and the Operating Partnership, this report presents the following separate sections for each of American Assets Trust, Inc. and the Operating Partnership:
•consolidated financial statements;
•the following notes to the consolidated financial statements:
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◦ | Equity/Partners' Capital; and |
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◦ | Earnings Per Share/Unit; and |
◦Debt;
◦Equity/Partners' Capital; and
◦Earnings Per Share/Unit; and
•Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations.
This report also includes separate Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of American Assets Trust, Inc. and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of American Assets Trust, Inc. have made the requisite certifications and American Assets Trust, Inc. and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
AMERICAN ASSETS TRUST, INC. AND AMERICAN ASSETS TRUST, L.P.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017MARCH 31, 2020
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| PART 1. FINANCIAL INFORMATION | | | |
| Item 1. | Financial Statements | | |
| Consolidated Financial Statements of American Assets Trust, Inc.: | | |
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| Consolidated Financial Statements of American Assets Trust, L.P.: | | |
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| Consolidated Financial Statements of American Assets Trust, L.P.: | |
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| Item 2. | | | |
| Item 3. | | | |
| Item 4. | | | |
| PART II. OTHER INFORMATION | | | |
| Item 1. | | | |
| Item 1A. | | | |
| Item 2. | | | |
| Item 3. | | | |
| Item 4. | | | |
| Item 5. | | | |
| Item 6. | | | |
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
American Assets Trust, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)
| | | | September 30, | | December 31, | | March 31, | | December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (unaudited) | | | | (unaudited) | | |
| ASSETS | | | | ASSETS | |
| Real estate, at cost | | | | Real estate, at cost | |
| Operating real estate | $ | 2,525,628 |
| | $ | 2,241,061 |
| Operating real estate | $ | 3,118,356 | | | $ | 3,096,886 | |
| Construction in progress | 66,218 |
| | 50,498 |
| Construction in progress | 90,598 | | | 91,264 | |
| Held for development | 9,391 |
| | 9,447 |
| Held for development | 547 | | | 547 | |
| | 2,601,237 |
| | 2,301,006 |
| | 3,209,501 | | | 3,188,697 | |
| Accumulated depreciation | (519,391 | ) | | (469,460 | ) | Accumulated depreciation | (687,932) | | | (665,222) | |
| Net real estate | 2,081,846 |
| | 1,831,546 |
| Net real estate | 2,521,569 | | | 2,523,475 | |
| Cash and cash equivalents | 94,207 |
| | 44,801 |
| Cash and cash equivalents | 52,371 | | | 99,303 | |
| Restricted cash | 10,124 |
| | 9,950 |
| Restricted cash | 4,457 | | | 10,148 | |
| | Accounts receivable, net | 8,649 |
| | 9,330 |
| Accounts receivable, net | 8,621 | | | 12,016 | |
| Deferred rent receivables, net | 38,614 |
| | 38,452 |
| Deferred rent receivables, net | 56,869 | | | 52,171 | |
| Other assets, net | 42,178 |
| | 52,854 |
| Other assets, net | 112,298 | | | 93,220 | |
| TOTAL ASSETS | $ | 2,275,618 |
| | $ | 1,986,933 |
| TOTAL ASSETS | $ | 2,756,185 | | | $ | 2,790,333 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| LIABILITIES: | | | | LIABILITIES: | |
| Secured notes payable, net | $ | 279,867 |
| | $ | 445,180 |
| Secured notes payable, net | $ | 110,892 | | | $ | 161,879 | |
| Unsecured notes payable, net | 1,044,934 |
| | 596,350 |
| Unsecured notes payable, net | 1,196,036 | | | 1,195,780 | |
| Unsecured line of credit | — |
| | 20,000 |
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| | Accounts payable and accrued expenses | 48,107 |
| | 32,401 |
| Accounts payable and accrued expenses | 67,348 | | | 62,576 | |
| Security deposits payable | 6,736 |
| | 6,114 |
| Security deposits payable | 8,346 | | | 8,316 | |
| Other liabilities and deferred credits, net | 47,423 |
| | 48,337 |
| Other liabilities and deferred credits, net | 92,542 | | | 68,110 | |
| Total liabilities | 1,427,067 |
| | 1,148,382 |
| Total liabilities | 1,475,164 | | | 1,496,661 | |
| Commitments and contingencies (Note 12) |
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| Commitments and contingencies (Note 11) | | Commitments and contingencies (Note 11) | | | |
| EQUITY: | | | | EQUITY: | |
| American Assets Trust, Inc. stockholders’ equity | | | | American Assets Trust, Inc. stockholders’ equity | |
| Common stock, $0.01 par value, 490,000,000 shares authorized, 47,130,063 and 45,732,109 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 471 |
| | 457 |
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| Common stock, $0.01 par value, 490,000,000 shares authorized, 60,068,228 shares issued and outstanding at both March 31, 2020 and December 31, 2019 | | Common stock, $0.01 par value, 490,000,000 shares authorized, 60,068,228 shares issued and outstanding at both March 31, 2020 and December 31, 2019 | 601 | | | 601 | |
| Additional paid-in capital | 917,334 |
| | 874,597 |
| Additional paid-in capital | 1,453,264 | | | 1,452,014 | |
| Accumulated dividends in excess of net income | (91,695 | ) | | (77,296 | ) | Accumulated dividends in excess of net income | (150,226) | | | (144,378) | |
| Accumulated other comprehensive income | 10,350 |
| | 11,798 |
| Accumulated other comprehensive income | 603 | | | 5,680 | |
| Total American Assets Trust, Inc. stockholders’ equity | 836,460 |
| | 809,556 |
| Total American Assets Trust, Inc. stockholders’ equity | 1,304,242 | | | 1,313,917 | |
| Noncontrolling interests | 12,091 |
| | 28,995 |
| Noncontrolling interests | (23,221) | | | (20,245) | |
| Total equity | 848,551 |
| | 838,551 |
| Total equity | 1,281,021 | | | 1,293,672 | |
| TOTAL LIABILITIES AND EQUITY | $ | 2,275,618 |
| | $ | 1,986,933 |
| TOTAL LIABILITIES AND EQUITY | $ | 2,756,185 | | | $ | 2,790,333 | |
The accompanying notes are an integral part of these consolidated financial statements.
American Assets Trust, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
(In Thousands, Except Shares and Per Share Data) | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | | 2020 | | 2019 |
| REVENUE: | | | | | | | | REVENUE: | | | | |
| Rental income | $ | 78,135 |
| | $ | 71,852 |
| | $ | 221,100 |
| | $ | 207,318 |
| Rental income | | $ | 92,070 | | | $ | 76,831 | |
| Other property income | 4,204 |
| | 4,124 |
| | 12,137 |
| | 11,208 |
| Other property income | | 4,673 | | | 8,488 | |
| Total revenue | 82,339 |
| | 75,976 |
| | 233,237 |
| | 218,526 |
| Total revenue | | 96,743 | | | 85,319 | |
| EXPENSES: | | | | | | | | EXPENSES: | | |
| Rental expenses | 21,177 |
| | 20,591 |
| | 60,877 |
| | 58,634 |
| Rental expenses | | 22,568 | | | 20,796 | |
| Real estate taxes | 8,535 |
| | 7,396 |
| | 23,975 |
| | 20,446 |
| Real estate taxes | | 11,045 | | | 9,046 | |
| General and administrative | 4,958 |
| | 4,513 |
| | 15,171 |
| | 13,456 |
| General and administrative | | 6,820 | | | 6,073 | |
| Depreciation and amortization | 21,192 |
| | 17,992 |
| | 63,360 |
| | 53,159 |
| Depreciation and amortization | | 27,462 | | | 20,583 | |
| Total operating expenses | 55,862 |
| | 50,492 |
| | 163,383 |
| | 145,695 |
| Total operating expenses | | 67,895 | | | 56,498 | |
| OPERATING INCOME | 26,477 |
| | 25,484 |
| | 69,854 |
| | 72,831 |
| OPERATING INCOME | | 28,848 | | | 28,821 | |
| Interest expense | (13,873 | ) | | (13,049 | ) | | (39,856 | ) | | (39,148 | ) | Interest expense | | (13,472) | | | (13,349) | |
| Other (expense) income, net | (99 | ) | | (577 | ) | | 403 |
| | (454 | ) | |
| | Other income (expense), net | | Other income (expense), net | | 108 | | | (229) | |
| | NET INCOME | 12,505 |
| | 11,858 |
| | 30,401 |
| | 33,229 |
| NET INCOME | | 15,484 | | | 15,243 | |
| Net income attributable to restricted shares | (60 | ) | | (42 | ) | | (181 | ) | | (128 | ) | Net income attributable to restricted shares | | (104) | | | (93) | |
| Net income attributable to unitholders in the Operating Partnership | (3,351 | ) | | (3,342 | ) | | (8,220 | ) | | (9,377 | ) | Net income attributable to unitholders in the Operating Partnership | | (3,312) | | | (4,055) | |
| NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, INC. STOCKHOLDERS | $ | 9,094 |
| | $ | 8,474 |
| | $ | 22,000 |
| | $ | 23,724 |
| NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, INC. STOCKHOLDERS | | $ | 12,068 | | | $ | 11,095 | |
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| EARNINGS PER COMMON SHARE | | | | | | | | EARNINGS PER COMMON SHARE | | |
| Earnings per common share, basic | $ | 0.19 |
| | $ | 0.19 |
| | $ | 0.47 |
| | $ | 0.52 |
| Earnings per common share, basic | | $ | 0.20 | | | $ | 0.24 | |
| Weighted average shares of common stock outstanding - basic | 46,898,086 |
| | 45,377,719 |
| | 46,650,403 |
| | 45,282,643 |
| Weighted average shares of common stock outstanding - basic | | 59,723,072 | | | 47,004,465 | |
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| Earnings per common share, diluted | $ | 0.19 |
| | $ | 0.19 |
| | $ | 0.47 |
| | $ | 0.52 |
| Earnings per common share, diluted | | $ | 0.20 | | | $ | 0.24 | |
| Weighted average shares of common stock outstanding - diluted | 64,093,066 |
| | 63,272,702 |
| | 64,081,697 |
| | 63,180,637 |
| Weighted average shares of common stock outstanding - diluted | | 76,113,620 | | | 64,182,073 | |
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| DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.26 |
| | $ | 0.25 |
| | $ | 0.78 |
| | $ | 0.75 |
| DIVIDENDS DECLARED PER COMMON SHARE | | $ | 0.30 | | | $ | 0.28 | |
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| COMPREHENSIVE INCOME | | | | | | | | COMPREHENSIVE INCOME | | |
| Net income | $ | 12,505 |
| | $ | 11,858 |
| | $ | 30,401 |
| | $ | 33,229 |
| Net income | | $ | 15,484 | | | $ | 15,243 | |
| Other comprehensive (loss) - unrealized (loss) on swap derivative during the period | 87 |
| | 2,432 |
| | (1,427 | ) | | (11,443 | ) | |
| Other comprehensive (loss) income - unrealized (loss) income on swap derivatives during the period | | Other comprehensive (loss) income - unrealized (loss) income on swap derivatives during the period | | (6,115) | | | (2,132) | |
| | Reclassification of amortization of forward-starting swap included in interest expense | (319 | ) | | (58 | ) | | (794 | ) | | (173 | ) | Reclassification of amortization of forward-starting swap included in interest expense | | (333) | | | (320) | |
| Comprehensive income | 12,273 |
| | 14,232 |
| | 28,180 |
| | 21,613 |
| Comprehensive income | | 9,036 | | | 12,791 | |
| Comprehensive income attributable to non-controlling interest | (3,263 | ) | | (4,018 | ) | | (7,447 | ) | | (6,086 | ) | |
| Comprehensive income attributable to non-controlling interests | | Comprehensive income attributable to non-controlling interests | | (1,941) | | | (3,398) | |
| Comprehensive income attributable to American Assets Trust, Inc. | $ | 9,010 |
| | $ | 10,214 |
| | $ | 20,733 |
| | $ | 15,527 |
| Comprehensive income attributable to American Assets Trust, Inc. | | $ | 7,095 | | | $ | 9,393 | |
The accompanying notes are an integral part of these consolidated financial statements.
American Assets Trust, Inc.
Consolidated Statement of Equity
(Unaudited)
(In Thousands, Except Share Data)
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| | Common Shares | | | | Additional
Paid-in
Capital | | Accumulated
Dividends in
Excess of Net
Income | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests - Unitholders in the Operating Partnership | | Total |
| | Shares | | Amount | | | | | | | | | | |
| Balance at December 31, 2019 | 60,068,228 | | | $ | 601 | | | $ | 1,452,014 | | | $ | (144,378) | | | $ | 5,680 | | | $ | (20,245) | | | $ | 1,293,672 | |
| Net income | — | | | — | | | — | | | 12,172 | | | — | | | 3,312 | | | 15,484 | |
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| Dividends declared and paid | — | | | — | | | — | | | (18,020) | | | — | | | (4,917) | | | (22,937) | |
| Stock-based compensation | — | | | — | | | 1,250 | | | — | | | — | | | — | | | 1,250 | |
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| Other comprehensive loss - change in value of interest rate swaps | — | | | — | | | — | | | — | | | (4,816) | | | (1,299) | | | (6,115) | |
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| Reclassification of amortization of forward-starting swap included in interest expense | — | | | — | | | — | | | — | | | (261) | | | (72) | | | (333) | |
| Balance at March 31, 2020 | 60,068,228 | | | $ | 601 | | | $ | 1,453,264 | | | $ | (150,226) | | | $ | 603 | | | $ | (23,221) | | | $ | 1,281,021 | |
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| | American Assets Trust, Inc. Stockholders’ Equity | | Noncontrolling Interests - Unitholders in the Operating Partnership | | Total |
| | Common Shares | | Additional Paid-in Capital | | Accumulated Dividends in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | |
| | Shares | | Amount | | |
| Balance at December 31, 2016 | 45,732,109 |
| | $ | 457 |
| | $ | 874,597 |
| | $ | (77,296 | ) | | $ | 11,798 |
| | $ | 28,995 |
| | $ | 838,551 |
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| Net income | — |
| | — |
| | — |
| | 22,181 |
| | — |
| | 8,220 |
| | 30,401 |
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| Common shares issued | 700,000 |
| | 7 |
| | 30,068 |
| | — |
| | — |
| | — |
| | 30,075 |
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| Issuance of restricted stock | 4,880 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
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| Forfeiture of restricted stock | (768 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
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| Conversion of operating partnership units | 693,842 |
| | 7 |
| | 10,752 |
| | — |
| | — |
| | (10,759 | ) | | — |
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| Dividends declared and paid | — |
| | — |
| | — |
| | (36,580 | ) | | — |
| | (13,592 | ) | | (50,172 | ) |
| Stock-based compensation | — |
| | — |
| | 1,917 |
| | — |
| | — |
| | — |
| | 1,917 |
|
| Other comprehensive loss - change in value of interest rate swaps | — |
| | — |
| | — |
| | — |
| | (8,635 | ) | | (3,459 | ) | | (12,094 | ) |
| Other comprehensive income - unrealized gain on forward-starting interest rate swaps | — |
| | — |
| | — |
| | — |
| | 7,765 |
| | 2,902 |
| | 10,667 |
|
| Reclassification of amortization of forward-starting swap included in interest expense | — |
| | — |
| | — |
| | — |
| | (578 | ) | | (216 | ) | | (794 | ) |
| Balance at September 30, 2017 | 47,130,063 |
| | $ | 471 |
| | $ | 917,334 |
| | $ | (91,695 | ) | | $ | 10,350 |
| | $ | 12,091 |
| | $ | 848,551 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Common Shares | | | | Additional
Paid-in
Capital | | Accumulated
Dividends in
Excess of Net
Income | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests - Unitholders in the Operating Partnership | | Total |
| | Shares | | Amount | | | | | | | | | | |
| Balance at December 31, 2018 | 47,335,409 | | | $ | 474 | | | $ | 920,661 | | | $ | (128,778) | | | $ | 10,620 | | | $ | (506) | | | $ | 802,471 | |
| Net income | — | | | — | | | — | | | 11,188 | | | — | | | 4,055 | | | 15,243 | |
| Common shares issued | 162,531 | | | 1 | | | 7,033 | | | — | | | — | | | — | | | 7,034 | |
| | | | | | | | | | | | | |
| Forfeiture of restricted stock | (11,046) | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
| Dividends declared and paid | — | | | — | | | — | | | (13,251) | | | — | | | (4,810) | | | (18,061) | |
| Stock-based compensation | — | | | — | | | 1,098 | | | — | | | — | | | — | | | 1,098 | |
| | | | | | | | | | | | | |
| Other comprehensive loss - change in value of interest rate swaps | — | | | — | | | — | | | — | | | (1,561) | | | (571) | | | (2,132) | |
| | | | | | | | | | | | | |
| Reclassification of amortization of forward-starting swap included in interest expense | — | | | — | | | — | | | — | | | (234) | | | (86) | | | (320) | |
| Balance at March 31, 2019 | 47,486,894 | | | $ | 475 | | | $ | 928,792 | | | $ | (130,841) | | | $ | 8,825 | | | $ | (1,918) | | | $ | 805,333 | |
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The accompanying notes are an integral part of these consolidated financial statements.
American Assets Trust, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
| | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2020 | | 2019 |
| OPERATING ACTIVITIES | | | |
| Net income | $ | 15,484 | | | $ | 15,243 | |
| | | |
| | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Deferred rent revenue and amortization of lease intangibles | (3,762) | | | (1,111) | |
| Depreciation and amortization | 27,462 | | | 20,583 | |
| Amortization of debt issuance costs and debt fair value adjustments | 374 | | | 368 | |
| | | |
| | | |
| | | |
| | | |
| Stock-based compensation expense | 1,250 | | | 1,098 | |
| | | |
| | | |
| Lease termination income | — | | | (4,518) | |
| Other noncash interest expense | (333) | | | (320) | |
| Other, net | (3,570) | | | 678 | |
| Changes in operating assets and liabilities | | | |
| Change in accounts receivable | 3,632 | | | 466 | |
| Change in other assets | 616 | | | 45 | |
| Change in accounts payable and accrued expenses | 4,435 | | | 7,150 | |
| Change in security deposits payable | 30 | | | (1,265) | |
| Change in other liabilities and deferred credits | (257) | | | (1,586) | |
| | | |
| | | |
| Net cash provided by operating activities | 45,361 | | | 36,831 | |
| INVESTING ACTIVITIES | | | |
| | | |
| Capital expenditures | (20,531) | | | (20,932) | |
| | | |
| Leasing commissions | (3,394) | | | (1,505) | |
| | | |
| Net cash used in investing activities | (23,925) | | | (22,437) | |
| FINANCING ACTIVITIES | | | |
| | | |
| Repayment of secured notes payable | (51,003) | | | (19,909) | |
| | | |
| | | |
| Proceeds from unsecured line of credit | — | | | 24,000 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Debt issuance costs | — | | | (415) | |
| Proceeds from issuance of common stock, net | (119) | | | 7,034 | |
| | | |
| Dividends paid to common stock and unitholders | (22,937) | | | (18,061) | |
| | | |
| | | |
| Net cash used in financing activities | (74,059) | | | (7,351) | |
| Net (decrease) increase in cash and cash equivalents | (52,623) | | | 7,043 | |
| Cash, cash equivalents and restricted cash, beginning of period | 109,451 | | | 57,272 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 56,828 | | | $ | 64,315 | |
|
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| OPERATING ACTIVITIES | | | |
| Net income | $ | 30,401 |
| | $ | 33,229 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Deferred rent revenue and amortization of lease intangibles | (2,233 | ) | | (2,297 | ) |
| Depreciation and amortization | 63,360 |
| | 53,159 |
|
| Amortization of debt issuance costs and debt fair value adjustments | 2,625 |
| | 3,354 |
|
| Stock-based compensation expense | 1,917 |
| | 1,855 |
|
| Settlement of derivative instruments | 10,667 |
| | — |
|
| Other noncash interest expense | (794 | ) | | (173 | ) |
| Other, net | 1,665 |
| | 1,168 |
|
| Changes in operating assets and liabilities | | | |
| Change in restricted cash | 115 |
| | 1,177 |
|
| Change in accounts receivable | 211 |
| | (1,564 | ) |
| Change in other assets | (548 | ) | | (23 | ) |
| Change in accounts payable and accrued expenses | 17,299 |
| | 10,983 |
|
| Change in security deposits payable | 622 |
| | 142 |
|
| Change in other liabilities and deferred credits | 462 |
| | 1,717 |
|
| Net cash provided by operating activities | 125,769 |
| | 102,727 |
|
| INVESTING ACTIVITIES | | | |
| Acquisition of real estate | (278,141 | ) | | — |
|
| Capital expenditures | (34,757 | ) | | (45,583 | ) |
| Change in restricted cash | (1,688 | ) | | 200 |
|
| Leasing commissions | (3,742 | ) | | (1,808 | ) |
| Deposit on property acquisition | — |
| | — |
|
| Net cash used in investing activities | (318,328 | ) | | (47,191 | ) |
| FINANCING ACTIVITIES | | | |
| Change in restricted cash | 1,400 |
| | — |
|
| Repayment of secured notes payable | (166,781 | ) | | (113,512 | ) |
| Proceeds from unsecured term loan | — |
| | 150,000 |
|
| Proceeds from unsecured line of credit | 173,000 |
|
| 10,000 |
|
| Repayment of unsecured line of credit | (193,000 | ) | | (40,000 | ) |
| Proceeds from unsecured notes payable | 450,000 |
| | — |
|
| Debt issuance costs | (2,557 | ) | | (2,107 | ) |
| Proceeds from issuance of common stock, net | 30,075 |
| | 9,665 |
|
| Dividends paid to common stock and unitholders | (50,172 | ) | | (47,536 | ) |
| Shares withheld for employee taxes | — |
| | (12 | ) |
| Net cash provided by (used in) financing activities | 241,965 |
| | (33,502 | ) |
| Net increase in cash and cash equivalents | 49,406 |
| | 22,034 |
|
| Cash and cash equivalents, beginning of period | 44,801 |
| | 39,925 |
|
| Cash and cash equivalents, end of period | $ | 94,207 |
| | $ | 61,959 |
|
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2020 | | 2019 |
| Cash and cash equivalents | 52,371 | | | 54,538 | |
| Restricted cash | 4,457 | | | 9,777 | |
| Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ | 56,828 | | | $ | 64,315 | |
The accompanying notes are an integral part of these consolidated financial statements.
American Assets Trust, L.P.
Consolidated Balance Sheets
(In Thousands, Except Unit Data)
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2020 | | 2019 |
| | (unaudited) | | |
| ASSETS | | | |
| Real estate, at cost | | | |
| Operating real estate | $ | 3,118,356 | | | $ | 3,096,886 | |
| Construction in progress | 90,598 | | | 91,264 | |
| Held for development | 547 | | | 547 | |
| 3,209,501 | | | 3,188,697 | |
| Accumulated depreciation | (687,932) | | | (665,222) | |
| Net real estate | 2,521,569 | | | 2,523,475 | |
| Cash and cash equivalents | 52,371 | | | 99,303 | |
| Restricted cash | 4,457 | | | 10,148 | |
| | | |
| Accounts receivable, net | 8,621 | | | 12,016 | |
| Deferred rent receivables, net | 56,869 | | | 52,171 | |
| Other assets, net | 112,298 | | | 93,220 | |
| TOTAL ASSETS | $ | 2,756,185 | | | $ | 2,790,333 | |
| LIABILITIES AND CAPITAL | | | |
| LIABILITIES: | | | |
| Secured notes payable, net | $ | 110,892 | | | $ | 161,879 | |
| Unsecured notes payable, net | 1,196,036 | | | 1,195,780 | |
| | | |
| Accounts payable and accrued expenses | 67,348 | | | 62,576 | |
| Security deposits payable | 8,346 | | | 8,316 | |
| Other liabilities and deferred credits | 92,542 | | | 68,110 | |
| Total liabilities | 1,475,164 | | | 1,496,661 | |
| Commitments and contingencies (Note 11) | | | |
| CAPITAL: | | | |
| Limited partners' capital, 16,390,548 units issued and outstanding as of both March 31, 2020 and December 31, 2019 | (23,886) | | | (22,281) | |
| General partner's capital, 60,068,228 units issued and outstanding as of both March 31, 2020 and December 31, 2019 | 1,303,639 | | | 1,308,237 | |
| Accumulated other comprehensive income | 1,268 | | | 7,716 | |
| | | |
| Total capital | 1,281,021 | | | 1,293,672 | |
| TOTAL LIABILITIES AND CAPITAL | $ | 2,756,185 | | | $ | 2,790,333 | |
|
| | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
| | (unaudited) | | |
| ASSETS | | | |
| Real estate, at cost | | | |
| Operating real estate | $ | 2,525,628 |
| | $ | 2,241,061 |
|
| Construction in progress | 66,218 |
| | 50,498 |
|
| Held for development | 9,391 |
| | 9,447 |
|
| | 2,601,237 |
| | 2,301,006 |
|
| Accumulated depreciation | (519,391 | ) | | (469,460 | ) |
| Net real estate | 2,081,846 |
| | 1,831,546 |
|
| Cash and cash equivalents | 94,207 |
| | 44,801 |
|
| Restricted cash | 10,124 |
| | 9,950 |
|
| Accounts receivable, net | 8,649 |
| | 9,330 |
|
| Deferred rent receivables, net | 38,614 |
| | 38,452 |
|
| Other assets, net | 42,178 |
| | 52,854 |
|
| TOTAL ASSETS | $ | 2,275,618 |
| | $ | 1,986,933 |
|
| LIABILITIES AND EQUITY | | | |
| LIABILITIES: | | | |
| Secured notes payable, net | $ | 279,867 |
| | $ | 445,180 |
|
| Unsecured notes payable, net | 1,044,934 |
| | 596,350 |
|
| Unsecured line of credit | — |
| | 20,000 |
|
| Accounts payable and accrued expenses | 48,107 |
| | 32,401 |
|
| Security deposits payable | 6,736 |
| | 6,114 |
|
| Other liabilities and deferred credits | 47,423 |
| | 48,337 |
|
| Total liabilities | 1,427,067 |
| | 1,148,382 |
|
| Commitments and contingencies (Note 12) |
| |
|
|
| CAPITAL: | | | |
| Limited partners' capital, 17,194,980 and 17,888,822 units issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 8,184 |
| | 24,315 |
|
| General partner's capital, 47,130,063 and 45,732,109 units issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 826,110 |
| | 797,758 |
|
| Accumulated other comprehensive income | 14,257 |
| | 16,478 |
|
| Total capital | 848,551 |
| | 838,551 |
|
| TOTAL LIABILITIES AND CAPITAL | $ | 2,275,618 |
| | $ | 1,986,933 |
|
The accompanying notes are an integral part of these consolidated financial statements.
American Assets Trust, L.P.
Consolidated Statements of Comprehensive Income
(Unaudited)
(In Thousands, Except Shares and Per Unit Data) | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | | 2020 | | 2019 |
| REVENUE: | | | | | | | | REVENUE: | | | | |
| Rental income | $ | 78,135 |
| | $ | 71,852 |
| | $ | 221,100 |
| | $ | 207,318 |
| Rental income | | $ | 92,070 | | | $ | 76,831 | |
| Other property income | 4,204 |
| | 4,124 |
| | 12,137 |
| | 11,208 |
| Other property income | | 4,673 | | | 8,488 | |
| Total revenue | 82,339 |
| | 75,976 |
| | 233,237 |
| | 218,526 |
| Total revenue | | 96,743 | | | 85,319 | |
| EXPENSES: | | | | | | | | EXPENSES: | | |
| Rental expenses | 21,177 |
| | 20,591 |
| | 60,877 |
| | 58,634 |
| Rental expenses | | 22,568 | | | 20,796 | |
| Real estate taxes | 8,535 |
| | 7,396 |
| | 23,975 |
| | 20,446 |
| Real estate taxes | | 11,045 | | | 9,046 | |
| General and administrative | 4,958 |
| | 4,513 |
| | 15,171 |
| | 13,456 |
| General and administrative | | 6,820 | | | 6,073 | |
| Depreciation and amortization | 21,192 |
| | 17,992 |
| | 63,360 |
| | 53,159 |
| Depreciation and amortization | | 27,462 | | | 20,583 | |
| Total operating expenses | 55,862 |
| | 50,492 |
| | 163,383 |
| | 145,695 |
| Total operating expenses | | 67,895 | | | 56,498 | |
| OPERATING INCOME | 26,477 |
| | 25,484 |
| | 69,854 |
| | 72,831 |
| OPERATING INCOME | | 28,848 | | | 28,821 | |
| Interest expense | (13,873 | ) | | (13,049 | ) | | (39,856 | ) | | (39,148 | ) | Interest expense | | (13,472) | | | (13,349) | |
| Other (expense) income, net | (99 | ) | | (577 | ) | | 403 |
| | (454 | ) | |
| | Other income (expense), net | | Other income (expense), net | | 108 | | | (229) | |
| | NET INCOME | 12,505 |
| | 11,858 |
| | 30,401 |
| | 33,229 |
| NET INCOME | | 15,484 | | | 15,243 | |
| Net income attributable to restricted shares | (60 | ) | | (42 | ) | | (181 | ) | | (128 | ) | Net income attributable to restricted shares | | (104) | | | (93) | |
| NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, L.P. | $ | 12,445 |
| | $ | 11,816 |
| | $ | 30,220 |
| | $ | 33,101 |
| NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, L.P. | | $ | 15,380 | | | $ | 15,150 | |
| | | | | | | | | | | | | |
| EARNINGS PER UNIT - BASIC | | | | | | | | EARNINGS PER UNIT - BASIC | | |
| Earnings per unit, basic | $ | 0.19 |
| | $ | 0.19 |
| | $ | 0.47 |
| | $ | 0.52 |
| Earnings per unit, basic | | $ | 0.20 | | | $ | 0.24 | |
| Weighted average units outstanding - basic | 64,093,066 |
| | 63,272,702 |
| | 64,081,697 |
| | 63,180,637 |
| Weighted average units outstanding - basic | | 76,113,620 | | | 64,182,073 | |
| | | | | | | | | | | | | |
| EARNINGS PER UNIT - DILUTED | | | | | | | | EARNINGS PER UNIT - DILUTED | | |
| Earnings per unit, diluted | $ | 0.19 |
| | $ | 0.19 |
| | $ | 0.47 |
| | $ | 0.52 |
| Earnings per unit, diluted | | $ | 0.20 | | | $ | 0.24 | |
| Weighted average units outstanding - diluted | 64,093,066 |
| | 63,272,702 |
| | 64,081,697 |
| | 63,180,637 |
| Weighted average units outstanding - diluted | | 76,113,620 | | | 64,182,073 | |
| | | | | | | | | | | | | |
| DISTRIBUTIONS PER UNIT | $ | 0.26 |
| | $ | 0.25 |
| | $ | 0.78 |
| | $ | 0.75 |
| DISTRIBUTIONS PER UNIT | | $ | 0.30 | | | $ | 0.28 | |
| | | | | | | | | | | | | |
| COMPREHENSIVE INCOME | | | | | | | | COMPREHENSIVE INCOME | | |
| Net income | $ | 12,505 |
| | $ | 11,858 |
| | $ | 30,401 |
| | $ | 33,229 |
| Net income | | $ | 15,484 | | | $ | 15,243 | |
| Other comprehensive (loss) - unrealized (loss) on swap derivative during the period | 87 |
| | 2,432 |
| | (1,427 | ) | | (11,443 | ) | |
| Other comprehensive income (loss) - unrealized income (loss) on swap derivative during the period | | Other comprehensive income (loss) - unrealized income (loss) on swap derivative during the period | | (6,115) | | | (2,132) | |
| | Reclassification of amortization of forward-starting swap included in interest expense | (319 | ) | | (58 | ) | | (794 | ) | | (173 | ) | Reclassification of amortization of forward-starting swap included in interest expense | | (333) | | | (320) | |
| Comprehensive income | 12,273 |
| | 14,232 |
| | 28,180 |
| | 21,613 |
| Comprehensive income | | 9,036 | | | 12,791 | |
| Comprehensive income attributable to Limited Partners | (3,263 | ) | | (4,018 | ) | | (7,447 | ) | | (6,086 | ) | Comprehensive income attributable to Limited Partners | | (1,941) | | | (3,398) | |
| Comprehensive income attributable to General Partner | $ | 9,010 |
| | $ | 10,214 |
| | $ | 20,733 |
| | $ | 15,527 |
| Comprehensive income attributable to General Partner | | $ | 7,095 | | | $ | 9,393 | |
The accompanying notes are an integral part of these consolidated financial statements.
American Assets Trust, L.P.
Consolidated Statement of Partners' Capital
(Unaudited)
(In Thousands, Except Unit Data)
|
| | | | | | | | | | | | | | | | | | | | | |
| | Limited Partners' Capital (1) | | General Partner's Capital (2) | | Accumulated Other Comprehensive Income (Loss) | | Total Capital |
| | Units | | Amount | | Units | | Amount | |
| Balance at December 31, 2016 | 17,888,822 |
| | $ | 24,315 |
| | 45,732,109 |
| | $ | 797,758 |
| | $ | 16,478 |
| | $ | 838,551 |
|
| Net income | — |
| | 8,220 |
| | — |
| | 22,181 |
| | — |
| | 30,401 |
|
| Contributions from American Assets Trust, Inc. | — |
| | — |
| | 700,000 |
| | 30,075 |
| | — |
| | 30,075 |
|
| Conversion of operating partnership units | (693,842 | ) | | (10,759 | ) | | 693,842 |
| | 10,759 |
| | — |
| | — |
|
| Issuance of restricted units | — |
| | — |
| | 4,880 |
| | — |
| | — |
| | — |
|
| Forfeiture of restricted units | — |
| | — |
| | (768 | ) | | — |
| | — |
| | — |
|
| Distributions | — |
| | (13,592 | ) | | — |
| | (36,580 | ) | | — |
| | (50,172 | ) |
| Stock-based compensation | — |
| | — |
| | — |
| | 1,917 |
| | — |
| | 1,917 |
|
| Other comprehensive loss - change in value of interest rate swap | — |
| | — |
| | — |
| | — |
| | (12,094 | ) | | (12,094 | ) |
| Other comprehensive income - unrealized gain on forward-starting interest rate swaps | — |
| | — |
| | — |
| | — |
| | 10,667 |
| | 10,667 |
|
| Reclassification of amortization of forward-starting swap included in interest expense | — |
| | — |
| | — |
| | — |
| | (794 | ) | | (794 | ) |
| Balance at September 30, 2017 | 17,194,980 |
| | $ | 8,184 |
| | 47,130,063 |
| | $ | 826,110 |
| | $ | 14,257 |
| | $ | 848,551 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Limited Partners' Capital (1) | | | | General Partner's Capital (2) | | | | Accumulated Other Comprehensive Income (Loss) | | Total Capital |
| Units | | Amount | | Units | | Amount | | | | |
| Balance at December 31, 2019 | 16,390,548 | | | $ | (22,281) | | | 60,068,228 | | | $ | 1,308,237 | | | $ | 7,716 | | | $ | 1,293,672 | |
| Net income | — | | | 3,312 | | | — | | | 12,172 | | | — | | | 15,484 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Distributions | — | | | (4,917) | | | — | | | (18,020) | | | — | | | (22,937) | |
| Stock-based compensation | — | | | — | | | — | | | 1,250 | | | — | | | 1,250 | |
| | | | | | | | | | | |
| Other comprehensive loss - change in value of interest rate swap | — | | | — | | | — | | | — | | | (6,115) | | | (6,115) | |
| | | | | | | | | | | |
| Reclassification of amortization of forward-starting swap included in interest expense | — | | | — | | | — | | | — | | | (333) | | | (333) | |
| Balance at March 31, 2020 | 16,390,548 | | | $ | (23,886) | | | 60,068,228 | | | $ | 1,303,639 | | | $ | 1,268 | | | $ | 1,281,021 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Limited Partners' Capital (1) | | | | General Partner's Capital (2) | | | | Accumulated Other Comprehensive Income (Loss) | | Total Capital |
| | Units | | Amount | | Units | | Amount | | | | |
| Balance at December 31, 2018 | 17,177,608 | | | $ | (4,477) | | | 47,335,409 | | | $ | 792,357 | | | $ | 14,591 | | | $ | 802,471 | |
| Net income | — | | | 4,055 | | | — | | | 11,188 | | | — | | | 15,243 | |
| Contributions from American Assets Trust, Inc. | — | | | — | | | 162,531 | | | 7,034 | | | — | | | 7,034 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Forfeiture of restricted units | — | | | — | | | (11,046) | | | — | | | — | | | — | |
| Distributions | — | | | (4,810) | | | — | | | (13,251) | | | — | | | (18,061) | |
| Stock-based compensation | — | | | — | | | — | | | 1,098 | | | — | | | 1,098 | |
| | | | | | | | | | | |
| Other comprehensive loss - change in value of interest rate swap | — | | | — | | | — | | | — | | | (2,132) | | | (2,132) | |
| | | | | | | | | | | |
| Reclassification of amortization of forward-starting swap included in interest expense | — | | | — | | | — | | | — | | | (320) | | | (320) | |
| Balance at March 31, 2019 | 17,177,608 | | | $ | (5,232) | | | 47,486,894 | | | $ | 798,426 | | | $ | 12,139 | | | $ | 805,333 | |
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(1) Consists of limited partnership interests held by third parties.
(2) Consists of general partnership interests held by American Assets Trust, Inc.
The accompanying notes are an integral part of these consolidated financial statements.
American Assets Trust, L.P.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
| | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2020 | | 2019 |
| OPERATING ACTIVITIES | | | |
| Net income | $ | 15,484 | | | $ | 15,243 | |
| | | |
| | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Deferred rent revenue and amortization of lease intangibles | (3,762) | | | (1,111) | |
| Depreciation and amortization | 27,462 | | | 20,583 | |
| Amortization of debt issuance costs and debt fair value adjustments | 374 | | | 368 | |
| | | |
| Stock-based compensation expense | 1,250 | | | 1,098 | |
| | | |
| Lease termination income | — | | | (4,518) | |
| Other noncash interest expense | (333) | | | (320) | |
| | | |
| Other, net | (3,570) | | | 678 | |
| Changes in operating assets and liabilities | | | |
| Change in accounts receivable | 3,632 | | | 466 | |
| Change in other assets | 616 | | | 45 | |
| Change in accounts payable and accrued expenses | 4,435 | | | 7,150 | |
| Change in security deposits payable | 30 | | | (1,265) | |
| Change in other liabilities and deferred credits | (257) | | | (1,586) | |
| | | |
| | | |
| Net cash provided by operating activities | 45,361 | | | 36,831 | |
| INVESTING ACTIVITIES | | | |
| | | |
| Capital expenditures | (20,531) | | | (20,932) | |
| | | |
| Leasing commissions | (3,394) | | | (1,505) | |
| Net cash used in investing activities | (23,925) | | | (22,437) | |
| FINANCING ACTIVITIES | | | |
| | | |
| | | |
| Repayment of secured notes payable | (51,003) | | | (19,909) | |
| | | |
| | | |
| Proceeds from unsecured line of credit | — | | | 24,000 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Debt issuance costs | — | | | (415) | |
| Contributions from American Assets Trust, Inc. | (119) | | | 7,034 | |
| | | |
| Distributions | (22,937) | | | (18,061) | |
| | | |
| | | |
| | | |
| | | |
| Net cash used in financing activities | (74,059) | | | (7,351) | |
| Net (decrease) increase in cash and cash equivalents | (52,623) | | | 7,043 | |
| Cash, cash equivalents and restricted cash, beginning of period | 109,451 | | | 57,272 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 56,828 | | | $ | 64,315 | |
|
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| OPERATING ACTIVITIES | | | |
| Net income | $ | 30,401 |
| | $ | 33,229 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Deferred rent revenue and amortization of lease intangibles | (2,233 | ) | | (2,297 | ) |
| Depreciation and amortization | 63,360 |
| | 53,159 |
|
| Amortization of debt issuance costs and debt fair value adjustments | 2,625 |
| | 3,354 |
|
| Stock-based compensation expense | 1,917 |
| | 1,855 |
|
| Settlement of derivative instruments | 10,667 |
| | — |
|
| Other noncash interest expense | (794 | ) | | (173 | ) |
| Other, net | 1,665 |
| | 1,168 |
|
| Changes in operating assets and liabilities | | | |
| Change in restricted cash | 115 |
| | 1,177 |
|
| Change in accounts receivable | 211 |
| | (1,564 | ) |
| Change in other assets | (548 | ) | | (23 | ) |
| Change in accounts payable and accrued expenses | 17,299 |
| | 10,983 |
|
| Change in security deposits payable | 622 |
| | 142 |
|
| Change in other liabilities and deferred credits | 462 |
| | 1,717 |
|
| Net cash provided by operating activities | 125,769 |
| | 102,727 |
|
| INVESTING ACTIVITIES | | | |
| Acquisition of real estate | (278,141 | ) | | — |
|
| Capital expenditures | (34,757 | ) | | (45,583 | ) |
| Change in restricted cash | (1,688 | ) | | 200 |
|
| Leasing commissions | (3,742 | ) | | (1,808 | ) |
| Deposit on property acquisition | — |
| | — |
|
| Net cash used in investing activities | (318,328 | ) | | (47,191 | ) |
| FINANCING ACTIVITIES | | | |
| Change in restricted cash | 1,400 |
| | — |
|
| Repayment of secured notes payable | (166,781 | ) | | (113,512 | ) |
| Proceeds from unsecured term loan | — |
| | 150,000 |
|
| Proceeds from unsecured line of credit | 173,000 |
| | 10,000 |
|
| Repayment of unsecured line of credit | (193,000 | ) | | (40,000 | ) |
| Proceeds from unsecured notes payable | 450,000 |
| | — |
|
| Debt issuance costs | (2,557 | ) | | (2,107 | ) |
| Contributions from American Assets Trust, Inc. | 30,075 |
| | 9,665 |
|
| Distributions | (50,172 | ) | | (47,536 | ) |
| Shares withheld for employee taxes | — |
| | (12 | ) |
| Net cash provided by (used in) financing activities | 241,965 |
| | (33,502 | ) |
| Net increase in cash and cash equivalents | 49,406 |
| | 22,034 |
|
| Cash and cash equivalents, beginning of period | 44,801 |
| | 39,925 |
|
| Cash and cash equivalents, end of period | $ | 94,207 |
| | $ | 61,959 |
|
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2020 | | 2019 |
| Cash and cash equivalents | $ | 52,371 | | | $ | 54,538 | |
| Restricted cash | 4,457 | | | 9,777 | |
| Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ | 56,828 | | | $ | 64,315 | |
The accompanying notes are an integral part of these consolidated financial statements.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements
September 30, 2017March 31, 2020
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
American Assets Trust, Inc. (which may be referred to in these financial statements as the “Company,” “we,” “us,” or “our”) is a Maryland corporation formed on July 16, 2010 that did not have any operating activity until the consummation of our initial public offering on January 19, 2011. The Company is the sole general partner of American Assets Trust, L.P., a Maryland limited partnership formed on July 16, 2010 (the “Operating Partnership”). The Company’s operations are carried on through our Operating Partnership and its subsidiaries, including our taxable real estate investment trust ("REIT") subsidiary ("TRS"). Since the formation of our Operating Partnership, the Company has controlled our Operating Partnership as its general partner and has consolidated its assets, liabilities and results of operations.
We are a full service, vertically integrated, and self-administered REIT with approximately 178205 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.
As of September 30, 2017,March 31, 2020, we owned or had a controlling interest in 2628 office, retail, multifamily and mixed-use operating properties, the operations of which we consolidate. Additionally, as of September 30, 2017,March 31, 2020, we owned land at four3 of our properties that we classify as held for development and/or construction in progress. A summary of the properties owned by us is as follows:
| | | | | | | | |
| Retail | | |
| Carmel Country Plaza | Gateway Marketplace | Alamo Quarry Market |
| Carmel Mountain Plaza | Del Monte Center | Hassalo on Eighth - Retail |
| South Bay Marketplace | Geary Marketplace | |
| Lomas Santa Fe Plaza | The Shops at Kalakaua | |
| Solana Beach Towne Centre | Waikele Center | |
| | |
RetailOffice | | |
Carmel Country PlazaLa Jolla Commons | Gateway MarketplaceOne Beach Street | Alamo Quarry Market |
Carmel Mountain Plaza | Del Monte Center | Hassalo on Eighth - Retail |
South Bay Marketplace | Geary Marketplace | |
Lomas Santa Fe Plaza | The Shops at Kalakaua | |
Solana Beach Towne Centre | Waikele Center | |
| | |
Office |
| Torrey Reserve Campus | First & Main | |
| Torrey Point | Lloyd District Portfolio | |
Solana Crossing (formerly Solana Beach Corporate CentreCentre) | City Center Bellevue | |
| The Landmark at One Market | | |
One Beach Street | | |
First & MainMultifamily | | |
| Loma Palisades | Hassalo on Eighth - Residential | |
Multifamily |
Loma Palisades | | |
| Imperial Beach Gardens | | |
| Mariner's Point | | |
| Santa Fe Park RV Resort | | |
| Pacific Ridge Apartments | | |
Hassalo on Eighth - Residential | | |
| Mixed-Use | | |
Mixed-Use | | |
| Waikiki Beach Walk Retail and Embassy Suites™ Hotel | | |
| | |
| Held for Development and/or Construction in Progress | | |
Solana Beach Corporate CentreLa Jolla Commons – Land | | |
Solana Beach – Highway 101Crossing – Land | | |
Torrey Point – Construction in Progress |
| Lloyd District Portfolio – Construction in Progress | | |
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017March 31, 2020
(Unaudited)
Basis of Presentation
Our consolidated financial statements include the accounts of the Company, our Operating Partnership and our subsidiaries. The equity interests of other investors in our Operating Partnership are reflected as noncontrolling interests.
All significant intercompany transactions and balances are eliminated in consolidation.
The accompanying consolidated financial statements of the Company and the Operating Partnership have been prepared in accordance with the rules applicable to Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (“GAAP”) for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and notes therein included in the Company's and Operating Partnership's annual report on Form 10-K for the year ended December 31, 2016.2019.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using our best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.
Any reference to the number of properties, number of units, square footage, employee numbers or percentages of beneficial ownership of our shares are unaudited and outside the scope of our independent registered public accounting firm’s review of our financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.
Consolidated Statements of Cash Flows—Supplemental Disclosures
The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows (in thousands):
| | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2020 | | 2019 |
| Supplemental cash flow information | | | | |
| Total interest costs incurred | | $ | 13,736 | | | $ | 13,534 | |
| Interest capitalized | | $ | 264 | | | $ | 185 | |
| Interest expense | | $ | 13,472 | | | $ | 13,349 | |
| Cash paid for interest, net of amounts capitalized | | $ | 15,043 | | | $ | 13,301 | |
| Cash paid for income taxes | | $ | 51 | | | $ | 157 | |
| Supplemental schedule of noncash investing and financing activities | | | | | | |
| Accounts payable and accrued liabilities for construction in progress | | $ | 16,541 | | | $ | 12,838 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Accrued leasing commissions | | $ | 2,083 | | | $ | 663 | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| Supplemental cash flow information | | | |
| Total interest costs incurred | $ | 41,009 |
| | $ | 40,368 |
|
| Interest capitalized | $ | 1,153 |
| | $ | 1,220 |
|
| Interest expense | $ | 39,856 |
| | $ | 39,148 |
|
| Cash paid for interest, net of amounts capitalized | $ | 33,720 |
| | $ | 36,070 |
|
| Cash paid for income taxes | $ | 296 |
| | $ | 459 |
|
| Supplemental schedule of noncash investing and financing activities | |
| | |
|
| Accounts payable and accrued liabilities for construction in progress | $ | (3,019 | ) | | $ | (471 | ) |
| Accrued leasing commissions | $ | 1,410 |
| | $ | 275 |
|
| Reduction to capital for prepaid offering costs | $ | 129 |
| | $ | — |
|
Significant Accounting Policies
We describe our significant accounting policies in Note 1 to the consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016.2019. Except for the adoption of the accounting standards during the first quarter of 20172020 as discussed below, there have been no changes to our significant accounting policies during the ninethree months ended September 30, 2017.March 31, 2020.
Segment Information
Segment information is prepared on the same basis that our chief operating decision maker reviews information for operational decision-making purposes. We operate in four4 business segments: the acquisition, redevelopment, ownership and management of retail real estate, office real estate, multifamily real estate and mixed-use real estate. The products for our retail segment primarily include rental of retail space and other tenant services, including tenant reimbursements, parking and storage
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
space rental. The products for our office segment primarily include rental of office space and other tenant services, including
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
tenant reimbursements, parking and storage space rental. The products for our multifamily segment include rental of apartments and other tenant services. The products of our mixed-use segment include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space rental and operation of a 369-room369-room all-suite hotel.
Recent Accounting Pronouncements
In January 2017,June 2016, the FASBFinancial Accounting Standards Board (the "FASB") issued Accounting Standards Update (“ASU”("ASU") No. 2017-1, Business Combinations: Clarifying the Definition of a Business. The pronouncement changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business.2016-13, Financial Instruments - Credit Topics. The pronouncement requires an entitycompanies to evaluate if substantially alladopt a new approach to estimating credit losses on certain types of financial instruments, such as trade and other receivables and loans. The standard requires entities to estimate a lifetime expected credit loss for most financial instruments, including trade receivables. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Companypronouncement. We adopted the provisions of ASU 2017-01No. 2016-13 effective January 1, 2017. For the period from January 1, 2017 through September 30, 2017, the Company acquired three properties for which we concluded that substantially all of the fair value of the assets acquired were concentrated in a single identifiable asset and that the assets therefore did not meet the definition of a business under ASU 2017-01. Acquisition transaction costs associated with these property acquisitions were approximately $0.2 million and were capitalized to real estate investments.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash. This pronouncement will require companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The pronouncement will require a disclosure of a reconciliation between the statement of financial position and the statement of cash flows when the balance sheet includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. Entities with material restricted cash and restricted cash equivalents balances will be required to disclose the nature of the restrictions. The ASU is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented. As of September 30, 2017 and December 31, 2016 , we had $10.1 million and $10.0 million of restricted cash, respectively, on our consolidated balance sheets. Upon adoption of this ASU, restricted cash balances will be included along with cash and cash equivalents as of the end of period and beginning of period, respectively, on our consolidated statement of cash flows for all periods presented; separate line items showing changes in restricted cash balances will be eliminated from our consolidated statement of cash flows.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC 718, Compensation – Stock Compensation. This pronouncement simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted ASU 2016-09 in the first quarter of 20172020 and the adoption did not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued an ASU that establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. The accounting applied by lessors under this ASU is largely unchanged. Leases will be either classifiedfinancials statements as sales-type, finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU also requires significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. The ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are in the process of evaluating the impact this pronouncement will have on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The pronouncement was issued to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and International Financial Reporting Standards. The pronouncement is effective for fiscal years beginning after December 15, 2017. The Company will adopt ASU 2014-09 in the first quarter of 2018 using the modified retrospective approach. We have begun our process for implementing this standard, including performing a preliminary review of all revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. As of September 30,
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
2017, we have completed our assessment of the impact of this pronouncement for revenue generated from our Multifamily segment. The majority of revenue from our Multifamily segment is generated from leases that are specifically excluded from ASC 606. Additionally, we do not believe that ASC 606 will impact the amount or timing of revenue recognition for other revenue types generated from the Multifamily segment. We are continuing to evaluate this standard for revenue streams for our other segments and the allowable methods of adoption; however, the majority of our revenuereceivables are derived from these other segments also consists of rental income from leasing arrangements, whichoperating leases and are excluded from this standard. As the Company progresses further in its analysis, the scope of this assessment could be expanded to include other contract elements that could have an accounting impact under the new standard. The Company is also continuing to assess the potential effect that this new standard is expected to have on our consolidated financial statements as it relates to our leasing arrangements with our tenants and in concert with our assessment and anticipated adoption of the new leasing guidance under ASU 2016-02, Leases (see above). The ultimate impacts are currently unknown or not reasonably estimable at this time. The Company continues to evaluate other areas of the standard and is currently assessing the impact on its consolidated financial statements and notes to its consolidated financial statements and cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.
NOTE 2. REAL ESTATE
Property Asset Acquisitions
On April 28, 2017, we acquired the Pacific Ridge Apartments, a 533 unit luxury apartment community located in San Diego, California. The purchase price was approximately $232 million, excluding closing costs of approximately $0.1 million.
On July 6, 2017, we acquired Gateway Marketplace, an approximately 128,000 square feet dual-grocery anchored shopping center located in Chula Vista, California. The purchase price was approximately $42 million, excluding closing costs of approximately $0.1 million.
The properties were acquired with cash on hand and borrowings under our Amended and Restated Credit Agreement (as defined herein).
The financial information set forth below summarizes the Company’s purchase price allocations for the Pacific Ridge Apartments and Gateway Marketplace during the nine months ended September 30, 2017 (in thousands):
|
| | | | | | |
| | Pacific Ridge Apartments | Gateway Marketplace |
| Land | $ | 47,972 |
| $ | 17,363 |
|
| Building | 171,813 |
| 19,192 |
|
| Land improvements | 3,403 |
| 1,522 |
|
| Furniture, fixtures, and equipment | 3,281 |
| 930 |
|
| Total real estate | 226,469 |
| 39,007 |
|
| Lease intangibles | 5,592 |
| 2,920 |
|
| Prepaid expenses and other assets | 424 |
| — |
|
| Assets acquired | $ | 232,485 |
| $ | 41,927 |
|
| Accounts payable and accrued expenses | $ | 74 |
| $ | 203 |
|
| Security deposits payable | 673 |
| 22 |
|
| Other liabilities and deferred credits | 49 |
| 1,034 |
|
| Liabilities assumed | $ | 796 |
| $ | 1,259 |
|
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
The following table summarizes the operating results for the Pacific Ridge Apartments and Gateway Marketplace included in the Company’s historical consolidated statement of operations for the period of acquisition through September 30, 2017 (in thousands):
|
| | | | | | | | | |
| | Pacific Ridge Apartments | Gateway Marketplace | Total |
| Revenues | $ | 6,884 |
| $ | 806 |
| $ | 7,690 |
|
| Operating expenses | $ | 11,813 |
| $ | 499 |
| $ | 12,312 |
|
| Operating (loss) income | $ | (4,929 | ) | $ | 307 |
| $ | (4,622 | ) |
| Net (loss) income attributable to American Assets Trust, Inc. | $ | (4,929 | ) | $ | 307 |
| $ | (4,622 | ) |
NOTE 3. ACQUIRED IN-PLACE LEASES AND ABOVE/BELOW MARKET LEASES
The following summarizes our acquired lease intangibles and leasing costs, which are included in other assets and other liabilities and deferred credits, as of September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
| In-place leases | $ | 63,657 | | | $ | 63,896 | |
| Accumulated amortization | (33,876) | | | (32,672) | |
| Above market leases | 7,534 | | | 7,534 | |
| Accumulated amortization | (7,373) | | | (7,351) | |
| Acquired lease intangible assets, net | $ | 29,942 | | | $ | 31,407 | |
| Below market leases | $ | 62,126 | | | $ | 62,126 | |
| Accumulated accretion | (37,643) | | | (36,674) | |
| Acquired lease intangible liabilities, net | $ | 24,483 | | | $ | 25,452 | |
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| In-place leases | $ | 54,206 |
| | $ | 48,741 |
|
| Accumulated amortization | (45,154 | ) | | (38,906 | ) |
| Above market leases | 21,262 |
| | 21,667 |
|
| Accumulated amortization | (19,854 | ) | | (19,579 | ) |
| Acquired lease intangible assets, net | $ | 10,460 |
| | $ | 11,923 |
|
| Below market leases | $ | 67,423 |
| | $ | 66,521 |
|
| Accumulated accretion | (36,252 | ) | | (33,073 | ) |
| Acquired lease intangible liabilities, net | $ | 31,171 |
| | $ | 33,448 |
|
NOTE 4.3. FAIR VALUE OF FINANCIAL INSTRUMENTS
A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy for inputs used in measuring fair value is as follows:
| |
1. | Level 1 Inputs—quoted prices in active markets for identical assets or liabilities |
| |
2. | Level 2 Inputs—observable inputs other than quoted prices in active markets for identical assets and liabilities |
| |
3. | Level 3 Inputs—unobservable inputs |
1.Level 1 Inputs—quoted prices in active markets for identical assets or liabilities
2.Level 2 Inputs—observable inputs other than quoted prices in active markets for identical assets and liabilities
3.Level 3 Inputs—unobservable inputs
Except as disclosed below, the carrying amounts of our financial instruments approximate their fair value. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
We measure the fair value of our deferred compensation liability, which is included in other liabilities and deferred credits on the consolidated balance sheet, on a recurring basis using Level 2 inputs. We measure the fair value of this liability based on prices provided by independent market participants that are based on observable inputs using market-based valuation techniques.
The fair value of the interest rate swap agreements are based on the estimated amounts we would receive or pay to terminate the contract at the reporting date and are determined using interest rate pricing models and interest rate related
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
observable inputs. The effective portion of changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income (loss) and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contractcontracts for the effect of non-performance risk, we considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2017March 31, 2020 we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative position and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivative. As a result, we have determined that our derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.
A summary of our financial liabilities that are measured at fair value on a recurring basis, by level within the fair value hierarchy is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | | | | December 31, 2019 | | | |
| | Level 1 | Level 2 | Level 3 | Total | | Level 1 | Level 2 | Level 3 | Total |
| Deferred compensation liability | $ | — | | $ | 1,726 | | $ | — | | $ | 1,726 | | | $ | — | | $ | 1,669 | | $ | — | | $ | 1,669 | |
| Interest rate swap asset | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | 434 | | $ | — | | $ | 434 | |
| Interest rate swap liability | $ | — | | $ | 6,997 | | $ | — | | $ | 6,997 | | | $ | — | | $ | 1,317 | | $ | — | | $ | 1,317 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Level 1 | Level 2 | Level 3 | Total | | Level 1 | Level 2 | Level 3 | Total |
| Deferred compensation liability | $ | — |
| $ | 1,158 |
| $ | — |
| $ | 1,158 |
| | $ | — |
| $ | 1,006 |
| $ | — |
| $ | 1,006 |
|
| Interest rate swap asset | $ | — |
| $ | 3,624 |
| $ | — |
| $ | 3,624 |
| | $ | — |
| $ | 16,428 |
| $ | — |
| $ | 16,428 |
|
| Interest rate swap liability | $ | — |
| $ | 358 |
| $ | — |
| $ | 358 |
| | $ | — |
| $ | 1,067 |
| $ | — |
| $ | 1,067 |
|
The fair value of our secured notes payable and unsecured senior guaranteed notes are sensitive to fluctuations in interest rates. Discounted cash flow analysis using observable market interest rates (Level 2) is generally used to estimate the fair value of our secured notes payable, using rates ranging from 3.8%2.3% to 4.5%4.0%.
Considerable judgment is necessary to estimate the fair value of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. The carrying values of our revolving line of credit and term loan set forth below are deemed to be at fair value since the outstanding debt is directly tied to monthly LIBOR contracts. A summary of the carrying amount and fair value of our secured financial instruments, all of which are based on Level 2 inputs, is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | | | December 31, 2019 | | |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Secured notes payable, net | $ | 110,892 | | | $ | 111,750 | | | $ | 161,879 | | | $ | 166,885 | |
| Unsecured term loans, net | $ | 248,988 | | | $ | 250,000 | | | $ | 248,864 | | | $ | 250,000 | |
| Unsecured senior guaranteed notes, net | $ | 947,048 | | | $ | 1,036,521 | | | $ | 946,916 | | | $ | 975,291 | |
| Unsecured line of credit | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Secured notes payable, net | $ | 279,867 |
| | $ | 287,361 |
| | $ | 445,180 |
| | $ | 457,621 |
|
| Unsecured term loans, net | $ | 248,555 |
| | $ | 250,000 |
| | $ | 247,883 |
| | $ | 250,000 |
|
| Unsecured senior guaranteed notes, net | $ | 796,379 |
| | $ | 808,384 |
| | $ | 348,467 |
| | $ | 351,357 |
|
| Unsecured line of credit | $ | — |
| | $ | — |
| | $ | 20,000 |
| | $ | 20,000 |
|
NOTE 5.4. DERIVATIVE AND HEDGING ACTIVITIES
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
On March 29, 2016,June 20, 2019, we entered into a forward-starting interest rate swaptreasury lock contract (the "March 2016 Swap""June 2019 Treasury Lock") with Wells Fargo Bank, National Association,N.A., to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective new ten-year private placement. The forward-starting ten-year swap contract had a notional amount of $150 million, a termination date of March 31, 2027, a fixed pay rate of 1.8800%, and a receive rate equal to the three-month LIBOR, with fixed rate payments due semi-annually commencing September 29, 2017, floating payments due semi-annually commencing September 29, 2017, and floating reset dates the first day of each quarterly period. The forward-starting ten-year swap contract accrual period, March 31, 2017 to March 31, 2027, was designed to match the expected tenor of the then prospective new ten-year debt private placement.
On April 7, 2016, we entered into a forward-starting interest rate swap contract (the "April 2016 Swap") with Wells Fargo Bank, National Association, to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective new ten-year private placement. The forward-starting ten-year swap contract had a notional amount of $100 million, a termination date of March 31, 2027, a fixed pay rate of 1.7480%, and a receive rate equal to the three-month LIBOR, with fixed rate payments due semi-annually commencing September 29, 2017, floating payments due semi-annually commencing September 29, 2017, and floating reset dates the first day of each quarterly period. The forward-starting ten-year swap contract accrual period, March 31, 2017 to March 31, 2027, was designed to match the expected tenor of our then prospective new ten-year debt private placement.
On January 18, 2017, we settled the March 2016 Swap and April 2016 Swap, resulting in a gain of approximately $10.4 million. This gain is included in accumulated other comprehensive income and will be amortized to interest expense over the life of the Series D Notes (as defined below). The forward-starting interest rate swap contracts have been deemed to be highly effective cash flow hedges and we elected to designate all the forward-starting swap contracts as accounting hedges.
On April 25, 2017, we entered into a treasury lock contract (the "April 2017 Treasury Lock") with Bank of America, National Association, to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective new twelve-yeareleven-year private placement. The treasury lock contract hadhas a notional amount of $100 million, termination date of May 18, 2017,July 31, 2019, a fixed pay rate of 2.313%1.9925%, and a receive rate equal to the ten-yearten years treasury rate on the settlement date.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
On May 11, 2017,July 17, 2019, we settled the April 2017June 2019 Treasury Lock, resulting in a gain of approximately $0.7 million. This gain$0.5 million, which is included in accumulated other comprehensive income and will be amortized to interest expense over ten years. The treasury lock contract has been deemed to be a highly effective cash flow hedge and we elected to designate the treasury lock contract as an accounting hedge.
On May 31, 2017, we entered into a treasury lock contract (the "May 2017 Treasury Lock") with Bank of America, National Association, to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective new seven-year private placement. The treasury lock contract had a notional amount of $100 million, termination date of July 26, 2017, a fixed pay rate of 2.064%, and a receive rate equal to the seven-year treasury rate on the settlement date.
On June 23, 2017, we settled the May 2017 Treasury Lock, resulting in a loss of approximately $0.5 million. This loss is included in accumulated other comprehensive income and will be amortized to interest expense over seven years. The treasury lock contract has been deemed to be a highly effective cash flow hedge and we elected to designate the treasury lock contract as an accounting hedge.
The following is a summary of the terms of our outstanding interest rate swaps as of September 30, 2017March 31, 2020 (dollars in thousands):
| | | Swap Counterparty | | Notional Amount | | Effective Date | | Maturity Date | | Fair Value | Swap Counterparty | | Notional Amount | | Effective Date | | Maturity Date | | Fair Value |
| Bank of America, N.A. | | $ | 100,000 |
| | 1/9/2014 | | 1/9/2019 | | $ | (358 | ) | Bank of America, N.A. | | $ | 100,000 | | | 1/9/2019 | | 1/9/2021 | | $ | (1,964) | |
| U.S. Bank N.A. | | $ | 100,000 |
| | 3/1/2016 | | 3/1/2023 | | $ | 2,396 |
| U.S. Bank N.A. | | $ | 100,000 | | | 3/1/2016 | | 3/1/2023 | | $ | (3,366) | |
| Wells Fargo Bank, N.A. | | $ | 50,000 |
| | 5/2/2016 | | 3/1/2023 | | $ | 1,228 |
| Wells Fargo Bank, N.A. | | $ | 50,000 | | | 5/2/2016 | | 3/1/2023 | | $ | (1,667) | |
The effective portion of changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings for as long as hedged cash flows remain probable.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes During the next twelve months, we estimate that $1.3 million will be reclassified as a decrease to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
interest expense.
The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, counter party credit risk and uses observable market-based inputs, including interest rate curves, and implied volatilities. The fair value of the interest rate swap is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
NOTE 6.5. OTHER ASSETS
Other assets consist of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
| Leasing commissions, net of accumulated amortization of $32,180 and $30,775, respectively | $ | 42,782 | | | $ | 42,539 | |
| Interest rate swap asset | — | | | 434 | |
| Acquired above market leases, net | 161 | | | 183 | |
| Acquired in-place leases, net | 29,781 | | | 31,224 | |
| Lease incentives, net of accumulated amortization of $623 and $565, respectively | 1,760 | | | 2,603 | |
| Other intangible assets, net of accumulated amortization of $1,113 and $1,031, respectively | 2,809 | | | 2,893 | |
| Debt issuance costs, net of accumulated amortization of $916 and $814, respectively | 1,154 | | | 1,256 | |
| | | |
| Right-of-use lease asset, net | 26,338 | | | 4,863 | |
| Prepaid expenses and other | 7,513 | | | 7,225 | |
| Total other assets | $ | 112,298 | | | $ | 93,220 | |
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| Leasing commissions, net of accumulated amortization of $27,376 and $25,194, respectively | $ | 21,194 |
| | $ | 18,131 |
|
| Interest rate swap asset | 3,624 |
| | 16,428 |
|
| Acquired above market leases, net | 1,408 |
| | 2,088 |
|
| Acquired in-place leases, net | 9,052 |
| | 9,835 |
|
| Lease incentives, net of accumulated amortization of $100 and $41, respectively | 885 |
| | 313 |
|
| Other intangible assets, net of accumulated amortization of $1,102 and $1,128, respectively | 240 |
| | 206 |
|
| Prepaid expenses and other | 5,775 |
| | 5,853 |
|
| Total other assets | $ | 42,178 |
| | $ | 52,854 |
|
American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
NOTE 7.6. OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits consist of the following (in thousands):
| | | | September 30, 2017 | | December 31, 2016 | | March 31, 2020 | | December 31, 2019 |
| Acquired below market leases, net | $ | 31,171 |
| | $ | 33,448 |
| Acquired below market leases, net | $ | 24,483 | | | $ | 25,452 | |
| Prepaid rent and deferred revenue | 9,450 |
| | 7,720 |
| Prepaid rent and deferred revenue | 13,311 | | | 16,969 | |
| Interest rate swap liability | 358 |
| | 1,067 |
| Interest rate swap liability | 6,997 | | | 1,317 | |
| Deferred rent expense and lease intangible | 1,716 |
| | 1,756 |
| Deferred rent expense and lease intangible | 25 | | | 28 | |
| Deferred compensation | 1,158 |
| | 1,006 |
| Deferred compensation | 1,726 | | | 1,669 | |
| Deferred tax liability | 201 |
| | 265 |
| Deferred tax liability | 332 | | | 332 | |
| Straight-line rent liability | 3,309 |
| | 3,028 |
| Straight-line rent liability | 18,848 | | | 16,903 | |
| Lease liability | | Lease liability | 26,781 | | | 5,380 | |
| Other liabilities | 60 |
| | 47 |
| Other liabilities | 39 | | | 60 | |
| Total other liabilities and deferred credits, net | $ | 47,423 |
| | $ | 48,337 |
| Total other liabilities and deferred credits, net | $ | 92,542 | | | $ | 68,110 | |
Straight-line rent liability relates to leases which have rental payments that decrease over time or one-time upfront payments for which the rental revenue is deferred and recognized on a straight-line basis.
NOTE 8.7. DEBT
Debt of American Assets Trust, Inc.
American Assets Trust, Inc. does not hold any indebtedness. All debt is held directly or indirectly by the Operating Partnership; however, American Assets Trust, Inc. and certain of its subsidiaries havehas guaranteed the Operating Partnership's obligations under the (i) amended and restated credit facility, (ii) term loanloans, and (iii) senior guaranteed notes. Additionally, American Assets Trust, Inc. has provided carve-out guarantees on certain property-level mortgage debt.
Debt of American Assets Trust, L.P.
Secured notes payable
The following is a summary of our total secured notes payable outstanding as of March 31, 2020 and December 31, 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Principal Balance as of | | | | Stated Interest Rate | | Stated Maturity Date |
| Description of Debt | March 31, 2020 | | December 31, 2019 | | as of March 31, 2020 | | |
Torrey Reserve—VCI, VCII, VCIII (1)(2) | — | | | 6,498 | | | 6.36 | % | | June 1, 2020 |
Solana Crossing I-II (1)(2) | — | | | 10,270 | | | 5.91 | % | | June 1, 2020 |
Solana Beach Towne Centre (1)(2) | — | | | 34,235 | | | 5.91 | % | | June 1, 2020 |
City Center Bellevue (3) | 111,000 | | | 111,000 | | | 3.98 | % | | November 1, 2022 |
| 111,000 | | | 162,003 | | | | | |
| | | | | | | |
| Debt issuance costs, net of accumulated amortization of $313 and $449, respectively | (108) | | | (124) | | | | | |
| Total Secured Notes Payable Outstanding | $ | 110,892 | | | $ | 161,879 | | | | | |
(1)Loan repaid in full, without premium or penalty, on March 2, 2020.
(2)Principal payments based on a 30-year amortization schedule.
(3)Interest only.
Certain loans require us to comply with various financial covenants. As of March 31, 2020, the Operating Partnership was in compliance with these financial covenants.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017March 31, 2020
(Unaudited)
Debt of American Assets Trust, L.P.
Secured notes payable
The following is a summary of our total secured notes payable outstanding as of September 30, 2017 and December 31, 2016 (in thousands):
|
| | | | | | | | | | | | |
| | Principal Balance as of | | Stated Interest Rate | | Stated Maturity Date |
| Description of Debt | September 30, 2017 | | December 31, 2016 | | as of September 30, 2017 |
Waikiki Beach Walk—Retail (1)(2) | $ | — |
| | $ | 130,310 |
| | 5.39 | % | | July 1, 2017 |
Solana Beach Corporate Centre III-IV (3)(4) | — |
| | 35,440 |
| | 6.39 | % | | August 1, 2017 |
Loma Palisades (1) | 73,744 |
| | 73,744 |
| | 6.09 | % | | July 1, 2018 |
One Beach Street (1) | 21,900 |
| | 21,900 |
| | 3.94 | % | | April 1, 2019 |
Torrey Reserve—North Court (3) | 20,120 |
| | 20,399 |
| | 7.22 | % | | June 1, 2019 |
Torrey Reserve—VCI, VCII, VCIII (3) | 6,795 |
| | 6,884 |
| | 6.36 | % | | June 1, 2020 |
Solana Beach Corporate Centre I-II (3) | 10,774 |
| | 10,927 |
| | 5.91 | % | | June 1, 2020 |
Solana Beach Towne Centre (3) | 35,914 |
| | 36,424 |
| | 5.91 | % | | June 1, 2020 |
City Center Bellevue (1) | 111,000 |
| | 111,000 |
| | 3.98 | % | | November 1, 2022 |
| | 280,247 |
| | 447,028 |
| | | | |
| Unamortized fair value adjustment | — |
| | (1,347 | ) | | | | |
| Debt issuance costs, net of accumulated amortization of $1,150 and $1,029, respectively | (380 | ) | | (501 | ) | | | | |
| Total Secured Notes Payable Outstanding | $ | 279,867 |
| | $ | 445,180 |
| | | | |
| |
(2) | Loan repaid in full, without premium or penalty, on March 1, 2017. |
| |
(3) | Principal payments based on a 30-year amortization schedule.
|
| |
(4) | Loan repaid in full, without premium or penalty, on April 3, 2017. |
Certain loans require us to comply with various financial covenants. As of September 30, 2017, the Operating Partnership was in compliance with these financial covenants.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
Unsecured notes payable
The following is a summary of the Operating Partnership's total unsecured notes payable outstanding as of September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
| | | Description of Debt | Principal Balance as of | | Stated Interest Rate | | Stated Maturity Date | Description of Debt | Principal Balance as of | | | Stated Interest Rate | | | Stated Maturity Date | |
| September 30, 2017 | | December 31, 2016 | | as of September 30, 2017 | | | March 31, 2020 | | December 31, 2019 | | as of March 31, 2020 | | | |
| Term Loan A | $ | 100,000 |
| | $ | 100,000 |
| | Variable |
| (1) | | January 9, 2019 | (2) | Term Loan A | $ | 100,000 | | | $ | 100,000 | | | Variable | (1) | | January 9, 2021 | |
| Senior Guaranteed Notes, Series A | 150,000 |
| | 150,000 |
| | 4.04 | % | (3) | | October 31, 2021 | | Senior Guaranteed Notes, Series A | 150,000 | | | 150,000 | | | 4.04 | % | (2) | | October 31, 2021 | |
| Term Loan B | 100,000 |
| | 100,000 |
| | Variable |
| (4) | | March 1, 2023 | | Term Loan B | 100,000 | | | 100,000 | | | Variable | | (3) | | March 1, 2023 | |
| Term Loan C | 50,000 |
| | 50,000 |
| | Variable |
| (5) | | March 1, 2023 | | Term Loan C | 50,000 | | | 50,000 | | | Variable | (4) | | March 1, 2023 | |
| Senior Guaranteed Notes, Series F | 100,000 |
| | — |
| | 3.78 | % | (6) | | July 19, 2024 | | Senior Guaranteed Notes, Series F | 100,000 | | | 100,000 | | | 3.78 | % | (5) | | July 19, 2024 | |
| Senior Guaranteed Notes, Series B | 100,000 |
| | 100,000 |
| | 4.45 | % | | February 2, 2025 | | Senior Guaranteed Notes, Series B | 100,000 | | | 100,000 | | | 4.45 | % | | February 2, 2025 | |
| Senior Guaranteed Notes, Series C | 100,000 |
| | 100,000 |
| | 4.50 | % | | April 1, 2025 | | Senior Guaranteed Notes, Series C | 100,000 | | | 100,000 | | | 4.50 | % | | April 1, 2025 | |
| Senior Guaranteed Notes, Series D | 250,000 |
| | — |
| | 4.29 | % | (7) | | March 1, 2027 | | Senior Guaranteed Notes, Series D | 250,000 | | | 250,000 | | | 4.29 | % | (6) | | March 1, 2027 | |
| Senior Guaranteed Notes, Series E | 100,000 |
| | — |
| | 4.24 | % | (8) | | May 23, 2029 | | Senior Guaranteed Notes, Series E | 100,000 | | | 100,000 | | | 4.24 | % | (7) | | May 23, 2029 | |
| Senior Guaranteed Notes, Series G | | Senior Guaranteed Notes, Series G | 150,000 | | | 150,000 | | | 3.91 | % | (8) | | July 30, 2030 | |
| | 1,050,000 |
| | 600,000 |
| | | | | 1,200,000 | | | 1,200,000 | | |
| Debt issuance costs, net of accumulated amortization of $5,473 and $4,317, respectively | (5,066 | ) | | (3,650 | ) | | | | |
| Debt issuance costs, net of accumulated amortization of $8,090 and $7,835, respectively | | Debt issuance costs, net of accumulated amortization of $8,090 and $7,835, respectively | (3,964) | | | (4,220) | | |
| Total Unsecured Notes Payable | $ | 1,044,934 |
| | $ | 596,350 |
| | | | Total Unsecured Notes Payable | $ | 1,196,036 | | | $ | 1,195,780 | | |
| |
(1) | The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan A at approximately 3.08% through its maturity date and extension options, subject to adjustments based on our consolidated leverage ratio. |
| |
(2) | The Operating Partnership has an option to extend the term loan up to one time, with such extension for a 12-month period. The foregoing extension option is exercisable by us subject to the satisfaction of certain conditions. |
| |
(3) | The Operating Partnership entered into a one-month forward-starting seven-year swap contract on August 19, 2014, which was settled on September 19, 2014 at a gain of approximately $1.6 million. The forward-starting seven-year swap contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.88% per annum. |
| |
(4) | The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan B at approximately 3.15% through its maturity date, subject to adjustments based on our consolidated leverage ratio. |
| |
(5) | The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan C at approximately 3.14% through its maturity date, subject to adjustments based on our consolidated leverage ratio.
|
| |
(6) | The Operating Partnership entered into a treasury lock contract on May 31, 2017, which was settled on June 23, 2017 at a loss of approximately $0.5 million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.85% per annum. |
| |
(7) | The Operating Partnership entered into forward-starting interest rate swap contracts on March 29, 2016 and April 7, 2016, which were settled on January 18, 2017 at a gain of approximately $10.4 million. The forward-starting interest swap rate contracts were deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.87% per annum.
|
| |
(8) | The Operating Partnership entered into a treasury lock contract on April 25, 2017, which was settled on May 11, 2017 at a gain of approximately $0.7 million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 4.18% per annum.
|
(1)The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan A at approximately 4.13% through its stated maturity date, subject to adjustments based on our consolidated leverage ratio.
(2)The Operating Partnership entered into a one-month forward-starting seven years swap contract on August 19, 2014, which was settled on September 19, 2014 at a gain of approximately $1.6 million. The forward-starting seven-year swap contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.88% per annum.
(3)The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan B at approximately 3.15% through its maturity date, subject to adjustments based on our consolidated leverage ratio. Effective March 1, 2018, the effective interest rate associated with Term Loan B is approximately 2.65%, subject to adjustments based on our consolidated leverage ratio.
(4)The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan C at approximately 3.14% through its maturity date, subject to adjustments based on our consolidated leverage ratio. Effective March 1, 2018, the effective interest rate associated with Term Loan C is approximately 2.64%, subject to adjustments based on our consolidated leverage ratio.
(5)The Operating Partnership entered into a treasury lock contract on May 31, 2017, which was settled on June 23, 2017 at a loss of approximately $0.5 million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.85% per annum.
(6)The Operating Partnership entered into forward-starting interest rate swap contracts on March 29, 2016 and April 7, 2016, which were settled on January 18, 2017 at a gain of approximately $10.4 million. The forward-starting interest swap rate contracts were deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.87% per annum.
(7)The Operating Partnership entered into a treasury lock contract on April 25, 2017, which was settled on May 11, 2017 at a gain of approximately $0.7 million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 4.18% per annum.
(8)The Operating Partnership entered into a treasury lock contract on June 20, 2019, which was settled on July 17, 2019 at a gain of approximately $0.5 million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.88% per annum.
On March 1, 2017,July 30, 2019, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $250$150 million of 4.29%3.91% Senior Guaranteed Notes, Series D,G, due March 1, 2027July 30, 2030 (the "Series DG Notes"). The Series DG Notes were issued on March 1, 2017 and will pay interest quarterly on the last day of January, April, July and October until their respective maturities.
On May 23, 2017, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $100 million of 4.24% Senior Guaranteed Notes, Series E, due May 23, 2029 (the "Series E Notes"). The Series E Notes were issued on May 23, 201730, 2019 and will pay interest semi-annually on the 23rd30th of MayJuly and NovemberJanuary until their respective maturities.maturity.
On July 19, 2017, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $100 million of 3.78% Senior Guaranteed Notes, Series F, due July 19, 2024 (the "Series F Notes"). The Series F Notes were issued on July 19, 2017 and will pay interest semi-annually on the 31st of January and July until their respective maturities.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
The Operating Partnership may prepay at any time all, or from time to time any part of, the Series DG Notes, Series E Notes, or Series F Notes (as applicable), in an amount not less than 5% of the aggregate principal amount of any series of the Series DG Notes Series E Notes, or Series F Notes (as applicable) then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid plus a Make-Whole Amount (as defined in the applicable Note Purchase Agreements).
Each Note Purchase Agreement for the Series G Notes).
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
The Note Purchase Agreement for the Series G Notes contains a number of customary financial covenants, including, without limitation, tangible net worth thresholds, secured and unsecured leverage ratios and fixed charge coverage ratios. Subject to the terms of the applicable Note Purchase Agreement and eitherfor the Series DG Notes, Series E Notes, or Series F Notes (as applicable), upon certain events of default, including, but not limited to, (i) a default in the payment of any principal, Make-Whole Amount or interest under the Series DG Notes, Series E Notes, and Series F Notes (as applicable), and (ii) a default in the payment of certain other indebtedness of the Operating Partnership, the Company or their subsidiaries, the principal and accrued and unpaid interest and the Make-Whole Amount on the outstanding Series DG Notes Series E Notes, and Series F Notes (as applicable) will become due and payable at the option of the Purchasers.Purchasers (as defined in the Note Purchase Agreement for the Series G Notes).
The Operating Partnership’s obligations under the Series D Notes, Series E Notes, and Series FG Notes are fully and unconditionally guaranteed by the Company and certain of their subsidiaries.Company.
Certain loans require us to comply with various financial covenants. As of September 30, 2017,March 31, 2020, the Operating Partnership was in compliance with these financial covenants.
Amended Term Loan Agreement
On January 9, 2018, we entered into the Third Amendment to the Term Loan Agreement (as so amended, the "Term Loan Agreement"), which maintains the seven years $150 million unsecured term loan (referred to herein as Term Loan B and Term Loan C) to the Operating Partnership that matures on March 1, 2023 (the “$150mm Term Loan”). Effective as of March 1, 2018, borrowings under the Term Loan Agreement with respect to the $150mm Term Loan bear interest at floating rates equal to, at the Operating Partnership’s option, either (1) LIBOR, plus a spread which ranges from 1.20% to 1.70% based on the Operating Partnership’s consolidated leverage ratio, or (2) a base rate equal to the highest of (a) 0%, (b) the prime rate, (c) the federal funds rate plus 50 bps or (d) the Eurodollar rate plus 100 bps, in each case plus a spread which ranges from 0.70% to 1.35% based on the Operating Partnership’s consolidated leverage ratio. Additionally, the Operating Partnership may elect for borrowings to bear interest based on a ratings-based pricing grid as per the Operating Partnership’s then-applicable investment grade debt ratings under the terms set forth in the Term Loan Agreement.
Second Amended and Restated Credit Facility
On January 9, 2014, the Operating Partnership2018, we entered into ana second amended and restated credit agreement (the "Amended"Second Amended and Restated Credit Facility") which amended and restated the then in-place credit facility.. The Second Amended and Restated Credit Facility provides for aggregate, unsecured borrowing of $350$450 million, consisting of a revolving line of credit of $250$350 million ("Revolver(the "Revolver Loan") and a term loan of $100 million ("Term(the "Term Loan A"). The Second Amended and Restated Credit Facility has an accordion feature that may allow the Operating Partnershipus to increase the availability thereunder up to an additional $250 million, subject to meeting specified requirements and obtaining additional commitments from lenders. At September 30, 2017,March 31, 2020, there was nowere 0 amounts outstanding balance under the Revolver Loan.Loan and we had incurred approximately $1.2 million of debt issuance costs, net, which are recorded in other assets, net on the consolidated balance sheets.
Borrowings under the Second Amended and Restated Credit FacilityAgreement initially bear interest at floating rates equal to, at our option, either (1) LIBOR, plus a spread which ranges from (a) 1.35%-1.95%1.05% to 1.50% (with respect to the Revolver Loan) and (b) 1.30% to 1.90% (with respect to Term Loan A), in each case based on our consolidated leverage ratio, or (2) a base rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 50 bps or (c) the Eurodollar rateLIBOR plus 100 bps, plus a spread which ranges from (i) 0.35%-0.95%0.10% to 0.50% (with respect to the Revolver Loan) and (ii) 0.30% to 0.90% (with respect to Term Loan A), in each case based on our consolidated leverage ratio.
The Revolver Loan initially matures on January 9, 2018,2022, subject to the Operating Partnership'sour option to extend the Revolver Loan up to two2 times, with each such extension for a six-monthsix months period. Term Loan A initially matures on January 9, 2016, subject to the Operating Partnership's option to extend Term Loan A up to three times, with each such extension for a 12-month period. The foregoing extension options are exercisable by the Operating Partnershipus subject to the satisfaction of certain conditions. Effective as of
On January 9, 2017,2019, we entered into the Operating Partnership exercisedfirst amendment (“First Amendment”) to the second of three options to extendSecond Amended and Restated Credit Facility, which extended the maturity date of Term Loan A to January 9, 2018.2021, subject to 3, one year extension options. Additionally, in connection with the First Amendment, borrowings under the Second Amended and Restated Credit Facility with respect to Term Loan A bear interest at floating rates equal to, at our option, either (1) LIBOR, plus a spread which ranges from 1.20% to 1.70% based on our consolidated total leverage ratio, or (2) a base rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 50 bps or (c) the Eurodollar rate plus 100 bps, in each case plus a spread which ranges from 0.20% to 0.70% based on our consolidated total leverage ratio. The foregoing rates are intended to be more
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
favorable than previously contained in the Second Amended and Restated Credit Facility (prior to entry into the First Amendment) with respect to Term Loan A.
Additionally, the Second Amended and Restated Credit Facility includes a number of customary financial covenants, including:
•A maximum leverage ratio (defined as total indebtedness net of certain cash and cash equivalents to total asset value) of 60%,
•A maximum secured leverage ratio (defined as total secured debt to secured total asset value) of 40%,
•A minimum fixed charge coverage ratio (defined as consolidated earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 1.50x,
•A minimum unsecured interest coverage ratio of 1.75x,
•A maximum unsecured leverage ratio of 60%, and
•Recourse indebtedness at any time cannot exceed 15% of total asset value.
The Second Amended and Restated Credit Facility provides that our annual distributions may not exceed the greater of (1) 95% of our funds from operation ("FFO") or (2) the amount required for us to (a) qualify and maintain our REIT status and (b) avoid the payment of federal or state income or excise tax. If certain events of default exist or would result from a distribution, we may be precluded from making distributions other than those necessary to qualify and maintain our status as a REIT.
As of September 30, 2017,March 31, 2020, the Operating Partnership was in compliance with the financial covenants in the Second Amended and Restated Credit Facility financial covenants.Facility.
NOTE 9.8. PARTNERS' CAPITAL OF AMERICAN ASSETS TRUST, L.P.
Noncontrolling interests in our Operating Partnership are interests in the Operating Partnership that are not owned by us. Noncontrolling interests consisted of 17,194,98016,390,548 common units (the “noncontrolling common units”), and represented approximately 26.8%21.5% of the ownership interests in our Operating Partnership at September 30, 2017.March 31, 2020. Common units and shares of our common stock have essentially the same economic characteristics in that common units and shares of our common stock share equally in the total net income or loss distributions of our Operating Partnership. Investors who own common units have the right to cause our Operating Partnership to redeem any or all of their common units for cash equal to the then-current market value of one share of our common stock, or, at our election, shares of our common stock on a one-for-one1-for-one basis.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
During the ninethree months ended September 30, 2017, 693,842March 31, 2020, 0 common units were converted into shares of our common stock.
Earnings Per Unit of the Operating Partnership
Basic earnings (loss) per unit (“EPU”) of the Operating Partnership is computed by dividing income applicable to unitholders by the weighted average Operating Partnership units outstanding, as adjusted for the effect of participating securities. Operating Partnership units granted in equity-based payment transactions that have non-forfeitable dividend equivalent rights are considered participating securities prior to vesting. The impact of unvested Operating Partnership unit awards on EPU has been calculated using the two-class method whereby earnings are allocated to the unvested Operating Partnership unit awards based on distributions and the unvested Operating Partnership units’ participation rights in undistributed earnings.
The calculation of diluted earnings per unitEPU for the three month periodsmonths ended September 30, 2017March 31, 2020 and 20162019 does not include the weighted average of 231,977345,153 and 169,963333,275 unvested Operating Partnership units, respectively, as these equity securities are either considered contingently issuable or the effect of including these equity securities was anti-dilutive to income from continuing operations and net income attributable to the unitholders. The calculation
American Assets Trust, Inc. and 2016 does not include the weighted average of 232,041 and 171,760 unvested Operating Partnership units, respectively,American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued) March 31, 2020
(Unaudited)
NOTE 10.9. EQUITY OF AMERICAN ASSETS TRUST, INC.
Stockholders' Equity
On May 27, 2015, we entered into an at-the-market ("ATM") equity program with five5 sales agents in which we may, from time to time, offer and sell shares of our common stock having an aggregate offering price of up to $250.0 million. On March 2, 2018, we amended certain of these equity programs, terminated one such program and entered into a new equity program with 1 new sales agent. The sales of shares of our common stock made through the ATM equity program, as amended, are made in "at-the-market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended. During the three and nine months ended September 30, 2017, the followingMarch 31, 2020, no shares of common stock were sold through the ATM equity programs (in thousands, except per share data and share amounts):program. |
| | | | | | | |
| | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| Number of shares of common stock issued through ATM programs | — |
| | 700,000 |
| Weighted average price per share | N/A | | $43.46 |
| | | | |
| Proceeds, gross | $ | — |
| | $ | 30,425 |
|
| Sales agent compensation | — |
| | (304 | ) |
| Offering costs | — |
| | (46 | ) |
| Proceeds, net | $ | — |
| | $ | 30,075 |
|
We intend to use the net proceeds from the ATM equity program to fund our development or redevelopment activities, repay amounts outstanding from time to time under our revolving line of credit or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes. As of September 30, 2017,March 31, 2020, we had the capacity to issue up to an additional $176.2$132.6 million in shares of our common stock under our ATM equity program. Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under the ATM equity program.
Dividends
The following table lists the dividends declared and paid on our shares of common stock and noncontrolling common units during the ninethree months ended September 30, 2017:March 31, 2020:
|
| | | | | | | | |
| Period | | Amount per Share/Unit | | Period Covered | | Dividend Paid Date |
| First Quarter 2017 | | $ | 0.26 |
| | January 1, 2017 to March 31, 2017 | | March 30, 2017 |
| Second Quarter 2017 | | $ | 0.26 |
| | April 1, 2017 to June 30, 2017 | | June 29, 2017 |
| Third Quarter 2017 | | $ | 0.26 |
| | July 1, 2017 to September 30, 2017 | | September 28, 2017 |
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| Period | | Amount per
Share/Unit | | Period Covered | | Dividend Paid Date |
| First Quarter 2020 | | $ | 0.30 | | | January 1, 2020 to March 31, 2020 | | March 26, 2020 |
| | | | | | |
| | | | | | |
Taxability of Dividends
Earnings and profits, which determine the taxability of distributions to stockholders and holders of common units, may differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of revenue recognition and compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation.
Stock-Based Compensation
We follow the FASB guidance related to stock compensation which establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer. The guidance also defines a fair value-based method of accounting for an employee stock option or similar equity instrument.
The following table summarizes the activity of restricted stock awards during the ninethree months ended September 30, 2017:March 31, 2020:
| | | | | | | | | | | |
| Units | | Weighted Average Grant Date Fair Value |
| Nonvested at January 1, 2020 | 345,153 | | | $28.75 |
| Granted | — | | | — | |
| Vested | — | | | — | |
| Forfeited | — | | | — | |
| Nonvested at March 31, 2020 | 345,153 | | | $28.75 |
|
| | | | |
| | Units | | Weighted Average Grant Date Fair Value |
| Nonvested at January 1, 2017 | 232,765 |
| | $31.24 |
| Granted | 4,880 |
| | $40.99 |
| Vested | (4,900 | ) | | $40.81 |
| Forfeited | (768 | ) | | $30.62 |
| Nonvested at September 30, 2017 | 231,977 |
| | $31.25 |
We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $0.6$1.3 million and $1.1 million in noncash compensation expense for each of the three monththree-month periods ended September 30, 2017March 31, 2020 and 2016,2019, respectively, which is included in general and administrative expense on the consolidated statements of comprehensive income. We recognized $1.9 million in noncash compensation expenses for the nine months ended September 30, 2017 and 2016. Unrecognized compensation expense was $2.0$5.9 million at September 30, 2017.March 31, 2020.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
Earnings Per Share
We have calculated earnings per share (“EPS”) under the two-class method. The two-class method is an earnings allocation methodology whereby EPS for each class of common stock and participating security is calculated according to dividends declared and participation rights in undistributed earnings. The weighted average unvested shares outstanding, which are considered participating securities, were 231,977345,153 and 169,963333,275 for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and 232,041 and 171,760 for the nine months ended September 30, 2017 and 2016,2019, respectively. Therefore, we have allocated our earnings for basic and diluted EPS between common shares and unvested shares as these unvested shares have nonforfeitable dividend equivalent rights.
Diluted EPS is calculated by dividing the net income applicable to common stockholders for the period by the weighted average number of common and dilutive instruments outstanding during the period using the treasury stock method. For the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable. Additionally, the unvested restricted stock awards subject to time vesting are anti-dilutive for all periods presented, and accordingly, have been excluded from the weighted average common shares used to compute diluted EPS.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
The computation of basic and diluted EPS is presented below (dollars in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
| NUMERATOR | | | | | | | |
| Net income | | | | | $ | 15,484 | | | $ | 15,243 | |
| Less: Net income attributable to restricted shares | | | | | (104) | | | (93) | |
| Less: Income from operations attributable to unitholders in the Operating Partnership | | | | | (3,312) | | | (4,055) | |
| | | | | | | |
| Net income attributable to common stockholders—basic | | | | | $ | 12,068 | | | $ | 11,095 | |
| Income from operations attributable to American Assets Trust, Inc. common stockholders—basic | | | | | $ | 12,068 | | | $ | 11,095 | |
| Plus: Income from operations attributable to unitholders in the Operating Partnership | | | | | 3,312 | | | 4,055 | |
| | | | | | | |
| Net income attributable to common stockholders—diluted | | | | | $ | 15,380 | | | $ | 15,150 | |
| DENOMINATOR | | | | | | | |
| Weighted average common shares outstanding—basic | | | | | 59,723,072 | | | 47,004,465 | |
| Effect of dilutive securities—conversion of Operating Partnership units | | | | | 16,390,548 | | | 17,177,608 | |
| Weighted average common shares outstanding—diluted | | | | | 76,113,620 | | | 64,182,073 | |
| | | | | | | |
| Earnings per common share, basic | | | | | $ | 0.20 | | | $ | 0.24 | |
| Earnings per common share, diluted | | | | | $ | 0.20 | | | $ | 0.24 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| NUMERATOR | | | | | | | |
| Net income from operations | $ | 12,505 |
| | $ | 11,858 |
| | $ | 30,401 |
| | $ | 33,229 |
|
| Less: Net income attributable to restricted shares | (60 | ) | | (42 | ) | | (181 | ) | | (128 | ) |
| Less: Income from operations attributable to unitholders in the Operating Partnership | (3,351 | ) | | (3,342 | ) | | (8,220 | ) | | (9,377 | ) |
| Net income attributable to common stockholders—basic | $ | 9,094 |
| | $ | 8,474 |
| | $ | 22,000 |
| | $ | 23,724 |
|
| Income from operations attributable to American Assets Trust, Inc. common stockholders—basic | $ | 9,094 |
| | $ | 8,474 |
| | $ | 22,000 |
| | $ | 23,724 |
|
| Plus: Income from operations attributable to unitholders in the Operating Partnership | 3,351 |
| | 3,342 |
| | 8,220 |
| | 9,377 |
|
| Net income attributable to common stockholders—diluted | $ | 12,445 |
| | $ | 11,816 |
| | $ | 30,220 |
| | $ | 33,101 |
|
| DENOMINATOR | | | | | | | |
| Weighted average common shares outstanding—basic | 46,898,086 |
| | 45,377,719 |
| | 46,650,403 |
| | 45,282,643 |
|
| Effect of dilutive securities—conversion of Operating Partnership units | 17,194,980 |
| | 17,894,983 |
| | 17,431,294 |
| | 17,897,994 |
|
| Weighted average common shares outstanding—diluted | 64,093,066 |
| | 63,272,702 |
| | 64,081,697 |
| | 63,180,637 |
|
| | | | | | | | |
| Earnings per common share, basic | $ | 0.19 |
| | $ | 0.19 |
| | $ | 0.47 |
| | $ | 0.52 |
|
| Earnings per common share, diluted | $ | 0.19 |
| | $ | 0.19 |
| | $ | 0.47 |
| | $ | 0.52 |
|
NOTE 11.10. INCOME TAXES
We elected to be taxed as a REIT and operate in a manner that allows us to qualify as a REIT for federal income tax purposes commencing with our initial taxable year. As a REIT, we are generally not subject to corporate level income tax on the earnings distributed currently to our stockholders that we derive from our REIT qualifying activities. Taxable income from non-REIT activities managed through our TRS is subject to federal and state income taxes.
We lease our hotel property to a wholly owned TRS that is subject to federal and state income taxes. We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between GAAP carrying amounts and their respective tax bases. Additionally, we classify certain state taxes as income taxes for financial reporting purposes in accordance with ASC Topic 740, Income Taxes.Taxes.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
A deferred tax liability is included in our consolidated balance sheets of $0.2 million and $0.3 million as of September 30, 2017both March 31, 2020 and December 31, 2016, respectively,2019 in relation to real estate asset basis differences of property subject to the Texas margin taxstate taxes based on income and certain prepaid expenses of our TRS.
Income tax expense is recorded in other (expense) income, (expense), net on our consolidated statements of comprehensive income. For the three and nine months ended September 30, 2017,March 31, 2020 and 2019, we recorded income tax expense of $0.2 million and income tax benefit of $0.03 million, respectively. For the three and nine months ended September 30, 2016, we recorded income tax expense of $0.6 million for each period.million.
NOTE 12.11. COMMITMENTS AND CONTINGENCIES
Legal
We are sometimes involved in various disputes, lawsuits, warranty claims, environmental, and other matters arising in the ordinary course of business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
We are currently a party to various legal proceedings. We accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate than any other amount, the minimum within the range is accrued. Legal fees related to litigation are expensed as incurred. We do not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse effect on our financial position or overall trends in results of operations; however, litigation is subject to inherent uncertainties. Also, under our leases, tenants are typically obligated to indemnify us from and against all liabilities, costs and expenses imposed upon or asserted against us as owner of the properties due to certain matters relating to the operation of the properties by the tenant.
Commitments
At The Landmark at One Market, we lease (the "Annex Lease"),See Footnote 12 for description of our leases, as lessee, a building adjacent to The Landmark under an operating lease effective through June 30, 2021, which we have the option to extend until 2031 by way of twofive-year extension options.lessee.
At Waikiki Beach Walk, we sublease (the "FHB Sublease") a portion of the building of which Quiksilver is currently in possession, under an operating lease effective through December 31, 2021.
Current minimum annual payments under the leases are as follows, as of September 30, 2017 (in thousands):
|
| | | | |
| Year Ending December 31, | | |
| 2017 (three months ending December 31, 2017) | $ | 810 |
| (1) |
| 2018 | 3,274 |
| |
| 2019 | 3,347 |
| |
| 2020 | 3,422 |
| |
| 2021 | 3,460 |
| (2) |
| Thereafter | 24,823 |
| |
| Total | $ | 39,136 |
| |
| |
(1) | Lease payments on the FHB Sublease are based on the stated lease rate of $70,578 through the end of the lease term, December 31, 2021. |
| |
(2) | Lease payments on the Annex Lease will be equal to fair rental value from July 2021 through the end of the options lease term. In the table, we have shown the option lease payments for this period based on the stated rate for the month of June 2021 of $217,744. |
We have management agreements with Outrigger Hotels & Resorts or an affiliate thereof (“Outrigger”) pursuant to which Outrigger manages each of the retail and hotel portions of the Waikiki Beach Walk property. Under the management agreement with Outrigger relating to the retail portion of Waikiki Beach Walk (the “retail management agreement”), we pay Outrigger a monthly management fee of 3.0% of net revenues from the retail portion of Waikiki Beach Walk. Pursuant to the terms of the retail management agreement, if the agreement is terminated in certain instances, including our election not to repair damage or destruction at the property, a condemnation or our failure to make required working capital infusions, we would be obligated to pay Outrigger a termination fee equal to the sum of the management fees paid for the two calendar months immediately preceding the termination date. The retail management agreement may not be terminated by us or by Outrigger without cause. Under our management agreement with Outrigger relating to the hotel portion of Waikiki Beach Walk (the “hotel management agreement”), we pay Outrigger a monthly management fee of 6.0% of the hotel's gross operating profit, as well as 3.0% of the hotel's gross revenues; provided that the aggregate management fee payable to Outrigger for any year shall not exceed 3.5% of the hotel's gross revenues for such fiscal year. Pursuant to the terms of the hotel management agreement, if the agreement is terminated in certain instances, including upon a transfer by us of the hotel or upon a default by us under the hotel management agreement, we would be required to pay a cancellation fee calculated by multiplying (1) the management fees for the previous 12 months by (2) (a) eight,8, if the agreement is terminated in the first 11 years of its term, or (b) four, three, two4, 3, 2 or one,1, if the agreement is terminated in the twelfth, thirteenth, fourteenth or fifteenth year, respectively, of its term. The hotel management agreement may not be terminated by us or by Outrigger without cause.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017March 31, 2020
(Unaudited)
A wholly owned subsidiary of our Operating Partnership, WBW Hotel Lessee LLC, entered into a franchise license agreement with Embassy Suites Franchise LLC, the franchisor of the brand “Embassy Suites™,” to obtain the non-exclusive right to operate the hotel under the Embassy SuitesTM brand for 20 years. The franchise license agreement provides that WBW Hotel Lessee LLC must comply with certain management, operational, record keeping, accounting, reporting and marketing standards and procedures. In connection with this agreement, we are also subject to the terms of a product improvement plan pursuant to which we expect to undertake certain actions to ensure that our hotel's infrastructure is maintained in compliance with the franchisor's brand standards. In addition, we must pay to Embassy Suites Franchise LLC a monthly franchise royalty fee equal to 4.0% of the hotel's gross room revenue through December 2021 and 5.0% of the hotel's gross room revenue thereafter, as well as a monthly program fee equal to 4.0% of the hotel's gross room revenue. If the franchise license is terminated due to our failure to make required improvements or to otherwise comply with its terms, we may be liable to the franchisor for a termination payment, which could be as high as $7.5$7.5 million based on operating performance through September 30, 2017.March 31, 2020.
Our Del Monte Center property has ongoing environmental remediation related to ground water contamination. The environmental issue existed at purchase and remains in remediation. The final stages of the remediation will include routine, long term ground monitoring by the appropriate regulatory agency over the next five years to seven years. The work performed is financed through an escrow account funded by the seller upon purchase of the Del Monte Center. We believe the funds in the escrow account are sufficient for the remaining work to be performed. However, if further work is required costing more than the remaining escrow funds, we could be required to pay such overage, although we may have a contractual claim for such costs against the prior owner or our environmental remediation consultant.
In connection with our initial public offering, we entered into tax protection agreements with certain limited partners of our Operating Partnership. These agreements provide that if we dispose of any interest with respect to Carmel Country Plaza, Carmel Mountain Plaza, Del Monte Center, Loma Palisades, Lomas Santa Fe Plaza, Waikele Center or the Torrey Plaza (formerly ICW Plaza) portion of Torrey Reserve Campus, in a taxable transaction during the period from the closing of our initial public offering through January 19, 2018, we will indemnify such limited partners for their tax liabilities attributable to their share of the built-in gain that existed with respect to such property interest as of the time of our initial public offering and tax liabilities incurred as a result of the reimbursement payment. Subject to certain exceptions and limitations, the indemnification rights will terminate for any such protected partner that sells, exchanges or otherwise disposes of more than 50% of his or her common units. We have no present intention to sell or otherwise dispose of the properties or interest therein in taxable transactions during the restriction period. If we were to trigger the tax protection provisions under these agreements, we would be required to pay damages in the amount of the taxes owed by these limited partners (plus additional damages in the amount of the taxes incurred as a result of such payment).
Concentrations of Credit Risk
Our properties are located in Southern California, Northern California, Hawaii, Oregon, Texas, and Washington. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory and social factors affecting the markets in which the tenants operate. ThirteenNaN of our consolidated properties are located in Southern California, which exposes us to greater economic risks than if we owned a more geographically diverse portfolio. Tenants in the retail industry accounted for 32.7%26.7% of total revenues for the ninethree months ended September 30, 2017.March 31, 2020. This makes us susceptible to demand for retail rental space and subject to the risks associated with an investment in real estate with a concentration of tenants in the retail industry. Furthermore, tenants in the office industry accounted for 33.9%46.0% of total revenues for the ninethree months ended September 30, 2017.March 31, 2020. This makes us susceptible to demand for office rental space and subject to the risks associated with an investment in real estate with a concentration of tenants in the office industry. For the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, no tenant accounted for more than 10% of our total rental revenue.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
NOTE 13. OPERATING12. LEASES
Lessor Operating Leases
We determine if an arrangement is a lease at inception. Our lease agreements are generally for real estate, and the determination of whether such agreements contain leases generally does not require significant estimates or judgments. We lease real estate under operating leases.
Our leases with office, retail, mixed-use and residential tenants are classified as operating leases. Leases at our office and retail properties and the retail portion of our mixed-use property generally range from three years to ten years (certain leases with anchor tenants may be longer), and in addition to minimum rents, usually provide for cost recoveries for the tenant’s share of certain operating costs andcosts. Our leases may also may include variable lease payments in the form of percentage rents based on the tenant’s level of sales achieved.achieved in excess of a breakpoint threshold. Leases on apartments generally range from 7 to 15 months,, with a majority having 12-month lease terms. Rooms at the hotel portion of our mixed-use property are rented on a nightly basis.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
Leases at our office and retail properties and the retail portion of our mixed-use property may contain lease extension options, at our lessee's discretion. The extension options are generally for 3 to 10 years and contain primarily rent at fixed rates or the prevailing market rent. The extension options are generally exercisable 6 to 12 months prior to the expiration of the lease and require the lessee to not be in default of the lease terms.
We attempt to maximize the amount we expect to derive from the underlying real estate property following the end of a lease, to the extent it is not extended. We maintain a proactive leasing and capital improvement program that, combined with the quality and locations of our properties, has made our properties attractive to tenants. However, the residual value of a real estate property is still subject to various market-specific, asset-specific, and tenant-specific risks and characteristics.
As of September 30, 2017,March 31, 2020, minimum future rentals from noncancelable operating leases, before any reserve for uncollectible amounts and assuming no early lease terminations, at our office and retail properties and the retail portion of our mixed-use property are as follows (in thousands):
| | | Year Ending December 31, | | Year Ending December 31, | |
| 2017 (three months ending December 31, 2017) | $ | 43,663 |
| |
| 2018 | 170,293 |
| |
| 2019 | 140,849 |
| |
| 2020 | 117,179 |
| |
| 2020 (nine months ending December 31, 2020) | | 2020 (nine months ending December 31, 2020) | $ | 162,470 | |
| 2021 | 95,218 |
| 2021 | 221,027 | |
| 2022 | | 2022 | 206,536 | |
| 2023 | | 2023 | 186,300 | |
| 2024 | | 2024 | 156,339 | |
| Thereafter | 255,893 |
| Thereafter | 559,024 | |
| Total | $ | 823,095 |
| Total | $ | 1,491,696 | |
The above future minimum rentals exclude residential leases, which typically have a term of 12 months or less, and exclude the hotel, as rooms are rented on a nightly basis.
Lessee Operating Leases
We determine if an arrangement is a lease at inception. Our lease agreements are generally for real estate, and the determination of whether such agreements contain leases generally does not require significant estimates or judgments. We lease real estate under operating leases.
At the Landmark at One Market, we lease, as lessee, a building adjacent to the Landmark at One Market under an operating lease effective through June 30, 2026, which we have the option to extend until 2031 by way of the remaining five years extension option (the "Annex Lease"). The lease payments under the extension option provided for under the Annex Lease will be equal to the fair rental value at the time the extension option is exercised. The extension option is included in the calculation of the right-of-use asset and lease liability as we are reasonably certain of exercising the extension option. In March 2020, we exercised a five years extension option to extend the Annex Lease through June 30, 2026.
At Waikiki Beach Walk, we lease a portion of the building of which Quiksilver is currently in possession, under an operating lease effective through December 31, 2021.
Our lease agreements do not contain any residual value guarantees or material restrictive covenants. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement in determining the present value of lease payments.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
Current annual payments under the operating leases are as follows, as of March 31, 2020 (in thousands):
| | | | | | |
| Year Ending December 31, | | |
| 2020 (nine months ending December 31, 2020) | $ | 2,576 | | |
| 2021 | 3,502 | | |
| 2022 | 2,697 | | |
| 2023 | 2,697 | | |
| 2024 | 2,697 | | |
| Thereafter | 17,533 | | |
| Total lease payments | $ | 31,702 | | |
| Imputed interest | $ | (4,921) | | |
| Present value of lease liability | $ | 26,781 | | |
Lease costs under the operating leases are as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | |
| | | 2020 | | 2019 |
| Operating lease cost | | | $ | 844 | | | $ | 833 | |
| Variable lease cost | | | — | | | — | |
| Sublease income | | | (868) | | | (625) | |
| Total lease (income) cost | | | $ | (24) | | | $ | 208 | |
| | | | | |
| Weighted-average remaining lease term - operating leases (in years) | | | 10.8 | | |
| Weighted-average discount rate - operating leases | | | 3.24 | % | | |
Supplemental cash flow information and non-cash activity related to our operating leases are as follow (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2020 | | 2019 |
| Operating cash flow information: | | | |
| Cash paid for amounts included in the measurement of lease liabilities | $ | 846 | | | $ | 827 | |
| Non-cash activity: | | | |
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 22,188 | | | $ | 7,661 | |
Subleases
At the Landmark at One Market, we (as sublandlord) sublease the Annex Lease building under operating leases effective through December 31, 2029. The subleases contain extension options, subject to our ability to extend the Annex Lease, that can extend the subleases through December 31, 2039 at the fair rental value at the time the extension option is exercised.
At Waikiki Beach Walk, we (as sublandlord) sublease a portion of the building to Quiksilver under an operating lease effective through December 31, 2021.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
NOTE 14.13. COMPONENTS OF RENTAL INCOME AND EXPENSE
The principal components of rental income are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| Lease rental income | | | | | | | |
| Office | | | | | $ | 42,213 | | | $ | 26,148 | |
| Retail | | | | | 24,955 | | | 24,449 | |
| Multifamily | | | | | 11,967 | | | 11,996 | |
| Mixed-use | | | | | 3,932 | | | 3,877 | |
| | | | | | | |
| Percentage rent | | | | | 301 | | | 266 | |
| Hotel revenue | | | | | 8,125 | | | 9,642 | |
| Other | | | | | 577 | | | 453 | |
| Total rental income | | | | | $ | 92,070 | | | $ | 76,831 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Minimum rents | | | | | | | |
| Retail | $ | 19,520 |
| | $ | 18,524 |
| | $ | 56,598 |
| | $ | 55,548 |
|
| Office | 23,494 |
| | 22,458 |
| | 69,829 |
| | 67,427 |
|
| Multifamily | 11,473 |
| | 7,451 |
| | 28,957 |
| | 19,806 |
|
| Mixed-use | 2,671 |
| | 2,650 |
| | 7,813 |
| | 7,962 |
|
| Cost reimbursement | 8,838 |
| | 8,344 |
| | 24,854 |
| | 23,832 |
|
| Percentage rent | 700 |
| | 685 |
| | 1,611 |
| | 1,572 |
|
| Hotel revenue | 11,006 |
| | 11,371 |
| | 30,216 |
| | 30,045 |
|
| Other | 433 |
| | 369 |
| | 1,222 |
| | 1,126 |
|
| Total rental income | $ | 78,135 |
| | $ | 71,852 |
| | $ | 221,100 |
| | $ | 207,318 |
|
Minimum rentsLease rental income include $0.0$2.8 million and $(0.3)$0.2 million for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $(0.3) million for each of the nine month periods ended September 30, 2017 and 2016,2019, respectively, to recognize minimum rentslease rental income on a straight-line basis. In addition, net amortization of above and below market leases included in minimum rentslease rental income were $0.8$0.9 million and $0.9 million for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $2.5 million and $2.6 million for the nine months ended September 30, 2017 and 2016,2019, respectively.
The principal components of rental expenses are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| Rental operating | | | | | $ | 9,882 | | | $ | 8,551 | |
| Hotel operating | | | | | 5,747 | | | 5,973 | |
| Repairs and maintenance | | | | | 4,297 | | | 3,459 | |
| Marketing | | | | | 507 | | | 546 | |
| Rent | | | | | 853 | | | 841 | |
| Hawaii excise tax | | | | | 865 | | | 944 | |
| Management fees | | | | | 417 | | | 482 | |
| Total rental expenses | | | | | $ | 22,568 | | | $ | 20,796 | |
NOTE 14. OTHER INCOME (EXPENSE), NET
The principal components of other expense, net, are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| Interest and investment income | | | | | $ | 312 | | | $ | 7 | |
| Income tax expense | | | | | (206) | | | (236) | |
| Other non-operating income | | | | | 2 | | | — | |
| Total other income (expense), net | | | | | $ | 108 | | | $ | (229) | |
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017March 31, 2020
(Unaudited)
The principal components of rental expenses are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Rental operating | $ | 8,625 |
| | $ | 8,404 |
| | $ | 25,135 |
| | $ | 23,996 |
|
| Hotel operating | 6,233 |
| | 6,158 |
| | 18,530 |
| | 17,744 |
|
| Repairs and maintenance | 3,202 |
| | 3,069 |
| | 8,717 |
| | 8,506 |
|
| Marketing | 506 |
| | 432 |
| | 1,404 |
| | 1,454 |
|
| Rent | 774 |
| | 722 |
| | 2,325 |
| | 2,190 |
|
| Hawaii excise tax | 1,231 |
| | 1,255 |
| | 3,201 |
| | 3,250 |
|
| Management fees | 606 |
| | 551 |
| | 1,565 |
| | 1,494 |
|
| Total rental expenses | $ | 21,177 |
| | $ | 20,591 |
| | $ | 60,877 |
| | $ | 58,634 |
|
NOTE 15. OTHER INCOME, NET
The principal components of other income (expense), net, are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Interest and investment income | $ | 111 |
| | $ | 24 |
| | $ | 371 |
| | $ | 63 |
|
| Income tax benefit (expense) | (210 | ) | | (601 | ) | | 32 |
| | (643 | ) |
| Other non-operating income | — |
| | — |
| | — |
| | 126 |
|
| Total other income (expense), net | $ | (99 | ) | | $ | (577 | ) | | $ | 403 |
| | $ | (454 | ) |
NOTE 16.15. RELATED PARTY TRANSACTIONS
At Torrey Plaza, we previously leased space to InsuranceOn occasion, the Company of the West, a California corporationutilizes aircraft services provided by AAI Aviation, Inc. ("ICW"AAIA"), which is an insurance company majorityentity owned and controlled by Ernest Rady, our Chief Executive Officer, President and Chairman of the Board. Our lease agreement with ICW expired on December 31, 2016. Rental revenue recognized onFor the leases of $1.6 million for the ninethree months ended September 30, 2016 is included in rental income. Additionally,March 31, 2020 and 2019, we maintain a workers' compensation insurance policy with ICW, which was renewed on July 1, 2016incurred approximately $0.0 million and the premium was approximately $0.2 million, respectively, of expenses related to aircraft services of AAIA or reimbursement to Mr. Rady (or the Ernest Rady Trust U/D/T March 13, 1983) for use of the period July 1, 2016 through July 1, 2017. We renewed this policy with ICW during the second quarteraircraft owned by AAIA. These expenses are recorded as general and administrative expenses in our consolidated statements of 2017 and the premium is approximately $0.2 million for the period July 1, 2017 through July 1, 2018.comprehensive income.
The Waikiki Beach Walk entities have a 47.7% investment in WBW CHP LLC, an entity that was formed to, among other things, construct a chilled water plant to provide air conditioning to the property and other adjacent facilities. The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $0.8$0.3 million and $0.7$0.2 million for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively, isare included in rental expenses on the statements of comprehensive income.
On occasion, we utilize aircraft services provided by AAI Aviation, Inc. ("AAIA"), an entity owned and controlled by Ernest Rady, our Chief Executive Officer, President and Chairman of the Board. For each of the nine month periods ended September 30, 2017 and 2016, we incurred approximately $0.1 million of expenses related to aircraft services of AAIA or reimbursement to Mr. Rady (or the Ernest Rady Trust U/D/T March 13, 1983) for use of the aircraft owned by AAIA. These expenses are recorded as general and administrative expenses in our consolidated statements of comprehensive income.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017
(Unaudited)
NOTE 17.16. SEGMENT REPORTING
Segment information is prepared on the same basis that our management reviews information for operational decision-making purposes. We operate in four4 business segments: the acquisition, redevelopment, ownership and management of retail real estate, office real estate, multifamily real estate and mixed-use real estate. The products for our retail segment primarily include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space rental. The products for our office segment primarily include rental of office space and other tenant services, including tenant reimbursements, parking and storage space rental. The products for our multifamily segment include rental of apartments and other tenant services. The products of our mixed-use segment include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space rental and operation of a 369-room369-room all-suite hotel.
We evaluate the performance of our segments based on segment profit, which is defined as property revenue less property expenses. We do not use asset information as a measure to assess performance and make decisions to allocate resources. Therefore, depreciation and amortization expense is not allocated among segments. General and administrative expenses, interest expense, depreciation and amortization expense and other income and expense are not included in segment profit as our internal reporting addresses these items on a corporate level.
Segment profit is not a measure of operating income or cash flows from operating activities as measured by GAAP, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate segment profit in the same manner. We consider segment profit to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of our properties.
The following table represents operating activity within our reportable segments (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Total Retail | | | | | | | |
| Property revenue | $ | 26,547 |
| | $ | 25,064 |
| | $ | 76,292 |
| | $ | 74,316 |
|
| Property expense | (6,934 | ) | | (7,159 | ) | | (20,419 | ) | | (20,203 | ) |
| Segment profit | 19,613 |
| | 17,905 |
| | 55,873 |
| | 54,113 |
|
| Total Office | | | | | | | |
| Property revenue | 26,653 |
| | 25,818 |
| | 79,002 |
| | 76,416 |
|
| Property expense | (7,874 | ) | | (8,146 | ) | | (23,720 | ) | | (23,395 | ) |
| Segment profit | 18,779 |
| | 17,672 |
| | 55,282 |
| | 53,021 |
|
| Total Multifamily | | | | | | | |
| Property revenue | 12,410 |
| | 8,053 |
| | 31,324 |
| | 21,407 |
|
| Property expense | (5,281 | ) | | (3,288 | ) | | (12,574 | ) | | (8,960 | ) |
| Segment profit | 7,129 |
| | 4,765 |
| | 18,750 |
| | 12,447 |
|
| Total Mixed-Use | | | | | | | |
| Property revenue | 16,729 |
| | 17,041 |
| | 46,619 |
| | 46,387 |
|
| Property expense | (9,623 | ) | | (9,394 | ) | | (28,139 | ) | | (26,522 | ) |
| Segment profit | 7,106 |
| | 7,647 |
| | 18,480 |
| | 19,865 |
|
| Total segments’ profit | $ | 52,627 |
| | $ | 47,989 |
| | $ | 148,385 |
| | $ | 139,446 |
|
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
September 30, 2017March 31, 2020
(Unaudited)
The following table represents operating activity within our reportable segments (in thousands):
| | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| Total Office | | | | | | | |
| Property revenue | | | | | $ | 44,509 | | | $ | 27,806 | |
| Property expense | | | | | (11,793) | | | (8,489) | |
| Segment profit | | | | | 32,716 | | | 19,317 | |
| Total Retail | | | | | | | |
| Property revenue | | | | | 25,826 | | | | 29,437 | |
| Property expense | | | | | (7,331) | | | (7,154) | |
| Segment profit | | | | | 18,495 | | | 22,283 | |
| Total Multifamily | | | | | | | |
| Property revenue | | | | | 12,825 | | | 12,899 | |
| Property expense | | | | | (5,510) | | | (5,073) | |
| Segment profit | | | | | 7,315 | | | 7,826 | |
| Total Mixed-Use | | | | | | | |
| Property revenue | | | | | 13,583 | | | 15,177 | |
| Property expense | | | | | (8,979) | | | (9,126) | |
| Segment profit | | | | | 4,604 | | | 6,051 | |
| Total segments’ profit | | | | | $ | 63,130 | | | $ | 55,477 | |
The following table is a reconciliation of segment profit to net income attributable to stockholders (in thousands):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | Three Months Ended March 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | | | 2020 | | 2019 |
| Total segments’ profit | $ | 52,627 |
| | $ | 47,989 |
| | $ | 148,385 |
| | $ | 139,446 |
| Total segments’ profit | | | $ | 63,130 | | | $ | 55,477 | |
| General and administrative | (4,958 | ) | | (4,513 | ) | | (15,171 | ) | | (13,456 | ) | General and administrative | | | (6,820) | | | (6,073) | |
| Depreciation and amortization | (21,192 | ) | | (17,992 | ) | | (63,360 | ) | | (53,159 | ) | Depreciation and amortization | | | (27,462) | | | (20,583) | |
| Interest expense | (13,873 | ) | | (13,049 | ) | | (39,856 | ) | | (39,148 | ) | Interest expense | | | (13,472) | | | (13,349) | |
| Other (expense) income, net | (99 | ) | | (577 | ) | | 403 |
| | (454 | ) | |
| | Other income (expense), net | | Other income (expense), net | | | 108 | | | (229) | |
| | Net income | 12,505 |
| | 11,858 |
| | 30,401 |
| | 33,229 |
| Net income | | | 15,484 | | | 15,243 | |
| Net income attributable to restricted shares | (60 | ) | | (42 | ) | | (181 | ) | | (128 | ) | Net income attributable to restricted shares | | | (104) | | | (93) | |
| Net income attributable to unitholders in the Operating Partnership | (3,351 | ) | | (3,342 | ) | | (8,220 | ) | | (9,377 | ) | Net income attributable to unitholders in the Operating Partnership | | | (3,312) | | | (4,055) | |
| Net income attributable to American Assets Trust, Inc. stockholders | $ | 9,094 |
| | $ | 8,474 |
| | $ | 22,000 |
| | $ | 23,724 |
| Net income attributable to American Assets Trust, Inc. stockholders | | | $ | 12,068 | | | $ | 11,095 | |
The following table shows net real estate and secured note payable balances for each of the segments (in thousands):
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
| Net Real Estate | | | |
| Office | $ | 1,323,207 | | | $ | 1,317,854 | |
| Retail | 620,598 | | | | 624,912 | |
| Multifamily | 398,459 | | | 401,152 | |
| Mixed-Use | 179,305 | | | 179,557 | |
| $ | 2,521,569 | | | $ | 2,523,475 | |
Secured Notes Payable (1) | | | |
| Office | $ | 111,000 | | | $ | 127,768 | |
| Retail | — | | | | 34,235 | |
| | | |
| | | |
| $ | 111,000 | | | $ | 162,003 | |
(1)Excludes debt issuance costs of $0.1 million and $0.1 million for each of the periods ended March 31, 2020 and December 31, 2019, respectively.
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2020
(Unaudited)
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| Net Real Estate | | | |
| Retail | $ | 662,820 |
| | $ | 629,261 |
|
| Office | 811,193 |
| | 813,414 |
|
| Multifamily | 425,771 |
| | 203,014 |
|
| Mixed-Use | 182,062 |
| | 185,857 |
|
| | $ | 2,081,846 |
| | $ | 1,831,546 |
|
Secured Notes Payable (1) | | | |
| Retail | $ | 35,914 |
| | $ | 36,424 |
|
| Office | 170,589 |
| | 206,550 |
|
| Multifamily | 73,744 |
| | 73,744 |
|
| Mixed-Use | — |
| | 130,310 |
|
| | $ | 280,247 |
| | $ | 447,028 |
|
| |
(1) | Excludes unamortized fair market value adjustments and debt issuance costs of $0.4 million and $1.8 million as of September 30, 2017 and December 31, 2016, respectively.
|
Capital expenditures for each segment for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
Capital Expenditures (1) | | | | | | | |
| Office | | | | | $ | 18,200 | | | $ | 16,483 | |
| Retail | | | | | 3,558 | | | | 4,791 | |
| Multifamily | | | | | 1,284 | | | 771 | |
| Mixed-Use | | | | | 883 | | | 392 | |
| | | | | $ | 23,925 | | | $ | 22,437 | |
(1)Capital expenditures represent cash paid for capital expenditures during the period and include leasing commissions paid.
NOTE 17. SUBSEQUENT EVENT
On April 7, 2020, we drew down $100.0 million under the Revolver Loan. As a result of this borrowing, we have $250.0 million of remaining availability under the Revolver Loan. Although we do not have any presently anticipated need for this additional liquidity, we decided to draw this amount, and may draw additional amounts in the future, to ensure future liquidity given the recent significant impact on global financial markets and the economy as a result of the novel coronavirus (“COVID-19”) outbreak. Due to the speed with which the COVID-19 situation is developing, we are not able at this time to estimate the impact of COVID-19 on our consolidated financial statements and related disclosures, but the impact could be material for the remainder of fiscal year 2020 in all business segments and could be material during any future period affected either directly or indirectly by this pandemic. In April 2020, we received a significant amount of rent deferment requests from various tenants and reduced rent collections, primarily within the retail segment, as a result of COVID-19. We are evaluating each tenant rent deferment request on an individual basis, considering a number of factors. Not all rent deferment requests will ultimately result in lease modification agreements.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Capital Expenditures (1) | | | | | | | |
| Retail | $ | 3,803 |
| | $ | 2,203 |
| | $ | 7,849 |
| | $ | 11,867 |
|
| Office | 10,555 |
| | 11,637 |
| | 25,715 |
| | 33,276 |
|
| Multifamily | 1,953 |
| | 213 |
| | 4,521 |
| | 2,032 |
|
| Mixed-Use | 211 |
| | 100 |
| | 414 |
| | 216 |
|
| | $ | 16,522 |
| | $ | 14,153 |
| | $ | 38,499 |
| | $ | 47,391 |
|
| |
(1) | Capital expenditures represent cash paid for capital expenditures during the period and include leasing commissions paid. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. We make statements in this report that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act). In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” 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. Currently, one of the most significant risk factors, is the potential adverse effect of the current COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the company, its tenants and guests, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts the Company, its tenants and guests will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
•the impacts from the COVID-19 outbreak and the actions taken by government authorities and others related thereto, including the ability of our company, our properties and our tenants to operate;
•adverse economic or real estate developments in our markets;
•our failure to generate sufficient cash flows to service our outstanding indebtedness;
•defaults on, early terminations of or non-renewal of leases by tenants, including significant tenants;
•difficulties in identifying properties to acquire and completing acquisitions;
•difficulties in completing dispositions;
•our failure to successfully operate acquired properties and operations;
•our inability to develop or redevelop our properties due to market conditions;
•fluctuations in interest rates and increased operating costs;
•risks related to joint venture arrangements;
•our failure to obtain necessary outside financing;
•on-going litigation;
•general economic conditions;
•financial market fluctuations;
•risks that affect the general retail, office, multifamily and mixed-use environment;
•the competitive environment in which we operate;
•decreased rental rates or increased vacancy rates;
•conflicts of interests with our officers or directors;
•lack or insufficient amounts of insurance;
•environmental uncertainties and risks related to adverse weather conditions and natural disasters;
•other factors affecting the real estate industry generally;
•limitations imposed on our business and our ability to satisfy complex rules in order for us to continue to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes; and
•changes in governmental regulations or interpretations thereof, such as real estate and zoning laws and increases in real property tax rates and taxation of REITs.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors,
new information, data or methods, future events or other changes. For a further discussion of these and other factors, see the section entitled “Item 1A. Risk Factors” contained herein and in our annual report on Form 10-K for the year ended December 31, 2016.2019.
Overview
References to “we,” “our,” “us” and “our company” refer to American Assets Trust, Inc., a Maryland corporation, together with our consolidated subsidiaries, including American Assets Trust, L.P., a Maryland limited partnership, of which we are the sole general partner and which we refer to in this report as our Operating Partnership.
We are a full service, vertically integrated and self-administered REIT that owns, operates, acquires and develops high quality retail, office, multifamily and mixed-use properties in attractive, high-barrier-to-entry markets in Southern California, Northern California, Oregon, Washington, Texas and Hawaii. As of September 30, 2017,March 31, 2020, our portfolio was comprised of twelve retail shopping centers; sevennine office properties; a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center; and six multifamily properties. Additionally, as of September 30, 2017,March 31, 2020, we owned land at fourthree of our properties that we classified as held for development and/or construction in progress. Our core markets include San Diego; the San Francisco Bay Area; Portland, Oregon; Bellevue, Washington; and Oahu, Hawaii. We are a Maryland corporation formed on July 16, 2010 to acquire the entities owning various controlling and noncontrolling interests in real estate assets owned and/or managed by Ernest S. Rady or his affiliates, including the Ernest Rady Trust U/D/T March 13, 1983, or the Rady Trust, and did not have any operating activity until the consummation of our initial public offering on January 19, 2011. Our Company, as the sole general partner of our Operating Partnership, has control of our Operating Partnership and owned 73.2%78.5% of our Operating Partnership as of September 30, 2017.March 31, 2020. Accordingly, we consolidate the assets, liabilities and results of operations of our Operating Partnership.
Acquisitions
On April 28, 2017, we acquired the Pacific Ridge Apartments, a 533 unit, multifamily community, built in 2013 and located in San Diego, California. The purchase price was approximately $232 million, excluding closing costs and prorations. On July 6, 2017, we acquired Gateway Marketplace, an approximately 128,000 square feet dual-grocery anchored shopping center located in Chula Vista, California. The purchase price was approximately $42 million, excluding closing costs and prorations. On September 1, 2017, we acquired the building and related improvements in which Forever 21 and Gold's Gym are currently in tenancy at Del Monte Center for approximately $5.3 million.
These properties were acquired with cash on hand and borrowings under our Amended and Restated Credit Agreement.
Critical Accounting Policies
We identified certain critical accounting policies that affect certain of our more significant estimates and assumptions used in preparing our consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2016.2019. We have not made any material changes to these policies during the periods covered by this report.report, other than those described in Footnote 1.
Same-store
We have provided certain information on a total portfolio, same-store and redevelopment same-store basis. Information provided on a same-store basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared, properties under development, properties classified as held for development and properties classified as discontinued operations. Information provided on a redevelopment same-store basis includes the results of properties undergoing significant redevelopment for the entirety or portion of both periods being compared. Same-store and redevelopment same-store is considered by management to be important measures because they assist in eliminating disparities due to the development, acquisition or disposition of properties during the particular period presented, and thus provides a more consistent performance measure for the comparison of the Company's stabilized and redevelopment properties, as applicable. Additionally, redevelopment same-store is considered by management to be an important measure because it assists in evaluating the timing of the start and stabilization of our redevelopment opportunities and the impact that these redevelopments have in enhancing our operating performance.
While there is judgment surrounding changes in designations, we typically reclassify significant development, redevelopment or expansion properties into same-store properties once they are stabilized. Properties are deemed stabilized typically at the earlier of (i) reaching 90% occupancy or (ii) four quarters following a property's inclusion in operating real estate. We typically remove properties from same-store properties when the development, redevelopment or expansion has or
is expected to have a significant impact on the property's annualized base rent, occupancy and operating income within the
calendar year. Our evaluation of significant impact related to development, redevelopment or expansion activity is based on quantitative and qualitative measures including, but not limited to the following: the total budgeted cost of planned construction activity compared to the property’s annualized base rent, occupancy and property operating income within the calendar year; percentage of development, redevelopment or expansion square footage to total property square footage; and the ability to maintain historic occupancy and rental rates. In consideration of these measures, we generally remove properties from same-store properties when we see a decline in a property's annualized base rent, occupancy and operating income within the calendar year as a direct result of ongoing redevelopment, development or expansion activity. Acquired properties are classified into same-store properties once we have owned such properties for the entirety of comparable period(s) and the properties are not under significant development or expansion.
Below is a summary of our same-store composition for the three and nine months ended September 30, 2017March 31, 2020 and 2016.2019. For the quarterthree months ended September 30, 2017,March 31, 2020, Torrey Reserve Campus and Lloyd District Portfolio were removed from non-same-store properties and classified asPoint was reclassified to same-store properties when compared to the designations for the quarterthree months ended September 30, 2016. These properties were classifiedMarch 31, 2019 as redevelopment same-store propertiesthe entity was placed into operations and became available for occupancy in prior periods, however, as construction activity has ceased and comparable periods of operation are available, redevelopment same-store classification is no longer applicable.August 2018. For the quarter ended September 30, 2017, Pacific Ridge Apartments and Gateway Marketplace were classified as a non-same-store properties as they were acquired on April 28, 2017 and July 6, 2017, respectively.
For the ninethree months ended September 30, 2017, Lloyd District PortfolioMarch 31, 2020, One Beach Street was transferred into same-store properties duereclassified to the completion of development activity at Hassalo on Eighth - Retail, which was completed during the fourth quarter of 2016. For the nine months ended September 30, 2017, Pacific Ridge Apartments and Gateway Marketplace were classified as non-same-store properties as they were acquired on April 28, 2017 and July 6, 2017, respectively, when compared to the designations for the ninethree months ended September 30, 2016.March 31, 2019 due to redevelopment activity to renovate the property. Waikiki Beach Walk Retail and Embassy Suites™ Hotel is classified as a non-same-store property due to spalling repair activity disrupting the hotel portion of the properties operations. Waikele Center is classified as a non-same-store property due to significant redevelopment activity. La Jolla Commons is classified as a non-same-store property, as it was acquired on June 20, 2019.
In our determination of same-store and redevelopment same-store properties for the ninethree months ended September 30, 2017, Torrey Reserve Campus hasMarch 31, 2020, Waikele Center and One Beach Street have been identified as a same-store redevelopment propertyproperties due to significant constructionredevelopment activity. Retail same-store net operating income decreased approximately 21.3% for the three months ended March 31, 2020 compared to the same period in 2019. Retail redevelopment same-store net operating income decreased approximately 17.1% for the three months ended March 31, 2020 compared to the same period in 2019. Office same-store net operating income increased approximately 5.7%33.2% for the ninethree months ended September 30, 2017March 31, 2020 compared to the same period in 2016.2019. Office redevelopment same-store net operating income increased approximately 4.3%28.7% for the ninethree months ended September 30, 2017March 31, 2020 compared to the same period in 2016.2019.
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | |
| 2020 | | 2019 | | | | |
| Same-Store | 24 | | | 24 | | | | | |
| Non-Same-Store | 4 | | | 3 | | | | | |
| Total Properties | 28 | | | 27 | | | | | |
| | | | | | | |
| Redevelopment Same-Store | 26 | | | 25 | | | | | |
| | | | | | | |
| Total Development Properties | 3 | | | 3 | | | | | |
|
| | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Same-Store | 22 |
| | 20 |
| | 21 |
| | 20 |
|
| Non-Same Store | 4 |
| | 4 |
| | 5 |
| | 4 |
|
| Total Properties | 26 |
| | 24 |
| | 26 |
| | 24 |
|
| | | | | | | | |
| Redevelopment Same-Store | N/A |
| | N/A |
| | 22 |
| | 22 |
|
| | | | | | | | |
| Total Development Properties | 4 |
| | 4 |
| | 4 |
| | 4 |
|
Outlook
We seek growth in earnings, funds from operations and cash flows primarily through a combination of the following: growth in our same-store portfolio, growth in our portfolio from property development and redevelopments and expansion of our portfolio through property acquisitions. Our properties are located in some of the nation's most dynamic, high-barrier-to-entry markets primarily in Southern California, Northern California, Oregon, Washington and Hawaii, which allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation, expansion, reconfiguration and/or retenanting. We evaluate our properties on an ongoing basis to identify these types of opportunities.
We intend to opportunistically pursue the development of future phases of Lloyd District Portfolio and La Jolla Commons and the redevelopment of One Beach Street based on, among other things, market conditions and our evaluation of whether such opportunities would generate appropriate risk-adjusted financial returns. Our redevelopment and development opportunities are subject to various factors, including market conditions and may not ultimately come to fruition.
We continue to review acquisition opportunities in our primary markets that would complement our portfolio and provide long-term growth opportunities. Some of our acquisitions do not initially contribute significantly to earnings growth; however,
we believe they provide long-term re-leasing growth, redevelopment opportunities and other strategic opportunities. Any growth from acquisitions is contingent upon our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles. Changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property, as well as our ability to economically finance a property acquisition. Generally, our acquisitions are initially financed by available cash, mortgage loans and/or borrowings under our revolving line of credit, which may be repaid later with funds raised through the issuance of new equity or new long-term debt.
COVID-19
We are closely monitoring the impact of COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our tenants and business partners. We are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Certain states and cities, including where we own properties, have development sites and where our principal place of business is located, have also reacted by instituting quarantines, restrictions on travel, "stay-at-home" orders or “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. The Company cannot predict when restrictions currently in place will expire. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which the Company and our tenants operate. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown.
In addition, we cannot predict the impact that COVID-19 will have on our tenants and other business partners; however, any material effect on these parties could adversely impact us. As of April 27, 2020, we have collected approximately 94% of office rents, 47% of retail rents (including retail component of Waikiki Beach Walk) and 94% of multifamily rents that were due in April 2020. In April 2020, we received a significant amount of rent deferment requests from various tenants, primarily within the retail segment, as a result of COVID-19. We are evaluating each tenant rent deferment request on an individual basis, considering a number of factors. Not all rent deferment requests will ultimately result in lease modification agreements.
We believe the company's financial condition and liquidity are currently strong. Although there is uncertainty related to the anticipated impact of the COVID-19 outbreak on the Company's future results, we believe our efficient business model and ongoing steps we have taken to strengthen our balance sheet has positioned to manage our business through this crisis as it continues to unfold. We continue to manage all aspect of our business including, but not limited to, monitoring the financial health of our tenants, vendors, and other third-party relationships, and developing new opportunities for growth. Due to COVID-19, we cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity. See Part II, Item 1A - “Risk Factors” - “The novel coronavirus (COVID-19) and other possible pandemics and similar outbreaks, could result in material adverse effects on our business, financial position, results of operations and cash flows."
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law to provide widespread emergency relief for the economy and to provide aid to corporations. The CARES Act includes several significant provisions related to taxes, refundable payroll tax credits and deferment of social security payments. We continue to evaluate the relief options available under the CARES Act. We will continue to assess these options, and any subsequent legislation or other relief packages, including the accompanying restrictions on our business, as the pandemic continues to evolve.
Leasing
Our same-store growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in portfolio occupancy. Over the long-term, we believe that the infill nature and strong demographics of our properties provide us with a strategic advantage, allowing us to maintain relatively high occupancy and increase rental rates. We have continued to see signs of improvement for many of our tenants, as well as increased interest from prospective tenants for our spaces. While there can be no assurance that these positive signs will continue due to the direct or indirect affects of the COVID-19 pandemic, we remain cautiously optimistic regarding the improvedlong-term trends we have seen over the past few years.years after the pandemic subsides. We believe the locations of our properties and diverse tenant base mitigate the potentially negative impact of the current economic environment. However, any reduction in our tenants' abilities to pay base rent, including as a result of the COVID-19 pandemic, percentage rent or other charges will adversely affect our financial condition and results of operations.
During the three months ended September 30, 2017,March 31, 2020, we signed 1217 retail leases for a total of 24,71166,426 square feet of retail space including 24,19061,916 square feet of comparable space leases (leases for which there was a prior tenant), at an average rental rate decrease on a cash basis of 1.2%1.8% and an average rental rate increase on a GAAP basis of 8.4%.7.0%, respectively. New retail leases for comparable spaces were signed for 4,785 square feet at an average rental rate decrease on a cash and GAAP basis of 12.3% and 2.5%, respectively. Renewals for comparable retail spaces were signed for 19,4058,794 square feet at an average rental rate decrease on a cash basis of 0.1%6.0% and an average rental rate increase on a GAAP basis of 9.6%.2.5%, respectively. Renewals for comparable retail spaces were signed for 53,122 square feet at an average rental rate decrease on a cash basis of 1.1% and increase on a GAAP basis of 7.8%, respectively. Tenant improvements and incentives were $57.47$22.71 per square foot of retail space for comparable new leases for the three months ended September 30, 2017,March 31, 2020, mainly attributeddue to tenants at Del MonteWaikele Center.
During the three months ended September 30, 2017,March 31, 2020, we signed 2217 office leases for a total of 123,140208,041 square feet of office space including 68,920181,104 square feet of comparable space leases, at an average rental rate increase on a cash and GAAP basis of 10.3%8.4% and 14.5%6.6%, respectively. New office leases for comparable spaces were signed for 20,2537,995 square feet at an average rental rate increase on a cash and GAAP basis of 15.8%6.9% and 26.0%10.4%, respectively. Renewals for comparable office spaces were signed for 48,667173,109 square feet at an average rental rate increase on a cash and GAAP basis of 7.5%8.5% and 8.7%6.4%, respectively. Tenant improvements and incentives were $43.34$32.01 per square foot of office space for comparable new leases for the three months ended September 30, 2017,March 31, 2020, mainly attributed to tenants at City Center Bellevue and One Beach Street.Torrey Reserve Campus.
The rental increases associated with comparable spaces generally include all leases signed in arms-length transactions reflecting market leverage between landlords and tenants during the period. The comparison between average rent for expiring leases and new leases is determined by including minimum rent and percentage rent paid on the expiring lease and minimum rent and, in some instances, projections of first lease year percentage rent, to be paid on the new lease. In some instances, management exercises judgment as to how to most effectively reflect the comparability of spaces reported in this calculation. The change in rental income on comparable space leases is impacted by numerous factors including current market rates, location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed, capital investment made in the space and the specific lease structure. Tenant improvements and incentives include the total dollars committed for the improvement of a space as it relates to a specific lease, but may also include base-building costs (i.e. expansion, escalators or new entrances) which are required to make the space leasable. Incentives include amounts paid to tenants as an inducement to sign a lease that do not represent building improvements.
The leases signed in 20172020 generally become effective over the following year, though some may not become effective until 20182021 and beyond. Further, there is risk that some new tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating, financing or other matters. However, we believe that these increases do provide information about the tenant/landlord relationship and the potential fluctuations we may achieve in rental income over time.
Through the remainder of 2017,2020, we believe our leasing volume will be in-line with our historical averages and result in overall positive increases in rental income. However, changes in rental income associated with individual signed leases on
comparable spaces may be positive or negative, and we can provide no assurance that the rents on new leases will continue to increase at the above disclosed levels, if at all.
Capitalized Costs
Certain external and internal costs directly related to the development and redevelopment of real estate, including pre-construction costs, real estate taxes, insurance, interest, construction costs and salaries and related costs of personnel directly involved, are capitalized. We capitalize costs under development until construction is substantially complete and the property is held available for occupancy. The determination of when a development project is substantially complete and when capitalization must cease involves a degree of judgment. We consider a construction project as substantially complete and held available for occupancy upon the completion of landlord-owned tenant improvements or when the lessee takes possession of the unimproved space for construction of its own improvements, but not later than one year from cessation of major construction activity. We cease capitalization on the portion substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with any remaining portion under construction.
We capitalized external and internal costs related to both development and redevelopment activities combined of $1.4$1.3 million and $6.2$1.7 million for the three months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. We capitalized external and internal costs related to both development and redevelopment activities combined of $8.7 million and $24.7 million for the nine months ended September 30, 2017 and 2016, respectively.
We capitalized external and internal costs related to other property improvements combined of $8.4$20.8 million and $8.6$24.3 million for the three months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. We capitalized external and internal costs related to other property improvements combined of $23.0 million and $20.4 million for the nine months ended September 30, 2017 and 2016, respectively.
We capitalized internal costs for salaries and related benefits for development and redevelopment activities and other property improvements, which are not significant for the three and nine months ended September 30, 2017 and 2016, respectively.
Interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service. Capitalization of interest commences when development activities and expenditures begin and end upon completion, which is when the asset is ready for its intended use as noted above. We make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income. If the time period for capitalizing interest is extended, however, more interest is capitalized, thereby decreasing interest expense and increasing net income during that period. We capitalized interest costs related to development activities of $0.4$0.3 million and $0.3$0.2 million for the three months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. We capitalized interest costs related to development activities of $1.2 million for each of the nine month periods ended September 30, 2017 and 2016, respectively.
Results of Operations
For our discussion of results of operations, we have provided information on a total portfolio and same-store basis.
Comparison of the three months ended September 30, 2017March 31, 2020 to the three months ended September 30, 2016March 31, 2019
The following summarizes our consolidated results of operations for the three months ended September 30, 2017March 31, 2020 compared to our consolidated results of operations for the three months ended September 30, 2016.March 31, 2019. As of September 30, 2017,March 31, 2020, our operating portfolio was comprised of 2628 retail, office, multifamily and mixed-use properties with an aggregate of approximately 6.16.6 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel. Additionally, as of September 30, 2017,March 31, 2020, we owned land at fourthree of our properties that we classified as held for development and/or construction in progress. As of September 30, 2016,March 31, 2019, our operating portfolio was comprised of 2427 retail, office, multifamily and mixed-use properties with an aggregate of approximately 5.95.8 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 1,5792,112 residential units (including 122 RV spaces) and a 369-room hotel. Additionally, as of September 30, 2016,March 31, 2019, we owned land at fourthree of our properties that we classified as held for development and/or construction in progress.
The following table sets forth selected data from our unaudited consolidated statements of comprehensive income for the three months ended September 30, 2017March 31, 2020 and 20162019 (dollars in thousands):
| | | | Three Months Ended September 30, | | Change | | % | | Three Months Ended March 31, | | | Change | | % |
| | 2017 | | 2016 | | | 2020 | | 2019 | | |
| Revenues | | | | | | | | Revenues | | | | | | | |
| Rental income | $ | 78,135 |
| | $ | 71,852 |
| | $ | 6,283 |
| | 9 | % | Rental income | $ | 92,070 | | | $ | 76,831 | | | $ | 15,239 | | | 20 | % |
| Other property income | 4,204 |
| | 4,124 |
| | 80 |
| | 2 |
| Other property income | 4,673 | | | 8,488 | | | (3,815) | | | (45) | |
| Total property revenues | 82,339 |
| | 75,976 |
| | 6,363 |
| | 8 |
| Total property revenues | 96,743 | | | 85,319 | | | 11,424 | | | 13 | |
| Expenses | | | | | | | | Expenses | |
| Rental expenses | 21,177 |
| | 20,591 |
| | 586 |
| | 3 |
| Rental expenses | 22,568 | | | 20,796 | | | 1,772 | | | 9 | |
| Real estate taxes | 8,535 |
| | 7,396 |
| | 1,139 |
| | 15 |
| Real estate taxes | 11,045 | | | 9,046 | | | 1,999 | | | 22 | |
| Total property expenses | 29,712 |
| | 27,987 |
| | 1,725 |
| | 6 |
| Total property expenses | 33,613 | | | 29,842 | | | 3,771 | | | 13 | |
| Total property income | 52,627 |
| | 47,989 |
| | 4,638 |
| | 10 |
| Total property income | 63,130 | | | 55,477 | | | 7,653 | | | 14 | |
| General and administrative | (4,958 | ) | | (4,513 | ) | | (445 | ) | | 10 |
| General and administrative | (6,820) | | | (6,073) | | | (747) | | | 12 | |
| Depreciation and amortization | (21,192 | ) | | (17,992 | ) | | (3,200 | ) | | 18 |
| Depreciation and amortization | (27,462) | | | (20,583) | | | (6,879) | | | 33 | |
| Interest expense | (13,873 | ) | | (13,049 | ) | | (824 | ) | | 6 |
| Interest expense | (13,472) | | | (13,349) | | | (123) | | | 1 | |
| Other expense, net | (99 | ) | | (577 | ) | | 478 |
| | (83 | ) | |
| | Other income (expense), net | | Other income (expense), net | 108 | | | (229) | | | 337 | | | (147) | |
| | Net income | 12,505 |
| | 11,858 |
| | 647 |
| | 5 |
| Net income | 15,484 | | | 15,243 | | | 241 | | | 2 | |
| Net income attributable to restricted shares | (60 | ) | | (42 | ) | | (18 | ) | | 43 |
| Net income attributable to restricted shares | (104) | | | (93) | | | (11) | | | 12 | |
| Net income attributable to unitholders in the Operating Partnership | (3,351 | ) | | (3,342 | ) | | (9 | ) | | — |
| Net income attributable to unitholders in the Operating Partnership | (3,312) | | | (4,055) | | | 743 | | | (18) | |
| Net income attributable to American Assets Trust, Inc. stockholders | $ | 9,094 |
| | $ | 8,474 |
| | $ | 620 |
| | 7 | % | Net income attributable to American Assets Trust, Inc. stockholders | $ | 12,068 | | | $ | 11,095 | | | $ | 973 | | | 9 | % |
Revenue
Total property revenues. Total property revenue consists of rental revenue and other property income. Total property revenue increased $6.4$11.4 million, or 8%13%, to $82.3$96.7 million for the three months ended September 30, 2017March 31, 2020 compared to $76.0$85.3 million for the three months ended September 30, 2016.March 31, 2019. The percentage leased was as follows for each segment as of September 30, 2017March 31, 2020 and 2016:2019:
| | | | | | | | | | | |
| | Percentage Leased (1) | | |
| March 31, | | |
| | 2020 | | 2019 |
| Office | 94.3 | % | | 92.3 | % |
| Retail | 95.2 | % | | 97.1 | % |
| Multifamily | 93.0 | % | | 93.9 | % |
Mixed-Use (2) | 98.5 | % | | 98.2 | % |
(1)The percentage leased includes the square footage under lease, including leases which may not have commenced as of March 31, 2020 or 2019, as applicable.
(2)Includes the retail portion of the mixed-use property only.
|
| | | | | |
| | Percentage Leased (1) |
| | September 30, |
| | 2017 | 2016 |
| Retail | 97.0 | % | | 97.0 | % |
| Office | 89.9 | % | | 89.9 | % |
| Multifamily | 91.3 | % | | 91.7 | % |
Mixed-Use (2) | 93.7 | % | | 98.8 | % |
| |
(1) | The percentage leased includes the square footage under lease, including leases which may not have commenced as of September 30, 2017 or September 30, 2016, as applicable.
|
| |
(2) | Includes the retail portion of the mixed-use property only. |
The increase in total property revenue was attributable primarily to the decrease in lease termination fees and factors discussed below.
Rental revenues. Rental revenue includes minimum base rent, cost reimbursements, percentage rents and other rents. Rental revenue increased $6.3$15.2 million,, or 9%20%, to $78.1$92.1 million for the three months ended September 30, 2017March 31, 2020 compared to $71.9$76.8 million for the three months ended September 30, 2016.March 31, 2019. Rental revenue by segment was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | Total Portfolio | | | Same-Store Portfolio(1) | |
| | Total Portfolio | | Same-Store Portfolio(1) | | Three Months Ended March 31, | | | Change | | % | | Three Months Ended March 31, | | | Change | | % |
| | Three Months Ended September 30, | | Change | | % | | Three Months Ended September 30, | | Change | | % | | 2020 | | 2019 | | | 2020 | | 2019 | | |
| | 2017 | | 2016 | | 2017 | | 2016 | | |
| Office | | Office | $ | 42,513 | | | $ | 26,343 | | | $ | 16,170 | | | 61 | | | $ | 31,835 | | | $ | 25,222 | | | $ | 6,613 | | | 26 | |
| Retail | $ | 26,191 |
| | $ | 24,724 |
| | $ | 1,467 |
| | 6 | % | | $ | 25,049 |
| | $ | 24,590 |
| | $ | 459 |
| | 2 | % | Retail | 25,291 | | | 24,734 | | | 557 | | | 2 | | | 21,242 | | | 21,220 | | | 22 | | | — | |
| Office | 25,385 |
| | 24,294 |
| | 1,091 |
| | 4 |
| | 25,324 |
| | 24,247 |
| | 1,077 |
| | 4 |
| |
| Multifamily | 11,519 |
| | 7,462 |
| | 4,057 |
| | 54 |
| | 4,823 |
| | 4,615 |
| | 208 |
| | 5 |
| Multifamily | 12,014 | | | 12,044 | | | (30) | | | — | | | 12,014 | | | 12,044 | | | (30) | | | — | |
| Mixed-Use | 15,040 |
| | 15,372 |
| | (332 | ) | | (2 | ) | | 15,040 |
| | 15,372 |
| | (332 | ) | | (2 | ) | Mixed-Use | 12,252 | | | 13,710 | | | (1,458) | | | (11) | | | — | | | — | | | — | | | — | |
| | $ | 78,135 |
| | $ | 71,852 |
| | $ | 6,283 |
| | 9 | % | | $ | 70,236 |
| | $ | 68,824 |
| | $ | 1,412 |
| | 2 | % | | $ | 92,070 | | | $ | 76,831 | | | $ | 15,239 | | | 20 | % | | $ | 65,091 | | | $ | 58,486 | | | $ | 6,605 | | | 11 | % |
| |
(1) | For this table and tables following, the same-store portfolio excludes: (i) Hassalo on Eighth - Multifamily, which became available for occupancy in July and October of 2015; (ii) Hassalo on Eighth - Retail, which was placed in operation in April and July of 2016; (iii) the Pacific Ridge Apartments as it was acquired on April 28, 2017; (iv) Gateway Marketplace as it was acquired on July 6, 2017; and (v) land held for development. |
(1)For this table and tables following, the same-store portfolio includes the 830 building at Lloyd District Portfolio which was placed into operations on August 1, 2019 after renovating the building. The same-store portfolio excludes: (i) Waikele Center due to significant redevelopment activity; (ii) La Jolla Commons as it was acquired on June 20, 2019; (iii) Torrey Point due to the renovation of the building; (iv) Waikiki Beach Walk Retail and Embassy SuitesTM Hotel due to significant spalling repair activity; and (v) land held for development.
Total retailoffice rental revenue increased $1.5$16.2 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to the acquisition of Gateway MarketplaceLa Jolla Commons on July 6, 2017,June 20, 2019, which had rental revenue of approximately $0.8$10.3 million during the period. The increase in total retailoffice rental revenue is also attributed topartially offset by the completion of Hassalo on Eighth - Retail, which became available for occupancy during 2016, and had incrementaldecrease in rental revenue duringat One Beach Street due to expiration of leases to allow for the three months ended September 30, 2017modernization of approximately $0.2 million.the property. Same-store retailoffice rental revenue increased $0.5$6.6 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to higher annualized base rents at The Landmark at One Market, Lloyd District Portfolio, Torrey Point, and additional cost reimbursements at Lomas Santa Fe Plaza and Alamo Quarry Market. The increases in same-storeCity Center Bellevue.
Total retail rental revenue are offset by lower annualized base rents at Waikele Center during the quarter.
Total office rental revenue increased $1.1$0.6 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to higher annualized base rentsrent at Waikele Center related to the Safeway lease and additional cost reimbursements duringCarmel Mountain Plaza related to the three months ended September 30, 2017, primarily at the Lloyd District Portfolio, The Landmark at One Market, Torrey Reserve Campus and First & Main. The increase in total officeAt Home Stores lease.
Total mixed-use rental revenue during the quarter is offset by a decrease in the percentage leased at One Beach Street.
Total multifamily rental revenue increased $4.1decreased $1.5 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to the acquisitionCOVID-19 pandemic reducing tourism and hotel occupancy through hotel reservation cancellations and travel restrictions in March 2020 which led to a decrease in average occupancy and revenue per available room of the Pacific Ridge Apartments on April 28, 2017, which had rental revenue of approximately $3.8 million during the quarter. Same-store multifamily rental revenue increased $0.2 million compared to the three months ended September 30, 2016 due to higher average base rent per unit of $1,86675.4% and $242 for the three months ended September 30, 2017March 31, 2020, respectively, compared to $1,73291.8% and $290 for the three months ended September 30, 2016.
Mixed-useMarch 31, 2019, respectively. The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce rental revenue at the hotel portion of the mixed-use property through at least the second quarter of 2020.
Other property income. Other property income decreased $0.3$3.8 million, or 45%, to $4.7 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016 primarily due to lower revenue per available room of $324$8.5 million for the three months ended September 30, 2017 compared to $335 for the three months ended September 30, 2016.
Other property income. Other property income increased $0.1 million, or 2%, to $4.2 million for the three months ended September 30, 2017 compared to $4.1 million for the three months ended September 30, 2016.March 31, 2019. Other property income by segment was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | Total Portfolio | | | Same-Store Portfolio | |
| | Total Portfolio | | Same-Store Portfolio | | Three Months Ended March 31, | | | Change | | % | | Three Months Ended March 31, | | | Change | | % |
| | Three Months Ended September 30, | | Change | | % | | Three Months Ended September 30, | | Change | | % | | 2020 | | 2019 | | | 2020 | | 2019 | | |
| | 2017 | | 2016 | | 2017 | | 2016 | | |
| Office | | Office | $ | 1,996 | | | $ | 1,463 | | | $ | 533 | | | 36 | | | $ | 1,761 | | | $ | 1,462 | | | $ | 299 | | | 20 | |
| Retail | $ | 356 |
| | $ | 340 |
| | $ | 16 |
| | 5 | % | | $ | 312 |
| | $ | 314 |
| | $ | (2 | ) | | (1 | )% | Retail | 535 | | | 4,703 | | | (4,168) | | | (89) | | | 359 | | | 4,498 | | | (4,139) | | | (92) | |
| Office | 1,268 |
| | 1,524 |
| | (256 | ) | | (17 | ) | | 1,329 |
| | 1,571 |
| | (242 | ) | | (15 | ) | |
| Multifamily | 891 |
| | 591 |
| | 300 |
| | 51 |
| | 400 |
| | 319 |
| | 81 |
| | 25 |
| Multifamily | 811 | | | 855 | | | (44) | | | (5) | | | 811 | | | 855 | | | (44) | | | (5) | |
| Mixed-Use | 1,689 |
| | 1,669 |
| | 20 |
| | 1 |
| | 1,689 |
| | 1,669 |
| | 20 |
| | 1 |
| Mixed-Use | 1,331 | | | 1,467 | | | (136) | | | (9) | | | — | | | — | | | — | | | — | |
| | $ | 4,204 |
| | $ | 4,124 |
| | $ | 80 |
| | 2 | % | | $ | 3,730 |
| | $ | 3,873 |
| | $ | (143 | ) | | (4 | )% | | $ | 4,673 | | | $ | 8,488 | | | $ | (3,815) | | | (45) | % | | $ | 2,931 | | | $ | 6,815 | | | $ | (3,884) | | | (57) | % |
Office other property income decreased $0.3increased $0.5 million for the three months ended September 30, 2017March 31, 2020 primarily due to lease termination fees for tenants at Torrey Reserve Campus receivedthe acquisition of La Jolla Commons on June 20, 2019, which had parking income of $0.2 million during the three months ended September 30, 2016.period and Lloyd District Portfolio tenant improvement construction fee income.
MultifamilyRetail other property income increased $0.3decreased $4.2 million for the three months ended September 30, 2017March 31, 2020 primarily due to non-cash lease termination fees recognized in connection with the acquisitiontermination of a ground lease, and ground lessee's surrender of,
the Pacific Ridge Apartments on April 28, 2017, which hadformer Sears building at Carmel Mountain Plaza during the three months three months ended March 31, 2019. The decrease in retail other property income of approximately $0.2 millionwas partially offset by the increase in lease termination fees received at Alamo Quarry Market during the quarter. The increase is also attributed to an increase in occupancy at Hassalo on Eighth - Multifamilyperiod.
Mixed-use other property income decreased $0.1 million for the three months ended September 30, 2017.March 31, 2020 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy in March 2020 which lead to a decrease in excise tax and food & beverage revenue at the hotel portion of our mixed-use property and a decrease in parking income at the retail portion of our mixed-use property. The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce mixed-use other property income through at least the second quarter of 2020.
Property Expenses
Total Property Expenses. Total property expenses consist of rental expenses and real estate taxes. Total property expenses increased $1.7$3.8 million, or 6%13%, to $29.7$33.6 million, for the three months ended September 30, 2017March 31, 2020 compared to $28.0$29.8 million for the three months ended September 30, 2016.March 31, 2019.
Rental Expenses. Rental expenses increased $0.6$1.8 million, or 3%9%, to $21.2 million for the three months ended September 30, 2017 compared to $20.6$22.6 million for the three months ended September 30, 2016.March 31, 2020 compared to $20.8 million for the three months ended March 31, 2019. Rental expense by segment was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | | | | | | | Same-Store Portfolio | | | | | | |
| | Three Months Ended March 31, | | | | Change | | % | | Three Months Ended March 31, | | | | Change | | % |
| | 2020 | | 2019 | | | | | | 2020 | | 2019 | | | | |
| Office | $ | 7,162 | | | $ | 5,469 | | | $ | 1,693 | | | 31 | | | $ | 5,752 | | | $ | 5,224 | | | $ | 528 | | | 10 | |
| Retail | 3,569 | | | 3,519 | | | 50 | | | 1 | | | 2,846 | | | 2,805 | | | 41 | | | 1 | |
| Multifamily | 3,843 | | | 3,492 | | | 351 | | | 10 | | | 3,843 | | | 3,492 | | | 351 | | | 10 | |
| Mixed-Use | 7,994 | | | 8,316 | | | (322) | | | (4) | | | — | | | — | | | — | | | — | |
| $ | 22,568 | | | $ | 20,796 | | | $ | 1,772 | | | 9 | % | | $ | 12,441 | | | $ | 11,521 | | | $ | 920 | | | 8 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | Same-Store Portfolio |
| | Three Months Ended September 30, | | Change | | % | | Three Months Ended September 30, | | Change | | % |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| Retail | $ | 3,456 |
| | $ | 4,252 |
| | $ | (796 | ) | | (19 | )% | | $ | 3,309 |
| | $ | 4,210 |
| | $ | (901 | ) | | (21 | )% |
| Office | 5,064 |
| | 5,127 |
| | (63 | ) | | (1 | ) | | 5,065 |
| | 5,127 |
| | (62 | ) | | (1 | ) |
| Multifamily | 3,756 |
| | 2,506 |
| | 1,250 |
| | 50 |
| | 1,333 |
| | 1,265 |
| | 68 |
| | 5 |
|
| Mixed-Use | 8,901 |
| | 8,706 |
| | 195 |
| | 2 |
| | 8,901 |
| | 8,706 |
| | 195 |
| | 2 |
|
| | $ | 21,177 |
| | $ | 20,591 |
| | $ | 586 |
| | 3 | % | | $ | 18,608 |
| | $ | 19,308 |
| | $ | (700 | ) | | (4 | )% |
RetailOffice rental expenses decreased $0.8increased $1.7 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due a decrease in bad debt expenseto the acquisition of La Jolla Commons on June 20, 2019, which had rental expenses of $1.2 million during the period. Same-store office rental expenses increased $0.5 million for the three months ended September 30, 2017 at Waikele Center and Carmel Mountain Plaza attributedMarch 31, 2020 compared to the Sports Authority bankruptcythree months ended March 31, 2019 primarily due to an increase in 2016.commercial rent tax at The decrease in retail rental expenses was minimally offset by rental expenses for Gateway Marketplace, which was acquired on July 6, 2017,Landmark at One Market and had rental expenses of approximately $0.1 millionhigher janitorial services and repair and maintenance at City Center Bellevue, Solana Crossing, and Torrey Point during the period.
Multifamily rental expenses increased $1.3$0.4 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to the acquisition of the Pacific Ridge Apartments on April 28, 2017, which had rentalan increase in personnel compensation expenses of approximately $1.3 millionand repairs and maintenance during the quarter.period.
Mixed-use rental expenses increased $0.2expense decreased $0.3 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to an increasedecrease in bad debt expensehotel room expenses, marketing expenses, and general excise tax expenses at the retailhotel portion of our mixed-use property during the quarter.period. The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce rental expenses at the hotel portion of our mixed-use property through at least the second quarter of 2020.
Real Estate Taxes. Real estate taxes increased $1.1$2.0 million, or 15%22%, to $8.5$11.0 million for the three months ended September 30, 2017March 31, 2020 compared to $7.4$9.0 million for the three months ended September 30, 2016.March 31, 2019. Real estate tax expense by segment was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | | | | | | | Same-Store Portfolio | | | | | | |
| | Three Months Ended March 31, | | | | Change | | % | | Three Months Ended March 31, | | | | Change | | % |
| | 2020 | | 2019 | | | | | | 2020 | | 2019 | | | | |
| Office | $ | 4,631 | | | $ | 3,020 | | | $ | 1,611 | | | 53 | | | $ | 3,021 | | | $ | 2,826 | | | $ | 195 | | | 7 | |
| Retail | 3,762 | | | 3,635 | | | 127 | | | 3 | | | 3,035 | | | 2,933 | | | 102 | | | 3 | |
| Multifamily | 1,667 | | | 1,581 | | | 86 | | | 5 | | | 1,667 | | | 1,581 | | | 86 | | | 5 | |
| Mixed-Use | 985 | | | 810 | | | 175 | | | 22 | | | — | | | — | | | — | | | — | |
| $ | 11,045 | | | $ | 9,046 | | | $ | 1,999 | | | 22 | % | | $ | 7,723 | | | $ | 7,340 | | | $ | 383 | | | 5 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | Same-Store Portfolio |
| | Three Months Ended September 30, | | Change | | % | | Three Months Ended September 30, | | Change | | % |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| Retail | $ | 3,478 |
| | $ | 2,907 |
| | $ | 571 |
| | 20 | % | | $ | 3,307 |
| | $ | 2,863 |
| | $ | 444 |
| | 16 | % |
| Office | 2,810 |
| | 3,019 |
| | (209 | ) | | (7 | ) | | 2,807 |
| | 3,016 |
| | (209 | ) | | (7 | ) |
| Multifamily | 1,525 |
| | 782 |
| | 743 |
| | 95 |
| | 439 |
| | 433 |
| | 6 |
| | 1 |
|
| Mixed-Use | 722 |
| | 688 |
| | 34 |
| | 5 |
| | 722 |
| | 688 |
| | 34 |
| | 5 |
|
| | $ | 8,535 |
| | $ | 7,396 |
| | $ | 1,139 |
| | 15 | % | | $ | 7,275 |
| | $ | 7,000 |
| | $ | 275 |
| | 4 | % |
RetailOffice real estate taxes increased $0.6$1.6 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to an increase in the assessed value of Alamo Quarry Market and the acquisition of Gateway MarketplaceLa Jolla Commons on July 6, 2017,June 20, 2019, which had real estate taxes of approximately $0.1 million during the period. The increase in retail
$1.4 million. Same-store office real estate taxes for the three months ended September 30, 2017 is approximately 90% recoverable from tenants.
Office real estate taxes decreasedincreased $0.2 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to nonrecurring real estate taxes for tenants withan increase in tax exemptionsassessments at City Center Bellevue, The Landmark at One Beach Street.Market and Torrey Reserve Campus during the period.
MultifamilyRetail real estate taxes increased $0.7$0.1 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to the acquisition of the Pacific Ridge Apartments on April 28, 2017, which hadan increase in tax assessments at Alamo Quarry Market, Waikele Center, and Carmel Mountain Plaza.
Mixed-use real estate taxes of approximately $0.7 million during the quarter.
Property Operating Income
Property operating income increased $4.6 million, or 10%, to $52.6$0.2 million for the three months ended September 30, 2017,March 31, 2020 compared to $48.0the three months ended March 31, 2019 primarily due to an increase in tax assessments at the hotel portion of our mixed-use property.
Property Operating Income
Property operating income increased $7.7 million, or 14%, to $63.1 million for the three months ended September 30, 2016.March 31, 2020, compared to $55.5 million for the three months ended March 31, 2019. Property operating income by segment was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | | | | | | | Same-Store Portfolio | | | | | | |
| | Three Months Ended March 31, | | | | Change | | % | | Three Months Ended March 31, | | | | Change | | % |
| | 2020 | | 2019 | | | | | | 2020 | | 2019 | | | | |
| Office | $ | 32,716 | | | $ | 19,317 | | | $ | 13,399 | | | 69 | | | $ | 24,823 | | | $ | 18,634 | | | $ | 6,189 | | | 33 | |
| Retail | 18,495 | | | | 22,283 | | | | (3,788) | | | | (17) | | | | 15,720 | | | | 19,980 | | | | (4,260) | | | | (21) | |
| Multifamily | 7,315 | | | 7,826 | | | (511) | | | (7) | | | 7,315 | | | 7,826 | | | (511) | | | (7) | |
| Mixed-Use | 4,604 | | | 6,051 | | | (1,447) | | | (24) | | | — | | | — | | | — | | | — | |
| $ | 63,130 | | | $ | 55,477 | | | $ | 7,653 | | | 14 | % | | $ | 47,858 | | | $ | 46,440 | | | $ | 1,418 | | | 3 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | Same-Store Portfolio |
| | Three Months Ended September 30, | | Change | | % | | Three Months Ended September 30, | | Change | | % |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| Retail | $ | 19,613 |
| | $ | 17,905 |
| | $ | 1,708 |
| | 10 | % | | $ | 18,745 |
| | $ | 17,831 |
| | $ | 914 |
| | 5 | % |
| Office | 18,779 |
| | 17,672 |
| | 1,107 |
| | 6 |
| | 18,781 |
| | 17,675 |
| | 1,106 |
| | 6 |
|
| Multifamily | 7,129 |
| | 4,765 |
| | 2,364 |
| | 50 |
| | 3,451 |
| | 3,236 |
| | 215 |
| | 7 |
|
| Mixed-Use | 7,106 |
| | 7,647 |
| | (541 | ) | | (7 | ) | | 7,106 |
| | 7,647 |
| | (541 | ) | | (7 | ) |
| | $ | 52,627 |
| | $ | 47,989 |
| | $ | 4,638 |
| | 10 | % | | $ | 48,083 |
| | $ | 46,389 |
| | $ | 1,694 |
| | 4 | % |
Total retail property operating income increased $1.7decreased $3.8 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to the acquisition of Gateway Marketplace on July 6, 2017 and higher annualized base rents and additional cost reimbursements at same-store retail properties during the quarter. The increase is also attributed to the decrease in bad debt expense for same-storelease termination fees recognized in the prior period in connection with the termination of a ground lease, and ground lessee's surrender of, the former Sears building at Carmel Mountain Plaza. The decrease in retail properties during the quarter.
Office property operating income increased $1.1 million forwas partially offset by the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily due to an increase in annualized base rents at Waikele Center and additional cost reimbursements during the three months ended September 30, 2017.Carmel Mountain Plaza.
Total multifamily property operating income increased $2.4 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily due to the acquisition of the Pacific Ridge Apartments on April 28, 2017. Same-store property operating income increased $0.2 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily due to higher average base rent per unit during the quarter.
Mixed use property operating income decreased $0.5 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to lower revenue per available room at the hotel anda an increase in bad debt expense atpersonnel compensation expenses and repairs and maintenance during the retail portion of ourperiod.
Total mixed-use property during the quarter.
Other
General and Administrative. General and administrative expenses increased $0.4 million, or 10%, to $5.0operating income decreased $1.4 million for the three months ended September 30, 2017,March 31, 2020 compared to $4.5the three months ended March 31, 2019 primarily due to the impact of the COVID-19 pandemic reducing tourism and hotel occupancy in March 2020 which lead to a decrease in hotel occupancy and revenue per available room of 75.4% and $242 for the three months ended March 31, 2020 compared to 91.8% and $290 for the three months ended March 31, 2019. The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce property other property income through at least the second quarter of 2020.
Other
General and Administrative. General and administrative expenses increased $0.7 million, or 12%, to $6.8 million for the three months ended September 30, 2016.March 31, 2020, compared to $6.1 million for the three months ended March 31, 2019. This increase was primarily due to an increaseincreases in employee-related costs.costs and furlough expense for our hotel staff.
Depreciation and Amortization. Depreciation and amortization expense increased $3.2$6.9 million, or 18%33%, to $21.2$27.5 million for the three months ended September 30, 2017,March 31, 2020, compared to $18.0$20.6 million for the three months ended September 30, 2016.March 31, 2019. This increase was primarily due to depreciation and amortization attributable to the acquisitionsacquisition of Pacific Ridge ApartmentsLa Jolla Commons on April 28, 2017,June 20, 2019, which had depreciation and amortization expense of approximately $3.0$5.0 million during the quarter,period and Gateway Marketplace on July 6, 2017, which hadhigher depreciation and amortization expenseat Lloyd District Portfolio and Waikele Center due to tenant improvements that were put into service in 2019 and 2020.
Interest Expense. Interest expense increased $0.8$0.1 million, or 6%1%, to $13.9$13.5 million for the three months ended September 30, 2017,March 31, 2020, compared to $13.0$13.3 million for the three months ended September 30, 2016.March 31, 2019. This increase was primarily due to the closing of our offeringsoffering of Series D Notes on March 1, 2017, Series E Notes on May 23, 2017 and Series FG Notes on July 19, 2017,30, 2019, offset by the payoffrepayment of property mortgages for Southbay Marketplace fourth quarter of 2016, Waikiki Beach Walkthe mortgage loans at Torrey Reserve - Retail during the first quarter of 2017VCI, VCII, VCIII, Solana Crossing I-II, and Solana Beach Corporate Center III-IV during the second quarter of 2017.Towne Centre on March 2, 2020.
Other Expense,Income (Expense), Net. Other income (expense), net decreased $0.5increased $0.3 million, or 83%147%, to other income, net of $0.1 million for the three months ended September 30, 2017,March 31, 2020, compared to $0.6other expense, net of $0.2 million for the three months ended September 30, 2016, primarily due to a decrease in tax expense during the period attributed to losses associated with our TRS lease.
Comparison of the Nine Months Ended September 30, 2017 to the Nine Months Ended September 30, 2016
The following summarizes our consolidated results of operations for the nine months ended September 30, 2017 compared to our consolidated results of operations for the nine months ended September 30, 2016.
The following table sets forth selected data from our unaudited consolidated statements of income for the nine months ended September 30, 2017 and 2016 (dollars in thousands):
|
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Change | | % |
| | 2017 | | 2016 | |
| Revenues | | | | | | | |
| Rental income | $ | 221,100 |
| | $ | 207,318 |
| | $ | 13,782 |
| | 7 | % |
| Other property income | 12,137 |
| | 11,208 |
| | 929 |
| | 8 |
|
| Total property revenues | 233,237 |
| | 218,526 |
| | 14,711 |
| | 7 |
|
| Expenses | | | | | | | |
| Rental expenses | 60,877 |
| | 58,634 |
| | 2,243 |
| | 4 |
|
| Real estate taxes | 23,975 |
| | 20,446 |
| | 3,529 |
| | 17 |
|
| Total property expenses | 84,852 |
| | 79,080 |
| | 5,772 |
| | 7 |
|
| Total property income | 148,385 |
| | 139,446 |
| | 8,939 |
| | 6 |
|
| General and administrative | (15,171 | ) | | (13,456 | ) | | (1,715 | ) | | 13 |
|
| Depreciation and amortization | (63,360 | ) | | (53,159 | ) | | (10,201 | ) | | 19 |
|
| Interest expense | (39,856 | ) | | (39,148 | ) | | (708 | ) | | 2 |
|
| Other income (expense), net | 403 |
| | (454 | ) | | 857 |
| | 189 |
|
| Net income | 30,401 |
| | 33,229 |
| | (2,828 | ) | | (9 | ) |
| Net income attributable to restricted shares | (181 | ) | | (128 | ) | | (53 | ) | | 41 |
|
| Net income attributable to unitholders in the Operating Partnership | (8,220 | ) | | (9,377 | ) | | 1,157 |
| | (12 | ) |
| Net income (loss) attributable to American Assets Trust, Inc. stockholders | $ | 22,000 |
| | $ | 23,724 |
| | $ | (1,724 | ) | | (7 | )% |
Revenue
Total property revenues. Total property revenue consists of rental revenue and other property income. Total property revenue increased $14.7 million, or 7%, to $233.2 million for the nine months ended September 30, 2017 compared to $218.5 million for the nine months ended September 30, 2016. The percentage leased was as follows for each segment as of September 30, 2017 and 2016:
|
| | | | | |
| | Percentage Leased (1) |
| | September 30, |
| | 2017 | | 2016 |
| Retail | 97.0 | % | | 97.0 | % |
| Office | 89.9 | % | | 89.9 | % |
| Multifamily | 91.3 | % | | 91.7 | % |
Mixed-Use (2) | 93.7 | % | | 98.8 | % |
| |
(1) | The percentage leased includes the square footage under lease, including leases which may not have commenced as of September 30, 2017 or September 30, 2016, as applicable.
|
| |
(2) | Includes the retail portion of the mixed-use property only. |
The increase in total property revenue was attributable primarily to the factors discussed below.
Rental revenues. Rental revenue includes minimum base rent, cost reimbursements, percentage rents and other rents. Rental revenue increased $13.8 million, or 7%, to $221.1 million for the nine months ended September 30, 2017 compared to $207.3 million for the nine months ended September 30, 2016. Rental revenue by segment was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | Same-Store Portfolio(1) |
| | Nine Months Ended September 30, | | Change | | % | | Nine Months Ended September 30, | | Change | | % |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| Retail | $ | 75,161 |
| | $ | 73,369 |
| | 1,792 |
| | 2 | % | | $ | 73,364 |
| | $ | 73,146 |
| | $ | 218 |
| | — | % |
| Office | 74,996 |
| | 72,400 |
| | 2,596 |
| | 4 |
| | 61,977 |
| | 59,780 |
| | 2,197 |
| | 4 |
|
| Multifamily | 29,053 |
| | 19,831 |
| | 9,222 |
| | 47 |
| | 14,090 |
| | 13,541 |
| | 549 |
| | 4 |
|
| Mixed-Use | 41,890 |
| | 41,718 |
| | 172 |
| | — |
| | 41,890 |
| | 41,718 |
| | 172 |
| | — |
|
| | $ | 221,100 |
| | $ | 207,318 |
| | $ | 13,782 |
| | 7 | % | | $ | 191,321 |
| | $ | 188,185 |
| | $ | 3,136 |
| | 2 | % |
| |
(1) | For this table and tables following, the same-store portfolio excludes: (i) Torrey Reserve Campus due to significant redevelopment activity during the period; (ii) Hassalo on Eighth - Multifamily, which became available for occupancy in July and October of 2015; (iii) Hassalo on Eighth - Retail, which was placed in operation in April and July of 2016; (iv) the Pacific Ridge Apartments as it was acquired April 28, 2017; (v) Gateway Marketplace as it was acquired on July 6, 2017; and (vi) land held for development. |
Total retail rental revenue increased $1.8 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the acquisition of Gateway Marketplace on July 6, 2017, which had rental revenue of approximately $0.8 million during the period. The increase in total retail rental revenue is also attributed to the completion of Hassalo on Eighth - Retail, which became available for occupancy during 2016, and had incremental rental revenue of approximately $0.8 million during the period. Same-store retail rental revenue increased $0.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to higher annualized base rents and additional cost reimbursements at Lomas Santa Fe Plaza, Carmel Mountain Plaza and Alamo Quarry Market. The increases in same-store retail rental revenue are offset by a decrease in vacancy and lower annualized base rents at Waikele Center during the period.
Total office rental revenue increased $2.6 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to higher annualized base rents and additional cost reimbursements during the period, primarily at Lloyd District Portfolio, The Landmark at One Market, First & Main and Torrey Reserve Campus.
Multifamily rental revenue increased $9.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the acquisition of the Pacific Ridge Apartments on April 28, 2017, which had rental revenue of approximately $6.6 million for the period. The increase in multifamily rental revenue is also attributed to an increase in occupancy at Hassalo on Eighth - Multifamily for the nine months ended September 30, 2017, which had incremental rental revenue of approximately $2.1 million during the period. Same-store multifamily rental revenue increased $0.5 million during the period due to higher average base rent per unit of $1,810 during the nine months ended September 30, 2017 compared to $1,688 during the nine months ended September 30, 2016.
Mixed-use rental revenue increased $0.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to higher revenue per available room of $300 for the nine months ended September 30, 2017 compared to $297 for the nine months ended September 30, 2016 and an increase in occupancy to 93% for nine months ended September 30, 2017 compared to 90% for the nine months ended September 30, 2016.
Other property income. Other property income increased $0.9 million, or 8%, to $12.1 million for the nine months ended September 30, 2017 compared to $11.2 million for the nine months ended September 30, 2016. Other property income by segment was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | Same-Store Portfolio |
| | Nine Months Ended September 30, | | Change | | % | | Nine Months Ended September 30, | | Change | | % |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| Retail | $ | 1,131 |
| | $ | 947 |
| | $ | 184 |
| | 19 | % | | $ | 991 |
| | $ | 921 |
| | $ | 70 |
| | 8 | % |
| Office | 4,006 |
| | 4,016 |
| | (10 | ) | | — |
| | 4,020 |
| | 3,803 |
| | 217 |
| | 6 |
|
| Multifamily | 2,271 |
| | 1,576 |
| | 695 |
| | 44 |
| | 1,028 |
| | 935 |
| | 93 |
| | 10 |
|
| Mixed-Use | 4,729 |
| | 4,669 |
| | 60 |
| | 1 |
| | 4,729 |
| | 4,669 |
| | 60 |
| | 1 |
|
| | $ | 12,137 |
| | $ | 11,208 |
| | $ | 929 |
| | 8 | % | | $ | 10,768 |
| | $ | 10,328 |
| | $ | 440 |
| | 4 | % |
Total retail other property income increased $0.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to an increase in lease termination fees at Del Monte Center and an increase in parking garage income at Hassalo on Eighth - Retail during the period.
Same-store office other property income increased $0.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to parking garage income at Lloyd District Portfolio due to the completion of the shared Hassalo on Eighth parking garage, which was placed into service during the fourth quarter of 2015, and an increase in lease termination fees at One Beach Street.
Total multifamily other property income increased $0.7 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to the acquisition of the Pacific Ridge Apartments on April 28, 2017, which had other property income of approximately $0.3 million during the period and an increase in occupancy at Hassalo on Eighth - Multifamily, which had incremental other property income of approximately $0.3 million during the period.
Property Expenses
Total Property Expenses. Total property expenses consist of rental expenses and real estate taxes. Total property expenses increased by $5.8 million, or 7%, to $84.9 million for the nine months ended September 30, 2017, compared to $79.1 million for the nine months ended September 30, 2016. This increase in total property expenses was attributable primarily to the factors discussed below.
Rental Expenses. Rental expenses increased $2.2 million, or 4%, to $60.9 million for the nine months ended September 30, 2017, compared to $58.6 million for the nine months ended September 30, 2016. Rental expense by segment was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | Same-Store Portfolio |
| | Nine Months Ended September 30, | | Change | | % | | Nine Months Ended September 30, | | Change | | % |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| Retail | $ | 10,412 |
| | $ | 11,487 |
| | $ | (1,075 | ) | | (9 | )% | | $ | 10,154 |
| | $ | 11,374 |
| | $ | (1,220 | ) | | (11 | )% |
| Office | 15,411 |
| | 15,284 |
| | 127 |
| | 1 |
| | 12,822 |
| | 13,033 |
| | (211 | ) | | (2 | ) |
| Multifamily | 8,973 |
| | 7,253 |
| | 1,720 |
| | 24 |
| | 3,763 |
| | 3,599 |
| | 164 |
| | 5 |
|
| Mixed-Use | 26,081 |
| | 24,610 |
| | 1,471 |
| | 6 |
| | 26,081 |
| | 24,610 |
| | 1,471 |
| | 6 |
|
| | $ | 60,877 |
| | $ | 58,634 |
| | $ | 2,243 |
| | 4 | % | | $ | 52,820 |
| | $ | 52,616 |
| | $ | 204 |
| | — | % |
Total retail rental expenses decreased $1.1 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to a decrease in bad debt expense for Waikele Center related to the Sports Authority bankruptcy recorded during the second quarter of 2016. The decrease in retail rental expenses was minimally offset by rental expenses for Gateway Marketplace, which was acquired on July 6, 2017, and had rental expenses of approximately $0.1 million during the period.
Total office rental expenses increased $0.1 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to an increase in bad debt expense for the nine months ended September 30, 2017 at One Beach Street and an increase in building expenses at Torrey Reserve Campus attributed to an increase in occupancy at the property during the period. The increase in total office rental expenses is offset by a decrease in salary expense at the Lloyd District Portfolio.
Total multifamily rental expenses increased $1.7 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the acquisition of the Pacific Ridge Apartments on April 28, 2017, which had rental expenses of approximately $1.8 million during the period. The increase in total multifamily rental expenses was offset by a decrease in salary expense and utility expenses at Hassalo on Eighth.
Mixed-use rental expenses increased $1.5 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to an increase in bad debt expense primarily at the hotel portion of our mixed-use property attributable to a bankruptcy filed by one of the hotel's travel agencies. The increase in rental expenses is also attributed to an increase in room expenses at the hotel portion of our mixed-use property attributable to the increase in occupancy during the period.
Real Estate Taxes. Real estate tax expense increased $3.5 million, or 17%, to $24.0 million for the nine months ended September 30, 2017 compared to $20.4 million for the nine months ended September 30, 2016. Real estate tax expense by segment was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | Same-Store Portfolio |
| | Nine Months Ended September 30, | | Change | | % | | Nine Months Ended September 30, | | Change | | % |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| Retail | $ | 10,007 |
| | $ | 8,716 |
| | $ | 1,291 |
| | 15 | % | | $ | 9,736 |
| | $ | 8,625 |
| | $ | 1,111 |
| | 13 | % |
| Office | 8,309 |
| | 8,111 |
| | 198 |
| | 2 |
| | 6,632 |
| | 6,519 |
| | 113 |
| | 2 |
|
| Multifamily | 3,601 |
| | 1,707 |
| | 1,894 |
| | 111 |
| | 1,300 |
| | 1,282 |
| | 18 |
| | 1 |
|
| Mixed-Use | 2,058 |
| | 1,912 |
| | 146 |
| | 8 |
| | 2,058 |
| | 1,912 |
| | 146 |
| | 8 |
|
| | $ | 23,975 |
| | $ | 20,446 |
| | $ | 3,529 |
| | 17 | % | | $ | 19,726 |
| | $ | 18,338 |
| | $ | 1,388 |
| | 8 | % |
Total retail real estate taxes increased $1.3 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to an increase in the assessed values of Alamo Quarry Market and Waikele Center. The increase is also attributed to the acquisition of Gateway Marketplace on July 6, 2017, which had real estate taxes of approximately $0.1 million during the period. The increase in retail real estate taxes for the nine months ended September 30, 2017 is approximately 89% recoverable from tenants.
Total office real estate taxes increased $0.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to an increase in the assessed values of City Center Bellevue and Torrey Reserve Campus. The increase in real estate taxes is partially offset by nonrecurring real estate taxes for tenants with tax exemptions at First & Main. The increase in office real estate taxes for the nine months ended September 30, 2017 is approximately 22% recoverable from tenants.
Multifamily real estate taxes increased $1.9 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the acquisition of the Pacific Ridge Apartments on April 28, 2017, which had real estate taxes of approximately $1.2 million during the quarter. The increase is also attributed to receipt of assessed taxes at Hassalo on Eighth - Multifamily, which were estimated for by the Company during the prior period and had incremental real estate tax expense of approximately $0.7 million during the period.
Mixed-use real estate taxes increased $0.1 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to an increase in real estate taxes for the hotel portion of our mixed-use property that are assessed annually based on the hotel's room rates, which have increased from the prior year.
Property Operating Income
Property operating income increased $8.9 million, or 6%, to $148.4 million for the nine months ended September 30, 2017, compared to $139.4 million for the nine months ended September 30, 2016. Property operating income by segment was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Portfolio | | Same-Store Portfolio |
| | Nine Months Ended September 30, | | Change | | % | | Nine Months Ended September 30, | | Change | | % |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| Retail | $ | 55,873 |
| | $ | 54,113 |
| | $ | 1,760 |
| | 3 | % | | $ | 54,465 |
| | $ | 54,068 |
| | $ | 397 |
| | 1 | % |
| Office | 55,282 |
| | 53,021 |
| | 2,261 |
| | 4 |
| | 46,543 |
| | 44,031 |
| | 2,512 |
| | 6 |
|
| Multifamily | 18,750 |
| | 12,447 |
| | 6,303 |
| | 51 |
| | 10,055 |
| | 9,595 |
| | 460 |
| | 5 |
|
| Mixed-Use | 18,480 |
| | 19,865 |
| | (1,385 | ) | | (7 | ) | | 18,480 |
| | 19,865 |
| | (1,385 | ) | | (7 | ) |
| | $ | 148,385 |
| | $ | 139,446 |
| | $ | 8,939 |
| | 6 | % | | $ | 129,543 |
| | $ | 127,559 |
| | $ | 1,984 |
| | 2 | % |
Total retail property operating income increased $1.8 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the acquisition of Gateway Marketplace on July 6, 2017 and an increase in the percentage leased at Hassalo on Eighth - Retail during the period. The increase is also attributed to the decrease in bad debt expense for same-store retail properties during the period.
Total office property operating income increased $2.3 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to higher annualized base rents and additional cost reimbursements during the nine months ended September 30, 2017.
Total multifamily property operating income increased $6.3 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the acquisition of the Pacific Ridge Apartments on April 28, 2017 and an increase in occupancy at Hassalo on Eighth - Multifamily during the period. Same-store property operating income increased $0.5 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to higher average base rent per unit during the period.
Mixed-use property operating income decreased $1.4 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was primarily due to an increase in bad debt expense during the period at the hotel attributed to a bankruptcy filed by one of the hotel's travel agents and for tenants at the retail portion of our mixed-use property.
Other
General and Administrative. General and administrative expenses increased $1.7 million, or 13%, to $15.2 million for the nine months ended September 30, 2017, compared to $13.5 million for the nine months ended September 30, 2016. This increase was primarily due to an increase in employee-related costs.
Depreciation and Amortization. Depreciation and amortization expense increased $10.2 million, or 19%, to $63.4 million for the nine months ended September 30, 2017, compared to $53.2 million for the nine months ended September 30, 2016. This increase was primarily due to depreciation and amortization attributable to the acquisitions of Pacific Ridge Apartments on April 28, 2017, which had depreciation and amortization expense of approximately $8.8 million during the period, and Gateway Marketplace on July 6, 2017, which had depreciation and amortization expense of approximately $0.2 million during the period. The increase is also due to the depreciation and amortization attributable to the completion of the Hassalo on Eighth retail buildings completed in 2016.
Interest Expense. Interest expense increased $0.7 million, or 2%, to $39.9 million for the nine months ended September 30, 2017 compared to $39.1 million for the nine months ended September 30, 2016. This increase was primarily due to the closing of our offerings of Series D Notes on March 1, 2017, Series E Notes on May 23, 2017 and Series F Notes on July 19, 2017, offset by the payoff of property mortgages for Southbay Marketplace fourth quarter of 2016, Waikiki Beach Walk - Retail during the first quarter of 2017 and Solana Beach Corporate Center III-IV during the second quarter of 2017.
Other Income (Expense), Net. Other income, net increased $0.9 million, or 189%, to $0.4 million for the nine months ended September 30, 2017, compared to other expense, net of $0.5 million for the nine months ended September 30, 2016,31, 2019 primarily due to an increase in interest and investment income attributed to higher average cash balances during the period. The decrease is also attributed to income tax benefitbalance during the period attributedand by a decrease in income tax expense related to losses associated withlower taxable income for our TRS lease.taxable REIT subsidiary.
Liquidity and Capital Resources of American Assets Trust, Inc.
In this “Liquidity and Capital Resources of American Assets Trust, Inc.” section, the term the “company” refers only to American Assets Trust, Inc. on an unconsolidated basis, and excludes the Operating Partnership and all other subsidiaries.
The company’s business is operated primarily through the Operating Partnership, of which the company is the parent company and sole general partner, and which it consolidates for financial reporting purposes. Because the company operates on a consolidated basis with the Operating Partnership, the section entitled “Liquidity and Capital Resources of American Assets Trust, L.P.” should be read in conjunction with this section to understand the liquidity and capital resources of the company on a consolidated basis and how the company is operated as a whole.
The company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by the Operating Partnership. The company itself does not have any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. Therefore, the consolidated assets and liabilities and the consolidated revenues and expenses of the company and the Operating Partnership are the same on their respective financial statements. However, all debt is held directly or indirectly by the Operating Partnership. The company’s principal funding requirement is the payment of dividends on its common stock. The company’s principal source of funding for its dividend payments is distributions it receives from the Operating Partnership.
As of September 30, 2017,March 31, 2020, the company owned an approximate 73.2%78.5% partnership interest in the Operating Partnership. The remaining 26.8%21.5% are owned by non-affiliated investors and certain of the company's directors and executive officers. As the sole general partner of the Operating Partnership, American Assets Trust, Inc. has the full, exclusive and complete authority and control over the Operating Partnership’s day-to-day management and business, can cause it to enter into certain major transactions, including acquisitions, dispositions and refinancings, and can cause changes in its line of business, capital structure and distribution policies. The company causes the Operating Partnership to distribute such portion of its available cash as the company may in its discretion determine, in the manner provided in the Operating Partnership’s partnership agreement.
The liquidity of the company is dependent on the Operating Partnership’s ability to make sufficient distributions to the company. The primary cash requirement of the company is its payment of dividends to its stockholders. The company also guarantees some of the Operating Partnership’s debt, as discussed further in Note 87 of the Notes to Consolidated Financial Statements included elsewhere herein. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger the company’s guarantee obligations, then the company will be required to fulfill its cash payment commitments under such guarantees. However, the company’s only significant asset is its investment in the Operating Partnership.
We believe the Operating Partnership’s sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured line of credit, are adequate for it to make its distribution payments to the company and, in turn, for the company to make its dividend payments to its stockholders. As of September 30, 2017,March 31, 2020, the company has determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months. However, we cannot assure you that the Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distribution payments to the company. The unavailability of capital could adversely affect the Operating Partnership’s ability to pay its distributions to the company, which would in turn, adversely affect the company’s ability to pay cash dividends to its stockholders. The COVID-19 pandemic is expected to temporarily impact some of our tenants ability or willingness to remit rent payments due to the tenants operations being affected by state and local stay-at-home orders. In March and April 2020, we received rent deferment requests from some tenants and have begun negotiating and executing lease modifications for the deferment of rent. These rent deferments may adversely affect the Operating Partnership's cash flow from operations.
Our short-term liquidity requirements consist primarily of funds to pay for future dividends expected to be paid to the company’s stockholders, operating expenses and other expenditures directly associated with our properties, interest expense and scheduled principal payments on outstanding indebtedness, general and administrative expenses, funding construction projects, capital expenditures, tenant improvements and leasing commissions.
The company may from time to time seek to repurchase or redeem the Operating Partnership’s outstanding debt, the company’s shares of common stock or other securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases or redemptions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
For the company to maintain its qualification as a REIT, it must pay dividends to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains. While historically the company has satisfied this distribution requirement by making cash distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited
circumstances, the company’s own stock. As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. The company may need to continue to raise capital in the equity markets to fund the operating partnership’s working capital needs, acquisitions and developments. Although there is no intent at this time, if market conditions deteriorate, the company may also delay the timing of future development and redevelopment projects as well as limit future acquisitions, reduce the Operating Partnership’s operating expenditures, or re-evaluate its dividend policy.
The company is a well-known seasoned issuer. As circumstances warrant, the company may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. When the company receives proceeds from preferred or common equity issuances, it is required by the Operating Partnership’s partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership in exchange for partnership units of the Operating Partnership. The Operating Partnership may use the proceeds to repay debt, to develop new or existing properties, to acquire properties or for general corporate purposes.
In February 2015,2018, the company filed a universal shelf registration statement on Form S-3S-3ASR with the SEC, which was deemed automaticallybecame effective upon filing and which provides forreplaced the prior Form S-3ASR that was filed with the SEC in February 2015. The universal shelf registration statement permits the company from time to time to offer and sell equity securities of unspecified amounts of securities.the company. However, there can be no assurance that the company will be able to complete any such offerings of securities. Factors influencing the availability of additional financing include investor perception of our prospects and the general condition of the financial markets, among others.
In May 2015, we entered into an ATM equity program with five sales agents in which we may, from time to time, offer and sell shares of our common stock having an aggregate offering price of up to $250.0 million. On March 2, 2018, we amended certain of these equity programs, terminated one such program and entered into a new equity program with one new sales agent. The sales of shares of the company's common stock made through the ATM equity program, as amended, are made in “at-the-market” offerings as defined in Rule 415 of the Securities Act. As of September 30, 2017,March 31, 2020, we had the capacity to issue up to an additional $176.2$132.6 million in shares of common stock under the ATM equity program. We intend to use the net proceeds to fund development or redevelopment activities, repay amounts outstanding from time to time under our amended and restated credit facility or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes. Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of the company's common stock and the company's capital needs. We have no obligation to sell the remaining shares available for sale under the ATM equity program.
Liquidity and Capital Resources of American Assets Trust, L.P.
In this “Liquidity and Capital Resources of American Assets Trust, L.P.” section, the terms “we,” “our” and “us” refer to the Operating Partnership together with its consolidated subsidiaries, or the Operating Partnership and American Assets Trust, Inc. together with their consolidated subsidiaries, as the context requires. American Assets Trust, Inc. is our sole general partner and consolidates our results of operations for financial reporting purposes. Because we operate on a consolidated basis with American Assets Trust, Inc., the section entitled “Liquidity and Capital Resources of American Assets Trust, Inc.” should be read in conjunction with this section to understand our liquidity and capital resources on a consolidated basis.
Due to the nature of our business, we typically generate significant amounts of cash from operations. The cash generated from operations is used for the payment of operating expenses, capital expenditures, debt service and dividends to American Assets Trust, Inc.'s stockholders and our unitholders. As a REIT, American Assets Trust, Inc. must generally make annual distributions to its stockholders of at least 90% of ourits net taxable income. As of September 30, 2017,March 31, 2020, we held $94.2$52.4 million in cash and cash equivalents.
Our short-term liquidity requirements consist primarily of operating expenses and other expenditures associated with our properties, regular debt service requirements, dividend payments to American Assets Trust, Inc.'s stockholders required to maintain its REIT status, distributions to our unitholders, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, reserves established from existing cash and, if necessary, borrowings available under our credit facility.
Our long-term liquidity needs consist primarily of funds necessary to pay for the repayment of debt at maturity, property acquisitions, tenant improvements and capital improvements. We expect to meet our long-term liquidity requirements to pay scheduled debt maturities and to fund property acquisitions and capital improvements with net cash from operations, long-term secured and unsecured indebtedness and, if necessary, the issuance of equity and debt securities. We also may fund property acquisitions and capital improvements using our amended and restated credit facility pending permanent financing. We believe that we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. However, we cannot be assured that this will be the case. Our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital
markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about our company.
Our overall capital requirements for the remainder of 20172020 and first quarter 2021 will depend upon acquisition opportunities and the level of improvements and redevelopments on existing properties and the timing and cost of development of Torrey Point. Construction for Torrey Point was completed during the third quarter of 2017, resulting in approximately 88,000 additional square feet of office space. We expect to invest approximately $56 million related to Torrey Point, of which approximately $38 million has been incurred as of September 30, 2017, noting the remaining amount will be incurred as the property is leased to tenants.properties. Our capital investments will be funded on a short-term basis with, among other sources of capital, cash on hand, cash flow from operations and/or our revolving line of credit. On a long-term basis, our capital investments may be funded with additional long-term debt.debt, including, without limitation, mortgage debt and unsecured notes. Our ability to incur additional debt will be dependent on a number of factors, including, without limitation, our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our capital investments may also be funded by issuing additional equity including, without limitation, shares issued by American Assets Trust, Inc. under its ATM equity program.program or through an underwritten public offering. Although there is no intent at this time, if market conditions deteriorate or fail to improve, including as a result of the COVID-19 pandemic, we may also delay the timing of future development and redevelopment projects as well as limit future acquisitions, reduce our operating expenditures, or re-evaluate our dividend policy. The COVID-19 pandemic is expected to impact the timing of future development and redevelopment projects due to, among other things, capital requirements and permitting delays caused by local government shutdowns or reduced operations.
In February 2015,2018, the Operating Partnership filed a universal shelf registration on Form S-3 ASR with the SEC which provided for the registration of an unspecified amount of debt securities by the Operating Partnership. However, there can be no assurance that the Operating Partnership will be able to complete any such offerings of debt securities. Factors influencing the availability of additional financing include investor perception of our prospects and the general condition of the financial markets, among others.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
Cash Flows
Comparison of the ninethree months ended September 30, 2017March 31, 2020 to the ninethree months ended September 30, 2016March 31, 2019
Cash, and cash equivalents, and restricted cash were $94.2$56.8 million and $62.0$64.3 million at September 30, 2017March 31, 2020 and 2016,2019, respectively.
Net cash provided by operating activities increased $23.0$8.5 million to $125.8$45.4 million for the ninethree months ended September 30, 2017March 31, 2020 compared to $102.7$36.8 million for the ninethree months ended September 30, 2016.March 31, 2019. The increase in cash from operations was primarily due to the increase in annualized base rents at The Landmark at One Market, Lloyd District Portfolio, Torrey Point
and City Center Bellevue, the acquisition of the Pacific Ridge Apartments,La Jolla Common, which werewas acquired on April 28, 2017June 20, 2019 and the settlements of the March 2016 Swapchanges in operating assets and April 2016 Swap, which will be amortized over the Series D Notes, and April 2017 Treasury Lock, which will be amortized over the Series E Notes.liabilities.
Net cash used in investing activities increased $271.1$1.5 million to $318.3$23.9 million for the ninethree months ended September 30, 2017March 31, 2020 compared to $47.2$22.4 million for the ninethree months ended September 30, 2016.March 31, 2019. The increase was primarily due to the acquisitions of Pacific Ridge Apartments on April 28, 2017capital expenditures for tenant improvements at City Center Bellevue, Lloyd District Portfolio, and Gateway Marketplace on July 6, 2017, offset by the completion of development activity at the Hassalo on Eighth retail buildings during 2016.Torrey Reserve Campus.
Net cash provided byused in financing activities increased $275.5$66.7 million to cash provided of $242.0$74.1 million for the ninethree months ended September 30, 2017March 31, 2020 compared to cash used of $33.5$7.4 million for the ninethree months ended September 30, 2016.March 31, 2019. The increase in cash provided byused in financing activities was primarily due to the closing of Series D Notes issued on March 1, 2017 and Series E Notes on May 23, 2017 and Series F Notes on July 19, 2017. The increase is offset by repaymentpayoff of the mortgagemortgages at WaikikiSolana Beach Walk Retail andTowne Centre, Solana Beach Corporate Centre III-IVCenter I-II, and Torrey Reserve VCI, VCII, VCIII during the first quarter of 2020 and an increase in 2017.dividends primarily due the increase in shares outstanding as a result of our underwritten public offering that settled on June 14, 2019.
Net Operating Income
Net Operating Income, or NOI, is a non-GAAP financial measure of performance. We define 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). NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expense, other nonproperty income and losses, gains and losses from property dispositions, extraordinary items, tenant improvements, and leasing commissions. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to the NOIs of other REITs.
NOI is used by investors and our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by (1) the cost of funds of the
property owner, (2) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP or (3) general and administrative expenses and other gains and losses that are specific to the property owner. The cost of funds is eliminated from net income because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital, which may have changed or may change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our retail, office, multifamily or mixed-use properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is intended to be captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale, which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating these costs from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.
However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest income and other expense, depreciation and amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income, which further limits its usefulness.
NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in “Management's Discussion and Analysis of Financial Condition and Results of Operations” regarding the components of net income that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.
The following is a reconciliation of our NOI to net income for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 computed in accordance with GAAP (in thousands):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | | 2020 | | 2019 |
| Net operating income | $ | 52,627 |
| | $ | 47,989 |
| | $ | 148,385 |
| | $ | 139,446 |
| Net operating income | | $ | 63,130 | | | $ | 55,477 | |
| General and administrative | (4,958 | ) | | (4,513 | ) | | (15,171 | ) | | (13,456 | ) | General and administrative | | (6,820) | | | (6,073) | |
| Depreciation and amortization | (21,192 | ) | | (17,992 | ) | | (63,360 | ) | | (53,159 | ) | Depreciation and amortization | | (27,462) | | | (20,583) | |
| Interest expense | (13,873 | ) | | (13,049 | ) | | (39,856 | ) | | (39,148 | ) | Interest expense | | (13,472) | | | (13,349) | |
| Other income, net | (99 | ) | | (577 | ) | | 403 |
| | (454 | ) | |
| | Other income (expense), net | | Other income (expense), net | | 108 | | | (229) | |
| | Net income | $ | 12,505 |
| | $ | 11,858 |
| | $ | 30,401 |
| | $ | 33,229 |
| Net income | | $ | 15,484 | | | $ | 15,243 | |
Funds from Operations
We calculate funds from operations, or 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 our 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. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other
REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the NAREIT definition as we do, and, accordingly, our 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 our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our 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.
The following table sets forth a reconciliation of our FFO for the three and nine months ended September 30, 2017March 31, 2020 to net income, the nearest GAAP equivalent (in thousands, except per share and share data):
| | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2020 | | 2019 | | |
| Funds from Operations (FFO) | | | | | |
| Net income | $ | 15,484 | | | $ | 15,243 | | | |
| Plus: Real estate depreciation and amortization | 27,462 | | | 20,583 | | | |
| | | | | |
| | | | | |
| Funds from operations | 42,946 | | | 35,826 | | | |
| | | | | |
| Less: Nonforfeitable dividends on incentive restricted stock awards | (102) | | | (91) | | | |
| FFO attributable to common stock and units | $ | 42,844 | | | $ | 35,735 | | | |
| FFO per diluted share/unit | $ | 0.56 | | | $ | 0.56 | | | |
Weighted average number of common shares and units, diluted (1) | 76,117,072 | | | 64,185,323 | | | |
(1)The weighted average common shares used to compute FFO per diluted share include unvested restricted stock awards that are subject to time vesting, which were excluded from the computation of diluted EPS, as the vesting of the restricted stock awards is dilutive in the computation of FFO per diluted share but is anti-dilutive for the computation of diluted EPS for the period. Diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.
|
| | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2017 |
| Funds from Operations (FFO) | | | |
| Net income | $ | 12,505 |
| | $ | 30,401 |
|
| Plus: Real estate depreciation and amortization | 21,192 |
| | 63,360 |
|
| Funds from operations | 33,697 |
| | 93,761 |
|
| Less: Nonforfeitable dividends on incentive restricted stock awards | (59 | ) | | (177 | ) |
| FFO attributable to common stock and units | $ | 33,638 |
| | $ | 93,584 |
|
| FFO per diluted share/unit | $ | 0.52 |
| | $ | 1.46 |
|
Weighted average number of common shares and units, diluted (1) | 64,094,454 |
| | 64,083,186 |
|
| |
(1) | The weighted average common shares used to compute FFO per diluted share include unvested restricted stock awards that are subject to time vesting, which were excluded from the computation of diluted EPS, as the vesting of the restricted stock awards is dilutive in the computation of FFO per diluted share but is anti-dilutive for the computation of diluted EPS for the period. Diluted shares exclude incentive restricted stock as these awards are considered contingently issuable. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We manage our market risk by attempting to match anticipated inflow of cash from our operating, investing and financing activities with anticipated outflow of cash to fund debt payments, dividends to our stockholders and Operating Partnership unitholders, investments, capital expenditures and other cash requirements.
Interest Rate Risk
Outstanding Debt
The following discusses the effect of hypothetical changes in market rates of interest on the fair value of our total outstanding debt. Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our debt. Discounted cash flow analysis is generally used to estimate the fair value of our mortgages payable. Considerable judgment is necessary to estimate the fair value of financial instruments. This analysis does not purport to take into account all of the factors that may affect our debt, such as the effect that a changing interest rate environment could have on the overall level of economic activity or the action that our management might take to reduce our exposure to the change. This analysis assumes no change in our financial structure.
Fixed Interest Rate Debt
Our outstanding notes payable obligations (maturing at various times through May 2029)July 2030) have fixed interest rates which limit the risk of fluctuating interest rates. However, interest rate fluctuations may affect the fair value of our fixed rate debt instruments. At September 30, 2017,March 31, 2020, we had $1,080.2 million$1.061 billion of fixed rate debt outstanding with an estimated fair value of $1,095.7 million.$1.148 billion. The carrying values of our revolving line of credit and term loan are deemed to be at fair value since the outstanding debt is directly tied to monthly LIBOR contracts. Additionally, we consider our $250.0 million term loan outstanding as of September 30, 2017March 31, 2020 to be fixed rate debt as the rate is effectively fixed by an interest rate swap agreement. If interest rates at September 30, 2017March 31, 2020 had been 1.0% higher, the fair value of those debt instruments on that date would have decreased by approximately $26.7$55.0 million. If interest rates at September 30, 2017March 31, 2020 had been 1.0% lower, the fair value of those debt instruments on that date would have increased by approximately $46.4$59.3 million.
Variable Interest Rate Debt
At September 30, 2017,March 31, 2020, we had $250.0 million of variable rate debt outstanding. We have historically entered into forward starting interest rate swaps in order to economically hedge against the risk of rising interest rates that would affect our interest expense related to our future anticipated debt issuances as part of its overall borrowing program. See the discussion under Note 54 to the accompanying consolidated financial statements for certain quantitative details related to the interest rate swaps and for a discussion on how we value derivative financial instruments. Based upon this amount of variable rate debt and the specific terms, if market interest rates increased 1.0%, our annual interest expense would increase by approximately $0.0 million with a corresponding decrease in our net income and cash flows for the year. Conversely, if market rates decreased 1.0%, our annual interest expense would decrease by approximately $0.0 million with a corresponding increase in our net income and cash flows for the year.
ITEM 4. CONTROLS AND PROCEDURES
Controls and Procedures (American Assets Trust, Inc.)
American Assets Trust, Inc. maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in American Assets Trust, Inc.'s reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the rules and regulations of the SEC and that such information is accumulated and communicated to management, including American Assets Trust, Inc.'s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
American Assets Trust, Inc. has carried out an evaluation, under the supervision and with the participation of management, including American Assets Trust, Inc.'s Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of its disclosure controls and procedures as of September 30, 2017,March 31, 2020, the end of the period covered by this report. Based on the foregoing, its Chief Executive Officer and Chief Financial Officer have concluded, as of September 30, 2017,March 31, 2020, that American Assets Trust, Inc.'s disclosure controls and procedures were effective in ensuring that information required to be disclosed by it in reports filed or submitted under the Exchange Act (1) is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to its management, including American Assets Trust, Inc.'s Chief Executive Officer and its Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
No changes to American Assets Trust, Inc.'s internal control over financial reporting were identified in connection with the evaluation referenced above that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, American Assets Trust, Inc.'s internal control over financial reporting.
Controls and Procedures (American Assets Trust, L.P.)
The Operating Partnership maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the rules and regulations of the SEC and that such information is accumulated and communicated to management, including the Operating Partnership's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Operating Partnership has carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of its disclosure controls and procedures as of September 30, 2017,March 31, 2020, the end of the period covered by this report. Based on the foregoing, its Chief Executive Officer and Chief Financial Officer have concluded, as of September 30, 2017,March 31, 2020, that the Operating Partnership's disclosure controls and procedures were effective in ensuring that information required to be disclosed by it in reports filed or submitted under the Exchange Act (1) is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
No changes to the Operating Partnership's internal control over financial reporting were identified in connection with the evaluation referenced above that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Operating Partnership's internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party, as plaintiff or defendant, to any legal proceedings that we believe to be material or which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition or results of operation if determined adversely to us. We may be subject to on-going litigation, relating to our portfolio and the properties comprising our portfolio, and we expect to otherwise be party from time to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business.
ITEM 1A. RISK FACTORS
There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of our 2019 Form 10-K, as filed with the U.S. Securities and Exchange Commission on February 14, 2020, and available at www.sec.gov or on the "Investors" page of www.americanassetstrust.com, we included a detailed discussion of our risk factors. Other than as noted below, our risk factors have been nonot changed significantly from those disclosed in our 2019 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report on Form 10-Q. Any of the risks described in our 2019 Form 10-K as well as any of the risks described below could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-
looking statements are made. The risk factors described in our 2019 Form 10-K and the risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.
The novel coronavirus (COVID-19) and other possible pandemics and similar outbreaks, could result in material changesadverse effects on our business, financial position, results of operations and cash flows.
The outbreak of COVID-19, which has rapidly spread to a growing number of countries, including the United States and the specific regions in which our properties are located, has created considerable instability and disruption in the U.S. and world economies. Considerable uncertainty still surrounds COVID-19 and its potential effects, and the extent of and effectiveness of any responses taken on a national and local level. However, measures taken to limit the impact of COVID-19, including “social distancing” and other restrictions on travel, congregation and business operations have already resulted in significant negative economic impacts. The long-term impact of COVID-19 on the U.S. and world economies remains uncertain, but is likely to result in a world-wide economic downturn, the duration and scope of which cannot currently be predicted. The extent to which our financial condition, operating results will continue to be affected by the COVID-19 pandemic will largely depend on future developments, which are highly uncertain and cannot be accurately predicted.
Our operating results depend, in large part, on revenues derived from leasing space in our retail, office, mixed-use and multifamily properties and the ability of tenants to generate sufficient income to pay their rents in a timely manner. The market and economic challenges created by the COVID-19 pandemic, and measures implemented to prevent its spread, have, and may continue to, adversely affect our returns and profitability and, as a result, our ability to make distributions to American Assets Trust, Inc.’s stockholders or American Assets Trust, L.P.’s unitholders or to realize appreciation in the value of our properties. The spread of COVID-19 could result in further increases in unemployment, and tenants that experience deteriorating financial conditions as a result of the pandemic may be unwilling or unable to pay rent on a timely basis, or at all. In some cases, we may have to restructure tenants’ rent obligations, and may not be able to do so on terms as favorable to us as those currently in place. Numerous state, local, federal and industry-initiated efforts may also affect our ability to collect rent or enforce remedies for the failure to pay rent, including, among others, limitations, prohibitions and moratoriums on evicting tenants unwilling or unable to pay rent. In the event of tenant nonpayment, default or bankruptcy, we may incur costs in protecting our investment and re-leasing our properties, and have limited ability to renew existing leases or sign new leases at projected rents.
Our properties may also incur significant costs or losses related to shelter-in-place orders, quarantines, infection or other related factors, which may result in a negative impact on our occupancy levels. We typically conduct aspects of our leasing activity on-site at our multifamily apartment communities. Reductions in the ability and willingness of prospective residents to visit our communities due to the risk factors included in Item 1A. “Risk Factors”COVID-19 pandemic could reduce rental revenue and ancillary operating revenue produced by our properties. Additionally, if there is an outbreak that directly impacts one or more of our properties, we may experience negative publicity and/or an unwillingness of prospective tenants, customers of tenants or residents to visit or ultimately choose to lease our space in our annual reportproperties or live in our communities, which could directly affect our rental revenue. In addition, property managers may be limited in their ability to properly maintain our multifamily apartment communities and other properties.
Additionally, market fluctuations as a result of the COVID-19 pandemic may affect our ability to obtain necessary funds for our operations from current lenders or new borrowings. We may be unable to obtain financing for the acquisition of investments on satisfactory terms, or at all. The occurrence of any of the foregoing events or any other related matters could have a material adverse effect on our business, financial condition, results of operations or cash flows.
The global impact of the COVID-19 pandemic continues to evolve rapidly, and the extent of its effect on our operational and financial performance will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic effects of the pandemic and related containment measures, among others. As a result, the COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial condition and results of operations. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in our Annual Report on Form 10-K for the year ended December 31, 2016.2019. In addition, if in the future there is an outbreak of another highly infectious or contagious disease or other health concern, our company and our properties may be subject to similar risks as posed by COVID-19.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| | | | | | | | |
| Exhibit No. | | Description |
| | |
Exhibit No.31.1* | | Description |
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101*101.INS* | | The Company’s Quarterly Report on Form 10-Q forXBRL Instance Document - the quarter ended September 30, 2017, formattedinstance document does not appear in the Interactive Data File because its XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statement of Equity, (iv) Consolidated Statements of Cash Flowstags are embedded within the Inline XBRL document. |
| 101.SCH* | | XBRL Taxonomy Extension Schema Document |
| 101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and (v) the Notes to Consolidated Financial Statements that have been detail tagged.contained in Exhibit 101) |
* Filed herewith.
(1) Incorporated herein by reference to American Assets Trust, Inc.'s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 19, 2017.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto authorized.
| | | | | | | | | | | | | | |
| American Assets Trust, Inc. | | | American Assets Trust, L.P. | |
| | | By: American Assets Trust, Inc. | |
| | | Its: General Partner | |
| | | | |
American Assets Trust, Inc. | | American Assets Trust, L.P. |
| | By: American Assets Trust, Inc. |
| | Its: General Partner |
| | |
| /s/ ERNEST RADY | | | /s/ ERNEST RADY | |
| Ernest Rady | | | Ernest Rady | |
| Chairman, President and Chief Executive Officer | | | Chairman, President and Chief Executive Officer | |
| (Principal Executive Officer) | | | (Principal Executive Officer) | |
| | | | |
| /s/ ROBERT F. BARTON | | | /s/ ROBERT F. BARTON | |
| Robert F. Barton | | | Robert F. Barton | |
Executive Vice President, Chief Financial
Officer | | | Executive Vice President, Chief Financial
Officer | |
(Principal Financial and Accounting
Officer) | | | (Principal Financial and Accounting
Officer) | |
| | | | |
| Date: | November 3, 2017May 1, 2020 | | Date: | November 3, 2017May 1, 2020 |