American Assets Trust, Inc. Reports Fourth Quarter and Year-End 2017 Financial Results
Net income available to common stockholders of
Funds From Operations per diluted share decreased 4% and increased 4% year-over-year for the three months and year ended December 31, 2017, respectively
Reaffirming 2018 FFO annual guidance range of
Same-store cash NOI decreased 2.1% and 0.2% year-over-year for the three months and year ended December 31, 2017, respectively
Financial Results and Recent Developments
- Net income available to common stockholders of
$7.1 million and$29.1 million for the three months and year ended December 31, 2017, respectively, or$0.15 and$0.62 per diluted share, respectively - Funds From Operations ("FFO") decreased 4% and increased 4% year-over-year to
$0.46 and$1.92 per diluted share for the three months and year ended December 31, 2017, respectively, compared to the same periods in 2016 - Reaffirming 2018 FFO annual guidance range of
$2.01 to $2.09 per diluted share - Same-store cash NOI decreased 2.1% and 0.2% for the three months and year ended December 31, 2017, respectively, compared to the same periods in 2016
- Leased approximately 20,000 comparable office square feet at an average GAAP-basis and cash-basis contractual rent increase of 21% and 11%, respectively, during the three months ended December 31, 2017
- Leased approximately 45,000 comparable retail square feet at an average GAAP-basis contractual rent and cash-basis contractual rent increase of 52% and 35%, respectively, during the three months ended December 31, 2017
- Credit facility amended and restated to increase the revolving line of credit, extend maturity date and decrease credit spreads
- Term loan agreement amended to decrease credit spreads
Net income attributable to common stockholders was
During the fourth quarter of 2017, the company generated funds from operations (“FFO”) for common stockholders of
FFO is a non-GAAP supplemental earnings measure which the company considers meaningful in measuring its operating performance. A reconciliation of FFO to net income is attached to this press release.
Portfolio Results
The portfolio leased status as of the end of the indicated quarter was as follows:
December 31, 2017 | September 30, 2017 | December 31, 2016 | ||||
Total Portfolio | ||||||
Retail (1) | 96.8 | % | 97.0 | % | 96.6 | % |
Office | 88.4 | % | 89.9 | % | 90.1 | % |
Multifamily (2) | 91.8 | % | 91.3 | % | 90.3 | % |
Mixed-Use: | ||||||
Retail | 96.9 | % | 93.7 | % | 98.7 | % |
Hotel | 92.5 | % | 92.7 | % | 89.8 | % |
Same-Store Portfolio | ||||||
Retail (1) | 97.1 | % | 97.2 | % | 96.9 | % |
Office | 88.4 | % | 89.9 | % | 90.1 | % |
Multifamily (2)(3) | 92.1 | % | 91.6 | % | 90.3 | % |
Mixed-Use: | ||||||
Retail | 96.9 | % | 93.7 | % | 98.7 | % |
Hotel | 92.5 | % | 92.7 | % | 89.8 | % |
(1) Total retail leased percentage includes the retail components of Hassalo on Eighth. The Elwood, Velomor and
(2) Excluding the 21 off-line units associated with the Loma Palisades repositioning, total multifamily leased percentage was 92.7% and 92.3% at December 31, 2017 and
(3) Same-store multifamily leased percentages excludes the
During the fourth quarter of 2017, the company signed 24 leases for approximately 81,600 square feet of retail and office space, as well as 439 multifamily apartment leases. Renewals accounted for 78.6% of the comparable retail leases, 60.0% of the comparable office leases and 46.2% of the residential leases.
Retail and Office
On a comparable space basis (i.e. leases for which there was a former tenant) during the fourth quarter of 2017 and trailing four quarters ended December 31, 2017, our retail and office leasing spreads are shown below:
Number of Leases Signed | Comparable Leased Sq. Ft. | Average Cash Basis % Change Over Prior Rent | Average Cash Contractual Rent Per Sq. Ft. | Prior Average Cash Contractual Rent Per Sq. Ft. | GAAP Straight-Line Basis % Change Over Prior Rent | ||||||
Retail | Q4 2017 | 14 | 45,000 | 34.9 | % | $48.33 | $35.83 | 51.8 | % | ||
Last 4 Quarters | 62 | 309,000 | (3.0)% (1) | $36.24 | $37.36 | 13.1% (1) | |||||
Office | Q4 2017 | 5 | 20,000 | 11.2 | % | $55.87 | $50.26 | 21.4 | % | ||
Last 4 Quarters | 41 | 269,900 | 16.4 | % | $50.89 | $43.73 | 23.7 | % |
(1) Retail leasing spreads were significantly impacted by the
Multifamily
The average monthly base rent per leased unit for same-store properties for the three months ended December 31, 2017 was
The average monthly base rent per leased unit for same-store properties for the year ended December 31, 2017 was
For the three months ended December 31, 2017, the
Same-Store Net Operating Income
For the three months and year ended
Three Months Ended (1) | Year Ended (2) | ||||||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||||
GAAP Basis: | |||||||||||||||||||||||||
Retail | $ | 18,807 | $ | 18,757 | 0.3 | % | $ | 73,272 | $ | 72,825 | 0.6 | % | |||||||||||||
Office | 17,295 | 18,397 | (6.0 | ) | 60,768 | 59,438 | 2.2 | ||||||||||||||||||
Multifamily | 4,566 | 4,243 | 7.6 | 13,140 | 12,683 | 3.6 | |||||||||||||||||||
Mixed-Use | 6,173 | 6,139 | 0.6 | 24,653 | 26,004 | (5.2 | ) | ||||||||||||||||||
$ | 46,841 | $ | 47,536 | (1.5 | ) | % | $ | 171,833 | $ | 170,950 | 0.5 | % | |||||||||||||
Cash Basis: | |||||||||||||||||||||||||
Retail | $ | 18,647 | $ | 17,869 | 4.4 | % | $ | 72,388 | $ | 72,094 | 0.4 | % | |||||||||||||
Office | 16,745 | 18,475 | (9.4 | ) | 59,031 | 58,464 | 1.0 | ||||||||||||||||||
Multifamily | 4,512 | 4,402 | 2.5 | 13,140 | 12,683 | 3.6 | |||||||||||||||||||
Mixed-Use | 6,040 | 6,166 | (2.0 | ) | 24,367 | 25,949 | (6.1 | ) | |||||||||||||||||
$ | 45,944 | $ | 46,912 | (2.1 | ) | % | $ | 168,926 | $ | 169,190 | (0.2 | ) | % | ||||||||||||
(1) Same-store portfolio excludes (i) Hassalo on Eighth - Retail, which was placed in operations in April, July and October of 2016; (ii) the
(2) 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 operations in April, July and October of 2016; (iv) the
On a same-store GAAP basis, retail NOI for the three months ended
On a same-store GAAP basis, office NOI decreased for the three months ended
On a same-store GAAP and cash basis, multifamily NOI increased for the three months and year ended
On a same-store GAAP basis, mixed-use NOI for the three months ended
Credit Facility and Term Loan Agreement
On
Additionally, on
Balance Sheet and Liquidity
At December 31, 2017, the company had gross real estate assets of
Dividends
The company declared dividends on its shares of common stock of
In addition, the company has declared a dividend on its common stock of
Guidance
The company affirms its guidance range for full year 2018 FFO per diluted share of $2.01 to $2.09 per share, a midpoint increase of 7% from 2017 FFO per diluted share of
The foregoing estimates are forward-looking and reflect management's view of current and future market conditions, including certain assumptions with respect to leasing activity, rental rates, occupancy levels, interest rates, credit spreads and the amount and timing of acquisition and development activities. The company's actual results may differ materially from these estimates.
Conference Call
The company will hold a conference call to discuss the results for the fourth quarter and year end of 2017 on Wednesday, February 14, 2018 at
Supplemental Information
Supplemental financial information regarding the company's fourth quarter and year end 2017 results may be found in the “Investor Relations” section of the company's website at www.americanassetstrust.com. This supplemental information provides additional detail on items such as property occupancy, financial performance by property and debt maturity schedules.
Financial Information
Consolidated Balance Sheets
(In Thousands, Except Share Data)
December 31, 2017 | December 31, 2016 | ||||||||
Assets | |||||||||
Real estate, at cost | |||||||||
Operating real estate | $ | 2,536,474 | $ | 2,241,061 | |||||
Construction in progress | 68,272 | 50,498 | |||||||
Held for development | 9,392 | 9,447 | |||||||
2,614,138 | 2,301,006 | ||||||||
Accumulated depreciation | (537,431 | ) | (469,460 | ) | |||||
Net real estate | 2,076,707 | 1,831,546 | |||||||
Cash and cash equivalents | 82,610 | 44,801 | |||||||
Restricted cash | 9,344 | 9,950 | |||||||
Accounts receivable, net | 9,869 | 9,330 | |||||||
Deferred rent receivables, net | 38,973 | 38,452 | |||||||
Other assets, net | 42,361 | 52,854 | |||||||
Total assets | $ | 2,259,864 | $ | 1,986,933 | |||||
Liabilities and equity | |||||||||
Liabilities: | |||||||||
Secured notes payable, net | $ | 279,550 | $ | 445,180 | |||||
Unsecured notes payable, net | 1,045,470 | 596,350 | |||||||
Unsecured line of credit | — | 20,000 | |||||||
Accounts payable and accrued expenses | 38,069 | 32,401 | |||||||
Security deposits payable | 6,570 | 6,114 | |||||||
Other liabilities and deferred credits, net | 46,061 | 48,337 | |||||||
Total liabilities | 1,415,720 | 1,148,382 | |||||||
Commitments and contingencies | |||||||||
Equity: | |||||||||
American Assets Trust, Inc. stockholders' equity | |||||||||
Common stock, $0.01 par value, 490,000,000 shares authorized, 47,204,588 and 45,732,109 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | 473 | 457 | |||||||
Additional paid-in capital | 919,066 | 874,597 | |||||||
Accumulated dividends in excess of net income | (97,280 | ) | (77,296 | ) | |||||
Accumulated other comprehensive income | 11,451 | 11,798 | |||||||
Total American Assets Trust, Inc. stockholders' equity | 833,710 | 809,556 | |||||||
Noncontrolling interests | 10,434 | 28,995 | |||||||
Total equity | 844,144 | 838,551 | |||||||
Total liabilities and equity | $ | 2,259,864 | $ | 1,986,933 |
Unaudited Consolidated Statements of Income
(In Thousands, Except Shares and Per Share Data)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Revenue: | |||||||||||||||||||
Rental income | $ | 77,703 | $ | 72,180 | $ | 298,803 | $ | 279,498 | |||||||||||
Other property income | 4,043 | 4,382 | 16,180 | 15,590 | |||||||||||||||
Total revenue | 81,746 | 76,562 | 314,983 | 295,088 | |||||||||||||||
Expenses: | |||||||||||||||||||
Rental expenses | 23,129 | 20,919 | 84,006 | 79,553 | |||||||||||||||
Real estate taxes | 8,696 | 7,932 | 32,671 | 28,378 | |||||||||||||||
General and administrative | 6,211 | 4,441 | 21,382 | 17,897 | |||||||||||||||
Depreciation and amortization | 19,918 | 18,160 | 83,278 | 71,319 | |||||||||||||||
Total operating expenses | 57,954 | 51,452 | 221,337 | 197,147 | |||||||||||||||
Operating income | 23,792 | 25,110 | 93,646 | 97,941 | |||||||||||||||
Interest expense | (13,992 | ) | (12,788 | ) | (53,848 | ) | (51,936 | ) | |||||||||||
Other (expense) income, net | (69 | ) | 86 | 334 | (368 | ) | |||||||||||||
Net income | 9,731 | 12,408 | 40,132 | 45,637 | |||||||||||||||
Net income attributable to restricted shares | (60 | ) | (61 | ) | (241 | ) | (189 | ) | |||||||||||
Net income attributable to unitholders in the Operating Partnership | (2,594 | ) | (3,486 | ) | (10,814 | ) | (12,863 | ) | |||||||||||
Net income attributable to American Assets Trust, Inc. stockholders | $ | 7,077 | $ | 8,861 | $ | 29,077 | $ | 32,585 | |||||||||||
Net income per share | |||||||||||||||||||
Basic income attributable to common stockholders per share | $ | 0.15 | $ | 0.19 | $ | 0.62 | $ | 0.72 | |||||||||||
Weighted average shares of common stock outstanding - basic | 46,908,745 | 45,480,870 | 46,715,520 | 45,332,471 | |||||||||||||||
Diluted income attributable to common stockholders per share | $ | 0.15 | $ | 0.19 | $ | 0.62 | $ | 0.72 | |||||||||||
Weighted average shares of common stock outstanding - diluted | 64,103,725 | 63,369,692 | 64,087,250 | 63,228,159 | |||||||||||||||
Dividends declared per common share | $ | 0.27 | $ | 0.26 | $ | 1.05 | $ | 1.01 | |||||||||||
Reconciliation of Net Income to Funds From Operations
The company's FFO attributable to common stockholders and operating partnership unitholders and reconciliation to net income is as follows (in thousands except shares and per share data, unaudited):
Three Months Ended | Year Ended | ||||||||
December 31, 2017 | December 31, 2017 | ||||||||
Funds From Operations (FFO) | |||||||||
Net income | $ | 9,731 | $ | 40,132 | |||||
Depreciation and amortization of real estate assets | 19,918 | 83,278 | |||||||
FFO, as defined by NAREIT | $ | 29,649 | $ | 123,410 | |||||
Less: Nonforfeitable dividends on incentive stock awards | (59 | ) | (236 | ) | |||||
FFO attributable to common stock and units | $ | 29,590 | $ | 123,174 | |||||
FFO per diluted share/unit | $ | 0.46 | $ | 1.92 | |||||
Weighted average number of common shares and units, diluted | 64,106,314 | 64,089,921 |
Reconciliation of Same-Store Cash NOI to Net Income
The company's reconciliation of Same-Store Cash NOI to Net Income is as follows (in thousands, unaudited):
Three Months Ended (1) | Year Ended (2) | ||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Same-store cash NOI | $ | 45,944 | $ | 46,912 | $ | 168,926 | $ | 169,190 | |||||||||||
Non-same-store cash NOI | 3,975 | (473 | ) | 26,919 | 15,633 | ||||||||||||||
Cash NOI | $ | 49,919 | $ | 46,439 | $ | 195,845 | $ | 184,823 | |||||||||||
Non-cash revenue and other operating expenses (3) | 2 | 1,272 | 2,461 | 2,334 | |||||||||||||||
General and administrative | (6,211 | ) | (4,441 | ) | (21,382 | ) | (17,897 | ) | |||||||||||
Depreciation and amortization | (19,918 | ) | (18,160 | ) | (83,278 | ) | (71,319 | ) | |||||||||||
Interest expense | (13,992 | ) | (12,788 | ) | (53,848 | ) | (51,936 | ) | |||||||||||
Other income, net | (69 | ) | 86 | 334 | (368 | ) | |||||||||||||
Net Income | $ | 9,731 | $ | 12,408 | $ | 40,132 | $ | 45,637 | |||||||||||
Number of properties included in same-store analysis | 22 | 22 | 21 | 21 |
(1) Same-store portfolio excludes (i) Hassalo on Eighth - Retail, which was placed in operations in April, July and October of 2016; (ii) the
(2) 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 operations in April, July and October of 2016; (iv) the
(3) Represents adjustments related to the straight-line rent income recognized during the period offset by cash received during the period and the provision for bad debts recorded for deferred rent receivable balances; the amortization of above (below) market rents, the amortization of lease incentives paid to tenants, the amortization of other lease intangibles, lease termination fees at City Center Bellevue, and straight-line rent expense for our leases of the Annex at The Landmark at One Market and retail space at Waikiki Beach Walk - Retail.
Reported results are preliminary and not final until the filing of the company's Form 10-K with the
Use of Non-GAAP Information
Funds from Operations
The company calculates FFO in accordance with the standards established by the
FFO is a supplemental non-GAAP financial measure. Management uses FFO as a supplemental performance measure because it believes that FFO is beneficial to investors as a starting point in measuring the company's operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year-over-year, captures trends in occupancy rates, rental rates and operating costs. The company also believes that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare the company's operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of the company's properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of the company's properties, all of which have real economic effects and could materially impact the company's results from operations, the utility of FFO as a measure of the company's performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the NAREIT definition as the company does, and, accordingly, the company's FFO may not be comparable to such other REITs' FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of the company's performance. FFO should not be used as a measure of the company's liquidity, nor is it indicative of funds available to fund the company's cash needs, including the company's ability to pay dividends or service indebtedness. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.
Cash Net Operating Income
The company uses cash net operating income ("NOI") internally to evaluate and compare the operating performance of the company's properties. The company believes cash NOI provides useful information to investors regarding the company's financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level, and when compared across periods, can be used to determine trends in earnings of the company's properties as this measure is not affected by (1) the non-cash revenue and expense recognition items, (2) the cost of funds of the property owner, (3) 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 (4) general and administrative expenses and other gains and losses that are specific to the property owner. The company believes the exclusion of these items from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating the company's properties as well as trends in occupancy rates, rental rates and operating costs. Cash NOI is a measure of the operating performance of the company's properties but does not measure the company's performance as a whole. Cash NOI is therefore not a substitute for net income or operating income as computed in accordance with GAAP.
Cash NOI, is a non-GAAP financial measure of performance. The company defines cash NOI as operating revenues (rental income, tenant reimbursements, lease termination fees, ground lease rental income and other property income) less property and related expenses (property expenses, ground lease expense, property marketing costs, real estate taxes and insurance), adjusted for non-cash revenue and operating expense items such as straight-line rent, amortization of lease intangibles, amortization of lease incentives and other adjustments. Cash NOI also excludes general and administrative expenses, depreciation and amortization, interest expense, other nonproperty income and losses, acquisition-related expense, gains and losses from property dispositions, extraordinary items, tenant improvements, and leasing commissions. Other REITs may use different methodologies for calculating cash NOI, and accordingly, the company's cash NOI may not be comparable to the cash NOIs of other REITs.
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Forward Looking Statements
This press release may contain forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. While forward-looking statements reflect the company's good faith beliefs, assumptions and expectations, they are not guarantees of future performance. For a further discussion of these and other factors that could cause the company's future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the company's most recent annual report on Form 10-K, and other risks described in documents subsequently filed by the company from time to time with the
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