American Assets Trust, Inc. (AAT) Q4 2025 Earnings Call Transcript

Office Leasing: Continued signs of stabilization and gradual improvement in leasing activity across West Coast office markets. Tenant engagement is concentrated in high-quality assets, with increased interest from technology and innovation-driven tenants in Bellevue. Office portfolio ended the quarter 83% leased, with same-store office portfolio at 86% leased, up 150 basis points from Q3. Executed 23 leases totaling over 193,000 square feet in Q4, with positive cash leasing spreads of 6.6% and GAAP leasing spreads of 11.5%. Total office leasing volume increased 55% over 2024.

Retail Leasing: Retail portfolio ended the year 98% leased, with leasing spreads of 7% on a cash basis and 22% on a GAAP basis for the year. Retail availability remains near record lows nationally, supporting asking rents. Portfolio benefits from high barrier supply-constrained submarkets and strong occupancy.

Operational Efficiency in Multifamily: Multifamily portfolio ended the year 95.5% leased, with approximately 1% net effective rent growth year-over-year. Focused on occupancy, revenue management, and expense discipline amid elevated new supply in markets like San Diego and Portland.

Operational Efficiency in Mixed-Use: Mixed-use segment faced challenges with a 6.7% decline in NOI due to softer Waikiki hotel demand and higher operating expenses. However, retail portion of Waikiki Beach Walk increased 8% year-over-year.

Capital Allocation and Dividend Strategy: Board declared a quarterly dividend of $0.34 per share for Q1 2026. Management aims to maintain the dividend at current levels while improving the dividend coverage ratio as office developments stabilize and contribute more to cash flow.

2026 Priorities: Focus on driving office leasing, maintaining retail momentum, managing multifamily supply cycle, operating the hotel prudently, and strengthening the balance sheet to improve valuation over time.

Office Leasing Challenges: Approximately 8% of total office square footage is scheduled to expire in 2026, with 4% being known move-outs. This presents a risk of reduced occupancy and revenue if not managed effectively.

Multifamily Market Pressures: Elevated new supply in markets like San Diego and Portland is constraining near-term rent growth and leading to competitive pricing and concessions, which could impact revenue.

Tourism and Hotel Performance: Softer tourism trends in Waikiki have pressured hotel occupancy and rates, with RevPAR down 7% year-over-year. This could continue to impact mixed-use segment performance.

Retail Tenant Turnover: Four tenant move-outs in Q3 and Q4 of 2025 impacted retail performance, though some spaces have been backfilled. This highlights risks of tenant turnover and vacancy.

Macroeconomic Uncertainty: Persistent macroeconomic uncertainty could impact leasing velocity, rent collections, and overall financial performance.

Debt and Leverage: Net debt to EBITDA is relatively high at 6.9x, with a goal to reduce it to 5.5x or below. High leverage could limit financial flexibility.

Dividend Coverage: The dividend payout ratio was just under 100% in 2025 due to elevated CapEx spending, with a goal to reduce it to 85% over time. This could strain cash flow if not managed carefully.

Operating Expense Pressures: Higher operating expenses in multifamily and mixed-use segments, including inflationary pressures in Hawaii, could impact profitability.

Office Leasing: Targeting to end 2026 with 86%-88% leased across the entire office portfolio, an increase of about 400 basis points from the end of 2025. Continued focus on converting prospect activity into signed leases and commenced revenue at newer and repositioned assets.

Retail Performance: Retail availability is expected to remain near record lows nationally, supporting asking rents. Portfolio benefits from high barrier supply-constrained submarkets, strong occupancy, and a well-laddered expiration profile. Expect continued favorable performance in 2026.

Multifamily Segment: 2026 is viewed as a period of stabilization and recovery. Focus remains on disciplined revenue management, cost control, maximizing occupancy, and enhancing the resident experience. No rapid improvement assumed in 2026.

Hotel Operations: 2026 outlook assumes approximately 2.5% revenue growth and 4% expense growth for Embassy Suites in Waikiki. Average occupancy expected to increase by approximately 1%, with average RevPAR increasing by 2%.

FFO Guidance: 2026 FFO per share guidance range of $1.96 to $2.10, with a midpoint of $2.03, representing a 1.5% increase over 2025. Portfolio-wide same-store NOI growth, excluding reserves, is over 2%.

Dividend Payout Ratio: Expected to remain at current levels with a payout ratio of approximately 89% in 2026, trending lower beyond 2026 towards a goal of 85%.

Quarterly Dividend: The Board has declared a quarterly dividend of $0.34 per share for the first quarter, payable on March 19 to stockholders of record on March 5.

Dividend Maintenance: The company expects to maintain the dividend at current levels with an improving dividend coverage ratio as office developments stabilize and contribute more to cash flow.

Dividend Payout Ratio: The 2025 payout ratio was just under 100% due to elevated CapEx spending. The 2026 outlook implies a payout ratio of approximately 89%, with a long-term goal of 85%.

Share Price Concerns: Management expressed frustration over the current share price, which they believe does not reflect the intrinsic value and quality of the company's assets.

Capital Allocation: The company plans to allocate capital prudently and reevaluate conditions as they evolve to create long-term value for shareholders.