Q4 2023 American Assets Trust Inc Earnings Call

Operator: www.americanassets.com Good day, and welcome to the American Assets Trust fourth quarter and year-end 2023 earnings conference call. All participants will be in listen-only mode.

Good day and welcome to the American assets Trust fourth quarter and year end 2023 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Operator: If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then 1 on your telephone keypad.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

Operator: To withdraw your question, please press Star then 2. Please note that statements made on this conference call include forward-looking statements based on current expectations, which statements are subject to risks and uncertainties discussed in the company's filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, as actual events could cause the company's results to differ materially from these forward-looking statements. As a reminder, today's conference call is being recorded. It is now my pleasure to introduce your host, Mr. Adam Wyll, President and COO of American Assets Trust. Thank you, Mr. Wyll.

To withdraw your question. Please press Star then two.

Please note that statements made on this conference call include forward looking statements based on current expectations, which statements are subject to risks and uncertainties discussed in the company's filings with the S. E C U.

You are cautioned not to place undue reliance on these forward looking statements as actual events could cause the company's results to differ materially from these forward looking statements.

As a reminder, today's conference call is being recorded.

It is now my pleasure to introduce your host Mr. Adam <unk>, President and C. O O for American assets Trust. Thank you. Mr. Weil you may begin.

Operator: You may begin. Thank you, Gary. Good morning, everyone.

Thank you Gary Good morning, everyone and welcome to American assets Trust year end and fourth quarter 2023 earnings call yesterday afternoon, our earnings release and supplemental information were furnished to the SEC on form 8-K. Both are now available on the investors section of our website American assets Trust's Dot com.

Adam Brandon Wyll: Welcome to American Asset Trust's year-end and fourth quarter 2023 earnings call. Yesterday afternoon, our earnings release and supplemental information were furnished to the SEC and Form 8K. Both are now available on the investor section of our website, AmericanAssetsTrust.com. With that quick introduction, I'll turn the call over to Ernest Rady, our Chairman and CEO, to begin the discussion of our year-end and fourth quarter 2023 results.

That quick intro I'll turn the call over to Ernest Rady, our chairman and CEO to begin the discussion of our yearend and fourth quarter 2023 results Ernest Thanks, Adam and good morning, everybody and thank you all our shareholders for your continued support I wanted to reiterate our continuing focus on making disciplined business decisions that will.

Ernest Sylvan Rady: Thanks, Adam. Good morning, everybody, and thank you all, our shareholders, for your continued support. I wanted to reiterate our continuing focus on making disciplined business decisions that will support the growth of our earnings and shareholder wealth over the long term. We believe that this long-term focus, guided by high-quality, irreplaceable, and diverse portfolio properties, as well as the strength of our balance sheet, our top-notch management team, our very nimble and efficient operating platform, and our ability to quickly and prudently adapt to meet evolving demands, will allow us to remain Particularly as we see replacement costs for high-quality property like ours soaring and likely to climb over the years to come, we think that today's real estate prices for premium property like ours will be a bargain in the future.

To support the growth of our earnings and shareholder wealth over the long term.

We believe that long term focus guided by high quality irreplaceable and diverse portfolio of properties as well as the strength of our balance sheet. Our top notch management team are very nimble and efficient operating platform and our ability to quickly and prudently adapt to meet evolving.

We'll have them well.

It will allow us to remain well positioned to continue growing our earnings on an accretive basis.

It contributes to our outperformance over the long term.

Particularly as we see replacement cost for a high quality property like our story and likely continue to decline over the years. The carbon we think that two days real estate prices or premium properties like ours will be a bargain in the future in the meantime, we are encouraged by our operating fundamentals.

Ernest Sylvan Rady: In the meantime, we are encouraged by our operating fundamentals as we built upon our solid growth over our record FFO year in 2022. In fact, we have exceeded that in 2023 to achieve our highest FFO per share since our IPO, and that's over 13 years ago, which makes me so proud of our company, the management team, and all of our associates. And by the way, that growth has been notwithstanding the difficult and generally unpredictable economic cycles, volatility, and world events that we've been focusing on and facing and likely will continue to face. To me, that speaks volumes about the resilience of American Assets Trust.

As we built upon our solid growth over our record F. F. All year in 'twenty 'twenty. Two in fact, we have exceeded that in 2023 to achieve our highest F. F O per share since our IPO and that's over 13 years ago.

Which makes me so proud of our company the management team and all of our associates.

By the way that growth has been.

Notwithstanding the difficult and generally unpredictable economic cycles.

Volatility and world events that we've been focusing and facing and likely will continue to face.

To me that speaks volumes about the resilience of American assets Trust, Yes, we will see opportunity for organic growth over series of years, including through the lease up of our new developments the eventual rebound of Asian, tourism to Oahu, pushing rents and prudently.

Ernest Sylvan Rady: Yet we will see opportunity for organic growth over the ensuing years, including through the lease-up of our new developments, the eventual rebound of Asian tourism to Oahu, pushing rents, and brutally managing expenses that we will do our absolute best to capitalize on. But during these volatile and uncertain times, our number one priority is maintaining a strong balance sheet with ample liquidity and an increasing dividend. Adam, Bob, and Steve will go into more detail on our various asset segments, financial results, and guidance. But first, I want to say that the Board of Directors has approved a quarterly dividend of 33.5 cents per share for the quarter, an increase of 1.5 percent from our previous dividend, which you believe is supported by our financial results and is an expression of the Board's confidence in our expected performance. The dividend will be paid on March 21st to shareholders on March 7th. On behalf of all of us at American Just, we thank you for your confidence and continued support in allowing us to continue to manage your company. I'm going to turn the call over to Adam. Thank you. Thanks, Ernest.

And they expect managing expenses that we will do our absolute best to capitalize on them, but during these volatile and uncertain times. Our number one priority is maintaining a strong balance sheet with ample liquidity and an increasing dividend.

Adam Bob and Steve will go into more detail on our various asset segments financial results and guidance first but first I want to say that the board of directors has approved a quarterly dividend of 33, and one half cents per share for the quarter, an increase of one 5% from our <unk>.

<unk> dividend.

Do you believe is supported by a friend of our financial results.

And as an expression of the boards confidence and our expected performance the dividend will be paid on March 20, Shaw twenty-first threshold shareholders of March 7th.

On behalf of all of US at American Trust, we thank you for your confidence and can.

Indian support and allowing us to continue to manage our company I'm going to turn the call over back to al.

Adam Brandon Wyll: In 2023, our operating fundamentals and financial results were quite healthy and among the best in our history, including the following achievements, to name a few. As Ernest mentioned, our highest ever FFO per share, a 3% increase from 2022, and an approximately 7% compounded annual growth rate in our FFO per share since our IPO in 2011. Our highest ever total revenue, an over 4% increase from 2022, our highest ever net operating income, or NOI, a 3% increase from 2022, our highest ever average monthly base rent per square foot for both our office portfolio and retail portfolio, highest ever average monthly rent per unit for our multifamily portfolio, and our highest ever ADR and REVPAR for our WVW Embassy Suite and our highest-ever total dividends paid of over $101 million.

Thanks, Ernest in 2023, our operating fundamentals and financial results were quite healthy and among the best in our history, including the following achievements to name a few as Ernest mentioned, our highest ever <unk> per share a 3% increase from 2022, and an approximately 7% compounded annual growth rate.

And our F F O per share since our IPO in 'twenty 11.

Our highest ever total revenue and over 4% increase from 2022, our highest ever net operating income or NOI of 3% increase from 2022, our highest ever average monthly base rent per square foot for both our office portfolio and retail portfolio.

Ever.

Average monthly rent per unit for our multifamily portfolio and our highest ever ADR and revpar for our Wvw embassy suites, and our highest ever total dividends paid of over $101 million. We believe these achievements reflect in part the meaningful capital improvements that we've made to continue to enhance improve in <unk>.

Adam Brandon Wyll: We believe these achievements reflect, in part, the meaningful capital improvements that we've made to continue to enhance, improve, and amenitize our properties to remain best in class. We certainly know how well-received those are by our tenants, and it makes a significant difference in our ability to retain existing tenants, attract new tenants, and push rents, particularly with the high barrier to entry, modern and amenitized properties like ours that are in the path of growth, education, and innovation with convenient transportation access and, therefore, are more resilient to challenging market forces and inevitable cycles of the real estate industry. On the office front, a 2023 report from the U.S. Bureau of Labor Statistics showed that worker productivity sunk to its lowest level in 75 years, most of the decline being attributed to employees working from home and the corresponding lack of development and engagement. In fact, another industry report shows that companies that have gone fully remote have almost twice the annual turnover than companies with full-time offices and hybrid work policies.

<unk> of our properties to remain best in class, We certainly know how well received those had been by our tenants and it makes a significant difference in our ability to retain existing tenants attract new tenants and push rents, particularly with the high barrier to entry modern in a monetized properties like ours that are in the path of growth education and innovation.

<unk> with convenient transportation access and therefore are more resilient to challenging market forces, an inevitable cycles of the real estate industry.

On the office front at 2023 report from the U S Bureau of Labor statistics showed that worker productivity sunk to its lowest level in 75 years, most of which decline was attributed to employees working from home and a corresponding lack of development and engagement.

In fact, another industry report showed that companies that have gone fully remote have almost two times the annual turnover the companies with full time office and hybrid work policies with that keeps proving to us is that employers will eventually need to pivot away from remote remote policies and our job is to create impactful experiences at our office projects to help our.

Adam Brandon Wyll: What that keeps proving to us is that employers will eventually need to pivot away from remote policies, and our job is to create impactful experiences at our office projects to help our tenants attract employees to the office by enhancing amenities, technology, well-being, and the like, to support our tenants' operational, financial, and cultural objectives at the workplace. We've seen in the past week that UPS, Boeing, and others are now insisting on five days in the office for their employees as they understandably lose patience with remote work.

Tenants attract employees to the office by enhancing amenities technology wellbeing and the like to support our tenants' operational financial and cultural objectives at the workplace.

We've seen in the past week that U P S. Boeing and others are now insisting on five days in the office by their employees as they understandably lose patients with remote work.

Adam Brandon Wyll: Meanwhile, from the data we received based on Tenant Cards Wife's Access Control Records and Property Manager estimates, we have seen a further uptick in office utilization at our properties since the end of Q3, with Bellevue and Portland increasing another 5 to 10 percentage points, and San Diego and our landmark at One Market in San Francisco maintaining their strong utilization. And as hybrid work evolves, we note that more than three-fourths of our office tenants have employees in the office at least three days a week. Progress, to be sure.

Meanwhile, from the data we received based on tenant card Swipes access control records and property manager estimates, we have seen a further uptick in office utilization at our properties since the end of Q3 with Bellevue and Portland, increasing another five to 10 percentage points and San Diego and our landmark at one market in San Francisco.

Their strong utilization.

And as hybrid work evolves, we know that more than three fourths of our office tenants have employees in the office at least three days a week progress to be sure.

Adam Brandon Wyll: On the retail front, which comprises 27% of our portfolio NOI, we are about 95% leased, with just 6% of our retail GLA expiring this year. We continue to see an improved leasing environment post-COVID as retail fundamentals and U.S. consumer spending have remained relatively strong for the most part, assisted by steady labor markets, excess savings, and wealth creation from equity markets and home prices. In Q4, we had significant retail renewal activity. Our comparable retail leasing spreads have maintained their favorable trajectory over the past year plus, with a 7% increase on a cash basis and 13% increase on a straight line basis for Q4 deals, and a 6.5% increase on a cash basis and 15% increase on a straight-line basis for all of 2023. No doubt, this is a testament to our best-in-class and well-managed retail properties that are absolutely dominant in their trade areas, which reside in supply-constrained and densely populated markets with favorable demographics.

On the retail front, which comprises 27% of our portfolio NOI. We are about 95% leased with just 6% of our retail GLA expiring. This year, we continue to see an improved leasing environment post COVID-19 as retail fundamentals in U S. Consumer spending have remained relatively strong for the most part assisted by steady.

Labor markets excess savings and wealth creation from equity markets and home prices.

In Q4, we had significant retail renewal activity, our comparable retail leasing spreads have maintained their favorable trajectory over the past year, plus with a 7% increase on a cash basis and 13% increase on a straight line basis for Q4 deals and a six 5% increase on a cash basis and 15% increase on a straight line basis.

For all of 2023 no doubt this is a testament to our best in class and well managed retail properties that are absolutely dominant in their trade areas, which reside in supply constrained and densely populated markets with favorable demographics.

Adam Brandon Wyll: With respect to our San Diego multifamily communities, we continue to see slightly positive, albeit decelerating, blended rent growth in Q4. Specifically, in San Diego, we saw leases on vacant units at an average rate of approximately 7% reduction from prior rents. This was largely due to pushing the lease percentage from 93.5% in Q3 to 95% in Q4, in what is otherwise a seasonally slow leasing period. While rates on renewed units increased an average of 8% over prior rents, for a blended average of approximately 1% increase.

With respect to our San Diego multifamily communities, we continue to see slightly positive, albeit decelerating blended rent growth in Q4, specifically in San Diego, we saw leases on vacant units ran at an average rate of approximately 7% reduction from prior rents this largely due to our pushing lease percentage from 93 and a half.

[noise] percent in Q3 to 95% in Q4 in what is otherwise a seasonally slow leasing period, while rates on renewed units increased an average of 8% over prior rents for a blended average of approximately 1% increase Additionally in San Diego net effective rents for our multifamily leases are now over 5% higher.

Adam Brandon Wyll: Additionally, in San Diego, net effective rents for our multifamily leases are now over 5% higher year over year compared to the fourth quarter of 2022. In Q4 in Portland, at our Haselo on 8th, we saw a blended decrease of approximately 4% between new move-ins and renewals, with concessions being offered on longer-term leases, as we worked to push our lease percentage from 92% in Q3 to just under 96% at the end of Q4. Net effective rents for our multifamily leases at Haselo are flat to slightly down year over year compared to the fourth quarter of 2022, as the multifamily market in the Pacific Northwest has remained sluggish with softening rents. As you know, our multifamily communities reside among favorable demographics with fairly low unemployment rates, strong income growth, and high ownership costs.

Year over year compared to the fourth quarter of 2022.

In Q4 in Portland at our Hassle and AIDS, we sell our blended decrease of approximately 4% between new move ins and renewals with concessions being offered on longer term leases as we worked to push our lease percentage from 92% in Q3 to just under 96% at the end of Q4 net effective rents for our multifamily <unk>.

Is it has a lower flat to slightly down year over year compared to the fourth quarter of 2022 as the multifamily market in the Pacific Northwest has remained sluggish with softening rents as you know our multifamily communities reside among favorable demographics with fairly low unemployment rates strong income growth and high ownership costs.

Adam Brandon Wyll: So we remain bullish long-term on our multifamily fundamentals and wanted to note that, notwithstanding some softening in the market, we realized same-store cash and OI growth of 5.5% in 2023 as compared to 2022. Touching briefly on a few tenants that filed bankruptcy towards the end of 2023, we have come to terms with WeWork at our Oregon Square and Rite Aid at our Del Monte Center, both of which have remained current on rents, to remain at those properties with extended terms subject to bankruptcy court approvals, which are anticipated in the coming quarters. In fact, WeWork has closed all competing locations in Portland, redirecting all business to our location at Oregon Square.

So we remain bullish long term on our multifamily fundamentals and wanted to note that notwithstanding some softening in the market. We realized same store cash NOI growth of five 5% in 2023 as compared to 2022.

Touching briefly on a few tenants that filed bankruptcy towards the end of 'twenty twenty-three, we have come to terms with we work at our Oregon Square and Rite aid at our del Monte Center, both of which have remained current on rents to remain at those properties with extended terms subject to bankruptcy court approvals, which are anticipated in the coming quarters. In fact, we work has closed all.

Competing locations in Portland, Redirecting all business to our location at Oregon Square.

Bob: And finally, we're pleased to announce that in January, we entered into a settlement agreement regarding building specifications for one of the existing buildings at our office project in UTC in San Diego, in which we received a net settlement payment of $10 million. With that, I'll turn the call over to Bob to discuss financial results and updated guidance and more details.

And finally, we're pleased to announce that in January we entered into a settlement agreement regarding building specifications for one of the existing buildings that are office project in UTC, and San Diego and which we received a net settlement payment of $10 million with that I'll turn the call over to Bob.

<unk> financial results and updated guidance in more detail.

Bob: Thank you, Adam, and good morning, everyone. Last night, we reported fourth-quarter and year-ended 2023 FFO per share of $0.57 and $2.40, respectively. Fourth quarter and year-ended 2023 net income attributable to common stockholders per share was 17 cents and 84 cents, respectively. Fourth quarter FFO decreased by approximately 2 cents to 57 cents per FFO share compared to the third quarter of 2023, primarily due to lower revenue at the Embassy Suites Waikiki Hotel, as expected due to the normal seasonality between the high season of Q3 and Q4. Same store cash NOI for all sectors combined was 2.6% growth year-over-year for the fourth quarter and 4.5% growth for the full year ended 2023 as compared to the full year ended 2022.

Thanks, Adam and good morning, everyone.

Last night, we reported fourth quarter and year ended 2023 F F O per share a 57 cents and $2.40 respectively.

Quarter and year ended 2023 net income attributable to common stockholders per share was <unk> 17 says and 84 cents respectively.

Fourth quarter <unk> decreased by approximately two cents to <unk> 57 per <unk> share.

Compared to the third quarter of 2023, primarily due to lower revenue at the embassy suites Waikiki hotel as expected due to the normal seasonality between the high season of Q3 and Q4.

Same store cash NOI for all sectors combined was 2.6 growth year over year for the fourth quarter and.

And four 5% growth for the full year ended 2023 as compared to the full year ended 20 twenty-two. Meanwhile, all sectors have positive same store cash NOI in the fourth quarter, except for the retail sector, which was negative one 2% primarily due to a one.

Bob: Meanwhile, all sectors had positive same-store cash NY in the fourth quarter except for the retail sector, which was negative 1.2%, primarily due to a one-time write-off of certain development expenses in Q4 2023 and a large real estate tax refund received in Q4 22 at Alamo Port. As to our liquidity, at the end of the fourth quarter, we had liquidity of approximately $483 million, comprised of approximately $83 million in cash and cash equivalents and $400 million of availability on our revolving line of credit.

A one time write off of certain development expenses in Q4 of 2023.

And the large real estate tax refunds received in Q4 'twenty two at Alamo quarry.

As to our liquidity at the end of fourth quarter, we had liquidity of approximately $483 million.

Comprised of approximately $83 million in cash and cash equivalents and $400 million of availability on our revolving line of credit.

Bob: Additionally, as of the end of the fourth quarter, our leverage, which we measure in terms of net debt to EBITDA, was six and a half times on a trailing 12-month basis. Our objective is to achieve and maintain net debt at even five and a half times or below. Our interest coverage and fixed charge coverage ratio ended the quarter at 3.6 times on a trailing 12-month basis.

Additionally, as of the end of the fourth quarter, our leverage which we measure in terms of net debt to EBITDA was six and a half times on a trailing 12 month basis.

Our objective is to achieve and maintain net debt to EBITDA of five and a half times or below or.

Our interest coverage and fixed charge coverage ratio ended the quarter at three six times on a trailing 12 month basis.

Bob: Let's talk about 2024, guys. We are introducing our 2024 FFO per share guidance range of $2.19 to $2.33 per FFO share, with a midpoint of $2.26 per FFO share, which is approximately a 5.8% decrease over 2023's actual of $2.40 per FFO share. Starting with 2023, ending FFO of $2.40 per share, there are seven things combined that make up the decrease. They are, number one, same-store cash NOI for all sectors combined, excluding reserves, which I will discuss in more detail in a few minutes, is expected to decrease less than 1% or approximately 1 cent of FFO per share in 2024, broken out by each sector and excluding reserves in each case. Same store office cash NY is expected to decrease approximately 2.3% or 4 cents per FFO share. This is the first time that we have had negative same-store office cash NOI guidance.

Let's talk about 2024 guidance.

We are introducing our 2024 <unk> per share guidance range of $2 19 to $2 33 per F. F O share.

With a midpoint of $2.26 per <unk> share, which is approximately a five 8% decrease over 2023 actual of $2 40 per <unk> share.

Starting with 2023, ending F F O of $2 40 per share there are seven things combined that makeup the decrease.

Our number one same store cash NOI for all sectors combined excluding reserves, which I will discuss in more detail in a few minutes as.

As expected to decrease less than 1% or approximately <unk> <unk> per share and 24.

Broken out by each sector and excluding reserves in each case same store office cash NOI is expected to decrease approximately 2.3% or four cents per <unk> share. This is the first time that we have had negative same store office cash NOI guidance.

Bob: And in our view, it is due to this unique point in time in which existing and prospective office tenants are taking a longer period of time to make decisions on leasing office space. Excluded from our same-store cash NOI guidance is approximately 317,000 square feet or 5 cents per FFO share of speculative office leasing that we decided to push out to 2025, which is more of a timing issue from our perspective. Our decision was based on

And in our view it is due to this unique point in time at which existing and prospective office tenants are taking a longer period of time to make decisions of leasing office space.

Excluded from our same store cash NOI guidance is approximately 317000 square feet or five cents per <unk> share of speculative office leasing that we decided to push out to 2025, which is more of a timing issue from our perspective.

Our decision was based on.

Bob: If it is not likely to be leased in the first quarter or early second quarter of 2024, it will not likely create revenue in 2024 due to the timing of permitting and construction in our market. So we took a somewhat conservative approach, and we will continue to update our numbers each quarter as we prefer to under-promise based on the uncertainty and longer decision-making we see and, hopefully, over-deliver on results as we have done in the past. Same store retail cash NOI is expected to increase approximately 2.3% or $0.02 per FFO share in 2024.

If it is not likely to be leased in the first quarter or early second quarter of 2024, it will not likely create revenue in 2024 due to the timing of permitting and construction in our markets.

So we took a somewhat conservative approach and we will continue to update our numbers each quarter as we prefer to under promise based on the uncertainty and longer decision, making we see and hopefully over deliver on results as we have done in the past.

Same store retail cash NOI is expected to increase approximately two 3% or two cents per <unk> share and 2024.

Bob: Same-Store Multifamily Cash NOI is expected to increase approximately 1% or 0.5% per FFO share in 2024. We are anticipating decelerating rent growth in both San Diego and Portland markets, as Adam mentioned earlier, along with the increased operating expenses, particularly insurance, security, and repairs and maintenance, that we expect to incur in 2024. We expect our multifamily revenue in 2024 to increase 2.6% over 2023, while we expect our multifamily expenses in 2024 to increase 4.4% over 2023. Same-Store Mixed-Use Cash NOI is expected to increase approximately 1%, or half a cent per FFO share, in 2024. Our 2024 embassy guidance is prepared by our partners at Outrigger and Waikiki, who have boots on the ground and have an awareness of Waikiki from other hotels and retail properties that they own and or manage.

Same store multifamily cash NOI is expected to increase approximately once a 1% or half a cent per F. F. O share in 2024, we are anticipating decelerating rent growth in both San Diego and Portland markets as Adam mentioned earlier.

Along with the increased operating expenses, particularly insurance security and repairs and maintenance that.

We expect to incur in 'twenty four.

We expect our multifamily revenue in 2020 forward to increased two 6% over 2023, while we expect our multifamily expenses in 2024 to increase four 4% over 2023.

Same store mixed use cash NOI is expected to increase approximately 1%.

Or half a cent per <unk> share in 2024.

Our 2020 for embassy guidance is prepared by our partners at outrigger in Waikiki that have boots on the ground and have an awareness in waikiki from other hotels or retail properties that they own <unk> manage our.

Bob: 2024 guidance for the Embassy Suites Hotel in Waikiki is based on the following. Revenue is expected to increase approximately 4.5% in 2024. Operating expenses are expected to increase 6.4% in 2024 due to the inflationary impact on operating expenses in Hawaii, such as food costs, labor, and overhead.

Our 2024 guidance for the embassy suites hotel and Waikiki.

Is based on the following.

Revenue is expected to increase approximately four 5% and 20 for operating expenses are expected to increase six 4% and 24 due to the inflationary impact on operating expenses in Hawaii, such as food cost labor and overhead.

Bob: Occupancy is expected to increase by approximately 2.3% in 2024. ADR, or average daily rate, is expected to increase by approximately 2% to $381 in 2024. And RETPAR is expected to increase approximately 5% to $334 in 2025. Of course, our 2023 NOI for the Embassy Suites Hotel increased by 12.5% compared to 2022, year-to-date, and by approximately 8% compared to 2019, even without our guests from Japan. Unfortunately, Japanese tourism in Oahu has been much slower than expected, due primarily to weakness in the Japanese currency.

Occupancy is expected to increase by approximately two 3% and 24.

ADR or average daily rate is expected to increase approximately two.

Percent.

Two to $381 in 2024, and Revpar is expected to increase approximately 5% to $334 in.

In 2024 of no.

Our 2023 NOI for the embassy suites hotel increased by 12, 5% compared to 2022 year to date and by approximately 8% compared to 2019, even without our guests from Japan.

Unfortunately, Japan tourism in Oahu has been much slower than expected due primarily to weakness in the Japanese currency is a matter of when not if the Japanese return in a more meaningful way to Oahu.

Bob: It is a matter of when, not if, the Japanese return in a more meaningful way to Oahu. Combined, they are expected to decrease FFO by approximately two cents per FFO share. Steve will fill you in regarding the leasing of these properties. Number three, now let's talk about reserves. Estimated bad debt expense reserves are expected to decrease FFO by approximately $5.3 million or $0.07 per FFO share in 2024.

Non same store guidance, which is number two.

Includes one beach, Oregon Square building 710, and La Jolla Commons tower three combined combined they are expected to decrease <unk> by approximately two cents per <unk> share.

24, Steve will fill you in regarding leasing of these properties.

Number three now let's talk about reserves.

Estimated bad debt expense reserves are expected to decrease <unk> by approximately $5 3 million or seven cents per <unk> share and 20 for these.

Bob: These reserves are based on our internal probability of risk assessment, where we believe that it is more likely than not that these reserves will be needed during 2024. Of the $0.07 of credit reserves, approximately $0.03 of the reserves are allocated to the office sector, and $0.04 of the reserves are allocated to the retail sector. These reserves constitute just over 1% of our total expected revenue in 2024, which we believe is a reasonable amount. Similar to last year, we are taking a conservative view of the potential risk with certain tenants, particularly in the somewhat unpredictable economic environment, and we hope to reduce these amounts each quarter as rents are paid. Number four, GDP is expected to be flat for 2024. Number five, interest expense is expected to increase approximately $3 million and therefore decrease FFO by 4 cents per FFO share in 2024.

These reserves are based on our internal probability of risk assessment, where we believe that it is more likely than not that these reserves will be needed during 2024.

Of the seven cents of credit reserves approximately three sets of the reserves are allocated to the office sector and four cents other reserves are allocated to the retail sector.

These reserves constitute just over 1% of our total expected revenue in 2024, which we believe is a reasonable percentage.

Similar to last year, we are taking a conservative view of the potential risk with certain cabinets, particularly in the somewhat unpredictable economic environment.

And hope to reduce these amounts each quarter as rents are paid.

Number four G&A is expected to be flat for 2024.

Number five interest expense is expected to increase approximately.

$3 million, and therefore decreased <unk> <unk> four cents.

For F F O share in 2024, this increase relates to $100 million.

Bob: This increase relates to a hundred million of the Series F notes, which are maturing in July 2024. Once again, we are likely being conservative as we are modeling the interest rate on the refinance to increase from 3.78% to 7.5% due to the volatility of the markets. Hopefully, the rates will be much less than that in July. Number six. Gap adjustments primarily related to straight-line rents will decrease by FF, decreasing FFO by approximately $3.9 million or $0.05 per FFO share in 2024. Number seven.

Of the series F notes, which are maturing in July 2024.

Once again, we are likely being conservative as we are modeling the interest rate on the refinance to increase from.

3.78% to 7.5% due to the volatility of the markets hopefully the rates will be much less than that in July.

Number six GAAP adjustments, primarily related to straight line rents will decrease by FX decreased <unk> by approximately $3 9 million or.

Five cents per <unk> share in 2024 <unk>.

Number seven.

Bob: Litigation settlements will increase FFO by approximately $3.5 million on a net basis over 2023, or $0.05 per FFO share in 2024. This net increase in FFO reflects the settlement mentioned by Adam regarding building specifications for one of our existing buildings in UTC, for which we received $10 million this January 2024, offset by the settlement regarding building systems at Hasselhoff 8 in January 2023, for which we received a net payment of $6.3 million The net difference reflects the increase in FFO for 2024. These adjustments, when added together, will be approximately... 14 cents per FFO share represents the net decrease in 2024 midpoint over the 2023 FFO.

Litigation settlements will increase <unk>, approximately $3 5 million on a net basis over 2020 345 cents per <unk> share in 2024.

This net increase in <unk> reflects the settlement mentioned by Adam regarding building specifications for one of our existing buildings.

U T C in which we received $10 million. This January 2024.

Offset by the settlement regarding building systems at Hassle on eight in January 2023.

Which we received a net payment of $6 3 million.

The net difference reflects the increase in <unk> for 2024.

These adjustments when added together would be approximately 14 cents per <unk> Boe share represent the net decrease in 'twenty 'twenty four midpoint over the 2023 <unk> per share.

Bob: While we believe the 2024 guidance is our best estimate as of the date of this earnings call, we do believe that it is possible that we could perform towards the upper end of this guidance range. In order to do that, first, we need to outperform our multifamily guidance by continuing to see increasing rents and occupancy and or less expenses than budget. Secondly, the office and retail tenants that we reserve for continue to pay rents through the year. Third, additional speculative office leasing needs to occur in Q1 and Q2 of this year. Fourth, the interest expense on the refinance of our Searing F notes needs to be less than 7.5%.

While we believe the 'twenty 'twenty four guidance is our best estimate as of the date of this earnings call. We do believe that it is possible that we could perform towards the upper end of this guidance range in order to do that first we need to outperform on multifamily guidance by continuing to see increasing rents and occupancy <unk> less.

Expenses than budgeted.

Secondly, the office and retail tenants that we reserved for continued to pay rent through the year.

Third additional speculative office lease that needs to occur in Q1, and Q2 of this year.

Fourth interest expense on the refinance of our series F nodes needs to be less than seven 5%.

Bob: And fifth, tourism and travel to Waikiki needs to see a meaningful return from our Japanese guests, which we are cautiously optimistic about. Lastly, we have modeled our same-store office occupancy at 1,231.24 to be 86.5 percent and our total portfolio office occupancy to be 84.3 percent. We have also modeled our same-store retail occupancy to be 93.9% at year-end 24. Our operating capital expenditures are estimated to be approximately $59 million for the year-end of 2024.

And fifth tourism and travel to Waikiki needs to see meaningful return from our Japanese guess, which we are cautiously optimistic about.

Lastly, we have modeled our same store office occupancy at 12, 31, 24 to be 86, 5% and our total portfolio.

Office occupancy to be 84, 3% we.

We have also modeled our same store retail occupancy to be 93, 9% at year end 'twenty four.

Our operating capital expenditures is estimated to be approximately 59 million for the year ended 24.

Bob: As always, our guidance, our NOI bridge, and these prepared remarks exclude any impact of future acquisitions, dispositions, equity issuances, or repurchase, future debt refinancings, or repayments other than what we have already discussed. We will continue to do our best to be as transparent as possible and share with you our analysis and interpretations of our quarterly numbers. I also want to briefly note that any non-GAAP financial measures that we've discussed, like NOI, are reconciled to our GAAP financial results in our earnings release and supplemental information. I'll now turn the call over to Steve Center, our Senior Vice President of Office Properties, for a brief update on our office equipment. Steve?

As always our guidance our NOI bridge in these prepared remarks exclude any impact from future acquisitions dispositions equity issuances or repurchases future debt refinancings or repayments other than what we've already discussed we.

We will continue our best to be as transparent as possible and share with you our analysis and interpretations of our quarterly numbers. I also wanted to briefly note that any non-GAAP financial measures that we've discussed like NOI are reconciled to our GAAP financial results and our earnings release and supplemental information.

Now I'll turn the call over to Steve Center, our senior Vice.

Of office properties for a brief update on our office segment, Steve. Thanks.

Steve Center: Thanks, Bob. At the end of the fourth quarter, our office portfolio was 86 percent leased, dropping 80 basis points, primarily due to two known move-outs in our portfolios. On the first move out, we already have leases out for signature on over 10,000 rentable square feet to backfill the 25,000 rentable square feet move out of Lloyd Center Tower with increases of 9.9% on a cash basis and 13.5% on a straight line basis for the new deal. On the second move out, the tenant actually downsized from a 16,000-foot full floor at Lloyd 700 into approximately 12,000 rentable square feet rather than live through an occupied remodeling And we already have an interest in that vacated full floor from a potential replacement tenant. Meanwhile, in the fourth quarter, we executed 11 leases, totaling approximately 35,000 rentable square feet, which included a new restaurant lease at La Jolla Commons 3 and a Starbucks renewal at 1st and Main. Netting out those retail leases, we executed nine office leases totaling approximately 27,000 rentable square feet, as follows.

Thanks, Bob at the end of the fourth quarter, our office portfolio was 86% leased dropping 80 basis points, primarily due to two known move outs in Portland on.

The first move out we already have leases out for signature on over 10000 rentable square feet to backfill. The 25000 rentable square feet move out at Lloyd Center tower with increases of nine 9% on a cash basis and 13, 5% on a straight line basis for the new deal.

On the second move out the tenant actually downsize from a 16000 foot full floor at Lloyd 700 into approximately 12000 rentable square feet rather than live through it occupied remodeling corridor construction.

And we already have an interest in that vacated full floor promote potential replacement tenant.

Meanwhile, in the fourth quarter, we executed 11 leases totaling approximately 35000 rentable square feet, which included a new restaurant lease at La Jolla, Commons III and a Starbucks renewal at first in Maine.

Netting out those retail leases, we executed nine office leases totaling approximately 27000 rentable square feet as follows.

Steve Center: We executed six comparable new and renewal leases for approximately 21,000 rentable square feet with rent increases of 23.4% on a cash basis and 31.2% on a straight line basis. And we executed three non-comparable leases, totaling approximately 6,000 rentable square feet. While Q4 was relatively quiet, as expected, 2024 is already off to a strong start. We've executed six leases today, totaling approximately 50,000 rentable square feet, of which approximately 15,000 rentable square feet is net absorption. Approximately 46,000 rentable square feet were comparable leases with increases of 10.7% on a cash basis and 26.6% on a straight line basis. And we have an additional 10 deals in lease documentation totaling approximately 93,000 rentable square feet, of which approximately 41,000 rentable square feet is net absorption, and approximately 34,000 rentable square feet are new deals with no prior tenant.

We executed six comparable new and renewal leases for approximately 21000 rentable square feet with rent increases of 23, 4% on a cash basis and 31, 2% on a straight line basis.

We executed three non comparable leases totaling approximately 6000 rentable square feet.

While Q4 was relatively quiet as expected 'twenty 'twenty four is already off to a strong start.

We've executed six leases today totaling approximately 50000 rentable square feet of which approximately 15000 rentable square feet as net absorption.

Approximately 46000, rentable square feet, where comparable leases with increases of 10, 7% on a cash basis and 26, 6% on a straight line basis, and we have an additional 10 deals in lease documentation totaling approximately 93000 rentable square feet of which approximately 41000 rentable square feet as net absorption.

Approximately 34000 rentable square feet are new deals with no prior tenant.

The remaining 59000 rentable square feet are leases with increases over prior rents at 18, 3% on a cash basis and 27, 9% on a straight line basis, and we had additional proposals in play and tour activity is increasing.

Steve Center: The remaining 59,000 rentable square feet are leases with increases over prior rents at 18.3% on a cash basis and 27.9% on a straight line basis, and we have additional proposals in play, and tour activity is increasing. Let's talk about La Jolla Commons 3 for a moment. As mentioned earlier, we signed a restaurant lease with Travis Swickard, one of the country's most acclaimed chefs, to open a French concept in the New Powers Restaurant Wing. Travis and partner Cone Restaurant Group also co-owned Cali, winner of 2023's Top 5 Restaurants in San Diego Magazine.

Let's talk about La Jolla Commons III for a moment.

As mentioned earlier, we signed a restaurant lease with travelers slicker, so far one of the country's most acclaimed chefs to open a French concept and a new towers restaurant Wang <unk>.

Travis and partner Cone restaurant group also co own Cali winter of 2020 threes top five restaurants in San Diego magazine are.

Our fitness center designed by Gensler and to be operated by health fitness is into the city of San Diego for permit layouts are underway with construction commencing next month for this premier fitness amenity.

And our first office leases out for signature and the new tower for approximately 8200 square feet and we have several proposals in various stages of negotiation and tour activity is increasing albeit decision, making is taking a bit more time. These days. Nevertheless, the UTC submarket remains very healthy and there is a scarcity of top tier spaces in the market as evidenced.

Steve Center: Our fitness center, designed by Gensler and to be operated by Health Fitness, is in the city of San Diego for permit. Layouts are underway, with construction commencing next month for this premier fitness amenity. And our first office lease is out for signature in the new tower for approximately 8,200 square feet. And we have several proposals in various stages of negotiation. And tour activity is increasing, albeit decision-making is taking a bit more time these days. Nevertheless, the UTC sub-market remains very healthy, and there is a scarcity of top-tier spaces in the market, as evidenced by our rates recently achieved and new proposals made for Tower 1, which are approaching pro-forma rates for Tower 3.

Why are rates recently achieved a new proposals made for tower, one which are approaching pro forma rates for tower three.

While we are not immune to continued additional attrition due to current conditions. The attrition is waning and being offset by the new leasing activity just discussed.

We're down to approximately six 8% rolling in 2024, given deal signed year to date with the average deal size of the remainder of approximately 5600 square feet.

And we have approximately 8% of the portfolio rolling in 2025, which with the average deal size of approximately 7200 rentable square feet.

As Ernest said, we continue to focus on making disciplined business decisions with a long term focus our strategic.

Investments in exceptional new amenities and spec suites, both initiatives launched in early 2018.

Continued despite the negative press because we are achieving premium rents. Despite stubborn market headwinds, we believe that the flight to quality experience and stability of our office portfolio for new tenants and the stickiness created by those attributes for our existing customers with leases expiring will drive solid performance through these turbulent times and drive NOI and occupancy growth long term.

Steve Center: While we are not immune to continued additional attrition due to current conditions, the attrition is waning and being offset by the new leasing activity just discussed. We're down to approximately 6.8% rolling in 2024, given deals signed year-to-date, with the average deal size of the remainder being approximately 5,600 square feet. And we have approximately 8% of the portfolio rolling in 2025 with an average deal size of approximately 7,200 rental per square foot. As Ernest said, we continue to focus on making disciplined business decisions with a long-term focus.

<unk>.

I think it's also important to note that though the office market is likely to remain challenged primarily because of the secular change to hybrid work and work from home silver lining as can be observed at a granular level with trophy product in premier markets continuing to perform and that's exactly what we are.

I'll now turn the call back over to the operator for Q&A.

We will now begin the question and answer session.

Operator: Our strategic investments in exceptional new amenities and spec suites, both initiatives launched in early 2018, continue despite the negative press because we are achieving premium rents despite stubborn market headwinds. We believe that the flight to quality, experience, and stability of our office portfolio for new tenants and the stickiness created by those attributes for our existing customers with leases expiring will drive solid performance through these turbulent times and drive NOI and occupancy growth long-term. I think it's also important to note that though the office market is likely to remain challenged primarily because of the secular change to hybrid work and work from home, silver alignings can be observed at a granular level with trophy product and premier markets continuing to perform, and that's exactly what we own. I'll now turn the call back over to the operator for Q&A. We will now begin the question and answer session. To ask a question, you may press the star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

To ask a question you May press Star then one on your telephone keypad.

If you were using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question is from Todd Thomas with Keybanc capital markets. Please go ahead.

I think Todd good morning, good morning.

First question can.

Can you talk a little bit about the office leasing.

And a little bit more detail, Steve you mentioned.

The detail I guess around what's been signed year to date and the net absorption there Ken can you address the 300.

310000 square feet of expirations, and what assumptions, you're making around retention and just talk a little bit more about the new <unk> the.

The new lease pipeline.

Sure good questions.

Operator: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Todd Thomas with KeyBank Capital Markets. Please go ahead.

First of all you know it was a light quarter with regard to the new leasing.

Youre seeing a longer term commitment so of the of the 50000 feet done year to date. The weighted average lease term is 96 months and for the pending 93000 feet. The weighted average lease term is 99 months. So we're seeing tenant step up for longer terms.

Steve Center: Good morning, Todd. Warning. First question, can you talk a little bit about the office leasing in a little bit more detail? Steve, you mentioned, and I appreciate the detail, I guess, around what's been a good year to date and the net absorption there. Can you address the 310,000 square feet of expirations and what assumptions you're making around retention and just talk a little bit more about that? Louise Piper, Sure, good questions. First of all, you know, it was a light quarter.

And in making those commitments so that's exciting for us.

I think in your remarks from your report that.

Past quarter was with shorter term leases, we do have some legacy smaller tenants that are reaching retirement age of places like Salon and crossing where they don't want to go long terms, we're doing two and three and four year deals with some of those customers and so it just quarter by quarter. It just depends on what we're what we're facing.

In terms of rollover in 'twenty.

Steve Center: With regard to the new leasing, you're seeing longer-term commitments. So of the 50,000 feet done year-to-date, the weighted average lease term is 96 months. And for the pending 93,000 feet, the weighted average lease term is 99 months. So we're seeing tenants step up for longer terms and make those commitments. So that's exciting for us. You noted, I think, in your remarks from your report that this past quarter was with shorter-term leases. We do have some smaller legacy tenants that are reaching retirement age at places like Solana Crossing where they don't want to go long-term.

2024 lets see.

We're already in play on about let's see about a third of the space rolling with either renewing existing tenants, where we have back filling tenants for spaces that we know are going vacant so.

We're already well engaged on that.

Beyond that it's just.

We keep.

We're able to push rents.

We can achieve rent premiums because we've got really good properties with great amenities. So.

We feel good.

Yeah, No I'm easy.

Steve Center: So we're doing two- and three- and four-year deals with some of those customers, and so, quarter by quarter, it just depends on what we're facing. In terms of rollover, in 20... 2024, let's see. We're already in play on about, let's see, about a third of the space rolling with either renewing existing tenants, or we have backfilling tenants for spaces that we know are going vacant. So, we're already well engaged on that.

Not easy Todd, but we have three things going for us. The first is Steve does an excellent job. The second thing is the properties are well located well monetized and the third thing is we have the financial stability to do what we promise.

And we have an excellent.

Reputation in the marketplace as well and I think that's what's allowing US this performance that we're enjoying.

Or are the lease explorations and 24 in the office portfolio are they sort of concentrated in certain assets or certain submarkets and then Bob.

Steve Center: Beyond that, it's just we keep pushing rents, we can achieve rent premiums because we've got really good properties with great amenities, so we feel good. It's not easy, Todd, but we have three things going for us. The first is Steve does an excellent job.

You May have mentioned this sorry, if I missed it but can you talk about.

The office occupancy expectation at yearend.

Bob: The second thing is the properties are well located and well amenitized. And the third thing is we have the financial stability to do what we promise, and we have an excellent reputation in the marketplace as well. And I think that's what's allowing us this performance that we're achieving. Are the lease expirations in 24 in the office portfolio, are they sort of concentrated in certain assets or certain sub-markets? And then Bob, you know, I think you may have mentioned this, sorry if I missed it, but can you talk about the office occupancy expectation at year-end, what's embedded in guidance? Thank you. Yeah, this is the guidance I need, Todd.

What's embedded in guidance.

Yes.

Let's take which.

Yeah it into guidance Todd.

So what we mentioned in the call here is that we've modeled in for our same store office occupancy.

To be 86, 5% and our total portfolio office occupancy to be 84, 3%.

The decrease between the two is that it relates to one beach are not leased up in our model in 'twenty, four and that combined with pushing out that 317000 square feet of office.

In 2025 for.

Bob: So, what we mentioned in the call here is that we modeled for our same store office occupancy to be 86.5% and our total portfolio office occupancy to be 84.3%. And the decrease between the two is that it relates to one beach not leased up in our model in 24, and that combined with pushing out that 317,000 square feet of office in 2025 from. Just if, you know, we're worried about, not worried, but we've seen that it takes longer to do permits and it takes longer for people to make decisions as these come across. So we took a conservative approach.

Just just if we're worried about not worried but.

We've seen that it takes longer to do permits and it takes longer for people to make decisions.

Steve's coming across so we took a conservative approach.

What we don't want to do is over promise.

And we thought that was the right approach to do by pushing that out for the 24 guidance on that.

[noise] Todd to answer your question in terms of where the rollovers occurring and I've got a groups for both 24 and 'twenty five rather than just buy one year, 37% of the rollovers in San Diego.

34% in Portland, and 24% in Bellevue.

Bob: What we don't want to do is over-promise, and we thought that was the right approach to take by pushing that out for the 24 guidance. Todd, to answer your question in terms of where the rollover is occurring, and I've got it grouped for both 24 and 25 rather than just by one year, 37 percent of the rollovers in San Diego, 34 percent in Portland, and 24 percent in Bellevue. So it's kind of evenly split.

So it's kind of evenly split San Francisco's just one lease rolling so.

And in San Diego is really strong so Portland has been surprising Todd we've had a lot of activity recently and we've got we've got a chart coming back in first and Maine in 2025, a clear result, rolling out of five floors and we're in leases where the tenant to backfill one of those floors already and we've had really good tour activity and then we just last Friday.

<unk> got two deals one to letter of intent for one of our spec suites and the other spec suite. We've got a proposal and we have already responded to it so.

Steve Center: San Francisco is just one lease rolling, and San Diego is really strong. So Portland's been surprising, Todd. We've had a lot of activity recently, and we've got a chunk coming back first in May 2025 with a clear result rolling out of five floors, and we're in leases with a tenant to backfill one of those floors already, and we've had really good tour activity. And then we just, last Friday, got two deals, one for a letter of intent for one of our spec suites, and the other spec So, and we've got another full floor tenant that may backfill the full floor that I mentioned at Lloyd 700. So Portland's really been surprisingly strong, and these aren't, we're not diving on, you know, the sword for rents. We're getting premium rents. I think some of the other buildings in Portland are questionable as far as their ability to perform for tenant improvements and lease commissions, and that gives us a leg up. Yeah, that's that flight to stability. Yeah, flight to stability.

And we've got another full floor tenant that may backfill at the full four that I mentioned at Lloyd 700. So Portland is really been surprisingly strong and these are were not diving on the sword for grants, where we're getting premium rents I think some of the other buildings in Portland are.

Either questionable as far as their ability to perform for tenant improvements and lease commissions that gives us a leg up.

Yeah, that's that flight to stability.

Disability, that's what Steve.

Okay. That's helpful and then just with regard to guidance.

Bob You said the non same store is expected to decrease <unk> by two cents.

That's I guess largely related to cash cost capitalization burning off can you just talk about the schedule for four cost capitalization.

And sort of.

Steve Center: That's well put, Steve. Yeah. Okay, that's helpful.

Expenses, increasing as it pertains to I guess, primarily one beach in La Jolla, where I know you pushed the completion date back a little bit you know further.

Bob: And then just with regard to guidance, you know, Bob, you said the non-same store is expected to decrease FFO by two cents. That's, I guess, largely related to cost capitalization burning off. Can you just talk about the schedule for cost capitalization and sort of, you know, expenses increasing as it pertains to, you know, primarily One Beach and La Jolla, where I know you push the completion date back a little bit further to March. What's the schedule like for those two assets in terms of cost capitalization and the impact? Yeah, a good question, Todd.

March.

Whats the schedule like for for for those two assets in terms of cost capitalization and the impact.

Yeah. Good question Todd Yeah for for one Beach. So we got the certificate of a completion back in beginning of August. So we have the so what we'll do is we'll continue to capitalize the interest in the real estate taxes until the end of July in 24.

Bob: Yeah, for OneBeach, we got the Certificate of Completion back in the beginning of August. So we have the, so what we'll do is we'll continue to capitalize the interest and the real estate taxes until the end of July in 24. For La Jolla Commons, we basically are starting from January, from the 1st of January 24 until the end of July.

The oil comments.

We basically are starting from January from the first of January 24 until the end of.

24.

So.

We have all of 24 to continue the capitalization of the interest and.

The real estate taxes, but that's that's also what's what's causing.

Bob: So we have all of 24 to continue the capitalization of the interest and the real estate tax. But that's also what's causing the two cents, because La Jolla Commons, now we have to expense, during this next year in 24, just the operating costs to keep the building the way it should be in terms of air conditioners, handlers, and security. And that's what's creating the two cents. Okay, okay. I got it.

Is that is causing the two cents is because la Jolla Commons now we have to expense. During this next year in 'twenty for just the operating cost to keep the building.

The way it should be in terms of air conditioners handlers.

You know the security.

And that's that's what's creating the two zones.

Okay. Okay got it and just lastly, then just to be clear. So the litigation payment that you received in January that was about $10 million.

Bob: And just lastly, then, just to be clear, so the litigation payment that you received in January, that was about $10 million. Bob, you said, so the impact year over year, but you received $10 million in January, so that's 13 cents that you'll recognize in guidance or in 1Q24 results, is that right? Correct. Correct. So yeah, but on reconciling 24 to 23, so you're taking the 10 million that's coming in in 24, we just received, and reducing what we received last year of 6.3, 6.5 million. So the net increase is 3.5. We will recognize that 10 million in January of this year, or the first quarter. Okay, all right. Thank you. Thank you, Todd. The next question is from Adam Kramer with Morgan Stanley. Please go ahead.

Bob you said, so the impact year over year.

But you receive $10 million in January so that's 13 cents that youll recognize and guidance in.

In <unk> 'twenty for results is that right.

Correct.

Correct. So yeah. So on reconciling 24 to 23, so you're taking the $10 million that's coming in in 'twenty four.

Receive and reducing.

What we received last year of $6 three $6 $5 million. So the net increase of $3. Five we will recognize that $10 million in January of this year, where the first quarter.

Okay alright, thank you.

Thank you Todd.

The next question is from Adam Kramer with Morgan Stanley. Please go ahead.

Operator: Hey guys, thanks for the time and hope everyone's doing well. Just wanted to ask about the guidance and maybe, you know, try to kind of suss out, you know, kind of what could cause the high end to come true versus the low end. Maybe some of the assumptions embedded into kind of both the high and low ends and whether there's any kind of conservatism embedded in there as well.

Hey, guys. Thanks for the time and hope everyone is doing well I just wanted to ask about the guidance.

Maybe I'll try to kind of suss out kind of what could cause you know kind of at the high end to come through versus the low end and some of the assumptions embedded into into kind of both the high and low end and if there's any kind of conservatism embedded in there as well.

Bob: Yeah, I mean, thanks, Adam. We mentioned it in the script a little bit, but, you know, pretty much, if we're more successful in leasing that $317,000 that we've pushed out, that, if that comes to fruition, that'll be additive, obviously. Interest expense is lower on the refinancing, you know, which we're hopeful of, but we're, you know, we're just being conservative from that standpoint. And multifamily being, has, multifamily having a higher growth rate year over year. So those are just three, but, you know, we have a shot at getting to the high end of the range of 233, especially if we collect on all those reserves you were mentioning earlier. Oh, that's right.

Okay.

Yeah, I mean, thanks Adam.

We mentioned it in the script, a little bit, but you know pretty.

Pretty much I mean, if we're more successful on leasing that 317000 that we've pushed out that if that comes to fruition that'll be added up obviously.

Interest expense is lower on the refinancing.

Which we're hopeful of but we're.

We're just being conservative from that standpoint.

And multifamily are being.

<unk> has multifamily having a higher growth rate.

Uh huh.

Year over year. So those those are just three but you know we have a shot at getting to the high end of the range of $2 33 also if we collect on all of those reserves you were mentioning Oh that's right.

Ernest Sylvan Rady: But the big upside, of course, is La Jolla Commons. And it is, I believe, the best building in San Diego and the best location. It's just the market is a challenge. But I think if anybody is successful, that building. Yeah, and for guidance purposes, we've left that out. Got it. No, that makes total sense.

Big upside of course is La Jolla Commons III.

And it is I believe the best building in San Diego and the best location. It's just that market is a challenge, but I think if anybody is successful in leasing that building will be successful.

Yeah and for guidance purposes, we left that out.

Got it.

Makes total sense.

Bob: Maybe on kind of the balance sheet, I know you mentioned kind of the bond offering potential this year. Maybe just walk us through if you were to do an offering today and, you know, what rate do you think you would get? And then maybe just remind us on timing for when to kind of think about modeling in the bond offering. And then just on kind of net debt to EBITDA, remind us where you are today and, you know, kind of given spend left for redevelopment, given potential future acquisitions, and development spend, how should we think about kind of where net debt to EBITDA will trend? We have a picture of what it would cost us today, and the board has decided, in terms of a bond issuance, the board has decided that the odds are more in favor of getting a successful and lower rate if we wait until some of the time this year expires. Bob, do you have anything to add to that? Yeah, let me start answering your questions from the beginning.

On kind of the balance sheet.

As you kind of.

Yeah.

Bond offering potentially this year, maybe just walk us through if you were to do an offering today and what rate do you think you would get and then maybe just remind us on timing for when you want to kind of thinking about modeling in <unk>.

Modeling and the bond offering.

And then just on kind of net debt to EBITDA remind us where you are today and.

You've kind of given spend left for redevelopment given potential future acquisitions development spend how should we think about kind of where we're in a net debt to EBITDA will trend.

We have we have a picture of what it would cost us to date and the board is this in terms of a bond issuance. The board has decided that the odds are more in favor of getting a successful at lower rate. If we wait until the rest of it.

Some of it time this year expires, Bob do you have anything to add to that yeah. Let me, let me start answering your questions from the beginning I think the net debt to EBITDA, we're about six five and change on a trailing 12 month.

Bob: I think the net debt to EBITDA was about 6.5 and change on a trailing 12-month basis. You know, it'll fluctuate throughout the year. The key to getting it down to 5.5 is really leasing up the Hoy Commons III. That's going to make a big difference.

It will vary throughout the year, the key to getting it down to five and a half it's really leasing up La Jolla Commons III, that's going to make a big difference. We know it's just a matter of time.

Bob: We know it's just a matter of time, you know, and you've heard Steve's comments in terms of what he's seeing in the marketplace. In terms of pricing, you know, we've, there's a lot of discussion. We have a lot of optionality. One option that we are considering is on the $100 million that comes due on July 24, just use our line of credit for about 8 months. And that would probably be, you know, in the 6% range. But we'll see.

You've heard Steve's comments.

In terms of what he's seeing in the marketplace in terms of pricing you know we've we've there's a lot of discussion we always have a lot of optionality one option that we are considering is.

On the 100 million that comes due in July 24, just use our line of credit for about eight months.

That would be probably you know on the six 6% range.

But we'll see we've modeled in seven and that happened our guidance because the volatility things change so quickly.

Bob: We've modeled in seven and a half in our guidance because of the volatility; things change so quickly. And then the possibility exists that we could go back to the public debt market in the first quarter of 2025. At that point in time, I mean, we're hopeful that the rate would be favorable at that time. But if it was priced today, you know, you'd probably be somewhere, you know, in the mid-60s.

And then the possibility exists that we could go back to the public debt market in the first quarter of 'twenty five.

At that point in time, I mean, we're hopeful that the the rate would be favorable at that time, but if it was priced today, you would probably be somewhere in there.

Bob: Got it. That's really helpful, guys. And just a last one, maybe just on Hawaii and tourism. What's the view on when, you know, when you could see kind of a full recovery there? Or is that something that maybe, you know, if only in a bull case, then shouldn't really think about the timing in kind of a base case?

In the mid sixes.

Got it that's really helpful guys and then just the last one maybe just on them on Hawaii tourism.

Kind of the view on win.

When you could see kind of a full recovery there or is that something that maybe it's only kind of in a bull case and shouldn't really think about the timing and kind of a base case.

Ernest Sylvan Rady: Well, the best answer is we really don't know because we don't have any control over it. But, as Bob pointed out, eventually, Hawaii will recover. Embassy Suites is a fantastic property. We keep it in first class shape, and it has an excellent reputation. Would you like to add something, Bob? Yeah. Hey, Adam, you know, really, it's coming down to the Japanese yen. It's been sticky at about one forty eight. It's gone as high as one fifty two. Now it's down to one forty eight. And pre-covid, it used to be one oh five to one oh eight.

Well the best answer is we really don't know because we don't have any control over it but as Bob pointed out eventually Hawaii or recover embassy suites is a fantastic property. We keep it in first class shape has an excellent reputation do you want to add something Bob.

Yeah, Hey, Hey, Adam you know really it's coming down to the Japanese yen.

It's been sticky at about 148, it's gone as high as $1 52, it's down to $1 48, and pre COVID-19. It used to be 105 to 100 weight. So you know there are.

Bob: So, you know, there are Japanese guests. They're factoring that that's an additional cost to them. So we were over in Hawaii with our team at the end of December, and we saw a few Japanese guests over there, but it's a much smaller percentage.

Our Japanese guess, they're factoring that that's the additional cost of it.

So when we were over last over in Hawaii seeing our team at the end of December.

And we saw Japanese guests over there, but it's a much smaller percentage. So we think it's not that we think we know that it's just a matter of time when that.

Adam Brandon Wyll: So we think, it's not that we think, we know that it's just a matter of time when that occurs, but we don't know, as Ernest mentioned, we just don't know the timing at this point. In the meantime, the domestic market has filled the void to some extent, but not with the same intensity or revenue that would come if it were the Japanese. Hey, Adam, this is Adam.

That occurs but we don't know as Ernest mentioned, we just don't know that timing at this point.

Meantime to domestic market.

Filled the void to some extent, but not with the same.

Revenue that would come if it were the Japanese Hey, Adam. This is Adam I saw a report yesterday that said the Asian tourists to Oahu worried about 20% of the pre COVID-19 levels last year, so plenty of room to grow just timing is uncertain.

Adam Brandon Wyll: I saw a recording yesterday that said Asian tourists to Oahu were at about 20% of the pre-COVID levels last year. So, plenty of room to grow. Just the timing is uncertain. Yep. We got two Adams on the phone. Things must be going really well. It's a great day.

They've got two items on a <expletive> things must be going.

Great day.

Adam Brandon Wyll: Yeah. Well, thanks. Thanks so much, guys. That's really helpful on that 20% stat, Adam. So, thank you guys. Thanks for the time.

Yeah.

Thanks, So much guys. That's really helpful on that 20% start Adam so.

Thank you guys. Thanks for the time.

Operator: Thank you. Thank you, Adam. Again, if you have a question, please press star then 1. The next question is from Haendel St. Juste with Mizzou Hall, please go ahead. Hey, good morning. This is Ravi Vaid on the line for Haendel.

Okay. Thank you. Thank you Adam.

Again, if you have a question. Please press Star then one the next question is from Handel St. Jesse with Mizuho. Please go ahead.

Hey, Good morning morning, Ravi This is Ravi Vanda and the one for for Hyundai. All Hope you guys are all doing well here are just.

Operator: Hope you guys are all doing well here. Just a question about the office same store portfolio. How long do you think this will remain negative? And do you expect an inflection in the back half of the year into 2025?

Just a question about the office same store portfolio.

How long do you think this will remain negative and do you expect an inflection in the back half of the year into 2025 or like what's kind of driving the negative same store office projection is it the timing of the speculative leasing.

Steve Center: What's kind of driving the negative same-store office projection? Is it the timing of the speculative leasing? That's a really good question to ask, and I'm really glad I've got Steve to answer the question, because I don't really know.

That's a really good question to ask and I agree with you got bad I've got Steve to answer the question because I don't really know Steve.

Steve Center: Steve, do you have a feel for it? Well, you hit on it, and Bob remarked on it in our comments. It's really, if a lease isn't signed by Q1, we just pushed it out into Q25 because the permit process is taking up to six months, depending on the municipality, and the construction can take, you know, four to six months as well, depending on the size of the TI. So we're just being conservative in that regard. That being said, we've got smaller leases and smaller, I should say, smaller suites that are ready to go, and those could happen much more quickly, but we just erred on the side of caution, to be honest with you, given the timing that I mentioned. And I think it's safe to say in the markets we're in, we're doing as well as anybody. Is that a fair statement, Steve?

Well you hit on it and Bob remarked on it in our comments it's really.

If a lease at an assigned by Q1, we just pushed it out into 25, because permitting is taking up to six months, depending on the municipality and then construction can take four to six months as well depending on the size of the Ti. So we're just being conservative in that regard that being said.

We've got smaller leases and smart I should say smaller suites that are ready to go and those can happen much more quickly, but we just aired on the side of caution to be honest with you given the timing that I mentioned.

Think it's safe to say that the markets. We're in we're doing as well as anybody is that a fair statement and I would say, we're doing better yes, our activity.

That's all.

If it can happen Steve is going to make it happen.

Got it.

Just about your multifamily portfolio, the occupancy increase pretty dramatically sequentially, but the average rent per per unit decreased a bit we're.

Steve Center: I would say we're doing better. Yeah. If it can happen, Steve is going to make it happen.

We're hearing broader conversations in butter discussions of incremental supply and how it's weighing on landlord pricing power or is that kind of what's happening here within your your multi portfolio.

Bob: Got it. Just about your multifamily portfolio, occupancy increased pretty dramatically sequentially, but the average rent per unit decreased a bit. We're hearing broader conversations and broader discussions of incremental supply and how it's weighing on landlord pricing power. That's kind of what's happening here within your multi-tenanted portfolio. But one of the things that's happening is our expenses are going up, and then I'll let Abigail answer the revenue side. Hi, good morning.

But one of the things that's happening is our expenses are going up and then I'll, let Abigail answer the revenue side.

Hi, good morning in San Diego, There were approximately 3000 units that came online.

<unk> home market rents.

Rents have been deep.

Creating a little bit BK renters are competing as our property managers.

Abigail Rex: In San Diego, there were approximately 3,000 units that came online in the rental market. So rents have been decreasing a little bit because renters are competing as our property managers, four new renters, and they are offering concessions, trying to fill their lease-ups. So, we are competing with that, although our multifamily here, their rental rates, we're trying to push them. The team mentioned that we're continuing to reposition properties, we're offering great experiences for the residents, and they have floor plans such as these, So we're going to continue pushing as best as possible, given the market. And Robby, Q4 is traditionally a slower leasing period for a multi-family, and so as Abigail is pushing occupancy, rates soften a little bit. Yes. What's happening is there's more competition, as Abigail pointed out, and we see insurance costs going up, and labor costs. So it's a bit of a squeeze.

Flooring, the renters and theyre offering concessions trying to solve their lease ups. So we.

We are competing with that although our multifamily here that rental rates are.

We're trying to push them as he mentioned that we're continuing to reposition proper.

Property.

Offering great experiences for the residents and they have great big floor plates. So organic continue pushing as fast as possible given the market and Ravi Q4 is traditionally a slower leasing period for multifamily.

Abigail is pushing occupancy rates soften a little bit yeah. What's happening is there's more competition as Abigail pointed out and we see.

Insurance costs going up.

Labor costs going up so it's a bit of a squeeze.

They are great properties.

If you look at the last 10 years, they've been very profitable and likely the next 10 years will produce comparable results, but there'll be hiccups.

Ernest Sylvan Rady: They're a great product. If you look at the last 10 years, they've been very profitable, but they will be. Got it, that's helpful. Just one more here.

Got it that's helpful. Just a just one more here.

Within your retail portfolio can you talk about retailer demand for more space.

Adam Brandon Wyll: Within your retail portfolio, can you talk about retailer demand for more space? How is pricing power tending, and maybe your tenant credit risks, and what some of your watchlists are at the moment? I think, as you heard in the script, Ravi, our retail properties are performing well. They're in dominant locations right now, so there's quite a bit of interest. Of course, we don't have as many properties as some of our retail peers, so we don't have a whole lot expiring this year. In fact, I think we only have one tenant left on the roster this year that's over 10,000 square feet, which is one of our old navies at Alamo Quarry, which is performing incredibly well. We're feeling really good about the retail portfolio right now.

How are you how is the pricing power attending and maybe maybe your tenant credit risks and many what are your some of your watch list tenants.

At the moment.

I think as you heard on the script Ravi our retail properties are performing well there and dominant locations right. Now. So there is quite a bit of interest of course, we don't have as many properties and some of them.

Our retail peers so.

We don't have a whole lot expiring this year in fact, I think we only have one tenant left on the roster. This year, that's over 10000 square feet, which is one of our old Navy's at Alamo quarry, which is performing incredibly well so well.

We're feeling really good about the report retail portfolio right now we know nothing's perfect, but everything is trending well you may have heard Bob mentioned that we have some reserves around retail and like last year. We're just trying to be a little more conservative not knowing how things shake out say for example, where you know we mentioned we have a deal with rite aid, but we still.

Adam Brandon Wyll: We know nothing's perfect, but everything's trending well. You may have heard Bob mention that we have some reserves around retail. And like last year, we're just trying to be a little more conservative, not knowing how things shake out. Say, for example, we mentioned we have a deal with Rite Aid, but we still put a little reserve around those guys, not knowing if they will successfully emerge or not. Petco has been having some challenges. We have three of those locations. We put a little reserve around those guys.

I'll put a little reserve around those guys not knowing if they successfully a merger not petco has been having some challenges we have three of those locations. We put a little reserve around those guys. We may be wrong on those and we hope we are but they're current on rents currently and then we have one small format theater Angelica Carmel Mountain Plaza that we're just keeping an eye on we renew them.

But these are when we go through them, we try to figure out you know what are the probabilities and so we put a little reserve on them and just hope they keep paying rent and they figure out their finances. So it's a way for investors or analysts can run their own numbers on whether we're being overly conservative or not but like Bob said, we'd rather under promise and over deliver.

Adam Brandon Wyll: We may be wrong on those, and we hope we are, but they're current on rents currently. And then we have one small format theater, Angelica, at Carmel Mountain Plaza that we're just keeping an eye on. We renewed them. But these are, when we go through them, we try to figure out, you know, what are the probabilities? And so we put a little reserve on them and just hope they keep paying rent and they figure out their finances. So it's a way for investors or analysts to run their own numbers on whether we're being overly conservative or not.

But otherwise we feel really good about our retail properties.

Well put.

Got it I appreciate the color guys. Thank you.

This concludes our question and answer session I would like to turn the conference back over to Ernest Rady for any closing remarks.

Again, thank you all for your attention and your interest My father, My late father, who was a gynecologist who said Tommy.

Get tough the tough get going things are not as perfect as they have been in the past, but we have a very competent management team great properties liquidity, and we will get through this as well as anybody and hopefully better than anybody else. So again, thank you for your and your confidence.

Adam Brandon Wyll: But like Bob said, we'd rather under-promise and over-deliver. But otherwise, we feel really good about our retail properties. Got it. Appreciate the color, guys.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Ernest Sylvan Rady: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Ernest Rady for any closing remarks. Again, thank you all for your attention and your interest. My late father, who was a gynecologist, used to tell me that when times get tough, the tough get going.

[music].

Operator: Things are not as perfect as they have been in the past, but we have a very competent management team, great properties, and liquidity, and we'll get through this as well as anybody, and hopefully better than anybody else. So again, thank you for your attention. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Yeah.

Okay.

Operator: The Ultimate Parody Site! www. AmericanAssetsTrust.com The Bulletproof Executive 2013, www.AmericanAssetsTrust.com The Bulletproof Executive 2013, Please subscribe to our channel. Thank you. Thank you, www. AmericanAssetsTrust.com www.americanassets.com, Thanks for watching! Subs by www.zeoranger.co.uk, www.americanassets.com

Yes.

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