Q2 2024 American Assets Trust Inc Earnings Call
The Doc won't come to American assets Trust, Inc. Second quarter 2024 earnings call.
Operator: Welcome to American Assets Trust Inc.'s second quarter 2024 earnings call. As a reminder, today's conference is being recorded. 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.
Operator: Welcome to American Assets Trust Inc.
Operator: Yesterday afternoon, American Assets Trust issued its earnings release and supplemental information to the SEC on Form 8K. Both are now available on the investor's section of its website, AmericanAssetsTrust.com. It's now my pleasure to turn the call over to Ernest Rady, Chairman and CEO of American Assets Trust.
Operator: 2nd quarter of 2024 earnings call. As a reminder, today's conference is being recorded. Please note the 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 were 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. Yesterday afternoon, American Assets Trust earnings release and supplemental information were furnished to the SEC on Form 8-K.
Speaker Change: As a reminder, today's conference is being recorded.
Speaker Change: 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.
Were cautioned not to place undue reliance on these forward looking statements.
Speaker Change: Sure events could cause the companys results to differ materially from these forward looking statements.
Speaker Change: Yesterday afternoon American assets Trust earnings release, and supplemental information were furnished to the SEC on form 8-K.
Operator: Both are now available on the investor section of its website at AmericanAssetsTrust.com.
Speaker Change: Both are now available on the investors section of its website American assets Trust's Dot com.
Ernest Rady: It's not my pleasure to turn the call over to Ernest Rady, Chairman and CEO of American Assets Trust. Good morning, everyone. At American Assets Trust, I can assure you every strategic and operational decision is driven by our commitment to maximize both long- and short-term value. This dedication is reflected in our efforts to maintain a robust balance sheet and our continuous investment in enhancing our irreplaceable properties, ensuring they're a main property in the respective markets. In Q2, 2024, our operating fundamentals once again exceeded expectation, even amidst much of the pessimistic market sentiment surrounding commercial real estate, particularly in the office sector, which is very upsetting to me, frankly.
Ernest Sylvan Rady: It's not my pleasure to turn the call over to Ernest Rady, Chairman and CEO of American assets Trust.
Ernest Sylvan Rady: Good morning, everyone. At American Assets Trust, I can assure you that every strategic and operational decision is driven by our commitment to maximize both long- and short-term value. This dedication is reflected in our efforts to maintain a robust balance sheet and our continuous investment in enhancing our irreplaceable profits, ensuring they remain top tiers in their respective markets, and Q2 2024 are operating from what Fundamentals once again exceeded expectations, even amidst much of the pessimistic market sentiment surrounding commercial real estate, particularly in the office sector. This is very upsetting to me.
Ernest Sylvan Rady: Good morning, everyone.
Ernest Sylvan Rady: At American assets Trust I can assure you every strategic and operational decision is driven by our commitment to maximize both long and short term value.
Speaker Change: This dedication is reflected in our efforts to maintain a robust balance sheet and our continuous investment in enhancing irreplaceable properties, ensuring they made in their respective markets.
Speaker Change: In Q2, 'twenty 'twenty four are operating from a fundamentals once again exceeded expectations, even amidst much of the pessimistic market sentiment surrounding commercial real estate, particularly in the office sector very upsetting to me frankly are strong performance.
Ernest Rady: Our strong performance has prompted us to raise our full-year guidance once more, underscoring our confidence in our earnings trajectory for the remainder of 2020-24. This highlights the exceptional quality of our properties, the exceptional ability of our people, and the expertise of our team who drive our long-term growth and shareholder wealth creation.
Ernest Sylvan Rady: Our strong performance has prompted us to raise our full-year guidance once more, underscoring our confidence in our earnings trajectory for the remainder of 2024. This success highlights the exceptional quality of our properties, the exceptional ability of our people, and the expertise of our team, which drives our long-term growth and shareholder wealth creation. On that note, I am pleased to announce that Adam Wyll has been with us now for 20 years. Correct.
Speaker Change: Has prompted us to raise our full year guidance once more underscoring our confidence in our earnings trajectory for the remainder of 2000.
Speaker Change: For.
Speaker Change: This high success highlights the exceptional quality of our properties the exceptional ability of our people and the expertise of our team who drive our long term growth and shareholder wealth creation.
Ernest Rady: On that note, I am pleased to announce that out of a while, who's been with us now for 20 years, right? You've joined us one year or three, right?
Speaker Change: That note.
Speaker Change: I'm pleased to announce that out of wild who's been with US now for 20 years right correct. You joined this when you were a theory right out of it.
Ernest Sylvan Rady: You joined us when you were three, right? Adam, we have a young president. Our current president, CEO, will be stepping into the role of CEO on January 1st, 2025. Adam has been an integral part of our team, contributing at all levels of our organization for two decades. His expertise, executional skills, and deep understanding of the real estate industry in our portfolio have been invaluable to our success. Thank you, Adam.
Ernest Rady: As we have a young president, our current president, CEO, will be stepping into the role of CEO on January 1st, 2025. Adam has been an integral part of our team, contributing at all levels of organization for two decades. His leadership, expertise, executional skills, and deep understanding of the real estate industry in our portfolio has been invaluable to our success. Thank you, Adam. As a promotion to CEO is a natural progression for both him and American Assets Trust, reflecting the confidence of our board, and I have in his ability to steer our company toward continued success.
Speaker Change: Our current president and CEO will be stepping into the role of CEO on January one 2025.
Speaker Change: Adam has been an integral part of our team contributing EBIT all levels our organization for two decades.
Speaker Change: This leadership.
Speaker Change: Expertise execution execution skills, and deep understanding of the real estate industry and our portfolio has been invaluable to our access thank you Adam.
Ernest Sylvan Rady: Adam's promotion to CEO is a natural progression for both him and American Assets Trust, reflecting the confidence of our board and I have in his ability to steer our company toward continued success. Congratulations, and again, thank you, to our investors and stakeholders. I want to assure you that this transition will be seamless. I'm in good health.
Speaker Change: <unk> promotion to CEO is a natural progression for both him and American assets Trust, reflecting the confidence our board and I have and his ability to steer our company toward continued success, congratulations and again thanks Adam.
Ernest Rady: Congratulations, and again, thanks, Adam.
Ernest Rady: To our investors and stakeholders, I want to assure you that this transition will be seamless. I'm in good health, thank goodness, and we'll assume the role of Executive Chairman on January 1st, 2025, continuing to lead our board meeting, meeting, and strategy. Strategy.
Speaker Change: To our investors and stakeholders I want to assure you that this transition will be seamless.
Adam: I'm in good health thanks.
Ernest Sylvan Rady: Thank goodness. And I'll assume the role of executive chairman on January 1st, 2025, continuing to lead our board meetings and strategies. Additionally, our incredibly talented, dedicated, and long-term, Long Tenured Executive Management will remain intact, including our CFO, Bob Parton, who suggests he has another decade on him at AAT, at least. He joined AAT when he was four.
Speaker Change: And will assume the role of executive Chairman.
Speaker Change: January 1st 2025, continuing to lead our board many meetings and strategy.
Ernest Rady: Additionally, our incredibly talented, dedicated, long-term, long-tenured executive management team will remain intact, including our CFO, Bob Barton, who suggests he has another decade on him at AAT, at least. He joined when he was four. I am continually impressed by this team's cohesion, collaborative spirit, and experience, which fosters a strong sense of trust and mutual respect, enabling them to tackle challenges effectively and drive in much innovation.
Speaker Change: Additionally, our incredibly talented dedicated as long term.
Speaker Change: Long tenured executive management team will remain intact, including our CFO ballpark, who suggested he has another decade.
Speaker Change: M. A T at least he joined him when he was four I.
Ernest Sylvan Rady: I am continually impressed by this team's cohesion, collaborative spirit, and experience, which fosters a strong sense of trust and mutual respect, enabling them to tackle challenges effectively and drive innovation. My colleagues Adam, Bob, Steve, Chris, and Abigail will cover our various asset segments, financial results, and update guidance shortly. But first, I am pleased to announce the Board of Directors has approved a quarterly dividend of $0.335 per share for the third quarter
Speaker Change: I I'm continually impressed by this team's cohesion collaborative spirit and experience, which fosters a strong sense of trust and mutual respect, enabling them to tackle challenges effectively right.
Mike: Innovation Mike.
Ernest Rady: My colleagues, Adam, Bob, Steve, Chris, and Abigail will cover our various asset segments, financial results, and upgrade guidance shortly.
Speaker Change: My colleagues Adam Bob.
Speaker Change: <unk>.
Chris: Chris and.
Chris: And navigate will cover our various segments are natural selves.
Speaker Change: Gauge guidance up eight guidance shortly but first I am pleased joined the board of Directors has approved a quarterly dividend of 33, and a half cents per share for the fourth quarter.
Ernest Rady: But first, I am pleased to announce the Board of Directors has approved a quarterly dividend of 33 and a half cents per share for the Board Court. This decision highlights our strong, unnatural performance, and emphasizes the board and police, board's belief, and our continued success. The dividend will be paid with a 10th or 19th to shareholders of record September 5th. I'd like to express our sincere confidence and gratitude for your support and allow us to steward your company.
Ernest Sylvan Rady: This decision highlights our strong financial performance and emphasizes the board's belief in our continued success. The dividend will be paid September 19th to shareholders of record September 5th. I'd like to express our sincere confidence and gratitude for your support and for allowing us to steward your company. Now I'll hand the call over to Adam to commence a deeper dive into our quarterly performance and future updates.
Speaker Change: This decision highlights our strong financial performance.
Speaker Change: Emphasize the board's belief boards belief and our continued success the dividend will be paid in September 19th to shareholders of record September 5th.
Speaker Change: I'd like to express our.
Speaker Change: Sincere confidence and gratitude.
Speaker Change: All of your support and allow us to Steward Your company now I'll hand, the call over to Adam mentioned, a deeper dive into our quarterly performance and future outlook.
Adam Kramer: Now, I'll hand the call over to Adam to commence and depredise into our quarterly performance and future hubs.
Adam Kramer: Thanks, Ernest.
Adam Wyll: Thanks, Ernest. I am honored to take on the CEO role at the start of 2025. Ernest, your entrepreneurial spirit, visionary leadership, business acumen, and mentorship have been pivotal not only for my development but also for the entire management team, for which we are immensely grateful. I sincerely appreciate the trust you and our board have placed in my leadership. I'm also thankful for Bob's support as well as all of my colleagues for our exceptional management.
Adam: Thanks Fair enough I am honored to take on the CEO role at the start of 2025 earnest their entrepreneurial spirit visionary leadership business acumen and Mentorship have been pivotal not only from my development, but also for the entire management team for which we are immensely grateful I sincerely appreciate the trust you and our board.
Adam Kramer: I am honored to take on the CEO role at the start of 2025. Ernest, your entrepreneurial spirit, visionary leadership, business acumen, and mentorship have been pivotal not only for my development, but also for the entire management team, for which we are immensely grateful. I sincerely appreciate the trust you and our board have placed in my leadership. I'm also thankful for Bob's support, as well as all of my colleagues on our exceptional management team. Our daily collaboration has fostered a true sense of family among us as we've navigated numerous challenges and celebrated many successes over the years.
Speaker Change: A place to my leadership I'm also thankful for Bob support as well as all of my colleagues on our exceptional management team.
Adam Wyll: Our daily collaboration has fostered a true sense of family among us as we've navigated numerous challenges and celebrated many successes over the years. Teamwork and resilience thrive at American Assets Trust, thanks to the tone Ernest has set at the top. Turning to our results, as Ernest mentioned, we have once again delivered strong operating performance across all segments of our diversified portfolio, including the highest quality office, retail, multifamily, and mixed-use properties. In times of economic and business uncertainty, it is crucial for us to focus on what we can control.
Adam: Our daily collaboration has fostered a true sense of family among us as we've navigated numerous challenges and celebrated many successes.
Adam: Over the years.
Adam Kramer: Teamwork and resilience thrive at American Assets Trust next to the tone Ernest has said at the top.
Adam: Teamwork and resilience thrive at American assets Trust, Thanks to the tone Ernest has said at the top.
Adam Kramer: Turning to our results, as Ernest mentioned, we have once again delivered strong operating performance across all segments of our diversified portfolio, including the highest quality office, retail, multi-family, and mixed-use properties. In times of economic and business unpredictability, it is crucial for us to focus on what we can control. This means adapting to and meeting evolving market demands in a volatile economy, particularly in commercial real estate. We have a proven track record of overcoming challenges with resilience, and we are confident that our high-quality operating platform and real estate portfolio will remain steadfast despite the volatile financial markets.
Adam: Turning to our results as Ernest mentioned, we have once again delivered strong operating performance across all segments of our diversified portfolio, including the highest quality office retail multifamily and mixed use properties in times of economic and business unpredictability is crucial for us to focus on what we can control this means adapting.
Adam Wyll: This means adapting to and meeting evolving market demands in a volatile economy, particularly in commercial real estate. We have a proven track record of overcoming challenges with resilience, and we are confident that our high-quality operating platform and real estate portfolio will remain steadfast despite the volatile financial market. Moving forward, we will continue to base our strategy and decision-making on actions we believe will drive long-term financial outperformance.
Ernest: Two immediate.
Speaker Change: Balding market demands in a volatile economy, particularly in commercial real estate.
Ernest: We have a proven track record of overcoming challenges with resilience and we are confident that our high quality operating platform and real estate portfolio will remain steadfast. Despite the volatile financial markets moving forward, we will continue to base our strategy and decision making on actions, we believe will drive long term financial outperformance.
Adam Kramer: Moving forward, we will continue to base our strategy and decision-making on actions we believe will drive long-term financial outperformance. On the office utilization front, our estimates and those of our tenants indicate that office usage has remained relatively stable from Q1 to Q2. Specifically, San Diego and San Francisco are experiencing utilization rates between 70 and 80 percent. With San Francisco largely driven by our two anchor tenants at Landmark, while Bell View in Portland are at about 60 to 75 percent, we anticipate that a few more known return-to-office mandates from existing tenants, once implemented, can increase these figures by year end.
Ernest: <unk>.
Adam Wyll: On the office utilization front, our estimates and those of our tenants indicate that office usage has remained relatively stable from Q1 to Q2. Specifically, San Diego and San Francisco are experiencing utilization rates between 70 and 80 percent, with San Francisco largely driven by our two anchor tenants at Landmark, while Bellevue and Portland are at about 60 to 75%. We anticipate that a few more known return-to-office mandates from existing tenants, once implemented, can increase these figures by year-end. Meanwhile, we understand that nationwide office utilization is just north of 50% of pre-pandemic levels.
Ernest: On the office utilization front, our estimates and those of our tenants indicate that office usage has remained relatively stable from Q1 to Q2 specifically.
Ernest: Specifically, San Diego and San Francisco are experiencing utilization rates between 70 and 80%.
Ernest: With San Francisco larger it largely driven by our two anchor tenants at landmark, while Bellevue and Portland are at about 60% to 75%.
Ernest: We anticipate that a few more known returned to office mandates from existing tenants once implemented can increase these figures by year end <unk>.
Adam Kramer: Meanwhile, we understand that nationwide office utilization is just north of 50 percent of pre-pandemic levels. Of course, the quality and location of our office buildings and the robust amenities we offer are key differentiators in our higher utilization, not to mention leasing efforts compared to the competitors in our submarkets.
Ernest: Meanwhile, we understand that nationwide office utilization is just north of 50% of pre pandemic levels of course, the quality and location of our office buildings and the robust amenities, we offer our key differentiators and our higher utilization not to mentioned leasing efforts compared to the competitors in our submarkets.
Adam Wyll: Of course, the quality and location of our office buildings and the robust amenities we offer are key differentiators in our higher utilization, not to mention leasing efforts compared to the competitors in our sub-market. In the retail sector, which represents 27% of our portfolio in OI, we are currently about 95% leased. We have successfully renewed nearly all lease expirations this year and have begun executing on our 2025 renewal. As anticipated, our comparable retail leasing spreads have continued to trend positively each quarter over the past several years, with a 6% increase on a cash basis and a 34% increase on a straight line basis for Q2 transactions.
Adam Kramer: In the retail sector, which represents 27 percent of our portfolio and OI, we are currently about 95 percent leased. We have successfully renewed nearly all lease aspirations this year and have begun executing on our 2025 renewals. As anticipated, our comparable retail leasing spreads have continued to trend positively each quarter over the past several years, with a 6 percent increase on a cash basis and a 34 percent increase on a straight-line basis for Q2 transactions. We are often asked about consumer spending in our retail properties. While we are not completely insulated from a potential slowdown, we believe that consumer spending is more resilient in the densely populated areas with favorable demographics surrounding our top-tier shopping centers.
Ernest: In the retail sector, which represents 27% of our portfolio NOI. We are currently about 95% leased we have successfully renewed nearly all lease expirations. This year and have begun executing on our 2025 renewals as anticipated our comparable retail leasing spreads have continued to trend positively each quarter over the past several.
Ernest: All years with a 6% increase on a cash basis, and a 34% increase on a straight line basis for Q2 transactions.
Adam Wyll: We are often asked about consumer spending in our retail property. While we are not completely insulated from a potential slowdown, we believe that consumer spending is more resilient in densely populated areas with favorable demographics surrounding our top-tier shopping centers.
Ernest: We are often asked about consumer spending at our retail properties. While we are not completely insulated from a potential slow down we believe that consumer spending is more resilient in the densely populated areas with favorable demographics surrounding our top tier shopping centers foot traffic has remained strong supporting ongoing demand for the limited vacant space at all.
Adam Kramer: Foot traffic has remained strong, supporting ongoing demand for the limited vacant space at our well-managed properties, especially given the very limited supply growth in our submarkets. As a result, our retail portfolio achieved its highest average base rent per square foot in Q2 since our IPO, which ranks among the top two of the retail peers that we track.
Adam Wyll: Foot traffic has remained strong, supporting ongoing demand for the limited vacant space at our well-managed property, especially given the very limited supply growth in our sub-market. As a result, our retail portfolio achieved its highest average base rent per square foot in Q2 since our IPO, which ranks among the top two of the retail peers that we track. Turning to our multifamily portfolio, specifically our San Diego communities, we ended Q2 with an occupancy rate of 89% and a leased percentage of 95%.
Ernest: A well managed properties, especially given the very limited supply growth in our Submarkets as.
Ernest: As a result, our retail portfolio achieved its highest average base rent per square foot in Q2, since our IPO, which ranks among the top two of the retail peers that we track.
Adam Kramer: Turning to our multifamily portfolio, specifically at our San Diego communities, we ended Q2 with an occupancy rate of 89 percent and a lease percentage of 95 percent. The dip in occupancy is mainly due to the seasonal move-out of students at our Pacific Ridge apartments. We note that leases for vacant units were rented at an average rate approximately 4 percent lower than prior rents, largely due to expiring prior tendencies that solve premiums of 20 plus percent over the base rate for month-to-month holdovers. While renewed units experienced an average increase of 9 percent, resulting in a blended average increase of 4 percent with minimal concessions offered.
Speaker Change: Turning to our multifamily portfolio, specifically at our San Diego communities. We ended Q2 with an occupancy rate of 89% and our leased percentage of 95%.
Adam Wyll: The dip in occupancy is mainly due to the seasonal move out of students at our Pacific Ridge apartment. Additionally, we note that leases for vacant units were rented at an average rate approximately 4% lower than prior rents, largely due to expiring prior tenancies. That's all premiums of 20-plus percent over the base rate for month-to-month holdovers. Meanwhile, renewed units experienced an average increase of 9%, resulting in a blended average increase of 4% with minimal concessions offered.
Ernest: The dip in occupancy is mainly due to the seasonal move out of students at our Pacific Ridge apartments. We note that leases for vacant units were rented at an average rate of approximately 4% lower than prior rents largely due to expiring. Prior tenancies. That's all premiums of 20 plus percent over the base rate for month to month old numbers.
Ernest: While renewed units experienced an average increase of 9%, resulting in a blended average increase of 4% with minimal concessions offer while the year began with the slowdown in branch the stronger spring and summer leasing season in Q2 has allowed us to increase rates, especially on renewals.
Adam Wyll: While the year began with a slowdown in rents, the stronger spring and summer leasing season in Q2 allowed us to increase rates, especially on renewables. In Q2, at our Haslo on 8th Multifamily Community in Portland, we maintained flat rates on a blended basis between new move-ins and renewals, with our lease percentage holding steady at 96% and minimal concessions off. While we had hoped for a slight increase in blended rates, maintaining flat rates still represents an improvement over prior quarters in Portland.
Adam Kramer: While the year began with the slowdown in rents, the stronger spring and summer leasing season in Q2 has allowed us to increase rates, especially on renewals. In Q2, at our Haslow and 8th multifamily community in Portland, we maintained flat rates on a blended basis between new move-ins and renewals, with our least percentage holding study at 96 percent and minimal concessions offered. While we had hoped for a slight increase in blended rates, maintaining flat rates still represents an improvement over prior quarters in Portland. Q3 has begun positively at Haslow, and we are optimistic about sustaining this momentum.
Ernest: In Q2 at our half lower than eight multifamily community in Portland, we maintained flat rates on a blended basis between new move ins and renewals with our lease percentage holding steady at 96% and minimal concessions offered while we had hoped for a slight increase in blended rates maintaining flat rates still represents an improvement over prior quarters.
Ernest: In Portland, Q3 has begun positively it has allowed and we are optimistic about sustaining this momentum.
Adam Wyll: Q3 has begun positively at Hasselhoff, and we are optimistic about sustaining this moment. Meanwhile, it's worth noting that our multifamily portfolio achieved its highest ever average base rent in Q2 since our IPO. As we saw, our same store in OI increased almost 10% year-over-year for Q2, with very strong collections in Q2. And net effective rents for our entire multifamily portfolio are now 3% higher year-over-year compared to Q2 2023. Finally, we released our 2023 sustainability report in Q2, showcasing our operations and highlighting our initiatives and vision on various topics, including environmental sustainability, social responsibility, corporate governance, and human capital. You can find it on our website, and we hope you find it informative. With that, I'll turn the call over to Bob to discuss financial results.
Adam Kramer: Meanwhile, it's worth noting that our multifamily portfolio achieved its highest-ever average-based rent in Q2 since our IPO. As we saw, our same-store and OI increased almost 10 percent euro per year for Q2, with very strong collections in Q2, and net effective rents for our entire multifamily portfolio are now 3 percent higher year-over-year compared to Q2 2023.
Ernest: Meanwhile, it's worth noting that our multifamily portfolio achieved its highest ever average base rent in Q2 since our IPO as.
Ernest: As we saw our same store NOI increased almost 10% euro per year for Q2 with very strong collections in Q2, and net effective rents for our entire multifamily portfolio are now 3% higher year over year compared to Q2 2023.
Adam Kramer: Finally, we released our 2023 Sustainability Report in Q2, showcasing our operations and highlighting our initiatives and vision on various topics, including environmental sustainability, social responsibility, corporate governance, and human capital. You can find it on our website, and we hope you find it informative.
Ernest: Finally, we released our 2023 sustainability report in Q2, showcasing our operations and highlighting our initiatives and vision on various topics, including environmental sustainability, social responsibility corporate governance and human capital you can find it on our website and we hope you find it informative.
Robert Barton: With that, I'll turn the call over to Bob to discuss financial results and updated guidance in more detail. Thanks, Adam. Good morning, everyone.
Ernest: With that I'll turn the call over to Bob to discuss financial results and updated guidance in more detail.
Robert F. Barton: Thanks, Adam, and good morning, everyone. First of all, I want to congratulate Adam on his promotion to CEO. Well-deserved, and it's been a pleasure working with Adam over the years.
Bob: Thanks, Adam and good morning, everyone.
Robert Barton: First of all, I want to congratulate Adam on his promotion, the CEO. Well-deserved and has been a pleasure working with Adam over the years. I look forward to many more years working with Adam Ernest and this great group of professionals at American Assets Trust, which is a tight-knit family focused on creating wealth for all of our shareholders and having fun while we do it. Last night, we reported second quarter, 24 FFO of 60 cents per share. Second quarter, 2024 net income attributable to common stockholders was 20 cents per share. Second quarter, 2024 FFO decreased by approximately 11 cents to 60 cents per FFO share.
Bob: First of all I want to congratulate Adam on his promotion to CEO, well deserved and it's been a pleasure working without them over the years I look forward to many more years working without emeritus and this great group of professionals at American assets Trust.
Robert F. Barton: I look forward to many more years working with Adam, Ernest, and this great group of professionals at American Assets Trust, which is a tight-knit family focused on creating wealth for all of our shareholders and having fun while we do it. Last night, we reported second quarter 24 FFO of 60 cents per share. Second quarter 2024 net income attributable to common stockholders was $0.20 per share. Second quarter 2024 FFO decreased by approximately 11 cents to 60 cents per FFO share compared to the first quarter of 2024, primarily due to three things. First, as you may recall, we previously received a one-time $10 million litigation settlement in Q1'24, which was approximately $0.13 of FFO per share.
Speaker Change: Which is a tight knit family focused on creating wealth for all of our shareholders and having fun, while we do it.
Robert F. Barton: Reducing the FFO by approximately $0.13 per FFO share in the second quarter. Second, our multifamily properties contributed approximately one penny per FFO share of outperformance in Q2'24, but that was not previously included in our updated 24 guidance. And third, our retail properties contributed approximately one penny per FFO share of outperformance in Q2'24. That was not previously included in our updated 24 guidance.
Speaker Change: Last night, we reported second quarter 'twenty four.
Speaker Change: So 60 cents per share.
Speaker Change: Second quarter 2024, net income attributable to common stockholders was <unk> 20 per share.
Robert F. Barton: These three items taken together reduce the FFO from 71 cents per FFO share in Q124-67 to 24 cents in Q2-24. Same store cash NOI for all sectors combined was 2.1% growth year over year for the second quarter, breaking it out by segment and each compared to Q2 2023, as follows. Our same store office portfolio's NOI was flat in Q2, primarily due to contractual renovations related to office lease renewal at our Solana Crossing in San Diego and Corbett Campus, East 3 in Bellevue. Our same store retail portfolio's NOI was positive, 3.2% in Q2, primarily due to higher base rents at our Solana Beach Town Center in San Diego, Del Monte Center in Monterey, and Waikele Center in
Ernest: Second quarter 2020 for F. F O decreased by approximately 11 cents to 60 cents per rep at both share compared to the first quarter of 'twenty 'twenty four primarily due to three things.
Robert Barton: Compared to the first quarter of 2024, primarily due to three things. First, as you may recall, we previously received a one-time $10 million litigation settlement in Q124, which was approximately 13 cents of FFO per share, reducing the FFO by approximately 13 cents per FFO share in the second quarter. Second, our multi-family properties contributed to approximately one penny per FFO share about performance in Q224. That was not previously included in our updated 24 guidance. And third, our retail properties contributed to approximately one penny per FFO share about performance in Q224. That was not previously included in our share.
Ernest: First as you May recall, we previously received a one time $10 million litigation settlement in Q1, 24, which was approximately 13 cents per.
Speaker Change: Sure sure, reducing the Buffalo by approximately 13 cents.
Speaker Change: <unk> share in the second quarter.
Ernest: Second.
Ernest: Our multifamily properties contributed approximately one penny per <unk> share of outperformance in Q2 24 that was not previously included in our updated 2000 and for guidance.
Ernest: Third our retail properties contributed approximately one penny per share.
Ernest: About performance in Q2 24 that was not previously included in our updated 2000 and for guidance.
Ernest: These three items taken together reduced the F F O from 71 cents per <unk> share.
Robert Barton: In Q124, the 60 cents in Q224. Same-store cash NOI for all sectors combined was 2.1% growth year over year for the second quarter. Breaking it out by segment and each compared to Q2 2223 is as follows. Our same-store office portfolios, NOI was flat in Q22 primarily due to contractual renovations related to office lease renewals at our Salona Crossing in San Diego and Corporate Campus, E3 in Bellevue. Our same-store retail portfolio's NOI was positive 3.2% in Q22, primarily due to higher base rents at our Salona Beach Town Center in San Diego, Del Monte Center in Monterey, and Waikeli Center in Oahu, Hawaii.
Ernest: In Q1, 24 to 60 cents in.
Ernest: In Q2 24.
Ernest: Same store cash NOI for all sectors combined was two 1% growth year over year for the second quarter.
Ernest: Breaking it out by segment and each compared to Q2 twenties.
Ernest: 2023.
Ernest: Is this fall those are same store office portfolios NOI was flat in Q2, primarily due to contractual rent abatements related to office lease renewals at our Solana crossing in San Diego and corporate campus East three and Bellevue.
Ernest: Our same store retail portfolios NOI was positive three 2% in Q2, primarily due to higher base rents ever so a lot of Beach town Center.
Ernest: San Diego.
Ernest: Omani Center in Monterrey, and White Kelly Centre in Oahu, Hawaii.
Robert Barton: Our same-store multifamily portfolios NOI was a positive 9.5% in Q22, primarily due to higher than expected revenue and lower than expected expenses at our San Diego multifamily properties, particularly Pacific Roots. Adder Mixed Use Portfolios, NOI, was a positive 2.2% in Q2 primarily due to higher revenue at the Embassy Suites Waikiki. Specifically, in Q224, paid occupancy was approximately 86% compared to 84% in Q223. Gremphar was $317 compared to $312 in Q2 23. ADR was $367 compared to $370 in Q2 23. NOI was approximately $3.4 million compared to $3.3 million in Q223. Liquidity at the end of the second quarter, we had liquidity of approximately $515 million, comprised of approximately $115 million in cash and cash equivalents and $400 million of availability on a revolving line of credit.
Robert F. Barton: Our same-store multifamily portfolios at OI were a positive 9.5% in Q2, primarily due to higher-than-expected revenue and lower-than-expected expenses that are San Diego multifamily properties, particularly Pacific Red, and our mixed-use portfolios, NOI, were a positive 2.2% in Q2, primarily due to higher revenue at the Embassy Suites, Waikiki. Specifically, in Q2-24, paid occupancy was approximately 86% compared Rampart was $317 compared to $312 in Q2 2020. ADR was $367 compared to 370 in Q2 2018.
Ernest: Our same store multifamily portfolio's NOI was a positive nine 5% in.
Ernest: In Q2, primarily due to higher than expected revenue.
Ernest: And lower than expected expenses at our San Diego.
Ernest: Family properties, particularly Pacific Ridge.
Ernest: At our mixed use portfolios NOI.
Ernest: Was a positive two 2% in Q2, primarily due to higher revenue at the embassy suites Waikiki.
Ernest: Specifically in Q2 24 paid occupancy was approximately 86% compared to 84% in Q2 'twenty three.
Ernest: Revpar was three.
Ernest: $317 compared to $3 12 in Q2 'twenty three.
Ernest: ADR was 367 compared to 370 in Q2 'twenty three.
Robert F. Barton: NOI was approximately $3.4 million compared to $3.3 million since Q2'23. Liquidity, at the end of the second quarter, we had liquidity of approximately $515 million, comprised of approximately $115 million in cash and cash equivalents. $400 million of availability on our evolving line of credit. Subsequent to Quarter End, we drew down on our line of credit to pay off the $100 million Series F notes that matured on July 19, as of the end of the second quarter. Our leverage, which we measure in terms of net debt to EBITDA, was 6.4 times on a quarter annualized basis and 6.3 times on a trailing 12-month.
Ernest: NOI was approximately $3 4 million compared to $3 3 million.
Ernest: 'twenty three.
Ernest: Liquidity at the end of the second quarter, we had liquidity of approximately $515 million comprised of approximately $115 million in cash and cash equivalents and $400 million of availability on our revolving line of credit subs.
Robert Barton: Subsequent to Q223, we drew down on our line of credit to pay off the 100 million Series F notes that matured on July 19. As at the end of the second quarter, are leveraged which we measure in terms of net debt to EBITDA with 6.4 times on a Q223 and 6.3 times on a trailer 12 month basis. Our objective is to achieve a maintaining net debt to EBITDA of 5.5 times or below. Our interest coverage and fixed charge coverage ratios of 3.6 times on both an annualized basis in trailer 12 month basis. Please note, while we have access to capital for many sources, we are closely monitoring the public debt markets to manage our upcoming debt majorities.
Ernest: Subsequent to quarter end, we drew down on our line of credit to pay off the 100 million series F notes that matured on July 19.
Ernest: As at the end of the second quarter, our leverage which we measure in terms of net debt to EBITDA was six four times on a quarter annualized basis.
Ernest: Six three times on a trailing 12 month basis, our objective is to achieve and maintain a net debt to EBITDA of five five times or below.
Robert F. Barton: Our objective is to achieve and maintain a net debt to EBITDA of five and a half times or below. Our interest coverage and fixed charge coverage ratios are 3.6 times for the quarter on both an annualized basis and the trailing 12 months. Please note, while we have access to capital from many sources, we are closely monitoring the public debt markets to manage our upcoming debt management. We anticipate taking action on this before the end of the year.
Ernest: Our interest coverage and fixed charge coverage ratios were three six times for the quarter on both an annualized basis and trailing 12 month basis. Please note.
Ernest: While we have access to capital from many sources, we are closely monitoring the public debt markets to manage our upcoming debt maturities we.
Robert Barton: We anticipate taking action on this before the end of the year.
Ernest: We anticipate taking action on this before the end of the year.
Robert Barton: Let's talk about our 2024 guidance. We are increasing our 2024 FFO for share guidance range to $2.48 to $2.54 per FFO share, with a midpoint of $2.51 per FFO share. A 9.6 percent increase from our previously updated guidance that had a range of $2.24 to $2.34, with a midpoint of $2.29. Let's walk through the items that make up most of this increase in our 24 FFO guidance. First, our retail properties have contributed in additional approximately two cents per FFO share this year from lower bad debt and operating expenses, and higher percentage rents that were not previously included in our 24 guidance.
Robert F. Barton: Let's talk about our 2024 guidance. We are increasing our 2024 FFO per share guidance range to $2.48 to $2.54 per FFO share, a 9.6% increase from our previously updated guide that had a range of $2.24 to $2.23 per FFO share and a midpoint of $2.29.
Ernest: Let's talk about our 2020 for guidance.
Ernest: We are increasing our 2020 for F F O per share guidance range to $2 48 to.
Ernest: The $2.54 per <unk> share with a midpoint of $2 51 per share.
Ernest: Sure a nine 6% increase from our previously updated guidance that had a range of $2 24.
Robert F. Barton: The $2 34, with a midpoint of $2 29.
Robert F. Barton: Let's walk through the items that make up most of this increase in our 24 FFO Guidelines. First, our retail properties have contributed an additional approximately $0.02 per FFO shared this year from lower bad debt and operating expenses and higher percentage rents that were not previously included in our updated 24 guidance. Second, our office properties have contributed an additional approximately $0.02 per FFO share this year from lower VAT debt and operating expenses that were not previously included in our 20 report guide. And third, lower G&A and higher interest income have contributed an additional approximately two cents per FFO share this year.
Ernest: Let's walk through the items that make up most of this increase in our 'twenty guidance.
Ernest: First our retail properties have contributed an additional approximately <unk> <unk> per episode shared this year from lower bad debt and operating expenses and higher percentage rents that were not previously included in our updated 2000 and for guidance.
Robert Barton: Second, our office properties have contributed in additional approximately two cents per FFO share this year from lower bad debt and operating expenses that were not previously included in our 24 guidance. And third, lower GNA and higher interest income has contributed in additional approximately two cents per FFO share this year. Fourth, our multi-family properties have contributed an additional penny for FFO share this year that was not previously included in our updated 24 guidance. In 5th, we have received a lease termination fee from a tenant at our Tory Reserve property in San Diego that will be recognized and contribute approximately an additional 15 cents per FFO share in Q3 2024.
Ernest: Second our office properties have contributed an additional approximately two cents per episode of share this year from lower bad debt and operating expenses that were not previously included in our 2000 and for guidance.
Ernest: And third lower G&A and higher interest income has contributed.
Ernest: Additional approximately two cents per <unk> share this year.
Robert F. Barton: Fourth, our multifamily properties have contributed an additional penny for FFO share this year that was not previously included in our updated 24 guide. And fifth, we have received a lease termination fee from a tenant at our Torrey Reserve property in San Diego that will be recognized and contribute approximately an additional 15 cents per FFO share in Q3 2024. The tenant has also paid their existing rent through their new termination date of September 30.
Ernest: Fourth our multifamily properties have contributed an additional any.
Ernest: For F F O.
Ernest: This year that was not previously included in our updated 2000 and for guidance.
Robert F. Barton: And the termination fee will cover approximately four of the five remaining years of base rent on the lease, for turnkey space that we are optimistic that we can re-let within the next few years, if not earlier. These adjustments, when added together, will be approximately $0.22 per FFO share and represent the net increase in the 2024 midpoint over our previously updated guidance. Well, we believe the 24 guidance is our best estimate as of this date for this earnings call.
Ernest: And fifth we have received a lease termination fee from a tenant at our Torrey reserve property in San Diego that will be recognized and contribute approximately an additional 15 cents per <unk> share.
Ernest: Q3 2024.
Ernest: The tenant has also paid their existing rent through their new termination date of September 30.
Ernest: 24, and the termination fee will cover approximately four of the five remaining years.
Robert Barton: We have been contributing years a base rent on the lease for turncase space that we are optimistic that we can relat within the next few years if not earlier. These adjustments, when added together, will be approximately 22 cents per FFO share and represent the net increase in the 2024 midpoint over our previously updated guidance. While we believe the 24 guidance is our best estimate as of this date of the earnings call, we do believe that is also possible that we could perform towards the upper end of this range. In order to do that, first the majority of the office or retail tenants that we reserve or must continue to pay their rents through the year end.
Ernest: This rent on the lease for term case for turnkey space that we are optimistic that we can re let within the next few years if not earlier.
Speaker Change: These adjustments when added together will be approximately 22 cents for F. F O share and represent the net increase in the 'twenty 'twenty four midpoint over our previously updated guidance.
Speaker Change: While we believe that 24 guidance is our best estimate as of this date of this earnings call. We do believe that is also possible that we could perform towards the upper end of this rates in order to do that first the majority of the office of retail tenants that we reserve or it must continue to pay their rent through the year end.
Robert F. Barton: We do believe that it is also possible that we could perform towards the upper end of this range. In order to do that, first, the majority of the office or retail tenants that we reserve or must continue to pay their rents through the year end. As of the end of Q2, we have approximately $0.03 of FFO per share reserves remaining, $0.01 for office, and $0.02 for retail. Second, we need to outperform our multifamily guidance by continuing to see increasing rents and occupancy, or less expensive.
Robert Barton: As of the end of Q2, we have approximately three cents of FFO per share reserves remaining: one cent for office and two cents for retail. Second, we need to outperform our multifamily guidance by continuing to see increasing rents and occupancy, and/or less expenses. Third, tourism in travel the white key key needs to see a more meaningful return from our Japanese guests, which we are cautiously optimistic about. If not later this year, then in suing years to come, it's just a matter of timing.
Speaker Change: As of the end of Q2, we have approximately three soon so that's that so per share reserves remaining one cent per office and two cents for retail.
Speaker Change: Second we need to outperform or multifamily guidance by continuing to see increasing rents and occupancy and are less expenses.
Robert F. Barton: Third, tourism and travel to Waikiki need to see a more meaningful return from our Japanese guests, which we are cautiously optimistic about, if not later this year, then in the ensuing years to come. It's just a matter of time.
Speaker Change: <unk> tourism and travel the waikiki needs to see a more meaningful return from our Japanese guess.
Speaker Change: Which we are cautiously optimistic about if not later this year than in the ensuing years to come it's just a matter of timing.
Robert Barton: As always, our guidance, our NOI bridge, and these prepared remarks exclude any impact from future acquisitions, dispositions, equity issuances, or future debt refinancing or repayments, other than what we have already discussed. 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 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 of supplemental information.
Robert F. Barton: As always, our guidance, our NOI bridge, and these prepared remarks exclude any impact from future acquisitions, dispositions, equity issuances, or 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 interpretation of our four lead 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.
Ernest: As always our guidance our NOI bridge in these prepared remarks exclude any impact from future acquisitions dispositions equity issuances or exit.
Ernest: Future debt refinancings or repayments other than what we've already discussed.
Ernest: We will continue our best to be as transparent as possible and share with you our analysis and interpretations of our quarterly numbers.
Robert F. Barton: 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.
Steve Center: I'll now turn the call over to Steve Center, Senior Vice President of Office Property, for a brief update on our office segment. Steve, thanks, Bob. At the end of the second quarter, our office portfolio is 86.6% leased, an increase of 20 basis points over the prior quarter. While we continue to experience some right sizing of existing tenants and a few small office closings, they were more than offset by Q2 leasing activity as follows. In the second quarter, we executed 18 leases totaling approximately 96,000 rentable square feet comprised of two comparable new leases were approximately 21,000 rentable square feet with renting increases of 4% on a cash basis and 26% on a straight line basis, including a 20,000 rentable square foot office tentative first and main important.
Steve Center: I'll now turn the call over to Steve Center, Senior Vice President of Office Properties, for a brief update on our office segment. Steve? Thanks, Bob.
Ernest: I'll now turn the call over to Steve Center, our senior Vice President of office properties for a brief update on our office segment, Steve Thanks, Bob.
Steve Center: At the end of the second quarter, our office portfolio was 86.6%, an increase of 20 basis points over the prior quarter. We continue to experience some right-sizing of existing tenants and a few small office closings. However, it was more than offset by Q2 leasing activity as follows. In the second quarter, we executed 18 leases totaling approximately 96,000 rentable square feet, comprised of two comparable new leases for approximately 21,000 rentable square feet, with rent increases of 4% on a cash basis and 26% on a straight line basis, including a 20,000-rentable-square-foot office tented at 1st and Main in Portland.
Steve Center: At the end of the second quarter, our office portfolio was 86, 6% leased an increase of 20 basis points over the prior quarter.
Steve Center: We continue to experience some right sizing of existing tenants and a few small office closings there were more than offset by Q2 leasing activity as follows.
Steve Center: Ten comparable renewal leases for approximately 32,000 rental square feet, with rent increases of 6% on a cash basis and 10% on a straight line basis, including an $11,000 per square foot office lease at the Coastal Collection, Torrey Reserve in San Diego. And six non-comparable leases totaling approximately 43,000 rental square feet, including two leases totaling 23,000 rental square feet at City Center Bellevue. Three leases totaling $16,000 rentable square feet at the Coastal Collection and Torrey Reserve in San Diego and a $5,000 rentable square foot lease at 1st and Main and 4th. And the leasing momentum has continued into Q3, as follows.
Steve Center: In the second quarter, we executed 18 leases totaling approximately 96000 rentable square feet comprised of two comparable new leases for approximately 21000 rentable square feet with rent increases of 4% on a cash basis and 26% on a straight line basis, including 20000 Rentable square foot office tenant at first and main in Portland.
Steve Center: Ten comparable renewal leases for approximately 32,000 rentable square feet, with rent increases of 6% on a cash basis and 10% on a straight-line basis. is including an 11,000 rentable square foot office lease at the Coastal Collection, Tori Reserve, and San Diego. In six non-comparable leases, totaling approximately 43,000 rentable square feet, including two leases, totaling 23,000 rentable square feet at City Center Bellevue, three leases, totaling 16,000 rentable square feet at the Coastal Collection, Tori Reserve, and San Diego, and the 5,000 rentable square foot lease First and Main Importance.
Steve Center: 10 comparable renewal leases for approximately 32000 rentable square feet with rent increases of 6% on a cash basis and 10% on a straight line basis, including an 11000 rentable square foot office lease at the closer collection Torrey Reserve in San Diego and.
Ernest: And six non comparable leases totaling approximately 43000 rentable square feet, including two leases totaling 23000 rentable square feet at City Center Bellevue.
Steve Center: Three leases totaling 16000 rentable square feet at the coastal collection Torrey reserve in San Diego, and a 5000 rentable square foot lease first and main in Portland.
Steve Center: And the leasing momentum has continued into Q3 as follows. We've executed seven leases today, totaling approximately 57,000 rentable square feet. We have nine deals and lease documentation, totaling approximately 79,000 rentable square feet, approximately 62,000 rentable square feet of which is new leasing. Including deals and lease documentation, approximately 55% of the rentable square feet is new leasing, which is the first time since 2019 that our new leasing has outpaced renewals on a rental square foot basis. Our lease expiration exposure is modest through 2025. We're down to approximately 4% rolling in 2024, given deal signed year to date with the average deal size of the remainder of approximately 8,000 rentable square feet.
Steve Center: And the leasing momentum has continued into Q3 as follows.
Steve Center: We've executed seven leases today, totaling approximately 57,000 rentable square feet. We have nine deals in lease documentation totaling approximately 79,000 rental square feet, approximately 62,000 rentable square feet of which is new lease. Including deals and lease documentation, approximately 55% of the rentable square feet is new leasing. This is the first time since 2019 that our new leasing has outpaced renewables on a rentable square foot basis. Exposure is modest through 2025
Steve Center: We've executed seven leases today totaling approximately 57000 rentable square feet.
Steve Center: We have nine deals in lease documentation totaling approximately 79000 rentable square feet, approximately 62000 rentable square feet of which is new leasing.
Steve Center: Including deals in lease documentation approximately 55% of the rentable square feet is new leasing which is the first time since 2019 that our new leasing has outpaced renewables on our rentable square foot basis.
Ernest: Our lease exploration.
Ernest: Exposure is modest through 2025.
Steve Center: We're down to approximately 4% rolling in 2024, given deals signed year-to-date, with the average deal size of the remainder being approximately 8,000 rental square feet. This includes the early termination of the tenant that Bob mentioned at Torrey Plaza for approximately 46,000 rentable square feet, or 1% of the portfolio, that will hit on October 1st. We have approximately 8% of the portfolio rolling in 2025 with the average deal size of approximately 6,800
Ernest: We're down to approximately 4% rolling in 2024, given deal signed year to date with the average deal size of the remainder of approximately 8000 rentable square feet.
Steve Center: This includes the early termination of the tenant that Bob mentioned to Tori Plaza for approximately 46,000 rentable square feet, or 1% of the portfolio, that will hit on October 1st. We have approximately 8% of the portfolio rolling in 2025 with the average deal size of approximately 6,800 rentable square feet. Including with cement sites on our new development, Lahoyakama 3 in the UTC submarket of San Diego. We are currently in lease documentation for the third floor. We are one of two alternatives for lease on the tenth floor. We have been shortlisted by law firm for two floors.
Steve Center: This includes the early termination of the tenant that Bob mentioned at Torrey Plaza for approximately 46000, rentable square feet or 1% of the portfolio that will hit on October one.
Steve Center: We have approximately 8% of the portfolio rolling in 2025 with the average deal size of approximately 6800 rentable square feet.
Steve Center: Concluding with some insights on our new development, La Jolla Commons 3 in the UTC Submarket of San Diego. We are currently in lease documentation for the third floor. We are one of two alternatives for a lease on the 10th floor. We have been shortlisted by a law firm for two floors. We have several tenants that have toured that are expected to engage with RFPs for up to a total of four floors, and we are in discussions with one prospective tenant for most, if not all, of the remaining vacancies.
Speaker Change: Including with some insights on our new development. The Jolla Commons III in the UTC Submarket of San Diego.
Steve Center: Currently in lease documentation for the third floor.
Steve Center: You're one or two alternatives for a lease on the 10th floor, we have been shortlisted by law by law form law firm for two floors.
Steve Center: We have several tenants that have toured that are expected to engage with RFPs for up to a total of four floors. And we are in discussions with one prospective tenant for most, if not all, remaining vacancy. Perspective tenants industries include software, legal, advisory, tax, insurance, construction, banking, energy, and management consulting and technology. They're seeking the best environment and experience with which to attract and keep the best talent and engage their customers.
We have several tenants that have toured that are expected to engage with rfps for up to a total of four floors and we are in discussions with one perspective tenant for most if not all of the remaining vacancy.
Steve Center: The prospective tenants' industries include software, legal, advisory, tax, and assurance, construction, banking, energy, and Management Consulting and Technology. They're seeking the best environment and experience with which to attract and keep the best talent and engage their customers. Note that the UTC sub-market of San Diego remains strong. Net of Tower 3's vacancy, the Class A direct vacancy, is just 4.5%. The only A-plus competitor has just three direct vacancies, two that are about 4,000 rentable square feet and one that is 11,000. We are excited about our prospects for success at Tower 3 and throughout our entire office portfolio. I'll now turn the call back over to the operator.
Steve Center: Prospective tenants industries include software legal advisory tax and insurance construction banking energy.
Steve Center: And management consulting and technology.
Steve Center: Seeking the best environment, and experience with which to attract and keep the best talent and engage their customers.
Steve Center: Note that the UTC submarket San Diego remains strong. Net of Tower Threes vacancy, the Class A direct vacancy is just 4.5%. The only A plus competitor has just three direct vacancies. Two that are about 4,000 rentable square feet and one that is 11,000 rentable square feet. We are excited about our prospects for success at Tower Three and throughout our entire office portfolio.
Steve Center: Note that the UTC submarket of San Diego remains strong.
Steve Center: A tower threes vacancy in the class a direct vacancy is just four 5% the only a plus competitor has just redirect vacancies two that are about 4000 rentable square feet and one that is 11000 rentable square feet.
Steve Center: We're excited about our prospects for success of tower three are throughout our entire office portfolio.
Operator: I'll now turn the call back over to the operator for Q&A.
Steve Center: I'll now turn the call back over to the operator for Q&A.
Operator: Good job, Steve. Thank you.
Speaker Change: Good job Steve.
Operator: We will now begin the question and answer session. If you would like to ask a question, please press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the key. To withdraw your question, please press star then 2. Today's first question comes from Handel St. Just, from Missouri. Please go ahead.
Ernest: Thanks.
Operator: We will now begin the question and answer session. If you'd like to ask a question, please press star, then one on your telephone keypad. If you're using a speaker phone, we ask you please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.
Speaker Change: I will begin the question and answer session, if you'd like to ask a question. Please press Star then one on your telephone keypad.
Operator: If you are using a speaker phone we ask you. Please pickup your handset before pressing the keys.
Operator: To withdraw your question. Please press Star then two.
Haendel Juste: Today's first question comes from Handel St. Justin with Mizzouro. Please go ahead.
Speaker Change: Today's first question comes from Handel St Juste with Mizuho. Please go ahead.
Adam Wyll: Hey, good morning, and my congratulations to Adam and the team. I had a question, I guess, for you, Adam, first on, I guess, maybe a two-pointer. First, more broadly, any G&A impact we should expect from the announcement in this year's guide? And second, I guess I'm curious, I know it's early, but if there are any, you know, short, medium-term goals or strategic priorities that you might have in mind as you transition to the CEO role.
Speaker Change: Hey, good morning, and my congratulations to Adam.
Haendel Juste: Hey, good morning, and my congratulations to Adam and the team. I had a question, I guess, for you, Adam. First on, I guess maybe a two-parter. I guess first, more broadly, any GNA impact we should expect from the announcement in this year's guide and second. I'm guessing curious.
Speaker Change: And the team I had a question I guess for you out on the first on I guess, maybe a two parter I guess first more broadly any G&A impact we should expect from the announcement in this year's guide and second I'm guess I'm curious I know, it's early but if there's any you know short medium term goal of a strategic pre.
Haendel Juste: I know it's early, but if there's any, you know, short, medium term, gold or strategic priorities that you might have in mind. As you transition to the CEO role.
Adam Wyll: Heres, how that you might have in mind as you transition.
Adam Wyll: Transition to the CEO role.
Adam Kramer: I don't think, oh, thanks, first and foremost, Haendel, I appreciate it. Don't anticipate any DNA impact this year. It's all going to be effective as of January next year, so you can rely on Bob's modeling going forward through this year.
Adam Wyll: I don't think Ken, oh, thanks first and foremost, and I'll appreciate it. I don't anticipate any DNA impact this year. It's all going to be effective as of January next year, so you can rely on Bob's modeling going forward through this year. And in terms of change we're looking at, I mean, I think in a lot of respects, it's the same team, the same group of folks, we have the same strategy, and not a lot will change on that front, but we'll continue to brainstorm and look for ways to create value, you know. The same thing you've heard from us for the past 10 years.
Speaker Change: I don't think first and foremost hand I'll appreciate it.
Adam Wyll: Don't anticipate any G&A impact this year, it's all going to be effective as of January next year.
Adam Wyll: So you can rely on Bob's modeling going forward through this year.
Adam Kramer: And in terms of change of what we're looking at, I mean, I think in a lot of respects, it's the same team, same group of folks; you have the same strategy, and not a lot will change on that front, but will continue to brainstorm and look for ways to create value. You know, same thing you've heard from us for the past 10 years. Got it, got it, okay.
Adam Wyll: And in terms of change of what we're looking at I mean, I think in a lot of respects. It's the same team. The same group of folks who have the same strategy and not a lot will change on that front.
Adam Wyll: But we'll continue to brainstorm and look for ways to create value. You know same thing you've heard from us for the past 10 years.
Adam Wyll: And then maybe one on the lease termination fee in the quarter. I'm curious what you can tell us perhaps about the tenant, maybe why they terminated. Sounds like you're optimistic about backfilling here in the next couple of years, as Bob mentioned. And then any read through here for office, or are you hearing or expecting any more or having any more similar conversations?
Speaker Change: Got it got it Okay, and then maybe one on the lease termination fee in the quarter I'm curious what you can tell us perhaps about the tenant maybe why they terminated.
Adam Kramer: And then maybe one on the least termination C in the quarter. I'm curious what you can tell us, perhaps about the tenant, maybe why they're terminated. Sounds like you're optimistic on backfilling here in the next couple years, I think Bob mentioned. And then any read through here for office, or are you hearing or expecting any more, or having any more similar conversations? Well, on this situation specifically, this tenant was actually one we had on our reserve list that we had mentioned with guidance earlier this year, Haendel, and it was a life science tenant whose FDA approvals were not going in the right direction, and they had a fair amount of cash on the balance sheet.
Speaker Change: It sounds like you're optimistic on back filling.
Adam Wyll: Here in the next couple of years I think Bob mentioned and then any read through here for for office are you hearing or expecting any more or having any more similar conversations.
Adam Wyll: Well, in this situation specifically, this tenant was actually one we had on our reserve list that we had mentioned with guidance earlier this year, Hindal. And it was a life science tenant whose FDA approvals were not going in the right direction, and they had a fair amount of cash on the balance sheet. So with their cash burn and their situation going forward, we engaged with them to come up with a mutually acceptable deal. And we were pleased with the outcome. I think they were enjoyable as well.
Speaker Change: Well on this situation specifically this tenant was actually one we had in our reserve list that we have.
Adam Wyll: He had mentioned with guidance earlier this year endo.
Adam Wyll: And it was a life science tenant who's a FDA approvals, we're not going in the right direction and they had a fair amount of cash on the balance sheet. So.
Adam Kramer: So, with their cash burn and their situation going forward, we engaged with them to come up with a mutually acceptable deal, and so we were pleased with the outcome; I think they were as well.
Speaker Change: With their cash burn and their situation going forward, we engaged with them to come up with a mutually acceptable deal and so we were pleased with the outcome I think they were as well they're also a public company, but as Bob mentioned in his script. This is space at our old headquarters that is they.
Adam Kramer: They're also a public company, but as Bob mentioned in his grip, this is space at our old headquarters that is, they did a great build out, it's turnkey space. Steve can chime in on the leasing prospects for that space and in general, but Nat and Nat, that was a deal where we could have seen this tenant run out of money within 12 months and not seen the fruits of the lease, and so it turned out to be a great situation we think for both sides. Yeah, the lease rates in place, Haendel, are about 12 bucks annually below market.
Steve Center: They're also a public company, but as Bob mentioned in his script, this is space at our old headquarters that they did a great build out on. It's turnkey space. Steve can chime in on the leasing prospects for that space, in general. But net-net, that was a deal where we could have seen this tenant run out of money within 12 months and not seen the fruits of the lease. And so it turned out to be a great situation, we think, for both sides.
Steve Center: They did a great build out its turnkey space, Steve can chime in on the leasing prospects for that space and in general, but net net that was a deal where we could have seen this tenant run out of money within 12 months and not seen the fruits of the lease and so it turned out to be.
Steve Center: Great situation, we think for both sides.
Steve Center: Yeah, the lease rates in place, Handel, are about $12 annually below market. So we've got a below-market situation. We've got really well-built out space, and it's a. It's 45,000 contiguous square feet on one floor, which is unique in the marketplace. So we're encouraged by our prospects there.
Steve Center: The lease rates in place handler about 12 Bucks annually.
Steve Center: Below market. So we've got a below market situation, we've got really well built out space and it said.
Steve Center: So we've got a below market situation, we've got really well built out space, and it's 45,000 contiguous square feet on one floor, which is unique in the marketplace. So we're encouraged by our prospects there.
Steve Center: 45000 contiguous square if you don't want floor, which is unique in the marketplace. So we're encouraged by our prospects there.
Steve Center: Yeah, it got Steve, and while I have you, maybe some color. I think you mentioned that newly seen in your office segment outpace renewals for the first time in years. So, I guess I'm curious what the prospects for the near term look like, the level of tourism interest that you're seeing, and then I guess I assume with more new leasing going than renewals that should result in an uptick in leasing capex. So, any color on that would be appreciated. Thanks. Interesting. Our capex hitting on that last point is actually at the historic average over the last seven years, so it hasn't ticked up. Although costs are up, it just speaks to, you know, we're very judicious about what we build out, and we're conscientious about what we get back. So we've had numerous instances where we had spaces rolled that we built out in the last seven years that are not expensive to retain it, and many renewals are, you know, as it is. So you'll see that our costs on a weighted average are pretty muted.
Handel: Got it got Steve and while I have you maybe some color I think you mentioned that new leasing.
Steve Center: Got it. Got it. Steve, and while I have you, maybe some color.
Steve Center: I think you mentioned that New Leasing, Thank you, in your office segment outpaced renewals for the first time in years. So I guess I'm curious what the prospects for the near term look like, the level of tours and interest that you're seeing, and then I guess I assume with more new leasing going on than renewals, that should result in an uptick in leasing CapEx. So any comment on that would be appreciated. Thanks.
Steve Center: In your office segment outpace renewals for the first time in years, So I guess I'm curious what the.
Steve Center: The prospects for the near term looked like the level of tours and interest that you're seeing and then I guess I assume with more new leasing going on.
Steve Center: Then renewals that should result in us uptick in leasing capex, so any color on that would be appreciated. Thanks.
Steve Center: It's interesting, our CapEx, hitting on that last point, is actually at the historic average over the last seven years, so it hasn't ticked up, although costs are up. So it just speaks to, you know, we're very judicious about what we build out, and we're conscientious about what we get back.
Speaker Change: Youre seeing our capex hitting on that last point is actually.
Steve Center: At the historic average over the last seven years. So it hasnt picked up although costs are up so.
Steve Center: It just it speaks to we're very judicious about what we built out and we're conscientious about what we'd get back. So we've had numerous instances, where we had spaces role that we built out in the last seven years that are not expensive to re tenant.
Steve Center: So we've had numerous instances where we have had spaces rolled out that we built out in the last seven years that are not expensive to re-tenant, and many renewals are, you know, as is. So, you'll see that our costs on a weighted average basis are pretty muted. What was your first question in terms of activity?
Speaker Change: Yeah in many renewals or are you know as it so.
Steve Center: You'll see that our are our costs on a weighted average basis are pretty muted.
Steve Center: What was your first question in terms of activity? Activity is off. I mean Q3 or Q2 is 96,000 feet. We're on pace to do much higher than that in Q3, and if this trend continues, it'll be our third best year from a leasing volume perspective. Keep in mind 2018 was the Google year and Autodesk year, which was a monster year. So leasing activities off and furthermore the average deal size from a dollar per deal square perspective is the highest ever in the last seven years. So we're bullish. Our investments in our properties are paying off.
Speaker Change: What was your what was your first question in terms of activity activities up I mean, Q3, or Q2 was 96000 feet. We're on pace to do much higher than that in Q3.
Steve Center: Activity is up, I mean, Q3 or Q2 is 96,000 feet. We're on pace to do much higher than that in Q3. And if this trend continues, it'll be our third best year from a leasing volume perspective. And keep in mind, 2018 was the Google year and Autodesk's year, which was a monster year.
Steve Center: And if this trend continues it'll be our third best year from a leasing.
Steve Center: Volume perspective, and keep in mind 2018 was the Google year, and Autodesk year, which where monster was a monster year. So leasing activities and then Furthermore, the average deal size from a dollar dollar per deal square.
Steve Center: So leasing activities are up, and furthermore, the average deal size from a dollar per deal square perspective is at the highest ever in the last seven years. So we're bullish. Our investments in our properties are paying off, and our margins remain good. We are the property of choice. And even with tenants that are right-sizing, we still experience that they're staying with us. So, they may downsize, but they renew their leases at higher rental rates. We're excited about the process, The property of choice is a very important strategy. We maintain our properties well, look after them, and Steve's introduced a culture where they're not tenants, they're customers, which serves them well.
Steve Center: Perspective is it the highest ever in the last seven years. So we're.
Steve Center: We're bullish our investments and our properties are paying off our margins remain good we are the property of choice and even with tenants that are right sizing, we still experienced that they're staying with us.
Steve Center: Our margins remain good. We are the property of choice, and even with tenants that are right sizing, we still experience that they're staying with us. So they may downsize, but they renew their leases at higher rental rates. So we're excited about the prospects.
Steve Center: So they may downsize, but they renew.
Steve Center: Their leases at higher rental rates so.
Steve Center: We're excited about the prospects property of choices, a very important strategy, we maintain our properties well and we look after our tenants.
Steve Center: The property of choice is a very important strategy. We maintain our properties well, and we look after our tenants, steep as introduced a culture of their not tenants, their customers, which serves as well. Thank you. I'll yield. Thank you.
Steve Center: Yes.
Steve Center: Introduced a culture, oh, they're not tenants customers, which serves as well.
Operator: Thank you. I'll yield.
Speaker Change: Thank you.
Steve Center: I'll yield.
Operator: Thank you. And our next question comes from Antara Nag Chowdhury with KeyBank Capital Markets.
Speaker Change: Thank you and our next question comes from.
Antara Nag: That our next question comes from Antara Mug, Child Heary with keep any couple of markets. Please go ahead. Hi, this is Antara on the line for Todd Thomas.
Speaker Change: <unk> Chowdhry child here with Keybanc capital markets. Please go ahead.
Operator: Hi, this is Ntara on the line for Todd Thomas. First, I just wanted to say congrats on the promotion, Adam, and good luck on retirement, Ernest. I just had a couple of questions... Wait a minute, wait a minute, wait a minute, wait a minute. I ain't retiring.
Speaker Change: Hi, This is entire online for Todd Thomas first just wanted to say congrats on the promotion Adam.
Ernest Rady: First, just wanted to say congrats on the promotion, Atom, and good luck on retirement, Earnest. I just had a couple of minutes. Wait a minute. I eat retiring. I've got a lot millions of reasons why this company is so important to me. I'm glad Adam has got the job, and congratulations, but do not think of me as retiring. God help me if I do. You knew better. I got it. But just regarding the balance sheet, I know you paid down the Series F notes using the line, and you have a couple of maturities in 2025 that are around 425 million.
Operator: Good luck on retirement.
Ernest: I just had a couple of events.
Ernest: Wait a minute I E retiring.
Speaker Change: I've got a lot millions.
Ernest Sylvan Rady: I've got a lot, millions of reasons why this company is so important to me. I'm glad Adam has got the job, and congratulations, but do not think of me as retiring, and God help me if I do. You knew better; I'm sorry. All right, I got it. But just regarding the balance sheet, I know you paid down the Series F notes using the line, and you have a couple maturities in 2025 that are around $425 million, so do you
Ernest: This company is so important to me I'm glad Adam it's got the job and congratulations I do not think of me as retiring are gone.
Ernest Sylvan Rady: And let me if I do you knew better I'm sorry.
Speaker Change: [laughter] alright got it but just regarding the balance sheet I know you paid down the series F notes using the line and you have a couple of maturities in 2025 at around 425 million. So do you have any updated thoughts given the move in the debt markets and are you looking to permanently refinance some of that.
Robert Barton: So do you have any updated thoughts given the move in the debt markets, and are you looking at permanently refinance some of that in advance? Yeah, Tara. This is Bob here. We, as I mentioned in the script, we've paid off 100 million. That was due July 19th. We had the ability to either write a check for it. We have cash on the balance sheet or draw on the line of credit. We decided to draw on the line of credit. We keep the cash on the balance sheet and which is earning 5% plus return on that in terms of the remaining 425 that's coming due in 2025.
Ernest Sylvan Rady: Dance.
Robert F. Barton: Yeah, Tara, this is Bob here. We, as I mentioned in the script, we paid off 100 million that was due July 19. We had the ability to either write a check for it, we had cash on the balance sheet, or draw on the line of credit. We decided to draw on the line of credit, and we keep the cash on the balance sheet, which is earning 5% plus return on that.
Ernest Sylvan Rady: Yes, Tara this is Bob here.
Robert F. Barton: We are as I mentioned in the script, we've paid off $100 million.
Robert F. Barton: That was due July 19th we have the ability to either write a check for it we have cash on the balance sheet or drawing the line of credit.
Robert F. Barton: We decided to draw on our line of credit we keep the cash on the balance sheet, which is earning 5% plus.
Robert F. Barton: Return on that in terms of the remaining 425, that's coming due in 2025.
Robert F. Barton: In terms of the remaining 425 that's coming due in 2025, we're on it. We've been monitoring the market since probably early 24 just to see where we are and when's the right time to lock in a swap contract? Robert Barton, Ernest Rady, Robert Barton, Abigail Rex, Ravi Vaidya, Adam Kramer, Steve. So we have a good team, part of our banking syndicate that we're working with, and we're just looking for the right entry point. If you look at our past experience, we've been very successful at the transactions that we've done.
Robert Barton: We're on it. We've been monitoring the market since probably early 24, just to see where we are and what's the right time to lock in a swap contract possibly. We've noticed that the market continues to fall a little bit. We've noticed it came down I think was like 10 basis points this morning on the Treasury. We have a good team of part of our banking syndicate that we're working with, and we're just looking for the right entry point. If you look at our past experience, we've been very successful at the transactions that we've done. We're engaged, we're hopeful, and hopefully we put something to bed before the end of this year.
Speaker Change: Ah we're on it we've been monitoring the market since probably early 'twenty four just to see where we are.
Robert F. Barton: What's the right time to lock in a swap contract.
Robert F. Barton: Possibly we've noticed that the market continues to fall fall little bit always noticed it came down I think it was like 10 basis points. This morning.
Robert F. Barton: Treasury.
Robert F. Barton: So where we have a good team of part of our banking syndicate that we're working with and we're just looking for the right entry point.
Robert F. Barton: If you look at our past experience, we'd been very successful at the transactions that we've done. So we're we're are.
Speaker Change: Engaged we're hopeful and.
Robert F. Barton: Hopefully, we put something into that before the end of this year hopefully sooner.
Antara Nag: Hopefully so. Okay, perfect.
Operator: Okay, perfect. And are there any other known office space shortages in the office segment that we should be aware of as we're thinking about the end of 2024 and just 2025?
Speaker Change: Okay, perfect and are there any other known move outs in the office segment that we should be aware of as we're thinking about the end of 2024 and 2025.
Antara Nag: And are there any other known moveouts in the office segment that we should be aware of as you're thinking about the end of 2024 and just 2025?
Operator: Yeah.
Steve Center: What's the question? No, no.
Steve Center: What's the question? No moveouts. So 2024. No, we're in good shape. 2025. We know the clear result will be vacating four floors. There are actually a ten and five floors, and we've already placed one of those floors to an existing subtenant. So we've got four floors to go. We're in negotiations with a portion of one of those floors with an existing subtenant as well. That's first, and it's a best in class building. We're just completing by the end of the year amenities program there as well. And so we're well positioned to backfill that space. It's it's beautiful spaces.
Speaker Change: What's your question known move outs, so 'twenty 'twenty four and now we're in good shape 2025, we know that clear result will be vacating four floors, there, they're actually a tenant and five floors and we've already leased.
Steve Center: No one is moving out. So 2024, no, we're in good shape. In 2025, we know the clear result will be vacating four floors. They're actually a tenant on five floors, and we've already leased one of those floors to an existing subtenant. So we've got four floors to go. We're in negotiations for a portion of one of those floors with an existing subtenant as well. That's first in May. First in May, yeah.
Steve Center: One of those floors to an existing sub tenant. So we've got four forced to go we're in negotiations with a portion of one.
Speaker Change: One of those floors with an existing sub tenant as well that's first in man is the first time and yet and yet.
Steve Center: And it's a best-in-class building. We're just completing, by the end of the year, amenities, and programs there as well, and so we're well-positioned to backfill that space. It's beautiful space. It's top-of-the-stack, building-top signage is available, so we're
Steve Center: It's a best in class building, we're just completing by the end of the year.
Steve Center: Amenities.
Steve Center: Program, there as well and so we're well positioned to backfill that space, it's beautiful spaces top of the stack building top signage is available so we're.
Steve Center: Top of the stack building top signage is available. So we're we're optimistic there.
Ernest Sylvan Rady: We're optimistic there, you know office has this or about it, which is worrying, but there's office and then there's office. First of all, Steve does a great job. Second of all, we got properties that are very well. Third of all, we maintain them in first class shape. Third of all, we treat our tenants as customers and really look after them as best we can. Fourth of all, a lot of the competition is not blessed with the advantages we have.
Steve Center: We're optimistic there you know office has this.
Ernest Rady: You know, office has this or about it, which is concerning, but there's office and then there's office. First of all, Steve does a great job. Second of all, we got properties that are very well stated. Third of all, we maintain them in first-class shape. Second of all, we treat. Third of all, we treat our tenants as customers and really look after them as best as best we can. Fourth of all, a lot of the competition is not blessed with the advantages we have: liquidity. We have assures our tenants a that will maintain the quality of our properties and be that we'll do the tenant improvements and pay the leasing commissions.
Ernest Sylvan Rady: Or about it which is concerning but there is office and then Theres office first of all Steve does a great job second of all we've got properties that are very well located third of all we maintain them and first class shape.
Ernest Sylvan Rady: Second of all we treat a third of all we treat are.
Ernest Sylvan Rady: Our tenants.
Ernest Sylvan Rady: As customers and really look after them as best as best we can fourth of all a lot of the competition is not blessed with the advantages we have liquidity, we have assures our tenants that will maintain the quality of our properties and b that will do the tenant improvements and pay the leasing commissions. So theres.
Ernest Sylvan Rady: The liquidity we have assures our tenants A, that we'll maintain the quality of our properties, and B, that we'll do the tenant improvements and pay the leasing commissions. So there's office space, and then there's office space. We're not the office that bears the black mark that the market seems to lay upon it. We're the best in class, we're proud of what we do, and we think that the team does very well at it, and the properties speak for themselves.
Ernest Rady: So there's office and then there's office. We're not the office that there's the black mark that the market seems to lay on it. We're the best in class. We're proud of what we do, and we think that the team does very well off padded, and the property speak for themselves.
Ernest Sylvan Rady: Office, and then Theres office, we're not the office.
Ernest Sylvan Rady: The black Mark that the market seems to.
Ernest Sylvan Rady: Lay on it where they're best in class, we're proud of what we do and we think that the team does very well at it and the property speak for themselves.
Antara Nag: Okay, got it. Makes sense.
Operator: Okay, got it. Makes sense. And if I could just sneak one more in, what is the progress on leasing at One Beach in La Jolla? I was wondering if you had any additional updates that you could provide on leasing.
Speaker Change: Okay got it makes sense and if I could just sneak one more in.
Ernest Rady: And if I could just sneak one more in, what is the progress on leasing at One Beach in La Jolla? I was wondering if you have any additional updates that you could provide on leasing. I'll just be candid: San Francisco is a small tenant market right now; that this building is either a single tenant or three tenants. So it's going to take some time for the average size requirement San Francisco to get there. Our prospects at Tower Three at the Hoy Commons and UTC are excellent. And I think you've covered that earlier. Yeah, yeah, we've got a lot of activity there.
Speaker Change: What is the progress on leasing at one beach in La Jolla I was wondering if you have any additional updates that you could provide on leasing.
Steve Center: You're asking about La Jolla Commons 3 and one Beach and one Beach War Beach. I'll just be candid. San Francisco is a small tenant market right now, so this building is either a single tenant or three tenants. So, it's going to take some time for the average size requirement in San Francisco to get there. Our prospects at Tower 3 at La Jolla...
Speaker Change: Youre asking about La Jolla, Commons Street, and one beach and one Beach, one beach I'll just be candid San Francisco is a small tenant market right. Now. There's this building is either a single tenant or three tenants. So it's going to take some time for for the average size requirement San Francisco two to get there.
Steve Center: Sure.
Steve Center: Our prospects at a tower three at La Jolla Commons E. T. C. You are excellent.
Steve Center: <unk>.
Steve Center: And I think you covered that earlier. Yeah, yeah, we've got a lot of activity there.
Speaker Change: And I think you've covered that earlier yeah, yeah. We've got a lot of activity. There. If you look at the transcript I think you've covered it very well yeah yeah.
Ernest Rady: If you look at the transcript, I think you've covered it very well. Yeah, yeah. We're very busy at Tower Three. And as I mentioned, the direct vacancy in that sub market for Class A days base is just 4.5%. And so it's got to be the healthiest sub market, I think, in the country. So, so we think our processes are really good. And for one beach, the problem is not ours. The problem is San Francisco's. Yeah, we have a great property in a great location that's completely repositioned. That's a mark. Because it is the market. Got it, thank you.
Steve Center: Yeah, yeah. We're very busy at Tower 3. And as I mentioned, the direct vacancy in that sub-market for Class A space is just 4.5%. So it's got to be the healthiest sub-market, I think, in the country. So we think our prospects are really good.
Steve Center: We're very busy.
Steve Center: Tower, three and as I mentioned that the direct vacancy in that Submarket for for class a space is just four 5%. So it's got to be the healthiest sub market I think in the country.
Steve Center: So we think our prospects are really good.
Ernest Sylvan Rady: And for one beach, the problem is not ours; the problem is San Francisco's. We have a great property in a great location that's completely repositioned, but the market is the market.
Speaker Change: And for one.
Speaker Change: Almost not a problem in San Francisco's, Yes, we have a great property in a great location thats completely reposition.
Ernest Sylvan Rady: The market is in the market.
Speaker Change: Got it thank you.
Antara Nag: Thank you for the question.
Speaker Change: Thank you for the question.
Ronald Kamdem: Hello, next question today, from Ronald Kamdem, with Morgan Stanley. Please go ahead. Hey, first, congrats Adam, and, you know, obviously congrats are on us too on your continued role in engagement, not a retirement. So congrats to everyone. Really, really well-deserved. So just on, just switching gears to office, just a little bit here. You know, I think the opening comment seems like there's been sort of a lot of activity in the portfolio and so forth, which is hoping you can give a little bit of color, sort of the broader trend in the market. And do you think that your activity is sort of just more of a reflection of, like the quality, or are we actually trying to see some signs that the broader market is trying to see better trends?
Operator: And our next question today comes from Ronald Camden with Morgan Stanley. Please go ahead.
Ernest Sylvan Rady: And our next question today comes from Ronald Camden with Morgan Stanley. Please go ahead.
Speaker Change: Hey, first congrats at them and you know obviously congrats on this too on your continued.
Operator: And then Keith I mean, not a retirement.
Speaker Change: Got to everyone I'm really really well deserved.
Ronald Camden: So just on a just.
Speaker Change: Switching gears to office, just a little bit here you know I think you. The opening comments seems like theres been sort of a lot of activity.
Steve Center: Hey, first congrats Adam and you know obviously congrats to Ernest too on your continued role and engagement, not a retirement, so congrats to everyone really, really well deserved. So just on, just switching gears to office just a little bit here, you know I think you, the opening comment seems like there's been sort of a lot of activity in the portfolio and so forth, we're just hoping you can give a little bit color of sort of the broader trends in the market and do you think that your activity is sort of just more of a reflection of like the quality or are we actually starting to see some signs that the broader market is starting to see better, better trends?
Steve Center: And the portfolio until fourth I was just hoping you could give a little bit color on sort of the broader trend in the market and do you think that your activity sort of just more of a reflection not.
Steve Center: The quality or are we actually trying to see some signs that the broader market they starting to see better better trend.
Ernest Rady: You know, it's interesting, and one of our strongest markets is San Diego, and yet when you read CBRE's account of the market, it's not strong. It's challenging. So I think in large part, it's a flight quality. And I've said it before, even in a negative net absorption market, which many of our submarkets are, I don't need positive net absorption on the market to succeed. I need people to pick our properties. And we've been fortunate to have that happen. So, you know, much of the new leasing is, and that's said, are many ever downsizing. But when they downsize, they're looking for the best environment to get their people back in the office.
Steve Center: You know, it's interesting, and one of our strongest markets is San Diego, and yet, when you read CBRE's account of the market, it's not strong. It's challenging.
Speaker Change: You know it's interesting.
Speaker Change: Our one of our strongest markets, San Diego and yet when you read Cbre's.
Steve Center: Accountant of the market, it's not strong.
Speaker Change: It's it's challenging.
Speaker Change: A large part it's a flight to quality.
Steve Center: So I think, in large part, it's a flight to quality. And I've said it before, you know, even in a negative net absorption market, which many of our submarkets are. I don't need positive net absorption in the market to succeed.
Speaker Change: And I've said it before.
Steve Center: Even in a negative net absorption market, which many of our submarkets are.
Steve Center: I don't need positive net absorption in the market to do to succeed I need people to pick our properties.
Steve Center: I need people to pick our properties, and we've been fortunate to have that happen. You know, much of the new leasing is nets that are, many of them are downsizing, but when they downsize, they're looking for the best environment to get their people back in the office. So they want all of the amenities we've talked about. They want really nice properties. So that's how we're winning.
Steve Center: We've been fortunate to have that happen so.
Steve Center:
Steve Center: Much of the new leasing is that many of them are downsizing, but when they downsize or looking for the best environment to get their people back in the office. So they want all of the amenities, we've talked about they want really nice properties. So so that's how how we're winning so I would say our activity is more indicative of a flight to quality than it is the strength of the <unk>.
Ernest Rady: So they want all of the amenities we talked about. They want really nice properties. So that's how we're winning. So I would say our activities more indicative of a flight quality than it is, the strength of the market. I will say, though, that up in Bellevue, in particular, that market's recovering. Our city center Bellevue property continues to really do well. And then the suburbs are picking up. So I'm encouraged there. We've got 281,000 feet in the I-90 corridor. We've got multiple tours and proposals going on there, which is a big chunk of our vacancy in our overall portfolio.
Steve Center: So I would say our activity is more indicative of a flight to quality than it is of the strength of the market. I will say, though, that up in Bellevue, in particular, that market's recovering. Our city center Bellevue property continues to really do well, and the suburbs are picking up, so I'm encouraged there. We've got 281,000 feet in the I-90 corridor. We've got multiple tourism proposals going on there, which is a big chunk of our vacancy in our overall portfolio. And then our two properties up on the 520 corridor are active as well. So Bellevue is improving.
Steve Center: I will say, though that up in Bellevue on particular that markets.
Steve Center: Recovery.
Steve Center: Our our city Center Bellevue property continues to really do well and then the suburbs are picking up so I'm encouraged that we've got 281000 feet in the I 90 corridor, we've got multiple tours and proposals going on there, which is a big chunk of our vacancy and our overall portfolio and there are two properties up on the 520 corridor.
Ernest Rady: And then our two properties up on the 520 corridor are active as well. So Bellevue is improving. I think Steve, you would paraphrase since there's quite a quality from the landlord's point of view, from the building's point of view, from the financial ability of the landlord to perform, from the ability of the landlord to work with the leasing agents. So it's a multi-tier market and where I believe in the top tier. And that's really significant. It's off tier all those categories. You know, it's a really good pointer. And as it's not just the real estate itself, it is our balance sheet.
Steve Center: Or are active as well so so bellevue is is improving.
Ernest Sylvan Rady: I think Steve, you would paraphrase it as equating quality from the landlord's point of view, from the building's point of view, from the financial ability of the landlord to perform, from the ability of the landlord to work with the leasing agents. So it's a multi-tiered market, and we're, I believe, in the top tier. And that's really significant, top tier in all those categories.
Steve Center: I think Steve you would paraphrase it doesn't quite do quality from the landlord's point of view.
Speaker Change: Buildings point of view.
Speaker Change: Financial ability.
Ernest Sylvan Rady: <unk> to perform.
Ernest Sylvan Rady: The ability.
Ernest Sylvan Rady: Landlord to work with the leasing agents, so it's a multi tier market and where I believe in the top tier and that's really significant last.
Speaker Change: All of those categories you know.
Steve Center: really good point, Ernest. It's not just the real estate itself. It is our balance sheet. Our balance sheet is our strength, as well as our customer service and our flexibility. You'll see that our weighted average lease term is shorter this quarter than the previous quarters, in part because we flex with our customers. Some need shorter-term solutions that we don't jam them for.
Speaker Change: Really good point and it's just not just the real estate itself. It is.
Steve Center: Our balance sheet, our balance sheet is our strength.
Ernest Rady: Our balance sheet is our strength as well as our customer service. Also, our flexibility. Actually, our weighted average lease term is shorter than the previous quarters, in part because we flex with our customers. Some need shorter-term solutions. We work with them. And so that goes a long way, too. You've got a law firm that just expanded into a 4,000-foot spec suite, and the rickshaw called me up and said, hey, here's the term I need. I know we're going to revisit our deal, you know, two and a half years from now, but I need this short term expansion.
Steve Center: As well as our customer service.
Steve Center: Also our flexibility, you'll you'll see actually our weighted average lease term is shorter this quarter than the previous quarters in part because.
Steve Center: We flex with our customers.
Steve Center: Some need shorter term solutions that you know, we don't jam them for wheat.
Steve Center: We work with them, and so that goes a long way, too. We've got a law firm that just expanded into a 4,000-foot spec suite. Ritzville called me up and said, Hey, here's the term I need.
Steve Center: We work with them and so.
Steve Center: That you know that goes a long way to.
Steve Center: You've got a law firm that just expanded into a 4000 foot spec suite.
Principal: Principal called me up and said Hey, Here's a term I need I know, we're going to revisit our deal.
Steve Center: I know we're going to revisit our deal, you know, two and a half years from now, but I need this short-term expansion. I'll contribute free rent to pay for the tenant improvements. And will you work with me? So it's all of those things, so it's a good point. Great, because being painted with the same brush as everybody in that part of the real estate market is really disappointing. We are not the average office landlord. We are, I believe, a failure, very qualified and doing it.
Steve Center: Two and a half years for now, but I need this short term expansion all contribute free rent to pay for that tenant improvements and when you work with me and the answer was yes. So it's all of those things. So that's a good point right.
Ernest Rady: I'll contribute free rent to pay for the tenant improvements, and will you work with me? And the answer was yes. So it's all his name. So it's a good point. And then it's because being of the same brush that everybody in that part of the real estate market is really disappointing. We are not the average office landlord. We are, I believe, very qualified and do an excellent job.
Speaker Change: So why framework.
Speaker Change: It does.
Steve Center: With the same brush.
Speaker Change: Everybody in that.
Steve Center: And that part of the real estate market is really disappointing we are not the average office landlord we are I believe.
Steve Center: Very qualified and do an excellent job.
Ronald Kamdem: Great.
Ernest Sylvan Rady: And look, my second question was just sort of on capital allocation. You know, I mean, clearly the priorities are, you know, leasing capital and routing out the development that you're working through, but when do acquisitions come back into the picture, and how do you sort of balance that with trying to get leverage below six times? So just how are you guys thinking about capital allocation, protecting that balance sheet, but also potentially looking to play offense on the acquisition, or is that even a thought right now?
Speaker Change: Great and then my second question was just sort of on the capital allocation.
Ernest Rady: And then look, my second question was just sort of on a capital allocation, you know. I mean, clearly the priorities are, you know, leasing capital and routing out development that you're working through. But when does sort of acquisitions come back into the picture and, you know, and how do you sort of bounce that was trying to get leverage below six times. So just how you got to think about capital allocation, protecting that balance. And also potentially going to play offense on the acquisition, or is that even a thinking right now? First of all, we are not looking at acquisitions.
Speaker Change: Clearly the priorities are leasing capital and I'm rounding up development.
Ernest Sylvan Rady: That that you're working through but when does sort of acquisitions come back into the picture.
Ernest Sylvan Rady: And and you know and how do you sort of balance that was trying to get leverage below six times. So just how are you guys thinking about capital allocation protecting that balance sheet, but also potentially looking to play offense on the acquisition or is that even a thinking right now.
Ernest Sylvan Rady: Well, first of all, we are not looking at acquisitions. Robert Barton, who can be violent on occasion, wants that net debt to fall into a range that maintains and perhaps even enhances our credit rating. The secret to that is La Jolla Commons 3, and Steve went through that. So at the moment, we're sitting back, watching, and waiting for the success of La Jolla Commons 3 to come about, and then we'll see what we can do. But I think that at the moment, Office is kind of off our wish list because of the reputation it seems to have, even though we continue to perform in a top-tier fashion.
Speaker Change: First of all we are not looking at acquisitions.
Ernest Rady: Well, Martin, who can be violent on occasion, wants that debt to even fall into a range that maintains and perhaps even enhances our credit rating. The secret to that is Lahoyah Commons 3, and Steve went through that. So with the moment we're sitting back, watching and waiting for the success of Lahoyah Commons 3 to come about, and then we'll see what we can do. But I think that at the moment, office is kind of off our wish list because of the reputation it seems to have, even though we continue to perform in a top-tier fashion.
Martin: Well Martin who is can.
Speaker Change: Can be violent on occasion once that net debt to EBITDA fall into a range that it maintains and perhaps even it enhances our credit rating the secret to that is La Jolla Commons three and.
Steve Center: Steve went through that.
Ernest Sylvan Rady: So at the moment, we're sitting back watching.
Ernest Sylvan Rady: Waiting for the success of La Jolla Commons three to come about and then we'll see what we can do but I think that.
Speaker Change: At the moment offices kind of off hard.
Ernest Sylvan Rady: Our wish list because of the.
Ernest Sylvan Rady: Our reputation that seems to have even though we continue to perform in a top tier fashion.
Robert F. Barton: Let me just add to what Ernest just said, Ron, that the capital allocation is really important, and we do want to protect the balance sheet. We think it's prudent, as Ernest mentioned, to let's finish the leasing of La Jolla Commons III. You know, with La Jolla Commons 3, we have about $215 million invested over there. It's a great, great property on the market. And, you know, that's, you know, we need to get a return on it. So let's lease that up first. We are continuing to look at assets, but one thing that we've told many is that we're not looking to buy any more offices.
Robert Barton: Let me just add to what Ernest just said, Ron, is that the capital allocation is really important, and we do want to protect the balance sheet. We think it's prudent, like Ernest mentioned, is to let's finish the leasing Lahoyah Commons 3. You know, with Lahoyah Commons 3, we have about $215 million invested over there with the great property in the market. And you know, we need to get a return on that. So let's lease that up first. We are continuing to look at assets. But one thing that we've told many is that we're not looking to buy any more office.
Ron: Yeah, Let me, let me just add to what Ernie said Ron is that yeah. The capital allocation is really important and we do want to protect the balance sheet. We think it's prudent like Ernest matches as two let's let's finish the leasing La Jolla Commons Street.
Robert F. Barton: No.
Robert F. Barton: La Jolla Commons three we have about $215 million invested over there would be great.
Robert F. Barton: Great property in the market.
Robert F. Barton: You know that's that's a we need to get a return on that.
Speaker Change: So let's lease that up first we are continuing to look at assets, but one thing. We've told many is that we're not looking to buy any more office, we'd love what we got we got great asset. Steve. This is overseeing all of that and we got great return.
Robert F. Barton: We love what we have got. We have great assets. Steve is overseeing all that, and we've got great returns. We'd like to pivot to multifamily and probably throw in a sprinkle of retail along the way. But, you know, if you look at the history of this company, we have dedicated ourselves to creating value for each of our investors. And I'm a big believer that we will continue to do that from here on out as well.
Ernest Rady: We love what we got. We got great assets. Steve is overseeing all that, and we got great returns. We'd like to pivot to multifamily and probably throw in a sprinkle of retail along the way. But you know, if you look at the history of this company, we have dedicated ourselves to creating value for each of our investors. And I got a big believer that we will continue to do that from here on out as well. So, you know, while we're not acquired, we are investing daily in improving our properties. So, Jerry, who handled the construction, how many projects do you have going now to approve what we have?
Robert F. Barton: <unk>.
Robert F. Barton: We'd like to pivot to multifamily.
Robert F. Barton: Probably throw in the spread globe retail along the way, but you know if you look at the history of this company, we have dedicated ourselves to creating value for each of our investors and I got I'm, a big believer that we will continue to do that from here on out as well.
Ernest Sylvan Rady: You know, while we're not acquired.
Robert F. Barton: You know while were not acquired we are investing.
Ernest Sylvan Rady: We are investing daily in improving our properties. So Jerry, who handles construction... How many projects do you have going now to approve what we have? We have well over a hundred projects. So we're not sitting back on our laurels, waiting for something to happen. We're improving and making it better. And that's an investment without the risk of acquisition.
Ernest Sylvan Rady: Daily.
Speaker Change: Improving our properties so Jerry can handle the constructions.
Jerry: Many projects you have going down too.
Ronald Kamdem: We have well over a hundred projects going on. We're not sitting back on our, you know what? We're waiting for something to happen. We're approving what we have. And they seem better, and that's an investment without the risk of acquisition. Great. Super helpful. Congrats again.
Jerry: We have well over 100 projects go yes.
Jerry: Not sitting back on our you know what waiting for something to happen we're improving.
Ernest Sylvan Rady: That's an investment without the risk of acquisition.
Operator: Great. Super helpful. Congratulations again. That's it for me. Thanks so much.
Speaker Change: Great Super helpful. Congrats again, that's it for me thanks, so much.
Ronald Kamdem: That's it for me. Thanks so much. Thank you.
Operator: Sean.
Operator: Thank you. And our next question comes from Dylan Brzezinski with Green Street. Please go ahead.
Operator: Thank you and our next question comes from Don Brzezinski with Green Street. Please go ahead.
Operator: And our next question comes from Dylan Burzinski with Green Street. Please go ahead.
Dylan Burzinski: Hey guys, all my questions are in the nest, but I just wanted to say congrats to Adam. Well deserved. Thanks, Owen. Great questions. You're not only good looking; you're not only intelligent. You're a great sense of humor. Thank you, ladies and gentlemen.
Operator: Hey guys, all my questions have been asked, but just wanted to say congrats to Adam.
Dylan Brzezinski: Hey, guys. All my questions have been asked but just wanted to say congrats to Adam well deserved.
Operator: Thanks, Owen. Great questions.
Alan: Thanks, Alan Great questions.
Operator: [laughter].
Speaker Change: Hi, guys.
Speaker Change: Not only it is not really intelligent yeah, that's a great sense of humor.
Operator: [laughter].
Ernest Sylvan Rady: Thank you, ladies and gentlemen. Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Rady for any closing remarks. Thank you.
Operator: Thanks.
Operator: Hello.
Operator: Ladies and gentlemen, this concludes our question-and-answer session.
Ernest Sylvan Rady: Ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference back over to Mr. Randy for any closing remarks.
Ernest Rady: I'd like to turn the conference back over to Mr. Rady for the closing remarks. Thanks you got all of you for your interest in our company. We continue to do our best on your behalf. We hope at some point the market will recognize the difference between us and the average real estate company are significant and the results will prove it. So thank you all for your interest and your good questions.
Ernest Sylvan Rady: Thank you all for your interest in our company. We continue to do our best on your behalf. We hope at some point the market will recognize the difference between us and the average real estate company is significant, and the results will prove it. So thank you all for your interest and your good questions.
Ernest Sylvan Rady: Thanks, you've got all of you for your interest in our company. We continue to do our best on your behalf. We hope at some point the market will recognize the difference between us and the average real estate company are significant and the results will prove it. So thank you all for your interest and your good questions.
Ernest Sylvan Rady: Yes.
Operator: Thank you, ladies and gentlemen.
Operator: Thank you, ladies and gentlemen. This concludes our conference call. You may now disconnect your lines and have a wonderful rest of the day.
Speaker Change: Thank you ladies and gentlemen, this concludes our conference call.
Operator: This concludes our conference call. You may now disconnect your lines and have a wonderful rest of the day. Thank you.
Operator: Now disconnect your lines and have a wonderful rest of the day.
Operator: Yeah.
Operator: [music].
Operator: BF-WATCH TV 2021