Q3 2024 American Assets Trust Inc Earnings Call
Welcome to American Asset Trust in 3rd Quarter, 2020 for Ernest 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 risk and uncertainties discussed in the company's filings with the SEC.
You were cautioned not to place under a alliance on these four-looking statements. As actual events could cause the company's results, a different material from these four-looking statements.
Yesterday afternoon, American assets trust their employees and subwoman information were furnished to the SEC on Form AK. Both are now available on the investor section of the website American assets trust.com.
Speaker Change: It is now my pleasure to turn the conference over to Ernest Rady. Chairman of CEO of American Assets Trust, please go ahead sir.
Ernest Rady: Good morning, everyone.
Ernest Rady: Thank you again for joining us today.
Ernest Rady: at American Assets Trust, we've always emphasized our strength, life, and our universe applied.
Ernest Rady: Tycholdy portfolio, top peer operating platform, discipline, financial strategy, and our highly experienced and capable management team.
Ernest Rady: These factors position us well to navigate any economic environment.
Ernest Rady: Along those lines throughout the year we've been closely monitoring the debt markets.
Ernest Rady: In September, we made this strategic decision to approach the investment grade mod market for our latest issuance.
Ernest Rady: The Strong The Man led us to upsized the offering. After it was initially more than four times, or subscribe.
Ernest Rady: In the end, we issued a 10-year 525 million bond at a 6.15% coupon. We were fortunate to lock in a real race.
Ernest Rady: Taking advantage of a market rally and they lead up to our issuance. This bond strengthens our liquidities and flexibility addressing all of our damaged and early 2027.
Ernest Rady: I'm sure you're all familiar with the same bedders, lucky and smart. Fortunately, we have check both boxes. It's way quickly surge while we are off in with the 10 year yield climbing over 55 basis points since our issue is.
Ernest Rady: We are able to capture a favorable window in the market. Shortly, my colleagues Adam Bob and Steve will walk you through the performance of your various past that segments.
Ernest Rady: as well as Navigilov, two by the way, our financial results and updated guidance. But before we dive into that, I'm pleased to announce that board of directors had the players that cordially did everything.
Ernest Rady: of 33.5 cents per share for the fourth quarter. This dividend reflects not only our solid financial performance.
Ernest Rady: but also the board's continued confidence in the company's future prospects. The dividend will be paid on December 16th to shareholders of record as of December 5th.
Ernest Rady: I'd like to take a moment to sincerely thank you all for your continued trust and support. We remain committed.
Ernest Rady: delivering value as we guide the company forward.
Speaker Change: Now, I'll call over to Adam to review our quarterly results.
Speaker Change: Adam, please.
Adam Bob: Thanks, Ernest, and I echo your sentiments regarding the success of our recent bond offering. This achievement would not have been possible without the hard work and dedication of our teams across the organization. Their commitment is critical to our overall success, and we're incredibly fortunate to have such a talented group of employees.
Adam Bob: I'd also like to highlight the value of our face-to-face meetings with fixed income investors We had the opportunity to update them on our credit profile and overall strategy
Adam Bob: The broad distribution of this offering to high-quality institutional accounts not only positions us well for future issuances.
Adam Bob: but also enhances the liquidity of our outstanding bonds as we remain focused on maintaining financial flexibility while driving value through active portfolio management.
Adam Bob: Our portfolio continues to perform well across each of our asset classes, underpinned by our presence in high barrier-to-entry markets.
Adam Bob: You'll note from our supplemental that nearly 50% of our cash NOI was generated from Southern California, with San Diego being a very important market for us.
Adam Bob: As we've emphasized before, San Diego's well-diversified economy is growing stronger.
Adam Bob: driven by the relatively recent influx of the world's major tech and pharmaceutical companies, its military and defense presence, prestigious universities, leading service providers, and the third largest life science cluster in the country.
Adam Bob: On the operations front, we continue to see gradual but steady improvement in office usage across our portfolio. Recent mandates from companies like Amazon, Dell, Boeing, Goldman Sachs, and UPS, as well as some of our larger tenants, are moving toward a five-day-a-week in-office requirement.
Adam Bob: The rationale behind these mandates is clear, collaboration, innovation, culture, and learning. And we believe the quality of our office buildings, prime locations, and top-tier amenities set us apart, contributing to higher utilization and stronger leasing activity compared to our competitors.
Adam Bob: But the reality is these return to office policies will only move the needle if the organizations actually enforce them. We're hopeful on that.
Speaker Change: Steve will provide an update shortly on the leasing momentum across our markets and our office portfolio where despite the broader market challenges, demand for high-quality, well-located office spaces remains encouraging.
Speaker Change: Our retail segment continues to perform quite well. We've renewed virtually all of our lease expirations this year and have less than 7% expiring in 2025, the majority of which are larger format retailers that we are confident in renewal.
Speaker Change: Meanwhile, retail leasing spreads have been trending positively for the past several years, with a 4.4% increase on a cash basis and 18.7% increase on a straight-line basis for Q3 transactions.
Speaker Change: which was a relatively active quarter for our retail leasing.
Speaker Change: In fact, our retail portfolio achieved its highest average base rent per square foot in Q3 since our IPO, placing us with the second highest average among our best-in-class peers that we track.
Speaker Change: Foot traffic and tenant sales have trended positively as we continue to work with our tenants to ensure long-term success as they adapt to evolving consumer behaviors.
Speaker Change: On the consumer spending side and in regards to the tenants we receive sales reports from, we saw a 5% increase in gross sales at our properties in 2023 compared to 2022.
Speaker Change: and through mid-2024, tenant sales are up another 5%, further reinforcing the strength and quality of our retail portfolio.
Speaker Change: While we're aware of potential headwinds in the broader economy, we believe that consumer spending in the densely populated, affluent areas surrounding our centers will remain resilient.
Speaker Change: Turning to our multifamily portfolio, ongoing demand for well-located quality housing continues to drive stable performance across our multifamily properties, especially in markets where supply remains constrained.
Speaker Change: We ended Q3 in San Diego with a 93% occupancy rate and a 94% leased rate.
Speaker Change: In San Diego, leases for vacant units were signed at approximately 3 percent lower than prior rents, while renewed leases saw an average increase of 6 percent, resulting in a blended average increase of 3 percent, with minimal concessions offered.
Speaker Change: In Q3, our Haslo on 8th Multifamily Community in Portland saw leases for vacant units signed at an average 2% increase with renewed units up by 3%. This resulted in a blended increase of 3% while our leasing percentage remained strong at 95% with minimal concessions.
Speaker Change: Net effective rents at Hassell Low were up 4% in Q3 compared to the same period in 2023.
Speaker Change: Overall our multifamily portfolio achieved its highest ever average base rent in Q3. Additionally we saw our same store multifamily NOI increase by over 4% year-over-year for Q3 and year-to-date NOI is up 6% compared to 2023 with strong collections across the portfolio in Q3.
Speaker Change: Looking ahead, we remain focused on five key drivers of future growth.
Speaker Change: First, capitalizing on embedded rent escalations and bringing below-market leases to market.
Speaker Change: Second, leasing up and stabilizing our new office developments and redevelopments, which you'll hear updates on from Steve in just a moment.
Speaker Change: Third, benefiting from the anticipated return of Asian tourism to Oahu.
Speaker Change: Fourth, densifying our existing assets with a focus on unlocking multi-family development opportunities.
Speaker Change: And fifth, pursuing accretive acquisitions when market conditions align with our strategic goals.
Speaker Change: With that, I'll turn the call over to Bob to discuss the financial results and updated guidance in more detail.
Bob: Thanks, Adam. Good morning, everyone. Last night, we reported third quarter 2024 FFO, 71 cents per share.
Bob: Third quarter 2024 net income attributable to common stockholders with $0.28 per share.
Bob: Thank you.
Bob: Third quarter 2024 FFO increased by approximately $0.11 to $0.71 for FFO share compared to the second quarter of 2024 primarily due to three things.
Bob: As you may recall, we received an $11 million lease termination fee from a tenant at our Torrey Reserve office project in San Diego.
Bob: increasing the FFO by approximately 15 cents.
Bob: per FFO share in the third quarter.
Bob: This fee essentially covers four of the remaining five years of base rent under the lease agreement.
Bob: The space is in turnkey condition, and we are optimistic that we can lease it within the next few years, potentially even sooner.
Bob: Second, an increase in interest expense that reduced FFO by approximately three cents per FFO share in Q3 2024 that was not previously included in our prior guidance.
Bob: The newly issued $525 million public bond in Q3-24 increased interest expense by approximately $0.025 per FFO share, and capitalized interest was lowered by approximately 0.5% of FFO.
Speaker Change: and Adam Wyll. Thank you. Thank you.
Speaker Change: Higher operating expenses at our multifamily properties. Reduced FFO by approximately a penny in Q3-24.
Speaker Change: These three items taken together increase the FFO from 60 cents per FFO share in Q2 to 71 cents per FFO share in Q3.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Same-store cash NOI for all sectors combined increased by 15.8% year-over-year for the third quarter. Absent the $11 million termination fee, the combined same-store cash NOI would have been flat.
Speaker Change: Breaking it out by segment and each compared to Q3-23 is as follows.
Speaker Change: Our same-store office portfolios NOI increased by 27.6 in Q3 primarily due to the 11 million dollar lease termination fee
Speaker Change: mentioned earlier.
Speaker Change: Excluding the lease termination fee, our same-store office cash NOI would have been decreased by approximately 3% in Q3, primarily due to known move-outs and rent abatements to new tenants.
Speaker Change: Our same-store retail portfolio's NOI increased by 7% in Q3, primarily due to higher base rents at our Carmel Mountain Plaza in Solana Beach Town Center in San Diego.
Speaker Change: Our Same Store Multifamily Portfolios NOI increased by 4% in Q3, primarily due to higher than expected revenue at our San Diego Multifamily Portfolios.
Speaker Change: properties.
Speaker Change: particularly along with Palisades and Pacific Ridge.
Speaker Change: and our mixed-use portfolios at Hawaii decreased by 7% in Q3, primarily due to lower occupancy.
Speaker Change: and higher expenses at our embassy suite, Waikiki.
Speaker Change: Revenue was lower by approximately 4% and expenses were up by approximately 1.5%.
Speaker Change: specifically in Q3-24.
Speaker Change: Thank you.
Speaker Change: Paid occupancy was approximately 84% compared to 89% in Q3'23. REVPAR was $337 compared to $350 in Q3'23.
Speaker Change: ADR was $402 compared to $392 in Q3'23.
Speaker Change: NOI was approximately $3.6 million compared to $4.3 million in Q3'23.
Speaker Change: Let's talk about liquidity.
Speaker Change: At the end of the third quarter, we had liquidity of approximately $933 million, comprised of approximately $533 million in cash and cash equivalents, and $400 million of availability on our revolving line of credit.
Speaker Change: As of the end of the third quarter, our leverage, which we measure in terms of net debt dividend was 5.6 times on a quarter annualized basis.
Speaker Change: and 6.0 times on a trailing 12-month basis.
Speaker Change: Our objective is to achieve and maintain a net debt of either five and a half times or below.
Speaker Change: Our interest coverage and fixed charge coverage ratios were 3.8 for the quarter and 3.7 on a trailing 12-month basis.
Speaker Change: Let's switch over to 2024 guidance.
Speaker Change: We are increasing our 2024 FFO for shared guidance range.
Speaker Change: to a range of $2.51 to $2.55 per FFO share, with a midpoint of $2.53 per FFO share, and approximately 1% increase.
Speaker Change: from our previously updated guidance that had a range of two dollars and forty-eight cents to two dollars and fifty four cents with a two dollar and fifty one cent midpoint.
Speaker Change: Most of this increase in our 2024 guidance relates to our retail properties, which have contributed an additional $0.02 for FFO shares since last quarter from our lower-income
Speaker Change: Bad Debt, and Operating Expenses.
Speaker Change: and higher percentage ramps.
Speaker Change: Please note that excluding one-time litigation settlement income and lease termination fees collected so far in 2024 that have totaled over 22 million in the aggregate.
Speaker Change: Our forecasted 2024 FFO would be approximately 20 cents lower or $2.24 per share at the adjusted guidance midpoint.
Speaker Change: Thank you.
Speaker Change: Additionally, though we will provide formal 2025 guidance in February, for those modeling out next year, please keep in mind the increased net interest expense from the newly issued 525 million dollar bond.
Speaker Change: ensuing few months.
Speaker Change: Additionally, we are forecasting approximately
Speaker Change: $7 million of interest income from invested cash in 2024, or $0.10 of FFO per share that will be meaningfully reduced next year as virtually all of the capital from the bond offering will be used to refinance debt.
Speaker Change: On a positive note, the potential FFO upside is that we have over $450 million of invested capital between La Jolla Commons Tower 3, which was completed in Q2 of this year, and is just under 20% leased, but with several active prospects.
Speaker Change: One Beach Street, which was a total renovation completed in Q4 of last year and has seen an uptick in tour activity.
Speaker Change: and our three office projects in suburban Bellevue which we expect the significant renovations to be completed by the end of Q1 2025.
Speaker Change: All of these buildings are or will be highly amenitized with destination restaurants, cafes, fitness centers, outdoor spaces, and or conference centers.
Speaker Change: These buildings, when stabilized at 93% occupancy, are expected to produce over $0.30 per share of FFO.
Speaker Change: Of course, the lease of these properties will also have a positive impact on continuing to reduce our net debt to EBITDA to our target of five and a half times or less.
Speaker Change: We'd expect stabilization on these properties in 2026, give or take a year pending market conditions.
Speaker Change: While we believe the 2024 guidance is our best estimate as of the date of this earnings call, we do believe that it is also possible that we could prefer towards the upper end of this guidance range.
Speaker Change: primarily if the tenants we reserve for continue to pay their rents and our multifamily properties continue to outperform.
Speaker Change: As always, our guidance, our NOI branch, and prepared remarks exclude any impact on future acquisitions, dispositions, equity issuances, or repurchases.
Speaker Change: I'll now turn the call over to
Speaker Change: Steve Center, our Senior Vice President of Office Properties, for a brief update on our segment.
Steve Center: Thanks, Bob. At the end of the third quarter, our office portfolio was 87% leased, an increase of 40 basis points over the prior quarter.
Steve Center: While we continue to experience some right sizing of existing tenants and a few small office closings, they were more than offset by Q3 leasing activity as follows.
Steve Center: with rent increases of 18% on a cash basis and 16% on a straight line basis, including a $10,000 rentable square foot lease at City Center Bellevue.
Steve Center: seven comparable renewal leases for approximately 41,000 rentable square feet with rent increases of 4% on a cash basis and 17% on a straight-line basis including two medical office leases totaling 16,000 rentable square feet at the Coastal Collection, Torrey Reserve, and San Diego.
Steve Center: and four non-comparable leases totaling approximately 48,000 rentable square feet, including a 20,000 rentable square foot lease at La Jolla Commons Tower 3 in San Diego and a 20,000 rentable square foot lease at 14 Acres, previously known as Eastgate Office Park in suburban Bellevue.
Steve Center: And the leasing momentum has continued into Q4 as follows.
Steve Center: We've executed five leases to date in Q4 totaling approximately 27,000 rentable square feet, including a new approximately 4,000 rentable square foot lease at La Jolla Commons Tower 3.
Steve Center: We have 10 deals in lease documentation totaling approximately 64,000 rentable square feet.
Steve Center: and through the first three quarters of 2024, approximately 60% of the rentable square feet was new leasing, which is the first time since 2019 that new leasing has outpaced renewals on a rentable square foot basis.
Steve Center: Our lease expiration exposure is modest through 2025. We're down to just over 2% rolling in 2024 given year-to-date office portfolio activity with the average deal size of the remainder of approximately 6,000 rentable square feet.
Steve Center: We have approximately 8,000 or 8% of the portfolio rolling in 2025 with the average deal size of approximately 7,000 rentable square feet.
Steve Center: Concluding with some insights on our new development, LaWay Commons 3 in the UTC Submarket of San Diego.
Steve Center: As noted earlier, we signed a lease for approximately 20,000 rentable square feet on the third floor in Q3, and a lease for approximately 4,000 rentable square feet on the second floor earlier this month. We actually had two tenants buying for the same suite.
Steve Center: We received a request for proposal for approximately 16,000 rentable square feet and responded to that two days ago and have a former Tower One full-floor law firm tenant that we expect to re-engage with in 2025 for approximately 7,000 rentable square feet.
Steve Center: And we have continued tour activity and interest from numerous less-than-full-floor prospects. And in response to this smaller tenant demand, we are currently designing additional spec suites on the fourth floor.
Steve Center: Regarding La Jolla Commons amenities, the Tower 3 Fitness Center, which will serve the entire campus, is nearing completion with a grand opening on Q1 of 2025.
Steve Center: The Tower 3 restaurant is into the city for permit and is expected to open in the summer of 2025.
Steve Center: The Tower One Cafe, which will also serve the entire campus, will be under construction in Q1 and will open in Q2 of 2025.
Steve Center: And planning and pricing for the new campus conference center are complete and will be submitted to the city shortly It is also expected to open in the summer of 2025
Speaker Change: And lastly, in regards to One Beach in San Francisco, as Bob mentioned, there's been an uptick in tour activity and interest lately, but it is a slowly evolving process with nothing substantive to update you on at this time.
Speaker Change: However, we are encouraged by our prospects for success, and not only Loyal Commons III, but One Beach and throughout our entire office portfolio.
Speaker Change: I'll now turn the call back over to the operator for Q&A.
Speaker Change: Thank you.
Speaker Change: Thank you. We will now begin the question-and-answer session. To ask a question, you may press stars and one on your telephone keypad.
Speaker Change: If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you'd like to withdraw your question, please press star then 2.
Speaker Change: At this time, we'll pause for just a moment to assemble our roster.
Speaker Change: And today's first question comes from Handel St. Just with Mizzouvo. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Morning, Adam. Hi, good morning. Morning, this is Robbie. I'm going to be on the line for Wendell. Hope you guys are doing well.
Speaker Change: I wanted to ask about the office leasing. I saw that a large proportion of the leasing this quarter was outside of the the comparable tool.
Speaker Change: Can you offer any additional color there or something unique about the backfills, the TI spend, or the releasing spreads or deals that made them fall outside of the comparable pool?
Speaker Change: They were vacant longer than six months, so if it's a vacancy that's been there for longer than six months, there's no rent to compare it to.
Speaker Change: One of those deals was a new lease on the third floor of La Jolla Commons 3, which is brand new. The other was a full-floor deal at 14 Acres or Eastgate Office Park in suburban Bellevue. And both were long-term deals.
Speaker Change: TI's are in line with new long-term deals at about
Speaker Change: Bye.
Speaker Change: $10-$15 per square foot per year of term.
Speaker Change: It's that simple. They're new leases with no backfill.
Speaker Change: Got it. That's helpful.
Speaker Change: I guess, you know, you've made steady progress on the office leasing, it seems that interest is rising and touring activities is also rising. Can you offer a near-term outlook for within the office portfolio, maybe a forward occupancy marker by, or target by year-end 25 or 26?
Speaker Change: You know, I think it's premature to give you that figure.
Speaker Change: You touched on it, we look back 23-24 and we have looked into 2025, and we've talked about the headwinds we've faced.
Speaker Change: with the attrition through COVID, companies closing their doors or right-sizing.
Speaker Change: We've managed to start, we've turned the corner, and we're now generating positive net absorption. I mentioned that 60% of our leases are new leases versus renewals.
Speaker Change: And so, we're optimistic moving forward. We do have some known move-outs, the MEI move-out that we...
Speaker Change: It talked about for 45,000 feet, which is about 1% of the portfolio. We also know at First in Maine, we're going to get back space from clear results.
Speaker Change: We've been unfortunate we
Speaker Change: a partial backfill of another floor and then we've got two prospects for about 15,000 feet each looking at that clear result space. So we're optimistic there. I think this is a long-winded way of saying our leasing activity, our tour activity, our proposal activity is up.
Speaker Change: It's dominated by new leasing versus renewal leasing and we have net absorption we're working on right now in proposals and leases in documentation.
Speaker Change: So I suspect 25 is going to be a much better year than 24.
Speaker Change: Hey Robby, this is Bob. Hey just to add to Steve's comments is that in the fourth quarter we just don't know what's going to happen in the fourth quarter in terms of leasing successes. Steve's doing a great job and as you know we will give a very detailed forecast in the fourth quarter.
Speaker Change: 425.
Speaker Change: As Bob pointed out, Steve is doing a good job.
Speaker Change: We have properties that are amenitized well, in good locations.
Speaker Change: and we have the financial capacity to do the TI's to get our tenants in and keep them satisfied.
Speaker Change: Not satisfied. At least.
Speaker Change: That's a big factor in today's crazy world.
Speaker Change: I'll give you an example of that. We earned proposals with a tenant for a space at Eastgate, 14 acres. And prior to the CEO, they have a new CEO, he recently toured.
Speaker Change: about a week ago.
Speaker Change: And after that tour, seeing the renovations, he dropped all of the other potential move opportunities, and it's now just between us and a renewal.
Speaker Change: So, that's a case in point of our renovations starting to really pay off in that asset.
Speaker Change: Thanks for that. Just one more here. A number of your peers, particularly within shopping centers, they've been more involved with transactions recently. What's your level of interest in acquisitions? Is there a particular segment that's...
Speaker Change: attractive to you and how would you potentially fund it?
Speaker Change: We have a number of options available.
Speaker Change: First of all, to manage our debt.
Speaker Change: Second of all, to make an acquisition.
Speaker Change: Third of all, there's not much we're interested in disposing of but we have all those factors And that's what management is for and we continue to look at all those options and weigh them
Speaker Change: So, I'd like to tell you that this is what we're going to do, but it depends on how the opportunities present themselves.
Speaker Change: and what the opportunities are.
Speaker Change: Our first focus is kind of staying in the markets we're in because we know them and I think as this unfolds you'll be amongst the first to know because we don't know yet ourselves but we keep looking.
Speaker Change: Thank you. Thank you.
Speaker Change: Got it. Thank you so much, guys.
Speaker Change: Thank you. Thank you for your interest, sir.
Speaker Change: And our next question today comes from Rennie Pyre with Green Street Advisors. Please go ahead.
Hey, good morning everyone. Thanks for taking the question. So thinking about the performance of your multifamily and retail assets here today, you know, kind of continuous out performance, what are your expectations for 4Q and then maybe if there's any insight into 2025 performance, I know it's a little early, any color would be helpful. Thanks.
Speaker Change: You know, there's so much uncertainty in the world we live in. I would hate to make a projection. On the other hand, I can tell you that all of our assets are in first class shape.
and we'll do as well as anybody and hopefully better. We've used this time to upgrade several of our multi-family properties and, of course, our retail, as we always monitor and keep it in first-class shape for our tenants.
Speaker Change: and Robert Barton.
Speaker Change: You know, I've never seen so much uncertainty in them.
Speaker Change: in the world we live in. Interest rates first, devices must second, collections third, retail fourth, the economy fifth. So as soon as we know where we're going, we'll know, as soon as we know where the country's going, we'll know better where we're going. But I'll tell you this, we'll do as well as anybody and hopefully better than most.
Thanks for watching. Have a great day.
Speaker Change: Yeah, great. Thanks for the color.
Speaker Change: Okay, thank you. Thanks for the color or the lack of color. We did the best we can, but you know what we're going through.
Speaker Change: I'll take it.
And our next question today comes from Todd Thomas, KeyBank Capital Markets. Please go ahead.
Todd Thomas: Hi, thanks. Good morning.
Morning, I just wanted to sort of zoom out a little bit, Bob, Steve, you know, you mentioned, you know, the 30 cents of FFO upside from La Jolla phase three, one beach, the three assets in Bellevue, approximately how much of that's attributable to the stabilization at the three.
Speaker Change: Bellevue office assets and you know with the renovations expected to be completed at the end of first quarter next year I think you said and Amazon and others calling employees back to the office you know what's the timeline to get those projects stabilized?
Speaker Change: Well, from the $0.30, you know, we have about $0.20 that relates to La Jolla Commons. It's actually like about $0.18 in La Jolla Commons, $0.02, $0.02 to $0.03 on One Beach.
Speaker Change: and the balance is really the suburban office market that we're finishing up in 2021.
It's too early right now to give you a forecast on that Todd You know, we'll give you a very detailed Forecast and how we see it for 25 Steve's still doing deals today
Todd Thomas: What do you expect leasing to pick up, you know, once the renovations are complete? I mean, should we assume or anticipate, you know, kind of a quicker ramp?
in leasing, you know, once the renovations are completed, you know, after the first quarter, or do you think it could still, you know, take some time for leasing to come to fruition? Todd, I think Steve has answered that question.
And I'd just like to add an element of uncertainty. The only certain thing that I'm sure of is that we will do as well as anybody.
Todd Thomas: and you'll be pleased with the outcome given the circumstances we're operating in because there's so much uncertainty but they're great properties.
Todd Thomas: we're positioning them well and Steve's doing a great job.
Todd, you're right. Completion of renovations and amenities, leasing accelerates. There's no question.
It's tough for people that aren't in real estate to envision the way it will be. And so until they can experience it first hand, and again, I mentioned the CEO that just toured Eastgate and it's near completion, and he was blown away by it. He said, this is fantastic. And so, as I said, he eliminated the competition except for the renewal.
Todd Thomas: You know, La Jolla Commons 3, I went into detail about the various amenities there.
Todd Thomas: I'm
Todd Thomas: That being said, activity is picking up there as well.
And then one of the suburban assets, Corporate Campus East 3, which we're now calling Timber Ridge, we've got two pending deals there that if we're successful, will be 97.5% leased. Then I've got Bell Spring, which is relatively small. It's now Timber Springs.
Todd Thomas: It's 93,000 feet and we're in discussions with primary discussions with a local hospital that is paying medical office premium rents for administrative office space We've got a full floor plus available if that were to come to fruition that would stabilize that asset as well
Todd Thomas: So then it leaves you the heavy lifted East Gate, which which we that's a major renovation. It's
Todd Thomas: It's near completion and it's showing beautifully now.
Todd Thomas: and then Tower 3, you know, we're confident in our prospects there. So, and then we even mentioned one beach, we've got tour activities up, and we've got a couple of prospects we're talking to. So, I'm encouraged going into 2025. The location of each of these properties is as good as it gets.
Todd Thomas: Eastgate 3 is just off the freeway and it's like in the middle of a park, so it has all the amenities. La Jolla Commons 3 is now, in effect, the commercial, in the commercial center of San Diego. So we've got the location, we've got the properties, the management's excellent.
and the opportunities there that you can take advantage of.
Okay, and for La Jolla Phase 3, Steve, so what's the percent leased today? It sounded like another deal was...
was signed in October after, you know, the quarter ended. You talked about, you know, the pipeline a little bit. What's leased and when will we start to see cash rent commence?
Todd Thomas: at that work.
We're currently 21%.
Steve Center: The PTC has already commenced. The 4,000 footer I mentioned will commence early next year. The third floor tenant commences probably in August, September at the latest.
Steve Center: We just responded to the RFP I mentioned for 16,000 feet. That would commence as soon as possible. There's really a desire to accelerate that so that could commence as early as June or July of next year if we can get through the city.
And that deal, they're solely focused on us, it's just, can we put it together? So with that RFP that we just responded to, we have viewed 28.5%. And then we've got numerous 15,000 footers that have toured or are touring.
And I mentioned it's, you know, predominantly a less than full floor tenant market right now, so we're proactively, we've already designed and we're now going to CD's on the fourth floor with spec suites ranging from 3,500 to 7,000 feet, four suites.
There's good traction in that segment.
Okay, that's helpful, and then...
Bob: Lastly, Bob
Speaker Change: So you walked us back to $224 per share from the revised $24 midpoint, you know, excluding the one-timers this year. You talked about some of the interest expense headwinds and some other moving pieces, some of the move-outs.
Speaker Change: You know, does the $0.30 of upside begin to have an impact, and do you expect to be able to grow off the $2.24, or could $2.25 be lower with a sharper ramp up in $2.26 and $2.27 from all of this?
Speaker Change: upside, you know, materializing a little bit later on.
Speaker Change: Thank you for watching. Please subscribe to our channel.
Yeah, I wish, you know, it's just too early to give you the other insight on that, you know, a few months from now we'll give you that guidance in 25. You know, there's still things happening, I mean, positive, but there's, numbers are up and down and I prefer to just give you the guidance all at once for 25.
and Hugh Port.
Hugh Port: That's all right.
All right, thank you.
Speaker Change: Thank you. And our next question comes from Ronald Camden with Morgan Stanley. Please go ahead.
Speaker Change: Hi guys, this is Matt Glickman on for Ron, and thanks for taking the time this morning. I was just wondering if you guys could talk through the dynamics at play with the comparable cash blended leasing spreads, particularly in office and retail for this quarter, and I guess just a little bit about how we should be thinking about that as we go into 2025. Thanks.
You want to handle that, Bob? Steve, Kansas Law Lessons. You've got a speaker, retail, and office.
You know, we're, it's interesting.
You know, I saw some comment about reading a trend into this quarter versus Last in terms of spread it varies if you'll look back at the last
it varies quarter by quarter.
Every deal, you know, impacts it differently. The best news is it continues to be positive. We're not going backwards. At this point, we haven't. So we continue to move ahead.
Speaker Change: But I see continued along the same lines as we have been the last four quarters.
which is positive. And you saw one quarter it was 22%, another quarter it's four, another it's eight. It just depends on the deals we're talking about. And Matt, on the retail side, we've since coming out of COVID, we've been trending positively on a cash and gap basis for those retail leasing spreads.
We would assume and expect those to continue to trend positively going forward. Obviously, we got to see what's going on in the economy and post-election and whatnot, but everything seems to be trending well because our portfolio is so well leased on the retail side.
Hugh Port: not anticipating any negative movement, particularly with inflation driving costs up and rents up. We would imagine that being a tailwind.
to us moving forward in all of our new lease deals.
would be the abatement on the front end of a retail. So that all gets spread out and
Hugh Port: It's actually one of the drivers that we see in the differential between the CAS and the office and that's why the office has continued to outperform throughout the last several quarters.
Got it. Thank you, guys.
Hugh Port: Thank you.
I think to sum it up, we have very good locations, we don't leave money on the table, we deliver everything we say we're going to deliver, and I think that the tenant world and the leasing world take that into account.
Hugh Port: Thank you.
Thank you, and ladies and gentlemen this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.