American Assets Trust, L.P. Annual Report Summary: A Year of Strategic Growth and Adaptation

American Assets Trust, L.P. (AAT) is a diversified real estate investment trust (REIT) that owns, operates, and develops high-quality retail, office, multifamily, and mixed-use properties. AAT strategically concentrates its portfolio in supply-constrained coastal markets of California and Hawaii, capitalizing on strong demand and limited new supply. This past year, AAT demonstrated resilience and strategic adaptation within a dynamic real estate environment, delivering solid financial results and making key portfolio adjustments.

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Business Overview

AAT focuses on acquiring, owning, developing, and managing a diverse portfolio of properties. Its strategic presence in high-barrier-to-entry coastal markets in California and Hawaii forms the cornerstone of its business model, aiming to generate long-term value through strong market fundamentals.

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Financial Performance & Key Metrics

For the fiscal year ending December 31, 2023, AAT reported robust financial results:

• Total revenues reached $350 million, marking a 6.2% increase year-over-year. This growth stemmed from strong rental performance and high occupancy rates across its multifamily and retail segments.
• Net income attributable to common stockholders totaled $85 million, translating to $1.25 per diluted share.
• Crucially for REIT investors, Funds From Operations (FFO) grew to $2.80 per diluted share, a 3.7% increase from the prior year, slightly surpassing analyst expectations.
• AAT maintained a quarterly dividend of $0.32 per share, reflecting a healthy payout ratio of 45% of FFO. This indicates strong dividend coverage and financial stability.
• The overall portfolio achieved an occupancy rate of 92.5%, a slight improvement from the previous year, with Net Operating Income (NOI) growing by 4.8%.

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Management Discussion & Analysis (MD&A Highlights)

Management's strategic decisions and operational performance underscore AAT's proactive approach to market dynamics:

• Strategic Moves & Operational Highlights:
  • AAT executed a significant strategic move by selling the Del Monte Center property in February 2025 for $180 million. This transaction, completed at a favorable 5.5% cap rate, allowed AAT to reallocate capital, reduce leverage by $100 million, and sharpen its focus on higher-growth opportunities within its core markets.
  • The retail segment, excluding the sold asset, saw its same-store NOI increase by 3.5%.
  • The multifamily segment continued its strong performance, achieving a 6.0% increase in same-store NOI and an average occupancy of 96%.
  • The office segment, however, faced headwinds. Occupancy declined by 1.5% to 88% due to evolving work patterns, though strong rental growth in prime locations partially offset this.
• Leadership & Strategy: The Del Monte Center sale signals a strategic pivot towards optimizing portfolio quality and concentrating on assets with higher growth potential and favorable demographic trends. Management reiterated its commitment to disciplined capital allocation and selective development opportunities. The company experienced no significant changes in executive leadership, ensuring continuity in strategic execution and a clear vision for the future.
• Market & Regulatory Trends: AAT navigates a dynamic real estate landscape:
  • The hybrid work model continues to influence office space demand, prompting AAT to prioritize amenity-rich, well-located properties and explore adaptive reuse where appropriate.
  • E-commerce trends reshape the retail sector, requiring proactive tenant curation and property modernization to maintain relevance.
  • Rising interest rates and inflation remain ongoing macroeconomic factors that could impact property valuations and operating costs.
  • Potential changes in local zoning laws or environmental regulations in its core markets could also affect development timelines and costs.

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Risk Factors

Investors should consider several key risks:

• The $400 million credit facility matures in November 2025, requiring successful refinancing. Management is proactively addressing this.
• Rising interest rates could increase borrowing costs for unhedged debt and impact property valuations.
• Economic downturns could lead to higher tenant defaults and lower occupancy rates, particularly in the office and retail segments.
• Geographic concentration in coastal California and Hawaii exposes the portfolio to regional economic shifts and natural disaster risks.
• The evolving landscape of office demand due to hybrid work models presents an ongoing challenge for the office portfolio.

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Financial Health & Liquidity

AAT maintains a prudent financial position:

• The company held $75 million in cash and equivalents at year-end.
• Its net debt to EBITDA improved slightly to 6.5x from the previous year, reflecting a balanced mix of secured and unsecured debt.
• To mitigate interest rate volatility, AAT effectively uses interest rate swaps and Treasury locks, hedging approximately 70% of its variable-rate debt.
• AAT sparingly utilized its "At-The-Market" (ATM) equity program, established in late 2021, to raise $25 million in the past year. This funding supported specific development projects and demonstrates a flexible capital-raising tool.
• The $400 million Third Amended and Restated Credit Facility, maturing in November 2025, remains a key liquidity source, with $150 million currently drawn. Management is actively discussing its refinancing well in advance of maturity.

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Future Outlook

Looking ahead, AAT projects continued growth:

• AAT forecasts FFO per share for 2024 to range from $2.85 to $2.95, driven by rental escalations and the lease-up of vacant spaces.
• The company plans to invest $50 million in value-add renovations across its multifamily portfolio and selectively pursue acquisitions in its target markets when attractive opportunities arise.
• The ATM program will remain a tool for opportunistic capital raising to support these initiatives.
• Management anticipates continued strength in its multifamily and retail segments while actively managing its office portfolio to adapt to market changes.

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Competitive Position

AAT differentiates itself through several key strengths:

• Its focus on high-barrier-to-entry coastal markets typically exhibits strong demand and limited new supply.
• A diversified portfolio across retail, office, and multifamily segments provides insulation against downturns in any single property type.
• The company's long-standing relationships with high-quality tenants and a track record of proactive asset management contribute to its competitive edge, allowing it to command premium rents and maintain high occupancy.