Good day, and thank you for standing by. Welcome to the Q1 2021 American Assets Trust, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Adam Wyll, EVP and COO. Please go ahead.

Thank you, operator. Good morning, everyone. Welcome to American Assets Trust first quarter 2021 earnings call. Yesterday afternoon, our earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of our website, americanassetstrust.com. A telephonic replay and on-demand webcast will also be available for this call over the next week. During this call we will discuss non-GAAP financial measures, which are reconciled to our GAAP financial results in our earnings release and supplemental information. We will also be making forward-looking statements based on our current expectations. These statements are subject to risks and uncertainties discussed in our SEC filings. You are cautioned not to place undue reliance on these forward-looking statements. Actual events could arise – could cause our results to differ materially from these forward-looking statements for a number of reasons, including uncertainty related to the scope, severity and duration of the COVID-19 pandemic on us and on our tenants. And with that, I'll turn the call over to Ernest Rady, our Chairman and CEO to begin the discussion of our first quarter 2021 results. Ernest?

Thank you, Adam. First and foremost, once again we hope that this letter finds you and your loved ones safe. Thankfully, as several vaccines have been broadly administered and as we begin to reach herd immunity, we are very optimistic that the pandemic is nearing the sand and our lives will soon return to normalcy and our financial results will continue to improve into 2021. Over the past year, the COVID-19 pandemic severely affected most industries, commercial real estate being no exception. We knew at the onset of the pandemic that American Assets Trust would not be impervious to this economic impact, but we were confident that the high-quality, irreplaceable properties and asset class diversity of our portfolio, combined with the strength of our balance sheet and ample liquidity would pull us through this. As we have worked our way through these past twelve months, however, we realized that it is the resiliency of our properties and our company's employees that has enabled us to weather this storm and fortunately, to embark on the path to recovery. We are proud of our response to the challenges presented to us in 2020 and our ability to successfully operate, both our company, while keeping our employees and customers as safe as possible. We've been through hard times before and each time we have emerged stronger, which is our expectation now. As we celebrate our 10th anniversary of being a New York Stock Exchange listed company, we are reminded that our commitment to our stockholders has always remained front and center. We will continue to do our best to accretively grew our asset base and shareholder wealth, focusing on both organic growth and development opportunities as they present themselves within our existing portfolio, as well as acquisitions in our targeted coastal West Coast…

Thanks, Ernest. We are feeling more bullish than at any time over the past twelve months, now that the vaccine is widely available, the COVID 19 governmental restrictions on our coastal markets have lightened considerably and we are seeing firsthand the consumer behavior has begun reverting closer to pre-pandemic levels. Perhaps most significantly, in California, Governor Newsom announced recently that the state will fully reopen its economy on June 15th, lifting substantially all the restrictions that have guided daily life for more than a year in California, where currently two-thirds of our annualized base rent is derived. We would expect our other coastal markets to follow similarly in the months to come. Meanwhile, we are encouraged and seeing our shopping center parking lots full, our office tenants returning or scheduling their return to office, tourism ramping up in Hawaii and public schools in our markets are starting to open back up, allowing parents to return to work, shopping and alike. Our collections have continued to improve each quarter since the pandemic began and improved each month in Q1 with the collection rate north of 93% for the first quarter. We expect this collection trend to continue to improve going forward with April at approximately 94% today. Furthermore, we had approximately $800,000 of deferred rent due from about 100 tenants in Q1, based on COVID-19-related lease modifications entered into in 2020 and we have collected approximately 88% of those deferred amounts. We believe this further validates our strategy of supporting our struggling retailers through the government mandated closures. Today, we have avoided any material impact from retailer bankruptcy having lost only 13,000 square feet in the aggregate out of our over 3 million square foot retail portfolio, which we believe is a testament to us having superior locations at these restructured…

Good morning, and thank you, Ernest and Adam. Last night, we reported first quarter 2021 FFO per share of $0.38, first quarter 2021 net income attributable to common stockholders per share of $0.02. I believe it is important to note that the FFO in the first quarter includes a charge of approximately $4.3 million for the early extinguishment of our $150 million Senior Guaranteed Notes, Series A, which were due on October 31, 2021. Without the charge for the early extinguishment of debt, our first quarter 2021 FFO per share would have been approximately $0.44. From a financial perspective, it was a relatively quiet quarter. I am not going to spend a lot of time on anything that has already either been discussed or is in the earnings release and save time for the follow-up questions. We did end up close to our expectations based on the current environment. Same-store metrics are down in retail as expected and office was also lower for the quarter, but it is expected to end with 8% or greater same-store cash NOI for the year ended 2021. I'll now turn the call over to Steve Center, our Vice President of Office Properties for a brief update on our office segment. Steve?

Thanks, Bob. At the end of the first quarter, net of One Beach, which is under redevelopment, our office portfolio stood at approximately 94% leased with just 3.4% expiring through the end of 2021. Our top 10 office tenants represented 50.2% of our total office base rent. Given the quality of our assets and the strength of the markets in which they are located with technology and life science as the key market drivers, our office portfolio has weathered the crisis well. Current stats by region are as follows: Bellevue is 96.5% leased; Portland is 97.1% leased; San Francisco is 100% leased, net of One Beach; and San Diego is 89.1% leased with two buildings under renovation at Torrey Reserve, making up 5.8% of San Diego's vacancy and 2.6% of the office portfolio's vacancy. Our strategy of offering lease term flexibility while preserving pre-COVID rental rates produced 36 comparable new and renewal leases over the last 12 months totaling 182,000 rentable square feet with a weighted average increase of 8.9% over prior rents on a cash basis and 16.9% on a straight-line basis. The weighted average lease term was 3.3 years with just $8.7 per rental square foot in TIs and incentives. We experienced limited small tenant attrition due to COVID and other business challenges during the quarter resulting in a net loss of approximately 31,000 rentable square feet, none of which was lost to a competitor. However, smaller tenant activity has picked up significantly with tenants willing to commit to longer-term leases at favorable rental rates. Even more encouraging is the push to return to the office and the emerging large tenant activity and competition for quality larger blocks of space in select markets including San Diego and Bellevue. We continue to strategically invest in our current portfolio through renovation, redevelopment, and ground-up developments. The renovation at two of the 14 buildings at Torrey Reserve should be complete this summer. In the process, we are enhancing the campus amenities and aggregating large blocks of space in the Del Mar Heights submarket to meet demand and take advantage of pricing power. Construction has commenced on a redevelopment of One Beach Street in San Francisco with delivery in the first half of 2022 and construction is nearly complete on a redevelopment of 710 Oregon Square in the Lloyd sub-market of Portland. One Beach will grow to over 102,000 square feet and 710 Oregon Square will add more than 33,000 square feet to our office portfolio. Construction is also commenced on Tower 3 at La Jolla Commons, a 213,000 square foot, 11 story Class A plus office tower in the UTC submarket of San Diego with expected completion in Q2 to Q3 of 2023. We are encouraged by the emerging large tenant activity and competition for quality large blocks of space in UTC. We are optimistic about our office portfolio as we move forward into the rest of 2021 and beyond. Operator, I'll now turn the call over to you for questions.

[Operator Instructions] Our first question comes from Craig Schmidt with Bank of America. Your line is now open.

Thank you.

Good morning, Craig.

Hey, how are you?

I am good.

Good. How has the retail leasing environment been since the end of March? So, the first four weeks or so of April, can you describe where we coming to – with - I guess, much of the California hope?

I mean, we are going to ask Chris Sullivan to answer that. He has been in the midst of it and he us our internal expert and external, as well.

Good morning, Craig. Leasing definitely picked up, exactly picked up since the 4th of March in respect to – more phone calls they real big part of our retailers starting to look for space, starting to show a step-up. It's now it like obviously in 2019. But it is starting to pick up toward and starting to go on. So I am way more optimistic now than I was a year ago. Does that help answer your question?

Right. So, I mean, it still sounds like it's generally improved since the beginning of the year.

Yes. It's generally improving. It really got focused back as California didn't pop open with the indoor dining. And if you look at so many of the shopping centers throughout the country now, quite a bit of dining, you can almost consider that category in anchor tenants. But in California that didn't pop back open to indoor until middle of March. So if that's opened up the registers are starting to ramp you see. Especially here in San Diego, you see a lot of weekend tourism. So, you see – you're starting to see the more aggressive retailers or the savvy retailers of the restaurant tours are now around looking for space and I think the results of that when you actually see that getting maybe four to six months from now. But the graph is starting to sprout back up on the deals is the way I would describe it.

Great. And then, I was wondering if you are experiencing much in terms of cost increases on your development and redevelopment projects. Are they possibly impacting the yield?

I am going to ask Jerry Gammieri to handle that. He handles our construction and he is involved on a day-to-day basis with the investments.

Sure. Craig, thank you for the question. We are seeing cost increases in the construction industry as a whole. Year-over-year, it has gone up. We were very successful in the buys that we made in our three major projects with the 710 Oregon Square building, the One Beach project and La Jolla Commons. I think, Ernest had asked me a question yesterday that, if I had to go out and buy La Jolla Commons today in today's dollars, how much more would it cost us to build it versus when we started negotiating those fees a year ago during the pandemic. And I would venture to say that it would probably be as much as about 15% above what we have bought today. So, I hope that answers your question.

Great. And then, and just finally on the Asian lifting tourism, is that really what required to return Hawaii to help or can an increase in the domestic travel somewhat mitigate the disruption?

Domestic travel would help for sure. But that's the cake, the icing on the cake is the Asian travel.

Okay. Great. Thank you.

Thank you, Greg. Thanks for your interest.

Thank you. Our next question comes from Todd Thomas with KeyBanc Capital Markets. Your line is now open.

Good morning, Todd.

Hi. Good morning. Just first question on the multifamily segment, you saw a nice increase in occupancy in Portland. Has that continued into April? And can you comment on the decrease in rents and the use of concessions to drive traffic there?

That's been very tough, frankly in Portland and we had a management issue, which we solved immediately when it came to our attention. We are now having to give concessions, which are painful. But the biggest cost of operating real estate as vacancy and we'd sooner have somebody in there than have it vacant. But we hope that Portland will return to normal. But if you read the newspapers, you'll see what turbulence Portland has been subject to and we have not been an exception.

Okay. Should we expect to see the concessions burn off in the second and third quarters and drive the face rents higher and as the occupancy increases, is that continuing?

Todd, I'd like to tell you, I know, but I really don't know. I've never been through a circumstance like Portland before. I'll tell you this though, we'll do as well as anybody in the market. We have a team in place they are who have been with us for a number of years. We have just hired a new project manager. She comes very, very experienced and we will do as well as anybody. And Portland will have to return to normal before our rental income returns to more normal levels, is what I believe.

Okay. And then…

Any disagree? Go ahead.

Okay. I also – I wanted to ask about the retail segment and the 2022 NOI bridge that you provided in your latest corporate presentation. The retail cash NOI in the quarter was a little over $60 million. So $65 million annualized, I think and that's ahead of the 2022 projection for retail cash NOI, which was $63 million. I don't know if there is some deferred rent that was collected in the quarter, which I think was referenced in the prepared remarks. But Bob, can you help us sort of unpack the retail NOI in the quarter a little bit and maybe help us understand how that's tracking relative to prior projections?

Yes. I mean, I think we're pretty close to what our presentation is – our quarterly presentation, Todd. And I think really what it points to is that, and the way we look at it is that 2022 is really the recovery year, because in 2022, you continue to outperform and the growth of the office cash NOI, plus the mixed use, which we think is going to be strong in 2022, which should take you from a total cash NOI of around $211 million, increasing up to a total of around $250 million plus. So, we think 2022 is recovery year. But in terms of unpacking 2021 or this quarter, I think we are still on track. I think, if not, even more so.

Right. Okay, because it seems like the retail this quarter is already ahead on an annualized basis of where you expect it to be in 2022. So I didn't know if you are anticipating some move-outs or a decrease in cash NOI for retail that might take some time to recover then over the next several quarters.

No. We are just going to have to play that out, but I think we are still on track with the unofficial guidance in Q4 that we issued. If you go back and take a look at that. But there is nothing that really step that that points to anything different than that. Obviously, some of the collections – Adam had mentioned on his script, that 88% of the deferred rent has been collected, which is positive. So that's starting to come in as well, which I think is additive to that.

Okay. All right, great. Just one last question if I could. I'll hop off. I was just wondering if there was an update at Landmark related to the Autodesk expirations that occur later in 2022 and 2023. Not sure if it's too early, but if there is any update there, that’d be great.

No update at this time except they just gone through extensive renovation of their second and fourth floors. The second floor is a space that expires at the end of next year with the remainder in 2023 and what was the investment there?

We are investing upwards of $450 a foot.

About $15 million. And we just toured it on last Tuesday and site. So they are investing in their space, which I think is a good indicator of their commitment to the building, because of Landmark and One Market and we wanted to see what our tenants are spending and one of the – they are spending almost a $100 million their own money on the building and the other one is spending over $15 million. So, we are pretty happy with that investment in the short run and the long run. I wish we had five of them.

All right. Thank you.

It's a great building. Thanks for the questions. Thank you, Todd.

Thank you. Our next question comes from Richard Hill with Morgan Stanley. Your line is now open.

Good morning, Richard.

Hey, you got Ron Kamdem on for Richard Hill.

Okay. Well, tell Richard, we think we are better off with you than him.

That's right. And just – the first question was just going to the office portfolio. Maybe could you touch on the same-store NOI this quarter. I saw it’s almost down maybe what happened there? And actually just a bigger picture question which is, just what are you hearing from sort of the office tenants and return to the office?

Well to answer your first question, that negative was due to one deal and it was a business decision to keep us a law firm in 17,000 feet. There are 24,000 foot full floor law firm and they had subleased about 7,000 feet of their space to somebody else and that subtenant have moved out. So there lease was coming up and they went to the market and found a competing space about the same size of $3.10 a foot. We looked at the price – comments was false. We looked at the prospect of losing a 17,000 foot law firm and we decided to keep them where they are, not put in a corridor, no TIs and the competing space was a $3.10 a foot, they agreed to stay at $5 a square foot. So that was a victory for us. We had to take a hit on square footage. And that's what happened. Now just to add to that, they are paying 35.6% more in rental rates than they were at lease expiration. So we think it's a good business decision in a full building to keep 17,000 foot law firm.

Excuse me. Ron, in terms of your question on the same-store cash NOI for the office, it’s primarily because of our government tenants up in 1st of May. We still had through Q1 abatements that were incurred there. So that reduced your cash NOI by close to $1 million bucks.

To answer your question on back to work, we've got a number of firms coming back. We have a life science firm right across from us here that that came back this past Monday and others are making plans to come back in the next few months. So we are encouraged by that and then you can read what Google is doing and other big technology firms are doing. That’s sure what we are hearing is that there is a big push to get back to the office.

Great. That's helpful. And then, if I could sort of – the second question was just on sort of the mixed used assets in Hawaii and so forth, obviously, the NOI is still sort of flat to slightly negative in the quarter. I remember, I think three months ago, you sort of felt that there was a decent shy of a recovery in the second half of the year. Just curious how you guys are feeling or thinking about Waikiki and the recovery there on the mixed-use stuff?

Ron, everybody I talk to is looking forward to the end of this pandemic and getting back to a normal life. And particularly, people feel deprived that they can't travel. Now if you're going to travel, you're going to go to someplace safe and Hawaii is safe. So, I am as confident as I can be that Hawaii is going to return to pre-pandemic levels. I just don't know exactly when, but it's going to happen. If I had the opportunity, I'd buy everything in Hawaii all over again. It's a great property in a great location and I am looking forward to the recovery.

Yes. Ron, just to add to Earnest comments. We are – in terms of our estimation, it's not the timing, but we do believe that the back half of 2021 we're going to see an increase over the first half. I know that, when I look at the Embassy Suites, our booking phase, and I take a look at that, our expectation is that we will be 79% or higher in June. People are ready to travel.

Ourselves included.

Yes.

Great, that's helpful. That's all my questions. Thank you.

Okay. Thanks, Ron. Say a word to Richard.

I am not showing any further questions at this time. I would now like to turn the call back over to Ernest Rady, Chairman and CEO for closing remarks.

To sum it all up, we've come through this terrible turmoil in excellent shape everything considered. And I know that you are all familiar with the fact that we used to borrow money on a private placement basis and private placements became more expensive than public issuance. So, we thought we try the public issuance market. We offered $500 million of 10-year bonds and we were 4.5 times oversubscribed and so we now have the proceeds of that issue and after paying off some debt and earmarking some of that proceeds for the improvement of the properties which we've discussed. We are looking forward to investing that money in additional assets, which we are going to do our best to make sure that are accretive for our stockholders. So, I know that you can’t count on it, but one thing you can count on, we'll do our best for you and we appreciate your confidence and thank you for your interest.

This concludes today’s conference call. Thank you for participating. You may now disconnect.