What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-07-30 · 195 added, 168 removed, 430 unchanged (46% of the section changed)

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We are a full service, vertically integrated and self-administered REIT that owns, operates, acquires and develops high quality retail, office, multifamily and mixed-use properties in attractive, high-barrier-to-entry markets in Southern California, Northern California, Oregon, Washington, Texas and Hawaii.

As of June 30, 2021, our portfolio was comprised of twelve retail shopping centers;

nine office properties;

As of September 30, 2021, our portfolio was comprised of twelve retail shopping centers;

eleven office properties;

a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center;

and six multifamily properties.

Additionally, as of June 30, 2021, we owned land at three of our properties that we classified as held for development and/or construction in progress.

Our core markets include San Diego;

the San Francisco Bay Area;

Additionally, as of September 30, 2021, we owned land at three of our properties that we classified as held for development and/or construction in progress.

Our core markets include San Diego, California;

the San Francisco Bay Area, California;

Portland, Oregon;

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Rady or his affiliates, including the Ernest Rady Trust U/D/T March 13, 1983, or the Rady Trust, and did not have any operating activity until the consummation of our initial public offering on January 19, 2011.

Our Company, as the sole general partner of our Operating Partnership, has control of our Operating Partnership and owned 78.8% of our Operating Partnership as of June 30, 2021.

Our Company, as the sole general partner of our Operating Partnership, has control of our Operating Partnership and owned 78.8% of our Operating Partnership as of September 30, 2021.

Accordingly, we consolidate the assets, liabilities and results of operations of our Operating Partnership.

On July 7, 2021, we acquired Eastgate Office Park, consisting of an approximately 280,000 square foot, multi-tenant office campus in the premier I-90 corridor submarket of Bellevue, Washington.

The purchase price was approximately $125 million, excluding closing costs and prorations.

On September 10, 2021, we acquired Corporate Campus East III, consisting of approximately 161,000 square foot, multi-tenant office campus, less than five minutes away from downtown Bellevue, Washington.

The purchase price was approximately $84 million, excluding closing costs and prorations.

We acquired Eastgate Office Park and Corporate Campus East III with cash on hand.

Critical Accounting Policies

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We typically remove properties from same-store properties when the development, redevelopment or expansion has or is expected to have a significant impact on the property's annualized base rent, occupancy and operating income within the calendar year.

Our evaluation of significant impact related to development, redevelopment or expansion activity is based on

quantitative and qualitative measures including, but not limited to the following:

Our evaluation of significant impact related to development, redevelopment or expansion activity is based on quantitative and qualitative measures including, but not limited to, the following:

the total budgeted cost of planned construction activity compared to the property’s annualized base rent, occupancy and property operating income within the calendar year;

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Acquired properties are classified into same-store properties once we have owned such properties for the entirety of comparable period(s) and the properties are not under significant development or expansion.

Below is a summary of our same-store composition for the three and six months ended June 30, 2021 and 2020.

For the three months ended June 30, 2021, Waikele Center was reclassified to same-store properties when compared to the designation for the three months ended June 30, 2020 as redevelopment activity at the property is on hold for the near future and is comparable for the three months ended June 30, 2021.

Below is a summary of our same-store composition for the three and nine months ended September 30, 2021 and 2020.

For the three months ended September 30, 2021, Waikele Center was reclassified to same-store properties when compared to the designation for the three months ended September 30, 2020 as redevelopment activity at the property is on hold for the near future and is comparable for the three months ended September 30, 2021.

One Beach Street is classified as a non-same-store property due to redevelopment activity to renovate the property.

Waikiki Beach Walk Retail and Embassy Suites™ Hotel is classified as a non-same-store property due to spalling repair activity previously disrupting the hotel portion of the property's operations.

For the six months ended June 30, 2021, One Beach Street was reclassified to non-same-store properties when compared to the designation for the six months ended June 30, 2020 due to redevelopment activity to renovate the property.

Waikiki Beach Walk Retail and Embassy Suites™ Hotel is classified as a non-same-store property due to spalling repair activity disrupting the hotel portion of the properties operations.

Eastgate Office Park is classified as a non-same-store property, as it was acquired on July 7, 2021.

Corporate Campus East III is also classified as a non-same-store property, as it was acquired on September 10, 2021.

For the nine months ended September 30, 2021, One Beach Street was reclassified to non-same-store properties when compared to the designation for the nine months ended September 30, 2020 due to redevelopment activity to renovate the property.

Waikele Center was reclassified to same-store properties as redevelopment activity is on hold for the near future.

In our determination of same-store and redevelopment same-store properties for the six months ended June 30, 2021, One Beach Street have been identified as same-store redevelopment properties due to significant redevelopment activity.

Retail same-store net operating income decreased approximately 12.8% for the six months ended June 30, 2021 compared to the same period in 2020.

Office same-store net operating income increased 2.0% for the six months ended June 30, 2021 compared to the same period in 2020.

Office redevelopment same-store net operating income increased 1.6% for the six months ended June 30, 2021 compared to the same period in 2020.

Three Months Ended June 30, Six Months Ended June 30,

Waikiki Beach Walk Retail and Embassy Suites™ Hotel is classified as a non-same-store property due to spalling repair activity disrupting the hotel portion of the properties operations.

Eastgate Office Park is classified as a non-same-store property, as it was acquired on July 7, 2021.

Corporate Campus East III is also classified as a non-same-store property, as it was acquired on September 10, 2021.

In our determination of same-store and redevelopment same-store properties for the nine months ended September 30, 2021, One Beach Street have been identified as same-store redevelopment properties due to significant redevelopment activity.

Retail same-store net operating income increased approximately 3.1% for the nine months ended September 30, 2021 compared to the same period in 2020.

Office same-store net operating income increased 0.7% for the nine months ended September 30, 2021 compared to the same period in 2020.

Office redevelopment same-store net operating income increased 0.1% for the nine months ended September 30, 2021 compared to the same period in 2020.

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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Generally, our acquisitions are initially financed by available cash, mortgage loans and/or borrowings under our revolving line of credit, which may be repaid later with funds raised through the issuance of new equity or new long-term debt.

We are closely monitoring the impact of COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our tenants and business partners.

We are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties.

These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it has and will impact our tenants and business partners.

We are unable to predict the future impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties.

These uncertainties include the scope, severity and duration of the pandemic (including future mutations of the COVID-19 virus), the ongoing actions taken to contain the pandemic or mitigate its impact, the availability and adoption of COVID-19 vaccines and the direct and indirect economic effects of the pandemic and containment measures, among others.

The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets.

The global impact of the pandemic has been rapidly evolving.

The global impact of the pandemic continues to rapidly evolve.

Certain states and cities, including where we own properties, have development sites and where our principal place of business is located, have at various points in time, reacted by instituting quarantines, restrictions on travel, "stay-at-home" orders or “shelter in place” rules, social distancing measures, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue.

Though certain restrictions have expired in our markets, the Company cannot predict when remaining restrictions or social distancing measures currently in place will expire.

Even after certain of such restrictions are lifted or reduced, the willingness of customers to visit certain of our tenants' businesses may be reduced due to lingering concerns regarding the continued risk of COVID-19 transmission and heightened sensitivity to risks associated with the transmission of other diseases.

As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which the Company and our tenants operate.

Even after certain of such restrictions are lifted or reduced, it is unclear how lingering concerns of COVID-19 transmission and sensitivities to the transmission of other diseases will impact the willingness of customers to visit certain of our tenants' businesses.

As a result, the COVID-19 pandemic has and continues to negatively impact almost every industry directly or indirectly, including industries in which the Company and our tenants operate.

Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown.

In addition, we cannot predict the impact that COVID-19 will have on our tenants and other business partners;

In addition, we cannot predict the impact that COVID-19 will ultimately have on our tenants and other business partners;

however, any material effect on these parties could adversely impact us.

For the second quarter of 2021, we have collected to date approximately 99% of office rents, 92% of retail rents (including retail component of Waikiki Beach Walk) and 94% of multifamily rents that were due during the second quarter of 2021.

Additionally, for the second quarter of 2021, we collected approximately $0.8 million or 94% of the deferred rent repayments due during the period.

For the third quarter of 2021, we have collected to date approximately 99% of office rents, 94% of retail rents (including retail component of Waikiki Beach Walk) and 93% of multifamily rents that were due during the third quarter of 2021.

Additionally, for the third quarter of 2021, we collected approximately $0.8 million or 96% of the deferred rent repayments due during the period.

We believe the company's financial condition and liquidity are currently strong.

Although there is uncertainty related to the anticipated impact of the COVID-19 outbreak on the Company's future results, we believe our efficient business model and ongoing steps we have taken to strengthen our balance sheet has positioned to manage our business through this crisis as it continues to unfold.

Although there is uncertainty related to the anticipated impact of the COVID-19 outbreak on the Company's future results, we believe our efficient business model and ongoing steps we have taken to strengthen our balance sheet continues to position us to manage our business through this crisis as it continues to unfold.

We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our tenants, vendors, and other third-party relationships, and developing new opportunities for growth.

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We remain encouraged by our portfolio’s increasing rent collection percentages as well as the broader macroeconomic conditions related to the ongoing transition back to a fully opened economy.

While we continue to monitor the COVID-19 vaccination response and economic initiatives undertaken by the new administration, we are hopeful that a continued reopening of the economy in 2021 will result in both job growth and an increase in gross domestic product as compared to 2020.

While we continue to monitor the COVID-19 vaccination response and economic initiatives undertaken by the Biden administration, we are hopeful that a continued reopening of the economy in the fourth quarter of 2021 and through 2022 will result in both job growth and an increase in gross domestic product as compared to 2020.

Our same-store growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in portfolio occupancy.

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However, in the short-term due to the COVID-19 pandemic, we have seen a meaningful negative impact on certain of our tenants operations and ability to pay rent, primarily in the retail sector;

and any reduction in our tenants' abilities to pay base rent, percentage rent or other charges, including as a result of the COVID-19 pandemic, will adversely affect our financial condition and results of operations.

During the three months ended June 30, 2021, we signed 14 office leases for a total of 47,684 square feet of office space including 47,380 square feet of comparable renewal office space leases (leases for which there was a prior tenant), at an average rental rate increase on a cash and GAAP basis of 9.3% and 14.7%, respectively.

any reduction in our tenants' abilities to pay base rent, percentage rent or other charges, including as a result of the COVID-19 pandemic, will adversely affect our financial condition and results of operations.

During the three months ended September 30, 2021, we signed 6 office leases for a total of 13,064 square feet of office space including 9,269 square feet of comparable renewal office space leases (leases for which there was a prior tenant), at an average rental rate increase on a cash and GAAP basis of 8.4% and 13.5%, respectively.

New office leases for comparable spaces were signed for 6,451 square feet at an average rental rate increase on a cash and GAAP basis of 12.0% and 16.5%, respectively.

Renewals for comparable office spaces were signed for 2,818 square feet at an average rental rate increase on a cash and GAAP basis of 2.7% and 8.1%, respectively.

Tenant improvements and incentives were $23.47 per square foot of office space for comparable new leases for the three months ended June 30, 2021, mainly due to tenants at Lloyd Portfolio & Solana Crossing.

During the three months ended June 30, 2021, we signed 30 retail leases for a total of 123,835 square feet of retail space including 109,875 square feet of comparable renewal retail space leases (leases for which there was a prior tenant), at an average rental rate decrease on a cash basis and GAAP basis of 20.3% and 15.7%, respectively.

New retail leases for comparable spaces were signed for 50,869 square feet at an average rental rate decrease on a cash and GAAP basis of (37.6)% and (24.6)%, respectively.

Tenant improvements and incentives were $39.17 per square foot of office space for comparable new leases for the three months ended September 30, 2021, mainly due to tenants at Lloyd Portfolio.

During the three months ended September 30, 2021, we signed 30 retail leases for a total of 129,325 square feet of retail space including 116,877 square feet of comparable renewal retail space leases (leases for which there was a prior tenant), at an average rental rate decrease on a cash basis of (2.2)% and increase on a GAAP basis of 6.7%, respectively.

New retail leases for comparable spaces were signed for 7,000 square feet at an average rental rate increase on a cash and GAAP basis of 34.6% and 74.6%, respectively.

Renewals for comparable retail spaces were signed for 109,877 square feet at an average rental rate decrease on a cash basis of (3.6)% and increase on a GAAP basis of 3.4%, respectively.

Tenant improvements and incentives were $40.32 per square foot of retail space for comparable new leases for the three months ended June 30, 2021, mainly due to tenants at Carmel Mountain Plaza and Waikiki Beach Walk Retail.

Tenant improvements and incentives were $215.00 per square foot of retail space for comparable new leases for the three months ended September 30, 2021, mainly due to tenants at Alamo Quarry Market.

The rental increases associated with comparable spaces generally include all leases signed in arms-length transactions reflecting market leverage between landlords and tenants during the period.

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The change in rental income on comparable space leases is impacted by numerous factors including current market rates, location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed, capital investment made in the space and the specific lease structure.

Tenant improvements and incentives include the total dollars committed for the improvement of a space as it relates to a specific lease, but may also include base-building costs (i.e.

Tenant improvements and incentives include the total dollars

committed for the improvement of a space as it relates to a specific lease, but may also include base-building costs (i.e.

expansion, escalators or new entrances) which are required to make the space leasable.

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We cease capitalization on the portion substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with any remaining portion under construction.

We capitalized external and internal costs related to both development and redevelopment activities combined of $15.9 million and $1.4 million for the three months ended June 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to both development and redevelopment activities combined of $19.8 million and $2.7 million for the six months ended June 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to other property improvements combined of $13.5 million and $12.5 million for the three months ended June 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to other property improvements totaling $22.9 million and $33.3 million for the six months ended June 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to both development and redevelopment activities combined of $14.8 million and $1.4 million for the three months ended September 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to both development and redevelopment activities combined of $34.6 million and $4.2 million for the nine months ended September 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to other property improvements combined of $8.8 million and $9.0 million for the three months ended September 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to other property improvements totaling $31.7 million and $42.3 million for the nine months ended September 30, 2021 and 2020, respectively.

Interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service.

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If the time period for capitalizing interest is extended, however, more interest is capitalized, thereby decreasing interest expense and increasing net income during that period.

We capitalized interest costs related to development activities of $0.7 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively.

We capitalized interest costs related to development activities of $1.2 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively.

We capitalized interest costs related to development activities of $0.8 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively.

We capitalized interest costs related to development activities of $2.0 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively.

Results of Operations

For our discussion of results of operations, we have provided information on a total portfolio and same-store basis.

Comparison of the three months ended June 30, 2021 to the three months ended June 30, 2020

The following summarizes our consolidated results of operations for the three months ended June 30, 2021 compared to our consolidated results of operations for the three months ended June 30, 2020.

As of June 30, 2021, our operating portfolio was comprised of 28 retail, office, multifamily and mixed-use properties with an aggregate of approximately 6.6 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel.

Additionally, as of June 30, 2021, we owned land at three of our properties that we classified as held for development and/or construction in progress.

As of June 30, 2020, our operating portfolio was comprised of 28 retail, office, multifamily and mixed-use properties with an aggregate of approximately 6.6 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel.

Additionally, as of June 30, 2020, we owned land at three of our properties that we classified as held for development and/or construction in progress.

The following table sets forth selected data from our unaudited consolidated statements of comprehensive income for the three months ended June 30, 2021 and 2020 (dollars in thousands):

Three Months Ended June 30, Change %

Comparison of the three months ended September 30, 2021 to the three months ended September 30, 2020

The following summarizes our consolidated results of operations for the three months ended September 30, 2021 compared to our consolidated results of operations for the three months ended September 30, 2020.

As of September 30, 2021, our operating portfolio was comprised of 30 retail, office, multifamily and mixed-use properties with an aggregate of approximately 7.1 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel.

Additionally, as of September 30, 2021, we owned land at three of our properties that we classified as held for development and/or construction in progress.

As of September 30, 2020, our operating portfolio was comprised of 28 retail, office, multifamily and mixed-use properties with an aggregate of approximately 6.6 million rentable square feet of retail and office space, including the retail portion of our mixed-use property,

2,112 residential units (including 122 RV spaces) and a 369-room hotel.

Additionally, as of September 30, 2020, we owned land at three of our properties that we classified as held for development and/or construction in progress.

The following table sets forth selected data from our unaudited consolidated statements of comprehensive income for the three months ended September 30, 2021 and 2020 (dollars in thousands):

Three Months Ended September 30, Change %

Rental income $ 93,804 $ 80,759 $ 13,045 16 %

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Total property revenue consists of rental revenue and other property income.

Total property revenue increased $9.7 million, or 12%, to $91.8 million for the three months ended June 30, 2021 compared to $82.1 million for the three months ended June 30, 2020.

The percentage leased was as follows for each segment as of June 30, 2021 and 2020:

Total property revenue increased $13.9 million, or 16%, to $98.3 million for the three months ended September 30, 2021 compared to $84.4 million for the three months ended September 30, 2020.

The percentage leased was as follows for each segment as of September 30, 2021 and 2020:

Percentage Leased (1)

September 30,

Office 90.2 % 93.8 %

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86.6 % 87.8 %

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of June 30, 2021 or 2020, as applicable.

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of September 30, 2021 or 2020, as applicable.

(2) Includes the retail portion of the mixed-use property only.

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Rental revenue includes minimum base rent, cost reimbursements, percentage rents and other rents.

Rental revenue increased $8.4 million, or 11%, to $87.6 million for the three months ended June 30, 2021 compared to $79.2 million for the three months ended June 30, 2020.

Rental revenue increased $13.0 million, or 16%, to $93.8 million for the three months ended September 30, 2021 compared to $80.8 million for the three months ended September 30, 2020.

Rental revenue by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio (1)

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

Three Months Ended September 30, Change % Three Months Ended September 30, Change %

2021 2020 2021 2020

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(1) For this table and tables following, the same-store portfolio excludes:

(i) One Beach Street due to the renovation of the building;

(ii) Waikiki Beach Walk Retail and Embassy Suites TM Hotel due to significant spalling repair activity;

and (iii) land held for development.

Total office rental revenue increased $0.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to higher annualized base rents at Torrey Point, The Landmark at One Market, City Center Bellevue, and Lloyd Portfolio.

The increase in total office rental revenue is partially offset by the decrease in rental revenue at One Beach Street due to expiration of leases to allow for the modernization of the property and the decrease in rental revenue at First & Main due to the reduction of leased space related to tenant extensions in 2020.

Total retail rental revenue increased $1.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to approximately $2.4 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center and The Shops at Kalakaua.

Multifamily revenue increased $0.1 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to an increase in average base rent per unit to $2,187 for the three months ended June 30, 2021 compared to $2,152 for the three months ended June 30, 2020.

The increase in average monthly base rent is primarily due to increases at Loma Palisades.

The increase in total multifamily rental revenue is partially offset by the decrease in average occupancy to 87.8% for the three months ended June 30, 2021 compared to 88.5% for the three months ended June 30, 2020.

Total mixed-use rental revenue increased $6.3 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to the lifting of COVID-19 travel restrictions late during the first quarter of 2021, which led to an increase in average occupancy and revenue per available room to 67% and $184 for the three months ended June 30, 2021, respectively, compared to 17% and $34 for three months ended June 30, 2020, respectively.

(i) One Beach Street, due to significant redevelopment activity;

(ii) Waikiki Beach Walk - Embassy Suites™ and Waikiki Beach Walk - Retail, due to significant spalling repair activity;

(iii) Eastgate Office Park which was acquired on July 7, 2021;

(iv) Corporate Campus East III which was acquired on September 10, 2021 and (iv) land held for development.

Total office rental revenue increased $2.7 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to the new acquisitions of Eastgate Office Park and Corporate Campus East III, which accounted for $2.8 million of the increase.

The increase in total office rental revenue is partially offset by the decrease in rental revenue at One Beach Street due to expiration of leases to allow for the modernization of the property.

Same store office rental revenue increased by $0.6 million due to higher annualized base rents at La Jolla Commons, City Center Bellevue and Torrey Point.

Total retail rental revenue increased $4.3 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to approximately $4.6 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center and The Shops at Kalakaua.

This increase was offset by a decrease in cost recoveries of $0.2 million as these same tenants changed to alternate rent or had lease modifications.

Multifamily revenue increased $0.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to an overall increase in occupancy of 94.7% for the three months ended September 30, 2021 compared to 87.2% for the three months ended September 30, 2020.

This increase in rental revenue due to higher occupancy is offset by a decrease in average monthly base rent of $2,090 for the three months ended September 30, 2021 compared to $2,193 for the three months ended September 30, 2020, primarily due to decreases at Hassalo on Eighth - Residential.

Total mixed-use rental revenue increased $5.6 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to the lifting of COVID-19 travel restrictions late during the first quarter of 2021, which led to an increase in average occupancy and revenue per available room to 78% and $240 for the three months ended September 30, 2021, respectively, compared to 66% and $138 for three months ended September 30, 2020, respectively.

We expect to see a steady increase in tourism and hotel occupancy in Oahu once the COVID-19 vaccine is available more globally and travel restrictions are lifted.

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Other property income .

Other property income increased $1.3 million, or 45%, to $4.2 million for the three months ended June 30, 2021 compared to $2.9 million for the three months ended June 30, 2020.

Other property income increased $0.9 million, or 24%, to $4.5 million for the three months ended September 30, 2021 compared to $3.6 million for the three months ended September 30, 2020.

Other property income by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

Three Months Ended September 30, Change % Three Months Ended September 30, Change %

2021 2020 2021 2020

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$ 4,482 $ 3,615 $ 867 24 % $ 2,314 $ 2,875 $ (561) (20) %

Office other property income increased $0.2 million for the three months ended June 30, 2021 primarily due to an increase in lease termination fees received at City Center Bellevue and One Beach Street.

This increase was offset by a decrease in parking garage income at City Center Bellevue and Lloyd Portfolio.

Multifamily other property income increased by $0.1 million for the three months ended June 30, 2021 primarily due to an increase in security deposits earned at Pacific Ridge Apartments and Loma Palisades, and an increase in parking garage income at Hassalo on Eighth - Residential.

Mixed-use other property income increased $0.9 million for the three months ended June 30, 2021 primarily due an increase in room rental income and excise tax at the hotel portion and increase in parking garage income at the retail portion of our mixed-use property.

Office other property income decreased $0.1 million for the three months ended September 30, 2021 primarily due to a decrease in lease termination fees received at City Center Bellevue.

This decrease was offset by an increase in parking garage income at First & Main and Lloyd Portfolio.

Retail other property income decreased $0.4 million for the three months ended September 30, 2021 primarily due to a decrease in lease termination fees received at Carmel Country Plaza and Del Monte Center during 2020.

Multifamily other property income increased by $0.1 million for the three months ended September 30, 2021 primarily due to an increase in parking garage income at Hassalo on Eighth - Residential, meter and laundry income at Loma Palisades and credit check fees at Pacific Ridge Apartments and Hassalo on Eighth - Residential.

Mixed-use other property income increased $1.3 million for the three months ended September 30, 2021 primarily due an increase in room rental income and excise tax at the hotel portion and an increase in parking garage income at the retail portion of our mixed-use property.

These increase are due to tourism and an increase in hotel occupancy as the COVID-19 vaccine has become more widely available and travel restrictions to Hawaii have been relaxed.

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Total property expenses consist of rental expenses and real estate taxes.

Total property expenses increased $4.9 million, or 19%, to $30.8 million, for the three months ended June 30, 2021 compared to $25.9 million for the three months ended June 30, 2020.

Total property expenses increased $2.4 million, or 8%, to $33.1 million, for the three months ended September 30, 2021 compared to $30.7 million for the three months ended September 30, 2020.

Rental Expenses.

Rental expenses increased $3.2 million, or 19%, to $20.2 million for the three months ended June 30, 2021 compared to $17.0 million for the three months ended June 30, 2020.

Rental expenses increased $4.3 million, or 22%, to $23.5 million for the three months ended September 30, 2021 compared to $19.2 million for the three months ended September 30, 2020.

Rental expense by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

Three Months Ended September 30, Change % Three Months Ended September 30, Change %

2021 2020 2021 2020

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$ 23,466 $ 19,208 $ 4,258 22 % $ 15,565 $ 14,337 $ 1,228 9 %

Mixed-use rental expense increased $2.8 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to an increase in hotel room expenses, marketing expenses, and general excise tax expenses at the hotel portion of our mixed-use property during the period.

Office rental expense increased $1.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to $0.4 million related to the acquisition of Eastgate Office Park and Corporate Campus East III.

Same-store office rental expenses increased $0.8 million due to an increase in utilities, facility services, repairs and maintenance and insurance expenses as the "stay-at home" orders issued by state and local governments related to the COVID-19 pandemic were relaxed in early 2021 and our tenants' employees have started returning to the office in-person.

Retail rental expense decreased $0.1 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to a decrease in repairs and maintenance and marketing expenses in the period, partially offset by an increase in insurance expense, and facilities services as restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic were eased earlier in 2021.

Multifamily rental expense increased $0.6 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to an increase in repairs and maintenance, day porter and facilities services, utilities expenses and insurance expense.

Mixed-use rental expense increased $2.6 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to an increase in hotel room expenses, personnel expenses, and general excise tax expenses at the hotel portion of our mixed-use property during the period.

These increases are due to tourism and an increase in hotel occupancy as the COVID-19 vaccine has become more widely available and travel restrictions to Hawaii have been relaxed.

Real Estate Taxes.

Real estate taxes increased $1.7 million, or 18%, to $10.6 million for the three months ended June 30, 2021 compared to $9.0 million for the three months ended June 30, 2020.

Real estate taxes increased $1.8 million, or 16%, to $9.6 million for the three months ended September 30, 2021 compared to $11.5 million for the three months ended September 30, 2020.

Real estate tax expense by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

Three Months Ended September 30, Change % Three Months Ended September 30, Change %

2021 2020 2021 2020

4 unchanged sentences

$ 9,644 $ 11,491 $ (1,847) (16) % $ 8,520 $ 10,260 $ (1,740) (17) %

Total retail real estate taxes increased $1.7 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to a real estate tax refund received during the second quarter of 2020 for approximately $2.3 million at Alamo Quarry Market for the tax assessments for 2016 through 2018.

This was offset by $0.8 million in 2020 real estate property taxes and tax consultant fees.

Office real estate taxes increased $0.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to the acquisition of Eastgate Office Park and Corporate Campus East III during the third quarter of 2021.

Same-store office real estate taxes increased $0.1 million primarily due to higher tax assessments at City Center Bellevue, Landmark and First & Main during the period.

Retail real estate taxes decreased $1.9 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to a real estate tax refund received during the third quarter of 2021 for approximately $1.6 million at Alamo Quarry Market for the tax assessments for 2019 through 2020.

Additionally, there was a decrease in the overall tax bill of $0.4 million at Alamo Quary Market for the year 2021.

These decreases were offset by $0.2 million in 2021 real estate tax consultant fees.

Mixed-use real estate taxes decreased $0.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to the COVID-19 pandemic and its financial burden on the hospitality industry, as a result of which the Honolulu County reduced the tax burden for hotels for 2021 through 2022.

Property Operating Income

Property operating income increased $4.8 million, or 9%, to $61.0 million for the three months ended June 30, 2021, compared to $56.2 million for the three months ended June 30, 2020.

Property operating income increased $11.5 million, or 21%, to $65.2 million for the three months ended September 30, 2021, compared to $53.7 million for the three months ended September 30, 2020.

Property operating income by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

Three Months Ended September 30, Change % Three Months Ended September 30, Change %

2021 2020 2021 2020

4 unchanged sentences

$ 65,176 $ 53,675 $ 11,501 21 % $ 58,394 $ 53,114 $ 5,280 10 %

Total office property operating income increased $0.6 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to higher annualized base rents at The Landmark at One Market, City Center Bellevue, Torrey Point and Torrey Reserve Campus during the period.

Additionally, the increase in property operating income was due to an increase in lease termination fees received at City Center Bellevue and One Beach Street, partially offset by the decrease in rental revenue at One Beach Street due to the expiration of leases to allow for the modernization of the property and a decrease in parking garage income at City Center Bellevue and Lloyd Portfolio.

Total mixed-use property operating income increased $4.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to the lifting of COVID-19 travel restrictions late during the first quarter of 2021, which led to an increase in average occupancy and revenue per available room to 67% and $184 for the three months ended June 30, 2021, respectively, compared to 17% and $34 for three months ended June 30, 2020, respectively.

Total office property operating income increased $1.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to the new acquisitions of Eastgate Office Park and Corporate Campus East III, offset by the decrease in rental revenue at One Beach Street due to expiration of leases to allow for the modernization of the property.

Same-store office property operating income decreased by $0.6 million due to a decrease in lease termination fees, higher rental expenses as the stay-at-home orders issued by state and local governments related to the COVID-19 pandemic were relaxed in early 2021 and an increase in real estate taxes due to higher tax assessments.

Total retail property operating income increased $6.0 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to an increase of $4.6 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants, and a decrease in real estate taxes of $1.9 million primarily due to a real estate tax refund received during the third quarter of 2021 at Alamo Quarry Market for the tax assessments for 2019 through 2020.

Total mixed-use property operating income increased $4.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to the lifting of COVID-19 travel restrictions late during the first quarter of 2021, which led to an increase in average occupancy and revenue per available room to 78% and $240 for the three months ended September 30, 2021, respectively, compared to 66% and $138 for three months ended September 30, 2020, respectively.

The increase in total mixed-use rental revenue is also attributed to approximately $2.1 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants at the retail portion of our mixed-use property.

These increases in mixed-use property operating income were partially offset by an increase in hotel room expenses, marketing expenses, and general excise tax expenses at the hotel portion of our mixed-use property during the period.

These increases in mixed-use property operating income were partially offset by an increase in hotel room expenses, personnel expenses, and general excise tax expenses at the hotel portion of our mixed-use property during the period.

These increases are due to tourism and an increase in hotel occupancy as the COVID-19 vaccine has become more widely available and travel restrictions to Hawaii have been relaxed.

General and Administrative.

General and administrative expenses remained consistent at $6.9 million for the three months ended June 30, 2021, compared to $6.7 million for the three months ended June 30, 2020.

This increase was primarily due to an increase in employee-related costs.

General and administrative expenses increased to $6.8 million for the three months ended September 30, 2021, compared to $6.4 million for the three months ended September 30, 2020.

This increase was primarily due to an increase in employee-related costs and corporate legal expenses.

Depreciation and Amortization.

Depreciation and amortization expense remained consistent at $27.6 million for the three months ended June 30, 2021, compared to $26.5 million for the three months ended June 30, 2020.

This increase was primarily due to higher depreciation and amortization at Embassy Suites TM Hotel, Carmel Mountain Plaza, The Landmark at One Market, Torrey Point and City Center Bellevue due to building and tenant improvements that were put into service in 2020 and 2021 and an increase in depreciation at One Beach Street attributed to the renovation and modernization of the building, substantially offset by lower depreciation and amortization at First & Main due to decreased capital expenditures in 2020.

Depreciation and amortization expense increased to $30.7 million for the three months ended September 30, 2021, compared to $26.9 million for the three months ended September 30, 2020.

This increase was primarily due to $2.3 million related to the new acquisitions of Eastgate Office Park and Corporate Campus East III during the third quarter of 2021.

Additionally, there was higher depreciation and amortization at Carmel Mountain Plaza, due to acceleration of depreciation on assets related to tenant vacating space, and The Landmark at One Market due new tenant improvements that were put into service in 2020 and 2021

Interest Expense.

Interest expense increased $1.5 million, or 11%, to $14.9 million for the three months ended June 30, 2021, compared to $13.3 million for the three months ended June 30, 2020.

Interest expense increased $1.4 million, or 11%, to $14.7 million for the three months ended September 30, 2021, compared to $13.3 million for the three months ended September 30, 2020.

This increase was primarily due to the closing of our 3.375% Senior Notes offering on January 26, 2021 partially offset by a decrease in interest expense related to our repayment of the Series A Notes on January 26, 2021, decrease in weighted average interest rate for our Term Loan A, which became an unhedged variable rate loan when the interest rate swap expired on January 9, 2021, decrease in the Revolver Loan interest expense and an increase in capitalized interest related to our development projects.

Other (Expense) Income, Net.

Other (expense) income, net decreased $0.2 million, or 146%, to other expense, net of $0.1 million for the three months ended June 30, 2021, compared to other income, net of $0.2 million for the three months ended June 30, 2020 primarily due to the decrease in income tax benefit for our taxable REIT subsidiary.

Comparison of the Six Months Ended June 30, 2021 to the Six Months Ended June 30, 2020

The following summarizes our consolidated results of operations for the six months ended June 30, 2021 compared to our consolidated results of operations for the six months ended June 30, 2020.

The following table sets forth selected data from our unaudited consolidated statements of income for the six months ended June 30, 2021 and 2020 (dollars in thousands):

Six Months Ended June 30, Change %

Other (expense) income, net decreased $0.5 million, or 90%, to other expense, net of $0.1 million for the three months ended September 30, 2021, compared to other expense, net of $0.5 million for the three months ended September 30, 2020 primarily due to the decrease in income tax benefit for our taxable REIT subsidiary.

Comparison of the Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020

The following summarizes our consolidated results of operations for the nine months ended September 30, 2021 compared to our consolidated results of operations for the nine months ended September 30, 2020.

The following table sets forth selected data from our unaudited consolidated statements of income for the nine months ended September 30, 2021 and 2020 (dollars in thousands):

Nine Months Ended September 30, Change %

Rental income $ 262,573 $ 252,059 $ 10,514 4 %

18 unchanged sentences

Total property revenue consists of rental revenue and other property income.

Total property revenue decreased $3.1 million, or 2%, to $175.8 million for the six months ended June 30, 2021 compared to $178.9 million for the six months ended June 30, 2020.

The percentage leased was as follows for each segment as of June 30, 2021 and 2020:

Total property revenue increased $10.9 million, or 4%, to $274.1 million for the nine months ended September 30, 2021 compared to $263.2 million for the nine months ended September 30, 2020.

The percentage leased was as follows for each segment as of September 30, 2021 and 2020:

Percentage Leased (1)

September 30,

Office 90.2 % 93.8 %

3 unchanged sentences

86.6 % 87.8 %

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of June 30, 2021 or June 30, 2020, as applicable.

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of September 30, 2021 or September 30, 2020, as applicable.

(2) Includes the retail portion of the mixed-use property only.

The decrease in total property revenue was attributable primarily to the factors discussed below.

The increase in total property revenue was attributable primarily to the factors discussed below.

Rental revenues .

Rental revenue includes minimum base rent, cost reimbursements, percentage rents and other rents.

Rental revenue decreased $2.5 million, or (1)%, to $168.8 million for the six months ended June 30, 2021 compared to $171.3 million for the six months ended June 30, 2020.

Rental revenue increased $10.5 million, or 4%, to $262.6 million for the nine months ended September 30, 2021 compared to $252.1 million for the nine months ended September 30, 2020.

Rental revenue by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio (1)

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

Nine Months Ended September 30, Change % Nine Months Ended September 30, Change %

2021 2020 2021 2020

5 unchanged sentences

(1) The same-store portfolio excludes:

(i) One Beach Street due to the renovation of the building;

(ii) Waikiki Beach Walk Retail and Embassy Suites TM Hotel due to significant spalling repair activity;

and (iii) land held for development.

Total office rental revenue increased $1.7 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due to higher annualized rents at La Jolla Commons and City Center Bellevue and Torrey Reserve partially offset by the decrease in rental revenue of approximately $0.7 million at One Beach Street due to the expiration of leases to allow for the modernization of the property and decrease at First & Main due to vacated tenant space.

Same-store office rental revenue increased $2.4 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to higher annualized base rents at La Jolla Commons, Lloyd Portfolio, Torrey Reserve and City Center Bellevue.

Total retail rental revenue decreased $2.4 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to a decrease of $3.2 million in net basic monthly rent, offset by an increase in percentage rent of $1.2 million as certain tenants switched to alternate rent as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center, and Waikele Center as the temporary store closures or restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic caused the financial condition of certain tenants to deteriorate.

Mixed-use rental revenue decreased $1.8 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due a decrease in total mixed-use rental revenue of $1.3 million and a decrease in expense recoveries of $0.5 million as certain tenants were changed to alternate rent agreements.

This decrease in the mixed-use retail portion was offset by a slight increase in hotel revenue as average occupancy and revenue per available room increased to 57% and $142 for the six months ended June 30, 2021, respectively, compared to 46% and $138 for six months ended June 30, 2020, respectively.

We expect to see a steady increase in tourism and hotel occupancy in Oahu once the COVID-19 vaccine is available more globally and travel restrictions are lifted.

(i) One Beach Street, due to significant redevelopment activity;

(ii) Waikiki Beach Walk - Embassy Suites™ and Waikiki Beach Walk - Retail, due to significant spalling repair activity;

(iii) Eastgate Office Park which was acquired on July 7, 2021;

(iv) Corporate Campus East III which was acquired on September 10, 2021 and (iv) land held for development.

Total office rental revenue increased $4.4 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due to the new acquisitions of Eastgate Office Park and Corporate Campus East III, which accounted for $2.8 million of the increase.

This was offset by a decrease in rental revenue at One Beach Street due to expiration of leases to allow for modernization of the property.

Same store office rental revenue increased by $3.0 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to higher annualized base rents at La Jolla Commons, City Center Bellevue, and Torrey Point, offset by a decrease at First & Main due to delay in timing of tenant possession of leased space.

Retail rental revenue increased $2.0 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to approximately $2.4 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants at Carmel Mountain Plaza, Hassalo on Eighth - Retail, Solana Beach Towne Centre, Del Monte Center and Geary Marketplace, as the temporary store closures or restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic caused the financial condition of certain tenants to deteriorate.

This increase was offset by a decrease in cost recoveries of $0.4 million as these same tenants changed to alternate rent or had lease modifications.

Multifamily revenue increased $0.3 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an overall increase in occupancy of 90.6% for the nine months ended September 30, 2021 compared to 89.4% for the nine months ended September 30, 2020 .

Additionally, average monthly base rent increased to $2,149 for the nine months ended September 30, 2021 compared to $2,140 for the nine months ended September 30, 2020 , primarily due to increases at San Diego multifamily properties.

Mixed-use rental revenue increased $3.8 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an increase of $3.7 million related to the Waikiki Beach Walk hotel portion of our mixed use property.

This increase was due to the lifting of COVID-19 travel restrictions late during the first quarter of 2021, which led to an increase in average occupancy and revenue per available room to 64.3% and $175 for the nine months ended September 30, 2021, respectively, compared to 52.8% and $138 for the nine months ended September 30, 2020, respectively.

Waikiki Beach Walk retail portion increased $0.2 million as tenants were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants.

Other property income .

Other property income decreased $0.5 million, or 7%, to $7.0 million for the six months ended June 30, 2021 compared to $7.6 million for the six months ended June 30, 2020.

Other property income increased $0.3 million, or 3%, to $11.5 million for the nine months ended September 30, 2021 compared to $11.2 million for the nine months ended September 30, 2020.

Other property income by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

Nine Months Ended September 30, Change % Nine Months Ended September 30, Change %

2021 2020 2021 2020

4 unchanged sentences

$ 11,508 $ 11,167 $ 341 3 % $ 6,655 $ 8,516 $ (1,861) (22) %

Total office other property income decreased $1.0 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to the decrease in parking garage income at Lloyd Portfolio, City Center Bellevue and First & Main during the period as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic caused a substantial portion of our tenants employees and their guests to continue to partially work from home during the period.

Total retail other property income decreased $0.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to the lease termination fees received at Alamo Quarry Market during 2020.

Total mixed-use other property income increased $0.6 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in rental other income at the hotel portion of our mixed-use property and an increase in parking income at the retail portion of our mixed-use property.

These increases were partially offset by a decrease in excise tax.

Office other property income decreased $1.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to decrease in parking garage income at Lloyd Portfolio and City Center Bellevue and a decrease in tenant improvement management fees received at La Jolla Commons and Lloyd Portfolio in 2020.

Retail other property income decreased $0.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to the lease termination fees received at Alamo Quarry Market and Carmel Country Plaza during 2020.

Multifamily other property income increased $0.2 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily to an increase in security deposits earned at Pacific Ridge Apartments and Loma Palisades, parking garage income at Hassalo on Eighth - Residential and credit check fees at Pacific Ridge Apartments and Hassalo on Eighth - Residential.

Total mixed-use other property income increased $1.9 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an increase in other room rental income and rent excise tax at the hotel portion and an increase in parking garage income at the retail portion of our mixed-use property.

We expect to see a steady increase in tourism and hotel occupancy in Oahu once the COVID-19 vaccine is available more globally and travel restrictions are lifted.

2 unchanged sentences

Total property expenses consist of rental expenses and real estate taxes.

Total property expenses increased by $0.9 million, or 1%, to $60.4 million for the six months ended June 30, 2021, compared to $59.6 million for the six months ended June 30, 2020.

Total property expenses increased by $3.3 million, or 4%, to $93.5 million for the nine months ended September 30, 2021, compared to $90.3 million for the nine months ended September 30, 2020.

This increase in total property expenses was attributable primarily to the factors discussed below .

Rental Expenses.

Rental expenses decreased $1.1 million, or 3%, to $38.5 million for the six months ended June 30, 2021, compared to $39.5 million for the six months ended June 30, 2020.

Rental expenses increased $3.2 million, or 5%, to $61.9 million for the nine months ended September 30, 2021, compared to $58.8 million for the nine months ended September 30, 2020.

Rental expense by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

Nine Months Ended September 30, Change % Nine Months Ended September 30, Change %

2021 2020 2021 2020

4 unchanged sentences

$ 61,916 $ 58,757 $ 3,159 5 % $ 43,476 $ 42,308 $ 1,168 3 %

Total office rental expenses decreased $0.3 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to commercial rent tax at The Landmark at One Market, facilities services and supplies, and repairs and maintenance expenses as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic during the second quarter of 2020 caused a substantial portion of our tenants' employees to continue to work from home during the period.

The decrease in same-store office rental expenses was partially offset by the increase in sublease expense related to the Annex Lease extension option exercised in March 2020, and an increase in insurance expense during the period.

Total retail rental expenses increased $0.1 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in insurance expense, utilities, day porter services and trash services as restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic were eased during this period.

The increase in retail rental expense was partially offset by a decrease in marketing and repair expenses during the period.

Total mixed-use rental expenses decreased $1.0 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to decrease in hotel room and rent expenses at the hotel portion of our mixed-use property during the period.

The decrease in rental expenses at the hotel portion of our mixed use property is primarily due to the decrease in tourism and hotel occupancy in Oahu due to the COVID-19 pandemic.

Additionally, the decrease in mixed-use rental expenses is also due to the decrease of general excise tax expenses and management fees, partially offset by an increase in personnel compensation at the retail portion of our mixed-use property during the period.

Office rental expenses increased $0.9 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an increase in sublease expense related to the Annex Lease extension option exercised in March 2020, property insurance expense, and utilities expenses as the "stay-at-home" orders issued by the state and local governments related to the COVID-19 pandemic were relaxed in early 2021 and our tenants' employees have started returning to the office in-person.

Multifamily rental expenses increased $0.7 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an increase in day porter and facilities services, utilities expenses and insurance expense, as restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic were eased during this period.

Total mixed-use rental expenses increased $1.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an increase in hotel room expenses and personnel expenses at the hotel portion of our mixed-use property during the period.

These increases are due to tourism and an increase in hotel occupancy as the COVID-19 vaccine has become more widely available and travel restrictions to Hawaii have been relaxed.

Real Estate Taxes.

Real estate tax expense increased $2.0 million, or 10%, to $22.0 million for the six months ended June 30, 2021 compared to $20.0 million for the six months ended June 30, 2020.

Real estate tax expense increased $0.1 million, or 0%, to $31.6 million for the nine months ended September 30, 2021 compared to $31.5 million for the nine months ended September 30, 2020.

Real estate tax expense by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

Nine Months Ended September 30, Change % Nine Months Ended September 30, Change %

2021 2020 2021 2020

4 unchanged sentences

$ 31,610 $ 31,497 $ 113 — % $ 28,267 $ 27,946 $ 321 1 %

Same-store office real estate taxes increased $0.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in tax assessments at City Center Bellevue and First & Main during the period.

Retail real estate taxes increased $1.8 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to a net real estate tax refund of approximately $2.3 million received during the second quarter of 2020 at Alamo Quarry Market for the tax assessments for 2016 through 2018.

Mixed-use real estate taxes increased $0.1 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in tax assessments for the hotel and retail portion of our mixed-use property.

Same-store office real estate taxes increased $0.3 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an increase in tax assessments at City Center Bellevue, Landmark and First & Main during the period.

Multifamily real estate taxes increased $0.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an increase in tax assessments for Loma Palisades, Pacific Ridge Apartments, and Hassalo on Eighth - Residential.

Property Operating Income

Property operating income decreased $3.9 million, or 3%, to $115.4 million for the six months ended June 30, 2021, compared to $119.3 million for the six months ended June 30, 2020.

Property operating income increased $7.6 million, or 4%, to $180.6 million for the nine months ended September 30, 2021, compared to $173.0 million for the nine months ended September 30, 2020.

Property operating income by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

Nine Months Ended September 30, Change % Nine Months Ended September 30, Change %

2021 2020 2021 2020

4 unchanged sentences

$ 180,555 $ 172,972 $ 7,583 4 % $ 169,640 $ 167,709 $ 1,931 1 %

Total office property operating income increased $1.0 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to higher annualized rents at La Jolla Commons and City Center Bellevue and Torrey Reserve partially offset by the decrease in rental revenue of approximately $0.7 million at One Beach Street due to the expiration of leases to allow for the modernization of the property and decrease at First & Main due to vacated tenant space.

Total retail property operating income decreased $4.5 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to a decrease of $3.2 million in net basic monthly rent, offset by an increase in percentage rent of $1.2 million as certain tenants switched to alternate rent as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center, and Waikele Center as the temporary store closures or restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic caused the financial condition of certain tenants to deteriorate.

Additionally, the decrease in total retail property operating income was also due to the real estate tax refund at Alamo Quarry Market received during the second quarter of 2020.

Multifamily property operating income decreased $0.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to a decrease in the average occupancy to 88.6% for the six months ended June 30, 2021 compared to 90.5% for the six months ended June 30, 2020, higher rent concessions at Hassalo on Eighth - Residential and increases in utilities, insurance expense and real estate taxes during the period.

The decrease in multifamily property operating income was partially offset by an increase in average base rent per unit to $2,181 for the six months ended June 30, 2021 compared to $2,115 for the six months ended June 30, 2020, an increase in security deposits earned at Pacific Ridge Apartments and Loma Palisades and decreases in personnel costs and repairs and maintenance expenses during the period.

Total mixed-use property operating income decreased $0.3 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due a decrease in total mixed-use rental revenue of $1.3 million and a decrease in expense recoveries of $0.5 million as certain tenants were changed to alternate rent agreements.

We expect to see a steady increase in tourism and hotel occupancy in Oahu once the COVID-19 vaccine is available more globally and travel restrictions are lifted.

Additionally, there was also a decrease in rental expenses for the hotel and retail portion of our mixed-use property, due to a decrease in hotel room and rent expenses at the hotel portion of our mixed-use property and a decrease of general excise tax expenses and management fees, partially offset by an increase in personnel compensation at the retail portion of our mixed-use property during the period.

Total office property operating income increased $2.2 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to the new acquisitions of Eastgate Office Park and Corporate Campus East III, offset by the decrease in rental revenue at One Beach Street due to expiration of leases to allow for the modernization of the property.

Same-store property operating income increased by $0.7 million due to higher annualized base rents at La Jolla Commons, City Center Bellevue and Torrey Point.

These increases were offset by a decrease in parking garage income and higher rental expenses as the stay-at-home orders issued by state and local governments related to the COVID-19 pandemic were relaxed in early 2021 and an increase in real estate taxes due to higher tax assessments.

Total retail property operating income increased $1.5 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an increase of $2.4 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants, partially offset by a $0.7 million decrease in lease termination fees received in 2021 compared to 2020 and a $0.4 million decrease in expense recoveries.

Total mixed-use property operating income increased $4.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to the lifting of COVID-19 travel restrictions late during the first quarter of 2021, which led to an increase in average occupancy and revenue per available room to 64% and $175 for the nine months ended September 30, 2021, respectively, compared to 53% and $138 for the nine months ended September 30, 2020, respectively.

Additionally, there was an increase of $1.9 million in other property income as related to other room rental income and rent excise tax at the hotel portion and an increase in parking garage income at the retail portion of our mixed-use property.

These increases were offset by $1.6 million in higher rental expenses due to an increase in hotel room expenses and personnel expenses at the hotel portion of our mixed-use property during the period

General and Administrative.

General and administrative expenses increased $0.2 million, or 2%, to $13.7 million for the six months ended June 30, 2021, compared to $13.5 million for the six months ended June 30, 2020.

General and administrative expenses increased $0.6 million, or 3%, to $20.6 million for the nine months ended September 30, 2021, compared to $19.9 million for the nine months ended September 30, 2020.

This increase was primarily due to employee related costs.

Depreciation and Amortization.

Depreciation and amortization expense increased $1.2 million, or 2%, to $55.1 million for the six months ended June 30, 2021, compared to $54.0 million for the six months ended June 30, 2020.

This increase was primarily due to higher depreciation and amortization at Embassy Suites TM Hotel, Carmel Mountain Plaza, and The Landmark at One Market due to building and tenant improvements that were put into service in 2020 and 2021 and an increase in depreciation at One Beach Street attributed to the renovation and modernization of the building, substantially offset by lower depreciation and amortization at First & Main due to decreased capital expenditures in 2020.

Depreciation and amortization expense increased $5.0 million, or 6%, to $85.8 million for the nine months ended September 30, 2021, compared to $80.9 million for the nine months ended September 30, 2020.

This increase was primarily due to a $2.3 million increase related to the new acquisitions of Eastgate Office Park and Corporate Campus East III during the third quarter of 2021.

Additionally, there was an increase in depreciation and amortization at Embassy Suites TM Hotel and The Landmark at One Market due to building and tenant improvements that were put into service in 2020 and 2021.

Additionally, higher depreciation and amortization at Carmel Mountain Plaza, due to acceleration of depreciation on assets related to tenant vacating space.

These increases were offset by lower depreciation and amortization at First & Main due to decreased capital expenditures in 2020.

Interest Expense.

Interest expense increased $2.1 million, or 8%, to $28.9 million for the six months ended June 30, 2021 compared to $26.8 million for the six months ended June 30, 2020.

This increase was primarily due to the closing of our 3.375% Senior Notes offering on January 26, 2021, partially offset by a decrease in interest expense related to our repayment of the Series A Notes on January 26, 2021 decrease in weighted average interest rate for our Term Loan A, which became an unhedged variable rate loan when the interest rate swap expired on January 9, 2021, and an increase in capitalized interest related to our development projects.

Interest expense increased $3.5 million, or 9%, to $43.6 million for the nine months ended September 30, 2021 compared to $40.1 million for the nine months ended September 30, 2020.

This increase was primarily due to the closing of our 3.375% Senior Notes offering on January 26, 2021, partially offset by a decrease in interest expense related to our repayment of the Series A Notes on January 26, 2021, decrease in weighted average interest rate for our Term Loan A, which became an unhedged variable rate loan when the interest rate swap expired on January 9, 2021, decrease in the Revolver Loan interest expense and an increase in capitalized interest related to our development projects.

Early Extinguishment of Debt.

Early extinguishment of debt expense increased $4.3 million for the six months ended June 30, 2021 due to the repayment of the Senior Guaranteed Notes, Series A, with make-whole payments thereon, on January 26, 2021.

Early extinguishment of debt expense increased $4.3 million for the nine months ended September 30, 2021 due to the repayment of the Senior Guaranteed Notes, Series A, with make-whole payments thereon, on January 26, 2021.

Other (Expense) Income, Net.

Other (expense) income, net decreased $0.4 million, or 147%, to other expense, net of $0.1 million for the six months ended June 30, 2021, compared to other income, net of $0.3 million for the six months ended June 30, 2020 primarily due to the decrease in interest and investment income attributed to the lower yield on our average cash balance during the period and a decrease in income tax benefit related for our taxable REIT subsidiary.

Other (expense) income, net decreased $0.1 million, or 31%, to other expense, net of $0.2 million for the nine months ended September 30, 2021, compared to other expense, net of $0.3 million for the nine months ended September 30, 2020 primarily due to the decrease in interest and investment income attributed to the lower yield on our average cash balance during the period and a decrease in income tax benefit related for our taxable REIT subsidiary.

Liquidity and Capital Resources of American Assets Trust, Inc.

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The company’s principal source of funding for its dividend payments is distributions it receives from the Operating Partnership.

As of June 30, 2021, the company owned an approximate 78.8% partnership interest in the Operating Partnership.

As of September 30, 2021, the company owned an approximate 78.8% partnership interest in the Operating Partnership.

The remaining approximately 21.2% are owned by non-affiliated investors and certain of the company's directors and executive officers.

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We believe the Operating Partnership’s sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured line of credit, are adequate for it to make its distribution payments to the company and, in turn, for the company to make its dividend payments to its stockholders.

As of June 30, 2021, the company has determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months.

As of September 30, 2021, the company has determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months.

However, we cannot assure you that the Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distribution payments to the company.

The unavailability of capital could adversely affect the Operating Partnership’s ability to pay its distributions to the company, which would in turn, adversely affect the company’s ability to pay cash dividends to its stockholders.

The COVID-19 pandemic is expected to temporarily impact some of our tenants' ability or willingness to remit rent payments due to the tenants' operations being affected by state and local stay-at-home orders.

In the first half of 2021, we continued to receive rent deferment and other rent concession requests from some tenants and have been negotiating and executing lease modifications for the deferment of rent and other rent concessions.

The COVID-19 pandemic has temporarily impacted, and is expected to continue to temporarily impact some of our tenants' ability or willingness to remit rent payments due to the tenants' operations being affected by state and local stay-at-home orders.

During the nine months of 2021, we continued to receive rent deferment and other rent concession requests from some tenants and have been negotiating and executing lease modifications for the deferment of rent and other rent concessions.

These rent deferments and other rent concessions will continue to adversely affect the Operating Partnership's cash flow from operations until the scheduled repayment period.

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The sales of shares of the company's common stock made through the ATM equity program, as amended, are made in “at-the-market” offerings as defined in Rule 415 of the Securities Act.

As of June 30, 2021, we had the capacity to issue up to an additional $132.6 million in shares of common stock under the ATM equity program upon filing an updated prospectus supplement with the SEC.

As of September 30, 2021, we had the capacity to issue up to an additional $132.6 million in shares of common stock under the ATM equity program upon filing an updated prospectus supplement with the SEC.

We intend to use the net proceeds to fund development or redevelopment activities, repay amounts outstanding from time to time under our amended and restated credit facility or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes.

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must generally make annual distributions to its stockholders of at least 90% of its net taxable income.

As of June 30, 2021, we held $368.3 million in cash and cash equivalents.

As of September 30, 2021, we held $171.9 million in cash and cash equivalents.

Our short-term liquidity requirements consist primarily of operating expenses and other expenditures associated with our properties, regular debt service requirements, dividend payments to American Assets Trust, Inc.'s stockholders required to maintain its REIT status, distributions to our unitholders, capital expenditures and, potentially, acquisitions.

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Although there is no intent at this time, if market conditions deteriorate or fail to improve, including as a result of the COVID-19 pandemic, we may also delay the timing of future development and redevelopment projects as well as limit future acquisitions, reduce our operating expenditures, or re-evaluate our dividend policy.

The COVID-19 pandemic is expected to impact the timing of future development and redevelopment projects due to, among other things, capital requirements and permitting delays caused by local government shutdowns or reduced operations.

The COVID-19 pandemic has impacted, and is expected to continue to impact, the timing of future development and redevelopment projects due to, among other things, capital requirements and permitting delays caused by local government shutdowns or reduced operations.

In January 2021, the Operating Partnership filed a universal shelf registration on Form S-3 ASR with the SEC which provided for the registration of an unspecified amount of debt securities by the Operating Partnership.

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We currently do not have any off-balance sheet arrangements.

Comparison of the six months ended June 30, 2021 to the six months ended June 30, 2020

Cash, cash equivalents, and restricted cash were $370.0 million and $150.1 million at June 30, 2021 and 2020, respectively.

Net cash provided by operating activities increased $7.6 million to $76.7 million for the six months ended June 30, 2021 compared to $69.1 million for the six months ended June 30, 2020.

The increase in cash from operations was primarily due to an increase in rental revenue from our mixed-use property and an increase in rent collections from our retail portfolio.

Net cash used in investing activities decreased $2.0 million to $37.1 million for the six months ended June 30, 2021 compared to $39.1 million for the six months ended June 30, 2020.

The decrease was primarily due to a decrease in leasing commissions for new tenants at First & Main, City Center Bellevue, Torrey Point and Lloyd Portfolio.

During the three months ended June 30, 2021, we had taken a short term investment position in a marketable security, which was purchased and sold within the same quarter.

Net cash provided by financing activities increased $180.7 million to $191.3 million for the six months ended June 30, 2021 compared to cash used in financing activities of $10.6 million for the six months ended June 30, 2020.

The increase in cash provided by financing activities was primarily due to the closing of our issuance of 3.375% Senior Notes on January 26, 2021, partially offset by the repayment of both the outstanding balance on the revolving line of credit and the Senior Guaranteed Notes, Series A on January 26, 2021.

Comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2020

Cash, cash equivalents, and restricted cash were $173.6 million and $156.6 million at September 30, 2021 and 2020, respectively.

Net cash provided by operating activities increased $20.5 million to $129.6 million for the nine months ended September 30, 2021 compared to $109.1 million for the nine months ended September 30, 2020.

The increase in cash from operations was related to a change in accounts payable due to the timing of accruals and payables, primarily real estate taxes, an increase in depreciation and amortization from the acquisitions made in the quarter, and the early extinguishment of debt in January 2021.

These increases were partially offset by a decrease in tenant receivable reserves during the year.

Net cash used in investing activities increased $209.8 million to $263.3 million for the nine months ended September 30, 2021 compared to $53.6 million for the nine months ended September 30, 2020.

The increase was primarily due to the acquisition of Eastgate Office Park on July 7, 2021 and Corporate Campus East III on September 10, 2021, and capital expenditures at La Jolla Commons III and One Beach Street.

Net cash provided by financing activities increased $176.8 million to $168.3 million for the nine months ended September 30, 2021 compared to cash used in financing activities of $8.5 million for the nine months ended September 30, 2020.

The increase in cash provided by financing activities was primarily due to the closing of our issuance of 3.375% Senior Notes on January 26, 2021, partially offset by the repayment of the outstanding balance on the revolving line of credit and the Senior Guaranteed Notes, Series A on January 26, 2021.

Net Operating Income

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Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

The following is a reconciliation of our NOI to net income for the three and six months ended June 30, 2021 and 2020 computed in accordance with GAAP (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

The following is a reconciliation of our NOI to net income for the three and nine months ended September 30, 2021 and 2020 computed in accordance with GAAP (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

The following table sets forth a reconciliation of our FFO for the three and six months ended June 30, 2021 to net income, the nearest GAAP equivalent (in thousands, except per share and share data):

Three Months Ended June 30, Six Months Ended June 30,

The following table sets forth a reconciliation of our FFO for the three and nine months ended September 30, 2021 to net income, the nearest GAAP equivalent (in thousands, except per share and share data):

Three Months Ended September 30, Nine Months Ended September 30,

Funds from Operations (FFO)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis