What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-28 compared with 2023-04-28 · 259 added, 109 removed, 317 unchanged (54% of the section changed)

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The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

• the impact of epidemics, pandemics, or other outbreaks of illness, disease or virus (such as the outbreak of COVID-19 and its variants) and the actions taken by government authorities and others related thereto, including the ability of our company, our properties and our tenants to operate;

• adverse economic or real estate developments in our markets;

• our failure to generate sufficient cash flows to service our outstanding indebtedness;

• defaults on, early terminations of or non-renewal of leases by tenants, including significant tenants;

• difficulties in identifying properties to acquire and completing acquisitions;

• difficulties in completing dispositions;

• our failure to successfully operate acquired properties and operations;

• our inability to develop or redevelop our properties due to market conditions;

• decreased rental rates or increased vacancy rates;

• our failure to generate sufficient cash flows to service our outstanding indebtedness;

• fluctuations in interest rates and increased operating costs;

• risks related to joint venture arrangements;

• our failure to obtain necessary outside financing;

• on-going litigation;

• our inability to develop or redevelop our properties due to market conditions;

• general economic conditions;

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• the competitive environment in which we operate;

• decreased rental rates or increased vacancy rates;

• difficulties in identifying properties to acquire and completing acquisitions;

• our failure to successfully operate acquired properties and operations;

• risks related to joint venture arrangements;

• on-going litigation;

• difficulties in completing dispositions;

• conflicts of interests with our officers or directors;

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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, Washington, Oregon, Texas and Hawaii.

As of March 31, 2023, our portfolio was comprised of twelve retail shopping centers;

As of June 30, 2023, our portfolio was comprised of twelve retail shopping centers;

twelve office properties;

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and six multifamily properties.

Additionally, as of March 31, 2023, we owned land at three of our properties that we classified as held for development and/or construction in progress.

Additionally, as of June 30, 2023, 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;

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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 March 31, 2023.

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, 2023.

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

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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 months ended March 31, 2023 and 2022.

Bel-Spring 520 is classified as a non-same-store property, as it was acquired on March 8, 2022.

In our determination of same-store and redevelopment same-store properties for the three months ended March 31, 2023, One Beach Street has been identified as a same-store redevelopment property due to significant redevelopment activity.

Retail same-store net operating income increased approximately 4.7% for the three months ended March 31, 2023 compared to the same period in 2022.

Office same-store net operating income decreased (1.1)% for the three months ended March 31, 2023 compared to the same period in 2022.

Office redevelopment same-store net operating income decreased (1.4)% for the three months ended March 31, 2023 compared to the same period in 2022.

Three Months Ended March 31,

Below is a summary of our same-store composition for the three and six months ended June 30, 2023 and 2022.

Because Bel-Spring 520 was acquired on March 8, 2022, it was reclassified as a same-store property and is comparable for the three months ended June 30, 2023, and is classified as non-same-store property for the six months ended June 30, 2023.

In our determination of same-store and redevelopment same-store properties for the three and six months ended June 30, 2023, One Beach Street has been identified as a same-store redevelopment property due to significant redevelopment activity.

Retail same-store net operating income increased approximately 6.6% for the six months ended June 30, 2023 compared to the same period in 2022.

Office same-store net operating income increased 0.6% for the six months ended June 30, 2023 compared to the same period in 2022.

Office redevelopment same-store net operating income increased 0.3% for the six months ended June 30, 2023 compared to the same period in 2022.

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

2023 2022 2023 2022

Same-Store 30 27 29 27

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Furthermore, we believe the locations of our properties and diversified portfolio will mitigate some of the potentially negative impact of the current economic environment.

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

However, in 2020 through 2022 due to COVID-19, we saw a meaningful negative impact on certain of our tenants' operations and ability to pay rent, primarily in the retail sector.

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

During the three months ended March 31, 2023, we signed 15 office leases for a total of 79,862 square feet of office space including 56,139 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 10.1% and 22.5%, respectively.

During the three months ended June 30, 2023, we signed 13 office leases for a total of 120,365 square feet of office space including 119,307 square feet of comparable renewal office space leases (leases for which there was a prior tenant), at an average rental rate decrease on a cash basis and increase on a GAAP basis of 3.5% and 4.5%, respectively.

New office leases for comparable spaces were signed for 6,431 square feet at an average rental rate increase on a cash and GAAP basis of 23.0% and 19.6%, respectively.

Renewals for comparable office spaces were signed for 53,883 square feet at an average rental rate increase on a cash and GAAP basis of 9.7% and 22.6%, respectively.

Tenant improvements and incentives were $57.1 per square foot of office space for comparable new leases for the three months ended March 31, 2023, mainly due to a tenant at Solana Crossing.

During the three months ended March 31, 2023, we signed 16 retail leases for a total of 35,589 square feet of retail space including 30,756 square feet of comparable renewal retail space leases (leases for which there was a prior tenant), at an average rental rate increase on a cash and GAAP basis of 9.5% and 27.7%, respectively.

New retail leases for comparable spaces were signed for 1,598 square feet at an average rental rate increase on a cash basis of 48.5%.

Renewals for comparable office spaces were signed for 112,876 square feet at an average rental rate decrease on a cash basis and increase on a GAAP basis of 4.1% and 4.2%, respectively.

Tenant improvements and incentives were $30.27 per square foot of office space for comparable new leases for the three months ended June 30, 2023, mainly due to a tenant at Solana Crossing.

During the three months ended June 30, 2023, we signed 21 retail leases for a total of 121,955 square feet of retail space including 96,955 square feet of comparable renewal retail space leases (leases for which there was a prior tenant), at an average rental rate increase on a cash and GAAP basis of 2.9% and 2.1%, respectively.

Renewals for comparable retail spaces were signed for 96,955 square feet at an average rental rate increase on a cash and GAAP basis of 2.9% and 2.1%, respectively.

Tenant improvements and incentives were $9.39 per square foot of retail space for comparable new leases for the three months ended March 31, 2023, mainly due to a tenant at Waikele Center.

There were no new retail leases for comparable spaces signed during the three months ended June 30, 2023.

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.

The comparison between average rent for expiring leases and new leases is determined by including minimum rent and percentage rent paid on the expiring lease and minimum rent and, in some instances, projections of first lease year percentage rent, to be paid on the new lease.

The comparison between average rent for expiring leases and new leases is determined by including minimum rent paid on the expiring lease and minimum rent to be paid on the new lease.

In some instances, management exercises judgment as to how to most effectively reflect the comparability of spaces reported in this calculation.

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Further, there is risk that some new tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating, financing or other matters.

However, we believe that these increases do provide information about the tenant/landlord relationship and the potential fluctuations we may achieve in rental income over time.

Capitalized Costs

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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 $9.6 million and $22.7 million for the three months ended March 31, 2023 and 2022, respectively.

We capitalized external and internal costs related to other property improvements combined of $12.4 million and $8.9 million for the three months ended March 31, 2023 and 2022, respectively.

We capitalized external and internal costs related to both development and redevelopment activities combined of $5.6 million and $22.8 million for the three months ended June 30, 2023 and 2022, respectively, and $15.3 million and $45.5 million for the six months ended June 30, 2023 and 2022, respectively.

We capitalized external and internal costs related to other property improvements combined of $13.2 million and $10.2 million for the three months ended June 30, 2023 and 2022, respectively, and $25.5 million and $19.1 million for the six months ended June 30, 2023 and 2022, 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 $1.8 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively.

We capitalized interest costs related to development activities of $1.9 million and $1.4 million for the three months ended June 30, 2023 and 2022, respectively, and $3.8 million and $2.6 million for the six months ended June 30, 2023 and 2022, 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 March 31, 2023 to the three months ended March 31, 2022

The following summarizes our consolidated results of operations for the three months ended March 31, 2023 compared to our consolidated results of operations for the three months ended March 31, 2022.

As of March 31, 2023, our operating portfolio was comprised of 31 retail, office, multifamily and mixed-use properties with an aggregate of approximately 7.2 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,110 residential units (including 120 RV spaces) and a 369-room hotel.

Additionally, as of March 31, 2023, we owned land at three of our properties that we classified as held for development and/or construction in progress.

As of March 31, 2022, our operating portfolio was comprised of 31 retail, office, multifamily and mixed-use properties with an aggregate of approximately 7.2 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,110 residential units (including 120 RV spaces) and a 369-room hotel.

Additionally, as of March 31, 2022, 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 March 31, 2023 and 2022 (dollars in thousands):

Three Months Ended March 31, Change %

Comparison of the three months ended June 30, 2023 to the three months ended June 30, 2022

The following summarizes our consolidated results of operations for the three months ended June 30, 2023 compared to our consolidated results of operations for the three months ended June 30, 2022.

As of June 30, 2023, our operating portfolio was comprised of 31 retail, office, multifamily and mixed-use properties with an aggregate of approximately 7.2 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,110 residential units (including 120 RV spaces) and a 369-room hotel.

Additionally, as of June 30, 2023, we owned land at three of our properties that we classified as held for development and/or construction in progress.

As of June 30, 2022, our operating portfolio was comprised of 31 retail, office, multifamily and mixed-use properties with an aggregate of approximately 7.2 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,110 residential units (including 120 RV spaces) and a 369-room hotel.

Additionally, as of June 30, 2022, 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, 2023 and 2022 (dollars in thousands):

Three Months Ended June 30, Change %

Rental income $ 103,901 $ 99,016 $ 4,885 5 %

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Interest expense, net (16,368) (14,547) (1,821) 13

Other (expense) income, net 6,679 (162) 6,841 (4,223)

Total other, net (47,950) (52,382) 4,432 (8)

Other income (expense), net 273 (181) 454 (251)

Net income 15,397 13,588 1,809 13

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

Total property revenue increased $6.3 million, or 6%, to $107.8 million for the three months ended March 31, 2023 compared to $101.5 million for the three months ended March 31, 2022.

The percentage leased was as follows for each segment as of March 31, 2023 and 2022:

Total property revenue increased $5.6 million, or 5%, to $109.7 million for the three months ended June 30, 2023 compared to $104.2 million for the three months ended June 30, 2022.

The percentage leased was as follows for each segment as of June 30, 2023 and 2022:

Percentage Leased (1)

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94.6 % 94.9 %

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of March 31, 2023 or 2022, as applicable.

(1) The percentage leased for our retail and office segments and the retail portion of the mixed-use segment includes square footage under leases, including leases which may not have commenced as of June 30, 2023 or 2022, as applicable.

Percentage leased for our multifamily properties includes total units rented and occupied as of June 30, 2023 or 2022, as applicable.

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

The increase in total property revenue was attributable primarily to the new acquisition of Bel-Spring 520, the increase in occupancy and rate at Waikiki Beach Walk Embassy Suites™, the increase in monthly base rents in our multifamily portfolio and factors discussed below.

The increase in total property revenue was attributable primarily to new retail leases, higher annualized base rents within the office segment and an increase in occupancy and rate at Waikiki Beach Walk Embassy Suites™ and factors discussed below.

Rental revenues .

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

Rental revenue increased $5.7 million, or 6%, to $102.7 million for the three months ended March 31, 2023 compared to $97.0 million for the three months ended March 31, 2022.

Rental revenue increased $4.9 million, or 5%, to $103.9 million for the three months ended June 30, 2023 compared to $99.0 million for the three months ended June 30, 2022.

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

Total Portfolio Same-Store Portfolio (1)

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

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

2023 2022 2023 2022

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

(ii) Bel-Spring 520, which was acquired on March 8, 2022;

(iii) the 710 building at Lloyd District Portfolio which was placed into operations on November 1, 2022, approximately one year after completing renovations of the building and (iv) land held for development.

Total office rental revenue increased $1.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to the recent acquisition of Bel-Spring 520, which accounted for $0.6 million of the increase.

Same-store office rental revenue increased by $0.7 million due to higher occupancy at Torrey Reserve Campus, and higher annualized base rents at La Jolla Commons and The Landmark at One Market.

Total retail rental revenue increased $0.8 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to new tenant leases and prior tenants on alternate rent reverting back to basic monthly rent.

(ii) the 710 building at Lloyd District Portfolio which was placed into operations on November 1, 2022, approximately one year after completing renovations of the building and (iii) land held for development.

Total office rental revenue increased $1.3 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to higher occupancy at Torrey Point and higher annualized base rents at Torrey Reserve and Corporate Campus East III.

Total retail rental revenue increased $1.4 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to new tenant leases and prior tenants on alternate rent reverting back to basic monthly rent.

These increases were primarily related to Carmel Mountain Plaza, Alamo Quarry Market, Del Monte Center and Lomas Santa Fe Plaza.

Multifamily revenue increased $1.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to an overall increase in average monthly base rent, with an overall decrease in occupancy.

Average monthly base rent and occupancy was $2,514 and 93.0%, respectively for the three months ended March 31, 2023 compared to $2,217 and 95.1%, respectively for the three months ended March 31, 2022.

Total mixed-use rental revenue increased $2.0 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to lifting of COVID-19 travel restrictions, which led to an increase in average occupancy and revenue per available room to 81.9% and $302 for the three months ended March 31, 2023, respectively, compared to 72.8% and $243 for three months ended March 31, 2022, respectively.

Multifamily revenue increased $1.0 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to an overall increase in average monthly base rent, with an overall decrease in occupancy due to seasonality at Pacific Ridge Apartments.

Average monthly base rent and occupancy was $2,587 and 87.7%, respectively for the three months ended June 30, 2023 compared to $2,297 and 93.2%, respectively for the three months ended June 30, 2022.

Total mixed-use rental revenue increased $1.2 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to an increase in tourism, which led to an increase in average occupancy and revenue per available room to 84.4% and $312 for the three months ended June 30, 2023, respectively, compared to 78.8% and $280 for three months ended June 30, 2022, respectively.

Other property income .

Other property income increased $0.6 million, or 12%, to $5.0 million for the three months ended March 31, 2023 compared to $4.5 million for the three months ended March 31, 2022.

Other property income increased $0.7 million, or 13%, to $5.8 million for the three months ended June 30, 2023 compared to $5.1 million for the three months ended June 30, 2022.

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

Total Portfolio Same-Store Portfolio

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

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

2023 2022 2023 2022

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$ 5,820 $ 5,139 $ 681 13 % $ 5,814 $ 5,112 $ 702 14 %

Office other property income increased by $0.1 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to an increase in parking garage income at Lloyd Portfolio, City Center Bellevue and First & Main.

Mixed-use other property income increased by $0.4 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to increased tourism and hotel occupancy which led to an increase in other room rental income and excise tax at the hotel portion of our mixed-use property.

Office other property income increased by $0.3 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to lease termination fees received in the second quarter of 2023 at Solana Crossing and an increase in parking garage income at Lloyd Portfolio, City Center Bellevue and First & Main.

Retail other property income increased by $0.2 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to lease termination fees received in the second quarter of 2023 at Carmel Mountain Plaza.

Mixed-use other property income increased by $0.2 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to increased tourism and hotel occupancy which led to an increase in other room rental income and excise tax at the hotel portion of our mixed-use property.

Property Expenses

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

Total property expenses increased $3.6 million, or 10%, to $39.1 million, for the three months ended March 31, 2023 compared to $35.6 million for the three months ended March 31, 2022.

Total property expenses increased $2.7 million, or 7%, to $39.8 million, for the three months ended June 30, 2023 compared to $37.1 million for the three months ended June 30, 2022.

Rental Expenses.

Rental expenses increased $3.4 million, or 14%, to $27.5 million for the three months ended March 31, 2023 compared to $24.1 million for the three months ended March 31, 2022.

Rental expenses increased $2.9 million, or 11%, to $28.7 million for the three months ended June 30, 2023 compared to $25.9 million for the three months ended June 30, 2022.

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

Total Portfolio Same-Store Portfolio

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

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

2023 2022 2023 2022

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$ 28,711 $ 25,853 $ 2,858 11 % $ 28,442 $ 25,660 $ 2,782 11 %

Office rental expense increased $1.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to $0.2 million related to the recent acquisition of Bel-Spring 520.

Same-store office rental expenses increased $1.1 million due to an increase in repairs and maintenance services, utilities expenses and facility services and other operating expenses as our tenants' employees have started returning to the office in-person.

Multifamily rental expense increased $0.4 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to an increase in repairs and maintenance, facilities services and employee related costs.

Mixed-use rental expense increased $1.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to an increase in hotel room expenses, general excise tax expenses and employee related costs at the hotel portion of our mixed-use property and general excise tax expense and employee related costs at the retail portion of our mixed-use property.

These increases are in line with increased tourism and higher hotel occupancy as travel restrictions to Hawaii have been relaxed since the three months ended March 31, 2022.

Office rental expense increased $1.0 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to an increase in utilities expenses, facility services and insurance expenses.

Retail rental expense increased $0.3 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to an increase in repairs and maintenance, employee related costs and insurance expenses.

Multifamily rental expense increased $0.5 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to an increase in repairs and maintenance, facilities services and employee related costs.

Mixed-use rental expense increased $1.1 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to an increase in hotel room expenses, general excise tax expenses and employee related costs at the hotel portion of our mixed-use property and general excise tax expense and employee related costs at the retail portion of our mixed-use property.

These increases are in line with increased tourism and higher hotel occupancy as travel restrictions to Hawaii were relaxed in 2022.

Real Estate Taxes.

Real estate taxes increased $0.2 million, or 2%, to $11.6 million for the three months ended March 31, 2023 compared to $11.4 million for the three months ended March 31, 2022.

Real estate taxes decreased $0.2 million, or 2%, to $11.1 million for the three months ended June 30, 2023 compared to $11.3 million for the three months ended June 30, 2022.

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

Total Portfolio Same-Store Portfolio

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

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

2023 2022 2023 2022

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$ 11,086 $ 11,287 $ (201) (2) % $ 11,044 $ 11,238 $ (194) (2) %

Office real estate taxes increased $0.2 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to the recent acquisition of Bel-Spring 520 and increase in property value assessments at Eastgate Office Park and Corporate Campus East III.

Retail real estate taxes decreased $0.1 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to a one-time real estate tax refund received during the three months ended March 31, 2023 for Carmel Mountain Plaza and Geary Marketplace for prior tax assessments years.

Mixed-use real estate taxes increased $0.1 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due an increase in property value assessments.

Office real estate taxes decreased $0.1 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to an adjustment in levy taxes at City Center Bellevue partially offset by an increase in property value assessments at Eastgate Office Park and Corporate Campus East III.

Retail real estate taxes decreased $0.1 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due lower tax assessment at Alamo Quarry Market.

Mixed-use real estate taxes increased $0.1 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to the COVID-19 pandemic and its financial burden on the hospitality industry, as a result of which Honolulu County reduced the tax burden for hotels for 2021 through 2022.

Property Operating Income

Property operating income increased $2.7 million, or 4%, to $68.6 million for the three months ended March 31, 2023, compared to $65.9 million for the three months ended March 31, 2022.

Property operating income increased $2.9 million, or 4%, to $69.9 million for the three months ended June 30, 2023, compared to $67.0 million for the three months ended June 30, 2022.

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

Total Portfolio Same-Store Portfolio

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

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

2023 2022 2023 2022

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$ 69,924 $ 67,015 $ 2,909 4 % $ 70,229 $ 67,230 $ 2,999 4 %

Same-store office property operating income decreased $0.4 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to higher rental expenses of $1.1 million as our tenants' employees have started returning to the office in-person and higher real estate taxes.

These increases in expenses are offset by higher parking income and increase in rental revenue due to higher occupancy at Torrey Reserve Campus, and higher annualized base rents at La Jolla Commons and The Landmark at One Market.

Total retail property operating income increased $0.8 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to new tenant leases and prior tenants on alternate rent reverting back to basic monthly rent.

Additionally, real estate taxes decreased primarily due to a one-time real estate tax refunds received during the three months ended March 31, 2023 for Carmel Mountain Plaza and Geary Marketplace.

Total multifamily property operating income increased $1.2 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to an overall increase in average monthly base rent of $2,514 for the three months ended March 31, 2023 compared to $2,217 for the three months ended March 31, 2022.

Average occupancy decreased to 93.0% for the three months ended March 31, 2023 compared to 95.1% for the three months ended March 31, 2022.

Total office property operating income increased $0.8 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to higher occupancy at Torrey Point, higher annualized base rents at Torrey Reserve and Corporate Campus East III and an increase in parking garage income at Lloyd Portfolio, City Center Bellevue and First & Main.

This increase in revenue was partially offset by higher rental expenses related to utilities, facilities and insurance expenses as our tenants' employees return to the office in-person.

Total retail property operating income increased $1.4 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to new tenant leases, prior tenants on alternate rent reverting back to basic monthly rent and one-time lease termination fees received at Carmel Mountain Plaza.

Additionally, real estate taxes decreased primarily due to lower tax assessment at Alamo Quarry Market.

This increase in revenue was partially offset by higher rental expenses related to repairs and maintenance, employee related costs and insurance expenses.

Total multifamily property operating income increased $0.4 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to an overall increase in average monthly base rent of $2,587 for the three months ended June 30, 2023 compared to $2,297 for the three months ended June 30, 2022.

Average occupancy decreased to 87.7% for the three months ended June 30, 2023 compared to 93.2% for the three months ended June 30, 2022.

This increase in revenue was partially offset by an increase in rental expenses related to repairs and maintenance and facilities services.

Total mixed-use property operating income increased $0.8 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to increase in tourism and related increase in hotel occupancy.

This led to an increase in average occupancy and revenue per available room to 81.9% and $302, respectively, for the three months ended March 31, 2023, compared to 72.8% and $243, respectively, for three months ended March 31, 2022.

Total mixed-use property operating income increased $0.3 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to increase in tourism and related increase in hotel occupancy.

This led to an increase in average occupancy and revenue per available room to 84.4% and $312, respectively, for the three months ended June 30, 2023, compared to 78.8% and $280, respectively, for three months ended June 30, 2022.

This also led to an increase in other room rental income and excise tax at the hotel portion of our mixed-use property.

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General and Administrative.

General and administrative expenses increased to $9.0 million for the three months ended March 31, 2023, compared to $7.1 million for the three months ended March 31, 2022.

This increase was primarily due to an increase in stock-based compensation expense, general legal expenses and employee-related costs, including, without limitation, with respect to base pay for certain salaried and hourly workers and benefits.

General and administrative expenses increased to $8.6 million for the three months ended June 30, 2023, compared to $7.6 million for the three months ended June 30, 2022.

This increase was primarily due to an increase in stock-based compensation expense and employee-related costs, including, without limitation, with respect to base pay for certain salaried and hourly workers and benefits.

Depreciation and Amortization.

Depreciation and amortization expense decreased to $29.9 million for the three months ended March 31, 2023, compared to $30.4 million for the three months ended March 31, 2022.

This was due to acceleration of assets related to tenants vacating space during the three months ended March 31, 2022 at City Center Bellevue, Eastgate Office Park and Corporate Campus East III.

This decrease was partially offset by new building and tenant improvement assets put into service in 2022 at Bel-Spring 520, First & Main and Torrey Reserve Campus.

Depreciation and amortization expense decreased to $29.8 million for the three months ended June 30, 2023, compared to $31.1 million for the three months ended June 30, 2022.

This was due to acceleration of assets related to tenants vacating space during the three months ended June 30, 2022 at City Center Bellevue, Eastgate Office Park, Corporate Campus East III and Alamo Quarry Market.

This decrease was partially offset by new building and tenant improvement assets put into service in 2023 at Torrey Reserve Campus.

Interest Expense, net.

Interest expense increased by $1.1 million, or 7%, to $15.7 million for the three months ended March 31, 2023, compared to $14.7 million for the three months ended March 31, 2022.

Interest expense increased by $1.8 million, or 13%, to $16.4 million for the three months ended June 30, 2023, compared to $14.5 million for the three months ended June 30, 2022.

This increase was primarily due to higher interest on our $225 million Amended and Restated Term Loan Agreement and related amortization of loan fees.

These increases were offset by an increase in capitalized interest related to our development projects.

Other (Expense) Income, Net.

Other income, net increased $6.8 million, or 4,223%, to other income, net of $6.7 million for the three months ended March 31, 2023, compared to other expense, net of $0.2 million for the three months ended March 31, 2022,primarily due to the net settlement payment of approximately $6.3 million received on January 3, 2023 related to certain building systems at our Hassalo on Eighth property and an increase of $0.4 million in interest and investment income attributed to higher yield on our average cash balance during the period.

Other Income (Expense), Net.

Other income, net increased $0.5 million, or 251%, to other income, net of $0.3 million for the three months ended June 30, 2023, compared to other expense, net of $0.2 million for the three months ended June 30, 2022, primarily due to an increase of $0.4 million in interest and investment income attributed to higher yield on our average cash balance during the period.

Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022

The following summarizes our consolidated results of operations for the six months ended June 30, 2023 compared to our consolidated results of operations for the six months ended June 30, 2022.

The following table sets forth selected data from our unaudited consolidated statements of income for the six months ended June 30, 2023 and 2022 (dollars in thousands):

Six Months Ended June 30, Change %

Rental income $ 206,611 $ 196,002 $ 10,609 5 %

Other property income 10,864 9,623 1,241 13

Total property revenues 217,475 205,625 11,850 6

Rental expenses 56,216 49,998 6,218 12

Real estate taxes 22,718 22,716 2 —

Total property expenses 78,934 72,714 6,220 9

Total property income 138,541 132,911 5,630 4

General and administrative (17,608) (14,754) (2,854) 19

Depreciation and amortization (59,724) (61,499) 1,775 (3)

Interest expense (32,097) (29,213) (2,884) 10

Other income (expense), net 6,951 (343) 7,294 (2,127)

Net income 36,063 27,102 8,961 33

Net income attributable to restricted shares (379) (309) (70) 23

Net income attributable to unitholders in the Operating Partnership

(7,565) (5,688) (1,877) 33

Net income attributable to American Assets Trust, Inc.

$ 28,119 $ 21,105 $ 7,014 33 %

Total property revenues .

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

Total property revenue increased $11.9 million, or 6%, to $217.5 million for the six months ended June 30, 2023 compared to $205.6 million for the six months ended June 30, 2022.

The percentage leased was as follows for each segment as of June 30, 2023 and 2022:

Percentage Leased (1)

Office 87.4 % 91.0 %

Retail 94.6 % 92.5 %

Multifamily 85.9 % 92.0 %

Mixed-Use (2)

94.6 % 94.9 %

Percentage leased for our multifamily properties includes total units rented and occupied as of June 30, 2023 or 2022, as applicable.

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

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 increased $10.6 million, or 5%, to $206.6 million for the six months ended June 30, 2023 compared to $196.0 million for the six months ended June 30, 2022.

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 %

2023 2022 2023 2022

Office $ 100,290 $ 97,702 $ 2,588 3 $ 98,674 $ 96,761 $ 1,913 2

Retail 50,750 48,552 2,198 5 50,750 48,552 2,198 5

Multifamily 28,829 26,199 2,630 10 28,829 26,199 2,630 10

Mixed-Use 26,742 23,549 3,193 14 26,742 23,549 3,193 14

$ 206,611 $ 196,002 $ 10,609 5 % $ 204,995 $ 195,061 $ 9,934 5 %

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

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

(ii) Bel-Spring 520, which was acquired on March 8, 2022;

Total office rental revenue increased $2.6 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 due to the acquisition of Bel-Spring 520 which accounted for $0.7 million of the increase.

Same store office rental revenue increased by $1.9 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to higher annualized base rents at Torrey Reserve and The Landmark at One Market and higher occupancy at Torrey Point.

Additionally, there was an increase of $0.9 million related to cost recoveries at Torrey Reserve, First & Main and The Landmark at One Market.

Retail rental revenue increased $2.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to new tenant leases signed and tenants previously on alternate rent reverting back to basic monthly rent.

These increases are primarily related to Carmel Mountain Plaza, Lomas Santa Fe Plaza, Alamo Quarry Market and Waikele Center.

Additionally, there was an increase in cost recoveries of $0.3 million as new leases were executed and COVID-related rent concessions were provided during 2020 and 2021.

Multifamily revenue increased $2.6 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an overall increase in average monthly base rent of $2,549 for the six months ended June 30, 2023 compared to $2,257 for the six months ended June 30, 2022.

Average occupancy decreased to 90.3% for the six months ended June 30, 2023 compared to 94.2% for the six months ended June 30, 2022.

Mixed-use rental revenue increased $3.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to the Waikiki Beach Walk hotel portion of our mixed use property.

This increase was due to the lifting of COVID-19 travel restrictions, which led to an increase in average occupancy and revenue per available room to 83.2% and $307 for the six months ended June 30, 2023, respectively, compared to 75.8% and $262 for the six months ended June 30, 2022, respectively.

Other property income .

Other property income increased $1.2 million, or 13%, to $10.9 million for the six months ended June 30, 2023 compared to $9.6 million for the six months ended June 30, 2022.

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 %

2023 2022 2023 2022

Office $ 2,899 $ 2,460 $ 439 18 $ 2,875 $ 2,397 $ 478 20

Retail 778 627 151 24 778 627 151 24

Multifamily 1,927 1,904 23 1 1,927 1,904 23 1

Mixed-Use 5,260 4,632 628 14 5,260 4,632 628 14

$ 10,864 $ 9,623 $ 1,241 13 % $ 10,840 $ 9,560 $ 1,280 13 %

Office other property income increased $0.4 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to due to lease termination fees received during 2023 at Solana Crossing and an increase in parking garage income at Lloyd Portfolio, City Center Bellevue and First & Main.

Retail other property income increased $0.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to the lease termination fees received at Carmel Mountain Plaza during 2023.

Total mixed-use other property income increased $0.6 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to increased tourism and hotel occupancy which led to an increase in other room rental income and excise tax at the hotel portion of our mixed-use property.

Property Expenses

Total Property Expenses.

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

Total property expenses increased by $6.2 million, or 9%, to $78.9 million for the six months ended June 30, 2023, compared to $72.7 million for the six months ended June 30, 2022.

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

Rental Expenses.

Rental expenses increased $6.2 million, or 12%, to $56.2 million for the six months ended June 30, 2023, compared to $50.0 million for the six months ended June 30, 2022.

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 %

2023 2022 2023 2022

Office $ 19,404 $ 17,151 $ 2,253 13 $ 18,544 $ 16,577 $ 1,967 12

Retail 8,230 7,913 317 4 8,230 7,913 317 4

Multifamily 9,745 8,773 972 11 9,745 8,773 972 11

Mixed-Use 18,837 16,161 2,676 17 18,837 16,161 2,676 17

$ 56,216 $ 49,998 $ 6,218 12 % $ 55,356 $ 49,424 $ 5,932 12 %

Office rental expenses increased $2.3 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to $0.2 million related to the acquisition of Bel-Spring 520.

Same-store office rental expenses increased $2.0 million due to an increase in repairs and maintenance services, utilities expenses, facility services, insurance expense and other operating expenses as our tenants' employees have started returning to the office in-person.

Retail rental expenses increased $0.3 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an increase in repairs and maintenance, facilities services and insurance expenses in the period.

Multifamily rental expenses increased $1.0 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an increase in utilities expenses, facilities services and repairs and maintenance, related to janitorial, electrical and painting services.

Additionally, there was an increase in property-level personnel compensation expenses and insurance expenses.

Total mixed-use rental expenses increased $2.7 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an increase of $2.5 million in hotel room expenses, personnel expenses and excise tax expenses at the hotel portion of our mixed-use property during the period.

There was also an increase in rental expenses of $0.2 million at the retail portion of our mixed-use property related to excise tax, employee costs and facilities expenses.

These increases are due to tourism as travel restrictions to Hawaii have been relaxed.

Real Estate Taxes.

Real estate tax expense remained largely unchanged at $22.7 million for both the six months ended June 30, 2023, and the six months ended June 30, 2022.

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 %

2023 2022 2023 2022

Office $ 10,310 $ 10,242 $ 68 1 $ 10,077 $ 10,064 $ 13 —

Retail 7,029 7,245 (216) (3) 7,029 7,245 (216) (3)

Multifamily 3,572 3,527 45 1 3,572 3,527 45 1

Mixed-Use 1,807 1,702 105 6 1,807 1,702 105 6

$ 22,718 $ 22,716 $ 2 — % $ 22,485 $ 22,538 $ (53) — %

Office real estate taxes increased $0.1 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to the acquisition of Bel-Spring 520.

Retail real estate taxes decreased $0.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to a one-time real estate tax refund received during 2023 at Carmel Mountain Plaza and lower tax assessments at Alamo Quarry Market.

Mixed-use real estate taxes increased $0.1 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to the COVID-19 pandemic and its financial burden on the hospitality industry, as a result of which Honolulu County reduced the tax burden for hotels for 2021 through 2022 which has not continued to 2023.

Property Operating Income

Property operating income increased $5.6 million, or 4%, to $138.5 million for the six months ended June 30, 2023, compared to $132.9 million for the six months ended June 30, 2022.

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 %

2023 2022 2023 2022

Office $ 73,475 $ 72,769 $ 706 1 $ 72,928 $ 72,517 $ 411 1

Retail 36,269 34,021 2,248 7 36,269 34,021 2,248 7

Multifamily 17,439 15,803 1,636 10 17,439 15,803 1,636 10

Mixed-Use 11,358 10,318 1,040 10 11,358 10,318 1,040 10

$ 138,541 $ 132,911 $ 5,630 4 % $ 137,994 $ 132,659 $ 5,335 4 %

Total office property operating income increased $0.7 million during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 due to the acquisition of Bel-Spring 520, which had incremental property operating income of approximately $0.3 million during the period.

Same-store property operating income increased $0.4 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to higher cost recoveries and higher occupancy at Torrey Point and higher annualized base rent at Torrey Reserve Campus and The Landmark at One Market.

These increases were partially offset by higher operating expenses as our tenants' employees have started returning to the office in-person.

Total retail property operating income increased $2.2 million during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to new tenant leases signed and tenants previously on alternate rent reverting back to basic monthly rent.

Additionally, there was an increase in cost recoveries and a one-time lease termination fee received at Carmel Mountain Plaza.

These increases were partially offset by higher rental expenses related to repairs and maintenance, facilities services and insurance expense.

Total multifamily property operating income increased $1.6 million during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an overall increase in average monthly base rent of $2,549 for the six months ended June 30, 2023 compared to $2,257 for the six months ended June 30, 2022.

Average occupancy decreased to 90.3% for the six months ended June 30, 2023 compared to 94.2% for the six months ended June 30, 2022.

This increase in average monthly base rent was partially offset by higher utilities expenses, facilities services and repairs and maintenance.

Total mixed-use property operating income increased $1.0 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to the Waikiki Beach Walk hotel portion of our mixed use property.

This increase was partially offset by higher rental expenses related to room expenses, personnel costs, facilities expenses and excise tax expenses.

General and Administrative.

General and administrative expenses increased $2.9 million, or 19%, to $17.6 million for the six months ended June 30, 2023, compared to $14.8 million for the six months ended June 30, 2022.

This increase was primarily due to stock-based compensation expense, general legal expenses and employee-related costs, including, without limitation, with respect to base pay for certain salaried and hourly workers and benefits.

Depreciation and Amortization.

Depreciation and amortization expense decreased $1.8 million, or 3%, to $59.7 million for the six months ended June 30, 2023, compared to $61.5 million for the six months ended June 30, 2022.

This was due to acceleration of assets related to tenants vacating space during the six months ended June 30, 2022 at City Center Bellevue, Eastgate Office Park, Corporate Campus East III and Alamo Quarry Market.

This decrease was partially offset by new building and tenant improvement assets put into service in 2023 at Torrey Reserve Campus, Bel-Spring 520 and First & Main.

Interest Expense.

Interest expense increased $2.9 million, or 10%, to $32.1 million for the six months ended June 30, 2023 compared to $29.2 million for the six months ended June 30, 2022.

This increase was primarily due to higher interest on our $225 million Amended and Restated Term Loan Agreement and related amortization of loan fees.

This was partially offset by lower interest expense on the new non-recourse mortgage on City Center Bellevue and increase in capitalized interest related to our development projects.

Other Income (Expense), Net.

Other income, net increased $7.3 million, or 2,127%, to other income, net of $7.0 million for the six months ended June 30, 2023, compared to other expense, net of $0.3 million for the six months ended June 30, 2022 primarily due to the net settlement payment of approximately $6.3 million received on January 3, 2023 related to certain building systems at our Hassalo on Eighth property and an increase of $0.9 million in interest and investment income attributed to higher yield on our average cash balance during the period.

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 March 31, 2023, the company owned an approximate 78.8% partnership interest in the Operating Partnership.

As of June 30, 2023, 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 March 31, 2023, the company has determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months.

As of June 30, 2023, 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.

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The sale of shares of our common stock made through the ATM equity program are made in "at-the-market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended.

For the three months ended March 31, 2023, no shares of common stock were sold through the ATM equity program.

For the three months ended June 30, 2023, no shares of common stock were sold through the ATM equity program.

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 March 31, 2023, we held $87.3 million in cash and cash equivalents.

As of June 30, 2023, we held $84.7 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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Our ability to access the equity capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about our company.

Our overall capital requirements for the remainder of 2023 and first quarter 2024 will depend upon acquisition opportunities and the level of improvements and redevelopments on existing properties.

Our overall capital requirements for the remainder of 2023 and first half of 2024 will depend upon acquisition opportunities and the level of improvements and redevelopments on existing properties.

Our capital investments will be funded on a short-term basis with, among other sources of capital, cash on hand, cash flow from operations and/or our revolving line of credit.

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

Comparison of the three months ended March 31, 2023 to the three months ended March 31, 2022

Cash, cash equivalents, and restricted cash were $87.3 million and $73.6 million at March 31, 2023 and 2022, respectively.

Net cash provided by operating activities increased $12.8 million to $52.0 million for the three months ended March 31, 2023 compared to $39.1 million for the three months ended March 31, 2022.

The increase in cash from operations was primarily due to the net settlement received related to certain building systems at our Hassalo on Eighth, increase in rental revenue in multifamily and the hotel portion of our mixed-use property, and changes in operating assets and liabilities.

Net cash used in investing activities decreased $51.6 million to $25.7 million for the three months ended March 31, 2023 compared to $77.3 million for the three months ended March 31, 2022.

The decrease in cash used was primarily due to our newest acquisition of Bel-Spring 520 on March 8, 2022, and decrease in capital expenditures at La Jolla Commons III and One Beach Street.

Net cash provided by financing activities increased $39.3 million to $11.5 million for the three months ended March 31, 2023 compared to cash used in financing activities of $27.8 million for the three months ended March 31, 2022.

The increase in cash provided by financing activities was primarily due to the term loan agreement that was amended and restated, among other things, to increase the fully drawn borrowings from $150 million to $225 million.

This was partially offset by the repayment of the outstanding balance on the revolving line of credit.

Comparison of the six months ended June 30, 2023 to the six months ended June 30, 2022

Cash, cash equivalents, and restricted cash were $84.7 million and $60.8 million at June 30, 2023 and 2022, respectively.

Net cash provided by operating activities increased $12.1 million to $98.1 million for the six months ended June 30, 2023 compared to $86.1 million for the six months ended June 30, 2022.

The increase in cash from operations was primarily due to the net settlement received related to certain building systems at our Hassalo on Eighth, increase in rental revenue and changes in operating assets and liabilities.

Net cash used in investing activities decreased $63.4 million to $49.1 million for the six months ended June 30, 2023 compared to $112.5 million for the six months ended June 30, 2022.

The decrease in cash used was primarily due to the acquisition of Bel-Spring 520 on March 8, 2022, and decrease in capital expenditures at La Jolla Commons III and One Beach Street.

Net cash used by financing activities decreased $38.5 million to $13.9 million for the six months ended June 30, 2023 compared to cash used in financing activities of $52.4 million for the six months ended June 30, 2022.

The decrease in cash used by financing activities was primarily due to the term loan agreement that was amended and restated, among other things, to increase the fully drawn borrowings from $150 million to $225 million.

This was partially offset by the repayment of the outstanding balance on the revolving line of credit and payment of quarterly dividends.

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 months ended March 31, 2023 and 2022 computed in accordance with GAAP (in thousands):

Three Months Ended March 31,

The following is a reconciliation of our NOI to net income for the three and six months ended June 30, 2023 and 2022 computed in accordance with GAAP (in thousands):

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

2023 2022 2023 2022

Net operating income $ 69,924 $ 67,015 $ 138,541 $ 132,911

3 unchanged sentences

Interest expense, net (16,368) (14,547) (32,097) (29,213)

Other (expense) income, net 6,679 (162)

Other income (expense), net 273 (181) 6,951 (343)

Net income $ 15,397 $ 13,588 $ 36,063 $ 27,102

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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 months ended March 31, 2023 to net income, the nearest GAAP equivalent (in thousands, except per share and share data):

Three Months Ended March 31,

The following table sets forth a reconciliation of our FFO for the three and six months ended June 30, 2023 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,

Funds from Operations (FFO)

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Weighted average number of common shares and units, diluted (1)

76,328,181 76,328,678

(1) The weighted average common shares used to compute FFO per diluted share include unvested restricted stock awards that are subject to time vesting, which were excluded from the computation of diluted EPS, as the vesting of the restricted stock awards is dilutive in the computation of FFO per diluted share but is anti-dilutive for the computation of diluted EPS for the period.

1 unchanged sentence

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