What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-28 · 145 added, 148 removed, 428 unchanged (41% of the section changed)

25 unchanged sentences

• risks related to joint venture arrangements;

• on-going litigation;

• on-going and/or potential litigation;

• difficulties in completing dispositions;

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

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

Additionally, as of September 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 June 30, 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 September 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 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,

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

Eastgate Office Park and Corporate Campus East III were reclassified to same-store properties when compared to the designation for the three and nine months ended September 30, 2022, because these properties were acquired on July 7, 2021 and September 10, 2021, respectively.

Because Bel-Spring 520 was acquired on March 8, 2022, it was reclassified as same-store and redevelopment same-store property for the three months ended September 30, 2023, and is classified as non-same-store property for the nine months ended September 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 5.8% for the nine months ended September 30, 2023 compared to the same period in 2022.

Office same-store net operating income decreased 1.4% for the nine months ended September 30, 2023 compared to the same period in 2022.

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

2023 2022 2023 2022

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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 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.

During the three months ended September 30, 2023, we signed 10 office leases for a total of 87,081 square feet of office space including 62,963 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 basis and increase on a GAAP basis of 7.0% and 13.5%, respectively.

New office leases for comparable spaces were signed for 27,388 square feet at an average rental rate increase on a cash and GAAP basis of 9.8% and 12.7%, respectively.

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 office spaces were signed for 35,575 square feet at an average rental rate increase on a cash basis and increase on a GAAP basis of 4.8% and 14.2%, respectively.

Tenant improvements and incentives were $102.72 per square foot of office space for comparable new leases for the three months ended September 30, 2023, mainly due to a tenant at La Jolla Commons.

During the three months ended September 30, 2023, we signed 28 retail leases for a total of 135,535 square feet of retail space including 131,839 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 8.2% and 18.7%, respectively.

Renewals for comparable retail spaces were signed for 131,839 square feet at an average rental rate increase on a cash and GAAP basis of 8.2% and 18.7%, respectively.

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

There were no new retail leases for comparable spaces signed during the three months ended September 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.

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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 $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.

We capitalized external and internal costs related to both development and redevelopment activities combined of $4.6 million and $16.2 million for the three months ended September 30, 2023 and 2022, respectively, and $19.9 million and $61.6 million for the nine months ended September 30, 2023 and 2022, respectively.

We capitalized external and internal costs related to other property improvements combined of $15.0 million and $10.4 million for the three months ended September 30, 2023 and 2022, respectively, and $40.6 million and $29.5 million for the nine months ended September 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 $1.9 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.

We capitalized interest costs related to development activities of $2.0 million and $1.6 million for the three months ended September 30, 2023 and 2022, respectively, and $5.7 million and $4.1 million for the nine months ended September 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 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 %

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

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

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

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

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

Three Months Ended September 30, Change %

Rental income $ 105,494 $ 105,468 $ 26 — %

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

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:

Total property revenue increased $0.2 million, to $111.2 million for the three months ended September 30, 2023 compared to $111.0 million for the three months ended September 30, 2022.

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

Percentage Leased (1)

September 30,

Office 86.8 % 90.7 %

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95.1 % 94.9 %

(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.

Percentage leased for our multifamily properties includes total units rented and occupied as of September 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 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.

The increase in total property revenue was attributable primarily to new retail leases, higher average monthly base rents within the multifamily 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 $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 remained largely unchanged at $105.5 million for the three months ended September 30, 2023 and September 30, 2022.

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 %

2023 2022 2023 2022

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(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 $1.0 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.

Total office rental revenue decreased $1.4 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to a decrease of $1.4 million related to accelerated revenue recognition in 2022 of tenant improvement overages due to a tenant vacating its space earlier than the original lease expiration date, as well as a decrease in common area maintenance recoveries of $0.3 million.

These decreases were offset by higher annualized base rents at Torrey Reserve and Corporate Campus East III due to new tenants and higher rent renewal rates.

Total retail rental revenue increased $0.5 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to new tenant leases and scheduled rent increases.

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

Multifamily revenue increased $0.6 million for the three months ended September 30, 2023 compared to the three months ended September 30, 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 $2,572 and 88.5%, respectively for the three months ended September 30, 2023 compared to $2,372 and 91.9%, respectively for the three months ended September 30, 2022.

Total mixed-use rental revenue increased $0.4 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to an increase in tourism, which led to an increase in average occupancy and revenue per available room to 89.3% and $350 for the three months ended September 30, 2023, respectively, compared to 84.2% and $335 for the three months ended September 30, 2022, respectively.

Other property income .

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 increased $0.1 million, or 3%, to $5.7 million for the three months ended September 30, 2023 compared to $5.6 million for the three months ended September 30, 2022.

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 %

2023 2022 2023 2022

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$ 5,704 $ 5,555 $ 149 3 % $ 5,687 $ 5,525 $ 162 3 %

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.

Office other property income increased by $0.2 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due an increase in parking garage income at City Center Bellevue and La Jolla Commons.

Multifamily other property income decreased by $0.2 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to a decrease in meter income, parking garage income and security deposits earned primarily at Pacific Ridge Apartments and Loma Palisades.

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

Total property expenses increased $1.4 million, or 3%, to $41.3 million, for the three months ended September 30, 2023 compared to $39.9 million for the three months ended September 30, 2022.

Rental Expenses.

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 expenses increased $1.5 million, or 5%, to $29.9 million for the three months ended September 30, 2023 compared to $28.4 million for the three months ended September 30, 2022.

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 %

2023 2022 2023 2022

4 unchanged sentences

$ 29,912 $ 28,438 $ 1,474 5 % $ 29,596 $ 28,228 $ 1,368 5 %

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.

Office rental expense increased $0.7 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to an increase in utilities expenses, facility services and insurance expenses.

Multifamily rental expense increased $0.4 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to an increase in utilities expenses, insurance expense and employee related costs.

Mixed-use rental expense increased $0.4 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to an increase in hotel room expenses and employee related costs at the hotel portion of our mixed-use property.

Real Estate Taxes.

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 taxes decreased $0.1 million, or 1%, to $11.4 million for the three months ended September 30, 2023 compared to $11.5 million for the three months ended September 30, 2022.

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 %

2023 2022 2023 2022

4 unchanged sentences

$ 11,399 $ 11,477 $ (78) (1) % $ 11,314 $ 11,538 $ (224) (2) %

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.

Office real estate taxes increased $0.2 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to a one-time real estate tax refund received during 2022 at One Beach and an increase in property value assessments at Eastgate Office Park and Corporate Campus East III.

Retail real estate taxes decreased $0.3 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due lower tax assessment at Alamo Quarry Market and a one-time real estate tax refund received during 2023 at Del Monte Center.

Mixed-use real estate taxes increased $0.1 million for the three months ended September 30, 2023 compared to the three months ended September 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 $2.9 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 decreased $1.2 million, or 2%, to $69.9 million for the three months ended September 30, 2023, compared to $71.1 million for the three months ended September 30, 2022.

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 %

2023 2022 2023 2022

4 unchanged sentences

$ 69,887 $ 71,108 $ (1,221) (2) % $ 70,271 $ 71,260 $ (989) (1) %

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 $0.3 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.

These increases were offset by higher hotel room expenses, general excise tax expenses and employee related costs at both the hotel and retail portions of our mixed-use property.

Total office property operating income decreased $2.1 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily due to accelerated revenue recognition in 2022 of tenant improvement overages due to a tenant vacating its space earlier than the original lease expiration date.

Additionally, there was an increase in expenses related to utilities expense, facilities services, insurance expense and real estate taxes.

These decreases were partially offset by higher annualized base rents at Torrey Reserve and Corporate Campus East III.

Total retail property operating income increased $0.8 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to new tenant leases and scheduled rent increases at Carmel Mountain Plaza, Alamo Quarry Market and Lomas Santa Fe Plaza.

Additionally, real estate taxes decreased primarily due to lower tax assessment at Alamo Quarry Market and a one-time real estate tax refund received during 2023 at Del Monte Center.

Total mixed-use property operating income increased $0.1 million for the three months ended September 30, 2023 compared to the three months ended September 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 89.3% and $350, respectively, for the three months ended September 30, 2023, compared to 84.2% and $335, respectively, for the three months ended September 30, 2022.

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

These increases were offset by higher hotel room expenses and employee related costs at both the hotel and retail portions of our mixed-use property.

General and Administrative.

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.

General and administrative expenses increased to $8.9 million for the three months ended September 30, 2023, compared to $8.4 million for the three months ended September 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 $29.8 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.

Depreciation and amortization expense decreased to $29.9 million for the three months ended September 30, 2023, compared to $31.7 million for the three months ended September 30, 2022.

This was due to acceleration of assets related to tenants vacating space during the three months ended September 30, 2022 at City Center Bellevue, Eastgate Office Park and Hassalo on Eighth - Retail.

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 $1.8 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.

Interest expense increased by $1.9 million, or 13%, to $16.3 million for the three months ended September 30, 2023, compared to $14.5 million for the three months ended September 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.

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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 %

Other income, net increased $0.5 million, or 278%, to other income, net of $0.3 million for the three months ended September 30, 2023, compared to other expense, net of $0.2 million for the three months ended September 30, 2022, primarily due to an increase of $0.5 million in interest and investment income attributed to higher yield on our average cash balance during the period.

Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

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

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

Nine Months Ended September 30, Change %

Rental income $ 312,105 $ 301,470 $ 10,635 4 %

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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:

Total property revenue increased $12.0 million, or 4%, to $328.7 million for the nine months ended September 30, 2023 compared to $316.6 million for the nine months ended September 30, 2022.

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

Percentage Leased (1)

September 30,

Office 86.8 % 90.7 %

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95.1 % 94.9 %

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

Percentage leased for our multifamily properties includes total units rented and occupied as of September 30, 2023 or 2022, 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 $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 increased $10.6 million, or 4%, to $312.1 million for the nine months ended September 30, 2023 compared to $301.5 million for the nine months ended September 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 %

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

2023 2022 2023 2022

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(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 $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.

Total office rental revenue increased $1.1 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to the acquisition of Bel-Spring 520 which accounted for $0.8 million of the increase.

Same store office rental revenue increased by $0.4 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to higher annualized base rents at Torrey Reserve and The Landmark at One Market.

These increases were offset by lower occupancy at Eastgate Office Park and a decrease related to accelerated revenue recognition in 2022 of tenant improvement overages due to a tenant vacating its space earlier than original lease expiration date.

Retail rental revenue increased $2.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to new tenant leases signed, scheduled rent increases 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.

Additionally, there was an increase in cost recoveries of $0.3 million.

Multifamily revenue increased $3.2 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an overall increase in average monthly base rent of $2,557 for the nine months ended September 30, 2023 compared to $2,294 for the nine months ended September 30, 2022.

Average occupancy decreased to 89.7% for the nine months ended September 30, 2023 compared to 93.4% for the nine months ended September 30, 2022.

Mixed-use rental revenue increased $3.6 million for the nine months ended September 30, 2023 compared to the nine months ended September 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 85.3% and $322 for the nine months ended September 30, 2023, respectively, compared to 78.6% and $286 for the nine months ended September 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 increased $1.4 million, or 9%, to $16.6 million for the nine months ended September 30, 2023 compared to $15.2 million for the nine months ended September 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 %

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

2023 2022 2023 2022

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$ 16,568 $ 15,178 $ 1,390 9 % $ 16,516 $ 15,074 $ 1,442 10 %

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.

Office other property income increased $0.6 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily 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 La Jolla Commons.

Retail other property income increased $0.1 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to lease termination fees received during 2023 at Carmel Mountain Plaza and Southbay Marketplace.

Multifamily other property income decreased $0.1 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to a decrease in meter income and security deposits applied at Pacific Ridge Apartments and Loma Palisades primarily.

Total mixed-use other property income increased $0.8 million for the nine months ended September 30, 2023 compared to the nine months ended September 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 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.

Total property expenses increased by $7.6 million, or 7%, to $120.2 million for the nine months ended September 30, 2023, compared to $112.6 million for the nine months ended September 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 expenses increased $7.7 million, or 10%, to $86.1 million for the nine months ended September 30, 2023, compared to $78.4 million for the nine months ended September 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 %

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

2023 2022 2023 2022

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$ 86,128 $ 78,436 $ 7,692 10 % $ 84,742 $ 77,468 $ 7,274 9 %

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.

Office rental expenses increased $2.9 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increase of $2.5 million in same-store office rental expenses related 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.

In addition, office rental expenses increased $0.2 million related to the acquisition of Bel-Spring 520.

Retail rental expenses increased $0.4 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increase in facilities services and insurance expenses in the period.

Multifamily rental expenses increased $1.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increase in utilities expenses, repairs and maintenance expenses, insurance expense and an increase in property-level personnel compensation expenses.

Total mixed-use rental expenses increased $3.1 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increase of $2.9 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 remained largely unchanged at $34.1 million for both the nine months ended September 30, 2023, and the nine months ended September 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 %

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

2023 2022 2023 2022

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$ 34,117 $ 34,193 $ (76) — % $ 33,735 $ 34,013 $ (278) (1) %

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.

Office real estate taxes increased $0.2 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to the acquisition of Bel-Spring 520, a one-time real estate tax refund received during 2022 at One Beach and an increase in property value assessments at Eastgate Office Park and Corporate Campus East III.

Retail real estate taxes decreased $0.6 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to a one-time real estate tax refund received during 2023 at Carmel Mountain Plaza and Del Monte Center and lower tax assessments at Alamo Quarry Market.

Multifamily real estate taxes increased $0.1 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increase in property value assessments across all multifamily properties.

Mixed-use real estate taxes increased $0.2 million for the nine months ended September 30, 2023 compared to the nine months ended September 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 increased $4.4 million, or 2%, to $208.4 million for the nine months ended September 30, 2023, compared to $204.0 million for the nine months ended September 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 %

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

2023 2022 2023 2022

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$ 208,428 $ 204,019 $ 4,409 2 % $ 207,681 $ 203,385 $ 4,296 2 %

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.

Total office property operating income decreased $1.4 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to higher operating expenses related to utilities expenses, repairs and facilities services and insurance expense.

Additionally, there was a decrease due to lower occupancy at Eastgate Office Park and a decrease related to accelerated revenue recognition in 2022 of tenant improvement overages due to a tenant vacating

its space earlier than original lease expiration date.

These decreases were partially offset by higher annualized base rents at Torrey Reserve Campus and The Landmark at One Market.

Total retail property operating income increased $3.0 million during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to new tenant leases signed, scheduled rent increases and tenants previously on alternate rent reverting back to basic monthly rent.

These increases were partially offset by higher operating expenses related to facilities services and insurance expense.

Total multifamily property operating income increased $1.6 million during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an overall increase in average monthly base rent of $2,557 for the nine months ended September 30, 2023 compared to $2,294 for the nine months ended September 30, 2022.

Average occupancy decreased to 89.7% for the nine months ended September 30, 2023 compared to 93.4% for the nine months ended September 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.

Total mixed-use property operating income increased $1.2 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to the Waikiki Beach Walk hotel portion of our mixed use property, which had an increase in average occupancy and revenue per available room of 85.3% and $322 for the nine months ended September 30, 2023, respectively, compared to 78.6% and $286 for the nine months ended September 30, 2022, respectively.

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.

General and administrative expenses increased $3.4 million, or 15%, to $26.5 million for the nine months ended September 30, 2023, compared to $23.1 million for the nine months ended September 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.

Depreciation and amortization expense decreased $3.6 million, or 4%, to $89.6 million for the nine months ended September 30, 2023, compared to $93.2 million for the nine months ended September 30, 2022.

This was due to acceleration of assets related to tenants vacating space during the nine months ended September 30, 2022 at City Center Bellevue, Eastgate Office Park, Corporate Campus East III and Hassalo on Eighth - Retail.

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.

Interest expense increased $4.8 million, or 11%, to $48.4 million for the nine months ended September 30, 2023 compared to $43.7 million for the nine months ended September 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.

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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.

Other income, net increased $7.8 million, or 1,490%, to other income, net of $7.3 million for the nine months ended September 30, 2023, compared to other expense, net of $0.5 million for the nine months ended September 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 $1.4 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 June 30, 2023, the company owned an approximate 78.8% partnership interest in the Operating Partnership.

As of September 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 June 30, 2023, 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, 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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As circumstances warrant, the company may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing.

When the company receives proceeds from preferred or common equity issuances, it is required by the Operating Partnership’s partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership in exchange for partnership units of the Operating Partnership.

The Operating Partnership may use the proceeds to repay debt, to develop new or existing properties, to acquire properties or for general corporate purposes.

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

For the three months ended September 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 June 30, 2023, we held $84.7 million in cash and cash equivalents.

As of September 30, 2023, we held $90.0 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 half of 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 for the nine months ending September 30, 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 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.

Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022

Cash, cash equivalents, and restricted cash were $90.0 million and $63.4 million at September 30, 2023 and 2022, respectively.

Net cash provided by operating activities increased $9.0 million to $149.9 million for the nine months ended September 30, 2023 compared to $140.9 million for the nine months ended September 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.

Net cash used in investing activities decreased $69.4 million to $70.2 million for the nine months ended September 30, 2023 compared to $139.6 million for the nine months ended September 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.

Net cash used by financing activities decreased $38.1 million to $39.3 million for the nine months ended September 30, 2023 compared to cash used in financing activities of $77.4 million for the nine months ended September 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.

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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, 2023 and 2022 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, 2023 and 2022 computed in accordance with GAAP (in thousands):

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

2023 2022 2023 2022

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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, 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,

The following table sets forth a reconciliation of our net income for the three and nine months ended September 30, 2023 to FFO, 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