What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-14 compared with 2023-02-10 · 75 added, 113 removed, 508 unchanged (27% of the section changed)

17 unchanged sentences

the San Francisco Bay Area, California;

Bellevue, Washington;

Portland, Oregon, and Oahu, Hawaii.

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

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

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

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

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

The global impact of COVID-19 continues to rapidly evolve.

Certain states and cities, including where we own properties, have development sites and where our principal place of business is located, have at various points in time, reacted by instituting quarantines, restrictions on travel, "stay-at-home" orders or “shelter in place” rules, social distancing measures, and restrictions on business operations and/or construction projects (including, required shut-downs in some instances), and, even if such measures have been lifted, we cannot predict whether they will be reinstated or whether more restrictive measures may be imposed.

It is unclear how customers’ concerns about COVID-19 transmission and sensitivities to the transmission of other diseases will impact their willingness to visit certain of our tenants' businesses.

As a result, COVID-19 has negatively impacted almost every industry directly or indirectly, including industries in which the Company and our tenants operate, and may continue to do so.

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

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

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

We believe our financial condition and liquidity are currently strong.

Although there is uncertainty related to COVID-19’s impact on our future results, we believe our efficient business model and steps we have taken to strengthen our balance sheet will continue to allow us to manage our business through this evolving crisis.

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

Due to the constantly changing nature of COVID-19, we cannot reasonably estimate with any degree of certainty the future impacts it may have on our results of operations, financial position, and liquidity.

We have provided certain information on a total portfolio, same-store and redevelopment same-store basis.

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Acquired properties are classified to 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.

In our determination of same-store and redevelopment same-store properties, One Beach Street has been identified as a same-store redevelopment property due to significant construction activity.

Below is a summary of our same-store composition for the years ended December 31, 2023, 2022 and 2021.

For the year ended December 31, 2022, when compared to the designations for the year ended December 31, 2021, Waikiki Beach Walk-Retail and Embassy Suites™ Hotel is reclassified to same-store due to significant spalling repair activity impacting the hotel portion of the property's operations, which was completed on September 30, 2020.

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

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

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

For the year ended December 31, 2021, when compared to the designations for the year ended December 31, 2020, Waikele Center was reclassified to same-store as there is currently no redevelopment activity on the property.

La Jolla Commons was classified as same-store, as it was acquired on June 20, 2019.

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

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

For the year ended December 31, 2023, when compared to the designations for the year ended December 31, 2022, Eastgate Office Park and Corporate Campus East III were reclassified to same-store properties 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 is classified as non-same-store property for the year ended December 31, 2023.

One Beach Street continues to be identified as a same-store redevelopment property due to significant construction activity.

For the year ended December 31, 2022, when compared to the designations for the year ended December 31, 2021, Waikiki Beach Walk-Retail and Embassy Suites™ Hotel was reclassified to same-store due to significant spalling repair activity impacting the hotel portion of the property's operations, which was completed on September 30, 2020.

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

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

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

One Beach Street continues to be identified as a same-store redevelopment property due to significant construction activity.

2023 2022 2021

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The full amount of the expenses for this lease type, to the extent they are paid by the landlord, is reflected in operating expenses, and the reimbursement is reflected as rental income in the statements of operations.

During the year ended December 31, 2022, we signed 91 retail leases for 390,425 square feet with an average rent of $32.96 per square foot during the initial year of the lease term, including leases signed for the retail portion of our mixed-use

During the year ended December 31, 2023, we signed 86 retail leases for 405,144 square feet with an average rent of $34.18 per square foot during the initial year of the lease term, including leases signed for the retail portion of our mixed-use property.

Of the leases, 75 represent comparable leases where there was a prior tenant, with an increase of 6.5% in cash basis rent and an increase of 15.4% in straight-line rent compared to the prior leases.

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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.

In the short-term, however, 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;

and 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 twelve months ended December 31, 2023, we signed 49 office leases for a total of 322,418 square feet of office space including 261,246 square feet of comparable space leases, at an average rental rate increase of 2.4% on a cash basis and an average rental increase of 10.8% on a straight-line basis.

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During the twelve months ended December 31, 2023, we signed 86 retail leases for a total of 405,144 square feet of retail space including 367,810 square feet of comparable space leases, at an average rental rate increase of 6.5% on a cash basis and an average rental increase of 15.4% on a straight-line basis.

New retail leases for comparable spaces were signed for 14,511 square feet at an average rental rate increase of 16.0% on a cash basis and an average rental rate increase of 701.9% (due to the modification of prior tenants' rent to cash-basis, which precluded straight-line rent for comparison) on a straight-line basis.

New retail leases for comparable spaces were signed for 2,634 square feet at an average rental rate increase of 75.5% on a cash basis and an average rental rate increase of 145.7% on a straight-line basis (due to the modification of prior tenants' rent to cash-basis, which precluded straight-line rent for comparison).

Renewals for comparable retail spaces were signed for 365,176 square feet at an average rental rate increase of 5.7% on a cash basis and an increase of 14.7% on a straight-line basis.

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

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

investment made in the space and the specific lease structure.

Tenant improvements and incentives include the total dollars committed for the improvement of a space as it relates to a specific lease, but may also include base building costs (i.e., expansion, escalators or new entrances) which are required to make the space leasable.

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Total $ 27,698 $ 20,182 $ 47,880 $ 20,609 $ 52,666 $ 121,155

The decrease in tenant improvements and leasing commissions for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily related to tenant buildouts at The Landmark at One Market and First & Main completed in the year ended December 31, 2021, partially offset by new tenant buildouts at Torrey Reserve Campus, Carmel Mountain Plaza and Corporate Campus East III during the year ended December 31, 2022.

The increase in new development expenditures for the year ended December 31, 2022 compared to the year ended December 21, 2021 was primarily related to costs incurred for the development of Tower 3 at La Jolla Commons.

The increase in redevelopment expenditures for the year ended December 31, 2022 compared to the year ended December 31, 2021, was primarily related to the modernization costs of One Beach Street.

The decrease in tenant improvements and leasing commissions for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily related to tenant buildouts at The Landmark at One Market, City Center Bellevue and Alamo Quarry Market completed in the year ended December 31, 2022, partially offset by new tenant buildouts at Torrey Point, Carmel Mountain Plaza and Del Monte Center during the year ended December 31, 2023.

The increase in maintenance capital expenditures for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily related to renovations at Eastgate Office Park, City Center Bellevue and La Jolla Commons.

The decrease in new development expenditures for the year ended December 31, 2023 compared to the year ended December 21, 2022 was primarily related to costs incurred for the development of Tower 3 at La Jolla Commons.

The decrease in redevelopment expenditures for the year ended December 31, 2023 compared to the year ended December 31, 2022, was primarily related to the modernization costs of One Beach Street.

Our capital expenditures during the year ending December 31, 2024 will depend upon acquisition opportunities, the level of improvements and redevelopments on existing properties and the timing and cost of development of our held for development and construction in progress properties.

While the amount of future expenditures will depend on numerous factors, we expect expenditures incurred in the year ending December 31, 2023 to decrease from the year ending December 31, 2022 as we near completion of development activities at La Jolla Commons and renovations at One Beach Street.

While the amount of future expenditures will depend on numerous factors, we expect expenditures incurred in the year ending December 31, 2024 to decrease from the year ending December 31, 2023 as we expect to reach completion of development activities at La Jolla Commons during the first quarter of 2024.

Derivative Instruments

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The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in other comprehensive income which is included in accumulated other comprehensive income on our consolidated balance sheet and our consolidated statement of equity.

Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not match, such as notional amounts, settlement dates, reset dates, calculation periods and the use of LIBOR or SOFR, as the case may be.

In addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty which includes reviewing debt ratings and financial performance.

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2023 Acquisitions and Dispositions

During the year ended December 31, 2023, there were no acquisitions or dispositions.

2022 Acquisitions and Dispositions

On March 8, 2022, we acquired Bel-Spring 520 , consisting of an approximately 93,000 square feet, multi-tenant office campus in Bellevue, Washington.

1 unchanged sentence

The property was acquired with cash on hand.

During 2022, there were no dispositions.

During the year ended December 31, 2022, there were no dispositions.

2021 Acquisitions and Dispositions

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During the year ended December 31, 2021, there were no dispositions.

2020 Acquisitions and Dispositions

During the year ended December 31, 2020, there were no acquisitions or dispositions.

Results of Operations

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Depreciation and amortization (119,500) (123,338) 3,838 (3)

Interest expense (58,232) (58,587) 355 (1)

Loss on early extinguishment of debt — (4,271) 4,271 100 %

Interest expense, net (64,706) (58,232) (6,474) 11

Other income (expense), net 7,649 (625) 8,274 1,324

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(1) For this table and tables following, the same-store portfolio excludes (i) One Beach Street, due to significant redevelopment activity;

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

(iii) Corporate Campus East III which was acquired on September 10, 2021;

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

(v) 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 (vi) land held for development.

Total office rental revenue increased $16.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to the new acquisitions of Eastgate Office Park, Corporate Campus East III and Bel-Spring 520 which accounted for $11 million of the increase.

The increase in total office rental revenue is partially offset by the decrease in rental revenue at One Beach Street of $0.3 million due to expiration of leases to allow for the modernization of the property.

Same-store office rental revenue increased $5.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to higher annualized base rents at La Jolla Commons and Landmark at One Market and higher occupancy at La Jolla Commons and Torrey Reserve Campus.

Additionally, there was an increase of $1.7 million related to cost recoveries at La Jolla Commons, First & Main and The Landmark at One Market and an increase of $1 million related to accelerated revenue recognition of tenant improvement overages due to tenants vacating their space sooner than original lease terms.

Total retail rental revenue increased $6.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to approximately $4.2 million for new tenant leases signed and tenants previously on alternate rent reverting back to basic monthly rent.

This includes certain tenants who were changed to alternate rent or to cash basis of revenue recognition during the years ended December 31, 2020 and 2021 as collectability of rent was determined to be no longer probable.

Additionally, there was an increase in cost recoveries of approximately $2.1 million as COVID-related rent concessions were provided during the years ended December 31, 2020 and 2021.

Multifamily rental revenue increased $5.2 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an overall increase in occupancy and average monthly base rent of 92.9% and $2,349, respectively, for the year ended December 31, 2022, compared to 92.1% and $2,160, respectively, for the year ended December 31, 2021.

Mixed-use rental revenue increased $14.5 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase of $13.2 million related to the Waikiki Beach Walk hotel portion of our mixed use property.

This increase was due to the lifting of COVID-19-related travel restrictions, which led to an increase in average occupancy and revenue per available room to 76.9% and $283 for the year ended December 31, 2022, respectively, compared to 66.4% and $185 for the year ended December 31, 2021, respectively.

Waikiki Beach Walk retail portion increased $1.3 million as tenants were changed to alternate rent or to cash basis of revenue recognition during the years ended December 31, 2020 and 2021 as collectability of rent was determined to be no longer probable for certain tenants.

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

(iii) the 710 building at Lloyd 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 $4.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase of $3.2 million in same-store office rental revenue due to higher annualized base rents at Torrey Reserve Campus, Solana Crossing and The Landmark at One Market.

Additionally, rental revenue increased $0.8 million due to the acquisition of Bel-Spring 520.

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 the original lease expiration date.

Total retail rental revenue increased $3.8 million for the year ended December 31, 2023 compared to the year ended December 31, 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, Waikele Center and Del Monte Center.

Additionally, there was an increase in cost recoveries of $0.7 million.

Multifamily rental revenue increased $3.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an overall increase in average monthly base rent of $2,581 for the year ended December 31, 2023, compared to $2,349 for the year ended December 31, 2022.

Average occupancy decreased to 90.0% for the year ended December 31, 2023 compared to 92.9% for the year ended December 31, 2022.

Mixed-use rental revenue increased $5.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase of $4.7 million at the Waikiki Beach Walk hotel portion of our mixed-use property.

This was due to an increase in average occupancy and revenue per available room to 85.2% and $318 for the year ended December 31, 2023, respectively, compared to 76.9% and $283 for the year ended December 31, 2022, respectively.

Additionally, there was an increase of $0.4 million at the Waikiki Beach Walk retail portion of our mixed-use property due to new tenant leases signed and tenants previously on alternate rent reverting back to basic monthly rent.

Other property income.

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$ 21,791 $ 20,141 $ 1,650 8 % $ 21,720 $ 19,994 $ 1,726 9 %

Same-store office other property income increased $0.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in parking garage income at Lloyd Portfolio, City Center Bellevue and First & Main, partially offset by lease termination and settlement amounts received at One Beach and City Center Bellevue during the year ended December 31, 2021.

Retail other property income decreased $0.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to the lease termination fees received at Carmel Mountain Plaza and Del Monte Center during the year ended December 31, 2021.

Multifamily other property income increased $0.6 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily to an increase in parking garage income at Hassalo on Eighth - Residential, an increase in meter income at Loma Palisades and Pacific Ridge Apartments, and an increase in security deposits applied at Pacific Ridge Apartments.

Mixed-use other property income increased $3.2 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in other room rental income and rent excise tax at the hotel portion of our mixed-use property and an increase in parking garage income and rent excise tax at the retail portion of our mixed-use property.

Total office other property income increased $0.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in parking garage income at City Center Bellevue and La Jolla Commons.

Retail other property income increased $0.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to lease termination fees received at Carmel Mountain Plaza and Southbay Marketplace.

Multifamily other property income decreased $0.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to a decrease in meter income and late fees at Pacific Ridge Apartments, Loma Palisades and Hassalo on Eighth - Multifamily.

Mixed-use other property income increased $1.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to increased tourism and hotel occupancy which led to an increase in other room rental income and excise taxes at the hotel portion of our mixed-use property and an increase in parking garage income at the retail portion of our mixed-use property.

Property Expenses

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$ 118,801 $ 107,645 $ 11,156 10 % $ 116,830 $ 106,224 $ 10,606 10 %

Total office rental expenses increased $6.5 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to $2.5 million related to the recent acquisitions of Eastgate Office Park, Corporate Campus East III and Bel-Spring 520.

Same-store office rental expenses increased $4.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in repairs and maintenance services, utilities expenses, facility services and other operating expenses as the "stay-at home" orders issued by state and local governments related to COVID-19 were relaxed in 2021 and our tenants' employees have started returning to the office in person.

Total retail rental expenses increased $1.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in repairs and maintenance, facilities services, insurance expenses and marketing expenses in 2022, as restrictions on business operations from orders issued by state and local governments related to COVID-19 were eased during the first half of 2021.

Multifamily rental expensed increased $2.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in utilities expenses and repairs and maintenance related to landscaping, plumbing and painting services.

Additionally, there was an increase in property-level personnel compensation expenses and insurance expenses in 2022.

Mixed-use rental expenses increased $10.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in hotel room expenses, personnel expenses and excise tax expenses at the hotel portion of our mixed-use property during the period.

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

Total office rental expenses increased $3.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase of $3.1 million in same-store office rental expenses related to an increase in repairs and maintenance services, utilities expenses, facility services, insurance expenses and other operating expenses as our tenants' employees have started returning to the office in-person.

Additionally, office rental expenses increased $0.3 million due to certain incomplete development costs written off and $0.2 million related to the acquisition of Bel-Spring 520.

Total retail rental expenses increased $1.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in facilities services, insurance expenses and certain incomplete development costs written off in the period.

Multifamily rental expenses increased $1.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in utilities expenses, repairs and maintenance expenses, insurance expenses and an increase in property-level personnel compensation expenses.

Mixed-use rental expenses increased $4.5 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase of $4.2 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 $0.3 million at the retail portion of our mixed-use property related to excise taxes, employee costs and facilities expenses.

Real Estate Taxes.

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$ 45,156 $ 44,788 $ 368 1 % $ 44,646 $ 44,487 $ 159 — %

Total office real estate taxes increased $0.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to the recent acquisitions of Eastgate Office Park, Corporate Campus East III and Bel-Spring 520.

There was a decrease of $0.1 million at One Beach Street due to the capitalization of real estate taxes as the property is under redevelopment.

Same-store office real estate taxes for the year ended December 31, 2022 compared to the year ended December 31, 2021 remained flat.

Retail real estate taxes increased $1.4 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to a one-time real estate tax refund received during the year ended December 31, 2021 for approximately $1.6 million at Alamo Quarry Market for the tax assessments for 2019 through 2020.

This was partially offset by higher tax consulting fees of $0.2 million incurred during the year ended December 31, 2021.

Multifamily real estate taxes increased $0.2 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in tax assessments for Hassalo on Eighth - Residential.

Mixed-use real estate taxes decreased $0.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to COVID-19 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.

Total office real estate taxes increased $0.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in property value assessments at La Jolla Commons, Eastgate Office Park and Corporate Campus East III.

Retail real estate taxes decreased $0.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to a one-time real estate tax refund received during 2023 at Carmel Mountain Plaza and Del Monte Center.

Multifamily real estate taxes increased $0.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in property value assessments across all multifamily properties.

Mixed-use real estate taxes increased $0.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to discontinuation of a reduction in tax burden that was formerly provided by Honolulu County to hotels during 2021 and 2022 in response to the COVID-19 pandemic.

Property Operating Income.

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$ 277,207 $ 270,215 $ 6,992 3 % $ 276,329 $ 269,333 $ 6,996 3 %

Total office property operating income increased $9.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to the recent acquisitions of Eastgate Office Park, Corporate Campus East III, and Bel-Spring 520, which had incremental property operating income of approximately $7.8 million during the period.

The increase in total office property operating income is partially offset by the decrease at One Beach Street of $0.3 million due to expiration of leases to allow for the modernization of the property.Same-store property operating income increased $1.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to higher cost recoveries and higher occupancy at La Jolla Commons and Torrey Reserve Campus, higher annualized base rent at La Jolla Commons and an increase of $1.0 million related to accelerated revenue recognition of tenant improvement overages due to tenants vacating their space prior to the original expiration dates.

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

Retail property operating income increased $3.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to approximately $4.2 million related to new leases executed and tenants that were previously on alternate rent (due to COVID-19 related rent concessions) reverting back to basic monthly rent, including certain tenants who were changed to alternate rent or to cash basis of revenue recognition during the years ended December 31, 2020 and 2021 as the collectability of rent was determined to be no longer probable.

Additionally, there was an increase in cost recoveries of $2.1 million as COVID-19 related rent concessions were provided during the years ended December 31, 2020 and 2021.

These increases were partially offset by comparatively higher real estate taxes related to a one-time real estate tax refund of approximately $1.6 million for Alamo Quarry Market received during the third quarter of 2021 relating to the calendar years 2019 through 2020, and an overall increase in rental expenses of $1.0 million related to repairs and maintenance and facilities services.

Multifamily property operating income increased $2.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an overall increase in occupancy and average monthly base rent of 92.9% and $2,349, respectively, for the year ended December 31, 2022 compared to 92.1% and $2,160, respectively for the year ended December 31, 2021.

These increases were partially offset by higher utilities and repairs and maintenance expenses.

Mixed-use property operating income increased $7.7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase of $6.3 million related to the Waikiki Beach Walk hotel portion of our mixed use property.

This increase was due to the lifting of COVID-19 travel restrictions, which led to an increase in average occupancy and revenue per available room to 76.9% and $283 for the year ended December 31, 2022, respectively, compared to 66.4% and $185 for the year ended December 31, 2021, respectively.

Additionally, there was an increase of $1.4 million at the retail portion of our mixed-use property related to parking garage income and certain tenants who were changed to alternate rent or to cash basis of revenue recognition during the years ended December 31, 2020 and 2021 as the collectability of rent was determined to be no longer probable for them.

Total office property operating income increased $0.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to higher annualized base rents at Torrey Reserve Campus, Solana Crossing and The Landmark at One Market.

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

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 the original lease expiration date.

Retail property operating income increased $2.7 million for the year ended December 31, 2023 compared to the year ended December 31, 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 expenses.

Multifamily property operating income increased $1.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an overall decrease in average occupancy and increase in average monthly base rent of 90.0% and $2,581, respectively for the year ended December 31, 2023 compared to 92.9% and $2,349, respectively for the year ended December 31, 2022.

These increases were partially offset by higher utilities expenses, insurance expenses and repairs and maintenance expenses.

Mixed-use property operating income increased $1.7 million for the year ended December 31, 2023 compared to the year ended December 31, 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 to 85.2% and $318, respectively, for the year ended December 31, 2023 compared to 76.9% and $283, respectively, for the year ended December 31, 2022.

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

General and administrative.

General and administrative expenses increased $3.8 million, or 12%, to $36.0 million for the year ended December 31, 2023, compared to $32.1 million for the year ended December 31, 2022.

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

This increase was primarily due to increases 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.

Depreciation and amortization.

Depreciation and amortization expense increased $7.0 million, or 6%, to $123.3 million for the year ended December 31, 2022, compared to $116.3 million for the year ended December 31, 2021.

This increase was primarily due to a $5.3 million increase related to the recent acquisitions of Eastgate Office Park, Corporate Campus East III and Bel-Spring 520.

Additionally, there was an increase in depreciation and amortization at The Landmark at One Market due to building and tenant improvements that were put into service in 2021 and an increase in depreciation at City Center Bellevue

due to the acceleration of depreciation related to tenants vacating space in 2022.

These increases were offset by lower depreciation and amortization at One Beach due to the modernization of the property and depreciation of certain assets, which was accelerated in 2021.

Depreciation and amortization expense decreased $3.8 million, or 3%, to $119.5 million for the year ended December 31, 2023, compared to $123.3 million for the year ended December 31, 2022.

This was due to tenants vacating space during the year ended December 31, 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 improvements placed into service in 2023 at Torrey Reserve Campus, Bel-Spring 520, Lloyd Portfolio and First & Main.

Interest expense.

Interest expense decreased $0.4 million, or 1%, to $58.2 million for the year ended December 31, 2022 compared with $58.6 million for the year ended December 31, 2021.

This decrease was primarily due to an increase in capitalized interest related to our development projects.

This decrease was offset by higher interest related to the closing of our 3.375% Senior Notes offering on January 26, 2021, and an increase in interest expense related to our Term Loan A, which changed from an unhedged variable interest rate at the beginning of 2021 to a fixed interest rate at the beginning of 2022, as we entered into two interest rate swaps agreements to lock the rate against future fluctuation.

Loss on early extinguishment of debt .

Early extinguishment of debt expense increased $4.3 million for the year ended December 31, 2021 due to the repayment of the Senior Guaranteed Notes, Series A, with make-whole payments thereon, on January 26, 2021.

Interest expense, net increased $6.5 million, or 11%, to $64.7 million for the year ended December 31, 2023 compared to $58.2 million for the year ended December 31, 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 an increase in capitalized interest related to our development projects.

Other Income (Expense), Net.

Other expense, net increased $0.2 million, or 50%, to other expense, net of $0.6 million for the year ended December 31, 2022 compared to other income, net of $0.4 million for the year ended December 31, 2021, primarily due to an increase in income tax for our taxable REIT subsidiary and a decrease in interest and investment income attributed to the lower yield on our average cash balance during the period.

Other income, net increased $8.3 million, or 1,324%, to other income, net of $7.6 million for the year ended December 31, 2023 compared to other expense, net of $0.6 million for the year ended December 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 $2.0 million in interest and investment income attributed to the higher yield on our average cash balance during the period.

Liquidity and Capital Resources of American Assets Trust, Inc.

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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 December 31, 2022, the company has

determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months.

As of December 31, 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 Operating Partnership may use the proceeds to repay debt, to develop new or existing properties, to acquire properties or for general corporate purposes.

In January 2021, the company filed a universal shelf registration statement on Form S-3ASR with the SEC, which became effective upon filing and which replaced the prior Form S-3ASR that was filed with the SEC in February 2018.

In December 2023, the company filed a universal shelf registration statement on Form S-3ASR with the SEC, which became effective upon filing and which replaced the prior Form S-3ASR that was filed with the SEC in January 2021.

The universal shelf registration statement may permit the company from time to time to offer and sell equity securities of the company.

13 unchanged sentences

is our sole general partner and consolidates our results of operations for financial reporting purposes.

Because we operate on a consolidated basis with

American Assets Trust, Inc., the section entitled “Liquidity and Capital Resources of American Assets Trust, Inc.” should be read in conjunction with this section to understand our liquidity and capital resources on a consolidated basis.

Because we operate on a consolidated basis with American Assets Trust, Inc., the section entitled “Liquidity and Capital Resources of American Assets Trust, Inc.” should be read in conjunction with this section to understand our liquidity and capital resources on a consolidated basis.

Due to the nature of our business, we typically generate significant amounts of cash from operations.

25 unchanged sentences

Principal payments on long-term indebtedness $ 1,700,000 $ 100,000 $ 425,000 $ — $ 425,000 $ — $ 750,000

$ 1,625,000 $ 150,000 $ 100,000 $ 200,000 $ — $ 425,000 $ 750,000

Line of credit (2)

36,000 36,000 — — — — —

Interest payments 275,632 69,449 46,853 44,268 32,044 26,980 56,038

3 unchanged sentences

Total $ 2,050,348 $ 207,487 $ 486,126 $ 49,393 $ 460,628 $ 31,717 $ 814,997

(1) On January 5, 2023, our term loan agreement was amended and restated to, among other things, (1) increase the fully-drawn borrowings from $150 million to $225 million, (2) extend the maturity date from March 1, 2023 to January 5, 2025 (with one, twelve-month extension option) and (3) transition borrowings to the Secured Overnight Financing Rate (SOFR), and away from LIBOR.

The $225 million term loan is unsecured.

(2) On January 6, 2023, we repaid in full the $36 million outstanding balance on our revolving line of credit under our Third Amended and Restated Credit Facility.

Off-Balance Sheet Arrangements

3 unchanged sentences

Net cash provided by operating activities increased $9.7 million to $188.8 million for the year ended December 31, 2023, compared to $179.1 million for the year ended December 31, 2022.

The increase in cash from operations was primarily due to the increase in rental revenue from the hotel portion of our mixed-use property, our recent acquisitions of Eastgate Office Park, Corporate Campus East III and Bel-Spring 520, and changes in operating assets and liabilities.

The increase in cash from operations was primarily due to the net settlement payment 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 $76.4 million to $89.9 million for the year ended December 31, 2023, compared to $166.3 million for the year ended December 31, 2022.

The decrease in cash used was primarily due to our recent acquisition of Bel-Spring 520 on March 8, 2022, and increased capital expenditures at La Jolla Commons III and One Beach Street, compared to the cash used for the year ended December 31, 2021 related to our acquisitions of Eastgate Office Park and Corporate Campus East III.

Net cash used by financing activities was $102.7 million for the year ended December 31, 2022, compared to net cash provided by financing activities of $144.4 million for the year ended December 31, 2021.

The increase in cash used in financing activities was primarily due to quarterly dividends for 2022 and debt issuance costs related to our third amended and restated credit facility.

The cash provided by financing activities for the year ended December 31, 2021 was related to the issuance of the 3.375% Senior Notes on January 26, 2021, partially offset by the repayment of the outstanding balance on the revolving line of credit and the Senior Guaranteed Notes, Series A on January 26, 2021.

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 in financing activities decreased $37.2 million to $65.5 million for the year ended December 31, 2023, compared to $102.7 million for the year ended December 31, 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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Depreciation and amortization (119,500) (123,338) (116,306)

Interest expense (58,232) (58,587) (53,440)

Interest expense, net (64,706) (58,232) (58,587)

Loss on early extinguishment of debt — — (4,271)

34 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis