What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2023-10-27 · 108 added, 261 removed, 312 unchanged (54% of the section changed)

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

• Investment returns from our developed properties may be less than anticipated;

• general economic conditions;

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• the competitive environment in which we operate;

• system failures or security incidents through cyberattacks;

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

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• risks related to joint venture arrangements;

• on-going and/or potential litigation;

• potential litigation;

• difficulties in completing dispositions;

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We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, or new information, data or methods, future events or other changes.

For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Item 1A.

For a further discussion of these and other factors

that could impact our future results, performance or transactions, see the section entitled “Item 1A.

Risk Factors” contained herein and in our annual report on Form 10-K for the year ended December 31, 2023.

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

As of March 31, 2024, our portfolio was comprised of twelve retail shopping centers;

twelve office properties;

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and six multifamily properties.

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.

Additionally, as of March 31, 2024, 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 September 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 March 31, 2024.

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 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

Below is a summary of our same-store and redevelopment same-store composition for the three months ended March 31, 2024 and 2023.

Bel-Spring 520 is classified as a same-store property when compared to the designation for the three months ended March 31, 2023, because the property was acquired on March 8, 2022.

The 710 building at Lloyd Portfolio is classified as same-store property when compared to the designation for the three months ended March 31, 2023, because the property has been in operation for a full year since it was placed in service in November of 2022.

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

Retail same-store net operating income decreased approximately 1.1% for the three months ended March 31, 2024 compared to the same period in 2023.

Office same-store net operating income increased 1.6% for the three months ended March 31, 2024 compared to the same period in 2023.

Three Months Ended March 31,

Same-Store 30 29

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

We continue to closely monitor the impact of COVID-19 on our business.

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

Although many measures aimed to stop the spread of COVID-19 have been lifted, we cannot predict whether they will be reinstated or whether more restrictive measures may be imposed.

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

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.

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

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

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

During the three months ended 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.

Any reduction in our tenants' abilities to pay base rent, percentage rent or other charges will adversely affect our financial condition and results of operations.

During the three months ended March 31, 2024, we signed 18 office leases for a total of 124,605 square feet of office space including 80,434 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 7.9% and 10.9%, respectively.

New office leases for comparable spaces were signed for 22,658 square feet at an average rental rate increase on a cash and GAAP basis of 13.8% and 19.4%, respectively.

Renewals for comparable office spaces were signed for 57,776 square feet at an average rental rate increase on a cash basis and increase on a GAAP basis of 6.0% and 8.3%, 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.

Tenant improvements and incentives were $38.22 per square foot of office space for comparable new leases for the three months ended March 31, 2024, mainly due to new tenants at Lloyd District and Torrey Reserve.

During the three months ended March 31, 2024, we signed 30 retail leases for a total of 109,414 square feet of retail space including 103,311 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 1.9% and 22.3%, respectively.

New retail leases for comparable spaces were signed for 4,783 square feet at an average rental rate increase on a cash and GAAP basis of 36.4% and 0%, respectively.

Renewals for comparable retail spaces were signed for 98,528 square feet at an average rental rate increase on a cash and GAAP basis of 0.7% and 15.7%, respectively.

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

Tenant improvements and incentives were $41.14 per square foot of retail space for comparable new leases for the three months ended March 31, 2024, mainly due to new tenants at Del Monte Center and Solana Beach Towne Centre.

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 $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.

We capitalized external and internal costs related to both development and redevelopment activities combined of $3.5 million and $9.6 million for the three months ended March 31, 2024 and 2023, respectively.

We capitalized external and internal costs related to other property improvements combined of $9.6 million and $12.4 million for the three months ended March 31, 2024 and 2023, 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 $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.

We capitalized interest costs related to development activities of $2.1 million and $1.8 million for the three months ended March 31, 2024 and 2023, 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 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 %

Comparison of the three months ended March 31, 2024 to the three months ended March 31, 2023

The following summarizes our consolidated results of operations for the three months ended March 31, 2024 compared to our consolidated results of operations for the three months ended March 31, 2023.

As of March 31, 2024 and March 31, 2023, our operating portfolio was comprised of 31 retail, office, multifamily and mixed-use properties with an aggregate of approximately 7.2 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,110 residential units (including 120 RV spaces) and a 369-room hotel.

Additionally, as of March 31, 2024 and March 31, 2023, we owned land at three of our properties that we classified as held for development and/or construction in progress.

The following table sets forth selected data from our unaudited consolidated statements of comprehensive income for the three months ended March 31, 2024 and 2023 (dollars in thousands):

Three Months Ended March 31, Change %

Rental income $ 105,021 $ 102,710 $ 2,311 2 %

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

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:

Total property revenue increased $2.9 million to $110.7 million for the three months ended March 31, 2024 compared to $107.8 million for the three months ended March 31, 2023.

The percentage leased was as follows for each segment as of March 31, 2024 and 2023:

Percentage Leased (1)

September 30,

Office 86.4 % 88.1 %

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95.4 % 95.0 %

(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 September 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.

Percentage leased for our multifamily properties includes total units rented and occupied as of March 31, 2024 or 2023, 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 remained largely unchanged at $105.5 million for the three months ended September 30, 2023 and September 30, 2022.

Rental revenue increased $2.3 million, or 2%, to $105.0 million for the three months ended March 31, 2024 and March 31, 2023.

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

Total Portfolio Same-Store Portfolio (1)

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

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

2024 2023 2024 2023

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$ 105,021 $ 102,710 $ 2,311 2 % $ 105,021 $ 102,710 $ 2,311 2 %

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

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

(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 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.

(1) For this table and tables following, the same-store portfolio excludes One Beach Street due to significant redevelopment and land held for development.

Total office rental revenue increased $0.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to higher annualized base rents at Torrey Reserve, Solana Crossing, Torrey Point and La Jolla Commons attributable to new leases and scheduled rent increases.

Total retail rental revenue increased $0.5 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to new tenant leases and scheduled rent increases.

These increases were primarily related to Carmel Mountain Plaza, Waikele Center and Del Monte Center.

Multifamily revenue increased $0.8 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to an overall increase in average monthly base rent, with a slight decrease in occupancy.

Average monthly base rent and occupancy was $2,681 and 92.3%, respectively for the three months ended March 31, 2024 compared to $2,514 and 93.0%, respectively for the three months ended March 31, 2023.

Total mixed-use rental revenue increased $0.8 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to an increase in tourism, which led to an increase in average occupancy and revenue per available room to 89.8% and $320 for the three months ended March 31, 2024, respectively, compared to 81.9% and $302 for the three months ended March 31, 2023, respectively.

Other property income .

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 increased $0.6 million, or 12%, to $5.7 million for the three months ended March 31, 2024 compared to $5.0 million for the three months ended March 31, 2023.

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

Total Portfolio Same-Store Portfolio

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

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

2024 2023 2024 2023

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$ 5,674 $ 5,044 $ 630 12 % $ 5,667 $ 5,043 $ 624 12 %

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.

Office other property income increased by $0.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to lease settlement fees received at Torrey Reserve.

Retail other property income decreased by $0.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to lease settlement fees received at Solana Beach Towne Center and Hassalo on Eighth - Retail in 2023.

Mixed-use other property income increased by $0.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 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 and an increase in parking garage income at the retail 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 $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.

Total property expenses increased $1.9 million, or 5%, to $41.1 million, for the three months ended March 31, 2024 compared to $39.1 million for the three months ended March 31, 2023.

Rental Expenses.

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 expenses increased $2.3 million, or 8%, to $29.8 million for the three months ended March 31, 2024 compared to $27.5 million for the three months ended March 31, 2023.

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

Total Portfolio Same-Store Portfolio

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

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

2024 2023 2024 2023

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$ 29,841 $ 27,506 $ 2,335 8 % $ 29,589 $ 27,316 $ 2,273 8 %

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.

Office rental expense increased $0.6 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to an increase in utilities expenses, janitorial expenses, security services and insurance expense.

Retail rental expense increased $0.7 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to $0.5 million written off in the first quarter for non-recurring costs incurred in prior periods relating to construction in progress for then-prospective construction at Waikele Center.

Additionally, there was an increase in insurance expense and employee related costs.

Multifamily rental expense increased $0.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to an increase in insurance expense and employee related costs.

Mixed-use rental expense increased $0.6 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 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 $0.1 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 taxes decreased $0.4 million, or 3%, to $11.2 million for the three months ended March 31, 2024 compared to $11.6 million for the three months ended March 31, 2023.

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

Total Portfolio Same-Store Portfolio

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

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

2024 2023 2024 2023

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$ 11,246 $ 11,632 $ (386) (3) % $ 11,196 $ 11,583 $ (387) (3) %

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.

Office real estate taxes decreased $0.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to a one-time real estate tax refund received at First & Main and a decrease in property tax assessments at City Center Bellevue.

Retail real estate taxes decreased $0.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to a decrease in property tax assessment at Alamo Quarry Market.

Mixed-use real estate taxes increased $0.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to an increase in property tax assessment.

Property Operating Income

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 increased $1.0 million, or 1%, to $69.6 million for the three months ended March 31, 2024, compared to $68.6 million for the three months ended March 31, 2023.

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

Total Portfolio Same-Store Portfolio

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

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

2024 2023 2024 2023

4 unchanged sentences

$ 69,608 $ 68,616 $ 992 1 % $ 69,903 $ 68,854 $ 1,049 2 %

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.

Total office property operating income increased $0.5 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to higher annualized base rents at Torrey Reserve, Solana Crossing, Torrey Point and La Jolla Commons.

Additionally, there was an increase in other property income related to lease settlement fees received at Torrey Reserve and lower real estate taxes at City Center Bellevue and First & Main.

These increases were offset by higher rental expenses related to utilities expense, janitorial expense, security services and insurance expense.

Total retail property operating income decreased $0.2 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to increased rental expenses attributable to higher insurance expense, and employee-related costs, and $0.5 million written off in the first quarter for non-recurring costs incurred in prior periods relating to construction in progress for then-prospective construction at Waikele Center.

These decreases were offset by higher rental revenue at Carmel Mountain Plaza, Waikele Center and Del Monte Center due to new tenant leases and scheduled rent increases.

Total multifamily property operating income increased $0.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to higher rental revenue due to an overall increase in average monthly base rent to $2,681 for the three months ended March 31, 2024 compared to $2,514 for the three months ended March 31, 2023.

These increases were offset by higher rental expenses related to insurance expense and employee-related costs.

Total mixed-use property operating income increased $0.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to increase in tourism, which led to an increase in average occupancy and revenue per available room to 89.8% and $320, respectively, for the three months ended March 31, 2024, compared to 81.9% and $302, respectively, for the three months ended March 31, 2023.

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.

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

General and Administrative.

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.

General and administrative expenses decreased $0.2 million, or 2%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

This decrease was primarily due to lower general legal expense and stock-based compensation expense, attributable to a decrease in the number of restricted stock awards granted as part of our 2023 grant.

These decreases were offset by higher employee-related costs, including, without limitation, with respect to base pay for certain salaried and hourly workers and benefits.

Depreciation and Amortization.

Depreciation and amortization expense decreased to $29.9 million for the three months ended 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.

Depreciation and amortization expense increased $0.3 million, or 1%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

This was due to new building improvements and furniture and equipment assets placed into service in 2023.

Interest Expense, net.

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.

Interest expense increased $0.5 million, or 3%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

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 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 %

Other property income 16,568 15,178 1,390 9

Total property revenues 328,673 316,648 12,025 4

Rental expenses 86,128 78,436 7,692 10

Real estate taxes 34,117 34,193 (76) —

Total property expenses 120,245 112,629 7,616 7

Total property income 208,428 204,019 4,409 2

General and administrative (26,488) (23,130) (3,358) 15

Depreciation and amortization (89,592) (93,228) 3,636 (4)

Interest expense (48,422) (43,667) (4,755) 11

Other income (expense), net 7,272 (523) 7,795 (1,490)

Net income 51,198 43,471 7,727 18

Net income attributable to restricted shares (568) (464) (104) 22

Net income attributable to unitholders in the Operating Partnership

(10,733) (9,130) (1,603) 18

Net income attributable to American Assets Trust, Inc.

$ 39,897 $ 33,877 $ 6,020 18 %

Total property revenues .

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

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 %

Retail 94.4 % 92.2 %

Multifamily 89.5 % 93.0 %

Mixed-Use (2)

95.1 % 94.9 %

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 the factors discussed below.

Rental revenues .

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

Rental revenue increased $10.6 million, or 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)

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

2023 2022 2023 2022

Office $ 150,832 $ 149,689 $ 1,143 1 $ 148,369 $ 148,011 $ 358 —

Retail 76,498 73,839 2,659 4 76,498 73,839 2,659 4

Multifamily 43,008 39,804 3,204 8 43,008 39,804 3,204 8

Mixed-Use 41,767 38,138 3,629 10 41,767 38,138 3,629 10

$ 312,105 $ 301,470 $ 10,635 4 % $ 309,642 $ 299,792 $ 9,850 3 %

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

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

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

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

Total office rental revenue increased $1.1 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.

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 $1.4 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

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

2023 2022 2023 2022

Office $ 4,305 $ 3,723 $ 582 16 $ 4,253 $ 3,619 $ 634 18

Retail 1,173 1,034 139 13 1,173 1,034 139 13

Multifamily 2,900 3,047 (147) (5) 2,900 3,047 (147) (5)

Mixed-Use 8,190 7,374 816 11 8,190 7,374 816 11

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

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

Total Property Expenses.

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

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 $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

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

2023 2022 2023 2022

Office $ 29,485 $ 26,581 $ 2,904 11 $ 28,099 $ 25,613 $ 2,486 10

Retail 12,426 12,073 353 3 12,426 12,073 353 3

Multifamily 15,180 13,840 1,340 10 15,180 13,840 1,340 10

Mixed-Use 29,037 25,942 3,095 12 29,037 25,942 3,095 12

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

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.

Real Estate Taxes.

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

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

2023 2022 2023 2022

Office $ 15,590 $ 15,363 $ 227 1 $ 15,208 $ 15,183 $ 25 —

Retail 10,337 10,892 (555) (5) 10,337 10,892 (555) (5)

Multifamily 5,399 5,331 68 1 5,399 5,331 68 1

Mixed-Use 2,791 2,607 184 7 2,791 2,607 184 7

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

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 $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

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

2023 2022 2023 2022

Office $ 110,062 $ 111,468 $ (1,406) (1) $ 109,315 $ 110,834 $ (1,519) (1)

Retail 54,908 51,908 3,000 6 54,908 51,908 3,000 6

Multifamily 25,329 23,680 1,649 7 25,329 23,680 1,649 7

Mixed-Use 18,129 16,963 1,166 7 18,129 16,963 1,166 7

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

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 $1.2 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 $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 $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 $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.

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

Other Income (Expense), Net.

Other income, net increased $7.8 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.

Other income, net increased $3.7 million, or 55%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

This increase was primarily due to the net settlement payment of approximately $10 million received during the first quarter of 2024 relating to building specifications for one of the existing buildings at our office project in University Town Center (San Diego), compared 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.

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 September 30, 2023, the company owned an approximate 78.8% partnership interest in the Operating Partnership.

As of March 31, 2024, 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 September 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 March 31, 2024, 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

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.

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

In December 2023, the company, together with the Operating Partnership, 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.

However, there can be no assurance that the company will be able to complete any such offerings of securities.

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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 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.

Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of the company's common stock and the company's capital needs.

Actual future sales will depend on a variety of factors including, but not

limited to, market conditions, the trading price of the company's common stock and the company's capital needs.

For the three months ended March 31, 2024, no shares of common stock were sold through the ATM equity program.

We have no obligation to sell the remaining shares available for sale under the ATM equity program.

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

As of September 30, 2023, we held $90.0 million in cash and cash equivalents.

As of March 31, 2024, we held $98.6 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 for the nine months ending September 30, 2024 will depend upon acquisition opportunities and the level of improvements and redevelopments on existing properties.

Our overall capital requirements for the remainder of 2024 and for the three months ending March 31, 2025 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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Although there is no intent at this time, if market conditions deteriorate or fail to improve, we may also delay the timing of future development and redevelopment projects as well as limit future acquisitions, reduce our operating expenditures, or re-evaluate our dividend policy.

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

However, there can be no assurance that the Operating Partnership will be able to complete any such offerings of debt securities.

In December 2023, the Operating Partnership, together with American Assets Trust, Inc., 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.

However, there can be no assurance that the company will be able to complete any such offerings of securities.

Factors influencing the availability of additional financing include investor perception of our prospects and the general condition of the financial markets, among others.

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

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 $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 $38.1 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.

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

Comparison of the three months ended March 31, 2024 to the three months ended March 31, 2023

Cash, cash equivalents, and restricted cash were $98.6 million and $87.3 million at March 31, 2024 and 2023, respectively.

Net cash provided by operating activities increased $2.8 million to $54.8 million for the three months ended March 31, 2024 compared to $52.0 million for the three months ended March 31, 2023.

The increase in cash from operations was primarily due to the net settlement received relating to building specifications for one of the existing buildings at our office project in University Town Center (San Diego), increase in rental revenue and changes in operating assets and liabilities.

Net cash used in investing activities decreased $12.4 million to $13.3 million for the three months ended March 31, 2024 compared to $25.7 million for the three months ended March 31, 2023.

The decrease in cash used was primarily due to the decrease in capital expenditures at La Jolla Commons III and One Beach Street as these projects have completed construction.

Net cash used by financing activities increased $37.3 million to $25.8 million for the three months ended March 31, 2024 compared to cash provided by financing activities of $11.5 million for the three months ended March 31, 2023.

The increase in cash used in financing activities was primarily due to the term loan agreement that was amended and restated in 2023, 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.

Net Operating Income

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NOI is therefore not a substitute for net income as computed in accordance with GAAP.

This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in “Management's Discussion and Analysis of Financial Condition and Results of Operations” regarding the components of net income that are eliminated in the calculation of NOI.

This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in “Management's Discussion and

Analysis of Financial Condition and Results of Operations” regarding the components of net income that are eliminated in the calculation of NOI.

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 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

The following is a reconciliation of our NOI to net income for the three months ended March 31, 2024 and 2023 computed in accordance with GAAP (in thousands):

Three Months Ended March 31,

Net operating income $ 69,608 $ 68,616

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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 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,

The following table sets forth a reconciliation of our net income for the three months ended March 31, 2024 to FFO, the nearest GAAP equivalent (in thousands, except per share and share data):

Three Months Ended March 31,

Funds from Operations (FFO)

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

76,335,424 76,332,053

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

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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