What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-12 compared with 2024-02-14 · 70 added, 82 removed, 501 unchanged (23% of the section changed)

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We evaluate our properties on an ongoing basis to identify these types of opportunities.

We intend to opportunistically pursue projects in our development pipeline including future phases of La Jolla Commons and Lloyd Portfolio, as well as other redevelopments at Waikele Center.

We intend to opportunistically pursue projects in our development pipeline including future phases of Lloyd Portfolio, other redevelopments at Waikele Center, as well as multifamily development opportunities within our existing portfolio, namely at Lomas Santa Fe Plaza, Solana Beach Towne Centre and Carmel Mountain Plaza.

The commencement of these developments is based on, among other things, market conditions and our evaluation of whether such opportunities would generate appropriate risk adjusted financial returns.

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Any growth from acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles.

Changes in interest rates may affect our success in

achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property, as well as our ability to economically finance a property acquisition.

Changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property, as well as our ability to economically finance a property acquisition.

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.

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Below is a summary of our same-store composition for the years ended December 31, 2024, 2023 and 2022.

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.

For the year ended December 31, 2024, when compared to the designations for the year ended December 31, 2023, Timber Springs is classified as a same-store property for the year ended December 31, 2024, because the property was acquired on March 8, 2022.

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

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

Additionally, this property was placed into operations on August 1, 2024, approximately one year after completing renovations.

For the year ended December 31, 2023, when compared to the designations for the year ended December 31, 2022, 14Acres and Timber Ridge were reclassified to same-store properties because these properties were acquired on July 7, 2021 and September 10, 2021, respectively.

Timber Springs is classified as non-same store since 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.

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We make estimates of the collectability of our current accounts receivable and straight-line rents receivable which requires significant judgment by management.

The collectability of receivables is affected by numerous different factors including current economic trends, including the continued impact of COVID-19 on tenant's businesses and changes in tenants' payment patterns, tenant bankruptcies, the status of collectability of current cash rents receivable, tenants' recent and historical financial and operating results, changes in our tenants' credit ratings, communications between our operating personnel and tenants, the extent of security deposits and letters of credits held with respect to tenants, and the ability of the tenant to perform under the terms of their lease agreement when evaluating the adequacy of the allowance for doubtful accounts.

The collectability of receivables is affected by numerous different factors including current economic trends, changes in tenants' payment patterns, tenant bankruptcies, the status of collectability of current cash rents receivable, tenants' recent and historical financial and operating results, changes in our tenants' credit ratings, communications between our operating personnel and tenants, the extent of security deposits and letters of credits held with respect to tenants, and the ability of the tenant to perform under the terms of their lease agreement when evaluating the adequacy of the allowance for doubtful accounts.

If our assessment of these factors indicates it is probable that we will be unable to collect substantially all rents, we recognize a charge to rental income and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected.

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Any changes to our conclusion regarding these assessments of collectability would have a direct impact on our net income.

Since the onset of COVID-19 in 2020, we have provided lease concessions to certain tenants, primarily within the retail segment, in the form of rent deferrals and abatements in recognition of the adverse impact that COVID-19 had on such tenants, although the concessions provided during the year ended December 31, 2023 were immaterial to us.

These lease concessions generally included an increase in our rights as a lessor.

We assess each lease concession and determine whether it represents a lease modifications under Accounting Standards Codification Topic 842, Leases ("ASC 842").

Depreciation and maintenance costs relating to our properties constitute substantial costs for us.

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The value of the leases associated with below market lease renewal options that are likely to be exercised are amortized to rental income over the respective renewal periods.

We make assumptions and estimates related to below market lease renewal options, which impact revenue in the period in which the renewal options are exercised and could result in significant increases to revenue if the renewal options are not exercised at which time the related below market lease liabilities would be written off as an increase to revenue.

We make assumptions and estimates related to below market

lease renewal options, which impact revenue in the period in which the renewal options are exercised and could result in significant increases to revenue if the renewal options are not exercised at which time the related below market lease liabilities would be written off as an increase to revenue.

Transaction costs related to the acquisition of a business, such as broker fees, transfer taxes, legal, accounting, valuation, and other professional and consulting fees, are expensed as incurred and included in “general and administrative expenses” in our consolidated statements of comprehensive income.

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Year Ended December 31, 2024

Segment Tenant Improvements and Leasing Commissions Maintenance Capital Expenditures Total Tenant Improvements, Leasing Commissions and Maintenance Capital Expenditures Redevelopment and Expansions New Development Total Capital Expenditures

Segment Tenant Improvements and Leasing Commissions Capital Expenditures Total Tenant Improvements, Leasing Commissions and Capital Expenditures Redevelopment and Expansions New Development Total Capital Expenditures

Office Portfolio $ 23,048 $ 18,329 $ 41,377 $ 1,979 $ 13,364 $ 56,720

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Year Ended December 31, 2023

Office Portfolio $ 15,010 $ 21,665 $ 36,675 $ 7,251 $ 27,410 $ 71,336

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Total $ 21,190 $ 34,036 $ 55,226 $ 7,251 $ 27,410 $ 89,887

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, 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.

The increase in tenant improvements and leasing commissions for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily related to tenant buildouts at La Jolla Commons, Lloyd Portfolio, Del Monte Center, City Center Bellevue and Alamo Quarry Market during the year ended December 31, 2024, partially offset by tenant buildouts completed at Torrey Reserve Campus, Torrey Point and Carmel Mountain Plaza during the year ended December 31, 2023.

The decrease in capital expenditures for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily related to the renovations completed at City Center Bellevue and La Jolla Commons during the year ended December 31, 2023, partially offset by an increase at Alamo Quarry Market during the year ended December 31, 2024.

The decrease in new development expenditures for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily related to costs incurred for the development of Tower 3 at La Jolla Commons during the year ended December 31, 2023.

The decrease in redevelopment expenditures for the year ended December 31, 2024 compared to the year ended December 31, 2023, was primarily related to the majority completion of the One Beach Street redevelopment during the year ended December 31, 2023.

Our capital expenditures for the year ending December 31, 2025 will depend upon acquisition opportunities, the level of improvements and renovations 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, 2025 to decrease from the year ending December 31, 2024 as we reached completion of the development activities at La Jolla Commons in the year ended December 31, 2024.

Derivative Instruments

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2023 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.

The purchase price was approximately $45.5 million, less seller credits of approximately $0.1 million of future rent abatement, approximately $0.6 million of contractual tenant improvements and closing costs of approximately $0.1 million.

The property was acquired with cash on hand.

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

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

2022 Acquisitions and Dispositions

On July 7, 2021, we acquired E astgate Office Park, consisting of an approximately 280,000 square feet, multi-tenant office campus in Bellevue, Washington.

The purchase price was approximately $125 million, excluding closing costs of approximately $0.2 million.

On September 10, 2021, we acquired Corporate Campus East III in Bellevue, Washington, consisting of an approximately 161,000 square feet, multi-tenant office campus.

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

The properties were acquired with cash on hand.

The property was acquired with cash on hand.

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

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Interest expense, net (74,527) (64,706) (9,821) 15

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

Other income, net 18,147 7,649 10,498 (137)

Net income 72,819 64,690 8,129 13

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$ 423,611 $ 419,373 $ 4,238 1 % $ 423,583 $ 419,373 $ 4,210 1 %

(1) For this table and 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 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.

(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 decreased $3.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to a decrease of $1.8 million in cost recoveries due to changes in tenant base years, a decrease in recoverable property expenses, prior year tax refunds received that were refunded to tenants, and a decrease in rental revenue driven primarily by tenant move-outs at Lloyd Portfolio and Timber Springs and lower occupancy at Solana Crossing.

Total retail rental revenue increased $4.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 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.

These increases are primarily related to Carmel Mountain Plaza, Solana Beach Towne Center, Alamo Quarry Market and Del Monte Center.

Additionally, there was an increase of $1.5 million in cost recoveries.

Multifamily rental revenue increased $3.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an overall increase in average monthly base rent and an increase in occupancy.

Average monthly base rent and occupancy was $2,718 and 91.0% for the year ended December 31, 2024, compared to $2,581 and 90.0% for the year ended December 31, 2023.

Mixed-use rental revenue increased $0.4 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an increase in rental revenue at the retail portion of our mixed-use property, largely attributable to an increase in cost recoveries and new tenant leases commencing at higher base rents.

Additionally, there was a minimal increase in rental revenue at the Waikiki Beach Walk hotel portion of our mixed-use property, due to a slight increase in average occupancy to 85.9% for the year ended December 31, 2024 compared to 85.2% for the year ended December 31, 2023.

Other property income.

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$ 34,244 $ 21,791 $ 12,453 57 % $ 34,213 $ 21,773 $ 12,440 57 %

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.

Total office other property income increased $11.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an approximately $11.0 million lease termination fee and and an approximately $0.6 million lease settlement fee received at Torrey Reserve Campus.

Retail other property income increased $0.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to lease termination fees received at Alamo Quarry Market and Solana Beach Towne Center in 2024, offset by lease termination fees received at Carmel Mountain Plaza and Southbay Marketplace in 2023.

Multifamily other property income increased $0.1 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an increase in utilities meter income, partially offset by lower security deposits earned.

Mixed-use other property income increased $0.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due 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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$ 123,503 $ 118,801 $ 4,702 4 % $ 121,940 $ 117,766 $ 4,174 4 %

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.

Total office rental expenses increased $2.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an increase in facilities services, repairs and maintenance services, utilities expenses and insurance expenses.

Total retail rental expenses increased $0.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an increase in facilities services, utilities expenses and insurance expenses.

Multifamily rental expenses increased $0.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an increase in facilities services, utilities expenses, insurance expenses and an increase in property-level personnel compensation expenses.

Mixed-use rental expenses increased $0.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an increase of $0.4 million in hotel room expenses, personnel expenses and excise tax expenses at the hotel portion of our mixed-use property during the period.

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Real Estate Taxes.

Real estate tax expense increased $0.4 million, or 1%, to $45.2 million for the year ended December 31, 2023, compared to $44.8 million for the year ended December 31, 2022.

Real estate tax expense decreased $0.9 million, or 2%, to $44.2 million for the year ended December 31, 2024, compared to $45.2 million for the year ended December 31, 2023.

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

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$ 44,224 $ 45,156 $ (932) (2) % $ 43,802 $ 44,958 $ (1,156) (3) %

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.

Total office real estate taxes decreased $1.7 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to real estate tax refunds received at La Jolla Commons and First & Main, offset by higher tax consultant fees incurred in connection with obtaining these refunds.

Retail real estate taxes increased $0.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an increase in property tax assessment at Alamo Quarry Market and real estate tax refunds received at Carmel Mountain Plaza during 2023.

Multifamily real estate taxes decreased $0.1 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to a tax refund received at Pacific Ridge Apartments during 2024, partially offset by higher property tax assessments across all multifamily properties.

Mixed-use real estate taxes increased $0.3 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an increase in property tax assessment.

Property Operating Income.

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$ 290,128 $ 277,207 $ 12,921 5 % $ 292,054 $ 278,422 $ 13,632 5 %

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.

Total office property operating income increased $7.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an approximately $11.0 million lease termination fee received at Torrey Reserve Campus and lower real estate taxes due to tax refunds received at La Jolla Commons and First & Main.

These increases were offset by a decrease in rental revenue driven by lower rental rates at Lloyd Portfolio and Timber Springs, lower occupancy at Solana Crossing, a decrease in cost recoveries, and an increase in rental expenses related to utilities expenses, insurance expenses and repairs and maintenance expenses.

Retail property operating income increased $3.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 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.

These increases were partially offset by an increase in rental expenses related to facilities services, utilities expenses and insurance expenses.

Multifamily property operating income increased $2.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an overall increase in average occupancy and monthly base rent of 91.0% and $2,718, respectively for the year ended December 31, 2024 compared to 90.0% and $2,581, respectively for the year ended December 31, 2023.

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

Mixed-use property operating income decreased $0.1 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to higher rental expenses related to room expenses, personnel costs, facilities expenses and real estate taxes.

These decreases were partially offset by higher room rental income at the hotel portion of our mixed use property and higher parking garage income at the retail portion of our mixed use property.

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 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.

General and administrative expenses decreased $0.5 million, or 1%, to $35.5 million for the year ended December 31, 2024, compared to $36.0 million for the year ended December 31, 2023.

This was primarily due to lower legal fees related to prior settlements and stock-based compensation expense attributable to a decrease in the number of restricted stock awards granted as part of our 2023 and 2024 grants.

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 $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.

Depreciation and amortization expense increased $6.0 million, or 5%, to $125.5 million for the year ended December 31, 2024, compared to $119.5 million for the year ended December 31, 2023.

This was due to the acceleration of assets related to a tenant vacating their space early at Torrey Reserve Campus.

Additionally, the increase was also due to new building improvement assets with One Beach Street placed into operations as of August 1, 2024, and new tenant improvement assets placed into service at La Jolla Commons and Alamo Quarry Market.

Interest expense, net.

Interest expense, net increased $9.8 million, or 15%, to $74.5 million for the year ended December 31, 2024 compared to $64.7 million for the year ended December 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.

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 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.

This increase was primarily due to the issuance of our 6.150% Senior Notes on September 17, 2024, the $100 million draw on our Revolver Loan on July 18, 2024, which was subsequently repaid on September 19, 2024, and higher interest on our $225 million Amended and Restated Term Loan Agreement.

These increases were partially offset by a decrease in interest expense related to the maturity and repayment of our Series F Notes on July 19, 2024 and Series B Notes on December 2, 2024.

Other Income, Net.

Other income, net increased $10.5 million, or 137%, to other income, net of $18.1 million for the year ended December 31, 2024 compared to other income, net of $7.6 million for the year ended December 31, 2023.

This increase was primarily due to an increase of $6.9 million in interest and investment income attributable to a higher yield on our average cash balance.

Additionally, there was an increase related to the litigation income of approximately $10.0 million received in 2024 relating to building specifications for one of the existing buildings at our office project in University Town Center (San Diego), compared to the litigation income of approximately $6.5 million received in 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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Principal payments on long-term indebtedness (1)

$ 2,025,000 $ 325,000 $ — $ 425,000 $ — $ 100,000 $ 1,175,000

Interest payments 532,348 80,413 76,555 66,349 59,268 57,148 192,615

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Total $ 2,635,457 $ 458,217 $ 85,156 $ 495,033 $ 63,329 $ 160,732 $ 1,372,990

(1) Term Loan B, Term Loan C and Series C Notes, totaling $325 million in the aggregate, were repaid in full without penalty or premium, subsequent to the year ended December 31, 2024.

Off-Balance Sheet Arrangements

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Net cash provided by operating activities increased $18.4 million to $207.1 million for the year ended December 31, 2024, compared to $188.8 million for the year ended December 31, 2023.

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.

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

Net cash used in investing activities decreased $12.5 million to $77.4 million for the year ended December 31, 2024, compared to $89.9 million for the year ended December 31, 2023.

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.

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, offset by an increase in tenant improvement expenditures related to new office and retail leasing activity.

Net cash provided by financing activities increased $278.6 million to $213.1 million for the year ended December 31, 2024, compared to net cash used by financing activities of $65.5 million for the year ended December 31, 2023.

The increase in cash provided in financing activities was primarily due to the proceeds received from the issuance of the 6.150% Senior Notes, partially offset by the repayment of the then-outstanding $100 million on our Revolver Loan and repayment in entirety of our Series B Notes on December 2, 2024.

The $100 million draw on our Revolver Loan was used to repay the entirety of our Series F Notes upon their maturity on July 19, 2024.

Net Operating Income

24 unchanged sentences

Interest expense, net (74,527) (64,706) (58,232)

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

Other income (expense), net 18,147 7,649 (625)

33 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