American Assets Trust Earnings Call: Momentum Amid Strain

American Assets Trust ((AAT)) has held its Q4 earnings call. Read on for the main highlights of the call.

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American Assets Trust Balances Leasing Wins With Cash Flow Strain in Latest Earnings Call

American Assets Trust’s latest earnings call painted a picture of cautious progress: steady operational gains in office leasing and a remarkably resilient retail business offset by softness in multifamily and mixed-use assets, high leverage, and tight dividend coverage. Management acknowledged the pressure from elevated capital expenditures and conservative credit reserving but argued that the portfolio’s leasing momentum and upcoming contributions from recently acquired and developed properties set the stage for gradual FFO growth into 2026. Overall, the tone was pragmatic and neutral, with measured optimism about underlying asset performance despite capital structure and market headwinds.

FFO Beat in 2025 and Conservative 2026 Earnings Outlook

American Assets Trust delivered full-year 2025 FFO per share of $2.00, roughly 3% above its initial expectations, with Q4 FFO of $0.47 per share. For 2026, management guided to FFO of $1.96–$2.10 per share, with a midpoint of $2.03, implying about 1.5% year-over-year growth. While that growth rate is modest, executives emphasized that the guidance is intentionally conservative, reflecting heavier credit reserves, higher interest expense as capitalized interest rolls off, and the absence of one-time termination fees that benefited 2025. Management believes there is upside to the midpoint if leasing and rent collections outperform assumptions, especially in the office and retail segments where underlying demand appears to be improving.

Office Leasing Momentum Drives Higher Rents and Utilization

A key bright spot remains the office portfolio, which ended the quarter 83% leased and 86% leased on a same-store basis, roughly 150 basis points higher than in the prior quarter. In Q4 alone, the company executed 23 office leases totaling more than 193,000 square feet, pushing full-year office leasing volume up about 55% versus 2024. The quality of that leasing was notable: Q4 cash leasing spreads were up 6.6% and GAAP spreads climbed 11.5%, while full-year cash spreads rose 6.4% and GAAP spreads 14%. These deals pushed average base rents in the office portfolio to record levels, with strong spec-suite and off-market activity at assets such as La Jolla Commons III, One Beach Street, and 14Acres/Eastgate supporting a healthy pipeline of future commencements.

Retail Segment Shows Exceptional Stability and Pricing Power

Retail continues to be a defensive pillar, representing 26% of portfolio NOI and finishing the year 98% leased. Leasing performance remained robust, with full-year cash spreads of about 7% and GAAP spreads of 22%, underscoring the company’s ability to push rents on renewal and new deals. Same-store retail NOI increased roughly 1.2% for the year, supported by particularly strong growth in the first half (Q1 +5.4%, Q2 +4.5%). Importantly for investors seeking predictability, near-term lease rollover risk is limited, with only about 4% of retail square footage expiring in 2026. This combination of high occupancy, positive spreads, and limited expirations positions the retail portfolio as a steady earnings contributor amid volatility in other segments.

Multifamily Assets Hold Occupancy but Face Soft Rent Growth

In multifamily, American Assets Trust kept occupancy high but struggled to drive significant rent growth. The multifamily portfolio (excluding the RV park) maintained a leased rate of around 95.5%, yet net effective rents increased only about 1% year over year versus Q4 2024. The recently acquired Genesee Park asset performed in line with underwriting and ended the year roughly 97% occupied, adding to non-same-store NOI and offering longer-term mark-to-market potential as rents reset. Still, the broader multifamily segment faces competitive pressure from elevated concessions and new supply in markets such as San Diego and Portland, which constrained same-store rent and NOI growth during the year.

Liquidity, Dividend Strategy, and Cost Controls Underpin Balance Sheet Management

The company closed the year with approximately $529 million of liquidity, including about $129 million of cash and roughly $400 million of remaining capacity on its revolving credit facility, which management plans to recast in the second quarter. The Board declared a quarterly dividend of $0.34 per share, and the 2026 outlook implies a payout ratio of about 89%, down from just under 100% in 2025 when elevated CapEx temporarily compressed free cash flow coverage. Over the longer term, management is targeting a payout closer to 85%, signaling a desire to retain more cash for de-leveraging and reinvestment. On the expense side, budgeted G&A declines are expected to add roughly $0.04 per share to 2026 FFO, illustrating a tighter focus on overhead efficiency.

Non-Same-Store Properties and Leasing Pipeline Provide Incremental Growth

Looking beyond the stabilized base, non-same-store assets are emerging as important contributors to earnings growth. La Jolla Commons III and Genesee Park together are projected to add around $0.03 per share to 2026 FFO as leasing and occupancy build. One Beach Street in particular is making progress, moving from 15% to 36% leased with another 46% of space in active negotiations. Early 2026 leasing activity has been solid, with approximately 68,000 square feet already executed and about 214,000 square feet in documentation, suggesting that commenced rents should step up as these leases become cash-paying. This pipeline helps bridge the gap between near-term headwinds and management’s longer-term stabilization story.

Multifamily and Mixed-Use Under Pressure From Supply and Travel Weakness

Despite the leasing wins, the company’s same-store multifamily and mixed-use assets came under pressure in 2025. Same-store multifamily NOI fell about 3.2%, largely due to elevated concessions and an influx of new supply in San Diego and Portland, which made it harder to push rents while sustaining occupancy. Mixed-use properties, including the Embassy Suites Waikiki, posted a same-store NOI decline of roughly 6.7% year over year. At the Waikiki hotel, occupancy averaged about 82%, down around 360 basis points, with ADR roughly flat near $370 and RevPAR sliding about 7% to roughly $296. Softer travel demand, particularly from Japan, weighed on results, offsetting some of the strength seen in the company’s office and retail operations.

Conservative Credit Reserves Temper Near-Term FFO

American Assets Trust is taking a cautious approach to credit risk, building additional reserves that are expected to reduce 2026 FFO by about $0.04 per share, equivalent to roughly 64 basis points of anticipated 2026 revenue. These reserves, split approximately $0.02 per share each for office and retail, reflect management’s desire to stay ahead of potential tenant stress rather than chase short-term earnings. While this stance weighs on reported FFO in the near term, it also provides a buffer against future write-offs and is consistent with the company’s generally conservative tone on guidance and capital allocation.

Leverage, Coverage Ratios, and the Dividend-CapEx Squeeze

Leverage remains a key watchpoint for investors. Net debt to EBITDA stood at roughly 6.9x on a trailing 12‑month basis (7.1x on a quarter annualized view), well above management’s long-term target of 5.5x. Interest and fixed charge coverage ratios were about 3.0x, adequate but not ample given the uncertain macro backdrop. Elevated capital expenditures tied to leasing and development activity pushed the 2025 dividend payout to just under 100% of FAD/AFFO, highlighting limited near-term flexibility until projects stabilize and begin contributing more meaningfully to cash flow. While 2026 guidance suggests an improvement to around 89% payout, the current leverage and coverage profiles underscore that balance sheet repair is a medium-term priority.

Waikiki Hotel and Travel Market Softness Weigh on Mixed-Use

The Embassy Suites Waikiki remains a drag on the mixed-use portfolio due to weaker-than-expected travel patterns in 2025, especially from Japanese visitors. Despite outperforming its competitive set, the property experienced lower visitation, which drove occupancy down and pressured RevPAR, which fell to around $296, even as ADR held roughly flat. Management is assuming only modest recovery in 2026, with RevPAR growth of about 2%, indicating that they do not expect a sharp snapback in Hawaiian travel demand. This cautious stance on the hotel segment is a notable offset to the more constructive outlook in office and retail and explains part of the negative same-store NOI expectation for mixed-use in 2026.

Persistent Valuation Gap Frustrates Management

Management reiterated its belief that the public market is materially undervaluing American Assets Trust’s coastal, trophy portfolio, citing strong leasing demand, record office rents, and resilient retail fundamentals as evidence of intrinsic value that is not reflected in the share price. While they outlined operational initiatives to narrow this valuation gap—such as continuing to lease up key assets, improving balance sheet metrics over time, and enhancing cash flow visibility—the current share-price weakness remains both a reputational challenge and a constraint on capital markets optionality. For investors, this underscores the potential for multiple expansion if execution continues and sentiment toward coastal office and mixed-use assets improves.

Measured 2026 Guidance Signals Gradual Improvement

Management’s 2026 guidance calls for FFO per share of $1.96–$2.10, centered at $2.03, about $0.03 above 2025’s $2.00 result once all moving parts are considered. Underlying portfolio-wide same-store cash NOI (excluding reserves) is expected to grow a little over 2.0%, with office leading at +3.3% (adding roughly $0.06 per share), retail at +1.7% (+$0.02), multifamily at +2.2% (+$0.01), and mixed-use down about 3.3% (−$0.01). Non-same-store assets like La Jolla Commons III and Genesee Park are forecast to contribute about $0.03 per share, G&A cuts another $0.04, while conservative credit reserves will subtract around $0.04. Additional headwinds include roughly $0.02 per share from higher interest expense as capitalized interest ends, $0.02 from lower other income, and about $0.025 from the absence of 2025 termination fees, partially offset by minor GAAP adjustments and the impact of asset sales. For the Waikiki hotel, management assumes modest recovery with revenue up 2.5%, expenses up 4%, slight occupancy improvement, and RevPAR increasing from around $296 to $302. Combined with a quarterly dividend of $0.34 and an implied 2026 payout ratio near 89%, the guidance reflects a careful balance between rewarding shareholders and rebuilding financial flexibility.

In closing, American Assets Trust’s earnings call highlighted a company with solid operational momentum in office and retail, steady but pressured multifamily, and a mixed-use segment weighed down by travel softness and hotel underperformance. While elevated leverage, conservative reserving, and CapEx-heavy spending constrain near-term cash flow and dividend flexibility, management’s guidance points to gradual FFO improvement and better dividend coverage in 2026. For investors, the story is one of incremental progress: if leasing pipelines convert as planned and macro headwinds ease, the combination of stable income, targeted cost control, and potential valuation normalization could become more compelling over the next few years.