Welcome to the Quarter Two 2022 American Assets Trust Inc. Earnings Conference Call. My name is Jenny, and I will be your operator for today's call. At this time, all participants are in a listen-only mode, and we will have a question-and-answer session later. I will now turn the call over to Adam Wyll, President and COO. You may begin.

Thank you, Operator. Good morning, everyone, and welcome to American Assets Trust's Second Quarter 2022 Earnings Call. Yesterday afternoon, our earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of our website, americanassetstrust.com. During this call, we will discuss non-GAAP financial measures that are reconciled to our GAAP financial results in our earnings release and supplemental information. We will also be making forward-looking statements based on our current expectations, which statements are subject to risks and uncertainties discussed in our SEC filings. You are cautioned not to place undue reliance on these forward-looking statements as actual events could cause our results to differ materially from these forward-looking statements. And with that, I'll turn it over to Ernest Rady, our Chairman and CEO, to begin the discussion of our second quarter 2022 results. Ernest.

Thanks, Adam, well done, and good morning, everyone. As we've shared in the past, with each business decision that we make, we take the path that we believe will optimize the long-term growth of our earnings and net asset value, as we work hard to create shareholder value. That includes remaining disciplined with respect to our strong balance sheet and continuing to invest in and improve our irreplaceable properties to remain among the best in our markets for each of our asset classes, particularly as we see an ongoing flight to quality based on locations, amenities, asset quality, public transportation, and capital requirements, which are factors we believe will contribute to our outperformance in the long term. In Q2 2022, we were encouraged by our operating fundamentals despite volatility in capital markets and general economic uncertainty, as we build upon our great progress from Q1. We're pleased to see better-than-budgeted financial results in our portfolio in Q2, driven primarily by better-than-expected performance out of our multifamily properties and Waikiki Beach Walk, Embassy Suites. We continue to believe there is meaningful growth potential for our Embassy Suites, particularly as Asian travels return to Oahu. As we've mentioned previously, Asian travels have historically represented approximately 40% of all tourists vacationing in Oahu but remain a small fraction of that at this point in time. We expect that to change over the next year or two. Meanwhile, we believe that our earnings trajectory looks steady and promising. We understand the challenges presented by inflationary recessionary forces and the potential for a slower economic growth period ahead, so we remain vigilant and focused on being prepared for any scenario to the best of our capabilities. Yet, as you will hear shortly, we are increasing our guidance for the rest of the year based on our optimism for continued near-term growth across our assets. I also want to mention that the Board of Directors has approved the quarterly dividend of $0.32 for the third quarter, which is supported by our financial results and is an expression of our Board's confidence in the embedded growth of our portfolio this year and beyond. The dividend will be paid on September 22 to shareholders of record on September 8. Finally, on the development front, both La Jolla Commons 3 and One Beach Street remain on time and on budget. We continue to remain very optimistic about the leasing prospects, but we do not have any specific news to share on that front at this time. Adam, Rob, and Steve will go into more detail on our various asset segments, financial results, and guidance updates, and I will be available for any questions you may have at the conclusion of our prepared remarks. On behalf of all of us at American Assets Trust, we thank you for your confidence in allowing us to manage your company and for your continued support. I'm now going to turn the call back over to Adam.

Thank you, Ernest. As Ernest alluded, we believe our underlying fundamentals and asset quality support a favorable long-term view of American Assets Trust, regardless of the prevailing volatility in today's financial markets. Along those lines, we currently estimate that our office tenants are just below 50% physical occupancy at our office campuses, and that has remained somewhat static over the past quarter. Nevertheless, we believe the demand for premium office space like ours will remain strong, as we believe tenants will prioritize office-based quality to help retain and attract talent. You'll hear more about our successful office leasing activity from Steve Center shortly. In Q2, our San Diego multifamily portfolio produced favorable rent growth where we saw leases on vacant units rent at an average of approximately 23% over the prior rates. While rates on renewed units increased an average of 10% over prior rents, which was capped due to rent laws in California. As the rental market in San Diego County has remained strong, little to no concessions were offered on these units. At Pacific Ridge, occupancy dipped to the low 80% at the end of June due to the expected seasonal move out of units in May, primarily occupied by students. We had actually anticipated much lower occupancy at Pacific Ridge, but it fared better than expected as a result of several master leases that commenced in May and June. Meanwhile, leasing for the upcoming fall season is well underway, which includes an additional master lease for over 40 units with the University of San Diego. We expect Pacific Ridge's occupancy to rebound into the mid-90s by the end of August, as the university begins its fall quarter before Labor Day. Additionally, our Hassalo on Eighth multifamily in Portland came in above our internal expectations in Q2 as the Portland multifamily market has recently picked up some momentum as a result of a continued influx of people moving to Portland and a corresponding decrease in unemployment rates. Even with all of its challenges in the past few years, Time Magazine recently listed Portland as one of the world's greatest places in 2022. In Q2, we saw vacant units at Hassalo leased at an average of approximately 15% over prior rents, and renewal units leased at an average of approximately 6% increase with concessions ranging from zero to eight weeks, depending on product type, and most recently, over the past few weeks, no concessions at all. Later this month, at the new bicycle and pedestrian bridge, two blocks from Hassalo will connect the Central Eastside of Portland to the Lloyd neighborhood, which we are optimistic will bring additional rental prospects to our assets. On the retail front, we continue to see a rising tide in our retail portfolio. In Q2, our four largest renewals, totaling approximately 130,000 square feet were Whole Foods at Alamo Quarry, bonds at Lomas Santa Fe Plaza and Petco and Ross at South Bay marketplace, with rents increasing 10%, 15%, 8%, and 10%, respectively, later this year or early next upon renewal. Additionally, we have a meaningful amount of new deals and documentation and remain positive about prospects of getting those deals done. Not including those pending deals, that leaves us with about 2% of our retail portfolio expiring through the end of 2022 and less than 7% expiring in 2023, assuming lease options are not exercised. Finally, I just wanted to point out that in Q2, we issued our 2021 sustainability report, which highlights our ESG initiatives and goals, and that is available on our website. With that, I'll turn the call over to Bob to discuss financial results and updated guidance in more detail.

Thanks, Adam, and good morning, everyone. Last night, we reported second quarter 2022, FFO per share of $0.58 and second quarter 2022 net income attributable to common stockholders per share of $0.18. Second quarter results are primarily comprised of actual FFO increasing by approximately $0.01 to $0.58 per FFO per share compared to the first quarter of 2022, primarily related to outperformance by the Embassy Suites hotel and Waikiki Beach on the Hawaiian Island of Oʻahu. Let's talk about same-store cash NOI. Same-store cash NOI in Q2 2022 ended at approximately 3.6% growth year-over-year for the second quarter. Same-store office was approximately flat in Q2 as a result of the remaining lease abatement for one of our large tenants at our Landmark building at One Market Street in San Francisco. We expect same-store office to return to a double-digit increase in Q3 similar to Q1. The retail sector had a 1.8% decrease in same-store cash NOI in Q2, but when excluding prior year COVID-related accounts receivable collections, the retail same-store cash NOI percentage increases to a positive 1% growth year-over-year. To put it in perspective, for the year ending 2022, we are expecting same-store cash NOI metrics to be approximately as follows: office ending at 8.3%, retail ending at negative 3.7%; multifamily 10.6%, mixed use at 49% for a total same-store cash NOI of 7.4%. Excluding a $2.4 million property tax refund received at Ala Moana Shopping Center in 2021 and higher collections of COVID back rent in 2021 for prior periods, retail same-store cash NOI is expected to be approximately a positive 3% for the year. Total same-store cash NOI is expected to be approximately 9.5% for the year ended 2022. To me, this shows that retail growth is much stronger on a comparative year-over-year basis when excluding those one-time items. Meanwhile, the retail sector is also showing positive signs in the cash basis leasing spreads. In Q2, we are showing a 5.7% cash basis change over the prior rent and 20% on a GAAP basis for the retail sector. Office leasing spreads continued to be strong in Q2 with leasing spreads on a cash basis and GAAP basis at 20% change over the prior rent. Our liquidity at the end of the second quarter of 2022 stood at approximately $461 million, comprised of approximately $61 million in cash and cash equivalents and $400 million of availability on our revolving line of credit. Our leverage, which we measure in terms of net debt to EBITDA, was 6.7 times. Our objective continues to be to achieve and maintain a net debt to EBITDA of 5.5 times or below. Our interest coverage and fixed charge coverage ratio ended the quarter at 3.9 times. Let's talk about 2022 guidance update. We are once again increasing our 2022 FFO per share guidance range to $2.21 to $2.27 per FFO share with a midpoint of $2.24 per FFO share, a 3% increase from our previously updated guidance issued in our Q1 2022 earnings call that had a range of $2.13 to $2.21 with the midpoint of $2.17. Let's walk through the following four items that make up this increase in 2022 FFO guidance. First, our Waikiki Beach Walk, Embassy Suites, and retail contributed approximately $0.02 per FFO share of outperformance in Q2 2022 that was not previously included in our 2022 guidance. Second, our multifamily properties contributed approximately $0.02 per FFO share of outperformance in Q2 2022 that was not previously included in our 2022 guidance. Third, our straight-line rent and interest savings contributed another $0.02 of FFO per share of outperformance in Q2 that was not previously included in our 2022 guidance. Fourth, our retail properties contributed approximately $0.01 of FFO per share of outperformance in Q2 2022 that was not previously included in our 2022 guidance. These adjustments when added together will be approximately $0.07 per FFO share and represent an increase in the 2022 midpoint over our previous 2022 guidance midpoint. While we believe the 2022 updated guidance is our best estimate as of this earnings call, we do believe that it is also possible that we could perform to the high end of this guidance range. In order to do that, tourism and spending in Waikiki need to maintain its positive trajectory. As of the end of Q2 2022, our forecast for calendar year 2022 is that our Embassy Suites will end at approximately 83% of 2019 pre-COVID NOI, up from our estimate of 74% at the end of Q1 2022. Embassy Suites has the potential to do much more but remains dependent on our Japanese tourism opening back up and more favorable foreign exchange rates to our Japanese guests. The foreign exchange rate between Japan and the US has been at recent highs. As always, our guidance, our NOI bridge, and these prepared remarks exclude any impact from future acquisitions, dispositions, equity issuances or repurchases, future debt refinancings, or repayments other than what we've already discussed. We will continue to be as transparent as possible and share with you our analysis and interpretations of our quarterly numbers. I'll now turn the call over to Steve Center, our Senior Vice President of Office Properties for a brief update on our office segment.

Thanks, Bob. At the end of the second quarter, net of our two redevelopments, our office portfolio stood at approximately 93% leased. Netting out our three recent acquisitions, our same-store portfolio was approximately 96% leased. The momentum in our office portfolio continues. In the second quarter, we executed 15 leases totaling approximately 148,000 rentable square feet, including approximately 12,000 rentable square feet of comparable new leases with increases over prior rents of 48.9% on a straight-line basis. And approximately 116,000 rentable square feet of comparable renewal leases with increases over prior rents of 18.3% on a straight-line basis, including renewing VMware at 75,000 rentable square feet at City Center, Bellevue. And approximately 20,000 rentable square feet as non-comparable new leases. Throughout our office portfolio, we are reaping the benefits of the multiple initiatives we have been employing to drive occupancy and rent growth, including renovating buildings with significant vacancy and/or rollover, furthering amenity packages, aggregating in light box and larger blocks of space where there is scarcity and improving smaller spaces to be turnkey and move-in ready. Notably, we continue to realize meaningful increases in occupancy and rent growth resulting from these initiatives. For example, with our recent 25,000 rentable square foot lease to Seismic Torrey Reserve, our San Diego office portfolio is now 95% leased. The 10,000 rentable square foot comparable new lease portion of that lease produced an increase over prior rent of 49% on a straight-line basis. In addition to the initiatives outlined above, we are expanding access to medical office users in select markets and buildings in response to very tight market conditions, producing longer-term leases at what we believe are premium rents relative to traditional office tenants. Along those lines, we are in lease documentation at Torrey Reserve with an existing medical user to renew them in approximately 4,000 rentable square feet and expand them into an additional 7,400 rentable square feet that we believe will provide a much better return than a comparable office lease. We have agreed to terms on a new 7,400 rentable square foot medical lease in Solana Crossing at a triple net rate that is 35% higher than a comparable office lease. We continue to invest in our office portfolio. In addition to the redevelopments at One Beach in San Francisco and Oregon Square in Portland and the development of Tower 3 of La Jolla Commons in San Diego, we are underway on the following projects: major renovations at East Gate Office Park; new amenities at City Center, Bellevue, including a fitness center, additional space with showers and lockers in a conference center; renovations and common area enhancements at Solana Crossing; new amenities at Corporate Campus East 3 and new amenities at First in Maine and Lloyd Center Tower in Portland, including a fitness center, conference center, and lounge in each building. We continue to believe the strategic investments in our portfolio will position us to continue to capture more than our fair share of net absorption at premium rents despite current market headwinds. I'll now turn the call back over to the operator for Q&A.

Thank you. Our first question comes from Todd Thomas. Please go ahead.

Good morning, Todd.

Hi. Good morning. This is Arthur Porto on for Todd today. Thanks for taking the question. I'm just going to jump in through it for the first one. It looks like you've increased exposure to office over the last several quarters, mainly through acquisitions. I was sort of wondering if your view around offices changed at all at the margin. As you think about deploying incremental capital going forward, would you look at possibly other property types today, given what maybe sounds like changes in asset pricing?

Let me answer that from my point of view. We were fortunate enough a year ago to borrow $500 million at 3% and 3.8% for 10 years. When we looked at how we were going to invest that money, we looked at apartments which are priced now to perfection; retail, which has issues that we have to deal with and has also priced for perfection. We found some office opportunities that we could buy below replacement cost and improve. I think that's proved to be a very good strategy. In the short run, it's not acceptable, obviously, in the marketplace because office is out of favor. But if you want to make money, you've got to buy when they hate them and sell them when they love them, and that's our strategy. Right now, we have a full plate with great properties to develop and absolutely the best locations in the path of growth where there are barriers to entry. So, that's our strategy, and we're just executing on it. Where we go from here will be governed by what I said at the outset: we want to create long-term growth and shareholder value and net asset value. I hope that answers your question.

Thank you. That's helpful. For my second question, occupancy fell sequentially at the recent Eastgate office park acquisition. Can you maybe speak to that decrease in occupancy and maybe talk about the strategy and timeframe to release the space?

First of all, Eastgate is a fantastic project. I'm so happy we bought that. It's absolutely amazing. But Steve has been the author of that acquisition and the impetus upon the growth, and I'm not going to pry into the pleasure of describing it.

Thanks for the question, Arthur. This isn't a surprise to us. We knew we were acquiring a property with some vacancies and had identified customers in that project who weren't premium rent-payers but rather users of commodity space. For instance, this quarter we lost two tenants at Eastgate, both in insurance-related fields, paying below-market rents of $26 and $28 per square foot triple net compared to the current market rate of $35 to $36. Both tenants ceased operations; one shut down the entire company, while the other closed the local branch. These closures were anticipated. We viewed Eastgate as a value opportunity to enhance what had been treated as a commodity project by previous owners. The property has outstanding features and amenities that were overlooked for years. We plan to make significant improvements. The approach we're initiating at Eastgate is akin to what we did at Torrey Reserve, where we've now achieved 95% occupancy at premium rates following our transformation there. We expect a similar outcome for Eastgate.

A little more perspective on Eastgate, we acquired the equivalent of a health cost. We didn't pay for it; it came without having to pay for it. We're going to be able to rent at market rents; we're going to be able to offer costs that are similar to market, but add the amenities that we paid nothing forward to our prospective tenants. I'm really bullish on Eastgate.

That's helpful and great to hear, Thanks for that. Just one more quick question. Apartment rents increased in the quarter by about 3.5% over Q1. Are you seeing that pace of growth moderate, or do you anticipate that you'll be able to maintain pricing power as the year progresses?

Well, I don't. But Abigail might want to answer that question. I think the market is strong and getting stronger in all our apartment markets. Abigail, do you want to add to that?

Sure. Good morning. I think you were saying in County. In the second quarter, occupancy has been really strong, not only in the portfolio but in the county. When you think about living in San Diego and what it has to offer, we do believe that strong will continue to remain strong into the third quarter and into the remainder of the year. As we mentioned, rents across the board have been averaging upwards of 23% over prior. So, we still feel positive about that and look forward to that in the next several months, especially during the current season.

During this time, we are improving our projects, including landscaping, roofing, and soundproofing, so we will have better projects at the end of this current situation than we had at the beginning. I think that will help us command higher rents. So we love our apartments.

Great. Thanks for the time, everyone.

Thank you. Thank you for your interest.

We have no further questions at this time. I will now turn the call over to Ernest Rady for closing remarks.

Okay. Thank you, guys, for listening. We have a great portfolio. We think it's going to continue to produce results that are more than acceptable, and we're happy to do this. We love this company. We love this job, and we hope to please our stockholders. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.