American Assets Trust Inc.
American Assets Trust Inc.
06/02/2026 | Press release | Distributed by Public on 07/02/2026 04:57
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited historical consolidated financial statements and notes thereto appearing in "Item 8. Financial Statements and Supplementary Data" of this report. As used in this section, unless the context otherwise requires, "we," "us," "our," and "our company" mean American Assets Trust, Inc., a Maryland corporation and its consolidated subsidiaries, including American Assets Trust, L.P. In statements regarding qualification as a REIT, such terms refer solely to American Assets Trust, Inc. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward looking statements as a result of various factors, including those set forth under "Item 1A. Risk Factors" or elsewhere in this document. See "Item 1A. Risk Factors" and "Forward-Looking Statements."
Overview
Our Company
We are a full service, vertically integrated and self-administered REIT that owns, operates, acquires and develops high quality office, retail, multifamily and mixed-use properties in attractive, high-barrier-to-entry markets in Southern California, Northern California, Washington, Oregon, Texas, and Hawaii. As of December 31, 2025, our portfolio was comprised of twelve office properties; eleven retail shopping centers; a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center; and seven multifamily properties. Additionally, as of December 31, 2025, we owned land at two of our properties that we classified as held for development or construction in progress. La Jolla Commons - Land, related to the development of La Jolla Commons III, was previously classified as held for development. The development of La Jolla Commons III is now complete and the building, inclusive of the land, was placed in operations as of April 1, 2025. Our core markets include San Diego, California; the San Francisco Bay Area, California; Bellevue, Washington; Portland, Oregon, and Oahu, Hawaii. American Assets Trust, Inc., as the sole general partner of our Operating Partnership, has control of our Operating Partnership and owned 78.95% of our Operating Partnership as of December 31, 2025. Accordingly, we consolidate the assets, liabilities and results of operations of our Operating Partnership.
Taxable REIT Subsidiary
On November 5, 2010, we formed American Assets Services, Inc., a Delaware corporation that is wholly owned by our Operating Partnership and which we refer to as our services company. We have elected, together with our services company, to treat our services company as a taxable REIT subsidiary for federal income tax purposes. A taxable REIT subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we may not engage in directly without adversely affecting our qualification as a REIT, provided a taxable REIT subsidiary may not operate or manage a lodging facility or provide rights to any brand name under which any lodging facility is operated. We may form additional taxable REIT subsidiaries in the future, and our Operating Partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company. Any income earned by our taxable REIT subsidiaries will not be included in our taxable income for purposes of the 75% or 95% gross income tests, except to the extent such income is distributed to us as a dividend, in which case such dividend income will qualify under the 95%, but not the 75%, gross income test. Because a taxable REIT subsidiary is subject to federal income tax and state and local income tax (where applicable) as a regular corporation, the income earned by our taxable REIT subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries.
Outlook
We seek growth in earnings, funds from operations, and cash flows primarily through a combination of the following: growth in our same-store portfolio, growth in our portfolio from property development and redevelopments and expansion of our portfolio through property acquisitions. Our properties are located in some of the nation's most dynamic, high-barrier-to-entry markets primarily in Southern California, Northern California, Washington, Oregon and Hawaii, which we believe allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation, expansion, reconfiguration, and/or retenanting. 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 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, Carmel Mountain Plaza, and Genesee Park. 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. Our redevelopment and development opportunities are subject to various factors, including market conditions and may not ultimately come to fruition. We continue to review acquisition opportunities in our primary markets that would complement our portfolio and provide long-term growth opportunities. Some of our acquisitions do not initially contribute significantly to earnings growth; however, we believe they provide long-term re-leasing growth, redevelopment opportunities and other strategic opportunities. 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. 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.
Same-store
We have provided certain information on a total portfolio, same-store and redevelopment same-store basis. Information provided on a same-store basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared, properties under development, properties classified as held for development and properties classified as discontinued operations. Information provided on a redevelopment same-store basis includes the results of properties undergoing significant redevelopment for the entirety or portion of both periods being compared. Same-store and redevelopment same-store are considered by management to be important measures because they assist in eliminating disparities due to the development, acquisition or disposition of properties during the particular period presented, and thus provide a more consistent performance measure for the comparison of the company's stabilized and redevelopment properties, as applicable. Additionally, redevelopment same-store is considered by management to be an important measure because it assists in evaluating the timing of the start and stabilization of our redevelopment opportunities and the impact that these redevelopments have in enhancing our operating performance.
While there is judgment surrounding changes in designations, we typically reclassify significant development, redevelopment or expansion properties into same-store properties once they are stabilized. Properties are deemed stabilized typically at the earlier of (1) reaching 90% occupancy or (2) four quarters following a property's inclusion in operating real estate. We typically remove properties from same-store properties when the development, redevelopment or expansion has or is expected to have a significant impact on the property's annualized base rent, occupancy and operating income within the calendar year. Our evaluation of significant impact related to development, redevelopment or expansion activity is based on quantitative and qualitative measures including, but not limited to, the following: the total budgeted cost of planned construction activity compared to the property's annualized base rent, occupancy and operating income within the calendar year; percentage of development, redevelopment or expansion square footage to total property square footage; and the ability to maintain historic occupancy and rental rates. In consideration of these measures, we generally remove properties from same-store properties when we see a decline in a property's annualized base rent, occupancy and operating income within the calendar year as a direct result of ongoing redevelopment, development or expansion activity. 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 composition for the years ended December 31, 2025, 2024 and 2023. One Beach Street is identified as a non-same-store property for the years ended December 31, 2025 and 2024, due to significant redevelopment activity. Additionally, this property was placed into operations on August 1, 2024, approximately one year after completing renovations. Del Monte Center was removed as a same-store property when compared to the designations for the year ended December 31, 2024, as it was sold on February 25, 2025. Genesee Park is classified as a non-same-store property because it was acquired on February 28, 2025, and thus has not been owned for the comparable period. La Jolla Commons III is classified as a non-same store property when compared to the designations for the year ended December 31, 2024, as it was placed in operations on April 1, 2025. La Jolla Commons III is a part of the La Jolla Commons office project, and not a stand-alone property.
For the year ended December 31, 2024, when compared to the designations for the year ended December 31, 2023, Timber Springs was 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 was classified as a same-store property when compared to the designation for the year ended December 31, 2023, because the property had been in operation for a full year since it was placed in service in November 2022. One Beach Street is identified as a non-same-store property for the years ended December 31, 2024 and 2023, due to significant redevelopment activity. Additionally, this property was placed into operations on August 1, 2024, approximately one year after completing renovations.
| December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Same-Store | 29 | 30 | 29 | ||||||||||||||
| Non-Same Store | 2 | 1 | 2 | ||||||||||||||
| Total Properties | 31 | 31 | 31 | ||||||||||||||
| Total Development Properties | 2 | 3 | 3 | ||||||||||||||
Revenue Base
Rental income consists of scheduled rent charges, straight-line rent adjustments and the amortization of above market and below market rents acquired. We also derive revenue from tenant recoveries and other property revenues, including parking income, lease termination fees, late fees, storage rents and other miscellaneous property revenues.
Office Leases. Our office portfolio included twelve properties with a total of approximately 4.3 million rentable square feet available for lease as of December 31, 2025. As of December 31, 2025, these properties were 83.1% leased. For the year ended December 31, 2025, the office segment contributed 47.2% of our total revenue. Historically, we have leased office properties to tenants primarily on a full service gross or a modified gross basis and to a limited extent on a triple-net lease basis. We expect to continue to do so in the future. A full-service gross or modified gross lease has a base year expense stop, whereby the tenant pays a stated amount of certain expenses as part of the rent payment, while future increases in property operating expenses (above the base year stop) are billed to the tenant based on such tenant's proportionate square footage of the property. The increased property operating expenses billed are reflected as operating expenses and amounts recovered from tenants are reflected as rental income in the statements of operations.
During the year ended December 31, 2025, we signed 82 office leases for 616,680 square feet with an average rent of $55.50 per square foot during the initial year of the lease term. Of the leases, 46 represent comparable leases where there was a prior tenant, with an increase of 6.4% in cash basis rent and an increase of 13.8% in straight-line rent compared to the prior leases.
Retail Leases. Our retail portfolio included eleven properties with a total of approximately 2.4 million rentable square feet available for lease as of December 31, 2025. As of December 31, 2025, these properties were 97.7% leased. For the year ended December 31, 2025, the retail segment contributed 21.8%, of our total revenue. Historically, we have leased retail properties to tenants primarily on a triple-net lease basis, and we expect to continue to do so in the future. In a triple-net lease, the tenant is responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating expense, but rather all such expenses, to the extent they are paid by the landlord, are billed to the tenant. The full amount of the expenses for this lease type, to the extent they are paid by the landlord, is reflected in operating expenses, and the reimbursement is reflected as rental income in the statements of operations.
During the year ended December 31, 2025, we signed 91 retail leases for 546,406 square feet with an average rent of $32.59 per square foot during the initial year of the lease term, including leases signed for the retail portion of our mixed-use property. Of the leases, 80 represent comparable leases where there was a prior tenant, with an increase of 7.1% in cash basis rent and an increase of 21.8% in straight-line rent compared to the prior leases.
Multifamily Leases. Our multifamily portfolio included six apartment properties, as well as an RV resort, with a total of 2,302 units (including 120 RV spaces) available for lease as of December 31, 2025. As of December 31, 2025, these properties were 91.1% occupied. For the year ended December 31, 2025, the multifamily segment contributed 15.8% of our total revenue. Our multifamily leases, other than at our RV resort, generally have lease terms ranging from 7 to 15 months, with a majority having 12-month lease terms. Tenants normally pay a base rental amount, usually quoted in terms of a monthly rate for the respective unit. Spaces at the RV resort can be rented at a daily, weekly, or monthly rate. The average monthly base rent per occupied unit as of December 31, 2025 was $2,684, compared to $2,683 at December 31, 2024.
Mixed-Use Property Revenue. Our mixed-use property consists of approximately 94,000 rentable square feet of retail space and a 369-room all-suite hotel. Revenue from the mixed-use property consists of revenue earned from retail leases, and revenue earned from the hotel, which consists of room revenue, food and beverage services, parking and other guest services. As of December 31, 2025, the retail portion of the property was 96.2% leased, and for the year ended December 31, 2025, the hotel had an average occupancy of 82.3%. For the year ended December 31, 2025, the mixed-use segment contributed 15.1%, of our total revenue. We have leased the retail portion of such property to tenants primarily on a triple-net lease basis, and we expect to continue to do so in the future. As such, the base rent payment under such leases does not include any operating expenses, but rather all such expenses, to the extent they are paid by the landlord, are billed to the tenant. Rooms at the hotel portion of our mixed-use property are rented on a nightly basis.
Leasing
Our same-store growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in portfolio occupancy. Over the long-term, we believe that the infill nature and strong demographics of our properties provide us with a strategic advantage, allowing us to maintain relatively high occupancy and increase rental rates. Furthermore, we believe the locations of our properties and diversified portfolio will mitigate some of the potentially negative impact of the current economic environment.
During the twelve months ended December 31, 2025, we signed 82 office leases for a total of 616,680 square feet of office space including 370,619 square feet of comparable space leases (leases for which there was a previous tenant), at an average rental rate increase on a cash and GAAP basis of 6.4% and 13.8%, respectively. New office leases for comparable spaces were signed for 119,206 square feet at an average rental rate increase on a cash and GAAP basis of 3.4% and 16.3%, respectively. Renewals for comparable office spaces were signed for 251,413 square feet at an average rental rate increase on a cash and GAAP basis of 7.7% and 12.8%, respectively. Tenant improvements and incentives were $28.33 per square foot of office space for comparable new leases for the twelve months ended December 31, 2025, mainly due to new tenants at City Center Bellevue, Lloyd Portfolio and 14Acres. There were $21.47 per square foot of office space of tenant improvement or incentives for comparable renewal leases for the twelve months ended December 31, 2025.
During the twelve months ended December 31, 2025, we signed 91 retail leases for a total of 546,406 square feet of retail space including 509,924 square feet of comparable space leases, at an average rental rate increase on a cash and GAAP basis of 7.1% and 21.8%, respectively. New retail leases for comparable spaces were signed for 25,372 square feet at an average rental rate increase on a cash and GAAP basis of 9.9% and 436.8% (due to the modification of prior tenants' rent to cash-basis, which precluded straight-line rent for comparison), respectively. Renewals for comparable retail spaces were signed for 484,552 square feet at an average rental rate increase on a cash and GAAP basis of 6.9% and 15.6%, respectively. Tenant improvements and incentives were $42.85 per square foot of retail space for comparable new leases for the twelve months ended December 31, 2025, mainly due to new tenants at Gateway Marketplace, Alamo Quarry Market, Lomas Santa Fe Plaza and Carmel Country Plaza. There were $5.78 per square foot of retail space of tenant improvement or incentives for comparable renewal leases for the twelve months ended December 31, 2025.
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. The comparison between average rent for expiring leases and new leases is determined by including minimum rent and percentage rent paid on the expiring lease and minimum rent and, in some instances, projections of first lease year percentage rent, to be paid on the new lease. In some instances, management exercises judgment as to how to most effectively reflect the comparability of spaces reported in this calculation. The change in rental income on comparable space leases is impacted by numerous factors including current market rates, location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed, capital investment made in the space and the specific lease structure. Tenant improvements and incentives include the total dollars committed for the improvement of a space as it relates to a specific lease, but may also include base building costs (i.e., expansion, escalators or new entrances) which are required to make the space leasable. Incentives include amounts paid to tenants as an inducement to sign a lease that do not represent building improvements.
The leases signed in 2025 will typically become effective in 2026, though some may not become effective until 2027. Further, there is risk that some new tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating, financing or other matters.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management's best judgment, after considering past and current events and economic conditions. In addition, information relied upon by management in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third-party experts. Actual results could differ from these estimates. A discussion of possible risks which may affect these estimates is included in the section above entitled "Item 1A. Risk Factors." Management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition.
Our significant accounting policies are more fully described in the notes to the consolidated financial statements included elsewhere in this report; however, the most critical accounting policies, which involve the use of estimates and assumptions as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows:
Revenue Recognition and Accounts Receivable
Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed rent escalations which occur at specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease, net of valuation adjustments, based on management's assessment of credit, collection and other business risks. When we determine that we are the owner of tenant improvements and the tenant has reimbursed us for a portion or all of the tenant improvement costs, we consider the amount paid to be additional rent, which is recognized on a straight-line basis over the term of the related lease. For first generation tenants, in instances in which we fund tenant improvements and the improvements are deemed to be owned by us, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When we determine that the tenant is the owner of tenant improvements, tenant allowances are recorded as lease incentives and we commence revenue recognition and lease incentive amortization when possession or control of the space is turned over to the tenant for tenant work to begin. Percentage rents, which represent additional rents based upon the level of sales achieved by certain tenants, are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible. Real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred.
Other property income includes parking income, general excise tax billed to tenants, fees charged to tenants at our multifamily properties and food and beverage sales at the hotel portion of our mixed-use property. Other property income is recognized when we satisfy performance obligations as evidenced by the transfer of control of our services to customers. For a tenant to terminate its lease agreement prior to the end of the agreed term, we may require that they pay a fee to cancel the lease agreement. Lease termination fees for which the tenant has relinquished control of the space are generally recognized on the later of the termination date or the satisfaction of all conditions precedent to the lease termination, including, without limitation, payment of all lease termination fees. When a lease is terminated early but the tenant continues to control the space under a modified lease agreement, the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement.
Current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate tax and other cost reimbursements. Accounts receivable from straight-line rent is typically longer term in nature and relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the contractual lease agreement.
We recognize revenue on the hotel portion of our mixed-use property from the rental of hotel rooms and guest services when we satisfy performance obligations as evidenced by the transfer of control when the rooms are occupied and services have been provided. Food and beverage sales are recognized when the customer has been served or at the time the transaction occurs. Revenue from room rental is included in rental revenue on the statement of comprehensive income. Revenue from other sales and services provided is included in other property income on the statement of comprehensive income.
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, 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. If we change our conclusion regarding the probability of collecting rent payments required by a lessee, we may recognize an adjustment to rental income in the period we make a change to our prior conclusion.
Due to the nature of the accounts receivable from straight-line rents, the collection period of these amounts typically extends beyond one year. Our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable as revenue is never billed to or collected from tenants due to early lease terminations, lease modifications, bankruptcies and other factors. Accordingly, the extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably assured. Any changes to our conclusion regarding these assessments of collectability would have a direct impact on our net income.
When we enter into a transaction to sell a property or a portion of a property, we evaluate the recognition of the sale under ASC 610-20, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets," to determine whether and when control transfers and how to measure the associated gain or loss. We determine the transaction price based on the consideration we expect to receive. Variable consideration is included in the transaction price to the extent it is probable that a significant reversal of a gain recognized will not occur. We analyze the risk of a significant gain reversal and if necessary, limit the amount of variable consideration recognized in order to mitigate this risk. The estimation of variable consideration may require us to make assumptions and apply significant judgment.
Real Estate
Depreciation and maintenance costs relating to our properties constitute substantial costs for us. Land, buildings and improvements are recorded at cost. Depreciation is computed using the straight-line method. Estimated useful lives range generally from 30 years to a maximum of 40 years on buildings and major improvements. Minor improvements, furniture and equipment are capitalized and depreciated over useful lives ranging from 3 to 15 years. Maintenance and repairs that do not improve or extend the useful lives of the related assets are charged to operations as incurred. Tenant improvements are capitalized and depreciated over the life of the related lease or their estimated useful life, whichever is shorter. If a tenant vacates its space prior to contractual termination of its lease, the undepreciated balance of any tenant improvements are written off if they are replaced or have no future value. Our estimates of useful lives have a direct impact on our net income. If expected useful lives of our real estate assets were shortened, we would depreciate the assets over a shorter time period, resulting in an increase to depreciation expense and a corresponding decrease to net income on an annual basis.
Acquisitions of properties are accounted for in accordance with the authoritative accounting guidance on acquisitions and business combinations. Our methodology of allocating the cost of acquisitions to assets acquired and liabilities assumed is based on estimated fair values, replacement cost and appraised values. When we acquire operating real estate properties, the purchase price is allocated to land and buildings, intangibles such as in-place leases, and to current assets and liabilities acquired, if any. Such valuations include a consideration of the noncancelable terms of the respective leases as well as any applicable renewal period(s). The fair values associated with below market renewal options are determined based on a review of several qualitative and quantitative factors on a lease-by-lease basis at acquisition to determine whether it is probable that the tenant would exercise its option to renew the lease agreement. These factors include: (1) the type of tenant in relation to the property it occupies, (2) the quality of the tenant, including the tenant's long term business prospects, and (3) whether the fixed rate renewal option was sufficiently lower than the fair rental of the property at the date the option becomes exercisable such that it would appear to be reasonably assured that the tenant would exercise the option to renew. Each of these estimates requires a great deal of judgment, and some of the estimates involve complex calculations. These allocation assessments have a direct impact on our results of operations because if we were to allocate more value to land, there would be no depreciation with respect to such amount. If we were to allocate more value to the buildings, as opposed to allocating to the value of tenant leases, this amount would be recognized as an expense over a much longer period of time, since the amounts allocated to buildings are depreciated over the estimated lives of the buildings whereas amounts allocated to tenant leases are amortized over the remaining terms of the leases.
The value allocated to in-place leases is amortized over the related lease term and reflected as depreciation and amortization in the consolidated statements of comprehensive income. The value of above and below market leases associated with the original noncancelable lease terms are amortized to rental income over the terms of the respective noncancelable lease periods and are reflected as either an increase (for below market leases) or a decrease (for above market leases) to rental income in the consolidated statement of comprehensive income. If a tenant vacates its space prior to contractual termination of its lease or the lease is not renewed, the unamortized balance of any in-place lease value is written off to rental income and amortization expense. 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.
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. For asset acquisitions not meeting the definition of a business, transaction costs are capitalized as part of the acquisition cost.
Capitalized Costs
Certain external and internal costs directly related to the development and redevelopment of real estate, including pre-construction costs, real estate taxes, insurance, interest, construction costs and salaries and related costs of personnel directly involved, are capitalized. We capitalize costs under development until construction is substantially complete and the property is held available for occupancy. The determination of when a development project is substantially complete and when capitalization must cease involves a degree of judgment. We consider a construction project as substantially complete and held available for occupancy upon the completion of landlord-owned tenant improvements or when the lessee takes possession of the unimproved space for construction of its own improvements, but not later than one year from cessation of major construction activity. 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 new development, redevelopment, expansion and repositioning activities combined of $22.7 million and $16.3 million for the years ended December 31, 2025 and 2024, respectively.
We capitalized external and internal costs related to other property improvements combined of $55.5 million and $52.2 million for the years ended December 31, 2025 and 2024, respectively.
Interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service. Capitalization of interest commences when development activities and expenditures begin and end upon completion, which is when the asset is ready for its intended use as noted above. We make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income. If the time period for capitalizing interest is extended, more interest is capitalized, thereby decreasing interest expense and increasing net income during that period. We capitalized interest costs related to both development and redevelopment activities combined of $1.4 million and $7.5 million for the years ended December 31, 2025 and 2024, respectively.
Segment capital expenditures for the years ended December 31, 2025 and 2024 are as follows (dollars in thousands):
| Year Ended December 31, 2025 | ||||||||||||||||||||||||||||||||||||||
| Segment | Tenant Improvements and Leasing Commissions | Capital Expenditures | Total Tenant Improvements, Leasing Commissions and Capital Expenditures |
Redevelopment, Expansions and Repositioning (1)
|
New Development | Total Capital Expenditures | ||||||||||||||||||||||||||||||||
| Office Portfolio | $ | 27,315 | $ | 14,133 | $ | 41,448 | $ | 6,587 | $ | 13,475 | $ | 61,510 | ||||||||||||||||||||||||||
| Retail Portfolio | 5,346 | 5,466 | 10,812 | 698 | - | 11,510 | ||||||||||||||||||||||||||||||||
| Multifamily Portfolio | - | 3,014 | 3,014 | 2,080 | - | 5,094 | ||||||||||||||||||||||||||||||||
| Mixed-Use Portfolio | 543 | 1,763 | 2,306 | - | - | 2,306 | ||||||||||||||||||||||||||||||||
| Total | $ | 33,204 | $ | 24,376 | $ | 57,580 | $ | 9,365 | $ | 13,475 | $ | 80,420 | ||||||||||||||||||||||||||
| Year Ended December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||
| Retail Portfolio | 9,158 | 4,410 | 13,568 | - | - | 13,568 | ||||||||||||||||||||||||||||||||
| Multifamily Portfolio | - | 5,637 | 5,637 | - | - | 5,637 | ||||||||||||||||||||||||||||||||
| Mixed-Use Portfolio | 425 | 1,057 | 1,482 | - | - | 1,482 | ||||||||||||||||||||||||||||||||
| Total | $ | 32,631 | $ | 29,433 | $ | 62,064 | $ | 1,979 | $ | 13,364 | $ | 77,407 | ||||||||||||||||||||||||||
(1) Beginning with the three months ended June 30, 2025, this capital expenditures category includes spending related to repositioning initiatives at operating properties, as well as planned capital expenditures identified at the time of acquisition.
The increase in tenant improvements and leasing commissions for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily related to new tenant build-outs at Coastal Collection at Torrey Reserve, Solana Crossing, 14 Acres, Timber Ridge and Carmel Country Plaza during the year ended December 31, 2025, partially offset by tenant build-outs completed at La Jolla Commons, City Center Bellevue and Alamo Quarry Market during the year ended December 31, 2024. Additionally, the decrease in retail tenant improvements and leasing commissions is due to the sale of Del Monte Center during the first quarter of 2025.
The decrease in capital expenditures for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily related to the renovations completed at Imperial Beach, 14 Acres and Lloyd Portfolio during the year ended December 31, 2024, partially offset by an increase at La Jolla Commons I and II, First & Main and Alamo Quarry Market during the year ended December 31, 2025.
Beginning with the second quarter of 2025, this capital expenditures category includes spending related to repositioning initiatives at operating properties, as well as planned capital expenditures identified at the time of acquisition. The increase in redevelopment, expansions and repositioning expenditures for the year ended December 31, 2025 compared to the year ended December 31, 2024, is primarily due to the costs incurred at 14 Acres, Timber Springs, Timber Springs, Genesee Park and La Jolla Commons during the year ended December 31, 2025, partially offset by a decrease in redevelopment expenditures related to the completion of One Beach Street during the year ended December 31, 2024.
New development expenditures for the year ended December 31, 2025 includes the cost related to first generation tenant build-outs at La Jolla Commons III, compared to the costs incurred for the development of La Jolla Commons III during the year ended December 31, 2024.
Our capital expenditures for the year ending December 31, 2026 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, 2026 to increase from the year ending December 31, 2025 as we continue our renovations at Genesee Park, build-out amenities and speculative suites at One Beach Street and incur first generation tenant improvements at La Jolla Commons III.
Derivative Instruments
We may use derivative instruments to manage exposure to variable interest rate risk. We may enter into interest rate swaps to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the issuance of debt.
Any interest rate swaps associated with our cash flow hedges are recorded at fair value on a recurring basis. We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in other comprehensive income which is included in accumulated other comprehensive income on our consolidated balance sheet and our consolidated statement of equity. Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not match, such as notional amounts, settlement dates, reset dates, calculation periods and the use of Secured Overnight Financing Rate (SOFR). In addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty which includes reviewing debt ratings and financial performance. However, management does not anticipate non-performance by the counterparty. If a cash flow hedge is deemed ineffective, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected.
Impairment of Long-Lived Assets
We review for impairment on a property by property basis. Impairment is recognized on properties held for use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down to fair value. The calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues, operating expenses, required maintenance and development expenditures, market conditions, demand for space by tenants and rental rates over long periods. Since our properties typically have a long life, the assumptions used to estimate the future recoverability of book value requires significant management judgment. Actual results could be significantly different from the estimates. These estimates have a direct impact on net income because recording an impairment charge results in a negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.
Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. Although our strategy is to hold our properties over the long-term, if our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized to reduce the property to fair value and such loss could be material.
No impairment charges were recorded for the years ended December 31, 2025, 2024 or 2023.
Income Taxes
We elected to be taxed as a REIT under the Code commencing with the taxable year ended December 31, 2011. To maintain our qualification as a REIT, we are required to distribute at least 90% of our net taxable income to our stockholders, excluding net capital gains, and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided we maintain our qualification for taxation as a REIT, we are generally not subject to corporate level income tax on the earnings distributed currently to our stockholders. If we fail to maintain our qualification as a REIT in any taxable year, and are unable to avail ourselves of certain savings provisions set forth in the Code, our taxable income generally would be subject to regular U.S. federal corporate income tax. Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.
We, together with one of our subsidiaries, have elected to treat such subsidiary as a taxable REIT subsidiary for federal income tax purposes. A taxable REIT subsidiary is subject to federal and state income taxes.
Property Acquisitions and Dispositions
2025 Acquisitions and Dispositions
On February 28, 2025, we acquired Genesee Park in San Diego, California, consisting of a 192-unit apartment community. The purchase price was $67.9 million, excluding closing costs and prorations. We acquired the property with cash on hand, primarily from the proceeds received from the sale of Del Monte Center.
On February 25, 2025, we sold Del Monte Center, which is located in Monterey, California and was previously included in our retail segment. The sale price of this property of approximately $123.5 million, less closing costs and prorations, resulting in net proceeds of approximately $117.8 million. Accordingly, we recorded a gain on the sale of approximately $44.5 million for the year ended December 31, 2025.
2024 Acquisitions and Dispositions
During the year ended December 31, 2024, there were no acquisitions or dispositions.
2023 Acquisitions and Dispositions
During the year ended December 31, 2023, there were no acquisitions or dispositions.
Results of Operations
For our discussion of results of operations, we have provided information on a total portfolio and same-store basis.
For our discussion related to the results of operations and liquidity and capital resources for the year ended December 31, 2024 compared to the year ended December 31, 2023 please refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2024 Form 10-K, filed with the Securities and Exchange Commission on February 12, 2025.
Comparison of the Year Ended December 31, 2025 to the Year Ended December 31, 2024
The following summarizes our consolidated results of operations for the year ended December 31, 2025 compared to our consolidated results of operations for the year ended December 31, 2024. As of December 31, 2025, our operating portfolio was comprised of 31 office, retail, multifamily and mixed-use properties with an aggregate of approximately 6.8 million rentable square feet of office and retail space (including mixed-use retail space), 2,302 residential units (including 120 RV spaces) and a 369-room hotel. Additionally, as of December 31, 2025, we owned land at two of our properties that we classified as held for development or construction in progress. As of December 31, 2024, our operating portfolio was comprised of 31 office, retail, multifamily and mixed-use properties with an aggregate of approximately 7.3 million rentable square feet of office and retail space (including mixed-use retail space), 2,110 residential units (including 120 RV spaces) and a 369-room hotel. Additionally, as of December 31, 2024, we owned land at three of our properties that we classified as held for development or construction in progress.
The following table sets forth selected data from our consolidated statements of comprehensive income for the years ended December 31, 2025 and 2024 (dollars in thousands):
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | Change | % | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Rental income | $ | 410,493 | $ | 423,611 | $ | (13,118) | (3) | % | |||||||||||||||
| Other property income | 25,711 | 34,244 | (8,533) | (25) | |||||||||||||||||||
| Total property revenues | 436,204 | 457,855 | (21,651) | (5) | |||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Rental expenses | 124,601 | 123,503 | 1,098 | 1 | |||||||||||||||||||
| Real estate taxes | 44,994 | 44,224 | 770 | 2 | |||||||||||||||||||
| Total property expenses | 169,595 | 167,727 | 1,868 | 1 | |||||||||||||||||||
| Total property operating income | 266,609 | 290,128 | (23,519) | (8) | |||||||||||||||||||
| General and administrative | (37,841) | (35,468) | (2,373) | 7 | |||||||||||||||||||
| Depreciation and amortization | (127,312) | (125,461) | (1,851) | 1 | |||||||||||||||||||
| Interest expense, net | (78,120) | (74,527) | (3,593) | 5 | |||||||||||||||||||
| Gain on sale of real estate | 44,476 | - | 44,476 | 100 | |||||||||||||||||||
| Other income, net | 3,558 | 18,147 | (14,589) | 80 | |||||||||||||||||||
| Net income | 71,370 | 72,819 | (1,449) | (2) | |||||||||||||||||||
| Net income attributable to restricted shares | (852) | (787) | (65) | 8 | |||||||||||||||||||
|
Net income attributable to unitholders in the Operating Partnership
|
(14,870) | (15,234) | 364 | (2) | |||||||||||||||||||
|
Net income attributable to American Assets Trust, Inc. stockholders
|
$ | 55,648 | $ | 56,798 | $ | (1,150) | (2) | % | |||||||||||||||
Revenue
Total property revenues.Total property revenue consists of rental revenue and other property income. Total property revenue decreased $21.7 million, or 5%, to $436.2 million for the year ended December 31, 2025, compared to $457.9 million for the year ended December 31, 2024. The percentage leased was as follows for each segment as of December 31, 2025 and 2024:
|
Percentage Leased (1)
Year Ended
December 31,
|
|||||||||||
| 2025 | 2024 | ||||||||||
| Office | 83.1 | % | 85.0 | % | |||||||
| Retail | 97.7 | % | 94.5 | % | |||||||
| Multifamily | 91.1 | % | 91.8 | % | |||||||
|
Mixed-Use (2)
|
96.2 | % | 90.5 | % | |||||||
(1)The percentage leased includes the square footage under lease, including leases which may not have commenced as of December 31, 2025 or December 31, 2024, as applicable. Leased units for our multifamily properties include total units leased and occupied as of the applicable date.
(2) Includes the retail portion of the mixed-use property only.
The decrease 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 decreased $13.1 million, or 3%, to $410.5 million for the year ended December 31, 2025, compared to $423.6 million for the year ended December 31, 2024. Rental revenue by segment was as follows (dollars in thousands):
| Total Portfolio |
Same-Store Portfolio (1)
|
||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | % | 2025 | 2024 | Change | % | ||||||||||||||||||||||||||||||||||||||||
| Office | $ | 197,418 | $ | 198,601 | $ | (1,183) | (1) | % | $ | 196,406 | $ | 198,573 | $ | (2,167) | (1) | % | |||||||||||||||||||||||||||||||
| Retail | 93,965 | 107,397 | (13,432) | (13) | 92,367 | 91,537 | 830 | 1 | |||||||||||||||||||||||||||||||||||||||
| Multifamily | 65,010 | 61,448 | 3,562 | 6 | 61,133 | 61,448 | (315) | (1) | |||||||||||||||||||||||||||||||||||||||
| Mixed-Use | 54,100 | 56,165 | (2,065) | (4) | 54,100 | 56,165 | (2,065) | (4) | |||||||||||||||||||||||||||||||||||||||
| $ | 410,493 | $ | 423,611 | $ | (13,118) | (3) | % | $ | 404,006 | $ | 407,723 | $ | (3,717) | (1) | % | ||||||||||||||||||||||||||||||||
(1)For this table and the tables following, the same-store portfolio excludes: (i) One Beach Street (office) due to significant redevelopment; (ii) Del Monte Center (retail), which was sold on February 25, 2025; (iii) Genesee Park (multifamily), which was acquired on February 28, 2025, (iv) La Jolla Commons III (office), which was placed into operations on April 1, 2025 and (v) land held for development (office).
Total office rental revenue decreased $1.2 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to lower occupancy at Coastal Collection at Torrey Reserve and First & Main. This decrease was partially offset by an increase in occupancy and annualized base rents at City Center Bellevue and Timber Ridge. Additionally, with new tenant lease commencements at La Jolla Commons III, we recognized $1.0 million in non-same store rental revenue.
Total retail rental revenue decreased $13.4 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to the sale of Del Monte Center on February 25, 2025. Same-store retail rental revenue increased $0.8 million due to new tenant leases and scheduled rent increases at Carmel Mountain Plaza and Alamo Quarry Market.
Multifamily rental revenue increased $3.6 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to the acquisition of Genesee Park on February 28, 2025. Same-store multifamily rental revenue decreased $0.3 million due to a decrease in occupancy and a slight increase in average monthly base rent. Same-store average monthly base rent and occupancy was $2,775 and 89.5% for the year ended December 31, 2025, compared to $2,718 and 91.0% for the year ended December 31, 2024.
Mixed-use rental revenue decreased $2.1 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to a decrease in tourism, which led to a decrease in average occupancy and revenue per available room to 82.3% and $296 for the year ended December 31, 2025 compared to 85.9% and $319 for the year ended December 31, 2024. This decrease was partially offset by an increase in rental revenue at the retail portion of our mixed-use property, primarily due to new tenant leases commencing at higher base rents and an increase in cost recoveries.
Other property income.Other property income decreased $8.5 million, or 25%, to $25.7 million for the year ended December 31, 2025, compared to $34.2 million for the year ended December 31, 2024. Other property income by segment was as follows (dollars in thousands):
| Total Portfolio | Same-Store Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | % | 2025 | 2024 | Change | % | ||||||||||||||||||||||||||||||||||||||||
| Office | $ | 8,619 | $ | 17,177 | $ | (8,558) | (50) | % | $ | 8,558 | $ | 17,146 | $ | (8,588) | (50) | % | |||||||||||||||||||||||||||||||
| Retail | 1,157 | 1,643 | (486) | (30) | 1,161 | 1,650 | (489) | (30) | |||||||||||||||||||||||||||||||||||||||
| Multifamily | 3,951 | 3,924 | 27 | 1 | 3,918 | 3,924 | (6) | - | |||||||||||||||||||||||||||||||||||||||
| Mixed-Use | 11,984 | 11,500 | 484 | 4 | 11,984 | 11,500 | 484 | 4 | |||||||||||||||||||||||||||||||||||||||
| $ | 25,711 | $ | 34,244 | $ | (8,533) | (25) | % | $ | 25,621 | $ | 34,220 | $ | (8,599) | (25) | % | ||||||||||||||||||||||||||||||||
Total office other property income decreased $8.6 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to lease termination fees received at Coastal Collection at Torrey Reserve in 2024. This decrease was partially offset by lease termination fees received at 14Acres and Timber Ridge in 2025 and an increase in parking garage income at City Center Bellevue, First & Main and Lloyd Portfolio.
Retail other property income decreased $0.5 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to lease termination fees received at Alamo Quarry Market and Solana Beach Towne Center in 2024.
Mixed-use other property income increased $0.5 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to an increase in parking income and lease settlement fees received at the retail 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 $1.9 million, or 1%, to $169.6 million for the year ended December 31, 2025, compared to $167.7 million for the year ended December 31, 2024. This increase in total property expenses was attributable primarily to the factors discussed below.
Rental Expenses.Rental expenses increased $1.1 million, or 1%, to $124.6 million for the year ended December 31, 2025, compared to $123.5 million for the year ended December 31, 2024. Rental expense by segment was as follows (dollars in thousands):
| Total Portfolio | Same-Store Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | % | 2025 | 2024 | Change | % | ||||||||||||||||||||||||||||||||||||||||
| Office | $ | 46,223 | $ | 43,181 | $ | 3,042 | 7 | % | $ | 43,237 | $ | 41,618 | $ | 1,619 | 4 | % | |||||||||||||||||||||||||||||||
| Retail | 14,823 | 18,578 | (3,755) | (20) | 13,957 | 14,102 | (145) | (1) | |||||||||||||||||||||||||||||||||||||||
| Multifamily | 23,810 | 21,603 | 2,207 | 10 | 21,973 | 21,603 | 370 | 2 | |||||||||||||||||||||||||||||||||||||||
| Mixed-Use | 39,745 | 40,141 | (396) | (1) | 39,745 | 40,141 | (396) | (1) | |||||||||||||||||||||||||||||||||||||||
| $ | 124,601 | $ | 123,503 | $ | 1,098 | 1 | % | $ | 118,912 | $ | 117,464 | $ | 1,448 | 1 | % | ||||||||||||||||||||||||||||||||
Total office rental expenses increased $3.0 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to a $1.5 million increase at La Jolla Commons Tower III related to new operations and amenities. Same-store office rental expense increased $1.6 million due to higher utilities expense, facilities services expense and repairs and maintenance expense.
Total retail rental expenses decreased $3.8 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to a $3.6 million decrease related to the sale of Del Monte Center in the first quarter of 2025. Same-store retail rental expenses decreased due to $0.5 million written off during the first quarter of 2024 for non-recurring costs related to construction in progress for then-prospective construction at Waikele Center. These decreases were offset by an increase in facilities services expense and repairs and maintenance expense.
Multifamily rental expenses increased $2.2 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to a $1.8 million increase related to the acquisition of Genesee Park in the first quarter of 2025. Same-store multifamily rental expenses increased due to an overall increase in insurance expense, facilities services expense and repairs and maintenance expense across most of our other multifamily properties.
Mixed-use rental expenses decreased $0.4 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to a decrease in room-related expenses at the hotel portion of our mixed-use property, partially offset by an increase in utilities expense and facilities services expense at the retail portion of our mixed-use property.
Real Estate Taxes.Real estate tax expense increased $0.8 million, or 2%, to $45.0 million for the year ended December 31, 2025, compared to $44.2 million for the year ended December 31, 2024. Real estate tax expense by segment was as follows (dollars in thousands):
| Total Portfolio | Same-Store Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | % | 2025 | 2024 | Change | % | ||||||||||||||||||||||||||||||||||||||||
| Office | $ | 20,675 | $ | 19,053 | $ | 1,622 | 9 | % | $ | 18,509 | $ | 18,631 | $ | (122) | (1) | % | |||||||||||||||||||||||||||||||
| Retail | 11,961 | 13,930 | (1,969) | (14) | 12,137 | 12,821 | (684) | (5) | |||||||||||||||||||||||||||||||||||||||
| Multifamily | 8,141 | 7,186 | 955 | 13 | 7,510 | 7,186 | 324 | 5 | |||||||||||||||||||||||||||||||||||||||
| Mixed-Use | 4,217 | 4,055 | 162 | 4 | 4,217 | 4,055 | 162 | 4 | |||||||||||||||||||||||||||||||||||||||
| $ | 44,994 | $ | 44,224 | $ | 770 | 2 | % | $ | 42,373 | $ | 42,693 | $ | (320) | (1) | % | ||||||||||||||||||||||||||||||||
Total office real estate taxes increased $1.6 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to an increase at La Jolla Commons III and One Beach Street since we stopped capitalizing real estate taxes when the buildings were placed into service on April 1, 2025 and August 1, 2024, respectively. Additionally, there was an increase at La Jolla Commons I and II due to real estate tax refunds received during the year ended December 31, 2024. These increases were offset by a decrease in property tax assessments at City Center Bellevue, 14Acres and Timber Ridge.
Retail real estate taxes decreased $2.0 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to the sale of Del Monte Center on February 25, 2025 and a decrease in property tax assessments at Alamo Quarry Market and real estate tax refunds received at Alamo Quarry Market and Carmel Mountain Plaza in 2025.
Multifamily real estate taxes increased $1.0 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to $0.6 million related to the acquisition of Genesee Park on February 28, 2025, and an increase in property tax assessments mainly at Pacific Ridge Apartments, Loma Palisades and Hassalo on Eighth - Multifamily.
Mixed-use real estate taxes increased $0.2 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to an increase in property tax assessments.
Property Operating Income.
Property operating income decreased $23.5 million, or 8%, to $266.6 million for the year ended December 31, 2025, compared to $290.1 million for the year ended December 31, 2024. Property operating income by segment was as follows (dollars in thousands):
| Total Portfolio | Same-Store Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | % | 2025 | 2024 | Change | % | ||||||||||||||||||||||||||||||||||||||||
| Office | $ | 139,139 | $ | 153,544 | $ | (14,405) | (9) | % | $ | 143,218 | $ | 155,470 | $ | (12,252) | (8) | % | |||||||||||||||||||||||||||||||
| Retail | 68,338 | 76,532 | (8,194) | (11) | 67,434 | 66,264 | 1,170 | 2 | |||||||||||||||||||||||||||||||||||||||
| Multifamily | 37,010 | 36,583 | 427 | 1 | 35,568 | 36,583 | (1,015) | (3) | |||||||||||||||||||||||||||||||||||||||
| Mixed-Use | 22,122 | 23,469 | (1,347) | (6) | 22,122 | 23,469 | (1,347) | (6) | |||||||||||||||||||||||||||||||||||||||
| $ | 266,609 | $ | 290,128 | $ | (23,519) | (8) | % | $ | 268,342 | $ | 281,786 | $ | (13,444) | (5) | % | ||||||||||||||||||||||||||||||||
Total office operating income decreased $14.4 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to $11.0 million in lease termination fees received at Coastal Collection at Torrey Reserve in 2024, a decrease in rental revenue driven primarily by lower occupancy at Coastal Collection at Torrey Reserve and First & Main and an increase in utilities expense, facilities services expense, repairs and maintenance expense and real estate tax expense. These decreases were partially offset by an increase in occupancy and annualized base rents at City Center Bellevue, Timber Ridge and La Jolla Commons III, an increase in lease termination fees received at 14Acres and Timber Ridge in 2025 and an increase in parking garage income.
Retail operating income decreased $8.2 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to the sale of Del Monte Center. Same-store retail operating income increased $1.2 million due to new tenant leases and scheduled rent increases at Carmel Mountain Plaza and Alamo Quarry Market. Additionally, there was a decrease in real estate taxes due to lower property tax assessments at Alamo Quarry Market and an increase in real estate tax refunds received at Alamo Quarry Market and Carmel Mountain Plaza in 2025.
Multifamily operating income increased $0.4 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to the acquisition of Genesee Park. Same-store multifamily operating income decreased $1.0 million due to a decrease in average occupancy and a slight increase in monthly base rent of 89.5% and $2,775, respectively, for the year ended December 31, 2025 compared to 91.0% and $2,718, respectively, for the year ended December 31, 2024. Additionally, there was an increase in insurance expense, facilities services expense, repairs and maintenance expense and real estate tax expense.
Mixed-use operating income decreased $1.3 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to a decrease in tourism, which led to a decrease in average occupancy and revenue per available room to 82.3% and $296, respectively, for the year ended December 31, 2025, respectively, compared to 85.9% and $319, respectively, for the year ended December 31, 2024, respectively. This decrease was partially offset by an increase in parking income, lease settlement fees and rental revenue at the retail portion of our mixed-use property.
Other
General and administrative.General and administrative expenses increased $2.4 million, or 7%, to $37.8 million for the year ended December 31, 2025, compared to $35.5 million for the year ended December 31, 2024. This increase was primarily due to higher corporate legal expenses, consulting fees and employee-related costs, including, without limitation, with respect to base pay and benefits for certain salaried and hourly workers.
Depreciation and amortization.Depreciation and amortization expense increased $1.9 million, or 1%, to $127.3 million for the year ended December 31, 2025, compared to $125.5 million for the year ended December 31, 2024. This increase was primarily due to $2.5 million related to the acquisition of Genesee Park on February 28, 2025, $3.1 million related to La Jolla Commons III, which was placed in service on April 1, 2025, $0.9 million related to One Beach Street, which was placed in service on August 1, 2024 and new tenant improvements, building improvements and leasing commission assets placed into service. These increases were partially offset by lower depreciation expense at Coastal Collection at Torrey Reserve due to asset acceleration for a tenant vacating their space early in 2024 and Del Monte Center, which was sold on February 25, 2025.
Interest expense, net.Interest expense, net increased $3.6 million, or 5%, to $78.1 million for the year ended December 31, 2025 compared to $74.5 million for the year ended December 31, 2024. This increase was primarily due to the closing of our 6.150% Senior Notes on September 17, 2024 and a decrease in capitalized interest related to La Jolla Commons III being placed into service on April 1, 2025. This increase was partially offset by a decrease in interest expense related to the maturity and repayment of our Series F Notes on July 19, 2024, Series B Notes on December 2, 2024, Term Loan B and Term Loan C on January 2, 2025 and Series C Notes on February 3, 2025.
Gain on sale of real estate. The gain on sale of real estate of $44.5 million during the period was due to our sale of Del Monte Center on February 25, 2025.
Other Income, Net.Other income, net decreased $14.6 million, or 80%, to other income, net of $3.6 million for the year ended December 31, 2025 compared to other income, net of $18.1 million for the year ended December 31, 2024. This decrease was primarily due to the net settlement payment of approximately $10.0 million received during the three months ended March 31, 2024 relating to building specifications for one of the existing buildings at our office project in University Town Center (San Diego) and a decrease in interest and investment income attributed to a lower yield and average cash balance during the period.
Liquidity and Capital Resources of American Assets Trust, Inc.
In this "Liquidity and Capital Resources of American Assets Trust, Inc." section, the term the "company" refers only to American Assets Trust, Inc. on an unconsolidated basis, and excludes the Operating Partnership and all other subsidiaries.
The company's business is operated primarily through the Operating Partnership, of which the company is the parent company and sole general partner, and which it consolidates for financial reporting purposes. Because the company operates on a consolidated basis with the Operating Partnership, the section entitled "Liquidity and Capital Resources of American Assets Trust, L.P." should be read in conjunction with this section to understand the liquidity and capital resources of the company on a consolidated basis and how the company is operated as a whole.
The company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by the Operating Partnership. The company itself does not have any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. Therefore, the consolidated assets and liabilities and the consolidated revenues and expenses of the company and the Operating Partnership are the same on their respective financial statements. However, all debt is held directly or indirectly by the Operating Partnership. The company's principal funding requirement is the payment of dividends on its common stock. The company's principal source of funding for its dividend payments is distributions it receives from the Operating Partnership.
As of December 31, 2025, the company owned an approximate 78.95% partnership interest in the Operating Partnership. The remaining 21.05% are owned by non-affiliated investors and certain of the company's directors and executive officers. As the sole general partner of the Operating Partnership, American Assets Trust, Inc. has the full, exclusive and complete authority and control over the Operating Partnership's day-to-day management and business, can cause it to enter into certain major transactions, including acquisitions, dispositions and refinancings, and can cause changes in its line of business, capital structure and distribution policies. The company causes the Operating Partnership to distribute such portion of its available cash as the company may in its discretion determine, in the manner provided in the Operating Partnership's partnership agreement.
The liquidity of the company is dependent on the Operating Partnership's ability to make sufficient distributions to the company. The primary cash requirement of the company is its payment of dividends to its stockholders. The company also guarantees some of the Operating Partnership's debt, as discussed further in Note 7 of the Notes to Consolidated Financial Statements included elsewhere herein. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger the company's guarantee obligations, then the company will be required to fulfill its cash payment commitments under such guarantees. However, the company's only significant asset is its investment in the Operating Partnership.
We believe the Operating Partnership's sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured line of credit, are adequate for it to make its distribution payments to the company and, in turn, for the company to make its dividend payments to its stockholders. As of December 31, 2025, 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. The unavailability of capital could adversely affect the Operating Partnership's ability to pay its distributions to the company, which would in turn, adversely affect the company's ability to pay cash dividends to its stockholders.
Our short-term liquidity requirements consist primarily of funds to pay for future dividends expected to be paid to the company's stockholders, operating expenses and other expenditures directly associated with our properties, interest expense and scheduled principal payments on outstanding indebtedness, general and administrative expenses, funding construction projects, capital expenditures, tenant improvements and leasing commissions.
The company may from time to time seek to repurchase or redeem the Operating Partnership's outstanding debt, the company's shares of common stock or other securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases or redemptions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
For the company to maintain its qualification as a REIT, it must pay dividends to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains. While historically the company has satisfied this distribution requirement by making cash distributions to American Assets Trust, Inc.'s stockholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, the company's own stock. As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. The company may need to continue to raise capital in the equity markets to fund the Operating Partnership's working capital needs, acquisitions and developments. Although there is no intent at this time, if market conditions deteriorate, the company may also delay the timing of future development and redevelopment projects as well as limit future acquisitions, reduce the Operating Partnership's operating expenditures, or re-evaluate its dividend policy.
The company is a well-known seasoned issuer. 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 preferred or common partnership units of the Operating Partnership. 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 December 2023, the company filed a universal shelf registration statement on Form S-3ASR with the SEC, which became effective upon filing and which replaced the prior Form S-3ASR that was filed with the SEC in January 2021. The universal shelf registration statement may permit the company from time to time to offer and sell equity securities of the company. 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.
On December 3, 2021, the company entered into a new at-the-market ("ATM") equity program with five sales agents in which we may, from time to time, offer and sell shares of our common stock having an aggregate offering price of up to $250 million. The sales of shares of our common stock made through the ATM equity program, as amended, are made in "at-the-market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended. For the year ended December 31, 2025, no shares of common stock were sold through the ATM equity program.
We intend to use the net proceeds from the ATM equity program to fund development or redevelopment activities, repay amounts outstanding from time to time under our revolving line of credit or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes. As of December 31, 2025, we had the capacity to issue up to $250 million in shares of common stock under our current ATM equity program. Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs. As of December 31, 2025, we have no obligation to sell the remaining shares available for sale under the ATM equity program.
Liquidity and Capital Resources of American Assets Trust, L.P.
In this "Liquidity and Capital Resources of American Assets Trust, L.P." section, the terms "we," "our" and "us" refer to the Operating Partnership together with its consolidated subsidiaries, or the Operating Partnership and American Assets Trust, Inc. together with their consolidated subsidiaries, as the context requires. American Assets Trust, Inc. is our sole general partner and consolidates our results of operations for financial reporting purposes. Because we operate on a consolidated basis with American Assets Trust, Inc., the section entitled "Liquidity and Capital Resources of American Assets Trust, Inc." should be read in conjunction with this section to understand our liquidity and capital resources on a consolidated basis.
Due to the nature of our business, we typically generate significant amounts of cash from operations. The cash generated from operations is used for the payment of operating expenses, capital expenditures, debt service and dividends to American Assets Trust, Inc.'s stockholders and our unitholders. As a REIT, American Assets Trust, Inc. must generally make annual distributions to its stockholders of at least 90% of its net taxable income.
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 other unitholders, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, reserves established from existing cash and, if necessary, borrowings available under our third amended and restated credit facility.
Our long-term liquidity needs consist primarily of funds necessary to pay for the repayment of debt at maturity, property acquisitions, tenant improvements and capital improvements. We expect to meet our long-term liquidity requirements to pay scheduled debt maturities and to fund property acquisitions and capital improvements with net cash from operations, long-term secured and unsecured indebtedness and, if necessary, the issuance of equity and debt securities. We also may fund property acquisitions and capital improvements using our third amended and restated credit facility pending permanent financing. We believe that we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt, noting that during the third quarter of 2015, the company obtained investment grade credit ratings from Moody's Investors Service (Baa3), Standard & Poor's Ratings Services (BBB-) and Fitch Ratings, Inc. (BBB), and the issuance of additional equity. However, we cannot be assured that this will be the case. Our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. 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. Given our past ability to access the capital markets, we expect debt or equity to be available to us. Although there is no intent at this time, if market conditions deteriorate, 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.
Our overall capital requirements will depend upon acquisition opportunities, the level of improvements and redevelopments on existing properties and the timing and cost of developments. Our capital investments will be funded on a short-term basis with cash on hand, cash flow from operations and/or our third amended and restated credit facility.
We intend to operate with and maintain a conservative capital structure that will allow us to maintain strong debt service coverage and fixed-charge coverage ratios as part of our commitment to investment grade debt ratings. In the short and long term, we may seek to obtain funds through the issuance of additional equity, unsecured and/or secured debt financings, and property dispositions that are consistent with this conservative structure.
We currently believe that cash flows from operations, cash on hand, our ATM equity program, our third amended and restated credit facility and our general ability to access the capital markets will be sufficient to finance our operations and fund our debt service requirements and capital expenditures.
Contractual Obligations
The following table outlines the timing of required payments related to our commitments as of December 31, 2025 (dollars in thousands):
| Payments by Period | |||||||||||||||||||||||||||||||||||||||||
| Contractual Obligations | Total |
Within 1 Year |
2 Years | 3 Years | 4 Years | 5 Years |
More than 5 Years |
||||||||||||||||||||||||||||||||||
| Principal payments on long-term indebtedness | $ | 1,700,000 | $ | - | $ | 425,000 | $ | - | $ | 100,000 | $ | 150,000 | $ | 1,025,000 | |||||||||||||||||||||||||||
| Interest payments | 451,936 | 76,555 | 66,349 | 59,268 | 57,148 | 55,028 | 137,588 | ||||||||||||||||||||||||||||||||||
| Operating lease | 20,818 | 3,584 | 3,637 | 3,746 | 3,859 | 3,975 | 2,017 | ||||||||||||||||||||||||||||||||||
| Tenant-related commitments | 33,127 | 31,288 | 1,289 | 477 | - | 73 | |||||||||||||||||||||||||||||||||||
| Construction-related commitments | 26,678 | 23,947 | 2,731 | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Total | $ | 2,232,559 | $ | 135,374 | $ | 499,006 | $ | 63,491 | $ | 161,007 | $ | 209,003 | $ | 1,164,678 | |||||||||||||||||||||||||||
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
Cash Flows
Comparison of the year ended December 31, 2025 to the year ended December 31, 2024
Cash and cash equivalents were $129.4 million and $425.7 million at December 31, 2025 and 2024, respectively.
Net cash provided by operating activities decreased $40.0 million to $167.1 million for the year ended December 31, 2025, compared to $207.1 million for the year ended December 31, 2024. The decrease in cash from operations was primarily due to the net settlement received during the first quarter of 2024 relating to the building specifications for one of the existing buildings at our office project in University Town Center (San Diego), lease termination fees received at Coastal Collection at Torrey Reserve during 2024 and a decrease in rental revenue and changes in operating assets and liabilities.
Net cash used in investing activities decreased $46.9 million to $30.5 million for the year ended December 31, 2025, compared to $77.4 million for the year ended December 31, 2024. The decrease in cash used was primarily due to the proceeds from the sale of Del Monte Center, offset by the use of cash for the acquisition of Genesee Park and an increase in capital expenditures related to new tenant improvement projects, leasing commissions and building renovation capital projects.
Net cash used in financing activities increased $646.0 million to $432.9 million for the year ended December 31, 2025, compared to net cash provided by financing activities of $213.1 million for the year ended December 31, 2024. The increase in cash used in financing activities was primarily due to the repayment of the $225 million aggregate outstanding balance on our Term Loan B and Term Loan C on January 2, 2025 and the repayment of the $100 million outstanding balance on our Series C Notes, on February 3, 2025.
Net Operating Income
Net Operating Income ("NOI"), is a non-GAAP financial measure of performance. We define NOI as operating revenues (rental income, tenant reimbursements, lease termination fees, ground lease rental income and other property income) less property and related expenses (property expenses, ground lease expenses, property marketing costs, real estate taxes and insurance). NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expense, other non-property income and losses, gains and losses from property dispositions, extraordinary items, tenant improvements and leasing commissions. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs.
NOI is used by investors and our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by (1) the cost of funds of the property owner, (2) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, or (3) general and administrative expenses and other gains and losses that are specific to the property owner. The cost of funds is eliminated from net income because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office, retail, multifamily or mixed-use properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is intended to be captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating these costs from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.
However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest income and other expense, depreciation and amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income which further limits its usefulness.
NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. 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. 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 years ended December 31, 2025, 2024 and 2023 computed in accordance with GAAP (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net operating income | $ | 266,609 | $ | 290,128 | $ | 277,207 | |||||||||||
| General and administrative | (37,841) | (35,468) | (35,960) | ||||||||||||||
| Depreciation and amortization | (127,312) | (125,461) | (119,500) | ||||||||||||||
| Interest expense, net | (78,120) | (74,527) | (64,706) | ||||||||||||||
| Gain on sale of real estate | 44,476 | - | - | ||||||||||||||
| Other income, net | 3,558 | 18,147 | 7,649 | ||||||||||||||
| Net income | $ | 71,370 | $ | 72,819 | $ | 64,690 | |||||||||||
Funds from Operations
We present funds from operations ("FFO") because we consider FFO an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, impairment losses, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures.
FFO is a supplemental non-GAAP financial measure. Management uses FFO as a supplemental performance measure because it believes that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs' FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. 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 FFO for the years ended December 31, 2025, 2024 and 2023 to net income, the nearest GAAP equivalent (in thousands, except per share and share data):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net income | $ | 71,370 | $ | 72,819 | $ | 64,690 | |||||||||||
| Plus: Real estate depreciation and amortization | 127,312 | 125,461 | 119,500 | ||||||||||||||
| Less: Gain on sale of real estate | (44,476) | - | - | ||||||||||||||
| Funds from operations, as defined by NAREIT | $ | 154,206 | $ | 198,280 | $ | 184,190 | |||||||||||
| Less: Nonforfeitable dividends on restricted stock awards | (757) | (754) | (749) | ||||||||||||||
| FFO attributable to common stock and units | $ | 153,449 | $ | 197,526 | $ | 183,441 | |||||||||||
| FFO per diluted share/unit | $ | 2.00 | $ | 2.58 | $ | 2.40 | |||||||||||
|
Weighted average number of common shares and units, diluted (1)
|
76,746,917 | 76,514,433 | 76,346,772 | ||||||||||||||
(1)For the years ended December 31, 2025, 2024 and 2023 the weighted average common shares used to compute FFO per diluted share include unvested restricted stock awards that are subject to time vesting, as the vesting of the restricted stock awards is dilutive in the computation of FFO per diluted shares, but is anti-dilutive for the computation of diluted EPS for the periods. Diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.
Inflation
Substantially all of our office and retail leases provide for separate real estate tax and operating expense escalations. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases may be at least partially offset by the contractual rent increases and expense escalations described above. In addition, our multifamily leases (other than at our RV resort where spaces can be rented at a daily, weekly or monthly rate) generally have lease terms ranging from seven to 15 months, with a majority having 12-month lease terms, and generally allow for rent adjustments at the time of renewal, which we believe reduces our exposure to the effects of inflation. For the hotel portion of our mixed-use property, we possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit our ability to raise room rates.
American Assets Trust Inc. published this content on February 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 06, 2026 at 21:58 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]