American Assets Trust Inc (AAT) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth-quarter 2011 American Assets Trust earnings conference call. My name is Jazmine, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference.

(Operator Instructions)

As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference to Mr. Adam Wyll, Senior Vice President, General Counsel. Sir, you may begin.

Thank you. Good morning. I'd like to thank everyone for joining us today for American Assets Trust's fourth-quarter 2011 earnings conference call. Joining me on the call are Ernest Rady, John Chamberlain, and Bob Barton. These and other members of our Management team are available to take your questions at the conclusion of our prepared remarks.

Our fourth-quarter 2011 supplemental disclosure package provides a significant amount of valuable information with respect to the Company's operating and financial performance. The document is currently available on our website.

Certain matters discussed in this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results. Although American Assets believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, American Asset's future operations and its actual performance may differ materially from the information contained in our forward-looking statements and we can give no assurance these expectations will be obtained. Risks inherent in these assumptions include but are not limited future economic conditions including interest rates, real estate conditions, and the risks and costs of construction. The earnings release and supplemental reporting package that we issued yesterday, our annual report filed on Form 10-K, and our other financial disclosure documents provide a more in depth discussion of risk factors that may affect our financial conditions and results of operations. I'll now turn the call over to our Executive Chairman, Ernest Rady, to begin our discussion of fourth quarter results. Ernest?

Thanks, Adam and good morning everyone. Thank you for joining American Assets Trust fourth-quarter and year-end 2011 earnings call. We are very very pleased with our results during our first year in the public domain and are looking forward with enthusiasm and excitement to our second year. As I have said before, we pride ourselves in our deliberate, calculated, and disciplined approach toward the growth of our Company and creating shareholder value. We have kept our sites only on our core markets that have extremely high barriers to entry, strong household income, and population demographics that are positive. A newly acquired property must meet this standard and enhance our growth, not detract from it. We won't grow for the sake of growing. We will acquire properties when the right opportunity presents itself, when it is accretive to our shareholders and consistent with the quality of our current portfolio.

2011 was a year in which we did just that and believe 2012 holds even more promise. What I personally find frustrating to say the least is if you look at recent market comps for assets which we think are of similar class and location as our own, we believe that our existing retail and office portfolio should be similarly valued at a sub 6% cap rate and our multi-family assets at a sub 5% cap rate. However, based on our internal calculations for net asset value, we consider our discount approximately 20% to our current share price. By way of example, several office properties in San Francisco have traded or are soon to trade north of $700 per square foot. We believe all these properties are inferior to our One Market Street property, the Landmark, an that's only one example. We are looking at billions of dollars of transactions in our market and we are very informed of where the level of assets are trading at today. Now, I would like to turn it over to our President and CEO, John Chamberlain. John, would you please take it from here?

Good morning and thank you, Ernest. I will provide an update on our markets, our portfolio, as well as an update on our investments activities. Bob will follow with a review of our fourth-quarter financial results and then Ernest will offer a few closing remarks.

First to our office portfolio. Our properties continue to outperform the competitive sets in each of their respective submarkets. Portfolio-wide, fourth-quarter net absorption totaled approximately 4,600 square feet and the overall leased building area was 94.4% at year-end. San Francisco continues to experience aggressive rent growth in both the south market and financial district areas fueled by demand from the tech center. Our financial district and SOMA assets, One Market and King Street properties were both 100% leased at year-end as is the recently acquired One Beach Street property. Our San Francisco office holdings now total 686,000 square feet.

Now to our retail properties. Portfolio-wide, fourth quarter rents continue to trend upward as net absorption totaled approximately 72,000 square feet and the overall leased building area increased to 95%. The percentage leased for the entire retail portfolio ended at 95% which we believe is very impressive considering we lost Borders and Blockbusters in 2011. As mentioned before, on November 8, Seattle-based Nordstrom Inc announced plans to open a new Nordstrom Rack in the fall of 2012 at our Carmel Mountain Plaza Shopping Center in San Diego. The new Nordstrom Rack will join anchor tenants Barnes and Noble, Marshalls, Michaels, Ross, and Sprouts. We expect to have the other half of what we now refer to as the Nordstrom Building, the former Mervyn's building, leased by the end of the second quarter of 2012.

In closing, our San Antonio and retail properties continue to operate very well as expected. We expect the recaptured Borders location at Alamo to be leased by the end of the first quarter of 2012 as stated in our last call, bringing that property to just a tic under 100% leased and the Del Monte Borders by the end of the second quarter of 2012. San Diego retail finished at 94% leased and occupied as of December 31, 2011.

Now to our multi-family assets. Fundamentals continue to improve in San Diego County. Our Asset Management of the properties resulted in significant improvement in occupancy for 2011. Occupancy at the end of the fourth quarter of 2010 was approximately 91.8%. Additionally, we eliminated rental concessions and incentives and are pushing rents at all properties up approximately 3% as turnover occurs. Slight decline in occupancy was due to seasonality at the Santa Fe RV Park.

Now, on to Hawaii. The Hawaii economy continues to show remarkable growth in both spending and arrivals at the end of the fourth quarter. Total air arrivals grew to 555,000, a 3.6% year-over-year increase. Canada's arrivals again increased 5.1%. Japan grew 4.7%, and the US East increased 2%, and the US West rose 0.6%. At Waikele, the addition of Gap Outlet is taking 14,000 square feet of the vacated Borders space. We were able to increase the leased percentage to 94.8% at the end of the fourth quarter. Discussions are well under way with one additional national brand to backfill the balance of the vacated Border space. Waikiki Beach Walk was 99.2% leased and 96% occupied at the end of the fourth quarter. Retail, full service and quick service restaurants continue to show strong sales trends. Our shops on Kalakala remain 100% leased and occupied.

Our Embassy Suites at Beach Walk again exceeded our competition in ADR and RevPAR measurements for the quarter. For the month of December, the property's ADR and RevPAR index were 122 and 122.8 respectively. RevPAR of approximately $223 surpassed budget by approximately $19 or 9.4% and the total suite revenue of $2.55 million was ahead of budget by approximately $220,000 or 9.5%. The occupancy index finished slightly ahead of our competitive set at 100.6. The outlook for 2012 remains consistent with our expectations pacing ahead of 2011.

Now I'd like to spend a few moments discussing our acquisitions, development, and redevelopment activities. Our benchmark returns for development opportunities under considerations starts at an 11% cash-on-cash return. We may adjust that up or down depending on our evaluation of risk, market conditions, pre-leasing, et cetera. We anticipate the following projects will meet those expectations. In Portland, Oregon, the expansion design of the first of four blocks of our Lloyd District property is taking shape, while still subject to change, we have zeroed in on a project resume that includes 744 multi-family units, 47,000 square feet of commercial retail space, 1,435 parking stalls. This would bring the total square footage for the subject block to approximately 1.175 million feet, up from the existing Lloyd 700 Tower, the only improvements on the block, of 247,000 square feet. We currently anticipate securing the necessary permits and approvals by the first quarter of 2013. The commencement of construction is, as always, subject to market conditions. Construction is expected to take 26 to 28 months and currently, the apartment vacancy for the Portland MSA submarkets slightly below 5%.

Our recently acquired mixed use development site on Highway 101 in Solana Beach is well under way with its planning and permitting process. It will be a mixed use project including retail, office, and apartments, of approximately 100,000 square feet. We are also in the process of securing building permits for the expansion of Torrey Reserve Phases 3 & 4. Collectively this project represents approximately 82,000 square feet of commercial space in five buildings. Groundbreaking is expected in the third quarter of 2012.

As expected, our pending development application for our Sorrento Pointe office complex brought before the City of San Diego Planning Commission on December 8 and was approved by a unanimous vote. Much to our surprise it was then appealed by the Coastal Commission to itself. We are working closely with them to resolve their concerns which we expect to accomplish shortly. Once resolved we will move immediately to prepare construction documents and obtain building permits. We consider this a premier office site in San Diego with the use of the Pacific, Torrey Pines State Reserve while sitting with great prominence toward Interstate 5 in Del Mar.

In January 2012 we acquired One Beach Street in San Francisco, a historic building, fronting the Embarcadero and directly across the street from the very popular Pier 39, it boasts nearly unobstructed views of Alcatraz and the Bay from all three levels. Built in 1924 it is a 97,000 square foot building that has been completely renovated.

Our acquisition efforts remain in full swing, however as Ernest mentioned earlier, we continue to be very disciplined in our approach to acquisitions. While there are very high-quality assets being brought to market, cap rates have continued their downward compression to all-time lows. Most of our efforts are focused on off-market opportunities. All are high-quality, located in our existing and targeted core markets and include all three of our asset classes. I'd like to take this time to thank all of those that were able to participate in our Hawaii investor tour in January and we look forward to setting the next tour date either here in San Diego or San Francisco in the not too distant future. Now, I would like to turn the presentation over to our Chief Financial Officer, Bob Barton.

Thank you, John, and good morning, everyone. The books are now closed for our first year as a public Company. Last night we reported both fourth-quarter FFO and adjusted FFO of $0.28 per share. Net income attributable to common stock holders was $0.01 per share for the fourth quarter. Reported FFO and adjusted FFO for the full year were $1.05 and $1.11 per diluted share respectively. Net income attributable to common stock holders was $0.08 per share for the full year. American Assets had a solid fourth-quarter performance based on steady leasing in retail and office with occupancy increasing approximately 240 basis points and 30 basis points respectively. Our mixed use property remained at a consistently high occupancy as shown in the earnings release. Our multi-family was down as expected due to the seasonality of the Santa Fe Park RV Resort. If you look at page 23 of the Supplemental, you can see that all of our multi-family properties except for the RV Resort were 94% to 95% leased at December 31, 2011. The Company's Board of Directors has declared a dividend on its common stock of $0.21 per share for the quarterly period ending March 31, 2012. The dividend will be paid on March 30, 2012 to stockholders of record on March 15, 2012.

Turning to our results, fourth-quarter FFO as adjusted decreased approximately $0.3 million or less than 2% to $16.3 million compared to our third-quarter FFO as adjusted. Although it looks flat, we had a lot of offsetting activity during the fourth quarter. The primary changes between Q4 and Q3 were the following six items. First, First & Main's, net operating income increased by approximately $0.8 million. Approximately $0.5 million of this increase related to a change in estimate on the real estate taxes for this property during the fourth quarter that reduced our real estate taxes. The remaining balance relates to additional year-end CAM buildings and other tenant revenue and First & Main. Secondly, approximately $0.6 million relates to the following two items. Percentage rent build at year-end on a retail and mixed use properties of approximately $0.4 million. This is contingent rent and can't really be determined or recognized until late in the fourth quarter. And then unrealized gains on our GNMA portfolio of approximately $0.2 million.

Thirdly, a decrease in G&A from the third quarter of approximately $0.6 million largely resulting from a reduction of estimated personnel-related costs. Fourth, a reduction in our net operating income from our Embassy Suites Hotel of approximately $0.8 million. This is actually less than the $1.1 million drop that we expected largely due to continued strong occupancy and rates in the fourth quarter. Fifth, a reduction in our fourth-quarter FFO contribution by $0.5 million from the sale of our Valencia asset in Q3. And sixth and finally we set up a reserve of approximately $1.1 million for the deferred straight line rent receivable related to the KMart at our Waikele Center in Oahu, Hawaii. The KMart lease doesn't expire until 2018 and has approximately six years left on the lease. We thought it was prudent to set up a reserve based on our analysis of the information that was available to us combined with the information that is publicly available on Sears Holdings, Inc, the parent holding company of KMart. We will continue to evaluate the information that becomes available to us and should that information change, it is possible that some or all of the remaining straight line rent receivable will need to be reserved in the future. We have not had any communication with the tenant other than what is publicly available. This tenant is current with its rent. Although we did not provide any formal guidance for the fourth quarter or the year, my Bloomberg screen shows the consensus mean estimate of $0.27 of FFO per share, $0.01 less than what we have reported. For the year-ended 2011 the consensus mean estimate on Bloomberg is showing $1.065, $0.045 less than what we have reported.

Now, as we look at our balance sheet and liquidity at the end of the fourth quarter we are well positioned to continue to execute on our strategy. We have approximately $354 million in liquidity comprised of $140 million of cash and cash equivalents and marketable securities, and $214 million of availability on our amended line of credit. We amended our existing line of credit with our bank syndicate in January 2012 which significantly reduces our cost of borrowings. With our leverage less than 45%, our borrowing rate on the line would be LIBOR plus 160 basis points or approximately 1.85% assuming LIBOR is at 25 basis points. In addition the maturity of the loan was extended from January 2014 to January 2016 plus an additional one-year extension option was added that would take us out to January 2017. The importance of this is that the line doesn't expire until after the maturity of our secured debt in 2014 and 2015 and continues to give us flexibility. We continued to have a well-laddered maturity schedule over the next decade providing a hedge against rising interest rates that will occur at some point in the future, with a weighted average fixed rate of interest of 5.45%. We have no variable rate secured debt. Our leverage goal continues to be less than 45%.

Net debt to adjusted EBITDA at year-end decreased to 6.7 times, our net debt to total enterprise value at year-end decreased to 40.9%, and our fixed charge coverage ratio at year-end increased to 2.3 times. We are not only focused on long term NAV for shareholders but also on positive same-store NOI growth on a relative basis which we believe will ultimately translate into organic FFO growth. Our same-store results are set forth in detail in our earnings release. Although we continue to report same-store portfolio net operating income in our earnings release and Supplemental document, I would caution you that the same-store data really won't give an accurate picture of our same-store portfolio results until on or after Q2 2012 due to two things. One is the non-controlling entities were not acquired by AAT until January 19, 2011 so they did not have a full quarter of operations included in the first quarter of 2011. Those entities are listed in the back of the Supplemental document, and the increase in the real estate accruals did not begin until the second quarter of 2011 for the estimated increase in California assessed valuations in connection with the IPO. Accordingly, Q2 2012 will be the first quarter that we would have some good same-store comparative data for the entire portfolio.

John talked a little bit about our Embassy Suites Hotel in Hawaii. I want to add just a few comments about the Embassy. Overall 2011 was a very good year for this particular Embassy. Within the Embassy brand, it stood out for excellent achievement in financial statistics. Specifically, RevPAR or revenue per available room was number-one out of 200 Embassy Suite hotels, at $211.57. RevPAR is what we and the Outrigger team who manages the hotel are focused on. This is what creates both FFO and NAV combined with the irreplaceable location on fee in Waikiki. Occupancy was number-two out of 200 Embassy Suite Hotels at 88.4% just behind LAX North. And ADR was number-two at $239, just behind Caracas, Venezuela.

John briefly touched on our newest acquisition at One Beach Street in San Francisco. Let me add a little bit of color on this acquisition and why we like it. John mentioned the irreplaceable location right across from Pier 39 combined with the perpetual parking rights to an above average parking ratio for San Francisco at 1.69 spaces per thousand square feet. We bought this asset slightly north of a 5.5% cap rate; however what I like about this asset is that the weighted average in-place rents are approximately $28.50 per square foot and the current market rents are approximately $42 to $45 per square foot. There are three tenants, two of which represent approximately 82% of the building and have renewed their leases and are locked in until 2019 and 2020. We will see the rents in these leases begin to approach market in 2014 and 2015. The remaining tenant expires in 2013. Within three years we expect this asset to deliver a strong 7% return, eventually climbing to a strong 8% return. I am referring to unleverred cash-on-cash returns.

Additionally, we are in the process of closing a loan on our newest acquisition at One Beach Street. The loan is expected to be approximately 60% of the purchase price or approximately $21.9 million. The loan will have a seven-year term, interest only and just last week, we locked the rate at 3.94%. This low cost of capital is expected to give us a starting levered cash-on-cash yield north of approximately 8.3%. This will also increase our overall liquidity to approximately $376 million in total. And the maturity of this loan will fit perfectly into 2019 where we're currently have only $19 million of secured debt maturing that year. We expect the loan to close before the end of the first quarter; however, I must say that until it is closed, there always a chance that the loan may not close for whatever reason.

Finally it's time for us to begin the issuance of our annual guidance. As shown in the earnings release and supplemental we are issuing annual guidance for 2012 in a range from $1.09 to $1.17 of FFO per share. Let me begin by saying that we are starting with a pretty stable portfolio. We have developed a very complex model that is the basis for our guidance in which we have tested internally over the last several quarters. The model begins in Argus and is downloaded into Excel on a property-by-property basis for each of our segments and is updated monthly. We make certain assumptions on lease rollovers based on the most current data we have available from our leasing group as to lease rollover rates and terms. This is the basis of our forecasting which we begin on a cash basis. We then evaluate consolidated G&A and cash to GAAP adjustments which allow us to reconcile back to net income on a GAAP basis and ultimately roll up into our model. Instead of boring you with the granular details of our complex model, I thought the best way to share with you how I am thinking about our 2012 guidance is to relate it to a fourth-quarter run rate and make certain adjustments that gets you to a mid point, so let's do that.

If I start with Q4 FFO per share of $0.28 and make the following approximate adjustments to get a quarterly FFO run rate, first I add back $0.02 a share for the Waikele straight line reserve on KMart. I deduct $0.008 per share for the First & Main change in real estate tax estimate. I deduct $0.02 per share for additional G&A based on an expected run rate of $4.2 million per quarter. If you add this up, it comes to approximately $0.272 per share. Annualized this comes to approximately $1.088 per share.

However we still need to make a few additional adjustments for 2012. We add in $0.01 for the seasonality of the Embassy Suites Hotel in Q3. We add in $0.025 for One Beach Street with the recent acquisition net of expected interest expense. I add $0.022 for expected same-store GAAP NOI growth. I deduct $0.013 for earthquake insurance on our California properties that we are evaluating putting in place before the end of the first quarter. All of this added up comes to my mid point of $1.13 of FFO per share. This is my mid point, $1.13. We believe that a 7% range for the initial guidance is appropriate which gives us a range of $1.09 to $1.17.

Our guidance excludes acquisitions or dispositions. It excludes the leases not signed as of the date of the earnings release. Specifically, it excludes a national retailer we are in discussions with for the Borders space at Alamo. It excludes a national retailer that we are in discussions with for the remaining 40,000 square feet of space at the former Mervyn's building at Carmel Mountain Plaza. It excludes an LOI we have in place with Brooks Brothers that is still being negotiated for the remaining Border space in Waikele. And it excludes other terms noted in the Notes to our guidance and our Supplemental.

If I look at my Bloomberg screen, it appears that the mean consensus for 2012 annual FFO estimates approximates $1.22 of FFO per share. That's a $0.09 per FFO share difference from my mid point of $1.13. The difference is approximately $5.2 million in FFO which equates to, depending on how you look at it, $80 million in acquisitions at a 6.5% cap rate, or $87 million in acquisitions at a 6% cap rate, or $95 million in acquisitions at a 5.5% cap rate. Obviously, the only difference between our annual guidance and the Street is that the Street has made certain assumptions about acquisitions. We as a Company made a decision not to include acquisitions as part of our guidance. We do focus on acquisitions that have a consistent quality like the quality of assets that currently exist in our portfolio, not quantity. We are always in the market looking for accretive acquisitions.

We will continue our best to be as transparent as possible and share with you how we are thinking about our quarterly numbers. We are well prepared with a strong balance sheet to capitalize and execute on the opportunities that we believe will present themselves over the coming quarters. Operator, I'll now turn the call over to you for questions.

Thank you.

(Operator Instructions)

Brendan Maiorana, Wells Fargo.

Bob, thank you for the very detailed outlook on guidance but I do just have a follow-up question. Do you have a sense of how much the impact is likely to be to get to the AFFO or FAD just given a couple of the ins and outs that you have non-cash rent at Landmark and One Market and a couple of the other assets that are in there? Just give us a sense of what that change is likely to be to get down to the true cash flow level.

Well, our total CapEx for 2011 was approximately $10-$11 million. We expect that to increase probably in a range of $18 million to $20 million in 2012.

Okay, and the straight line rent number, is that -- I think you guys were pretty low in Q4 because you had the write-off of the KMart, but should we expect that number goes back to north of $1 million at least for the first half of the year?

Yes, I think for 2011, our straight line rent income was about $5.5 million and we're expecting our straight line rent for 2012 to be in a range of $4.1 million to $4.5 million.

Okay, great. And your guidance doesn't assume anything in terms of, you've got the reserve for the KMart straight line rent but you're assuming that I think it's in the back of the sup, it's $3.5 million or something like that of annual rent that they pay, you're assume that that is fully paid for 2012 per guidance; is that correct?

That is correct.

Okay, great. This is probably either for John or Ernest. Ernest, hear your thoughts at the beginning of the call and the discount relative to NAV, does that cause you to think that maybe you guys think about monetizing some assets, selling some assets, or JV'ing some of the assets to realize some of the discount between where transactional pricing is and where your stock is currently trading?

This is Ernest. We're always considering all of the opportunities available to us but the assets we have are so special that it would I don't think in the long-term interest of the stockholders to reduce their interest in these assets. Our objective is to add to these assets, add to these assets with similar quality assets that we believe over the long run will produce consistent and growing returns for all our stockholders, and we're working very hard to see if we can accomplish that objective. Absent that opportunity because the market is -- the cap rates in the market are so low, we do have significant development opportunities, which John outlined which will produce returns that will be in excess of what we can provide by acquisition. So we're looking at every opportunity to see how we can grow the Company and enhance shareholder returns and that's a very good question and thank you for asking it.

Sure and maybe just a quick follow-up. So am I reading between the lines correctly to think that just given that your targeted returns on developments, call it 11% as a benchmark number, relative to cap rates that you guys are saying are at very low levels, is clearly the bias then to do more on development in terms of capital deployment as opposed to acquisitions?

At this particular juncture, I think that's the decision that the Board and us have arrived at because the opportunities for acquisitions and cap rates -- with cap rates that are comparable to what we can produce aren't there. On the other hand all the development opportunities look attractive at the moment but we will judge whether or not we ought to proceed when we get to the point where we decide we should start construction and what the risks are and the rewards.

Sure. Okay.

And to add to that, Brendan, all of the development opportunities that we are pursuing are on properties that we currently own that currently have existing income streams, so all I should say except the Solana Beach site, the Torrey Reserve site, the Sorrento Pointe site, and the Lloyd District all have substantial income streams and it's not like building a ground-up development where you're carrying the land.

Thanks, John. That's a very good point and I'm sorry I missed it. Good for you for catching it.

Right so the 11% that you guys are quoting out there, that's with land at your basis or a very low allocation to land because you've already got existing assets on that stuff, so in a sense if it was a new investment in land your returns even if rents were comparable would be lower, is that a fair way to think about it?

That's correct. You have to keep in mind we do end up building some structured parking but you are correct.

Bob, do you have a view on that?

Yes, let me just clarify that. I think I know what you're getting at Brendan. When we quote 11% what we look at is return on invested cost, so if we for instance at Torrey Reserve where our corporate offices are, that we're doing renovation expansion, that if every dollar invested, we're not allocating any land on it. From an accounting standpoint we will, but when we look at return on invested cost, that land, we look at it that we've already, it's already been paid for. We've owned the building and the land for over a decade so we have a very low basis, but when we look at investing every shareholder's dollars going forward, we look at it at a return on invested cost, so that 11% is really based on a return on every dollar that we invest going forward.

Got it. Okay, thanks a lot.

Thanks for the questions and your interest.

Sheila McGrath, KBW.

Good Morning. I was wondering if you could give us some more detail on the One Beach Street acquisition, how did you source that opportunity, were you bidding against a lot of other players?

No, that was an off market opportunity. The previous owner had a financial partner that we understand put the property to him. The managing partner was put in a bit of a tight position and needed to transact quickly, the people handling the transaction for him came to us and set forth a time frame that we would have to perform under. We confirmed our ability to do so. We immediately commenced our due diligence and were able to close on that property very very quickly. It having only three tenants made it easy and the seller had all of the necessary building assessment reports already complete. So it was fairly simple, fairly straightforward due diligence process and again a building that we felt hit the bullseye in terms of what we look for.

And then you mentioned that the in-place rents on that building are well below market as the market has strengthened. Could you give us an idea on how you view the other, your other San Francisco properties at this juncture, do you think there's rent roll up opportunities there?

Sheila, this is Bob and good morning. Our other office properties have all experienced a roll down, so if you recall on the Landmark property, we brought in salesforce which we experienced a roll down in rents, so we're almost done with that. On 160 King Street, we're bringing it in, DLA Piper ends January 31 and then we've signed a lease with Ancestry.com that starts a couple months thereafter, so our office properties in our view are pretty close to market.

Okay, and then, oh, sorry.

Sheila, one more thing, the more I think about that, they were at market when we signed the leases but we've seen such an explosion of growth, especially on the 160 and Landmark I guess for that point, the more I think about that I would say that those are below market.

Because you signed those leases quite a while ago right?

Exactly.

Also Bob, just clarifying the KMart adjustment, so that's a one-time fourth-quarter item that will not occur again in 2012?

I never want to say never and we took that, we considered all of the facts that were available to us, and really the standard is similar to revenue recognition where the question is are you reasonably assured that that income is going to come in. And we thought it was prudent based on the information that was publicly available and other information available to us that it would be prudent to set up a reserve for the deferred straight line rent on KMart. If something happens with Sears Holdings and other information that becomes available, you'll know it as soon as we know it. We could make additional reserves, so I don't have the answer to that.

Okay and Bob you did mention there was a number of retail leases that may occur in 2012 that are not included in guidance. How far along are these negotiations and any sense on when they would be in place during the year?

Yes.

The lease we referenced out in the Alamo Quarry property we expect to have executed before the end of this quarter. The lease with the balance of the building, the Mervyn's Building in the Carmel Mountain Plaza property we expect to have executed by the end of the second quarter. And the last Borders space in Del Monte, we had an executed letter of intent which did not move forward so we're back more or less at the beginning of getting that space backfilled.

Okay, thank you.

Thank you Sheila.

Rich Moore, RBC Capital.

Hello, good morning. I know you guys mentioned that you didn't plan on making wholesale dispositions, but you've always said that when you make an acquisition that's a good time to think about a corresponding disposition, so A, do you have anything in the first quarter you're thinking of getting rid of? I know you have some properties that you probably don't want, maybe the RV Park. And then as we look through the year, do you think there might be scattered dispositions as you make corresponding acquisitions?

Rich as I said earlier, the properties we have we love. Maybe that's not an appropriate term. The RV Park has been a really consistent earner for decades and produces a cash return that could grow as the economy recovers. We do have one property that if it leases up, we will look to dispose of but the rest of them all are the family jewels and we don't sell family jewels.

Okay, Ernest, good, thank you.

Thank you, Rich.

And on the acquisition side of things, I mean, as I listen to you guys it sounds a little bit like the acquisition pipeline may have slowed from where it had been and maybe you're not seeing the kinds of opportunities. We've certainly modeled acquisitions as you guys pointed out though that is the difference between our estimates and your guidance, and I'm wondering if we've been too strong on those based on what you're seeing for potential opportunities out there?

The number of deals that we look at on a weekly basis has probably doubled since the last time we talked. Pricing is very difficult. We actually thought we were very close to executing on two substantial acquisitions. Those are both still pending. We haven't been able to bring closure to either, so we are still very active on that front and hope to have something to report. We don't but believe me, the hunt continues.

And Rich, you have to consider that the financial flexibility that we have, the financial strength that we have allows us to take advantage of opportunities as they present themselves, and if they present themselves. But if they don't, we're much better off to have the financial flexibility available to us so that when they do present themselves we're able to take advantage of them. That's perhaps more entrepreneurial than it should be but on the other hand, that's how we think we can benefit the stockholders of AAT over the long run.

That sounds like a good strategy, Ernest. And then Bob, if I could. The total line size now is what exactly? The total capacity.

The total line is $250 million. We have access to about $214 million.

Okay, very good. Thank you guys.

Thank you Rich.

Mitch Germain, JMP Securities.

Good morning guys. John, I apologize I missed your comments on the multi-family sector, the occupancy decline. Was that seasonality, was that pushing rents? Can you elaborate a little further?

The occupancy at the end of Q4 was higher than year-over-year than the occupancy at Q4 of '10.

I was looking at the sequential decline, I'm sorry.

We were at 87.4% in occupancy at Q4 of '10 and we move that up to 91.8 Q4 of '11.

I was curious about the sequential decline. My bad.

Good question, thank you for your interest.

Mitch on page 23 of the Supplemental, I think that's the page. It just shows that while all of our multi-families are strong at 94% to 95% occupancy it's just the seasonality of the Santa Fe RV Resort at year-end that draws it down.

Okay, great and then just with regards to San Diego, I mean clearly we're seeing a large number of big blocks disappearing from the market. Should you get some closure with regards to your development opportunity there, what would be timing? Would you go spec or would you wait to secure at least some tenancy in the asset?

The expansion plans we have for Torrey Reserve will definitely be spec. It's a five building addition. This is all commercial office space and retail space, restaurant space. We have had a long list of tenants that have indicated an interest in being here, but with a project that has taken as long as it has to bring to fruition, everyone kind of said look, tell us when you put a shovel in the ground and what we can do.

And John, can you give us some color of the time it took to bring it to fruition?

Bob mentioned a decade. Torrey Reserve actually started in 1989 and the first shovel was put in the ground in 1986. We occupied our building in 1987. The buildings across the street were then built two at a time until they were finished. That was all spec built and that was 140,000 feet of office space in each phase, then we came back and did the commercial buildings, the Ruth's Chris and so on. So now we have five remaining small buildings to finish here. Across the freeway our Sorrento Pointe project as I mentioned we did finally get an approval. That approval took 14 years to obtain. Fortunately, we had a constant income stream on that site. We had four sell sites and two billboards so that lessened the pain of the 14-year carry. But that project too I believe because of its location, because of its prominence, the ocean views and everything else, I suspect I will get everyone on board here to proceed on a spec basis on that project as well.

The travails of getting the entitlement does give definition to the term family jewels I believe.

Thank you very much guys. Good quarter.

At this time we have no further questions. I would now like to turn the call over to Mr. Ernest Rady for closing remarks.

Thank you all for your interest. We're really pleased and honored to have your interest in our Company. We're proud to have been able to present what we've accomplished in our first year as a public Company, and we're very much looking forward to our second year in this domain with all of you as partners. Thank you for your time and interest this morning.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.