American Assets Trust Inc (AAT) 2021 Q4 法說會逐字稿

Hello, and thank you for standing by, and welcome to the Q4 and Year-End 2021 American Assets Trust, Inc. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Adam Wyll, President and Chief Operating Officer. Please go ahead.

Thank you, operator. Good morning, everyone. Welcome to American Assets Trust, Inc.'s fourth quarter and year-end 2021 earnings call.

Yesterday afternoon, our earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of our website, americanassetstrust.com.

During this call, we will discuss non-GAAP financial measures, which are reconciled to our GAAP financial results in our earnings release and supplemental information. We will also be making forward-looking statements based on our current expectations, which statements are subject to risks and uncertainties discussed in our SEC filings. You are cautioned not to place undue reliance on these forward-looking statements as actual events could cause our results to differ materially from these forward-looking statements, including due to the impact of COVID-19.

And with that, I'll turn the call over to Ernest Rady, our Chairman and CEO, to begin the discussion of our fourth quarter and year-end 2021 results. Ernest?

Thank you very much, Adam, and Good morning, everyone. First and foremost, I would like to wish all of our stakeholders continued health and safety, as we hopefully find 2022 ushering in a more manageable phase of this pandemic.

As you all know, we remain very optimistic with the high-quality, irreplaceable properties and asset class diversity of our portfolio, combined with the strength of our balance sheet, ample liquidity, top-notch management team -- and that said, with all do modestly -- and efficient operating platform will allow us to grow our earnings and net asset value for our shareholders on an accretive basis on a long-term basis.

I recall at the outset of the pandemic, I thought we might be in for another great depression like the 1930s, but thanks to the incredible ingenuity and perseverance of Americans and modern science, particularly in regard to the push for effective vaccine and antiviral drugs, the U.S. economy only felt a limited recession. And meanwhile, capital markets rebounded quickly in most industries.

However, our economy is left managing the unprecedented fiscal stimulus that no doubt has contributed, there was likely to be more than short-term inflation. Along those lines with the Consumer Price Index experienced its largest gain in 30 years, approximately 7%. We are confident in the thesis of our portfolio being an effective protection against inflation.

Based on, one, our ability to increase both base rents and annual rent escalators as leases expire within our portfolio to keep up with inflation. Our visibility of significantly higher demand and limited supply in our markets for higher quality assets like the ones we own. And third, the replacement cost of our properties continues to rise.

This is particularly more compelling with high barrier to entry, modern amenitized property like ours that are in the path of growth, education and innovation. Therefore, we can likely withstand the impact of long-term inflation, if not ultimately thrive.

These are amongst the reasons why personally I have purchased our stock during prior open periods as, in my view, we are trading significantly below our net asset value and believe that the recent broker transaction in our markets and asset classes support this view.

With respect to our financial results, I was pleased to see our considerable rebound in 2021 as compared to 2020 and continue to be optimistic about our growth in 2022, and particularly the years thereafter.

As such, I want to mention that the Board of Directors has approved a quarterly dividend of $0.32 a share for the first quarter, an increase of $0.02 or approximately 7% from our previous dividend, which we believe is supported by our financial results and is expression of our Board's confidence in the embedded growth of our portfolio this year and beyond. That dividend will be paid on March 24 to shareholders of record on March 10.

Finally, on the development front, both La Jolla Commons III and One Beach Street remain on time and on budget. And though we remain optimistic by the leasing prospects, but we not have any specific views to share on that front at this time.

Adam, Bob and Steve will go into more details on our various asset segments, financial results and guidance, and I will be available for any questions that you may have at the conclusion of our prepared remarks.

Again, on behalf of all of us at American Assets Trust, we thank you for your confidence in allowing us to manage your company and for your continued support.

I'm now going to turn the call back over to Adam. Adam, please.

Thanks, Ernest. In 2021, our fiscal and operational results showed a meaningful rebound from 2020, which as Bob will describe in a few minutes, we expect to see continued growth in 2022 and beyond.

Among a few of our accomplishments in 2021, we're closing our inaugural public bond offering of $500 million that was over 4x oversubscribed, acquiring 2 office projects in Bellevue, Washington for a total of approximately 440,000 square feet for a combined cost of approximately $210 million, further establishing our critical mass and economies of scale within our Bellevue office portfolio, a market in which we believe the municipality has properly planned for growth with light rail alignment and other transit nodes and with a spectrum of housing options for workers intended to minimize commutes and to help create up-and-coming urban neighborhoods around downtown to capitalize on what we believe will be continued growth in the east side market.

We also leased approximately 255,000 square feet of office space and 410,000 square feet of retail space and increased our portfolio of multifamily leased occupancy from 86% to 96% year-over-year. We also maintained our investment-grade credit ratings from all 3 major U.S. credit rating agencies, and we remain vigilant and focused on the safety and well-being of our stakeholders and achieved a 99% COVID-19 vaccination rate among all AAT employees.

We also increased our collection percentage sequentially for the sixth consecutive quarter since the onset of the pandemic to over 98% in Q4, including collecting over 96% of deferred rent payments due in Q4.

We also continued our ESG initiatives with a focus on the positive impact that being both a steward of the environment, as well as fostering a culture of diversity inclusion as on the strength of our business and in partnership with our communities.

Along those lines, we are pleased to have increased our GRESB score in 2021 for the third consecutive year in line with our peer average and above GRESB averages. We also increased our total dividends by 16% in 2021 over 2020. And we negotiated our amended and restated credit facility, which closed a few days into this year, which increased our borrowing capacity, extended the maturity dates of our revolver and term loan, and transition our borrowings to SOFR.

And as Ernest mentioned, we further development activity in La Jolla Commons and One Beach, on time and on budget despite the headline headwinds of supply chain shortages, vendor staffing challenges and governmental delays.

Meanwhile, on the external growth front, we continue to be active yet disciplined as we evaluate acquisition opportunities in our target markets and various asset classes, as well as our ability to take advantage of low interest rates, while obviously keeping an eye on our cost of capital.

And finally, I'm more than pleased to announce that we promoted 2 key employees this month into Vice President positions, Abigail Rex, who is now our VP of Multifamily San Diego; and Emily Mandic, who is now our VP, Regional Manager of Portland, Bellevue.

And although promotions were based on merit and their accomplishments with AAT, we are more than happy to further strengthen our commitment to diversity among our management team.

With that, I'll turn the call over to Bob to discuss financial results and guidance in more detail.

Thanks, Adam, and Good morning, everyone. Last night, we reported fourth quarter 2021 FFO per share of $0.54 and fourth quarter 2021 net income attributable to common shareholders per share of $0.14.

Fourth quarter results are primarily comprised of the following. Actual FFO decreased in the fourth quarter by approximately 5.3% to $0.54 per FFO share compared to the third quarter of 2021, primarily from the following 4 items.

First, as you may recall, on our Q3 earnings call, our expectation for Q4 was for approximately $0.47 per FFO share. The assumption we made for Q4 was our best estimate at that time, but what increased the FFO from our Q4 guidance was the following 4 items.

First, our Waikiki Beach Walk mixed-use property contributed $0.04 per FFO share, half from Embassy Suites and half from Waikiki Beach Walk Retail, which we did not anticipate in Q4 due to the lower-than-average tourism as a result of the Delta and Omicron variant.

Second, our retail portfolio in San Diego performed a $0.01 of FFO better than expected. Third, our office portfolio performed $0.01 of FFO better than expected. And fourth, our multifamily performed $0.01 of FFO better than expected.

Adding these $0.07 of FFO per share to our Q3 guidance of $0.47 for Q4 gets you back to where we ended at $0.54 per share of FFO for the fourth quarter.

Same-store cash NOI overall was strong in 2021, ending at 20% growth year-over-year for the fourth quarter. It should also be noted that mixed-use was added back to the same-store pool in Q4. Absent the mixed-use sector in Q4, same-store cash NOI would have been approximately 11.6% growth, which we are still very pleased with.

As it relates to liquidity, at the end of the fourth quarter, we had liquidity of approximately $539 million, comprised of approximately $139 million in cash and cash equivalents and $400 million of availability on our revolving line of credit. Our leverage, which we measure in terms of net debt to EBITDA was 6.8x. Our objective is to achieve and maintain a net debt to EBITDA of 5.5x or below.

We do recognize that our net debt to EBITDA has increased during COVID as a result of lower EBITDA, primarily from our retail portfolio and our mixed-use property in Waikiki. We believe these reductions are temporary and our expectations is that our EBITDA will increase over time to pre-COVID levels.

Our retail centers on the mainland are generally full with increasing sales, but still have a way to go. As you may recall, we have historically provided a pro forma cash NOI bridge to help all stakeholders understand the embedded growth that we see in our portfolio, as well as what we are anticipating in the next year or 2. We expect to update our cash NOI bridge to reflect our expectations for 2023 in the next 60 days or sooner.

Our current cash NOI bridge through 2022 reflects that cash NOI in 2021 has finally surpassed 2019 cash NOI and is expected to increase another 6% in 2022. This increase has largely resulted from the strong consistent growth from our office portfolio. This also shows the importance of a high-quality diversified real estate portfolio such as American Assets Trust.

I also need to point out that cash NOI is a non-GAAP supplemental earnings measure, which the company considers meaningful in measuring its operating performance. A reconciliation of cash NOI to net income is included in our supplemental, which you can access on our website. Our interest coverage and fixed charge coverage ratio ended the quarter at 3.8x.

Let's talk about 2022 guidance. We are introducing our 2022 FFO per share guidance range of $2.09 to $2.17 per FFO share with a midpoint of $2.13 per FFO share, which is approximately a 6.5% increase over 2021 actual of $2 per FFO share.

Let's walk through the following 9 items that make up the increase in our 2022 FFO guidance over 2021 FFO actual. First, same-store office cash NOI is expected to increase approximately 9% or $0.14 per FFO share. Second, same-store retail cash NOI is expected to decrease approximately 5% or $0.05 per FFO share.

Third, same-store multifamily cash NOI is expected to increase approximately 5% or $0.02 per FFO share. Fourth, same-store mixed-use cash NOI is expected to increase approximately 15% or $0.03 per FFO share and is attributable to approximately $0.01 of FFO to Waikiki Beach Walk Retail and $0.02 of FFO to Embassy Suites Waikiki.

All 4 sectors combined above are expected to generate a total same-store cash NOI growth year-over-year in '22 of approximately 5% or $0.14 of FFO per share.

Fifth, non-same-store guidance includes our 2 acquisitions in Bellevue, Washington, in 2021. Combined, they are expected to contribute approximately $0.07 of FFO per share in 2022.

G&A is expected to increase approximately $3 million and decrease FFO by $0.04 per share. Interest expense is expected to be flat. Other expense is expected to decrease by approximately $4.4 million and increase FFO by approximately $0.06 per FFO per share year-over-year, resulting from a onetime early prepayment fee on the $150 million unsecured loan paid with a portion of the proceeds from our inaugural bond offering in January of 2021 and which will not occur in 2022.

GAAP adjustments primarily relating to straight-line rents will decrease FFO by approximately $7.5 million or $0.10 per FFO share. These adjustments, when added together, will be approximately $0.13 per FFO share and represent the increase in 2022 over 2021 FFO per share.

While we believe the 2022 guidance is our best estimate as of this earnings call, we do believe that it is also possible that we could outperform the upper end of this guidance range in both the multifamily and in the mixed-use sector of our portfolio. So in order to do that, tourism and travel to Waikiki on the Hawaiian Island of Oahu needs to return in full force, including our guest room Japan.

We are cautiously optimistic that the Embassy Suites Waikiki will outperform our guidance, but we won't know that until most likely the end of Q3 2022.

As always, our guidance, our NOI bridge in these prepared remarks exclude any impact from future acquisitions, dispositions, equity issuances or repurchases, future debt refinancings or repayments other than what we have already discussed. We will continue our best to be as transparent as possible and share with you our analysis, interpretations of our quarterly numbers.

I'll now turn the call over to Steve Center, our Senior Vice President of Office Properties, for a brief update on our office segment. Steve?

Thanks, Bob. At the end of the fourth quarter, net of One Beach, which remains under redevelopment, our office portfolio stood at 93% leased with 8.5% expiring in 2022. Our office portfolio is gaining momentum.

In the fourth quarter, we executed 18 leases totaling approximately 130,000 rentable square feet, including approximately 31,000 rentable square feet of comparable new leases with increases over prior rent of 32% and 45% on a cash and straight-line basis, respectively.

Approximately 37,000 rentable square feet of comparable renewal leases with increases over prior rent of 6% and 10% on a cash and straight-line basis, respectively.

Approximately 62,000 rentable square feet of noncomparable new leases, including deals with a top 100 law firm for approximately 26,000 rentable square feet at Torrey Reserve and a global technology company for approximately 17,000 rentable square feet at La Jolla Commons One.

Throughout our office portfolio, we have been deploying multiple initiatives to drive occupancy and rent growth, including renovating buildings with significant vacancy and/or rollover, adding or further enhancing amenities at the project level, aggregating and white boxing larger blocks of space where there is scarcity, and improving our smaller spaces to be a new move-in ready condition.

We've realized meaningful increases in occupancy and rent growth resulting from these initiatives in 2021, with additional increases realized or in process in Q1 as follows. In Bellevue, we have signed approximately 18,000 rentable square feet of expansions with another 12,000 rentable square feet of new leases and expansions in lease documentation.

In San Diego, we have signed approximately 23,000 rental square feet of new leases and expansions with another 19,000 rentable square feet of new leases pending.

Including this Q1 activity, we believe that our office portfolio is on track to absorb an additional 71,000 rental square feet or nearly 2% of the office portfolio and favorable rent spreads.

As a result, we believe that strategic investments in our portfolio will position us to continue to capture more than our fair share of net absorption at premium rents as office markets rebound.

I'll now turn the call back over to the operator for Q&A.

(Operator Instructions) Our first question comes from Haendel St. Juste with Mizuho.

Ernest, a question for you. You mentioned that you bought back some stock in the fourth quarter. I don't think...

No, no, I didn't I bought back the stock. The company didn't buy back the stock. I bought the stock personally and affiliates.

Right. No, that's what I'm getting at. So I guess you bought, but the company did not. And so clearly, you see a value proposition here. You talked about the stock being discounted. So maybe you can help me better understand the decision to raise the dividend versus perhaps buying back the stock here in light of the discount you highlighted?

You know, Haendel this is something that is discussed in depth because of our REIT size, we're on the smallest side relative to the absorption of the cost of being public. So there's no emphasis whatsoever on becoming smaller and reducing our capacity to make acquisitions and grow.

That's why I buy the shares personally. I would love to see a path or strategy for American Assets Trust to have more assets on its balance sheet, more income from all these additional assets and spread the overhead of being public over these additional assets. That's the logic.

No, I appreciate that, Ernest. And so I certainly appreciate the comments there. But then also on the leverage, Bob, maybe help us understand, you outlined getting to that mid-5 level. But I don't think you outlined a time line. So any updated perspective there. Is that something we can expect by next year in light of perhaps some of the delayed recovery in certain parts of the portfolio?

Yes, Haendel, I can't put a date on that, but it's really the EBITDA that we -- that has temporarily gone down is really a result of COVID. And so as soon as we can get Waikiki Beach Walk back with the Embassy Suites, and have our Japanese gas return to the island, I think you're going to see a significant growth. I think you're going to see a significant growth this year as it is, and I think we have a good shot at outperforming if those things happen, which will increase our EBITDA and start working our net debt to EBITDA back down.

But we also need to -- I mean, I think this whole COVID environment, there has been a repricing on the retail side. But like I mentioned on the script, the sales have been strong. Sales continued to improve, but we got to see more on the retail side as well.

Fair enough, appreciate your comments. Maybe a comment on pricing power overall in the portfolio, certainly a differentiator among the asset classes as we look across REITs. Can you compare and contrast the pricing power across the key corridors of the portfolio apartments, office, open air centers. And do you think that will be enough in the near term to offset the rise in cost, the inflation that we're seeing?

Somehow rather, we've got a bad connection, Haendel. Is there something you could do, maybe step back a little bit from the microphone and repeat the question because it's not coming through.

I apologize. Is that better?

That's better, yes. Thank you. Anything could be better.

Well, I was hoping for some comments on pricing power across the portfolio. Certainly, a key differentiator amongst the asset classes. I was hoping you could compare and contrast the pricing power across the key corridors, the portfolio apartments of the shopping center, if you think that will be enough to offset the near term rise in cost and inflation?

Sure. That's a very good question. It's something that we can think about frequently. First of all, as Bob pointed out, retail is getting repriced to some extent. I thought our retail will do as well as anybody, but retail by definition now is being affected by (inaudible). Our residential is strong. I'm really optimistic that we're going to have a very good year in residential.

And office, Steve went through the fact that -- and outlined the fact that our office properties and the path of growth we're improving the amenitization, the word which he has taught me, and we're preparing offices so that when the smaller tenants want to occupy, they can occupy it more quickly. So there is -- because of our office in the path of growth, we're optimistic that it's going to be a significant contributor to the growth of the company.

And of course, La Jolla Commons is under construction, and that could add significantly and we have the property in San Francisco, we're repositioning. Portland is completed and there's no lease on it yet. But, you know what, it's all good property. And if anybody can make it, our properties can do equally as well as the market, and I'm confident. If not, I'm hopeful, if not confident, that we will outperform the market.

Hey, Haendel, let me just add to that. In the supplemental, we talk about the leasing spreads on new leases, and if you look on a comparable basis, our cash basis percentage change over the prior rent on the leases we did for retail it was down 6% on a cash basis, but on a GAAP basis it was 5.2% positive. So they had some free rent initially. But once it's straight-line over the term, obviously, it's a positive 5.2%.

On the office sector, it's strong -- 17%-18% in a cash increase. Cash basis percentage change over the prior rent. And on a GAAP basis, it's like 26%-27%. So I think we're in the right sectors. I think we got the right product. It's just the retail is a little bit slower.

And Steve would agree we have excellent management.

Our next question comes from Todd Thomas with KeyBanc.

So a couple of questions on some of the segments as it pertains to guidance. First, can you talk a little bit more about the mixed-use segment, the guidance you discussed. It sounds like there's some uncertainty, but perhaps also some conservatism embedded in the forecast. And I was just wondering if you could maybe elaborate a little bit more around bookings and what the guidance translates into for RevPAR growth throughout the year in '22?

Todd, that's probably the most difficult part of the whole portfolio to predict what's going to happen, because we don't know what's going to happen to the virus, we don't know whether the Japanese tourists will return. We don't know what the governor of Hawaii is going to do to encourage or discourage tourism. But the properties we own are in first-class shape. They're [desimple]. And so it's not a question of if they return. It's a question of when they return. And it's the win that we find difficult to quantify. Do you want to add something, Bob?

Yes. So Todd, thanks for the question. Yes, so as we mentioned, our guidance for that same-store mixed-use is 15% increase, which is $0.03 -- of approximately $0.03 of FFO per share. We rely heavily on our Outrigger team that has the boots on the ground out there. We're in contact with our general manager and our team out there, so we know what's going on. We know the data. In fact, we're visiting this coming March face-to-face with everybody.

So that really is the upside. And like Ernest mentioned, the return of our Japanese guests is really important. But if that portion is delayed, we're seeing even strength on the U.S. West and U.S. East side.

Let me give you a quick update on the Embassy Suites hotel. And so what's interesting is that the paid occupancy for the month of December was 86%. What we've shown on a quarterly basis, it was 73% average for the fourth quarter, but it really was strong in December.

Our paid ADR or average daily rate for the average quarter or for the fourth quarter average was $215. But in December, it spiked up to $350. That's a strong month. And then our RevPAR also increased similarly to that $315 as well versus $215 on an average.

And as of mid-January, Japan was experiencing its 6th wave of COVID, this time around largely from Omicron. And Japan is better prepared today with 30% more capacity in hospitals and a more flexible home care recommendation for all but the serious cases of infection. Vaccination data as of yesterday, when I just checked it was 80% of Japan's total population was partially vaccinated, and 79% was fully vaccinated with the second shot. And the Japanese government is speeding up its rollout of booster shots with shortening the interval between second and third shot.

So they've made positive strides in the vaccination rate since last July, and we are hopeful that they too will get through this as we have and we look forward to welcoming them back. And that's really the key to outperforming on this guidance.

That's helpful. I mean the fourth quarter exceeded your expectations. You talked about half of that $0.04 delta being -- the hotel half being retail, it seems like occupancy and ADR outperformed despite sort of Delta, Omicron. How are bookings trending through the spring and summer?

Because of the Omicron, they're still slow. And we expect them to pick up for the March spring break. That's always a popular destination. So they're not like pre-COVID at this point in time, but we are seeing the growth. I don't have the exact number in front of me.

Okay. And then shifting over to the retail segment. And apologies if I missed this, but I'm just trying to understand the down 5% same-store NOI growth forecast for '22 a little bit better. What's the impact year-over-year from out-of-period collections that were recognized during '21? And do you have that number for the fourth quarter? Just trying to get sort of a better run rate heading into the new year for that segment?

Yes, I don't have it for that segment. But I can tell you that our change in accounts receivables, which is where we book the collections from are down approximately $600,000 in the fourth quarter. We were about $1 million of collections in the third quarter from prior quarter collections. And in the fourth quarter, that was down to like about $400,000 or less. So it wasn't that meaningful.

And then going into 2022 in terms of our guidance, we have nothing in there for prior collections. I mean we -- every time we do a lease modification, we try to go back and get as much as we can at that point in time. And then it's generally in a deferral that we will build and collect in the current month.

That's helpful. And then just last question on office, sort of 2 things here. If we could -- can we get an update at all around the leasing or pre-leasing for the tower La Jolla. And then can you also provide an update in the office portfolio around the late '22 expirations that you have, I think VMware and Autodesk, if there's any update there and any sort of activity that we should be thinking about late in the year or heading into '23.

I think Steve should handle that. He's in intimately involved with that. If you want to handle this Steve, please.

Sure. You addressed Tower III, we've got activity, but nothing to report at this point. But the market remains very strong. It's tight for big blocks of space. And there are a number of large users that are looking long-term at aggregating space. So we're still very bullish on Tower III and the eventual outcome there.

With regard to the '22 rollover, we have come to terms with Autodesk on that second floor renewal, and we're papering that deal right now. And then we expect to get an RFP from VMware in the next week or 2 to engage in that discussion.

That market where La Jolla Commons is very strong. We bid on a -- it's not an adjoining property, but a few hundred yards away and we got outbid by 25%. So -- and we reached for it too, because that is a great market. So it's a strong market, and I don't know what the outcome will be as far as leasing goes. But based on the activity in the area, the outcome ought to be positive.

Our next question comes from Craig Schimdt with Bank of America.

I've just -- if we could talk a little bit about the increase in tenant improvements and leasing commissions in office. I assume that's related to the new level of the new leases. But if you could comment, especially on trends for 2022 on those measures?

Yes. And I'm just looking at the numbers. Overall -- and I'm focused on comparable new leases in '21. If you look at the outcome, we increased NOI on those deals by $9.12 or about 22% over the rents prior in place. And if you just apply a flight cap to that increase, it's worth about $182 a foot.

So in terms of investment, for example, on the renovations we did at Torrey Reserve in both Torrey Plaza and North Court 1, I think we spent about $15 a foot on those renovations and achieved outsized increases in NOI, as well as leased them quickly. The big block initiative has paid off as evidenced in Q4 by the top 100 law firm lease that we did in 26,000 feet in North Court 1.

So our average -- our weighted average TIs on new leases last year was $50 a foot. Your touching spaces that in some respects, the lighting package hasn't changed in 20 years. So you're going from parabolic lights to a new lighting package, LED. And so that's a $10 a foot swing right there.

You're also seeing less full drop ceiling and more of a combination of cloud sealing and open seating, which requires rigid distribution of air, and that's another $10 a foot to a TI package. So we're seeing higher end TIs. And we're also seeing really big co-investment on part of the tenants. So while our TI contribution is up, our tenants in some respects are putting 2x into the space and even more in certain cases.

So, yes, the investment is bigger, but the increase in NOI that we're achieving and the quicker lease-up we're achieving way more than compensate for the additional costs.

How would you describe the markets that our offices are in relative to what you read about in the newspaper other offices?

I would talk about our assets within those markets. And I touched on renewing Autodesk, and it's a great customer of ours, and it's a great building. And we achieved, what I'll call it a win-win outcome in a market that's choppy. But when you have exceptional assets in markets. Even if it's choppy around you, the outcomes are good, because people just want to be there. So that applies to Bellevue, that applies to San Francisco. And even our holdings in Portland, especially in Lloyd, we're full, essentially at Lloyd. So we've done very well there.

And then San Diego, it's really fun right now because we've made these investments, as I mentioned Torrey Reserve and we're seeing the results right now, and it's a lot of fun.

So we have unique properties. We're in good markets, even in the markets that are a bit choppy right now, Portland and San Francisco, we're performing really well. And I'll say the management teams take really good care of our customers. And that's a huge part of success, especially in renewing tenants. But even on the new leasing front, our managers are very customer service-oriented, engaging and they do a terrific job.

Craig, let me add to what Steve said that, I think the first part of your question was about the operating CapEx, which drove down our funds available for distribution this quarter. And really what that relates to is a one-time TI reimbursement for our largest tenant at Landmark, and that's what drove that down. That's been out there for some time, and we finally got the invoice. So we're pleased to have that tenant.

And just as a matter of information, that tenant spent, I think, another $100 million of their own money on the properties. So we're investing wisely. And I know you're very familiar with all the other markets we're in, but San Diego is on fire. I've been around here for a lot of years, and I've never seen San Diego economy as strong as it is today. It's a biotech, lab space, it's amazing. I mean, we're in the right place at the right time.

And then just one small follow-up, the lower occupancy at Del Monte Center is that due to the previous vacant Forever 21 or is that smaller specialty businesses that drive into the 82.1% occupancy?

There's 2 vacancies there. One is Macy's abandoned, the furniture store, and the other is Forever 21, and we're doing our best to replace those tenants. But of all the properties we have, we're as proud of Del Monte as any other, but it does not have enough population around it to really make it into what we would like it to be. But it's all it can be, but what it can -- all it can be is limited by the fact that the population is not as dense as it should be in that area.

I think, I mean, I guess that's a better position to be in than have the specialty hit so hard.

Our next question comes from Richard Hill with Morgan Stanley.

This is Adam on for Rich. And I appreciate the bridge earlier to kind of the kind of guidance, really, really helpful. I wanted to ask about kind of the mixed-use asset, just kind of in terms of kind of recovery to pre-COVID NOI. I think your other property types, if they didn't recover in 2021, should kind of recover to 2019 levels and exceed those results. Just kind of wondering what you kind of think about recovery to pre-COVID NOI in mixed-use, whether that's a '23-'24 event? I mean, just kind of how you think about that?

From what I read, the American tourist is anxious to travel. And right now, we just don't know when. But I think when this thing opens up, people are anxious to get out and have vacations. And I suspect maybe I hope for unprecedented demand for our Hawaiian properties. Just people are anxious to travel as they are tired to stay at home. So we don't know when and we don't know what extent. And I'd like to -- I'd tell you that we do, because we don't. You probably know as well as I, you read the newspapers as well as we do.

We're hopeful to see a significant outperformance beginning in the third quarter. But again, that's -- let's get rid of this COVID.

It's not anything you can predict. It's something you can hope for, and it's something that we honestly expect, but we don't know the timing.

No, that's all really helpful. I just wanted to ask about kind of acquisitions. I recognize you kind of made 2 larger deal last year. I guess, kind of what's the appetite today for future acquisition -- further acquisitions, kind of given the debt levels, but also kind of given that EBITDA is obviously recovering, right? So your net debt to EBITDA will just look better organically and kind of recover organically. So kind of what asset types are you focused on for acquisitions here and kind of what are you thinking there in terms of valuation and further acquisitions?

You couldn't have asked a question, which is more contentious or more internally debated than the question you just asked. I think that money costs today are modest compared to inflation. If you can borrow money at 3% or 4% and inflation is 7%. The economy is paying you to take the money. If you can buy a property, which will return more than the cost of the money, there is accretion. There is a great internal debate about net debt to EBITDA, and we've been examining those numbers very thoroughly.

So if we found something that -- and the prices are -- the prices are not compelling. The prices are really high. So you have to find something that is below replacement cost that you can add to and increase the value. And that's what we've been successful at doing.

And so we continue to exhort -- explore all the possibilities, including the retention of our net debt to EBITDA, including the enhancement to the shareholder value because of inflation, including the fact that all of our properties replacement cost is increasing dramatically. Jerry estimates that if we were to have to buy out La Jolla Commons today versus when we bought it at the bottom -- bought the contracts out at the bottom of the coronavirus. Go ahead Jerry, put your foot in my mouth.

Would have been upwards of 30% more.

And on what size of the contract?

On a $100 million.

$100 million, so that's $30 million. This is happening across our portfolio. It doesn't happen if the demand isn't there to compensate for the cost. But this is happening across our portfolio. And that's why I'm so optimistic about the quality and the position of the American Assets Trust portfolio. It's not only a great inflation hedge. I think its performance over the mid-term will outpace inflation.

And just kind of in terms of by property type, I mean is there more of an appetite for office rather than multifamily. If you could -- you have to kind of power rank the different property types, what would kind of be first that you'd buy?

I hate to tell you this, but our appetite is governed by greed. If we find there's an opportunity in office, which we have in Bellevue, because we're very optimistic about that market, we did it. If we could find apartments which are now trading in the mid-3 cap, where we could improve them and improve the returns, we do that. If we could find retail that there was upside, we do that.

So we have the advantage of looking at 3 product types in several markets, and we're going to do what we think enhances the underlying value of our stockholder -- for our stockholders as best we can. So obviously, the emphasis has been in office because we found a couple of office products. But at the same time, we're investing in our residential dramatically, improving the properties we have.

At the same time, we're looking at every opportunity we can for retail. So we've got our weather eye peeled to find something that will add to the value of our shares, and it ain't easy. The thing that's easy is to see that money costs are moderate in relation to inflation, but then you have to find a product that is not overpriced. And so that it's accretive.

(Operator Instructions) Our next question comes from Tamara Fique with Wells Fargo.

I'm wondering, I guess, a couple of questions. I guess, given the increased leasing activity that you saw in the fourth quarter, it drove your signed, but not opened rent to more than double what was reported in the third quarter. I guess can you just talk about how much of that...

Tammy, we're somehow -- rather there's something wrong with our speaker system here. If you kind of step back from your microphone, we might be able to hear you better, please.

Okay. Is this better?

Is that better? We hope so. Not as good -- not as better seeing in-person though, Tammy, I can tell you that.

Given the increased leasing activity in the fourth quarter that drove your signed but not open rents to more than double what you reported in the third quarter, I guess, can you just talk about how much of that you expect to come online in 2022? And then secondly, but related, are you generally delivering spaces to tenants on time given the supply and labor constraints in the market today?

You want to handle that, Steve?

Yes, I'll let Jerry.

You should take it.

We're doing well in terms of timing because we're integrated from having in-house legal to having a really talented construction team. So we got in front of it. We don't -- we work parallel as well we're going through a transaction. So as a result, when we come to lease execution, we typically have an approved plan that we can readily go into CDs, and we do everything we can to expedite the process because our tenants have time constraints, and we take those on as our own. So we performed well.

That being said, there are delays in permitting. There are delays in certain materials. What tends to have an urgency to get in, we'll have them move in, and if we have a long lead time item on certain millwork, they'll move in and start operating, and then we'll do the millwork after they moved in. So you make those kinds of moves to meet their needs to operate and give them the space that they want. So we're adapting, but we do it really well.

It's difficult, but we do as well as anybody. I think that would be the way to phrase it.

I agree.

It ain't easy.

No, it is not. The supply chain is strained and there are labor constraints, but one of the points that we made and Steve has really brought to us is, we instituted this program of spec suites. So I like to call those ready rooms. And then as we found tenants we'll lease some of those spaces, it might have been adding one office or taking out one office. So we were able to adapt pretty quickly and we had some inventory. So we've -- timing has been good for us.

With all due, in modesty, I think we have a great team that's doing a great job. But it ain't, easy.

No.

I appreciate that. And then maybe following up on your discussion around your appetite to be a larger company. I guess, what do you see as the best pathway to getting to the level that you feel you are maximizing your G&A costs? Is it just slow and steady? Or is there a bigger transaction that you see you can do to get there quicker? Just wondering if you can give us your perspective on that? And what's kind of governing that?

If our stock was fairly priced, that would be a path to be larger. But at the price of our stock today, that's not a path. If another path would be to find somebody who would like to [stroll] there lot in with ours. That ain't easy either. So I would say the ultimate outcome is slow, but steady wins the race after where we're going. Bit-by-bit, piece by piece, you can see that when we issued that $500 million of bonds, we were a year early, but now interest rates are moving up. But that fixed rate has a lot -- the fixed rate on that bond for 10 years has allowed us some flexibility.

We recently extended a bank loan and locked in the rate. So it's slow but steady wins the race. When we started this company as a public entity, it had $1.7 billion in assets. Now I estimate our underlying value was about $5 billion to $6 billion. So -- and we didn't do anything dramatic, it's just -- if we had our nose down and our ass up, and just keep looking at the deals, and somehow we find a way to enhance shareholder value.

The inconsistency is that the stock market doesn't seem to recognize that. So the way I put it, I can buy real estate cheaper in Wall Street than I've got on Main Street when we can buy -- when the reverse is true, we'll be able to take advantage of that opportunity, hopefully, for the benefit of all our stockholders. So stick with us.

And then maybe just a follow-up on that and earlier comment on the broker transactions that you said, I'm support of you that you're trading at a discount to NAV. I'm just wondering if the team can provide some more specific data points to help give us a sense for cap rates in your markets for your different asset types?

That's a really good question. And they're asking, is there a guidance available for the NAV. But you're not coming through clearly. That's why I'm translating it. Are you planning on guidance for the NAV? I can tell you that by seat-of-the-pants, I see we've got to pay, and then I extrapolate that to what we own. And I know, my God, want a disconnect. Now Bob, do you have anything that is concrete.

Yes, we haven't published that for the last 2 years during COVID. But the intent would be -- is to issue an NAV, because we are a diversified. We try to help people understand how we're thinking, but it's something to Board approval. And we need to look at it, discuss it. But we're -- we feel good about where the NAV is last time we looked at it, and we look forward to going through that process. It would probably be at the beginning of the third quarter.

If apartments are selling it at 3.5 cap, what are our apartments worth? If office -- we're improving them and rents are going up dramatically, and we're having to pay -- find particular properties where we can improve them. What are our office properties worth? Some of which are stellar. Our retail. Even retail is trading at cap rates that don't seem to discount the -- what's affecting retail. So I'd love to buy some more retail, but there's no bargains out there. So you look around and say, this is what the market tells you. And then we look at what we have and there's this giant disconnect.

I look forward to updated NAV. And then just one last question, if I could. I know you have cash on the balance sheet of about $140 million today. Is that earmarked at this point for development spending in 2022? Bob, maybe just if you could give us some color on the sources and uses of capital underlying your 2022 guidance?

Yes. So we have about $140 million of cash in the bank today, and we got a $400 million line of credit that has not even been touched. So yes, I mean, in theory, we're -- that cash would be used for finishing La Jolla Commons, finishing our renovation of One Beach. So One Beach is expected to be finished in the third quarter of '22, and we expect to have revenue coming in by July -- by the third quarter sometime in '23. And we're -- and again, that's subject to leasing, but we feel good about that renovation.

And then La Jolla Commons III, we're hopeful to have that completed in the -- by the end of the second quarter in '23 with revenue coming in the beginning of '24. Again, that's based on what we know in the marketplace. Nothing has been committed or signed at this point in time. But we don't think that is unrealistic, but we'll see.

If you want somebody to manage your cash, you couldn't find anybody better than Bob Barton. He is very brutal in this analysis of how every penny is spent, and we do our best to spend it wisely.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Ernest Rady for any further remarks.

Okay. Stay well you guys. Don't get any viruses. Wear a mask. And we hope to see you soon and give you all a hug when we get through this nonsense that we've been through for last 2 years. But I've always said the portfolio will come through better off and then when we began, and I think that's still how I feel. Thank you all.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.