American Assets Trust - Q4 2025

Transcript

Operator (participant)

And welcome to the American Assets Trust, Inc.'s fourth quarter and year-end 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. I would now like to turn the conference over to Meliana Leverton, Associate General Counsel of American Assets Trust. Please go ahead.

Meliana Leverton (Associate General Counsel)

Thank you, and good morning. The statements made on this earnings call include forward-looking statements based on current expectations, which statements are subject to risks and uncertainties discussed in the company's filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, as actual events could cause the company's results to differ materially from these forward-looking statements. Yesterday afternoon, American Assets Trust earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of its website, americanassetstrust.com. It is now my pleasure to turn the call over to Adam Wyll, President and CEO of American Assets Trust.

Adam Wyll (CEO)

Good morning, everyone, and thank you for joining us to review our fourth quarter and full year 2025 results, as well as our outlook for 2026. For the full year, we earned $2 of FFO per share, about 3% above our initial expectations. As we discussed coming into the year, we positioned 2025 as a reset, reflecting several known offsets versus 2024, including the roll-off of one-time revenue items and the end of capitalized interest on certain projects. At the same time, we continued to invest in office leasing at our development and redevelopment projects and recycled capital into a high-quality San Diego multifamily acquisition that is performed in line with our underwriting. Against that backdrop, delivering above our initial guidance speaks to the quality of our assets and the teams executing across our markets.

In fact, portfolio-wide, same-store NOI ended slightly positive for the year, supported by strong collections and disciplined expense management, with our office and retail segments offsetting mixed performance from our multifamily and mixed-use segments. Importantly, our 2025 results reflected the themes we highlighted throughout the year. Office made continued progress, leasing newer and redeveloped space, with tenant engagement improving in the second half and increasingly concentrated in well-located Class A product. Retail again stood out, supported by low vacancy, limited near-term expirations, and a smaller watch list than a year ago. Multifamily worked through elevated new supply in our markets, which constrained near-term rent growth, and our teams focused on occupancy, revenue management, and expense discipline. In Waikiki, we operated through a softer tourism year than expected, and our hotel results reflected that. We believe that asset remains well-positioned within its competitive set as conditions improve.

While macro uncertainty persists, we believe our coastal infill locations and high-quality real estate position us to capture demand as it materializes. With that context, I'll walk through each segment and then conclude with our priorities for 2026. Across our West Coast office markets, we are seeing continued signs of stabilization and gradual improvement in leasing activity, with tenant engagement increasingly concentrated in the best assets. Conversations are becoming more active, decision timelines are improving, and demand is extending beyond renewals. In markets like San Diego and San Francisco, vacancy trends are showing early signs of stabilization, supported by declining sublease availability and a more active leasing environment.

In Bellevue, while overall vacancy remains relatively elevated, conditions have been comparatively much stronger than in Seattle, with improving de-demand dynamics, reduced sublease pressure, and increased interest from technology and innovation-driven tenants, particularly in the CBD, which we expect over time to spill over into the surrounding suburbs. In Portland, our scale and longstanding presence continue to be an advantage in a market with relatively few institutional owners, which helps us compete effectively and win more than our fair share of leasing opportunities. Overall, while office market conditions continue to normalize at different paces, we are encouraged by the direction of travel and believe our portfolio is well positioned to benefit as leasing momentum continues to build. Our office portfolio ended the quarter 83% leased, and our same store office portfolio was 86% leased, up about 150 basis points from Q3.

In addition, we have approximately 140,000 sq ft of signed office leases that have not yet commenced paying cash rents. Same store office NOI increased just over 1% for the quarter and nearly 2.5% for the full year. Looking ahead, roughly 8% of our total office square footage is scheduled to expire this year, which is consistent with the typical level of expirations we see each year. We are actively engaged on that rollover, and that figure includes known move-outs of about 4% of our office square footage, which we anticipated and are managing as part of our leasing strategy.

During the fourth quarter, we executed 23 leases totaling over 193,000 sq ft, with positive cash leasing spreads of 6.6% and GAAP leasing spreads of 11.5% for the quarter, and achieved our highest ever average base rents in our office portfolio. For the full year, total office leasing volume increased 55% over 2024, and leasing spreads increased 6.4% for cash and 14% for GAAP. We continue to see the strongest interest for well-located space that is move-in ready and amenity supported, and that is where our development and redevelopment efforts have been concentrated. At La Jolla Commons Tower III, we ended the quarter at 35% leased, with another 15% in lease documentation currently, and our active prospect pipeline is growing.

At One Beach Street, we ended the quarter at 15% leased, and subsequently executed leases for an additional 21%, bringing the property to 36% leased today, with proposals for another 46% currently in negotiation. In response to increased demand for move-in-ready space, we are advancing spec suite development at One Beach Street, with permitting complete and work underway. As we move into 2026, we started the first quarter with momentum, having already executed approximately 68,000 sq ft of leases, with an additional 214,000 sq ft in lease documentation. We have meaningful prospects engaged across the portfolio and remain focused on converting activity into signed leases and commenced rent. While larger blocks still require thoughtful execution, velocity has improved, and the path from engagement to execution is shortening.

At this point, we are targeting to end the year between 86%-88% leased across our entire office portfolio, an increase of about 400 basis points at the midpoint from the end of 2025. We will do our best. Turning to retail, which remains a cornerstone of stability and represents 26% of portfolio NOI, we ended the year at 98% leased. Fourth quarter leasing totaled 43,000 sq ft, with positive cash and GAAP leasing spreads for the quarter. In fact, for the year, leasing spreads were 7% on a cash basis and 22% on a GAAP basis, all supported by healthy sales and steady traffic across our centers. While a moderating labor market is impacting the broader consumer, higher-income households continue to drive a disproportionate share of spending.

Given the quality, location, and demographics of our retail assets, that backdrop remains supportive of demand across our centers. As we've said in prior quarters, we really like the setup for our retail platform. Nationally, retail availability is expected to remain near record lows, given limited new supply, which should continue to support asking rents. Our portfolio benefits from high barrier supply-constrained submarkets, strong occupancy, and a well-laddered expiration profile, which includes just 4% of our retail square footage expiring this year. Looking to 2026, we expect continued favorable performance and will stay disciplined on renewals, tenant quality, and CapEx prioritization. In multifamily, we ended the year 95.5% leased, excluding the RV park, and achieved approximately 1% net effective rent growth year over year versus the fourth quarter of 2024, a steady result in a competitive leasing environment.

At the same time, operating conditions remain influenced by new supply across markets such as San Diego and Portland, which continues to weigh on near-term rent growth. Occupancy held stable through 2025, while pricing remained competitive as deliveries were absorbed and concessions persisted in certain submarkets. Consistent with the broader industry backdrop, we are not assuming a rapid improvement in 2026, which we view as more a period of stabilization and recovery, and we remain focused on execution, optimizing pricing and concessions by submarket, maximizing occupancy, enhancing the resident experience, and tightly managing controllable expenses. In San Diego, our communities entered the fourth quarter 96% leased, excluding the RV park. Renewal rents increased, while new lease pricing was more competitive as we prioritized occupancy, including more meaningful use of concessions late in the year.

Genesee Park continues to perform in line with our underwriting, ending the year 97% occupied, and we continue to see attractive long-term mark-to-market opportunity as we execute the value add plan. In Portland, Hassalo on Eighth ended the year 91.5% leased. Blended net effective rents were approximately flat between new leases and renewals. At Waikiki Beach Walk, 2025 reflected softer tourism trends, which pressured both rate and occupancy at different points during the year. While overall visitation moderated, spending per visitor was steadier, supported by longer stays and higher daily spend. Industry data reflected this mix, with RevPAR down year-over-year, despite relatively steadier demand among higher-spending guests.

Bob will provide more details on the strength of our balance sheet and capital allocation, but I want to address a point of significant frustration for our management team and board, which is our current share price. It is clear that many listed real estate companies have remained largely out of favor with the broader investment community throughout much of 2025, often trading at a substantial discount to the intrinsic value and quality of the underlying assets. AAT is no exception. The public market valuation, in our view, fails to reflect the trophy nature of our primarily coastal portfolio and our long-term growth prospects.

While we cannot control macro sentiment, it is our job to close that disconnect to the best of our abilities by delivering consistent operational execution, demonstrating the cash flow durability of our new developments and redevelopments, continuing to execute our strategy with discipline to create long-term value for our shareholders, and position AAT to capture opportunities, whether or not the environment is volatile or stable. Note that our board has declared a quarterly dividend of $0.34 per share for the first quarter, payable on March 19th to stockholders of record on March 5th. At this point in time, we expect to maintain the dividend at current levels, with the outlook for our dividend coverage ratio improving as our office developments stabilize and begin to contribute more meaningfully to cash flow. That said, our approach remains measured, and we will continue to allocate capital prudently and reevaluate as conditions evolve.

Looking ahead, we view 2026 as an opportunity to build upon the progress we made in our reset year. Our priorities are straightforward: One, continue to drive office leasing with a focus on converting improving prospect activity into signed leases and commenced revenue at our newer and repositioned assets. Two, maintain retail momentum by keeping our centers full, proactively managing expirations, and staying focused on tenant quality. Three, manage through the multifamily supply cycle with disciplined revenue management and cost control, positioning the portfolio for better growth as supply moderates. Four, operate our hotel prudently, while staying responsive to market demand and focused on managing costs and driving performance. And five, continue to be thoughtful with our capital and strengthen the balance sheet, all with the obvious goal of improving our valuation over time.

You'll note that our FFO guidance in 2026 at the midpoint is 1.5% above 2025, and portfolio-wide same-store NOI growth, excluding reserves, is over 2%, which Bob will provide more details on in just a minute. Note that these estimates reflect our current view of leasing velocity, market rent growth, and operating costs across the portfolio, as well as the timing of lease commitments and the cadence of operating expenses across the year. As always, we take a realistic, yet conservative approach to guidance, with the goal of executing ahead of our midpoint over time. In closing, I want to thank our employees for their dedication and our tenants, partners, and shareholders for their continued confidence and support. With that, I'll turn the call over to Bob to discuss our financial results and initial guidance in more detail. Bob?

Robert Barton (CFO)

Thanks, Adam, and good morning, everyone. Last evening, we reported fourth quarter and full year 2025 FFO per share of $0.47 and $2.00, respectively. Net income attributable to common shareholders for the fourth quarter and full year 2025 was $0.05 per share and $0.92 per share, respectively. Fourth quarter FFO decreased by approximately $0.02 to $0.47 per share compared to Q3 2025. This decline was primarily attributable to termination fees recognized in Q3 that did not reoccur in Q4. Let's talk about same-store cash NOI. For the full year ended 2025, same-store cash NOI increased by 0.5% compared with 2024.

The key drivers of Same-Store NOI were, number one, office increased 2.3% for the year, driven primarily by higher base rent and improved expense recoveries, including contributions from the Databricks expansion and new leasing at City Center Bellevue, partially offset by known move-outs at First & Main, Torrey Reserve, and Eastgate. Secondly, retail increased 1.2% for the year, reflecting strong first half growth of 5.4% in Q1 and 4.5% in Q2 2025, partially offset by the impact of four tenant move-outs in Q3 and Q4, two at Waikele Center and two at Gateway Marketplace. Of note, the Gateway spaces have since been backfilled through an expansion by Hobby Lobby and new lease with Wingstop, both scheduled to commence rent on July 1, 2026.

Thirdly, multifamily declined 3.2% for the year, driven by flat to modestly lower rents, elevated concessions amid new supply in our two markets, and higher operating expenses, trends we've seen across the multifamily industry in our markets as well. And fourth, our mixed-use declined as well, by 6.7% in 2025 versus 2024, as softer Waikiki hotel demand, continued pressure from Japan-related travel and higher operating expenses weighed on results. Occupancy averaged roughly 82%, about 360 basis points lower year over year, while ADR was essentially flat at about $370, driving RevPAR down approximately 7% to about $296. Despite the soft year, we continue to outperform our comp set in Waikiki, and we believe the fundamentals of Waikiki remain attractive over the longer term as this cycle normalizes.

Meanwhile, the retail portion of Waikiki Beach Walk increased 8% year-over-year, driven by higher base and percentage rents and lower bad debt expense. As it relates to liquidity, at the end of the fourth quarter, we had liquidity of approximately $529 million, comprised of approximately $129 million in cash and cash equivalents, and $400 million of availability on our revolving line of credit. We are currently in the process of renewing our credit facility, which now matures in early July. As a reminder, we've previously extended the maturity to move the renewal cycle away from the first week of the year, which created timing challenges for all parties. We expect to close on our recast in Q2.

Additionally, as of the end of the fourth quarter, our leverage, which we measure in terms of net debt to EBITDA, was 6.9x on a trailing twelve-month basis and 7.1x on a quarter annualized basis. Our objective is to achieve and maintain long-term net debt to EBITDA 5.5x or below. Our interest coverage and fixed charge coverage ratio ended the quarter at 3x on a trailing twelve-month basis. Let's talk for a moment regarding the dividend payout ratio. For a REIT, we look at it as total dividends divided by funds available for distribution, also known as FAD or AFFO. As Adam mentioned, we continue to expand our dividend to remain at current levels.

While our 2025 payout ratio is just under 100%, due primarily to elevated CapEx spending, our 2026 outlook implies a payout ratio of approximately 89%. Assuming continued progress in leasing and a stable operating environment, we would expect the payout ratio to trend lower beyond 2026 towards our goal of 85%, and we will continue to monitor coverage closely. Let's talk about 2026 guidance. We are introducing our 2026 FFO per share guidance range of $1.96-$2.10 per FFO share, with a midpoint of $2.03, which is approximately 1%-1.5% increase over 2025 actual FFO of $2 per share. Starting with 2025 FFO of $2 per share, there are nine items in aggregate that drive the change to our 2026 midpoint.

They are: 1, same-store cash NOI for all segments combined, excluding reserves, which I will discuss in more detail in a few minutes, is expected to increase by 2.2% in 2026. By segment and on the same-store NOI basis versus 2025, the expected contribution to FFO per share is as follows: Office is expected to increase approximately 3.3% or $0.06 per share. Retail is expected to increase approximately 1.7% or $0.02 per share. Multifamily is expected to increase approximately 2.2% or $0.01 per FFO share, and mixed use is expected to decrease approximately 3.3% or $0.01 per FFO share.

For Embassy Suites in Waikiki, our 2026 outlook, prepared in collaboration with our partners at Outrigger, assumes approximately 2.5% revenue growth and 4% expense growth, reflecting inflationary pressures in Hawaii, including food, labor, and overhead. Within that, we assume average occupancy is expected to increase by approximately 1%. Average ADR is expected to be flat and increase approximately 0.5% from $360 in 2025 to $362 in 2026. Average RevPAR is expected to increase approximately 2% from $296 in 2025 to $302 in 2026. Number two, let's talk about non-same-store cash NOI.

It's driven primarily by two assets, La Jolla Commons III, which was completed in the second quarter of 2024, and Genesee Park, our multifamily acquisition, that closed in the first quarter of 2025. Together, these non-same-store assets are expected to contribute approximately $0.03 per share to FFO in 2026. Number 3, credit reserves that we are budgeting are expected to reduce 2026 FFO by approximately $0.04 per share. Of that amount, roughly $0.02 per share is allocated to office and $0.02 per share to retail. In total, these reserves represent about 64 basis points of our expected 2026 revenue, which we believe is a reasonable level.

As we did last year, we are taking a conservative approach given the uncertainty in the macro environment, and our goal is to reduce these amounts over the course of the year as performance and collections materialize. Number four, G&A is budgeted to decline in 2026, which we expect will contribute approximately $0.04 per share to FFO. This is primarily due to meaningfully lower professional fees and other non-recurring costs that were incurred in 2025 and are not expected to repeat at the same level in 2026. Number five, interest expense is expected to increase in 2026, primarily due to the end of the capitalized interest related to La Jolla Commons III, which we expect will reduce FFO by approximately $0.02 per share.

Number 6, other income is expected to be lower in 2026, primarily due to lower budgeted interest income, which we expect will reduce FFO by approximately $0.02 per share. Number 7, non-recurring termination fees recognized in 2025 will not be included in our 2026 guidance, which will reduce FFO by approximately $0.025 per share. Number 8, 2026 GAAP adjustments are expected to increase FFO by approximately $0.01 per share. The majority of the variance relates to the related impact to straight-line rents. Number 9, we have no contribution from Del Monte Center in 2026, following its sale in 2025. Because the asset contributed for roughly 2 months in 2025 prior to the sale, the year-over impact is expected to be a reduction of approximately $0.01 per share.

These items in aggregate represent approximately $0.03 per share, which bridges 2025 FFO of $2.20 per share to the midpoint of 2026 guidance of $2.03 per FFO share. While we believe the 2026 guidance is our best estimate as of the date of this earnings call, we do believe that it is possible that we could perform towards the upper end of this guidance range. Key factors that would support that include, number one, converting a meaningful portion of our speculative office leasing activity earlier in the year. Number two, continued rent collections from the tenants for which we have reserved. And three, better than budgeted performance in both multifamily and mixed use through improved occupancy and pricing and/or lowering operating expenses.

As always, our guidance, our NOI bridge, and these prepared remarks exclude any impact from future acquisitions, dispositions, equity issuances or repurchases, future debt refinancings or repayments other than what we have already discussed. We will continue our best to be as transparent as possible and share with you our analysis and interpretations of our quarterly numbers. I also want to briefly note that any non-GAAP financial measures that we've discussed, like NOI, are reconciled to our GAAP financial results in our earnings release and supplemental information. I'll now turn the call back over to the operator for Q&A.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press Star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Haendel St. Juste with Mizuho. Please go ahead.

Haendel St. Juste (Managing Director & Senior Equity Research Analyst)

Hey, guys, thanks for taking my question. Appreciate all the all the detail. Maybe wanted to start with the office portfolio. Noticed that TIs, especially for renewals, were elevated. I guess I'm curious if that's a strategic decision you're making there, more reflective of a weak demand environment, concerns about AI. And what can you tell us about the conversations for your upcoming expirations? The rents on some of those, I think, are pretty elevated. Curious kind of how that compares to current market. Thanks.

Robert Barton (CFO)

Let me kick that off, and I'll hand it over to Steve real quick. And hello, Haendel, nice to have you on the call today. You know, as you know, it's true that office leasing today obviously carries a higher capital burden than pre-pandemic, mainly from whether that's amenities or TIs, commissions, and the investment needed to deliver space that's move-in ready. And we expect that to moderate over time as occupancy improves and availability tightens, particularly in our better buildings and submarkets. The pricing power and the concession levels will tend to normalize. But Steve's got some more specific information particular to our portfolio that he can share on that front.

Steve Center (EVP)

Hi, Haendel. Good question, and there's a really positive answer to it. Really, it's skewed high because of Autodesk going as long as they could on the second floor, which is a critical space for them. They approached us to add term early, so their lease wasn't up for a couple of years, but that second floor is critical to them. So they came to us and said, "Would you extend?" And we did that at almost, well, a very positive rate, and we gave them $35 a foot TIs to do so. And that's a big... That's a, you know, that's 45,000 feet. So added to that, Smartsheet did the same thing. They extended their second-floor space, which is where the company gathers. They extended it by six years.

They came to us early, said, "This is a critical space for us. We want to rejigger it, and so we need some money to do that, and we want to go 6 years longer." So when you strip those two, two renewals out of the metric on the TIs, the remainder is at $6.41 versus $31. So I wouldn't read-

Robert Barton (CFO)

Yeah, those two don't create a trend. Those are an anomaly.

Haendel St. Juste (Managing Director & Senior Equity Research Analyst)

Got it. Got it. No, I appreciate that, Steve. Wanted to also ask about the balance sheet, Bob. I know you've got some pretty good liquidity on hand. The leverage is still sitting here at kind of 7x plus EBITDA. You mentioned the 5.5 target. I guess I'm curious if there's any sense of timeline to get there. I'm presuming that's going to come from, you know, kind of internal cash flow. But just curious kind of what the steps and potential timeline to get to that target. Any thoughts there would be appreciated.

Robert Barton (CFO)

Haendel, good question. The timeline is really as soon as we lease up La Jolla Commons three and One Beach, and Steve will have more information on that in a few minutes. But the sooner we can get those properties leased up, we will be, you know, at the very low end of 6, and then from there, we'll work down to the 5.5. We were at 5.5 before COVID, so a lot of things have happened. But anyway, that's the timeline.

Haendel St. Juste (Managing Director & Senior Equity Research Analyst)

Got it. No, I appreciate that, Bob. And then, last one, if I could, Adam, just going back to some of the comments you made in your initial remarks. I understand the frustration with the stock, and obviously, it's, you know, seems front and center, for you guys. I guess, you know, just curious on, you know, kind of what some of the steps you might be willing to take there beyond the kind of the execution as you laid out. Are you open to any strategic asset sales to capture that arbitrage between where the private market is, where your stock is trading? Any asset sales, anything that perhaps you see that you can from an action perspective, steps you could take to really reinvigorate the stock, the multiple? Thank you.

Steve Center (EVP)

... Yeah, that's a good question. That's a billion-dollar question. Look, we continue to be pragmatic on asset sales. If we can sell an asset at a price we think reflects long-term value and redeploy those proceeds to improve the balance sheet or fund higher return opportunities, we'll do that. But we're not gonna sell assets at a discount just to check a box either. So, the main messaging for us is more so discipline, and as retail continues to perform well, and office really seems to be improving from what we're seeing, we feel like we have time on our side to be selective. So, to kind of force that issue is not something we're gonna do. But we'll continue to look at opportunities. The bar is high for us to find something to buy.

We would certainly need a compelling basis, durable cash flows, a clear path to value creation. And at today's pricing and financing levels, that's a much narrower set for us. So we're just trying to be smart with what we've got and not chase external growth for the sake of activity.

Haendel St. Juste (Managing Director & Senior Equity Research Analyst)

Great, guys. Thank you for the color, and best of luck this year.

Steve Center (EVP)

Thanks, Haendel.

Operator (participant)

The next question comes from Todd Thomas with KeyBanc Capital Markets. Please go ahead.

Todd Thomas (Managing Director & Senior Equity Research Analyst)

Hi, thanks. Good morning. First, I just wanted to ask about the guidance assumptions in the office segment, first, related to the 86%-88% year-end lease rate. You know, relative to where you ended the year, 83.1, for the total portfolio. Where are you today, pro forma, what's been leased already year to date, including One Beach Street, where it sounds like there's been some good progress, and all of the known move-outs that you discussed? I'm just trying to get a sense for how much of that target is speculative in nature as you move through the year.

Steve Center (EVP)

So right now, I think Adam mentioned it. We've signed 68,000 sq ft in 11 deals already this year, and we have another 13 deals in lease documentation for a total of 214,000 sq ft. Then behind that, we've got another 235,000 sq ft of proposals that I'd put better than 50/50. So the pipeline is significant. In that 86%-88%, there is speculative leasing in. But we've had some really interesting positive surprises lately. For instance, we had a full floor tenant in Portland that was a known move-out. They came back and said, "We're no longer interested in moving to the suburbs.

We're back to being committed to the downtown market." And so, we have RFPs to renew them and downsize them slightly in the existing space that they're in. And also, our First & Main property isn't a candidate for them as well. But candidly, we think we're gonna get a letter of intent today that makes First & Main not a viable alternative anymore. So that's one example. We've had tenants come out of nowhere that turn into leases, you know, looking at a spec suite, touring it 1 week, and then we're in leases the next. That happened at Torrey Reserve. That happened. We had a tenant that thought they were gonna be purchased. This is City Center Bellevue, a 7,000-sq-ft space. They thought they were gonna be purchased.

They turned it down, took additional VC money, and now they signed a lease for 7,000 sq ft there, and we had another one do the same thing at City Center. So we're seeing a lot of positive surprises, and we're fortunate to be making the investment to make these spaces ready to move into because we're reaping the benefits of that now. So, to that end, at La Jolla Commons III, for example, we spec'd out the fourth floor, and with a lease that we have out for signature, we have one space left on that floor. We're delivering the fifth-floor spaces later this year, end of summer, early fall. We've already leased one of them, and we're in play on a handful of others. So, the spec suite development and delivery lead to, you know, very quick lease.

You know, we can convert to leases and cash flow. And so I think we're specing about 44% of our vacancy right now. And so with these experiences I'm telling you about and the pipeline we've got ahead of us, we're feeling pretty good.

Todd Thomas (Managing Director & Senior Equity Research Analyst)

Okay. All right, that's helpful. And then, is there additional leasing assumed in the non-same store portfolio, I guess, primarily La Jolla Phase III? You know, as it pertains to the guidance, I guess I would have thought that the contribution from lease-up could be potentially more meaningful. What's assumed in the guidance for lease-up at La Jolla Phase III?

Steve Center (EVP)

Yeah, well, what we said, I mean, is driven primarily by the two assets, La Jolla Commons III and Genesee Park. So, La Jolla Commons III, I think Steve touched on that just a minute ago. So, we-

Todd Thomas (Managing Director & Senior Equity Research Analyst)

That's in-

Steve Center (EVP)

We put-

Todd Thomas (Managing Director & Senior Equity Research Analyst)

Yeah.

Steve Center (EVP)

Yeah, we put approximately, you know, the two assets together was approximately $0.03 per share of FFO that's contributing on the non-same store cash NOI.

Adam Wyll (CEO)

Todd, as we, this is first-generation space at La Jolla Commons III, so we're not reflecting those rents until they commence, and those are later in the year.

Todd Thomas (Managing Director & Senior Equity Research Analyst)

Okay, got it. Right. So, there's concessions initially. I guess, Bob, yeah, you've talked about $0.30 of FFO from the combination of La Jolla, One Beach, and I think the Bellevue redevelopments. Can you sort of provide an update as to, you know, how much of that is expected to be online in 2026, you know, versus, you know, how much more there is to come, you know, beyond 2026 from that from those assets and the lease-up and stabilization?

Steve Center (EVP)

Yeah, we can put something together, but I don't— trying to put those numbers together with the activity that Steve has just recently seen at One Beach.

Robert Barton (CFO)

... Yeah, I think it's, it's gonna be positive, significantly positive. But, Steve, do you want to mention anything on that?

Steve Center (EVP)

Well, sure. The first lease signed at One Beach, 12-13,000 feet roughly on it. That's gonna commence April second. That's when we move them in. And then that same tenant is taking the rest of the floor. That lease commences February first of next year. And there's two months of free rent on that one, so you're gonna get a bunch of cash flow next year from that one. You know, the spec suites at La Jolla Commons three are gonna produce revenue this year. We've got a larger tenant for 25,000 feet that we're in lease documentation with, that will take us to... and one spec suite in play that'll take us to 50% leased.

The small spec suite, 4,000 sq ft, that rent will commence immediately, as soon as we sign the lease. And then, the larger deal will take some time to build out. That's gonna be a tenant build, that'll, they'll start paying rent next year. And then let's talk about Fourteen Acres or Eastgate. We've got a spec suite program in place there, but we've got several deals that are signed already or in the process of being signed that'll kick in. So we've made really good progress there. That's one where we have known move-outs that are offsetting that progress, but we're leasing the spaces that we're delivering in spec condition. So that's another big contributor.

Robert Barton (CFO)

Yeah. So Todd, you know, to get back to your question on that, that $0.30 that we had talked about, on one of our presentations, and we'll update that, in the next month or so. But basically, you know, I stick to that $0.30. It's just a question of timing.

Steve Center (EVP)

So yeah, thanks, yeah. At Fourteen Acres in Q4, we signed two deals, totaling 19,000 sq ft. La Jolla Commons three, we signed three deals totaling 17,500 sq ft. One Beach, we signed the 12,000- or 13,000-sq ft space, and we just signed yesterday the remainder of that third floor. So that's just some color on Q4 and where we are right now.

Todd Thomas (Managing Director & Senior Equity Research Analyst)

Got it. That's helpful. So it seems like some of the leasing progress will be better reflected, you know, when cash rent commences later in 2026, and really, you know, more meaningfully in 2027, at the rate and pace that, you know, activity is picking up here. And then I just wanted to ask one more question, just back on the balance sheet, and Bob, your comments around the revolver. You know, any expectations on changes in pricing as you look to sort of amend the facility? And do you plan to maintain the $400 million of capacity?

Robert Barton (CFO)

Well, we, our banking syndicate supports us whether we go $400 million or $500 million. So, we're just talking internally, trying to make the best decision. What's the best outcome for us on that? Right now, we're leaning towards the $500 million, but if we go $400 million, that's okay, too. You know, so we have a very supportive bank syndicate. It's just an absolute. It's a great team to work with, and they're open to whatever we want to do on that. So, but pushing it out to a July, early July maturity will be better for all people. I mean, we used to have the cadence where everybody, both the banking syndicate and AAT, were running in circles trying to get that closed every 4 years.

And so now it's a lot easier for the banking syndicate, and our team just to push it out a little bit further.

Steve Center (EVP)

Todd, we expect the pricing grid to stay the same.

Todd Thomas (Managing Director & Senior Equity Research Analyst)

Okay. All right. Thank you.

Robert Barton (CFO)

Thanks, Todd.

Operator (participant)

The next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Speaker 8

Hey, guys. This is Matt on for Ron. You guys mentioned in your prepared remarks there's a lot of leasing activity going on with One Beach and La Jolla Commons. Could you guys talk to any of the tenant types driving the demand, how you guys are feeling about the stabilization of the assets compared to the past few quarters? Just any additional color there would be helpful.

Robert Barton (CFO)

Steve, you're our star.

Steve Center (EVP)

One, we're feeling really very positive. We're feeling much better about the pipeline. The quality of the tenants at La Jolla Commons three, it's diverse. We have a legal software as a service. We have a really prominent insurance company that we just signed up. So, it's and then we had an international bank, and it's a wealth management arm of an international bank. So, we're seeing these really high-quality tenants that are looking you know, they're looking to take advantage of that A-plus environment. And so, we're just seeing more and more that we just signed a letter of intent for leases, as I alluded to earlier, with another, it's a consulting firm. It's an engineering firm, an international engineering firm, that this is their headquarters in San Diego.

So, we expect to see more of the same and diversity, but really high-end tenants at La Jolla Commons three. At One Beach, the first tenant is AI, and several other tenants we're seeing in Bellevue are AI as well. The other proposal we're entertaining right now is not AI. It's not tech. Well, it's technology-related, but it's not part of the AI wave, so it's good. And that would be a long-term lease and take the entire second floor. So, we'll see how that plays out.

Speaker 8

Okay, great. And then, I also noticed in the quarter that 92% of the office leasing was from renewals versus 70, I wanna say, 73% in 3Q. Was that just largely due to the large renewals that you guys did in the quarter with Autodesk, some of the other top tenants, and if we could expect kind of more of the same going forward, or is that just like a lumpiness factor?

Steve Center (EVP)

No, it's a great question. I'm glad you asked it, because I think there's a gap in what we exhibit. So, what I'm getting at is, we did 193,000 feet in the quarter of leasing. What you're talking about, the 135 is comparable leasing, new and renewal. We did 60,000 feet of new leases on top of that. So, all of the Tower III, One Beach, and all of the leases we're doing at Fourteen Acres or Eastgate, are all non-comparable leases. And so, if you look at the year, we did 246,000 feet of those non-comparable leases in 2025. That's 5.8% of the portfolio that if you just look at same store or comparable leasing, you're gonna miss that.

We need to do a better job of articulating that going forward.

Speaker 8

Okay, great.

Steve Center (EVP)

And then in terms of-

Speaker 8

That's super.

Steve Center (EVP)

Yeah, the overall year, over 53% of the leases were new or expansion.

Speaker 8

Got it. Okay, that's all from me. Thanks.

Steve Center (EVP)

Thanks, Matt.

Operator (participant)

The next question comes from Dylan Burzinski with Green Street. Please go ahead.

Dylan Burzinski (Senior Analyst)

Hi, guys. Thanks for taking the question. Most of my questions have already been asked, but I guess just going, maybe speaking a little bit to the credit reserves of $0.04 that you guys have baked in the guidance. Can you kind of just talk about that? I know you mentioned half office, half retail, but are these sorts of tenants that are, have, have a looming bankruptcy, or are you guys just sort of baking in some sort of conservatism as we get into 2026 here?

Steve Center (EVP)

Yeah. Hey, Dylan. So on the retail side, which we mentioned is a steadier part of the portfolio, we're not really seeing much of a broad-based deterioration in tenant health right now, and so our watch list is manageable. We're, we're keeping an eye on a theater in one of our projects, and maybe a few on the fringe, like, pet supply companies. But other than potentially mom and pops, there's nothing on the radar that we're expecting, so we're just kind of taking a kind of a generalized reserve on retail. And then on the office side, it's kind of a hybrid of credit reserve and speculative leasing reserve. Like, we're, we're ambitious in our office leasing expectations and the credit quality, of course, but we wanna be measured, too. So, there's no specific office tenant that we have kind of acute concerns about.

But we're just gonna take a reserve because, you know, things fall out throughout the year, every so often, and we just wanna model appropriately.

Dylan Burzinski (Senior Analyst)

That's helpful. And then maybe just touching on the office side of things. You know, you guys mentioned expectations for a big jump in office lease percentage this year. I guess how do you guys sort of envision the path back to sort of 90% plus occupancy? Do you guys view that as sort of being able to do that in the next sort of two years, or is that sort of more a longer term goal in your guys' mind?

Steve Center (EVP)

I would say two years is reasonable. I mean, it's within the realm of reason, for sure-

Dylan Burzinski (Senior Analyst)

Yeah.

Steve Center (EVP)

But we don't want to overpromise that. That's our goal, to get back to the 90% threshold, but we're gonna take it a year at a time or quarter to quarter and get there. But we're really poised to do it now. We've made the investment in the spec suites. There'll be... Everything we're doing is completed this year, so we've got really a lot of great inventory that's not gonna take a bunch of time to deliver. So, we're anticipating some good results.

That's all for me. Thanks, guys.

Thanks, Dylan.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to Adam Wyll for any closing remarks.

Steve Center (EVP)

Thanks, everybody, for joining us on the call today. We appreciate your time and continued support, and hope you have a great first quarter.

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.