Hello, and thank you for standing by. Welcome to the Q4 and year-end 2021 American Assets Trust, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. 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 investor 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're 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.
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 that 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 due modesty, an 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.
Thanks to the incredible ingenuity and perseverance of Americans and modern science, particularly in regard to the push for effective vaccines 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 to what is likely to be more than short-term inflation. Along those lines, with the Consumer Price Index experiencing 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.
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 impacts of long-term inflation, if not ultimately thrive. These are amongst the reasons why I personally 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 an expression of our board's confidence in the embedded growth of our portfolio this year and beyond. The dividend will be paid on March 24th to shareholders of record March 10th. Finally, on the development front, both La Jolla Commons III and One Beach Street remain on time and on budget. Though we remain optimistic about the leasing process, but we do 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 you 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 four times oversubscribed, acquiring two office projects in Bellevue, Washington for a total of approximately 440,000 sq ft 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 sq ft of office space and 410,000 sq ft of retail space, and increased our portfolio of multi-family leased occupancy from 86%-96% year-over-year. We also maintained our investment grade credit ratings from all three 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 six 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 has 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 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 transitioned our borrowings to SOFR. As Ernest mentioned, we furthered 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.
Finally, I'm more than pleased to announce that we promoted two 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. Though their 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 four 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 four 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 variants. Second, our retail portfolio in San Diego performed $0.01 of FFO better than expected. Third, our office portfolio performed $0.01 of FFO better than expected. Fourth, our multifamily performed $0.01 of FFO better than expected. Add in 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 a 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 two. 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 3.8 x. Let's talk about 2022 guidance.
We are introducing our 2022 FFO per share guidance range of $2.09-$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 nine 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 cents 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 four sectors combined above are expected to generate a total same-store cash NOI growth year-over-year in 2022 of approximately 5% or $0.14 cents of FFO per share. Fifth, non-same-store guidance includes our two 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 one-time 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. In order to do that, tourism and travel to Waikiki on the Hawaiian island of Oahu needs to return in full force, including our guests from 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, 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, 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 sq ft, including approximately 31,000 rentable sq ft 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 sq ft 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 sq ft of non-comparable new leases, including deals with a top 100 law firm for approximately 26,000 rentable sq ft at Torrey Reserve, and a global technology company for approximately 17,000 rentable sq ft at La Jolla Commons I. Throughout our office portfolio, we have been employing 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 sq ft of expansions with another 12,000 rentable sq ft of new leases and expansions in lease documentation. In San Diego, we have signed approximately 23,000 rentable sq ft of new leases and expansions, with another 19,000 rentable sq ft of new leases pending. Including this Q1 activity, we believe that our office portfolio is on track to absorb an additional 71,000 rentable sq ft or nearly 2% of the office portfolio at 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.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Haendel St. Juste with Mizuho. You may proceed with your question.
Hey, good morning out there. Just, early good morning to you guys. Ernest, a question for you. You mentioned that you bought back some stock in the fourth quarter. I don't think I heard that?
Oh, no. No, I didn't say 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. I guess you bought, but the company did not. Clearly, you see a value proposition here, you talked about the stock being discounted. Maybe you can help me or us 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 smaller side relative to the absorption of the cost of being public. 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 a 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. I, you know, certainly, you know, appreciate the comments there. Also on the leverage, Bob, maybe help us understand, you outlined getting to that mid-five level, but I don't think you outlined a timeline. 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?
Yeah, Haendel, I can't put a date on that, but it's really the EBITDA that has temporarily gone down is really a result of COVID-19. As soon as we can get Waikiki Beach Walk back with the Embassy Suites and have our Japanese guests return to the island, I think you're gonna 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. We also need to. I mean, I think this whole COVID-19 environment has been a repricing on the retail side. Just like I mentioned on the script, the sales have been strong.
Sales continue to improve, but we got to see more on the retail side as well.
Mm-hmm. No, fair enough. Appreciate those comments. Maybe a comment on pricing power overall in the portfolio, certainly a differentiator amongst the asset classes as we look across REITs. Can you compare and contrast the pricing power across the key corridors of the portfolio, apartment, office, open-air centers? Do you think that'll be enough in the near term to offset the rise in cost, the inflation that we're seeing? Thanks.
Can you hear the question? You know, somehow or other, 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? 'Cause it's not coming through.
I apologize. Is that better?
That's better, yeah. Thank you.
Okay.
Anything can be better.
I'll be quick. Well, I was hoping for some comments on pricing power across the portfolio. You know, 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, office, shopping centers, if you think that'll be enough to offset the near-term rise in cost and inflation. Thanks.
Sure. That's a very good question, and something that we think about frequently. First of all, as Bob pointed out, retail is getting repriced to some extent. Our retail will do as well as anybody, but retail, by definition now, is being affected by Amazon. Our residential, strong. I'm really optimistic that we're going to have a very good year in residential. Office, Steve went through the fact that and outlined the fact that our office properties are in a path of growth. We're improving the amenitization, a word which he has taught me. We're preparing offices so that when the smaller tenants want to occupy, they can occupy it more quickly. There is.
Because of our offices in the path of growth, we're optimistic that it's going to be a significant contributor to the growth of the company. Of course, you know, La Jolla Commons is under construction and that could add significantly. We have the property in San Francisco we're repositioning. Portland is completed, and there's no lease on it yet. 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 too, is that, you know, in the supplemental, we talk about the leasing spreads on new leases. If you look on a comparable basis, our cash basis percentage change over the prior rent on the leases we did for retail was down 6% on a cash basis. On a GAAP basis, it was +5.2% . They had some free rent initially. Once it's straight-lined over the term, obviously it's a + 5.2%. On the office sector, it's strong. 17%-18% in a cash increase, cash basis percentage change over the prior rent. On a GAAP basis, it's like 26%-27%. You know, I think we're in the right sectors. I think we got the right product.
It's just, the you know, the retail is just a little bit slower.
Steve would agree we have excellent management.
Wonderful. All right, guys. Thank you so much for the time.
Thank you, Haendel. Thanks for your continued interest. Hope to see you sometime soon.
Likewise.
Thank you. Our next question comes from Todd Thomas at KeyBanc. You may proceed with your question.
Hi, Todd.
Hi, good morning. Hi, how are you? So a couple of questions on some of the segments as it pertains to guidance. You know, first, can you talk a little bit more about the mixed-use segment, you know, the guidance you discussed? Sounds like there's some uncertainty, but, you know, perhaps also some conservatism embedded in the forecast. I was just wondering if you could maybe elaborate a little bit more around bookings and, you know, what the guidance translates into for RevPAR growth throughout the year in 2022.
You know, Todd, that's probably the most difficult part of the whole portfolio to predict what's gonna happen, because we don't know what's gonna 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 fee simple, and so it's not a question of if they return, it's a question of when they return. It's the when that we find difficult to quantify. Do you want to add something, Bob?
Yeah. Todd, thanks for the question. Yeah, as we mentioned, our guidance for that same store mixed use is 15% increase, which is approximately $0.03 of FFO per share. We rely heavily on our Outrigger team that has the boots on the ground out there. You know, 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. That really is the upside. Like Ernest mentioned, you know, 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.
You know, let me give you a quick update on the Embassy Suites Hotel. 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 315. That's a strong month. RevPAR also increased similarly to that, 315 as well, versus 215 on an average. As of mid-January, Japan was experiencing its sixth wave of COVID, this time around largely from Omicron.
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. The Japanese government is speeding up its rollout of booster shots and shortening the interval between second and third shots. They've made positive strides in the vaccination rate since last July, and we are hopeful that, you know, they too will get through this as we have, and we look forward to welcoming them back. That's really the key to outperforming on this guidance.
Thanks. That's helpful. I mean, you know, the fourth quarter exceeded your expectations. You know, you talked about, you know, half of that $0.04 Delta being, you know, the hotel, half being retail. It seems like, you know, occupancy and ADR outperformed despite, you know, sort of delta, Omicron. You know, how are bookings trending through the spring and summer?
Because of the Omicron, they're still slow. We expect them to pick up for the March spring break. That's always a popular destination. 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.
Shifting over to the retail segment, apologies if I miss this. Just trying to understand the down 5% same-store NOI growth forecast for 2022 a little bit better. What's the impact year-over-year from out of period collections that were recognized during 2021? Do you have that number for the fourth quarter? Just trying to get, you know, sort of a better run rate heading into the new year for that segment.
Yeah, I don't have it for that segment. I can tell you that our change in accounts receivable, which is where we book the collections from, is down approximately $600,000 in the fourth quarter. We were about a million of collections in the third quarter from prior quarter collections. In the fourth quarter, that was down to like about, you know, $400,000 or less. It wasn't that meaningful. Then going into 2022, in terms of our guidance, you know, we have nothing in there for prior collections. I mean, we've...
You know, 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 bill and collect in the current month.
Okay, that's helpful. Just a last question on office. Sort of two things here if we could. Can we get an update at all around the leasing or pre-leasing for the tower at La Jolla? Can you also provide an update in the office portfolio around the late 2022 expirations that you have, I think VMware and Autodesk, you know, if there's any updates there and any, you know, sort of, you know, activity that we should be thinking about, you know, late in the year or heading into 2023.
I think Steve should handle that. He's intimately involved with it. Do you wanna handle it, Steve, or do you
Sure.
Did you skip me altogether?
Well, no. You addressed Tower III. We've got activity, but nothing to report at this point. The market remains very strong. It's tight for big blocks of space. There are a number of large users that are looking long-term at aggregating space. We're still very bullish on Tower III and the eventual outcome there. With regard to the 2022 rollover, we have come to terms with Autodesk on that second floor renewal, and we're papering that deal right now. Then we expect to get an RFP from VMware in the next week or two to engage in that discussion.
That market at where La Jolla Commons is very strong. We bid on a. It's not an adjoining property, but you know, a few hundred yards away, and we got outbid by 25%. We reached for it too because it is, that is a great market. It's a strong market. I don't know what the outcome will be as far as leasing goes, but, you know, based on the activity in the area, the outcome ought to be positive.
Okay. All right. Thank you.
Thank you. Thanks, Todd.
Thank you. Our next question comes from Craig Schmidt with Bank of America. You may proceed with your question.
Thank you. I just if we could talk a little bit about the increase in tenant improvements and leasing commissions in office. I assume it's related to the new level of the new leases. If you could comment especially on trends for 2022 on those on measures.
Yeah. I'm just looking at the numbers. You know, overall, I'm focused on comparable new leases in 2021. If you look at the outcome, we increased NOI on those deals by $9.12 or about 22% over the rents prior in place. If you just apply a five cap to that increase, it's worth about $182 a foot. In terms of investment, for example, on the renovations we did at Torrey Reserve in both Torrey Plaza and North Court One, 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 sq ft at North Court One. Our weighted average TIs on new leases last year was $50 a foot . You're touching spaces that in some respects, the lighting package hasn't changed in 20 years. You're going from parabolic lights to a new lighting package, LED. That's a $10 a foot swing right there. You're also seeing less full drop ceiling and more a combination of cloud ceiling and open ceiling, which requires rigid duct distribution of air, and that's another $10 a foot to a TI package.
We're seeing higher-end TIs, and we're also seeing really big co-investment on the part of the tenants. While our TI contribution is up, our tenants in some respects are putting 2x into the space and even more in certain cases. Yes, the investment's 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 cost.
How would you describe the markets that our offices are in relative to what you read about in the newspaper or another office?
You know, I would talk about our assets within those markets. You know, 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 a win-win outcome in a market that's choppy. When you have, you know, exceptional assets in markets, even if it's choppy around you, the outcomes are good because people just wanna be there. That applies to Bellevue, that applies to San Francisco, and even our holdings in Portland, especially at Lloyd. We're, you know, full essentially at Lloyd. We've done very well there. San Diego, it's really fun right now because we've made these investments.
I mentioned Torrey Reserve, and we're seeing the results right now, and it's a lot of fun. 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. I'll say that our management teams take really good care of our customers, and that's a huge part of success, especially in renewing tenants. Even on the new leasing front, our managers are very customer service oriented, engaging, and they do a terrific job.
Hey, Craig, let me add to what Steve's saying. I think the first part of your question was about the operating CapEx, which drove down our funds available for distribution this quarter. Really what that relates to is a one-time TI reimbursement for our largest tenant at Landmark. That's what drove that down. That's been out there for some time, and we finally got the invoice, so which we're pleased to have that tenant.
Just as a matter of information, that tenant spent, I think, another hundred million-dollar of their own money on the property.
Yep.
You know, that's. We're investing wisely. 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 the San Diego economy as strong as it is today. It's biotech, lab space. It's amazing. I mean, we're in the right place at the right time.
Thank you for that. Just one small follow-up. The lower occupancy at Del Monte Center, is that due to the previously vacant Forever 21, or is that smaller specialty businesses driving the 82.1% occupancy?
There's two vacancies there. You know, one is, Macy's abandoned a furniture store, and the other is Forever 21, and we're doing our best to replace those tenants. 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. It's all it can be, but all it can be is limited by the fact that the population is not as dense as it should be in that area.
Great. I mean, I guess that's a better position to be in than have the specialty hit so hard. Thank you for that update.
Thank you, Craig. Hope to see you soon.
Thank you. Our next question comes from Richard Hill with Morgan Stanley. You may proceed with your question.
Hey, guys. This is Adam on.
Hey, Richard.
Hey, it's Adam on for Rich. Hope you guys are all well. Thanks for taking the question and appreciate the bridge earlier to kind of the guidance. You know, really helpful. Wanted to ask about kind of the mixed-use assets. Just kind of in terms of kind of recovery to pre-COVID NOI. You know, I think your other property types, you know, if they didn't recover in 2021 should kind of recover to 2019 levels and you know, exceed those results. Just kinda wondering what you kind of think about you know, recovery to pre-COVID NOI and mixed-use, whether that's a 2023-2024 event, and just kinda how you think about that.
You know, from what I read, the American tourist is anxious to travel. Right now we just don't know when. I think when this thing opens up, people are anxious to get out and have vacation. I suspect, maybe I hope for, unprecedented demand for our Hawaiian properties. People are anxious to travel. They're sick and tired of staying home. We don't know when, and we don't know what extent, and 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. Again, that's, you know, let's get rid of this COVID stuff.
It's not anything you can predict.
No.
It's something you can hope for, and it's something that we honestly expect, but we don't know the timing.
Yep.
Okay. No, that's all really helpful. Thank you. I just want to ask about kind of acquisitions. You know, recognize you kind of made two larger deals last year. You know, what... I guess kind of what's the appetite today for further acquisitions, you know, 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, you know, what asset types are you focused on for acquisitions here and, you know, kind of what are you thinking there in terms of valuation and, you know, 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 the cost of money today is modest compared to inflation. If you can borrow money at 3% or 4% and inflation is 7%, you know, 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. The prices are not compelling. The prices are really high. You have to find something that is below replacement cost that you can add to and increase the value.
That's what we've been successful at doing. We continue to 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 the contracts out at the bottom of the coronavirus. Go ahead, Jerry.
Would have been upwards of 30% more.
Put your foot in my mouth.
Would have been upwards of 30% more.
That's on what size of the contract?
On hundred million-dollar .
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. 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 midterm will outpace inflation.
Got it. Just kind of in terms of, you know, by property type, I mean, is there more of an appetite for office rather than multifamily? You know, if you could kind of. If you had to kind of power rank the different property types, you know, what would kind of be-
Yeah
... 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-three cap, where we could improve them and improve the returns, we'd do that. If we could find retail that there was upside, we'd do that. We have the advantage of looking at three product types in several markets, and we're gonna do what we think enhances the underlying value of our stockholder, for our stockholders as best we can. Obviously the emphasis has been on office because we found a couple of office products. 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. 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.
Got it. Thanks for the time. Really appreciate it.
Thank you for your interest.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. Our next question comes from Tammi Fique with Wells Fargo. We are receiving your question.
Thank you very much. I'm wondering, I guess a couple questions. I guess, given the increased leasing activity that you saw in the fourth quarter, it drove your signed but not opened rents to more than double what was reported in the third quarter. I guess, can you just talk about how much of that?
No. No, Tammy, we're somehow running into 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.
Okay.
Not as good as seeing you in person, though, Tammy, I can tell you that.
Soon enough. Given the increased leasing activity in the fourth quarter, that drove, you know, 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? Secondly, but related, are you generally delivering spaces to tenants on time given the supply and labor constraints in the market today?
You wanna handle that, Steve?
You should.
Okay.
You know, we're doing well in terms of timing because we're integrated from, you know, having in-house legal to having a really talented construction team. We get out in front of it. We work parallel paths while we're going through a transaction. As a result, when we come to lease execution, we typically have an approved plan that we can readily go into CDs. We do everything we can to expedite the process because, you know, our tenants have time constraints, and we take those on as our own. We perform well. That being said, there are delays in permitting. There are delays in
Absolutely.
In certain materials. With tenants that have an urgency to get in, we'll have them move in. 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've moved in. You make those kinds of moves to meet their needs to operate and give them the space that they want. 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.
Yeah, it ain't easy.
No, it is not. The supply chain is strained, and there are labor constraints. You know, one of the points that we made, and Steve has really brought to us, is we instituted this program of spec suites. I like to call those ready rooms. Then as we found tenants to lease some of those spaces, it might've been adding one office or taking out one office. We were able to adapt pretty quickly and, you know, we had some inventory. Timing's been good for us.
With all due immodesty, I think we have a great team that's doing a great job, but it ain't easy.
No.
Yeah.
Okay. Appreciate that. 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, you know, the level that you feel you're maximizing, you know, your G&A costs? Is it just slow and steady, or is there, you know, a bigger transaction, that you see you could do to get there quicker? Just wondering if you can give us your perspective on that and what's kind of governing that.
You know, if our stock was fairly priced, that would be a path to be larger. At the price of our stock today, that's not a path. If another path would be to find somebody who would like to throw their lot in with ours, that ain't easy either. I would say the ultimate outcome is slow but steady wins the race, and that's what we're working on. You know, bit by bit, piece by piece. You can see that when we issued that $500 million of bonds, we were a year early. Now interest rates are moving up, but that fixed rate on that bond for 10 years has allowed us some flexibility. We recently extended a bank loan and locked in the rate. 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 is, what, $5 billion-$6 billion. We didn't do anything dramatic. We just were. You know, if we had our nose down and our ass up and just kept looking at deals, and somehow we find a way to enhance shareholder value. The inconsistency is that the stock market doesn't seem to recognize that. The way I put it, I can buy real estate cheaper on Wall Street than I can on Main Street. When the reverse is true, we'll be able to take advantage of that opportunity, hopefully for the benefit of all our stockholders. Stick with us.
Okay. Maybe just a follow-up on that in an earlier comment on the broker transactions that you said, you know, supportive view 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. They're asking, is there a guidance available for the NAV, Bob?
You're not coming through clearly, that's why I'm translating it.
Thank you, Bob.
Okay.
Are you planning on guidance for the NAV? I can tell you that by seat of the pants, I see what we've got to pay, and then I extrapolate that to what we own, and I say, "Oh my God, what a disconnect." Now, Bob, do you have anything that is concrete?
Yeah. You know, we haven't published that for the last two years during COVID. You know, the intent would be is to issue an NAV
Because we are a diversified REIT, try to help people understand how we're thinking. But it's subject to board approval. You know, we need to look at it, discuss it. But we feel good about where the NAV is last time we looked at it. You know, we look forward to going through that process. It would probably be at the beginning of the third quarter.
If apartments are selling at a 3.5 cap, what are our apartments worth? If office, where we're improving them, and rents are going up dramatically, and we're having to 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. I'd love to buy some more retail, but there's no bargains out there. You look around and say, "This is what the market tells you," and then we look what we have, and there's this giant disconnect.
Okay. Makes sense. I look forward to the updated NAV. Then just one last question, if I could. I know you have cash on the balance sheet, 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.
Yeah. We have, you know, about $140 million of cash in the bank today, and we got a $400 million line of credit that has not even been touched. Yeah, I mean, in theory, we're that cash would be used for finishing La Jolla Commons. You know, finishing our renovation on One Beach. One Beach is expected to be finished in the third quarter of 2022, and we expect to have revenue coming in by July, you know, by the third quarter sometime in 2023. We're hoping. You know, again, that's subject to leasing, but, you know, we feel good about that renovation.
La Jolla Commons III, you know, we're hopeful to have that completed by the end of the second quarter in 2023, with revenue coming in at the beginning of 2024. Again, that's based on what we know in the marketplace. Nothing's been committed or signed at this point in time. We don't think that is unrealistic. We'll see.
If you want somebody to manage your cash, you couldn't find anybody better than Bob Barton. He is very thorough in his analysis of how every penny is spent, and we do our best to spend it wisely.
Okay, great. Thank you so much for your time.
Thank you.
Thank you, Tammy.
Thank you. 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, and when we get through this nonsense that we've been through for the last two years. I've always said the portfolio will come through better off than 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.