Good day. As a reminder, today's conference call is being recorded. Please note that statements made on this conference call include forward-looking statements based on current expectations, which 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 those forward-looking statements. It is now my pleasure to introduce your host, Mr. Adam Wyll, President and COO for American Assets Trust. Thank you. Mr. Wyll, you may begin.
Thank you. Good morning, everyone. Welcome to American Assets Trust Year-End and Q4 2022 Earnings Call. Yesterday afternoon, our earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the investors section of our website, americanassetstrust.com. At this point, I would typically turn the call over to our Chairman, Ernest Rady, but he's a bit under the weather today, so I'm gonna read his prepared remarks and begin the discussion of our year-end and Q4 2022 results. I would first like to wish all of our stakeholders continued health, safety, and prosperity, and express my sincere appreciation for your continued support of American Assets Trust through these most extraordinary times.
As you've heard me say before, our disciplined business decisions are predicated on taking a long-term view that we believe will support the growth of our earnings and drive shareholder wealth creation. We remain encouraged and optimistic with the high-quality, irreplaceable properties and asset class diversity of our portfolio. We believe this, combined with the strength of our balance sheet, ample liquidity, top-notch management team, not to mention a very nimble and efficient operating platform, will allow us to continue growing our earnings on an accretive basis and contribute to our outperformance over the long term.
Meanwhile, as the Federal Reserve is persistent in its ongoing attempt to tame inflation caused by the unprecedented fiscal stimulus enacted by the federal government, we are confident in our thesis of our portfolio being an effective protection against inflation, which will provide a tailwind of sorts to our rents, not to mention the rising replacement cost of our properties and reinforce the increasing flight to high-quality assets like the ones we own that are in the path of growth, education, innovation, and mass transportation. Though I understand that we are on the verge of a recession, I am nevertheless incredibly proud of our company and team for achieving our highest annual FFO per share since our IPO over 12 years ago, particularly as we face our fair share of challenges.
I want to mention that the board of directors has approved the quarterly dividend of $0.33 per share for Q1, an increase of $0.01 per share or approximately 3% 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 23rd to shareholders of record on March 9th. On behalf of Ernest and all of us at American Assets Trust, Inc., we thank you for your confidence in allowing us to manage your company and for your continued support. I, along with Bob and Steve, will go into more detail on our various asset segments, financial results, and guidance. I'm going to continue along with my own prepared remarks.
You've heard us speak consistently to our focus on making meaningful capital improvements to continue to enhance, improve, and amenitize our properties to remain best in class. We know how well-received those have been by our tenants and customers, and it truly is making a significant difference in our ability to retain existing tenants, attract new tenants, and increase rents. We believe these capital improvements contributed to our office portfolio comparable leasing spreads increasing 17% and 22% on a cash and GAAP basis, respectively, in 2022 as compared to 2021. Our retail portfolio comparable leasing spreads increasing 5% and 17% on a cash and GAAP basis, respectively, in 2022 as compared to 2021. Our multifamily portfolio realizing same-store cash NOI growth of 11% in 2022 as compared to 2021.
Briefly, on the office utilization front, we continue to see incremental progress of return to work since Q3 with more strength in San Diego, Portland, and specifically at our landmark in San Francisco than in Bellevue right now. We note many companies have implemented or are implementing increased in-office work requirements for their employees, and together with the recent tech layoffs, we sense a shift towards employers having more leverage, not to mention more and more employees realizing they need to be seen in the office for job security, mentorship, and collaboration. We think this should all continue to push a higher office utilization in our portfolio over the course of this year. Meanwhile, our multifamily portfolio saw positive, yet decelerating rent growth leading up to year-end with some softening since Q3.
In Q4 in San Diego, we saw leases on vacant units rent at an average of approximately 1% over the prior rates, which was negatively impacted by higher comparable rents at Pacific Ridge from master leases that previously terminated. While rates on renewed units increased an average of 11% over prior rents with minimal concessions. In San Diego, net effective rents for new multifamily leases are now 29% above pre-COVID levels and 17% higher year-over-year compared to the Q4 of 2019 and 2021, respectively. In Q4 in Portland at our Hassalo on Eighth, we saw vacant units at Hassalo lease at an average of approximately 6% over prior rents, and renewal units leased at an average of approximately 8% over prior rates with minimal concessions.
In Portland, net effective rents for new multi-family leases are now 4% above pre-COVID levels and 13% higher year-over-year compared to the Q4 of 2019 and 2021 respectively. Though our multifamily leased percentage decreased a few points towards the end of 2022 due to seasonality, we are pleased to report that as of the end of January 2023, our lease percentage had increased from approximately 92% to 96.5% in San Diego and remained at about 94% in Portland. As you our multifamily reside amoung fevourable demographics with fairly low unemployment, rates strong income growth and high home ownership cost land. So we remain bullish long term on our multifamily fundamentals.
On the retail front, we remain confident about our dominant best-in-class retail portfolio that resides in supply-constrained and densely populated markets and where consumer spending has been strong. In Q4, we saw very active retail leasing activity, as a result, our retail lease percentage is now at approximately 94%, with only 3% coming due to expire in 2023. We have a fair amount of retail deals and documentation right now and remain optimistic those deals get inked in Q1 or Q2. Briefly, in regards to retail tenants that have filed bankruptcy, we are in active discussions with Regal Cinemas at our Alamo Quarry, current expectation is that they want to hold on to that location, subject to finalizing documentation and receiving court approvals.
With respect to Party City, our location in Waikele Center is franchise-owned and not part of the bankruptcy process, and our other location is at Gateway Marketplace. Though we know its sales are an above average performer for them, we are in very preliminary discussions with them in the bankruptcy process. Finally, on the development front, with respect to La Jolla Commons III, we are optimistic of the near-term space requirements in the UTC sub-market that currently sits with just 4% direct vacancy. We will be patient with One Beach Street as San Francisco is not without its near-term challenges, but we remain bullish on San Francisco's long-term prospects. We have no specific leasing news to share on these developments at this point. With that, I'll turn the call over to Bob to discuss financial results and guidance in more detail.
Thanks, Adam. Good morning, everyone. Last night, we reported Q4 and year-ended 2022 FFO per share of $0.56 and $2.34 respectively, and Q4 and year-ended 2022 net income attributable to common stockholders per share of $0.16 and $0.72 respectively. Q4 FFO decreased by approximately $0.07 to $0.56 per FFO share compared to the Q3 of 2022 and is primarily comprised of the following. First, Embassy Suites Beach Walk was lower by approximately $0.02 per FFO share, as expected, due to the normal seasonality between the high season of Q3 and Q4.
Second, we increased our reserve for straight-line rents receivable related to two tenants in the Q4, combined with higher accelerated non-recurring straight-line revenue in Q3 that did not occur in Q4, which together reduced FFO per share by approximately $0.04 in Q4. Third, G&A and interest expense combined was approximately $0.01 per FFO share higher in Q4, which decreased FFO by approximately $0.01 per FFO share. Same-store cash NOI for all sectors combined was strong in Q4, ending at 5.5% growth year-over-year for the Q4 and 9.5% growth in 2022 over 2021.
The 2022 year-over-year same-store retail NOI growth was essentially flat, if we exclude the 2021 property tax refund of approximately $2.4 million for Alamo Quarry that was received in Q3 2021, our same-store retail NOI growth increased from flat to 3.9% in 2022, and same-store cash NOI for all sectors combined on a year-over-year basis increased from 9.5% to 10.7%. Let's talk about liquidity. At the end of the Q4, we had liquidity of approximately $414 million, comprised of approximately $50 million of cash and cash equivalents and $364 million of availability on our revolving line of credit.
Note that subsequent to year-end, we repaid $36 million outstanding balance on a revolving line of credit, such that we have full capacity of $400 million on it today. Additionally, as of the end of the Q4, our leverage, which we measure in terms of net debt to EBITDA, was 7.0 times. Our objective is to achieve and maintain a net debt to EBITDA of 5.5 times or below. Our interest coverage and fixed charge coverage ratio ended the quarter at 3.8 times. Let's talk about 2023 guidance. We are introducing our 2023 FFO per share guidance range, of $2.16-$2.30 per FFO share, with a midpoint of $2.23 per FFO share, which is approximately a 4.7% decrease over 2022 actual of $2.34 per FFO share at the midpoint.
I'm going to break this up into two parts, a high level overview and a detailed overview. From a high level overview, I look at 2023 guidance as follows. Starting with 2022 FFO of $2.34 per share, there are four things that make up the decrease. They are, number one, start with subtracting $0.03 of non-recurring revenue that occurred in Q3 that we talked about on the Q3 earnings call. That brings you down to $2.31 per share, which would be an approximate FFO run rate as of year-end 2022 before the following adjustments. Number two, interest expense will increase in 2023 by approximately $0.10 per FFO share.
This relates to $150 million of term loans that were maturing in March 2023 that we refinanced and increased from $150 million to $225 million, effective January 5, 2023. The interest rates on the refinance term loans increased from approximately 2.65% to 5.47% for a two-year period with a one-year extension. Number three, we are including approximately $0.06 per FFO share of bad debt reserves that we believe are more likely than not to occur based on our internal probability and risk assessment of specific tenants within our portfolio. Approximately $0.03 of these reserves relates to our office sector, and $0.03 relates to our retail sector.
We thought it would be better and more transparent to break out the reserve separately so you can understand what's driving same-store cash NOI, which we discuss in more detail below. Number four, lastly, we had a positive outcome on a legal settlement in January 2023 related to certain building systems at our Hassalo on Eighth in Portland. This will contribute approximately $0.08 per FFO share in 2023 on a one-time basis. Combined, these adjustments should get us to our guidance midpoint of $2.23 per FFO share. The following is a more detailed overview of the 2023 guidance. Again, starting with $2.34. Number one, same-store office cash NOI, excluding reserves, is expected to increase approximately 4.3% or $0.08 per FFO share in 2023.
Number two, same-store retail cash NOI, excluding reserves, is expected to increase approximately 4.2% or $0.04 per FFO share in 2023. Number three, same-store multifamily cash NOI is expected to be approximately flat in 2023 due to increased overhead security, and repair and maintenance costs that we expect to incur in 2023. Note that we take a conservative approach and expense the majority of repairs and maintenance expenses that others may not. Number three, same-store mixed-use cash NOI is expected to be flat in 2023. Our 2023 guidance is prepared by our partners at Outrigger in Waikiki that have boots on the ground and have an awareness in Waikiki from other hotels or retail properties that they own and or manage. Our 2023 guidance for the Embassy Suites Hotel in Waikiki is based on the following.
Revenue is expected to increase approximately 10% in 2023. Operating expenses are expected to increase significantly to approximately 17% in 2023 due to inflationary impact on operating expenses such as food costs, labor, and overhead. Some of the metrics that Embassy Suites Hotel 2023 guidance is based on include occupancy is expected to increase approximately 8.7% from 77% in 2022 to 84% in 2023. ADR is expected to increase approximately 3.3% from $352 in 2022 to $364 in 2023. RevPAR is expected to increase approximately 7.4% from $283 in 2022 to $304 in 2023.
Our 2022 NOI for Embassy Suites Hotel doubled compared to 2021 year-to-date and is approximately the same as it was pre-COVID, even without our guests from Japan. Japan tourism to Oahu has been much slower than expected due to weakness in the Japanese currency. Exchange rates are trending in a better direction since last October, which is a positive to our Japanese guests returning to Oahu. Number four, estimated bad debt ex-expense reserves is expected to decrease FFO by approximately $4.2 million or $0.06 per FFO per share in 2023, which we have previously described in more detail above. Number five, all four sectors above excluding reserves are expected to generate a total same-store cash NOI growth year-over-year in 2023 of approximately 3.4% or $0.12 per FFO share.
Including reserves, all four sectors are expected to generate a total same-store cash NOI growth in 2023 of approximately 2% or $0.06 per FFO share. Number six, non-same-store guidance includes One Beach, Oregon Square, Building 710, and Bellevue Springline 520. Combined, they are expected to contribute approximately $0.01 per FFO share in 2023. G&A is expected to increase approximately $3.8 million and decrease FFO by approximately $0.05 per FFO share in 2023. The increase in G&A includes approximately $1.9 million in non-recurring legal expenses relating to opportunistic litigation that we have initiated against certain vendors in which we are hopeful to see a meaningful recovery on later this year, if not early next.
Number eight, interest expense is expected to increase approximately $7.4 million and decrease FFO by $0.10 per FFO share in 2023, which we have previously described in more detail above. Number nine, GAAP adjustments, primarily relating to straight-line rents, will decrease FFO by approximately $7.9 million or $0.11 per FFO share in 2023. A large part of this relates to a large abatement that has expired June 2022 for a tenant in our The Landmark @ One Market Street building. Number 10, litigation settlement will increase FFO by approximately $6.3 million or $0.08 per FFO share in 2023, which we have previously discussed above. These adjustments, when added together, will be approximately $0.11 per FFO share and represent the net decrease in 2023 midpoint over 2022 FFO per share.
While we believe the 2023 guidance is our best estimate as of the date of this earnings call, we do believe that it is also possible that we could outperform towards the upper end of this guidance range. In order to do that, number one, tourism and travel to Waikiki needs to see a meaningful return from our Japanese guests, which we are cautiously optimistic about. Number two, we need to outperform our multifamily guidance by continuing to see increasing rents and/or less expenses than budgeted. Three, the office and retail tenants that we reserve for continue to pay rents through the year. 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've 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 over to Steve Center, our Senior Vice President of Office Properties, for a brief update on our office segment. Steve?
Thanks, Bob. Leasing activity in our office portfolio returned to the levels achieved in 2019, with 64 deals totaling approximately 475,000 sq ft. At the end of the Q4, our office portfolio was 89% leased, with our same-store portfolio dropping to 92.5% leased, primarily due to right-sizing of tenant offices closing or downsizing at Bellevue as follows. At City Center Bellevue, VMware renewed in 75,000 sq ft in Q2 at rents at $64.75 but let approximately 17,000 rentable sq ft of their space expire in Q4. HomeStreet Bank downsized from approximately 13,000 sq ft into a 7,000 sq ft sublease because we didn't have a 7,000 sq ft suite to accommodate them.
At Eastgate Office Park, Great American Insurance downsized from approximately 15,000 square feet into a 7,000 square foot short-term sublease, and Kronos closed their office of approximately 7,000 square feet, opting to work from home. All of these expiring leases were well below market. The weighted average ending rate of the City Center Bellevue leases was $46.45 on a full-service gross basis versus the mid to high $60s for deals recently closed or out for signature. Likewise, the weighted average ending rate of the Eastgate leases was $25 triple net versus the mid-$30s for closed or pending deals. Even with the headwinds of right-sizing and work from home, the quality of our office portfolio continues to yield strong rent growth.
In the Q4, we executed 17 leases totaling approximately 97,000 sq ft, including one comparable new lease for approximately 2,400 sq ft, with increases over prior rent of 19% on a straight-line basis. 12 comparable renewal leases totaling approximately 75,000 sq ft, with increases over prior rent of 25% on a straight-line basis. Four non-comparable new leases totaling approximately 20,000 sq ft, two of which were new medical office leases totaling approximately 15,000 sq ft at triple net rents 35% and 41% higher than comparable office rents at Solana Crossing and Torrey Reserve, respectively. We are encouraged by current tour and proposal activity across our portfolio, especially in the small to mid-sized tenant range. This bodes well for our current vacancies and future rollover.
Our average vacant space is under 7,000 sq ft, with just 11 spaces greater than 10,000 sq ft, including the three floors at One Beach, ranging from 30,000-37,000 sq ft each. The average space size rolling in 2023 and 2024 are approximately 7,300 sq ft and 5,600 sq ft, respectively. The largest tenant rolling in 2023 is Autodesk, and approximately 93,000 sq ft on the fourth and fifth floors of Landmark in San Francisco, which we currently expect to renew. We continue to 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 despite current market headwinds.
While we are not immune to potential additional attrition due to current conditions, we believe that the flight to quality will continue to drive solid performance from our office portfolio over the long term. I'll now turn the call back over to the operator for Q&A.
We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are 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 today comes from Haendel St. Juste with Mizuho. Please go ahead.
Hey, guys. Good morning.
Morning.
A couple questions. First, on the leasing front. Steve, I guess first of all, appreciate all the detail in relation to the guide. Steve, wanted to ask you a bit about the office demand trends you're seeing. Appreciate the color on the number of tenants who are coming, whose leases are maturing in the average size. I'm curious, how many other tenants beyond Autodesk have leases maturing in a, you know, maybe 30,000 sq ft plus basis? Where do you think that line is plus or minus that gives you a good amount of optionality and doesn't necessarily pose a problem being too large for tenants in this current environment? Thanks.
Good question, Haendel. The answer is Autodesk is it. I mean, everything else is full floor or less. It really is a lot of small tenant rollover. We're really not exposed beyond Autodesk to the big tech situation that you're seeing in multiple markets. We're actually well positioned, and it's small tenant rollover. Actually, that's where we're seeing the most new tour and proposal activity is in the small to mid-sized tenants.
Got it. Got it. Okay. I noticed that Industrious is in the list of top tenants on the office side. Maybe comment on that. Is there anything unique or different about the leases they're doing? Are they longer? Do they require more CapEx? Are they based around a percentage rent base? Some comment on that would be appreciated. Thanks.
I'm sorry, you're talking about Industrious? Actually, their initial lease was two floors done back in 2017 or 2018. That was their typical, you know, co-working situation. The newer leases are enterprise-level deals. I think Databricks is their big tenant that just took down two half floors in our latest lease at City Center Bellevue. They're really kind of moving towards the enterprise-level tenant.
Okay. One on the re-retail side. Seems like all the leasing done in the Q4 was renewals. I don't know if that's just a unique confluence of events. Maybe if there's anything to share on the new lease side, or is there something maybe underlying this, from a demand perspective, but some color or some thoughts on the retail leasing in the Q4?
I mean, Hi, Haendel. It's Adam. A lot of it was renewals in the Q4. We did have a handful of new deals, including a 14,000-foot Sola Salons at our Carmel Mountain Plaza, which is a great deal for us. We finally replaced the P.F. Chang's restaurant at Del Monte Center with a Kona Steak & Seafood, which will be opening in the next month or two. That's 7,000 sq ft to 8,000 sq ft. Even at Alamo Quarry, we had a couple wins, about 5,000 sq ft deals with Navy Federal and Yardbird Furniture, which is a subsidiary of Best Buy. Pretty good progress there.
I think now that we're up to 94%, 95% leased, and we've got some in the hopper that should hopefully round that up another % or so, we feel like things are functioning pretty well on the retail side for us.
Given that you are at higher occupancy level and with a lot of your space, vacancies have been addressed, how do you then feel about pricing power in near term for the outlook for spreads on the retail side?
I mean, I think it's probably gonna be pretty consistent with what we've been seeing. It should be. Of course, we're looking for increases over expiring rents. To the extent we can get that, we will. We'll do as well as any of our peers with similar situated Class A shopping centers, Haendel. For the most part, we're seeing positive spreads. There may be roll downs in certain instances on more difficult spaces, but we'll just have to see what happens.
Okay, fair enough. Best of luck, guys. Thank you.
Thanks, Haendel.
As a reminder, if you would like to ask a question, please press star then one to be joined into the queue. The next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.
Hey guys, it's Adam Kramer on for Ron. Appreciate all kind of the guidance, commentary, and breakdowns earlier. Really helpful. I guess just thinking about the multifamily portfolio, if I heard correctly, I think the comments was kind of NOI flat year-over-year in 23, some kind of elevated expenses there. Wondering just maybe on the revenue side, on the leasing side for multifamily, kind of what's happening there? What are you seeing in kind of your markets, you know, that may be, you know, driving some revenue, but kinda not enough to kind of offset what's going on in the expense line?
Yeah, sure. Hey, Adam. We are seeing. I think we're looking at our numbers right now, and we are expecting 2+% revenue growth on our multifamily side. The expenses are just they're a little more challenging for us, particularly on some of our older product like Loma Palisades or Mariners Point. Some of these are older, been around for 60, 40 years. They take a little more TLC.
We've been kind of putting a lot more OpEx into those to get them back to where they should be in terms of roofing or balconies or painting and landscaping, just to make sure they're humming properly. We're seeing a little more expenses on that side. Perhaps we're being a little conservative because it's a little more difficult to predict this upcoming year. That's kind of it at a high level. Abigail, did you have anything to add to that?
Sure. I can add to that. Thank you, Adam. I think also on the revenue side of it, some things that we have to consider with these older products is that we have a rent cap when renewals come up, so our revenue can only go up about 10% with those units that are renewing. When there's a state of emergency that's put in place, as we have today, in California, we're also capped with new units that are coming online for rent, and there's a cap on those too. Once that lifts, the state of emergency, then we can go forward with pushing the revenue and the rents for new units, as much as possible.
As we move into the spring and into the summer, historically, that is when we start to see units rent quickly and they rent at a higher rate. We'll continue to push where we can.
Got it. Just on a market by market level, you know, kind of how are you using concessions? You know, it seems like based on a commentary from others, there's probably some concession usage being done. Maybe just kind of quantify how much concessions on the multifamily side.
Sure. In the Q4, concessions were minimal. What we saw was that our gross rates for San Diego were $32.24. Our net effective rents were $32.08. When you look at that, on a cost basis, it's just a little under $200 per unit, and we had 85 leases in the Q4. A little bit of softening there in concessions that had to be offered in that Q4. For moving forward into Q1, concessions have pretty much dropped. We're not offering those right now and are just moving forward with gross rents and stabilized rents.
Got it. That's great. Just one more, if I could. Just, and I think it's, you know, a typical question I probably asked before, but just on capital allocation from here, you know, kind of de- weighing development versus, you know, versus M&A. Obviously, you've been active in office the last few years, office M&A. Maybe just kind of your thoughts there. I mean, I don't know if share buyback is something that, you know, would be on the table at a point, but would love to just hear kind of the latest thoughts on capital deployments.
Hey, Adam, this is Bob. Yeah, in terms of capital allocation, I mean, right now we're just minding the store. We're always looking for opportunities. Right now we have not seen anything that makes economic sense. I know Ernest is looking at things daily. We all are. Steve's looking at the markets that things are brought to him. I see things, and Adam does as well. When you run the economics of them, it just doesn't make sense. Sometimes during the markets like this, it's, it is sometimes in the best interest to just take care of what you got, keep it in pristine condition, and push rents as much as you can. We're big believers in the office sector, but every sector that we have, I mean, look at the retail.
Look at the same store growth before reserves. Look at the leasing spreads on retail that are coming in. What we have, you know, we believe is gold. You know, we don't wanna make a bad acquisition. You know, having said that, we also look at every opportunity that is presented to us. If nothing else, we learn from those opportunities that are presented.
That's great. Thanks again, guys. Appreciate the time.
Thanks, Adam.
This concludes our question and answer session. I would like to turn the conference back over to Adam Wyll for any closing remarks.
Thanks again for all that have listened in today and those that have been stakeholders along the way. We remain encouraged by our operating fundamentals, notwithstanding the challenging economic cycle and volatility in the capital markets today. We'll be prepared for any scenario to the best of our abilities. We've been through many cycles before, and our properties, our platform, our balance sheet has successfully guided us through the ups and downs each time. As Ernest would say if he were here, When the going gets tough, the tough get going. We're gonna roll up our sleeves and get back to work. Appreciate you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.