What changed in this filing

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Item 1. Financial Statements

2020-07-31 compared with 2020-05-01 · 211 added, 131 removed, 784 unchanged (30% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

March 31, December 31,

June 30, December 31,

Real estate, at cost

14 unchanged sentences

Unsecured notes payable, net 1,196,291 1,195,780

Unsecured line of credit, net 98,948 —

Accounts payable and accrued expenses 65,780 62,576

5 unchanged sentences

stockholders’ equity

Common stock, $0.01 par value, 490,000,000 shares authorized, 60,068,228 shares issued and outstanding at both March 31, 2020 and December 31, 2019 601 601

Common stock, $0.01 par value, 490,000,000 shares authorized, 60,073,918 and 60,068,228 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 601 601

Additional paid-in capital 1,454,516 1,452,014

10 unchanged sentences

(In Thousands, Except Shares and Per Share Data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Rental income $ 79,230 $ 79,656 $ 171,300 $ 156,487

8 unchanged sentences

Interest expense ( 13,331 ) ( 13,129 ) ( 26,803 ) ( 26,478 )

Gain on sale of real estate — 633 — 633

Other income (expense), net 162 ( 50 ) 270 ( 279 )

14 unchanged sentences

Net income $ 9,826 $ 11,941 $ 25,310 $ 27,184

Other comprehensive (loss) income - unrealized (loss) income on swap derivatives during the period ( 6,115 ) ( 2,132 )

Other comprehensive income (loss) - unrealized income (loss) on swap derivatives during the period 14 ( 3,891 ) ( 6,101 ) ( 6,023 )

Reclassification of amortization of forward-starting swap included in interest expense ( 332 ) ( 319 ) ( 665 ) ( 639 )

19 unchanged sentences

Balance at March 31, 2020 60,068,228 $ 601 $ 1,453,264 $ ( 150,226 ) $ 603 $ ( 23,221 ) $ 1,281,021

Net income — — — 7,725 — 2,101 9,826

Issuance of restricted stock 6,008 — — — — — —

Forfeiture of restricted stock ( 318 ) — — — — — —

Dividends declared and paid — — — ( 12,015 ) — ( 3,278 ) ( 15,293 )

Stock-based compensation — — 1,252 — — — 1,252

Other comprehensive income - change in value of interest rate swaps — — — — 10 4 14

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 261 ) ( 71 ) ( 332 )

Balance at June 30, 2020 60,073,918 $ 601 $ 1,454,516 $ ( 154,516 ) $ 352 $ ( 24,465 ) $ 1,276,488

Common Shares Additional

12 unchanged sentences

Balance at March 31, 2019 47,486,894 $ 475 $ 928,792 $ ( 130,841 ) $ 8,825 $ ( 1,918 ) $ 805,333

Net income — — — 9,008 $ — 2,933 11,941

Common shares issued 11,444,382 114 495,866 — — — 495,980

Issuance of restricted stock 4,412 — — — — — —

Conversion of operating partnership units 787,060 8 12,979 — 148 ( 13,135 ) —

Dividends declared and paid — — — ( 13,664 ) — ( 4,589 ) ( 18,253 )

Stock-based compensation — — 1,131 — — — 1,131

Other comprehensive loss - change in value of interest rate swaps — — — — ( 2,857 ) ( 1,034 ) ( 3,891 )

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 240 ) ( 79 ) ( 319 )

Balance at June 30, 2019 59,722,748 $ 597 $ 1,438,768 $ ( 135,497 ) $ 5,876 $ ( 17,822 ) $ 1,291,922

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(In Thousands)

Three Months Ended March 31,

Six Months Ended June 30,

OPERATING ACTIVITIES

4 unchanged sentences

Amortization of debt issuance costs and debt fair value adjustments 742 724

Provision for uncollectable rental income 3,849 520

Gain on sale of real estate — ( 633 )

Stock-based compensation expense 2,502 2,229

10 unchanged sentences

INVESTING ACTIVITIES

Acquisition of real estate — ( 507,780 )

Capital expenditures ( 35,241 ) ( 47,838 )

Proceeds from sale of real estate, net of selling costs — 8,191

Leasing commissions ( 3,892 ) ( 2,623 )

3 unchanged sentences

Proceeds from unsecured line of credit 100,000 59,000

Repayment of unsecured line of credit — ( 28,000 )

Debt issuance costs — ( 424 )

1 unchanged sentence

Dividends paid to common stock and unitholders ( 38,230 ) ( 36,314 )

Net cash used in financing activities ( 74,059 ) ( 7,351 )

Net (decrease) increase in cash and cash equivalents ( 52,623 ) 7,043

Net cash provided by financing activities 10,648 477,089

Net increase (decrease) in cash and cash equivalents 40,637 ( 2,792 )

Cash, cash equivalents and restricted cash, beginning of period 109,451 57,272

1 unchanged sentence

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:

Three Months Ended March 31,

Six Months Ended June 30,

Cash and cash equivalents 146,131 44,778

5 unchanged sentences

(In Thousands, Except Unit Data)

March 31, December 31,

June 30, December 31,

Real estate, at cost

14 unchanged sentences

Unsecured notes payable, net 1,196,291 1,195,780

Unsecured line of credit, net 98,948 —

Accounts payable and accrued expenses 65,780 62,576

3 unchanged sentences

Commitments and contingencies (Note 11)

Limited partners' capital, 16,390,548 units issued and outstanding as of both March 31, 2020 and December 31, 2019 ( 23,886 ) ( 22,281 )

General partner's capital, 60,068,228 units issued and outstanding as of both March 31, 2020 and December 31, 2019 1,303,639 1,308,237

Limited partners' capital, 16,390,548 units issued and outstanding as of both June 30, 2020 and December 31, 2019 ( 25,063 ) ( 22,281 )

General partner's capital, 60,073,918 and 60,068,228 units issued and outstanding as of June 30, 2020 and December 31, 2019, respectively 1,300,601 1,308,237

Accumulated other comprehensive income 950 7,716

5 unchanged sentences

(In Thousands, Except Shares and Per Unit Data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Rental income $ 79,230 $ 79,656 $ 171,300 $ 156,487

8 unchanged sentences

Interest expense ( 13,331 ) ( 13,129 ) ( 26,803 ) ( 26,478 )

Gain on sale of real estate — 633 — 633

Other income (expense), net 162 ( 50 ) 270 ( 279 )

34 unchanged sentences

Balance at March 31, 2020 16,390,548 $ ( 23,886 ) 60,068,228 $ 1,303,639 $ 1,268 $ 1,281,021

Net income — 2,101 — 7,725 — 9,826

Issuance of restricted units — — 6,008 — — —

Forfeiture of restricted units — — ( 318 ) — — —

Distributions — ( 3,278 ) — ( 12,015 ) — ( 15,293 )

Stock-based compensation — — — 1,252 — 1,252

Other comprehensive income - change in value of interest rate swap — — — — 14 14

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 332 ) ( 332 )

Balance at June 30, 2020 16,390,548 $ ( 25,063 ) 60,073,918 $ 1,300,601 $ 950 $ 1,276,488

Limited Partners' Capital (1)

12 unchanged sentences

Balance at March 31, 2019 17,177,608 $ ( 5,232 ) 47,486,894 $ 798,426 $ 12,139 $ 805,333

Net income — 2,933 — 9,008 — 11,941

Contributions from American Assets Trust, Inc.

— — 11,444,382 495,980 — 495,980

Issuance of restricted units — — 4,412 — — —

Conversion of operating partnership units ( 787,060 ) ( 12,987 ) 787,060 12,987 — —

Distributions — ( 4,589 ) — ( 13,664 ) — ( 18,253 )

Stock-based compensation — — — 1,131 — 1,131

Other comprehensive loss - change in value of interest rate swap — — — — ( 3,891 ) ( 3,891 )

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 319 ) ( 319 )

Balance at June 30, 2019 16,390,548 $ ( 19,875 ) 59,722,748 $ 1,303,868 $ 7,929 $ 1,291,922

(1) Consists of limited partnership interests held by third parties.

4 unchanged sentences

(Unaudited, In Thousands)

Three Months Ended March 31,

Six Months Ended June 30,

OPERATING ACTIVITIES

4 unchanged sentences

Amortization of debt issuance costs and debt fair value adjustments 742 724

Provision for uncollectable rental income 3,849 520

Gain on sale of real estate — ( 633 )

Stock-based compensation expense 2,502 2,229

10 unchanged sentences

INVESTING ACTIVITIES

Acquisition of real estate — ( 507,780 )

Capital expenditures ( 35,241 ) ( 47,838 )

Proceeds from sale of real estate, net of selling costs — 8,191

Leasing commissions ( 3,892 ) ( 2,623 )

3 unchanged sentences

Proceeds from unsecured line of credit 100,000 59,000

Repayment of unsecured line of credit — ( 28,000 )

Debt issuance costs — ( 424 )

2 unchanged sentences

Distributions ( 38,230 ) ( 36,314 )

Net cash used in financing activities ( 74,059 ) ( 7,351 )

Net (decrease) increase in cash and cash equivalents ( 52,623 ) 7,043

Net cash provided by financing activities 10,648 477,089

Net increase (decrease) in cash and cash equivalents 40,637 ( 2,792 )

Cash, cash equivalents and restricted cash, beginning of period 109,451 57,272

1 unchanged sentence

Three Months Ended March 31,

Six Months Ended June 30,

Cash and cash equivalents $ 146,131 $ 44,778

5 unchanged sentences

Notes to Consolidated Financial Statements

March 31, 2020

June 30, 2020

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

We are a full service, vertically integrated, and self-administered REIT with approximately 194 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.

As of March 31, 2020, we owned or had a controlling interest in 28 office, retail, multifamily and mixed-use operating properties, the operations of which we consolidate.

Additionally, as of March 31, 2020, we owned land at three of our properties that we classify as held for development and/or construction in progress.

As of June 30, 2020, we owned or had a controlling interest in 28 office, retail, multifamily and mixed-use operating properties, the operations of which we consolidate.

Additionally, as of June 30, 2020, we owned land at three of our properties that we classify as held for development and/or construction in progress.

A summary of the properties owned by us is as follows:

22 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

Basis of Presentation

11 unchanged sentences

The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information

9 unchanged sentences

We describe our significant accounting policies in Note 1 to the consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.

Except for the adoption of the accounting standards during the first quarter of 2020 as discussed below, there have been no changes to our significant accounting policies during the three months ended March 31, 2020.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

Segment Information

3 unchanged sentences

The products for our retail segment primarily include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space rental.

The products for our office segment primarily include rental of office space and other tenant services, including

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

tenant reimbursements, parking and storage space rental.

The products for our office segment primarily include rental of office space and other tenant services, including tenant reimbursements, parking and storage space rental.

The products for our multifamily segment include rental of apartments and other tenant services.

The products of our mixed-use segment include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space rental and operation of a 369 -room all-suite hotel.

Revenue Recognition and Accounts Receivable

Our leases with tenants are classified as operating leases.

Substantially all such leases contain fixed rent escalations which occur at specified times during the term of the lease.

Base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease, net of valuation adjustments, based on management's assessment of credit, collection and other business risks.

We make estimates of the collectability of our current accounts receivable and straight-line rents receivable which requires significant judgment by management.

The collectability of receivables is affected by numerous different factors including current economic conditions, including the impact of the tenant bankruptcies, the status of collectability of current cash rents receivable, tenants' recent and historical financial and operating results, changes in our tenants' credit ratings, communications between our operating personnel and tenants, the extent of security deposits and letters of credits held with respect to tenants, and the ability of the tenant to perform under the terms of their lease agreement.

The provision for doubtful accounts at June 30, 2020 and December 31, 2019 was approximately $ 4.9 million and $ 1.7 million, respectively.

Rent Concessions – COVID-19

During the second quarter of 2020, we provided lease concessions to certain tenants, primarily within the retail segment, as a result of the COVID-19 pandemic, in the form of rent deferrals and abatements.

These lease concessions generally included an increase in our rights as a lessor.

We account for such lease concessions as lease modifications under Accounting Standards Codification Topic 842, Leases ("ASC 842").

As of June 30, 2020, we have entered into lease modifications that resulted in COVID-19 adjustments (including rent deferrals and other monetary lease concessions) for approximately 5 % of the rent originally contracted for the three months ended June 30, 2020.

Recent Accounting Pronouncements

5 unchanged sentences

We adopted the provisions of ASU No.

2016-13 effective January 1, 2020 and the adoption did not have a material impact on our consolidated financials statements as the majority of our receivables are derived from operating leases and are excluded from this standard.

2016-13 effective January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements as the majority of our receivables are derived from operating leases and are excluded from this standard.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

ACQUIRED IN-PLACE LEASES AND ABOVE/BELOW MARKET LEASES

The following summarizes our acquired lease intangibles and leasing costs, which are included in other assets and other liabilities and deferred credits, as of March 31, 2020 and December 31, 2019 (in thousands):

March 31, 2020 December 31, 2019

The following summarizes our acquired lease intangibles and leasing costs, which are included in other assets and other liabilities and deferred credits, as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

In-place leases $ 63,535 $ 63,896

17 unchanged sentences

We measure the fair value of this liability based on prices provided by independent market participants that are based on observable inputs using market-based valuation techniques.

The fair value of the interest rate swap agreements are based on the estimated amounts we would receive or pay to terminate the contract at the reporting date and are determined using interest rate pricing models and interest rate related

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

observable inputs.

The changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income (loss) and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings.

2 unchanged sentences

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.

However, as of March 31, 2020 we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative position and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivative.

However, as of June 30, 2020 we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative position and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivative.

As a result, we have determined that our derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

A summary of our financial liabilities that are measured at fair value on a recurring basis, by level within the fair value hierarchy is as follows (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

8 unchanged sentences

A summary of the carrying amount and fair value of our secured financial instruments, all of which are based on Level 2 inputs, is as follows (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Carrying Value Fair Value Carrying Value Fair Value

2 unchanged sentences

Unsecured senior guaranteed notes, net $ 947,798 $ 1,036,529 $ 946,916 $ 975,291

Unsecured line of credit $ — $ — $ — $ —

Unsecured line of credit, net $ 98,948 $ 100,000 $ — $ —

DERIVATIVE AND HEDGING ACTIVITIES

4 unchanged sentences

The treasury lock contract has a notional amount of $ 100 million, termination date of July 31, 2019 , a fixed pay rate of 1.9925 %, and a receive rate equal to the ten years treasury rate on the settlement date.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

On July 17, 2019, we settled the June 2019 Treasury Lock, resulting in a gain of approximately $ 0.5 million, which is included in accumulated other comprehensive income and will be amortized to interest expense over ten years .

The treasury lock contract has been deemed to be a highly effective cash flow hedge and we elected to designate the treasury lock contract as an accounting hedge.

The following is a summary of the terms of our outstanding interest rate swaps as of March 31, 2020 (dollars in thousands):

The following is a summary of the terms of our outstanding interest rate swaps as of June 30, 2020 (dollars in thousands):

Swap Counterparty Notional Amount Effective Date Maturity Date Fair Value

4 unchanged sentences

$ 50,000 5/2/2016 3/1/2023 $ ( 1,825 )

The effective portion of changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings for as long as hedged cash flows remain probable.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

which the hedged forecasted transaction affects earnings for as long as hedged cash flows remain probable.

During the next twelve months, we estimate that $ 1.3 million will be reclassified as a decrease to interest expense.

4 unchanged sentences

Other assets consist of the following (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Leasing commissions, net of accumulated amortization of $33,580 and $30,775, respectively $ 41,387 $ 42,539

8 unchanged sentences

Total other assets $ 107,363 $ 93,220

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

OTHER LIABILITIES AND DEFERRED CREDITS

Other liabilities and deferred credits consist of the following (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Acquired below market leases, net $ 23,512 $ 25,452

9 unchanged sentences

Straight-line rent liability relates to leases which have rental payments that decrease over time or one-time upfront payments for which the rental revenue is deferred and recognized on a straight-line basis.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

Debt of American Assets Trust, Inc.

5 unchanged sentences

Additionally, American Assets Trust, Inc.

has provided carve-out guarantees on certain property-level mortgage debt.

has provided a carve-out guarantee on property-level mortgage debt at City Center Bellevue.

Debt of American Assets Trust, L.P.

Secured notes payable

The following is a summary of our total secured notes payable outstanding as of March 31, 2020 and December 31, 2019 (in thousands):

The following is a summary of our total secured notes payable outstanding as of June 30, 2020 and December 31, 2019 (in thousands):

Principal Balance as of Stated Interest Rate Stated Maturity Date

Description of Debt March 31, 2020 December 31, 2019 as of March 31, 2020

Description of Debt June 30, 2020 December 31, 2019 as of June 30, 2020

Torrey Reserve—VCI, VCII, VCIII (1)(2)

13 unchanged sentences

Certain loans require us to comply with various financial covenants.

As of March 31, 2020, the Operating Partnership was in compliance with these financial covenants.

As of June 30, 2020, the Operating Partnership was in compliance with these financial covenants.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

Unsecured notes payable

The following is a summary of the Operating Partnership's total unsecured notes payable outstanding as of March 31, 2020 and December 31, 2019 (in thousands):

The following is a summary of the Operating Partnership's total unsecured notes payable outstanding as of June 30, 2020 and December 31, 2019 (in thousands):

Description of Debt Principal Balance as of Stated Interest Rate Stated Maturity Date

March 31, 2020 December 31, 2019 as of March 31, 2020

June 30, 2020 December 31, 2019 as of June 30, 2020

Term Loan A $ 100,000 $ 100,000 Variable (1)

39 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

The Note Purchase Agreement for the Series G Notes contains a number of customary financial covenants, including, without limitation, secured and unsecured leverage ratios and fixed charge coverage ratios.

2 unchanged sentences

Certain loans require us to comply with various financial covenants.

As of March 31, 2020, the Operating Partnership was in compliance with these financial covenants.

As of June 30, 2020, the Operating Partnership was in compliance with these financial covenants.

Amended Term Loan Agreement

6 unchanged sentences

The Second Amended and Restated Credit Facility has an accordion feature that may allow us to increase the availability thereunder up to an additional $ 250 million, subject to meeting specified requirements and obtaining additional commitments from lenders.

At March 31, 2020, there were no amounts outstanding under the Revolver Loan and we had incurred approximately $ 1.2 million of debt issuance costs, net, which are recorded in other assets, net on the consolidated balance sheets.

At June 30, 2020, there was $ 100 million outstanding under the Revolver Loan and we had incurred approximately $ 1.1 million of debt issuance costs, net.

Borrowings under the Second Amended and Restated Credit Agreement initially bear interest at floating rates equal to, at our option, either (1) LIBOR , plus a spread which ranges from (a) 1.05 % to 1.50 % (with respect to the Revolver Loan) and (b) 1.30 % to 1.90 % (with respect to Term Loan A), in each case based on our consolidated leverage ratio, or (2) a base rate equal to the highest of (a) the prime rate , (b) the federal funds rate plus 50 bps or (c) LIBOR plus 100 bps, plus a spread which ranges from (i) 0.10 % to 0.50 % (with respect to the Revolver Loan) and (ii) 0.30 % to 0.90 % (with respect to Term Loan A), in each case based on our consolidated leverage ratio.

For the six months ended June 30, 2020, the weighted average interest rate on the Revolver Loan was 1.58 %.

The Revolver Loan initially matures on January 9, 2022, subject to our option to extend the Revolver Loan up to two times, with each such extension for a six months period.

6 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

favorable than previously contained in the Second Amended and Restated Credit Facility (prior to entry into the First Amendment) with respect to Term Loan A.

8 unchanged sentences

If certain events of default exist or would result from a distribution, we may be precluded from making distributions other than those necessary to qualify and maintain our status as a REIT.

As of March 31, 2020, the Operating Partnership was in compliance with the financial covenants in the Second Amended and Restated Credit Facility.

As of June 30, 2020, the Operating Partnership was in compliance with the financial covenants in the Second Amended and Restated Credit Facility.

PARTNERS' CAPITAL OF AMERICAN ASSETS TRUST, L.P.

Noncontrolling interests in our Operating Partnership are interests in the Operating Partnership that are not owned by us.

Noncontrolling interests consisted of 16,390,548 common units (the “noncontrolling common units”), and represented approximately 21.5 % of the ownership interests in our Operating Partnership at March 31, 2020.

Common units and shares of our common stock have essentially the same economic characteristics in that common units and shares of our common stock share equally in the total net income or loss distributions of our Operating Partnership.

Investors who own common units have the right to cause our Operating Partnership to redeem any or all of their common units for cash equal to the then-current market value of one share of our common stock, or, at our election, shares of our common stock on a one -for-one basis.

During the three months ended March 31, 2020, no common units were converted into shares of our common stock.

During the six months ended June 30, 2020, no common units were converted into shares of our common stock.

Earnings Per Unit of the Operating Partnership

2 unchanged sentences

The impact of unvested Operating Partnership unit awards on EPU has been calculated using the two-class method whereby earnings are allocated to the unvested Operating Partnership unit awards based on distributions and the unvested Operating Partnership units’ participation rights in undistributed earnings.

The calculation of diluted EPU for the three months ended March 31, 2020 and 2019 does not include the weighted average of 345,153 and 333,275 unvested Operating Partnership units, respectively, as these equity securities are either considered contingently issuable or the effect of including these equity securities was anti-dilutive to income from continuing operations and net income attributable to the unitholders.

The calculation of diluted EPU for the three months ended June 30, 2020 and 2019 does not include the weighted average of 345,241 and 330,847 unvested Operating Partnership units, respectively, as these equity securities are either considered contingently issuable or the effect of including these equity securities was anti-dilutive to income from continuing operations and net income attributable to the unitholders.

The calculation of diluted EPU for the six months ended June 30, 2020 and 2019 does not include the weighted average of 345,199 and 332,054 unvested Operating Partnership units, respectively.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

EQUITY OF AMERICAN ASSETS TRUST, INC.

3 unchanged sentences

The sales of shares of our common stock made through the ATM equity program, as amended, are made in "at-the-market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended.

During the three months ended March 31, 2020, no shares of common stock were sold through the ATM equity program.

During the six months ended June 30, 2020, no shares of common stock were sold through the ATM equity program.

We intend to use the net proceeds from the ATM equity program to fund our development or redevelopment activities, repay amounts outstanding from time to time under our revolving line of credit or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes.

As of March 31, 2020, we had the capacity to issue up to an additional $ 132.6 million in shares of our common stock under our ATM equity program.

As of June 30, 2020, we had the capacity to issue up to an additional $ 132.6 million in shares of our common stock under our ATM equity program.

Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs.

We have no obligation to sell the remaining shares available for sale under the ATM equity program.

The following table lists the dividends declared and paid on our shares of common stock and noncontrolling common units during the three months ended March 31, 2020:

The following table lists the dividends declared and paid on our shares of common stock and noncontrolling common units during the six months ended June 30, 2020:

Period Amount per

1 unchanged sentence

First Quarter 2020 $ 0.30 January 1, 2020 to March 31, 2020 March 26, 2020

Second Quarter 2020 $ 0.20 April 1, 2020 to June 30, 2020 June 25, 2020

Taxability of Dividends

3 unchanged sentences

The guidance also defines a fair value-based method of accounting for an employee stock option or similar equity instrument.

The following table summarizes the activity of restricted stock awards during the three months ended March 31, 2020:

The following table summarizes the activity of restricted stock awards during the six months ended June 30, 2020:

Units Weighted Average Grant Date Fair Value

Nonvested at January 1, 2020 345,153 $ 28.75

Granted 6,008 33.29

Vested ( 4,412 ) 45.35

Forfeited ( 318 ) 29.58

Nonvested at March 31, 2020 345,153 $ 28.75

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $ 1.3 million and $ 1.1 million in noncash compensation expense for the three-month periods ended March 31, 2020 and 2019, respectively, which is included in general and administrative expense on the consolidated statements of comprehensive income.

Unrecognized compensation expense was $ 5.9 million at March 31, 2020.

Nonvested at June 30, 2020 346,431 $ 28.62

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $ 1.3 million and $ 1.1 million in noncash compensation expense for the three-month periods ended June 30, 2020 and 2019, respectively, which is included in general and administrative expense on the consolidated statements of comprehensive income.

We recognized $ 2.5 million and $ 2.2 million in noncash compensation expense for the six months ended June 30, 2020 and 2019, respectively.

Unrecognized compensation expense was $ 4.8 million at June 30, 2020.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

Earnings Per Share

1 unchanged sentence

The two-class method is an earnings allocation methodology whereby EPS for each class of common stock and participating security is calculated according to dividends declared and participation rights in undistributed earnings.

The weighted average unvested shares outstanding, which are considered participating securities, were 345,153 and 333,275 for the three months ended March 31, 2020 and 2019, respectively.

The weighted average unvested shares outstanding, which are considered participating securities, were 345,241 and 330,847 for the three months ended June 30, 2020 and 2019, respectively and 345,199 and 332,054 for the six months ended June 30, 2020 and 2019, respectively.

Therefore, we have allocated our earnings for basic and diluted EPS between common shares and unvested shares as these unvested shares have nonforfeitable dividend equivalent rights.

Diluted EPS is calculated by dividing the net income applicable to common stockholders for the period by the weighted average number of common and dilutive instruments outstanding during the period using the treasury stock method.

For the three months ended March 31, 2020 and 2019, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

For the three and six months ended June 30, 2020 and 2019, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

Additionally, the unvested restricted stock awards subject to time vesting are anti-dilutive for all periods presented, and accordingly, have been excluded from the weighted average common shares used to compute diluted EPS.

The computation of basic and diluted EPS is presented below (dollars in thousands, except share and per share amounts):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net income $ 9,826 $ 11,941 $ 25,310 $ 27,184

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Income from operations attributable to unitholders in the Operating Partnership

2,101 2,933 5,413 6,988

Net income attributable to common stockholders—diluted

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Taxable income from non-REIT activities managed through our TRS is subject to federal and state income taxes.

We lease our hotel property to a wholly owned TRS that is subject to federal and state income taxes.

We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between GAAP carrying amounts and their respective tax bases.

Additionally, we classify certain state taxes as income taxes for financial reporting purposes in accordance with ASC Topic 740, Income Taxes .

American Assets Trust, Inc.

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Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

A deferred tax liability is included in our consolidated balance sheets of $ 0.3 million as of both March 31, 2020 and December 31, 2019 in relation to real estate asset basis differences of property subject to state taxes based on income and certain prepaid expenses of our TRS.

June 30, 2020

We lease our hotel property to a wholly owned TRS that is subject to federal and state income taxes.

Additionally, we classify certain state taxes as income taxes for financial reporting purposes in accordance with ASC Topic 740, Income Taxes .

A deferred tax liability is included in our consolidated balance sheets of $ 0.3 million and $ 0.3 million as of June 30, 2020 and December 31, 2019, respectively, in relation to real estate asset basis differences of property subject to state taxes based on income and certain prepaid expenses of our TRS.

Income tax expense is recorded in other (expense) income, net on our consolidated statements of comprehensive income.

For the three months ended March 31, 2020 and 2019, we recorded income tax expense of $ 0.2 million.

For the three and six months ended June 30, 2020, we recorded income tax benefit of $ 0.1 million and income tax expense of $ 0.1 million, respectively.

For the three and six months ended June 30, 2019, we recorded income tax expense of $ 0.2 million and $ 0.4 million, respectively.

COMMITMENTS AND CONTINGENCIES

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Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

A wholly owned subsidiary of our Operating Partnership, WBW Hotel Lessee LLC, entered into a franchise license agreement with Embassy Suites Franchise LLC, the franchisor of the brand “Embassy Suites™,” to obtain the non-exclusive right to operate the hotel under the Embassy Suites TM brand for 20 years.

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In addition, we must pay to Embassy Suites Franchise LLC a monthly franchise royalty fee equal to 4.0 % of the hotel's gross room revenue through December 2021 and 5.0 % of the hotel's gross room revenue thereafter, as well as a monthly program fee equal to 4.0 % of the hotel's gross room revenue.

If the franchise license is terminated due to our failure to make required improvements or to otherwise comply with its terms, we may be liable to the franchisor for a termination payment, which could be as high as $ 7.5 million based on operating performance through March 31, 2020.

If the franchise license is terminated due to our failure to make required improvements or to otherwise comply with its terms, we may be liable to the franchisor for a termination payment, which could be as high as $ 6.7 million based on operating performance through June 30, 2020.

Our Del Monte Center property has ongoing environmental remediation related to ground water contamination.

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Our properties are located in Southern California, Northern California, Hawaii, Oregon, Texas, and Washington.

The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory and social factors affecting the markets in which the tenants operate.

The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory, social, and health factors affecting the markets in which the tenants operate including, without limitation, the impact the COVID-19 pandemic has had on our tenants.

Fourteen of our consolidated properties are located in Southern California, which exposes us to greater economic risks than if we owned a more geographically diverse portfolio.

Tenants in the retail industry accounted for 26.7 % of total revenues for the three months ended March 31, 2020.

Tenants in the retail industry accounted for 26.5 % of total revenues for the six months ended June 30, 2020.

This makes us susceptible to demand for retail rental space and subject to the risks associated with an investment in real estate with a concentration of tenants in the retail industry.

Furthermore, tenants in the office industry accounted for 46.0 % of total revenues for the three months ended March 31, 2020.

Furthermore, tenants in the office industry accounted for 49.4 % of total revenues for the six months ended June 30, 2020.

This makes us susceptible to demand for office rental space and subject to the risks associated with an investment in real estate with a concentration of tenants in the office industry.

For the three months ended March 31, 2020 and 2019, no tenant accounted for more than 10 % of our total rental revenue.

For the six months ended June 30, 2020 and 2019, no tenant accounted for more than 10 % of our total rental revenue.

Lessor Operating Leases

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Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

Leases at our office and retail properties and the retail portion of our mixed-use property may contain lease extension options, at our lessee's discretion.

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However, the residual value of a real estate property is still subject to various market-specific, asset-specific, and tenant-specific risks and characteristics.

As of March 31, 2020, minimum future rentals from noncancelable operating leases, before any reserve for uncollectible amounts and assuming no early lease terminations, at our office and retail properties and the retail portion of our mixed-use property are as follows (in thousands):

As of June 30, 2020, minimum future rentals from noncancelable operating leases, before any reserve for uncollectible amounts and assuming no early lease terminations, at our office and retail properties and the retail portion of our mixed-use property are as follows (in thousands):

Year Ending December 31,

2020 (nine months ending December 31, 2020) $ 162,470

2020 (six months ending December 31, 2020) $ 102,236

Thereafter 565,253

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The extension option is included in the calculation of the right-of-use asset and lease liability as we are reasonably certain of exercising the extension option.

In March 2020, we exercised a five years extension option to extend the Annex Lease through June 30, 2026.

During 2020, we exercised a five years extension option to extend the Annex Lease through June 30, 2026.

At Waikiki Beach Walk, we lease a portion of the building of which Quiksilver is currently in possession, under an operating lease effective through December 31, 2021.

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Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

Current annual payments under the operating leases are as follows, as of March 31, 2020 (in thousands):

June 30, 2020

Current annual payments under the operating leases are as follows, as of June 30, 2020 (in thousands):

Year Ending December 31,

2020 (nine months ending December 31, 2020) $ 2,576

2020 (six months ending December 31, 2020) $ 1,730

Thereafter 17,533

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Lease costs under the operating leases are as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Operating lease cost $ 945 $ 833 $ 1,790 $ 1,667

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Supplemental cash flow information and non-cash activity related to our operating leases are as follow (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Operating cash flow information:

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Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

COMPONENTS OF RENTAL INCOME AND EXPENSE

The principal components of rental income are as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Lease rental income

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Total rental income $ 79,230 $ 79,656 $ 171,300 $ 156,487

Lease rental income include $ 2.8 million and $ 0.2 million for the three months ended March 31, 2020 and 2019, respectively, to recognize lease rental income on a straight-line basis.

In addition, net amortization of above and below market leases included in lease rental income were $ 0.9 million and $ 0.9 million for the three months ended March 31, 2020 and 2019, respectively.

Lease rental income include $ 8.5 million and $( 4.5 ) million for the three months ended June 30, 2020 and 2019, respectively, and $ 11.3 million and $( 4.3 ) million for the six months ended June 30, 2020 and 2019, respectively, to recognize lease rental income on a straight-line basis.

In addition, net amortization of above and below market leases included in lease rental income were $ 1.0 million and $ 0.8 million for the three months ended June 30, 2020 and 2019, respectively, and $ 1.9 million and $ 1.7 million for the six months ended June 30, 2020 and 2019, respectively.

The principal components of rental expenses are as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Rental operating $ 8,695 $ 9,008 $ 18,577 $ 17,559

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Marketing 379 568 886 1,114

Rent 952 849 1,805 1,690

Hawaii excise tax 507 914 1,372 1,858

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The principal components of other expense, net, are as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Interest and investment income $ 71 $ 156 $ 383 $ 163

Income tax expense ( 206 ) ( 236 )

Income tax benefit (expense) 91 ( 206 ) ( 115 ) ( 442 )

Other non-operating income — — 2 —

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Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

RELATED PARTY TRANSACTIONS

During the first quarter of 2019, we terminated a lease agreement with American Assets, Inc.

("AAI"), an entity owned and controlled by Ernest Rady, our CEO, President, and Chairman of Board, and entered into a new lease agreement with AAI for office space at Torrey Reserve Campus.

Rents commenced on March 1, 2019 for an initial lease term of three years at an average annual rental rate of $ 0.2 million.

Rental revenue recognized on the AAI leases of $ 0.1 million and $ 0.1 million for the six months ended June 30, 2020 and 2019, respectively, is included in rental income on the statements of comprehensive income.

On occasion, the Company utilizes aircraft services provided by AAI Aviation, Inc.

("AAIA"), an entity owned and controlled by Ernest Rady, our Chief Executive Officer, President and Chairman of the Board.

For the three months ended March 31, 2020 and 2019, we incurred approximately $ 0.0 million and $ 0.2 million, respectively, of expenses related to aircraft services of AAIA or reimbursement to Mr.

("AAIA"), an entity owned and controlled by Mr.

For the six months ended June 30, 2020 and 2019, we incurred approximately $ 0.0 million and $ 0.2 million, respectively, of expenses related to aircraft services of AAIA or reimbursement to Mr.

Rady (or the Ernest Rady Trust U/D/T March 13, 1983) for use of the aircraft owned by AAIA.

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The Waikiki Beach Walk entities have a 47.7 % investment in WBW CHP LLC, an entity that was formed to, among other things, construct a chilled water plant to provide air conditioning to the property and other adjacent facilities.

The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.3 million and $ 0.2 million for the three months ended March 31, 2020 and 2019, respectively, are included in rental expenses on the consolidated statements of comprehensive income.

The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.5 million and $ 0.5 million for the six months ended June 30, 2020 and 2019, respectively, are included in rental expenses on the consolidated statements of comprehensive income.

SEGMENT REPORTING

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Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

June 30, 2020

The following table represents operating activity within our reportable segments (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Property revenue 43,880 30,200 $ 88,389 $ 58,006

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The following table is a reconciliation of segment profit to net income attributable to stockholders (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Total segments’ profit $ 56,167 $ 53,012 $ 119,297 $ 108,489

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Interest expense ( 13,331 ) ( 13,129 ) ( 26,803 ) ( 26,478 )

Gain on sale of real estate — 633 — 633

Other income (expense), net 162 ( 50 ) 270 ( 279 )

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stockholders $ 7,656 $ 8,916 $ 19,724 $ 20,011

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

The following table shows net real estate and secured note payable balances for each of the segments (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Net Real Estate

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$ 111,000 $ 162,003

(1) Excludes debt issuance costs of $ 0.1 million and $0.1 million for each of the periods ended March 31, 2020 and December 31, 2019, respectively.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2020

Capital expenditures for each segment for the three months ended March 31, 2020 and 2019 were as follows (in thousands):

Three Months Ended March 31,

(1) Excludes debt issuance costs of $ 0.1 million and $ 0.1 million for each of the periods ended June 30, 2020 and December 31, 2019, respectively.

Capital expenditures for each segment for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Capital Expenditures (1)

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(1) Capital expenditures represent cash paid for capital expenditures during the period and include leasing commissions paid .

SUBSEQUENT EVENT

On April 7, 2020, we drew down $ 100.0 million under the Revolver Loan.

As a result of this borrowing, we have $ 250.0 million of remaining availability under the Revolver Loan.

Although we do not have any presently anticipated need for this additional liquidity, we decided to draw this amount, and may draw additional amounts in the future, to ensure future liquidity given the recent significant impact on global financial markets and the economy as a result of the novel coronavirus (“COVID-19”) outbreak.

Due to the speed with which the COVID-19 situation is developing, we are not able at this time to estimate the impact of COVID-19 on our consolidated financial statements and related disclosures, but the impact could be material for the remainder of fiscal year 2020 in all business segments and could be material during any future period affected either directly or indirectly by this pandemic.

In April 2020, we received a significant amount of rent deferment requests from various tenants and reduced rent collections, primarily within the retail segment, as a result of COVID-19.

We are evaluating each tenant rent deferment request on an individual basis, considering a number of factors.

Not all rent deferment requests will ultimately result in lease modification agreements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements