What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-31 compared with 2020-05-01 · 293 added, 114 removed, 348 unchanged (54% of the section changed)

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You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters.

Currently, one of the most significant risk factors, is the potential adverse effect of the current COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the company, its tenants and guests, the real estate market and the global economy and financial markets.

The extent to which COVID-19 impacts the Company, its tenants and guests will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

Currently, one of the most significant risk factors, is the potential adverse effect of the current COVID-19 pandemic on our financial condition, results of operations, cash flows and performance or that of, our tenants and guests, the real estate market and the global economy and financial markets.

The extent to which COVID-19 impacts us, our tenants and guests will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

You can also identify forward-looking statements by discussions of strategy, plans or intentions.

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For a further discussion of these and other factors, see the section entitled “Item 1A.

Risk Factors” contained herein and in our annual report on Form 10-K for the year ended December 31, 2019.

Risk Factors” contained herein and in our annual report on Form 10-K for the year ended December 31, 2019 and quarterly report on Form 10-Q for the quarter ended March 31, 2020.

References to “we,” “our,” “us” and “our company” refer to American Assets Trust, Inc., a Maryland corporation, together with our consolidated subsidiaries, including American Assets Trust, L.P., a Maryland limited partnership, of which we are the sole general partner and which we refer to in this report as our Operating Partnership.

We are a full service, vertically integrated and self-administered REIT that owns, operates, acquires and develops high quality retail, office, multifamily and mixed-use properties in attractive, high-barrier-to-entry markets in Southern California, Northern California, Oregon, Washington, Texas and Hawaii.

As of March 31, 2020, our portfolio was comprised of twelve retail shopping centers;

As of June 30, 2020, our portfolio was comprised of twelve retail shopping centers;

nine office properties;

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and six multifamily properties.

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

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

Our core markets include San Diego;

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Rady or his affiliates, including the Ernest Rady Trust U/D/T March 13, 1983, or the Rady Trust, and did not have any operating activity until the consummation of our initial public offering on January 19, 2011.

Our Company, as the sole general partner of our Operating Partnership, has control of our Operating Partnership and owned 78.5% of our Operating Partnership as of March 31, 2020.

Our Company, as the sole general partner of our Operating Partnership, has control of our Operating Partnership and owned 78.5% of our Operating Partnership as of June 30, 2020.

Accordingly, we consolidate the assets, liabilities and results of operations of our Operating Partnership.

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Properties are deemed stabilized typically at the earlier of (i) reaching 90% occupancy or (ii) four quarters following a property's inclusion in operating real estate.

We typically remove properties from same-store properties when the development, redevelopment or expansion has or is expected to have a significant impact on the property's annualized base rent, occupancy and operating income within the

calendar year.

Our evaluation of significant impact related to development, redevelopment or expansion activity is based on quantitative and qualitative measures including, but not limited to the following:

Our evaluation of significant impact related to development, redevelopment or expansion activity is based on

quantitative and qualitative measures including, but not limited to the following:

the total budgeted cost of planned construction activity compared to the property’s annualized base rent, occupancy and property operating income within the calendar year;

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Acquired properties are classified into same-store properties once we have owned such properties for the entirety of comparable period(s) and the properties are not under significant development or expansion.

Below is a summary of our same-store composition for the three months ended March 31, 2020 and 2019.

For the three months ended March 31, 2020, Torrey Point was reclassified to same-store properties when compared to the designations for the three months ended March 31, 2019 as the entity was placed into operations and became available for occupancy in August 2018.

For the three months ended March 31, 2020, One Beach Street was reclassified to non-same-store properties when compared to the designations for the three months ended March 31, 2019 due to redevelopment activity to renovate the property.

Below is a summary of our same-store composition for the three and six months ended June 30, 2020 and 2019.

For the three months ended June 30, 2020, Torrey Point was reclassified to same-store properties when compared to the designations for the three months ended June 30, 2019 as the entity was placed into operations and became available for occupancy in August 2018.

For the three months ended June 30, 2020, One Beach Street was reclassified to non-same-store properties when compared to the designations for the three months ended June 30, 2019 due to redevelopment activity to renovate the property.

Waikiki Beach Walk Retail and Embassy Suites™ Hotel is classified as a non-same-store property due to spalling repair activity disrupting the hotel portion of the properties operations.

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La Jolla Commons is classified as a non-same-store property, as it was acquired on June 20, 2019.

In our determination of same-store and redevelopment same-store properties for the three months ended March 31, 2020, Waikele Center and One Beach Street have been identified as same-store redevelopment properties due to significant redevelopment activity.

Retail same-store net operating income decreased approximately 21.3% for the three months ended March 31, 2020 compared to the same period in 2019.

Retail redevelopment same-store net operating income decreased approximately 17.1% for the three months ended March 31, 2020 compared to the same period in 2019.

Office same-store net operating income increased 33.2% for the three months ended March 31, 2020 compared to the same period in 2019.

Office redevelopment same-store net operating income increased 28.7% for the three months ended March 31, 2020 compared to the same period in 2019.

Three Months Ended March 31,

For the six months ended June 30, 2020, Torrey Point was reclassified to same-store properties when compared to the designations for the six months ended June 30, 2019 as the entity was placed into operations and became available for occupancy in August 2018.

For the six months ended June 30, 2020, One Beach Street was reclassified to non-same-store properties when compared to the designation for the six months ended June 30, 2019 due to redevelopment activity to renovate the property.

Waikiki Beach Walk Retail and Embassy Suites™ Hotel is classified as a non-same-store property due to spalling repair activity disrupting the hotel portion of the properties operations.

Waikele Center is classified as a non-same-store property due to significant redevelopment activity.

La Jolla Commons is classified as a non-same-store property, as it was acquired on June 20, 2019.

In our determination of same-store and redevelopment same-store properties for the six months ended June 30, 2020, Waikele Center and One Beach Street have been identified as same-store redevelopment properties due to significant redevelopment activity.

Retail same-store net operating income decreased approximately 17.3% for the six months ended June 30, 2020 compared to the same period in 2019.

Retail redevelopment same-store net operating income decreased approximately 12.7% for the six months ended June 30, 2020 compared to the same period in 2019.

Office same-store net operating income increased 30.2% for the six months ended June 30, 2020 compared to the same period in 2019.

Office redevelopment same-store net operating income increased 25.6% for the six months ended June 30, 2020 compared to the same period in 2019.

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

2020 2019 2020 2019

Same-Store 24 24 24 24

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Some of our acquisitions do not initially contribute significantly to earnings growth;

we believe they provide long-term re-leasing growth, redevelopment opportunities and other strategic opportunities.

however, we believe they provide long-term re-leasing growth, redevelopment opportunities and other strategic opportunities.

Any growth from acquisitions is contingent upon our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles.

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however, any material effect on these parties could adversely impact us.

As of April 27, 2020, we have collected approximately 94% of office rents, 47% of retail rents (including retail component of Waikiki Beach Walk) and 94% of multifamily rents that were due in April 2020.

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

For the second quarter of 2020, we have collected to date approximately 98% of office rents, 58% of retail rents (including retail component of Waikiki Beach Walk) and 95% of multifamily rents that were due during the second quarter of 2020.

During the second quarter of 2020, we received and executed a significant amount of rent deferment requests from various tenants, 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.

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.

We believe the company's financial condition and liquidity are currently strong.

Although there is uncertainty related to the anticipated impact of the COVID-19 outbreak on the Company's future results, we believe our efficient business model and ongoing steps we have taken to strengthen our balance sheet has positioned to manage our business through this crisis as it continues to unfold.

We continue to manage all aspect of our business including, but not limited to, monitoring the financial health of our tenants, vendors, and other third-party relationships, and developing new opportunities for growth.

We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our tenants, vendors, and other third-party relationships, and developing new opportunities for growth.

Due to COVID-19, we cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity.

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Over the long-term, we believe that the infill nature and strong demographics of our properties provide us with a strategic advantage, allowing us to maintain relatively high occupancy and increase rental rates.

We have continued to see signs of improvement for many of our tenants, as well as increased interest from prospective tenants for our spaces.

While there can be no assurance that these positive signs will continue due to the direct or indirect affects of the COVID-19 pandemic, we remain cautiously optimistic regarding the long-term trends we have seen over the past few years after the pandemic subsides.

We believe the locations of our properties and diverse tenant base mitigate the potentially negative impact of the current economic environment.

However, any reduction in our tenants' abilities to pay base rent, including as a result of the COVID-19 pandemic, percentage rent or other charges will adversely affect our financial condition and results of operations.

During the three months ended March 31, 2020, we signed 17 retail leases for a total of 66,426 square feet of retail space including 61,916 square feet of comparable space leases (leases for which there was a prior tenant), at an average rental rate decrease on a cash basis of 1.8% and increase on a GAAP basis of 7.0%, respectively.

New retail leases for comparable spaces were signed for 8,794 square feet at an average rental rate decrease on a cash basis of 6.0% and increase on a GAAP basis of 2.5%, respectively.

Renewals for comparable retail spaces were signed for 53,122 square feet at an average rental rate decrease on a cash basis of 1.1% and increase on a GAAP basis of 7.8%, respectively.

Tenant improvements and incentives were $22.71 per square foot of retail space for comparable new leases for the three months ended March 31, 2020, mainly due to tenants at Waikele Center.

During the three months ended March 31, 2020, we signed 17 office leases for a total of 208,041 square feet of office space including 181,104 square feet of comparable space leases, at an average rental rate increase on a cash and GAAP basis of 8.4% and 6.6%, respectively.

Furthermore, we believe the locations of our properties and diversified portfolio will mitigate some of the potentially negative impact of the current economic environment.

However, in the short-term due to the COVID-19 pandemic, we have seen a meaningful negative impact on certain of our tenants operations and ability to pay rent, primarily in the retail sector;

and any reduction in our tenants' abilities to pay base rent, percentage rent or other charges, including as a result of the COVID-19 pandemic, will adversely affect our financial condition and results of operations.

During the three months ended June 30, 2020, we signed 7 office leases for a total of 47,743 square feet of office space including 39,534 square feet of comparable space leases, at an average rental rate increase on a cash and GAAP basis of 32.3% and 65.5%, respectively.

New office leases for comparable spaces were signed for 1,749 square feet at an average rental rate increase on a cash and GAAP basis of 11.3% and 21.4%, respectively.

Renewals for comparable office spaces were signed for 37,785 square feet at an average rental rate increase on a cash and GAAP basis of 33.1% and 67.3%, respectively.

Tenant improvements and incentives were $32.01 per square foot of office space for comparable new leases for the three months ended March 31, 2020, mainly attributed to tenants at Torrey Reserve Campus.

Tenant improvements and incentives were $51.12 per square foot of office space for comparable new leases for the three months ended June 30, 2020, mainly attributed to tenants at Lloyd District Portfolio.

During the three months ended June 30, 2020, we signed 13 retail leases for a total of 25,314 square feet of retail space including 23,364 square feet of comparable space leases (leases for which there was a prior tenant), at an average rental rate increase on a cash basis and GAAP basis of 0.9% and 2.2%, respectively.

New retail leases for comparable spaces were signed for 505 square feet at an average rental rate decrease on a cash and GAAP basis of 1.9% and 4.5%, respectively.

Renewals for comparable retail spaces were signed for 22,859 square feet at an average rental rate increase on a cash and GAAP basis of 0.9% and 2.3%, respectively.

Tenant improvements and incentives were $19.58 per square foot of retail space for comparable new leases for the three months ended June 30, 2020, mainly due to tenants at Lomas Santa Fe Plaza.

The rental increases associated with comparable spaces generally include all leases signed in arms-length transactions reflecting market leverage between landlords and tenants during the period.

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However, we believe that these increases do provide information about the tenant/landlord relationship and the potential fluctuations we may achieve in rental income over time.

Through the remainder of 2020, we believe our leasing volume will be in-line with our historical averages and result in overall positive increases in rental income.

However, changes in rental income associated with individual signed leases on comparable spaces may be positive or negative, and we can provide no assurance that the rents on new leases will continue to increase at the above disclosed levels, if at all.

Through the remainder of 2020, we believe our leasing volume will be below our historical averages and result in overall decreases in rental income due to the COVID-19 pandemic.

However, changes in rental income associated with individual signed leases on comparable spaces may be positive or negative.

Capitalized Costs

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We cease capitalization on the portion substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with any remaining portion under construction.

We capitalized external and internal costs related to both development and redevelopment activities combined of $1.3 million and $1.7 million for the three months ended March 31, 2020 and 2019, respectively.

We capitalized external and internal costs related to other property improvements combined of $20.8 million and $24.3 million for the three months ended March 31, 2020 and 2019, respectively.

We capitalized external and internal costs related to both development and redevelopment activities combined of $1.4 million and $0.9 million for the three months ended June 30, 2020 and 2019, respectively.

We capitalized external and internal costs related to both development and redevelopment activities combined of $2.7 million and $2.6 million for the six months ended June 30, 2020 and 2019, respectively.

We capitalized external and internal costs related to other property improvements combined of $12.5 million and $23.8 million for the three months ended June 30, 2020 and 2019, respectively.

We capitalized external and internal costs related to other property improvements totaling $33.3 million and $48.1 million for the six months ended June 30, 2020 and 2019, respectively.

Interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service.

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If the time period for capitalizing interest is extended, however, more interest is capitalized, thereby decreasing interest expense and increasing net income during that period.

We capitalized interest costs related to development activities of $0.3 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.

We capitalized interest costs related to development activities of $0.3 million and $0.1 million for the three months ended June 30, 2020 and 2019, respectively.

We capitalized interest costs related to development activities of $0.5 million and $0.3 million for the six months ended June 30, 2020 and 2019, respectively.

Results of Operations

For our discussion of results of operations, we have provided information on a total portfolio and same-store basis.

Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019

The following summarizes our consolidated results of operations for the three months ended March 31, 2020 compared to our consolidated results of operations for the three months ended March 31, 2019.

As of March 31, 2020, our operating portfolio was comprised of 28 retail, office, multifamily and mixed-use properties with an aggregate of approximately 6.6 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel.

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

As of March 31, 2019, our operating portfolio was comprised of 27 retail, office, multifamily and mixed-use properties with an aggregate of approximately 5.8 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel.

Additionally, as of March 31, 2019, we owned land at three of our properties that we classified as held for development and/or construction in progress.

The following table sets forth selected data from our unaudited consolidated statements of comprehensive income for the three months ended March 31, 2020 and 2019 (dollars in thousands):

Three Months Ended March 31, Change %

Comparison of the three months ended June 30, 2020 to the three months ended June 30, 2019

The following summarizes our consolidated results of operations for the three months ended June 30, 2020 compared to our consolidated results of operations for the three months ended June 30, 2019.

As of June 30, 2020, our operating portfolio was comprised of 28 retail, office, multifamily and mixed-use properties with an aggregate of approximately 6.6 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel.

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

As of June 30, 2019, our operating portfolio was comprised of 28 retail, office, multifamily and mixed-use properties with an aggregate of approximately 6.6 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel.

Additionally, as of June 30, 2019, we owned land at three of our properties that we classified as held for development and/or construction in progress.

The following table sets forth selected data from our unaudited consolidated statements of comprehensive income for the three months ended June 30, 2020 and 2019 (dollars in thousands):

Three Months Ended June 30, Change %

Rental income $ 79,230 $ 79,656 $ (426) (1) %

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Interest expense (13,331) (13,129) (202) 2

Gain on sale of real estate — 633 (633) 100

Other income (expense), net 162 (50) 212 (424)

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Total property revenue consists of rental revenue and other property income.

Total property revenue increased $11.4 million, or 13%, to $96.7 million for the three months ended March 31, 2020 compared to $85.3 million for the three months ended March 31, 2019.

The percentage leased was as follows for each segment as of March 31, 2020 and 2019:

Total property revenue decreased $2.0 million, or 2%, to $82.1 million for the three months ended June 30, 2020 compared to $84.1 million for the three months ended June 30, 2019.

The percentage leased was as follows for each segment as of June 30, 2020 and 2019:

Percentage Leased (1)

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95.7 % 98.2 %

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of March 31, 2020 or 2019, as applicable.

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of June 30, 2020 or 2019, as applicable.

(2) Includes the retail portion of the mixed-use property only.

The increase in total property revenue was attributable primarily to the decrease in lease termination fees and factors discussed below.

The decrease in total property revenue was attributable primarily to the decrease in lease termination fees and factors discussed below.

Rental revenues .

Rental revenue includes minimum base rent, cost reimbursements, percentage rents and other rents.

Rental revenue increased $15.2 million, or 20%, to $92.1 million for the three months ended March 31, 2020 compared to $76.8 million for the three months ended March 31, 2019.

Rental revenue decreased $0.4 million, or 1%, to $79.2 million for the three months ended June 30, 2020 compared to $79.7 million for the three months ended June 30, 2019.

Rental revenue by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio (1)

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

2020 2019 2020 2019

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(ii) La Jolla Commons as it was acquired on June 20, 2019;

(iii) Torrey Point due to the renovation of the building;

(iii) One Beach Street due to the renovation of the building;

(iv) Waikiki Beach Walk Retail and Embassy Suites TM Hotel due to significant spalling repair activity;

and (v) land held for development.

Total office rental revenue increased $16.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had rental revenue of approximately $10.3 million during the period.

The increase in total office rental revenue is partially offset by the decrease in rental revenue at One Beach Street due to expiration of leases to allow for the modernization of the property.

Same-store office rental revenue increased $6.6 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to higher annualized base rents at The Landmark at One Market, Lloyd District Portfolio, Torrey Point, and City Center Bellevue.

Total retail rental revenue increased $0.6 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to higher annualized base rent at Waikele Center related to the Safeway lease and Carmel Mountain Plaza related to the At Home Stores lease.

Total mixed-use rental revenue decreased $1.5 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy through hotel reservation cancellations and travel restrictions in March 2020 which led to a decrease in average occupancy and revenue per available room of 75.4% and $242 for the three months ended March 31, 2020, respectively, compared to 91.8% and $290 for three months ended March 31, 2019, respectively.

The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce rental revenue at the hotel portion of the mixed-use property through at least the second quarter of 2020.

Total office rental revenue increased $14.0 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental rental revenue of approximately $9.5 million during the period.

The increase in total office rental revenue is partially offset by the decrease in rental revenue of approximately $0.8 million at One Beach Street due to expiration of leases to allow for the modernization of the property.

Same-store office rental revenue increased $5.4 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to higher annualized base rents at The Landmark at One Market, Lloyd District Portfolio, Torrey Point, and City Center Bellevue.

Total retail rental revenue decreased $4.3 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the increase in bad debt contra-revenue of rent receivables of approximately $0.7 million and straight-line rent receivables of approximately $1.4 million as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, and Carmel Country Plaza as the temporary store closures or restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic caused the financial condition of certain tenants to deteriorate.

Additionally, the decrease in total retail rental revenue is also attributable to decrease in cost reimbursements of approximately $1.5 million due to real estate tax refund at Alamo Quarry Market and a decrease in annualized base rent at Del Monte Center due to the bankruptcy of Forever 21.

The decrease in total retail rental revenue was partially offset by higher annualized base rent at Waikele Center related to the Safeway lease and higher annualized base rent at Carmel Mountain Plaza related to the At Home Stores lease.

Total multifamily rental revenue decreased $0.3 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the decrease in the average occupancy to 88.5% for the three months ended June 30, 2020 compared to 92.8% for the three months ended June 30, 2019.

The decrease in average occupancy is partially offset by the increase in average base rent per unit to $2,152 for the three months ended June 30, 2020 compared to $2,092 for the three months ended June 30, 2019.

Total mixed-use rental revenue decreased $9.8 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy through hotel reservation cancellations and travel restrictions during the second quarter which led to a decrease in average occupancy and revenue per available room to 17.0% and $34 for the three months ended June 30, 2020, respectively, compared to 91.6% and $282 for three months ended June 30, 2019, respectively.

The decrease in total mixed-use rental revenue is also attributed to the increase in bad debt contra-revenue of rent receivables of approximately $0.9 million and straight-line rent of approximately $0.2 million as the collectability was determined to be no longer probable for certain tenants at the retail portion of our mixed-use property.

Other property income .

Other property income decreased $3.8 million, or 45%, to $4.7 million for the three months ended March 31, 2020 compared to $8.5 million for the three months ended March 31, 2019.

Other property income decreased $1.6 million, or 35%, to $2.9 million for the three months ended June 30, 2020 compared to $4.5 million for the three months ended June 30, 2019.

Other property income by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

2020 2019 2020 2019

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$ 2,879 $ 4,457 $ (1,578) (35) % $ 1,937 $ 2,394 $ (457) (19) %

Office other property income increased $0.5 million for the three months ended March 31, 2020 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had parking income of $0.2 million during the period and Lloyd District Portfolio tenant improvement construction fee income.

Retail other property income decreased $4.2 million for the three months ended March 31, 2020 primarily due to non-cash lease termination fees recognized in connection with the termination of a ground lease, and ground lessee's surrender of,

the former Sears building at Carmel Mountain Plaza during the three months three months ended March 31, 2019.

Office other property income decreased $0.3 million for the three months ended June 30, 2020 primarily due to the decrease in parking garage income at City Center Bellevue, Lloyd District Portfolio, and First & Main as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic caused a substantial portion of our tenants employees and their guests to work from home during the period.

The decrease in office other property income was partially offset by the acquisition of La Jolla Commons on June 20, 2019, which had incremental parking income of $0.1 million and lease termination fees received at City Center Bellevue during the period.

Retail other property income decreased $0.1 million for the three months ended June 30, 2020 primarily due to the absence of the extension fee of approximately $0.3 million related to the option sale agreement for our former Solana Beach - Highway 101 property during the three months ended June 30, 2019.

The decrease in retail other property income was partially offset by the increase in lease termination fees received at Alamo Quarry Market during the period.

Mixed-use other property income decreased $0.1 million for the three months ended March 31, 2020 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy in March 2020 which lead to a decrease in excise tax and food & beverage revenue at the hotel portion of our mixed-use property and a decrease in parking income at the retail portion of our mixed-use property.

The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce mixed-use other property income through at least the second quarter of 2020.

Multifamily other property income decreased by $0.1 million for the three months ended June 30, 2020 primarily due to the decrease in parking garage income at Hassalo on Eighth and late fees.

Mixed-use other property income decreased $1.0 million for the three months ended June 30, 2020 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy beginning in March 2020 which led to a decrease in excise tax and food & beverage revenue at the hotel portion of our mixed-use property and a decrease in parking income at the retail portion of our mixed-use property.

The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce mixed-use other property income through at least the remainder of 2020.

Property Expenses

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Total property expenses consist of rental expenses and real estate taxes.

Total property expenses increased $3.8 million, or 13%, to $33.6 million, for the three months ended March 31, 2020 compared to $29.8 million for the three months ended March 31, 2019.

Total property expenses decreased $5.2 million, or 17%, to $25.9 million, for the three months ended June 30, 2020 compared to $31.1 million for the three months ended June 30, 2019.

Rental Expenses.

Rental expenses increased $1.8 million, or 9%, to $22.6 million for the three months ended March 31, 2020 compared to $20.8 million for the three months ended March 31, 2019.

Rental expenses decreased $4.8 million, or 22%, to $17.0 million for the three months ended June 30, 2020 compared to $21.8 million for the three months ended June 30, 2019.

Rental expense by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

2020 2019 2020 2019

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$ 16,981 $ 21,826 $ (4,845) (22) % $ 11,528 $ 12,130 $ (602) (5) %

Office rental expenses increased $1.7 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had rental expenses of $1.2 million during the period.

Same-store office rental expenses increased $0.5 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to an increase in commercial rent tax at The Landmark at One Market and higher janitorial services and repair and maintenance at City Center Bellevue, Solana Crossing, and Torrey Point during the period.

Multifamily rental expenses increased $0.4 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to an increase in personnel compensation expenses and repairs and maintenance during the period.

Mixed-use rental expense decreased $0.3 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to an decrease in hotel room expenses, marketing expenses, and general excise tax expenses at the hotel portion of our mixed-use property during the period.

The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce rental expenses at the hotel portion of our mixed-use property through at least the second quarter of 2020.

Total office rental expenses increased $0.5 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental rental expenses of $1.2 million during the period.

Same-store office rental expenses decreased $0.6 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to a decrease in utilities expense, janitorial services and supplies, and repairs and maintenance as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic caused substantial portion of our tenants' employees to work temporarily from home during

The decrease in same-store office rental expenses was partially offset by the increase in sublease expense related to the Annex Lease extension option exercised in March 2020.

Retail rental expenses decreased $0.4 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to a decrease in utilities, day porter services, repairs and maintenance, and trash services during the period as temporary store closures and restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic caused reduced demand for these rental expenses.

The decrease in retail rental expenses was partially offset by the increase in insurance expense and general excise tax during the period.

Multifamily rental expenses increased $0.3 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to an increase in personnel compensation expenses, utilities, security services, and insurance expense during the period.

Mixed-use rental expense decreased $5.3 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to a decrease in hotel room expenses, marketing expenses, and general excise tax expenses at the hotel portion of our mixed-use property during the period.

Additionally, the decrease in mixed-use rental expenses is also due to the decrease of personnel compensation, repairs and maintenance, and utilities expenses at the retail portion of our mixed-use property during the period.

Real Estate Taxes.

Real estate taxes increased $2.0 million, or 22%, to $11.0 million for the three months ended March 31, 2020 compared to $9.0 million for the three months ended March 31, 2019.

Real estate taxes decreased $0.3 million, or 3%, to $9.0 million for the three months ended June 30, 2020 compared to $9.3 million for the three months ended June 30, 2019.

Real estate tax expense by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

2020 2019 2020 2019

4 unchanged sentences

$ 8,961 $ 9,275 $ (314) (3) % $ 5,339 $ 7,399 $ (2,060) (28) %

Office real estate taxes increased $1.6 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had real estate taxes of

$1.4 million.

Same-store office real estate taxes increased $0.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to an increase in tax assessments at City Center Bellevue, The Landmark at One Market and Torrey Reserve Campus during the period.

Retail real estate taxes increased $0.1 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to an increase in tax assessments at Alamo Quarry Market, Waikele Center, and Carmel Mountain Plaza.

Mixed-use real estate taxes increased $0.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to an increase in tax assessments at the hotel portion of our mixed-use property.

Office real estate taxes increased $1.8 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental real estate taxes of $1.6 million.

Same-store office real estate taxes increased $0.2 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to an increase in tax assessments at City Center Bellevue, The Landmark at One Market and Torrey Reserve Campus during the period.

Retail real estate taxes decreased $2.4 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to a real estate tax refund of approximately $2.3 million at Alamo Quarry Market for the tax assessments for 2016 through 2018.

Mixed-use real estate taxes increased $0.2 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to an increase in tax assessments at the hotel portion of our mixed-use property.

Property Operating Income

Property operating income increased $7.7 million, or 14%, to $63.1 million for the three months ended March 31, 2020, compared to $55.5 million for the three months ended March 31, 2019.

Property operating income increased $3.2 million, or 6%, to $56.2 million for the three months ended June 30, 2020, compared to $53.0 million for the three months ended June 30, 2019.

Property operating income by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Three Months Ended March 31, Change % Three Months Ended March 31, Change %

Three Months Ended June 30, Change % Three Months Ended June 30, Change %

2020 2019 2020 2019

4 unchanged sentences

$ 56,167 $ 53,012 $ 3,155 6 % $ 45,552 $ 43,066 $ 2,486 6 %

Total office property operating income increased $13.4 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had property operating income of $7.8 million during the period.

Same-store property operating income increased $6.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due higher annualized base rents at The Landmark at One Market, Lloyd District Portfolio, Torrey Point, and City Center Bellevue during the period.

Total retail property operating income decreased $3.8 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the decrease in lease termination fees recognized in the prior period in connection with the termination of a ground lease, and ground lessee's surrender of, the former Sears building at Carmel Mountain Plaza.

The decrease in retail property operating income was partially offset by the increase in annualized base rents at Waikele Center and Carmel Mountain Plaza.

Total multifamily property operating income decreased $0.5 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to a an increase in personnel compensation expenses and repairs and maintenance during the period.

Total mixed-use property operating income decreased $1.4 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the impact of the COVID-19 pandemic reducing tourism and hotel occupancy in March 2020 which lead to a decrease in hotel occupancy and revenue per available room of 75.4% and $242 for the three months ended March 31, 2020 compared to 91.8% and $290 for the three months ended March 31, 2019.

The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce property other property income through at least the second quarter of 2020.

Total office property operating income increased $11.3 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental property operating income of $6.8 million during the period.

Same-store property operating income increased $5.3 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due higher annualized base rents at The Landmark at One Market, Lloyd District Portfolio, Torrey Point, and City Center Bellevue during the period.

Total retail property operating income decreased $1.6 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the increase in bad debt contra-revenue of approximately $2.1 million as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza and Carmel Country Plaza as the temporary store closures or restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic caused the financial condition of certain tenants to deteriorate.

The decrease in total retail property operating income was partially offset by the net property operating income related to the real estate tax refund at Alamo Quarry Market during the period and higher annualized base rent at Waikele Center related to the Safeway lease.

Total multifamily property operating income decreased $0.9 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the decrease in average occupancy to 88.5% for the three months ended June 30, 2020 compared to 92.8% for the three months ended June 30, 2019 and an increase in personnel compensation expenses, utilities, security services and insurance expense during the period.

Total mixed-use property operating income decreased $5.8 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the impact of the COVID-19 pandemic reducing tourism and hotel occupancy during the second quarter of 2020 which led to a decrease in hotel occupancy and revenue per available room to 17.0% and $34 for the three months ended June 30, 2020 compared to 91.6% and $282 for the three months ended June 30, 2019.

The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce property other property income through at least the remainder of 2020.

General and Administrative.

General and administrative expenses increased $0.7 million, or 12%, to $6.8 million for the three months ended March 31, 2020, compared to $6.1 million for the three months ended March 31, 2019.

General and administrative expenses increased $0.7 million, or 12%, to $6.7 million for the three months ended June 30, 2020, compared to $5.9 million for the three months ended June 30, 2019.

This increase was primarily due to increases in employee-related costs and furlough expense for our hotel staff.

Depreciation and Amortization.

Depreciation and amortization expense increased $6.9 million, or 33%, to $27.5 million for the three months ended March 31, 2020, compared to $20.6 million for the three months ended March 31, 2019.

This increase was primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had depreciation and amortization of $5.0 million during the period and higher depreciation and amortization at Lloyd District Portfolio and Waikele Center due to tenant improvements that were put into service in 2019 and 2020.

Depreciation and amortization expense increased $3.9 million, or 17%, to $26.5 million for the three months ended June 30, 2020, compared to $22.6 million for the three months ended June 30, 2019.

This increase was primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental depreciation and amortization of $2.9 million during the period and higher depreciation and amortization at Lloyd District Portfolio, City Center Bellevue, Torrey Point and Waikele Center due to tenant improvements that were put into service in 2019 and 2020.

Interest Expense.

Interest expense increased $0.1 million, or 1%, to $13.5 million for the three months ended March 31, 2020, compared to $13.3 million for the three months ended March 31, 2019.

This increase was primarily due to the closing of our offering of Series G Notes on July 30, 2019, offset by the repayment of the mortgage loans at Torrey Reserve - VCI, VCII, VCIII, Solana Crossing I-II, and Solana Beach Towne Centre on March 2, 2020.

Interest expense increased $0.2 million, or 2%, to $13.3 million for the three months ended June 30, 2020, compared to $13.1 million for the three months ended June 30, 2019.

This increase was primarily due to the closing of our offering of Series G Notes on July 30, 2019 and higher average outstanding balance on the line of credit in 2020, offset by the repayment of the mortgage loans at Torrey Reserve - VCI, VCII, VCIII, Solana Crossing I-II, and Solana Beach Towne Centre on March 2, 2020.

Gain on Sale of Real Estate.

Gain on sale of real estate of $0.6 million during the prior period relates to our sale of Solana Beach - Highway 101 on May 22, 2019.

Other Income (Expense), Net.

Other income (expense), net increased $0.3 million, or 147%, to other income, net of $0.1 million for the three months ended March 31, 2020, compared to other expense, net of $0.2 million for the three months ended March 31, 2019 primarily due to an increase in interest and investment income attributed to higher average cash balance during the period and by a decrease in income tax expense related to lower taxable income for our taxable REIT subsidiary.

Other income (expense), net increased $0.2 million, or 424%, to other income, net of $0.2 million for the three months ended June 30, 2020, compared to other expense, net of $0.1 million for the three months ended June 30, 2019 primarily due to a decrease in income tax expense related to lower taxable income for our taxable REIT subsidiary.

Comparison of the Six Months Ended June 30, 2020 to the Six Months Ended June 30, 2019

The following summarizes our consolidated results of operations for the six months ended June 30, 2020 compared to our consolidated results of operations for the six months ended June 30, 2019.

The following table sets forth selected data from our unaudited consolidated statements of income for the six months ended June 30, 2020 and 2019 (dollars in thousands):

Six Months Ended June 30, Change %

Rental income $ 171,300 $ 156,487 $ 14,813 9 %

Other property income 7,552 12,945 (5,393) (42)

Total property revenues 178,852 169,432 9,420 6

Rental expenses 39,549 42,622 (3,073) (7)

Real estate taxes 20,006 18,321 1,685 9

Total property expenses 59,555 60,943 (1,388) (2)

Total property income 119,297 108,489 10,808 10

General and administrative (13,499) (12,016) (1,483) 12

Depreciation and amortization (53,955) (43,165) (10,790) 25

Interest expense (26,803) (26,478) (325) 1

Gain on sale of real estate — 633 (633) 100

Other income (expense), net 270 (279) 549 197

Net income 25,310 27,184 (1,874) (7)

Net income attributable to restricted shares (173) (185) 12 (6)

Net income attributable to unitholders in the Operating Partnership

(5,413) (6,988) 1,575 (23)

Net income attributable to American Assets Trust, Inc.

$ 19,724 $ 20,011 $ (287) (1) %

Total property revenues .

Total property revenue consists of rental revenue and other property income.

Total property revenue increased $9.4 million, or 6%, to $178.9 million for the six months ended June 30, 2020 compared to $169.4 million for the six months ended June 30, 2019.

The percentage leased was as follows for each segment as of June 30, 2020 and 2019:

Percentage Leased (1)

Office 94.4 % 93.7 %

Retail 94.7 % 97.5 %

Multifamily 85.1 % 92.6 %

Mixed-Use (2)

95.7 % 98.2 %

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of June 30, 2020 or June 30, 2019, as applicable.

(2) Includes the retail portion of the mixed-use property only.

The increase in total property revenue was attributable primarily to the factors discussed below.

Rental revenues .

Rental revenue includes minimum base rent, cost reimbursements, percentage rents and other rents.

Rental revenue increased $14.8 million, or 9%, to $171.3 million for the six months ended June 30, 2020 compared to $156.5 million for the six months ended June 30, 2019.

Rental revenue by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio (1)

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

2020 2019 2020 2019

Office $ 85,261 $ 55,100 $ 30,161 55 $ 63,654 $ 51,691 $ 11,963 23

Retail 46,376 50,080 (3,704) (7) 38,215 42,928 (4,713) (11)

Multifamily 23,704 24,068 (364) (2) 23,704 24,068 (364) (2)

Mixed-Use 15,959 27,239 (11,280) (41) — — — —

$ 171,300 $ 156,487 $ 14,813 9 % $ 125,573 $ 118,687 $ 6,886 6 %

(1) For this table and tables following, the same-store portfolio includes the 830 building at Lloyd District Portfolio which was placed into operations on August 1, 2019 after renovating the building.

The same-store portfolio excludes:

(i) Waikele Center due to significant redevelopment activity;

(ii) La Jolla Commons as it was acquired on June 20, 2019;

(iii) One Beach Street due to the renovation of the building;

(iv) Waikiki Beach Walk Retail and Embassy Suites TM Hotel due to significant spalling repair activity;

and (v) land held for development.

Total office rental revenue increased $30.2 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental rental revenue of approximately $19.7 million during the period.

Same-store office rental revenue increased $12.0 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to higher annualized base rents at The Landmark at One Market, Lloyd District Portfolio, City Center Bellevue, Torrey Point, and Solana Crossing.

Total retail rental revenue decreased $3.7 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the increase in bad debt contra-revenue of rent receivables of approximately $0.7 million and straight-line rent receivables of approximately $1.4 million as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, and Carmel Country Plaza as the temporary store closures or restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic caused the financial condition of certain tenants to deteriorate.

Additionally, the decrease in total retail rental revenue is also attributable to decrease in cost reimbursements of approximately $1.5 million due to a real estate tax refund at Alamo Quarry Market.

Multifamily rental revenue decreased $0.4 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the decrease in the average occupancy to 90.5% for the six months ended June 30, 2020 compared to 93.7% for the six months ended June 30, 2019.

The decrease in average occupancy is partially offset by the increase in average base rent per unit to $2,115 for the six months ended June 30, 2020 compared to $2,074 for the six months ended June 30, 2019.

Mixed-use rental revenue decreased $11.3 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy through hotel reservation cancellations and travel restrictions during the second quarter, which led to a decrease in average occupancy and revenue per available room to 46.4% and $139 for the six months ended June 30, 2020, respectively, compared to 91.7% and $286 for six months ended June 30, 2019, respectively.

Other property income .

Other property income decreased $5.4 million, or 42%, to $7.6 million for the six months ended June 30, 2020 compared to $12.9 million for the six months ended June 30, 2019.

Other property income by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

2020 2019 2020 2019

Office $ 3,128 $ 2,906 $ 222 8 $ 2,721 $ 2,886 $ (165) (6)

Retail 942 5,228 (4,286) (82) 563 4,595 (4,032) (88)

Multifamily 1,584 1,728 (144) (8) 1,584 1,728 (144) (8)

Mixed-Use 1,898 3,083 (1,185) (38) — — — —

$ 7,552 $ 12,945 $ (5,393) (42) % $ 4,868 $ 9,209 $ (4,341) (47) %

Total office other property income increased $0.2 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental other property income of approximately $0.4 million during the period.

Same-store office other property income decreased $0.2 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to decrease in parking garage income at Lloyd District Portfolio, City Center Bellevue and First & Main during the period as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic caused a substantial portion of our tenants employees and their guests to work from home during the period.

Total retail other property income decreased $4.3 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to non-cash lease termination fees recognized in connection with the termination of a ground lease, and the ground lessee's surrender of, the former Sears building at Carmel Mountain Plaza during the six months ended June 30, 2019.

The decrease in retail other property income was partially offset by an increase in lease termination fees received at Alamo Quarry Market during the quarter.

Total multifamily other property income decreased $0.1 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the decrease in parking garage income at Hassalo on Eighth and late fees.

Total mixed-use other property income decreased $1.2 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy beginning in March 2020 which led to a decrease in excise tax and food & beverage revenue at the hotel portion of our mixed-use property and a decrease in parking income at the retail portion of our mixed-use property.

The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce mixed-use other property income through at least the remainder of 2020.

Property Expenses

Total Property Expenses.

Total property expenses consist of rental expenses and real estate taxes.

Total property expenses decreased by $1.4 million, or 2%, to $59.6 million for the six months ended June 30, 2020, compared to $60.9 million for the six months ended June 30, 2019.

This decrease in total property expenses was attributable primarily to the factors discussed below .

Rental Expenses.

Rental expenses decreased $3.1 million, or (7)%, to $39.5 million for the six months ended June 30, 2020, compared to $42.6 million for the six months ended June 30, 2019.

Rental expense by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

2020 2019 2020 2019

Office $ 13,816 $ 11,636 $ 2,180 19 $ 10,934 $ 11,026 $ (92) (1)

Retail 7,113 7,467 (354) (5) 5,546 5,831 (285) (5)

Multifamily 7,489 6,794 695 10 7,489 6,794 695 10

Mixed-Use 11,131 16,725 (5,594) (33) — — — —

$ 39,549 $ 42,622 $ (3,073) (7) % $ 23,969 $ 23,651 $ 318 1 %

Total office rental expenses increased $2.2 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental rental expenses of approximately $2.3 million during the period.

Same-store office rental expenses decreased $0.1 million for the six

months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to utilities expense, janitorial services and supplies, and repairs and maintenance as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic caused a substantial portion of our tenants' employees to work from home during the period.

The decrease in same-store office rental expenses was partially offset by the increase in sublease expense related to the Annex Lease extension option exercised in March 2020, an increase in commercial rent tax at The Landmark at One Market, and an increase in insurance expense during the period.

Total retail rental expenses decreased $0.4 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to a decrease in utilities, day porter services, repairs and maintenance and trash services during the period as temporary store closures and restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic caused reduced demand for these rental expenses.

The decrease in retail rental expense was partially offset by the increase in insurance expense and general excise tax during the period.

Total multifamily rental expenses increased $0.7 million or the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to an increase in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to personnel compensation expenses, utilities, security services and insurance expense during the period.

Total mixed-use rental expenses decreased $5.6 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to decrease in hotel room expenses, marketing expenses, and general excise tax expenses at the hotel portion of our mixed-use property during the period.

Real Estate Taxes.

Real estate tax expense increased $1.7 million, or 9%, to $20.0 million for the six months ended June 30, 2020 compared to $18.3 million for the six months ended June 30, 2019.

Real estate tax expense by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

2020 2019 2020 2019

Office $ 9,578 $ 6,122 $ 3,456 56 $ 6,052 $ 5,611 $ 441 8

Retail 5,125 7,418 (2,293) (31) 3,676 5,967 (2,291) (38)

Multifamily 3,334 3,162 172 5 3,334 3,161 173 5

Mixed-Use 1,969 1,619 350 22 — — — —

$ 20,006 $ 18,321 $ 1,685 9 % $ 13,062 $ 14,739 $ (1,677) (11) %

Total office real estate taxes increased $3.5 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental real estate taxes of approximately $3.1 million during the period.

Same-store office real estate taxes increased $0.4 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to an increase in tax assessments at City Center Bellevue, The Landmark at One Market and Torrey Reserve Campus during the period.

Retail real estate taxes decreased $2.3 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to a net real estate tax refund of approximately $2.3 million at Alamo Quarry Market for the tax assessments for 2016 through 2018.

Multifamily real estate taxes increased $0.2 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to an increase in tax assessments for Pacific Ridge Apartments and Lomas Palisades.

Mixed-use real estate taxes increased $0.4 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to an increase in tax assessments for the hotel portion of our mixed-use property.

Property Operating Income

Property operating income increased $10.8 million, or 10%, to $119.3 million for the six months ended June 30, 2020, compared to $108.5 million for the six months ended June 30, 2019.

Property operating income by segment was as follows (dollars in thousands):

Total Portfolio Same-Store Portfolio

Six Months Ended June 30, Change % Six Months Ended June 30, Change %

2020 2019 2020 2019

Office $ 64,995 $ 40,248 $ 24,747 61 $ 49,389 $ 37,940 $ 11,449 30

Retail 35,080 40,423 (5,343) (13) 29,556 35,725 (6,169) (17)

Multifamily 14,465 15,840 (1,375) (9) 14,465 15,841 (1,376) (9)

Mixed-Use 4,757 11,978 (7,221) (60) — — — —

$ 119,297 $ 108,489 $ 10,808 10 % $ 93,410 $ 89,506 $ 3,904 4 %

Total office property operating income increased $24.7 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental property operating income of $14.7 million during the period.

Same-store property operating income increased $11.4 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to higher annualized base rents at The Landmark at One Market, Lloyd District Portfolio, City Center Bellevue, Torrey Point, and Solana Crossing.

Total retail property operating income decreased $5.3 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to an increase in bad debt contra-revenue of approximately $2.0 million as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza and Carmel Country Plaza as the temporary store closures or restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic caused the financial condition of certain tenants to deteriorate.

Additionally, the decrease in total retail property operating income was also due to the non-cash lease termination fees recognized in connection with the termination of a ground lease, and the ground lessee's surrender of, the former Sears building at Carmel Mountain Plaza during the prior period.

The decrease i total retail property operating income was partially offset by the net property operating income related to the real estate tax refund at Alamo Quarry Market during the period and higher annualized base rent at Waikele Center related to the Safeway lease and higher annualized base rent at Carmel Mountain Plaza related to the At Home Stores lease.

Multifamily property operating income decreased $1.4 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the average occupancy of 90.5% for the six months ended June 30, 2020 compared to 93.7% for the six months ended June 30, 2019 and an increase in personnel compensation expenses, utilities, security services and insurance expense during the period.

Total mixed-use property operating income decreased $7.2 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the impact of the COVID-19 pandemic reducing tourism and hotel occupancy during the second quarter of 2020 which led to a decrease in hotel occupancy and revenue per available room to 46.4% and $139 for the six months ended June 30, 2020 compared to 91.7% and $286 for the six months ended June 30, 2019.

The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce property operating income through at least the remainder of 2020.

General and Administrative.

General and administrative expenses increased $1.5 million, or 12%, to $13.5 million for the six months ended June 30, 2020, compared to $12.0 million for the six months ended June 30, 2019.

This increase was primarily due to an increase in employee-related costs and furlough expense for our hotel staff.

Depreciation and Amortization.

Depreciation and amortization expense increased $10.8 million, or 25%, to $54.0 million for the six months ended June 30, 2020, compared to $43.2 million for the six months ended June 30, 2019.

This increase was primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental depreciation and amortization of $7.9 million during the period and higher depreciation and amortization at Lloyd District Portfolio, City Center Bellevue, Torrey Point and Waikele Center due to tenant improvements that were put into service in 2019 and 2020.

Interest Expense.

Interest expense increased $0.3 million, or 1%, to $26.8 million for the six months ended June 30, 2020 compared to $26.5 million for the six months ended June 30, 2019.

This increase was primarily due to the closing of our offering of Series G Notes on July 30, 2019, offset by the repayment of the mortgage loans at Torrey Reserve - VCI, VCII,

VCIII, Solana Crossing I-II, and Solana Beach Towne Centre on March 2, 2020 and a higher weighted average interest rate on the line of credit in 2019.

Gain on Sale of Real Estate.

Gain on sale of real estate of $0.6 million during the prior period relates to our sale of Solana Beach - Highway 101 on May 22, 2019.

Other Income (Expense), Net.

Other income (expense), net increased $0.5 million , o r 197%, to other income, net of $0.3 million for the six months ended June 30, 2020, compared to other expense, net of $0.3 million for the six months ended June 30, 2019 primarily due to a decrease in income tax expense related to lower taxable income for our taxable REIT subsidiary and an increase in interest and investment income attributed to higher average cash balances during the period.

Liquidity and Capital Resources of American Assets Trust, Inc.

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The company’s principal source of funding for its dividend payments is distributions it receives from the Operating Partnership.

As of March 31, 2020, the company owned an approximate 78.5% partnership interest in the Operating Partnership.

As of June 30, 2020, the company owned an approximate 78.5% partnership interest in the Operating Partnership.

The remaining 21.5% are owned by non-affiliated investors and certain of the company's directors and executive officers.

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We believe the Operating Partnership’s sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured line of credit, are adequate for it to make its distribution payments to the company and, in turn, for the company to make its dividend payments to its stockholders.

As of March 31, 2020, the company has determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months.

As of June 30, 2020, the company has determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months.

However, we cannot assure you that the Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distribution payments to the company.

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The COVID-19 pandemic is expected to temporarily impact some of our tenants' ability or willingness to remit rent payments due to the tenants' operations being affected by state and local stay-at-home orders.

In March and April 2020, we received rent deferment requests from some tenants and have begun negotiating and executing lease modifications for the deferment of rent.

These rent deferments may adversely affect the Operating Partnership's cash flow from operations.

In the second quarter of 2020, we received rent deferment requests from some tenants' and have begun negotiating and executing lease modifications for the deferment of rent.

These rent deferments will continue to adversely affect the Operating Partnership's cash flow from operations until the scheduled repayment period.

Our short-term liquidity requirements consist primarily of funds to pay for future dividends expected to be paid to the company’s stockholders, operating expenses and other expenditures directly associated with our properties, interest expense and scheduled principal payments on outstanding indebtedness, general and administrative expenses, funding construction projects, capital expenditures, tenant improvements and leasing commissions.

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The sales of shares of the company's 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.

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

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

We intend to use the net proceeds to fund development or redevelopment activities, repay amounts outstanding from time to time under our amended and restated credit facility or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes.

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must generally make annual distributions to its stockholders of at least 90% of its net taxable income.

As of March 31, 2020, we held $52.4 million in cash and cash equivalents.

As of June 30, 2020, we held $146.1 million in cash and cash equivalents.

Our short-term liquidity requirements consist primarily of operating expenses and other expenditures associated with our properties, regular debt service requirements, dividend payments to American Assets Trust, Inc.'s stockholders required to maintain its REIT status, distributions to our unitholders, capital expenditures and, potentially, acquisitions.

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We currently do not have any off-balance sheet arrangements.

Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019

Cash, cash equivalents, and restricted cash were $56.8 million and $64.3 million at March 31, 2020 and 2019, respectively.

Net cash provided by operating activities increased $8.5 million to $45.4 million for the three months ended March 31, 2020 compared to $36.8 million for the three months ended March 31, 2019.

The increase in cash from operations was primarily due to the increase in annualized base rents at The Landmark at One Market, Lloyd District Portfolio, Torrey Point

and City Center Bellevue, the acquisition of La Jolla Common, which was acquired on June 20, 2019 and changes in operating assets and liabilities.

Net cash used in investing activities increased $1.5 million to $23.9 million for the three months ended March 31, 2020 compared to $22.4 million for the three months ended March 31, 2019.

The increase was primarily due to the capital expenditures for tenant improvements at City Center Bellevue, Lloyd District Portfolio, and Torrey Reserve Campus.

Net cash used in financing activities increased $66.7 million to cash provided of $74.1 million for the three months ended March 31, 2020 compared to cash used of $7.4 million for the three months ended March 31, 2019.

The increase in cash used in financing activities was primarily due to payoff of the mortgages at Solana Beach Towne Centre, Solana Beach Corporate Center I-II, and Torrey Reserve VCI, VCII, VCIII during the first quarter of 2020 and an increase in dividends primarily due the increase in shares outstanding as a result of our underwritten public offering that settled on June 14, 2019.

Comparison of the six months ended June 30, 2020 to the six months ended June 30, 2019

Cash, cash equivalents, and restricted cash were $150.1 million and $54.5 million at June 30, 2020 and 2019, respectively.

Net cash provided by operating activities decreased $1.0 million to $69.1 million for the six months ended June 30, 2020 compared to $70.2 million for the six months ended June 30, 2019.

The decrease in cash from operations was primarily due to the decrease in rental revenue from the hotel portion of our mixed-use property and a decrease in rent collections from our retail portfolio.

Net cash used in investing activities decreased $510.9 million to $39.1 million for the six months ended June 30, 2020 compared to $550.1 million for the six months ended June 30, 2019.

The decrease was primarily due to the acquisition of La Jolla Commons on June 20, 2019 in the prior period.

Net cash used in financing activities decreased $466.4 million to cash provided of $10.6 million for the six months ended June 30, 2020 compared to cash provided of $477.1 million for the six months ended June 30, 2019.

The decrease in cash provided by financing activities was primarily due to underwritten public offering that settled on June 14, 2019.

Net Operating Income

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Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

The following is a reconciliation of our NOI to net income for the three months ended March 31, 2020 and 2019 computed in accordance with GAAP (in thousands):

Three Months Ended March 31,

The following is a reconciliation of our NOI to net income for the three and six months ended June 30, 2020 and 2019 computed in accordance with GAAP (in thousands):

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

2020 2019 2020 2019

Net operating income $ 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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FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

The following table sets forth a reconciliation of our FFO for the three months ended March 31, 2020 to net income, the nearest GAAP equivalent (in thousands, except per share and share data):

Three Months Ended March 31,

The following table sets forth a reconciliation of our FFO for the three and six months ended June 30, 2020 to net income, the nearest GAAP equivalent (in thousands, except per share and share data):

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

Funds from Operations (FFO)

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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 2. Management’s Discussion and Analysis