What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-07-31 · 174 added, 117 removed, 878 unchanged (25% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

June 30, December 31,

September 30, December 31,

Real estate, at cost

22 unchanged sentences

stockholders’ equity

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

Common stock, $0.01 par value, 490,000,000 shares authorized, 60,282,929 and 60,068,228 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 603 601

Additional paid-in capital 1,443,764 1,452,014

10 unchanged sentences

(In Thousands, Except Shares and Per Share Data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

10 unchanged sentences

Gain on sale of real estate — — — 633

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

Other (expense) income, net ( 531 ) ( 131 ) ( 261 ) ( 410 )

NET INCOME 6,490 16,519 31,800 43,703

14 unchanged sentences

Other comprehensive income (loss) - unrealized income (loss) on swap derivatives during the period 1,201 ( 1,094 ) ( 4,900 ) ( 7,117 )

Other comprehensive income - unrealized gain on forward-starting interest rate swaps — 513 — 513

Reclassification of amortization of forward-starting swap included in interest expense ( 332 ) ( 333 ) ( 997 ) ( 972 )

27 unchanged sentences

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

Net income — — — 5,125 — 1,365 6,490

Conversion of operating partnership units 209,011 2 ( 12,003 ) — 3 11,998 —

Dividends declared and paid — — — ( 15,071 ) — ( 4,045 ) ( 19,116 )

Stock-based compensation — — 1,251 — — — 1,251

Other comprehensive income - change in value of interest rate swaps — — — — 940 261 1,201

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

Balance at September 30, 2020 60,282,929 $ 603 $ 1,443,764 $ ( 164,462 ) $ 1,034 $ ( 14,957 ) $ 1,265,982

Common Shares Additional

21 unchanged sentences

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

Net income — — — 12,954 — 3,565 16,519

Common shares issued 234,814 2 10,918 — — — 10,920

Forfeiture of restricted stock ( 590 ) — — — — — —

Dividends declared and paid — — — ( 16,764 ) — ( 4,589 ) ( 21,353 )

Stock-based compensation — — 1,130 — — — 1,130

Other comprehensive income - change in value of interest rate swaps — — — — ( 841 ) ( 253 ) ( 1,094 )

Other comprehensive income - unrealized gain on forward-starting interest rate swaps — — — — 388 125 513

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 261 ) ( 72 ) ( 333 )

Balance at September 30, 2019 59,956,972 $ 599 $ 1,450,816 $ ( 139,307 ) $ 5,162 $ ( 19,046 ) $ 1,298,224

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

2 unchanged sentences

(In Thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

7 unchanged sentences

Stock-based compensation expense 3,753 3,359

Settlement of derivative instruments — 513

Lease termination income — ( 4,518 )

Unrealized loss on hedging activities 551 —

Other noncash interest expense ( 997 ) ( 972 )

17 unchanged sentences

Repayment of unsecured line of credit — ( 123,000 )

Proceeds from unsecured notes payable — 150,000

Debt issuance costs — ( 1,091 )

1 unchanged sentence

Dividends paid to common stock and unitholders ( 57,346 ) ( 57,667 )

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

Net cash (used in) provided by financing activities ( 8,468 ) 520,708

Net increase (decrease) in cash and cash equivalents 47,107 68,790

2 unchanged sentences

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:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents 155,327 115,568

5 unchanged sentences

(In Thousands, Except Unit Data)

June 30, December 31,

September 30, December 31,

Real estate, at cost

20 unchanged sentences

Commitments and contingencies (Note 11)

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

Limited partners' capital, 16,181,537 and 16,390,548 units issued and outstanding as of September 30, 2020 and December 31, 2019, respectively ( 15,742 ) ( 22,281 )

General partner's capital, 60,282,929 and 60,068,228 units issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 1,279,905 1,308,237

Accumulated other comprehensive income 1,819 7,716

5 unchanged sentences

(In Thousands, Except Shares and Per Unit Data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

10 unchanged sentences

Gain on sale of real estate — — — 633

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

Other (expense) income, net ( 531 ) ( 131 ) ( 261 ) ( 410 )

NET INCOME 6,490 16,519 31,800 43,703

14 unchanged sentences

Other comprehensive income (loss) - unrealized income (loss) on swap derivative during the period 1,201 ( 1,094 ) ( 4,900 ) ( 7,117 )

Other comprehensive income - unrealized gain on forward-starting interest rate swaps — 513 — 513

Reclassification of amortization of forward-starting swap included in interest expense ( 332 ) ( 333 ) ( 997 ) ( 972 )

25 unchanged sentences

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

Net income — 1,365 — 5,125 — 6,490

Conversion of operating partnership units ( 209,011 ) 12,001 209,011 ( 12,001 ) — —

Distributions — ( 4,045 ) — ( 15,071 ) — ( 19,116 )

Stock-based compensation — — — 1,251 — 1,251

Other comprehensive income - change in value of interest rate swap — — — — 1,201 1,201

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

Balance at September 30, 2020 16,181,537 $ ( 15,742 ) 60,282,929 $ 1,279,905 $ 1,819 $ 1,265,982

Limited Partners' Capital (1)

22 unchanged sentences

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

Net income — 3,565 — 12,954 — 16,519

Contributions from American Assets Trust, Inc.

— — 234,814 10,920 — 10,920

Forfeiture of restricted units — — ( 590 ) — — —

Distributions — ( 4,589 ) — ( 16,764 ) — ( 21,353 )

Stock-based compensation — — — 1,130 — 1,130

Other comprehensive income - change in value of interest rate swap — — — — ( 1,094 ) ( 1,094 )

Other comprehensive income - unrealized gain on forward-starting interest rate swaps — — — — 513 513

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 333 ) ( 333 )

Balance at September 30, 2019 16,390,548 $ ( 20,899 ) 59,956,972 $ 1,312,108 $ 7,015 $ 1,298,224

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

4 unchanged sentences

(Unaudited, In Thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

7 unchanged sentences

Stock-based compensation expense 3,753 3,359

Settlement of derivative instruments — 513

Lease termination income — ( 4,518 )

Unrealized loss on hedging activities 551 —

Other noncash interest expense ( 997 ) ( 972 )

17 unchanged sentences

Repayment of unsecured line of credit — ( 123,000 )

Proceeds from unsecured notes payable — 150,000

Debt issuance costs — ( 1,091 )

2 unchanged sentences

Distributions ( 57,346 ) ( 57,667 )

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

Net cash (used in) provided by financing activities ( 8,468 ) 520,708

Net increase (decrease) in cash and cash equivalents 47,107 68,790

2 unchanged sentences

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents $ 155,327 $ 115,568

5 unchanged sentences

Notes to Consolidated Financial Statements

June 30, 2020

September 30, 2020

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

We are a full service, vertically integrated, and self-administered REIT with approximately 199 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.

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.

As of September 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 September 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)

June 30, 2020

September 30, 2020

Basis of Presentation

11 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 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 six months ended June 30, 2020.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 30, 2020

Segment Information

12 unchanged sentences

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.

The provision for doubtful accounts at September 30, 2020 and December 31, 2019 was approximately $ 10.0 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.

During the third 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.

We assess each lease concession and determine whether it represents a lease modifications under Accounting Standards Codification Topic 842, Leases ("ASC 842").

As of September 30, 2020, we have entered into lease modifications that resulted in COVID-19 adjustments (including rent deferrals and other monetary lease concessions) for approximately 2 % of the rent originally contracted for the three months ended September 30, 2020.

Recent Accounting Pronouncements

9 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 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 June 30, 2020 and December 31, 2019 (in thousands):

June 30, 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 September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020 December 31, 2019

In-place leases $ 61,150 $ 63,896

22 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 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.

However, as of September 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.

2 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 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):

June 30, 2020 December 31, 2019

September 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):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Carrying Value Fair Value Carrying Value Fair Value

11 unchanged sentences

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 June 30, 2020 (dollars in thousands):

On August 11, 2020, we entered into a treasury lock contract (the "August 2020 Treasury Lock") with Wells Fargo Bank, N.A., to reduce the interest rate variability exposure of the projected interest cash flows of a then prospective future financing.

The treasury lock contract has a notional amount of $ 200 million, termination date of November 12, 2020 , a fixed pay rate of 0.7115 %, and a receive rate equal to the ten years treasury rate on the settlement date.

We determined that there was no compelling reason from a capital requirement perspective to move forward with the prospective financing at prevailing rates and, as a result, on October 1, 2020, we settled t he August 2020 Treasury Lock, resulting in no gain or loss.

The treasury lock contract was deemed to not be an effective cash flow hedge and, as a result, the unrealized accrued loss at September 30, 2020 was charged to other (expense) income, net on the consolidated statements of comprehensive income.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

The following is a summary of the terms of our outstanding interest rate swaps as of September 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 $ ( 1,659 )

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.

Wells Fargo Bank, N.A.

$ 200,000 8/11/2020 11/12/2020 $ ( 551 )

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.

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):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Leasing commissions, net of accumulated amortization of $33,718 and $30,775, respectively $ 39,725 $ 42,539

8 unchanged sentences

Total other assets $ 108,222 $ 93,220

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

OTHER LIABILITIES AND DEFERRED CREDITS

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Acquired below market leases, net $ 22,608 $ 25,452

12 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 30, 2020

Debt of American Assets Trust, Inc.

5 unchanged sentences

Additionally, American Assets Trust, Inc.

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

has provided a carve-out guarantee on the 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 June 30, 2020 and December 31, 2019 (in thousands):

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

Principal Balance as of Stated Interest Rate Stated Maturity Date

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

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

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

13 unchanged sentences

Certain loans require us to comply with various financial covenants.

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

As of September 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)

June 30, 2020

September 30, 2020

Unsecured notes payable

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):

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

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

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

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

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

19 unchanged sentences

(1) The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan A at approximately 4.08 % through its stated maturity date, subject to adjustments based on our consolidated leverage ratio.

In October 2020, the operating partnership exercised an option to extend the maturity date of Term Loan A to January 9, 2022.

(2) The Operating Partnership entered into a one-month forward-starting seven years swap contract on August 19, 2014, which was settled on September 19, 2014 at a gain of approximately $ 1.6 million.

7 unchanged sentences

(6) The Operating Partnership entered into forward-starting interest rate swap contracts on March 29, 2016 and April 7, 2016, which were settled on January 18, 2017 at a gain of approximately $ 10.4 million.

The forward-starting interest swap rate contracts were deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.87 % per annum.

Each of the forward-starting interest swap rate contracts were deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.87 % per annum.

(7) The Operating Partnership entered into a treasury lock contract on April 25, 2017, which was settled on May 11, 2017 at a gain of approximately $ 0.7 million.

8 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

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

As of September 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 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.

At September 30, 2020, there was $ 100 million outstanding under the Revolver Loan and we had incurred approximately $ 1.0 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 %.

For the nine months ended September 30, 2020, the weighted average interest rate on the Revolver Loan was 1.38 %.

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.

1 unchanged sentence

On January 9, 2019, we entered into the first amendment (“First Amendment”) to the Second Amended and Restated Credit Facility, which extended the maturity date of Term Loan A to January 9, 2021, subject to three , one year extension options.

Additionally, in connection with the First Amendment, borrowings under the Second Amended and Restated Credit Facility with respect to Term Loan A bear interest at floating rates equal to, at our option, either (1) LIBOR , plus a spread which ranges from 1.20 % to 1.70 % based on our consolidated total 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) the Eurodollar rate plus 100 bps, in each case plus a spread which ranges from 0.20 % to 0.70 % based on our consolidated total leverage ratio.

The foregoing rates are intended to be more

In October 2020, we exercised an option to extend the maturity date of Term Loan A to January 9, 2022, subject to certain conditions.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

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.

September 30, 2020

which ranges from 0.20 % to 0.70 % based on our consolidated total leverage ratio.

The foregoing rates are intended to be more 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.

Additionally, the Second Amended and Restated Credit Facility includes a number of customary financial covenants, including:

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

As of September 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 June 30, 2020.

Noncontrolling interests consisted of 16,181,537 common units (the “noncontrolling common units”), and represented approximately 21.3 % of the ownership interests in our Operating Partnership at September 30, 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 six months ended June 30, 2020, no common units were converted into shares of our common stock.

During the three and nine months ended September 30, 2020, 209,011 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 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.

The calculation of diluted EPU for the three months ended September 30, 2020 and 2019 does not include the weighted average of 346,434 and 329,652 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 nine months ended September 30, 2020 and 2019 does not include the weighted average of 345,613 and 331,245 unvested Operating Partnership units, respectively.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

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

During the nine months ended September 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 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.

As of September 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 six months ended June 30, 2020:

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

Period Amount per

2 unchanged sentences

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

Third Quarter 2020 $ 0.25 July 1, 2019 to September 30, 2019 September 24, 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 six months ended June 30, 2020:

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

Units Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 318 ) 29.58

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.

Nonvested at September 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 September 30, 2020 and 2019, respectively, which is included in general and administrative expense on the consolidated statements of comprehensive income.

We recognized $ 3.8 million and $ 3.4 million in noncash compensation expense for the nine months ended September 30, 2020 and 2019, respectively.

Unrecognized compensation expense was $ 3.6 million at September 30, 2020.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 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 345,241 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.

The weighted average unvested shares outstanding, which are considered participating securities, were 346,434 and 329,652 for the three months ended September 30, 2020 and 2019, respectively and 345,613 and 331,245 for the nine months ended September 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 and six months ended June 30, 2020 and 2019, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

For the three and nine months ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 30, 2020

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

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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.

A deferred tax liability is included in our consolidated balance sheets of $ 0.5 million and $ 0.3 million as of September 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 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.

For the three and nine months ended September 30, 2020, we recorded income tax benefit of $ 0.0 million and income tax expense of $ 0.1 million, respectively.

For the three and nine months ended September 30, 2019, we recorded income tax expense of $ 0.3 million and $ 0.7 million, respectively.

COMMITMENTS AND CONTINGENCIES

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Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 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 $ 6.7 million based on operating performance through June 30, 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 $ 6.1 million based on operating performance through September 30, 2020.

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

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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 26.5 % of total revenues for the six months ended June 30, 2020.

Tenants in the retail industry accounted for 25.8 % of total revenues for the nine months ended September 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 49.4 % of total revenues for the six months ended June 30, 2020.

Furthermore, tenants in the office industry accounted for 50.6 % of total revenues for the nine months ended September 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 six months ended June 30, 2020 and 2019, no tenant accounted for more than 10 % of our total rental revenue.

For the nine months ended September 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)

June 30, 2020

September 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 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):

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

2020 (three months ending December 31, 2020) $ 41,459

Thereafter 571,721

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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.

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

In March 2020, we exercised a five years extension option to extend the Annex Lease through June 30, 2026, which was memorialized in a lease amendment executed in August 2020 that additionally modified other certain lease payment terms.

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)

June 30, 2020

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

September 30, 2020

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

Year Ending December 31,

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

2020 (three months ending December 31, 2020) $ 865

Thereafter 23,241

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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

Six Months Ended June 30,

Nine Months Ended September 30,

Operating cash flow information:

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Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 30, 2020

COMPONENTS OF RENTAL INCOME AND EXPENSE

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Total rental income $ 80,759 $ 93,147 $ 252,059 $ 249,634

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.

Lease rental income include $ 6.0 million and $ 5.2 million for the three months ended September 30, 2020 and 2019, respectively, and $ 17.3 million and $ 0.9 million for the nine months ended September 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 $ 0.9 million and $ 1.1 million for the three months ended September 30, 2020 and 2019, respectively, and $ 2.8 million and $ 2.8 million for the nine months ended September 30, 2020 and 2019, respectively.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Total rental expenses $ 19,208 $ 23,989 $ 58,757 $ 66,611

OTHER INCOME (EXPENSE), NET

OTHER (EXPENSE) INCOME, NET

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Interest and investment income $ 32 $ 137 $ 415 $ 299

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

Other non-operating income — — 2 —

Total other income (expense), net $ 162 $ ( 50 ) $ 270 $ ( 279 )

Income tax expense ( 12 ) ( 268 ) ( 127 ) ( 709 )

Other non-operating expense ( 551 ) — ( 549 ) —

Total other (expense) income, net $ ( 531 ) $ ( 131 ) $ ( 261 ) $ ( 410 )

American Assets Trust, Inc.

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Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 30, 2020

RELATED PARTY TRANSACTIONS

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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.

Rental revenue recognized on the AAI leases of $ 0.1 million and $ 0.2 million for the nine months ended September 30, 2020 and 2019, respectively, is included in rental income on the statements of comprehensive income.

During the third quarter of 2020, we entered into a new lease with AAI for office space at Torrey Point to replace its existing lease at Torrey Reserve Campus.

Rents are expected to begin in January 2021 for an initial lease term of ten years at an average annual rental rate of $ 0.2 million.

At Torrey Reserve Campus, we lease office space to EDisability, LLC, an entity majority owned and controlled by Mr.

Rental revenue recognized on the lease of $ 0.1 million and $ 0.1 million, respectively, for the nine months ended September 30, 2020 and 2019, is included in rental income on the consolidated statements of comprehensive income.

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

("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.

For the nine months ended September 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 $ 0.5 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.

The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.8 million and $ 0.9 million for the nine months ended September 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)

June 30, 2020

September 30, 2020

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Notes to Consolidated Financial Statements—(Continued)

June 30, 2020

September 30, 2020

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

June 30, 2020 December 31, 2019

September 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 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,

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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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 1. Financial Statements