What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-16 compared with 2020-02-14 · 209 added, 136 removed, 440 unchanged (44% of the section changed)

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cash, mortgage loans and/or borrowings under our second amended and restated credit facility, which may be repaid later with funds raised through the issuance of new equity or new long-term debt.

We are closely monitoring the impact of COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our tenants and business partners.

We are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties.

These uncertainties include 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.

The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets.

The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

Certain states and cities, including where we own properties, have development sites and where our principal place of business is located, have also reacted by instituting quarantines, restrictions on travel, "stay-at-home" orders or “shelter in place” rules, social distancing measures, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue.

The Company cannot predict when restrictions or social distancing measures currently in place will expire.

Even after certain of such restrictions are lifted or reduced, the willingness of customers to visit certain of out tenants' businesses may be reduced due to lingering concerns regarding the continued risk of COVID-19 transmission and heightened sensitivity to risks associated with the transmission of other diseases.

As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which the Company and our tenants operate.

Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown.

In addition, we cannot predict the impact that COVID-19 will have on our tenants and other business partners;

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

For the year ended December 31, 2020, we have collected to date approximately 99% of office rents, 78% of retail rents (including retail component of Waikiki Beach Walk) and 96% of multifamily rents that were due during the year ended December 31, 2020.

During the year ended December 31, 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 executed lease modification agreements.

As of December 31, 2020, we have entered into lease modifications that resulted in COVID-19 adjustments (including rent deferrals and other monetary lease concessions) for approximately $13.4 million or 4% of the rent originally contracted for the year ended December 31, 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 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.

See Part II, Item 1A - “Risk Factors” - “The ongoing COVID-10 pandemic, and restrictions intended to prevent its spread, could adversely impact our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders."

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law to provide widespread emergency relief for the economy and to provide aid to corporations.

The CARES Act includes several significant provisions related to taxes, refundable payroll tax credits and deferment of social security payments.

We continue to evaluate the relief options available under the CARES Act.

We will continue to assess these options, and any subsequent legislation or other relief packages, including the accompanying restrictions on our business, as the pandemic continues to evolve.

We have provided certain information on a total portfolio, same-store and redevelopment same-store basis.

Information provided on a same-store basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared, properties under development, properties classified as held for development and properties classified as discontinued operations.

being compared, properties under development, properties classified as held for development and properties classified as discontinued operations.

Information provided on a redevelopment same-store basis includes the results of properties undergoing significant redevelopment for the entirety or portion of both periods being compared.

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Acquired properties are classified to 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.

In our determination of same-store and redevelopment same-store properties, Waikele Center has been identified as a same-store redevelopment property due to significant construction activity.

Retail same-store net operating income increased approximately 4.5% for the year ended December 31, 2019 , respectively, compared to the same periods in 2018 .

Retail redevelopment same-store net operating income increased approximately 1.5% for the year ended December 31, 2019 , respectively, compared to the same periods in 2018 .

In our determination of same-store and redevelopment same-store properties, Waikele Center and One Beach Street have been identified as a same-store redevelopment property due to significant construction activity.

Retail same-store net operating income decreased approximately 23.6% for the year ended December 31, 2020, respectively, compared to 2019.

Retail redevelopment same-store net operating income decreased approximately 20.6% for the year ended December 31, 2020, respectively, compared to 2019.

Below is a summary of our same-store composition for the years ended December 31, 2020, 2019 and 2018.

For the year ended December 31, 2019 , when compared to the designations for the year ended December 31, 2018 , Pacific Ridge Apartments and Gateway Marketplace were reclassified to same-store properties when compared to the designations for the year ended December 31, 2018 as the entities were acquired on April 28, 2017 and July 6, 2017, respectively, and are comparable for the year ended December 31, 2019 .

Waikiki Beach Walk Retail and Embassy Suites™ Hotel was reclassified to non-same-store properties when compared to the designation for the year ended December 31, 2018 due to spalling repair activity disrupting the hotel portion of the properties operations.

Waikele Center was classified as a non-same-store property due to significant redevelopment activity during the year ended December 31, 2018.

Torrey Point was placed into operations and became available for occupancy in August 2018 and will be classified as a non-same-store property until it becomes stabilized and comparable.

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

One Beach Street was reclassified to non-same-store properties when compared to the designations for the year ended December 31, 2019 due to redevelopment activity to renovate the property.

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

For the year ended December 31, 2018 , when compared to the designations for the year ended December 31, 2017, Torrey Reserve Campus, Hassalo on Eighth - Retail and Hassalo on Eighth - Multifamily were reclassified to same-store properties when compared to the designations for the year ended December 31, 2017 as the entities became stabilized after their respective construction periods.

Pacific Ridge Apartments and Gateway Marketplace were classified as non-same-store properties as they were acquired on April 28, 2017 and July 6, 2017, respectively, when compared to the designations for the year ended December 31, 2018.

For the year ended December 31, 2019, when compared to the designations for the year ended December 31, 2018, Pacific Ridge Apartments and Gateway Marketplace were reclassified to same-store properties as the entities were acquired on April 28, 2017 and July 6, 2017, respectively, and are comparable for the year ended December 31, 2019.

Additionally, Waikele Center was transferred out of same-store properties due to significant redevelopment activity for the year ended December 31, 2018.

Torrey Point was placed into operations and became available for occupancy in August 2018 and will be classified as a non-same-store property until it becomes stabilized and comparable.

2020 2019 2018

Same-Store 24 25 23

Non-Same Store 4 3 4

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During the year ended December 31, 2020, we signed 76 retail leases for 314,147 square feet with an average rent of $32.40 per square foot during the initial year of the lease term, including leases signed for the retail portion of our mixed-use property.

Of the leases, 52 represent comparable leases where there was a prior tenant, with an increase of 2.0% in cash basis rent and an increase of 11.4% in straight-line rent compared to the prior leases.

Of the leases, 69 represent comparable leases where there was a prior tenant, with an decrease of 7.4% in cash basis rent and an decrease of 2.4% in straight-line rent compared to the prior leases.

Multifamily Leases .

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As of December 31, 2020, the retail portion of the property was 89.2% leased, and for the year ended December 31, 2020, the hotel had an average occupancy of 51.3%.

For the year ended December 31, 2019 , the mixed-use segment contributed 17.3% ,

of our total revenue.

For the year ended December 31, 2020, the mixed-use segment contributed 8.2%, of our total revenue.

We have leased the retail portion of such property to tenants primarily on a triple-net lease basis, and we expect to continue to do so in the future.

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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, we remain cautiously optimistic regarding the improved trends we have seen over the past few years.

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

However, any reduction in our tenants' abilities to pay base rent, percentage rent or other charges, may adversely affect our financial condition and results of operations.

During the twelve months ended December 31, 2019 , we signed 71 office leases for a total of 504,335 square feet of office space including 276,415 square feet of comparable space leases, at an average rental rate increase of 17.2% on a cash basis and an average rental increase of 34.1% on a straight-line basis.

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 twelve months ended December 31, 2020, we signed 42 office leases for a total of 338,062 square feet of office space including 297,739 square feet of comparable space leases, at an average rental rate increase of 18.6% on a cash

basis and an average rental increase of 21.9% on a straight-line basis.

New office leases for comparable spaces were signed for 9,744 square feet at an average rental rate increase of 7.5% on a cash basis and an average rental rate increase of 11.9% on a straight-line basis.

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There were $15.03 per square foot of office space of tenant improvement or incentives for comparable renewal leases for the twelve months ended December 31, 2020.

During the twelve months ended December 31, 2019 , we signed 67 retail leases for a total of 296,457 square feet of retail space including 149,107 square feet of comparable space leases (leases for which there was a prior tenant), an increase of 2.0% on a cash basis and an increase of 11.4% on a straight-line basis.

New retail leases for comparable spaces were signed for 32,309 square feet at an average rental rate decrease of 0.8% on a cash basis and an average rental rate increase of 11.2% on a straight-line basis.

Renewals for comparable retail spaces were signed for 116,798 square feet at an average rental rate increase of 2.5% on a cash basis and an increase of 11.5% on a straight-line basis.

During the twelve months ended December 31, 2020, we signed 76 retail leases for a total of 314,147 square feet of retail space including 303,490 square feet of comparable space leases (leases for which there was a prior tenant), a decrease of 7.4% on a cash basis and a decrease of 2.4% on a straight-line basis.

New retail leases for comparable spaces were signed for 12,155 square feet at an average rental rate decrease of 12.8% on a cash basis and an average rental rate decrease of 4.4% on a straight-line basis.

Renewals for comparable retail spaces were signed for 291,335 square feet at an average rental rate decrease of 7.1% on a cash basis and a decrease of 2.3% on a straight-line basis.

Tenant improvements and incentives were $27.64 per square foot of retail space for comparable new leases for the twelve months ended December 31, 2020.

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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.

In 2020, we believe our leasing volume will be in-line with our historical averages with 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.

In 2021, we believe our leasing volume will be below our historical averages with 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.

Critical Accounting Policies

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

The collectability of receivables is affected by numerous different factors including current economic conditions, 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 collectability of receivables is affected by numerous different factors including current economic trends, including the impact of the COVID-19 pandemic on tenant's businesses and changes in tenants' payment patterns, 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 when evaluating the adequacy of the allowance for doubtful accounts.

If our assessment of these factors indicates it is probable that we will be unable to collect substantially all rents, we recognize a charge to rental income and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected.

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Any changes to our conclusion regarding these assessments of collectability would have a direct impact on our net income.

During the year ended December 31, 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 assess each lease concession and determine whether it represents a lease modifications under Accounting Standards Codification Topic 842, Leases ("ASC 842").

The FASB staff provided guidance that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under ASC 842 as though enforceable rights and obligations for those concessions existed in the existing lease contract, as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee, thereby not requiring entities to apply lease modification guidance to those contracts.

The Company has elected to account for such COVID-19 concessions as lease modifications As of December 31, 2020, we have entered into lease modifications that resulted in COVID-19 adjustments (including rent deferrals and other monetary lease concessions) for approximately $13.4 million or 4% of the rent originally contracted for the year ended December 31, 2020.

Effective January 1, 2018, (upon the adoption of ASU 2014-09, Revenue from Contracts with Customers ) sales of real estate are recognized generally upon the transfer of control, which usually occurs when the real estate is legally sold.

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The value of above and below market leases associated with the original noncancelable lease terms are amortized to rental income over the terms of the respective noncancelable lease periods and are reflected as either an increase (for below market leases) or a decrease (for above market leases) to rental income in the consolidated statement of comprehensive income.

If a tenant vacates its space prior to contractual termination of its lease or the lease is not renewed, the unamortized balance of any in-place lease value is written off to rental income and

amortization expense.

If a tenant vacates its space prior to contractual termination of its lease or the lease is not renewed, the unamortized balance of any in-place lease value is written off to rental income and amortization expense.

The value of the leases associated with below market lease renewal options that are likely to be exercised are amortized to rental income over the respective renewal periods.

We make assumptions and estimates related to below market lease renewal options, which impact revenue in the period in which the renewal options are exercised and could result in significant increases to revenue if the renewal options are not exercised at which time the related below market lease liabilities would be written off as an increase to revenue.

We make assumptions and estimates related to below market

lease renewal options, which impact revenue in the period in which the renewal options are exercised and could result in significant increases to revenue if the renewal options are not exercised at which time the related below market lease liabilities would be written off as an increase to revenue.

Transaction costs related to the acquisition of a business, such as broker fees, transfer taxes, legal, accounting, valuation, and other professional and consulting fees, are expensed as incurred and included in “general and administrative expenses” in our consolidated statements of comprehensive income.

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Year Ended December 31, 2020

Tenant Improvements and Leasing Commissions

Maintenance Capital Expenditures

Total Tenant Improvements, Leasing Commissions and Maintenance Capital Expenditures

Redevelopment and Expansions

New Development

Total Capital Expenditures

Segment Tenant Improvements and Leasing Commissions Maintenance Capital Expenditures Total Tenant Improvements, Leasing Commissions and Maintenance Capital Expenditures Redevelopment and Expansions New Development Total Capital Expenditures

Office Portfolio $ 35,732 $ 8,745 $ 44,477 $ 4,096 $ 4,309 $ 52,882

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Mixed-Use Portfolio 36 3,666 3,702 — — 3,702

Total $ 40,272 $ 20,397 $ 60,669 $ 4,099 $ 4,309 $ 69,077

Year Ended December 31, 2019

Tenant Improvements and Leasing Commissions

Maintenance Capital Expenditures

Total Tenant Improvements, Leasing Commissions and Maintenance Capital Expenditures

Redevelopment and Expansions

New Development

Total Capital Expenditures

Office Portfolio $ 46,947 $ 10,501 $ 57,448 $ 6,165 $ 936 $ 64,549

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Mixed-Use Portfolio 323 8,167 8,490 — — 8,490

The increase in maintenance capital expenditures in our retail portfolio was primarily related to the Safeway lease buildout at Waikele Center.

The increase in maintenance capital expenditures in our office portfolio was primarily related to The Landmark at One Market and Torrey Reserve Campus building renovations during 2019.

The decrease in new development expenditures for the year ended December 31, 2019 was primarily related to the capitalization of interest for Torrey Point in the prior period.

New development expenditures for the office portfolio incurred during the year ended December 31, 2019 reflect costs incurred for the development of La Jolla Commons land parcel.

Total $ 52,924 $ 39,261 $ 92,185 $ 6,473 $ 936 $ 99,594

The decrease in maintenance capital expenditures in our retail portfolio was primarily related to the Safeway lease buildout at Waikele Center in the prior period.

The decrease in maintenance capital expenditures in our office portfolio was primarily related to The Landmark at One Market and Torrey Reserve Campus building renovations in the prior period, partially offset by building renovations at Torrey Point, Solana Crossing and Lloyd District Portfolio during 2020.

The increase in new development expenditures for the year ended December 31, 2020 was primarily related to costs incurred for the development of the La Jolla Commons development parcel.

Our capital expenditures during 2021 will depend upon acquisition opportunities, the level of improvements and redevelopments on existing properties and the timing and cost of development of our development, held for development and construction in progress properties.

While the amount of future expenditures will depend on numerous factors, we expect expenditures incurred in 2020 will increase from 2019 in connection with our development activities at La Jolla Commons, renovations at One Beach Street and a planned hotel refresh at our mixed-use property.

While the amount of future expenditures will depend on numerous factors, we expect expenditures incurred in 2021 will increase from 2020 in connection with our development activities at La Jolla Commons and renovations at One Beach Street, and completion of the Google LLC's tenant improvements at The Landmark at One Market.

Derivative Instruments

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2020 Acquisitions and Dispositions

During 2020, there were no acquisitions or dispositions.

2019 Acquisitions and Dispositions

On June 20, 2019, we acquired La Jolla Commons, consisting of two office towers totaling approximately 724,000 square feet, an entitled development parcel and two parking structures, located in San Diego, California.

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During 2018, there were no acquisitions or dispositions.

2017 Acquisitions and Dispositions

On April 28, 2017, we acquired the Pacific Ridge Apartments, a 533-unit, multifamily community, built in 2013 and located in San Diego, California.

The purchase price was approximately $232 million, excluding closing costs and prorations.

On July 6, 2017, we acquired Gateway Marketplace, an approximately 128,000 square feet dual-grocery anchored shopping center located in Chula Vista, California.

The purchase price was approximately $42 million, excluding closing costs and prorations.

On September 1, 2017, we acquired the building and related improvements in which Forever 21 and Gold's Gym are currently in tenancy at Del Monte Center for approximately $5.3 million.

During 2017, there were no dispositions.

Results of Operations

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Year Ended December 31,

2020 2019 Change %

Rental income $ 330,312 $ 343,865 $ (13,553) (4) %

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Other income (expense), net 447 (122) 569 (466)

Net income 35,588 60,188 (24,600) (41)

Net income attributable to restricted shares (383) (381) (2) 1

Net income attributable to unitholders in the Operating Partnership

(7,545) (14,089) 6,544 (46)

Net income attributable to American Assets Trust, Inc.

$ 27,660 $ 45,718 $ (18,058) (39) %

Total property revenues.

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

Total property revenue increased $35.9 million , or 11% , to $366.7 million for the year ended December 31, 2019 , compared to $330.9 million for the year ended December 31, 2018 .

Total property revenue decreased $22.2 million, or 6%, to $344.6 million for the year ended December 31, 2020, compared to $366.7 million for the year ended December 31, 2019.

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

Percentage Leased (1)

Office 93.0 % 95.0 %

Retail 90.7 % 97.8 %

Multifamily 86.2 % 92.8 %

Mixed-Use (2)

89.2 % 97.9 %

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

The decrease 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 $34.3 million , or 11% , to $343.9 million for the year ended December 31, 2019 , compared to $309.5 million for the year ended December 31, 2018 .

Rental revenue decreased $13.6 million, or 4%, to $330.3 million for the year ended December 31, 2020, compared to $343.9 million for the year ended December 31, 2019.

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

Total Portfolio

Same-Store Portfolio (1)

Year Ended December 31,

Total Portfolio Same-Store Portfolio (1)

Year Ended December 31, Year Ended December 31,

2020 2019 Change % 2020 2019 Change %

Office $ 171,955 $ 137,380 $ 34,575 25 % $ 128,375 $ 113,088 $ 15,287 14 %

Retail 86,204 101,841 (15,637) (15) % 71,033 86,856 (15,823) (18) %

Multifamily 47,274 47,630 (356) (1) 47,274 47,630 (356) (1)

Mixed-Use 24,879 57,014 (32,135) (56) — — — —

$ 330,312 $ 343,865 $ (13,553) (4) % $ 246,682 $ 247,574 $ (892) — %

(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.

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(i) Waikele Center due to significant redevelopment activity;

(ii) Torrey Point, which was placed into operations and became available for occupancy in August 2018;

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

(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 $34.8 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had rental revenue of approximately $20.1 million during the period.

The increase in total office rental revenue is also attributed to Torrey Point, which was placed into operations in August 2018, and had incremental rental revenue of $1.5 million during the period.

Same-store office rental revenue increased $13.1 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to higher annualized base rents at The Landmark at One Market, City Center Bellevue, Lloyd District Portfolio and Torrey Reserve Campus.

Total retail rental revenue decreased $1.8 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the expiration of the Kmart lease at Waikele Center on June 30, 2018.

Same-store retail rental revenue decreased $0.4 million primarily due to an increase in bad debt contra-revenue at Hassalo on Eighth - Retail.

Multifamily rental revenue increased $0.6 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the higher average base rent per unit of $2,077 during the year ended December 31, 2019 compared to $2,032 during the year ended December 31, 2018 .

Mixed-use rental revenue increased $0.8 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to higher annualized base rents for retail tenants at our mixed-use property.

Total office rental revenue increased $34.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental rental revenue of approximately $22.2 million during the period.

The increase in total office rental revenue is partially offset by the decrease in rental revenue of approximately $2.9 million at One Beach Street due to the expiration of leases to allow for the modernization of the property.

Same-store office rental revenue increased $15.3 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to higher annualized base rents at The Landmark at One Market, Lloyd District Portfolio, City Center Bellevue, Torrey Point and Torrey Reserve Campus.

The increase in same-store office rental revenue is partially offset by the decrease at First & Main primarily due to the increase in collectability related adjustments of straight-line rent receivables of approximately $0.8 million as the collectability was determined to be no longer probably for certain tenants.

Total retail rental revenue decreased $15.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the increase in collectability related adjustments of rent receivables of approximately $2.8 million and straight-line rent receivables of approximately $5.9 million as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center, Waikele Center and The Shops at Kalakaua 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 rent concessions of approximately $3.1 million and a decrease in cost reimbursements of approximately $4.0 million due to a real estate tax refund at Alamo Quarry Market and decrease in rental expenses for the retail segment.

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.

Multifamily rental revenue decreased $0.4 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the decrease in average occupancy to 88.5% for the year ended December 31, 2020 compared to 92.5% for the year ended December 31, 2019.

The decrease in occupancy primarily related to Hassalo on Eighth - Residential.

The decrease in average occupancy is partially offset by the increase in average base rent per unit to $2,166 for the year ended December 31, 2020 compared to $2,077 for the year ended December 31, 2019.

Mixed-use rental revenue decreased $32.1 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy through hotel reservation cancellations and travel restrictions during the second, third, and fourth quarters, which led to a decrease in average occupancy and revenue per available room to 51.3% and $127 for the year ended December 31, 2020 compared to 91.7% and $299 for year ended December 31, 2019.

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 the first half of 2021 or until the COVID-19 vaccine distribution is generally available to the public.

The decrease in mixed-use rental revenue is also attributed to the increase in collectability related adjustments of rent receivables of approximately $5.7 million and straight-line rent receivables of approximately $1.2 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 increased $1.5 million , or 7% , to $22.9 million for the year ended December 31, 2019 , compared to $21.3 million for the year ended December 31, 2018 .

Other property income decreased $8.6 million, or 38%, to $14.3 million for the year ended December 31, 2020, compared to $22.9 million for the year ended December 31, 2019.

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

Total Portfolio

Same-Store Portfolio

Year Ended December 31,

Office other property income decreased $2.4 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to lease termination fees in the prior period for tenants at Lloyd District Portfolio and Torrey Point.

The decrease was partially offset by an increase in lease termination fees and parking garage income at City Center Bellevue and due to the acquisition of La Jolla Commons on June 20, 2019, which had parking garage income of approximately $0.4 million during the period.

Retail other property income increased $3.9 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in 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 period.

The increase was partially offset by a decrease in lease termination fees received in the prior period for tenants at Solana Beach Towne Centre, Del Monte Center and Geary Marketplace.

Multifamily other property income decreased $0.1 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to a decrease in utility billings and late fees.

Mixed-use other property income increased $0.2 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in parking revenue at the retail portion of our mixed-use property.

Total Portfolio Same-Store Portfolio

Year Ended December 31, Year Ended December 31,

2020 2019 Change % 2020 2019 Change %

Office $ 5,599 $ 7,303 $ (1,704) (23) % $ 4,834 $ 6,876 $ (2,042) (30) %

Retail 2,076 5,763 (3,687) (64) % 1,369 4,774 (3,405) (71) %

Multifamily 3,053 3,436 (383) (11) 3,053 3,436 (383) (11)

Mixed-Use 3,533 6,374 (2,841) (45) — — — —

$ 14,261 $ 22,876 $ (8,615) (38) % $ 9,256 $ 15,086 $ (5,830) (39) %

Office other property income decreased $1.7 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental other property income of approximately $0.3 million during the period.

Same-store office other property income decreased $2.0 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the decrease in parking garage income at City Center Bellevue, Lloyd District Portfolio and First & Main during the period as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic during the second quarter caused a substantial portion of our tenants employees and their guests to continue to partially work from home during the period.

Retail other property income decreased $3.7 million for the year ended December 31, 2020 compared to the year ended December 31, 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 prior period.

The decrease in retail other property income was partially offset by an increase in lease termination fees received at Alamo Quarry Market, Del Monte Center, Carmel Country Plaza and Geary Marketplace during the period.

Multifamily other property income decreased $0.4 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the decrease in parking garage income at Hassalo on Eighth - Residential and late fees.

Mixed-use other property income decreased $2.8 million for the year ended December 31, 2020 compared to the year ended December 31, 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 garage 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 first half of 2021 or until the COVID-19 vaccine distribution is generally available to the public.

Property Expenses

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

Total property expenses increased by $10.5 million , or 9% , to $132.0 million for the year ended December 31, 2019 , compared to $121.5 million for the year ended December 31, 2018 .

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

Total property expenses decreased by $10.9 million, or 8%, to $121.1 million for the year ended December 31, 2020, compared to $132.0 million for the year ended December 31, 2019.

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

Rental Expenses.

Rental expenses increased $5.5 million , or 6% , to $92.0 million for the year ended December 31, 2019 , compared to $86.5 million for the year ended December 31, 2018 .

Rental expenses decreased $12.8 million, or 14%, to $79.2 million for the year ended December 31, 2020, compared to $92.0 million for the year ended December 31, 2019.

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

Total Portfolio

Same-Store Portfolio

Year Ended December 31,

Total Portfolio Same-Store Portfolio

Year Ended December 31, Year Ended December 31,

2020 2019 Change % 2020 2019 Change %

Office $ 28,234 $ 26,881 $ 1,353 5 % $ 22,588 $ 23,300 $ (712) (3) %

Retail 15,446 16,063 (617) (4) % 12,212 12,695 (483) (4) %

Multifamily 15,324 14,362 962 7 15,324 14,362 962 7

Mixed-Use 20,174 34,661 (14,487) (42) — — — —

$ 79,178 $ 91,967 $ (12,789) (14) % $ 50,124 $ 50,357 $ (233) — %

Total office rental expenses increased $1.4 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had rental expenses of approximately $2.2 million during the period.

The increase in total office rental expense is also attributed to Torrey Point, which was placed into operations in August 2018, and had incremental rental expenses of $0.8 million during the period.

Same-store office rental expenses increased $1.6 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in the commercial rent tax at The Landmark at One Market and One Beach Street.

The increase in same-store office rental expense was also attributed to higher janitorial services and utilities expenses at City Center Bellevue.

Total retail rental expenses decreased $0.2 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the absence of demolition costs for the former Kmart building at Waikele Center incurred in the prior period partially offset by the absence of contra-bad debt expense at Waikele Center.

Same-store retail rental expenses decreased $0.1 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the absence of contra-bad debt expense at Waikele Center, and a decrease in pest control and utilities expenses during the period.

Mixed-use rental expenses increased $0.7 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in hotel room and marketing expenses at the hotel portion of our mixed-use property and an increase in landscaping expenses at the retail portion of our mixed-use property during the period.

The increase in total office rental expense was partially offset by the decrease in rental expenses of approximately $0.3 million at One Beach Street due to the expiration of leases to allow for the modernization of the property.

Same-store office rental expenses decreased $0.7 million for the year ended December 31, 2020 compared to the year ended December 31, 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 during the second quarter caused a substantial portion of our tenants' employees to continue 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 $0.6 million for the year ended December 31, 2020 compared to the year ended December 31, 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 during the period.

Multifamily rental expensed increased $1.0 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to personnel compensation expenses, utilities, janitorial services and supplies, security services and insurance expense during the period.

Mixed-use rental expenses decreased $14.5 million for the year ended December 31, 2020 compared to the year ended December 31, 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.

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 first half of 2021 or until the COVID-19 vaccine distribution is generally available to the public.

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.

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

Total Portfolio

Same-Store Portfolio

Year Ended December 31,

Total office real estate taxes increased $3.4 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had real estate taxes of approximately $3.0 million.

The increase in office real estate taxes is also attributed to Torrey Point, which was placed into operations in August 2018, and had incremental real estate taxes of $0.2 million during the period.

Same-store office real estate taxes increased $0.1 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in the assessed values of Torrey Reserve Campus, The Landmark at One Market and Lloyd District Portfolio.

Retail real estate taxes increased $0.8 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in the assessed values of Alamo Quarry Market, Carmel Mountain Plaza, and Waikele Center.

Multifamily real estate taxes increased $0.3 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in the assessed values of Pacific Ridge Apartments, Lomas Palisades, and Hassalo on Eighth - Multifamily.

Mixed-use real estate taxes increased $0.5 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in real estate taxes for the hotel portion of our mixed-use property that are assessed annually based on the hotel's room rates, which have increased from the prior year.

Total Portfolio Same-Store Portfolio

Year Ended December 31, Year Ended December 31,

2020 2019 Change % 2020 2019 Change %

Office $ 19,190 $ 15,353 $ 3,837 25 % $ 12,237 $ 11,526 $ 711 6 %

Retail 11,928 14,570 (2,642) (18) % 8,809 11,674 (2,865) (25) %

Multifamily 6,750 6,501 249 4 6,750 6,501 249 4

Mixed-Use 4,073 3,589 484 13 — — — —

$ 41,941 $ 40,013 $ 1,928 5 % $ 27,796 $ 29,701 $ (1,905) (6) %

Total office real estate taxes increased $3.8 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental real estate taxes of approximately $3.2 million.

Same-store office real estate taxes increased $0.7 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase in the assessed values of City Center Bellevue, The Landmark at One Market, Lloyd District Portfolio and Torrey Reserve Campus.

Retail real estate taxes decreased $2.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to a net real estate tax refund of approximately $2.3 million at Alamo Quarry Market for the tax assessment for 2016 - 2018.

The decrease in retail real estate taxes was partially offset by an increase in the assessed values of Waikele Center.

Multifamily real estate taxes increased $0.2 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase in assessed values at Pacific Ridge Apartments, Lomas Palisades and Hassalo on Eighth - Residential.

Mixed-use real estate taxes increased $0.5 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase in assessed values for the hotel portion of our mixed-use property.

Property Operating Income.

Property operating income increased $25.3 million , or 12% , to $234.8 million for the year ended December 31, 2019 , compared to $209.4 million for the year ended December 31, 2018 .

Property operating income decreased $11.3 million, or 5%, to $223.5 million for the year ended December 31, 2020, compared to $234.8 million for the year ended December 31, 2019.

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

Total Portfolio

Same-Store Portfolio

Year Ended December 31,

Total office property operating income increased $23.9 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had property operating income of $15.1 million during the period.

The increase in total office property operating income was partially offset by a decrease in lease termination fees in the prior period at Lloyd District Portfolio and Torrey Point.

Same-store property operating income increased $9.9 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to higher annualized base rents at City Center Bellevue, The Landmark at One Market and Torrey Reserve Campus.

Retail property operating income increased $1.5 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in 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 offset by the expiration of the Kmart lease at Waikele Center and an increase in bad debt contra-revenue at Hassalo at Eighth - Retail.

Multifamily property operating income increased $0.0 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the higher average base rent per unit offset by the increase in rental expense and real estate tax expenses.

Mixed-use property operating income decreased $0.1 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in hotel room and marketing expense at the hotel portion of our mixed-use property and landscaping expenses at the retail portion of our mixed-use property and an increase in real estate taxes.

Total Portfolio Same-Store Portfolio

Year Ended December 31, Year Ended December 31,

2020 2019 Change % 2020 2019 Change %

Office $ 130,130 $ 102,449 $ 27,681 27 % $ 98,384 $ 85,138 $ 13,246 16 %

Retail 60,906 76,971 (16,065) (21) 51,381 67,261 (15,880) (24)

Multifamily 28,253 30,203 (1,950) (6) 28,253 30,203 (1,950) (6)

Mixed-Use 4,165 25,138 (20,973) (83) — — — —

$ 223,454 $ 234,761 $ (11,307) (5) % $ 178,018 $ 182,602 $ (4,584) (3) %

Total office property operating income increased $27.7 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental property operating income of $17.0 million during the period.

The increase in total office property operating income was partially offset by a decrease in property operating income of approximately $2.7 million at One Beach Street due to the expiration of leases to allow for the modernization of the property.

Same-store property operating income increased $13.2 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to higher annualized base rents at The Landmark at One Market, Lloyd District Portfolio, City Center Bellevue, Torrey Point and Torrey Reserve Campus.

Retail property operating income decreased $16.1 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase in collectability related adjustment of rent receivables of approximately $2.8 million and straight-line rent receivables of approximately $5.9 million as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center, Waikele Center and The Shops at Kalakaua 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.

Additionally, the decrease in total retail rental revenue is also attributable to rent concessions of approximately $3.1 million.

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 and higher annualized base rent at Carmel Mountain Plaza related to the At Home Stores lease.

Multifamily property operating income decreased $2.0 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the decrease in average occupancy to 88.5% for the year ended December 31, 2020 compared to 92.5% for the year ended December 31, 2019, and increase in real estate tax assessments at Pacific Ridge, Lomas Palisades, and Hassalo on Eighth - Residential, and an increase in personnel compensation expenses, utilities, security services and insurance expense during the period.

Mixed-use property operating income decreased $21.0 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy through hotel reservation cancellations and travel restrictions during the second, third, and fourth quarters, which led to a decrease in average occupancy and revenue per available room to 51.3% and $127 for the year ended December 31, 2020 compared to 91.7% and $299 for year ended December 31, 2019.

The decrease in tourism and hotel occupancy in Oahu due to COVID-19 is expected to substantially reduce property operating income at the hotel portion of the mixed-use property through the first half of 2021 or until the COVID-19 vaccine distribution is generally available to the public.

The decrease in mixed-use property operating income is also attributed to the increase in collectability related adjustments of rent receivables of approximately $5.7 million and straight-line rent receivables of approximately $1.2 million as the collectability was determined to be no longer probable for certain tenants at the retail portion of our mixed-use property.

General and administrative.

General and administrative expenses increased $1.7 million, or 7%, to $26.6 million for the year ended December 31, 2020, compared to $24.9 million for the year ended December 31, 2019.

This increase was primarily due to an increase in employee related costs and travel expenses.

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

Depreciation and amortization.

Depreciation and amortization expense decreased $10.9 million , or 10% , to $96.2 million for the year ended December 31, 2019 , compared to $107.1 million for the year ended December 31, 2018 .

This decrease was primarily due to higher depreciation and amortization expense in the prior period at Waikele Center attributed to the redevelopment of the Kmart space and Lloyd District Portfolio attributed to acceleration of depreciation related to lease terminations.

The decrease was offset by the acquisition of La Jolla Commons on June 20, 2019, which had depreciation and amortization of $11.9 million during the period and higher depreciation and amortization at City Center Bellevue due to tenant improvements that were put into service in 2019.

Depreciation and amortization expense increased $12.1 million, or 13%, to $108.3 million for the year ended December 31, 2020, compared to $96.2 million for the year ended December 31, 2019.

This increase was primarily due to the acquisition of La Jolla Commons on June 20, 2019, which had incremental depreciation and

amortization of $7.2 million during the period and higher depreciation and amortization at Lloyd District Portfolio, City Center Bellevue, Torrey Reserve Campus, Torrey Point, and Waikele Center due to tenant improvements that were put into service in 2019 and 2020.

Interest expense.

Interest expense increased $1.8 million , or 3% , to $54.0 million for the year ended December 31, 2019 compared with $52.2 million for the year ended December 31, 2018 .

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 our line of credit during the first six months of 2019, offset by the repayment of our line of credit during the third quarter of 2019 and repayment of the property mortgages for Lomas Palisades during the first quarter of 2018, One Beach Street during the fourth quarter of 2018 and Torrey Reserve - North Court during the first quarter of 2019.

Interest expense decreased $0.6 million, or 1%, to $53.4 million for the year ended December 31, 2020 compared with $54.0 million for the year ended December 31, 2019.

This decrease was primarily due to the repayment of the mortgages on Torrey Reserve - VCI, VCII, VCIII, Solana Crossing I-II, and Solana Beach Towne Centre on March 2, 2020 and a lower weighted average interest rate on our line of credit in 2020 partially offset by the closing of our Series G Notes on July 30, 2019.

Gain on sale of real estate.

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

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

Other Income (Expense), Net.

Other (expense) income, net decreased $0.0 million , or 44% , to other expense, net of $0.1 million for the year ended December 31, 2019 compared to other income, net of $0.1 million for the year ended December 31, 2018 , primarily due to an increase in income tax expense related to higher taxable income for our taxable REIT subsidiary during the period offset by an increase in interest and investment income attributed to higher cash balances during the period.

Other (expense) income, net increased $0.6 million, or 466%, to other income, net of $0.4 million for the year ended December 31, 2020 compared to other expense, net of $0.1 million for the year ended December 31, 2019, primarily due to a decrease in income tax expense related to lower taxable income for our taxable REIT subsidiary partially offset by a decrease in interest and investment income attributed to lower weighted average interest rates on our money market balances.

Liquidity and Capital Resources of American Assets Trust, Inc.

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For the company to maintain its qualification as a REIT, it must pay dividends to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains.

While historically the company has satisfied this distribution requirement by making cash distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, the company’s own stock.

circumstances, the company’s own stock.

As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can.

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The operating partnership may use the proceeds to repay debt, to develop new or existing properties, to acquire properties or for general corporate purposes.

In February 2018, the company filed a universal shelf registration statement on Form S-3ASR with the SEC, which became effective upon filing and which replaced the prior Form S-3ASR that was filed with the SEC in February 2015.

In January 2021, the company filed a universal shelf registration statement on Form S-3ASR with the SEC, which became effective upon filing and which replaced the prior Form S-3ASR that was filed with the SEC in February 2018.

The universal shelf registration statement may permit the company from time to time to offer and sell equity securities of the company.

1 unchanged sentence

Factors influencing the availability of additional financing include investor perception of our prospects and the general condition of the financial markets, among others.

On May 6, 2013, the company entered into an at-the-market, or ATM, equity program with four sales agents under which the company could from time to time offer and sell shares of common stock having an aggregate offering price of up to $150.0 million (the “2013 ATM Program”).

On May 27, 2015, the company entered into a new at-the-market, or ATM, equity program with five sales agents under which the company may, from time to time, offer and sell shares of common stock having an aggregate offering price of up to $250.0 million (the "2015 ATM Program").

The sales of shares of the company's common stock made through the 2015 ATM Program were made in “at-the-market” offerings as defined in Rule 415 of the Securities Act.

The company completed $150.0 million of issuances under the 2013 ATM Program on May 21, 2015.

On May 27, 2015, the company entered into a new ATM equity program with five sales agents under which the company may, from time to time, offer and sell shares of common stock having an aggregate offering price of up to $250.0 million (the "2015 ATM Program").

As of December 31, 2019 , the company has issued 6,930,002 shares of common stock at a weighted average price per share of $38.58 for gross cash proceeds of $267.4 million under the 2013 ATM Program and 2015 ATM Program, in the aggregate.

As of December 31, 2020, the company has issued 6,930,002 shares of common stock at a weighted average price per share of $38.58 for gross cash proceeds of $267.4 million under the ATM equity program, in the aggregate.

The company intends 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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Our long-term liquidity needs consist primarily of funds necessary to pay for the repayment of debt at maturity, property acquisitions, tenant improvements and capital improvements.

We expect to meet our long-term liquidity requirements to pay scheduled debt maturities and to fund property acquisitions and capital improvements with net cash from operations, long-term secured and unsecured indebtedness and, if necessary, the issuance of equity and debt securities.

We expect to meet our long-term liquidity requirements to pay scheduled debt maturities and to fund property acquisitions and capital improvements with net cash from operations, long-term

secured and unsecured indebtedness and, if necessary, the issuance of equity and debt securities.

We also may fund property acquisitions and capital improvements using our second amended and restated credit facility pending permanent financing.

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Payments by Period

Contractual Obligations

Contractual Obligations Total Within

1 Year 2 Years 3 Years 4 Years 5 Years More than

Principal payments on long-term indebtedness $ 1,311,000 $ 150,000 $ 211,000 $ 150,000 $ 100,000 $ 200,000 $ 500,000

Line of credit (1)

100,000 — 100,000 — — — —

Interest payments 235,730 48,669 41,943 34,576 31,859 21,976 56,707

2 unchanged sentences

Construction-related commitments 14,715 14,715 — — — — —

Total $ 1,743,102 $ 258,184 $ 359,603 $ 187,904 $ 135,487 $ 225,507 $ 576,417

(1) The unsecured revolving line of credit has a capacity of $350 million plus 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.

The unsecured revolving line of credit initially matures on January 9, 2022 and we have two six-month options to extend its maturity to January, 9, 2023.

Off-Balance Sheet Arrangements

2 unchanged sentences

Total cash, cash equivalents, and restricted cash were $139.0 million and $109.5 million at December 31, 2020 and 2019, respectively.

Net cash provided by operating activities increased $17.3 million to $153.8 million for the year ended December 31, 2019 , compared to $136.5 million for the year ended December 31, 2018 .

The increase in cash from operations was primarily due to the increase in rental income from The Landmark at One Market and City Center Bellevue, the acquisition of La Jolla Commons, which was acquired on June 20, 2019 and changes in operating assets and liabilities.

Net cash used in investing activities increased $534.8 million to $599.2 million for the year ended December 31, 2019 , compared to $64.3 million for the year ended December 31, 2018 .

The increase was primarily due to the acquisition of La Jolla Commons on June 20, 2019.

Net cash provided by financing activities was $497.5 million for the year ended December 31, 2019 , compared to net cash used in financing activities of $106.8 million for the year ended December 31, 2018 .

The increase in cash provided by financing activities was primarily due to the underwritten public offering that settled on June 14, 2019 and the closing of the Series G Notes issued on July 30, 2019.

Net cash provided by operating activities decreased $26.8 million to $127.0 million for the year ended December 31, 2020, compared to $153.8 million for the year ended December 31, 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 $530.1 million to $69.1 million for the year ended December 31, 2020, compared to $599.2 million for the year ended December 31, 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 was $28.3 million for the year ended December 31, 2020, compared to net cash provided by financing activities of $497.5 million for the year ended December 31, 2019.

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

Net Operating Income

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Year Ended December 31,

2020 2019 2018

Net operating income $ 223,454 $ 234,761 $ 209,412

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Other income (expense), net 447 (122) (85)

Net income $ 35,588 $ 60,188 $ 27,202

Funds from Operations

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Year Ended December 31,

2020 2019 2018

Net income $ 35,588 $ 60,188 $ 27,202

Real estate depreciation and amortization 108,292 96,205 107,093

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Weighted average number of common shares and units, diluted (1)

For the years ended December 31, 2019 , 2018 and 2017 the weighted average common shares used to compute FFO per diluted share include unvested restricted stock awards that are subject to time vesting, as the vesting of the restricted stock awards is dilutive in the computation of FFO per diluted shares, but is anti-dilutive for the computation of diluted EPS for the periods.

76,122,842 70,788,597 64,139,437

(1) For the years ended December 31, 2020, 2019 and 2018 the weighted average common shares used to compute FFO per diluted share include unvested restricted stock awards that are subject to time vesting, as the vesting of the restricted stock awards is dilutive in the computation of FFO per diluted

shares, but is anti-dilutive for the computation of diluted EPS for the periods.

Diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

6 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis