What changed in this filing

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Item 1. Financial Statements

2021-04-30 compared with 2020-10-30 · 184 added, 293 removed, 759 unchanged (39% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

September 30, December 31,

March 31, December 31,

Real estate, at cost

4 unchanged sentences

Accumulated depreciation ( 776,825 ) ( 754,140 )

Net real estate 2,498,564 2,523,475

Real estate, net 2,481,317 2,492,734

Cash and cash equivalents 380,434 137,333

15 unchanged sentences

stockholders’ equity

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

Common stock, $ 0.01 par value, 490,000,000 shares authorized, 60,472,286 and 60,476,292 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 1,447,128 1,445,644

10 unchanged sentences

(In Thousands, Except Shares and Per Share Data)

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

2020 2019 2020 2019

Three Months Ended March 31,

Rental income $ 81,130 $ 92,070

8 unchanged sentences

Interest expense ( 14,005 ) ( 13,472 )

Gain on sale of real estate — — — 633

Early extinguishment of debt ( 4,271 ) —

Other (expense) income, net ( 53 ) 108

15 unchanged sentences

Other comprehensive income (loss) - unrealized income (loss) on swap derivatives during the period 747 ( 6,115 )

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 )

Reclassification of amortization of forward-starting swap realized gains included in interest expense ( 275 ) ( 333 )

Reclassification of amortization of forward-starting swap realized gain included in early extinguishment of debt ( 193 ) —

Comprehensive income 2,012 9,036

6 unchanged sentences

(In Thousands, Except Share Data)

American Assets Trust, Inc.

Stockholders’ Equity Noncontrolling Interests - Unitholders in the Operating Partnership Total

Common Shares Additional

1 unchanged sentence

Excess of Net

Income Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests - Unitholders in the Operating Partnership Total

Income Accumulated Other Comprehensive Income (Loss)

Shares Amount

1 unchanged sentence

Net income — — — 1,394 — 339 1,733

Dividends declared and paid — — — ( 18,020 ) — ( 4,917 ) ( 22,937 )

Stock-based compensation — — 1,250 — — — 1,250

Other comprehensive loss - change in value of interest rate swaps — — — — ( 4,816 ) ( 1,299 ) ( 6,115 )

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

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

Net income — — — 7,725 — 2,101 9,826

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

Forfeiture of restricted stock ( 4,006 ) — — — — — —

1 unchanged sentence

Stock-based compensation — — 1,484 — — — 1,484

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

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

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

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

Other comprehensive gain - change in value of interest rate swaps — — — — 579 168 747

Reclassification of amortization of forward-starting swap realized gains included in interest expense — — — — ( 216 ) ( 59 ) ( 275 )

Reclassification of amortization of forward-starting swap realized gain included in early extinguishment of debt — $ — $ — $ — $ ( 152 ) $ ( 41 ) ( 193 )

Balance at March 31, 2021 60,472,286 $ 605 $ 1,447,128 $ ( 192,098 ) $ 1,964 $ ( 22,160 ) $ 1,235,439

Common Shares Additional

5 unchanged sentences

Net income — — — 12,172 — 3,312 15,484

Common shares issued 162,531 1 7,033 — — — 7,034

Forfeiture of restricted stock ( 11,046 ) — — — — — —

Dividends declared and paid — — — ( 18,020 ) — ( 4,917 ) ( 22,937 )

3 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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)

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES

3 unchanged sentences

Depreciation and amortization 27,501 27,462

Amortization of debt issuance costs and debt fair value adjustments 1,109 1,096

Amortization of debt issuance costs and debt discounts 577 374

Early extinguishment of debt 4,271 —

Provision for uncollectable rental income 3,213 370

Gain on sale of real estate — ( 633 )

Stock-based compensation expense 1,484 1,250

Settlement of derivative instruments — 513

Lease termination income — ( 4,518 )

Unrealized loss on hedging activities 551 —

Other noncash interest expense ( 275 ) ( 333 )

8 unchanged sentences

INVESTING ACTIVITIES

Acquisition of real estate — ( 507,780 )

Capital expenditures ( 11,372 ) ( 20,531 )

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

Leasing commissions ( 844 ) ( 3,394 )

2 unchanged sentences

Repayment of secured notes payable — ( 51,003 )

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

Repayment of unsecured line of credit ( 100,000 ) —

Proceeds from unsecured notes payable 494,675 —

Repayment of unsecured notes payable ( 155,375 ) —

Debt issuance costs ( 5,025 ) —

1 unchanged sentence

Dividends paid to common stock and unitholders ( 21,463 ) ( 22,937 )

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

Net cash provided by (used in) financing activities 212,812 ( 74,059 )

Net increase (decrease) in cash and cash equivalents 243,101 ( 52,623 )

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:

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents 380,434 52,371

5 unchanged sentences

(In Thousands, Except Unit Data)

September 30, December 31,

March 31, December 31,

Real estate, at cost

4 unchanged sentences

Accumulated depreciation ( 776,825 ) ( 754,140 )

Net real estate 2,498,564 2,523,475

Real estate, net 2,481,317 2,492,734

Cash and cash equivalents 380,434 137,333

10 unchanged sentences

Security deposits payable 6,629 6,590

Other liabilities and deferred credits 93,256 68,110

Other liabilities and deferred credits, net 88,228 91,300

Total liabilities 1,813,907 1,563,903

Commitments and contingencies (Note 11)

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

Limited partners' capital, 16,181,537 and 16,181,537 units issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

( 23,212 ) ( 19,020 )

General partner's capital, 60,472,286 and 60,476,292 units issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

1,255,635 1,269,689

Accumulated other comprehensive income 3,016 2,737

5 unchanged sentences

(In Thousands, Except Shares and Per Unit Data)

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

2020 2019 2020 2019

Three Months Ended March 31,

Rental income $ 81,130 $ 92,070

8 unchanged sentences

Interest expense ( 14,005 ) ( 13,472 )

Gain on sale of real estate — — — 633

Early extinguishment of debt ( 4,271 ) —

Other (expense) income, net ( 53 ) 108

14 unchanged sentences

Net income $ 1,733 $ 15,484

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 )

Other comprehensive income (loss) - unrealized income (loss) on swap derivatives during the period 747 ( 6,115 )

Reclassification of amortization of forward-starting swap realized gains included in interest expense ( 275 ) ( 333 )

Reclassification of amortization of forward-starting swap realized gain included in early extinguishment of debt ( 193 ) —

Comprehensive income 2,012 9,036

11 unchanged sentences

Net income — 339 — 1,394 — 1,733

Distributions — ( 4,917 ) — ( 18,020 ) — ( 22,937 )

Stock-based compensation — — — 1,250 — 1,250

Other comprehensive loss - change in value of interest rate swap — — — — ( 6,115 ) ( 6,115 )

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

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

Net income — 2,101 — 7,725 — 9,826

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

Forfeiture of restricted units — — ( 4,006 ) — — —

1 unchanged sentence

Stock-based compensation — — — 1,484 — 1,484

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

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

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

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

Other comprehensive gain - change in value of interest rate swap — — — — 747 747

Reclassification of amortization of forward-starting swap realized gains included in interest expense — — — — ( 275 ) ( 275 )

Reclassification of amortization of forward-starting swap included in early extinguishment of debt — — — — ( 193 ) ( 193 )

Balance at March 31, 2021 16,181,537 $ ( 23,212 ) 60,472,286 $ 1,255,635 $ 3,016 $ 1,235,439

Limited Partners' Capital (1)

4 unchanged sentences

Net income — 3,312 — 12,172 — 15,484

Contributions from American Assets Trust, Inc.

— — 162,531 7,034 — 7,034

Forfeiture of restricted units — — ( 11,046 ) — — —

Distributions — ( 4,917 ) — ( 18,020 ) — ( 22,937 )

1 unchanged sentence

Other comprehensive loss - change in value of interest rate swap — — — — ( 6,115 ) ( 6,115 )

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 320 ) ( 320 )

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

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

Net income — 2,933 — 9,008 — 11,941

Contributions from American Assets Trust, Inc.

— — 11,444,382 495,980 — 495,980

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

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

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

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

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

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

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

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)

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES

3 unchanged sentences

Depreciation and amortization 27,501 27,462

Amortization of debt issuance costs and debt fair value adjustments 1,109 1,096

Amortization of debt issuance costs and debt discounts 577 374

Early extinguishment of debt 4,271 —

Provision for uncollectable rental income 3,213 370

Gain on sale of real estate — ( 633 )

Stock-based compensation expense 1,484 1,250

Settlement of derivative instruments — 513

Lease termination income — ( 4,518 )

Unrealized loss on hedging activities 551 —

Other noncash interest expense ( 275 ) ( 333 )

8 unchanged sentences

INVESTING ACTIVITIES

Acquisition of real estate — ( 507,780 )

Capital expenditures ( 11,372 ) ( 20,531 )

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

Leasing commissions ( 844 ) ( 3,394 )

2 unchanged sentences

Repayment of secured notes payable — ( 51,003 )

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

Repayment of unsecured line of credit ( 100,000 ) —

Proceeds from unsecured notes payable 494,675 —

Repayment of unsecured notes payable ( 155,375 ) —

Debt issuance costs ( 5,025 ) —

Contributions from American Assets Trust, Inc.

( 119 ) 513,934

Distributions ( 21,463 ) ( 22,937 )

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

Net cash provided by (used in) financing activities 212,812 ( 74,059 )

Net increase (decrease) in cash and cash equivalents 243,101 ( 52,623 )

2 unchanged sentences

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents $ 380,434 $ 52,371

5 unchanged sentences

Notes to Consolidated Financial Statements

September 30, 2020

March 31, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

We are a full service, vertically integrated, and self-administered REIT with approximately 190 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.

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.

As of March 31, 2021, we owned or had a controlling interest in 28 office, retail, multifamily and mixed-use operating properties, the operations of which we consolidate.

Additionally, as of March 31, 2021, 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:

6 unchanged sentences

Torrey Reserve Campus First & Main

Torrey Point Lloyd District Portfolio

Torrey Point Lloyd Portfolio

Solana Crossing (formerly Solana Beach Corporate Centre) City Center Bellevue

9 unchanged sentences

Solana Crossing – Land

Lloyd District Portfolio – Construction in Progress

Lloyd Portfolio – Construction in Progress

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

Basis of Presentation

1 unchanged sentence

The equity interests of other investors in our Operating Partnership are reflected as noncontrolling interests.

All significant intercompany transactions and balances are eliminated in consolidation.

The Company follows the Financial Accounting Standards Board (the "FASB") guidance for determining whether an entity is a variable interest entity (“VIE”) and requires the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE.

Under this guidance, an entity would be required to consolidate a VIE if it has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

American Assets Trust, Inc.

has concluded that the Operating Partnership is a VIE, and because American Assets Trust, Inc.

has both the power and the rights to control the Operating Partnership, American Assets Trust, Inc.

is the primary beneficiary and is required to continue to consolidate the Operating Partnership.Substantially all of the assets and liabilities of the Company are related to the operating partnership VIE.

All intercompany transactions and balances are eliminated in consolidation.

The accompanying consolidated financial statements of the Company and the Operating Partnership have been prepared in accordance with the rules applicable to Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (“GAAP”) for annual financial statements.

7 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental cash flow information

7 unchanged sentences

Accrued leasing commissions $ 631 $ 2,083

Significant Accounting Policies

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 nine months ended September 30, 2020.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

Significant Accounting Policies

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, 2020.

There have been no changes to our significant accounting policies during the three months ended March 31, 2021.

Segment Information

10 unchanged sentences

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

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

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

The provision for doubtful accounts at September 30, 2020 and December 31, 2019 was approximately $ 10.0 million and $ 1.7 million, respectively.

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

The collectability of receivables is affected by numerous different factors including current economic conditions, including the impact of 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 credit 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 March 31, 2021 and December 31, 2020 was approximately $ 12.2 million and $ 10.0 million, respectively.

Rent Concessions – COVID-19

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.

During the first quarter of 2021, 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").

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.

As of March 31, 2021, we have entered into lease modifications that resulted in adjustments (including rent deferrals and other monetary lease concessions) due to the impact of the COVID-19 pandemic of approximately $ 1.2 million or 2 % of the rent originally contracted for the three months ended March 31, 2021.

For the first quarter of 2021, we collected approximately $ 0.7 million or 88 % of the deferred rent repayments due during the period.

Recent Accounting Pronouncements

6 unchanged sentences

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

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848), which provides companies with optional practical expedients to ease the accounting burden for contract modifications associated with transitioning away from LIBOR and other interbank offered rates that are expected to be discontinued as part of reference rate reform.

For hedges, the

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

guidance generally allows changes to the reference rate and other critical terms without having to de-designate the hedging relationship, as well as allows the shortcut method to continue to be applied.

For contract modifications, changes in the reference rate or other critical terms will be treated as a continuation of the prior contract.

This guidance can be applied immediately, however, is generally only available through December 31, 2022.

We are still evaluating the impact of reference rate reform and whether we will apply any of these practical expedients.

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

September 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 March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021 December 31, 2020

In-place leases $ 60,447 $ 60,965

12 unchanged sentences

Level 3 Inputs—unobservable inputs

Except as disclosed below, the carrying amounts of our financial instruments approximate their fair value.

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities are reasonable estimates of fair value, using Level 1 inputs, because of the short-term nature of these instruments.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.

6 unchanged sentences

In adjusting the fair value of our derivative contracts for the effect of non-performance risk, we considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

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 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.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

However, as of March 31, 2021 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.

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):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

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

Deferred compensation liability $ — $ 2,158 $ — $ 2,158 $ — $ 2,059 $ — $ 2,059

Interest rate swap asset $ — $ — $ — $ — $ — $ 434 $ — $ 434

Interest rate swap liability $ — $ 3,784 $ — $ 3,784 $ — $ 4,531 $ — $ 4,531

5 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):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Carrying Value Fair Value Carrying Value Fair Value

2 unchanged sentences

Unsecured senior guaranteed notes, net $ 797,645 $ 827,895 $ 947,444 $ 1,017,378

Senior unsecured notes, net $ 489,907 $ 493,790 $ — $ —

Unsecured line of credit, net $ — $ — $ 99,151 $ 100,000

3 unchanged sentences

Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

On June 20, 2019, we entered into a treasury lock contract (the "June 2019 Treasury Lock") with Wells Fargo Bank, N.A., to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective eleven-year private placement.

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

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

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

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):

The following is a summary of the terms of our outstanding interest rate swaps as of March 31, 2021 (dollars in thousands):

Swap Counterparty Notional Amount Effective Date Maturity Date Fair Value

Bank of America, N.A.

$ 100,000 3/1/2016 3/1/2023 $ ( 2,533 )

$ 100,000 3/1/2016 3/1/2023 $ ( 3,344 )

Wells Fargo Bank, N.A.

$ 50,000 5/2/2016 3/1/2023 $ ( 1,251 )

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 $ 1.1 million will be reclassified as a decrease to interest expense.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2021

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative.

3 unchanged sentences

Other assets consist of the following (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Leasing commissions, net of accumulated amortization of $ 36,529 and $ 35,167 , respectively

Interest rate swap asset — 434

$ 37,385 $ 38,173

Acquired above market leases, net 114 121

6 unchanged sentences

Total other assets $ 103,158 $ 106,112

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):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Acquired below market leases, net $ 20,673 $ 21,458

12 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

Debt of American Assets Trust, Inc.

3 unchanged sentences

however, American Assets Trust, Inc.

has guaranteed the Operating Partnership's obligations under the (i) amended and restated credit facility, (ii) term loans, and (iii) senior guaranteed notes.

has guaranteed the Operating Partnership's obligations under the (i) amended and restated credit facility, (ii) term loans, (iii) senior guaranteed notes, and (iv) senior unsecured notes.

Additionally, American Assets Trust, Inc.

2 unchanged sentences

Secured notes payable

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

The following is a summary of our total secured notes payable outstanding as of March 31, 2021 and December 31, 2020 (in thousands):

Principal Balance as of Stated Interest Rate Stated Maturity Date

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

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

$ — $ 6,498 6.36 % June 1, 2020

Solana Crossing I-II (1)(2)

— 10,270 5.91 % June 1, 2020

Solana Beach Towne Centre (1)(2)

— 34,235 5.91 % June 1, 2020

Description of Debt March 31, 2021 December 31, 2020 as of March 31, 2021

City Center Bellevue (1)

2 unchanged sentences

Debt issuance costs, net of accumulated amortization of $ 355 and $ 345 , respectively

( 66 ) ( 77 )

Total Secured Notes Payable Outstanding $ 110,934 $ 110,923

(1) Loan repaid in full, without premium or penalty, on March 2, 2020.

(2) Principal payments based on a 30 -year amortization schedule.

(1) Interest only.

Certain loans require us to comply with various financial covenants.

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

As of March 31, 2021, the Operating Partnership was in compliance with these financial covenants.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

Unsecured notes payable

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):

The following is a summary of the Operating Partnership's total unsecured notes payable outstanding as of March 31, 2021 and December 31, 2020 (in thousands):

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

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

March 31, 2021 December 31, 2020 as of March 31, 2021

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

1 unchanged sentence

Senior Guaranteed Notes, Series A (2)

— 150,000 4.04 % (3)

October 31, 2021

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July 30, 2030

3.375% Senior Unsecured Notes 500,000 — 3.38 % February 1, 2031

1,550,000 1,200,000

Debt issuance costs, net of accumulated amortization of $8,601 and $7,835, respectively ( 3,453 ) ( 4,220 )

Debt discount and issuance costs, net of accumulated amortization of $ 9,463 and $ 8,856 , respectively

( 13,110 ) ( 3,323 )

Total Unsecured Notes Payable $ 1,536,890 $ 1,196,677

(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.

(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 4.13 % through the interest rate swap maturity date of January 9, 2021, subject to adjustments based on our consolidated leverage ratio.

Subsequent to January 9, 2021, the interest rate associated with Term Loan A will be variable as described below.

(2) Notes prepaid in full, with make-whole penalty thereon of approximately $3.9 million, on January 26, 2021.

(3) 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.

The forward-starting seven-year swap contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.88 % per annum.

On January 26, 2021, we prepaid the entirety of the Senior Guaranteed Notes, Seres A with make-whole premium thereon.

(4) The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan B at approximately 3.15 % through its maturity date, subject to adjustments based on our consolidated leverage ratio.

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The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.88 % per annum.

On July 30, 2019, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $ 150 million of 3.91 % Senior Guaranteed Notes, Series G, due July 30, 2030 (the "Series G Notes").

The Series G Notes were issued on July 30, 2019 and will pay interest semi-annually on the 30th of July and January until their maturity.

The Operating Partnership may prepay at any time all, or from time to time any part of, the Series G Notes, in an amount not less than 5% of the aggregate principal amount of any series of the Series G Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid plus a Make-Whole Amount (as defined in the Note Purchase Agreement for the Series G Notes).

On January 26, 2021, the Operating Partnership issued $ 500 million of senior unsecured notes (the "3.375% Senior Notes") that mature February 1, 2031 and bear interest at 3.375 % per annum.

The 3.375% Senior Notes were priced at 98.935 % of the principal amount with a yield to maturity of 3.502 %.

The net proceeds of the 3.375% Senior Notes, after the issuance discount, underwriting fees, and other costs were approximately $ 489.7 million, which were primarily used to (i) prepay our $ 150 million Senior Guaranteed Notes, Series A, with a make-whole payment (as defined in the Note Purchase Agreement for the Series A Notes) thereon of approximately $ 3.9 million, on January 26, 2021, (ii) repay our $ 100 million then outstanding

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

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.

Subject to the terms of the Note Purchase Agreement for the Series G Notes, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal, Make-Whole Amount or interest under the Series G Notes, and (ii) a default in the payment of certain other indebtedness of the Operating Partnership, the Company or their subsidiaries, the principal and accrued and unpaid interest and the Make-Whole Amount on the outstanding Series G Notes will become due and payable at the option of the Purchasers (as defined in the Note Purchase Agreement for the Series G Notes).

The Operating Partnership’s obligations under the Series G Notes are fully and unconditionally guaranteed by the Company.

Certain loans require us to comply with various financial covenants.

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

March 31, 2021

balance under our Revolver Loan on January 26, 2021, (iii) fund the development of the La Jolla Commons III office building and (iv) for general corporate purposes.

Certain unsecured loans and notes require us to comply with various financial covenants.

As of March 31, 2021, 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 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.

At March 31, 2021, there were no amounts outstanding under the Revolver Loan and we had incurred approximately $ 0.7 million of debt issuance costs, net, which are recorded in other assets, net on the consolidated balance sheets.

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

For the three months ended March 31, 2021, the weighted average interest rate on the Revolver Loan was 1.21 %.

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.

2 unchanged sentences

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

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

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.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

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

March 31, 2021

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

As of March 31, 2021, 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 16,181,537 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 three and nine months ended September 30, 2020, 209,011 common units were converted into shares of our common stock.

During the three months ended March 31, 2021, no common units were converted into shares of our common stock.

Earnings Per Unit of the Operating Partnership

Basic earnings (loss) per unit (“EPU”) of the Operating Partnership is computed by dividing income applicable to unitholders by the weighted average Operating Partnership units outstanding, as adjusted for the effect of participating securities.

Basic earnings per unit (“EPU”) of the Operating Partnership is computed by dividing income applicable to unitholders by the weighted average Operating Partnership units outstanding, as adjusted for the effect of participating securities.

Operating Partnership units granted in equity-based payment transactions that have non-forfeitable dividend equivalent rights are considered participating securities prior to vesting.

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 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.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

The calculation of diluted EPU for the three months ended March 31, 2021 and 2020 does not include the weighted average of 489,775 and 345,153 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.

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

During the three months ended March 31, 2021, no shares of common stock were sold through the ATM equity program.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2021

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 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.

As of March 31, 2021, we had the capacity to issue up to an additional $ 132.6 million in shares of our common stock under our ATM equity program upon filing an updated prospectus supplement with the SEC.

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 nine months ended September 30, 2020:

The following table lists the dividends declared and paid on our shares of common stock and noncontrolling common units during the three months ended March 31, 2021:

Period Amount per

1 unchanged sentence

First Quarter 2021 $ 0.28 January 1, 2021 to March 31, 2021 March 25, 2021

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

1 unchanged sentence

Stock-Based Compensation

We follow the FASB guidance related to stock compensation which establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer.

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 nine months ended September 30, 2020:

We follow the FASB guidance related to stock-based compensation which establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer.

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

The following table summarizes the activity of restricted stock awards during the three months ended March 31, 2021:

Units Weighted Average Grant Date Fair Value

Nonvested at January 1, 2021 491,957 $ 23.53

Granted 6,008 33.29

Vested ( 4,412 ) 45.35

Forfeited ( 4,006 ) 23.24

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.

Nonvested at March 31, 2021 487,951 $ 23.54

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $ 1.5 million and $ 1.3 million in noncash compensation expense for the three months ended March 31, 2021 and 2020, respectively.

Unrecognized compensation expense was $ 6.9 million at March 31, 2021.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

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 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.

The weighted average unvested shares outstanding, which are considered participating securities, were 489,775 and 345,153 for the three months ended March 31, 2021 and 2020, 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 nine months ended September 30, 2020 and 2019, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

For the three months ended March 31, 2021 and 2020, 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 September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net income $ 1,733 $ 15,484

8 unchanged sentences

Income from operations attributable to unitholders in the Operating Partnership

1,365 3,565 6,778 10,553

Net income attributable to common stockholders—diluted

12 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

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

1 unchanged sentence

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 $ 0.5 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.

A deferred tax liability is included in the other liabilities and deferred credits, net on our consolidated balance sheets of $ 0.6 million and $ 0.6 million as of March 31, 2021 and December 31, 2020, 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 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.

For the three months ended March 31, 2021, we recorded income tax expense of $ 0.1 million.

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

COMMITMENTS AND CONTINGENCIES

21 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

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.

2 unchanged sentences

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 $ 6.1 million based on operating performance through September 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 $ 4.9 million based on operating performance through March 31, 2021.

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

7 unchanged sentences

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

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

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

Fifteen 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 25.9 % of total revenues for the three months ended March 31, 2021.

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 50.6 % of total revenues for the nine months ended September 30, 2020.

Furthermore, tenants in the office industry accounted for 52.9 % of total revenues for the three months ended March 31, 2021.

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 nine months ended September 30, 2020 and 2019, no tenant accounted for more than 10 % of our total rental revenue.

For the three months ended March 31, 2021 and 2020, no tenant accounted for more than 10 % of our total rental revenue.

Lessor Operating Leases

10 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

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.

4 unchanged sentences

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 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):

As of March 31, 2021, 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 (three months ending December 31, 2020) $ 41,459

2021 (nine months ending December 31, 2021) $ 162,655

Thereafter 443,310

8 unchanged sentences

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

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

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

Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

3 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

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

March 31, 2021

Current annual payments under the operating leases are as follows, as of March 31, 2021 (in thousands):

Year Ending December 31,

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

2021 (nine months ending December 31, 2021) $ 2,350

Thereafter 19,710

3 unchanged sentences

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

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

2020 2019 2020 2019

Three Months Ended March 31,

Operating lease cost $ 1,132 $ 844

5 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

Operating cash flow information:

4 unchanged sentences

The subleases contain extension options, subject to our ability to extend the Annex Lease, that can extend the subleases through December 31, 2039 at the fair rental value at the time the extension option is exercised.

At Waikiki Beach Walk, we (as sublandlord) sublease a portion of the building to Quiksilver under an operating lease effective through December 31, 2021.

At Waikiki Beach Walk, we (as sublandlord) sublease a portion of the building to the tenant Quiksilver under an operating lease effective through December 31, 2021.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

COMPONENTS OF RENTAL INCOME AND EXPENSE

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

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

2020 2019 2020 2019

Three Months Ended March 31,

Lease rental income

7 unchanged sentences

Total rental income $ 81,130 $ 92,070

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.

Lease rental income include $ 5.5 million and $ 2.8 million for the three months ended March 31, 2021 and 2020, 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 $ 0.8 million and $ 0.9 million for the three months ended March 31, 2021 and 2020, respectively.

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

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

2020 2019 2020 2019

Three Months Ended March 31,

Rental operating $ 9,496 $ 9,882

8 unchanged sentences

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

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

2020 2019 2020 2019

Three Months Ended March 31,

Interest and investment income $ 74 $ 312

Income tax expense ( 127 ) ( 206 )

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

Other non-operating income — 2

Total other (expense) income, net $ ( 53 ) $ 108

2 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

RELATED PARTY TRANSACTIONS

2 unchanged sentences

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 $ 0.2 million for the nine months ended September 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 $ 0.0 million for the three months ended March 31, 2021 and 2020, 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 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.

These expenses are recorded as general and administrative expenses in our consolidated statements of comprehensive income.

Rents commenced on March 1, 2021 for an initial lease term of ten years at an average annual rental rate of $ 0.2 million.

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 $ 0.8 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.

The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.3 million and $ 0.3 million for the three months ended March 31, 2021 and 2020, 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)

September 30, 2020

March 31, 2021

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

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

2020 2019 2020 2019

Three Months Ended March 31,

Property revenue $ 44,464 $ 44,509

14 unchanged sentences

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

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

2020 2019 2020 2019

Three Months Ended March 31,

Total segments’ profit $ 54,386 $ 63,130

2 unchanged sentences

Interest expense ( 14,005 ) ( 13,472 )

Gain on sale of real estate — — — 633

Early extinguishment of debt ( 4,271 ) —

Other income (expense), net ( 53 ) 108

7 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2020

March 31, 2021

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Net Real Estate

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Office $ 111,000 $ 111,000

Retail — 34,235

$ 111,000 $ 111,000

(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

(1) Excludes debt issuance costs of $ 0.1 million and $ 0.1 million for each of the periods ended March 31, 2021 and December 31, 2020, respectively.

Capital expenditures for each segment for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

Three Months Ended March 31,

Capital Expenditures (1)

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-Q

Item 1. Financial Statements