What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 256 added, 121 removed, 342 unchanged (52% of the section changed)

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

As of March 31, 2021, our portfolio was comprised of twelve retail shopping centers;

As of June 30, 2021, our portfolio was comprised of twelve retail shopping centers;

nine office properties;

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and six multifamily properties.

Additionally, as of March 31, 2021, we owned land at three of our properties that we classified as held for development and/or construction in progress.

Additionally, as of June 30, 2021, we owned land at three of our properties that we classified as held for development and/or construction in progress.

Our core markets include San Diego;

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

Our Company, as the sole general partner of our Operating Partnership, has control of our Operating Partnership and owned 78.8% of our Operating Partnership as of March 31, 2021.

Our Company, as the sole general partner of our Operating Partnership, has control of our Operating Partnership and owned 78.8% of our Operating Partnership as of June 30, 2021.

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

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

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

calendar year.

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

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

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

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

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

Below is a summary of our same-store composition for the three months ended March 31, 2021 and 2020.

For the three months ended March 31, 2021, La Jolla Commons was reclassified to same-store properties when compared to the designation for the three months ended March 31, 2020 as it was acquired on June 20, 2019 and is comparable for the three months ended March 31, 2021.

Below is a summary of our same-store composition for the three and six months ended June 30, 2021 and 2020.

For the three months ended June 30, 2021, Waikele Center was reclassified to same-store properties when compared to the designation for the three months ended June 30, 2020 as redevelopment activity at the property is on hold for the near future and is comparable for the three months ended June 30, 2021.

One Beach Street is classified as a non-same-store property due to redevelopment activity to renovate the property.

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

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

In our determination of same-store and redevelopment same-store properties for the three months ended March 31, 2021, Waikele Center and One Beach Street have been identified as same-store redevelopment properties due to significant redevelopment activity.

Retail same-store net operating income decreased approximately 25.5% for the three months ended March 31, 2021 compared to the same period in 2020.

Retail redevelopment same-store net operating income decreased approximately 22.5% for the three months ended March 31, 2021 compared to the same period in 2020.

Office same-store net operating income increased 1.4% for the three months ended March 31, 2021 compared to the same period in 2020.

Office redevelopment same-store net operating income increased 1.2% for the three months ended March 31, 2021 compared to the same period in 2020.

Three Months Ended March 31,

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

For the six months ended June 30, 2021, One Beach Street was reclassified to non-same-store properties when compared to the designation for the six months ended June 30, 2020 due to redevelopment activity to renovate the property.

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

Waikele Center was reclassified to same-store properties as redevelopment activity is on hold for the near future

In our determination of same-store and redevelopment same-store properties for the six months ended June 30, 2021, One Beach Street have been identified as same-store redevelopment properties due to significant redevelopment activity.

Retail same-store net operating income decreased approximately 12.8% for the six months ended June 30, 2021 compared to the same period in 2020.

Office same-store net operating income increased 2.0% for the six months ended June 30, 2021 compared to the same period in 2020.

Office redevelopment same-store net operating income increased 1.6% for the six months ended June 30, 2021 compared to the same period in 2020.

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

2021 2020 2021 2020

Same-Store 26 24 26 24

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

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

our financial hurdles.

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

Changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property, as well as our ability to economically finance a property acquisition.

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The global impact of the pandemic has been rapidly evolving.

Certain states and cities, including where we own properties, have development sites and where our principal place of business is located, have 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.

Certain states and cities, including where we own properties, have development sites and where our principal place of business is located, have at various points in time, 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.

Though certain restrictions have expired in our markets, the Company cannot predict when remaining 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 our 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.

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

For the first quarter of 2021, we have collected to date approximately 99% of office rents, 84% of retail rents (including retail component of Waikiki Beach Walk) and 95% of multifamily rents that were due during the first quarter of 2021.

During the first quarter of 2021, 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 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 for 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.

For the second quarter of 2021, we have collected to date approximately 99% of office rents, 92% of retail rents (including retail component of Waikiki Beach Walk) and 94% of multifamily rents that were due during the second quarter of 2021.

Additionally, for the second quarter of 2021, we collected approximately $0.8 million or 94% of the deferred rent repayments due during the period.

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

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

During the three months ended March 31, 2021, we signed 14 office leases for a total of 65,047 square feet of office space including 65,047 square feet of comparable renewal office space leases (leases for which there was a prior tenant), at an average rental rate decrease on a cash basis of 2.3% and increase on a GAAP basis of 1.3%, respectively.

During the three months ended June 30, 2021, we signed 14 office leases for a total of 47,684 square feet of office space including 47,380 square feet of comparable renewal office space leases (leases for which there was a prior tenant), at an average rental rate increase on a cash and GAAP basis of 9.3% and 14.7%, respectively.

New office leases for comparable spaces were signed for 14,284 square feet at an average rental rate increase on a cash and GAAP basis of 8.4% and 11.7%, respectively.

Renewals for comparable office spaces were signed for 59,714 square feet at an average rental rate decrease on a cash and GAAP basis of 3.4% and 0.5%, respectively.

Tenant improvements and incentives were $61.61 per square foot of office space for comparable new leases for the three months ended March 31, 2021, mainly due to tenants at Torrey Reserve Campus.

During the three months ended March 31, 2021, we signed 25 retail leases for a total of 59,274 square feet of retail space including 46,243 square feet of comparable renewal retail space leases (leases for which there was a prior tenant), at an average rental rate decrease on a cash basis and GAAP basis of 7.8% and 5.0%, respectively.

No new retail leases for comparable spaces were signed during the first quarter of 2021.

Renewals for comparable office spaces were signed for 33,096 square feet at an average rental rate increase on a cash and GAAP basis of 9.6% and 15.8%, respectively.

Tenant improvements and incentives were $23.47 per square foot of office space for comparable new leases for the three months ended June 30, 2021, mainly due to tenants at Lloyd Portfolio & Solana Crossing.

During the three months ended June 30, 2021, we signed 30 retail leases for a total of 123,835 square feet of retail space including 109,875 square feet of comparable renewal retail space leases (leases for which there was a prior tenant), at an average rental rate decrease on a cash basis and GAAP basis of 20.3% and 15.7%, respectively.

New retail leases for comparable spaces were signed for 50,869 square feet at an average rental rate decrease on a cash and GAAP basis of (37.6)% and (24.6)%, respectively.

Renewals for comparable retail spaces were signed for 59,006 square feet at an average rental rate decrease on a cash basis of (1.3)% and increase on a GAAP basis of 4.8%, respectively.

Tenant improvements and incentives were $40.32 per square foot of retail space for comparable new leases for the three months ended June 30, 2021, mainly due to tenants at Carmel Mountain Plaza and Waikiki Beach Walk Retail.

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

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

We capitalized external and internal costs related to both development and redevelopment activities combined of $3.9 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively.

We capitalized external and internal costs related to other property improvements combined of $9.3 million and $20.8 million for the three months ended March 31, 2021 and 2020, respectively.

We capitalized external and internal costs related to both development and redevelopment activities combined of $15.9 million and $1.4 million for the three months ended June 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to both development and redevelopment activities combined of $19.8 million and $2.7 million for the six months ended June 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to other property improvements combined of $13.5 million and $12.5 million for the three months ended June 30, 2021 and 2020, respectively.

We capitalized external and internal costs related to other property improvements totaling $22.9 million and $33.3 million for the six months ended June 30, 2021 and 2020, respectively.

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

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

We capitalized interest costs related to development activities of $0.6 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively.

We capitalized interest costs related to development activities of $0.7 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively.

We capitalized interest costs related to development activities of $1.2 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively.

Results of Operations

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

Comparison of the three months ended March 31, 2021 to the three months ended March 31, 2020

The following summarizes our consolidated results of operations for the three months ended March 31, 2021 compared to our consolidated results of operations for the three months ended March 31, 2020.

As of March 31, 2021, our operating portfolio was comprised of 28 retail, office, multifamily and mixed-use properties with an aggregate of approximately 6.6 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel.

Additionally, as of March 31, 2021, we owned land at three of our properties that we classified as held for development and/or construction in progress.

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

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

The following table sets forth selected data from our unaudited consolidated statements of comprehensive income for the three months ended March 31, 2021 and 2020 (dollars in thousands):

Three Months Ended March 31, Change %

Comparison of the three months ended June 30, 2021 to the three months ended June 30, 2020

The following summarizes our consolidated results of operations for the three months ended June 30, 2021 compared to our consolidated results of operations for the three months ended June 30, 2020.

As of June 30, 2021, our operating portfolio was comprised of 28 retail, office, multifamily and mixed-use properties with an aggregate of approximately 6.6 million rentable square feet of retail and office space, including the retail portion of our mixed-use property, 2,112 residential units (including 122 RV spaces) and a 369-room hotel.

Additionally, as of June 30, 2021, we owned land at three of our properties that we classified as held for development and/or construction in progress.

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

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

The following table sets forth selected data from our unaudited consolidated statements of comprehensive income for the three months ended June 30, 2021 and 2020 (dollars in thousands):

Three Months Ended June 30, Change %

Rental income $ 87,639 $ 79,230 $ 8,409 11 %

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Interest expense (14,862) (13,331) (1,531) 11

Early extinguishment of debt (4,271) — (4,271) —

Other (expense) income, net (74) 162 (236) (146)

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

Total property revenue decreased $12.8 million, or 13%, to $84.0 million for the three months ended March 31, 2021 compared to $96.7 million for the three months ended March 31, 2020.

The percentage leased was as follows for each segment as of March 31, 2021 and 2020:

Total property revenue increased $9.7 million, or 12%, to $91.8 million for the three months ended June 30, 2021 compared to $82.1 million for the three months ended June 30, 2020.

The percentage leased was as follows for each segment as of June 30, 2021 and 2020:

Percentage Leased (1)

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89.2 % 95.7 %

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of March 31, 2021 or 2020, as applicable.

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of June 30, 2021 or 2020, as applicable.

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

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

The increase in total property revenue was attributable primarily to the increase in collections, increase in occupancy at Waikiki Beach Walk Embassy Suites™ Hotel and factors discussed below.

Rental revenues .

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

Rental revenue decreased $10.9 million, or 12%, to $81.1 million for the three months ended March 31, 2021 compared to $92.1 million for the three months ended March 31, 2020.

Rental revenue increased $8.4 million, or 11%, to $87.6 million for the three months ended June 30, 2021 compared to $79.2 million for the three months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio (1)

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

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

2021 2020 2021 2020

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(1) For this table and tables following, the same-store portfolio excludes:

(i) Waikele Center due to significant redevelopment activity;

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

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

and (iv) land held for development.

Total office rental revenue increased $1.1 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to higher annualized base rents at La Jolla Commons, City Center Bellevue, Lloyd Portfolio, and Torrey Reserve Campus.

The increase in total office rental revenue is partially offset by the decrease in rental revenue of approximately $0.2 million at One Beach Street due to expiration of leases to allow for the modernization of the property and the decrease in rental revenue at First & Main due to the reduction of leased space related to tenant extensions in 2020.

Total retail rental revenue decreased $3.8 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to approximately $2.4 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center and The Shops at Kalakaua.

Additionally, the decrease in total retail rental revenue is also attributable to a decrease in expense recoveries and lease modifications providing rent concessions.

Multifamily revenue decreased $0.2 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to the decrease in average occupancy to 89.3% for the three months ended March 31, 2021 compared to 92.6% for the three months ended March 31, 2020.

The decrease in occupancy is primarily due to Hassalo on Eighth - Residential as the result of the significant impact of the COVID-19 pandemic and social unrest had on the Portland multifamily market.

We expect this trend to reverse with the distribution of the COVID-19 vaccine, government restrictions being lifted and appropriate lease concessions being offered.

Total mixed-use rental revenue decreased $8.1 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to the COVID-19 pandemic reducing tourism and hotel occupancy through hotel reservation cancellations and travel restrictions during the second and third quarters which led to a decrease in average occupancy and revenue per available room to 47.5% and $99 for the three months ended March 31, 2021, respectively, compared to 75.4% and $242 for three months ended March 31, 2020, respectively.

The decrease in tourism and hotel occupancy in Oahu due to the COVID-19 pandemic is expected to substantially reduce rental revenue at the hotel portion of the mixed-use property through at least the first half of 2021.

The decrease in total mixed-use rental revenue is also attributed to approximately $2.1 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 and an increase in bad debt contra-revenue of approximately $0.2 million and straight-line rent of approximately $0.3 million as the collectability was determined to be no longer probable for certain tenants at the retail portion of our mixed-use property.

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

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

and (iii) land held for development.

Total office rental revenue increased $0.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to higher annualized base rents at Torrey Point, The Landmark at One Market, City Center Bellevue, and Lloyd Portfolio.

The increase in total office rental revenue is partially offset by the decrease in rental revenue at One Beach Street due to expiration of leases to allow for the modernization of the property and the decrease in rental revenue at First & Main due to the reduction of leased space related to tenant extensions in 2020.

Total retail rental revenue increased $1.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to approximately $2.4 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center and The Shops at Kalakaua.

Multifamily revenue increased $0.1 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to an increase in average base rent per unit to $2,187 for the three months ended June 30, 2021 compared to $2,152 for the three months ended June 30, 2020.

The increase in average monthly base rent is primarily due to increases at Loma Palisades.

The increase in total multifamily rental revenue is partially offset by the decrease in average occupancy to 87.8% for the three months ended June 30, 2021 compared to 88.5% for the three months ended June 30, 2020.

Total mixed-use rental revenue increased $6.3 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to the lifting of COVID-19 travel restrictions late during the first quarter of 2021, which led to an increase in average occupancy and revenue per available room to 67% and $184 for the three months ended June 30, 2021, respectively, compared to 17% and $34 for three months ended June 30, 2020, respectively.

We expect to see a steady increase in tourism and hotel occupancy in Oahu once the COVID-19 vaccine is available more globally and travel restrictions are lifted.

The increase in total mixed-use rental revenue is also attributed to approximately $1.4 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants at the retail portion of our mixed-use property.

Other property income .

Other property income decreased $1.8 million, or 39%, to $2.9 million for the three months ended March 31, 2021 compared to $4.7 million for the three months ended March 31, 2020.

Other property income increased $1.3 million, or 45%, to $4.2 million for the three months ended June 30, 2021 compared to $2.9 million for the three months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio

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

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

2021 2020 2021 2020

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$ 4,170 $ 2,879 $ 1,291 45 % $ 2,510 $ 2,310 $ 200 9 %

Office other property income decreased $1.2 million for the three months ended March 31, 2021 primarily due to the decrease in parking garage income at City Center Bellevue, Lloyd Portfolio, and First & Main as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic during the second quarter of 2020 caused a substantial portion of our tenants employees and their guests to continue to partially work from home during the period.

Additionally, the decrease in office other property income was also attributable to a decrease in lease termination fees received at City Center Bellevue and a decrease in construction management fee income received at Lloyd Portfolio during the period.

Retail other property income decreased $0.2 million for the three months ended March 31, 2021 primarily due a decrease in lease termination fees received at Alamo Quarry Market during the period.

Multifamily other property income decreased by $0.1 million for the three months ended March 31, 2021 primarily due to the decrease in parking garage income at Hassalo on Eighth - Residential and late fees.

Mixed-use other property income decreased $0.3 million for the three months ended March 31, 2021 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.

The decrease in tourism and hotel occupancy in Oahu due to the COVID-19 pandemic is expected to substantially reduce mixed-use other property income through at least the first half of 2021.

Office other property income increased $0.2 million for the three months ended June 30, 2021 primarily due to an increase in lease termination fees received at City Center Bellevue and One Beach Street.

This increase was offset by a decrease in parking garage income at City Center Bellevue and Lloyd Portfolio.

Multifamily other property income increased by $0.1 million for the three months ended June 30, 2021 primarily due to an increase in security deposits earned at Pacific Ridge Apartments and Loma Palisades, and an increase in parking garage income at Hassalo on Eighth - Residential.

Mixed-use other property income increased $0.9 million for the three months ended June 30, 2021 primarily due an increase in room rental income and excise tax at the hotel portion and increase in parking garage income at the retail portion of our mixed-use property.

These increase are due to tourism and an increase in hotel occupancy as the COVID-19 vaccine has become more widely available and travel restrictions to Hawaii have been relaxed.

Property Expenses

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

Total property expenses decreased $4.0 million, or 12%, to $29.6 million, for the three months ended March 31, 2021 compared to $33.6 million for the three months ended March 31, 2020.

Total property expenses increased $4.9 million, or 19%, to $30.8 million, for the three months ended June 30, 2021 compared to $25.9 million for the three months ended June 30, 2020.

Rental Expenses.

Rental expenses decreased $4.3 million, or 19%, to $18.2 million for the three months ended March 31, 2021 compared to $22.6 million for the three months ended March 31, 2020.

Rental expenses increased $3.2 million, or 19%, to $20.2 million for the three months ended June 30, 2021 compared to $17.0 million for the three months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio

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

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

2021 2020 2021 2020

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$ 20,204 $ 16,981 $ 3,223 19 % $ 14,125 $ 13,618 $ 507 4 %

Total office rental expenses decreased $0.5 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to a decrease in utilities expense, janitorial services and supplies, and repairs and maintenance as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic during the second quarter of 2020 caused a substantial portion of our tenants' employees to continue to split working from home during the period.

The decrease in total office rental expenses was partially offset by the increase in sublease expense related to the Annex Lease extension option exercised in March 2020 and insurance expense during the period.

Mixed-use rental expense decreased $3.7 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 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 the COVID-19 pandemic is expected to substantially reduce rental expenses at the hotel portion of our mixed-use property through at least the first half of 2021.

Additionally, the decrease in mixed-use rental expenses is also due to the decrease of general excise tax, repairs and maintenance, management fees, and utilities expenses at the retail portion of our mixed-use property during the period.

Mixed-use rental expense increased $2.8 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to an increase in hotel room expenses, marketing expenses, and general excise tax expenses at the hotel portion of our mixed-use property during the period.

These increases are due to tourism and an increase in hotel occupancy as the COVID-19 vaccine has become more widely available and travel restrictions to Hawaii have been relaxed.

Real Estate Taxes.

Real estate taxes increased $0.3 million, or 3%, to $11.4 million for the three months ended March 31, 2021 compared to $11.0 million for the three months ended March 31, 2020.

Real estate taxes increased $1.7 million, or 18%, to $10.6 million for the three months ended June 30, 2021 compared to $9.0 million for the three months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio

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

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

2021 2020 2021 2020

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$ 10,612 $ 8,961 $ 1,651 18 % $ 9,503 $ 7,802 $ 1,701 22 %

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

Total retail real estate taxes increased $0.2 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to an increase in tax assessment at Waikele Center.

Total retail real estate taxes increased $1.7 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to a real estate tax refund received during the second quarter of 2020 for approximately $2.3 million at Alamo Quarry Market for the tax assessments for 2016 through 2018.

This was offset by $0.8 million in 2020 real estate property taxes and tax consultant fees.

Property Operating Income

Property operating income decreased $8.7 million, or 14%, to $54.4 million for the three months ended March 31, 2021, compared to $63.1 million for the three months ended March 31, 2020.

Property operating income increased $4.8 million, or 9%, to $61.0 million for the three months ended June 30, 2021, compared to $56.2 million for the three months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio

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

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

2021 2020 2021 2020

4 unchanged sentences

$ 60,993 $ 56,167 $ 4,826 9 % $ 56,729 $ 56,103 $ 626 1 %

Total office property operating income increased $0.4 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to higher annualized base rents at La Jolla Commons, City Center Bellevue, Lloyd Portfolio and Torrey Reserve Campus during the period.

The increase in total office property operating income was partially offset by the decrease in rental revenue at One Beach Street due to the expiration of leases to allow for the modernization of the property, a decrease in parking garage income, and an increase in sublease expense related to the Annex Lease extension option exercised in March 2020 during the period.

Total retail property operating income decreased $4.2 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to approximately $2.4 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center and The Shops at Kalakaua.

Additionally, the decrease in total retail property operating income is also attributable to a decrease in expense recoveries and lease modifications providing rent concessions.

Total multifamily property operating income decreased $0.3 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to the decrease in average occupancy to 89.3% for the three months ended March 31, 2021 compared to 92.6% for the three months ended March 31, 2020, and the decrease in parking garage income at Hassalo on Eighth - Residential and late fees during the period.

Total mixed-use property operating income decreased $4.7 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to the decrease in rental revenue of approximately $2.1 million for tenants who were changed to alternate rent or to cash basis of revenue recognition during 2020 and an increase in bad debt contra-revenue of approximately $0.2 million and straight-line rent of approximately $0.3 million as the collectability was determined to be no longer probable for certain tenants at the retail portion of our mixed-use property.

Additionally, the decrease in property operating income was due to the impact of the COVID-19 pandemic reducing tourism and hotel occupancy which led to a decrease in hotel occupancy and revenue per available room to 47.5% and $99 for the three months ended March 31, 2021 compared to 75.4% and $242 for the three months ended March 31, 2020.

The decrease in tourism and hotel occupancy in Oahu due to the COVID-19 pandemic is expected to substantially reduce property other property income through at least the first half of 2021.

Total office property operating income increased $0.6 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to higher annualized base rents at The Landmark at One Market, City Center Bellevue, Torrey Point and Torrey Reserve Campus during the period.

Additionally, the increase in property operating income was due to an increase in lease termination fees received at City Center Bellevue and One Beach Street, partially offset by the decrease in rental revenue at One Beach Street due to the expiration of leases to allow for the modernization of the property and a decrease in parking garage income at City Center Bellevue and Lloyd Portfolio.

Total mixed-use property operating income increased $4.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to the lifting of COVID-19 travel restrictions late during the first quarter of 2021, which led to an increase in average occupancy and revenue per available room to 67% and $184 for the three months ended June 30, 2021, respectively, compared to 17% and $34 for three months ended June 30, 2020, respectively.

These increases in mixed-use property operating income were partially offset by an increase in hotel room expenses, marketing expenses, and general excise tax expenses at the hotel portion of our mixed-use property during the period.

These increases are due to tourism and an increase in hotel occupancy as the COVID-19 vaccine has become more widely available and travel restrictions to Hawaii have been relaxed.

General and Administrative.

General and administrative expenses remained consistent at $6.8 million for the three months ended March 31, 2021, compared to $6.8 million for the three months ended March 31, 2020.

General and administrative expenses remained consistent at $6.9 million for the three months ended June 30, 2021, compared to $6.7 million for the three months ended June 30, 2020.

This increase was primarily due to an increase in employee-related costs.

Depreciation and Amortization.

Depreciation and amortization expense remained consistent at $27.5 million for the three months ended March 31, 2021, compared to $27.5 million for the three months ended March 31, 2020.

This increase was primarily due to higher depreciation and amortization at The Landmark at One Market and City Center Bellevue due to tenant improvements that were put into service in 2020 and 2021 and an increase in depreciation at One Beach attributed to the renovation and modernization of the building substantially offset by lower depreciation and amortization at First & Main, La Jolla Commons, and Waikele Center due to decreased capital expenditures in 2020.

Depreciation and amortization expense remained consistent at $27.6 million for the three months ended June 30, 2021, compared to $26.5 million for the three months ended June 30, 2020.

This increase was primarily due to higher depreciation and amortization at Embassy Suites TM Hotel, Carmel Mountain Plaza, The Landmark at One Market, Torrey Point and City Center Bellevue due to building and tenant improvements that were put into service in 2020 and 2021 and an increase in depreciation at One Beach Street attributed to the renovation and modernization of the building, substantially offset by lower depreciation and amortization at First & Main due to decreased capital expenditures in 2020.

Interest Expense.

Interest expense increased $0.5 million, or 4%, to $14.0 million for the three months ended March 31, 2021, compared to $13.5 million for the three months ended March 31, 2020.

This increase was primarily due to the closing of our 3.375% Senior Notes on January 26, 2021 partially offset by a decrease in interest expense related to our repayment of the Series A Notes on January 26, 2021, decrease in weighted average interest rate for our Term Loan A, which became an unhedged variable rate loan when the interest rate swap expired on January 9, 2021, and an increase in capitalized interest related to our development projects.

Interest expense increased $1.5 million, or 11%, to $14.9 million for the three months ended June 30, 2021, compared to $13.3 million for the three months ended June 30, 2020.

This increase was primarily due to the closing of our 3.375% Senior Notes offering on January 26, 2021 partially offset by a decrease in interest expense related to our repayment of the Series A Notes on January 26, 2021, decrease in weighted average interest rate for our Term Loan A, which became an unhedged variable rate loan when the interest rate swap expired on January 9, 2021, decrease in the Revolver Loan interest expense and an increase in capitalized interest related to our development projects.

Other (Expense) Income, Net.

Other (expense) income, net decreased $0.2 million, or 146%, to other expense, net of $0.1 million for the three months ended June 30, 2021, compared to other income, net of $0.2 million for the three months ended June 30, 2020 primarily due to the decrease in income tax benefit for our taxable REIT subsidiary.

Comparison of the Six Months Ended June 30, 2021 to the Six Months Ended June 30, 2020

The following summarizes our consolidated results of operations for the six months ended June 30, 2021 compared to our consolidated results of operations for the six months ended June 30, 2020.

The following table sets forth selected data from our unaudited consolidated statements of income for the six months ended June 30, 2021 and 2020 (dollars in thousands):

Six Months Ended June 30, Change %

Rental income $ 168,769 $ 171,300 $ (2,531) (1) %

Other property income 7,026 7,552 (526) (7)

Total property revenues 175,795 178,852 (3,057) (2)

Rental expenses 38,450 39,549 (1,099) (3)

Real estate taxes 21,966 20,006 1,960 10

Total property expenses 60,416 59,555 861 1

Total property income 115,379 119,297 (3,918) (3)

General and administrative (13,747) (13,499) (248) 2

Depreciation and amortization (55,147) (53,955) (1,192) 2

Interest expense (28,867) (26,803) (2,064) 8

Early extinguishment of debt (4,271) — (4,271) 100

Early extinguishment of debt expense increased $4.3 million for the three months ended March 31, 2021 due to the prepayment of the Senior Guaranteed Notes, Series A, with make-whole payment thereon, on January 26, 2021.

Other (expense) income, net (127) 270 (397) (147)

Other (expense) income, net decreased $0.2 million, or 149%, to other expense, net of $0.1 million for the three months ended March 31, 2021, compared to other income, net of $0.1 million for the three months ended March 31, 2020 primarily due to the decrease in interest and investment income attributed to the lower yield on our average cash balance during the period and a decrease in income tax expense related to lower taxable income for our taxable REIT subsidiary.

Net income 13,220 25,310 (12,090) (48)

Net income attributable to restricted shares (272) (173) (99) 57

Net income attributable to unitholders in the Operating Partnership

(2,750) (5,413) 2,663 (49)

Net income attributable to American Assets Trust, Inc.

$ 10,198 $ 19,724 $ (9,526) (48) %

Total property revenues .

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

Total property revenue decreased $3.1 million, or 2%, to $175.8 million for the six months ended June 30, 2021 compared to $178.9 million for the six months ended June 30, 2020.

The percentage leased was as follows for each segment as of June 30, 2021 and 2020:

Percentage Leased (1)

Office 90.3 % 94.4 %

Retail 91.1 % 94.7 %

Multifamily 87.8 % 85.1 %

Mixed-Use (2)

89.2 % 95.7 %

(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of June 30, 2021 or June 30, 2020, as applicable.

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

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 decreased $2.5 million, or (1)%, to $168.8 million for the six months ended June 30, 2021 compared to $171.3 million for the six months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio (1)

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

2021 2020 2021 2020

Office $ 86,918 $ 85,261 $ 1,657 2 $ 86,914 $ 84,531 $ 2,383 3

Retail 44,009 46,376 (2,367) (5) 44,009 46,375 (2,366) (5)

Multifamily 23,640 23,704 (64) — 23,640 23,704 (64) —

Mixed-Use 14,202 15,959 (1,757) (11) — — — —

$ 168,769 $ 171,300 $ (2,531) (1) % $ 154,563 $ 154,610 $ (47) — %

(1) The same-store portfolio excludes:

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

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

and (iii) land held for development.

Total office rental revenue increased $1.7 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due to higher annualized rents at La Jolla Commons and City Center Bellevue and Torrey Reserve partially offset by the decrease in rental revenue of approximately $0.7 million at One Beach Street due to the expiration of leases to allow for the modernization of the property and decrease at First & Main due to vacated tenant space.

Same-store office rental revenue increased $2.4 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to higher annualized base rents at La Jolla Commons, Lloyd Portfolio, Torrey Reserve and City Center Bellevue.

Total retail rental revenue decreased $2.4 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to a decrease of $3.2 million in net basic monthly rent, offset by an increase in percentage rent of $1.2 million as certain tenants switched to alternate rent as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center, and Waikele Center 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.

Mixed-use rental revenue decreased $1.8 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due a decrease in total mixed-use rental revenue of $1.3 million and a decrease in expense recoveries of $0.5 million as certain tenants were changed to alternate rent agreements.

This decrease in the mixed-use retail portion was offset by a slight increase in hotel revenue as average occupancy and revenue per available room increased to 57% and $142 for the six months ended June 30, 2021, respectively, compared to 46% and $138 for six months ended June 30, 2020, respectively.

We expect to see a steady increase in tourism and hotel occupancy in Oahu once the COVID-19 vaccine is available more globally and travel restrictions are lifted.

Other property income .

Other property income decreased $0.5 million, or 7%, to $7.0 million for the six months ended June 30, 2021 compared to $7.6 million for the six months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio

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

2021 2020 2021 2020

Office $ 2,116 $ 3,128 $ (1,012) (32) $ 1,944 $ 3,115 $ (1,171) (38)

Retail 746 942 (196) (21) 746 942 (196) (21)

Multifamily 1,651 1,584 67 4 1,651 1,584 67 4

Mixed-Use 2,513 1,898 615 32 — — — —

$ 7,026 $ 7,552 $ (526) (7) % $ 4,341 $ 5,641 $ (1,300) (23) %

Total office other property income decreased $1.0 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to the decrease in parking garage income at Lloyd Portfolio, City Center Bellevue and First & Main during the period as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic caused a substantial portion of our tenants employees and their guests to continue to partially work from home during the period.

Total retail other property income decreased $0.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to the lease termination fees received at Alamo Quarry Market during 2020.

Total mixed-use other property income increased $0.6 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in rental other income at the hotel portion of our mixed-use property and an increase in parking income at the retail portion of our mixed-use property.

These increases were partially offset by a decrease in excise tax.

We expect to see a steady increase in tourism and hotel occupancy in Oahu once the COVID-19 vaccine is available more globally and travel restrictions are lifted.

Property Expenses

Total Property Expenses.

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

Total property expenses increased by $0.9 million, or 1%, to $60.4 million for the six months ended June 30, 2021, compared to $59.6 million for the six months ended June 30, 2020.

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

Rental Expenses.

Rental expenses decreased $1.1 million, or 3%, to $38.5 million for the six months ended June 30, 2021, compared to $39.5 million for the six months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio

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

2021 2020 2021 2020

Office $ 13,497 $ 13,816 $ (319) (2) $ 13,097 $ 13,369 $ (272) (2)

Retail 7,240 7,113 127 2 7,240 7,113 127 2

Multifamily 7,574 7,489 85 1 7,574 7,489 85 1

Mixed-Use 10,139 11,131 (992) (9) — — — —

$ 38,450 $ 39,549 $ (1,099) (3) % $ 27,911 $ 27,971 $ (60) — %

Total office rental expenses decreased $0.3 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to commercial rent tax at The Landmark at One Market, facilities services and supplies, and repairs and maintenance expenses as the "stay-at home" order issued by state and local governments related to the COVID-19 pandemic during the second quarter of 2020 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, and an increase in insurance expense during the period.

Total retail rental expenses increased $0.1 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in insurance expense, utilities, day porter services and trash services as restrictions on business operations from orders issued by state and local governments related to the COVID-19 pandemic were eased during this period.

The increase in retail rental expense was partially offset by a decrease in marketing and repair expenses during the period.

Total mixed-use rental expenses decreased $1.0 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to decrease in hotel room and rent expenses at the hotel portion of our mixed-use property during the period.

The decrease in rental expenses at the hotel portion of our mixed use property is primarily due to the decrease in tourism and hotel occupancy in Oahu due to the COVID-19 pandemic.

Additionally, the decrease in mixed-use rental expenses is also due to the decrease of general excise tax expenses and management fees, partially offset by an increase in personnel compensation at the retail portion of our mixed-use property during the period.

Real Estate Taxes.

Real estate tax expense increased $2.0 million, or 10%, to $22.0 million for the six months ended June 30, 2021 compared to $20.0 million for the six months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio

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

2021 2020 2021 2020

Office $ 9,515 $ 9,578 $ (63) (1) $ 9,400 $ 9,227 $ 173 2

Retail 6,937 5,125 1,812 35 6,937 5,125 1,812 35

Multifamily 3,410 3,334 76 2 3,410 3,335 75 2

Mixed-Use 2,104 1,969 135 7 — — — —

$ 21,966 $ 20,006 $ 1,960 10 % $ 19,747 $ 17,687 $ 2,060 12 %

Same-store office real estate taxes increased $0.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in tax assessments at City Center Bellevue and First & Main during the period.

Retail real estate taxes increased $1.8 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to a net real estate tax refund of approximately $2.3 million received during the second quarter of 2020 at Alamo Quarry Market for the tax assessments for 2016 through 2018.

Mixed-use real estate taxes increased $0.1 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in tax assessments for the hotel and retail portion of our mixed-use property.

Property Operating Income

Property operating income decreased $3.9 million, or 3%, to $115.4 million for the six months ended June 30, 2021, compared to $119.3 million for the six months ended June 30, 2020.

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

Total Portfolio Same-Store Portfolio

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

2021 2020 2021 2020

Office $ 66,022 $ 64,995 $ 1,027 2 $ 66,361 $ 65,050 $ 1,311 2

Retail 30,578 35,080 (4,502) (13) 30,578 35,079 (4,501) (13)

Multifamily 14,307 14,465 (158) (1) 14,307 14,464 (157) (1)

Mixed-Use 4,472 4,757 (285) (6) — — — —

$ 115,379 $ 119,297 $ (3,918) (3) % $ 111,246 $ 114,593 $ (3,347) (3) %

Total office property operating income increased $1.0 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to higher annualized rents at La Jolla Commons and City Center Bellevue and Torrey Reserve partially offset by the decrease in rental revenue of approximately $0.7 million at One Beach Street due to the expiration of leases to allow for the modernization of the property and decrease at First & Main due to vacated tenant space.

Total retail property operating income decreased $4.5 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to a decrease of $3.2 million in net basic monthly rent, offset by an increase in percentage rent of $1.2 million as certain tenants switched to alternate rent as the collectability was determined to be no longer probable for certain tenants at Alamo Quarry Market, Carmel Mountain Plaza, Del Monte Center, and Waikele Center 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 real estate tax refund at Alamo Quarry Market received during the second quarter of 2020.

Multifamily property operating income decreased $0.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to a decrease in the average occupancy to 88.6% for the six months ended June 30, 2021 compared to 90.5% for the six months ended June 30, 2020, higher rent concessions at Hassalo on Eighth - Residential and increases in utilities, insurance expense and real estate taxes during the period.

The decrease in multifamily property operating income was partially offset by an increase in average base rent per unit to $2,181 for the six months ended June 30, 2021 compared to $2,115 for the six months ended June 30, 2020, an increase in security deposits earned at Pacific Ridge Apartments and Loma Palisades and decreases in personnel costs and repairs and maintenance expenses during the period.

Total mixed-use property operating income decreased $0.3 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due a decrease in total mixed-use rental revenue of $1.3 million and a decrease in expense recoveries of $0.5 million as certain tenants were changed to alternate rent agreements.

We expect to see a steady increase in tourism and hotel occupancy in Oahu once the COVID-19 vaccine is available more globally and travel restrictions are lifted.

Additionally, there was also a decrease in rental expenses for the hotel and retail portion of our mixed-use property, due to a decrease in hotel room and rent expenses at the hotel portion of our mixed-use property and a decrease of general excise tax expenses and management fees, partially offset by an increase in personnel compensation at the retail portion of our mixed-use property during the period.

General and Administrative.

General and administrative expenses increased $0.2 million, or 2%, to $13.7 million for the six months ended June 30, 2021, compared to $13.5 million for the six months ended June 30, 2020.

This increase was primarily due to employee related costs.

Depreciation and Amortization.

Depreciation and amortization expense increased $1.2 million, or 2%, to $55.1 million for the six months ended June 30, 2021, compared to $54.0 million for the six months ended June 30, 2020.

This increase was primarily due to higher depreciation and amortization at Embassy Suites TM Hotel, Carmel Mountain Plaza, and The Landmark at One Market due to building and tenant improvements that were put into service in 2020 and 2021 and an increase in depreciation at One Beach Street attributed to the renovation and modernization of the building, substantially offset by lower depreciation and amortization at First & Main due to decreased capital expenditures in 2020.

Interest Expense.

Interest expense increased $2.1 million, or 8%, to $28.9 million for the six months ended June 30, 2021 compared to $26.8 million for the six months ended June 30, 2020.

This increase was primarily due to the closing of our 3.375% Senior Notes offering on January 26, 2021, partially offset by a decrease in interest expense related to our repayment of the Series A Notes on January 26, 2021 decrease in weighted average interest rate for our Term Loan A, which became an unhedged variable rate loan when the interest rate swap expired on January 9, 2021, and an increase in capitalized interest related to our development projects.

Early Extinguishment of Debt.

Early extinguishment of debt expense increased $4.3 million for the six months ended June 30, 2021 due to the repayment of the Senior Guaranteed Notes, Series A, with make-whole payments thereon, on January 26, 2021.

Other (Expense) Income, Net.

Other (expense) income, net decreased $0.4 million, or 147%, to other expense, net of $0.1 million for the six months ended June 30, 2021, compared to other income, net of $0.3 million for the six months ended June 30, 2020 primarily due to the decrease in interest and investment income attributed to the lower yield on our average cash balance during the period and a decrease in income tax benefit related for our taxable REIT subsidiary.

Liquidity and Capital Resources of American Assets Trust, Inc.

9 unchanged sentences

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

As of March 31, 2021, the company owned an approximate 78.8% partnership interest in the Operating Partnership.

As of June 30, 2021, the company owned an approximate 78.8% partnership interest in the Operating Partnership.

The remaining approximately 21.2% are owned by non-affiliated investors and certain of the company's directors and executive officers.

8 unchanged sentences

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

As of March 31, 2021, the company has determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months.

As of June 30, 2021, the company has determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months.

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

1 unchanged sentence

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

In the first quarter of 2021, we continued to receive rent deferment and other rent concession requests from some tenants and have been negotiating and executing lease modifications for the deferment of rent and other rent concessions.

In the first half of 2021, we continued to receive rent deferment and other rent concession requests from some tenants and have been negotiating and executing lease modifications for the deferment of rent and other rent concessions.

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

19 unchanged sentences

The sales of shares of the company's common stock made through the ATM equity program, as amended, are made in “at-the-market” offerings as defined in Rule 415 of the Securities Act.

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

As of June 30, 2021, we had the capacity to issue up to an additional $132.6 million in shares of common stock under the ATM equity program upon filing an updated prospectus supplement with the SEC.

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

11 unchanged sentences

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

As of March 31, 2021, we held $380.4 million in cash and cash equivalents.

As of June 30, 2021, we held $368.3 million in cash and cash equivalents.

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

20 unchanged sentences

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

Comparison of the three months ended March 31, 2021 to the three months ended March 31, 2020

Cash, cash equivalents, and restricted cash were $382.2 million and $56.8 million at March 31, 2021 and 2020, respectively.

Net cash provided by operating activities decreased $2.9 million to $42.5 million for the three months ended March 31, 2021 compared to $45.4 million for the three months ended March 31, 2020.

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

Net cash used in investing activities decreased $11.7 million to $12.2 million for the three months ended March 31, 2021 compared to $23.9 million for the three months ended March 31, 2020.

The decrease was primarily due to the decrease in capital expenditures for tenant improvements at City Center Bellevue, Torrey Reserve, and Waikele Center.

Net cash provided by financing activities increased $286.9 million to $212.8 million for the three months ended March 31, 2021 compared to cash used in financing activities of $74.1 million for the three months ended March 31, 2020.

Comparison of the six months ended June 30, 2021 to the six months ended June 30, 2020

Cash, cash equivalents, and restricted cash were $370.0 million and $150.1 million at June 30, 2021 and 2020, respectively.

Net cash provided by operating activities increased $7.6 million to $76.7 million for the six months ended June 30, 2021 compared to $69.1 million for the six months ended June 30, 2020.

The increase in cash from operations was primarily due to an increase in rental revenue from our mixed-use property and an increase in rent collections from our retail portfolio.

Net cash used in investing activities decreased $2.0 million to $37.1 million for the six months ended June 30, 2021 compared to $39.1 million for the six months ended June 30, 2020.

The decrease was primarily due to a decrease in leasing commissions for new tenants at First & Main, City Center Bellevue, Torrey Point and Lloyd Portfolio.

During the three months ended June 30, 2021, we had taken a short term investment position in a marketable security, which was purchased and sold within the same quarter.

Net cash provided by financing activities increased $180.7 million to $191.3 million for the six months ended June 30, 2021 compared to cash used in financing activities of $10.6 million for the six months ended June 30, 2020.

The increase in cash provided by financing activities was primarily due to the closing of our issuance of 3.375% Senior Notes on January 26, 2021, partially offset by the repayment of both the outstanding balance on the revolving line of credit and the Senior Guaranteed Notes, Series A on January 26, 2021.

2 unchanged sentences

We define NOI as operating revenues (rental income, tenant reimbursements, lease termination fees, ground lease rental income and other property income) less property and related expenses (property expenses, ground lease expense, property marketing costs, real estate taxes and insurance).

NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expense, other nonproperty income and losses, gains and losses from property dispositions, extraordinary items, tenant improvements, and leasing commissions.

NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expense, other non-property income and losses, gains and losses from property dispositions, extraordinary items, tenant improvements, and leasing commissions.

Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to the NOIs of other REITs.

real estate assets that are included in net income computed in accordance with GAAP or (3) general and administrative expenses and other gains and losses that are specific to the property owner.

NOI is used by investors and our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by (1) the cost of funds of the property owner, (2) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP or (3) general and administrative expenses and other gains and losses that are specific to the property owner.

The cost of funds is eliminated from net income because it is specific to the particular financing capabilities and constraints of the owner.

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

The following is a reconciliation of our NOI to net income for the three months ended March 31, 2021 and 2020 computed in accordance with GAAP (in thousands):

Three Months Ended March 31,

The following is a reconciliation of our NOI to net income for the three and six months ended June 30, 2021 and 2020 computed in accordance with GAAP (in thousands):

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

2021 2020 2021 2020

Net operating income $ 60,993 $ 56,167 $ 115,379 $ 119,297

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Specifically, in excluding real-estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.

We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other

We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.

However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited.

3 unchanged sentences

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

The following table sets forth a reconciliation of our FFO for the three months ended March 31, 2021 to net income, the nearest GAAP equivalent (in thousands, except per share and share data):

Three Months Ended March 31,

The following table sets forth a reconciliation of our FFO for the three and six months ended June 30, 2021 to net income, the nearest GAAP equivalent (in thousands, except per share and share data):

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

Funds from Operations (FFO)

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

76,167,246 76,166,158

(1) The weighted average common shares used to compute FFO per diluted share include unvested restricted stock awards that are subject to time vesting, which were excluded from the computation of diluted EPS, as the vesting of the restricted stock awards is dilutive in the computation of FFO per diluted share but is anti-dilutive for the computation of diluted EPS for the period.

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis