What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-10-29 compared with 2021-07-30 · 179 added, 132 removed, 879 unchanged (26% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

June 30, December 31,

September 30, December 31,

Real estate, at cost

22 unchanged sentences

stockholders’ equity

Common stock, $ 0.01 par value, 490,000,000 shares authorized, 60,474,866 and 60,476,292 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

Common stock, $ 0.01 par value, 490,000,000 shares authorized, 60,472,065 and 60,476,292 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 1,450,096 1,445,644

10 unchanged sentences

(In Thousands, Except Shares and Per Share Data)

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

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

2021 2020 2021 2020

61 unchanged sentences

Balance at June 30, 2021 60,474,866 $ 605 $ 1,448,612 $ ( 199,955 ) $ 2,122 $ ( 24,238 ) $ 1,227,146

Net income — — 10,186 2,709 12,895

Forfeiture of restricted stock ( 2,801 ) — — — — — —

Dividends declared and paid — — — ( 18,141 ) — ( 4,854 ) ( 22,995 )

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

Other comprehensive income - change in value of interest rate swaps — — — — 342 93 435

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 216 ) ( 58 ) ( 274 )

Balance at September 30, 2021 60,472,065 $ 605 $ 1,450,096 $ ( 207,910 ) $ 2,248 $ ( 26,348 ) $ 1,218,691

Common Shares Additional

18 unchanged sentences

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

Net income — — — 5,125 — 1,365 6,490

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

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

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

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

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

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

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

2 unchanged sentences

(In Thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

7 unchanged sentences

Stock-based compensation expense 4,452 3,753

Unrealized loss on hedging activities — 551

Other noncash interest expense ( 824 ) ( 997 )

8 unchanged sentences

INVESTING ACTIVITIES

Acquisition of real estate ( 204,511 ) —

Capital expenditures ( 56,772 ) ( 48,690 )

12 unchanged sentences

Dividends paid to common stock and unitholders ( 65,922 ) ( 57,346 )

Net cash provided by financing activities 191,298 10,648

Net cash provided by (used in) financing activities 168,303 ( 8,468 )

Net increase in cash and cash equivalents 34,590 47,107

2 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents 171,923 155,327

5 unchanged sentences

(In Thousands, Except Unit Data)

June 30, December 31,

September 30, December 31,

Real estate, at cost

20 unchanged sentences

Commitments and contingencies (Note 11)

Limited partners' capital, 16,181,537 and 16,181,537 units issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

Limited partners' capital, 16,181,537 and 16,181,537 units issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

( 27,477 ) ( 19,020 )

General partner's capital, 60,474,866 and 60,476,292 units issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

General partner's capital, 60,472,065 and 60,476,292 units issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

1,242,791 1,269,689

6 unchanged sentences

(In Thousands, Except Shares and Per Unit Data)

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

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

2021 2020 2021 2020

57 unchanged sentences

Balance at June 30, 2021 16,181,537 $ ( 25,332 ) 60,474,866 $ 1,249,262 $ 3,216 $ 1,227,146

Net income — 2,709 — 10,186 — 12,895

Forfeiture of restricted units — — ( 2,801 ) — — —

Distributions — ( 4,854 ) — ( 18,141 ) — ( 22,995 )

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

Other comprehensive income - change in value of interest rate swap — — — — 435 435

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 274 ) ( 274 )

Balance at September 30, 2021 16,181,537 $ ( 27,477 ) 60,472,065 $ 1,242,791 $ 3,377 $ 1,218,691

Limited Partners' Capital (1)

17 unchanged sentences

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

Net income — 1,365 — 5,125 — 6,490

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

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

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

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

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

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

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

4 unchanged sentences

(Unaudited, In Thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

7 unchanged sentences

Stock-based compensation expense 4,452 3,753

Unrealized loss on hedging activities — 551

Other noncash interest expense ( 824 ) ( 997 )

8 unchanged sentences

INVESTING ACTIVITIES

Acquisition of real estate ( 204,511 ) —

Capital expenditures ( 56,772 ) ( 48,690 )

12 unchanged sentences

Distributions ( 65,922 ) ( 57,346 )

Net cash provided by financing activities 191,298 10,648

Net cash provided by (used in) financing activities 168,303 ( 8,468 )

Net increase in cash and cash equivalents 34,590 47,107

2 unchanged sentences

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents $ 171,923 $ 155,327

5 unchanged sentences

Notes to Consolidated Financial Statements

June 30, 2021

September 30, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

We are a full service, vertically integrated, and self-administered REIT with approximately 203 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.

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

As of September 30, 2021, we owned or had a controlling interest in 30 office, retail, multifamily and mixed-use operating properties, the operations of which we consolidate.

Additionally, as of September 30, 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:

4 unchanged sentences

Solana Beach Towne Centre Waikele Center

La Jolla Commons One Beach Street

La Jolla Commons One Beach Street Corporate Campus East III

Torrey Reserve Campus First & Main

1 unchanged sentence

Solana Crossing City Center Bellevue

The Landmark at One Market

The Landmark at One Market Eastgate Office Park

Loma Palisades Hassalo on Eighth - Residential

11 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

Basis of Presentation

18 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information

10 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 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 six months ended June 30, 2021.

There have been no changes to our significant accounting policies during the nine months ended September 30, 2021.

Segment Information

12 unchanged sentences

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 June 30, 2021 and December 31, 2020 was approximately $ 8.3 million and $ 10.0 million, respectively.

The provision for doubtful accounts at September 30, 2021 and December 31, 2020 was approximately $ 6.2 million and $ 10.0 million, respectively.

Rent Concessions – COVID-19

During the second 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.

During the third 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").

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

For the third quarter of 2021, we collected approximately $ 0.8 million or 96 % of the deferred rent repayments due during the period.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No.

2016-13, Financial Instruments - Credit Topics.

The pronouncement requires companies to adopt a new approach to estimating credit losses on certain types of financial instruments, such as trade and other receivables and loans.

The standard requires entities to estimate a lifetime expected credit loss for most financial instruments, including trade receivables.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses , which clarifies that receivables arising from operating leases are not within the scope of the pronouncement.

We adopted the provisions of ASU No.

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.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

In March 2020, the FASB issued ASU No.

4 unchanged sentences

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

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

Property Asset Acquisitions

On July 7, 2021, we acquired E astgate Office Park, consisting of an approximately 280,000 square feet, multi-tenant office campus in Bellevue, Washington.

The purchase price was approximately $ 125 million, excluding closing costs of approximately $ 0.2 million.

On September 10, 2021, we acquired Corporate Campus East III in Bellevue, Washington, consisting of an approximately 161,000 square feet, multi-tenant office campus.

The purchase price was approximately $ 84 million , less seller credits of (i) approximately $ 1.1 million of future rent abatement (ii) approximately $ 2.1 million of contractual tenant improvements and closing costs of approximately $ 0.1 million.

The properties were acquired with cash on hand.

The financial information set forth below summarizes the Company’s purchase price allocation for Eastgate Office Park and Corporate Campus East III during the nine months ended September 30, 2021 (in thousands):

Eastgate Office Park Corporate Campus East III

Land $ 35,822 $ 23,203

Building 76,692 52,234

Land improvements 1,740 667

Furniture, fixtures, and equipment 4,305 3,091

Total real estate 118,559 79,195

Lease intangibles 7,023 5,341

Prepaid expenses and other assets 8 13

Assets acquired $ 125,590 $ 84,549

Accounts payable and accrued expenses $ ( 31 ) $ ( 9 )

Security deposits payable ( 513 ) ( 310 )

Other liabilities and deferred credits ( 535 ) ( 3,844 )

Liabilities assumed $ ( 1,079 ) $ ( 4,163 )

The value allocated to lease intangibles is amortized over the related lease term as depreciation and amortization expense in the statement of income.

The remaining weighted average amortization period as of September 30, 2021, is 3.5 years and 5.5 years for Eastgate Office Park and Corporate Campus East III, respectively.

The following table summarizes the operating results for Eastgate Office Park and Corporate Campus East III included in the Company's historical consolidated statement of operations for the period of acquisition through September 30, 2021 (in thousands):

Eastgate Office Park Corporate Campus East III Total

Revenues $ 2,432 $ 364 $ 2,796

Operating expenses $ ( 2,572 ) $ ( 483 ) $ ( 3,055 )

Operating loss $ ( 140 ) $ ( 119 ) $ ( 259 )

Net loss attributable to American Assets Trust, Inc.

$ ( 139 ) $ ( 119 ) $ ( 258 )

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

ACQUIRED IN-PLACE LEASES AND ABOVE/BELOW MARKET LEASES

The following summarizes our acquired lease intangibles and leasing costs, which are included in other assets and other liabilities and deferred credits, as of June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021 December 31, 2020

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

September 30, 2021 December 31, 2020

In-place leases $ 67,215 $ 60,965

19 unchanged sentences

The changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income (loss) and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings.

We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements.

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.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements.

September 30, 2021

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.

However, as of June 30, 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.

However, as of September 30, 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):

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

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

7 unchanged sentences

A summary of the carrying amount and fair value of our secured financial instruments, all of which are based on Level 2 inputs, is as follows (in thousands):

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Carrying Value Fair Value Carrying Value Fair Value

8 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.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

The following is a summary of the terms of our outstanding interest rate swaps as of June 30, 2021 (dollars in thousands):

The following is a summary of the terms of our outstanding interest rate swaps as of September 30, 2021 (dollars in thousands):

Swap Counterparty Notional Amount Effective Date Maturity Date Fair Value

4 unchanged sentences

During the next twelve months, we estimate the cash flow hedges in place will reduce interest expense by approximately $ 1.1 million.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 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):

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Leasing commissions, net of accumulated amortization of $ 38,887 and $ 35,167 , respectively

8 unchanged sentences

Total other assets $ 108,684 $ 106,112

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

OTHER LIABILITIES AND DEFERRED CREDITS

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Acquired below market leases, net $ 23,298 $ 21,458

12 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

Debt of American Assets Trust, Inc.

8 unchanged sentences

Secured notes payable

The following is a summary of our total secured notes payable outstanding as of June 30, 2021 and December 31, 2020 (in thousands):

The following table is a summary of our total secured notes payable outstanding as of September 30, 2021 and December 31, 2020 (in thousands):

Principal Balance as of Stated Interest Rate Stated Maturity Date

Description of Debt June 30, 2021 December 31, 2020 as of June 30, 2021

Description of Debt September 30, 2021 December 31, 2020 as of September 30, 2021

City Center Bellevue (1)

6 unchanged sentences

Certain loans require us to comply with various financial covenants.

As of June 30, 2021, the Operating Partnership was in compliance with these financial covenants.

As of September 30, 2021, the Operating Partnership was in compliance with these financial covenants.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

Unsecured notes payable

The following is a summary of the Operating Partnership's total unsecured notes payable outstanding as of June 30, 2021 and December 31, 2020 (in thousands):

The following table is a summary of the Operating Partnership's total unsecured notes payable outstanding as of September 30, 2021 and December 31, 2020 (in thousands):

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

June 30, 2021 December 31, 2020 as of June 30, 2021

September 30, 2021 December 31, 2020 as of September 30, 2021

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

42 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

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.

2 unchanged sentences

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

As of June 30, 2021, the Operating Partnership was in compliance with these financial covenants.

As of September 30, 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 June 30, 2021, there were no amounts outstanding under the Revolver Loan and we had incurred approximately $ 0.6 million of debt issuance costs, net, which are recorded in other assets, net on the consolidated balance sheets.

At September 30, 2021, there were no amounts outstanding under the Revolver Loan and we had incurred approximately $ 0.5 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 six months ended June 30, 2021, the weighted average interest rate on the Revolver Loan was 1.19 %.

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.

For the nine months ended September 30, 2021, the weighted average interest rate on the Revolver Loan was 1.19 %.

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 month period.

The extension options are exercisable by us subject to the satisfaction of certain conditions.

6 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

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.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 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 June 30, 2021, the Operating Partnership was in compliance with the financial covenants in the Second Amended and Restated Credit Facility.

As of September 30, 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 21.2 % of the ownership interests in our Operating Partnership at June 30, 2021.

Common units and shares of our common stock have essentially the same economic characteristics in that common units and shares of our common stock share equally in the total net income or loss distributions of our Operating Partnership.

Investors who own common units have the right to cause our Operating Partnership to redeem any or all of their common units for cash equal to the then-current market value of one share of our common stock, or, at our election, shares of our common stock on a one -for-one basis.

During the six months ended June 30, 2021, no common units were converted into shares of our common stock.

During the nine months ended September 30, 2021, no common units were converted into shares of our common stock.

Earnings Per Unit of the Operating Partnership

2 unchanged sentences

The impact of unvested Operating Partnership unit awards on EPU has been calculated using the two-class method whereby earnings are allocated to the unvested Operating Partnership unit awards based on distributions and the unvested Operating Partnership units’ participation rights in undistributed earnings.

The calculation of diluted EPU for the three months ended June 30, 2021 and 2020 does not include the weighted average of 486,035 and 345,241 unvested outstanding Operating Partnership units, respectively, as these equity securities are either considered contingently issuable or the effect of including these equity securities was anti-dilutive to income from continuing operations and net income attributable to the unitholders.

The calculation of diluted EPU for the six months ended June 30, 2021 and 2020 does not include the weighted average of 487,895 and 345,199 unvested Operating Partnership units, respectively.

The calculation of diluted EPU for the three months ended September 30, 2021 and 2020 does not include the weighted average of 481,966 and 346,434 unvested outstanding 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, 2021 and 2020 does not include the weighted average of 485,897 and 345,613 unvested Operating Partnership units, respectively.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

EQUITY OF AMERICAN ASSETS TRUST, INC.

3 unchanged sentences

The sales of shares of our common stock made through the ATM equity program, as amended, are made in "at-the-market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended.

During the six months ended June 30, 2021, no shares of common stock were sold through the ATM equity program.

During the nine months ended September 30, 2021, no shares of common stock were sold through the ATM equity program.

We intend to use the net proceeds from the ATM equity program to fund our development or redevelopment activities, repay amounts outstanding from time to time under our revolving line of credit or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes.

As of June 30, 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.

As of September 30, 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 six months ended June 30, 2021:

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, 2021:

Period Amount per

2 unchanged sentences

Second Quarter 2021 $ 0.28 April 1, 2021 to June 30, 2021 June 24, 2021

Third Quarter 2021 $ 0.30 July 1, 2021 to September 30, 2021 September 23, 2021

Taxability of Dividends

3 unchanged sentences

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 six months ended June 30, 2021:

The following table summarizes the activity of restricted stock awards during the nine months ended September 30, 2021:

Units Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 9,411 ) 23.27

Nonvested at June 30, 2021 484,523 $ 23.58

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 June 30, 2021 and 2020, respectively, which is included in general and administrative expense on the consolidated statements of comprehensive income.

We recognized $ 3.0 million and $ 2.5 million in noncash compensation expense for the six months ended June 30, 2021 and 2020, respectively.

Unrecognized compensation expense was $ 5.6 million at June 30, 2021.

Nonvested at September 30, 2021 481,722 $ 23.58

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 September 30, 2021 and 2020, respectively, which is included in general and administrative expense on the consolidated statements of comprehensive income.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

We recognized $ 4.5 million and $ 3.8 million in noncash compensation expense for the nine months ended September 30, 2021 and 2020, respectively.

Unrecognized compensation expense was $ 4.2 million at September 30, 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 486,035 and 345,241 for the three months ended June 30, 2021 and 2020, respectively and 487,895 and 345,199 for the six months ended June 30, 2021 and 2020, respectively.

The weighted average unvested shares outstanding, which are considered participating securities, were 481,966 and 346,434 for the three months ended September 30, 2021 and 2020, respectively and 485,897 and 345,613 for the nine months ended September 30, 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 six months ended June 30, 2021 and 2020, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

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

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

2021 2020 2021 2020

24 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 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 the other liabilities and deferred credits, net on our consolidated balance sheets of $ 0.6 million and $ 0.6 million as of June 30, 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.

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 September 30, 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 six months ended June 30, 2021, we recorded income tax benefit of $ 0.2 million and $ 0.3 million.

For the three and six months ended June 30, 2020, we recorded income tax expense of $ 0.1 million and income tax benefit of $ 0.1 million.

For the three and nine months ended September 30, 2021, we recorded income tax expense of $ 0.2 million and $ 0.5 million.

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

COMMITMENTS AND CONTINGENCIES

21 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 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 $ 4.5 million based on operating performance through June 30, 2021.

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 $ 4.3 million based on operating performance through September 30, 2021.

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

8 unchanged sentences

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 25.5 % of total revenues for the six months ended June 30, 2021.

Tenants in the retail industry accounted for 25.3 % of total revenues for the nine months ended September 30, 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 six months ended June 30, 2021.

Furthermore, tenants in the office industry accounted for 49.8 % of total revenues for the nine months ended September 30, 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 six months ended June 30, 2021 and 2020, no tenant accounted for more than 10 % of our total rental revenue.

For the nine months ended September 30, 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)

June 30, 2021

September 30, 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 June 30, 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):

As of September 30, 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,

2021 (six months ending December 31, 2021) $ 105,814

2021 (three months ending December 31, 2021) $ 55,108

Thereafter 489,326

13 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

Current annual payments under the operating leases are as follows, as of June 30, 2021 (in thousands):

September 30, 2021

Current annual payments under the operating leases are as follows, as of September 30, 2021 (in thousands):

Year Ending December 31,

2021 (six months ending December 31, 2021) $ 1,061

2021 (three months ending December 31, 2021) $ 796

Thereafter 19,710

3 unchanged sentences

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

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

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

2021 2020 2021 2020

6 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

Operating cash flow information:

7 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

COMPONENTS OF RENTAL INCOME AND EXPENSE

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

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

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

2021 2020 2021 2020

8 unchanged sentences

Total rental income $ 93,804 $ 80,759 $ 262,573 $ 252,059

Lease rental income includes $ 1.9 million and $ 7.0 million for the three months ended June 30, 2021 and 2020, respectively, and $ 7.0 million and $ 9.7 million for the six months ended June 30, 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 was $ 0.7 million and $ 1.0 million for the three months ended June 30, 2021 and 2020, respectively, and $ 1.5 million and $ 1.9 million for the six months ended June 30, 2021 and 2020, respectively.

Lease rental income includes $ 3.8 million and $ 4.2 million for the three months ended September 30, 2021 and 2020, respectively, and $ 10.8 million and $ 14.0 million for the nine months ended September 30, 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 was $ 0.8 million and $ 0.9 million for the three months ended September 30, 2021 and 2020, respectively, and $ 2.4 million and $ 2.8 million for the nine months ended September 30, 2021 and 2020, respectively.

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

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

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

2021 2020 2021 2020

9 unchanged sentences

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

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

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

2021 2020 2021 2020

Interest and investment income $ 98 $ 32 $ 272 $ 415

Income tax (benefit) expense ( 174 ) 91 ( 301 ) ( 115 )

Other non-operating income — — — 2

Income tax expense ( 150 ) ( 12 ) ( 451 ) ( 127 )

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

Total other (expense) income, net $ ( 52 ) $ ( 531 ) $ ( 179 ) $ ( 261 )

2 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

RELATED PARTY TRANSACTIONS

4 unchanged sentences

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

Rental revenue recognized on the AAI leases of $ 0.1 million and $ 0.1 million for the six months ended June 30, 2021 and 2020, respectively, is included in rental income on the statements of comprehensive income.

Rental revenue recognized on the AAI leases of $ 0.2 million and $ 0.1 million for the nine months ended September 30, 2021 and 2020, respectively, is included in rental income on the statements of comprehensive income.

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

("AAIA"), an entity owned and controlled by Mr.

For the six months ended June 30, 2021 and 2020, we incurred approximately $ 0.1 million and $ 0.0 million of expenses, respectively, related to aircraft services of AAIA or reimbursement to Mr.

For the nine months ended September 30, 2021 and 2020, we incurred approximately $ 0.2 million and $ 0.0 million of expenses, respectively, 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.

1 unchanged sentence

The Waikiki Beach Walk entities have a 47.7 % investment in WBW CHP LLC, an entity that was formed to, among other things, construct a chilled water plant to provide air conditioning to the property and other adjacent facilities.

The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.5 million and $ 0.5 million for the six months ended June 30, 2021 and 2020, respectively, are included in rental expenses on the consolidated statements of comprehensive income.

The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.8 million and $ 0.8 million for the nine months ended September 30, 2021 and 2020, respectively, are included in rental expenses on the consolidated statements of comprehensive income.

SEGMENT REPORTING

13 unchanged sentences

We consider segment profit to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of our properties.

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

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

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

September 30, 2021

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

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

2021 2020 2021 2020

15 unchanged sentences

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

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

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

2021 2020 2021 2020

13 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

September 30, 2021

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Net Real Estate

7 unchanged sentences

$ 111,000 $ 111,000

(1) Excludes debt issuance costs of $ 0.1 million and $ 0.1 million for each of the periods ended June 30, 2021 and December 31, 2020, respectively.

Capital expenditures for each segment for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands):

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

(1) Excludes debt issuance costs of $ 0.0 million and $ 0.1 million for each of the periods ended September 30, 2021 and December 31, 2020, respectively.

Capital expenditures for each segment for the three and nine months ended September 30, 2021 and 2020 were as follows (in thousands):

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

2021 2020 2021 2020

6 unchanged sentences

(1) Capital expenditures represent cash paid for capital expenditures during the period and include leasing commissions paid .

SUBSEQUENT EVENT

On July 7, 2021, we acquired Eastgate Office Park, which consists of an approximately 280,000 square foot, multi-tenant office campus in the I-90 corridor submarket of Bellevue, Washington.

The purchase price was $ 125 million, excluding closing costs and prorations.

The property was acquired with cash on hand.

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