What changed in this filing

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Item 1. Financial Statements

2022-04-29 compared with 2021-10-29 · 185 added, 268 removed, 790 unchanged (36% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

September 30, December 31,

March 31, December 31,

Real estate, at cost

6 unchanged sentences

Cash and cash equivalents 73,573 139,524

Restricted cash 1,716 1,716

Accounts receivable, net 7,876 7,445

5 unchanged sentences

Unsecured notes payable, net 1,538,052 1,538,238

Unsecured line of credit, net — 99,151

Accounts payable and accrued expenses 68,797 64,531

5 unchanged sentences

stockholders’ equity

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

Common stock, $ 0.01 par value, 490,000,000 shares authorized, 60,522,043 and 60,525,580 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,454,746 1,453,272

10 unchanged sentences

(In Thousands, Except Shares and Per Share Data)

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

2021 2020 2021 2020

Three Months Ended March 31,

Rental income $ 96,986 $ 81,130

8 unchanged sentences

Interest expense ( 14,666 ) ( 14,005 )

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

Loss on early extinguishment of debt — ( 4,271 )

Other (expense) income, net ( 162 ) ( 53 )

14 unchanged sentences

Net income $ 13,514 $ 1,733

Other comprehensive income (loss) - unrealized income (loss) on swap derivatives during the period 435 1,201 1,657 ( 4,900 )

Other comprehensive income - unrealized income on swap derivatives during the period 5,596 747

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

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

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

Comprehensive income 18,835 2,012

18 unchanged sentences

Stock-based compensation — — 1,489 — — — 1,489

Shares withheld for employee taxes ( 416 ) — ( 15 ) — — — ( 15 )

Other comprehensive gain - change in value of interest rate swaps — — — — 4,408 1,188 5,596

Reclassification of amortization of forward-starting swap realized gains included in interest expense — — — — ( 217 ) ( 58 ) ( 275 )

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

Balance at March 31, 2022 60,522,043 $ 605 $ 1,454,746 $ ( 226,474 ) $ 7,063 $ ( 30,053 ) $ 1,205,887

Net income — — — 9,076 2,411 11,487

Issuance of restricted stock 5,184 — — — — — —

Forfeiture of restricted stock ( 2,604 ) — — — — — —

Dividends declared and paid — — — ( 16,933 ) — ( 4,531 ) ( 21,464 )

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

Other comprehensive income - change in value of interest rate swaps — — — — 374 101 475

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

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

5 unchanged sentences

Net income — — — 1,394 — 339 1,733

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

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

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

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

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

Net income — — — 7,725 $ — 2,101 9,826

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

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

1 unchanged sentence

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

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

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

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

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

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

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

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

2 unchanged sentences

(In Thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES

4 unchanged sentences

Amortization of debt issuance costs and debt discounts 640 577

Early extinguishment of debt 4,271 —

Loss on early extinguishment of debt — 4,271

Provision for uncollectable rental income 92 3,213

Stock-based compensation expense 1,489 1,484

Unrealized loss on hedging activities — 551

Other noncash interest expense ( 824 ) ( 997 )

Unearned rents ( 3,758 ) ( 193 )

Other, net ( 280 ) ( 50 )

10 unchanged sentences

Leasing commissions ( 2,299 ) ( 844 )

Purchases of marketable securities ( 47,760 ) —

Proceeds from the sale of marketable securities 47,723 —

Net cash used in investing activities ( 77,295 ) ( 12,216 )

FINANCING ACTIVITIES

Repayment of secured notes payable — ( 51,003 )

Proceeds from unsecured line of credit — 100,000

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

1 unchanged sentence

Repayment of unsecured notes payable — ( 155,375 )

Repayment of notes payable to affiliates — —

Debt issuance costs ( 3,245 ) ( 5,025 )

Proceeds from issuance of common stock, net — ( 119 )

Dividends paid to common stock and unitholders ( 24,545 ) ( 21,463 )

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

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

Shares withheld for employee taxes ( 15 ) —

Net cash (used in) provided by financing activities ( 27,805 ) 212,812

Net (decrease) increase in cash and cash equivalents ( 65,951 ) 243,101

Cash, cash equivalents and restricted cash, beginning of period 139,524 139,049

1 unchanged sentence

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

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents $ 73,573 $ 380,434

5 unchanged sentences

(In Thousands, Except Unit Data)

September 30, December 31,

March 31, December 31,

Real estate, at cost

6 unchanged sentences

Cash and cash equivalents 73,573 139,524

Restricted cash 1,716 1,716

Accounts receivable, net 7,876 7,445

5 unchanged sentences

Unsecured notes payable, net 1,538,052 1,538,238

Unsecured line of credit, net — 99,151

Accounts payable and accrued expenses 68,797 64,531

3 unchanged sentences

Commitments and contingencies (Note 11)

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

Limited partners' capital, 16,181,537 and 16,181,537 units issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

( 32,480 ) ( 30,138 )

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

General partner's capital, 60,522,043 and 60,525,580 units issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

1,228,877 1,236,092

6 unchanged sentences

(In Thousands, Except Shares and Per Unit Data)

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

2021 2020 2021 2020

Three Months Ended March 31,

Rental income $ 96,986 $ 81,130

8 unchanged sentences

Interest expense ( 14,666 ) ( 14,005 )

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

Loss on early extinguishment of debt — ( 4,271 )

Other (expense) income, net ( 162 ) ( 53 )

16 unchanged sentences

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

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

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

Comprehensive income 18,835 2,012

14 unchanged sentences

Stock-based compensation — — — 1,489 — 1,489

Units withheld for employee taxes — — ( 416 ) ( 15 ) — ( 15 )

Other comprehensive gain - change in value of interest rate swap — — — — 5,596 5,596

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

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

Balance at March 31, 2022 16,181,537 $ ( 32,480 ) 60,522,043 $ 1,228,877 $ 9,490 $ 1,205,887

Net income — 2,411 — 9,076 — 11,487

Issuance of restricted units — — 5,184 — — —

Forfeiture of restricted units — — ( 2,604 ) — — —

Distributions — ( 4,531 ) — ( 16,933 ) — ( 21,464 )

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

Other comprehensive income - change in value of interest rate swap — — — — 475 475

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

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)

4 unchanged sentences

Net income — 339 — 1,394 — 1,733

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

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

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

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

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

Net income — 2,101 — 7,725 — 9,826

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

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

1 unchanged sentence

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

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

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

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

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

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

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

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

4 unchanged sentences

(Unaudited, In Thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES

4 unchanged sentences

Amortization of debt issuance costs and debt discounts 640 577

Early extinguishment of debt 4,271 —

Loss on early extinguishment of debt — 4,271

Provision for uncollectable rental income 92 3,213

Stock-based compensation expense 1,489 1,484

Unrealized loss on hedging activities — 551

Other noncash interest expense ( 824 ) ( 997 )

Unearned rents ( 3,758 ) ( 193 )

Other, net ( 280 ) ( 50 )

10 unchanged sentences

Leasing commissions ( 2,299 ) ( 844 )

Purchases of marketable securities ( 47,760 ) —

Proceeds from the sale of marketable securities 47,723 —

Net cash used in investing activities ( 77,295 ) ( 12,216 )

FINANCING ACTIVITIES

Repayment of secured notes payable — ( 51,003 )

Proceeds from unsecured line of credit — 100,000

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

2 unchanged sentences

Debt issuance costs ( 3,245 ) ( 5,025 )

Contributions from American Assets Trust, Inc.

Distributions ( 24,545 ) ( 21,463 )

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

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

Shares withheld for employee taxes ( 15 ) —

Net cash (used in) provided by financing activities ( 27,805 ) 212,812

Net (decrease) increase in cash and cash equivalents ( 65,951 ) 243,101

Cash, cash equivalents and restricted cash, beginning of period 139,524 139,049

1 unchanged sentence

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents $ 73,573 $ 380,434

5 unchanged sentences

Notes to Consolidated Financial Statements

September 30, 2021

March 31, 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

We are a full service, vertically integrated, and self-administered REIT with approximately 207 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.

As of September 30, 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.

As of March 31, 2022, we owned or had a controlling interest in 31 office, retail, multifamily and mixed-use operating properties, the operations of which we consolidate.

Additionally, as of March 31, 2022, 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:

5 unchanged sentences

La Jolla Commons One Beach Street Corporate Campus East III

Torrey Reserve Campus First & Main

Torrey Reserve Campus First & Main Bel-Spring 520

Torrey Point Lloyd Portfolio

14 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

Basis of Presentation

18 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental cash flow information

10 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

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, 2021.

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

There have been no changes to our significant accounting policies during the three months ended March 31, 2022.

Segment Information

11 unchanged sentences

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

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

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

The collectability of receivables is affected by numerous different factors including current economic conditions, 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 tenants to perform under the terms of their lease agreement.

The provision for doubtful accounts at March 31, 2022 and December 31, 2021 was approximately $ 4.4 million and $ 4.6 million, respectively.

Rent Concessions – COVID-19

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.

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

During the first quarter of 2022, we provided an immaterial amount of lease concessions to certain tenants that continued being impacted by the Covid-19 pandemic.

Recent Accounting Pronouncements

1 unchanged sentence

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

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

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

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

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

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

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

2 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

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

On March 8, 2022, we acquired Bel-Spring 520 in Bellevue, Washington, consisting of an approximately 93,000 square feet, multi-tenant office campus.

The purchase price was $ 45.5 million , less seller credits of approximately $ 0.1 million of future rent abatement, and approximately $ 0.6 million of contractual tenant improvements.

Additionally, closing costs were approximately $ 0.1 million.

The property was acquired with cash on hand.

The financial information set forth below summarizes the Company’s purchase price allocation for Bel-Spring 520 during the three months ended March 31, 2022 (in thousands):

Bel-Spring 520

Land $ 13,744

11 unchanged sentences

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

The remaining weighted average amortization period as of March 31, 2022, is 3.8 .

The following table summarizes the operating results for Bel-Spring 520 included in the Company's historical consolidated statement of operations for the period of acquisition through March 31, 2022 (in thousands):

Bel-Spring 520

Revenues $ 201

2 unchanged sentences

Net loss attributable to American Assets Trust, Inc.

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

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

ACQUIRED IN-PLACE LEASES AND ABOVE/BELOW MARKET LEASES

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

September 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 March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 December 31, 2021

In-place leases $ 68,803 $ 67,215

24 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

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

However, as of September 30, 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 March 31, 2022 we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative position and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivative.

As a result, we have determined that our derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

A summary of our financial liabilities that are measured at fair value on a recurring basis, by level within the fair value hierarchy is as follows (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

Deferred compensation liability $ — $ 2,193 $ — $ 2,193 $ — $ 2,503 $ — $ 2,503

Interest rate swap asset $ — $ 3,789 $ — $ 3,789 $ — $ — $ — $ —

Interest rate swap liability $ — $ — $ — $ — $ — $ 1,807 $ — $ 1,807

5 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Carrying Value Fair Value Carrying Value Fair Value

3 unchanged sentences

Senior unsecured notes, net $ 490,890 $ 470,150 $ 490,631 $ 503,000

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

DERIVATIVE AND HEDGING ACTIVITIES

2 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.

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

The following is a summary of the terms of our outstanding interest rate swaps as of March 31, 2022 (dollars in thousands):

Swap Counterparty Notional Amount Effective Date Maturity Date Fair Value

2 unchanged sentences

$ 50,000 5/2/2016 3/1/2023 $ 55

The effective portion of changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings for as long as hedged cash flows remain probable.

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

Bank of America, N.A.

$ 50,000 1/14/2022 1/5/2027 $ 1,807

Wells Fargo Bank, N.A.

$ 50,000 1/14/2022 1/5/2027 $ 1,802

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

which the hedged forecasted transaction affects earnings for as long as hedged cash flows remain probable.

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

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

3 unchanged sentences

Other assets consist of the following (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Leasing commissions, net of accumulated amortization of $ 41,291 and $ 40,595 , respectively

$ 40,110 $ 38,589

Interest rate swap asset 3,789 —

Acquired above market leases, net 138 149

8 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Acquired below market leases, net $ 22,173 $ 22,402

12 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

Debt of American Assets Trust, Inc.

8 unchanged sentences

Secured notes payable

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

The following table is a summary of our total secured notes payable outstanding as of March 31, 2022 and December 31, 2021 (in thousands):

Principal Balance as of Stated Interest Rate Stated Maturity Date

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

Description of Debt March 31, 2022 December 31, 2021 as of March 31, 2022

City Center Bellevue (1)

5 unchanged sentences

(1) Interest only.

Certain loans require us to comply with various financial covenants.

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

Certain loans require the Operating Partnership to comply with various financial covenants.

As of March 31, 2022, the Operating Partnership was in compliance with these financial covenants.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

Unsecured notes payable

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):

The following table is a summary of the Operating Partnership's total unsecured notes payable outstanding as of March 31, 2022 and December 31, 2021 (in thousands):

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

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

March 31, 2022 December 31, 2021 as of March 31, 2022

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

January 5, 2027

Senior Guaranteed Notes, Series A (2)

— 150,000 4.04 % (3)

October 31, 2021

Term Loan B 100,000 100,000 Variable (2)

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Total Unsecured Notes Payable $ 1,538,052 $ 1,538,238

(1) The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan A at approximately 4.13 % through the interest rate swap maturity date of January 9, 2021, subject to adjustments based on our consolidated leverage ratio.

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

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

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

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

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

(1) The Operating Partnership has entered into two interest rate swap agreements that are intended to fix the interest rate associated with Term Loan A at approximately 2.70 % through its maturity date, subject to adjustments based on our consolidated leverage ratio.

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

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(4) The Operating Partnership entered into a treasury lock contract on May 31, 2017, which was settled on June 23, 2017 at a loss of approximately $ 0.5 million.

The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.85 % per annum.

The treasury lock contract was deemed to be a highly effective cash flow hedge;

accordingly, the effective interest rate is approximately 3.85 % per annum.

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

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

Each of the forward-starting interest swap rate contracts were deemed to be a highly effective cash flow hedge;

accordingly, the effective interest rate is approximately 3.87 % per annum.

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

The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 4.18 % per annum.

The treasury lock contract was deemed to be a highly effective cash flow hedge;

accordingly, the effective interest rate is approximately 4.18 % per annum.

(7) The Operating Partnership entered into a treasury lock contract on June 20, 2019, which was settled on July 17, 2019 at a gain of approximately $ 0.5 million.

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

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

The treasury lock contract was deemed to be a highly effective cash flow hedge;

accordingly, the effective interest rate is approximately 3.88 % per annum.

On 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.

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The net proceeds of the 3.375 % Senior Notes, after the issuance discount, underwriting fees, and other costs were approximately $ 489.7 million, which were primarily used to (i) prepay our $ 150 million Senior Guaranteed Notes, Series A, with a make-whole payment (as defined in the Note Purchase Agreement for the Series A Notes) thereon of approximately $ 3.9 million, on January 26, 2021, (ii) repay our $ 100 million then outstanding balance under our Revolver Loan on January 26, 2021, (iii) fund the development of the La Jolla Commons III office building and (iv) for general corporate purposes.

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

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

Certain unsecured loans and notes require the Operating Partnership to comply with various financial covenants.

As of March 31, 2022, the Operating Partnership was in compliance with these financial covenants.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2022

Amended Term Loan Agreement

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Additionally, the Operating Partnership may elect for borrowings to bear interest based on a ratings-based pricing grid as per the Operating Partnership’s then-applicable investment grade debt ratings under the terms set forth in the Term Loan Agreement.

Second Amended and Restated Credit Facility

Third Amended and Restated Credit Facility

On January 9, 2018, we entered into a second amended and restated credit agreement (the "Second Amended and Restated Credit Facility").

The Second Amended and Restated Credit Facility provides for aggregate, unsecured borrowing of $ 450 million, consisting of a revolving line of credit of $ 350 million (the "Revolver Loan") and a term loan of $ 100 million (the "Term Loan A").

The Second Amended and Restated Credit Facility has an accordion feature that may allow us to increase the availability thereunder up to an additional $ 250 million, subject to meeting specified requirements and obtaining additional commitments from lenders.

At September 30, 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 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.

The Second Amended and Restated Credit Facility had an accordion feature that allowed us to increase the availability thereunder up to an additional $ 250 million, subject to meeting specified requirements and obtaining additional commitments from lenders.

Borrowings under the Second Amended and Restated Credit Agreement initially bore 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.

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

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

Additionally, in connection with the First Amendment, borrowings under the Second Amended and Restated Credit Facility with respect to Term Loan A bear interest at floating rates equal to, at our option, either (1) LIBOR , plus a spread which ranges from 1.20 % to 1.70 % based on our consolidated total leverage ratio, or (2) a base rate equal to the highest of (a) the prime rate , (b) the federal funds rate plus 50 bps or (c) the Eurodollar rate plus 100 bps, in each case plus a spread which ranges from 0.20 % to 0.70 % based on our consolidated total leverage ratio.

The foregoing rates are intended to be more

Additionally, in connection with the First Amendment, borrowings under the Second Amended and Restated Credit Facility with respect to Term Loan A bore interest at floating rates equal to, at our option, either (1) LIBOR, plus a spread which ranges from 1.20 % to 1.70 % based on our consolidated total leverage ratio, or (2) a base rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 50 bps or (c) the Eurodollar rate plus 100 bps, in each case plus a spread which ranges from 0.20 % to 0.70 % based on our consolidated total leverage ratio.

The foregoing rates were intended to be more favorable than previously contained in the Second Amended and Restated Credit Facility (prior to entry into the First Amendment) with respect to Term Loan A.

On January 5, 2022, we entered into the Third Amended and Restated Credit Facility, which provides for aggregate, unsecured borrowings of up to $ 500 million, consisting of a revolving line of credit of $ 400 million (the “2022 Revolver Loan”) and a term loan of $ 100 million (the “2022 Term Loan A”).

The 2022 Revolver Loan initially matures on January 5, 2026, subject to two , six-month extension options.

The 2022 Term Loan A matures on January 5, 2027, with no further extension options.

Borrowings under the Third Amended and Restated Credit Agreement bear interest at floating rates equal to, at the Operating Partnership’s option, either (1) the applicable Secured Overnight Financing Rate (“SOFR”), plus the applicable SOFR Adjustment, and a spread which ranges from (a) 1.05 % to 1.50 % (with respect to the 2022 Revolver Loans) and (b) 1.20 % to 1.70 % (with respect to the 2022 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, (c) the Term SOFR Screen Rate with a term of one month plus 100 bps and (d) 1.00 %, plus a spread which ranges from (i) 0.10 % to 0.50 % (with respect to the 2022 Revolver Loan) and (ii) 0.20 % to 0.70 % (with respect to the 2022 Term Loan A), in each case based on our consolidated leverage ratio.

On January 14, 2022, the Operating Partnership entered into two interest rate swap agreements that are intended to fix the interest rate associated with the 2022 Term Loan A at approximately 2.70 % through January 5, 2027, subject to adjustments based on our consolidated leverage ratio.

At March 31, 2022, there were no amounts outstanding under the 2022 Revolver Loan and we had incurred approximately $ 2.4 million of debt issuance costs, net, which are recorded in other assets,

American Assets Trust, Inc.

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Notes to Consolidated Financial Statements—(Continued)

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.

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

March 31, 2022

net on the consolidated balance sheets.

For the three months ended March 31, 2022, the weighted average interest rate on the 2022 Revolver Loan was 1.24 %

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

• A maximum leverage ratio (defined as total indebtedness net of certain cash and cash equivalents to total asset value) of 60 %;

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• A minimum unsecured interest coverage ratio of 1.75 x;

• A maximum unsecured leverage ratio of 60 %, and

• A maximum unsecured leverage ratio of 60 %;

• Recourse indebtedness at any time cannot exceed 15 % of total asset value.

The Second Amended and Restated Credit Facility provides that our annual distributions may not exceed the greater of (1) 95% of our funds from operation ("FFO") or (2) the amount required for us to (a) qualify and maintain our REIT status and (b) avoid the payment of federal or state income or excise tax.

The Third Amended and Restated Credit Facility provides that our annual distributions may not exceed the greater of (1) 95% of our funds from operation ("FFO") or (2) the amount required for us to (a) qualify and maintain our REIT status and (b) avoid the payment of federal or state income or excise tax.

If certain events of default exist or would result from a distribution, we may be precluded from making distributions other than those necessary to qualify and maintain our status as a REIT.

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

As of March 31, 2022, the Operating Partnership was in compliance with the financial covenants in the Third 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 September 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 nine months ended September 30, 2021, no common units were converted into shares of our common stock.

During the three months ended March 31, 2022, no common units were converted into shares of our common stock.

Earnings Per Unit of the Operating Partnership

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

The calculation of diluted EPU for the three months ended September 30, 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.

The calculation of diluted EPU for the three months ended March 31, 2022 and 2021 does not include the weighted average of 485,493 and 489,775 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.

American Assets Trust, Inc.

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Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

EQUITY OF AMERICAN ASSETS TRUST, INC.

Stockholders' Equity

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

On March 2, 2018, we amended certain of these equity programs, terminated one such program and entered into a new equity program with one new sales agent.

On December 3, 2021, we entered into an at-the-market ("ATM") equity program with five sales agents in which we may, from time to time, offer and sell shares of our common stock having an aggregate offering price of up to $ 250.0 million.

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

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

For the three months ended March 31, 2022, 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 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.

As of March 31, 2022, we had the capacity to issue up to $ 250.0 million in shares of our common stock under our current ATM equity program.

Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs.

We have no obligation to sell the remaining shares available for sale under the ATM equity program.

The following table lists the dividends declared and paid on our shares of common stock and noncontrolling common units during the nine months ended September 30, 2021:

As of March 31, 2022, 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 three months ended March 31, 2022:

Period Amount per

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First Quarter 2022 $ 0.32 January 1, 2022 to March 31, 2022 March 24, 2022

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

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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 nine months ended September 30, 2021:

The following table summarizes the activity of restricted stock awards during the three months ended March 31, 2022:

Units Weighted Average Grant Date Fair Value

Nonvested at January 1, 2022 487,397 $ 23.78

Granted 5,184 38.59

Vested ( 1,166 ) 22.66

Forfeited ( 3,121 ) 23.18

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.

Nonvested at March 31, 2022 483,110 $ 23.78

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $ 1.5 million and $ 1.5 million in noncash compensation expense for the three months ended March 31, 2022 and 2021, respectively, which is included in general and administrative expenses on the consolidated statements of comprehensive income.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

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.

March 31, 2022

Earnings Per Share

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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 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.

The weighted average unvested shares outstanding, which are considered participating securities, were 485,493 and 489,775 for the three months ended March 31, 2022 and 2021, respectively.

Therefore, we have allocated our earnings for basic and diluted EPS between common shares and unvested shares as these unvested shares have nonforfeitable dividend equivalent rights.

Diluted EPS is calculated by dividing the net income applicable to common stockholders for the period by the weighted average number of common and dilutive instruments outstanding during the period using the treasury stock method.

For the three and nine months ended September 30, 2021 and 2020, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

For the three months ended March 31, 2022 and 2021, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

Additionally, the unvested restricted stock awards subject to time vesting are anti-dilutive for all periods presented, and accordingly, have been excluded from the weighted average common shares used to compute diluted EPS.

The computation of basic and diluted EPS is presented below (dollars in thousands, except share and per share amounts):

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

2021 2020 2021 2020

Three Months Ended March 31,

Net income $ 13,514 $ 1,733

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Income from operations attributable to unitholders in the Operating Partnership

2,709 1,365 5,459 6,778

Net income attributable to common stockholders—diluted

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Taxable income from non-REIT activities managed through our TRS is subject to federal and state income taxes.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

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 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.

A deferred tax liability is included in the other liabilities and deferred credits, net on our consolidated balance sheets of $ 1.0 million and $ 1.0 million as of March 31, 2022 and December 31, 2021, 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.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2022

Income tax expense is recorded in other (expense) income, net on our consolidated statements of comprehensive income.

For the three and nine months ended September 30, 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.

For the three months ended March 31, 2022, we recorded income tax expense of $ 0.2 million.

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

COMMITMENTS AND CONTINGENCIES

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The hotel management agreement may not be terminated by us or by Outrigger without cause.

Additionally, we have a management agreement with Outrigger pursuant to which Outrigger manages our Waikele Center and Shops at Kalakaua.

In connection with such management agreement, we pay Outrigger a fixed management fee of $ 12,000 per month in the aggregate plus additional amounts for any lease renewal services provided by Outrigger at our request.

This management agreement can be terminated by us at any time and for any reason on 30 days' notice without any cancellation or termination fees.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

A wholly owned subsidiary of our Operating Partnership, WBW Hotel Lessee LLC, entered into a franchise license agreement with Embassy Suites Franchise LLC, the franchisor of the brand “Embassy Suites™,” to obtain the non-exclusive right to operate the hotel under the Embassy Suites TM brand for 20 years.

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In addition, we must pay to Embassy Suites Franchise LLC a monthly franchise royalty fee equal to 4.0 % of the hotel's gross room revenue through December 2022 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 $ 4.3 million based on operating performance through September 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 $ 4.0 million based on operating performance through March 31, 2022.

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

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Concentrations of Credit Risk

Our properties are located in Southern California, Northern California, Hawaii, Oregon, Texas, and Washington.

Our properties are located in Southern California, Northern California, Washington, Oregon, Texas and Hawaii.

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

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 25.3 % of total revenues for the nine months ended September 30, 2021.

Tenants in the retail industry accounted for 24.5 % of total revenues for the three months ended March 31, 2022.

This makes us susceptible to demand for retail rental space and subject to the risks associated with an investment in real estate with a concentration of tenants in the retail industry.

Furthermore, tenants in the office industry accounted for 49.8 % of total revenues for the nine months ended September 30, 2021.

Furthermore, tenants in the office industry accounted for 48.9 % of total revenues for the three months ended March 31, 2022.

This makes us susceptible to demand for office rental space and subject to the risks associated with an investment in real estate with a concentration of tenants in the office industry.

For the nine months ended September 30, 2021 and 2020, no tenant accounted for more than 10 % of our total rental revenue.

For the three months ended March 31, 2022 and 2021, no tenant accounted for more than 10 % of our total rental revenue.

Lessor Operating Leases

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Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

Leases at our office and retail properties and the retail portion of our mixed-use property may contain lease extension options, at our lessee's discretion.

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However, the residual value of a real estate property is still subject to various market-specific, asset-specific, and tenant-specific risks and characteristics.

As of 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):

As of March 31, 2022, 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 (three months ending December 31, 2021) $ 55,108

2022 (nine months ending December 31, 2022) $ 239,547

Thereafter 409,675

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Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

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

March 31, 2022

Current annual payments under the operating leases are as follows, as of March 31, 2022 (in thousands):

Year Ending December 31,

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

2022 (nine months ending December 31, 2022) $ 2,436

Thereafter 16,126

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Operating lease cost $ 844 $ 1,132

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

Nine Months Ended September 30,

Three Months Ended March 31,

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities $ 796 $ 865

Non-cash activity:

Right-of-use assets obtained in exchange for operating lease obligations $ — $ 27,321

At the Landmark at One Market, we (as sublandlord) sublease the Annex Lease building under operating leases effective through December 31, 2029.

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Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

COMPONENTS OF RENTAL INCOME AND EXPENSE

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Lease rental income

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Total rental income $ 96,986 $ 81,130

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.

Lease rental income includes $ 3.7 million and $ 5.5 million for the three months ended March 31, 2022 and 2021, 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 $ 0.8 million for the three months ended March 31, 2022 and 2021, respectively.

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Rental operating $ 11,144 $ 9,496

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Interest and investment income $ 36 $ 74

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Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

RELATED PARTY TRANSACTIONS

During the first quarter of 2019, we terminated a lease agreement with American Assets, Inc.

("AAI"), an entity owned and controlled by Ernest Rady, our CEO, President, and Chairman of Board, and entered into a new lease agreement with AAI for office space at Torrey Reserve Campus.

("AAI"), an entity owned and controlled by Ernest Rady, our Chief Executive Officer and Chairman of the Board, and entered into a new lease agreement with AAI for office space at Torrey Reserve Campus.

Rents commenced on March 1, 2019 for an initial lease term of three years at an average annual rental rate of $ 0.2 million.

1 unchanged sentence

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 $ 0.2 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 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.

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

Rental revenue recognized on the AAI leases of $ 0.1 million and $ 0.1 million for the three months ended March 31, 2022 and 2021, respectively, is included in rental income on the statements of comprehensive income.

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

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

The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.3 million and $ 0.3 million for the three months ended March 31, 2022 and 2021, 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)

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

March 31, 2022

Three Months Ended March 31,

Property revenue $ 49,569 $ 44,464

14 unchanged sentences

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Total segments’ profit $ 65,896 $ 54,386

2 unchanged sentences

Interest expense ( 14,666 ) ( 14,005 )

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

Loss on early extinguishment of debt — ( 4,271 )

Other income (expense), net ( 162 ) ( 53 )

7 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2021

March 31, 2022

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Net Real Estate

7 unchanged sentences

$ 111,000 $ 111,000

(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

(1) Excludes debt issuance costs of $ 0.02 million and $ 0.04 million for each of the periods ended March 31, 2022 and December 31, 2021, respectively.

Capital expenditures for each segment for the three months ended March 31, 2022 and 2021 were as follows (in thousands):

Three Months Ended March 31,

Capital Expenditures (1)

5 unchanged sentences

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

SUBSEQUENT EVENT

On April 25, 2022, we entered into a rate lock agreement with J.P.

Morgan Investment Management Inc.

to reduce the interest rate variability exposure of a prospective ten-year non-recourse mortgage of our Lomas Santa Fe Plaza in an original principal amount not to exceed $ 63 million and a fixed interest rate of 4.639 % that we expect to close in the third quarter of 2022, subject to customary closing conditions.

We intend for the proceeds from this prospective mortgage to be applied to the payoff of our City Center Bellevue mortgage.

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