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Item 1A. Risk Factors

2023-02-10 compared with 2022-02-11 · 64 added, 75 removed, 612 unchanged (19% of the section changed)

6 unchanged sentences

Risks Related to Our Business and Operations

Our portfolio of properties is dependent upon regional and local economic conditions and is geographically concentrated in California, Oregon, Washington, Texas and Hawaii, which may cause us to be more susceptible to adverse developments in those markets than if we owned a more geographically diverse portfolio.

Our properties are located in California, Oregon, Washington, Texas and Hawaii, and substantially all of our properties are concentrated in California, Oregon, Washington and Hawaii, which exposes us to greater economic risks than if we owned a more geographically diverse portfolio.

Our portfolio of properties is dependent upon regional and local economic conditions and is geographically concentrated in California, Washington, Oregon, Texas and Hawaii, which may cause us to be more susceptible to adverse developments in those markets than if we owned a more geographically diverse portfolio.

Our properties are located in California, Washington, Oregon, Texas and Hawaii, and substantially all of our properties are concentrated in California, Washington, Oregon and Hawaii, which exposes us to greater economic risks than if we owned a more geographically diverse portfolio.

As a result, we are particularly susceptible to adverse economic or other conditions in these markets (such as periods of economic slowdown or recession, business layoffs or downsizing, industry slowdowns, changes in the local or global tourism industry, relocations of businesses, increases in real estate and other taxes and the cost of complying with governmental regulations or increased regulation), as well as to natural disasters that occur in these markets (such as earthquakes, wildfires, tropical storms, hurricanes, tornadoes and other events).

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In addition, the State of California is regarded as more litigious, highly regulated and taxed than many other states, all of which may reduce demand for office, retail, mixed-use or multifamily space in California.

Any adverse economic or real estate developments in the California, Oregon, Washington, Texas or Hawaii markets, or any decrease in demand for office, retail, multifamily or mixed-use space resulting from the regulatory environment, business climate or energy or fiscal problems, could adversely impact our financial condition, results of operations, cash flow, our ability to satisfy our debt service obligations and our ability to pay distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.

Any adverse economic or real estate developments in the California, Washington, Oregon, Texas or Hawaii markets, or any decrease in demand for office, retail, multifamily or mixed-use space resulting from the regulatory environment, business climate or energy or fiscal problems, could adversely impact our financial condition, results of operations, cash flow, our ability to satisfy our debt service obligations and our ability to pay distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.

We may be adversely affected by trends in office real estate.

In 2022, approximately 54% of our net operating income was from our office properties.

Work from home, flexible work schedules, open workplaces, videoconferencing, and teleconferencing are becoming more common, particularly as a result of the COVID-19 pandemic.

Work from home, flexible work schedules, open workplaces, videoconferencing, and teleconferencing are becoming more common, particularly as a result of COVID-19.

These practices may enable businesses to reduce their office space requirements.

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At February 10, 2023, we had total debt outstanding of $1.70 billion, excluding debt issuance costs, a portion of which contains non-recourse carve-out guarantees and environmental indemnities from us and our Operating Partnership, and we may incur significant additional debt to finance future acquisition and development activities.

At December 31, 2021, we also had a second amended and restated credit facility, or the credit facility, with a capacity of $450 million, consisting of a revolving line of credit of $350 million and an unsecured term loan of $100 million.

On January 5, 2022, we amended and restated the credit facility, or the third amended and restated credit facility, to provide for a capacity of $500 million, consisting of a revolving line of credit of $400 million and an unsecured term loan of $100 million.

At December 31, 2022, we also had a third amended and restated credit facility with a capacity of $500 million, consisting of a revolving line of credit of $400 million and an unsecured term loan of $100 million (Term Loan A).

Additionally, on January 5, 2023, we amended and restated our term loan agreement (a separate facility from that described in the preceding sentence) to consist of unsecured term loans of $225 million (Term Loan B and Term Loan C).

Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties or to pay the dividends currently contemplated or necessary to maintain our REIT qualification.

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Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code of 1986, or the Code.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may materially adversely affect us.

Certain of our existing debt instruments and other financial arrangements (excluding our third amended and restated credit facility) provide for borrowings to be made at variable interest rates that use the London Interbank Offered Rate, or LIBOR (or metrics derived from or related to LIBOR), as a benchmark for establishing the interest rate applicable to outstanding borrowings thereunder, and we may incur additional indebtedness or enter into new financial arrangements that use LIBOR as a benchmark for establishing the interest rate for borrowing thereunder.

On July 27, 2017, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

The cessation date for submission and publication of rates for certain tenors of LIBOR has since been extended by the ICE Benchmark Administration until mid-2023.

Notwithstanding this extension, a joint statement by key regulatory authorities calls on banks to cease entering into new contracts that use U.S.

dollar LIBOR as a reference rate by no later than December 31, 2021.

In response to concerns regarding the future of LIBOR, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee, or ARRC, to identify alternatives to LIBOR.

The ARRC has recommended benchmark replacement procedures to assist issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation.

The initial steps in the ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate, or SOFR which we utilize for our third amended and restated credit facility.

At this time, it is not possible to predict whether any such changes will occur, whether LIBOR will be phased out or SOFR or any other alternative reference rates or other reforms to LIBOR will be enacted in the United Kingdom, the United States or elsewhere, or the effect that any such changes, phase out, alternative reference rates or other reforms, if they occur, would have on the amount of interest paid on, or the market value of, our LIBOR-based securities, including our notes, as well as our debt instruments and other financial arrangements, including our third amended and restated credit facility.

Uncertainty as to the nature of such potential changes, phase out, alternative reference rates or other reforms may materially adversely affect the trading market for LIBOR-based securities.

Reform of, or the replacement or phasing out of, LIBOR and proposed regulation of LIBOR and other benchmarks may materially adversely affect the market value of and the amount of interest paid on our LIBOR-based securities, debt instruments, derivatives and other financial arrangements, and could have a material adverse effect on our business, financial condition and results of operations.

We depend on significant tenants in our office properties, and a bankruptcy, insolvency or inability to pay rent of any of these tenants may adversely affect the income produced by our office properties and could have an adverse effect on our financial condition, results of operations, cash flow and the per share trading price of our common stock.

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The occurrence of any of the situations described above, particularly if it involves an anchor tenant with leases in multiple locations, could seriously harm our performance and could adversely affect the value of the applicable retail property.

As of December 31, 2021, our largest anchor tenants were Lowe's, Nordstrom Rack and Sprouts Farmers Market, which together represented approximately 11.3% of our total annualized base rent of our retail portfolio in the aggregate, and 5.2%, 3.1% and 3.0%, respectively, of the annualized base rent generated by our retail properties.

As of December 31, 2022, our largest anchor tenants were Lowe's, Sprouts Farmers Market and Nordstrom Rack, which together represented approximately 10.3% of our total annualized base rent of our retail portfolio in the aggregate, and 5.0%, 2.9% and 2.4%, respectively, of the annualized base rent generated by our retail properties.

Many of the leases at our retail properties contain “co-tenancy” or “go-dark” provisions, which, if triggered, may allow tenants to pay reduced rent, cease operations or terminate their leases, any of which could adversely affect our performance or the value of the applicable retail property.

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Our ability to grow will be limited if we cannot obtain additional capital.

If economic conditions and conditions in the capital markets are not favorable at the time we need to raise capital, we may need to obtain capital on less favorable terms than our current debt financings.

If economic conditions and conditions in the capital markets are not favorable at the time we need to raise capital, including as a result of factors such as economic recessions causing volatility and disruption in the capital and credit markets and/or a high interest rate environment, we may need to obtain capital on less favorable terms than our current debt financings or may otherwise be unable to refinance our existing debt facilities on more favorable terms.

Equity capital could include our common shares or preferred shares.

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Failure to hedge effectively against interest rate changes could materially adversely affect our financial condition, results of operations, cash flow and per share trading price of our common stock.

In addition, while such agreements would be intended to lessen the impact of rising interest rates on us, they could also expose us to the risk that the other parties to the agreements would not perform, we could incur significant costs associated with the settlement of the agreements or that the underlying transactions could fail to qualify as highly-effective cash flow hedges under Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 815, Derivatives and Hedging .

could fail to qualify as highly-effective cash flow hedges under Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 815, Derivatives and Hedging .

Our third amended and restated credit facility, note purchase agreements and amended term loan agreement restrict our ability to engage in some business activities, including our ability to incur additional indebtedness, make capital expenditures and make certain investments, which could adversely affect our financial condition, results of operations, cash flow and per share trading price of our common stock.

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The effective subordination of our unsecured indebtedness may reduce amounts available for payment on our unsecured indebtedness.

Our third amended and restated credit facility, the notes issued under our note purchase agreements and our amended term loan agreement and our 3.375% senior notes due 2031 represent unsecured indebtedness.

Our third amended and restated credit facility, the notes issued under our note purchase agreements and our amended and restated term loan agreement and our 3.375% senior notes due 2031 represent unsecured indebtedness.

The holders of our secured debt may foreclose on the assets securing such debt, reducing the cash flow from the foreclosed property available for payment of unsecured debt.

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This means that we are subject to factors that affect the retail sector generally, as well as the market for retail space.

The retail environment and the market for retail space have previously been, and could again be, adversely affected by weakness in the national, regional and local economies, the level of consumer spending and consumer confidence, the adverse financial condition of some large retailing companies, the ongoing consolidation in the retail sector, the excess amount of retail space in a number of markets, increasing competition from discount retailers, outlet malls, internet retailers (including Amazon.com) and other online businesses and the ongoing impact of the COVID-19 pandemic.

The retail environment and the market for retail space have previously been, and could again be, adversely affected by weakness in the national, regional and local economies, inflation, high interest rate environments, the level of consumer spending and consumer confidence, the adverse financial condition of some large retailing companies, the ongoing consolidation in the retail sector, the excess amount of retail space in a number of markets, increasing competition from discount retailers, outlet malls, internet retailers (including Amazon.com) and other online businesses and the ongoing impact of COVID-19 and its variants.

Increases in consumer spending via the internet may significantly affect our retail tenants' ability to generate sales in their stores and could affect the way future tenants lease space.

In addition, some of our retail tenants face

competition from the expanding market for digital content and hardware.

In addition, some of our retail tenants face competition from the expanding market for digital content and hardware.

New and enhanced technologies, including new digital technologies and new web services technologies, may increase competition for certain of our retail tenants.

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If we are unable to do so or capital is otherwise unavailable, we may be unable to make the required expenditures.

This could result in non-renewals by tenants upon expiration of their leases, which could cause an adverse effect to our financial condition, results of operations, cash flow and per share trading price of our common stock.

This could result in

non-renewals by tenants upon expiration of their leases, which could cause an adverse effect to our financial condition, results of operations, cash flow and per share trading price of our common stock.

The actual rents we receive for the properties in our portfolio may be less than our asking rents, and we may experience lease roll down from time to time, which could negatively impact our ability to generate cash flow growth.

As a result of various factors, including competitive pricing pressure in our submarkets, adverse conditions in the California, Oregon, Washington, Texas and Hawaii real estate markets and the desirability of our properties compared to other properties in our submarkets, we may be unable to realize the asking rents across the properties in our portfolio.

As a result of various factors, including competitive pricing pressure in our submarkets, adverse conditions in the California, Washington, Oregon, Texas and Hawaii real estate markets and the desirability of our properties compared to other properties in our submarkets, we may be unable to realize the asking rents across the properties in our portfolio.

In addition, the degree of discrepancy between our asking rents and the actual rents we are able to obtain may vary both from property to property and among different leased spaces within a single property.

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• the fluctuating and seasonal demands of business travelers and tourism, which seasonality may cause quarterly fluctuations in our revenues;

• general and local economic conditions that may affect demand for travel in general (including as it may relate to the ongoing impact of the COVID-19 pandemic);

• general and local economic conditions that may affect demand for travel in general (including as it may relate to the ongoing impact of COVID-19);

• periodic oversupply resulting from excessive new development;

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We must rely on third-party management companies to operate the Waikiki Beach Walk-Embassy Suites™ in order to maintain our qualification as a REIT under the Code, and, as a result, we will have less control than if we were operating the hotel directly.

In order to assist us in maintaining our qualification as a REIT, we have leased the Waikiki Beach Walk-Embassy Suites™ to WBW Hotel Lessee, LLC, our taxable REIT subsidiary, or TRS, lessee, and engaged a third-party management company to operate our hotel.

In order to assist us in maintaining our qualification as a REIT, we have leased the Waikiki Beach Walk-Embassy Suites™ to WBW Hotel Lessee, LLC (a wholly owned subsidiary of our taxable REIT subsidiary), or the TRS Lessee, and engaged a third-party management company to operate our hotel.

While we have some input into operating decisions for the hotel leased by our TRS Lessee and operated under a management agreement, we have less control than if we managed the hotel ourselves.

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We may engage in development and redevelopment activities with respect to certain of our properties.

To the extent that we do so, we will be subject to the following risks associated with such development and redevelopment activities (including as they may relate to the ongoing impact of the COVID-19 pandemic):

To the extent that we do so, we will be subject to the following risks associated with such development and redevelopment activities (including as they may relate to the ongoing impact of COVID-19):

• unsuccessful development or redevelopment opportunities could result in direct expenses to us;

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Although we expect that Mr.

Rady will continue to devote a majority of his business time and attention to us, we cannot accurately predict the amount of time and attention that will be required of Mr.

Rady will continue to devote a majority of his business time and attention to us, we

cannot accurately predict the amount of time and attention that will be required of Mr.

Rady to perform such ongoing duties.

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Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

Potential losses from earthquakes in California, Oregon, Washington and Hawaii may not be fully covered by insurance.

Many of the properties we currently own are located in California, Oregon, Washington and Hawaii, which are areas especially subject to earthquakes.

Potential losses from earthquakes in California, Washington, Oregon and Hawaii may not be fully covered by insurance.

Many of the properties we currently own are located in California, Washington, Oregon and Hawaii, which are areas especially subject to earthquakes.

While we carry earthquake insurance on all of our properties, the amount of our earthquake insurance coverage may not be sufficient to fully cover losses from earthquakes and will be subject to limitations involving large deductibles or co-payments.

In addition, we may reduce or discontinue earthquake insurance on some or all of our properties in the future if the cost of premiums for any such policies exceeds, in our judgment, the value of the coverage

discounted for the risk of loss.

As a result, in the event of an earthquake, we may be required to incur significant costs, and, to the extent that a loss exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties.

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Climate change may also have indirect effects on our business by increasing the cost of insurance, or making insurance unavailable.

Although we strive to identify, analyze, and respond to the risk and opportunities that climate change presents, at this time, there can be no assurance that climate change will not have an adverse effect on the value of our properties and our financial performance.

Although we strive to identify, analyze, and respond to the risk and

opportunities that climate change presents, at this time, there can be no assurance that climate change will not have an adverse effect on the value of our properties and our financial performance.

Geographic concentration of our properties makes our business more vulnerable to natural disasters, severe weather conditions and climate change.

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Our multifamily apartment communities compete with numerous housing alternatives in attracting residents, including other multifamily apartment communities and single-family rental homes, as well as owner occupied single and multifamily homes.

Competitive housing in a particular area and an increase in the affordability of owner occupied single and multifamily homes due to, among other things, housing prices, oversupply, mortgage interest rates and tax incentives and government programs to promote home ownership, could adversely affect our ability to retain residents, lease apartment homes and increase or maintain rents.

programs to promote home ownership, could adversely affect our ability to retain residents, lease apartment homes and increase or maintain rents.

Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all, which could limit our ability, among other things, to meet our capital and operating needs or make the cash distributions to American Assets Trust, Inc.'s stockholders necessary to maintain our qualification as a REIT.

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• changing traffic patterns.

In addition, periods of economic downturn or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases, which would adversely affect our financial condition, results of operations, cash flow and per share trading price of our common stock.

In addition, periods of economic downturn or recession, inflation, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases, which would adversely affect our financial condition, results of operations, cash flow and per share trading price of our common stock.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

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Even if we continue to qualify as a REIT for federal income tax purposes, we will be required to pay some state and local taxes on our properties.

The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities.

The real property taxes on our properties may increase as property tax rates change or as our properties

are assessed or reassessed by taxing authorities.

If the property taxes we pay increase, our cash flow would be adversely impacted, and our ability to pay any expected dividends to our stockholders and unitholders could be adversely affected.

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Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such materials.

For example, Del Monte Center is currently undergoing remediation of dry cleaning solvent contamination from a former onsite dry cleaner.

The environmental issues is currently in the final stages of remediation which entails the long term ground monitoring by the appropriate regulatory agency over the next five to seven years.

For example, Del Monte Center is currently undergoing the final stages of remediation of dry cleaning solvent contamination from a former onsite dry cleaner, which entails the long term ground monitoring by the appropriate regulatory agency over the next five to seven years.

The prior owner of Del Monte Center entered into a fixed fee environmental services agreement in 1997 pursuant to which the remediation will be completed for approximately $3.5 million, with the remediation costs paid for through funds held in an escrow account funded by the prior owner.

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Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain approval from local officials or restrict our use of our properties and may require us to obtain approval from local officials of community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties.

Among other things, these restrictions may relate to

fire and safety, seismic or hazardous material abatement requirements.

Among other things, these restrictions may relate to fire and safety, seismic or hazardous material abatement requirements.

There can be no assurance that existing laws and regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that increase such delays or result in additional costs.

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Our directors and officers have duties to our company under Maryland law in connection with their management of our company.

At the same time, we, as the general partner of our Operating Partnership, have fiduciary duties and obligations to our Operating Partnership and its limited partners under Maryland law and pursuant to the partnership agreement of our Operating Partnership in connection with the management of our Operating Partnership.

At the same time, we, as the general partner of our Operating Partnership, have fiduciary duties and obligations to our Operating Partnership and its limited partners

under Maryland law and pursuant to the partnership agreement of our Operating Partnership in connection with the management of our Operating Partnership.

Our fiduciary duties and obligations as the general partner of our Operating Partnership may conflict with the duties of our directors and officers to our company.

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Additionally, the partnership agreement provides that we will not be liable to the Operating Partnership or any partner for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Operating Partnership or any limited partner, except for liability for our intentional harm or gross negligence.

received an improper personal benefit in violation or breach of the partnership agreement or (3) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful.

Our Operating Partnership must indemnify us, our directors and officers, officers of our Operating Partnership and our designees from and against any and all claims that relate to the operations of our Operating Partnership, unless (1) an act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (2) the person actually received an improper personal benefit in violation or breach of the partnership agreement or (3) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful.

Our Operating Partnership must also pay or reimburse the reasonable expenses of any such person upon its receipt of a written affirmation of the person's good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the standard of conduct for indemnification.

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We could increase the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without stockholder approval.

Our board of directors, without stockholder approval, has the power under our charter to amend our charter to increase the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and set the terms of such newly classified or reclassified shares.

authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and set the terms of such newly classified or reclassified shares.

As a result, we may issue series or classes of common stock or preferred stock with preferences, dividends, powers and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of holders of our common stock.

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Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interest.

Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including (1) “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting stock at any time within the two-year period

immediately prior to the date in question) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose fair price and/or supermajority and stockholder voting requirements on these combinations;

and (2) “control share” provisions that provide that “control shares” of our company (defined as shares that, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights with respect to their control shares, except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

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In particular, we may not, without prior “partnership approval,” directly or indirectly transfer all or any portion of our interest in our Operating Partnership, before the later of the death of Mr.

Rady and the death of his wife, in connection with a merger, consolidation or other combination of our assets with another entity, a sale of all or substantially all of our assets, a reclassification, recapitalization or change in any outstanding shares of our stock or other outstanding equity interests or an issuance of shares of our stock, in any case that requires approval by our common stockholders.

Rady and the death of his wife, in connection with a

merger, consolidation or other combination of our assets with another entity, a sale of all or substantially all of our assets, a reclassification, recapitalization or change in any outstanding shares of our stock or other outstanding equity interests or an issuance of shares of our stock, in any case that requires approval by our common stockholders.

The “partnership approval” requirement is satisfied, with respect to such a transfer, when the sum of (1) the percentage interest of limited partners consenting to the transfer of our interest, plus (2) the product of (a) the percentage of the outstanding common units held by us multiplied by (b) the percentage of the votes that were cast in favor of the event by our common stockholders equals or exceeds the percentage required for our common stockholders to approve the event resulting in the transfer.

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Further, our charter and bylaws do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur.

Our board of directors may alter or eliminate our current policy on

borrowing at any time without stockholder approval.

Our board of directors may alter or eliminate our current policy on borrowing at any time without stockholder approval.

If this policy changed, we could become more highly leveraged which could result in an increase in our debt service.

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We may, in connection with our acquisition of properties or otherwise, issue additional partnership units to third parties.

Such issuances would reduce our ownership percentage in our Operating Partnership and affect the amount of distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.

Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.

To the extent that our stockholders do not directly own partnership units, our stockholders will not have any voting rights with respect to any such issuances or other partnership level activities of our Operating Partnership.

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Instead, each of its partners, including us, is allocated, and may be required to pay tax with respect to, its share of our Operating Partnership's income.

assured, however, that the IRS will not challenge the status of our Operating Partnership or any other subsidiary partnership in which we own an interest, as a partnership for federal income tax purposes, or that a court would not sustain such a challenge.

We cannot be assured, however, that the IRS will not challenge the status of our Operating Partnership or any other subsidiary partnership in which we own an interest, as a partnership for federal income tax purposes, or that a court would not sustain such a challenge.

If the IRS were successful in treating our Operating Partnership or any such other subsidiary partnership as an entity taxable as a corporation for federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT.

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The asset tests applicable to REITs limit our ability to own taxable REIT subsidiaries, and we will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our taxable REIT subsidiaries are not conducted on arm's length terms.

We own an interest in one taxable REIT subsidiary, our TRS lessee, and may acquire securities in additional taxable REIT subsidiaries in the future.

We own an interest in one taxable REIT subsidiary and may acquire securities in additional taxable REIT subsidiaries in the future.

A taxable REIT subsidiary is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary.

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In order to preserve cash to repay debt or for other reasons, we may choose to satisfy the REIT distribution requirements by distributing taxable dividends that are payable partly in our stock and partly in cash.

Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the

extent of our current and accumulated earnings and profits for federal income tax purposes.

Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for federal income tax purposes.

As a result, a U.S.

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We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions.

We also may be required to make distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders at disadvantageous times or when we do not have funds readily available for distribution.

We also may be required to make distributions to American Assets Trust, Inc.'s stockholders or

American Assets Trust, L.P.'s unitholders at disadvantageous times or when we do not have funds readily available for distribution.

As a result, having to comply with the distribution requirement could cause us to:

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Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.

The ongoing COVID-19 pandemic and governmental restrictions intended to prevent its spread could adversely impact our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.

The continuing impacts of the COVID-19 pandemic and governmental restrictions intended to prevent its spread are highly unpredictable and volatile have already had a significant adverse impact on economic and market conditions around the world during the last two years, including in the United States and the markets in which we own properties (including development projects).

The severity and specific impacts of the COVID-19 pandemic continue to evolve, including with respect to current and future variants of COVID-19.

There is considerable uncertainty regarding the extent to which COVID-19 and its variants will continue to spread and the extent and duration of governmental measures aimed to contain the virus, such as instituting quarantines, restrictions on travel, “shelter in place” rules, stay-at-home orders, density limitations, social distancing measures, restrictions on business operations and/or construction projects (including, for some types of business operations and construction projects, possible required shut-downs).

Although some state governments and other authorities were in varying stages of lifting or modifying some of these measures, some have already been forced to, and others may in the future, reinstitute these measures or impose new, more restrictive measures, they determine that the risks related to COVID-19 and its variants warrant doing so.

COVID-19 and governmental or business restrictions intended to prevent its spread could adversely impact our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.

The continuing impacts of COVID-19 and governmental or business restrictions intended to prevent its spread remain highly unpredictable and volatile and have had a significant adverse impact on economic and market conditions around the world during the last three years, including in the United States and specifically in the markets in which we own properties (including development projects).

The severity and specific impacts of COVID-19 continue to evolve, including with respect to current and future variants of COVID-19.

There is considerable uncertainty regarding, among other things, (i) the extent to which COVID-19 and its variants will continue to spread, (ii) the extent and duration of governmental or business measures aimed to contain the virus, such as instituting quarantines, restrictions on travel, “shelter in place” rules, stay-at-home orders, density limitations, social distancing measures, restrictions on business operations and/or construction projects (including, for some types of business operations and construction projects, possible required shut-downs) and (iii) whether any such measures that have been lifted will be reinstated, or whether more restrictive measures will be imposed.

As a result, we may not be able to avoid adverse impacts on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.

For instance we have previously seen a material reduction in rent collections from certain tenants, particularly retail tenants, as a result of such measures.

There can be no assurance as to how long current or future restrictions intended to prevent the spread of COVID-19 may remain in place in the states and cities where we own properties, and even if such restrictions are lifted, they may later be reinstituted.

If such restrictions remain in place for an extended period of time, we may experience further reductions in rents from our tenants.

During 2021, due to the COVID-19 pandemic, we continued to provide lease concessions to certain tenants, primarily within the retail segment, in the form of rent deferrals and abatements.

As of December 31, 2021, we have entered into lease modifications that resulted in COVID-19-related adjustments (including rent deferrals and other monetary lease concessions) for approximately 1% of the rent originally contracted for the year ended December 31, 2021.

There can be no assurance as to how long any restrictions intended to prevent the spread of COVID-19 may remain in place in the states and cities where we own properties.

If any such restrictions remain in place for an extended period of time, we may experience further reductions in rents from our tenants.

During 2022, we continued to provide lease concessions to certain tenants, primarily within the retail segment, in the form of rent abatements in recognition of the adverse impact that COVID-19 has had on them.

As of December 31, 2022, we have entered into lease modifications that resulted in COVID-19-related adjustments (including rent abatements and other monetary lease concessions) for approximately 1% of the rent originally contracted for the year ended December 31, 2022.

Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, as well as working with certain tenants who may request rent deferrals (particularly those occupying retail space), we can provide no assurance that such efforts or our efforts in future periods will be successful.

In addition, we are and will continue to be actively engaged in discussions with certain tenants regarding the adverse impacts of the COVID-19 pandemic and related governmental restrictions on their businesses, and may afford certain additional accommodations to such tenants.

The ongoing COVID-19 pandemic, including future mutations and related variants of the virus, could have significant adverse impacts on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders in a variety of ways that are difficult to predict.

In addition, we are and will continue to be actively engaged in discussions with certain tenants regarding the adverse impacts of COVID-19 and related governmental restrictions on their businesses, and may afford certain additional accommodations to such tenants.

The ongoing impacts of COVID-19, including future mutations and related variants of the virus, could have significant adverse impacts on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders in a variety of ways that are difficult to predict.

Such adverse impacts could depend on, among other factors:

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• significant job losses in the industries of our tenants, which may decrease demand for our office and retail space, causing market rental rates and property values to be negatively impacted;

• increased working from home as a result of the COVID-19 pandemic, which may decrease demand for office space causing market rental rates and property values to be negatively impacted;

• increased working from home as a result of COVID-19, which may decrease demand for office space causing market rental rates and property values to be negatively impacted;

• our ability to stabilize our development projects, renew leases or re-lease available space in our proprieties on favorable terms or at all, including as a result of a general decrease in demand for our office and retail space and occupancy in our hotel, deterioration in the economic and market conditions in the markets in which we own properties or due to restrictions intended to prevent the spread of COVID-19 that frustrate our leasing activities;

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• our ability to avoid delays or cost increases associated with building materials or construction services necessary for construction that could adversely impact our ability to continue or complete construction as planned, on budget or at all;

• our and our tenants’ ability to manage our respective businesses to the extent our and their management or personnel are impacted in significant numbers by the COVID-19 pandemic and are not willing, available or allowed to conduct work;

• certain of our tenants filing for bankruptcy due to financial hardships they suffered as a result of the COVID-19 pandemic;

• our and our tenants’ ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during the COVID-19 pandemic.

The rapid development of the COVID-19 pandemic, restrictions intended to prevent its spread, and the volatile financial, economic and capital markets environment present material risks and uncertainties with respect to our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders and could also have a material adverse effect on the market value of our securities.

• our and our tenants’ ability to manage our respective businesses to the extent our and their management or personnel are impacted in significant numbers by COVID-19 and are not willing, available or allowed to conduct work;

• certain of our tenants filing for bankruptcy due to financial hardships they suffered as a result of COVID-19;

• our and our tenants’ ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed to the extent necessary due to the unpredictable impacts of COVID-19.

The continuing, unpredictable development of the impacts of COVID-19, restrictions intended to prevent its spread, and the volatile financial, economic and capital markets environment present material risks and uncertainties with respect to our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders and could also have a material adverse effect on the market value of our securities.

UNRESOLVED STAFF COMMENTS

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

What changed 10-K

Item 1A. Risk Factors