What changed in this filing

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Item 1. Financial Statements

2023-04-28 compared with 2022-10-28 · 181 added, 309 removed, 760 unchanged (39% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

September 30, December 31,

March 31, December 31,

Real estate, at cost

21 unchanged sentences

stockholders’ equity

Common stock, $ 0.01 par value, 490,000,000 shares authorized, 60,528,115 and 60,525,580 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Common stock, $ 0.01 par value, 490,000,000 shares authorized, 60,717,835 and 60,718,653 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,463,236 1,461,201

10 unchanged sentences

(In Thousands, Except Shares and Per Share Data)

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

2022 2021 2022 2021

Three Months Ended March 31,

Rental income $ 102,710 $ 96,986

7 unchanged sentences

OPERATING INCOME 29,716 28,342

Interest expense ( 14,454 ) ( 14,722 ) ( 43,667 ) ( 43,589 )

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

Interest expense, net ( 15,729 ) ( 14,666 )

Other (expense) income, net 6,679 ( 162 )

14 unchanged sentences

Net income $ 20,666 $ 13,514

Other comprehensive income - unrealized income on swap derivatives during the period 4,207 435 13,117 1,657

Other comprehensive income - unrealized (loss) income on swap derivatives during the period ( 2,269 ) 5,596

Reclassification of amortization of forward-starting swap realized gains included in interest expense ( 854 ) ( 275 )

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

Comprehensive income 17,543 18,835

18 unchanged sentences

Stock-based compensation — — 2,035 — — 2,035

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

Other comprehensive income - change in value of interest rate swaps — — — — ( 1,786 ) ( 483 ) ( 2,269 )

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

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

Net income — — — 10,736 2,852 13,588

Issuance of restricted stock 6,072 — — — — — —

Dividends declared and paid — — — ( 19,369 ) — ( 5,178 ) ( 24,547 )

Stock-based compensation — — 2,001 — — — 2,001

Other comprehensive income - change in value of interest rate swaps — — — — 2,610 704 3,314

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

Balance at June 30, 2022 60,528,115 605 1,456,747 ( 235,107 ) 9,457 ( 31,734 ) 1,199,968

Net income — — 12,927 3,442 16,369

Dividends declared and paid — — — ( 19,369 ) — ( 5,178 ) ( 24,547 )

Stock-based compensation — — 2,001 — — — 2,001

Other comprehensive income - change in value of interest rate swaps — — — — 3,314 893 4,207

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 673 ) ( 181 ) ( 854 )

Balance at September 30, 2022 60,528,115 $ 605 $ 1,458,748 $ ( 241,549 ) $ 12,554 $ ( 32,635 ) $ 1,197,723

Balance at March 31, 2023 60,717,835 $ 607 $ 1,463,236 $ ( 254,879 ) $ 8,165 $ ( 37,403 ) $ 1,179,726

American Assets Trust, Inc.

10 unchanged sentences

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

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

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

Reclassification of amortization of forward-starting swap realized 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

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

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

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

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

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

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

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 884 640

Loss on early extinguishment of debt — 4,271

Provision for uncollectable rental income 518 92

Stock-based compensation expense 2,035 1,489

Other noncash interest expense ( 825 ) ( 824 )

Other noncash interest expense, net ( 854 ) ( 275 )

Other, net 207 ( 3,763 )

10 unchanged sentences

Leasing commissions ( 1,177 ) ( 2,299 )

Purchases of marketable securities — ( 47,760 )

Proceeds from the sale of marketable securities — 47,723

Net cash used in investing activities ( 25,695 ) ( 77,295 )

FINANCING ACTIVITIES

Issuance of secured notes payable 75,000 —

Repayment of secured notes payable ( 111,000 ) —

Proceeds from unsecured line of credit 36,000 —

Proceeds from unsecured term loan 225,000 —

Repayment of unsecured line of credit ( 36,000 ) —

Proceeds from unsecured notes payable — 494,675

Repayment of unsecured notes payable — ( 155,375 )

Repayment of unsecured term loan ( 150,000 ) —

Debt issuance costs ( 2,138 ) ( 3,245 )

1 unchanged sentence

Shares withheld for employee taxes — ( 15 )

Net cash (used in) provided by financing activities ( 77,351 ) 168,303

Net (decrease) increase in cash and cash equivalents ( 76,093 ) 34,590

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

Cash, cash equivalents and restricted cash, end of period $ 63,431 $ 173,639

Net cash provided by (used in) financing activities 11,485 ( 27,805 )

Net increase (decrease) in cash and cash equivalents 37,757 ( 65,951 )

Cash and cash equivalents, beginning of period 49,571 139,524

Cash and cash equivalents, end of period $ 87,328 $ 73,573

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 $ 87,328 73,573

5 unchanged sentences

(In Thousands, Except Unit Data)

September 30, December 31,

March 31, December 31,

Real estate, at cost

19 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, 2022 and December 31, 2021, respectively

Limited partners' capital, 16,181,537 and 16,181,537 units issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

( 40,126 ) ( 39,127 )

General partner's capital, 60,528,115 and 60,525,580 units issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

General partner's capital, 60,717,835 and 60,718,653 units issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

1,208,964 1,210,641

6 unchanged sentences

(In Thousands, Except Shares and Per Unit Data)

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

2022 2021 2022 2021

Three Months Ended March 31,

Rental income $ 102,710 $ 96,986

7 unchanged sentences

OPERATING INCOME 29,716 28,342

Interest expense ( 14,454 ) ( 14,722 ) ( 43,667 ) ( 43,589 )

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

Interest expense, net ( 15,729 ) ( 14,666 )

Other (expense) income, net 6,679 ( 162 )

14 unchanged sentences

Net income $ 20,666 $ 13,514

Other comprehensive income (loss) - unrealized income (loss) on swap derivatives during the period 4,207 435 13,117 1,657

Other comprehensive income - unrealized (loss) income on swap derivatives during the period ( 2,269 ) 5,596

Reclassification of amortization of forward-starting swap realized gains included in interest expense ( 854 ) ( 275 )

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

Comprehensive income 17,543 18,835

14 unchanged sentences

Stock-based compensation — — — 2,035 — 2,035

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

Other comprehensive income - change in value of interest rate swap — — — — ( 2,269 ) ( 2,269 )

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

Reclassification of amortization of forward starting swaps included in interest expense — — — — ( 854 ) ( 854 )

Balance at March 31, 2023 16,181,537 $ ( 40,126 ) $ 60,717,835 $ 1,208,964 $ 10,888 $ 1,179,726

Net income — 2,852 — 10,736 — 13,588

Issuance of restricted units — — 6,072 — — —

Distributions — ( 5,178 ) — ( 19,369 ) — ( 24,547 )

Stock-based compensation — — — 2,001 — 2,001

Other comprehensive income - change in value of interest rate swap — — — — 3,314 3,314

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

Balance at June 30, 2022 16,181,537 ( 34,806 ) 60,528,115 1,222,245 12,529 1,199,968

Net income — 3,442 — 12,927 — 16,369

Distributions — ( 5,178 ) — ( 19,369 ) — ( 24,547 )

Stock-based compensation — — — 2,001 — 2,001

Other comprehensive income - change in value of interest rate swap — — — — 4,207 4,207

Other comprehensive income - unrealized gain on forward-starting interest rate swaps — — — — — —

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

Balance at September 30, 2022 16,181,537 $ ( 36,542 ) 60,528,115 $ 1,217,804 $ 16,461 $ 1,197,723

Limited Partners' Capital (1)

7 unchanged sentences

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

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

Other comprehensive income - 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 loss on early extinguishment of debt — — — — ( 193 ) ( 193 )

Reclassification of amortization of forward starting swaps included in interest expense — — — — ( 275 ) ( 275 )

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

(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 884 640

Loss on early extinguishment of debt — 4,271

Provision for uncollectable rental income 518 92

Stock-based compensation expense 2,035 1,489

Other noncash interest expense ( 825 ) ( 824 )

Other noncash interest expense, net ( 854 ) ( 275 )

Other, net 207 ( 3,763 )

10 unchanged sentences

Leasing commissions ( 1,177 ) ( 2,299 )

Purchases of marketable securities — ( 47,760 )

Proceeds from the sale of marketable securities — 47,723

Net cash used in investing activities ( 25,695 ) ( 77,295 )

FINANCING ACTIVITIES

Issuance of secured notes payable 75,000 —

Repayment of secured notes payable ( 111,000 ) —

Proceeds from unsecured line of credit 36,000 —

Proceeds from unsecured term loan 225,000 —

Repayment of unsecured line of credit ( 36,000 ) —

Proceeds from unsecured notes payable — 494,675

Repayment of unsecured notes payable ( 150,000 ) —

2 unchanged sentences

Shares withheld for employee taxes — ( 15 )

Net cash (used in) provided by financing activities ( 77,351 ) 168,303

Net (decrease) increase in cash and cash equivalents ( 76,093 ) 34,590

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

Cash, cash equivalents and restricted cash, end of period $ 63,431 $ 173,639

Net cash provided by (used in) financing activities 11,485 ( 27,805 )

Net increase (decrease) in cash and cash equivalents 37,757 ( 65,951 )

Cash and cash equivalents, beginning of period 49,571 139,524

Cash and cash equivalents, end of period $ 87,328 $ 73,573

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents $ 87,328 $ 73,573

5 unchanged sentences

Notes to Consolidated Financial Statements

September 30, 2022

March 31, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

We are a full service, vertically integrated, and self-administered REIT with approximately 226 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, 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 September 30, 2022, we owned land at three of our properties that we classify as held for development and/or construction in progress.

As of March 31, 2023, 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, 2023, 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:

22 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

March 31, 2023

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

1 unchanged sentence

Interest capitalized $ 1,842 $ 1,181

Interest expense $ 43,667 $ 43,589

Interest expense, net $ 15,729 $ 14,666

Cash paid for interest, net of amounts capitalized $ 20,375 $ 19,722

6 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

March 31, 2023

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, 2022.

There have been no changes to our significant accounting policies during the nine months ended September 30, 2022.

There have been no changes to our significant accounting policies during the three months ended March 31, 2023.

Segment Information

12 unchanged sentences

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 September 30, 2022 and December 31, 2021 was approximately $ 2.8 million and $ 4.6 million, respectively.

The provision for doubtful accounts at March 31, 2023 and December 31, 2022 was approximately $ 2.3 million and $ 2.1 million, respectively.

Rent Concessions – COVID-19

From 2020 through 2022, 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").

During the third quarter of 2022, we provided an immaterial amount of lease concessions to certain tenants that were previously impacted by and/or continued being impacted by the COVID-19 pandemic.

Due to the impacts of COVID-19, in 2020 through 2022 we provided lease concessions to certain tenants, primarily

within the retail segment, in the form of rent deferrals and abatements.

We assess each lease concession and determine whether

it represents a lease modifications under Accounting Standards Codification Topic 842, Leases ("ASC 842").

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No.

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

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 have been or 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, 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, it is generally only available through December 31, 2022, with a newly proposed sunset date of December 31, 2024.

This guidance can be applied immediately, however, is generally only available with a sunset date of December 31, 2024.

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, 2022

Property Asset Acquisitions

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 nine months ended September 30, 2022 (in thousands):

Bel-Spring 520

Land $ 13,744

Building 27,793

Land improvements 713

Furniture, fixtures, and equipment 1,833

Total real estate 44,083

Lease intangibles 2,036

Prepaid expenses and other assets 10

Assets acquired $ 46,129

Accounts payable and accrued expenses $ ( 14 )

Security deposits payable ( 189 )

Other liabilities and deferred credits ( 641 )

Liabilities assumed $ ( 844 )

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, 2022, is 3.3 .

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 September 30, 2022 (in thousands):

Bel-Spring 520

Revenues $ 1,733

Operating expenses 1,689

Operating income 44

Net income attributable to American Assets Trust, Inc.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

March 31, 2023

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

September 30, 2022 December 31, 2021

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, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

In-place leases $ 58,119 $ 58,119

24 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 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, 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.

March 31, 2023

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 our 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 March 31, 2023 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, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

6 unchanged sentences

The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments.

The carrying values of our term loans set forth below are deemed to be at fair value since the outstanding debt related to Term Loans B and C are directly tied to monthly LIBOR contracts and Term Loan A is directly tied to the monthly SOFR contract.

The carrying values of our term loans set forth below are deemed to be at fair value since the outstanding debt is directly tied to monthly Secured Overnight Financing Rate (“SOFR”) contracts.

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, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

11 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

The following is a summary of the terms of our outstanding interest rate swaps as of September 30, 2022 (dollars in thousands):

March 31, 2023

The following is a summary of the terms of our outstanding interest rate swaps as of March 31, 2023 (dollars in thousands):

Swap Counterparty Notional Amount Effective Date Maturity Date Fair Value

Bank of America, N.A.

$ 50,000 1/14/2022 1/5/2027 $ 3,745

1 unchanged sentence

$ 50,000 1/14/2022 1/5/2027 $ 3,747

Bank of America, N.A.

$ 50,000 1/14/2022 1/5/2027 $ 4,807

Wells Fargo Bank, N.A.

$ 150,000 1/5/2023 1/5/2025 $ 417

Mizuho Capital Markets LLC $ 75,000 1/5/2023 1/5/2025 $ ( 388 )

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.

5 unchanged sentences

Other assets consist of the following (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Leasing commissions, net of accumulated amortization of $ 44,962 and $ 43,078 , respectively

5 unchanged sentences

Other intangible assets, net of accumulated amortization of $ 1,640 and $ 1,549 , respectively

Debt issuance costs, net of accumulated amortization of $ 415 and $ 0 , respectively

Right-of-use lease asset, net 23,325 23,921

4 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

March 31, 2023

OTHER LIABILITIES AND DEFERRED CREDITS

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Acquired below market leases, net $ 18,871 $ 19,664

1 unchanged sentence

Interest rate swap liability 388 196

Deferred rent expense and lease intangible — 3

Deferred compensation 2,369 2,411

5 unchanged sentences

Straight-line rent liability relates to leases which have rental payments that decrease over time or one-time upfront payments for which the rental revenue is deferred and recognized on a straight-line basis.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

Debt of American Assets Trust, Inc.

6 unchanged sentences

Secured notes payable

The following table is a summary of our total secured notes payable outstanding as of September 30, 2022 and December 31, 2021 (in thousands):

The following table is a summary of our total secured notes payable outstanding as of March 31, 2023 and December 31, 2022 (in thousands):

Principal Balance as of Stated Interest Rate Stated Maturity Date

Description of Debt September 30, 2022 December 31, 2021 as of September 30, 2022

City Center Bellevue (1)

— 111,000 3.98 % November 1, 2022

Description of Debt March 31, 2023 December 31, 2022 as of March 31, 2023

City Center Bellevue (1)

5 unchanged sentences

(1) Interest only.

On September 16, 2022, the Operating Partnership repaid in full, without premium or penalty, the $ 111 million principal balance of the mortgage on City Center Bellevue.

Concurrent therewith, the Operating Partnership entered into a new $ 75 million non-recourse mortgage on City Center Bellevue.

The new five-year mortgage has a maturity date of October 1, 2027, bears interest at a fixed rate per annum of 5.08 % (interest only) and is secured by a first-priority deed of trust on City Center Bellevue and an assignment of all leases, rents and security deposits related to City Center Bellevue.

Additionally, the Operating Partnership has provided a carve-out guarantee on the new mortgage at City Center Bellevue.

The Operating Partnership has provided a carve-out guarantee on the mortgage at City Center Bellevue.

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

As of September 30, 2022, the Operating Partnership was in compliance with these financial covenants.

As of March 31, 2023, 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, 2022

March 31, 2023

Unsecured notes payable

The following table is a summary of the Operating Partnership's total unsecured notes payable outstanding as of September 30, 2022 and December 31, 2021 (in thousands):

The following table is a summary of the Operating Partnership's total unsecured notes payable outstanding as of March 31, 2023 and December 31, 2022 (in thousands):

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

September 30, 2022 December 31, 2021 as of September 30, 2022

March 31, 2023 December 31, 2022 as of March 31, 2023

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

1 unchanged sentence

Term Loan B 150,000 100,000 Variable (3)

March 1, 2023

January 5, 2025 (2)

Term Loan C 75,000 50,000 Variable (4)

March 1, 2023

January 5, 2025 (2)

Senior Guaranteed Notes, Series F 100,000 100,000 3.78 % (5)

13 unchanged sentences

Total Unsecured Notes Payable $ 1,613,014 $ 1,539,453

(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.

Effective March 1, 2018, the effective interest rate associated with Term Loan B is approximately 2.65 %, subject to adjustments based on our consolidated leverage ratio.

(3) The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan C at approximately 3.14 % through its maturity date, subject to adjustments based on our consolidated leverage ratio.

Effective March 1, 2018, the effective interest rate associated with Term Loan C is approximately 2.64 %, subject to adjustments based on our consolidated leverage ratio.

(1) The Operating Partnership 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) On January 5, 2023, we extended Term Loan B and Term Loan C to a maturity date of January 5, 2025 with one , twelve-month extension option and increased the fully drawn borrowings thereunder to $ 150 million and $ 75 million, respectively.

(3) The Operating Partnership entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan B as follows, in each case subject to adjustments based on our consolidated leverage ratio:

(a) from March 1, 2018 through November 30, 2022, the effective interest rate associated with Term Loan B was approximately 2.65 % (and such interest rate swap agreement was terminated as of November 30, 2022) and (b) from January 5, 2023 through January 4, 2025, the effective interest rate associated with Term Loan B is approximately 5.47 % for the first year (January 5, 2023 through January 4, 2024) and 5.57 % for the second year (January 5, 2024 through January 4, 2025) of Term Loan B.

Note that variable interest was paid on Term Loan B from December 1, 2022 through January 4, 2023 at 5.32 % as there were no interest rate swap agreements in place during such time period on Term Loan B.

(4) The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan C as follows, in each case subject to adjustments based on our consolidated leverage ratio:

(a) from March 1, 2018 through November 30, 2022, the effective interest rate associated with Term Loan C was approximately 2.64 % (and such interest rate swap agreement was terminated as of November 30, 2022) and (b) from January 5, 2023 through January 4, 2025, the effective interest rate associated with Term Loan C is approximately 5.47 % for the first year (January 5, 2023 through January 4, 2024) and 5.57 % for the second year (January 5, 2024 through January 4, 2025) of Term Loan C.

Note that variable interest was paid on Term Loan C from December 1, 2022 through January 4, 2023 at 5.32 % as there were no interest rate swap agreements in place during such time period on Term Loan C.

(5) 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.

10 unchanged sentences

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)

March 31, 2023

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

2 unchanged sentences

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

As of September 30, 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)

September 30, 2022

As of March 31, 2023, the Operating Partnership was in compliance with these financial covenants.

Amended Term Loan Agreement

2 unchanged sentences

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.

On January 5, 2023, we entered into the Amended and Restated Term Loan Agreement, which increased the aggregate unsecured borrowings from $ 150 million to $ 225 million and extended the maturity date of Term Loan B and Term Loan C from March 1, 2023 to January 5, 2025, with one , twelve-month extension option, subject to certain conditions.

Borrowings under the Amended and Restated Term Loan Agreement bear interest at floating rates equal to, at the Operating Partnership’s option, either (1) the applicable SOFR, plus a SOFR adjustment and a spread (based on the Operating Partnership’s consolidated leverage ratio and applicable year of Term Loan B and Term Loan C) ranging from 1.20 % to 1.90 %, or (2) a base rate equal to the highest of (a) 0 %, (b) the prime rate, (c) the federal funds rate plus 50 bps and (d) the one-month SOFR, plus a SOFR adjustment and 100 bps, plus, in each case, a spread (based on the Operating Partnership’s consolidated leverage ratio and applicable year of the Term Loan B and Term Loan C) ranging from 0.20 % to 0.90 %.

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

Prior to entering into the Amended and Restated Term Loan Agreement, the Operating Partnership entered into interest rate swap agreements that are intended to fix the interest rate associated with Term Loan B and Term Loan C at approximately (1) 5.47 % for the first year of Term Loan B and Term Loan C and (2) 5.57 % for the second year of Term Loan B and Term Loan C, subject to adjustments based on the company’s consolidated leverage ratio.

Third Amended and Restated Credit Facility

2 unchanged sentences

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.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2023

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.

6 unchanged sentences

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.

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 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 September 30, 2022, there was $ 36 million outstanding under the 2022 Revolver Loan.

Approximately $ 2.1 million of net debt issuance costs are included in the unsecured line of credit, net on the

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

balance sheet.

For the nine months ended September 30, 2022, the weighted average interest rate on the 2022 Revolver Loan was 2.26 %

At March 31, 2023, there were no amounts outstanding under the 2022 Revolver Loan and we had incurred approximately $ 1.8 million of net debt issuance costs which are recorded in other assets, net on the consolidated balance sheet.

For the three months ended March 31, 2023, the weighted average interest rate on the 2022 Revolver Loan was 5.80 %

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

7 unchanged sentences

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

As of September 30, 2022, the Operating Partnership was in compliance with the financial covenants in the Third Amended and Restated Credit Facility.

As of March 31, 2023, the Operating Partnership was in compliance with the financial covenants in the Third Amended and Restated Credit Facility.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2023

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, 2022.

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, 2022, no common units were converted into shares of our common stock.

During the three months ended March 31, 2023, no common units were converted into shares of our common stock.

Earnings Per Unit of the Operating Partnership

2 unchanged sentences

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

The calculation of diluted EPU for the three months ended September 30, 2022 and 2021 does not include the weighted average of 483,110 and 481,966 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, 2022 and 2021 does not include the weighted average of 483,895 and 485,897 unvested Operating Partnership units, respectively, as these equity securities are either considered contingently issuable or the effect of including these equity securities was anti-dilutive to income from continuing operations and net income attributable to the unitholders.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

The calculation of diluted EPU for the three months ended March 31, 2023 and 2022 does not include the weighted average of 573,253 and 485,493 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.

EQUITY OF AMERICAN ASSETS TRUST, INC.

2 unchanged sentences

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

For the nine months ended September 30, 2022, no shares of common stock were sold through the ATM equity program.

For the three months ended March 31, 2023, 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, 2022, we had the capacity to issue up to $ 250 million in shares of our common stock under our current ATM equity program.

As of March 31, 2023, we had the capacity to issue up to $ 250 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.

As of September 30, 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 nine months ended September 30, 2022:

As of March 31, 2023, 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, 2023:

Period Amount per

1 unchanged sentence

First Quarter 2023 $ 0.33 January 1, 2023 to March 31, 2023 March 23, 2023

Second Quarter 2022 $ 0.32 April 1, 2022 to June 30, 2022 June 23, 2022

Third Quarter 2022 $ 0.32 July 1, 2022 to September 30, 2022 September 22, 2022

Taxability of Dividends

Earnings and profits, which determine the taxability of distributions to stockholders and holders of common units, may differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of revenue recognition and compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2023

Stock-Based Compensation

1 unchanged sentence

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, 2022:

The following table summarizes the activity of restricted stock awards during the three months ended March 31, 2023:

Units Weighted Average Grant Date Fair Value

Nonvested at January 1, 2023 574,044 $ 20.98

Granted 6,072 32.94

Vested ( 6,350 ) 35.66

Forfeited ( 818 ) 20.93

Nonvested at September 30, 2022 483,998 $ 23.74

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $ 2.0 million and $ 1.5 million in noncash compensation expense for the three months ended September 30, 2022 and 2021, respectively, which is included in general and administrative expenses on the consolidated statements of comprehensive

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

We recognized $ 5.5 million and $ 4.5 million in noncash compensation expense for the nine months ended September 30, 2022 and 2021, respectively.

Unrecognized compensation expense was $ 5.2 million at September 30, 2022.

Nonvested at March 31, 2023 573,226 $ 20.98

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $ 2.0 million and $ 1.5 million in noncash compensation expense for the three months ended March 31, 2023 and 2022, respectively, which is included in general and administrative expenses on the consolidated statements of comprehensive income.

Unrecognized compensation expense was $ 9.5 million at March 31, 2023.

Earnings Per Share

1 unchanged sentence

The two-class method is an earnings allocation methodology whereby EPS for each class of common stock and participating security is calculated according to dividends declared and participation rights in undistributed earnings.

The weighted average unvested shares outstanding, which are considered participating securities, were 483,110 and 481,966 for the three months ended September 30, 2022 and 2021, respectively, and 483,895 and 485,897 for the nine months ended September 30, 2022 and 2021, respectively.

The weighted average unvested shares outstanding, which are considered participating securities, were 573,253 and 485,493 for the three months ended March 31, 2023 and 2022, 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, 2022 and 2021, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

For the three months ended March 31, 2023 and 2022, 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.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2023

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,

2022 2021 2022 2021

Three Months Ended March 31,

Net income $ 20,666 $ 13,514

8 unchanged sentences

Income from operations attributable to unitholders in the Operating Partnership

3,442 2,709 9,130 5,459

Net income attributable to common stockholders—diluted

9 unchanged sentences

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, 2022

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 $ 1.0 million and $ 1.0 million as of September 30, 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.

A deferred tax asset is included in our consolidated balance sheets of $ 0.7 million and $ 0.7 million, and a deferred tax liability is included in our consolidated balance sheets of $ 0.9 million and $ 0.9 million as of March 31, 2023 and December 31, 2022, respectively, in relation to real estate asset basis differences of property subject to state taxes based on income and certain prepaid expenses of our TRS.

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

For the three and nine months ended September 30, 2022, we recorded income tax expense of $ 0.2 million and $ 0.6 million.

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

For the three months ended March 31, 2023, we recorded income tax expense of $ 0.3 million.

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

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2023

We are currently a party to various legal proceedings.

18 unchanged sentences

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.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 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.

2 unchanged sentences

In addition, we must pay to Embassy Suites Franchise LLC a monthly franchise royalty fee equal to 4.0 % of the hotel's gross room revenue through December 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 $ 5.4 million based on operating performance through September 30, 2022.

If the franchise license is terminated due to our failure to make required improvements or to otherwise comply with its terms, we may be liable to the franchisor for a termination payment, which could be as high as $ 6.6 million based on operating performance through March 31, 2023.

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

4 unchanged sentences

However, if further work is required costing more than the remaining escrow funds, we could be required to pay such overage, although we may have a contractual claim for such costs against the prior owner or our environmental remediation consultant.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2023

Concentrations of Credit Risk

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.

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.

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 23.6 % of total revenues for the nine months ended September 30, 2022.

Tenants in the retail industry accounted for 23.8 % of total revenues for the three months ended March 31, 2023.

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 48.4 % of total revenues for the nine months ended September 30, 2022.

Furthermore, tenants in the office industry accounted for 47.3 % of total revenues for the three months ended March 31, 2023.

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, 2022 and 2021, no tenant accounted for more than 10% of our total rental revenue.

For the three months ended March 31, 2023 and 2022, no tenant accounted for more than 10% of our total rental revenue.

Lessor Operating Leases

7 unchanged sentences

Rooms at the hotel portion of our mixed-use property are rented on a nightly basis.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 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.

4 unchanged sentences

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

As of September 30, 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):

As of March 31, 2023, 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,

2022 (three months ending December 31, 2022) $ 56,119

2023 (nine months ending December 31, 2023) $ 188,878

Thereafter 316,554

Total $ 1,304,663

The above future minimum rentals exclude residential leases, which typically have a term of 12 months or less, and exclude the hotel, as rooms are rented on a nightly basis.

The above future minimum rentals exclude residential leases, which typically range from 7 to 15 months, and exclude the hotel, as rooms are rented on a nightly basis.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2023

Lessee Operating Leases

7 unchanged sentences

As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement in determining the present value of lease payments.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

Current annual payments under the operating leases are as follows, as of September 30, 2022 (in thousands):

Current annual payments under the operating leases are as follows, as of March 31, 2023 (in thousands):

Year Ending December 31,

2022 (three months ending December 31, 2022) $ 820

2023 (nine months ending December 31, 2023) $ 2,509

Thereafter 12,543

3 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Operating lease cost $ 927 $ 844

4 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities $ 820 $ 796

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

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

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

March 31, 2023

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

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,

2022 2021 2022 2021

Three Months Ended March 31,

Lease rental income

7 unchanged sentences

Total rental income $ 102,710 $ 96,986

Lease rental income includes $ 2.5 million and $ 3.8 million for the three months ended September 30, 2022 and 2021, respectively, and $ 6.3 million and $ 10.8 million for the nine months ended September 30, 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 September 30, 2022 and 2021, respectively, and $ 2.5 million and $ 2.4 million for the nine months ended September 30, 2022 and 2021, respectively.

Lease rental income includes $ 2.2 million and $ 3.7 million for the three months ended March 31, 2023 and 2022, 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, 2023 and 2022, respectively.

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Rental operating $ 12,440 $ 11,144

2 unchanged sentences

Marketing 508 519

Rent 815 856 2,405 3,166

Hawaii excise tax 971 809

1 unchanged sentence

Total rental expenses $ 27,506 $ 24,145

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2023

OTHER (EXPENSE) INCOME, NET

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Interest and investment income $ 434 $ 36

Income tax expense ( 270 ) ( 198 )

Other non-operating income 6,515 —

Total other (expense) income, net $ 6,679 $ ( 162 )

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

RELATED PARTY TRANSACTIONS

4 unchanged sentences

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

Rental revenue recognized on the AAI leases of $ 0.2 million and $ 0.2 million for the nine months ended September 30, 2022 and 2021, respectively, is included in rental income on the statements of comprehensive income.

Rental revenue recognized on the AAI leases of $ 0.1 million and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively, is included in rental income on the statements of comprehensive income.

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, 2022 and 2021, we incurred approximately $ 0.2 million and $ 0.2 million of expenses, respectively, related to aircraft services of AAIA or reimbursement to Mr.

For the three months ended March 31, 2023 and 2022, we incurred approximately $ 0.1 million and $ 0.0 million of expenses, respectively, related to aircraft services of AAIA or reimbursement to Mr.

Rady (or his trust) for use of the aircraft owned by AAIA.

1 unchanged sentence

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

The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.9 million and $ 0.8 million for the nine months ended September 30, 2022 and 2021, 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, 2023 and 2022, respectively, are included in rental expenses on the consolidated statements of comprehensive income.

SEGMENT REPORTING

10 unchanged sentences

General and administrative expenses, interest expense, depreciation and amortization expense and other income and expense are not included in segment profit as our internal reporting addresses these items on a corporate level.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

March 31, 2023

Segment profit is not a measure of operating income or cash flows from operating activities as measured by GAAP, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.

2 unchanged sentences

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

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

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

2022 2021 2022 2021

Three Months Ended March 31,

Property revenue $ 50,970 $ 49,569

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,

2022 2021 2022 2021

Three Months Ended March 31,

Total segments’ profit $ 68,616 $ 65,896

1 unchanged sentence

Depreciation and amortization ( 29,901 ) ( 30,412 )

Interest expense ( 14,454 ) ( 14,722 ) ( 43,667 ) ( 43,589 )

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

Interest expense, net ( 15,729 ) ( 14,666 )

Other income (expense), net 6,679 ( 162 )

7 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

September 30, 2022

March 31, 2023

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Net Real Estate

7 unchanged sentences

$ 75,000 $ 75,000

(1) Excludes debt issuance costs of $ 0.45 million and $ 0.04 million for each of the periods ended September 30, 2022 and December 31, 2021, respectively.

Capital expenditures for each segment for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):

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

2022 2021 2022 2021

(1) Excludes debt issuance costs of $ 0.4 million and $ 0.4 million for each of the periods ended March 31, 2023 and December 31, 2022, respectively.

Capital expenditures for each segment for the three months ended March 31, 2023 and 2022 were as follows (in thousands):

Three Months Ended March 31,

Capital Expenditures (1)

6 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements