What changed in this filing

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Item 1. Financial Statements

2023-10-27 compared with 2023-07-28 · 139 added, 109 removed, 881 unchanged (22% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

June 30, December 31,

September 30, December 31,

Real estate, at cost

21 unchanged sentences

stockholders’ equity

Common stock, $ 0.01 par value, 490,000,000 shares authorized, 60,724,630 and 60,718,653 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Common stock, $ 0.01 par value, 490,000,000 shares authorized, 60,724,630 and 60,718,653 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,467,455 1,461,201

10 unchanged sentences

(In Thousands, Except Shares and Per Share Data)

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

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

2023 2022 2023 2022

58 unchanged sentences

Balance at June 30, 2023 60,724,630 $ 607 $ 1,465,346 $ ( 262,745 ) $ 11,524 $ ( 38,616 ) $ 1,176,116

Net income — — — 11,967 — 3,168 15,135

Dividends declared and paid — — — ( 20,039 ) — ( 5,340 ) ( 25,379 )

Stock-based compensation — — 2,109 — — — 2,109

Other comprehensive income - change in value of interest rate swaps — — — — 605 163 768

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 78 ) ( 21 ) ( 99 )

Balance at September 30, 2023 60,724,630 $ 607 $ 1,467,455 $ ( 270,817 ) $ 12,051 $ ( 40,646 ) $ 1,168,650

American Assets Trust, Inc.

21 unchanged sentences

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 — — — — ( 217 ) ( 58 ) ( 275 )

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

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

2 unchanged sentences

(In Thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

21 unchanged sentences

FINANCING ACTIVITIES

Issuance of secured notes payable — 75,000

Repayment of secured notes payable — ( 111,000 )

Proceeds from unsecured term loan 225,000 —

Proceeds from unsecured line of credit — 36,000

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

8 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents $ 89,968 63,431

5 unchanged sentences

(In Thousands, Except Unit Data)

June 30, December 31,

September 30, 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 June 30, 2023 and December 31, 2022, respectively

Limited partners' capital, 16,181,537 and 16,181,537 units issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

( 44,414 ) ( 39,127 )

General partner's capital, 60,724,630 and 60,718,653 units issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

General partner's capital, 60,724,630 and 60,718,653 units issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

1,197,245 1,210,641

6 unchanged sentences

(In Thousands, Except Shares and Per Unit Data)

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

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

2023 2022 2023 2022

54 unchanged sentences

Balance at June 30, 2023 16,181,537 $ ( 42,242 ) $ 60,724,630 $ 1,203,208 $ 15,150 $ 1,176,116

Net income — 3,168 — 11,967 — 15,135

Distributions — ( 5,340 ) — ( 20,039 ) — ( 25,379 )

Stock-based compensation — — — 2,109 — 2,109

Other comprehensive income - change in value of interest rate swap — — — — 768 768

Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 99 ) ( 99 )

Balance at September 30, 2023 16,181,537 $ ( 44,414 ) 60,724,630 $ 1,197,245 $ 15,819 $ 1,168,650

Limited Partners' Capital (1)

19 unchanged sentences

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

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

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

4 unchanged sentences

(Unaudited, In Thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

21 unchanged sentences

FINANCING ACTIVITIES

Issuance of secured notes payable — 75,000

Repayment of secured notes payable — ( 111,000 )

Proceeds from unsecured term loan 225,000 —

Proceeds from unsecured line of credit — 36,000

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

8 unchanged sentences

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents $ 89,968 $ 63,431

5 unchanged sentences

Notes to Consolidated Financial Statements

June 30, 2023

September 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

We are a full service, vertically integrated, and self-administered REIT with approximately 229 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.

As of June 30, 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 June 30, 2023, we owned land at three of our properties that we classify as held for development and/or construction in progress.

As of September 30, 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 September 30, 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)

June 30, 2023

September 30, 2023

Basis of Presentation

18 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information

10 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 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 six months ended June 30, 2023.

There have been no changes to our significant accounting policies during the nine months ended September 30, 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 June 30, 2023 and December 31, 2022 was approximately $ 1.8 million and $ 2.1 million, respectively.

The provision for doubtful accounts at September 30, 2023 and December 31, 2022 was approximately $ 1.3 million and $ 2.1 million, respectively.

Rent Concessions – COVID-19

Due to the impacts of COVID-19, from 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 modification under Accounting Standards Codification Topic 842, Leases ("ASC 842").

Due to the impacts of COVID-19, from 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 modification under Accounting Standards Codification Topic 842, Leases ("ASC 842").

Recent Accounting Pronouncements

3 unchanged sentences

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 with a sunset date of December 31, 2024.

This guidance is generally only available until 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)

June 30, 2023

September 30, 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 June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023 December 31, 2022

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

September 30, 2023 December 31, 2022

In-place leases $ 57,292 $ 58,119

24 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 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 June 30, 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.

However, as of September 30, 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):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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

8 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

11 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

The following is a summary of the terms of our outstanding interest rate swaps as of June 30, 2023 (dollars in thousands):

September 30, 2023

The following is a summary of the terms of our outstanding interest rate swaps as of September 30, 2023 (dollars in thousands):

Swap Counterparty Notional Amount Effective Date Maturity Date Fair Value

13 unchanged sentences

Other assets consist of the following (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Leasing commissions, net of accumulated amortization of $ 48,181 and $ 43,078 , respectively

12 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

OTHER LIABILITIES AND DEFERRED CREDITS

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Acquired below market leases, net $ 17,296 $ 19,664

16 unchanged sentences

Secured notes payable

The following table is a summary of our total secured notes payable outstanding as of June 30, 2023 and December 31, 2022 (in thousands):

The following table is a summary of our total secured notes payable outstanding as of September 30, 2023 and December 31, 2022 (in thousands):

Principal Balance as of Stated Interest Rate Stated Maturity Date

Description of Debt June 30, 2023 December 31, 2022 as of June 30, 2023

Description of Debt September 30, 2023 December 31, 2022 as of September 30, 2023

City Center Bellevue (1)

7 unchanged sentences

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

As of June 30, 2023, the Operating Partnership was in compliance with these financial covenants.

As of September 30, 2023, the Operating Partnership was in compliance with these financial covenants.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

Unsecured notes payable

The following table is a summary of the Operating Partnership's total unsecured notes payable outstanding as of June 30, 2023 and December 31, 2022 (in thousands):

The following table is a summary of the Operating Partnership's total unsecured notes payable outstanding as of September 30, 2023 and December 31, 2022 (in thousands):

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

June 30, 2023 December 31, 2022 as of June 30, 2023

September 30, 2023 December 31, 2022 as of September 30, 2023

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

42 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

Senior Unsecured Notes

3 unchanged sentences

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

As of June 30, 2023, the Operating Partnership was in compliance with these financial covenants.

As of September 30, 2023, the Operating Partnership was in compliance with these financial covenants.

Amended Term Loan Agreement

13 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 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.

4 unchanged sentences

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

The Third Amended and Restated Credit Facility has an accordion feature that allowed us to increase the availability thereunder up to an additional $ 400 million, subject to meeting specified requirements and obtaining additional commitments from lenders.

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

2 unchanged sentences

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 June 30, 2023, there were no amounts outstanding under the 2022 Revolver Loan and we had incurred approximately $ 1.6 million of net debt issuance costs which are recorded in other assets, net on the consolidated balance sheet.

For the six months ended June 30, 2023, the weighted average interest rate on the 2022 Revolver Loan was 5.96 %.

At September 30, 2023, there were no amounts outstanding under the 2022 Revolver Loan and we had incurred approximately $ 1.5 million of net debt issuance costs which are recorded in other assets, net on the consolidated balance sheet.

For the nine months ended September 30, 2023, the weighted average interest rate on the 2022 Revolver Loan was 6.12 %.

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 June 30, 2023, the Operating Partnership was in compliance with the financial covenants in the Third Amended and Restated Credit Facility.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

As of September 30, 2023, the Operating Partnership was in compliance with the financial covenants in the Third Amended and Restated Credit Facility.

PARTNERS' CAPITAL OF AMERICAN ASSETS TRUST, L.P.

Noncontrolling interests in our Operating Partnership are interests in the Operating Partnership that are not owned by us.

Noncontrolling interests consisted of 16,181,537 common units (the “noncontrolling common units”), and represented approximately 21.2 % of the ownership interests in our Operating Partnership at June 30, 2023.

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

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

During the six months ended June 30, 2023, no common units were converted into shares of our common stock.

During the nine months ended September 30, 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 June 30, 2023 and 2022 does not include the weighted average of 571,999 and 483,110 unvested outstanding Operating Partnership units, respectively, as these equity securities are either considered contingently issuable or the effect of including these equity securities was anti-dilutive to income from continuing operations and net income attributable to the unitholders.

The calculation of diluted EPU for the six months ended June 30, 2023 and 2022 does not include the weighted average of 572,623 and 484,295 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 three months ended September 30, 2023 and 2022 does not include the weighted average of 573,949 and 483,110 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, 2023 and 2022 does not include the weighted average of 573,070 and 483,895 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 six months ended June 30, 2023, no shares of common stock were sold through the ATM equity program.

For the nine months ended September 30, 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 June 30, 2023, we had the capacity to issue up to $ 250 million in shares of our common stock under our current ATM equity program.

As of September 30, 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 June 30, 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 six months ended June 30, 2023:

As of September 30, 2023, we have no obligation to sell the remaining shares available for sale under the ATM equity program.

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2023

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, 2023:

Period Amount per

2 unchanged sentences

Second Quarter 2023 $ 0.33 April 1, 2023 to June 30, 2023 June 22, 2023

American Assets Trust, Inc.

and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

Third Quarter 2023 $ 0.33 July 1, 2023 to September 30, 2023 September 21, 2023

Taxability of Dividends

3 unchanged sentences

The guidance also defines a fair value-based method of accounting for an employee stock award or similar equity instrument.

The following table summarizes the activity of restricted stock awards during the six months ended June 30, 2023:

The following table summarizes the activity of restricted stock awards during the nine months ended September 30, 2023:

Units Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 4,371 ) 20.92

Nonvested at June 30, 2023 573,949 $ 20.87

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $ 2.1 million and $ 2.0 million in noncash compensation expense for the three months ended June 30, 2023 and 2022, respectively, which is included in general and administrative expenses on the consolidated statements of comprehensive income.

We recognized $ 4.1 million and $ 3.5 million in noncash compensation expense for the six months ended June 30, 2023 and 2022, respectively.

Unrecognized compensation expense was $ 7.9 million at June 30, 2023.

Nonvested at September 30, 2023 573,949 $ 20.87

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $ 2.1 million and $ 2.0 million in noncash compensation expense for the three months ended September 30, 2023 and 2022, respectively, which is included in general and administrative expenses on the consolidated statements of comprehensive income.

We recognized $ 6.3 million and $ 5.5 million in noncash compensation expense for the nine months ended September 30, 2023 and 2022, respectively.

Unrecognized compensation expense was $ 5.8 million at September 30, 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 571,999 and 483,110 for the three months ended June 30, 2023 and 2022, respectively, and 572,623 and 484,295 for the six months ended June 30, 2023 and 2022, respectively.

The weighted average unvested shares outstanding, which are considered participating securities, were 573,949 and 483,110 for the three months ended September 30, 2023 and 2022, respectively, and 573,070 and 483,895 for the nine months ended September 30, 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 six months ended June 30, 2023 and 2022, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable.

For the three and nine months ended September 30, 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.

2 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

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

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

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

2023 2022 2023 2022

24 unchanged sentences

Additionally, we classify certain state taxes as income taxes for financial reporting purposes in accordance with ASC Topic 740, Income Taxes .

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 June 30, 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.

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 $ 0.8 million and $ 0.9 million as of September 30, 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 six months ended June 30, 2023, we recorded income tax expense of $ 0.2 million and $ 0.5 million, respectively.

For the three and six months ended June 30, 2022, we recorded income tax expense of $ 0.2 million and $ 0.4 million, respectively.

For the three and nine months ended September 30, 2023, we recorded income tax expense of $ 0.3 million and $ 0.8 million, respectively.

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

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

COMMITMENTS AND CONTINGENCIES

25 unchanged sentences

In addition, we must pay to Embassy Suites Franchise LLC a monthly franchise royalty fee equal to 5.0 % of the hotel's gross room revenue, 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 $ 7.0 million based on operating performance through June 30, 2023.

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 $ 7.4 million based on operating performance through September 30, 2023.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

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

The environmental issue existed at purchase and remains in remediation.

The final stages of the remediation will include routine, long term ground monitoring by the appropriate regulatory agency over the next five years to seven years .

The final stages of the remediation will include routine, long term ground monitoring by the appropriate regulatory agency over the next five to seven years .

The work performed is financed through an escrow account funded by the seller upon purchase of Del Monte Center.

We believe the funds in the escrow account are sufficient for the remaining work to be performed.

However, if further work is required costing more than the remaining escrow funds, we may 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.

However, if further work is required that costs more than the remaining escrow funds, we may 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.

Concentrations of Credit Risk

2 unchanged sentences

Fifteen of our consolidated properties are located in Southern California, which exposes us to greater economic risks than if we owned a more geographically diverse portfolio.

Tenants in the retail industry accounted for 23.7 % of total revenues for the six months ended June 30, 2023.

Tenants in the retail industry accounted for 23.6 % of total revenues for the nine months ended September 30, 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 47.4 % of total revenues for the six months ended June 30, 2023.

Furthermore, tenants in the office industry accounted for 47.2 % of total revenues for the nine months ended September 30, 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 six months ended June 30, 2023 and 2022, no tenant accounted for more than 10% of our total rental revenue.

For the nine months ended September 30, 2023 and 2022, no tenant accounted for more than 10% of our total rental revenue.

Lessor Operating Leases

3 unchanged sentences

Our leases with office, retail, mixed-use and residential tenants are classified as operating leases.

Leases at our office and retail properties and the retail portion of our mixed-use property generally range from three years to ten years (certain leases with anchor tenants may be longer), and in addition to minimum rents, usually provide for cost recoveries for the tenant’s share of certain operating costs.

Leases at our office and retail properties and the retail portion of our mixed-use property generally range from three to ten years (certain leases with anchor tenants may be longer), and in addition to minimum rents, usually provide for cost recoveries for the tenant’s share of certain operating costs.

Our leases may also include variable lease payments in the form of percentage rents based on the tenant’s level of sales achieved in excess of a breakpoint threshold.

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Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

As of June 30, 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):

September 30, 2023

As of September 30, 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,

2023 (six months ending December 31, 2023) $ 186,351

2023 (three months ending December 31, 2023) $ 59,230

Thereafter 367,831

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We lease real estate under operating leases.

At The Landmark at One Market, we lease, as lessee, a building adjacent to The Landmark at One Market under an operating lease effective through June 30, 2026, which we have the option to extend until 2031 by way of the remaining five years extension option (the "Annex Lease").

The lease payments under the extension option provided for under the Annex Lease will be equal to the fair rental value at the time the extension option is exercised.

The lease payments under the extension option pursuant to the Annex Lease will be equal to the fair rental value at the time the extension option is exercised.

The extension option is included in the calculation of the right-of-use asset and lease liability as we are reasonably certain of exercising the extension option.

1 unchanged sentence

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.

Current annual payments under the operating leases are as follows, as of June 30, 2023 (in thousands):

Current annual payments under the operating leases are as follows, as of September 30, 2023 (in thousands):

Year Ending December 31,

2023 (six months ending December 31, 2023) $ 1,689

2023 (three months ending December 31, 2023) $ 844

Thereafter 12,543

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Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

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

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

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

2023 2022 2023 2022

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

Six Months Ended June 30,

Nine Months Ended September 30,

Operating cash flow information:

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

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

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

2023 2022 2023 2022

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Total rental income $ 105,494 $ 105,468 $ 312,105 $ 301,470

Lease rental income includes $ 1.0 million and $ 0.1 million for the three months ended June 30, 2023 and 2022, respectively, and $ 3.2 million and $ 3.8 million for the six months ended June 30, 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 June 30, 2023 and 2022, respectively, and $ 1.6 million and $ 1.7 million for the six months ended June 30, 2023 and 2022, respectively.

Lease rental income includes $ 0.4 million and $ 2.5 million for the three months ended September 30, 2023 and 2022, respectively, and $ 3.6 million and $ 6.3 million for the nine months ended September 30, 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 September 30, 2023 and 2022, respectively, and $ 2.3 million and $ 2.5 million for the nine months ended September 30, 2023 and 2022, respectively.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

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

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

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

2023 2022 2023 2022

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

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

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

2023 2022 2023 2022

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

Rental revenue recognized on the AAI leases of $ 0.1 million and $ 0.1 million for the six months ended June 30, 2023 and 2022, respectively, is included in rental income on the statements of comprehensive income.

Rental revenue recognized on the AAI leases of $ 0.2 million and $ 0.2 million for the nine months ended September 30, 2023 and 2022, respectively, is included in rental income on the statements of comprehensive income.

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

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

For the six months ended June 30, 2023 and 2022, we incurred approximately $ 0.1 million and $ 0.1 million of expenses, respectively, related to aircraft services of AAIA or reimbursement to Mr.

For the nine months ended September 30, 2023 and 2022, we incurred approximately $ 0.1 million and $ 0.2 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.

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

The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.5 million and $ 0.5 million for the six months ended June 30, 2023 and 2022, 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 $ 0.9 million and $ 0.9 million for the nine months ended September 30, 2023 and 2022, respectively, are included in rental expenses on the consolidated statements of comprehensive income.

American Assets Trust, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

SEGMENT REPORTING

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

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

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

2023 2022 2023 2022

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Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

September 30, 2023

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

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

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

2023 2022 2023 2022

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Net Real Estate

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$ 75,000 $ 75,000

(1) Excludes debt issuance costs of $ 0.4 million and $ 0.4 million for each of the periods ended June 30, 2023 and December 31, 2022, respectively.

Capital expenditures for each segment for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):

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

(1) Excludes debt issuance costs of $ 0.4 million and $ 0.4 million for each of the periods ended September 30, 2023 and December 31, 2022, respectively.

Capital expenditures for each segment for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):

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

2023 2022 2023 2022

7 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