American Assets Trust, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS American Assets Trust, Inc. Consolidated Balance Sheets (In Thousands, Except Share Data) September 30, December 31, 2024 2023 (unaudited) ASSETS Real estate, at cost Operating real estate $ 3,564,563 $ 3,502,251 Construction in progress 205,692 239,030 Held for development 487 487 3,770,742 3,741,768 Accumulated depreciation ( 1,098,477 ) ( 1,036,453 ) Real estate, net 2,672,265 2,705,315 Cash and cash equivalents 533,004 82,888 Accounts receivable, net 8,809 7,624 Deferred rent receivables, net 89,772 89,210 Other assets, net 92,468 99,644 TOTAL ASSETS $ 3,396,318 $ 2,984,681 LIABILITIES AND EQUITY LIABILITIES: Secured notes payable, net $ 74,736 $ 74,669 Unsecured notes payable, net 2,034,843 1,614,958 Accounts payable and accrued expenses 74,067 61,312 Security deposits payable 9,111 8,880 Other liabilities and deferred credits, net 65,600 71,187 Total liabilities 2,258,357 1,831,006 Commitments and contingencies (Note 11) EQUITY: American Assets Trust, Inc. stockholders’ equity Common stock, $ 0.01 par value, 490,000,000 shares authorized, 60,901,583 and 60,895,786 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively 609 609 Additional paid-in capital 1,474,554 1,469,206 Accumulated dividends in excess of net income ( 293,037 ) ( 280,239 ) Accumulated other comprehensive income 4,475 8,282 Total American Assets Trust, Inc. stockholders’ equity 1,186,601 1,197,858 Noncontrolling interests ( 48,640 ) ( 44,183 ) Total equity 1,137,961 1,153,675 TOTAL LIABILITIES AND EQUITY $ 3,396,318 $ 2,984,681 The accompanying notes are an integral part of these consolidated financial statements. 1 Table of Contents American Assets Trust, Inc. Consolidated Statements of Comprehensive Income (Unaudited) (In Thousands, Except Shares and Per Share Data) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 REVENUE: Rental income $ 105,549 $ 105,494 $ 315,664 $ 312,105 Other property income 17,261 5,704 28,731 16,568 Total revenue 122,810 111,198 344,395 328,673 EXPENSES: Rental expenses 31,361 29,912 90,707 86,128 Real estate taxes 11,044 11,399 33,133 34,117 General and administrative 9,068 8,880 26,647 26,488 Depreciation and amortization 33,529 29,868 94,757 89,592 Total operating expenses 85,002 80,059 245,244 236,325 OPERATING INCOME 37,808 31,139 99,151 92,348 Interest expense, net ( 18,229 ) ( 16,325 ) ( 50,773 ) ( 48,422 ) Other income, net 1,739 321 12,857 7,272 NET INCOME 21,318 15,135 61,235 51,198 Net income attributable to restricted shares ( 194 ) ( 189 ) ( 585 ) ( 568 ) Net income attributable to unitholders in the Operating Partnership ( 4,467 ) ( 3,168 ) ( 12,829 ) ( 10,733 ) NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, INC. STOCKHOLDERS $ 16,657 $ 11,778 $ 47,821 $ 39,897 EARNINGS PER COMMON SHARE Earnings per common share, basic $ 0.28 $ 0.20 $ 0.79 $ 0.66 Weighted average shares of common stock outstanding - basic 60,320,269 60,150,681 60,314,377 60,147,189 Earnings per common share, diluted $ 0.28 $ 0.20 $ 0.79 $ 0.66 Weighted average shares of common stock outstanding - diluted 76,501,806 76,332,218 76,495,914 76,328,726 DIVIDENDS DECLARED PER COMMON SHARE $ 0.335 $ 0.330 $ 1.005 $ 0.990 COMPREHENSIVE INCOME Net income $ 21,318 $ 15,135 $ 61,235 $ 51,198 Other comprehensive income - unrealized (loss) income on swap derivatives during the period ( 3,733 ) 768 ( 3,191 ) 2,859 Other comprehensive income - unrealized (loss) on treasury locks during the period ( 1,345 ) — ( 1,345 ) — Reclassification of amortization of forward-starting swap included in interest expense ( 98 ) ( 99 ) ( 295 ) ( 1,051 ) Comprehensive income 16,142 15,804 56,404 53,006 Comprehensive income attributable to non-controlling interests ( 3,373 ) ( 3,310 ) ( 11,805 ) ( 11,114 ) Comprehensive income attributable to American Assets Trust, Inc. $ 12,769 $ 12,494 $ 44,599 $ 41,892 The accompanying notes are an integral part of these consolidated financial statements. 2 Table of Contents American Assets Trust, Inc. Consolidated Statement of Equity (Unaudited) (In Thousands, Except Share Data) American Assets Trust, Inc. Stockholders’ Equity Noncontrolling Interests - Unitholders in the Operating Partnership Total Common Shares Additional Paid-in Capital Accumulated Dividends in Excess of Net Income Accumulated Other Comprehensive Income (Loss) Shares Amount Balance at December 31, 2023 60,895,786 $ 609 $ 1,469,206 $ ( 280,239 ) $ 8,282 $ ( 44,183 ) $ 1,153,675 Net income — — — 19,456 — 5,167 24,623 Forfeiture of restricted stock ( 1,295 ) — — — — — — Dividends declared and paid — — — ( 20,400 ) — ( 5,421 ) ( 25,821 ) Stock-based compensation — — 1,617 — — — 1,617 Other comprehensive income - change in value of interest rate swaps — — — — 1,100 292 1,392 Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 78 ) ( 20 ) ( 98 ) Balance at March 31, 2024 60,894,491 $ 609 $ 1,470,823 $ ( 281,183 ) $ 9,304 $ ( 44,165 ) $ 1,155,388 Net income — — — 12,099 — 3,195 15,294 Issuance of restricted stock 9,180 — — — — — — Forfeiture of restricted stock ( 2,088 ) — — — — — — Dividends declared and paid — — — ( 20,402 ) — ( 5,421 ) ( 25,823 ) Stock-based compensation — — 1,746 — — — 1,746 Other comprehensive loss - change in value of interest rate swaps — — — — ( 669 ) ( 181 ) ( 850 ) Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 78 ) ( 21 ) ( 99 ) Balance at June 30, 2024 60,901,583 $ 609 $ 1,472,569 $ ( 289,486 ) $ 8,557 $ ( 46,593 ) $ 1,145,656 Net income — — — 16,851 — 4,467 21,318 Dividends declared and paid — — — ( 20,402 ) — ( 5,420 ) ( 25,822 ) Stock-based compensation — — 1,985 — — — 1,985 Other comprehensive loss - change in value of interest rate swaps — — — — ( 2,944 ) ( 789 ) ( 3,733 ) Other comprehensive loss - unrealized loss on treasury locks — — — — ( 1,061 ) ( 284 ) ( 1,345 ) Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 77 ) ( 21 ) ( 98 ) Balance at September 30, 2024 60,901,583 $ 609 $ 1,474,554 $ ( 293,037 ) $ 4,475 $ ( 48,640 ) $ 1,137,961 3 Table of Contents American Assets Trust, Inc. Stockholders’ Equity Noncontrolling Interests - Unitholders in the Operating Partnership Total Common Shares Additional Paid-in Capital Accumulated Dividends in Excess of Net Income Accumulated Other Comprehensive Income (Loss) Shares Amount Balance at December 31, 2022 60,718,653 $ 607 $ 1,461,201 $ ( 251,167 ) $ 10,624 $ ( 35,740 ) $ 1,185,525 Net income — — — 16,325 — 4,341 20,666 Forfeiture of restricted stock ( 818 ) — — — — — — Dividends declared and paid — — — ( 20,037 ) — ( 5,340 ) ( 25,377 ) Stock-based compensation — — 2,035 — — 2,035 Other comprehensive loss - change in value of interest rate swaps — — — — ( 1,786 ) ( 483 ) ( 2,269 ) Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 673 ) ( 181 ) ( 854 ) Balance at March 31, 2023 60,717,835 $ 607 $ 1,463,236 $ ( 254,879 ) $ 8,165 $ ( 37,403 ) $ 1,179,726 Net income — — — 12,173 — 3,224 15,397 Forfeiture of restricted stock ( 3,553 ) — — — — — — Issuance of restricted stock 10,348 — — — — — — Dividends declared and paid — — — ( 20,039 ) — ( 5,340 ) ( 25,379 ) Stock-based compensation — — 2,110 — — — 2,110 Other comprehensive income - change in value of interest rate swaps — — — — 3,436 924 4,360 Reclassification of amortization of forward-starting swap included in interest expense — — — — ( 77 ) ( 21 ) ( 98 ) 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 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents American Assets Trust, Inc. Consolidated Statements of Cash Flows (Unaudited) (In Thousands) Nine Months Ended September 30, 2024 2023 OPERATING ACTIVITIES Net income $ 61,235 $ 51,198 Adjustments to reconcile net income to net cash provided by operating activities: Deferred rent revenue and amortization of lease intangibles ( 5,329 ) ( 6,167 ) Depreciation and amortization 94,757 89,592 Amortization of debt issuance costs and debt discounts 2,558 2,553 Provision for uncollectible rental income 1,095 1,088 Stock-based compensation expense 5,348 6,254 Settlement of treasury locks ( 1,345 ) — Other noncash interest expense, net ( 295 ) ( 1,051 ) Other, net 1,305 ( 588 ) Changes in operating assets and liabilities Change in accounts receivable ( 1,659 ) ( 847 ) Change in other assets ( 2,584 ) ( 2,062 ) Change in accounts payable and accrued expenses 10,881 9,126 Change in security deposits payable 230 252 Change in other liabilities and deferred credits 267 557 Net cash provided by operating activities 166,464 149,905 INVESTING ACTIVITIES Capital expenditures ( 51,051 ) ( 64,229 ) Leasing commissions ( 5,712 ) ( 5,999 ) Net cash used in investing activities ( 56,763 ) ( 70,228 ) FINANCING ACTIVITIES Proceeds from unsecured term loan — 225,000 Repayment of unsecured term loan — ( 150,000 ) Proceeds from unsecured line of credit 100,000 — Repayment of unsecured line of credit ( 100,000 ) ( 36,000 ) Proceeds from unsecured notes payable 523,273 — Repayment of unsecured notes payable ( 100,000 ) — Debt issuance costs ( 5,392 ) ( 2,145 ) Dividends paid to common stock and unitholders ( 77,466 ) ( 76,135 ) Net cash provided by (used in) financing activities 340,415 ( 39,280 ) Net increase in cash and cash equivalents 450,116 40,397 Cash and cash equivalents, beginning of period 82,888 49,571 Cash and cash equivalents, end of period $ 533,004 $ 89,968 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents American Assets Trust, L.P. Consolidated Balance Sheets (In Thousands, Except Unit Data) September 30, December 31, 2024 2023 (unaudited) ASSETS Real estate, at cost Operating real estate $ 3,564,563 $ 3,502,251 Construction in progress 205,692 239,030 Held for development 487 487 3,770,742 3,741,768 Accumulated depreciation ( 1,098,477 ) ( 1,036,453 ) Real estate, net 2,672,265 2,705,315 Cash and cash equivalents 533,004 82,888 Accounts receivable, net 8,809 7,624 Deferred rent receivables, net 89,772 89,210 Other assets, net 92,468 99,644 TOTAL ASSETS $ 3,396,318 $ 2,984,681 LIABILITIES AND CAPITAL LIABILITIES: Secured notes payable, net $ 74,736 $ 74,669 Unsecured notes payable, net 2,034,843 1,614,958 Accounts payable and accrued expenses 74,067 61,312 Security deposits payable 9,111 8,880 Other liabilities and deferred credits, net 65,600 71,187 Total liabilities 2,258,357 1,831,006 Commitments and contingencies (Note 11) CAPITAL: Limited partners' capital, 16,181,537 and 16,181,537 units issued and outstanding as of September 30, 2024 and December 31, 2023, respectively ( 50,369 ) ( 46,936 ) General partner's capital, 60,901,583 and 60,895,786 units issued and outstanding as of September 30, 2024 and December 31, 2023, respectively 1,182,126 1,189,576 Accumulated other comprehensive income 6,204 11,035 Total capital 1,137,961 1,153,675 TOTAL LIABILITIES AND CAPITAL $ 3,396,318 $ 2,984,681 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents American Assets Trust, L.P. Consolidated Statements of Comprehensive Income (Unaudited) (In Thousands, Except Shares and Per Unit Data) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 REVENUE: Rental income $ 105,549 $ 105,494 $ 315,664 $ 312,105 Other property income 17,261 5,704 28,731 16,568 Total revenue 122,810 111,198 344,395 328,673 EXPENSES: Rental expenses 31,361 29,912 90,707 86,128 Real estate taxes 11,044 11,399 33,133 34,117 General and administrative 9,068 8,880 26,647 26,488 Depreciation and amortization 33,529 29,868 94,757 89,592 Total operating expenses 85,002 80,059 245,244 236,325 OPERATING INCOME 37,808 31,139 99,151 92,348 Interest expense, net ( 18,229 ) ( 16,325 ) ( 50,773 ) ( 48,422 ) Other income, net 1,739 321 12,857 7,272 NET INCOME 21,318 15,135 61,235 51,198 Net income attributable to restricted shares ( 194 ) ( 189 ) ( 585 ) ( 568 ) NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, L.P. $ 21,124 $ 14,946 $ 60,650 $ 50,630 EARNINGS PER UNIT - BASIC Earnings per unit, basic $ 0.28 $ 0.20 $ 0.79 $ 0.66 Weighted average units outstanding - basic 76,501,806 76,332,218 76,495,914 76,328,726 EARNINGS PER UNIT - DILUTED Earnings per unit, diluted $ 0.28 $ 0.20 $ 0.79 $ 0.66 Weighted average units outstanding - diluted 76,501,806 76,332,218 76,495,914 76,328,726 DISTRIBUTIONS PER UNIT $ 0.335 $ 0.330 $ 1.005 $ 0.990 COMPREHENSIVE INCOME Net income $ 21,318 $ 15,135 $ 61,235 $ 51,198 Other comprehensive income - unrealized (loss) income on swap derivatives during the period ( 3,733 ) 768 ( 3,191 ) 2,859 Other comprehensive income - unrealized (loss) on treasury locks during the period ( 1,345 ) — ( 1,345 ) — Reclassification of amortization of forward-starting swap included in interest expense ( 98 ) ( 99 ) ( 295 ) ( 1,051 ) Comprehensive income 16,142 15,804 56,404 53,006 Comprehensive income attributable to Limited Partners ( 3,373 ) ( 3,310 ) ( 11,805 ) ( 11,114 ) Comprehensive income attributable to General Partner $ 12,769 $ 12,494 $ 44,599 $ 41,892 The accompanying notes are an integral part of these consolidated financial statements. 7 Table of Contents American Assets Trust, L.P. Consolidated Statement of Partners' Capital (Unaudited) (In Thousands, Except Unit Data) Limited Partners' Capital (1) General Partner's Capital (2) Accumulated Other Comprehensive Income (Loss) Total Capital Units Amount Units Amount Balance at December 31, 2023 16,181,537 $ ( 46,936 ) 60,895,786 $ 1,189,576 $ 11,035 $ 1,153,675 Net income — 5,167 — 19,456 — 24,623 Forfeiture of restricted units — — ( 1,295 ) — — — Distributions — ( 5,421 ) — ( 20,400 ) — ( 25,821 ) Stock-based compensation — — — 1,617 — 1,617 Other comprehensive income - change in value of interest rate swap — — — — 1,392 1,392 Reclassification of amortization of forward starting swaps included in interest expense — — — — ( 98 ) ( 98 ) Balance at March 31, 2024 16,181,537 $ ( 47,190 ) 60,894,491 $ 1,190,249 $ 12,329 $ 1,155,388 Net income — 3,195 — 12,099 — 15,294 Issuance of restricted units — — 9,180 — — — Forfeiture of restricted units — — ( 2,088 ) — — — Distributions — ( 5,421 ) — ( 20,402 ) — ( 25,823 ) Stock-based compensation — — — 1,746 — 1,746 Other comprehensive loss - change in value of interest rate swap — — — — ( 850 ) ( 850 ) Reclassification of amortization of forward starting swaps included in interest expense — — — — ( 99 ) ( 99 ) Balance at June 30, 2024 16,181,537 $ ( 49,416 ) 60,901,583 $ 1,183,692 $ 11,380 $ 1,145,656 Net income — 4,467 — 16,851 — 21,318 Distributions — ( 5,420 ) — ( 20,402 ) — ( 25,822 ) Stock-based compensation — — — 1,985 — 1,985 Other comprehensive loss - change in value of interest rate swap — — — — ( 3,733 ) ( 3,733 ) Other comprehensive income - unrealized loss on treasury locks — — — — ( 1,345 ) ( 1,345 ) Reclassification of amortization of forward starting swaps included in interest expense — — — — ( 98 ) ( 98 ) Balance at September 30, 2024 16,181,537 $ ( 50,369 ) 60,901,583 $ 1,182,126 $ 6,204 $ 1,137,961 8 Table of Contents Limited Partners' Capital (1) General Partner's Capital (2) Accumulated Other Comprehensive Income (Loss) Total Capital Units Amount Units Amount Balance at December 31, 2022 16,181,537 $ ( 39,127 ) 60,718,653 $ 1,210,641 $ 14,011 $ 1,185,525 Net income — 4,341 — 16,325 — 20,666 Forfeiture of restricted units — — ( 818 ) — — — Distributions — ( 5,340 ) — ( 20,037 ) — ( 25,377 ) Stock-based compensation — — — 2,035 — 2,035 Other comprehensive loss - change in value of interest rate swap — — — — ( 2,269 ) ( 2,269 ) 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 — 3,224 — 12,173 — 15,397 Issuance of restricted units — — 10,348 — — — Forfeiture of restricted units — — ( 3,553 ) — — — Distributions — ( 5,340 ) — ( 20,039 ) — ( 25,379 ) Stock-based compensation — — — 2,110 — 2,110 Other comprehensive income - change in value of interest rate swap — — — — 4,360 4,360 Reclassification of amortization of forward starting swaps included in interest expense — — — — ( 98 ) ( 98 ) 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 Forfeiture of restricted units — — — — — — 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 swaps 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 (1) Consists of limited partnership interests held by third parties. (2) Consists of general partnership interests held by American Assets Trust, Inc. The accompanying notes are an integral part of these consolidated financial statements. 9 Table of Contents American Assets Trust, L.P. Consolidated Statements of Cash Flows (Unaudited, In Thousands) Nine Months Ended September 30, 2024 2023 OPERATING ACTIVITIES Net income $ 61,235 $ 51,198 Adjustments to reconcile net income to net cash provided by operating activities: Deferred rent revenue and amortization of lease intangibles ( 5,329 ) ( 6,167 ) Depreciation and amortization 94,757 89,592 Amortization of debt issuance costs and debt discounts 2,558 2,553 Provision for uncollectible rental income 1,095 1,088 Stock-based compensation expense 5,348 6,254 Settlement of treasury locks ( 1,345 ) — Other noncash interest expense, net ( 295 ) ( 1,051 ) Other, net 1,305 ( 588 ) Changes in operating assets and liabilities Change in accounts receivable ( 1,659 ) ( 847 ) Change in other assets ( 2,584 ) ( 2,062 ) Change in accounts payable and accrued expenses 10,881 9,126 Change in security deposits payable 230 252 Change in other liabilities and deferred credits 267 557 Net cash provided by operating activities 166,464 149,905 INVESTING ACTIVITIES Capital expenditures ( 51,051 ) ( 64,229 ) Leasing commissions ( 5,712 ) ( 5,999 ) Net cash used in investing activities ( 56,763 ) ( 70,228 ) FINANCING ACTIVITIES Proceeds from unsecured term loan — 225,000 Repayment of unsecured term loan — ( 150,000 ) Proceeds from unsecured line of credit 100,000 — Repayment of unsecured line of credit ( 100,000 ) ( 36,000 ) Proceeds from unsecured notes payable 523,273 — Repayment of unsecured notes payable ( 100,000 ) — Debt issuance costs ( 5,392 ) ( 2,145 ) Distributions ( 77,466 ) ( 76,135 ) Net cash provided by (used in) financing activities 340,415 ( 39,280 ) Net increase in cash and cash equivalents 450,116 40,397 Cash and cash equivalents, beginning of period 82,888 49,571 Cash and cash equivalents, end of period $ 533,004 $ 89,968 The accompanying notes are an integral part of these consolidated financial statements. 10 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements June 30, 2024 (Unaudited) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business and Organization American Assets Trust, Inc. (which may be referred to in these financial statements as the “company,” “we,” “us,” or “our”) is a Maryland corporation formed on July 16, 2010 that did not have any operating activity until the consummation of our initial public offering on January 19, 2011. The company is the sole general partner of American Assets Trust, L.P., a Maryland limited partnership formed on July 16, 2010 (the “Operating Partnership”). The company’s operations are carried on through our Operating Partnership and its subsidiaries, including our taxable real estate investment trust ("REIT") subsidiary ("TRS"). Since the formation of our Operating Partnership, the company has controlled our Operating Partnership as its general partner and has consolidated its assets, liabilities and results of operations. We are a full service, vertically integrated, and self-administered REIT with approximately 230 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, 2024, 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, 2024, 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: Office La Jolla Commons One Beach Street Corporate Campus East III Torrey Reserve Campus First & Main Bel-Spring 520 Torrey Point Lloyd Portfolio Solana Crossing City Center Bellevue The Landmark at One Market Eastgate Office Park Retail Carmel Country Plaza Gateway Marketplace Alamo Quarry Market Carmel Mountain Plaza Del Monte Center Hassalo on Eighth - Retail South Bay Marketplace Geary Marketplace Lomas Santa Fe Plaza The Shops at Kalakaua Solana Beach Towne Centre Waikele Center Multifamily Loma Palisades Hassalo on Eighth - Residential Imperial Beach Gardens Mariner's Point Santa Fe Park RV Resort Pacific Ridge Apartments Mixed-Use Waikiki Beach Walk Retail and Embassy Suites™ Hotel Held for Development and/or Construction in Progress La Jolla Commons – Land Solana Crossing – Land Lloyd Portfolio – Construction in Progress 11 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) Basis of Presentation Our consolidated financial statements include the accounts of the company, our Operating Partnership and our subsidiaries. The equity interests of other investors in our Operating Partnership are reflected as noncontrolling interests. The company follows the Financial Accounting Standards Board (the "FASB") guidance for determining whether an entity is a variable interest entity (“VIE”), which requires the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE. Under this guidance, an entity would be required to consolidate a VIE if it has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. American Assets Trust, Inc. has concluded that the Operating Partnership is a VIE, and because American Assets Trust, Inc. has both the power and the rights to control the Operating Partnership, American Assets Trust, Inc. is the primary beneficiary and is required to continue to consolidate the Operating Partnership. Substantially all of the assets and liabilities of the company are related to the Operating Partnership VIE. All intercompany transactions and balances are eliminated in consolidation. The accompanying consolidated financial statements of the company and the Operating Partnership have been prepared in accordance with the rules applicable to Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (“GAAP”) for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and notes therein included in the company's and Operating Partnership's annual report on Form 10-K for the year ended December 31, 2023. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using our best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates. Any reference to the number of properties, number of units, square footage, employee numbers or percentages of beneficial ownership of our shares are unaudited and outside the scope of our independent registered public accounting firm’s review of our financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board. Consolidated Statements of Cash Flows—Supplemental Disclosures The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows (in thousands): Nine Months Ended September 30, 2024 2023 Supplemental cash flow information Total interest costs incurred $ 56,681 $ 54,167 Interest capitalized $ 5,908 $ 5,745 Interest expense, net $ 50,773 $ 48,422 Cash paid for interest, net of amounts capitalized $ 54,047 $ 51,976 Cash paid for income taxes $ 1,035 $ 1,122 Supplemental schedule of noncash investing and financing activities Accounts payable and accrued liabilities for construction in progress $ 17,081 $ 17,040 Accrued leasing commissions $ 2,622 $ 2,086 12 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) 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, 2023. There have been no changes to our significant accounting policies during the nine months ended September 30, 2024. Segment Information Segment information is prepared on the same basis that our chief operating decision maker reviews information for operational decision-making purposes. We operate in four business segments: the acquisition, redevelopment, ownership and management of office real estate, retail real estate, multifamily real estate and mixed-use real estate. The products for our office segment primarily include rental of office space and other tenant services, including tenant reimbursements, parking and storage space rental. The products for our retail segment primarily include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space rental. The products for our multifamily segment include rental of apartments and other tenant services. The products of our mixed-use segment include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space rental and operation of a 369 -room all-suite hotel. Revenue Recognition and Accounts Receivable Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed rent escalations which occur at specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease, net of valuation adjustments, based on management's assessment of credit, collection and other business risks. We make estimates of the collectability of our current accounts receivable and straight-line rents receivable which require significant judgment by management. The collectability of receivables is affected by numerous different factors including current economic conditions, 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, 2024 and December 31, 2023 was approximately $ 1.6 million and $ 1.4 million, respectively. Recent Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Improvements to Reportable Segment Disclosures. The pronouncement requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within the segment measure of profit or loss. The pronouncement will be applied retrospectively and is effective for annual reporting periods in fiscal years beginning after December 15, 2023, and interim reporting periods in fiscal years beginning after December 31, 2024. We are currently evaluating the impact this pronouncement will have on our disclosures. In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures . This pronouncement requires enhanced income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This pronouncement is effective for annual periods in fiscal years beginning after December 15, 2024, and should be applied either prospectively or retrospectively. We are currently evaluating the impact this pronouncement will have on our disclosures. 13 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) NOTE 2. 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, 2024 and December 31, 2023 (in thousands): September 30, 2024 December 31, 2023 In-place leases $ 50,077 $ 51,575 Accumulated amortization ( 34,943 ) ( 32,977 ) Above market leases 432 1,724 Accumulated amortization ( 394 ) ( 1,658 ) Acquired lease intangible assets, net $ 15,172 $ 18,664 Below market leases $ 48,732 $ 50,624 Accumulated accretion ( 34,302 ) ( 34,087 ) Acquired lease intangible liabilities, net $ 14,430 $ 16,537 NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy for inputs used in measuring fair value is as follows: 1. Level 1 Inputs—quoted prices in active markets for identical assets or liabilities 2. Level 2 Inputs—observable inputs other than quoted prices in active markets for identical assets and liabilities 3. Level 3 Inputs—unobservable inputs The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities are reasonable estimates of fair value, using Level 1 inputs, because of the short-term nature of these instruments. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. We measure the fair value of our deferred compensation liability, which is included in other liabilities and deferred credits on the consolidated balance sheet, on a recurring basis using Level 2 inputs. We measure the fair value of this liability based on prices provided by independent market participants that are based on observable inputs using market-based valuation techniques. The fair value of the interest rate swap agreements are based on the estimated amounts we would receive or pay to terminate the contract at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs. The changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income (loss) and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of non-performance risk, we considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. 14 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) 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 September 30, 2024 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, 2024 December 31, 2023 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Deferred compensation liability $ — $ 2,847 $ — $ 2,847 $ — $ 2,627 $ — $ 2,627 Interest rate swap asset $ — $ 4,773 $ — $ 4,773 $ — $ 7,963 $ — $ 7,963 The fair value of our secured notes payable and unsecured senior guaranteed notes are sensitive to fluctuations in interest rates. Discounted cash flow analysis using observable market interest rates (Level 2) is generally used to estimate the fair value of our secured notes payable, using rates ranging from 5.2 % to 5.6 %. Considerable judgment is necessary to estimate the fair value of financial instruments. 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 is directly tied to the monthly Secured Overnight Financing Rate (“SOFR”). 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, 2024 December 31, 2023 Carrying Value Fair Value Carrying Value Fair Value Secured notes payable, net $ 74,736 $ 75,405 $ 74,669 $ 74,804 Unsecured term loans, net $ 324,362 $ 325,000 $ 323,491 $ 325,000 Unsecured senior guaranteed notes, net $ 699,073 $ 680,206 $ 798,772 $ 770,998 Senior notes, net $ 1,011,408 $ 969,628 $ 492,694 $ 405,860 NOTE 4. DERIVATIVE AND HEDGING ACTIVITIES Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 15 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) The following is a summary of the terms of our outstanding interest rate swaps as of September 30, 2024 (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 $ 2,168 Wells Fargo Bank, N.A. $ 50,000 1/14/2022 1/5/2027 $ 2,171 Wells Fargo Bank, N.A. $ 150,000 1/5/2023 1/5/2025 $ 373 Mizuho Capital Markets LLC $ 75,000 1/5/2023 1/5/2025 $ 61 Prior to the issuance of the 6.150 % Senior Notes, the Operating Partnership entered into a treasury lock contract on September 9, 2024 for $ 150 million and September 10, 2024 for an additional $ 150 million, which were both settled on September 10, 2024 at a combined loss of approximately $ 1.3 million. As a result of the loss on these treasury lock contracts and the debt discount, the effective rate on our 6.150 % Senior Notes is 6.209 % per annum. The treasury lock contracts have been deemed to be highly effective cash flow hedges and have been designated as accounting hedges. Any gains or losses incurred upon the settlement of these treasury lock contracts are included in accumulated other comprehensive income and are amortized to interest expense over the life of the 6.150 % Senior Notes. The effective portion of changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings for as long as hedged cash flows remain probable. During the next twelve months, we estimate the cash flow hedges in place will reduce interest expense by approximately $ 0.9 million. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and counterparty credit risk and uses observable market-based inputs, including interest rate curves, and implied volatilities. The fair value of the interest rate swap is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. NOTE 5. OTHER ASSETS Other assets consist of the following (in thousands): September 30, 2024 December 31, 2023 Leasing commissions, net of accumulated amortization of $ 51,815 and $ 47,978 , respectively $ 36,581 $ 36,721 Interest rate swap asset 4,773 7,963 Acquired above market leases, net 38 66 Acquired in-place leases, net 15,134 18,598 Lease incentives, net of accumulated amortization of $ 1,144 and $ 1,205 , respectively 2,057 1,232 Other intangible assets, net of accumulated amortization of $ 2,004 and $ 1,813 , respectively 1,647 1,809 Debt issuance costs, net of accumulated amortization of $ 1,782 and $ 1,296 , respectively 809 1,295 Right-of-use lease asset, net 19,630 21,503 Prepaid expenses and other 11,799 10,457 Total other assets $ 92,468 $ 99,644 16 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) NOTE 6. OTHER LIABILITIES AND DEFERRED CREDITS Other liabilities and deferred credits consist of the following (in thousands): September 30, 2024 December 31, 2023 Acquired below market leases, net $ 14,430 $ 16,537 Prepaid rent and deferred revenue 17,994 17,261 Deferred compensation 2,847 2,627 Deferred tax liability 784 784 Straight-line rent liability 8,183 10,666 Lease liability 21,313 23,254 Other liabilities 49 58 Total other liabilities and deferred credits, net $ 65,600 $ 71,187 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. NOTE 7. DEBT Debt of American Assets Trust, Inc. American Assets Trust, Inc. does not hold any indebtedness. All debt is held directly or indirectly by the Operating Partnership; however, American Assets Trust, Inc. has guaranteed the Operating Partnership's obligations under the (i) senior notes, (ii) senior guaranteed notes, (iii) third amended and restated credit facility, and (iv) amended and restated term loan agreement, each discussed below. Debt of American Assets Trust, L.P. Secured notes payable The following table is a summary of our total secured notes payable outstanding as of September 30, 2024 and December 31, 2023 (in thousands): Principal Balance as of Stated Interest Rate Stated Maturity Date Description of Debt September 30, 2024 December 31, 2023 as of September 30, 2024 City Center Bellevue (1) $ 75,000 $ 75,000 5.08 % October 1, 2027 75,000 75,000 Debt issuance costs, net of accumulated amortization of $ 610 and $ 542 , respectively ( 264 ) ( 331 ) Total Secured Notes Payable Outstanding $ 74,736 $ 74,669 (1) Interest only. 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, 2024, the Operating Partnership was in compliance with these financial covenants. 17 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) Unsecured notes payable The following table is a summary of the Operating Partnership's total unsecured notes payable outstanding as of September 30, 2024 and December 31, 2023 (in thousands): Description of Debt Principal Balance as of Stated Interest Rate Stated Maturity Date September 30, 2024 December 31, 2023 as of September 30, 2024 Term Loan A $ 100,000 $ 100,000 Variable (1) January 5, 2027 Term Loan B 150,000 150,000 Variable (3) January 5, 2025 (2) Term Loan C 75,000 75,000 Variable (3) January 5, 2025 (2) Senior Guaranteed Notes, Series F (4) — 100,000 3.78 % (4) July 19, 2024 Senior Guaranteed Notes, Series B 100,000 100,000 4.45 % February 2, 2025 Senior Guaranteed Notes, Series C 100,000 100,000 4.50 % April 1, 2025 Senior Guaranteed Notes, Series D 250,000 250,000 4.29 % (5) March 1, 2027 Senior Guaranteed Notes, Series E 100,000 100,000 4.24 % (6) May 23, 2029 Senior Guaranteed Notes, Series G 150,000 150,000 3.91 % (7) July 30, 2030 3.375 % Senior Notes 500,000 500,000 3.38 % February 1, 2031 6.150 % Senior Notes 525,000 — 6.15 % (8) October 1, 2034 2,050,000 1,625,000 Debt discount and issuance costs, net of accumulated amortization of $ 8,981 and $ 7,259 , respectively ( 15,157 ) ( 10,042 ) Total Unsecured Notes Payable $ 2,034,843 $ 1,614,958 (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 2.7 % 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 interest rate swap agreements that are intended to fix the effective interest rate associated with Term Loan B and Term Loan C, subject to adjustments based on our consolidated leverage ratio, at, 5.47 % from January 5, 2023 to January 4, 2024 and at 5.57 % from January 5, 2024 to January 4, 2025. (4) The Operating Partnership entered into a treasury lock contract on May 31, 2017, which was settled on June 23, 2017 at a loss of approximately $ 0.5 million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.85 % per annum. On July 18, 2024, we borrowed $ 100 million on our Revolver Loan (as defined below) to repay the entirety of our Series F Notes upon their maturity on July 19, 2024. (5) The Operating Partnership entered into forward-starting interest rate swap contracts on March 29, 2016 and April 7, 2016, which were settled on January 18, 2017 at a gain of approximately $ 10.4 million. The forward-starting interest swap rate contracts were deemed to be highly effective cash flow hedges, accordingly, the effective interest rate is approximately 3.87 % per annum. (6) The Operating Partnership entered into a treasury lock contract on April 25, 2017, which was settled on May 11, 2017 at a gain of approximately $ 0.7 million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 4.18 % per annum. (7) The Operating Partnership entered into a treasury lock contract on June 20, 2019, which was settled on July 17, 2019 at a gain of approximately $ 0.5 million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.88 % per annum. (8) The Operating Partnership entered into a treasury lock contract on September 9, 2024 for $ 150 million and September 10, 2024 for an additional $ 150 million, which were both settled on September 10, 2024 at a combined loss of approximately $ 1.3 million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 6.209 % per annum. 18 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) Senior Notes 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. The 3.375 % Senior Notes were priced at 98.935 % of the principal amount with a yield to maturity of 3.502 %. The net proceeds of the 3.375 % Senior Notes, after the issuance discount, underwriting fees, and other costs were approximately $ 489.7 million, which were primarily used to (i) prepay our $ 150 million Senior Guaranteed Notes, Series A, with a make-whole payment (as defined in the Note Purchase Agreement for the Series A Notes) thereon of approximately $ 3.9 million, on January 26, 2021, (ii) repay our $ 100 million then outstanding balance under our then-existing revolver loan on January 26, 2021, (iii) fund the development of the La Jolla Commons III office building and (iv) for general corporate purposes. On September 17, 2024, the Operating Partnership issued $ 525 million of senior unsecured notes (the “ 6.150 % Senior Notes”) that mature October 1, 2034, and bear interest at 6.150 % per annum. The 6.150 % Senior Notes were priced at 99.671 % of the principal amount with a yield to maturity of 6.194 %. The net proceeds of the 6.150 % Senior Notes, after the issuance discount, underwriting fees, and other costs, were approximately $ 518.2 million, and were initially used to repay the $ 100 million then outstanding balance under our Revolver Loan on September 19, 2024. We expect the remaining net proceeds to be primarily used for repayment of our Series B Notes and Series C Notes (as defined below), in each case at or prior to maturity, and for working capital and for general corporate purposes. Prior to the issuance of the 6.150 % Senior Notes, the Operating Partnership entered into a treasury lock contract on September 9, 2024 for $ 150 million and September 10, 2024 for an additional $ 150 million, which were both settled on September 10, 2024 at a combined loss of approximately $ 1.3 million. As a result of the loss on these treasury lock contracts and the debt discount, the effective rate on our 6.150 % Senior Notes is 6.209 % per annum. The treasury lock contracts have been deemed to be highly effective cash flow hedges and have been designated as accounting hedges. Any gains or losses incurred upon the settlement of these treasury lock contracts are included in accumulated other comprehensive income and are amortized to interest expense over the life of the 6.150 % Senior Notes. The 3.375 % Senior Notes and the 6.150 % Senior Notes include a number of customary financial covenants, including: • A maximum aggregate debt ratio of 60 %, • A minimum debt service ratio of 1.5 x, • A maximum secured debt ratio of 40 %, • A minimum maintenance of total unencumbered assets of 150 %. As of September 30, 2024, the Operating Partnership was in compliance with all then in-place 3.375 % Senior Notes and 6.15 % Senior Notes covenants. Senior Guaranteed Notes On October 31, 2014, the Operating Partnership entered into a note purchase agreement (the “Note Purchase Agreement”) with a group of institutional purchasers that provided for the private placement of an aggregate of $ 350 million of senior guaranteed notes, of which (i) $ 150 million are designated as 4.04 % Senior Guaranteed Notes, Series A, due October 31, 2021 (the “Series A Notes”), (ii) $ 100 million are designated as 4.45 % Senior Guaranteed Notes, Series B, due February 2, 2025 (the “Series B Notes”) and (iii) $ 100 million are designated as 4.50 % Senior Guaranteed Notes, Series C, due April 1, 2025 (the “Series C Notes”). The Series A Notes were issued on October 31, 2014, the Series B Notes were issued on February 2, 2015 and the Series C Notes were issued on April 2, 2015. The Series A Notes, the Series B Notes and the Series C Notes will pay interest quarterly on the last day of January, April, July and October until their respective maturities. On January 26, 2021, we repaid the entirety of the $ 150.0 million Series A Notes with a make-whole payment (as defined in the Note Purchase Agreement) of approximately $ 3.9 million. On March 1, 2017, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $ 250 million of 4.29 % Senior Guaranteed Notes, Series D, due March 1, 2027 (the “Series D Notes”). The Series D Notes were issued on March 1, 2017 and pay interest quarterly on the last day of January, April, July and October until their respective maturities. 19 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) On May 23, 2017, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $ 100 million of 4.24 % Senior Guaranteed Notes, Series E, due May 23, 2029 (the “Series E Notes”). The Series E Notes were issued on May 23, 2017 and pay interest semi-annually on the 23rd of May and November until their respective maturities. On July 19, 2017, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $ 100 million of 3.78 % Senior Guaranteed Notes, Series F, due July 19, 2024 (the “Series F Notes”). The Series F Notes were issued on July 19, 2017 and pay interest semi-annually on the 31st of January and July until their respective maturities. On July 18, 2024, we borrowed $ 100 million on our Revolver Loan (as defined below) to repay the entirety of our Series F Notes upon their maturity on July 19, 2024. On July 30, 2019, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $ 150 million of 3.91 % Senior Guaranteed Notes, Series G, due July 30, 2030 (the “Series G Notes” and collectively with the Series A Notes, Series B Notes, Series C Notes, Series D Notes, Series E Notes, and Series G Notes are referred to herein as, the “Notes".) The Series G Notes were issued on July 30, 2019 and pay interest semi-annually on the 30th of July and January until their maturity. The Operating Partnership may prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 5 % of the aggregate principal amount of any series of the Notes then outstanding in the case of a partial prepayment, at 100 % of the principal amount so prepaid plus a make-whole amount. The Note Purchase Agreements contain a number of customary financial covenants, including, without limitation, tangible net worth thresholds, secured and unsecured leverage ratios and fixed charge coverage ratios. Subject to the terms of the Note Purchase Agreement and the Notes, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal, Make-Whole Amount or interest under the Notes, and (ii) a default in the payment of certain other indebtedness by us or our subsidiaries, the principal, accrued and unpaid interest, and the make-whole amount on the outstanding Notes will become due and payable at the option of the purchasers. The Operating Partnership's obligations under the Notes are fully and unconditionally guaranteed by the Operating Partnership and certain of the Operating Partnership's subsidiaries. Certain loans require the Operating Partnership to comply with various financial covenants, including the maintenance of minimum debt coverage ratios. As of September 30, 2024, the Operating Partnership was in compliance with all loan covenants. Third Amended and Restated Credit Facility On January 5, 2022, the Operating Partnership entered into the third amended and restated credit facility (the “Third Amended and Restated Credit Facility”) , which amended and restated our then-existing credit facility. The Third Amended and Restated Credit Facility provides for aggregate, unsecured borrowings of up to $ 500 million, consisting of a revolving line of credit of $ 400 million (the “Revolver Loan”) and a term loan of $ 100 million (“Term Loan A”). The Revolver Loan initially matures on January 5, 2026, subject to two , six-month extension options. Term Loan A matures on January 5, 2027, with no further extension options. As of September 30, 2024, the entirety of the principal amount of Term Loan A was outstanding, there were no amounts outstanding under the Revolver Loan, and the Operating Partnership had incurred approximately $ 0.81 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, 2024, the weighted average interest rate on the Revolver Loan was 6.52 %. On July 18, 2024, we borrowed $ 100 million on our Revolver Loan to repay the entirety of our Series F Notes upon their maturity on July 19, 2024. With the proceeds of our 6.15 % Senior Notes, we repaid in full the $ 100 million outstanding balance on our Revolver Loan on September 19, 2024. 20 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) 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 Revolver Loan) and (b) 1.20 % to 1.70 % (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, (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 Revolver Loan) and (ii) 0.20 % to 0.70 % (with respect to Term Loan A), in each case based on our consolidated leverage ratio. On January 14, 2022, the Operating Partnership entered into an interest rate swap agreement intended to fix the interest rate associated with the Term Loan A at approximately 2.70 % through January 5, 2027, subject to adjustments based on our consolidated leverage ratio. The Third Amended and Restated Credit Facility includes a number of customary financial covenants, including: • A maximum leverage ratio (defined as total indebtedness net of certain cash and cash equivalents to total asset value) of 60 %, • A maximum secured leverage ratio (defined as total secured debt to secured total asset value) of 40 %, • A minimum fixed charge coverage ratio (defined as consolidated earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 1.50 x, • A minimum unsecured interest coverage ratio of 1.75 x, • A maximum unsecured leverage ratio of 60 %, and • Recourse indebtedness at any time cannot exceed 15 % of total asset value. The Third Amended and Restated Credit Facility also provides that our annual distributions may not exceed the greater of (1) 95 % of our funds from operations (“FFO”) or (2) the amount required for us to (a) qualify and maintain our REIT status and (b) avoid the payment of federal or state income or excise tax. If certain events of default exist or would result from a distribution, we may be precluded from making distributions other than those necessary to qualify and maintain our status as a REIT. As of September 30, 2024, the Operating Partnership was in compliance with all then in-place Third Amended and Restated Credit Facility covenants. Amended and Restated Term Loan Agreement On January 5, 2023, we entered into the amended and restated term loan agreement (the “Amended and Restated Term Loan Agreement”), which amended and restated our then-existing term loan agreement. The Amended and Restated Term Loan Agreement provides to the Operating Partnership a term loan of $ 150 million (“Term Loan B”) and a term loan of $ 75 million (“Term Loan C”), each maturing on January 5, 2025, with one , twelve-month extension option, subject to certain conditions. As of September 30, 2024, the entirety of the principal amounts of Term Loan B and Term Loan C were outstanding. 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 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. 21 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) The Amended and Restated Term Loan Agreement contains a number of customary financial covenants, including, without limitation, tangible net worth thresholds, secured and unsecured leverage ratios and fixed charge coverage ratios. Subject to the terms of the Amended and Restated Term Loan Agreement, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal or interest under Term Loan B or Term Loan C, and (ii) a default in the payment of certain other indebtedness of the Operating Partnership, the company or their subsidiaries, the principal and accrued and unpaid interest and prepayment penalties on the outstanding Term Loan B or Term Loan C will become due and payable at the option of the lenders. NOTE 8. 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, 2024. 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, 2024, no common units were converted into shares of our common stock. Earnings Per Unit of the Operating Partnership Basic earnings per unit (“EPU”) of the Operating Partnership is computed by dividing income applicable to unitholders by the weighted average Operating Partnership units outstanding, as adjusted for the effect of participating securities. Operating Partnership units granted in equity-based payment transactions that have non-forfeitable dividend equivalent rights are considered participating securities prior to vesting. 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, 2024 and 2023 does not include the weighted average of 581,314 and 573,949 unvested outstanding Operating Partnership units, respectively, and for the nine months ended September 30, 2024 and 2023 does not include the weighted average of 583,247 and 573,070 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. NOTE 9. EQUITY OF AMERICAN ASSETS TRUST, INC. Stockholders' Equity On December 3, 2021, we entered into an at-the-market ("ATM") equity program with five sales agents in which we may, from time to time, offer and sell shares of our common stock having an aggregate offering price of up to $ 250 million. The sales of shares of our common stock made through the ATM equity program, as amended, are made in "at-the-market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended. For the nine months ended September 30, 2024, 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, 2024, 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, 2024, we have no obligation to sell the remaining shares available for sale under the ATM equity program. 22 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) Dividends 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, 2024: Period Amount per Share/Unit Period Covered Dividend Paid Date First Quarter 2024 $ 0.335 January 1, 2024 to March 31, 2024 March 21, 2024 Second Quarter 2024 $ 0.335 April 1, 2024 to June 30, 2024 June 20, 2024 Third Quarter 2024 $ 0.335 July 1, 2024 to September 30, 2024 September 19, 2024 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. Stock-Based Compensation We follow the FASB guidance related to stock-based compensation which establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer. 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, 2024: Units Weighted Average Grant Date Fair Value Nonvested at January 1, 2024 585,865 $ 17.95 Granted 9,180 21.79 Vested ( 10,348 ) 19.33 Forfeited ( 3,383 ) 16.80 Nonvested at September 30, 2024 581,314 $ 17.65 We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $ 2.0 million and $ 2.1 million for the three months ended September 30, 2024 and 2023, respectively, and $ 5.3 million and $ 6.3 million for the nine months ended September 30, 2024 and 2023, respectively, which is included in general and administrative expenses on the consolidated statements of comprehensive income. Unrecognized compensation expense was $ 4.7 million at September 30, 2024. Earnings Per Share We have calculated earnings per share (“EPS”) under the two-class method. 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 581,314 and 573,949 for the three months ended September 30, 2024 and 2023, respectively, and 583,247 and 573,070 for the nine months ended September 30, 2024 and 2023, 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, 2024 and 2023, 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. 23 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) 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, 2024 2023 2024 2023 NUMERATOR Net income $ 21,318 $ 15,135 $ 61,235 $ 51,198 Less: Net income attributable to restricted shares ( 194 ) ( 189 ) ( 585 ) ( 568 ) Less: Income from operations attributable to unitholders in the Operating Partnership ( 4,467 ) ( 3,168 ) ( 12,829 ) ( 10,733 ) Net income attributable to common stockholders—basic $ 16,657 $ 11,778 $ 47,821 $ 39,897 Income from operations attributable to American Assets Trust, Inc. common stockholders—basic $ 16,657 $ 11,778 $ 47,821 $ 39,897 Plus: Income from operations attributable to unitholders in the Operating Partnership 4,467 3,168 12,829 10,733 Net income attributable to common stockholders—diluted $ 21,124 $ 14,946 $ 60,650 $ 50,630 DENOMINATOR Weighted average common shares outstanding—basic 60,320,269 60,150,681 60,314,377 60,147,189 Effect of dilutive securities—conversion of Operating Partnership units 16,181,537 16,181,537 16,181,537 16,181,537 Weighted average common shares outstanding—diluted 76,501,806 76,332,218 76,495,914 76,328,726 Earnings per common share, basic $ 0.28 $ 0.20 $ 0.79 $ 0.66 Earnings per common share, diluted $ 0.28 $ 0.20 $ 0.79 $ 0.66 NOTE 10. INCOME TAXES We elected to be taxed as a REIT and operate in a manner that allows us to qualify as a REIT for federal income tax purposes commencing with our initial taxable year. As a REIT, we are generally not subject to corporate level income tax on the earnings distributed currently to our stockholders that we derive from our REIT qualifying activities. Taxable income from non-REIT activities managed through our TRS is subject to federal and state income taxes. We lease our hotel property to a wholly owned TRS that is subject to federal and state income taxes. We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between GAAP carrying amounts and their respective tax bases. 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 $ 0.8 million and $ 0.9 million, and a deferred tax liability is included in our consolidated balance sheets of $ 0.8 million and $ 0.8 million as of September 30, 2024 and December 31, 2023, 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 income, net on our consolidated statements of comprehensive income. For the three and nine months ended September 30, 2024, we recorded income tax expense of $ 0.2 million and $ 0.7 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. 24 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) NOTE 11. COMMITMENTS AND CONTINGENCIES Legal We are sometimes involved in various disputes, lawsuits, warranty claims, environmental considerations, and other matters arising in the ordinary course of business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters. We are currently a party to various legal proceedings. We accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate than any other amount, the minimum amount within the range is accrued. Legal fees related to litigation are expensed as incurred. We do not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse effect on our financial position or overall trends in results of operations; however, litigation is subject to inherent uncertainties. Also, under our leases, tenants are typically obligated to indemnify us from and against all liabilities, costs and expenses imposed upon or asserted against us as owner of the properties due to certain matters relating to the operation of the properties by the tenant. Commitments See Footnote 12 for description of our leases, as a lessee. We have management agreements with Outrigger Hotels & Resorts or an affiliate thereof (“Outrigger”) pursuant to which Outrigger manages each of the retail and hotel portions of the Waikiki Beach Walk property. Under the management agreement with Outrigger relating to the retail portion of Waikiki Beach Walk (the “retail management agreement”), we pay Outrigger a monthly management fee of 3.0 % of net revenues from the retail portion of Waikiki Beach Walk. Pursuant to the terms of the retail management agreement, if the agreement is terminated in certain instances, including our election not to repair damage or destruction at the property, a condemnation or our failure to make required working capital infusions, we would be obligated to pay Outrigger a termination fee equal to the sum of the management fees paid for the two months immediately preceding the termination date. The retail management agreement may not be terminated by us or by Outrigger without cause. Under our management agreement with Outrigger relating to the hotel portion of Waikiki Beach Walk (the “hotel management agreement”), we pay Outrigger a monthly management fee of 6.0 % of the hotel's gross operating profit, as well as 3.0 % of the hotel's gross revenues; provided that the aggregate management fee payable to Outrigger for any year shall not exceed 3.5 % of the hotel's gross revenues for such fiscal year. The hotel management agreement may not be terminated by us or by Outrigger without cause. Additionally, we have a management agreement with Outrigger pursuant to which Outrigger manages our Waikele Center and Shops at Kalakaua. In connection with such management agreement, we pay Outrigger a fixed management fee of $ 12,000 per month in the aggregate plus additional amounts for any lease renewal services provided by Outrigger at our request. This management agreement can be terminated by us at any time and for any reason on 30 days' notice without any cancellation or termination fees. 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. The franchise license agreement provides that WBW Hotel Lessee LLC must comply with certain management, operational, record keeping, accounting, reporting and marketing standards and procedures. In connection with this agreement, we are also subject to the terms of a product improvement plan pursuant to which we expect to undertake certain actions to ensure that our hotel's infrastructure is maintained in compliance with the franchisor's brand standards. 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 $ 8.1 million based on operating performance through September 30, 2024. 25 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) 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 several 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 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 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. 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 office industry accounted for 47.6 % of total revenues for the nine months ended September 30, 2024. 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. Furthermore, tenants in the retail industry accounted for 23.3 % of total revenues for the nine months ended September 30, 2024. 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. For the nine months ended September 30, 2024 and 2023, no tenant accounted for more than 10% of our total rental revenue. NOTE 12. LEASES Lessor Operating Leases We determine if an arrangement is a lease at inception. Our lease agreements are generally for real estate, and the determination of whether such agreements contain leases generally does not require significant estimates or judgments. We lease real estate under operating leases. 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. 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. Leases on apartments generally range from seven months to fifteen months , with a majority having 12 -month lease terms. Rooms at the hotel portion of our mixed-use property are rented on a nightly basis. 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. The extension options are generally for 3 to 10 years and contain primarily rent at fixed rates or the prevailing market rent. The extension options are generally exercisable 6 to 12 months prior to the expiration of the lease and require the lessee to not be in default of the lease terms. We attempt to maximize the amount we expect to derive from the underlying real estate property following the end of a lease, to the extent it is not extended. We maintain a proactive leasing and capital improvement program that, combined with the quality and locations of our properties, has made our properties attractive to tenants. However, the residual value of a real estate property is still subject to various market-specific, asset-specific, and tenant-specific risks and characteristics. 26 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) As of September 30, 2024, 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 for the years ended December 31 (in thousands): 2024 (three months ending December 31, 2024) $ 57,370 2025 252,268 2026 240,732 2027 212,770 2028 165,991 Thereafter 283,059 Total $ 1,212,190 The above future minimum rentals exclude residential leases, which typically range from seven months to fifteen months , and exclude the hotel, as rooms are rented on a nightly basis. Lessee Operating Leases We determine if an arrangement is a lease at inception. Our lease agreements are generally for real estate, and the determination of whether such agreements contain leases generally does not require significant estimates or judgments. 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 (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 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. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. 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. As of September 30, 2024, current annual payments under the operating leases are as follows for the years ended December 31 (in thousands): 2024 (three months ending December 31, 2024) $ 870 2025 3,531 2026 3,584 2027 3,584 2028 3,584 Thereafter 8,959 Total lease payments 24,112 Imputed interest ( 2,799 ) Present value of lease liability $ 21,313 27 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) Lease costs under the operating leases are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Operating lease cost $ 970 $ 932 $ 2,756 $ 2,786 Sublease income ( 880 ) ( 978 ) ( 2,558 ) ( 2,648 ) Total lease cost (income) $ 90 $ ( 46 ) $ 198 $ 138 Weighted-average remaining lease term - operating leases (in years) 6.8 Weighted-average discount rate - operating leases 3.19 % Supplemental cash flow information and non-cash activity related to our operating leases are as follow (in thousands): Nine Months Ended September 30, 2024 2023 Operating cash flow information: Cash paid for amounts included in the measurement of lease liabilities $ 2,559 $ 2,484 Subleases 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. NOTE 13. 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, 2024 2023 2024 2023 Lease rental income Office $ 48,310 $ 50,212 $ 147,282 $ 149,807 Retail 25,856 24,766 76,288 74,151 Multifamily 15,225 14,106 45,810 42,769 Mixed-use 3,219 2,955 9,320 8,929 Percentage rent 845 905 2,186 2,065 Hotel revenue 11,446 11,893 32,818 32,402 Other 648 657 1,960 1,982 Total rental income $ 105,549 $ 105,494 $ 315,664 $ 312,105 Lease rental income includes $ 0.4 million and $ 0.4 million for the three months ended September 30, 2024 and 2023, respectively, and $ 3.0 million and $ 3.6 million for the nine months ended September 30, 2024 and 2023, 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 $ 0.6 million and $ 0.8 million for the three months ended September 30, 2024 and 2023, respectively, and $ 2.1 million and $ 2.3 million for the nine months ended September 30, 2024 and 2023, respectively. 28 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) The principal components of rental expenses are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Rental operating $ 14,355 $ 13,428 $ 41,522 $ 38,779 Hotel operating 7,799 7,675 22,553 21,935 Repairs and maintenance 5,974 5,652 16,805 16,298 Marketing 504 491 2,144 1,568 Rent 925 885 2,619 2,651 Hawaii excise tax 1,164 1,147 3,239 3,134 Management fees 640 634 1,825 1,763 Total rental expenses $ 31,361 $ 29,912 $ 90,707 $ 86,128 NOTE 14. OTHER INCOME, NET The principal components of other income, net, are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Interest and investment income $ 1,972 $ 614 $ 3,551 $ 1,507 Income tax expense ( 235 ) ( 293 ) ( 696 ) ( 750 ) Other non-operating income 2 — 10,002 6,515 Total other income, net $ 1,739 $ 321 $ 12,857 $ 7,272 NOTE 15. RELATED PARTY TRANSACTIONS During the third quarter of 2020, we entered into a lease with American Assets, Inc. ("AAI"), an entity owned and controlled by Ernest Rady, our Chief Executive Officer and Chairman of the Board, for office space at Torrey Point to replace a previously existing lease with AAI at Torrey Reserve Campus. 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 lease of $ 0.2 million and $ 0.2 million for the nine months ended September 30, 2024 and 2023, 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. Rady. For the nine months ended September 30, 2024 and 2023, we incurred approximately $ 0.1 million and $ 0.1 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. These expenses are recorded as general and administrative expenses in our consolidated statements of comprehensive income or capitalized as debt financing costs, if applicable, in accordance with accounting principals. The Waikiki Beach Walk entities have a 47.7 % investment in WBW CHP LLC, an entity that was formed to, among other things, construct a chilled water plant to provide air conditioning to the property and other adjacent facilities. The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $ 0.8 million and $ 0.9 million for the nine months ended September 30, 2024 and 2023, respectively, are included in rental expenses on the consolidated statements of comprehensive income. 29 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) NOTE 16. SEGMENT REPORTING Segment information is prepared on the same basis that our management reviews information for operational decision-making purposes. We operate in four business segments: the acquisition, redevelopment, ownership and management of office real estate, retail real estate, multifamily real estate and mixed-use real estate. The products for our office segment primarily include rental of office space and other tenant services, including tenant reimbursements, parking and storage space rental. The products for our retail segment primarily include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space rental. The products for our multifamily segment include rental of apartments and other tenant services. The products of our mixed-use segment include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space rental and operation of a 369 -room all-suite hotel. We evaluate the performance of our segments based on segment profit, which is defined as property revenue less property expenses. We do not use asset information as a measure to assess performance and make decisions to allocate resources. Therefore, depreciation and amortization expense is not allocated among segments. 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. 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. Not all companies calculate segment profit in the same manner. We consider segment profit to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of our properties. The following table represents operating activity within our reportable segments (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Total Office Property revenue $ 61,058 $ 51,948 $ 164,050 $ 155,137 Property expense ( 15,514 ) ( 15,361 ) ( 45,451 ) ( 45,075 ) Segment profit 45,544 36,587 118,599 110,062 Total Retail Property revenue 27,695 26,143 80,196 77,671 Property expense ( 7,888 ) ( 7,504 ) ( 24,009 ) ( 22,763 ) Segment profit 19,807 18,639 56,187 54,908 Total Multifamily Property revenue 16,330 15,152 49,020 45,908 Property expense ( 7,523 ) ( 7,262 ) ( 21,329 ) ( 20,579 ) Segment profit 8,807 7,890 27,691 25,329 Total Mixed-Use Property revenue 17,727 17,955 51,129 49,957 Property expense ( 11,480 ) ( 11,184 ) ( 33,051 ) ( 31,828 ) Segment profit 6,247 6,771 18,078 18,129 Total segments’ profit $ 80,405 $ 69,887 $ 220,555 $ 208,428 30 Table of Contents American Assets Trust, Inc. and American Assets Trust, L.P. Notes to Consolidated Financial Statements—(Continued) September 30, 2024 (Unaudited) 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, 2024 2023 2024 2023 Total segments’ profit $ 80,405 $ 69,887 $ 220,555 $ 208,428 General and administrative ( 9,068 ) ( 8,880 ) ( 26,647 ) ( 26,488 ) Depreciation and amortization ( 33,529 ) ( 29,868 ) ( 94,757 ) ( 89,592 ) Interest expense, net ( 18,229 ) ( 16,325 ) ( 50,773 ) ( 48,422 ) Other income (expense), net 1,739 321 12,857 7,272 Net income 21,318 15,135 61,235 51,198 Net income attributable to restricted shares ( 194 ) ( 189 ) ( 585 ) ( 568 ) Net income attributable to unitholders in the Operating Partnership ( 4,467 ) ( 3,168 ) ( 12,829 ) ( 10,733 ) Net income attributable to American Assets Trust, Inc. stockholders $ 16,657 $ 11,778 $ 47,821 $ 39,897 The following table shows net real estate and secured note payable balances for each of the segments (in thousands): September 30, 2024 December 31, 2023 Net Real Estate Office $ 1,601,961 $ 1,614,323 Retail 554,196 563,532 Multifamily 353,914 361,233 Mixed-Use 162,194 166,227 $ 2,672,265 $ 2,705,315 Secured Notes Payable (1) Office $ 75,000 $ 75,000 $ 75,000 $ 75,000 (1) Excludes debt issuance costs of $ 0.3 million and $ 0.3 million for each of the periods ended September 30, 2024 and December 31, 2023, respectively. Capital expenditures for each segment for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Capital Expenditures (1) Office $ 20,261 $ 16,105 $ 41,930 $ 56,642 Retail 4,267 1,628 9,651 5,798 Multifamily 1,582 1,977 4,260 4,506 Mixed-Use 229 1,432 922 3,282 $ 26,339 $ 21,142 $ 56,763 $ 70,228 (1) Capital expenditures represent cash paid for capital expenditures during the period and include leasing commissions paid. 31 Table of Contents