Company Overview and Performance - The company has been in business for 50 plus years and has an annualized Total Shareholder Return (TSR) of 12.6% since IPO [7] - From 2011 to 2021, the company achieved a Compound Annual Growth Rate (CAGR) of 6.1% in Funds From Operations (FFO) per share and 3.8% in dividends [7] - From 2011 to 2019, the company achieved a Net Asset Value (NAV) CAGR of 10.4% [7] Portfolio Composition and Diversification - As of March 31, 2022, the company's portfolio consisted of 7.174 million square feet of office, retail, and mixed-use properties, along with 2,112 multifamily units and 369 hotel rooms [10] - The portfolio's Annualized Base Rent (ABR) is diversified by segment, with 58% from office, 25% from retail, and 17% from multifamily [10] - The ABR is also diversified by region, with 48% from Southern California, 15% from Northern California, 13% from Washington, 12% from Oregon, 7% from Hawaii, and 4% from Texas [10] Financial Projections and Growth Potential - The company projects its total Cash Net Operating Income (NOI) to grow from $230.5 million in 2021 to $265.0 million in 2023, representing a 7% increase each year [11] - Office Cash NOI is forecasted to grow approximately $13.8 million in 2022 [11] - Multifamily Cash NOI is projected to increase $1.8 million in 2022 [11] Capital Management - As of March 31, 2022, the company had a cash balance of $74 million [30] - The company has a well-staggered debt maturity schedule and investment-grade credit ratings [31]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to AMERICAN ASSETS TRUST, INC. (Exact Name of Registrant as Specified in its Charter) Commission file number: 001-35030 AMERICAN ASSETS TRUST, L.P. (Ex ...

American Assets Trust, Inc. (NYSE:AAT) Q1 2022 Earnings Conference Call April 27, 2022 9:00 AM ET Company Participants Ernest Rady – Chairman and Chief Executive Officer Adam Wyll – President and Chief Operating Officer Bob Barton – Chief Financial Officer Steve Center – Vice President, Office Properties Conference Call Participants Todd Thomas – KeyBanc Adam Kramer – Morgan Stanley Operator Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2022 American Assets Trust Inc. Earnings Confe ...

[Explanatory Note](index=3&type=section&id=EXPLANATORY%20NOTE) This note clarifies the consolidated reporting structure of American Assets Trust, Inc. and its Operating Partnership [Consolidated Reporting Structure](index=3&type=section&id=Consolidated%20Reporting%20Structure) This report combines the annual reports of American Assets Trust, Inc. and American Assets Trust, L.P., reflecting a single operating unit view - The report combines the 10-K filings for American Assets Trust, Inc. (REIT parent) and American Assets Trust, L.P. (Operating Partnership) to reflect a single operating unit view[6](index=6&type=chunk)[8](index=8&type=chunk) - American Assets Trust, Inc. is the sole general partner of the Operating Partnership, holding approximately **78.8% partnership interest** as of December 31, 2021, and exercises full control over its management and business operations[7](index=7&type=chunk)[9](index=9&type=chunk) - Key differences between the two entities' financial statements are in noncontrolling interests and stockholders' equity/partners' capital, with the Operating Partnership holding substantially all company assets and conducting business operations[10](index=10&type=chunk)[11](index=11&type=chunk) [Forward-Looking Statements](index=6&type=section&id=Forward-Looking%20Statements) This section outlines the nature of forward-looking statements, emphasizing their inherent risks and uncertainties [Nature of Forward-Looking Statements](index=6&type=section&id=Nature%20of%20Forward-Looking%20Statements) This section clarifies that the report contains forward-looking statements, which are predictions about future events and trends - Forward-looking statements are identified by terms like 'believes,' 'expects,' 'may,' 'will,' 'should,' 'seeks,' 'intends,' 'plans,' 'estimates,' or 'anticipates,' and relate to future events or trends[16](index=16&type=chunk) - These statements are not guarantees of future performance and depend on assumptions that may be incorrect or imprecise, involving numerous risks and uncertainties[17](index=17&type=chunk)[18](index=18&type=chunk) [Summary of Risk Factors](index=7&type=section&id=Summary%20of%20Risk%20Factors) An investment in the company's securities is subject to various risks, including geographical concentration, indebtedness, and market conditions - The company's property portfolio is geographically concentrated in California, Oregon, Washington, Texas, and Hawaii, making it susceptible to adverse regional economic conditions and natural disasters[19](index=19&type=chunk) - Significant risks include substantial indebtedness, potential defaults on debt obligations, and the adverse impact of the COVID-19 pandemic on business, financial condition, and ability to pay dividends[19](index=19&type=chunk) - Dependence on major office tenants (Google LLC, LPL Holdings, Inc., Autodesk, Inc.) and anchor retail tenants (Lowe's, Nordstrom Rack, Sprouts Farmers Market) poses risks if these tenants face bankruptcy, insolvency, or store closures[19](index=19&type=chunk) - Challenges in identifying and completing property acquisitions, high mortgage rates, and the illiquidity of real estate investments could impede growth and financial flexibility[19](index=19&type=chunk)[21](index=21&type=chunk) - Real estate development activities are subject to risks like unanticipated expenses and delays, while the company's success relies on key personnel whose loss could adversely affect business management and growth strategies[21](index=21&type=chunk) - Potential losses from earthquakes in California, Oregon, Washington, and Hawaii may not be fully covered by insurance, and climate change-related laws and regulations could impose additional costs and liabilities[21](index=21&type=chunk) - Growth is dependent on external capital sources, which may not always be available on reasonable terms, potentially limiting the ability to meet capital needs or maintain REIT qualification[21](index=21&type=chunk) [PART I](index=9&type=section&id=PART%20I) This section covers the company's business operations, risk factors, property details, and legal proceedings [ITEM 1. BUSINESS](index=9&type=section&id=ITEM%201.%20BUSINESS) American Assets Trust, Inc. is a vertically integrated REIT owning and developing office, retail, multifamily, and mixed-use properties - American Assets Trust, Inc. is a full-service, vertically integrated, self-administered REIT[23](index=23&type=chunk) - As of December 31, 2021, the portfolio comprised **12 retail shopping centers**, **11 office properties**, a mixed-use property (369-room hotel and retail), and **6 multifamily properties**, plus land for development[23](index=23&type=chunk) - Core markets include San Diego, San Francisco, Portland, Bellevue, and Oahu, characterized by high barriers to entry and strong real estate fundamentals[23](index=23&type=chunk)[24](index=24&type=chunk) - Key competitive strengths include an irreplaceable portfolio, experienced senior management, extensive market knowledge, and internal growth prospects through development, redevelopment, and repositioning[24](index=24&type=chunk) - Business strategies focus on strategic acquisitions in high-barrier-to-entry markets, selective repositioning/redevelopment, disciplined capital recycling, and proactive asset/property management[27](index=27&type=chunk) - The company had **208 employees** as of December 31, 2021, with **48% female** and **52% ethnically diverse**, emphasizing a commitment to human capital, safety, and diversity[28](index=28&type=chunk) - The company has elected to be taxed as a REIT since December 31, 2011, requiring annual distribution of at least **90% of net taxable income**[30](index=30&type=chunk) - The company carries comprehensive liability, fire, extended coverage, business interruption, and earthquake insurance, but coverage may not fully cover all losses, especially from natural disasters[31](index=31&type=chunk) - Properties are subject to various laws (ADA, FHAA) and environmental regulations, with potential liabilities for non-compliance or contamination, such as ongoing remediation at Del Monte Center[32](index=32&type=chunk)[34](index=34&type=chunk) - The company operates in four business segments: office, retail, multifamily, and mixed-use[38](index=38&type=chunk) Top Office Tenants by Annualized Base Rent (2021) | Tenant | % of Total Office Segment Revenues (2021) | | :--------------- | :---------------------------------------- | | Google LLC | 13.6% | | LPL Holdings, Inc.| 14.4% | [ITEM 1A. RISK FACTORS](index=14&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section details significant risks that could adversely affect the company's business, operations, and financial performance - The company's portfolio is geographically concentrated in California, Oregon, Washington, Texas, and Hawaii, making it highly susceptible to adverse economic conditions or natural disasters in these specific markets[46](index=46&type=chunk) - Approximately **55% of net operating income in 2021** was from office properties, making the company vulnerable to trends like remote work, which could reduce demand and rental rates for office space[47](index=47&type=chunk) Total Debt Outstanding (February 11, 2022) | Metric | Amount (Billions) | | :--------------- | :---------------- | | Total Debt | $1.66 | - Substantial indebtedness (**$1.66 billion** as of February 11, 2022) exposes the company to default risks, potential inability to borrow or refinance on favorable terms, and restrictive covenants in debt agreements[48](index=48&type=chunk)[50](index=50&type=chunk) - Uncertainty surrounding LIBOR's phase-out and transition to alternative reference rates (like SOFR) may materially affect interest payments and the market value of LIBOR-based securities[51](index=51&type=chunk) Largest Office Tenants by Annualized Base Rent (December 31, 2021) | Tenant | % of Total Office Portfolio Annualized Base Rent | | :--------------- | :----------------------------------------------- | | Google LLC | 13.7% | | LPL Holdings, Inc.| 10.3% | | Autodesk, Inc. | 6.9% | | **Aggregate Top 3** | **30.9%** | - Dependence on significant office tenants (Google LLC, LPL Holdings, Inc., Autodesk, Inc. representing **30.9% of office annualized base rent**) and anchor retail tenants (Lowe's, Nordstrom Rack, Sprouts Farmers Market representing **11.3% of retail annualized base rent**) creates vulnerability to tenant bankruptcy, insolvency, or store closures[52](index=52&type=chunk)[57](index=57&type=chunk) - Retail leases often contain 'co-tenancy' or 'go-dark' provisions, which, if triggered, could lead to reduced rent, cessation of operations, or lease terminations, negatively impacting retail property performance[58](index=58&type=chunk) - The inability to renew leases, lease vacant space, or re-let space as leases expire (**8.7% of office/retail square footage expiring in 2022**) could increase vacancies and adversely affect financial results[63](index=63&type=chunk) - Growth is limited by the availability of external capital on commercially reasonable terms, which is crucial for acquisitions, development, and maintaining REIT distribution requirements[64](index=64&type=chunk)[110](index=110&type=chunk) - Real estate development activities are subject to risks like cost overruns, delays, and failure to achieve expected occupancy/rent levels, particularly exacerbated by the COVID-19 pandemic[93](index=93&type=chunk) - The company's success depends on key personnel (Messrs. Rady, Barton, Wyll), and their loss or inability to attract qualified personnel could adversely affect business management and growth strategies[95](index=95&type=chunk)[96](index=96&type=chunk) - Properties in California, Oregon, Washington, and Hawaii are subject to earthquake risks, with insurance coverage potentially insufficient for full losses[100](index=100&type=chunk)[102](index=102&type=chunk) - Climate change laws and regulations, as well as physical impacts like severe weather, could lead to increased costs, compliance obligations, and adverse effects on property values and operations[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) - Failure to maintain REIT qualification would result in significant adverse tax consequences, including corporate income tax liability and reduced funds for distribution[146](index=146&type=chunk)[147](index=147&type=chunk) - The ongoing COVID-19 pandemic presents highly unpredictable and volatile risks, including reduced rent collections, potential lease concessions, decreased demand for space, and disruptions in financial markets and supply chains[161](index=161&type=chunk)[163](index=163&type=chunk) [Risks Related to Our Business and Operations](index=14&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Operations) This section outlines operational risks including geographic concentration, substantial debt, dependence on key tenants, and competition - The company's properties are concentrated in California, Oregon, Washington, Texas, and Hawaii, making it highly vulnerable to adverse economic conditions or natural disasters in these regions[46](index=46&type=chunk) - Office properties, which generated approximately **55% of net operating income in 2021**, are susceptible to reduced demand due to trends like remote work and shared office spaces[47](index=47&type=chunk) Total Debt Outstanding (February 11, 2022) | Metric | Amount (Billions) | | :--------------- | :---------------- | | Total Debt | $1.66 | - Substantial debt (**$1.66 billion** as of Feb 11, 2022) poses risks of insufficient cash flow for payments, inability to borrow or refinance, forced property dispositions, and potential default on debt obligations[48](index=48&type=chunk)[50](index=50&type=chunk) - Uncertainty regarding the phasing out of LIBOR and the transition to alternative reference rates (SOFR) may adversely affect interest rates on variable debt and the market value of LIBOR-based securities[51](index=51&type=chunk) Largest Office Tenants by Annualized Base Rent (December 31, 2021) | Tenant | % of Total Office Portfolio Annualized Base Rent | | :--------------- | :----------------------------------------------- | | Google LLC | 13.7% | | LPL Holdings, Inc.| 10.3% | | Autodesk, Inc. | 6.9% | | **Aggregate Top 3** | **30.9%** | - The company relies on significant tenants in its office and retail properties, and their financial distress or lease terminations could severely impact income[52](index=52&type=chunk)[54](index=54&type=chunk)[57](index=57&type=chunk) - Retail leases with 'co-tenancy' or 'go-dark' provisions can lead to reduced rent or early lease terminations if anchor tenants or occupancy levels are not maintained[58](index=58&type=chunk) - Difficulty in identifying and completing property acquisitions, or facing intense competition, may impede growth strategies[59](index=59&type=chunk)[62](index=62&type=chunk) - Inability to renew leases or re-let vacant space (**8.7% of office/retail square footage expiring in 2022**) at favorable rates could increase vacancies and negatively impact financial performance[63](index=63&type=chunk) - Access to external capital is critical for growth, and unfavorable market conditions could limit financing, impacting acquisitions, developments, and REIT distribution requirements[64](index=64&type=chunk)[66](index=66&type=chunk)[110](index=110&type=chunk) - Mortgage debt obligations expose the company to foreclosure risks, potentially leading to loss of investment and taxable income without cash proceeds[67](index=67&type=chunk) - Future acquisitions may not yield expected returns due to competition, integration challenges, or unforeseen liabilities[68](index=68&type=chunk)[69](index=69&type=chunk) - Inability to control operating costs, which may increase even if revenues decline, could adversely affect results of operations[70](index=70&type=chunk)[71](index=71&type=chunk) - Balloon payment obligations on some financing arrangements create refinancing risks and could impact cash available for distributions[72](index=72&type=chunk)[73](index=73&type=chunk) - Ineffective hedging against interest rate changes could adversely affect financial condition, while debt agreements restrict business activities like incurring additional debt or making capital expenditures[74](index=74&type=chunk)[75](index=75&type=chunk) - Unsecured indebtedness is effectively subordinated to secured debt, reducing amounts available for payment in case of bankruptcy or liquidation[76](index=76&type=chunk) - Investments in mortgage receivables carry risks of borrower default, lower property values, and subordination to other liens[77](index=77&type=chunk) - Adverse economic and geopolitical conditions, including credit market dislocations, can decrease demand for space, reduce property values, and limit financing availability[78](index=78&type=chunk) - The retail environment faces risks from economic weakness, consumer spending levels, competition from discount and internet retailers, and the ongoing impact of COVID-19, affecting market rents and leasing ability[79](index=79&type=chunk)[81](index=81&type=chunk) - Significant competition in the leasing market may lead to lower occupancy, reduced rental rates, and increased concessions or tenant improvements[82](index=82&type=chunk)[83](index=83&type=chunk) - Actual rents may be less than asking rents, and lease roll-downs could negatively impact cash flow growth[84](index=84&type=chunk) - Acquisitions through tax-deferred contribution transactions may result in stockholder dilution and limit the ability to sell or refinance assets[85](index=85&type=chunk) - Ownership of hospitality properties (Waikiki Beach Walk-Embassy Suites, Santa Fe Park RV Resort) exposes the company to risks inherent in the hospitality and tourism industries, including competition, operating costs, and fluctuating demand[87](index=87&type=chunk) - Reliance on third-party management for the Waikiki Beach Walk-Embassy Suites hotel limits control and could impact operational efficiency and revenue[88](index=88&type=chunk) - Deterioration of the relationship with the Embassy Suites franchisor or imposition of upgraded operating standards could adversely affect the hotel's business and financial results[89](index=89&type=chunk)[91](index=91&type=chunk) - The franchisor's right of first offer for the Waikiki Beach Walk-Embassy Suites hotel may limit the company's ability to obtain the highest possible sale price[92](index=92&type=chunk) - Real estate development activities are subject to risks such as unanticipated expenses, construction delays, and failure to achieve expected occupancy/rent levels, which could adversely affect financial condition[93](index=93&type=chunk) - The company's success depends on key personnel (Messrs. Rady, Barton, Wyll), and their loss or inability to attract and retain qualified personnel could adversely affect business management and growth strategies[95](index=95&type=chunk)[96](index=96&type=chunk) - Mr. Rady's involvement in outside businesses may interfere with his ability to devote full time and attention to the company's affairs[97](index=97&type=chunk) - Ongoing or future litigation could result in significant defense costs and judgments, potentially impacting financial condition and cash flow[98](index=98&type=chunk)[99](index=99&type=chunk) - Properties in California, Oregon, Washington, and Hawaii are subject to earthquake risks, and insurance coverage may not be sufficient to cover full losses[100](index=100&type=chunk)[102](index=102&type=chunk) - Laws and regulations related to climate change could lead to substantial compliance costs, increased energy costs, and retrofit expenditures, potentially impacting business and financial condition[103](index=103&type=chunk)[104](index=104&type=chunk) - Geographic concentration makes the business more vulnerable to natural disasters, severe weather, and climate change impacts, potentially disrupting operations and increasing costs[105](index=105&type=chunk) - In the event of substantial property loss, rebuilding to existing specifications may not be possible due to zoning, building codes, and environmental restrictions[107](index=107&type=chunk) - Joint venture investments carry risks such as lack of sole decision-making authority, reliance on co-venturers' financial condition, and potential disputes[108](index=108&type=chunk) - Increased competition and affordability of residential homes could limit the ability to retain residents, lease apartments, or increase/maintain rents at multifamily properties[109](index=109&type=chunk) - Reliance on information technology means any breach, interruption, or security failure could negatively impact business, operations, and financial condition, including the disclosure of personal information[112](index=112&type=chunk)[117](index=117&type=chunk) [Risks Related to the Real Estate Industry](index=27&type=section&id=Risks%20Related%20to%20the%20Real%20Estate%20Industry) This section highlights inherent risks within the real estate industry, such as local oversupply, reduced demand, and increased operating costs - Performance and value are subject to real estate industry risks, including local oversupply, reduced demand, adverse financial conditions of buyers/sellers/tenants, vacancies, and increased operating costs (e.g., insurance, taxes)[118](index=118&type=chunk)[119](index=119&type=chunk) - Illiquidity of real estate investments limits the ability to quickly sell properties in response to changing market conditions, potentially hindering the realization of investment objectives[120](index=120&type=chunk) - Property taxes may increase due to rate changes or reassessments, adversely impacting cash flows and ability to pay dividends[121](index=121&type=chunk) - As a real estate owner, the company could incur significant costs and liabilities related to environmental matters, including contamination cleanup and third-party damages, potentially exceeding property value[122](index=122&type=chunk)[124](index=124&type=chunk) - Properties may contain or develop harmful mold or other air quality issues, leading to costly remediation and potential liability for adverse health effects[125](index=125&type=chunk) - Significant costs may be incurred to comply with various federal, state, and local laws, regulations, and covenants (e.g., ADA, FHAA), and changes in these requirements could necessitate unanticipated expenditures[126](index=126&type=chunk)[128](index=128&type=chunk) [Risks Related to Our Organizational Structure](index=30&type=section&id=Risks%20Related%20to%20Our%20Organizational%20Structure) This section addresses risks from the company's organizational structure, including significant influence by affiliates and potential conflicts of interest - Ernest S. Rady and his affiliates own approximately **33.9% beneficial interest** on a fully diluted basis, allowing them to significantly influence stockholder actions and corporate transactions[129](index=129&type=chunk) - Conflicts of interest may arise between the interests of stockholders and Operating Partnership unitholders, as the general partner's fiduciary duties may prioritize the company's interests[130](index=130&type=chunk)[131](index=131&type=chunk) - The company's charter and bylaws, along with Maryland law, contain provisions (e.g., ownership limits, board's power to issue stock) that may delay, defer, or prevent a change of control transaction[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk)[136](index=136&type=chunk) - Provisions in the Operating Partnership agreement can also delay or complicate unsolicited acquisitions or changes in control[137](index=137&type=chunk) - The board of directors can change investment and financing policies without stockholder approval, potentially leading to higher leverage and increased default risk[138](index=138&type=chunk)[140](index=140&type=chunk) - Rights of stockholders to take action against directors and officers are limited by Maryland law, potentially restricting recovery for actions taken in good faith[141](index=141&type=chunk) - As a holding company, American Assets Trust, Inc. relies on distributions from the Operating Partnership to pay liabilities, and stockholder interests are structurally subordinated to the Operating Partnership's obligations[142](index=142&type=chunk) - The Operating Partnership may issue additional units to third parties without stockholder consent, diluting the company's ownership and distributions[143](index=143&type=chunk) - The operating structure exposes the company to increased hotel operating expenses, which could adversely affect the TRS lessee's ability to pay rent[144](index=144&type=chunk) - Future sales of common stock or units by directors and officers (or their pledgees) due to margin calls or foreclosures could adversely affect stock price and potentially result in a loss of company control[145](index=145&type=chunk) [Risks Related to Our Status as a REIT](index=34&type=section&id=Risks%20Related%20to%20Our%20Status%20as%20a%20REIT) This section details critical risks associated with maintaining REIT status, including adverse tax consequences and distribution requirements - Failure to maintain REIT qualification would result in significant adverse tax consequences, including corporate income tax, increased state/local taxes, and a four-year disqualification period, substantially reducing funds for distribution[146](index=146&type=chunk)[147](index=147&type=chunk) - REIT qualification involves complex Code provisions and factual determinations, and changes in legislation or interpretations could adversely affect the company's status or investment desirability[147](index=147&type=chunk)[159](index=159&type=chunk) - If the Operating Partnership fails to qualify as a partnership for federal income tax purposes, the company would likely cease to qualify as a REIT and face corporate income tax[148](index=148&type=chunk)[150](index=150&type=chunk) - Asset tests limit the ability to own taxable REIT subsidiaries (TRSs), and transactions with TRSs not conducted on arm's length terms could incur a **100% penalty tax**[151](index=151&type=chunk) - To maintain REIT status, the company must distribute at least **90% of net taxable income**, potentially forcing it to borrow funds during unfavorable market conditions or dispose of assets at inopportune times[152](index=152&type=chunk)[158](index=158&type=chunk) - Future dividends may be payable partly in common stock, requiring stockholders to pay tax in excess of cash received, potentially leading to stock sales and adverse effects on trading price[153](index=153&type=chunk)[155](index=155&type=chunk) - REIT dividends generally do not qualify for reduced tax rates available for other dividends, potentially making REIT investments less attractive to certain investors[156](index=156&type=chunk) - The **100% penalty tax** on 'prohibited transactions' (sales of property held primarily for sale) may limit the company's ability to engage in certain sales for federal income tax purposes[157](index=157&type=chunk) [The ongoing COVID-19 pandemic and governmental restrictions intended to prevent its spread could adversely impact our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.](index=37&type=section&id=The%20ongoing%20COVID-19%20pandemic%20and%20governmental%20restrictions%20intended%20to%20prevent%20its%20spread%20could%20adversely%20impact%20our%20business%2C%20financial%20condition%2C%20results%20of%20operations%2C%20cash%20flows%2C%20liquidity%20and%20ability%20to%20satisfy%20our%20debt%20service%20obligations%20and%20to%20pay%20dividends%20and%20distributions%20to%20security%20holders.) The COVID-19 pandemic and related restrictions continue to pose unpredictable risks to the company's business, operations, and liquidity - The COVID-19 pandemic and related restrictions (quarantines, travel bans, 'stay-at-home' orders) have significantly impacted global economic activity and financial markets, with unpredictable future effects on the company[161](index=161&type=chunk) - The company provided lease concessions (rent deferrals and abatements) to certain tenants, primarily in the retail segment, amounting to approximately **1% of contracted rent for 2021**[161](index=161&type=chunk) - Key adverse impacts include financial condition of tenants, ability to collect rent, need to defer/forgive rent, decreased demand for office/retail space due to remote work, and disruptions in financial markets and supply chains[161](index=161&type=chunk)[163](index=163&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=38&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[164](index=164&type=chunk) [ITEM 2. PROPERTIES](index=39&type=section&id=ITEM%202.%20PROPERTIES) The company's operating portfolio consists of 30 properties across office, retail, multifamily, and mixed-use segments, totaling 7.1 million square feet - As of December 31, 2021, the operating portfolio comprised **30 properties**: **12 retail shopping centers**, **11 office properties**, a mixed-use property (hotel and retail), and **6 multifamily properties**[166](index=166&type=chunk) Portfolio Composition (December 31, 2021) | Property Type | Net Rentable Square Feet (Office/Retail) | Residential Units (incl. RV spaces) | Hotel Rooms | | :------------ | :--------------------------------------- | :---------------------------------- | :---------- | | Total | ~7.1 million | 2,112 | 369 | - The company also owned land at three properties classified as held for development and construction in progress[166](index=166&type=chunk) Office Portfolio Summary (December 31, 2021) | Metric | Value | | :------------------------- | :------------- | | Number of Buildings | 37 | | Net Rentable Square Feet | 3,895,812 | | Percentage Leased | 90.4% | | Annualized Base Rent | $181,664,229 | | Annualized Base Rent per Leased Square Foot | $51.58 | Retail Portfolio Summary (December 31, 2021) | Metric | Value | | :------------------------- | :------------- | | Number of Buildings | 107 | | Net Rentable Square Feet | 3,092,616 | | Percentage Leased | 92.6% | | Annualized Base Rent | $71,756,002 | | Annualized Base Rent per Leased Square Foot | $25.06 | Mixed-Use Portfolio Summary (December 31, 2021) | Metric | Value | | :------------------------- | :------------- | | Retail Net Rentable Square Feet | 93,925 | | Retail Percent Leased | 89.6% | | Hotel Units | 369 | | Hotel Average Occupancy | 66.4% | | Hotel Average Daily Rate | $278.87 | | Hotel Revenue per Available Room | $185.13 | Multifamily Portfolio Summary (December 31, 2021) | Metric | Value | | :------------------------- | :------------- | | Number of Buildings | 121 | | Units | 2,112 | | Percentage Leased | 96.0% | | Annualized Base Rent | $53,557,320 | | Average Monthly Base Rent per Leased Unit | $2,201 | - The operating portfolio had approximately **810 office and retail leases** and **1,910 residential leases** as of December 31, 2021[175](index=175&type=chunk) Top Tenants by Annualized Base Rent (Combined Office, Retail, Mixed-Use Retail, December 31, 2021) | Tenant | Annualized Base Rent | % of Total Annualized Base Rent | | :--------------- | :------------------- | :------------------------------ | | Google LLC | $24,904,188 | 9.6% | | LPL Holdings, Inc.| $18,724,794 | 7.2% | | Autodesk, Inc. | $12,615,795 | 4.9% | | Smartsheet, Inc. | $6,664,187 | 2.6% | | VMware, Inc | $5,584,938 | 2.1% | | **Total Top 5** | **$68,493,902** | **26.4%** | Geographic Diversification (Office, Retail, Mixed-Use Retail, December 31, 2021) | Region | Net Rentable Square Feet | Percentage of Total Net Rentable Square Feet | | :------------------ | :----------------------- | :------------------------------------------- | | Southern California | 2,885,421 | 40.7% | | Northern California | 1,231,010 | 17.4% | | Oregon | 920,478 | 13.0% | | Washington | 933,653 | 13.2% | | Texas | 588,148 | 8.3% | | Hawaii | 523,643 | 7.4% | | **Total** | **7,082,353** | **100.0%** | Segment Diversification by Property Operating Income (Year Ended December 31, 2021) | Segment | Number of Properties | Property Operating Income (thousands) | Percentage of Property Operating Income | | :---------- | :------------------- | :------------------------ | :-------------------------------------- | | Office | 11 | $136,133 | 55.4% | | Retail | 12 | $66,679 | 27.1% | | Mixed-Use | 1 | $29,104 | 11.8% | | Multifamily | 6 | $14,138 | 5.7% | | **Total** | **30** | **$246,054** | **100.0%** | Lease Expirations (Office, Retail, Mixed-Use Retail, December 31, 2021) | Year of Lease Expiration | Square Footage of Expiring Leases | Percentage of Portfolio Net Rentable Square Feet | Annualized Base Rent | | :----------------------- | :-------------------------------- | :----------------------------------------------- | :------------------- | | Available | 613,558 | 8.7% | $— | | Month to Month | 66,621 | 0.9% | $1,077,249 | | 2022 | 614,263 | 8.7% | $23,525,088 | [ITEM 3. LEGAL PROCEEDINGS](index=44&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material legal proceedings that would significantly impact its business or financial condition - The company is not currently a party to any legal proceedings deemed material or expected to have a material adverse effect on its business, financial condition, or results of operations[185](index=185&type=chunk) - The company expects to be party to various lawsuits and claims in the ordinary course of business but intends to vigorously defend itself[185](index=185&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=44&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Item 4. Mine Safety Disclosures is not applicable to the registrant[186](index=186&type=chunk) [PART II](index=45&type=section&id=PART%20II) This section details market information, selected financial data, management's discussion, and financial statements [ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=45&type=section&id=ITEM%205.%20MARKET%20FOR%20OUR%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) This section covers common stock market, stockholder matters, and equity security purchases, including dividend policy and stock performance - American Assets Trust, Inc.'s common stock is listed on the NYSE under the symbol 'AAT'[188](index=188&type=chunk) - As of February 4, 2022, there were **81 stockholders of record** for American Assets Trust, Inc.'s common stock and **20 holders of record** for American Assets Trust, L.P.'s operating partnership units (which have no established trading market)[188](index=188&type=chunk)[189](index=189&type=chunk) - The company intends to continue paying regular quarterly dividends to common stockholders and Operating Partnership unitholders to meet REIT distribution requirements and minimize income/excise taxes[190](index=190&type=chunk) - No unregistered equity securities were sold, and no equity securities were purchased by the issuer during 2021[191](index=191&type=chunk) - A stock performance graph compares the cumulative total return of the company's common stock against the S&P 500 Index and the SNL US REIT Equity Index from December 31, 2016, through December 31, 2021[195](index=195&type=chunk)[196](index=196&type=chunk) [ITEM 6. SELECTED FINANCIAL DATA](index=47&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides a five-year summary of selected consolidated financial data, including revenues, net income, and FFO Selected Statement of Operations Data (in thousands) | Metric | 2021 | 2020 | 2019 | 2018 | 2017 | | :-------------------------------------------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Total revenues | $375,828 | $344,573 | $366,741 | $330,867 | $314,983 | | Total operating expenses | $275,959 | $255,992 | $253,056 | $251,332 | $221,337 | | Operating income | $99,869 | $88,581 | $113,685 | $79,535 | $93,646 | | Interest expense | $(58,587) | $(53,440) | $(54,008) | $(52,248) | $(53,848) | | Net income | $36,593 | $35,588 | $60,188 | $27,202 | $40,132 | | Net income attributable to American Assets Trust, Inc. stockholders | $28,376 | $27,660 | $45,718 | $19,686 | $29,077 | | Basic earnings per share | $0.47 | $0.46 | $0.84 | $0.42 | $0.62 | | Diluted earnings per share | $0.47 | $0.46 | $0.84 | $0.42 | $0.62 | | Dividends declared per share | $1.16 | $1.00 | $1.14 | $1.09 | $1.05 | Selected Balance Sheet Data (in thousands) | Metric | 2021 | 2020 | 2019 | 2018 | 2017 | | :------------------------------------ | :---------- | :---------- | :---------- | :---------- | :---------- | | Net real estate | $2,681,981 | $2,492,734 | $2,523,475 | $2,039,853 | $2,076,707 | | Total assets | $3,017,927 | $2,817,309 | $2,790,333 | $2,198,250 | $2,259,864 | | Notes payable and line of credit | $1,649,203 | $1,406,751 | $1,357,659 | $1,290,772 | $1,325,020 | | Total liabilities | $1,807,804 | $1,563,903 | $1,496,661 | $1,395,779 | $1,415,720 | | Stockholders' equity | $1,238,964 | $1,271,442 | $1,313,917 | $802,977 | $833,710 | Funds from Operations (FFO) (in thousands) | Metric | 2021 | 2020 | 2019 | 2018 | 2017 | | :---------------------------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Funds from operations (FFO) | $152,899 | $143,880 | $155,760 | $134,295 | $123,410 | | FFO attributable to common stock and units | $152,342 | $143,503 | $155,384 | $133,990 | $123,174 | - FFO is a non-GAAP measure used to evaluate operating performance, excluding gains/losses from property sales and real estate depreciation/amortization[200](index=200&type=chunk)[326](index=326&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=49&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial condition, operations, and liquidity, highlighting business model, strategies, and COVID-19 impact - The company is a full-service, vertically integrated REIT operating in high-barrier-to-entry markets, with a portfolio of office, retail, multifamily, and mixed-use properties[204](index=204&type=chunk) - Growth strategies include capitalizing on acquisition opportunities, repositioning/redevelopment of properties, disciplined capital recycling, and proactive asset/property management[206](index=206&type=chunk)[207](index=207&type=chunk) - The COVID-19 pandemic has negatively impacted tenant operations, particularly in retail, leading to rent deferrals and abatements, though the company maintains strong financial condition and liquidity[209](index=209&type=chunk)[211](index=211&type=chunk) Rent Collection Rates (Q4 2021) | Segment | Collection Rate | | :----------------------- | :-------------- | | Office | ~100% | | Retail (incl. Waikiki) | 97% | | Multifamily | 97% | | Deferred Rent Repayments | 96% | - Same-store and redevelopment same-store metrics are used to evaluate performance, excluding properties under significant development or recent acquisition[212](index=212&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk) Same-Store Composition (Number of Properties) | Category | 2021 | 2020 | 2019 | | :----------------- | :--- | :--- | :--- | | Same-Store | 26 | 24 | 25 | | Non-Same Store | 4 | 4 | 3 | | Total Properties | 30 | 28 | 28 | | Redevelopment Same-Store | 27 | 26 | 26 | | Total Development Properties | 3 | 3 | 3 | - Revenue is derived from rental income (base rent, cost reimbursements, percentage rents) and other property income (parking, fees, hotel services)[219](index=219&type=chunk) Office Segment Leasing Activity (Year Ended December 31, 2021) | Metric | Value | | :----------------------------------- | :------------- | | Square Feet Leased | 255,485 | | Average Rent (initial year) | $49.05/sq ft | | Comparable Leases (cash basis rent increase) | 8.2% | | Comparable Leases (straight-line rent increase) | 14.2% | | Tenant Improvements & Incentives (new leases) | $50.30/sq ft | Retail Segment Leasing Activity (Year Ended December 31, 2021) | Metric | Value | | :----------------------------------- | :------------- | | Square Feet Leased | 408,397 | | Average Rent (initial year) | $40.30/sq ft | | Comparable Leases (cash basis rent decrease) | 11.2% | | Comparable Leases (straight-line rent decrease) | 5.4% | | Tenant Improvements & Incentives (new leases) | $59.59/sq ft | - Multifamily properties were **96.0% leased** as of December 31, 2021, with an average monthly base rent of **$2,201 per leased unit**[223](index=223&type=chunk) - The mixed-use property's retail portion was **89.6% leased**, and the hotel had an average occupancy of **66.4% for 2021**[224](index=224&type=chunk) - Critical accounting policies involve significant estimates for revenue recognition (straight-line rent, collectability), real estate valuation (purchase price allocation, useful lives), and capitalized costs (development, interest)[231](index=231&type=chunk)[233](index=233&type=chunk)[237](index=237&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk)[245](index=245&type=chunk)[247](index=247&type=chunk) Capitalized Costs (in thousands) | Category | 2021 | 2020 | | :------------------------------------- | :---------- | :---------- | | Development & Redevelopment Activities | $53,300 | $8,400 | | Other Property Improvements | $40,200 | $56,700 | | Interest Costs (Development & Redevelopment) | $3,000 | $1,100 | - No impairment charges were recorded for real estate properties in 2021, 2020, or 2019[256](index=256&type=chunk) - In 2021, the company acquired Eastgate Office Park (**$125 million**) and Corporate Campus East III (**$84 million**) in Bellevue, Washington, using cash on hand[260](index=260&type=chunk)[261](index=261&type=chunk) - In 2019, the company acquired La Jolla Commons (**$525 million**) and sold Solana Beach - Highway 101 (**$9.4 million**)[263](index=263&type=chunk)[264](index=264&type=chunk) Consolidated Results of Operations (Year Ended December 31, 2021 vs. 2020, in thousands) | Metric | 2021 | 2020 | Change | % Change | | :-------------------------------------------------------- | :---------- | :---------- | :---------- | :------- | | Total property revenues | $375,828 | $344,573 | $31,255 | 9% | | Total property expenses | $129,774 | $121,119 | $8,655 | 7% | | Net operating income | $246,054 | $223,454 | $22,600 | 10% | | General and administrative | $(29,879) | $(26,581) | $(3,298) | 12% | | Depreciation and amortization | $(116,306) | $(108,292) | $(8,014) | 7% | | Interest expense | $(58,587) | $(53,440) | $(5,147) | 10% | | Loss on early extinguishment of debt | $(4,271) | $— | $(4,271) | 100% | | Net income | $36,593 | $35,588 | $1,005 | 3% | | Net income attributable to American Assets Trust, Inc. stockholders | $28,376 | $27,660 | $716 | 3% | - Total property revenue increased by **$31.3 million (9%)** in 2021, driven by new office acquisitions and higher rents in office and mixed-use segments, partially offset by retail lease concessions[271](index=271&type=chunk)[272](index=272&type=chunk)[273](index=273&type=chunk) - Total property expenses increased by **$8.7 million (7%)** in 2021, mainly due to new office acquisitions and increases in utilities, repairs, maintenance, and insurance across segments as COVID-19 restrictions eased[278](index=278&type=chunk)[279](index=279&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk) - Net operating income (NOI) increased by **$22.6 million (10%)** in 2021, primarily from new office acquisitions and improved performance in retail and mixed-use segments[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) - General and administrative expenses increased by **$3.3 million (12%)** in 2021 due to higher employee-related costs and increased insurance/legal costs[291](index=291&type=chunk) - Depreciation and amortization increased by **$8.0 million (7%)** in 2021, mainly from new office acquisitions and tenant improvements[292](index=292&type=chunk)[293](index=293&type=chunk) - Interest expense increased by **$5.1 million (10%)** in 2021, driven by the issuance of 3.375% Senior Notes, partially offset by debt repayments and capitalized interest[294](index=294&type=chunk) - A **$4.3 million loss on early extinguishment of debt** was recorded in 2021 due to the repayment of Senior Guaranteed Notes, Series A[295](index=295&type=chunk) - American Assets Trust, Inc. (unconsolidated) relies on distributions from the Operating Partnership to pay dividends and meet obligations, with its liquidity dependent on the Operating Partnership's cash flow[298](index=298&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk) - Short-term liquidity needs include dividends, operating expenses, debt service, and capital expenditures, met by cash from operations and credit facility borrowings[304](index=304&type=chunk)[312](index=312&type=chunk) - Long-term liquidity needs for debt repayment, acquisitions, and capital improvements are met by cash from operations, long-term debt, and equity issuances[312](index=312&type=chunk) Contractual Obligations (in thousands) | Obligation Type | Total | Within 1 Year | 2-3 Years | 4-5 Years | More than 5 Years | | :------------------------------ | :------------ | :------------ | :------------ | :------------ | :---------------- | | Principal payments on long-term indebtedness | $1,661,000 | $211,000 | $250,000 | $200,000 | $1,000,000 | | Interest payments | $347,187 | $58,668 | $100,148 | $76,556 | $111,815 | | Operating lease | $33,229 | $3,232 | $6,756 | $7,115 | $16,126 | | Tenant-related commitments | $22,963 | $18,013 | $4,273 | $677 | $— | | Construction-related commitments | $115,335 | $109,420 | $5,915 | $— | $— | | **Total** | **$2,179,714**| **$400,333** | **$367,092** | **$284,348** | **$1,127,941** | - The company has no off-balance sheet arrangements[318](index=318&type=chunk) Cash Flow Summary (Year Ended December 31, 2021 vs. 2020, in thousands) | Cash Flow Activity | 2021 | 2020 | Change | | :--------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $168,329 | $126,985 | +$41,344 | | Net cash used in investing activities | $(312,278) | $(69,077) | $(243,201) | | Net cash provided by (used in) financing activities | $144,424 | $(28,310) | +$172,734 | - Net Operating Income (NOI) is a non-GAAP measure used to evaluate property performance, excluding corporate-level expenses and non-operating items[323](index=323&type=chunk) NOI Reconciliation to Net Income (in thousands) | Metric | 2021 | 2020 | 2019 | | :-------------------------------------------------------- | :---------- | :---------- | :---------- | | Net operating income | $246,054 | $223,454 | $234,761 | | General and administrative | $(29,879) | $(26,581) | $(24,871) | | Depreciation and amortization | $(116,306) | $(108,292) | $(96,205) | | Interest expense | $(58,587) | $(53,440) | $(54,008) | | Loss on early extinguishment of debt | $(4,271) | $— | $— | | Gain on sale of real estate | $— | $— | $633 | | Other income (expense), net | $(418) | $447 | $(122) | | **Net income** | **$36,593** | **$35,588** | **$60,188** | - Funds from Operations (FFO) is a non-GAAP measure, calculated per NAREIT standards, to assess operational performance by excluding non-cash items like depreciation and gains/losses from property sales[326](index=326&type=chunk)[327](index=327&type=chunk) FFO Reconciliation to Net Income (in thousands) | Metric | 2021 | 2020 | 2019 | | :---------------------------------------- | :---------- | :---------- | :---------- | | Net income | $36,593 | $35,588 | $60,188 | | Plus: Real estate depreciation and amortization | $116,306 | $108,292 | $96,205 | | Less: Gain on sale of real estate | $— | $— | $(633) | | **Funds from operations, as defined by NAREIT** | **$152,899**| **$143,880**| **$155,760**| | FFO attributable to common stock and units | $152,342 | $143,503 | $155,384 | | FFO per diluted share/unit | $2.00 | $1.89 | $2.20 | - The company believes contractual rent increases and expense escalations in leases, along with short-term multifamily leases and daily hotel room rate adjustments, mitigate exposure to inflation[330](index=330&type=chunk) [Overview](index=49&type=section&id=Overview) This section introduces the company as a vertically integrated REIT, outlining its portfolio, growth strategies, and COVID-19 impact - American Assets Trust, Inc. is a full-service, vertically integrated, self-administered REIT, owning, operating, acquiring, and developing high-quality office, retail, multifamily, and mixed-use properties[204](index=204&type=chunk) - As of December 31, 2021, the portfolio included **11 office properties**, **12 retail shopping centers**, a mixed-use property (hotel and retail), and **6 multifamily properties**, with additional land held for development[204](index=204&type=chunk) - The company's core markets are San Diego, San Francisco, Portland, Bellevue, and Oahu, characterized as attractive, high-barrier-to-entry locations[204](index=204&type=chunk) - American Assets Trust, Inc. is the sole general partner of its Operating Partnership, owning **78.8%** as of December 31, 2021, and consolidates its assets, liabilities, and results of operations[204](index=204&type=chunk) - The company has a Taxable REIT Subsidiary (American Assets Services, Inc.) to provide non-customary services and engage in activities not permitted directly by a REIT, subject to federal and state income taxes[205](index=205&type=chunk) - Primary business objectives are to increase operating cash flows, generate long-term growth, and maximize stockholder value through same-store growth, property development/redevelopment, and strategic acquisitions[206](index=206&type=chunk)[207](index=207&type=chunk) - The COVID-19 pandemic's impact is closely monitored, with uncertainties regarding its scope, severity, duration, and economic effects on tenants and financial markets[209](index=209&type=chunk) Rent Collection Rates (Q4 2021) | Segment | Collection Rate | | :----------------------- | :-------------- | | Office | ~100% | | Retail (incl. Waikiki) | 97% | | Multifamily | 97% | | Deferred Rent Repayments | 96% | - The company uses 'same-store' and 'redevelopment same-store' metrics to evaluate performance, excluding properties under significant development, acquisition, or discontinued operations[212](index=212&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk) Same-Store Composition (Number of Properties) | Category | 2021 | 2020 | 2019 | | :----------------- | :--- | :--- | :--- | | Same-Store | 26 | 24 | 25 | | Non-Same Store | 4 | 4 | 3 | | Total Properties | 30 | 28 | 28 | | Redevelopment Same-Store | 27 | 26 | 26 | | Total Development Properties | 3 | 3 | 3 | [Revenue Base](index=51&type=section&id=Revenue%20Base) The company's revenue primarily consists of rental income and other property income, with varied lease structures across segments - Rental income includes scheduled rent, straight-line rent adjustments, and amortization of above/below market rents[219](index=219&type=chunk) - Other property revenues include parking income, lease termination fees, late fees, and storage rents[219](index=219&type=chunk) - The office portfolio (**3.9 million sq ft**) was **90.4% leased** as of December 31, 2021, contributing **49.6% of total revenue in 2021**, primarily through full-service gross or modified gross leases[220](index=220&type=chunk) - The retail portfolio (**3.1 million sq ft**) was **92.6% leased** as of December 31, 2021, contributing **25.2% of total revenue in 2021**, primarily through triple-net leases[222](index=222&type=chunk) - The multifamily portfolio (**2,112 units**) was **96.0% leased** as of December 31, 2021, contributing **13.9% of total revenue in 2021**, with average monthly base rent of **$2,201**[223](index=223&type=chunk) - The mixed-use property (**94,000 sq ft retail, 369-room hotel**) contributed **11.3% of total revenue in 2021**, with the retail portion **89.6% leased** and the hotel at **66.4% average occupancy**[224](index=224&type=chunk) - The COVID-19 pandemic has had a meaningful negative impact on certain tenants' operations and ability to pay rent, particularly in the retail sector[225](index=225&type=chunk) [Leasing](index=52&type=section&id=Leasing) Leasing activities in 2021 showed varied performance, with office leases seeing rent increases and retail leases experiencing decreases - Same-store growth is primarily driven by increases in rental rates on new leases and renewals, and changes in portfolio occupancy[225](index=225&type=chunk) Office Leasing Activity (Twelve Months Ended December 31, 2021) | Metric | Value | | :----------------------------------- | :------------- | | Total Leases Signed | 52 | | Total Square Feet | 255,485 | | Comparable Space Leases | 189,531 sq ft | | Average Rental Rate Increase (Cash Basis) | 8.2% | | Average Rental Rate Increase (Straight-Line Basis) | 14.2% | | Tenant Improvements & Incentives (Comparable New Leases) | $50.30/sq ft | | Tenant Improvements & Incentives (Comparable Renewal Leases) | $2.33/sq ft | Retail Leasing Activity (Twelve Months Ended December 31, 2021) | Metric | Value | | :----------------------------------- | :------------- | | Total Leases Signed | 105 | | Total Square Feet | 408,397 | | Comparable Space Leases | 333,338 sq ft | | Average Rental Rate Decrease (Cash Basis) | 11.2% | | Average Rental Rate Decrease (Straight-Line Basis) | 5.4% | | Tenant Improvements & Incentives (Comparable New Leases) | $59.59/sq ft | | Tenant Improvements & Incentives (Comparable Renewal Leases) | $1.61/sq ft | - The change in rental income on comparable space leases is influenced by market rates, location, tenant creditworthiness, space use, and capital investment[229](index=229&type=chunk) - There is a risk that new tenants may not take possession or pay contractual rent due to various operational or financial issues[230](index=230&type=chunk) [Critical Accounting Policies and Estimates](index=53&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section details critical accounting policies and estimates requiring significant management judgment, impacting financial results - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, disclosures, revenues, and expenses[231](index=231&type=chunk) - Revenue recognition for operating leases involves straight-line recognition of base rents, treatment of tenant improvement reimbursements as additional rent, and recognition of percentage rents based on sales levels[233](index=233&type=chunk) - Other property income (parking, fees, hotel sales) is recognized when performance obligations are satisfied, and lease termination fees are recognized upon termination or satisfaction of conditions[234](index=234&type=chunk)[236](index=236&type=chunk) - Estimates of collectability for current and straight-line rent receivables require significant judgment, considering economic trends, tenant bankruptcies, and financial performance[237](index=237&type=chunk)[238](index=238&type=chunk) - Lease concessions due to COVID-19 (rent deferrals and abatements) were accounted for as lease modifications, totaling approximately **$3.9 million (1% of contracted rent)** in 2021[239](index=239&type=chunk) - Real estate assets (land, buildings, improvements) are recorded at cost, with depreciation computed using the straight-line method over estimated useful lives (**30-40 years for buildings**)[240](index=240&type=chunk) - Acquisition costs are allocated to land, buildings, and intangibles (in-place leases, above/below market leases) based on estimated fair values, impacting depreciation and rental income recognition[241](index=241&type=chunk)[242](index=242&type=chunk) - External and internal costs related to real estate development and redevelopment, including interest, are capitalized until the property is substantially complete and available for occupancy[245](index=245&type=chunk)[247](index=247&type=chunk) Segment Capital Expenditures (in thousands) | Segment | 2021 Total Capital Expenditures | 2020 Total Capital Expenditures | | :---------------- | :------------------------------ | :------------------------------ | | Office Portfolio | $93,116 | $52,882 | | Retail Portfolio | $7,232 | $8,596 | | Multifamily Portfolio | $5,841 | $3,897 | | Mixed-Use Portfolio | $1,541 | $3,702 | | **Total** | **$107,730** | **$69,077** | - Capital expenditures increased in 2021, primarily due to tenant buildouts at The Landmark at One Market and First & Main, new development at La Jolla Commons Tower 3, and modernization of One Beach Street[251](index=251&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk) - Derivative instruments (interest rate swaps) are used to manage variable interest rate risk and are recorded at fair value, with effective portions recognized in other comprehensive income[254](index=254&type=chunk) - Impairment is recognized for properties held for use when expected undiscounted cash flows are less than carrying amount, requiring estimates of future cash flows and market conditions[255](index=255&type=chunk) - The company elected REIT taxation status, requiring annual distribution of at least **90% of net taxable income**, while its taxable REIT subsidiary is subject to federal and state income taxes[258](index=258&type=chunk)[259](index=259&type=chunk) [Property Acquisitions and Dispositions](index=58&type=section&id=Property%20Acquisitions%20and%20Dispositions) In 2021, the company acquired two office campuses in Bellevue, Washington, for approximately $209 million, with no dispositions - On July 7, 2021, the company acquired Eastgate Office Park (**280,000 sq ft office campus**) in Bellevue, Washington, for approximately **$125 million**, using cash on hand[260](index=260&type=chunk) - On September 10, 2021, the company acquired Corporate Campus East III (**161,000 sq ft office campus**) in Bellevue, Washington, for approximately **$84 million**, using cash on hand[261](index=261&type=chunk) - There were no property dispositions in 2021[261](index=261&type=chunk) - There were no acquisitions or dispositions in 2020[262](index=262&type=chunk) - On June 20, 2019, the company acquired La Jolla Commons (two office towers, **724,000 sq ft**) in San Diego, California, for approximately **$525 million**[263](index=263&type=chunk) - On May 22, 2019, the company sold Solana Beach - Highway 101 for approximately **$9.4 million**, resulting in a gain on sale of approximately **$0.6 million**[264](index=264&type=chunk) [Results of Operations](index=58&type=section&id=Results%20of%20Operations) Consolidated results for 2021 showed increased total property revenues and net operating income, driven by acquisitions and improved segment performance Consolidated Results of Operations (Year Ended December 31, 2021 vs. 2020, in thousands) | Metric | 2021 | 2020 | Change | % Change | | :-------------------------------------------------------- | :---------- | :---------- | :---------- | :------- | | Total property revenues | $375,828 | $344,573 | $31,255 | 9% | | Total property expenses | $129,774 | $121,119 | $8,655 | 7% | | Net operating income | $246,054 | $223,454 | $22,600 | 10% | | General and administrative | $(29,879) | $(26,581) | $(3,298) | 12% | | Depreciation and amortization | $(116,306) | $(108,292) | $(8,014) | 7% | | Interest expense | $(58,587) | $(53,440) | $(5,147) | 10% | | Loss on early extinguishment of debt | $(4,271) | $— | $(4,271) | 100% | | Net income | $36,593 | $35,588 | $1,005 | 3% | | Net income attributable to American Assets Trust, Inc. stockholders | $28,376 | $27,660 | $716 | 3% | - Total property revenue increased by **$29.9 million (9%)** to **$360.2 million** in 2021, driven by new office acquisitions and higher annualized base rents in same-store office properties[272](index=272&type=chunk) - Retail rental revenue increased by **$7.0 million (8%)** due to tenants reverting to contractual rent and higher real estate cost reimbursements[273](index=273&type=chunk) - Multifamily rental revenue increased by **$1.6 million (3%)** due to higher average occupancy (**92.1% in 2021 vs. 88.5% in 2020**)[273](index=273&type=chunk) - Mixed-use rental revenue increased by **$11.3 million (45%)** due to increased tourism and hotel occupancy in Hawaii[273](index=273&type=chunk) - Other property income increased by **$1.4 million (10%)** to **$15.6 million**, primarily from mixed-use properties due to increased tourism, partially offset by decreases in office and retail segments[274](index=274&type=chunk)[277](index=277&type=chunk) - Total property expenses increased by **$8.7 million (7%)** to **$129.8 million**, driven by new office acquisitions and increases in utilities, repairs, maintenance, and insurance as COVID-19 restrictions eased[278](index=278&type=chunk)[279](index=279&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk) - Real estate tax expense increased by **$0.9 million (2%)** to **$42.8 million**, mainly due to new office acquisitions and higher assessed values in office and multifamily segments, partially offset by a decrease in mixed-use taxes[285](index=285&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk) - Property operating income increased by **$22.6 million (10%)** to **$246.1 million**, primarily from new office acquisitions and improved performance in retail and mixed-use segments[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) - General and administrative expenses increased by **$3.3 million (12%)** due to higher employee-related costs and increased insurance/legal costs[291](index=291&type=chunk) - Depreciation and amortization expense increased by **$8.0 million (7%)** due to new office acquisitions and tenant improvements[292](index=292&type=chunk)[293](index=293&type=chunk) - Interest expense increased by **$5.1 million (10%)** due to the issuance of 3.375% Senior Notes, partially offset by debt repayments and capitalized interest[294](index=294&type=chunk) - A **$4.3 million loss on early extinguishment of debt** was recorded in 2021 due to the repayment of Senior Guaranteed Notes, Series A[295](index=295&type=chunk) - Other expense, net increased by **$0.9 million**, primarily due to higher income tax expense for the taxable REIT subsidiary and lower interest/investment income[296](index=296&type=chunk) [Liquidity and Capital Resources of American Assets Trust, Inc.](index=65&type=section&id=Liquidity%20and%20Capital%20Resources%20of%20American%20Assets%20Trust%2C%20Inc.) American Assets Trust, Inc. operates as a holding company, relying on Operating Partnership distributions to fund dividends and obligations - American Assets Trust, Inc. operates as a holding company, with its business conducted primarily through the Operating Partnership[299](index=299&type=chunk) - The company's only material asset is its ownership of partnership interests in the Operating Partnership (**78.8%** as of Dec 31, 2021), and it has no direct indebtedness[300](index=300&type=chunk)[301](index=301&type=chunk) - The company relies on distributions from the Operating Partnership to pay dividends on its common stock and meet other obligations[300](index=300&type=chunk)[302](index=302&type=chunk) - The company guarantees some of the Operating Partnership's debt, including its credit facility and carve-out guarantees on property-level debt[302](index=302&type=chunk) - Short-term liquidity requirements include future dividends, operating expenses, interest expense, and capital expenditures[304](index=304&type=chunk) - To maintain REIT status, the company must distribute at least **90% of its REIT taxable income** annually, which may necessitate raising capital in equity markets[306](index=306&type=chunk)[307](index=307&type=chunk) - In December 2021, the company established a new at-the-market (ATM) equity program to offer and sell up to **$250.0 million** in common stock, with proceeds intended for development, debt repayment, acquisitions, or general corporate purposes[310](index=310&type=chunk)[311](index=311&type=chunk) [Liquidity and Capital Resources of American Assets Trust, L.P.](index=66&type=section&id=Liquidity%20and%20Capital%20Resources%20of%20American%20Assets%20Trust%2C%20L.P.) The Operating Partnership generates significant cash from operations, used for expenses, debt service, and distributions, maintaining a conservative capital structure - The Operating Partnership generates significant cash from operations, used for operating expenses, capital expenditures, debt service, and distributions[312](index=312&type=chunk) - Short-term liquidity requirements are met through net cash from operations, existing cash reserves, and borrowings under its third amended and restated credit facility[312](index=312&type=chunk) - Long-term liquidity needs (debt repayment, property acquisitions, capital improvements) are funded by net cash from operations, long-term secured/unsecured indebtedness, and equity/debt securities issuances[312](index=312&type=chunk) - The Operating Partnership aims to maintain a conservative capital structure and investment-grade debt ratings (Moody's Baa3, S&P BBB-, Fitch BBB)[315](index=315&type=chunk) - Current cash flows from operations, cash on hand, the 2021 ATM Program, and the credit facility are believed to be sufficient to finance operations, debt service, and capital expenditures[316](index=316&type=chunk) [Contractual Obligations](index=67&type=section&id=Contractual%20Obligations) As of December 31, 2021, total contractual obligations amounted to approximately $2.18 billion, including princip

American Assets Trust, Inc. (NYSE:AAT) Q4 2021 Earnings Conference Call February 9, 2022 11:00 AM ET Company Participants Adam Wyll - President and Chief Operating Officer Ernest Rady - Chairman and Chief Executive Officer Bob Barton - Chief Financial Officer Steve Center - Vice President, Office Properties Abigail Rex - Vice President, Multifamily Jerry Gammieri - Senior Vice President, Construction and Development Conference Call Participants Haendel St. Juste - Mizuho Todd Thomas - KeyBanc Craig Schmidt ...

[EXPLANATORY NOTE](index=3&type=section&id=EXPLANATORY%20NOTE) This section clarifies the combined reporting of American Assets Trust, Inc. (REIT) and American Assets Trust, L.P. (Operating Partnership), highlighting the REIT's 78.8% ownership and the report's aim for efficiency and investor understanding - American Assets Trust, Inc. (REIT) is the sole general partner of American Assets Trust, L.P. (Operating Partnership), owning approximately **78.8% partnership interest** as of September 30, 2021, with the Operating Partnership holding substantially all company assets and conducting operations[9](index=9&type=chunk)[11](index=11&type=chunk) - The combined 10-Q filing aims to reflect management's view of the business as a single operating unit, enhance investor understanding, and improve efficiency by reducing duplicative disclosure[10](index=10&type=chunk) - Key differences between the two entities' financial statements are noncontrolling interests, stockholders' equity/partners' capital, and earnings per share/unit[12](index=12&type=chunk) [PART 1. FINANCIAL INFORMATION](index=6&type=section&id=PART%201.%20FINANCIAL%20INFORMATION) This part presents the unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the company [ITEM 1. FINANCIAL STATEMENTS](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements for both the REIT and Operating Partnership, including balance sheets, income statements, equity/capital statements, cash flow statements, and detailed accounting notes [Consolidated Financial Statements of American Assets Trust, Inc.](index=7&type=section&id=Consolidated%20Financial%20Statements%20of%20American%20Assets%20Trust%2C%20Inc.) This sub-section provides the unaudited consolidated financial statements for American Assets Trust, Inc., detailing the REIT's financial position, performance, and cash flows **Consolidated Balance Sheet Highlights (American Assets Trust, Inc.)** | Metric (in thousands) | Sep 30, 2021 (unaudited) | Dec 31, 2020 | | :-------------------- | :----------------------- | :----------- | | Total Assets | $3,051,070 | $2,817,309 | | Real Estate, Net | $2,680,957 | $2,492,734 | | Cash & Equivalents | $171,923 | $137,333 | | Total Liabilities | $1,832,379 | $1,563,903 | | Unsecured Notes Payable, Net | $1,537,772 | $1,196,677 | | Total Equity | $1,218,691 | $1,253,406 | **Consolidated Statements of Comprehensive Income Highlights (American Assets Trust, Inc.)** | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | | Total Revenue | $98,286 | $84,374 | | Total Operating Expenses | $70,617 | $64,051 | | Operating Income | $27,669 | $20,323 | | Net Income | $12,895 | $6,490 | | Net Income Attributable to AAT, Inc. Stockholders | $10,041 | $5,038 | | Basic EPS | $0.17 | $0.08 | | Diluted EPS | $0.17 | $0.08 | | Dividends Declared Per Common Share | $0.30 | $0.25 | **Consolidated Statements of Cash Flows Highlights (American Assets Trust, Inc.)** | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | | Net Cash from Operating Activities | $129,632 | $109,149 | | Net Cash Used in Investing Activities | $(263,345) | $(53,574) | | Net Cash from Financing Activities | $168,303 | $(8,468) | | Net Increase in Cash & Equivalents | $34,590 | $47,107 | | Cash, Cash Equivalents & Restricted Cash, End of Period | $173,639 | $156,558 | [Consolidated Financial Statements of American Assets Trust, L.P.](index=12&type=section&id=Consolidated%20Financial%20Statements%20of%20American%20Assets%20Trust%2C%20L.P.) This sub-section presents the unaudited consolidated financial statements for American Assets Trust, L.P., reflecting the Operating Partnership's financial position, performance, and cash flows **Consolidated Balance Sheet Highlights (American Assets Trust, L.P.)** | Metric (in thousands) | Sep 30, 2021 (unaudited) | Dec 31, 2020 | | :-------------------- | :----------------------- | :----------- | | Total Assets | $3,051,070 | $2,817,309 | | Real Estate, Net | $2,680,957 | $2,492,734 | | Cash & Equivalents | $171,923 | $137,333 | | Total Liabilities | $1,832,379 | $1,563,903 | | Unsecured Notes Payable, Net | $1,537,772 | $1,196,677 | **Consolidated Statements of Comprehensive Income Highlights (American Assets Trust, L.P.)** | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | | Total Revenue | $98,286 | $84,374 | | Total Operating Expenses | $70,617 | $64,051 | | Operating Income | $27,669 | $20,323 | | Net Income | $12,895 | $6,490 | | Net Income Attributable to AAT, L.P. | $12,750 | $6,403 | | Basic EPU | $0.17 | $0.08 | | Diluted EPU | $0.17 | $0.08 | | Distributions Per Unit | $0.30 | $0.25 | **Consolidated Statements of Cash Flows Highlights (American Assets Trust, L.P.)** | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | | Net Cash from Operating Activities | $129,632 | $109,149 | | Net Cash Used in Investing Activities | $(263,345) | $(53,574) | | Net Cash from Financing Activities | $168,303 | $(8,468) | | Net Increase in Cash & Equivalents | $34,590 | $47,107 | | Cash, Cash Equivalents & Restricted Cash, End of Period | $173,639 | $156,558 | [Notes to Consolidated Financial Statements (unaudited)](index=17&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28unaudited%29) This section details significant accounting policies, recent real estate acquisitions, fair value measurements, debt, equity, and other financial disclosures for the unaudited consolidated statements - As of September 30, 2021, the company owned or had a controlling interest in **30 operating properties** (office, retail, multifamily, mixed-use) and land held for development/construction in progress at three properties[49](index=49&type=chunk) - The company acquired Eastgate Office Park for approximately **$125 million** and Corporate Campus East III for approximately **$84 million**, both multi-tenant office campuses in Bellevue, Washington, during Q3 2021[64](index=64&type=chunk) **Unsecured Notes Payable Outstanding (in thousands)** | Description of Debt | Sep 30, 2021 Principal Balance | Dec 31, 2020 Principal Balance | Stated Interest Rate (Sep 30, 2021) | Stated Maturity Date | | :------------------ | :----------------------------- | :----------------------------- | :---------------------------------- | :------------------- | | 3.375% Senior Unsecured Notes | $500,000 | — | 3.38% | February 1, 2031 | | Total Unsecured Notes Payable | $1,550,000 | $1,200,000 | | | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=39&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's analysis of financial condition, operations, and cash flows, covering business overview, acquisitions, critical accounting policies, same-store performance, outlook, COVID-19 impact, leasing, capitalized costs, and key financial metrics like NOI and FFO [Forward-Looking Statements](index=39&type=section&id=Forward-Looking%20Statements) This section identifies forward-looking statements and outlines various risk factors that could materially affect actual results, including pandemic impacts, economic downturns, and interest rate fluctuations - Forward-looking statements are identified by terms like 'believes,' 'expects,' 'may,' 'will,' 'should,' 'intends,' 'plans,' 'estimates,' or 'anticipates'[167](index=167&type=chunk) - Key risk factors include the adverse effects of the COVID-19 pandemic, economic or real estate downturns, insufficient cash flows for debt service, tenant defaults, acquisition/disposition difficulties, interest rate fluctuations, and changes in governmental regulations[167](index=167&type=chunk)[168](index=168&type=chunk) [Overview](index=40&type=section&id=Overview) American Assets Trust, Inc. is a self-administered REIT owning and operating high-quality retail, office, multifamily, and mixed-use properties in key markets, holding a 78.8% interest in its Operating Partnership - The company's portfolio consists of **12 retail shopping centers**, **11 office properties**, a mixed-use property (hotel and retail), and **6 multifamily properties** as of September 30, 2021[171](index=171&type=chunk) - Core markets include San Diego, San Francisco Bay Area, Portland, Bellevue, and Oahu[171](index=171&type=chunk) - American Assets Trust, Inc. owned **78.8%** of its Operating Partnership as of September 30, 2021[171](index=171&type=chunk) [Acquisitions](index=40&type=section&id=Acquisitions) The company completed two significant office property acquisitions in Bellevue, Washington, totaling approximately **$209 million** during Q3 2021, funded with cash on hand - Acquired Eastgate Office Park (280,000 sq ft) for approximately **$125 million** on July 7, 2021[172](index=172&type=chunk) - Acquired Corporate Campus East III (161,000 sq ft) for approximately **$84 million** on September 10, 2021[172](index=172&type=chunk) - Both acquisitions were funded with cash on hand[172](index=172&type=chunk) [Critical Accounting Policies](index=40&type=section&id=Critical%20Accounting%20Policies) This section confirms no material changes to critical accounting policies during the reporting period, except as detailed in Footnote 1 - No material changes to critical accounting policies were made during the reporting period, except as noted in Footnote 1[173](index=173&type=chunk) [Same-store](index=41&type=section&id=Same-store) This section defines and reports same-store and redevelopment same-store metrics, used to evaluate property performance by excluding properties under significant development, acquisition, or disposition, and details NOI changes for retail and office segments - Same-store and redevelopment same-store metrics are used to provide consistent performance comparisons by excluding properties with significant development, acquisition, or disposition activity[175](index=175&type=chunk) **Same-Store Property Count** | Category | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Same-Store | 26 | 25 | 26 | 24 | | Non-Same-Store | 4 | 3 | 4 | 4 | | Total Properties | 30 | 28 | 30 | 28 | - For the nine months ended September 30, 2021, retail same-store NOI increased approximately **3.1%**, and office same-store NOI increased **0.7%** compared to the same period in 2020, with office redevelopment same-store NOI increasing **0.1%**[179](index=179&type=chunk) [Outlook](index=42&type=section&id=Outlook) The company's growth strategy focuses on same-store portfolio expansion, opportunistic development/redevelopment, and acquisitions in high-barrier-to-entry markets, subject to market conditions and interest rates - Growth strategy focuses on same-store portfolio growth, property development/redevelopment, and acquisitions in dynamic, high-barrier-to-entry markets[182](index=182&type=chunk) - The company intends to opportunistically develop future phases of Lloyd Portfolio and La Jolla Commons and redevelop One Beach Street, subject to market conditions and risk-adjusted returns[183](index=183&type=chunk) - Acquisitions are contingent on finding properties meeting qualitative standards and financial hurdles, with interest rates affecting pricing and financing[184](index=184&type=chunk) [COVID-19](index=42&type=section&id=COVID-19) The company monitors the uncertain impact of COVID-19, but believes its strong financial position and increasing rent collections will help manage the crisis, with hopes for economic reopening - The COVID-19 pandemic's future impact remains highly uncertain due to factors like virus mutations, containment actions, vaccine adoption, and economic effects[185](index=185&type=chunk) - For Q3 2021, the company collected approximately **99%** of office rents, **94%** of retail rents, and **93%** of multifamily rents, with approximately **96%** of deferred rent repayments due also collected[186](index=186&type=chunk) - The company believes its financial condition and liquidity are strong, positioning it to manage through the crisis, and is encouraged by increasing rent collection and broader macroeconomic conditions related to economic reopening[187](index=187&type=chunk)[188](index=188&type=chunk) [Leasing](index=43&type=section&id=Leasing) Same-store growth is driven by rental rate increases and occupancy changes, with positive rental rate increases for office and new retail leases in Q3 2021, despite some retail renewal decreases - Same-store growth is primarily driven by increases in rental rates on new leases and renewals, and changes in portfolio occupancy[189](index=189&type=chunk) **Leasing Activity (3 Months Ended Sep 30, 2021)** | Segment | Leases Signed (sq ft) | Comparable Renewal Leases (sq ft) | Cash Basis Rent Change | GAAP Basis Rent Change | Tenant Improvements & Incentives (per sq ft) | | :------ | :-------------------- | :-------------------------------- | :--------------------- | :--------------------- | :------------------------------------------- | | Office | 13,064 | 9,269 | +8.4% | +13.5% | $39.17 (new leases) | | Retail | 129,325 | 116,877 | -2.2% | +6.7% | $215.00 (new leases) | - New office leases for comparable spaces saw a **12.0% cash basis increase**, while new retail leases for comparable spaces saw a **34.6% cash basis increase**[189](index=189&type=chunk)[190](index=190&type=chunk) [Capitalized Costs](index=44&type=section&id=Capitalized%20Costs) The company capitalizes external and internal costs for real estate development and redevelopment, totaling **$34.6 million** for development/redevelopment and **$2.0 million** for interest in the nine months ended September 30, 2021 - Capitalized external and internal costs for development and redevelopment combined were **$34.6 million** for the nine months ended September 30, 2021, a significant increase from **$4.2 million** in 2020[195](index=195&type=chunk) - Capitalized interest costs related to development activities were **$2.0 million** for the nine months ended September 30, 2021, up from **$0.8 million** in 2020[196](index=196&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) This section compares consolidated results for the three and nine months ended September 30, 2021, versus 2020, analyzing changes in revenue, expenses, operating income, and other financial metrics [Comparison of the three months ended September 30, 2021 to the three months ended September 30, 2020](index=44&type=section&id=Comparison%20of%20the%20three%20months%20ended%20September%2030%2C%202021%20to%20the%20three%20months%20ended%20September%2030%2C%202020) For Q3 2021, total property revenues increased by **16%** to **$98.3 million**, driven by retail and mixed-use, while total property expenses rose **8%** to **$33.1 million**, resulting in a **36%** increase in operating income **Consolidated Results of Operations (3 Months Ended Sep 30, in thousands)** | Metric | 2021 | 2020 | | :----- | :--- | :--- | | Total Property Revenues | $98,286 | $84,374 | | Total Property Expenses | $33,110 | $30,699 | | Total Property Income | $65,176 | $53,675 | | Net Income Attributable to AAT, Inc. Stockholders | $10,041 | $5,038 | **Total Rental Revenue by Segment (3 Months Ended Sep 30, in thousands)** | Segment | 2021 | 2020 | | :------ | :--- | :--- | | Office | $46,174 | $43,453 | | Retail | $24,174 | $19,850 | | Multifamily | $12,224 | $11,821 | | Mixed-Use | $11,232 | $5,635 | | Total | $93,804 | $80,759 | - Mixed-use rental revenue nearly doubled (**+99%**) due to lifting of COVID-19 travel restrictions, leading to increased hotel occupancy (**78% vs 66%**) and revenue per available room (**$240 vs $138**)[208](index=208&type=chunk) [Comparison of the Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020](index=50&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030%2C%202021%20to%20the%20Nine%20Months%20Ended%20September%2030%2C%202020) For the nine months ended September 30, 2021, total property revenues increased **4%** to **$274.1 million**, but net income decreased **18%** to **$26.1 million**, primarily due to a **$4.3 million** early debt extinguishment expense **Consolidated Results of Operations (9 Months Ended Sep 30, in thousands)** | Metric | 2021 | 2020 | | :----- | :--- | :--- | | Total Property Revenues | $274,081 | $263,226 | | Total Property Expenses | $93,526 | $90,254 | | Total Property Income | $180,555 | $172,972 | | Net Income | $26,115 | $31,800 | | Early Extinguishment of Debt | $(4,271) | — | | Net Income Attributable to AAT, Inc. Stockholders | $20,239 | $24,762 | **Total Rental Revenue by Segment (9 Months Ended Sep 30, in thousands)** | Segment | 2021 | 2020 | | :------ | :--- | :--- | | Office | $133,092 | $128,714 | | Retail | $68,183 | $66,226 | | Multifamily | $35,864 | $35,525 | | Mixed-Use | $25,434 | $21,594 | | Total | $262,573 | $252,059 | - Mixed-use rental revenue increased by **$3.8 million (+18%)**, largely due to a **$3.7 million** increase from the Waikiki Beach Walk hotel, driven by increased occupancy (**64.3% vs 52.8%**) and revenue per available room (**$175 vs $138**) following relaxed COVID-19 travel restrictions[233](index=233&type=chunk) [Liquidity and Capital Resources of American Assets Trust, Inc.](index=54&type=section&id=Liquidity%20and%20Capital%20Resources%20of%20American%20Assets%20Trust%2C%20Inc.) The REIT's liquidity depends on Operating Partnership distributions for dividend payments, with the company maintaining an ATM equity program for opportunistic capital raising - American Assets Trust, Inc. relies on distributions from its Operating Partnership for liquidity, as it does not generate capital or hold debt directly[250](index=250&type=chunk) - The company's primary cash requirement is dividend payments to stockholders, and it guarantees some of the Operating Partnership's debt[250](index=250&type=chunk)[252](index=252&type=chunk) - As of September 30, 2021, the company had capacity to issue up to an additional **$132.6 million** in common stock under its ATM equity program[258](index=258&type=chunk) [Liquidity and Capital Resources of American Assets Trust, L.P.](index=56&type=section&id=Liquidity%20and%20Capital%20Resources%20of%20American%20Assets%20Trust%2C%20L.P.) The Operating Partnership meets short-term liquidity needs through cash from operations and credit facilities, while long-term needs are funded by operations, debt, and equity issuances, with **$171.9 million** in cash as of September 30, 2021 - The Operating Partnership's short-term liquidity requirements are met through net cash from operations, existing cash reserves, and borrowings under its unsecured line of credit[259](index=259&type=chunk) - Long-term liquidity needs for debt repayment, acquisitions, and capital improvements are expected to be met by net cash from operations, long-term debt, and equity issuances[260](index=260&type=chunk) - As of September 30, 2021, the Operating Partnership held **$171.9 million** in cash and cash equivalents[259](index=259&type=chunk) [Off-Balance Sheet Arrangements](index=57&type=section&id=Off-Balance%20Sheet%20Arrangements) The company currently has no off-balance sheet arrangements - The company has no off-balance sheet arrangements[264](index=264&type=chunk) [Cash Flows](index=57&type=section&id=Cash%20Flows) For the nine months ended September 30, 2021, operating cash flow increased by **$20.5 million**, investing cash flow decreased by **$209.8 million** due to acquisitions, and financing cash flow increased by **$168.3 million** from new unsecured notes **Cash Flow Summary (9 Months Ended Sep 30, in thousands)** | Metric | 2021 | 2020 | | :----- | :--- | :--- | | Net Cash Provided by Operating Activities | $129,632 | $109,149 | | Net Cash Used in Investing Activities | $(263,345) | $(53,574) | | Net Cash Provided by (Used in) Financing Activities | $168,303 | $(8,468) | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $173,639 | $156,558 | - The increase in cash from operations was linked to changes in accounts payable, increased depreciation/amortization from acquisitions, and early debt extinguishment[265](index=265&type=chunk) - Investing activities were heavily impacted by the acquisition of Eastgate Office Park and Corporate Campus East III, and capital expenditures at La Jolla Commons III and One Beach Street[266](index=266&type=chunk) [Net Operating Income](index=57&type=section&id=Net%20Operating%20Income) NOI, a non-GAAP measure, increased to **$180.6 million** for the nine months ended September 30, 2021, reflecting core property performance by excluding financing, depreciation, and administrative expenses - NOI is defined as operating revenues less property and related expenses, excluding general and administrative expenses, interest, depreciation, and other non-property items[267](index=267&type=chunk) - NOI is a supplemental measure to understand core property operations and trends in occupancy, rental rates, and operating costs, but it is not a substitute for GAAP net income[268](index=268&type=chunk)[270](index=270&type=chunk) **Reconciliation of NOI to Net Income (in thousands)** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Operating Income | $65,176 | $53,675 | $180,555 | $172,972 | | Net Income | $12,895 | $6,490 | $26,115 | $31,800 | [Funds from Operations](index=58&type=section&id=Funds%20from%20Operations) FFO, a non-GAAP measure per NAREIT standards, was **$111.5 million** for the nine months ended September 30, 2021, with diluted FFO per share/unit of **$1.46**, excluding non-operating items - FFO is a supplemental non-GAAP measure, calculated per NAREIT standards, used to measure operational performance by excluding non-operating items like depreciation and property disposition gains/losses[272](index=272&type=chunk)[273](index=273&type=chunk) **Reconciliation of FFO to Net Income (in thousands, except per share/unit data)** | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | | Net Income | $12,895 | $26,115 | | Plus: Real Estate Depreciation and Amortization | $30,680 | $85,827 | | Funds from Operations | $43,575 | $111,942 | | FFO Attributable to Common Stock and Units | $43,432 | $111,530 | | FFO Per Diluted Share/Unit | $0.57 | $1.46 | | Weighted Average Number of Common Shares and Units, Diluted | 76,173,444 | 76,169,626 | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=59&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section details the company's interest rate risk management, showing that a **1.0%** increase in rates would decrease fixed-rate debt fair value by **$73.9 million** and increase variable-rate debt annual interest expense by **$1.0 million** - The company manages market risk by matching anticipated cash inflows and outflows, primarily focusing on interest rate risk[276](index=276&type=chunk) - At September 30, 2021, the company had **$1.411 billion** of fixed-rate debt, where a **1.0%** increase in interest rates would decrease its fair value by approximately **$73.9 million**, while a **1.0%** decrease would increase it by **$88.1 million**[279](index=279&type=chunk) - At September 30, 2021, the company had **$250.0 million** of variable-rate debt, where a **1.0%** increase in market interest rates would increase annual interest expense by approximately **$1.0 million**, with a corresponding decrease in net income and cash flows[280](index=280&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=60&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Both American Assets Trust, Inc. and L.P. maintain effective disclosure controls and procedures, with no material changes to internal control over financial reporting identified as of September 30, 2021 - American Assets Trust, Inc. and American Assets Trust, L.P. maintain disclosure controls and procedures designed for timely and accurate reporting[281](index=281&type=chunk)[285](index=285&type=chunk) - As of September 30, 2021, management concluded that the disclosure controls and procedures for both entities were effective[282](index=282&type=chunk)[286](index=286&type=chunk) - No material changes to internal control over financial reporting were identified during the period[283](index=283&type=chunk)[287](index=287&type=chunk) [PART II. OTHER INFORMATION](index=61&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and a list of exhibits [ITEM 1. LEGAL PROCEEDINGS](index=61&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material legal proceedings expected to adversely affect its business or financial condition, anticipating only routine litigation - The company is not currently involved in any material legal proceedings that would significantly impact its business or financial condition[288](index=288&type=chunk) [ITEM 1A. RISK FACTORS](index=61&type=section&id=ITEM%201A.%20RISK%20FACTORS) No material changes to the risk factors previously disclosed in the company's annual report on Form 10-K for the year ended December 31, 2020, were reported - No material changes to risk factors were reported since the last annual report on Form 10-K[289](index=289&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=61&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) No unregistered sales of equity securities or use of proceeds occurred during the reporting period - No unregistered sales of equity securities or use of proceeds occurred[289](index=289&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=62&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[291](index=291&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=62&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[291](index=291&type=chunk) [ITEM 5. OTHER INFORMATION](index=62&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No other information is reported in this section - No other information to report[292](index=292&type=chunk) [ITEM 6. EXHIBITS](index=62&type=section&id=ITEM%206.%20EXHIBITS) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications under Sarbanes-Oxley and XBRL documents - The report includes certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act for both American Assets Trust, Inc. and American Assets Trust, L.P.[292](index=292&type=chunk) - XBRL (eXtensible Business Reporting Language) documents are filed, including schema, calculation, label, presentation, and definition linkbase documents[292](index=292&type=chunk) [SIGNATURES](index=63&type=section&id=SIGNATURES) The report was signed by Ernest Rady (Chairman and CEO) and Robert F. Barton (EVP, CFO) on October 29, 2021, for both American Assets Trust, Inc. and L.P - The report was signed by Ernest Rady (Chairman and CEO) and Robert F. Barton (EVP, CFO) on October 29, 2021[295](index=295&type=chunk)[296](index=296&type=chunk)

Financial Data and Key Metrics Changes - The company reported Q3 2021 FFO per share of $0.57, an increase of approximately 11.4% compared to Q2 2021 [16] - Net income attributable to common stockholders per share was $0.17 for Q3 2021 [16] - Total revenue increased by approximately $6.5 million over Q2 2021, representing a 7% increase [19] Business Line Data and Key Metrics Changes - The office portfolio grew by approximately 440,000 square feet or nearly 13% in Q3 due to two new acquisitions [24] - Same-store cash NOI overall was strong at 14% year-over-year, with office properties showing consistent strength [19] - Retail leasing activity improved, with new deals signed with brands like Columbia Sportswear and Williams-Sonoma [13] Market Data and Key Metrics Changes - The multifamily portfolio was 96% leased in Portland and 98% leased in San Diego [14] - Retail collections improved from 93% in July to 96% in October, indicating a recovery in the retail sector [38] - Mixed-use properties saw a drop in collections from 85% in July to 72% in October, attributed to seasonal factors [38] Company Strategy and Development Direction - The company is optimistic about future growth, focusing on high-quality properties in dynamic markets [8] - Recent acquisitions in Bellevue, Washington, are expected to drive rent growth [9] - The company aims to enhance properties with modern amenities to attract high-quality tenants [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery trajectory of the multifamily portfolio, particularly in San Diego [31] - The company anticipates further growth in 2022 and beyond, driven by strong local economies and demographics [8] - Management acknowledged challenges due to inflation in construction costs but remains optimistic about the value of their portfolio [50] Other Important Information - The Board of Directors approved a quarterly dividend of $0.30 per share for Q3 2021 [10] - The company had liquidity of approximately $522 million at the end of Q3 2021 [21] Q&A Session Summary Question: What is the outlook for the multifamily portfolio? - Management indicated that the multifamily portfolio is on an upward trend, particularly in San Diego, with a tight rental market [31] Question: Can you comment on the leasing environment for One Beach Street? - A strategic lease termination occurred to facilitate construction, which management believes will enhance the project's value [33] Question: What is driving changes in rent collections? - Retail collections have improved significantly as consumer spending has returned, while mixed-use properties experienced seasonal fluctuations [38][42] Question: What are the expectations for 2022 NOI? - Management expects 2022 to be a formative year, with confidence in recovery and growth in 2023 [48] Question: How is the company addressing inflation in construction costs? - The company has locked in costs for current projects, but anticipates significant inflation in future construction expenses [52]

American Assets Trust, Inc. (NYSE:AAT) Q2 2021 Earnings Conference Call July 28, 0000 11:00 AM ET Company Participants Adam Wyll – President and Chief Operating Officer Ernest Rady – Chairman and Chief Executive Officer Bob Barton – Chief Financial Officer Steve Center – Vice President-Office Properties Chris Sullivan – Vice President-Retail Properties Conference Call Participants Lydia Jiang – Mizuho Todd Thomas – KeyBanc Craig Schmidt – Bank of America Operator Ladies and gentlemen, thank you for standing ...