ANNUAL REPORT 2022
CYCLE TESTED
AND PREPARED
AMERICAN ASSETS TRUST
2022 FORM 10-K
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Oregon
4 PROPERTIES
1 Retail
2 Office
1 Multifamily
Hawaii
3 PROPERTIES
2 Retail
1 Mixed Use
Washington
4 PROPERTIES
4 Office
4.1M
SQ FT. OF OFFICE
2022 HIGHLIGHTS*
3.2M
SQ FT. OF RETAIL
• 5.3% annualized total shareholder return (TSR) since our initial
public offering (IPO) in January 2011
• 7% compounded annual growth rate in our funds from operations
(FFO) since our IPO
• Achieved our highest ever FFO attributable to common stock and units
in 2022 of approximately $179 million, or $2.34 per diluted share and
unit, a 17% increase from the year ended December 31, 2021
• Achieved our highest ever total revenue of approximately $423 million
in 2022, a 12% increase from the year ended December 31, 2021
• Achieved our highest ever net operating income (NOI) of approxi-
mately $270 million in 2022, a 10% increase from the year ended
December 31, 2021
• Declared our highest ever aggregate dividends of $1.28 per share
in 2022, a 10% increase from the year ended December 31, 2021.
• Leased approximately 475,000 square feet of office space and
390,000 square feet of retail space in 2022
• Comparable office leasing spreads increased 17% and 22% on a
cash and GAAP basis, respectively, in 2022 as compared to 2021
• Comparable retail leasing spreads increased 5% and 17% on a
cash and GAAP basis, respectively, in 2022 as compared to 2021
• Multifamily portfolio realized same-store cash NOI growth of 11%
in 2022 as compared to 2021
• Amended and restated our credit facility, which together with our
$100 million term loan included as part of the credit facility,
increased our borrowing capacity to $500 million, extended the
maturity dates of our revolver and term loan, and transitioned our
borrowings to SOFR
• Negotiated an amendment and restatement of our term loan
agreement (which successfully closed a few days into 2023) to
increase our fully drawn borrowings to $225 million (with an interest
rate of approximately 5.47% and 5.57% for the first year and the
second year, respectively), extend the maturity date, and transition
our borrowings to SOFR
• Refinanced our sole secured asset, City Center Bellevue, with a
$75 million non-recourse mortgage with a fixed interest rate per
annum of 5.08% (interest only) and a 5-year term
•
Increased our efforts with respect to Environmental Sustainability,
Social Responsibility and Corporate Governance (ESG), Diversity,
Equity and Inclusion (DEI) and human capital, and received from
GRESB an “A” disclosure score, a ranking of 1st in our disclosure
comparison group, and a 4-star rating on standing investments
• Furthered construction activity on La Jolla Commons Tower 3, in
San Diego, California, and One Beach Street, in San Francisco,
California, which are on track for completion in 2023
• Maintained our investment grade credit ratings from all three
major U.S. credit rating agencies, consisting of a Baa3/Stable rat-
ing from Moody’s Investor Service, a BBB- /Stable rating from
Standard and Poor’s Ratings Services and a BBB/Stable rating
from Fitch Ratings
* FFO and NOI are non-GAAP financial measures of real estate companies operating performance. Please see
discussion of calculation and reconciliation in Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Form 10-K.
California
19 PROPERTIES
8 Retail
6 Office
5 Multifamily
Texas
1 PROPERTY
1 Retail
American Assets Trust, Inc. is a full-service, vertically integrated and self-administered real estate investment trust, or REIT, headquartered in San Diego, California. We have over 55 years of experience in acquiring, improving, developing and managing premier office, retail and residential properties throughout the United States in some of the nation’s most dynamic, high-barrier-to-entry markets primarily in Southern California, Northern California, Washington, Oregon and Hawaii. WAIKIKI BEACH WALK // HONOLULU, HI WAIKIKI BEACH WALK // HONOLULU, HI WAIKIKI BEACH WALK // HONOLULU, HI In 2022, we were faced with many macro-economic challenges, including heightened volatility in the capital markets, rising interest rates, a turbulent geopolitical environment and continued uncertainty in certain real estate assets classes, like commercial office, to name a few. But, nevertheless, 2022 marked a record year with respect to many of our key metrics, as we saw much better than forecasted financial results across virtu-ally all our asset classes. We achieved our highest ever annual FFO per diluted share ($2.34/share), aggregate dividends per share ($1.28/share) and total revenue (approximately $423 million) since our initial public offering (IPO) over 12 years ago, an increase of 17%, 10% and 12% respectively, over 2021. While we, along with virtually all of our peers, have had our fair share of challenges over the last three years, a silver lining is that because we have been cycle-tested many times over our 55+ year history, we believe we have proven that we are prepared for almost any scenario we may face, whether it be inflation, recession, depression, expansion, or, most likely, the unexpected. We attribute our resilience to several factors, including the strength of our portfolio and its asset-class diversity, our conservative balance sheet and ample liquidity, our efficient operating platform and our talented people, each of which guides us as we exercise business prudence and discipline with each decision we make. OUR PORTFOLIOOur thoughtfully assembled portfolio is comprised of a combination of high-quality office, retail, multifamily and mixed-use properties in desirable, high barrier-to-entry markets in the path of growth, education, innovation, and mass transportation. Since the founding of our company over 55 years ago, we have seen first-hand that asset class diversity makes our portfolio more resis-tant to volatility, as each sector has, at different times, enjoyed periods of growth and weathered periods of adversity. In 2022, we performed, as good, if not better, than most of our peers in each asset class, and believe that the quality and location of our assets well-positions us for further recovery and long-term growth: Office—In 2022, we leased approximately 475,000 square feet of office space, which together with our retail leasing performance (noted below), makes 2022 our second strongest year since our IPO in terms of total gross leasable area leased. We also saw comparable office leasing spreads increasing 17% and 22% on a cash and GAAP basis, respectively, in 2022 as compared to 2021. We recognize that the office sector is currently out-of-favor due to the continuing evolution of hybrid/remote working, but believe folks are increasingly recognizing the importance of working in the office to better innovate, collaborate, mentor one another, and make meaningful connections. Indeed, many companies (including ours) have implemented (or are in the process of implementing) more significant in-office work requirements, which we believe will push office utilization higher in our portfolio over the course of this year and beyond. Therefore, we continue to invest heavily in enhancing our office properties with meaningful capital improvements (e.g., state-of-the-art fitness centers, conference areas, indoor/outdoor gathering spaces, and sustainability ele-ments). In our view, this has made a major difference in our ability to retain existing tenants, attract new tenants and increase rents, and makes us well-prepared for the return-to-the-office movement that we remain optimistic for in the coming months. DEAR FELLOW STOCKHOLDERS Any projections contained in this letter contain forward-looking statements reflecting our good faith beliefs based on our view of current and future market conditions, including our underlying assumptions with respect to future leasing activity, rental rates, occupancy levels and inter-est rates, among others. Various factors may cause our actual performance to different materially from those contemplated herein. TOTAL SHAREHOLDER RETURNS5.3% // AAT7.6% // FTSE7.6% // RMZThe performance graph above compares the annualized stockholder return of our shares of common stock since our initial public offering on January 13, 2011 through December 31, 2022 with the returns of the same period for the MSCI US REIT Index and FTSE NAREIT Index. Returns reflect the reinvestment of dividends. Past performance is not an indication or guarantee of future results.Page 02 American Assets TrustPACIFIC RIDGE APARTMENTS // SAN DIEGO, CA Meanwhile, we have stayed the course on our two major office development projects, La Jolla Commons Tower 3 and One Beach Street, both on track for completion in 2023. La Jolla Commons Tower 3 is a new, approximately 213,000 square foot, 11-story Class A+ office tower located in San Diego’s University Town Center (UTC) submarket, adjacent to our two existing La Jolla Commons office towers. We are confident in our ability to lease this new building to high caliber tenants at premium rates, given UTC’s 4% direct vacancy rate, increas-ing job growth, higher education, and focus on the health care, life sciences and technology. At One Beach Street, in San Francisco, we are modernizing the interior common areas, upgrading building/mechanical systems, and unlocking views throughout the building, including a new rooftop deck with stunning views of Alcatraz and the Golden Gate Bridge. Notwithstanding current challenges, we remain bullish on San Francisco’s long-term prospects, and believe our two buildings there, The Landmark @ One Market and One Beach Street, are among the best in the city. Retail—Our retail leasing performance was robust in 2022, having leased approximately 390,000 square feet of retail space. Our percentage of retail area leased is now at approximately 94% with only 3% coming due to expire in 2023. We saw our retail portfolio comparable leasing spreads increase 5% and 17%, on a cash and GAAP basis, respectively, in 2022 as compared to 2021. The rebound of consumer spending (and thus retail leasing) since the pandemic validates our belief that our communities’ demand for in-person shopping and dining experiences at first-class shopping centers like ours is here to stay, notwithstanding temporary fluctuations—particularly with the demographics surrounding our shopping centers, with high average household incomes that have the ability to spend meaningful amounts. Multifamily—Our multifamily communities reside in locations with low unem-ployment rates, strong income growth, and high home ownership costs, so they have benefited from positive rent growth in 2022 as well. Our multi-family port-folio realized same-store cash NOI growth of 11% in 2022 as compared to 2021. For our San Diego apartment communities, net effective rents for leases (new leases and renewals combined) are now 29% above pre-pandemic levels and 17% higher year-over-year, compared to the fourth quarter of 2019 and 2021, respectively. And for our Portland apartment community, Hassalo on Eighth, net effective rents for leases (new leases and renewals combined) are now 4% above pre-pandemic levels and 13% higher year-over-year compared to the fourth quarter of 2019 and 2021, respectively. Given the quality of our apartment communities, our continued upkeep and improvements and strong demographics of San Diego and Portland, we remain optimistic long-term on our multifamily fundamentals. Mixed-Use—We are pleased with the recovery of our mixed-use property this year. In 2022, our net operating income for our Embassy Suites Hotel in Waikiki, Oahu, doubled compared to 2021, and was approximately the same as it was before COVID-19. Historically, guests from Japan contributed significantly to our mixed-use revenues, so we are satisfied to have enjoyed this rebound notwithstanding minimal Japanese tourism due to travel restrictions and weak-ness in the Japanese currency exchange rates. As Japan’s COVID-19-related travel restrictions were lifted in the 4th quarter of 2022 and its exchange rates are trending in a better direction, we are cautiously optimistic that we will see a meaningful increase in Japanese tourism to Waikiki in the near future and therefore more buoyance in our mixed-use results going forward. OUR BALANCE SHEETAnother contributing factor to our resilience is that we maintain a conservative balance sheet and ample liquidity. We aim to maintain a net debt/earnings before interest, taxes, depreciation and amortizing (EBITDA) ratio of 5.5x or below and believe we have a critical path to achieve that in the next few years, pending the lease up and stabilization of La Jolla Commons Tower 3 and One Beach Street. At December 31, 2022, we had liquidity of approximately $414 million, comprised of approximately $50 million of cash and cash equivalents and $364 million of availability on our revolving line of credit. After the refinancing of our term loan in early January 2023, we had liquidity of approximately $495 million, comprised of approximately $95 million of cash and cash equivalents and $400 million of availability on our revolving line of credit. 2022 Annual Report Page 03PACIFIC RIDGE APARTMENTS // SAN DIEGO, CA Page 04 American Assets TrustALAMO QUARRY MARKET // SAN ANTONIO, TXOUR OPERATING PLATFORM AND ESG We believe that our efficient operating platform also gives us an edge to manage our business through various economic cycles. We are vertically integrated and self-managed throughout our portfolio. Whenever feasible, we leverage in-house resources rather than paying third-party fees and expenses for services and expertise, whether that be engineering, security, legal, leasing or the like. This provides significant cost savings and accounts for our nimbleness in making business decisions and getting our work done in a timely and efficient manner. Another critical aspect of our operating platform is its integration of environ-mental sustainability, social responsibility, and corporate governance (ESG) objectives. We believe that a company’s success goes hand-in-hand with its ESG performance, and our focus on ESG initiatives was front and center during 2022. We invite you to read our most recent sustainability report, available on our website, detailing our ESG goals and progress with respect to these goals. We are proud to have received from GRESB an “A” disclosure store and near top rankings among our peer group on standing investments in 2022. OUR PEOPLEAs you will always hear us say, our greatest resource is our people, who work tenaciously and cohesively to successfully operate our company and endeavor to grow our earnings and net asset value on an accretive, long-term basis. The members of our executive team bring an average of 25 years of real estate experience to the table each day, and have navigated virtually every type of market cycle. Our Board of Directors consisting of very successful business and academic leaders advise us in our strategy, never losing sight of the shareholders that we work for. And our over 200 dedicated, skilled employees bring our objectives to life. We are grateful for each of these individuals who, together, make us who we are. On behalf of all of us at American Assets Trust, Inc., we wish you continued health and prosperity, and express our sincerest appreciation for your continued support through these most extraordinary times. Sincerely,ERNEST S. RADY ADAM WYLL Chairman and President and Chief Executive Officer Chief Operating Officer ROBERT F. BARTONExecutive Vice President and Chief Financial OfficerJERRY GAMMIERI CHRIS SULLIVAN Senior Vice President, Senior Vice President of Construction and Development Retail Properties STEVE CENTER EMILY MANDICSenior Vice President of Vice President, Regional Manager, Office Properties Portland and BellevueABIGAIL REXVice President of Multifamily, San Diego 2022 Annual Report Page 05(1) Represents FFO as Adjusted which excludes one time charges for early etinguishment of debt, loan transfer and consent fees and gains from disposition of assets. FFO as Adjusted may not be comparable to other REITs. A reconciliation of FFO to net income can be found in our Annual Report on Form 10-K.(2) As reported in our Annual Report on Form 10-K, includes the results of discontinued operations.FFO Per Share1Real Estate Assets2(At cost, $ in millions)$2,137$2,246$2,301$2,614$2,630$3,189$3,247‘14’15’16’17’18’19’20’21$3,529Rental Income2($ in millions)$246$262$279$299$310$344$330$360‘14’15’16’17’18’19’20’21$1.62$1.76$1.85$1.92$2.09$2.20$1.89$2.00‘14’15’16’17’18’19’20’21$2.34’22$403’22’22$3,671ARTIST RENDERING OF LA JOLLA COMMONS // SAN DIEGO, CA TOWER III (UNDER DEVELOPMENT)2022 Annual Report Page 05(1) Represents FFO as Adjusted which excludes one time charges for early etinguishment of debt, loan transfer and consent fees and gains from disposition of assets. FFO as Adjusted may not be comparable to other REITs. A reconciliation of FFO to net income can be found in our Annual Report on Form 10-K.(2) As reported in our Annual Report on Form 10-K, includes the results of discontinued operations.FFO Per Share1Real Estate Assets2(At cost, $ in millions)$2,137$2,246$2,301$2,614$2,630$3,189$3,247‘14’15’16’17’18’19’20’21$3,529Rental Income2($ in millions)$246$262$279$299$310$344$330$360‘14’15’16’17’18’19’20’21$1.62$1.76$1.85$1.92$2.09$2.20$1.89$2.00‘14’15’16’17’18’19’20’21$2.34’22$403’22’22$3,671ARTIST RENDERING OF LA JOLLA COMMONS // SAN DIEGO, CA TOWER III (UNDER DEVELOPMENT)2022 Annual Report Page 05(1) Represents FFO as Adjusted which excludes one time charges for early etinguishment of debt, loan transfer and consent fees and gains from disposition of assets. FFO as Adjusted may not be comparable to other REITs. A reconciliation of FFO to net income can be found in our Annual Report on Form 10-K.(2) As reported in our Annual Report on Form 10-K, includes the results of discontinued operations.FFO Per Share1Real Estate Assets2(At cost, $ in millions)$2,137$2,246$2,301$2,614$2,630$3,189$3,247‘14’15’16’17’18’19’20’21$3,529Rental Income2($ in millions)$246$262$279$299$310$344$330$360‘14’15’16’17’18’19’20’21$1.62$1.76$1.85$1.92$2.09$2.20$1.89$2.00‘14’15’16’17’18’19’20’21$2.34’22$403’22’22$3,671ARTIST RENDERING OF LA JOLLA COMMONS // SAN DIEGO, CA TOWER III (UNDER DEVELOPMENT)2022 Annual Report Page 05(1) Represents FFO as Adjusted which excludes one time charges for early etinguishment of debt, loan transfer and consent fees and gains from disposition of assets. FFO as Adjusted may not be comparable to other REITs. A reconciliation of FFO to net income can be found in our Annual Report on Form 10-K.(2) As reported in our Annual Report on Form 10-K, includes the results of discontinued operations.FFO Per Share1Real Estate Assets2(At cost, $ in millions)$2,137$2,246$2,301$2,614$2,630$3,189$3,247‘14’15’16’17’18’19’20’21$3,529Rental Income2($ in millions)$246$262$279$299$310$344$330$360‘14’15’16’17’18’19’20’21$1.62$1.76$1.85$1.92$2.09$2.20$1.89$2.00‘14’15’16’17’18’19’20’21$2.34’22$403’22’22$3,671ARTIST RENDERING OF LA JOLLA COMMONS // SAN DIEGO, CA TOWER III (UNDER DEVELOPMENT)2022 Annual Report Page 05(1) Represents FFO as Adjusted which excludes one time charges for early etinguishment of debt, loan transfer and consent fees and gains from disposition of assets. FFO as Adjusted may not be comparable to other REITs. A reconciliation of FFO to net income can be found in our Annual Report on Form 10-K.(2) As reported in our Annual Report on Form 10-K, includes the results of discontinued operations.FFO Per Share1Real Estate Assets2(At cost, $ in millions)$2,137$2,246$2,301$2,614$2,630$3,189$3,247‘14’15’16’17’18’19’20’21$3,529Rental Income2($ in millions)$246$262$279$299$310$344$330$360‘14’15’16’17’18’19’20’21$1.62$1.76$1.85$1.92$2.09$2.20$1.89$2.00‘14’15’16’17’18’19’20’21$2.34’22$403’22’22$3,671ARTIST RENDERING OF LA JOLLA COMMONS // SAN DIEGO, CA TOWER III (UNDER DEVELOPMENT)2022 Annual Report Page 05(1) Represents FFO as Adjusted which excludes one time charges for early etinguishment of debt, loan transfer and consent fees and gains from disposition of assets. FFO as Adjusted may not be comparable to other REITs. A reconciliation of FFO to net income can be found in our Annual Report on Form 10-K.(2) As reported in our Annual Report on Form 10-K, includes the results of discontinued operations.FFO Per Share1Real Estate Assets2(At cost, $ in millions)$2,137$2,246$2,301$2,614$2,630$3,189$3,247‘14’15’16’17’18’19’20’21$3,529Rental Income2($ in millions)$246$262$279$299$310$344$330$360‘14’15’16’17’18’19’20’21$1.62$1.76$1.85$1.92$2.09$2.20$1.89$2.00‘14’15’16’17’18’19’20’21$2.34’22$403’22’22$3,671ARTIST RENDERING OF LA JOLLA COMMONS // SAN DIEGO, CA TOWER III (UNDER DEVELOPMENT) Page 06 American Assets TrustLeased Increase in same store cash NOILeased, Waikiki Beach Walk—Retail Average Occupancy, Waikiki Beach Walk—Embassy Suites 92.5%8.5%8.0% 93.5%0.3% 93.8%71.8% 91.8%11.4%Leased1Increase in same store cash NOI, excluding properties held for redevelopmentIncrease in same store cash NOI, including properties held for redevelopment Leased Increase in same store cash NOIOfficeMultifamilyRetailMixed-Use• 31 office, retail, multifamily and mixed-use properties• Approximately 7.2 million rentable square feet of retail and office space (including mixed-use retail space), 2,110 residential units (including 120 RV spaces) and a 369-room hotel• Land at three of our properties is classified as held for development and construction in progressPortfolio Summary (As of December 31, 2022)* * NOI is a non-GAAP financial measure of real estate companies operating performance. Please see discussion of calculation and reconciliation in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K. Percentage change of NOI listed above is on a year-over-year basis. (1) Excludes One Beach Street, located in San Francisco, CA, which is currently under redevelopment; Bel-Spring 520, located in Bellevue, WA, which was acquired on March 8, 2022; and the 710 building at Lloyd District Portfolio, located in Portland, OR, which was placed into operations on November 1, 2022, approximately one year after completing renovations of the building.THE LANDMARK @ ONE MARKET // SAN FRANCISCO, CA AMERICAN ASSETS TRUST
2022 FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
or
☒
☐
AMERICAN ASSETS TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
Commission file number: 001-35030
AMERICAN ASSETS TRUST, L.P.
(Exact Name of Registrant as Specified in its Charter)
Commission file number: 33-202342-01
Maryland (American Assets Trust, Inc.)
Maryland (American Assets Trust, L.P.)
(State or other jurisdiction of incorporation or organization)
27-3338708 (American Assets Trust, Inc.)
27-3338894 (American Assets Trust, L.P.)
(IRS Employer Identification No.)
3420 Carmel Mountain Road, Suite 100
San Diego, California 92121
(Address of Principal Executive Offices and Zip Code)
(858) 350-2600
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant
American Assets Trust, Inc.
American Assets Trust, L.P.
Title of Each Class
Common Stock, $.01 par value
per share
None
Trading Symbol
AAT
Name Of Each Exchange On Which
Registered
New York Stock Exchange
None
None
Securities registered pursuant to Section 12(g) of the Act:
American Assets Trust, Inc.
American Assets Trust, L.P.
None
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
American Assets Trust, Inc.
American Assets Trust, L.P.
☒ Yes ☐ No
☐ Yes ☒ No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
American Assets Trust, Inc.
American Assets Trust, L.P.
☐ Yes ☒ No
☐ Yes ☒ No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90
American Assets Trust, Inc.
American Assets Trust, L.P.
☒ Yes ☐ No
☒ Yes ☐ No
days.
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the Registrant was required to submit and post such
American Assets Trust, Inc.
American Assets Trust, L.P.
☒ Yes ☐ No
☒ Yes ☐ No
files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
American Assets Trust, Inc.
Large Accelerated Filer
☒
Non-Accelerated Filer
Emerging Growth Company ☐
☐
Accelerated Filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. o
American Assets Trust, L.P.
Large Accelerated Filer
☐
Non-Accelerated Filer
Emerging Growth Company ☐
☒
Accelerated Filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7562(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of
the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of
incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period
pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
American Assets Trust, Inc.
American Assets Trust, L.P.
☐ Yes ☒ No
☐ Yes ☒ No
Act).
The aggregate market value of American Assets Trust, Inc.'s common shares held by non-affiliates of the Registrant,
based upon the closing sales price of the Registrant's common shares on June 30, 2022 was $1.560 billion.
The number of American Assets Trust, Inc.’s common shares outstanding on February 10, 2023 was 60,717,835.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of American Assets Trust, Inc.'s Proxy Statement with respect to its 2023 Annual Meeting of Stockholders to be filed
not later than 120 days after the end of its fiscal year are incorporated by reference into Part III hereof.
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2022 of American Assets Trust,
Inc., a Maryland corporation, and American Assets Trust, L.P., a Maryland limited partnership, of which American Assets
Trust, Inc. is the parent company and sole general partner. Unless otherwise indicated or unless the context requires otherwise,
all references in this report to “we,” “us,” “our” or “the company” refer to American Assets Trust, Inc. together with its
consolidated subsidiaries, including American Assets Trust, L.P. In statements regarding qualification as a real estate
investment trust, or REIT, such terms refer solely to American Assets Trust, Inc. Unless otherwise indicated or unless the
context requires otherwise, all references in this report to “our Operating Partnership” or “the Operating Partnership” refer to
American Assets Trust, L.P. together with its consolidated subsidiaries.
American Assets Trust, Inc. operates as a REIT and is the sole general partner of the Operating Partnership. As
of December 31, 2022, American Assets Trust, Inc. owned an approximate 78.8% partnership interest in the Operating
Partnership. The remaining 21.2% partnership interests are owned by non-affiliated investors and certain of our directors and
executive officers. As the sole general partner of the Operating Partnership, American Assets Trust, Inc. has full, exclusive and
complete authority and control over the Operating Partnership’s day-to-day management and business, can cause it to enter into
certain major transactions, including acquisitions, dispositions and refinancings, and can cause changes in its line of business,
capital structure and distribution policies.
The company believes that combining the annual reports on Form 10-K of American Assets Trust, Inc. and the Operating
Partnership into a single report will result in the following benefits:
•
•
•
•
better reflects how management and the analyst community view the business as a single operating unit;
enhance investors' understanding of American Assets Trust, Inc. and the Operating Partnership by enabling them to
view the business as a whole and in the same manner as management;
greater efficiency for American Assets Trust, Inc. and the Operating Partnership and resulting savings in time, effort
and expense; and
greater efficiency for investors by reducing duplicative disclosure by providing a single document for their review.
The management of American Assets Trust, Inc. and the Operating Partnership is the same and operates American Assets
Trust, Inc. and the Operating Partnership as one enterprise.
There are certain differences between American Assets Trust, Inc. and the Operating Partnership, which are reflected in
the disclosures in this report. We believe it is important to understand the differences between American Assets Trust, Inc. and
the Operating Partnership in the context of how American Assets Trust, Inc. and the Operating Partnership operate as an
interrelated consolidated company. American Assets Trust, Inc. is a REIT, whose only material asset is its ownership of
partnership interests of the Operating Partnership. As a result, American Assets Trust, Inc. does not conduct business itself,
other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and
guaranteeing certain debt of the Operating Partnership. American Assets Trust, Inc. itself does not hold any indebtedness. The
Operating Partnership holds substantially all the assets of the company, directly or indirectly holds the ownership interests in
the company's real estate ventures, conducts the operations of the business and is structured as a partnership with no publicly-
traded equity. Except for net proceeds from public equity issuances by American Assets Trust, Inc., which are generally
contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital
required by the company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or
indirect incurrence of indebtedness or through the issuance of operating partnership units.
Noncontrolling interests and stockholders’ equity and partners’ capital are the main areas of difference between the
consolidated financial statements of American Assets Trust, Inc. and those of American Assets Trust, L.P. The partnership
interests in the Operating Partnership that are not owned by American Assets Trust, Inc. are accounted for as partners’ capital in
the Operating Partnership’s financial statements and as noncontrolling interests in American Assets Trust, Inc.’s financial
statements. To help investors understand the significant differences between American Assets Trust, Inc. and the Operating
Partnership, this report presents the following separate sections for each of American Assets Trust, Inc. and the Operating
Partnership:
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consolidated financial statements;
the following notes to the consolidated financial statements:
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Debt;
Equity/Partners' Capital; and
Earnings Per Share/Unit;
• Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities; and
Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of
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Operations.
This report also includes separate Item 9A. Controls and Procedures sections and separate Exhibit 31 and 32 certifications
for each of American Assets Trust, Inc. and the Operating Partnership in order to establish that the Chief Executive Officer and
the Chief Financial Officer of American Assets Trust, Inc. have made the requisite certifications and American Assets Trust,
Inc. and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and
18 U.S.C. §1350.
AMERICAN ASSETS TRUST, INC. AND AMERICAN ASSETS TRUST, L.P.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2022
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15. DELINQUENT SECTION 16(A) REPORTS
PART IV
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
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Forward Looking Statements.
We make statements in this report that are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of
the Securities Exchange Act of 1934, as amended, or the Exchange Act). In particular, statements pertaining to our capital
resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our statements
regarding anticipated growth in our funds from operations and anticipated market conditions, demographics and results of
operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking
terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,”
“estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of
or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking
statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future
events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may
not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that
they will happen at all). The following factors, among others, could cause actual results and future events to differ materially
from those set forth or contemplated in the forward-looking statements:
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the impact of epidemics, pandemics, or other outbreaks of illness, disease or virus (such as the outbreak of
COVID-19 and its variants) and the actions taken by government authorities and others related thereto,
including the ability of our company, our properties and our tenants to operate;
adverse economic or real estate developments in our markets;
our failure to generate sufficient cash flows to service our outstanding indebtedness;
defaults on, early terminations of or non-renewal of leases by tenants, including significant tenants;
difficulties in identifying properties to acquire and completing acquisitions;
difficulties in completing dispositions;
our failure to successfully operate acquired properties and operations;
our inability to develop or redevelop our properties due to market conditions;
fluctuations in interest rates and increased operating costs;
risks related to joint venture arrangements;
our failure to obtain necessary outside financing;
on-going litigation;
general economic conditions;
financial market fluctuations;
risks that affect the general office, retail, multifamily and mixed-use environment;
the competitive environment in which we operate;
decreased rental rates or increased vacancy rates;
conflicts of interests with our officers or directors;
lack or insufficient amounts of insurance;
environmental uncertainties and risks related to adverse weather conditions and natural disasters;
other factors affecting the real estate industry generally;
limitations imposed on our business and our ability to satisfy complex rules in order for American Assets
Trust, Inc. to continue to qualify as a real estate investment trust, or REIT, for U.S. federal income tax
purposes; and
changes in governmental regulations or interpretations thereof, such as real estate and zoning laws and
increases in real property tax rates and taxation of REITs.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim
any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or
factors, or new information, data or methods, future events or other changes. For a further discussion of these and other factors
that could impact our future results, performance or transactions, see the section entitled “Item 1A. Risk Factors.”
1 Summary of Risk Factors
An investment in our securities is subject to numerous risks and uncertainties, including those highlighted in the section entitled
"Item 1.A Risk Factors." The following is a summary of some of the principal risks related to an investment in our company.
• Our portfolio of properties is dependent upon regional and local economic conditions and is geographically
concentrated in California, Washington, Oregon, Texas and Hawaii, which may cause us to be more
susceptible to adverse developments in those markets than if we owned a more geographically diverse
portfolio.
• We have a substantial amount of indebtedness, which may expose us to the risk of default under our debt
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obligations.
The continuing impacts of COVID-19 and 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.
• Work from home, flexible work schedules, open workplaces, videoconferencing, and teleconferencing are
becoming more common, particularly as a result of COVID-19, which may reduce the demand for office
space and cause a reduction of rental rates and property valuation at our office properties on a temporary and/
or prolonged basis.
• We depend on significant tenants in our office properties, and a bankruptcy, insolvency or inability to pay
rent of any of these tenants may adversely affect the income produced by our office properties and could have
an adverse effect on our financial condition, results of operations, cash flow and the per share trading price of
our common stock.
Our retail shopping center properties depend on anchor stores or major tenants to attract shoppers and could
be adversely affected by the loss of, or a store closure by, one or more of these tenants.
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• Many of the leases at our retail properties contain “co-tenancy” or “go-dark” provisions, which, if triggered,
may allow tenants to pay reduced rent, cease operations or terminate their leases, any of which could
adversely affect our performance or the value of the applicable retail property.
• We may be unable to renew leases, lease vacant space or re-let space as leases expire, thereby increasing or
prolonging vacancies, which could adversely affect our financial condition, results of operations, cash flow
and per share trading price of our common stock.
• We face significant competition for acquisitions of real properties, which may reduce the number of
acquisition opportunities available to us and increase the costs of these acquisitions.
• High mortgage rates and/or unavailability of mortgage debt may make it difficult for us to finance or
refinance properties, which could reduce the number of properties we can acquire, our net income and the
amount of cash distributions we can make.
• Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our
investment in a property or group of properties subject to mortgage debt.
• Our third amended and restated credit facility, note purchase agreements and amended term loan agreement
restrict our ability to engage in some business activities, including our ability to incur additional indebtedness,
make capital expenditures and make certain investments, which could adversely affect our financial
condition, results of operations, cash flow and per share trading price of our common stock.
• We are subject to risks that affect the general retail environment, such as weakness in the economy, the level
of consumer spending, the adverse financial condition of large retailing companies and competition from
discount and internet retailers, any of which could adversely affect market rents for retail space and the
willingness or ability of retailers to lease space in our shopping centers.
• We face significant competition in the leasing market, which may decrease or prevent increases of the
occupancy and rental rates of our properties.
• We are subject to the business, financial and operating risks inherent to the hospitality and tourism industries,
including competition for guests with other hospitality properties and general and local economic conditions
that may affect demand for travel in general, any of which could adversely affect the revenues generated by
our hospitality or other properties.
2 • Our real estate development activities are subject to risks particular to development, such as unanticipated
expenses, delays and other contingencies, particularly in light of the continuing impacts of COVID-19, any of
which could adversely affect our financial condition, results of operations, cash flow and the per share trading
price of our common stock.
• Our success depends on key personnel whose continued service is not guaranteed, and the loss of one or more
of our key personnel could adversely affect our ability to manage our business and to implement our growth
strategies, or could create a negative perception in the capital markets.
Potential losses from earthquakes in California, Washington, Oregon and Hawaii may not be fully covered by
insurance.
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• We may be adversely affected by laws, regulations or other issues related to climate change.
• Our growth depends on external sources of capital that are outside of our control and may not be available to
us on commercially reasonable terms or at all, which could limit our ability, among other things, to meet our
capital and operating needs or make the cash distributions to American Assets Trust, Inc.'s stockholders
necessary to maintain our qualification as a REIT.
• Our performance and value are subject to risks associated with real estate assets and the real estate industry,
including local oversupply, reduction in demand or adverse changes in financial conditions of buyers, sellers
and tenants of properties, which could decrease revenues or increase costs, which would adversely affect our
financial condition, results of operations, cash flow and the per share trading price of our common stock.
• Our property taxes could increase due to property tax rate changes or reassessment, which would adversely
impact our cash flows.
• As an owner of real estate, we could incur significant costs and liabilities related to environmental matters.
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Failure to maintain our qualification as a REIT would have significant adverse consequences to us and the
value of our common stock.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions, and
the unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our
investment activities and/or to dispose of assets at inopportune times, which could adversely affect our
financial condition, results of operations, cash flow and per share trading price of our common stock.
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3 ITEM 1.
General
BUSINESS
PART I
Unless otherwise indicated or unless the context requires otherwise, references to “we,” “our,” “us” and “our company”
refer to American Assets Trust, Inc., a Maryland corporation, together with our consolidated subsidiaries, including American
Assets Trust, L.P., a Maryland limited partnership, of which we are the sole general partner and which we refer to in this report
as our Operating Partnership. In statements regarding qualification as a REIT, such terms refer solely to American Assets Trust,
Inc.
We are a full service, vertically integrated and self-administered real estate investment trust, or REIT, that owns, operates,
acquires and develops high quality office, retail, multifamily and mixed-use properties in attractive, high-barrier-to-entry
markets in Southern California, Northern California, Washington, Oregon, Texas and Hawaii. As of December 31, 2022, our
portfolio is comprised of twelve retail shopping centers; twelve office properties; a mixed-use property consisting of a 369-
room all-suite hotel and a retail shopping center; and six multifamily properties. Additionally, as of December 31, 2022, we
owned land at three of our properties that we classified as held for development and construction in progress. Our core markets
include San Diego, California; the San Francisco Bay Area, California; Bellevue, Washington; Portland, Oregon and Oahu,
Hawaii.
American Assets Trust, Inc. is a Maryland corporation that was formed on July 16, 2010 to acquire the entities owning
various controlling and noncontrolling interests in real estate assets owned and/or managed by Ernest S. Rady or his affiliates,
including the Ernest Rady Trust U/D/T March 13, 1983, or the Rady Trust, and did not have any operating activity until the
consummation of our initial public offering and the related acquisition of such interest on January 19, 2011. After the
completion of our initial public offering and the related acquisitions, our operations have been carried on through our Operating
Partnership. American Assets Trust, Inc., as the sole general partner of our Operating Partnership, has control of our Operating
Partnership and owned 78.8% of our Operating Partnership as of December 31, 2022. Accordingly, we consolidate the assets,
liabilities and results of operations of our Operating Partnership.
Our Competitive Strengths
We believe the following competitive strengths distinguish us from other owners and operators of commercial real estate
and will enable us to take advantage of new acquisition and development opportunities, as well as growth opportunities within
our portfolio:
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Irreplaceable Portfolio of High Quality Office, Retail and Multifamily Properties. We have acquired and
developed a high quality portfolio of office, retail and multifamily properties located in affluent
neighborhoods and sought-after business centers in San Diego, California, the San Francisco Bay Area,
California, Bellevue, Washington; Portland, Oregon; San Antonio, Texas and Oahu, Hawaii. Many of our
properties are located in in-fill locations where developable land is scarce or where we believe current zoning,
environmental and entitlement regulations significantly restrict new development. We believe that the
location of many of our properties will provide us an advantage in terms of generating higher internal revenue
growth on a relative basis.
Experienced and Committed Senior Management Team with Strong Sponsorship. The members of our
senior management team have significant experience in all aspects of the commercial real estate industry.
Properties Located in High-Barrier-to-Entry Markets with Strong Real Estate Fundamentals. Our core
markets currently include Southern California, Northern California, Washington, Oregon and Hawaii, which
we believe have attractive long-term real estate fundamentals driven by favorable supply and demand
characteristics.
Extensive Market Knowledge and Long-Standing Relationships Facilitate Access to a Pipeline of
Acquisition and Leasing Opportunities. We believe that our in-depth market knowledge and extensive
network of long-standing relationships in the real estate industry provide us access to an ongoing pipeline of
attractive acquisition and investment opportunities in and near our core markets, while also facilitating our
leasing efforts and providing us with opportunities to increase occupancy rates at our properties.
Internal Growth Prospects through Development, Redevelopment and Repositioning. The development and
redevelopment potential at several of our properties presents compelling growth prospects and our expertise
enhances our ability to capitalize on these opportunities.
Broad Real Estate Expertise with Office, Retail and Multifamily Focus. Our senior management team has
strong experience and capabilities across the real estate sector with significant expertise in the office, retail
and multifamily asset classes, which provides for flexibility in pursuing attractive acquisition, development
4 and repositioning opportunities. Ernest Rady, our Chairman and Chief Executive Officer, and Robert Barton,
our Chief Financial Officer, each have over 30 years of commercial real estate experience, and the other
members of senior management, including Adam Wyll, our President and Chief Operating Officer, each have
over 20 years of commercial real estate experience.
Business and Growth Strategies
Our primary business objectives are to increase operating cash flows, generate long-term growth and maximize
stockholder value. Specifically, we pursue the following strategies to achieve these objectives:
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Capitalizing on Acquisition Opportunities in High-Barrier-to-Entry Markets. We intend to pursue growth
through the strategic acquisition of attractively priced, high quality properties that are well located in their
submarkets, focusing on markets that generally are characterized by strong supply and demand
characteristics, including high barriers to entry and diverse industry bases, that appeal to institutional
investors.
Repositioning/Redevelopment and Development of Office, Retail and Multifamily Properties. Our strategy
is to selectively reposition and redevelop several of our existing or newly-acquired properties, and we will
also selectively pursue ground-up development of undeveloped land where we believe we can generate
attractive risk-adjusted returns.
Disciplined Capital Recycling Strategy. Our strategy is to pursue an efficient asset allocation strategy that
maximizes the value of our investments by selectively disposing of properties whose returns appear to have
been maximized and redeploying capital into acquisition, repositioning, redevelopment and development
opportunities with higher return prospects, in each case in a manner that is consistent with our qualification as
a REIT.
Proactive Asset and Property Management. We actively manage our properties, employ targeted leasing
strategies, leverage our existing tenant relationships and focus on reducing operating expenses to increase
occupancy rates at our properties, attract high quality tenants and increase property cash flows, thereby
enhancing the value of our properties.
Human Capital
At December 31, 2022, we had 216 employees. None of our employees are represented by a collective bargaining unit.
We believe that our relationship with our employees is good. We believe our commitment to our human capital resources is an
important component of our business that enables us to deliver superior performance in the ownership, operation, acquisition,
and development of our high quality office, retail, multifamily and mixed-use properties and tenant relationships. We provide
all employees with the opportunity to share their opinions in open dialogues with our human resources department and senior
management. We also provide all employees with a wide range of professional development experiences, both formal and
informal.
The safety and wellbeing of our employees is a paramount value for us, and the health and wellness of our employees is
critical to our success. We provide our employees with access to a variety of flexible and convenient health and wellness
programs designed to support their physical and mental health by providing tools and resources to help them improve or
maintain their health and encourage healthy behaviors. In response to COVID-19 and its variants, we implemented significant
changes that we believe were and continue to be in the best interests of our employees and which comply with government
orders in all the states and counties where we operate. These changes include a number of new health-related measures, such as
vaccination mandates for all employees (subject to certain permitted exceptions), requirements to wear face-masks at our
properties to the extent required by government regulations, increased hygiene, cleaning and sanitizing procedures at our
properties, social-distancing at our properties and limiting in-person meetings and other gatherings.
Additionally, we provide competitive compensation and benefits. In addition to salaries, employees may be eligible to
receive annual bonuses, stock-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare and
insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and family care resources.
We are committed to cultivating a diverse culture of inclusion that we believe makes a positive difference in our
employees’ lives and we actively work to improve workplace diversity, equity and inclusion. As of December 31, 2022, our
employees were:
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44% female; 56% male; and
53% ethnically diverse (i.e., Asian, African American, Hispanic or Latino and other (Native Hawaiian/
Pacific Islander and two or more of the foregoing)).
5 Tax Status
We have elected to be taxed as a REIT and believe we are organized and operate in a manner that has allowed us to
qualify and will allow us to remain qualified as a REIT for federal income tax purposes commencing with our taxable year
ended December 31, 2011. To maintain REIT status, we must meet a number of organizational and operational requirements,
including a requirement that we annually distribute at least 90% of our net taxable income to our stockholders (excluding any
net capital gains).
Insurance
We carry comprehensive general liability, fire, extended coverage, business interruption and rental loss insurance
covering all of the properties in our portfolio under a blanket insurance policy or standalone policy, in addition to other
coverages, such as trademark, cyber and pollution coverage, that may be appropriate for certain of our properties. We believe
the policy specifications and insured limits are appropriate and adequate for our properties given the relative risk of loss, the
cost of the coverage and industry practice; however, our insurance coverage may not be sufficient to fully cover our losses. We
do not carry insurance for certain losses, including losses caused by riots or war. Some of our policies, like those covering
losses due to terrorism, hail, flood, named storm and earthquakes, are insured subject to limitations involving large deductibles
or co-payments and policy limits that may not be sufficient to cover losses for such events. In addition, all our properties except
our property located in San Antonio, Texas are subject to an increased risk of earthquakes. While we carry earthquake insurance
on all of our properties, the amount of our earthquake insurance coverage may not be sufficient to fully cover losses from
earthquakes. We may self-insure, reduce or discontinue casualty, earthquake, terrorism or other insurance on some or all of our
properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage
discounted for the risk of loss. Also, if destroyed, we may not be able to rebuild certain of our properties due to current zoning
and land use regulations. As a result, we may be required to incur significant costs in the event of adverse weather conditions
and natural disasters. In addition, our title insurance policies may not insure for the current aggregate market value of our
portfolio, and we do not intend to increase our title insurance coverage if the market value of our portfolio increases. If we or
one or more of our tenants experiences a loss that is uninsured or that exceeds applicable policy limits, we could lose the capital
invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the
damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these
properties were irreparably damaged. Furthermore, we may not be able to obtain adequate insurance coverage at reasonable
costs in the future if the costs associated with property and casualty renewals become higher than anticipated or insurance
carriers no longer offer certain coverage.
Regulation
Our properties are subject to various covenants, laws, ordinances and regulations, including laws such as the Americans
with Disabilities Act of 1990, or ADA, and the Fair Housing Amendment Act of 1988, or FHAA, that impose further
restrictions on our properties and operations. Under the ADA and the FHAA, all public accommodations must meet federal
requirements related to access and use by disabled persons. Some of our properties may currently be in non-compliance with
the ADA or the FHAA. If one or more of the properties in our portfolio is not in compliance with the ADA, the FHAA or any
other regulatory requirements, we may be required to incur additional costs to bring the property into compliance and we might
incur governmental fines or be required to pay damages to private litigants. In addition, we do not know whether existing
requirements will change or whether future requirements will require us to make significant unanticipated expenditures. For
additional information, see the section titled “Risk Factors – Risks Related to the Real Estate Industry – We may incur
significant costs complying with various federal, state and local laws, regulations and covenants that are applicable to our
properties.”
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or
operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic
substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate and
clean up such contamination and liability for harm to natural resources. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be
joint and several. These liabilities could be substantial and the cost of any required remediation, removal, fines or other costs
could exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to
remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or personal or
property damage or materially adversely affect our ability to sell, lease or develop our properties or use our properties as
collateral for future borrowings. In addition, environmental laws may create liens on contaminated sites in favor of the
government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our
properties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be
operated, and these restrictions may require substantial expenditures.
6 Some of our properties have been or may be impacted by contamination arising from current or prior uses of the property,
or adjacent properties, for commercial or industrial purposes. Such contamination may arise from spills of petroleum or
hazardous substances or releases from tanks used to store such materials. For example, Del Monte Center is currently
undergoing remediation of dry cleaning solvent contamination from a former onsite dry cleaner. The environmental issue is
currently in the final stages of remediation which entails the long term ground monitoring by the appropriate regulatory agency
over the next five to seven years. The prior owner of Del Monte Center entered into a fixed fee environmental services
agreement in 1997 pursuant to which the remediation will be completed for approximately $3.5 million, with the remediation
costs paid for through funds held in an escrow account funded by the prior owner. We expect that the funds in this escrow
account will cover all remaining costs and expenses of the environmental remediation. However, if the Regional Water Quality
Control Board - Central Coast Region were to require further work costing more than the remaining escrowed funds, we could
be required to pay such overage although we may have a claim for such costs against the prior owner or our environmental
remediation consultant. In addition to the foregoing, though we possess Phase I Environmental Site Assessments for certain of
the properties in our portfolio, these assessments are limited in scope (e.g., they do not generally include soil sampling,
subsurface investigations or hazardous materials survey) and may have failed to identify all environmental conditions or
concerns. Furthermore, we do not have Phase I Environmental Site Assessment reports for all of the properties in our portfolio
and, as such, we may not be aware of all potential or existing environmental contamination liabilities at the properties in our
portfolio. As a result, we could potentially incur material liability for these issues, which could adversely impact our financial
condition, results of operations, cash flow and the per share trading price of our common stock.
As the owner of the buildings on our properties, we could face liability for the presence of hazardous materials (e.g.,
asbestos or lead) or other adverse conditions (e.g., poor indoor air quality) in our buildings. Environmental laws govern the
presence, maintenance, and removal of hazardous materials in buildings, and if we do not comply with such laws, we could face
fines for such noncompliance. Also, we could be liable to third parties (e.g., occupants of the buildings) for damages related to
exposure to hazardous materials or adverse conditions in our buildings, and we could incur material expenses with respect to
abatement or remediation of hazardous materials or other adverse conditions in our buildings. In addition, some of our tenants
routinely handle and use hazardous or regulated substances and wastes as part of their operations at our properties, which are
subject to regulation. Such environmental and health and safety laws and regulations could subject us or our tenants to liability
resulting from these activities. For additional information, see the section titled “Risk Factors – Risks Related to the Real Estate
Industry – As an owner of real estate, we could incur significant costs and liabilities related to environmental matters.”
Competition
We compete with a number of developers, owners and operators of office, retail, multifamily and mixed-use real estate,
many of which own properties similar to ours in the same markets in which our properties are located and some of which have
greater financial resources than we do. In operating and managing our portfolio, we compete for tenants based on a number of
factors, including location, rental rates, security, flexibility and expertise to design space to meet prospective tenants needs and
the manner in which the property is operated, maintained and marketed. As leases at our properties expire, we may encounter
significant competition to renew or re-let space in light of the large number of competing properties within the markets in which
we operate. As a result, we may be required to provide rent concessions or abatements, incur charges for tenant improvements
and other inducements, including early termination rights or below market renewal options, or we may not be able to timely
lease vacant space. In such cases, our financial condition, results of operations, cash flow, per share trading price of our
common stock and ability to satisfy our debt service obligations and to pay dividends may be adversely affected.
We also face competition when pursuing acquisition and disposition opportunities. Our competitors may be able to pay
higher property acquisition prices, may have private access to opportunities not available to us and otherwise may be in a better
position to acquire a property. Competition may also have the effect of reducing the number of suitable acquisition
opportunities available to us, increasing the price required to consummate an acquisition opportunity and generally reducing the
demand for office, retail, mixed-use and multifamily space in our markets. Likewise, competition with sellers of similar
properties to locate suitable purchasers may result in us receiving lower proceeds from a sale or in us not being able to dispose
of a property at a time of our choosing due to the lack of an acceptable return.
Segments
We operate in four business segments: office, retail, multifamily and mixed-use. Information related to our business
segments for 2022, 2021 and 2020 is set forth in Note 17 to our consolidated financial statements in Item 8 of this Report.
7 Tenants Accounting for over 10% of Revenues
None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2022, 2021
or 2020. Google LLC at The Landmark at One Market accounted for approximately 12.7%, 13.6% and 14.1% of total office
segment revenues for the years ended December 31, 2022, 2021 and 2020, respectively. LPL Holdings, Inc. at La Jolla
Commons accounted for approximately 13.2%, 14.4% and 15.3% of total office segment revenues for the years ended
December 31, 2022, 2021 and 2020, respectively.
Foreign Operations
We do not engage in any foreign operations or derive any revenue from foreign sources.
Available Information
We file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to those reports with the Securities and Exchange Commission, or the SEC. You may obtain copies of these
documents by accessing the SEC’s website at www.sec.gov. In addition, as soon as reasonably practicable after such materials
are furnished to the SEC, we make copies of these documents available to the public free of charge through our website at
www.americanassetstrust.com, or by contacting our Secretary at our principal office, which is located at 3420 Carmel Mountain
Road, Suite 100, San Diego, California 92121. Our telephone number is (858) 350-2600. Specifically, we use the investor
relations section of our website as a means of disclosing material non-public information and for complying with our disclosure
obligations under Regulation FD. Investors should monitor such website, in addition to following our press releases, SEC
filings and public calls and webcasts. The information contained on our website and accessible through the SEC’s website is not
a part of this report and is not incorporated herein by reference.
Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Policies and Procedures for Complaints
Regarding Accounting, Internal Accounting Controls, Fraud or Auditing Matters, Insider Trading Compliance Program and the
charters of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are all
available in the Governance section of the Investors page of our website.
8 ITEM 1A.
RISK FACTORS
The following section includes the most significant factors that may adversely affect our business and operations. The
risk factors describe risks that may affect these statements but are not all-inclusive, particularly with respect to possible future
events. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to
time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our
business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. This discussion of risk factors includes many forward-looking statements. For
cautions about relying on forward-looking statements, please refer to the section entitled “Forward Looking Statements” at the
beginning of this Report immediately prior to Item 1.
Risks Related to Our Business and Operations
Our portfolio of properties is dependent upon regional and local economic conditions and is geographically concentrated in
California, Washington, Oregon, Texas and Hawaii, which may cause us to be more susceptible to adverse developments in
those markets than if we owned a more geographically diverse portfolio.
Our properties are located in California, Washington, Oregon, Texas and Hawaii, and substantially all of our properties
are concentrated in California, Washington, Oregon and Hawaii, which exposes us to greater economic risks than if we owned a
more geographically diverse portfolio. As a result, we are particularly susceptible to adverse economic or other conditions in
these markets (such as periods of economic slowdown or recession, business layoffs or downsizing, industry slowdowns,
changes in the local or global tourism industry, relocations of businesses, increases in real estate and other taxes and the cost of
complying with governmental regulations or increased regulation), as well as to natural disasters that occur in these markets
(such as earthquakes, wildfires, tropical storms, hurricanes, tornadoes and other events). If there is a downturn in the economy
in these markets, our operations and our revenue and cash available for distribution, including cash available to pay
distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders, could be materially
adversely affected. We cannot assure you that these markets will grow or that underlying real estate fundamentals will be
favorable to owners and operators of office, retail, mixed-use or multifamily properties. Our operations may also be affected if
competing properties are built in any of these markets. Moreover, submarkets within any of our core markets may be dependent
upon a limited number of industries. In addition, the State of California is regarded as more litigious, highly regulated and taxed
than many other states, all of which may reduce demand for office, retail, mixed-use or multifamily space in California. Any
adverse economic or real estate developments in the California, Washington, Oregon, Texas or Hawaii markets, or any decrease
in demand for office, retail, multifamily or mixed-use space resulting from the regulatory environment, business climate or
energy or fiscal problems, could adversely impact our financial condition, results of operations, cash flow, our ability to satisfy
our debt service obligations and our ability to pay distributions to American Assets Trust, Inc.'s stockholders or American
Assets Trust, L.P.'s unitholders.
We may be adversely affected by trends in office real estate.
In 2022, approximately 54% of our net operating income was from our office properties. Work from home, flexible work
schedules, open workplaces, videoconferencing, and teleconferencing are becoming more common, particularly as a result of
COVID-19. These practices may enable businesses to reduce their office space requirements. There is also an increasing trend
among some businesses to utilize shared office spaces and co-working spaces. A continuation of the movement towards these
practices could, over time, erode the overall demand for office space and, in turn, place downward pressure on occupancy,
rental rates and property valuations, which may adversely affect our financial condition, results of operations and cash flow.
We have a substantial amount of indebtedness, which may expose us to the risk of default under our debt obligations.
At February 10, 2023, we had total debt outstanding of $1.70 billion, excluding debt issuance costs, a portion of which
contains non-recourse carve-out guarantees and environmental indemnities from us and our Operating Partnership, and we may
incur significant additional debt to finance future acquisition and development activities. At December 31, 2022, we also had a
third amended and restated credit facility with a capacity of $500 million, consisting of a revolving line of credit of $400
million and an unsecured term loan of $100 million (Term Loan A). Additionally, on January 5, 2023, we amended and restated
our term loan agreement (a separate facility from that described in the preceding sentence) to consist of unsecured term loans of
$225 million (Term Loan B and Term Loan C). Payments of principal and interest on borrowings may leave us with insufficient
cash resources to operate our properties or to pay the dividends currently contemplated or necessary to maintain our REIT
qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse
consequences, including the following:
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our cash flow may be insufficient to meet our required principal and interest payments;
we may be unable to borrow additional funds as needed or on favorable terms, which could, among other
things, adversely affect our ability to meet operational needs;
we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable
than the terms of our original indebtedness;
we may be forced to dispose of one or more of our properties, possibly on unfavorable terms or in violation of
certain covenants to which we may be subject;
we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our
debt obligations; and
our default under any loan with cross-default provisions could result in a default on other indebtedness.
If any one of these events were to occur, our financial condition, results of operations, cash flow and per share trading
price of our common stock could be adversely affected. Furthermore, foreclosures could create taxable income without
accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the
Internal Revenue Code of 1986, or the Code.
We depend on significant tenants in our office properties, and a bankruptcy, insolvency or inability to pay rent of any of
these tenants may adversely affect the income produced by our office properties and could have an adverse effect on our
financial condition, results of operations, cash flow and the per share trading price of our common stock.
As of December 31, 2022, the three largest tenants in our office portfolio - Google LLC, LPL Holdings, Inc. and
Autodesk, Inc. - represented approximately 30.4% of the total annualized base rent in our office portfolio in the aggregate, and
13.5%, 10.1% and 6.8%, respectively, of the annualized base rent generated by our office properties. Google LLC is a
subsidiary of Alphabet, Inc. and provides internet related products and services. LPL Holdings, Inc. is a subsidiary of LPL
Financial Holdings, Inc. and provides an integrated platform of brokerage and investment advisory services to independent
financial advisors and financial advisors at financial institutions in the United States. Autodesk, Inc. is an American
multinational corporation that focuses on 3-D design software for use in the architecture, engineering, construction,
manufacturing, media and entertainment industries. The inability of a significant tenant to pay rent or the bankruptcy or
insolvency of a significant tenant may adversely affect the income produced by our office properties. If a tenant becomes
bankrupt or insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or insolvency.
In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease with us. Any claim against such
tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent owed
under the lease. If any of these tenants were to experience a downturn in its business or a weakening of its financial condition
resulting in its failure to make timely rental payments or causing it to default under its lease, we may experience delays in
enforcing our rights as landlord and may incur substantial costs in protecting our investment. Any such event could have an
adverse effect on our financial condition, results of operations, cash flow and the per share trading price of our common stock.
Our retail shopping center properties depend on anchor stores or major tenants to attract shoppers and could be adversely
affected by the loss of, or a store closure by, one or more of these tenants.
Our retail shopping center properties typically are anchored by large, nationally recognized tenants. At any time, our
tenants may experience a downturn in their business that may significantly weaken their financial condition. As a result, our
tenants, including our anchor and other major tenants, may fail to comply with their contractual obligations to us, seek
concessions in order to continue operations or declare bankruptcy, any of which could result in the termination of such tenants'
leases and the loss of rental income attributable to the terminated leases. In addition, certain of our tenants may cease operations
while continuing to pay rent, which could decrease customer traffic, thereby decreasing sales for our other tenants at the
applicable retail property. In addition to these potential effects of a business downturn, mergers or consolidations among large
retail establishments could result in the closure of existing stores or duplicate or geographically overlapping store locations,
which could include stores at our retail properties.
Loss of, or a store closure by, an anchor or major tenant could significantly reduce our occupancy level or the rent we
receive from our retail properties, and we may not have the right to re-lease vacated space or we may be unable to re-lease
vacated space at attractive rents or at all. Moreover, in the event of default by a major tenant or anchor store, we may
experience delays and costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements
with those parties. The occurrence of any of the situations described above, particularly if it involves an anchor tenant with
leases in multiple locations, could seriously harm our performance and could adversely affect the value of the applicable retail
property.
10 As of December 31, 2022, our largest anchor tenants were Lowe's, Sprouts Farmers Market and Nordstrom Rack, which
together represented approximately 10.3% of our total annualized base rent of our retail portfolio in the aggregate, and 5.0%,
2.9% and 2.4%, respectively, of the annualized base rent generated by our retail properties.
Many of the leases at our retail properties contain “co-tenancy” or “go-dark” provisions, which, if triggered, may allow
tenants to pay reduced rent, cease operations or terminate their leases, any of which could adversely affect our performance
or the value of the applicable retail property.
Many of the leases at our retail properties contain “co-tenancy” provisions that condition a tenant's obligation to remain
open, the amount of rent payable by the tenant or the tenant's obligation to continue occupancy on certain conditions, including:
(1) the presence of a certain anchor tenant or tenants; (2) the continued operation of an anchor tenant's store; and (3) minimum
occupancy levels at the applicable retail property. If a co-tenancy provision is triggered by a failure of any of these or other
applicable conditions, a tenant could have the right to cease operations, to terminate its lease early or to a reduction of its rent.
In periods of prolonged economic decline or government-imposed restrictions on operations (such as restrictions intended to
reduce the spread of COVID-19), there is a higher than normal risk that co-tenancy provisions will be triggered as there is a
higher risk of tenants closing stores or terminating leases during these periods. In addition to these co-tenancy provisions,
certain of the leases at our retail properties contain “go-dark” provisions that allow the tenant to cease operations while
continuing to pay rent. This could result in decreased customer traffic at the applicable retail property, thereby decreasing sales
for our other tenants at that property, which may result in our other tenants being unable to pay their minimum rents or expense
recovery charges. These provisions also may result in lower rental revenue generated under the applicable leases. To the extent
co-tenancy or go-dark provisions in our retail leases result in lower revenue or tenant sales or tenants' rights to terminate their
leases early or to a reduction of their rent, our performance or the value of the applicable retail property could be adversely
affected.
We may be unable to identify and complete acquisitions of properties that meet our criteria, which may impede our growth.
Our business strategy involves the acquisition of office, retail, multifamily and mixed-use properties. These activities
require us to identify suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with
our growth strategies. We continue to evaluate the market of available properties and may attempt to acquire properties when
strategic opportunities exist. However, we may be unable to acquire properties identified as potential acquisition opportunities.
Our ability to acquire properties on favorable terms, or at all, may be exposed to the following significant risks:
• we may incur significant costs and divert management attention in connection with evaluating and negotiating
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potential acquisitions, including ones that we are subsequently unable to complete;
even if we enter into agreements for the acquisition of properties, these agreements are subject to conditions to closing,
which we may be unable to satisfy; and
• we may be unable to finance the acquisition on favorable terms or at all.
If we are unable to finance property acquisitions or acquire properties on favorable terms, or at all, our financial
condition, results of operations, cash flow and per share trading price of our common stock could be adversely affected. In
addition, failure to identify or complete acquisitions of suitable properties could slow our growth.
We face significant competition for acquisitions of real properties, which may reduce the number of acquisition
opportunities available to us and increase the costs of these acquisitions.
The current market for acquisitions continues to be extremely competitive. This competition may increase the demand for
the types of properties in which we typically invest and, therefore, reduce the number of suitable acquisition opportunities
available to us and increase the prices paid for such acquisition properties. We also face significant competition for attractive
acquisition opportunities from an indeterminate number of investors, including publicly traded and privately held REITs,
private equity investors and institutional investment funds, some of which have greater financial resources than we do, a greater
ability to borrow funds to acquire properties and the ability to accept more risk than we can prudently manage, including risks
with respect to the geographic proximity of investments and the payment of higher acquisition prices. This competition will
increase if investments in real estate become more attractive relative to other forms of investment. Competition for investments
may reduce the number of suitable investment opportunities available to us and may have the effect of increasing prices paid for
such acquisition properties and/or reducing the rents we can charge and, as a result, adversely affecting our operating results.
We may be unable to renew leases, lease vacant space or re-let space as leases expire, thereby increasing or prolonging
vacancies, which could adversely affect our financial condition, results of operations, cash flow and per share trading price
of our common stock.
11 As of December 31, 2022, leases representing 6.8% of the square footage and 9.9% of the annualized base rent of the
properties in our office, retail and retail portion of our mixed-use portfolios will expire in 2023, and an additional 9.1% of the
square footage of the properties in our office, retail and retail portion of our mixed-use portfolios was available. We cannot
assure you that leases will be renewed or that our properties will be re-let at rental rates equal to or above the current average
rental rates or that substantial rent abatements, tenant improvements, early termination rights or below market renewal options
will not be offered to attract new tenants or retain existing tenants. In addition, our ability to lease our multifamily properties at
favorable rates, or at all, is dependent upon the overall level of spending in the economy, which is adversely affected by, among
other things, job losses and unemployment levels, recession, personal debt levels, the downturn in the housing market, stock
market volatility and uncertainty about the future. If the rental rates for our properties decrease, our existing tenants do not
renew their leases or we do not re-let a significant portion of our available space and space for which leases will expire, our
financial condition, results of operations, cash flow and per share trading price of our common stock could be adversely
affected.
Our ability to grow will be limited if we cannot obtain additional capital.
If economic conditions and conditions in the capital markets are not favorable at the time we need to raise capital,
including as a result of factors such as economic recessions causing volatility and disruption in the capital and credit markets
and/or a high interest rate environment, we may need to obtain capital on less favorable terms than our current debt financings
or may otherwise be unable to refinance our existing debt facilities on more favorable terms. Equity capital could include our
common shares or preferred shares. We cannot guarantee that additional financing, refinancing or other capital will be available
in the amounts we desire or on favorable terms. Our access to debt or equity capital depends on a number of factors, including
the market's perception of our growth potential, our ability to pay dividends, and our current and potential future earnings.
Depending on the outcome of these factors as well as the impact of the economic environment, we could experience delay or
difficulty in implementing our growth strategy, including the development and redevelopment of our assets, on satisfactory
terms, or be unable to implement this strategy.
High mortgage rates and/or unavailability of mortgage debt may make it difficult for us to finance or refinance properties,
which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can
make.
If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we place
mortgage debt on properties, we may be unable to refinance the properties when the loans become due, or to refinance on
favorable terms. If interest rates are higher when we refinance our properties, our income could be reduced. If any of these
events occur, our cash flow could be reduced. This, in turn, could reduce cash available for distribution to our stockholders and
unitholders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money.
Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a
property or group of properties subject to mortgage debt.
Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on
indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property
securing any loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could adversely
affect the overall value of our portfolio of properties. Moreover, repayment of mortgage and other secured debt obligations
could limit the funds that are available to repay our unsecured debt obligations. For tax purposes, a foreclosure on any of our
properties that is subject to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to
the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage
exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash
proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.
Our future acquisitions may not yield the returns we expect, and we may otherwise be unable to operate these properties to
meet our financial expectations, which could adversely affect our financial condition, results of operations, cash flow and
per share trading price of our common stock.
Our future acquisitions and our ability to successfully operate the properties we acquire in such acquisitions may be
exposed to the following significant risks:
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even if we are able to acquire a desired property, competition from other potential acquirers may significantly
increase the purchase price;
we may acquire properties that are not accretive to our results upon acquisition, and we may not successfully
manage and lease those properties to meet our expectations;
our cash flow may be insufficient to meet our required principal and interest payments;
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we may spend more than budgeted amounts to make necessary improvements or renovations to acquired
properties;
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios
of properties, into our existing operations, and as a result our results of operations and financial condition
could be adversely affected;
• market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
•
we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with
respect to unknown liabilities, such as liabilities for clean-up of undisclosed environmental contamination,
claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities
incurred in the ordinary course of business and claims for indemnification by general partners, directors,
officers and others indemnified by the former owners of the properties.
If we cannot operate acquired properties to meet our financial expectations, our financial condition, results of operations,
cash flow and per share trading price of our common stock could be adversely affected.
We may not be able to control our operating costs or our expenses may remain constant or increase, even if our revenues do
not increase, causing our results of operations to be adversely affected.
Factors that may adversely affect our ability to control operating costs include the need to pay for insurance and other
operating costs, including real estate taxes, which could increase over time, the need periodically to repair, renovate and re-
lease space, the cost of compliance with governmental regulation, including zoning and tax laws, the potential for liability under
applicable laws, interest rate levels and the availability of financing. If our operating costs increase as a result of any of the
foregoing factors, our results of operations may be adversely affected.
The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors
and competition cause a reduction in income from the property. As a result, if revenues decline, we may not be able to reduce
our expenses accordingly. Costs associated with real estate investments, such as real estate taxes, insurance, loan payments and
maintenance, generally will not be reduced even if a property is not fully occupied or other circumstances cause our revenues to
decrease. If we are unable to decrease operating costs when demand for our properties decreases and our revenues decline, our
financial condition, results of operations and our ability to make distributions to American Assets Trust, Inc.'s stockholders or
American Assets Trust, L.P.'s unitholders may be adversely affected.
Some of our financing arrangements involve balloon payment obligations, which may adversely affect our ability to make
distributions.
Some of our financing arrangements require us to make a lump-sum or “balloon” payment at maturity. Our ability to
make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to
sell the property. At the time the balloon payment is due, we may or may not be able to refinance the existing financing on
terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. The effect of a
refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition,
payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we
are required to pay to maintain our qualification as a REIT.
Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of operations,
cash flow and per share trading price of our common stock.
Rules and regulations applicable to REITs impose certain restrictions on our ability to utilize hedges, swaps and other
types of derivatives to hedge our liabilities. Subject to these restrictions, we may enter into hedging transactions to protect us
from the effects of interest rate fluctuations on floating rate debt. Our hedging transactions may include entering into interest
rate cap agreements or interest rate swap agreements. As described under Note 8. "Derivative and Hedging Activities," to the
accompanying consolidated financial statements, we have entered into several interest rate swap agreements that are intended to
reduce the interest rate variability exposure with respect to certain of our indebtedness. These agreements involve risks, such as
the risk that such arrangements would not be effective in reducing our exposure to interest rate changes or that a court could
rule that such an agreement is not legally enforceable. In addition, interest rate hedging can be expensive, particularly during
periods of rising and volatile interest rates. Hedging could reduce the overall returns on our investments. Failure to hedge
effectively against interest rate changes could materially adversely affect our financial condition, results of operations, cash
flow and per share trading price of our common stock. In addition, while such agreements would be intended to lessen the
impact of rising interest rates on us, they could also expose us to the risk that the other parties to the agreements would not
perform, we could incur significant costs associated with the settlement of the agreements or that the underlying transactions
13 could fail to qualify as highly-effective cash flow hedges under Financial Accounting Standards Board, or FASB, Accounting
Standards Codification, or ASC, Topic 815, Derivatives and Hedging.
Our third amended and restated credit facility, note purchase agreements and amended term loan agreement restrict our
ability to engage in some business activities, including our ability to incur additional indebtedness, make capital
expenditures and make certain investments, which could adversely affect our financial condition, results of operations, cash
flow and per share trading price of our common stock.
Our third amended and restated credit facility, note purchase agreements and amended term loan agreement contain
customary negative covenants and other financial and operating covenants that, among other things:
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restrict our ability to incur additional indebtedness;
restrict our ability to incur additional liens;
restrict our ability to make certain investments (including certain capital expenditures);
restrict our ability to merge with another company;
restrict our ability to sell or dispose of assets;
restrict our ability to make distributions to American Assets Trust, Inc.'s stockholders or American Assets
Trust, L.P.'s unitholders; and
require us to satisfy minimum financial coverage ratios, minimum tangible net worth requirements and/or
maximum leverage ratios.
These limitations restrict our ability to engage in some business activities, which could adversely affect our financial
condition, results of operations, cash flow and per share trading price of our common stock. In addition, our credit facility
contains specific cross-default provisions with respect to specified other indebtedness, giving the lenders and/or note purchasers
the right to declare a default if we are in default under other loans in some circumstances.
The effective subordination of our unsecured indebtedness may reduce amounts available for payment on our unsecured
indebtedness.
Our third amended and restated credit facility, the notes issued under our note purchase agreements and our amended and
restated term loan agreement and our 3.375% senior notes due 2031 represent unsecured indebtedness. The holders of our
secured debt may foreclose on the assets securing such debt, reducing the cash flow from the foreclosed property available for
payment of unsecured debt. The holders of any of our secured debt also would have priority over unsecured creditors in the
event of a bankruptcy, liquidation or similar proceeding.
If we invest in mortgage receivables, including originating mortgages, such investment would be subject to several risks, any
of which could decrease the value of such investments and result in a significant loss to us.
From time to time, we may invest in mortgage receivables, including originating mortgages. In general, investments in
mortgages are subject to several risks, including:
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borrowers may fail to make debt service payments or pay the principal when due, which may make it necessary for us
to foreclose our mortgages or engage in costly negotiations;
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the value of the mortgaged property may be less than the principal amount of the mortgage note securing the
property;
interest rates payable on the mortgages may be lower than our cost for the funds to acquire these mortgages; and
the mortgages may be or become subordinated to mechanics' or materialmen's liens or property tax liens, in
which case we would need to make payments to maintain the current status of a prior lien or discharge it in its
entirety to protect such mortgage investment.
If any of these risks were to be realized, the total amount we would recover from our mortgage receivables may be less
than our total investment, resulting in a loss and our mortgage receivables may be materially and adversely affected.
Adverse economic and geopolitical conditions and dislocations in the credit markets could have a material adverse effect on
our financial condition, results of operations, cash flow and per share trading price of our common stock.
Our business may be affected by market and economic challenges experienced by the U.S. economy or real estate
industry as a whole, including dislocations in the credit markets. These conditions, or similar conditions existing in the future,
may adversely affect our financial condition, results of operations, cash flow and per share trading price of our common stock
as a result of the following potential consequences, among others:
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decreased demand for office, retail, multifamily and mixed-use space, which would cause market rental rates
and property values to be negatively impacted;
reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt
financing secured by our properties and may reduce the availability of unsecured loans;
our ability to obtain financing on terms and conditions that we find acceptable, or at all, may be limited,
which could reduce our ability to pursue acquisition and development opportunities and refinance existing
debt, reduce our returns from our acquisition and development activities and increase our future interest
expense; and
one or more lenders under our third amended and restated credit facility could refuse to fund their financing
commitment to us or could fail and we may not be able to replace the financing commitment of any such
lenders on favorable terms, or at all.
We are subject to risks that affect the general retail environment, such as weakness in the economy, the level of consumer
spending, the adverse financial condition of large retailing companies and competition from discount and internet retailers,
any of which could adversely affect market rents for retail space and the willingness or ability of retailers to lease space in
our shopping centers.
A portion of our properties are in the retail real estate market. This means that we are subject to factors that affect the
retail sector generally, as well as the market for retail space. The retail environment and the market for retail space have
previously been, and could again be, adversely affected by weakness in the national, regional and local economies, inflation,
high interest rate environments, the level of consumer spending and consumer confidence, the adverse financial condition of
some large retailing companies, the ongoing consolidation in the retail sector, the excess amount of retail space in a number of
markets, increasing competition from discount retailers, outlet malls, internet retailers (including Amazon.com) and other
online businesses and the ongoing impact of COVID-19 and its variants. Increases in consumer spending via the internet may
significantly affect our retail tenants' ability to generate sales in their stores and could affect the way future tenants lease space.
In addition, some of our retail tenants face competition from the expanding market for digital content and hardware. New and
enhanced technologies, including new digital technologies and new web services technologies, may increase competition for
certain of our retail tenants. While we devote considerable effort and resources to analyze and respond to tenant trends,
preferences and consumer spending patterns, we cannot predict with certainty what future tenants will want, what future retail
spaces will look like and how much revenue will be generated at traditional “brick and mortar” locations. If we are unable to
anticipate and respond promptly to trends in the market, our occupancy levels and rental amounts may decline. We also might
be susceptible to weakness in retail real estate as a result of trends relating to consumers preference to utilize e-commerce in
lieu of in-person shopping experiences.
Any of the foregoing factors could adversely affect the financial condition of our retail tenants and the willingness of
retailers to lease space in our shopping centers. In turn, these conditions could negatively affect market rents for retail space and
could materially and adversely affect our financial condition, results of operations, cash flow, the trading price of our common
shares and our ability to satisfy our debt service obligations and to pay distributions to American Assets Trust, Inc.'s
stockholders or American Assets Trust, L.P.'s unitholders.
We face significant competition in the leasing market, which may decrease or prevent increases of the occupancy and rental
rates of our properties.
We compete with numerous developers, owners and operators of real estate, many of which own properties similar to
ours in the same submarkets in which our properties are located. If our competitors offer space at rental rates below current
market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be
pressured to reduce our rental rates below those we currently charge or to offer more substantial rent abatements, tenant
improvements, early termination rights or below market renewal options in order to retain tenants when our tenants' leases
expire. As a result, our financial condition, results of operations, cash flow and per share trading price of our common stock
could be adversely affected.
We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in
order to retain and attract tenants, causing our financial condition, results of operations, cash flow and per share trading
price of our common stock to be adversely affected.
We may be required, upon expiration of leases at our properties, to make rent or other concessions to tenants,
accommodate requests for renovations, build-to-suit remodeling and other improvements or provide additional services to our
tenants. As a result, we may have to make significant capital or other expenditures in order to retain tenants whose leases expire
and to attract new tenants in sufficient numbers. Additionally, we may need to raise capital to make such expenditures. If we are
unable to do so or capital is otherwise unavailable, we may be unable to make the required expenditures. This could result in
15 non-renewals by tenants upon expiration of their leases, which could cause an adverse effect to our financial condition, results
of operations, cash flow and per share trading price of our common stock.
The actual rents we receive for the properties in our portfolio may be less than our asking rents, and we may experience
lease roll down from time to time, which could negatively impact our ability to generate cash flow growth.
As a result of various factors, including competitive pricing pressure in our submarkets, adverse conditions in the
California, Washington, Oregon, Texas and Hawaii real estate markets and the desirability of our properties compared to other
properties in our submarkets, we may be unable to realize the asking rents across the properties in our portfolio. In addition, the
degree of discrepancy between our asking rents and the actual rents we are able to obtain may vary both from property to
property and among different leased spaces within a single property. If we are unable to obtain rental rates that are on average
comparable to our asking rents across our portfolio, then our ability to generate cash flow growth will be negatively impacted.
In addition, depending on asking rental rates at any given time as compared to expiring leases in our portfolio, from time to
time rental rates for expiring leases may be higher than starting rental rates for new leases.
We may acquire properties or portfolios of properties through tax deferred contribution transactions, which could result in
stockholder dilution and limit our ability to sell or refinance such assets.
In the future we may acquire properties or portfolios of properties through tax deferred contribution transactions in
exchange for partnership interests in our Operating Partnership, which may result in stockholder dilution through the issuance
of Operating Partnership units that may be exchanged for shares of our common stock. This acquisition structure may have the
effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired
properties, and may require that we agree to protect the contributors' ability to defer recognition of taxable gain through
restrictions on our ability to dispose of, or refinance the debt on, the acquired properties. Similarly, we may be required to incur
or maintain debt we would otherwise not incur so we can allocate the debt to the contributors to maintain their tax bases. These
restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.
We are subject to the business, financial and operating risks inherent to the hospitality and tourism industries, including
competition for guests with other hospitality properties and general and local economic conditions that may affect demand
for travel in general, any of which could adversely affect the revenues generated by our hospitality or other properties.
Because we own the Waikiki Beach Walk-Embassy Suites™ in Hawaii and the Santa Fe Park RV Resort in California,
we are susceptible to risks associated with the hospitality industry, including:
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competition for guests with other hospitality properties, some of which may have greater marketing and
financial resources than the managers of our hospitality properties;
increases in operating costs from inflation, labor costs (including the impact of unionization), workers'
compensation and healthcare related costs, utility costs, insurance and other factors that the managers of our
hospitality properties may not be able to offset through higher rates;
the fluctuating and seasonal demands of business travelers and tourism, which seasonality may cause
quarterly fluctuations in our revenues;
general and local economic conditions that may affect demand for travel in general (including as it may relate
to the ongoing impact of COVID-19);
periodic oversupply resulting from excessive new development;
unforeseen events beyond our control, such as terrorist attacks, travel-related health concerns, including
pandemics and epidemics, imposition of taxes or surcharges by regulatory authorities, travel-related
accidents, climate change and unusual weather patterns, including natural disasters such as earthquakes,
wildfires, tropical storms, hurricanes and tornadoes; and
decreased reimbursement revenue from the licensor for traveler reward programs.
If our hospitality properties do not generate sufficient revenues, our financial position, results of operations, cash flow,
per share trading price of our common stock and ability to satisfy our debt service obligations and to pay distributions to
American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders may be adversely affected.
In addition, because tourism is a major component of both the local economies in Hawaii and California, our properties in
California and Hawaii may be impacted by the local and global tourism industry. These properties are susceptible to any
factors that affect travel and tourism related to Hawaii and California, including cost and availability of air services and the
impact of any events that disrupt air or other travel to and from these regions. Moreover, these properties may be affected by
risks such as acts of terrorism and natural disasters, including major fires, floods and earthquakes, as well as severe or
inclement weather, which could also decrease tourism activity in Hawaii or California.
16 We must rely on third-party management companies to operate the Waikiki Beach Walk-Embassy Suites™ in order to
maintain our qualification as a REIT under the Code, and, as a result, we will have less control than if we were operating
the hotel directly.
In order to assist us in maintaining our qualification as a REIT, we have leased the Waikiki Beach Walk-Embassy
Suites™ to WBW Hotel Lessee, LLC (a wholly owned subsidiary of our taxable REIT subsidiary), or the TRS Lessee, and
engaged a third-party management company to operate our hotel. While we have some input into operating decisions for the
hotel leased by our TRS Lessee and operated under a management agreement, we have less control than if we managed the
hotel ourselves. Even if we believe that our hotel is not being operated efficiently, we may not have sufficient rights under the
management agreement to enable us to force the management company to change its method of operation. We cannot assure
you that the management company will successfully manage our hotel. A failure by the management company to successfully
manage the hotel could lead to an increase in our operating expenses or a decrease in our revenue, or both, which could
adversely impact our financial condition, results of operations, cash flow, our ability to satisfy our debt service obligations and
our ability to pay distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.
If our relationship with the franchisor of the Waikiki Beach Walk-Embassy Suites™ was to deteriorate or terminate, it could
have a material adverse effect on our business, financial condition, results of operations and our ability to make
distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.
We cannot assure you that disputes between us and the franchisor of the Waikiki Beach Walk- Embassy Suites™ will not
arise. If our relationship with the franchisor were to deteriorate as a result of disputes regarding the franchise agreement under
which our hotel operates or for other reasons, the franchisor could, under certain circumstances, terminate our current license
with them or decline to provide licenses for hotels that we may acquire in the future. If any of the foregoing were to occur, it
could have a material adverse effect on our business, financial condition, results of operations and our ability to make
distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.
Our franchisor, Embassy Suites™, could cause us to expend additional funds on upgraded operating standards, which may
adversely affect our results of operations and reduce cash available for distribution to stockholders and unitholders.
Under the terms of our franchise license agreement, our hotel operator must comply with operating standards and terms
and conditions imposed by the franchisor of the hotel brand, Embassy Suites™. Failure by us, our TRS Lessees or any hotel
management company that we engage to maintain these standards or other terms and conditions could result in the franchise
license being canceled or the franchisor requiring us to undertake a costly property improvement program. If the franchise
license is terminated due to our failure to make required improvements or to otherwise comply with its terms, we may be liable
to the franchisor for a termination payment, which we expect could be as high as approximately $6.0 million based on operating
performance through December 31, 2022. In addition, our franchisor may impose upgraded or new brand standards, such as
substantially upgrading the bedding, enhancing the complimentary breakfast or increasing the value of guest awards under its
“frequent guest” program, which can add substantial expense for the hotel. Furthermore, under certain circumstances, the
franchisor may require us to make certain capital improvements to maintain the hotel in accordance with system standards, the
cost of which can be substantial and may adversely affect our results of operations and reduce cash available for distribution to
our stockholders and unitholders.
Embassy Suites™, our franchisor, has a right of first offer with respect to the Waikiki Beach Walk-Embassy Suites™,
which may limit our ability to obtain the highest price possible for the hotel.
Pursuant to the terms of our franchise agreement for the Waikiki Beach Walk-Embassy Suites™, the franchisor has a
right of first offer to purchase the hotel if we propose to sell all or a portion of the hotel or any interest therein. In the event that
we choose to dispose of the hotel, we would be required to notify the franchisor, prior to offering the hotel to any other
potential buyer, of the price and conditions on which we would be willing to sell the hotel, and the franchisor would have the
right, within 30 days of receiving such notice, to make an offer to purchase the hotel. If the franchisor makes an offer to
purchase that is equal to or greater than the price and on substantially the same terms set forth in our notice, then we will be
obligated to sell the hotel to the franchisor at that price and on those terms. If the franchisor makes an offer to purchase for less
than the price stated in our notice or on less favorable terms, then we may reject the franchisor's offer. The existence of this
right of first offer could adversely impact our ability to obtain the highest possible price for the hotel as, during the term of the
franchise agreement, we would not be able to offer the hotel to potential purchasers through a competitive bid process or in a
similar manner designed to maximize the value obtained for the property without first offering to sell this property to the
franchisor.
17 Our real estate development activities are subject to risks particular to development, such as unanticipated expenses, delays
and other contingencies, any of which could adversely affect our financial condition, results of operations, cash flow and
the per share trading price of our common stock.
We may engage in development and redevelopment activities with respect to certain of our properties. To the extent that
we do so, we will be subject to the following risks associated with such development and redevelopment activities (including as
they may relate to the ongoing impact of COVID-19):
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unsuccessful development or redevelopment opportunities could result in direct expenses to us;
construction or redevelopment costs of a project may exceed original estimates, possibly making the project
less profitable than originally estimated, or unprofitable;
time required to complete the construction or redevelopment of a project or to lease up the completed project
may be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity;
contractor and subcontractor disputes, strikes, labor disputes or supply disruptions;
failure to achieve expected occupancy and/or rent levels within the projected time frame, if at all;
delays with respect to obtaining or the inability to obtain necessary zoning, occupancy, land use and other
governmental permits, and changes in zoning and land use laws;
occupancy rates and rents of a completed project may not be sufficient to make the project profitable;
our ability to dispose of properties developed or redeveloped with the intent to sell could be impacted by the
ability of prospective buyers to obtain financing given the current state of the credit markets; and
the availability and pricing of financing to fund our development activities on favorable terms or at all.
These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent
completion of development or redevelopment activities once undertaken, any of which could have an adverse effect on our
financial condition, results of operations, cash flow and the per share trading price of our common stock.
Our success depends on key personnel whose continued service is not guaranteed, and the loss of one or more of our key
personnel could adversely affect our ability to manage our business and to implement our growth strategies, or could create
a negative perception in the capital markets.
Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of key
personnel, particularly Messrs. Rady, Barton and Wyll who have extensive market knowledge and relationships and exercise
substantial influence over our operational, financing, acquisition and disposition activity. Among the reasons that these
individuals are important to our success is that each has a national or regional industry reputation that attracts business and
investment opportunities and assists us in negotiations with lenders, existing and potential tenants and industry personnel. If we
lose their services, our relationships with such personnel could diminish.
Our Board has implemented an emergency succession plan in case of the sudden or unanticipated resignation,
termination, death or temporary or permanent disability of Mr. Rady, or otherwise in case Mr. Rady is unable to perform his
duties as Chairman and Chief Executive Officer. This plan is reviewed at least annually by our Board with input from our
Nominating and Governance Committee and currently includes Dr. Robert Sullivan (Board member), Mr. Barton and Mr. Wyll,
as potential interim candidates for the roles of Chairman and/or Chief Executive Officer and/or as emergency interim executive
committee members.
Many of our other senior executives also have extensive experience and strong reputations in the real estate industry,
which aid us in identifying opportunities, having opportunities brought to us and negotiating with tenants and build-to-suit
prospects. The loss of services of one or more members of our senior management team, or our inability to attract and retain
highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our
relationships with lenders, business partners, existing and prospective tenants and industry participants, which could adversely
affect our financial condition, results of operations, cash flow and per share trading price of our common stock.
Mr. Rady is involved in outside businesses, which may interfere with his ability to devote time and attention to our business
and affairs.
We rely on our senior management team, including Mr. Rady, for the day-to-day operations of our business. Our
employment agreement with Mr. Rady requires him to devote a substantial portion of his business time and attention to our
business. Mr. Rady continues to serve as our chairman of the board of directors and president of American Assets, Inc. and
chairman of the board of directors of Insurance Company of the West. As such, Mr. Rady has certain ongoing duties to
American Assets, Inc., Insurance Company of the West and other business ventures that could require a portion of his time and
attention. Although we expect that Mr. Rady will continue to devote a majority of his business time and attention to us, we
18 cannot accurately predict the amount of time and attention that will be required of Mr. Rady to perform such ongoing duties. To
the extent that Mr. Rady is required to dedicate time and attention to American Assets, Inc. and/or Insurance Company of the
West, his ability to devote a majority of his business time and attention to our business and affairs may be limited and could
adversely affect our operations.
We may be subject to on-going or future litigation and otherwise in the ordinary course of business, which could have a
material adverse effect on our financial condition, results of operations, cash flow and per share trading price of our
common stock.
We may be subject to on-going litigation at our properties and otherwise in the ordinary course of business. Some of
these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or
cannot be, insured against. We generally intend to vigorously defend ourselves; however, we cannot be certain of the ultimate
outcomes of currently asserted claims or of those that may arise in the future. Resolution of these types of matters against us
may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and
settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having an adverse effect on our
financial condition, results of operations, cash flow and per share trading price of our common stock. Certain litigation or the
resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely
impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact
our ability to attract officers and directors.
Potential losses from earthquakes in California, Washington, Oregon and Hawaii may not be fully covered by insurance.
Many of the properties we currently own are located in California, Washington, Oregon and Hawaii, which are areas
especially subject to earthquakes. While we carry earthquake insurance on all of our properties, the amount of our earthquake
insurance coverage may not be sufficient to fully cover losses from earthquakes and will be subject to limitations involving
large deductibles or co-payments. In addition, we may reduce or discontinue earthquake insurance on some or all of our
properties in the future if the cost of premiums for any such policies exceeds, in our judgment, the value of the coverage
discounted for the risk of loss. As a result, in the event of an earthquake, we may be required to incur significant costs, and, to
the extent that a loss exceeds policy limits, we could lose the capital invested in the damaged properties as well as the
anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness,
we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.
We may be adversely affected by laws, regulations or other issues related to climate change.
We may become subject to laws or regulations related to climate change, which could cause our business, results of
operations and financial condition to be impacted adversely. The federal government has enacted, and some of the states and
localities in which we operate may enact, certain climate change laws and regulations or have begun regulating carbon
footprints and greenhouse gas emissions. Although these laws and regulations have not had any known material adverse effects
on our business to date, they could result in substantial costs, including compliance costs, increased energy costs, retrofit costs
and construction costs, including monitoring and reporting costs, and capital expenditures for environmental control facilities
and other new equipment. Furthermore, our reputation could be negatively affected if we violate climate change laws or
regulations. We cannot predict how future laws and regulations, or future interpretations of current laws and regulations, related
to climate change will affect our properties, business, results of operations and financial condition. Lastly, the potential physical
impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in
areas in which we operate. These may include changes global weather patterns, which could include local changes in rainfall
and storm patterns and intensities, water shortages, changing sea levels and changing temperature averages or extremes. These
impacts may adversely affect our properties, our business, financial condition and results of operations.
Climate change may adversely impact our properties directly, and may lead to additional compliance obligations and costs as
well as additional taxes and fees.
We cannot reliably predict the extent, rate, or impact of climate change. As such, the potential physical impacts of climate
change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we
operate. These may include changes in global weather patterns, which could include local changes in rainfall and storm patterns
and intensities, water shortages, changing sea levels and changing temperature averages or extremes. Further, population
migration may occur in response to these or other factors and negatively impact our properties. Climate and other
environmental changes may result in volatile or decreased demand for space at certain of our properties or, in extreme cases,
our inability to operate certain properties at all. Climate change may also have indirect effects on our business by increasing the
cost of insurance, or making insurance unavailable. Although we strive to identify, analyze, and respond to the risk and
19 opportunities that climate change presents, at this time, there can be no assurance that climate change will not have an adverse
effect on the value of our properties and our financial performance.
Geographic concentration of our properties makes our business more vulnerable to natural disasters, severe weather
conditions and climate change.
A significant number of our properties are located in areas that are susceptible to earthquakes, tropical storms, tornadoes,
wildfires, and sea-level rise due to climate change, and other natural disasters. At December 31, 2022, 57% of the gross
leaseable area of our portfolio is located in the State of California. Additionally, 14%, 13%, and 8% of the gross leaseable area
of our portfolio is located in the States of Washington, Oregon and Texas, respectively, and we have a meaningful presence in
Oahu, Hawaii. Insurance costs for properties in these areas have increased, and recent intense weather conditions may cause
property insurance premiums to increase significantly in the future. We recognize that the frequency and/or intensity of extreme
weather events, sea-level rise, and other climatic changes may continue to increase, and as a result, our exposure to these events
may increase. These weather conditions may disrupt our business and the business of our tenants, which may affect the ability
of some tenants to pay rent and may reduce the willingness of tenants or residents to remain in or move to these affected areas.
Therefore, as a result of the geographic concentration of our properties, we face risks, including disruptions to our business and
the businesses of our tenants and higher costs, such as uninsured property losses, higher insurance premiums, and potential
additional regulatory requirements by government agencies in response to perceived risks.
We may not be able to rebuild our existing properties to their existing specifications if we experience a substantial or
comprehensive loss of such properties.
In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild
such property to its existing specifications. Further, reconstruction or improvement of such a property would likely require
significant upgrades to meet zoning and building code requirements. Environmental and legal restrictions could also restrict the
rebuilding of our properties. For example, if we experienced a substantial or comprehensive loss of our Torrey Reserve Campus
in San Diego, California, reconstruction could be delayed or prevented by the California Coastal Commission, which regulates
land use in the California coastal zone.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-
venturers' financial condition and disputes between us and our co-venturers.
We may co-invest in the future with other third parties through partnerships, joint ventures or other entities, acquiring
non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other
entity. Consequently, with respect to any such arrangement we may enter into in the future, we would not be in a position to
exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments in
partnerships, joint ventures or other entities may, under certain circumstances, involve risks not present were a third party not
involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required
capital contributions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent
with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives, and they may
have competing interests in our markets that could create conflict of interest issues. Such investments may also have the
potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control
over the partnership or joint venture. In addition, a sale or transfer by us to a third party of our interests in the joint venture may
be subject to consent rights or rights of first refusal, in favor of our joint venture partners, which would in each case restrict our
ability to dispose of our interest in the joint venture. Where we are a limited partner or non-managing member in any
partnership or limited liability company, if such entity takes or expects to take actions that could jeopardize our status as a REIT
or require us to pay tax, we may be forced to dispose of our interest in such entity. Disputes between us and partners or co-
venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from
focusing their time and effort on our business. Consequently, actions by or disputes with partners or co-venturers might result in
subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances
be liable for the actions of our third-party partners or co-venturers. Our joint ventures may be subject to debt and, in the current
volatile credit market, the refinancing of such debt may require equity capital calls.
Increased competition and increased affordability of residential homes could limit our ability to retain our residents, lease
apartment homes or increase or maintain rents at our multifamily apartment communities.
Our multifamily apartment communities compete with numerous housing alternatives in attracting residents, including
other multifamily apartment communities and single-family rental homes, as well as owner occupied single and multifamily
homes. Competitive housing in a particular area and an increase in the affordability of owner occupied single and multifamily
homes due to, among other things, housing prices, oversupply, mortgage interest rates and tax incentives and government
20 programs to promote home ownership, could adversely affect our ability to retain residents, lease apartment homes and increase
or maintain rents.
Our growth depends on external sources of capital that are outside of our control and may not be available to us on
commercially reasonable terms or at all, which could limit our ability, among other things, to meet our capital and operating
needs or make the cash distributions to American Assets Trust, Inc.'s stockholders necessary to maintain our qualification
as a REIT.
In order to maintain our qualification as a REIT, we are required under the Code, among other things, to distribute
annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding
any net capital gain. In addition, we will be subject to federal corporate income tax to the extent that we distribute less than
100% of our REIT taxable income, including any net capital gains. Because of these distribution requirements, we may not be
able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we
intend to rely on third-party sources to fund our capital needs. We may not be able to obtain such financing on favorable terms
or at all and any additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources
of capital depends, in part, on:
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general market conditions;
the market's perception of our growth potential;
our current debt levels;
our current and expected future earnings;
our cash flow and cash distributions; and
the market price per share of our common stock.
If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic
opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make
the cash distributions to American Assets Trust, Inc.'s stockholders necessary to maintain our qualification as a REIT.
We rely on information technology in our operations, and any breach, interruption or security failure of that technology
could have a negative impact on our business, operations and/or financial condition.
Information security risks have generally increased in recent years due to the rise in new technologies and the increased
sophistication and activities of perpetrators of cyber-attacks. We face risks associated with security breaches, whether through
cyber-attacks or cyber-intrusions over the internet, malware, computer viruses, attachments to e-mails and/or employees or
third-parties with access to our systems. We face the risk of ransomware or other cyber-attacks aimed at disrupting the
availability of systems, applications, networks or data important to our business operations.
Our information technology, or IT, networks and related systems, are essential to the operation of our business and our
ability to perform day-to-day operations, and, in some cases, may be critical to the operations of certain of our tenants.
Additionally, we collect and hold personal information of our residents and prospective residents in connection with our
leasing activities at our multifamily locations. We also collect and hold personal information of our employees in connection
with their employment. In addition, we engage third-party service providers that may have access to such personal information
in connection with providing business services to us, whether through our own IT networks and related systems, or through the
third-party service providers’ IT networks and related systems.
We mitigate the risk of disruptions, breaches or disclosure of this confidential personally identifiable information by
implementing a variety of security measures including (among others) engaging reputable, recognized firms to help us design
and maintain our information technology and data security systems, and to test and verify their proper and secure operations on
a periodic basis.
There can be no assurance that our efforts to maintain the confidentiality, integrity, and availability and controls of our (or
our third-party service providers') IT networks and related data and systems will be effective or that attempted security breaches
or disruptions would not be successful or damaging. A security breach or other significant disruption involving our (or our
third-party service providers') IT networks and related systems could materially and adversely impact our income, cash flow,
results of operations, financial condition, liquidity, the ability to service our debt obligations, the market price of our common
stock, our ability to pay dividends and/or other distributions to our shareholders and unitholders. A security breach could
additionally cause the disclosure or misuse of confidential or proprietary information (including personal information of our
residents and/or employees) and damage to our reputation.
21 Risks Related to the Real Estate Industry
Our performance and value are subject to risks associated with real estate assets and the real estate industry, including local
oversupply, reduction in demand or adverse changes in financial conditions of buyers, sellers and tenants of properties,
which could decrease revenues or increase costs, which would adversely affect our financial condition, results of operations,
cash flow and the per share trading price of our common stock.
Our ability to make expected distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s
unitholders depends on our ability to generate revenues in excess of expenses, scheduled principal payments on debt and capital
expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond
our control may decrease cash available for distribution and the value of our properties. These events include many of the risks
set forth above under “Risks Related to Our Business and Operations,” as well as the following:
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local oversupply or reduction in demand for office, retail, multifamily or mixed-use space;
adverse changes in financial conditions of buyers, sellers and tenants of properties;
vacancies or our inability to rent space on favorable terms, including possible market pressures to offer
tenants rent abatements, tenant improvements, early termination rights or below market renewal options, and
the need to periodically repair, renovate and re-let space;
increased operating costs, including insurance premiums, utilities, real estate taxes and state and local taxes;
a favorable interest rate environment that may result in a significant number of potential residents of our
multifamily apartment communities deciding to purchase homes instead of renting;
rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising
rents to offset increases in operating costs;
civil unrest, acts of war, terrorist attacks, pandemics and natural disasters, including earthquakes, wildfires,
tropical storms, hurricanes, tornadoes and floods, which may result in uninsured or underinsured losses;
decreases in the underlying value of our real estate;
changing submarket demographics; and
changing traffic patterns.
In addition, periods of economic downturn or recession, inflation, rising interest rates or declining demand for real estate,
or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence
of defaults under existing leases, which would adversely affect our financial condition, results of operations, cash flow and per
share trading price of our common stock.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance
of our properties and harm our financial condition.
The real estate investments made, and to be made, by us are relatively difficult to sell quickly. As a result, our ability to
promptly sell one or more properties in our portfolio in response to changing economic, financial and investment conditions is
limited. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or
refinancing of the underlying property. We may be unable to realize our investment objectives by sale, other disposition or
refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In
particular, our ability to dispose of one or more properties within a specific time period is subject to weakness in or even the
lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes
in national or international economic conditions, such as the recent economic downturn, and changes in laws, regulations or
fiscal policies of jurisdictions in which the property is located.
In addition, the Code imposes restrictions on a REIT's ability to dispose of properties that are not applicable to other types
of real estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for
investment, rather than primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of
properties that otherwise would be in our best interest. Therefore, we may not be able to vary our portfolio in response to
economic or other conditions promptly or on favorable terms, which may adversely affect our financial condition, results of
operations, cash flow and per share trading price of our common stock.
Our property taxes could increase due to property tax rate changes or reassessment, which would adversely impact our cash
flows.
Even if we continue to qualify as a REIT for federal income tax purposes, we will be required to pay some state and local
taxes on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties
22 are assessed or reassessed by taxing authorities. If the property taxes we pay increase, our cash flow would be adversely
impacted, and our ability to pay any expected dividends to our stockholders and unitholders could be adversely affected.
As an owner of real estate, we could incur significant costs and liabilities related to environmental matters.
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or
operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic
substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate, clean
up such contamination and liability for harm to natural resources. Such laws often impose liability without regard to whether
the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and
several. These liabilities could be substantial and the cost of any required remediation, removal, fines or other costs could
exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to
remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or personal or
property damage or materially adversely affect our ability to sell, lease or develop our properties or to borrow using the
properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the government for
damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties,
environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and
these restrictions may require substantial expenditures.
Some of our properties have been or may be impacted by contamination arising from current or prior uses of the property,
or adjacent properties, for commercial or industrial purposes. Such contamination may arise from spills of petroleum or
hazardous substances or releases from tanks used to store such materials. For example, Del Monte Center is currently
undergoing the final stages of remediation of dry cleaning solvent contamination from a former onsite dry cleaner, which
entails the long term ground monitoring by the appropriate regulatory agency over the next five to seven years. The prior
owner of Del Monte Center entered into a fixed fee environmental services agreement in 1997 pursuant to which the
remediation will be completed for approximately $3.5 million, with the remediation costs paid for through funds held in an
escrow account funded by the prior owner. We expect that the funds in this escrow account will cover all remaining costs and
expenses of the environmental remediation. However, if the Regional Water Quality Control Board - Central Coast Region
were to require further work costing more than the remaining escrowed funds, we could be required to pay such overage
although we may have a claim for such costs against the prior owner or our environmental remediation consultant. In addition
to the foregoing, we possess Phase I Environmental Site Assessments for certain of the properties in our portfolio, these
assessments are limited in scope (e.g., they do not generally include soil sampling, subsurface investigations or hazardous
materials survey) and may have failed to identify all environmental conditions or concerns. Furthermore, we do not have Phase
I Environmental Site Assessment reports for all of the properties in our portfolio and, as such, we may not be aware of all
potential or existing environmental contamination liabilities at the properties in our portfolio. As a result, we could potentially
incur material liability for these issues, which could adversely impact our financial condition, results of operations, cash flow
and the per share trading price of our common stock.
As the owner of the buildings on our properties, we could face liability for the presence of hazardous materials (e.g.,
asbestos or lead) or other adverse conditions (e.g., poor indoor air quality) in our buildings. Environmental laws govern the
presence, maintenance, and removal of hazardous materials in buildings, and if we do not comply with such laws, we could face
fines for such noncompliance. Also, we could be liable to third parties (e.g., occupants of the buildings) for damages related to
exposure to hazardous materials or adverse conditions in our buildings, and we could incur material expenses with respect to
abatement or remediation of hazardous materials or other adverse conditions in our buildings. In addition, some of our tenants
routinely handle and use hazardous or regulated substances and wastes as part of their operations at our properties, which are
subject to regulation. Such environmental and health and safety laws and regulations could subject us or our tenants to liability
resulting from these activities. Environmental liabilities could affect a tenant's ability to make rental payments to us, and
changes in laws could increase the potential liability for noncompliance. This may result in significant unanticipated
expenditures or may otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have
an adverse effect on us.
We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to
make distributions to you or that such costs or other remedial measures will not have an adverse effect on our financial
condition, results of operations, cash flow and per share trading price of our common stock. If we do incur material
environmental liabilities in the future, we may face significant remediation costs, and we may find it difficult to sell any
affected properties.
Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for
adverse health effects and costs of remediation.
23 When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the
moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or
irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor
sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants
above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other
reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us
to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected
property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could
expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury is alleged to
have occurred.
We may incur significant costs complying with various federal, state and local laws, regulations and covenants that are
applicable to our properties.
The properties in our portfolio are subject to various covenants and federal, state and local laws and regulatory
requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances,
zoning restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may
require us to obtain approval from local officials or restrict our use of our properties and may require us to obtain approval from
local officials of community standards organizations at any time with respect to our properties, including prior to acquiring a
property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to
fire and safety, seismic or hazardous material abatement requirements. There can be no assurance that existing laws and
regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional
regulations will not be adopted that increase such delays or result in additional costs. Our growth strategy may be affected by
our ability to obtain permits, licenses and zoning relief. Our failure to obtain such permits, licenses and zoning relief or to
comply with applicable laws could have an adverse effect on our financial condition, results of operations, cash flow and per
share trading price of our common stock.
In addition, federal and state laws and regulations, including laws such as the ADA and the FHAA, impose further
restrictions on our properties and operations. Under the ADA and the FHAA, all public accommodations must meet federal
requirements related to access and use by disabled persons. Some of our properties may currently be in non-compliance with
the ADA or the FHAA. If one or more of the properties in our portfolio is not in compliance with the ADA, the FHAA or any
other regulatory requirements, we may be required to incur additional costs to bring the property into compliance and we might
incur governmental fines or be required to pay damages to private litigants. In addition, we do not know whether existing
requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will
adversely impact our financial condition, results of operations, cash flow and per share trading price of our common stock.
Risks Related to Our Organizational Structure
Ernest S. Rady and his affiliates, directly or indirectly, own a substantial beneficial interest in our company on a fully
diluted basis and have the ability to exercise significant influence on our company and our Operating Partnership, including
the approval of significant corporate transactions.
As of December 31, 2022, Mr. Rady and his affiliates owned approximately 15.5% of our outstanding common stock and
19.4% of our outstanding common units, which together represent an approximate 34.7% beneficial interest in our company on
a fully diluted basis. Consequently, Mr. Rady may be able to significantly influence the outcome of matters submitted for
stockholder action, including the approval of significant corporate transactions, including business combinations, consolidations
and mergers. In addition, we may not, without prior limited partner approval, directly or indirectly transfer all or any portion of
our interest in the Operating Partnership before the later of the death of Mr. Rady and the death of his wife, in connection with a
merger, consolidation or other combination of our assets with another entity, a sale of all or substantially all of our assets, a
reclassification, recapitalization or change in any outstanding shares of our stock or other outstanding equity interests or an
issuance of shares of our stock, in any case that requires approval by our common stockholders. As a result, Mr. Rady has
substantial influence on us and could exercise his influence in a manner that conflicts with the interests of other stockholders.
Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of
holders of units in our Operating Partnership, which may impede business decisions that could benefit our stockholders.
Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on
the one hand, and our Operating Partnership or any partner thereof, on the other. Our directors and officers have duties to our
company under Maryland law in connection with their management of our company. At the same time, we, as the general
partner of our Operating Partnership, have fiduciary duties and obligations to our Operating Partnership and its limited partners
24 under Maryland law and pursuant to the partnership agreement of our Operating Partnership in connection with the
management of our Operating Partnership. Our fiduciary duties and obligations as the general partner of our Operating
Partnership may conflict with the duties of our directors and officers to our company.
Under Maryland law, a general partner of a Maryland limited partnership has fiduciary duties of loyalty and care to the
partnership and its partners and must discharge its duties and exercise its rights as general partner under the partnership
agreement or Maryland law consistently with the obligation of good faith and fair dealing. The partnership agreement provides
that, in the event of a conflict between the interests of our Operating Partnership or any partner, on the one hand, and the
separate interests of our company or our stockholders, on the other hand, we, in our capacity as the general partner of our
Operating Partnership, are under no obligation not to give priority to the separate interests of our company or our stockholders,
and that any action or failure to act on our part or on the part of our directors that gives priority to the separate interests of our
company or our stockholders that does not result in a violation of the contract rights of the limited partners of the Operating
Partnership under its partnership agreement does not violate the duty of loyalty that we, in our capacity as the general partner of
our Operating Partnership, owe to the Operating Partnership and its partners.
Additionally, the partnership agreement provides that we will not be liable to the Operating Partnership or any partner for
monetary damages for losses sustained, liabilities incurred or benefits not derived by the Operating Partnership or any limited
partner, except for liability for our intentional harm or gross negligence. Our Operating Partnership must indemnify us, our
directors and officers, officers of our Operating Partnership and our designees from and against any and all claims that relate to
the operations of our Operating Partnership, unless (1) an act or omission of the person was material to the matter giving rise to
the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (2) the person actually
received an improper personal benefit in violation or breach of the partnership agreement or (3) in the case of a criminal
proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. Our Operating
Partnership must also pay or reimburse the reasonable expenses of any such person upon its receipt of a written affirmation of
the person's good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking
to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the standard of conduct for
indemnification. Our Operating Partnership will not indemnify or advance funds to any person with respect to any action
initiated by the person seeking indemnification without our approval (except for any proceeding brought to enforce such
person's right to indemnification under the partnership agreement) or if the person is found to be liable to our Operating
Partnership on any portion of any claim in the action. No reported decision of a Maryland appellate court has interpreted
provisions similar to the provisions of the partnership agreement of our Operating Partnership that modify and reduce our
fiduciary duties or obligations as the general partner or reduce or eliminate our liability for money damages to the Operating
Partnership and its partners, and we have not obtained an opinion of counsel as to the enforceability of the provisions set forth
in the partnership agreement that purport to modify or reduce the fiduciary duties that would be in effect were it not for the
partnership agreement.
Our charter and bylaws, the partnership agreement of our Operating Partnership and Maryland law contain provisions that
may delay, defer or prevent a change of control transaction that might involve a premium price for our common stock or
that our stockholders otherwise believe to be in their best interest.
Our charter contains certain ownership limits with respect to our stock. Our charter, subject to certain exceptions,
authorizes our board of directors to take such actions as it determines are advisable to preserve our qualification as a REIT. Our
charter also prohibits the actual, beneficial or constructive ownership by any person of more than 7.275% in value or number of
shares, whichever is more restrictive, of the outstanding shares of our common stock or more than 7.275% in value of the
aggregate outstanding shares of all classes and series of our stock, excluding any shares that are not treated as outstanding for
federal income tax purposes. Our board of directors, in its sole and absolute discretion, may exempt a person, prospectively or
retroactively, from these ownership limits if certain conditions are satisfied. Our board of directors has granted to each of (1)
Mr. Rady (and certain of his affiliates), (2) Cohen & Steers Management, Inc. and (3) BlackRock, Inc. an exemption from the
ownership limits that will allow them to own, in the aggregate, up to 19.9%, 10.0% and 10.0%, respectively, in value or in
number of shares, whichever is more restrictive, of our outstanding common stock, subject to various conditions and
limitations. The restrictions on ownership and transfer of our stock may (a) discourage a tender offer or other transactions or a
change in management or of control that might involve a premium price for our common stock or that our stockholders
otherwise believe to be in their best interests; or (b) result in the transfer of shares acquired in excess of the restrictions to a trust
for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional
shares.
We could increase the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without
stockholder approval.
Our board of directors, without stockholder approval, has the power under our charter to amend our charter to increase
the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to
25 authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any
unissued shares of our common stock or preferred stock into one or more classes or series of stock and set the terms of such
newly classified or reclassified shares. As a result, we may issue series or classes of common stock or preferred stock with
preferences, dividends, powers and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of
holders of our common stock. Although our board of directors has no such intention at the present time, it could establish a
class or series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a
change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in
their best interest.
Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a
tender offer or seeking other change of control transactions that could involve a premium price for our common stock or
that our stockholders otherwise believe to be in their best interest.
Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting a third party
from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the
holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such
shares, including (1) “business combination” provisions that, subject to limitations, prohibit certain business combinations
between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting
power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of our then outstanding voting stock at any time within the two-year period
immediately prior to the date in question) for five years after the most recent date on which the stockholder becomes an
interested stockholder, and thereafter impose fair price and/or supermajority and stockholder voting requirements on these
combinations; and (2) “control share” provisions that provide that “control shares” of our company (defined as shares that,
when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing
ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect
acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights with respect to their
control shares, except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes
entitled to be cast on the matter, excluding all interested shares. As permitted by the MGCL, our board of directors has, by
board resolution, elected to opt out of the business combination provisions of the MGCL. However, we cannot assure you that
our board of directors will not opt to be subject to such business combination provisions of the MGCL in the future.
Certain provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is
currently provided in our charter or bylaws, to implement certain corporate governance provisions, some of which (e.g., a
classified board) are not currently applicable to us. These provisions may have the effect of limiting or precluding a third party
from making an unsolicited acquisition proposal for us or of delaying, deferring or preventing a change in control of us under
circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a
premium over the then current market price. Our charter contains a provision whereby we elected to be subject to certain
provisions the MGCL relating to the filling of vacancies on our board of directors.
Certain provisions in the partnership agreement of our Operating Partnership may delay or prevent unsolicited acquisitions
of us.
Provisions in the partnership agreement of our Operating Partnership may delay, or make more difficult, unsolicited
acquisitions of us or changes of our control. These provisions could discourage third parties from making proposals involving
an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals, if made,
desirable. These provisions include, among others:
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redemption rights of qualifying parties;
a requirement that we may not be removed as the general partner of our Operating Partnership without our
consent;
transfer restrictions on common units;
our ability, as general partner, in some cases, to amend the partnership agreement and to cause the Operating
Partnership to issue units with terms that could delay, defer or prevent a merger or other change of control of
us or our Operating Partnership without the consent of the limited partners; and
the right of the limited partners to consent to direct or indirect transfers of the general partnership interest,
including as a result of a merger or a sale of all or substantially all of our assets, in the event that such transfer
requires approval by our common stockholders.
In particular, we may not, without prior “partnership approval,” directly or indirectly transfer all or any portion of our
interest in our Operating Partnership, before the later of the death of Mr. Rady and the death of his wife, in connection with a
26 merger, consolidation or other combination of our assets with another entity, a sale of all or substantially all of our assets, a
reclassification, recapitalization or change in any outstanding shares of our stock or other outstanding equity interests or an
issuance of shares of our stock, in any case that requires approval by our common stockholders. The “partnership approval”
requirement is satisfied, with respect to such a transfer, when the sum of (1) the percentage interest of limited partners
consenting to the transfer of our interest, plus (2) the product of (a) the percentage of the outstanding common units held by us
multiplied by (b) the percentage of the votes that were cast in favor of the event by our common stockholders equals or exceeds
the percentage required for our common stockholders to approve the event resulting in the transfer. As of December 31, 2022,
the limited partners, including Mr. Rady and his affiliates and our other executive officers and directors, owned approximately
22.7% of our outstanding common units and approximately 20.9% of our outstanding common stock, which together represent
an approximate 37.5% beneficial interest in our company on a fully diluted basis.
Our charter and bylaws, the partnership agreement of our Operating Partnership and Maryland law also contain other
provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our
common stock or that our stockholders otherwise believe to be in their best interest.
Our board of directors may change our investment and financing policies without stockholder approval and we may become
more highly leveraged, which may increase our risk of default under our debt obligations.
Our investment and financing policies are exclusively determined by our board of directors. Accordingly, our
stockholders do not control these policies. Further, our charter and bylaws do not limit the amount or percentage of
indebtedness, funded or otherwise, that we may incur. Our board of directors may alter or eliminate our current policy on
borrowing at any time without stockholder approval. If this policy changed, we could become more highly leveraged which
could result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition,
a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of
assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity
risk. Changes to our policies with regards to the foregoing could adversely affect our financial condition, results of operations,
cash flow and per share trading price of our common stock.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
As permitted by Maryland law, our charter eliminates the liability of our directors and officers to us and our stockholders
for money damages, except for liability resulting from (1) actual receipt of an improper benefit or profit in money, property or
services; or (2) a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was
material to the cause of action adjudicated.
As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise
exist. Accordingly, in the event that actions taken in good faith by any of our directors or officers impede the performance of
our company, your ability to recover damages from such director or officer will be limited.
We are a holding company with no direct operations and, as such, we will rely on funds received from our Operating
Partnership to pay liabilities, and the interests of our stockholders will be structurally subordinated to all liabilities and
obligations of our Operating Partnership and its subsidiaries.
We are a holding company and conduct substantially all of our operations through our Operating Partnership. We do not
have, apart from an interest in our Operating Partnership, any independent operations. As a result, we rely on distributions from
our Operating Partnership to pay any dividends we might declare on shares of our common stock. We also rely on distributions
from our Operating Partnership to meet our obligations, including any tax liability on taxable income allocated to us from our
Operating Partnership. In addition, because we are a holding company, claims of stockholders are structurally subordinated to
all existing and future liabilities and obligations (whether or not for borrowed money) of our Operating Partnership and its
subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our Operating
Partnership and its subsidiaries will be available to satisfy the claims of our stockholders only after all of our and our Operating
Partnership's and its subsidiaries' liabilities and obligations have been paid in full.
Our Operating Partnership may issue additional partnership units to third parties without the consent of our stockholders,
which would reduce our ownership percentage in our Operating Partnership and would have a dilutive effect on the amount
of distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to
American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.
We may, in connection with our acquisition of properties or otherwise, issue additional partnership units to third parties.
Such issuances would reduce our ownership percentage in our Operating Partnership and affect the amount of distributions
made to us by our Operating Partnership and, therefore, the amount of distributions we can make to American Assets Trust,
27 Inc.'s stockholders or American Assets Trust, L.P.'s unitholders. To the extent that our stockholders do not directly own
partnership units, our stockholders will not have any voting rights with respect to any such issuances or other partnership level
activities of our Operating Partnership.
Our operating structure subjects us to the risk of increased hotel operating expenses.
Our lease with our TRS Lessee requires our TRS Lessee to pay us rent based in part on revenues from the Waikiki Beach
Walk-Embassy Suites™. Our operating risks include decreases in hotel revenues and increases in hotel operating expenses,
which would adversely affect our TRS Lessee's ability to pay us rent due under the lease, including but not limited to the
increases in:
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wage and benefit costs;
repair and maintenance expenses;
energy costs;
property taxes;
insurance costs; and
other operating expenses.
Increases in these operating expenses can have an adverse impact on our financial condition, results of operations, the
market price of our common stock and our ability to make distributions to American Assets Trust, Inc.'s stockholders or
American Assets Trust, L.P.'s unitholders.
Future sales of common stock or common units by our directors and officers, or their pledgees, as a result of margin calls or
foreclosures could adversely affect the price of our common stock and could, in the future, result in a loss of control of our
company.
Our directors and officers may pledge shares of common stock or common units owned or controlled by them as
collateral for loans or for margin purposes in favor of third parties. Depending on the status of the various loan obligations for
which the stock or units ultimately serve as collateral and the trading price of our common stock, our directors and/or officers,
and their affiliates, may experience a foreclosure or margin call that could result in the sale of the pledged stock or units, in the
open market or otherwise. Unlike for our directors and officers, sales by these pledgees may not be subject to the volume
limitations of Rule 144 of the Securities Act. A sale of pledged stock or units by pledgees could result in a loss of control of our
company, depending upon the number of shares of stock or units sold and the ownership interests of other stockholders. In
addition, sale of these shares or units, or the perception of possible future sales, could have a materially adverse effect on the
trading price of our common stock or make it more difficult for us to raise additional capital through sales of equity securities.
Risks Related to Our Status as a REIT
Failure to maintain our qualification as a REIT would have significant adverse consequences to us and the value of our
common stock.
We have elected to be taxed as a REIT and believe we are organized and operate in a manner that has allowed us to
qualify and will allow us to remain qualified as a REIT for federal income tax purposes commencing with our taxable year
ended December 31, 2011. We have not requested and do not plan to request a ruling from the Internal Revenue Service, or
IRS, that we qualify as a REIT. Therefore, we cannot assure you that we have qualified as a REIT, or that we will remain
qualified as such in the future. If we lose our REIT status, we will face serious tax consequences that would substantially reduce
the funds available for distribution to you for each of the years involved because:
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we would not be allowed a deduction for distributions to American Assets Trust, Inc.'s stockholders in
computing our taxable income and would be subject to the regular U.S. federal corporate income tax rate (and
we could be subject to the federal alternative minimum tax for taxable years prior to 2018);
we also could be subject to increased state and local taxes; and
unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT
for four taxable years following the year during which we were disqualified.
Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our
operations and distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders. In
addition, if we fail to maintain our qualification as a REIT, we will not be required to make distributions to American Assets
Trust, Inc.'s stockholders. As a result of all these factors, our failure to maintain our qualification as a REIT also could impair
our ability to expand our business and raise capital, and could materially and adversely affect the value of our common stock.
28 Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are
only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury
regulations that have been promulgated under the Code, or the Treasury Regulations, is greater in the case of a REIT that, like
us, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our
control may affect our ability to maintain our qualification as a REIT. In order to maintain our qualification as a REIT, we must
satisfy a number of requirements, including requirements regarding the ownership of our stock, requirements regarding the
composition of our assets and requirements regarding the sources of our gross income. Also, we must make distributions to
American Assets Trust, Inc.'s stockholders aggregating annually at least 90% of our net taxable income, excluding net capital
gains. In addition, legislation, new regulations, administrative interpretations or court decisions may materially adversely affect
our investors, our ability to maintain our qualification as a REIT for federal income tax purposes or the desirability of an
investment in a REIT relative to other investments.
Even if we maintain our qualification as a REIT for federal income tax purposes, we may be subject to some federal, state
and local income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we
sell property as a dealer. In addition, our taxable REIT subsidiaries will be subject to tax as regular corporations in the
jurisdictions they operate.
If our Operating Partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as
a REIT and suffer other adverse consequences.
We believe that our Operating Partnership is treated as a partnership for federal income tax purposes. As a partnership,
our Operating Partnership is not subject to federal income tax on its income. Instead, each of its partners, including us, is
allocated, and may be required to pay tax with respect to, its share of our Operating Partnership's income. We cannot be
assured, however, that the IRS will not challenge the status of our Operating Partnership or any other subsidiary partnership in
which we own an interest, as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If
the IRS were successful in treating our Operating Partnership or any such other subsidiary partnership as an entity taxable as a
corporation for federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests
applicable to REITs and, accordingly, we would likely cease to qualify as a REIT. Also, the failure of our Operating Partnership
or any subsidiary partnerships to qualify as a partnership could cause it to become subject to federal and state corporate income
tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including
us.
The asset tests applicable to REITs limit our ability to own taxable REIT subsidiaries, and we will be required to pay a 100%
penalty tax on certain income or deductions if our transactions with our taxable REIT subsidiaries are not conducted on
arm's length terms.
We own an interest in one taxable REIT subsidiary and may acquire securities in additional taxable REIT subsidiaries in
the future. A taxable REIT subsidiary is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and
that has made a joint election with such REIT to be treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns
more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation
will also be treated as a taxable REIT subsidiary. Other than some activities relating to lodging and health care facilities, a
taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services
to tenants of its parent REIT. A taxable REIT subsidiary is subject to federal income tax as a regular C corporation. In addition,
a 100% excise tax will be imposed on certain transactions between a taxable REIT subsidiary and its parent REIT that are not
conducted on an arm's length basis.
Not more than 20% of the value of a REIT’s total assets may be represented by the securities of one or more taxable
REIT subsidiaries. A REIT's ownership of securities of a taxable REIT subsidiary is not subject to the 5% or 10% asset tests
applicable to REITs. Not more than 25% of a REIT's total assets may be represented by securities (including securities of one or
more taxable REIT subsidiaries), other than those securities includable in the 75% asset test. We anticipate that the aggregate
value of the stock and securities of our taxable REIT subsidiaries and other nonqualifying assets will be less than 25% of the
value of our total assets, and we will monitor the value of these investments to ensure compliance with applicable ownership
limitations. In addition, we intend to structure our transactions with our taxable REIT subsidiaries to ensure that they are
entered into on arm's length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however,
that we will be able to comply with these ownership limitations or to avoid application of the 100% excise tax discussed above.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions, and the
unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment
activities and/or to dispose of assets at inopportune times, which could adversely affect our financial condition, results of
operations, cash flow and per share trading price of our common stock.
29 To maintain our REIT status, we generally must distribute to our stockholders at least 90% of our net taxable income
each year, excluding net capital gains, and we will be subject to regular U.S. federal corporate income taxes to the extent that
we distribute less than 100% of our net taxable income each year, including net capital gains. In addition, we will be subject to
a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the
sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior
years. In order to maintain our REIT status and avoid the payment of income and excise taxes, we may need to borrow even if
the then-prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from, among
other things, differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes,
or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. These
sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a
number of factors, including the market's perception of our growth potential, our current debt levels, the market price of our
common stock, and our current and potential future earnings. We cannot assure you that we will have access to such capital on
favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets
at inopportune times, and could adversely affect our financial condition, results of operations, cash flow and per share trading
price of our common stock.
We may in the future choose to make dividends payable partly in our common stock, in which case you may be required to
pay tax in excess of the cash you receive.
To maintain our REIT status, we generally must distribute to our stockholders at least 90% of our net taxable income
each year, excluding net capital gains. In order to preserve cash to repay debt or for other reasons, we may choose to satisfy the
REIT distribution requirements by distributing taxable dividends that are payable partly in our stock and partly in cash. Taxable
stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the
extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, a U.S. stockholder may
be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it
receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect
to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S.
stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of
such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our
stock in order to pay taxes owed on dividends, such sales may have an adverse effect on the per share trading price of our
common stock.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to dividends treated as “qualified dividend income” payable to U.S. stockholders that
are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for the 20% rate.
Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, investors who are
individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks
of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including the per
share trading price of our common stock. Non-corporate stockholders, including individuals, generally may deduct 20% of
dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years
beginning before January 1, 2026. If we fail to qualify as a REIT, such stockholders may not claim this deduction with respect
to dividends paid by us.
The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which
would be treated as sales for federal income tax purposes.
A REIT's net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are
sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary
course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers
in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, such
characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of
our properties or that we will always be able to make use of the available safe harbors.
Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive
investments.
To maintain our qualification as a REIT, we must continually satisfy tests concerning, among other things, the nature and
diversification of our assets, the sources of our income and the amounts we distribute to our stockholders. We may be required
to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain
statutory relief provisions. We also may be required to make distributions to American Assets Trust, Inc.'s stockholders or
30 American Assets Trust, L.P.'s unitholders at disadvantageous times or when we do not have funds readily available for
distribution. As a result, having to comply with the distribution requirement could cause us to: (1) sell assets in adverse market
conditions; (2) borrow on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions,
capital expenditures or repayment of debt. Accordingly, satisfying the REIT requirements could have an adverse effect on our
business results, profitability and ability to execute our business plan. Moreover, if we are compelled to liquidate our
investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to
comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such
sales constitute prohibited transactions.
Legislative or other actions affecting REITs could have a negative effect on our investors or us, including our ability to
maintain our qualification as a REIT or the federal income tax consequences of such qualification.
The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process
and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could
adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New
legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our
ability to qualify as a REIT, the federal income tax consequences of such qualification or the federal income tax consequences
of such qualification or the federal income tax consequences of an investment in us. Also, the law relating to the tax treatment
of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive
relative to an investment in a REIT.
COVID-19 and governmental or business restrictions intended to prevent its spread could adversely impact our
business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and
to pay dividends and distributions to security holders.
The continuing impacts of COVID-19 and governmental or business restrictions intended to prevent its spread remain
highly unpredictable and volatile and have had a significant adverse impact on economic and market conditions around the
world during the last three years, including in the United States and specifically in the markets in which we own properties
(including development projects). The severity and specific impacts of COVID-19 continue to evolve, including with respect to
current and future variants of COVID-19. There is considerable uncertainty regarding, among other things, (i) the extent to
which COVID-19 and its variants will continue to spread, (ii) the extent and duration of governmental or business measures
aimed to contain the virus, such as instituting quarantines, restrictions on travel, “shelter in place” rules, stay-at-home orders,
density limitations, social distancing measures, restrictions on business operations and/or construction projects (including, for
some types of business operations and construction projects, possible required shut-downs) and (iii) whether any such measures
that have been lifted will be reinstated, or whether more restrictive measures will be imposed. As a result, we may not be able
to avoid adverse impacts on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy
our debt service obligations and to pay dividends and distributions to security holders. For instance we have previously seen a
material reduction in rent collections from certain tenants, particularly retail tenants, as a result of such measures. There can be
no assurance as to how long any restrictions intended to prevent the spread of COVID-19 may remain in place in the states and
cities where we own properties. If any such restrictions remain in place for an extended period of time, we may experience
further reductions in rents from our tenants.
During 2022, we continued to provide lease concessions to certain tenants, primarily within the retail segment, in the
form of rent abatements in recognition of the adverse impact that COVID-19 has had on them. As of December 31, 2022, we
have entered into lease modifications that resulted in COVID-19-related adjustments (including rent abatements and other
monetary lease concessions) for approximately 1% of the rent originally contracted for the year ended December 31, 2022.
Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, as well as
working with certain tenants who may request rent deferrals (particularly those occupying retail space), we can provide no
assurance that such efforts or our efforts in future periods will be successful. In addition, we are and will continue to be actively
engaged in discussions with certain tenants regarding the adverse impacts of COVID-19 and related governmental restrictions
on their businesses, and may afford certain additional accommodations to such tenants.
The ongoing impacts of COVID-19, including future mutations and related variants of the virus, could have significant
adverse impacts on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt
service obligations and to pay dividends and distributions to security holders in a variety of ways that are difficult to predict.
Such adverse impacts could depend on, among other factors:
•
•
the financial condition of our tenants and their ability or willingness to pay rent in full on a timely basis;
state, local, federal and industry-initiated efforts that may adversely affect landlords, including us, and their ability to
collect rent and/or enforce remedies for the failure to pay rent;
31 •
•
•
•
•
•
•
•
•
•
•
•
•
our need to defer or forgive rent and restructure leases with our tenants and our ability to do so on favorable terms or at
all;
significant job losses in the industries of our tenants, which may decrease demand for our office and retail space,
causing market rental rates and property values to be negatively impacted;
increased working from home as a result of COVID-19, which may decrease demand for office space causing market
rental rates and property values to be negatively impacted;
our ability to stabilize our development projects, renew leases or re-lease available space in our proprieties on
favorable terms or at all, including as a result of a general decrease in demand for our office and retail space and
occupancy in our hotel, deterioration in the economic and market conditions in the markets in which we own
properties or due to restrictions intended to prevent the spread of COVID-19 that frustrate our leasing activities;
a severe and prolonged disruption and instability in the global financial markets, including the debt and equity capital
markets, all of which have already experienced and may continue to experience significant volatility, or deteriorations
in credit and financing conditions, may affect our or our tenants’ ability to access capital necessary to fund our
respective business operations or replace or renew maturing liabilities on a timely basis, on attractive terms or at all
and may adversely affect the valuation of financial assets and liabilities, any of which could affect our and our tenants’
ability to meet liquidity and capital expenditure requirements;
a refusal or failure of one or more lenders under our revolving line of credit to fund their respective financing
commitments to us may affect our ability to access capital necessary to fund our business operations and to meet our
liquidity and capital expenditure requirements;
the ability of potential buyers of properties identified for potential future capital recycling transactions to obtain debt
financing, which has been and may continue to be constrained for some potential buyers;
a reduction in the values of our properties that could result in impairments or limit our ability to dispose of them at
attractive prices or obtain debt financing secured by our properties;
complete or partial shutdowns of one or more of our tenants’ manufacturing facilities or distribution centers, temporary
or long-term disruptions in our tenants’ supply chains from local, national and international suppliers or delays in the
delivery of products, services or other materials necessary for our tenants’ operations, which could force our tenants to
reduce, delay or eliminate offerings of their products and services, reduce or eliminate their revenues and liquidity and/
or result in their bankruptcy or insolvency;
our ability to avoid delays or cost increases associated with building materials or construction services necessary for
construction that could adversely impact our ability to continue or complete construction as planned, on budget or at
all;
our and our tenants’ ability to manage our respective businesses to the extent our and their management or personnel
are impacted in significant numbers by COVID-19 and are not willing, available or allowed to conduct work;
certain of our tenants filing for bankruptcy due to financial hardships they suffered as a result of COVID-19; and
our and our tenants’ ability to ensure business continuity in the event our continuity of operations plan is not effective
or improperly implemented or deployed to the extent necessary due to the unpredictable impacts of COVID-19.
The continuing, unpredictable development of the impacts of COVID-19, restrictions intended to prevent its spread, and
the volatile financial, economic and capital markets environment present material risks and uncertainties with respect to our
business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to
pay dividends and distributions to security holders and could also have a material adverse effect on the market value of our
securities.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
32 ITEM 2.
PROPERTIES
Our Portfolio
As of December 31, 2022, our operating portfolio was comprised of 31 office, retail, multifamily and mixed-use
properties with an aggregate of approximately 7.2 million rentable square feet of office and retail space (including mixed-use
retail space), 2,110 residential units (including 120 RV spaces) and a 369-room hotel. Additionally, as of December 31, 2022,
we owned land at three of our properties that we classified as held for development or construction in progress.
Retail and Office Portfolios
Property
OFFICE PROPERTIES
La Jolla Commons
Torrey Reserve Campus
Torrey Point
Location
Year Built/
Renovated
Number
of
Buildings
Net
Rentable
Square
Feet
Percentage
Leased
Annualized
Base Rent (1)
Annualized
Base Rent
Per Leased
Square
Foot
San Diego, CA
San Diego, CA
San Diego, CA
1996-2000/2014-2016/
2021
2017
2008/2014
2
724,648
99.0 % $ 44,541,508 $
Solana Beach Corporate Centre
The Landmark at One Market (2)
Solana Beach, CA
San Francisco, CA
1982/2005
1917/2000
San Francisco, CA
1924/1972/1987/1992
One Beach Street
First & Main
Lloyd Portfolio
City Center Bellevue
Eastgate Office Park
Corporate Campus East III
Portland, OR
Portland, OR
Bellevue, WA
Bellevue, WA
Bellevue, WA
Bel-Spring 520
Bellevue, WA
Subtotal / Weighted Average Office Portfolio (3)
RETAIL PROPERTIES
Carmel Country Plaza
Carmel Mountain Plaza (4)
South Bay Marketplace (4)
Gateway Marketplace
Lomas Santa Fe Plaza
Solana Beach Towne Centre
Del Monte Center (4)
Geary Marketplace
San Diego, CA
San Diego, CA
San Diego, CA
San Diego, CA
Solana Beach, CA
Solana Beach, CA
Monterey, CA
Walnut Creek, CA
The Shops at Kalakaua
Honolulu, HI
Waipahu, HI
Waikele Center
Alamo Quarry Market (4)
Hassalo on Eighth - Retail (5)
Portland, OR
Subtotal / Weighted Average Retail Portfolio (1)
Total / Weighted Average Retail and Office Portfolio (1)
San Antonio, TX
2010
1940-2015
1987
1985
1986
1983
1997
1997/2016
1972/1997
1973/2000/2004
1967/1984/2006
2012
1971/2006
1993/2008
1997/1999
2015
14
547,035
93,264
224,009
95.2
96.8
85.1
24,544,722
5,426,536
7,887,387
422,426
100.0
39,562,897
100,270
360,314
547,864
496,357
281,204
159,578
93,295
—
95.0
89.5
89.7
64.7
85.0
69.4
—
10,984,368
16,684,740
24,963,482
7,284,888
5,818,665
2,571,405
39
4,050,264
88.9 % $ 190,270,598 $
1991
9
78,098
87.6 % $ 3,667,449 $
1994/2014
15
528,416
99.3
13,318,240
9
3
9
132,877
127,861
208,297
12
16
246,651
673,155
35,159
11,671
100.0
100.0
97.7
96.2
82.3
95.6
77.7
2,499,291
2,663,055
6,329,685
6,554,948
9,253,568
1,221,287
1,032,073
418,047
100.0
12,298,465
16
588,148
3
44,236
94.1
65.5
14,418,643
943,261
107
3,092,616
93.5 % $ 74,199,965 $
146
7,142,880
90.9 % $ 264,470,563 $
2
4
1
1
1
3
1
4
4
2
3
3
9
62.09
47.13
60.11
41.38
93.66
—
32.09
34.03
56.07
40.04
42.90
39.71
52.84
53.61
25.38
18.81
20.83
31.10
27.63
16.70
36.33
113.81
29.42
26.05
32.55
25.66
40.73
Mixed-Use Portfolio
Retail Portion
Location
Year Built/
Renovated
Number
of
Buildings
Net
Rentable
Square
Feet
Percent
Leased
Annualized
Base Rent
Annualized
Base Rent
Per Leased
Square
Foot
Waikiki Beach Walk—Retail
Honolulu, HI
2006
3
93,925
93.8 % $ 8,785,614 $
99.72
Hotel Portion
Location
Waikiki Beach Walk—Embassy SuitesTM Honolulu, HI
Year Built/
Renovated
Number
of
Buildings
Units
Average
Occupancy
Average
Daily Rate
Revenue
per
Available
Room
2008/2014/2020
2
369
76.9 % $
367.97 $
282.99
33
Multifamily Portfolio
Property
Location
Loma Palisades
San Diego, CA
Imperial Beach Gardens
Imperial Beach, CA
1958/2001 -
2008/2021
1959/2008
1986
Mariner’s Point
Santa Fe Park RV Resort (6)
Imperial Beach, CA
San Diego, CA
1971/2007-2008
Pacific Ridge Apartments
San Diego, CA
Hassalo on Eighth -
Multifamily (5)
Total / Weighted Average Multifamily
Portland, OR
2013
2015
Year Built/
Renovated
Number
of
Buildings
Units
Percentage
Leased
Annualized
Base Rent
Average Monthly
Base Rent per
Leased Unit
80
26
8
1
3
3
121
548
160
88
124
533
657
2,110
94.3 % $ 16,734,228 $
91.3
94.3
96.0
88.6
4,539,336
2,202,696
2,043,288
20,721,768
91.3
11,482,272
91.8 % $ 57,723,588 $
2,699
2,590
2,212
1,430
3,657
1,595
2,483
(1) Annualized base rent is calculated by multiplying base rental payments (defined as cash base rents (before abatements)) under commenced leases for the
month ended December 31, 2022 by 12. In the case of triple net or modified gross leases, annualized base rent does not include tenant reimbursements for
real estate taxes, insurance, common area or other operating expenses. The foregoing notwithstanding:
a.
The annualized base rent for La Jolla Commons has been adjusted for this presentation to reflect that the contractual triple net leases were instead
structured as modified gross leases, by adding the contractual annualized triple net base rent of $33,834,361 to our estimate of annual triple net
operating expenses of $10,707,147 for an estimated annualized base rent on a modified gross lease basis of $44,541,508 for La Jolla Commons.
The annualized base rent for Eastgate Office Park has been adjusted for this presentation to reflect that the contractual triple net leases were instead
structured as modified gross leases, by adding the contractual annualized triple net base rent of $5,221,371 to our estimate of annual triple net
operating expenses of $2,063,517 for an estimated annualized base rent on a modified gross lease basis of $7,284,888 for Eastgate Office Park.
The annualized base rent for Corporate Campus East III has been adjusted for this presentation to reflect that the contractual triple net leases were
instead structured as modified gross leases, by adding the contractual annualized triple net base rent of $4,286,679 to our estimate of annual triple
net operating expenses of $1,531,986 for an estimated annualized base rent on a modified gross lease basis of $5,818,665 for Corporate Campus
East III.
The annualized base rent for Bel-Spring 520 has been adjusted for this presentation to reflect that the contractual triple net leases were instead
structured as modified gross leases, by adding the contractual annualized triple net base rent of $1,970,275 to our estimate of annual triple net
operating expenses of $601,131 for an estimated annualized base rent on a modified gross lease basis of $2,571,406 for Bel-Spring 520.
b.
c.
d.
(2) This property contains 422,426 net rentable square feet consisting of The Landmark at One Market (378,206 net rentable square feet) as well as a separate
long-term leasehold interest in approximately 44,220 net rentable square feet of space located in an adjacent six-story leasehold known as the Annex. We
currently lease the Annex from an affiliate of the Paramount Group pursuant to a long-term master lease effective through June 30, 2026, which we have
the option to extend until 2031 pursuant to one remaining five-year extension option.
(3) Lease data for signed but not commenced leases as of December 31, 2022 is in the following table:
Leased Square Feet
Under Signed But
Annualized
Rent per
Base Rent per
Annualized Base
Pro Forma Annualized
Not Commenced Leases (a)
Base Rent (b)
Leased Square Foot (b)
Leased Square Foot (c)
Office Portfolio
Retail Portfolio
Total Retail and Office Portfolio
$
$
84,437 $
47,335
131,772 $
4,498,255 $
1,577,101 $
6,075,356 $
53.27 $
33.32 $
46.11 $
54.09
26.21
41.67
(a) Office portfolio leases signed but not commenced of 27,753, 39,266 and 17,418 square feet are expected to commence during the first, second and
third quarters of 2023, respectively. Retail portfolio leases signed but not commenced of 4,264, 11,300, 11,350, 19,433 and 988 square feet are
expected to commence during the first, second, third and fourth quarters of 2023 and the fourth quarter of 2024, respectively.
(b) Annualized base rent is calculated by multiplying base rental payments (defined as cash base rents (before abatements)) for signed but not
commenced leases as of December 31, 2022 by 12. In the case of triple net or modified gross leases, annualized base rent does not include tenant
reimbursements for real estate taxes, insurance, common area or other operating expenses. Annualized base rent per leased square foot is calculated
by dividing annualized base rent, by square footage for signed by not commenced leases.
(c) Pro forma annualized base rent is calculated by dividing annualized base rent for commenced leases and for signed but not commenced leases as of
December 31, 2022, by square footage under lease as of December 31, 2022.
(4) Net rentable square feet at certain of our retail properties includes square footage leased pursuant to ground leases, as described in the following table:
Property
Carmel Mountain Plaza
South Bay Marketplace
Del Monte Center
Alamo Quarry Market
Number of Ground Leases
Square Footage
Leased Pursuant to
Ground Leases (a)
Aggregate Annualized Base
Rent
5
1
1
3
17,607 $
2,824 $
212,500 $
20,694 $
763,098
114,552
96,000
410,151
(a) 2,912 square feet of the ground leases at Carmel Mountain Plaza expire during the third quarter of 2023, with no extension options as of December
31, 2022
(5) The Hassalo on Eighth property is comprised of three multifamily buildings, each with a ground floor retail component: Velomor, Aster Tower and
Elwood.
34
(6) The Santa Fe Park RV Resort is subject to seasonal variation, with higher rates of occupancy occurring during the summer months. The number of units at
the Santa Fe Park RV Resort includes 120 RV spaces and four apartments.
In the tables above:
•
•
•
•
•
•
The net rentable square feet for each of our retail properties and the retail portion of our mixed-use property is the
sum of (1) the square footages of existing leases, plus (2) for available space, the field-verified square footage.
The net rentable square feet for each of our office properties is the sum of (a) the square footages of existing
leases, plus (b) for available space, management's estimate of net rentable square feet based, in part, on past
leases. The net rentable square feet included in such office leases is generally determined consistently with the
Building Owners and Managers Association, or BOMA, 2010 measurement guidelines. Net rentable square
footage may be adjusted from the prior period to reflect re-measurement of leased space at the properties.
Percentage leased for each of our retail and office properties and the retail portion of the mixed-use property is
calculated as square footage under leases as of December 31, 2022, divided by net rentable square feet, expressed
as a percentage. The square footage under lease includes leases which may not have commenced as of
December 31, 2022. Percentage leased for our multifamily properties is calculated as total units rented as of
December 31, 2022, divided by total units available, expressed as a percentage.
Annualized base rent is calculated by multiplying base rental payments (defined as cash base rents, before
abatements) for the month ended December 31, 2022, by 12. Annualized base rent per leased square foot is
calculated by dividing annualized base rent, by square footage under lease as of December 31, 2022. In the case of
triple net or modified gross leases, annualized base rent does not include tenant reimbursements for real estate
taxes, insurance, common area or other operating expenses. Total abatements for leases in effect as of
December 31, 2022 for our retail and office portfolio equaled approximately $8.4 million for the year ended
December 31, 2022. Total abatements for leases in effect as of December 31, 2022 for our mixed-use portfolio
equaled approximately $1.2 million for the year ended December 31, 2022. Total abatements for leases in effect as
of December 31, 2022 for our multifamily portfolio equaled approximately $0.5 million for the year ended
December 31, 2022.
Units represent the total number of units available for sale or rent at December 31, 2022.
Average occupancy represents the percentage of available units that were sold during the 12-month period ended
December 31, 2022, and is calculated by dividing the number of units sold by the product of the total number of
units and the total number of days in the period. Average daily rate represents the average rate paid for the units
sold and is calculated by dividing the total room revenue (i.e., excluding food and beverage revenues or other
hotel operations revenues such as telephone, parking and other guest services) for the 12-month period ended
December 31, 2022, by the number of units sold. Revenue per available room, or RevPAR, represents the total
unit revenue per total available units for the 12-month period ended December 31, 2022 and is calculated by
multiplying average occupancy by the average daily rate. RevPAR does not include food and beverage revenues
or other hotel operations revenues such as telephone, parking and other guest services.
Average monthly base rent per leased unit represents the average monthly base rent per leased units as of
December 31, 2022.
35 Tenant Diversification
At December 31, 2022, our operating portfolio had approximately 834 leases with office and retail tenants, of which 10
expired on December 31, 2022 and there were 22 that had not yet commenced as of such date. Our residential properties had
1,818 leases with residential tenants at December 31, 2022, excluding Santa Fe Park RV Resort. The retail portion of our
mixed-use property had approximately 60 leases with retailers. Only one tenant or affiliated group of tenants accounted for
more than 9.4% of our annualized base rent as of December 31, 2022 for our office, retail and retail portion of our mixed-use
property portfolio. The following table sets forth information regarding the 25 tenants with the greatest annualized base rent
for our combined office, retail and retail portion of our mixed-use property portfolios as of December 31, 2022.
Tenant
Google LLC
LPL Holdings, Inc.
Autodesk, Inc.
Property(ies)
Lease
Expiration
Total Leased
Square Feet
The Landmark at One Market
12/31/2029
La Jolla Commons
The Landmark at One Market
4/30/2029
12/31/2023
12/31/2027
12/31/2026
4/30/2029
10/31/2027
3/31/2028
5/31/2028
4/30/2025
4/30/2033
3/31/2034
253,198
421,001
138,615
123,041
73,176
75,000
155,000
101,848
55,256
Smartsheet, Inc.
City Center Bellevue
Illumina, Inc.
VMware, Inc
Lowe's
Clearesult Operating, LLC
Industrious
State of Oregon: Department of
Environmental Quality
La Jolla Commons
City Center Bellevue
Waikele Center
First & Main
City Center Bellevue
Lloyd District Portfolio
10/31/2031
87,787
Top technology tenant (2)
La Jolla Commons
Genentech, Inc
MEI Pharma, Inc.
Lloyd District Portfolio
Torrey Reserve Campus
Internal Revenue Service
First & Main
Sprouts Farmers Market
Solana Beach Towne Centre,
Carmel Mountain Plaza,
Geary Marketplace
California Bank & Trust
Torrey Reserve Campus
WeWork
Lloyd District Portfolio
Veterans Benefits Administration
First & Main
8/31/2030
10/31/2026
11/30/2029
8/31/2030
6/30/2024
3/31/2025
9/30/2032
2/28/2024
1/31/2032
8/31/2030
Perkins Coie, LLP
Torrey Reserve Campus
12/31/2028
Nordstrom Rack
Troutman Sanders, LLP
Marshalls
Banner Corporation
Pillsbury Winthrop Shaw Pittman,
LLP
Carmel Mountain Plaza,
Alamo Quarry Market
Torrey Reserve Campus
First & Main
Solana Beach Towne Centre,
Carmel Mountain Plaza
Corporate Campus East III
Torrey Reserve Campus
9/30/2027
10/31/2027
3/31/2025
4/30/2025
1/31/2025
1/31/2029
10/31/2027
11/30/2033
Cisco Systems, Inc.
City Center Bellevue
2/28/2023
47,826
66,852
45,088
63,648
71,431
34,731
55,395
74,885
36,980
69,047
33,812
68,055
46,572
26,152
25,689
Rentable
Square
Feet as a
Percentage
of Total
Annualized
Base Rent (1)
Annualized
Base Rent
as a
Percentage
of Total
3.5 % $
25,651,314
9.4 %
5.8
1.9
1.7
1.0
1.0
2.1
1.4
0.8
1.2
0.7
0.9
0.6
0.9
1.0
0.5
0.8
1.0
0.5
1.0
0.5
0.9
0.6
0.4
0.4
19,305,775
12,965,599
6,830,332
4,609,212
4,447,886
3,720,000
3,382,042
3,111,931
2,935,024
2,737,440
2,337,632
2,266,536
2,189,700
2,121,187
2,034,559
1,998,131
1,997,006
1,915,389
1,804,269
1,798,680
1,728,228
1,583,448
1,474,973
1,426,234
7.1
4.7
2.5
1.7
1.6
1.4
1.2
1.1
1.1
1.0
0.9
0.8
0.8
0.8
0.7
0.7
0.7
0.7
0.7
0.7
0.6
0.6
0.5
0.5
TOTAL
2,250,085
31.1 % $
116,372,527
42.5 %
(1) Annualized base rent is calculated by multiplying (i) base rental payments (defined as cash base rents before abatements) for the month ended
December 31, 2022 for the applicable lease(s) by (ii) 12.
(2) Name withheld at tenant's request.
36
Geographic Diversification
Our properties are located in Southern California, Northern California, Washington, Oregon, Texas and Hawaii. The
following table shows the number of properties, the net rentable square feet and the percentage of total portfolio net rentable
square footage in each region as of December 31, 2022. Our six multifamily properties are excluded from the table below and
are located in Southern California and Portland, Oregon. The hotel portion of our mixed-use property is also excluded and is
located in Hawaii.
Region
Southern California
Northern California
Washington
Oregon
Texas
Hawaii (2)
Total
Number of
Properties
Net Rentable Square Feet
2,911,156
1,231,010
1,030,434
952,414
588,148
523,643
7,236,805
10
4
4
3
1
3
25
Percentage of Net
Rentable Square Feet (1)
40.2 %
17.0
14.2
13.2
8.1
7.2
100.0 %
(1) Percentage of Net Rentable Square Feet is calculated based on the total net rentable square feet available in our retail portfolio, office portfolio and
the retail portion of our mixed-use portfolio.
Includes the retail portion related to the mixed-use property.
(2)
Segment Diversification
The following table sets forth information regarding the total property operating income for each of our segments for the
year ended December 31, 2022 (dollars in thousands).
Segment
Office
Retail
Mixed-Use
Multifamily
Total
Lease Expirations
Number of
Properties
Property Operating
Income
Percentage of Property
Operating Income
12 $
12
1
6
31 $
145,913
70,606
31,883
21,813
270,215
54.0 %
26.1
11.8
8.1
100.0 %
The following table sets forth a summary schedule of the lease expirations for leases in place as of December 31, 2022,
plus available space, for each of the ten calendar years beginning January 1, 2023 at the properties in our retail portfolio, office
portfolio and the retail portion of our mixed-use portfolio. The square footage of available space excludes the space from 13
leases that terminated on December 31, 2022. In 2023, we expect a similar level of leasing activity for new and expiring leases
compared to prior years with overall positive increases in rental income. However, changes in rental income associated with
individual signed leases on comparable spaces may be positive or negative, and we can provide no assurance that the rents on
new leases will continue to increase at the above disclosed levels, if at all.
37
The lease expirations for our multifamily portfolio and the hotel portion of our mixed-use portfolio are excluded from
this table because multifamily unit leases generally have lease terms ranging from seven to 15 months, with a majority having
12-month lease terms, and because rooms in the hotel are rented on a nightly basis. The information set forth in the table
assumes that tenants do not exercise any renewal options.
Year of Lease Expiration
Available
Month to Month
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Thereafter
Signed Leases Not Commenced
Total:
Square
Footage of
Expiring
Leases
655,974
81,211
495,608
774,422
648,046
641,173
831,859
961,495
1,063,288
285,949
279,759
207,678
173,197
137,146
7,236,805
Percentage
of Portfolio
Net
Rentable
Square
Feet
Annualized Base
Rent (1)
Percentage
of Portfolio
Annualized
Base Rent
9.1 % $
1.1
6.8
10.7
9.0
8.9
11.5
13.3
14.7
4.0
3.9
2.9
2.4
—
918,795
25,605,784
28,504,521
23,516,747
25,381,358
33,430,534
26,153,158
58,172,606
12,089,145
10,462,653
6,397,112
7,719,987
Annualized
Base Rent Per
Leased
Square Foot (2)
—
11.31
51.67
36.81
36.29
39.59
40.19
27.20
54.71
42.28
37.40
30.80
44.57
— % $
0.4
9.9
11.0
9.1
9.8
12.9
10.1
22.5
4.7
4.0
2.5
3.0
1.9
—
100.0 % $ 258,352,400
—
100.0 % $
—
35.70
(1) Annualized base rent is calculated by multiplying base rental payments (defined as cash base rents (before abatements)) for the month ended
December 31, 2022 for the leases expiring during the applicable period, by 12.
(2) Annualized base rent per leased square foot is calculated by dividing annualized base rent for leases expiring during the applicable period by square
footage under such expiring leases.
ITEM 3.
LEGAL PROCEEDINGS
We are not currently a party, as plaintiff or defendant, to any legal proceedings that we believe to be material or which,
individually or in the aggregate, would be expected to have a material effect on our business, financial condition or results of
operation if determined adversely to us. We may be subject to ongoing litigation and we expect to otherwise be party from time
to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
38
PART II
ITEM 5.
MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
American Assets Trust, Inc. Market Information and Holders
Shares of American Assets Trust, Inc.'s common stock are listed on the NYSE under the symbol “AAT”. On February 3,
2023, we had 78 stockholders of record of our common stock. Certain shares are held in “street” name and accordingly, the
number of beneficial owners of such shares is not known or included in the foregoing number.
American Assets Trust, L.P.
There is no established trading market for American Assets Trust, L.P.'s operating partnership units. As of February 3,
2023, we had 20 holders of record of American Assets Trust, L.P.'s operating partnership units, including American Assets
Trust, Inc.
Distribution Policy
We pay and intend to continue to pay regular quarterly dividends to holders of our common stock and distributions to
unitholders of our Operating Partnership and to make dividend distributions that will enable us to meet the distribution
requirements applicable to REITs and to eliminate or minimize our obligation to pay income and excise taxes. Dividend
amounts depend on our available cash flows, financial condition and capital requirements, the annual distribution requirements
under the REIT provisions of the Code and such other factors as our board of directors deems relevant.
Recent Sales of Unregistered Equity Securities
No unregistered equity securities were sold by us during 2022.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
No equity securities were purchased by us during 2022.
Equity Compensation Plan Information
Information about our equity compensation plans is incorporated by reference in Item 12 of Part III of this annual report
on Form 10-K.
39 Stock Performance Graph
The information below shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to
Regulation 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the
Exchange Act, except to the extent we specifically request that such information be treated as soliciting material or specifically
incorporate it by reference into a filing under the Securities Act or the Exchange Act.
The graph below compares the cumulative total return on the company’s common stock with that of the Standard &
Poor's 500 Stock Index, or S&P 500 Index, and an industry peer group, S&P 600 Real Estate Index from December 31, 2017
through December 31, 2022. We changed our industry index comparison to be consistent with the index comparison in our
long-term equity incentive awards and also due to the change in our overall portfolio with the acquisition, development and
redevelopment of multiple office projects. Our previous industry peer group was Dow Jones Equity All REIT Index, since the
SNL US REIT Equity Index was retired in August 2021. The stock price performance graph assumes that an investor invested
$100 in each of American Assets Trust, Inc. and these indices, and the reinvestment of any dividends. The comparisons in the
graph are provided in accordance with the SEC disclosure requirements and are not intended to forecast or be indicative of the
future performance of American Assets Trust, Inc. shares of common stock.
40
ITEM 6.
[RESERVED]
41 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited historical consolidated financial statements and
notes thereto appearing in “Item 8. Financial Statements and Supplementary Data” of this report. As used in this section, unless
the context otherwise requires, “we,” “us,” “our,” and “our company” mean American Assets Trust, Inc., a Maryland
corporation and its consolidated subsidiaries, including American Assets Trust, L.P. In statements regarding qualification as a
REIT, such terms refer solely to American Assets Trust, Inc. This discussion may contain forward-looking statements based
upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in
these forward looking statements as a result of various factors, including those set forth under “Item 1A. Risk Factors” or
elsewhere in this document. See “Item 1A. Risk Factors” and “Forward-Looking Statements.”
Overview
Our Company
We are a full service, vertically integrated and self-administered REIT that owns, operates, acquires and develops high
quality office, retail, multifamily and mixed-use properties in attractive, high-barrier-to-entry markets in Southern California,
Northern California, Washington, Oregon, Texas, and Hawaii. As of December 31, 2022, our portfolio was comprised of twelve
office properties; twelve retail shopping centers; a mixed-use property consisting of a 369-room all-suite hotel and a retail
shopping center; and six multifamily properties. Additionally, as of December 31, 2022, we owned land at three of our
properties that we classified as held for development or construction in progress. Our core markets include San Diego,
California; the San Francisco Bay Area, California; Bellevue; Washington; Portland, Oregon, and Oahu, Hawaii. American
Assets Trust, Inc., as the sole general partner of our Operating Partnership, has control of our Operating Partnership and owned
78.8% of our Operating Partnership as of December 31, 2022. Accordingly, we consolidate the assets, liabilities and results of
operations of our Operating Partnership.
Taxable REIT Subsidiary
On November 5, 2010, we formed American Assets Services, Inc., a Delaware corporation that is wholly owned by our
Operating Partnership and which we refer to as our services company. We have elected, together with our services company, to
treat our services company as a taxable REIT subsidiary for federal income tax purposes. A taxable REIT subsidiary generally
may provide non-customary and other services to our tenants and engage in activities that we may not engage in directly
without adversely affecting our qualification as a REIT, provided a taxable REIT subsidiary may not operate or manage a
lodging facility or provide rights to any brand name under which any lodging facility is operated. We may form additional
taxable REIT subsidiaries in the future, and our Operating Partnership may contribute some or all of its interests in certain
wholly owned subsidiaries or their assets to our services company. Any income earned by our taxable REIT subsidiaries will
not be included in our taxable income for purposes of the 75% or 95% gross income tests, except to the extent such income is
distributed to us as a dividend, in which case such dividend income will qualify under the 95%, but not the 75%, gross income
test. Because a taxable REIT subsidiary is subject to federal income tax and state and local income tax (where applicable) as a
regular corporation, the income earned by our taxable REIT subsidiaries generally will be subject to an additional level of tax as
compared to the income earned by our other subsidiaries.
Outlook
We seek growth in earnings, funds from operations, and cash flows primarily through a combination of the following:
growth in our same-store portfolio, growth in our portfolio from property development and redevelopments and expansion of
our portfolio through property acquisitions. Our properties are located in some of the nation's most dynamic, high-barrier-to-
entry markets primarily in Southern California, Northern California, Washington, Oregon and Hawaii, which we believe allow
us to take advantage of redevelopment opportunities that enhance our operating performance through renovation, expansion,
reconfiguration, and/or retenanting. We evaluate our properties on an ongoing basis to identify these types of opportunities.
We intend to opportunistically pursue projects in our development pipeline including future phases of La Jolla Commons
and Lloyd Portfolio, as well as other redevelopments at Waikele Center. The commencement of these developments is based
on, among other things, market conditions and our evaluation of whether such opportunities would generate appropriate risk
adjusted financial returns. Our redevelopment and development opportunities are subject to various factors, including market
conditions and may not ultimately come to fruition. We continue to review acquisition opportunities in our primary markets
that would complement our portfolio and provide long-term growth opportunities. Some of our acquisitions do not initially
contribute significantly to earnings growth; however, we believe they provide long-term re-leasing growth, redevelopment
opportunities and other strategic opportunities. Any growth from acquisitions is contingent on our ability to find properties that
meet our qualitative standards at prices that meet our financial hurdles. Changes in interest rates may affect our success in
42 achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property, as well as
our ability to economically finance a property acquisition. Generally, our acquisitions are initially financed by available cash,
mortgage loans and/or borrowings under our credit facility, which may be repaid later with funds raised through the issuance of
new equity or new long-term debt.
COVID-19
We continue to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including how it
has impacted and may in the future impact our tenants and business partners. We are unable to predict the future impact that
COVID-19 will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These
uncertainties include the scope, severity and duration of the impacts of COVID-19 (including future mutations of the
COVID-19 virus), the ongoing governmental, business and individual actions taken to stop the spread of COVID-19 or to
mitigate its impact, the availability and adoption of COVID-19 vaccines and the direct and indirect economic effects of the
virus and containment measures, among others. The outbreak of COVID-19 in many countries, including the United States, has
significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in
financial markets. The global impact of COVID-19 continues to rapidly evolve. Certain states and cities, including where we
own properties, have development sites and where our principal place of business is located, have at various points in time,
reacted by instituting quarantines, restrictions on travel, "stay-at-home" orders or “shelter in place” rules, social distancing
measures, and restrictions on business operations and/or construction projects (including, required shut-downs in some
instances), and, even if such measures have been lifted, we cannot predict whether they will be reinstated or whether more
restrictive measures may be imposed. It is unclear how customers’ concerns about COVID-19 transmission and sensitivities to
the transmission of other diseases will impact their willingness to visit certain of our tenants' businesses. As a result, COVID-19
has negatively impacted almost every industry directly or indirectly, including industries in which the Company and our tenants
operate, and may continue to do so. Further, the impacts of a potential worsening of global economic conditions and the
continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated
consequences remain unknown. In addition, we cannot predict the impact that COVID-19 will have on our tenants and other
business partners in the future; however, any material effect on these parties could adversely impact us.
We believe our financial condition and liquidity are currently strong. Although there is uncertainty related to COVID-19’s
impact on our future results, we believe our efficient business model and steps we have taken to strengthen our balance sheet
will continue to allow us to manage our business through this evolving crisis. We continue to manage all aspects of our business
including, but not limited to, monitoring the financial health of our tenants, vendors, and other third-party relationships, and
developing new opportunities for growth. Due to the constantly changing nature of COVID-19, we cannot reasonably estimate
with any degree of certainty the future impacts it may have on our results of operations, financial position, and liquidity.
Same-store
We have provided certain information on a total portfolio, same-store and redevelopment same-store basis. Information
provided on a same-store basis includes the results of properties that we owned and operated for the entirety of both periods
being compared except for properties for which significant redevelopment or expansion occurred during either of the periods
being compared, properties under development, properties classified as held for development and properties classified as
discontinued operations. Information provided on a redevelopment same-store basis includes the results of properties
undergoing significant redevelopment for the entirety or portion of both periods being compared. Same-store and
redevelopment same-store is considered by management to be an important measure because it assists in eliminating disparities
due to the development, acquisition or disposition of properties during the particular period presented, and thus provides a more
consistent performance measure for the comparison of the company's stabilized and redevelopment properties, as applicable.
Additionally, redevelopment same-store is considered by management to be an important measure because it assists in
evaluating the timing of the start and stabilization of our redevelopment opportunities and the impact that these redevelopments
have in enhancing our operating performance.
While there is judgment surrounding changes in designations, we typically reclassify significant development,
redevelopment or expansion properties to same-store properties once they are stabilized. Properties are deemed stabilized
typically at the earlier of (1) reaching 90% occupancy or (2) four quarters following a property's inclusion in operating real
estate. We typically remove properties from same-store properties when the development, redevelopment or expansion has or
is expected to have a significant impact on the property's annualized base rent, occupancy and operating income within the
calendar year. Acquired properties are classified to same-store properties once we have owned such properties for the entirety
of comparable period(s) and the properties are not under significant development or expansion.
43 In our determination of same-store and redevelopment same-store properties, One Beach Street has been identified as a
same-store redevelopment property due to significant construction activity.
Below is a summary of our same-store composition for the years ended December 31, 2022, 2021 and 2020. For the year
ended December 31, 2022, when compared to the designations for the year ended December 31, 2021, Waikiki Beach Walk-
Retail and Embassy Suites™ Hotel is reclassified to same-store due to significant spalling repair activity impacting the hotel
portion of the property's operations, which was completed on September 30, 2020. Eastgate Office Park is classified as non-
same-store, as it was acquired on July 7, 2021. Corporate Campus East III is classified as non-same-store, as it was acquired on
September 10, 2021. Bel-Spring 520 is classified as non-same-store, as it was acquired on March 8, 2022.
For the year ended December 31, 2021, when compared to the designations for the year ended December 31, 2020,
Waikele Center was reclassified to same-store as there is currently no redevelopment activity on the property. La Jolla
Commons was classified as same-store, as it was acquired on June 20, 2019. Eastgate Office Park is classified as non-same-
store, as it was acquired on July 7, 2021. Corporate Campus East III is classified as non-same-store, as it was acquired on
September 10, 2021.
Same-Store
Non-Same Store
Total Properties
Redevelopment Same-Store
Total Development Properties
Revenue Base
2022
December 31,
2021
2020
27
4
31
28
3
26
4
30
27
3
24
4
28
26
3
Rental income consists of scheduled rent charges, straight-line rent adjustments and the amortization of above market and
below market rents acquired. We also derive revenue from tenant recoveries and other property revenues, including parking
income, lease termination fees, late fees, storage rents and other miscellaneous property revenues.
Office Leases. Our office portfolio included twelve properties with a total of approximately 4.1 million rentable square
feet available for lease as of December 31, 2022. As of December 31, 2022, these properties were 88.9% leased. For the year
ended December 31, 2022, the office segment contributed 48.1% of our total revenue. Historically, we have leased office
properties to tenants primarily on a full service gross or a modified gross basis and to a limited extent on a triple-net lease basis.
We expect to continue to do so in the future. A full-service gross or modified gross lease has a base year expense stop, whereby
the tenant pays a stated amount of certain expenses as part of the rent payment, while future increases in property operating
expenses (above the base year stop) are billed to the tenant based on such tenant's proportionate square footage of the property.
The increased property operating expenses billed are reflected as operating expenses and amounts recovered from tenants are
reflected as rental income in the statements of operations.
During the year ended December 31, 2022, we signed 64 office leases for 475,401 square feet with an average rent of
$60.16 per square foot during the initial year of the lease term. Of the leases, 43 represent comparable leases where there was a
prior tenant, with an increase of 17.1% in cash basis rent and an increase of 21.7% in straight-line rent compared to the prior
leases.
Retail Leases. Our retail portfolio included twelve properties with a total of approximately 3.1 million rentable square feet
available for lease as of December 31, 2022. As of December 31, 2022, these properties were 93.5% leased. For the year ended
December 31, 2022, the retail segment contributed 23.9%, of our total revenue. Historically, we have leased retail properties to
tenants primarily on a triple-net lease basis, and we expect to continue to do so in the future. In a triple-net lease, the tenant is
responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating
expense, but rather all such expenses, to the extent they are paid by the landlord, are billed to the tenant. The full amount of the
expenses for this lease type, to the extent they are paid by the landlord, is reflected in operating expenses, and the
reimbursement is reflected as rental income in the statements of operations.
During the year ended December 31, 2022, we signed 91 retail leases for 390,425 square feet with an average rent of
$32.96 per square foot during the initial year of the lease term, including leases signed for the retail portion of our mixed-use
44
property. Of the leases, 69 represent comparable leases where there was a prior tenant, with an increase of 5.1% in cash basis
rent and an increase of 17.2% in straight-line rent compared to the prior leases.
Multifamily Leases. Our multifamily portfolio included six apartment properties, as well as an RV resort, with a total of
2,110 units (including 120 RV spaces) available for lease as of December 31, 2022. As of December 31, 2022, these properties
were 91.8% leased. For the year ended December 31, 2022, the multifamily segment contributed 13.8% of our total revenue.
Our multifamily leases, other than at our RV resort, generally have lease terms ranging from 7 to 15 months, with a majority
having 12-month lease terms. Tenants normally pay a base rental amount, usually quoted in terms of a monthly rate for the
respective unit. Spaces at the RV resort can be rented at a daily, weekly, or monthly rate. The average monthly base rent per
leased unit as of December 31, 2022 was $2,483, compared to $2,201 at December 31, 2021.
Mixed-Use Property Revenue. Our mixed-use property consists of approximately 94,000 rentable square feet of retail
space and a 369-room all-suite hotel. Revenue from the mixed-use property consists of revenue earned from retail leases, and
revenue earned from the hotel, which consists of room revenue, food and beverage services, parking and other guest services.
As of December 31, 2022, the retail portion of the property was 93.8% leased, and for the year ended December 31, 2022, the
hotel had an average occupancy of 76.9%. For the year ended December 31, 2022, the mixed-use segment contributed 14.2%,
of our total revenue. We have leased the retail portion of such property to tenants primarily on a triple-net lease basis, and we
expect to continue to do so in the future. As such, the base rent payment under such leases does not include any operating
expenses, but rather all such expenses, to the extent they are paid by the landlord, are billed to the tenant. Rooms at the hotel
portion of our mixed-use property are rented on a nightly basis.
Leasing
Our same-store growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in
portfolio occupancy. Over the long-term, we believe that the infill nature and strong demographics of our properties provide us
with a strategic advantage, allowing us to maintain relatively high occupancy and increase rental rates. Furthermore, we believe
the locations of our properties and diversified portfolio will mitigate some of the potentially negative impact of the current
economic environment. In the short-term, however, due to COVID-19, we have seen a meaningful negative impact on certain of
our tenants' operations and ability to pay rent, primarily in the retail sector; and any reduction in our tenants' abilities to pay
base rent, percentage rent or other charges, including as a result of COVID-19, will adversely affect our financial condition and
results of operations.
During the twelve months ended December 31, 2022, we signed 64 office leases for a total of 475,401 square feet of
office space including 352,925 square feet of comparable space leases, at an average rental rate increase of 17.1% on a cash
basis and an average rental increase of 21.7% on a straight-line basis. New office leases for comparable spaces were signed for
45,842 square feet at an average rental rate increase of 22.5% on a cash basis and an average rental rate increase of 44.3% on a
straight-line basis. Renewals for comparable office spaces were signed for 307,083 square feet at an average rental rate increase
of 16.4% on a cash basis and increase of 18.9% on a straight-line basis. Tenant improvements and incentives were $55.06 per
square foot of office space for comparable new leases for the twelve months ended December 31, 2022. There were $11.39 per
square foot of office space of tenant improvement or incentives for comparable renewal leases for the twelve months ended
December 31, 2022.
During the twelve months ended December 31, 2022, we signed 91 retail leases for a total of 390,425 square feet of retail
space including 319,660 square feet of comparable space leases, at an average rental rate increase of 5.1% on a cash basis and
an average rental increase of 17.2% on a straight-line basis. New retail leases for comparable spaces were signed for 14,511
square feet at an average rental rate increase of 16.0% on a cash basis and an average rental rate increase of 701.9% (due to the
modification of prior tenants' rent to cash-basis, which precluded straight-line rent for comparison) on a straight-line basis.
Renewals for comparable retail spaces were signed for 305,149 square feet at an average rental rate increase of 4.5% on a cash
basis and an increase of 9.3% on a straight-line basis. Tenant improvements and incentives were $32.87 per square foot of retail
space for comparable new leases for the twelve months ended December 31, 2022. There were $3.18 per square foot of retail
space of tenant improvement or incentives for comparable renewal leases for the twelve months ended December 31, 2022.
The rental increases associated with comparable spaces generally include all leases signed in arms-length transactions
reflecting market leverage between landlords and tenants during the period. The comparison between average rent for expiring
leases and new leases is determined by including minimum rent and percentage rent paid on the expiring lease and minimum
rent and, in some instances, projections of first lease year percentage rent, to be paid on the new lease. In some instances,
management exercises judgment as to how to most effectively reflect the comparability of spaces reported in this calculation.
The change in rental income on comparable space leases is impacted by numerous factors including current market rates,
location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed, capital
45 investment made in the space and the specific lease structure. Tenant improvements and incentives include the total dollars
committed for the improvement of a space as it relates to a specific lease, but may also include base building costs (i.e.,
expansion, escalators or new entrances) which are required to make the space leasable. Incentives include amounts paid to
tenants as an inducement to sign a lease that do not represent building improvements.
The leases signed in 2022 will typically become effective in 2023, though some may not become effective until 2024.
Further, there is risk that some new tenants will not ultimately take possession of their space and that tenants for both new and
renewal leases may not pay all of their contractual rent due to operating, financing or other matters.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities, and revenues and expenses. These estimates are prepared using management's best judgment, after considering
past and current events and economic conditions. In addition, information relied upon by management in preparing such
estimates includes internally generated financial and operating information, external market information, when available, and
when necessary, information obtained from consultations with third party experts. Actual results could differ from these
estimates. A discussion of possible risks which may affect these estimates is included in the section above entitled “Item 1A.
Risk Factors.” Management considers an accounting estimate to be critical if changes in the estimate could have a material
impact on our consolidated results of operations or financial condition.
Our significant accounting policies are more fully described in the notes to the consolidated financial statements included
elsewhere in this report; however, the most critical accounting policies, which involve the use of estimates and assumptions as
to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows:
46 Revenue Recognition and Accounts Receivable
Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed rent escalations which
occur at specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant
controls the space through the term of the related lease, net of valuation adjustments, based on management's assessment of
credit, collection and other business risks. When we determine that we are the owner of tenant improvements and the tenant has
reimbursed us for a portion or all of the tenant improvement costs, we consider the amount paid to be additional rent, which is
recognized on a straight-line basis over the term of the related lease. For first generation tenants, in instances in which we fund
tenant improvements and the improvements are deemed to be owned by us, revenue recognition will commence when the
improvements are substantially completed and possession or control of the space is turned over to the tenant. When we
determine that the tenant is the owner of tenant improvements, tenant allowances are recorded as lease incentives and we
commence revenue recognition and lease incentive amortization when possession or control of the space is turned over to the
tenant for tenant work to begin. Percentage rents, which represent additional rents based upon the level of sales achieved by
certain tenants, are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved
and the percentage rents are collectible. Real estate tax and other cost reimbursements are recognized on an accrual basis over
the periods in which the related expenditures are incurred.
Other property income includes parking income, general excise tax billed to tenants, fees charged to tenants at our
multifamily properties and food and beverage sales at the hotel portion of our mixed-use property. Other property income is
recognized when we satisfy performance obligations as evidenced by the transfer of control of our services to customers. For a
tenant to terminate its lease agreement prior to the end of the agreed term, we may require that they pay a fee to cancel the lease
agreement. Lease termination fees for which the tenant has relinquished control of the space are generally recognized on the
later of the termination date or the satisfaction of all conditions precedent to the lease termination, including, without limitation,
payment of all lease termination fees. When a lease is terminated early but the tenant continues to control the space under a
modified lease agreement, the lease termination fee is generally recognized evenly over the remaining term of the modified
lease agreement.
Current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real
estate tax and other cost reimbursements. Accounts receivable from straight-line rent is typically longer term in nature and
relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under
the contractual lease agreement.
We recognize revenue on the hotel portion of our mixed-use property from the rental of hotel rooms and guest services
when we satisfy performance obligations as evidenced by the transfer of control when the rooms are occupied and services have
been provided. Food and beverage sales are recognized when the customer has been served or at the time the transaction occurs.
Revenue from room rental is included in rental revenue on the statement of comprehensive income. Revenue from other sales
and services provided is included in other property income on the statement of comprehensive income.
We make estimates of the collectability of our current accounts receivable and straight-line rents receivable which
requires significant judgment by management. The collectability of receivables is affected by numerous different factors
including current economic trends, including the continued impact of COVID-19 on tenant's businesses and changes in tenants'
payment patterns, tenant bankruptcies, the status of collectability of current cash rents receivable, tenants' recent and historical
financial and operating results, changes in our tenants' credit ratings, communications between our operating personnel and
tenants, the extent of security deposits and letters of credits held with respect to tenants, and the ability of the tenant to perform
under the terms of their lease agreement when evaluating the adequacy of the allowance for doubtful accounts. If our
assessment of these factors indicates it is probable that we will be unable to collect substantially all rents, we recognize a charge
to rental income and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they
become accruable or cash collected. If we change our conclusion regarding the probability of collecting rent payments required
by a lessee, we may recognize an adjustment to rental income in the period we make a change to our prior conclusion.
Due to the nature of the accounts receivable from straight-line rents, the collection period of these amounts typically
extends beyond one year. Our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise
recognizable as revenue is never billed to or collected from tenants due to early lease terminations, lease modifications,
bankruptcies and other factors. Accordingly, the extended collection period for straight-line rents along with our evaluation of
tenant credit risk may result in the nonrecognition of a portion of straight-line rental income until the collection of such income
is reasonably assured. Any changes to our conclusion regarding these assessments of collectability would have a direct impact
on our net income.
47 Since the onset of COVID-19 in 2020, we have provided lease concessions to certain tenants, primarily within the retail
segment, in the form of rent deferrals and abatements in recognition of the adverse impact that COVID-19 had on such tenants,
although the concessions provided during the year ended December 31, 2022 were immaterial to us. These lease concessions
generally included an increase in our rights as a lessor. We assess each lease concession and determine whether it represents a
lease modifications under Accounting Standards Codification Topic 842, Leases ("ASC 842").
Real Estate
Depreciation and maintenance costs relating to our properties constitute substantial costs for us. Land, buildings and
improvements are recorded at cost. Depreciation is computed using the straight-line method. Estimated useful lives range
generally from 30 years to a maximum of 40 years on buildings and major improvements. Minor improvements, furniture and
equipment are capitalized and depreciated over useful lives ranging from 3 to 15 years. Maintenance and repairs that do not
improve or extend the useful lives of the related assets are charged to operations as incurred. Tenant improvements are
capitalized and depreciated over the life of the related lease or their estimated useful life, whichever is shorter. If a tenant
vacates its space prior to contractual termination of its lease, the undepreciated balance of any tenant improvements are written
off if they are replaced or have no future value. Our estimates of useful lives have a direct impact on our net income. If
expected useful lives of our real estate assets were shortened, we would depreciate the assets over a shorter time period,
resulting in an increase to depreciation expense and a corresponding decrease to net income on an annual basis.
Acquisitions of properties are accounted for in accordance with the authoritative accounting guidance on acquisitions and
business combinations. Our methodology of allocating the cost of acquisitions to assets acquired and liabilities assumed is
based on estimated fair values, replacement cost and appraised values. When we acquire operating real estate properties, the
purchase price is allocated to land and buildings, intangibles such as in-place leases, and to current assets and liabilities
acquired, if any. Such valuations include a consideration of the noncancelable terms of the respective leases as well as any
applicable renewal period(s). The fair values associated with below market renewal options are determined based on a review of
several qualitative and quantitative factors on a lease-by-lease basis at acquisition to determine whether it is probable that the
tenant would exercise its option to renew the lease agreement. These factors include: (1) the type of tenant in relation to the
property it occupies, (2) the quality of the tenant, including the tenant's long term business prospects, and (3) whether the fixed
rate renewal option was sufficiently lower than the fair rental of the property at the date the option becomes exercisable such
that it would appear to be reasonably assured that the tenant would exercise the option to renew. Each of these estimates
requires a great deal of judgment, and some of the estimates involve complex calculations. These allocation assessments have a
direct impact on our results of operations because if we were to allocate more value to land, there would be no depreciation with
respect to such amount. If we were to allocate more value to the buildings, as opposed to allocating to the value of tenant
leases, this amount would be recognized as an expense over a much longer period of time, since the amounts allocated to
buildings are depreciated over the estimated lives of the buildings whereas amounts allocated to tenant leases are amortized
over the remaining terms of the leases.
The value allocated to in-place leases is amortized over the related lease term and reflected as depreciation and
amortization in the consolidated statements of comprehensive income. The value of above and below market leases associated
with the original noncancelable lease terms are amortized to rental income over the terms of the respective noncancelable lease
periods and are reflected as either an increase (for below market leases) or a decrease (for above market leases) to rental income
in the consolidated statement of comprehensive income. If a tenant vacates its space prior to contractual termination of its lease
or the lease is not renewed, the unamortized balance of any in-place lease value is written off to rental income and amortization
expense. The value of the leases associated with below market lease renewal options that are likely to be exercised are
amortized to rental income over the respective renewal periods. We make assumptions and estimates related to below market
lease renewal options, which impact revenue in the period in which the renewal options are exercised and could result in
significant increases to revenue if the renewal options are not exercised at which time the related below market lease liabilities
would be written off as an increase to revenue.
Transaction costs related to the acquisition of a business, such as broker fees, transfer taxes, legal, accounting, valuation,
and other professional and consulting fees, are expensed as incurred and included in “general and administrative expenses” in
our consolidated statements of comprehensive income. For asset acquisitions not meeting the definition of a business,
transaction costs are capitalized as part of the acquisition cost.
48 Capitalized Costs
Certain external and internal costs directly related to the development and redevelopment of real estate, including pre-
construction costs, real estate taxes, insurance, interest, construction costs and salaries and related costs of personnel directly
involved, are capitalized. We capitalize costs under development until construction is substantially complete and the property is
held available for occupancy. The determination of when a development project is substantially complete and when
capitalization must cease involves a degree of judgment. We consider a construction project as substantially complete and held
available for occupancy upon the completion of landlord-owned tenant improvements or when the lessee takes possession of
the unimproved space for construction of its own improvements, but not later than one year from cessation of major
construction activity. We cease capitalization on the portion substantially completed and occupied or held available for
occupancy, and capitalize only those costs associated with any remaining portion under construction.
We capitalized external and internal costs related to both development and redevelopment activities combined of $73.3
million and $53.3 million for the years ended December 31, 2022 and 2021, respectively.
We capitalized external and internal costs related to other property improvements combined of $43.3 million and $40.2
million for the years ended December 31, 2022 and 2021, respectively.
Interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not
yet placed in service. Capitalization of interest commences when development activities and expenditures begin and end upon
completion, which is when the asset is ready for its intended use as noted above. We make judgments as to the time period over
which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not
subtracted in calculating net income. If the time period for capitalizing interest is extended, more interest is capitalized, thereby
decreasing interest expense and increasing net income during that period. We capitalized interest costs related to both
development and redevelopment activities combined of $5.8 million and $3.0 million for the years ended December 31, 2022
and 2021, respectively.
Segment capital expenditures for the years ended December 31, 2022 and 2021 are as follows (dollars in thousands):
Year Ended December 31, 2022
Tenant
Improvements and
Leasing
Commissions
Maintenance
Capital
Expenditures
Total Tenant
Improvements,
Leasing
Commissions and
Maintenance
Capital
Expenditures
Redevelopment
and Expansions
New
Development
Total Capital
Expenditures
$
20,717 $
8,558 $
29,275 $
20,502 $
52,666
$
102,443
6,631
—
350
5,527
4,801
1,296
12,158
4,801
1,646
19
88
—
—
—
—
12,177
4,889
1,646
Segment
Office Portfolio
Retail Portfolio
Multifamily Portfolio
Mixed-Use Portfolio
Total
$
27,698 $
20,182 $
47,880 $
20,609 $
52,666
$
121,155
Year Ended December 31, 2021
Segment
Tenant
Improvements and
Leasing
Commissions
Maintenance
Capital
Expenditures
Total Tenant
Improvements,
Leasing
Commissions and
Maintenance
Capital
Expenditures
Redevelopment
and Expansions
New
Development
Total Capital
Expenditures
Office Portfolio
$
38,309 $
11,334 $
49,643 $
16,486 $
26,987
$
93,116
Retail Portfolio
Multifamily Portfolio
Mixed-Use Portfolio
Total
$
5,506
9
274
44,098 $
1,705
5,702
1,267
20,008 $
7,211
5,711
1,541
64,106 $
21
130
—
16,637 $
—
—
—
26,987
7,232
5,841
1,541
107,730
$
49
The decrease in tenant improvements and leasing commissions for the year ended December 31, 2022 compared to the
year ended December 31, 2021 was primarily related to tenant buildouts at The Landmark at One Market and First & Main
completed in the year ended December 31, 2021, partially offset by new tenant buildouts at Torrey Reserve Campus, Carmel
Mountain Plaza and Corporate Campus East III during the year ended December 31, 2022.
The increase in new development expenditures for the year ended December 31, 2022 compared to the year ended
December 21, 2021 was primarily related to costs incurred for the development of Tower 3 at La Jolla Commons. The increase
in redevelopment expenditures for the year ended December 31, 2022 compared to the year ended December 31, 2021, was
primarily related to the modernization costs of One Beach Street.
Our capital expenditures during the year ending December 31, 2023 will depend upon acquisition opportunities, the level
of improvements and redevelopments on existing properties and the timing and cost of development of our held for
development and construction in progress properties. While the amount of future expenditures will depend on numerous
factors, we expect expenditures incurred in the year ending December 31, 2023 to decrease from the year ending December 31,
2022 as we near completion of development activities at La Jolla Commons and renovations at One Beach Street.
Derivative Instruments
We may use derivative instruments to manage exposure to variable interest rate risk. We may enter into interest rate swaps
to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the
issuance of debt.
Any interest rate swaps associated with our cash flow hedges are recorded at fair value on a recurring basis. We assess
effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value
of the interest rate swaps associated with our cash flow hedges is recorded in other comprehensive income which is included in
accumulated other comprehensive income on our consolidated balance sheet and our consolidated statement of equity. Our cash
flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not match, such as
notional amounts, settlement dates, reset dates, calculation periods and the use of LIBOR or SOFR, as the case may be. In
addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty which includes
reviewing debt ratings and financial performance. However, management does not anticipate non-performance by the
counterparty. If a cash flow hedge is deemed ineffective, the ineffective portion of changes in fair value of the interest rate
swaps associated with our cash flow hedges is recognized in earnings in the period affected.
Impairment of Long-Lived Assets
We review for impairment on a property by property basis. Impairment is recognized on properties held for use when the
expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down to
fair value. The calculation of both discounted and undiscounted cash flows requires management to make estimates of future
cash flows including revenues, operating expenses, required maintenance and development expenditures, market conditions,
demand for space by tenants and rental rates over long periods. Since our properties typically have a long life, the assumptions
used to estimate the future recoverability of book value requires significant management judgment. Actual results could be
significantly different from the estimates. These estimates have a direct impact on net income because recording an impairment
charge results in a negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based
in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual
results in future periods.
Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell.
Although our strategy is to hold our properties over the long-term, if our strategy changes or market conditions otherwise
dictate an earlier sale date, an impairment loss may be recognized to reduce the property to fair value and such loss could be
material.
No impairment charges were recorded for the years ended December 31, 2022, 2021 or 2020.
50 Income Taxes
We elected to be taxed as a REIT under the Code commencing with the taxable year ended December 31, 2011. To
maintain our qualification as a REIT, we are required to distribute at least 90% of our net taxable income to our stockholders,
excluding net capital gains, and meet the various other requirements imposed by the Code relating to such matters as operating
results, asset holdings, distribution levels and diversity of stock ownership. Provided we maintain our qualification for taxation
as a REIT, we are generally not subject to corporate level income tax on the earnings distributed currently to our stockholders.
If we fail to maintain our qualification as a REIT in any taxable year, and are unable to avail ourselves of certain savings
provisions set forth in the Code, our taxable income generally would be subject to regular U.S. federal corporate income tax.
Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our
operations and distributions to American Assets Trust, Inc.'s stockholders or American Assets Trust, L.P.'s unitholders.
We, together with one of our subsidiaries, have elected to treat such subsidiary as a taxable REIT subsidiary for federal
income tax purposes. A taxable REIT subsidiary is subject to federal and state income taxes.
Property Acquisitions and Dispositions
2022 Acquisitions and Dispositions
On March 8, 2022, we acquired Bel-Spring 520, consisting of an approximately 93,000 square feet, multi-tenant office
campus in Bellevue, Washington. The purchase price was approximately $45.5 million, less seller credits of approximately $0.1
million of future rent abatement, approximately $0.6 million of contractual tenant improvements and closing costs of
approximately $0.1 million.
The property was acquired with cash on hand.
During 2022, there were no dispositions.
2021 Acquisitions and Dispositions
On July 7, 2021, we acquired Eastgate Office Park, consisting of an approximately 280,000 square feet, multi-tenant
office campus in Bellevue, Washington. The purchase price was approximately $125 million, excluding closing costs of
approximately $0.2 million.
On September 10, 2021, we acquired Corporate Campus East III in Bellevue, Washington, consisting of an approximately
161,000 square feet, multi-tenant office campus. The purchase price was approximately $84 million, less seller credits of
approximately $1.1 million of future rent abatement approximately $2.1 million of contractual tenant improvements and closing
costs of approximately $0.1 million.
The properties were acquired with cash on hand.
During the year ended December 31, 2021, there were no dispositions.
2020 Acquisitions and Dispositions
During the year ended December 31, 2020, there were no acquisitions or dispositions.
Results of Operations
For our discussion of results of operations, we have provided information on a total portfolio and same-store basis.
For our discussion related to the results of operations and liquidity and capital resources for the year ended December 31,
2021 compared to the year ended December 31, 2020 please refer to Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in our fiscal 2021 Form 10-K, filed with the Securities and Exchange
Commission on February 11, 2022.
51 Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
The following summarizes our consolidated results of operations for the year ended December 31, 2022 compared to our
consolidated results of operations for the year ended December 31, 2021. As of December 31, 2022, our operating portfolio was
comprised of 31 office, retail, multifamily and mixed-use properties with an aggregate of approximately 7.2 million rentable
square feet of office and retail space (including mixed-use retail space), 2,110 residential units (including 120 RV spaces) and a
369-room hotel. Additionally, as of December 31, 2022, we owned land at three of our properties that we classified as held for
development or construction in progress. As of December 31, 2021, our operating portfolio was comprised of 30 office, retail,
multifamily and mixed-use properties with an aggregate of approximately 7.1 million rentable square feet of office and retail
space (including mixed-use retail space), 2,110 residential units (including 120 RV spaces) and a 369-room hotel. Additionally,
as of December 31, 2021, we owned land at three of our properties that we classified as held for development or construction in
progress.
The following table sets forth selected data from our consolidated statements of comprehensive income for the years
ended December 31, 2022 and 2021 (dollars in thousands):
Revenues
Rental income
Other property income
Total property revenues
Expenses
Rental expenses
Real estate taxes
Total property expenses
Net operating income
General and administrative
Depreciation and amortization
Interest expense
Loss on early extinguishment of debt
Other income (expense), net
Net income
Net income attributable to restricted shares
Net income attributable to unitholders in the Operating Partnership
Net income attributable to American Assets Trust, Inc.
stockholders
Revenue
Year Ended December 31,
2022
2021
Change
%
$
402,507 $
360,208 $ 42,299
12 %
20,141
422,648
107,645
44,788
152,433
270,215
15,620
4,521
375,828
46,820
86,980
20,665
42,794
1,994
129,774
22,659
246,054
24,161
(32,143)
(29,879)
(2,264)
(123,338)
(116,306)
(7,032)
29
12
24
5
17
10
8
6
(58,232)
(58,587)
355
(1)
—
(625)
(4,271)
4,271
100 %
(418)
(207)
55,877
36,593
19,284
(648)
(564)
(84)
(11,723)
(7,653)
(4,070)
50
53
15
53
$
43,506 $
28,376 $ 15,130
53 %
Total property revenues. Total property revenue consists of rental revenue and other property income. Total property
revenue increased $46.8 million, or 12%, to $422.6 million for the year ended December 31, 2022, compared to $375.8 million
for the year ended December 31, 2021. The percentage leased was as follows for each segment as of December 31, 2022 and
2021:
Office
Retail
Multifamily
Mixed-Use (2)
Percentage Leased (1)
Year Ended
December 31,
2022
2021
88.9 %
93.5 %
91.8 %
93.8 %
90.4 %
92.6 %
96.0 %
89.6 %
52
(1) The percentage leased includes the square footage under lease, including leases which may not have commenced as of December 31, 2022 or
December 31, 2021, as applicable.
Includes the retail portion of the mixed-use property only.
(2)
The increase in total property revenue was attributable primarily to the factors discussed below.
Rental revenues. Rental revenue includes minimum base rent, cost reimbursements, percentage rents and other rents.
Rental revenue increased $42.3 million, or 12%, to $402.5 million for the year ended December 31, 2022, compared to $360.2
million for the year ended December 31, 2021. Rental revenue by segment was as follows (dollars in thousands):
Total Portfolio
Same-Store Portfolio (1)
Year Ended December 31,
Year Ended December 31,
Office
Retail
Multifamily
Mixed-Use
2022
198,197 $
99,585
54,075
50,650
402,507 $
Change
2021
181,916 $ 16,281
6,336
93,249
5,179
48,896
36,147
14,503
360,208 $ 42,299
$
$
%
9 % $
7
11
40
12 % $
2022
180,257 $
99,585
54,075
50,650
384,567 $
Change
2021
175,296 $ 4,961
6,336
93,249
5,179
48,896
36,147
14,503
353,588 $ 30,979
%
3 %
7
11
40
9 %
(1) For this table and tables following, the same-store portfolio excludes (i) One Beach Street, due to significant redevelopment activity; (ii)
Eastgate Office Park which was acquired on July 7, 2021; (iii) Corporate Campus East III which was acquired on September 10, 2021; (iv)
Bel-Spring 520 which was acquired on March 8, 2022; (v) the 710 building at Lloyd District Portfolio which was placed into operations on
November 1, 2022, approximately one year after completing renovations of the building and (vi) land held for development.
Total office rental revenue increased $16.3 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to the new acquisitions of Eastgate Office Park, Corporate Campus East III and Bel-Spring
520 which accounted for $11 million of the increase. The increase in total office rental revenue is partially offset by the
decrease in rental revenue at One Beach Street of $0.3 million due to expiration of leases to allow for the modernization of the
property. Same-store office rental revenue increased $5.0 million for the year ended December 31, 2022 compared to the year
ended December 31, 2021 primarily due to higher annualized base rents at La Jolla Commons and Landmark at One Market
and higher occupancy at La Jolla Commons and Torrey Reserve Campus. Additionally, there was an increase of $1.7 million
related to cost recoveries at La Jolla Commons, First & Main and The Landmark at One Market and an increase of $1 million
related to accelerated revenue recognition of tenant improvement overages due to tenants vacating their space sooner than
original lease terms.
Total retail rental revenue increased $6.3 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to approximately $4.2 million for new tenant leases signed and tenants previously on
alternate rent reverting back to basic monthly rent. This includes certain tenants who were changed to alternate rent or to cash
basis of revenue recognition during the years ended December 31, 2020 and 2021 as collectability of rent was determined to be
no longer probable. Additionally, there was an increase in cost recoveries of approximately $2.1 million as COVID-related rent
concessions were provided during the years ended December 31, 2020 and 2021.
Multifamily rental revenue increased $5.2 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to an overall increase in occupancy and average monthly base rent of 92.9% and $2,349,
respectively, for the year ended December 31, 2022, compared to 92.1% and $2,160, respectively, for the year ended December
31, 2021.
Mixed-use rental revenue increased $14.5 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to an increase of $13.2 million related to the Waikiki Beach Walk hotel portion of our mixed
use property. This increase was due to the lifting of COVID-19-related travel restrictions, which led to an increase in average
occupancy and revenue per available room to 76.9% and $283 for the year ended December 31, 2022, respectively, compared
to 66.4% and $185 for the year ended December 31, 2021, respectively. Waikiki Beach Walk retail portion increased $1.3
million as tenants were changed to alternate rent or to cash basis of revenue recognition during the years ended December 31,
2020 and 2021 as collectability of rent was determined to be no longer probable for certain tenants.
53
Other property income. Other property income increased $4.5 million, or 29%, to $20.1 million for the year ended
December 31, 2022, compared to $15.6 million for the year ended December 31, 2021. Other property income by segment was
as follows (dollars in thousands):
Total Portfolio
Same-Store Portfolio
Year Ended December 31,
Year Ended December 31,
Office
Retail
Multifamily
Mixed-Use
2022
2021
Change
5,194 $
1,327
4,064
9,556
20,141 $
744
4,450 $
(86)
1,413
645
3,419
6,338
3,218
15,620 $ 4,521
%
17 % $
(6)
19
51
29 % $
$
$
2022
2021
Change
4,836 $
1,327
4,064
9,556
19,783 $
796
4,040 $
(86)
1,413
645
3,419
6,338
3,218
15,210 $ 4,573
%
20 %
(6)
19
51
30 %
Same-store office other property income increased $0.8 million for the year ended December 31, 2022 compared to the
year ended December 31, 2021 primarily due to an increase in parking garage income at Lloyd Portfolio, City Center Bellevue
and First & Main, partially offset by lease termination and settlement amounts received at One Beach and City Center Bellevue
during the year ended December 31, 2021.
Retail other property income decreased $0.1 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to the lease termination fees received at Carmel Mountain Plaza and Del Monte Center
during the year ended December 31, 2021.
Multifamily other property income increased $0.6 million for the year ended December 31, 2022 compared to the year
ended December 31, 2021 primarily to an increase in parking garage income at Hassalo on Eighth - Residential, an increase in
meter income at Loma Palisades and Pacific Ridge Apartments, and an increase in security deposits applied at Pacific Ridge
Apartments.
Mixed-use other property income increased $3.2 million for the year ended December 31, 2022 compared to the year
ended December 31, 2021 primarily due to an increase in other room rental income and rent excise tax at the hotel portion of
our mixed-use property and an increase in parking garage income and rent excise tax at the retail portion of our mixed-use
property.
Property Expenses
Total Property Expenses. Total property expenses consist of rental expenses and real estate taxes. Total property
expenses increased by $22.7 million, or 17%, to $152.4 million for the year ended December 31, 2022, compared to $129.8
million for the year ended December 31, 2021. This increase in total property expenses was attributable primarily to the factors
discussed below.
Rental Expenses. Rental expenses increased $20.7 million, or 24%, to $107.6 million for the year ended December 31,
2022, compared to $87.0 million for the year ended December 31, 2021. Rental expense by segment was as follows (dollars in
thousands):
Total Portfolio
Same-Store Portfolio
Year Ended December 31,
Year Ended December 31,
Office
Retail
Multifamily
Mixed-Use
2022
2021
Change
$
$
36,985 $
16,631
19,152
34,877
107,645 $
30,506 $ 6,479
955
15,676
16,269
2,883
10,348
24,529
86,980 $ 20,665
%
21 % $
6
18
42
24 % $
2022
2021
Change
32,306 $
16,631
19,152
34,877
102,966 $
28,341 $ 3,965
15,676
955
16,269
2,883
10,348
24,529
84,815 $ 18,151
%
14 %
6
18
42
21 %
Total office rental expenses increased $6.5 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to $2.5 million related to the recent acquisitions of Eastgate Office Park, Corporate Campus
East III and Bel-Spring 520. Same-store office rental expenses increased $4.0 million for the year ended December 31, 2022
compared to the year ended December 31, 2021 primarily due to an increase in repairs and maintenance services, utilities
expenses, facility services and other operating expenses as the "stay-at home" orders issued by state and local governments
related to COVID-19 were relaxed in 2021 and our tenants' employees have started returning to the office in person.
54
Total retail rental expenses increased $1.0 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to an increase in repairs and maintenance, facilities services, insurance expenses and
marketing expenses in 2022, as restrictions on business operations from orders issued by state and local governments related to
COVID-19 were eased during the first half of 2021.
Multifamily rental expensed increased $2.9 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to an increase in utilities expenses and repairs and maintenance related to landscaping,
plumbing and painting services. Additionally, there was an increase in property-level personnel compensation expenses and
insurance expenses in 2022.
Mixed-use rental expenses increased $10.3 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to an increase in hotel room expenses, personnel expenses and excise tax expenses at the
hotel portion of our mixed-use property during the period. These increases are due to tourism and an increase in hotel
occupancy as the COVID-19 vaccine has become more widely available and travel restrictions to Hawaii have been relaxed.
Real Estate Taxes. Real estate tax expense increased $2.0 million, or 5%, to $44.8 million for the year ended December
31, 2022, compared to $42.8 million for the year ended December 31, 2021. Real estate tax expense by segment was as follows
(dollars in thousands):
Total Portfolio
Same-Store Portfolio
Year Ended December 31,
Year Ended December 31,
Office
Retail
Multifamily
Mixed-Use
2022
2021
Change
$
$
20,493 $
13,675
7,104
3,516
44,788 $
766
19,727 $
1,368
12,307
162
6,942
3,818
(302)
42,794 $ 1,994
%
4 % $
11
2
(8)
5 % $
2022
2021
Change
18,968 $
13,675
7,104
3,516
43,263 $
18,962 $
12,307
6,942
3,818
6
1,368
162
(302)
42,029 $ 1,234
%
— %
11
2
(8)
3 %
Total office real estate taxes increased $0.8 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to the recent acquisitions of Eastgate Office Park, Corporate Campus East III and Bel-Spring
520. There was a decrease of $0.1 million at One Beach Street due to the capitalization of real estate taxes as the property is
under redevelopment. Same-store office real estate taxes for the year ended December 31, 2022 compared to the year ended
December 31, 2021 remained flat.
Retail real estate taxes increased $1.4 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to a one-time real estate tax refund received during the year ended December 31, 2021 for
approximately $1.6 million at Alamo Quarry Market for the tax assessments for 2019 through 2020. This was partially offset by
higher tax consulting fees of $0.2 million incurred during the year ended December 31, 2021.
Multifamily real estate taxes increased $0.2 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to an increase in tax assessments for Hassalo on Eighth - Residential.
Mixed-use real estate taxes decreased $0.3 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to COVID-19 and its financial burden on the hospitality industry, as a result of which
Honolulu County reduced the tax burden for hotels for 2021 through 2022.
Property Operating Income.
Property operating income increased $24.2 million, or 10%, to $270.2 million for the year ended December 31, 2022,
compared to $246.1 million for the year ended December 31, 2021. Property operating income by segment was as follows
(dollars in thousands):
55
Total Portfolio
Same-Store Portfolio
Year Ended December 31,
Year Ended December 31,
Office
Retail
Multifamily
Mixed-Use
2022
2021
Change
%
2022
2021
Change
%
$
145,913 $
136,133 $ 9,780
7 % $
133,819 $
132,033 $ 1,786
1 %
70,606
31,883
21,813
66,679
29,104
14,138
3,927
2,779
7,675
6
10
54
70,606
31,883
21,813
66,679
29,104
14,138
3,927
2,779
7,675
6
10
54
$
270,215 $
246,054 $ 24,161
10 % $
258,121 $
241,954 $ 16,167
7 %
Total office property operating income increased $9.8 million for the year ended December 31, 2022 compared to the
year ended December 31, 2021 primarily due to the recent acquisitions of Eastgate Office Park, Corporate Campus East III, and
Bel-Spring 520, which had incremental property operating income of approximately $7.8 million during the period. The
increase in total office property operating income is partially offset by the decrease at One Beach Street of $0.3 million due to
expiration of leases to allow for the modernization of the property.Same-store property operating income increased $1.8 million
for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to higher cost recoveries
and higher occupancy at La Jolla Commons and Torrey Reserve Campus, higher annualized base rent at La Jolla Commons and
an increase of $1.0 million related to accelerated revenue recognition of tenant improvement overages due to tenants vacating
their space prior to the original expiration dates. These increases were partially offset by higher operating expenses as more of
our tenants' employees have returned to the office in-person.
Retail property operating income increased $3.9 million for the year ended December 31, 2022 compared to the year
ended December 31, 2021 primarily due to approximately $4.2 million related to new leases executed and tenants that were
previously on alternate rent (due to COVID-19 related rent concessions) reverting back to basic monthly rent, including certain
tenants who were changed to alternate rent or to cash basis of revenue recognition during the years ended December 31, 2020
and 2021 as the collectability of rent was determined to be no longer probable. Additionally, there was an increase in cost
recoveries of $2.1 million as COVID-19 related rent concessions were provided during the years ended December 31, 2020 and
2021. These increases were partially offset by comparatively higher real estate taxes related to a one-time real estate tax refund
of approximately $1.6 million for Alamo Quarry Market received during the third quarter of 2021 relating to the calendar years
2019 through 2020, and an overall increase in rental expenses of $1.0 million related to repairs and maintenance and facilities
services.
Multifamily property operating income increased $2.8 million for the year ended December 31, 2022 compared to the
year ended December 31, 2021 primarily due to an overall increase in occupancy and average monthly base rent of 92.9% and
$2,349, respectively, for the year ended December 31, 2022 compared to 92.1% and $2,160, respectively for the year ended
December 31, 2021. These increases were partially offset by higher utilities and repairs and maintenance expenses.
Mixed-use property operating income increased $7.7 million for the year ended December 31, 2022 compared to the year
ended December 31, 2021 primarily due to an increase of $6.3 million related to the Waikiki Beach Walk hotel portion of our
mixed use property. This increase was due to the lifting of COVID-19 travel restrictions, which led to an increase in average
occupancy and revenue per available room to 76.9% and $283 for the year ended December 31, 2022, respectively, compared
to 66.4% and $185 for the year ended December 31, 2021, respectively. Additionally, there was an increase of $1.4 million at
the retail portion of our mixed-use property related to parking garage income and certain tenants who were changed to alternate
rent or to cash basis of revenue recognition during the years ended December 31, 2020 and 2021 as the collectability of rent
was determined to be no longer probable for them.
Other
General and administrative. General and administrative expenses increased $2.3 million, or 8%, to $32.1 million for the
year ended December 31, 2022, compared to $29.9 million for the year ended December 31, 2021. This increase was primarily
due to stock-based compensation expense and employee-related costs, including, without limitation, with respect to base pay
for certain salaried and hourly workers and benefits.
Depreciation and amortization. Depreciation and amortization expense increased $7.0 million, or 6%, to $123.3 million
for the year ended December 31, 2022, compared to $116.3 million for the year ended December 31, 2021. This increase was
primarily due to a $5.3 million increase related to the recent acquisitions of Eastgate Office Park, Corporate Campus East III
and Bel-Spring 520. Additionally, there was an increase in depreciation and amortization at The Landmark at One Market due
to building and tenant improvements that were put into service in 2021 and an increase in depreciation at City Center Bellevue
56
due to the acceleration of depreciation related to tenants vacating space in 2022. These increases were offset by lower
depreciation and amortization at One Beach due to the modernization of the property and depreciation of certain assets, which
was accelerated in 2021.
Interest expense. Interest expense decreased $0.4 million, or 1%, to $58.2 million for the year ended December 31, 2022
compared with $58.6 million for the year ended December 31, 2021. This decrease was primarily due to an increase in
capitalized interest related to our development projects. This decrease was offset by higher interest related to the closing of our
3.375% Senior Notes offering on January 26, 2021, and an increase in interest expense related to our Term Loan A, which
changed from an unhedged variable interest rate at the beginning of 2021 to a fixed interest rate at the beginning of 2022, as we
entered into two interest rate swaps agreements to lock the rate against future fluctuation.
Loss on early extinguishment of debt. Early extinguishment of debt expense increased $4.3 million for the year ended
December 31, 2021 due to the repayment of the Senior Guaranteed Notes, Series A, with make-whole payments thereon, on
January 26, 2021.
Other Income (Expense), Net. Other expense, net increased $0.2 million, or 50%, to other expense, net of $0.6 million for
the year ended December 31, 2022 compared to other income, net of $0.4 million for the year ended December 31, 2021,
primarily due to an increase in income tax for our taxable REIT subsidiary and a decrease in interest and investment income
attributed to the lower yield on our average cash balance during the period.
Liquidity and Capital Resources of American Assets Trust, Inc.
In this “Liquidity and Capital Resources of American Assets Trust, Inc.” section, the term the “company” refers only to
American Assets Trust, Inc. on an unconsolidated basis, and excludes the Operating Partnership and all other subsidiaries.
The company’s business is operated primarily through the Operating Partnership, of which the company is the parent
company and sole general partner, and which it consolidates for financial reporting purposes. Because the company operates on
a consolidated basis with the Operating Partnership, the section entitled “Liquidity and Capital Resources of American Assets
Trust, L.P.” should be read in conjunction with this section to understand the liquidity and capital resources of the company on
a consolidated basis and how the company is operated as a whole.
The company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any
business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by the
Operating Partnership. The company itself does not have any indebtedness, and its only material asset is its ownership of
partnership interests of the Operating Partnership. Therefore, the consolidated assets and liabilities and the consolidated
revenues and expenses of the company and the Operating Partnership are the same on their respective financial
statements. However, all debt is held directly or indirectly by the Operating Partnership. The company’s principal funding
requirement is the payment of dividends on its common stock. The company’s principal source of funding for its dividend
payments is distributions it receives from the Operating Partnership.
As of December 31, 2022, the company owned an approximate 78.8% partnership interest in the Operating Partnership.
The remaining 21.2% are owned by non-affiliated investors and certain of the company's directors and executive officers. As
the sole general partner of the Operating Partnership, American Assets Trust, Inc. has the full, exclusive and complete authority
and control over the Operating Partnership’s day-to-day management and business, can cause it to enter into certain major
transactions, including acquisitions, dispositions and refinancings, and can cause changes in its line of business, capital
structure and distribution policies. The company causes the Operating Partnership to distribute such portion of its available
cash as the company may in its discretion determine, in the manner provided in the Operating Partnership’s partnership
agreement.
The liquidity of the company is dependent on the Operating Partnership’s ability to make sufficient distributions to the
company. The primary cash requirement of the company is its payment of dividends to its stockholders. The company also
guarantees some of the Operating Partnership’s debt, as discussed further in Note 7 of the Notes to Consolidated Financial
Statements included elsewhere herein. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger
the company’s guarantee obligations, then the company will be required to fulfill its cash payment commitments under such
guarantees. However, the company’s only significant asset is its investment in the Operating Partnership.
We believe the Operating Partnership’s sources of working capital, specifically its cash flow from operations, and
borrowings available under its unsecured line of credit, are adequate for it to make its distribution payments to the company
and, in turn, for the company to make its dividend payments to its stockholders. As of December 31, 2022, the company has
57 determined that it has adequate working capital to meet its dividend funding obligations for the next 12 months. However, we
cannot assure you that the Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient
to meet its needs, including its ability to make distribution payments to the company. The unavailability of capital could
adversely affect the Operating Partnership’s ability to pay its distributions to the company, which would in turn, adversely
affect the company’s ability to pay cash dividends to its stockholders.
Our short-term liquidity requirements consist primarily of funds to pay for future dividends expected to be paid to the
company’s stockholders, operating expenses and other expenditures directly associated with our properties, interest expense and
scheduled principal payments on outstanding indebtedness, general and administrative expenses, funding construction projects,
capital expenditures, tenant improvements and leasing commissions.
The company may from time to time seek to repurchase or redeem the Operating Partnership’s outstanding debt, the
company’s shares of common stock or other securities in open market purchases, privately negotiated transactions or otherwise.
Such repurchases or redemptions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved may be material.
For the company to maintain its qualification as a REIT, it must pay dividends to its stockholders aggregating annually at
least 90% of its REIT taxable income, excluding net capital gains. While historically the company has satisfied this distribution
requirement by making cash distributions to American Assets Trust, Inc.'s stockholders, it may choose to satisfy this
requirement by making distributions of cash or other property, including, in limited circumstances, the company’s own stock.
As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its ongoing
operations to the same extent that other companies whose parent companies are not REITs can. The company may need to
continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, acquisitions and
developments.
The company is a well-known seasoned issuer. As circumstances warrant, the company may issue equity from time to
time on an opportunistic basis, dependent upon market conditions and available pricing. When the company receives proceeds
from preferred or common equity issuances, it is required by the Operating Partnership’s partnership agreement to contribute
the proceeds from its equity issuances to the Operating Partnership in exchange for preferred or common partnership units of
the Operating Partnership. The Operating Partnership may use the proceeds to repay debt, to develop new or existing properties,
to acquire properties or for general corporate purposes.
In January 2021, the company filed a universal shelf registration statement on Form S-3ASR with the SEC, which became
effective upon filing and which replaced the prior Form S-3ASR that was filed with the SEC in February 2018. The universal
shelf registration statement may permit the company from time to time to offer and sell equity securities of the company.
However, there can be no assurance that the company will be able to complete any such offerings of securities. Factors
influencing the availability of additional financing include investor perception of our prospects and the general condition of the
financial markets, among others.
On December 3, 2021, the company entered into a new at-the-market, or ATM, equity program with five sales agents
under which the company may, from time to time, offer and sell shares of common stock having an aggregate offering price of
up to $250.0 million, or the 2021 ATM Program. The sales of shares of the company's common stock made through the 2021
ATM Program are to be made in “at-the-market” offerings as defined in Rule 415 of the Securities Act. As of December 31,
2022, the company had not issued any shares of common stock under the 2021 ATM Program.
The company intends to use the net proceeds from any issuances of common stock under the 2021 ATM Program to fund
development or redevelopment activities, repay amounts outstanding from time to time under our third amended and restated
credit facility or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes.
As of December 31, 2022, the company had the capacity to issue up to an additional $250.0 million in shares of common stock
under the 2021 ATM Program. Actual future sales will depend on a variety of factors including, but not limited to, market
conditions, the trading price of the company's common stock and the company's capital needs. The company has no obligation
to sell the remaining shares available for sale under the 2021 ATM Program.
Liquidity and Capital Resources of American Assets Trust, L.P.
In this “Liquidity and Capital Resources of American Assets Trust, L.P.” section, the terms “we,” “our” and “us” refer to
the Operating Partnership together with its consolidated subsidiaries, or the Operating Partnership and American Assets Trust,
Inc. together with their consolidated subsidiaries, as the context requires. American Assets Trust, Inc. is our sole general partner
and consolidates our results of operations for financial reporting purposes. Because we operate on a consolidated basis with
58 American Assets Trust, Inc., the section entitled “Liquidity and Capital Resources of American Assets Trust, Inc.” should be
read in conjunction with this section to understand our liquidity and capital resources on a consolidated basis.
Due to the nature of our business, we typically generate significant amounts of cash from operations. The cash generated
from operations is used for the payment of operating expenses, capital expenditures, debt service and dividends to American
Assets Trust, Inc.'s stockholders and our unitholders. As a REIT, American Assets Trust, Inc. must generally make annual
distributions to its stockholders of at least 90% of its net taxable income.
Our short-term liquidity requirements consist primarily of operating expenses and other expenditures associated with our
properties, regular debt service requirements, dividend payments to American Assets Trust, Inc.'s stockholders required to
maintain its REIT status, distributions to our other unitholders, capital expenditures and, potentially, acquisitions. We expect to
meet our short-term liquidity requirements through net cash provided by operations, reserves established from existing cash
and, if necessary, borrowings available under our third amended and restated credit facility.
Our long-term liquidity needs consist primarily of funds necessary to pay for the repayment of debt at maturity, property
acquisitions, tenant improvements and capital improvements. We expect to meet our long-term liquidity requirements to pay
scheduled debt maturities and to fund property acquisitions and capital improvements with net cash from operations, long-term
secured and unsecured indebtedness and, if necessary, the issuance of equity and debt securities. We also may fund property
acquisitions and capital improvements using our third amended and restated credit facility pending permanent financing. We
believe that we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence
of additional debt, noting that during the third quarter of 2015, the company obtained investment grade credit ratings from
Moody’s Investors Service (Baa3), Standard & Poor’s Ratings Services (BBB-) and Fitch Ratings, Inc. (BBB), and the issuance
of additional equity. However, we cannot be assured that this will be the case. Our ability to incur additional debt will be
dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing
restrictions that may be imposed by lenders. Our ability to access the equity capital markets will be dependent on a number of
factors as well, including general market conditions for REITs and market perceptions about our company. Given our past
ability to access the capital markets, we expect debt or equity to be available to us. Although there is no intent at this time, if
market conditions deteriorate, we may also delay the timing of future development and redevelopment projects as well as limit
future acquisitions, reduce our operating expenditures, or re-evaluate our dividend policy.
Our overall capital requirements will depend upon acquisition opportunities, the level of improvements and
redevelopments on existing properties and the timing and cost of developments. Our capital investments will be funded on a
short-term basis with cash on hand, cash flow from operations and/or our third amended and restated credit facility.
We intend to operate with and maintain a conservative capital structure that will allow us to maintain strong debt service
coverage and fixed-charge coverage ratios as part of our commitment to investment grade debt ratings. In the short and long
term, we may seek to obtain funds through the issuance of additional equity, unsecured and/or secured debt financings, and
property dispositions that are consistent with this conservative structure.
We currently believe that cash flows from operations, cash on hand, our 2021 ATM Program, our third amended and
restated credit facility and our general ability to access the capital markets will be sufficient to finance our operations and fund
our debt service requirements and capital expenditures.
59 Contractual Obligations
The following table outlines the timing of required payments related to our commitments as of December 31, 2022
(dollars in thousands):
Contractual Obligations
Principal payments on long-term
indebtedness (1)
Line of credit (2)
Interest payments
Operating lease
Tenant-related commitments
Construction-related commitments
Total
Total
Within
1 Year
2 Years
3 Years
4 Years
5 Years
More than
5 Years
Payments by Period
$ 1,625,000 $ 150,000 $ 100,000 $ 200,000 $
— $ 425,000 $ 750,000
36,000
36,000
—
—
—
—
419,006
57,379
156,883
45,414
44,268
32,044
29,998
22,702
23,271
3,328
18,957
23,271
3,428
3,268
—
3,531
3,584
3,584
—
—
—
—
477
—
—
83,018
12,543
—
—
$ 2,155,977 $ 288,935 $ 263,579 $ 248,945 $ 47,852 $ 461,105 $ 845,561
(1) On January 5, 2023, our term loan agreement was amended and restated to, among other things, (1) increase the fully-drawn borrowings from $150
million to $225 million, (2) extend the maturity date from March 1, 2023 to January 5, 2025 (with one, twelve-month extension option) and (3) transition
borrowings to the Secured Overnight Financing Rate (SOFR), and away from LIBOR. The $225 million term loan is unsecured.
(2) On January 6, 2023, we repaid in full the $36 million outstanding balance on our revolving line of credit under our Third Amended and Restated Credit
Facility.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
Cash Flows
Comparison of the year ended December 31, 2022 to the year ended December 31, 2021
Total cash, cash equivalents, and restricted cash were $49.6 million and $139.5 million at December 31, 2022 and 2021,
respectively.
Net cash provided by operating activities increased $10.7 million to $179.1 million for the year ended December 31,
2022, compared to $168.3 million for the year ended December 31, 2021. The increase in cash from operations was primarily
due to the increase in rental revenue from the hotel portion of our mixed-use property, our recent acquisitions of Eastgate Office
Park, Corporate Campus East III and Bel-Spring 520, and changes in operating assets and liabilities.
Net cash used in investing activities decreased $146.0 million to $166.3 million for the year ended December 31, 2022,
compared to $312.3 million for the year ended December 31, 2021. The decrease in cash used was primarily due to our recent
acquisition of Bel-Spring 520 on March 8, 2022, and increased capital expenditures at La Jolla Commons III and One Beach
Street, compared to the cash used for the year ended December 31, 2021 related to our acquisitions of Eastgate Office Park and
Corporate Campus East III.
Net cash used by financing activities was $102.7 million for the year ended December 31, 2022, compared to net cash
provided by financing activities of $144.4 million for the year ended December 31, 2021. The increase in cash used in
financing activities was primarily due to quarterly dividends for 2022 and debt issuance costs related to our third amended and
restated credit facility. The cash provided by financing activities for the year ended December 31, 2021 was related to the
issuance of the 3.375% Senior Notes on January 26, 2021, partially offset by the repayment of the outstanding balance on the
revolving line of credit and the Senior Guaranteed Notes, Series A on January 26, 2021.
60
Net Operating Income
Net Operating Income, or NOI, is a non-GAAP financial measure of performance. We define NOI as operating revenues
(rental income, tenant reimbursements, lease termination fees, ground lease rental income and other property income) less
property and related expenses (property expenses, ground lease expenses, property marketing costs, real estate taxes and
insurance). NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-
related expense, other non-property income and losses, gains and losses from property dispositions, extraordinary items, tenant
improvements and leasing commissions. Other REITs may use different methodologies for calculating NOI, and accordingly,
our NOI may not be comparable to other REITs.
NOI is used by investors and our management to evaluate and compare the performance of our properties and to
determine trends in earnings and to compute the fair value of our properties as it is not affected by (1) the cost of funds of the
property owner, (2) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating
real estate assets that are included in net income computed in accordance with GAAP, or (3) general and administrative
expenses and other gains and losses that are specific to the property owner. The cost of funds is eliminated from net income
because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is also eliminated
because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the
appropriate mix of capital which may have changed or may change in the future. Depreciation and amortization expenses as
well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the
actual change in value in our office, retail, multifamily or mixed-use properties that result from use of the properties or changes
in market conditions. While certain aspects of real property do decline in value over time in a manner that is intended to be
captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a
result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and
losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale
which will usually change from period to period. These gains and losses can create distortions when comparing one period to
another or when comparing our operating results to the operating results of other real estate companies that have not made
similarly timed purchases or sales. We believe that eliminating these costs from net income is useful because the resulting
measure captures the actual revenue generated and actual expenses incurred in operating our properties as well as trends in
occupancy rates, rental rates and operating costs.
However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest
income and other expense, depreciation and amortization expense and gains or losses from the sale of properties, and other
gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating
performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these
components of net income which further limits its usefulness.
NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is
therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in
conjunction with net income computed in accordance with GAAP and discussions elsewhere in “Management's Discussion and
Analysis of Financial Condition and Results of Operations” regarding the components of net income that are eliminated in the
calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and,
accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the
measure exactly as we do.
The following is a reconciliation of our NOI to net income for the years ended December 31, 2022, 2021 and 2020
computed in accordance with GAAP (in thousands):
Net operating income
General and administrative
Depreciation and amortization
Interest expense
Loss on early extinguishment of debt
Other income (expense), net
Net income
Year Ended December 31,
2022
2021
2020
$
270,215 $
246,054 $
223,454
(32,143)
(29,879)
(26,581)
(123,338)
(116,306)
(108,292)
(58,232)
(58,587)
(53,440)
—
(625)
55,877 $
(4,271)
(418)
36,593 $
—
447
35,588
$
61
Funds from Operations
We present FFO because we consider FFO an important supplemental measure of our operating performance and believe
it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which
present FFO when reporting their results. We calculate FFO in accordance with the standards established by the National
Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with
GAAP), excluding gains (or losses) from sales of depreciable operating property, impairment losses, real estate related
depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated
partnerships and joint ventures.
FFO is a supplemental non-GAAP financial measure. Management uses FFO as a supplemental performance measure
because it believes that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically,
in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not
relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over
year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure
of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other
REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our
properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to
maintain the operating performance of our properties, all of which have real economic effects and could materially impact our
results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not
calculate FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such
other REITs' FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our
performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash
needs, including our ability to pay dividends or service indebtedness. FFO also should not be used as a supplement to or
substitute for cash flow from operating activities computed in accordance with GAAP.
The following table sets forth a reconciliation of our FFO for the years ended December 31, 2022, 2021 and 2020 to net
income, the nearest GAAP equivalent (in thousands, except per share and share data):
Net income
Plus: Real estate depreciation and amortization
Funds from operations, as defined by NAREIT
Less: Nonforfeitable dividends on restricted stock awards
FFO attributable to common stock and units
FFO per diluted share/unit
Weighted average number of common shares and units, diluted (1)
Year Ended December 31,
2022
2021
2020
$
$
$
$
55,877 $
123,338
179,215 $
(641)
178,574 $
2.34 $
36,593 $
116,306
152,899 $
(557)
152,342 $
2.00 $
76,233,814
76,175,004
35,588
108,292
143,880
(377)
143,503
1.89
76,122,842
(1) For the years ended December 31, 2022, 2021 and 2020 the weighted average common shares used to compute FFO per diluted share include unvested
restricted stock awards that are subject to time vesting, as the vesting of the restricted stock awards is dilutive in the computation of FFO per diluted
shares, but is anti-dilutive for the computation of diluted EPS for the periods. Diluted shares exclude incentive restricted stock as these awards are
considered contingently issuable.
Inflation
Substantially all of our office and retail leases provide for separate real estate tax and operating expense escalations. In
addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases may be at least
partially offset by the contractual rent increases and expense escalations described above. In addition, our multifamily leases
(other than at our RV resort where spaces can be rented at a daily, weekly or monthly rate) generally have lease terms ranging
from seven to 15 months, with a majority having 12-month lease terms, and generally allow for rent adjustments at the time of
renewal, which we believe reduces our exposure to the effects of inflation. For the hotel portion of our mixed-use property, we
possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit our
ability to raise room rates.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market
interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates.
62
We may enter into certain types of derivative financial instruments to further reduce interest rate risk. We use interest rate
swap agreements, for example, to convert some of our variable rate debt to a fixed-rate basis or to hedge anticipated financing
transactions. We use derivatives for hedging purposes rather than speculation and do not enter into financial instruments for
trading purposes. See the discussion under Note 8, “Derivative and Hedging Activities,” to the accompanying consolidated
financial statements for certain quantitative details related to the interest rate swaps.
Interest Rate Risk
Outstanding Debt
The following discusses the effect of hypothetical changes in market rates of interest on the fair value of our total
outstanding debt. Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our
debt. Discounted cash flow analysis is generally used to estimate the fair value of our mortgages payable. Considerable
judgment is necessary to estimate the fair value of financial instruments. This analysis does not purport to take into account all
of the factors that may affect our debt, such as the effect that a changing interest rate environment could have on the overall
level of economic activity or the action that our management might take to reduce our exposure to the change. This analysis
assumes no change in our financial structure.
Fixed Interest Rate Debt
Except as described below, all of our outstanding debt obligations (maturing at various times through May 2029) have
fixed interest rates which limit the risk of fluctuating interest rates. However, interest rate fluctuations may affect the fair value
of our fixed rate debt instruments. At December 31, 2022, we had $1.4 billion of fixed-rate debt outstanding with an estimated
fair value of $1.2 billion. If interest rates at December 31, 2022 had been 1.0% higher, the fair value of those debt instruments
on that date would have decreased by approximately $45.0 million. If interest rates at December 31, 2022 had been 1.0% lower,
the fair value of those debt instruments on that date would have increased by approximately $68.1 million. Additionally, we
consider our $100 million Term Loan A, outstanding as of December 31, 2022 to be fixed rate debt as the rate is effectively
fixed by an interest rate swap agreement. Also, we consider our $150 million debt outstanding as of December 31, 2022, related
to Term Loan B and Term Loan C, to be fixed rate debt through November 30, 2022 as the rate was effectively fixed by an
interest rate swap agreement until such date, before it became variable rate debt from December 1, 2022 to December 31, 2022.
Variable Interest Rate Debt
Generally, we believe that our primary interest rate risk is due to fluctuations in interest rates on our variable rate debt. At
December 31, 2022, we had $250 million of variable rate debt outstanding, of which $100 million are subject to interest rate
swaps as described above. We have entered into term loans that have interest rates that contain both fixed and variable
components. See the discussion under Note 8 to the accompanying consolidated financial statements for details related to the
interest rate swaps and for a discussion on how we value derivative financial instruments. Based upon this amount of variable
rate debt and the specific terms, if market interest rates increased 1.0%, our annual interest expense would increase by
approximately $0.2 million with a corresponding decrease in our net income and cash flows for the year. Conversely, if market
rates decreased 1.0%, our annual interest expense would decrease by approximately $0.2 million with a corresponding increase
in our net income and cash flows for the year.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and supplementary data are included as a separate section of this annual report on
Form 10-K commencing on page F-1 and are incorporated herein by reference.
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
Controls and Procedures (American Assets Trust, Inc.)
Evaluation of Disclosure Controls and Procedures
American Assets Trust, Inc. maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e)
under the Exchange Act) that are designed to ensure that information required to be disclosed in its Exchange Act reports is
63 recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, American Assets Trust, Inc. carried out an evaluation, under the
supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of its disclosure controls and procedures. Based on the foregoing, American Assets
Trust, Inc.’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this
report, American Assets Trust, Inc.’s disclosure controls and procedures were effective and were operating at a reasonable
assurance level.
Management’s Report on Internal Control over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, American Assets
Trust, Inc.’s Chief Executive Officer and Chief Financial Officer, and effected by American Assets Trust, Inc.’s board of
directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and
procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial
reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk
that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into
the process safeguards to reduce, though not eliminate, this risk.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the
company, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of
management, including American Assets Trust, Inc.’s Chief Executive Officer and Chief Financial Officer, American Assets
Trust, Inc. conducted an evaluation of the effectiveness of its internal control over financial reporting. Management has used the
framework set forth in the report entitled “Internal Control — Integrated Framework (2013)” published by the Committee of
Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the company’s internal control over
financial reporting. Based on its evaluation, management has concluded that the company’s internal control over financial
reporting was effective as of December 31, 2022.
American Assets Trust, Inc.’s independent registered public accounting firm, Ernst & Young LLP, has issued an
attestation report over American Assets Trust, Inc.’s internal control over financial reporting, which report is contained
elsewhere in this annual report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in American Assets Trust, Inc.'s internal control over financial reporting during the quarter ended
December 31, 2022 that materially affected, or are reasonably likely to materially affect, American Assets Trust, Inc.'s internal
control over financial reporting.
64 Controls and Procedures (American Assets Trust, L.P.)
Evaluation of Disclosure Controls and Procedures
The Operating Partnership maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e)
under the Exchange Act) that are designed to ensure that information required to be disclosed in its Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial
Officer of its general partner, as appropriate, to allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, the Operating Partnership carried out an evaluation, under the
supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of its
general partner, of the effectiveness of the design and operation of the Operating Partnership’s disclosure controls and
procedures. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's
general partner concluded that, as of the end of the period covered by this report, the Operating Partnership’s disclosure
controls and procedures were effective and were operating at a reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, the Chief Executive
Officer and Chief Financial Officer of the Operating Partnership's general partner and effected by the general partner's board of
directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and
procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Operating Partnership; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the
Operating Partnership are being made only in accordance with authorizations of management and directors of the general
partner of the Operating Partnership; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Operating Partnership’s assets that could have a material effect on the
financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial
reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk
that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into
the process safeguards to reduce, though not eliminate, this risk.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Operating Partnership, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the
participation of management, including the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's
general partner, the Operating Partnership conducted an evaluation of the effectiveness of its internal control over financial
reporting. Management has used the framework set forth in the report entitled “Internal Control — Integrated Framework
(2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of
the Operating Partnership’s internal control over financial reporting. Based on its evaluation, management has concluded that
the Operating Partnership’s internal control over financial reporting was effective as of December 31, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in the Operating Partnership's internal control over financial reporting during the quarter ended
December 31, 2022 that materially affected, or are reasonably likely to materially affect, the Operating Partnership's internal
control over financial reporting.
65 ITEM 9B.
OTHER INFORMATION
None.
ITEMS 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning our directors, executive officers and corporate governance required by Item 10 will be
included in the Proxy Statement to be filed relating to American Assets Trust, Inc.'s 2023 Annual Meeting of Stockholders and
is incorporated herein by reference.
Pursuant to instruction G(3) to Form 10-K, information concerning audit committee financial expert disclosure set forth
under the heading “Information Regarding the Board - Committees of the Board - Audit Committee” will be included in the
Proxy Statement to be filed relating to American Assets Trust, Inc.'s 2023 Annual Meeting of Stockholders and is incorporated
herein by reference.
Pursuant to instruction G(3) to Form 10-K, information concerning compliance with Section 16(a) of the Exchange Act
concerning our directors and executive officers set forth under the heading entitled “Delinquent - Section 16(a) Reports” is
included herein as Item 15.
ITEM 11.
EXECUTIVE COMPENSATION
The information concerning our executive compensation required by Item 11 will be included in the Proxy Statement to
be filed relating to American Assets Trust, Inc.'s 2023 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information concerning the security ownership of certain beneficial owners and management and related stockholder
matters required by Item 12 will be included in the Proxy Statement to be filed relating to American Assets Trust, Inc.'s 2023
Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information concerning certain relationships and related transactions, and director independence required by Item 13
will be included in the Proxy Statement to be filed relating to American Assets Trust, Inc.'s 2023 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information concerning our principal accountant fees and services required by Item 14 will be included in the Proxy
Statement to be filed relating to American Assets Trust, Inc.'s 2023 Annual Meeting of Stockholders and is incorporated herein
by reference
ITEM 15.
DELINQUENT SECTION 16(A) REPORTS
Section 16(a) of the Exchange Act requires our named executive officers, directors and persons who own more than 10%
of our common stock to file reports of ownership and changes in ownership with the SEC. SEC regulations require us to
identify anyone who failed to file a required report or filed a late report during the most recent fiscal year. Based solely on our
review of the copies of such forms received by us, or written representations from certain reporting persons that no Forms 5
were required for such persons, we believe that, during the fiscal year ended December 31, 2022, our named executive officers,
directors and 10% stockholders complied with all Section 16(a) filing requirements applicable to them, except that Ernest Rady,
our Chairman and Chief Executive Officer and a member of our Board of Directors, filed a Form 4/A on October 4, 2022 for a
transaction that occurred on August 30, 2022, due to a scrivener's error solely due to Mr. Rady's broker failing to provide us
with the correct number of shares purchased.
66
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
(1) Financial Statements
Our consolidated financial statements and notes thereto, together with Report of Independent Registered
Public Accounting Firm are included as a separate section of this annual report on Form 10-K commencing on page
F-1.
(2) Financial Statement Schedule
Our financial statement schedule is included in a separate section of this annual report on Form 10-K
commencing on page F-1.
(3) Exhibits
A list of exhibits to this annual report on Form 10-K is set forth on the Exhibit Index immediately preceding
such exhibits and is incorporated herein by reference.
(b) See Exhibit Index
(c) Not Applicable
67
Exhibit No. Description
3.1(1)
Articles of Amendment and Restatement of American Assets Trust, Inc.
EXHIBIT INDEX
3.2(1)
3.3(2)
4.1(1)
4.2(3)
4.3*
10.1(4)
10.2(4)
10.3(1)
10.4(1)
10.5*
10.6(4)
10.7(1)
10.8(1)
10.9(4)
10.10(5)
10.11(5)
10.12(6)
10.13(7)
10.14(7)
10.15(7)
10.16(8)
10.17(9)
Amended and Restated Bylaws of American Assets Trust, Inc.
Certificate of Limited Partnership of American Assets Trust, L.P.
Form of Certificate of Common Stock of American Assets Trust, Inc.
Indenture, dated January 26, 2021, by and among American Assets Trust, L.P., as issuer, American Assets Trust,
Inc., as guarantor, and U.S. Bank National Association, as trustee
Description of Securities
Amended and Restated Agreement of Limited Partnership of American Assets Trust, L.P., dated January 19, 2011
Registration Rights Agreement among American Assets Trust, Inc. and the persons named therein, dated January
19, 2011
American Assets Trust, Inc. and American Assets Trust, L.P. Amended and Restated 2011 Equity Incentive
Award Plan
Form of Indemnification Agreement between American Assets Trust, Inc. and its directors and officers
Form of American Assets Trust, Inc. Restricted Stock Award Agreement (Performance Vesting)
Transition Services Agreement between American Assets, Inc. and American Assets Trust, L.P., dated January 19,
2011
Management Agreement for Waikiki Beach Walk®—Retail between ABW Holdings LLC and Retail Resort
Properties LLC, dated as of November 1, 2007
Outrigger Hotels Hawaii—Hotel Management Agreement—Embassy SuitesTM—Waikiki Beach WalkTM Hotel
by and among EBW Hotel LLC, Waikele Venture Holdings, LLC, Broadway 225 Sorrento Holdings, LLC,
Broadway 225 Stonecrest Holdings, LLC and Outrigger Hotels Hawaii, dated as of January 10, 2006
Franchise License Agreement—Embassy Suites—Waikiki Beach Walk—Honolulu, Hawaii between Embassy
Suites Franchise LLC and WBW Hotel Lessee, LLC, dated January 19, 2011
Deed of Trust and Security Agreement by and between AAT CC Bellevue, LLC, as Borrower, and PNC Bank,
National Association, as Lender, dated October 10, 2012
Promissory Note by AAT CC Bellevue, LLC, as maker, to PNC Bank, National Association, dated as of October
10, 2012
American Assets Trust, Inc. and American Assets Trust, L.P. Amended and Restated Incentive Bonus Plan,
effective as of December 5, 2019
Amended and Restated Employment Agreement among American Assets Trust, Inc., American Assets Trust, L.P.
and Ernest S. Rady dated March 25, 2014
Amended and Restated Employment Agreement among American Assets Trust, Inc., American Assets Trust, L.P.
and Robert F. Barton dated March 25, 2014
Amended and Restated Employment Agreement among American Assets Trust, Inc., American Assets Trust, L.P.
and Adam Wyll dated March 25, 2014
Note Purchase Agreement, dated as of October 31, 2014 by and among American Assets Trust, Inc., American
Assets Trust, L.P. and the purchasers named therein. (Series A, B and C)
Joinder and First Amendment to Term Loan Agreement, dated as of May 2, 2016, among American Assets Trust,
Inc., the American Assets Trust, L.P., the Lenders party thereto and U.S. Bank National Association, as
Administrative Agent
10.18(10) Note Purchase Agreement, dated as of March 1, 2017 by and among American Assets Trust, Inc., American
Assets Trust, L.P. and the purchasers named therein. (Series D)
10.19(11) Note Purchase Agreement, dated as of May 23, 2017 by and among American Assets Trust, Inc., American Assets
Trust, L.P. and the purchasers named therein. (Series E)
10.20(11) Second Amendment to the Amended and Restated Credit Agreement dated as of May 23, 2017, by and among
American Assets Trust, Inc., American Assets Trust, L.P., the lenders from time to time party thereto, Bank of
America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the other entities named therein
10.21(11) Second Amendment to the Term Loan Agreement dated as of May 23, 2017, by and among American Assets
Trust, Inc., American Assets Trust, L.P., the lenders from time to time party thereto, U.S. Bank National
Association, as Administrative Agent, and the other entities named therein
10.22(11) First Amendment, dated as of May 23, 2017, to the Note Purchase Agreement, dated as if October 31, 2014, by
and among American Assets Trust, Inc., American Assets Trust, L.P. and the purchasers named therein. (Series E)
68
Exhibit No. Description
10.23(11) First Amendment, dated as of May 23, 2017, to the Note Purchase Agreement, dated as of March 1, 2017, by and
among American Assets Trust, Inc., American Assets Trust, L.P. and the purchasers named therein. (Series E)
10.24(12) Note Purchase Agreement, dated as of July 19, 2017, by and among American Assets Trust, Inc., American Assets
Trust, L.P. and the purchasers named therein. (Series F)
10.25(13) Second Amended and Restated Credit Agreement dated January 9, 2018, by and among American Assets Trust,
Inc., American Assets Trust, L.P., Bank of America, N.A., as Administrative Agent, and other entities named
therein.
10.26(13) Third Amendment to Term Loan Agreement dated January 9, 2018, by and among the American Assets Trust,
Inc., American Assets Trust, L.P., each lender from time to time party thereto, and U.S. Bank National
Association, as Administrative Agent.
10.32(14) First Amendment to Second Amended and Restated Credit Agreement dated January 9, 2019, by and among the
American Assets Trust, Inc., American Assets Trust, L.P., Bank of America, N.A., as Administrative Agent, and
other entities named therein.
10.33(15) Note Purchase Agreement, dated as of July 30, 2019, by and among American Assets Trust, Inc., American Assets
Trust, L.P., and the purchasers named therein.
10.34(16) Equity Distribution Agreement, dated December 3, 2021, by and among American Assets Trust, Inc., American
Assets Trust, L.P., and Wells Fargo Securities, LLC
10.35(16) Equity Distribution Agreement, dated December 3, 2021, by and among American Assets Trust, Inc., American
Assets Trust, L.P., and BofA Securities, Inc.
10.36(16) Equity Distribution Agreement, dated December 3, 2021, by and among American Assets Trust, Inc., American
Assets Trust, L.P., and Jefferies LLC
10.37(16) Equity Distribution Agreement, dated December 3, 2021, by and among American Assets Trust, Inc., American
Assets Trust, L.P., and Mizuho Securities USA LLC
10.38(16) Equity Distribution Agreement, dated December 3, 2021, by and among American Assets Trust, Inc., American
Assets Trust, L.P., and BTIG, LLC
10.39(17) Third Amended and Restated Credit Agreement dated January 5, 2022, by and among American Assets Trust,
Inc., American Assets Trust, L.P., Bank of America, N.A., as Administrative Agent, and other entities named
therein.
10.39(18) Amended and Restated Term Loan Agreement dated January 5, 2023, by and among American Assets Trust, Inc.,
American Assets Trust, L.P., each lender from time-to-time party thereto, and U.S. Bank National Association, as
Administrative Agent.
21.1*
22.1*
23.1*
23.2*
31.1*
31.2*
31.3*
31.4*
32.1*
32.2*
101.INS*
List of Subsidiaries of American Assets Trust, Inc.
Subsidiary Guarantors and Issuers of Guaranteed Securities
Consent of Independent Registered Public Accounting Firm for American Assets Trust, Inc.
Consent of Independent Registered Public Accounting Firm for American Assets Trust, L.P.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of American
Assets Trust, Inc.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of American
Assets Trust, L.P.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of American
Assets Trust, Inc.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of American
Assets Trust, L.P.
Certification of Chief Executive Officer and Chief Financial Officer of American Assets Trust, Inc. pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer of American Assets Trust, L.P. pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL Document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
69 Exhibit No. Description
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
Filed herewith.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Incorporated herein by reference to American Assets Trust, Inc.'s Registration Statement on Form S-11, as amended (File
No. 333-169326), filed with the Securities and Exchange Commission on September 13, 2010.
Incorporated herein by reference to American Assets Trust, Inc.'s Current Report on Form 10-K filed with the Securities
and Exchange Commission on February 20, 2015.
Incorporated herein by reference to American Assets Trust, Inc.’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 26, 2021.
Incorporated herein by reference to American Assets Trust, Inc.'s Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 19, 2011.
Incorporated herein by reference to American Assets Trust, Inc’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 10, 2012.
Incorporated herein by reference to American Assets Trust, Inc.'s Current Report on Form 10-K filed with the Securities
and Exchange Commission on February 14, 2020.
Incorporated herein by reference to American Assets Trust, Inc’s Current Report on Form 10-Q filed with the Securities
and Exchange Commission on May 2, 2014.
Incorporated herein by reference to American Assets Trust, Inc.'s Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 31, 2014.
Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 10-Q filed with the Securities
and Exchange Commission on July 29, 2016.
(10) Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 8-K filed with the Securities
and Exchange Commission on March 1, 2017.
(11) Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 8-K filed with the Securities
and Exchange Commission on May 23, 2017.
(12) Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 19, 2017.
(13) Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 9, 2018.
(14) Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 9, 2019.
(15) Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 30, 2019.
(16) Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 8-K filed with the Securities
and Exchange Commission on December 3, 2021.
(17) Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 5, 2022.
(18) Incorporated herein by reference to American Assets Trust, Inc's Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 5, 2023.
70 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrants have
duly caused this Report to be signed on their behalf by the undersigned thereunto duly authorized this 10th day of February,
2023.
SIGNATURES
American Assets Trust, Inc.
/s/ ERNEST RADY
Ernest Rady
American Assets Trust, L.P.
By: American Assets Trust, Inc.
Its: General Partner
/s/ ERNEST RADY
Ernest Rady
Chairman and Chief Executive Officer
Chairman and Chief Executive Officer
(Principal Executive Officer)
(Principal Executive Officer)
/s/ ROBERT F. BARTON
Robert F. Barton
Executive Vice President and Chief Financial Officer
/s/ ROBERT F. BARTON
Robert F. Barton
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrants and in the capacities and on the dates indicated.
Signature
/s/ ERNEST RADY
Ernest Rady
/s/ ROBERT F. BARTON
Robert F. Barton
/s/ JOY L. SCHAEFER
Joy L. Schaefer
/s/ NINA TRAN
Nina Tran
/s/ THOMAS S. OLINGER
Thomas S. Olinger
/s/ ROBERT S. SULLIVAN
Robert S. Sullivan
Title
Chairman of the Board and Chief
Executive Officer
Date
February 10, 2023
Executive Vice President, Chief Financial
Officer and Treasurer
February 10, 2023
Director
Director
Director
Director
February 10, 2023
February 10, 2023
February 10, 2023
February 10, 2023
71
Item 8 and Item 16(a) (1) and (2)
Index to Consolidated Financial Statements and Schedule
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)
American Assets Trust, Inc.
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Equity for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020
American Assets Trust, L.P.
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Partners' Capital for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements of American Assets Trust, Inc. and American Assets Trust, L.P.
Schedule III—Consolidated Real Estate and Accumulated Depreciation
F-2
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
F-17
F-55
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of American Assets Trust, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of American Assets Trust, Inc. (the Company) as of December
31, 2022 and 2021, the related consolidated statements of comprehensive income, equity, and cash flows for each of the three
years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item
16(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework) and our report dated February 10, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
F-2 Description of the
Matter
Impairment of real estate properties
The Company’s net real estate properties totaled $2.73 billion as of December 31, 2022. As discussed in
Note 1 to the consolidated financial statements, the Company reviews for impairment on a property by
property basis whenever events or changes in circumstances indicate that the carrying value of a property
may not be fully recoverable. Impairment is recognized on properties held for use when the expected
undiscounted cash flows for a property are less than its carrying amount, at which time the property is
written down to its estimated fair value. Properties classified as held for sale are recorded at the lower of
the carrying amount or the expected sales price less costs to sell. There were no impairment charges
during the year ended December 31, 2022.
Auditing the Company's impairment assessment for real estate properties is challenging because of the
subjective auditor judgment necessary in evaluating management’s identification of indicators of
potential impairment and the related assessment of the severity of such indicators in determining whether
a triggering event has occurred that requires the Company to evaluate the recoverability of the asset.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s property impairment review process. For example, we tested controls over
management’s process for identifying and evaluating potential impairment indicators.
Our testing of the Company’s impairment assessment included, among other procedures, evaluating
significant judgments applied in determining whether indicators of impairment were present at any given
property by obtaining evidence to corroborate such judgments and searching for evidence contrary to
such judgments. For example, we searched for tenants or groups of tenants with large reserved balances
or upcoming lease expirations that occupy a substantial portion of any particular property and searched
for significant declines in operating results of any particular property due to occupancy changes, tenant
bankruptcies, environmental issues, adverse changes in legal factors or natural disasters.
F-3 Property asset acquisitions
Description of the
Matter
During the year ended December 31, 2022, the Company completed the acquisition of Bel-Spring 520 for
a purchase price of approximately $45.5 million. As discussed in Note 1 and Note 2 to the consolidated
financial statements, the Company accounted for the purchase as an asset acquisition in accordance with
the authoritative accounting guidance on acquisitions and business combinations. The Company’s
methodology of allocating the cost of the acquisition to the assets acquired and liabilities assumed
consists of use of the income, sales comparison and cost approaches. For acquired operating real estate
properties, the purchase price is allocated to land and buildings, intangible assets such as in-place leases,
and tangible assets and liabilities acquired, if any, based on their relative fair value.
Auditing the Company’s accounting for its acquisition was complex due to the significant estimation
required by management in determining the relative fair values of the acquired land and buildings and
intangible assets such as in-place leases. The significant estimation was primarily due to the judgmental
nature of inputs, including discount rates, capitalization rates and certain market assumptions such as
market rental rates.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s accounting for acquisitions process. For example, we tested controls over the
valuation of acquired land, buildings and intangible assets, including the valuation models and underlying
assumptions used to develop such estimates.
Our testing of the Company’s accounting for its acquisition included, among other procedures, reading
the purchase agreement and testing the values allocated to the assets acquired and liabilities assumed by
evaluating the valuation methods and significant assumptions used by management. For example, our real
estate valuation specialists assisted us in evaluating the methodologies used by the Company and testing
the consistency of the selected discount rates, capitalization rates and various market assumptions such as
market rental rates with external market data sources. Additionally, we evaluated the completeness and
accuracy of the underlying data supporting the determination of various inputs. Also, with the assistance
of our specialists, we evaluated the incorporation of the key assumptions in the aforementioned models
and tested such models for clerical accuracy.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010.
San Diego, California
February 10, 2023
F-4 Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of American Assets Trust, Inc.
Opinion on Internal Control over Financial Reporting
We have audited American Assets Trust, Inc.’s internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) (the COSO criteria). In our opinion, American Assets Trust, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated
statements of comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2022,
and the related notes and financial statement schedule listed in the Index at Item 16(a) and our report dated February 10, 2023
expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Diego, California
February 10, 2023
F-5 Report of Independent Registered Public Accounting Firm
To the Partners of American Assets Trust, L.P.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of American Assets Trust, L.P. (the Company) as of December
31, 2022 and 2021, the related consolidated statements of comprehensive income, partners’ capital, and cash flows for each of
the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index
at Item 16(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity
with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
F-6 Impairment of real estate properties
Description of the
Matter
The Company’s net real estate properties totaled $2.73 billion as of December 31, 2022. As discussed in
Note 1 to the consolidated financial statements, the Company reviews for impairment on a property by
property basis whenever events or changes in circumstances indicate that the carrying value of a property
may not be fully recoverable. Impairment is recognized on properties held for use when the expected
undiscounted cash flows for a property are less than its carrying amount, at which time the property is
written down to its estimated fair value. Properties classified as held for sale are recorded at the lower of
the carrying amount or the expected sales price less costs to sell. There were no impairment charges
during the year ended December 31, 2022.
Auditing the Company's impairment assessment for real estate properties is challenging because of the
subjective auditor judgment necessary in evaluating management’s identification of indicators of potential
impairment and the related assessment of the severity of such indicators in determining whether a
triggering event has occurred that requires the Company to evaluate the recoverability of the asset.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s property impairment review process. For example, we tested controls over
management’s process for identifying and evaluating potential impairment indicators.
Our testing of the Company’s impairment assessment included, among other procedures, evaluating
significant judgments applied in determining whether indicators of impairment were present at any given
property by obtaining evidence to corroborate such judgments and searching for evidence contrary to such
judgments. For example, we searched for tenants or groups of tenants with large reserved balances or
upcoming lease expirations that occupy a substantial portion of any particular property and searched for
significant declines in operating results of any particular property due to occupancy changes, tenant
bankruptcies, environmental issues, adverse changes in legal factors or natural disasters.
F-7 Property asset acquisition
Description of the
Matter
During the year ended December 31, 2022, the Company completed the acquisition of Bel-Spring 520 for
a purchase price of approximately $45.5 million. As discussed in Note 1 and Note 2 to the consolidated
financial statements, the Company accounted for the purchase as an asset acquisition in accordance with
the authoritative accounting guidance on acquisitions and business combinations. The Company’s
methodology of allocating the cost of the acquisition to assets acquired and liabilities assumed consists of
use of the income, sales comparison and cost approaches. For acquired operating real estate properties, the
purchase price is allocated to land and buildings, intangible assets such as in-place leases, and tangible
assets and liabilities acquired, if any, based on their relative fair value.
Auditing the Company’s accounting for its acquisition was complex due to the significant estimation
required by management in determining the relative fair values of the acquired land and buildings and
intangible assets such as in-place leases. The significant estimation was primarily due to the judgmental
nature of inputs, including discount rates, capitalization rates and certain market assumptions such as
market rental rates.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s accounting for acquisitions process. For example, we tested controls over the
valuation of acquired land, buildings and intangible assets, including the valuation models and underlying
assumptions used to develop such estimates.
Our testing of the Company’s accounting for its acquisition included, among other procedures, reading the
purchase agreement and testing the values allocated to the assets acquired and liabilities assumed by
evaluating the valuation methods and significant assumptions used by management. For example, our real
estate valuation specialists assisted us in evaluating the methodologies used by the Company and testing
the consistency of the selected discount rates, capitalization rates and various market assumptions such as
market rental rates with external market data sources. Additionally, we evaluated the completeness and
accuracy of the underlying data supporting the determination of various inputs. Also, with the assistance
of our specialists, we evaluated the incorporation of the key assumptions in the aforementioned models
and tested such models for clerical accuracy.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2014.
San Diego, California
February 10, 2023
F-8 American Assets Trust, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)
ASSETS
Real estate, at cost
Operating real estate
Construction in progress
Held for development
Accumulated depreciation
Net real estate
Cash and cash equivalents
Accounts receivable, net
Deferred rent receivables, net
Other assets, net
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES:
Secured notes payable, net
Unsecured notes payable, net
Unsecured line of credit, net
Accounts payable and accrued expenses
Security deposits payable
Other liabilities and deferred credits
Total liabilities
Commitments and contingencies (Note 12)
EQUITY:
American Assets Trust, Inc. stockholders' equity
Common stock, $0.01 par value, 490,000,000 shares authorized, 60,718,653
and 60,525,580 shares issued and outstanding at December 31, 2022 and
December 31, 2021, respectively
Additional paid-in capital
Accumulated dividends in excess of net income
Accumulated other comprehensive income
Total American Assets Trust, Inc. stockholders' equity
Noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
December 31, 2022
December 31, 2021
$
$
$
3,468,537 $
202,385
547
3,671,469
(936,913)
2,734,556
49,571
7,848
87,192
108,714
2,987,881 $
74,578 $
1,539,453
34,057
65,992
8,699
79,577
1,802,356
3,389,726
139,098
547
3,529,371
(847,390)
2,681,981
139,524
7,445
82,724
106,253
3,017,927
110,965
1,538,238
—
64,531
7,855
86,215
1,807,804
607
1,461,201
(251,167)
10,624
1,221,265
(35,740)
1,185,525
2,987,881 $
$
605
1,453,272
(217,785)
2,872
1,238,964
(28,841)
1,210,123
3,017,927
The accompanying notes are an integral part of these consolidated financial statements.
F-9
American Assets Trust, Inc.
Consolidated Statements of Comprehensive Income
(In Thousands, Except Shares and Per Share Data)
REVENUE:
Rental income
Other property income
Total revenue
EXPENSES:
Rental expenses
Real estate taxes
General and administrative
Depreciation and amortization
Total operating expenses
OPERATING INCOME
Interest expense, net
Loss on early extinguishment of debt
Other (expense) income, net
NET INCOME
Net income attributable to restricted shares
Net income attributable to unitholders in the Operating Partnership
NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST,
INC. STOCKHOLDERS
EARNINGS PER COMMON SHARE, BASIC
Basic income attributable to common stockholders per share
Weighted average shares of common stock outstanding - basic
EARNINGS PER COMMON SHARE, DILUTED
Diluted income attributable to common stockholders per share
Weighted average shares of common stock outstanding - diluted
COMPREHENSIVE INCOME
Net income
Other comprehensive gain (loss) - unrealized gain (loss) on swap derivatives
during the period
Reclassification of amortization of forward starting swap included in interest
expense, net
Reclassification of amortization of forward-starting swap realized gain
included in loss on early extinguishment of debt
Comprehensive income
Year Ended December 31,
2022
2021
2020
$
402,507 $
20,141
422,648
360,208 $
15,620
375,828
330,312
14,261
344,573
107,645
44,788
32,143
123,338
307,914
114,734
(58,232)
—
(625)
55,877
(648)
(11,723)
86,980
42,794
29,879
116,306
275,959
99,869
(58,587)
(4,271)
(418)
36,593
(564)
(7,653)
79,178
41,941
26,581
108,292
255,992
88,581
(53,440)
—
447
35,588
(383)
(7,545)
$
$
$
43,506 $
28,376 $
27,660
0.72 $
0.47 $
0.46
60,048,970
59,990,740
59,806,309
0.72 $
0.47 $
76,230,507
76,172,277
0.46
76,119,763
$
55,877 $
36,593 $
35,588
11,319
2,723
(3,649)
(1,477)
(1,098)
(1,330)
—
65,719
(193)
38,025
(7,966)
30,059 $
—
30,609
(6,496)
24,113
Comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to American Assets Trust, Inc.
(13,813)
51,906 $
$
The accompanying notes are an integral part of these consolidated financial statements.
F-10
Net income
—
—
Issuance of restricted stock
229,819
2
Forfeiture of restricted stock
(155,390)
(2)
Balance at December 31, 2019
Net income
—
—
Issuance of restricted stock
317,574
3
Forfeiture of restricted stock
(95,086)
(1)
American Assets Trust, Inc.
Consolidated Statements of Equity
(In Thousands, Except Share Data)
American Assets Trust, Inc. Stockholders' Equity
Common Shares
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Dividends in
Excess of Net
Income
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests -
Unitholders in
the Operating
Partnership
Total
60,068,228 $ 601 $ 1,452,014 $ (144,378) $
5,680 $
(20,245) 1,293,672
—
(3)
1
28,043
—
—
—
209,011
2
(12,003)
—
—
—
—
6,307
—
(60,225)
(23,435) —
(672)
—
—
—
—
—
60,476,292 605
—
1,445,644
—
(2)
2
—
8,493
—
—
—
—
(25,141) —
(865)
—
—
—
—
—
—
—
—
—
—
—
—
—
(176,560)
28,940
—
—
(70,165)
—
—
—
—
—
—
—
—
3
—
—
—
7,545
35,588
—
—
11,998
—
—
—
(16,285)
(76,510)
—
—
6,307
(672)
(2,885)
(764)
(3,649)
(1,045)
1,753
(285)
(1,330)
(18,036) 1,253,406
—
—
—
—
—
—
7,653
36,593
—
—
—
—
(18,771)
(88,936)
—
—
8,493
(865)
2,135
588
2,723
(864)
(234)
(1,098)
(152)
(41)
(193)
60,525,580 605
—
—
1,453,272
—
(217,785)
44,154
2,872
—
(28,841) 1,210,123
55,877
11,723
(3)
1
—
8,690
—
—
—
—
(25,813) —
(759)
—
—
—
—
—
—
—
—
(77,536)
—
—
—
—
—
—
—
—
—
—
—
—
—
(20,712)
(98,248)
—
—
8,690
(759)
8,916
2,403
11,319
(1,164)
(313)
(1,477)
Conversion of operating
partnership units
Dividends declared and paid
Stock-based compensation
Shares withheld for employee
taxes
Other comprehensive loss -
change in value of interest rate
swaps
Reclassification of amortization
of forward starting swaps
included in interest expense
Balance at December 31, 2020
Dividends declared and paid
Stock-based compensation
Shares withheld for employee
taxes
Other comprehensive income -
change in values of interest rate
swaps
Reclassification of amortization
of forward-starting swaps
included in interest expense
Reclassification of amortization
of forward-starting swaps
included in loss on early
extinguishment of debt
Balance at December 31, 2021
Net income
Dividends declared and paid
Stock-based compensation
Shares withheld for employee
taxes
Other comprehensive income -
change in value of interest rate
swaps
Reclassification of amortization
of forward-starting swaps
included in interest expense, net
Issuance of restricted stock
325,682
3
Forfeiture of restricted stock
(106,796)
(1)
Balance at December 31, 2022
60,718,653 $ 607 $ 1,461,201 $ (251,167) $
10,624 $
(35,740) $ 1,185,525
The accompanying notes are an integral part of these consolidated financial statements.
F-11
American Assets Trust, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
Year ended December 31,
2021
2020
2022
$
55,877 $
36,593 $
35,588
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Deferred rent revenue and amortization of lease intangibles
Depreciation and amortization
Amortization of debt issuance costs and debt fair value adjustments
Provision for uncollectable rental income
Early extinguishment of debt
Stock-based compensation expense
Other noncash interest expense
Other, net
Changes in operating assets and liabilities
Change in accounts receivable
Change in other assets
Change in accounts payable and accrued expenses
Change in security deposits payable
Change in other liabilities and deferred credits
Net cash provided by operating activities
INVESTING ACTIVITIES
Acquisition of real estate, net
Capital expenditures
Leasing commissions
Purchase of marketable securities
Sale of marketable securities
Net cash used in investing activities
FINANCING ACTIVITIES
Issuance of secured notes payable
Repayment of secured notes payable
Proceeds from unsecured line of credit
Repayment of unsecured line of credit
Repayment of unsecured notes payable
Proceeds from issuance of unsecured notes payable
Debt issuance costs
Dividends paid to common stock and unitholders
Shares withheld for employee taxes
Net cash (used in) provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
$
(11,489)
123,338
2,581
2,334
—
8,690
(1,477)
(252)
(404)
(723)
(1,237)
655
1,179
179,072
(45,166)
(113,781)
(7,374)
—
—
(166,321)
75,000
(111,000)
36,000
—
—
—
(3,697)
(98,248)
(759)
(102,704)
(89,953)
139,524
49,571 $
(17,634)
116,306
2,753
(2,289)
4,271
8,493
(1,098)
1,314
2,273
109
15,331
443
1,464
168,329
(204,511)
(104,588)
(3,142)
(47,760)
47,723
(312,278)
—
—
—
(100,000)
(155,375)
494,675
(5,075)
(88,936)
(865)
144,424
475
139,049
139,524 $
(31,242)
108,292
1,477
18,427
—
6,307
(1,330)
(695)
(4,940)
141
(2,108)
(1,726)
(1,206)
126,985
—
(63,488)
(5,589)
—
—
(69,077)
—
(51,003)
100,000
—
—
—
(125)
(76,510)
(672)
(28,310)
29,598
109,451
139,049
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated
balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash shown in Statement of Cash
Flows
$
$
Year ended December 31,
2022
49,571 $
—
2021
139,524 $
—
2020
137,333
1,716
49,571 $
139,524 $
139,049
The accompanying notes are an integral part of these consolidated financial statements.
F-12
American Assets Trust, L.P.
Consolidated Balance Sheets
(In Thousands, Except Unit Data)
ASSETS
Real estate, at cost
Operating real estate
Construction in progress
Held for development
Accumulated depreciation
Net real estate
Cash and cash equivalents
Accounts receivable, net
Deferred rent receivables, net
Other assets, net
TOTAL ASSETS
LIABILITIES AND CAPITAL
LIABILITIES:
Secured notes payable, net
Unsecured notes payable, net
Unsecured line of credit, net
Accounts payable and accrued expenses
Security deposits payable
Other liabilities and deferred credits
Total liabilities
Commitments and contingencies (Note 12)
CAPITAL:
Limited partners' capital, 16,181,537 and 16,181,537 units issued and
outstanding as of December 31, 2022 and December 31, 2021, respectively
General partner's capital, 60,718,653 and 60,525,580 units issued and
outstanding as of December 31, 2022 and December 31, 2021, respectively
Accumulated other comprehensive income
Total capital
TOTAL LIABILITIES AND CAPITAL
December 31,
2022
December 31,
2021
$
$
$
$
3,468,537 $
202,385
547
3,671,469
(936,913)
2,734,556
49,571
7,848
87,192
108,714
2,987,881 $
74,578 $
1,539,453
34,057
65,992
8,699
79,577
1,802,356
3,389,726
139,098
547
3,529,371
(847,390)
2,681,981
139,524
7,445
82,724
106,253
3,017,927
110,965
1,538,238
—
64,531
7,855
86,215
1,807,804
(39,127)
(30,138)
1,210,641
14,011
1,185,525
2,987,881 $
1,236,092
4,169
1,210,123
3,017,927
The accompanying notes are an integral part of these consolidated financial statements.
F-13
American Assets Trust, L.P.
Consolidated Statements of Comprehensive Income
(In Thousands, Except Units and Per Unit Data)
REVENUE:
Rental income
Other property income
Total revenue
EXPENSES:
Rental expenses
Real estate taxes
General and administrative
Depreciation and amortization
Total operating expenses
OPERATING INCOME
Interest expense, net
Loss on early extinguishment of debt
Other (expense) income, net
NET INCOME
Net income attributable to restricted shares
NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST,
L.P.
EARNINGS PER UNIT - BASIC
Earnings per unit, basic
Weighted average units outstanding, basic
EARNINGS PER UNIT - DILUTED
Earnings per unit, diluted
Weighted average units outstanding, diluted
DISTRIBUTIONS PER UNIT
COMPREHENSIVE INCOME
Net income
Other comprehensive gain (loss) - unrealized gain (loss) on swap
derivatives during the period
Reclassification of amortization of forward starting swaps included in
interest expense, net
Reclassification of amortization of forward-starting swap realized gain
included in loss on early extinguishment of debt
Comprehensive income
Comprehensive income attributable to Limited Partners
Comprehensive income attributable to General Partner
Year Ended December 31,
2022
2021
2020
$
402,507 $
20,141
422,648
360,208 $
15,620
375,828
330,312
14,261
344,573
107,645
44,788
32,143
123,338
307,914
114,734
(58,232)
—
(625)
55,877
(648)
86,980
42,794
29,879
116,306
275,959
99,869
(58,587)
(4,271)
(418)
36,593
(564)
79,178
41,941
26,581
108,292
255,992
88,581
(53,440)
—
447
35,588
(383)
55,229 $
36,029 $
35,205
0.72 $
0.47 $
76,230,507
76,172,277
0.72 $
0.47 $
76,230,507
76,172,277
0.46
76,119,763
0.46
76,119,763
1.28 $
1.16 $
1.00
55,877 $
36,593 $
35,588
11,319
2,723
(3,649)
(1,477)
(1,098)
(1,330)
—
65,719
(13,813)
51,906 $
(193)
38,025
(7,966)
30,059 $
—
30,609
(6,496)
24,113
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-14
American Assets Trust, L.P.
Consolidated Statements of Partners' Capital
(In Thousands, Except Unit Data)
Limited Partners' Capital (1)
General Partner's Capital (2)
Units
Amount
Units
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Total Capital
Balance at December 31, 2019
Net income
Conversion of operating
partnership units
Issuance of restricted units
Forfeiture of restricted units
Distributions
Stock-based compensation
Units withheld for employee taxes
Other comprehensive loss - change
in value of interest rate swaps
Reclassification of amortization of
forward starting swaps included in
interest expense
Balance at December 31, 2020
Net income
Issuance of restricted units
Forfeiture of restricted units
Distributions
Stock-based compensation
Units withheld for employee taxes
Other comprehensive income -
change in value of interest rate
Reclassification of amortization of
forward starting swaps included in
interest expense
Reclassification of amortization of
forward-starting swaps included in
loss on early extinguishment of
debt
Balance at December 31, 2021
Net income
Issuance of restricted units
Forfeiture of restricted units
Distributions
Stock-based compensation
Units withheld for employee taxes
Other comprehensive income -
change in value of interest rate
Reclassification of amortization of
forward-starting swaps included in
interest expense, net
Balance at December 31, 2022
16,390,548 $
—
(209,011)
—
—
—
—
—
—
—
16,181,537
—
—
—
—
—
—
—
—
—
16,181,537
—
—
—
—
—
—
—
—
16,181,537 $
—
—
(3,649)
(3,649)
(22,281) 60,068,228 $ 1,308,237 $
—
28,043
7,545
209,011
317,574
(95,086)
—
—
(23,435)
(12,001)
—
—
(60,225)
6,307
(672)
12,001
—
—
(16,285)
—
—
—
—
—
(19,020) 60,476,292
—
229,819
(155,390)
7,653
—
—
—
1,269,689
28,940
—
—
(18,771)
—
—
—
—
—
—
(25,141)
(70,165)
8,493
(865)
—
—
—
—
—
—
(30,138) 60,525,580
—
11,723
325,682
—
(106,796)
—
—
1,236,092
44,154
—
—
—
—
(25,813)
(77,536)
8,690
(759)
(20,712)
—
—
—
7,716 $ 1,293,672
35,588
—
—
—
—
—
—
—
—
—
—
(76,510)
6,307
(672)
(1,330)
2,737
—
—
—
—
—
—
(1,330)
1,253,406
36,593
—
—
(88,936)
8,493
(865)
2,723
2,723
(1,098)
(1,098)
(193)
4,169
—
—
—
—
—
—
(193)
1,210,123
55,877
—
—
(98,248)
8,690
(759)
—
—
11,319
11,319
—
—
(39,127) 60,718,653 $ 1,210,641 $
—
(1,477)
(1,477)
14,011 $ 1,185,525
(1) Consists of limited partnership interests held by third parties.
(2) Consists of general and limited partnership interests held by American Assets Trust, Inc.
The accompanying notes are an integral part of these consolidated financial statements.
F-15
American Assets Trust, L.P.
Consolidated Statements of Cash Flows
(In Thousands)
2022
Year Ended December 31,
2021
2020
$
55,877 $
36,593 $
35,588
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Deferred rent revenue and amortization of lease intangibles
Depreciation and amortization
Amortization of debt issuance costs and debt fair value adjustments
Provision for uncollectable rental income
Early extinguishment of debt
Stock-based compensation expense
Other noncash interest expense
Other, net
Changes in operating assets and liabilities
Change in accounts receivable and deferred rent receivables
Change in other assets
Change in accounts payable and accrued expenses
Change in security deposits payable
Change in other liabilities and deferred credits
Net cash provided by operating activities
INVESTING ACTIVITIES
Acquisition of real estate, net
Capital expenditures
Leasing commissions
Purchase of marketable securities
Sale of marketable securities
Net cash used in investing activities
FINANCING ACTIVITIES
Issuance of secured notes payable
Repayment of secured notes payable
Proceeds from unsecured line of credit
Repayment of unsecured line of credit
Repayment of unsecured notes payable
Proceeds from issuance of unsecured notes payable
Debt issuance costs
Distributions
Shares withheld for employee taxes
Net cash (used in) provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
$
(11,489)
123,338
2,581
2,334
—
8,690
(1,477)
(252)
(404)
(723)
(1,237)
655
1,179
179,072
(45,166)
(113,781)
(7,374)
—
—
(166,321)
75,000
(111,000)
36,000
—
—
—
(3,697)
(98,248)
(759)
(102,704)
(89,953)
139,524
49,571 $
(17,634)
116,306
2,753
(2,289)
4,271
8,493
(1,098)
1,314
2,273
109
15,331
443
1,464
168,329
(204,511)
(104,588)
(3,142)
(47,760)
47,723
(312,278)
—
—
—
(100,000)
(155,375)
494,675
(5,075)
(88,936)
(865)
144,424
475
139,049
139,524 $
(31,242)
108,292
1,477
18,427
—
6,307
(1,330)
(695)
(4,940)
141
(2,108)
(1,726)
(1,206)
126,985
—
(63,488)
(5,589)
—
—
(69,077)
—
(51,003)
100,000
—
—
—
(125)
(76,510)
(672)
(28,310)
29,598
109,451
139,049
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated
balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash shown in Statement of Cash
Flows
$
$
2022
Year ended December 31,
2021
139,524 $
—
49,571 $
—
2020
137,333
1,716
49,571 $
139,524 $
139,049
The accompanying notes are an integral part of these consolidated financial statements.
F-16
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
American Assets Trust, Inc. (which may be referred to in these financial statements as the “company,” “we,” “us,” or
“our”) is a Maryland corporation formed on July 16, 2010 that did not have any operating activity until the consummation of
our initial public offering (the “Offering”) and the related acquisition on January 19, 2011 of certain assets of a combination of
entities whose assets included entities owned and/or controlled by Ernest S. Rady and his affiliates, including the Rady Trust,
which in turn owned (1) controlling interests in entities owning 17 properties and the property management business of
American Assets, Inc. and (2) noncontrolling interests in entities owning four properties. The company is the sole general
partner of American Assets Trust, L.P., a Maryland limited partnership formed on July 16, 2010 (the “Operating Partnership”).
The company's operations are carried on through our Operating Partnership and its subsidiaries, including our taxable REIT
subsidiary. Since the formation of our Operating Partnership, the company has controlled our Operating Partnership as its
general partner and has consolidated its assets, liabilities and results of operations.
We are a vertically integrated and self-administered REIT with 216 employees providing substantial in-house expertise in
asset management, property management, property development, leasing, tenant improvement construction, acquisitions,
repositioning, redevelopment and financing.
Any reference to the number of properties or units, square footage or acres, employees; or references to beneficial
ownership interests, are unaudited and outside the scope of our independent registered public accounting firm's audit of our
financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.
As of December 31, 2022, we owned or had a controlling interest in 31 office, retail, multifamily and mixed-use
operating properties, the operations of which we consolidate. Additionally, as of December 31, 2022, we owned land at three of
our properties that we classify as held for development and construction in progress. A summary of the properties owned by us
is as follows:
Retail
Carmel Country Plaza
Carmel Mountain Plaza
South Bay Marketplace
Lomas Santa Fe Plaza
Solana Beach Towne Centre
Gateway Marketplace
Del Monte Center
Geary Marketplace
The Shops at Kalakaua
Waikele Center
Alamo Quarry Market
Hassalo on Eighth - Retail
Office
La Jolla Commons
Torrey Reserve Campus
Torrey Point
Solana Crossing
The Landmark at One Market
Multifamily
Loma Palisades
Imperial Beach Gardens
Mariner's Point
Santa Fe Park RV Resort
Pacific Ridge Apartments
Corporate Campus East III
Bel-Spring 520
One Beach Street
First & Main
Lloyd Portfolio
City Center Bellevue
Eastgate Office Park
Hassalo on Eighth - Multifamily
Mixed-Use
Waikiki Beach Walk Retail and Embassy Suites™ Hotel
Held for Development and Construction in Progress
La Jolla Commons - Construction in Progress
Solana Crossing – Land
Lloyd Portfolio – Construction in Progress
F-17
Basis of Presentation
Our consolidated financial statements include the accounts of the company, our Operating Partnership and our
subsidiaries. The equity interests of other investors in our Operating Partnership are reflected as noncontrolling interests.
The Company follows the Financial Accounting Standards Board (the "FASB") guidance for determining whether an
entity is a variable interest entity (“VIE”) and requires the performance of a qualitative rather than a quantitative analysis to
determine the primary beneficiary of a VIE. Under this guidance, an entity would be required to consolidate a VIE if it has (i)
the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to
absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. American Assets
Trust, Inc. has concluded that the Operating Partnership is a VIE, and because American Assets Trust, Inc. has both the power
and the rights to control the Operating Partnership, American Assets Trust, Inc. is the primary beneficiary and is required to
continue to consolidate the Operating Partnership. Substantially all of the assets and liabilities of the Company are related to the
operating partnership VIE.
All intercompany transactions and balances are eliminated in consolidation.
Impact of COVID-19
We are unable to predict the impact that COVID-19 and its variants will have on our financial condition, results of
operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the
virus, the actions taken to contain it or to mitigate its impact, and the direct and indirect economic effects of the virus and
containment measures, among others. The outbreak of COVID-19 in many countries, including the United States, has
significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in
financial markets. The Company cannot predict if previously placed governmental restrictions or social distancing measures
will be reinstated in the future or if more restrictive measures will be imposed. Further, the willingness of customers to visit
certain of out tenants' businesses may be reduced due to concerns regarding the continued risk of COVID-19 transmission and
heightened sensitivity to risks associated with the transmission of other diseases. As a result, COVID-19 is negatively
impacting almost every industry directly or indirectly, including industries in which the Company and our tenants operate.
Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in,
the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America, referred to as “GAAP,” requires management to make estimates and assumptions that in certain circumstances
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses.
These estimates are prepared using management's best judgment, after considering past, current and expected events and
economic conditions. Actual results could differ from these estimates.
F-18 Consolidated Statements of Cash Flows-Supplemental Disclosures
The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows (in
thousands):
Supplemental cash flow information
Total interest costs incurred
Interest capitalized
Interest expense, net
Cash paid for interest, net of amounts capitalized
Cash paid for income taxes
Supplemental schedule of noncash investing and financing activities
Accounts payable and accrued liabilities for construction in progress
Accrued leasing commissions
Year Ended December 31,
2022
2021
2020
$
$
$
$
$
$
$
63,997 $
61,578 $
5,765 $
58,232 $
56,060 $
865 $
2,991 $
58,587 $
50,970 $
356 $
54,510
1,070
53,440
53,467
844
20,832 $
18,697 $
22,884
2,442 $
2,628 $
555
Revenue Recognition and Accounts Receivable
Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed rent escalations which
occur at specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant
controls the space through the term of the related lease, based on management's assessment of credit, collection and other
business risks. When we determine that we are the owner of tenant improvements and the tenant has reimbursed us for a
portion or all of the tenant improvement costs, we consider the amount paid to be additional rent, which is recognized on a
straight-line basis over the term of the related lease. For first generation tenants, in instances in which we fund tenant
improvements and the improvements are deemed to be owned by us, revenue recognition will commence when the
improvements are substantially completed and possession or control of the space is turned over to the tenant. When we
determine that the tenant is the owner of tenant improvements, tenant allowances are recorded as lease incentives and we
commence revenue recognition and lease incentive amortization when possession or control of the space is turned over to the
tenant for tenant work to begin. Percentage rents, which represent additional rents based upon the level of sales achieved by
certain tenants, are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved
and the percentage rents are collectible. Real estate tax and other cost reimbursements are recognized on an accrual basis over
the periods in which the related expenditures are incurred.
Other property income includes parking income, general excise tax billed to tenants and fees charged to tenants at our
multifamily properties. Other property income is recognized when we satisfy performance obligations as evidenced by the
transfer of control of our services to customers. We measure other property income based on the amount of consideration we
expect to be entitled to in exchange for the services provided. We recognize general excise tax gross, with the amounts billed to
tenants and customers recorded in other property income and the related taxes paid as rental expense. The general excise tax
included in other income was $3.4 million, $2.5 million and $2.3 million for the years ended December 31, 2022, 2021 and
2020, respectively. For a tenant to terminate its lease agreement prior to the end of the agreed term, we may require that they
pay a fee to cancel the lease agreement. Lease termination fees for which the tenant has relinquished control of the space are
generally recognized on the later of the termination date or the satisfaction of all conditions precedent to the lease termination,
including, without limitation, payment of all lease termination fees. When a lease is terminated early but the tenant continues to
control the space under a modified lease agreement, the lease termination fee is generally recognized evenly over the remaining
term of the modified lease agreement.
Current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real
estate tax and other cost reimbursements. Accounts receivable from straight-line rent is typically longer term in nature and
relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under
the contractual lease agreement.
F-19
We recognize revenue on the hotel portion of our mixed-use property from the rental of hotel rooms and guest services
when we satisfy performance obligations as evidenced by the transfer of control when the rooms are occupied and services have
been provided. Food and beverage sales are recognized when the customer has been served or at the time the transaction occurs.
Revenue from room rental is included in rental revenue on the statement of comprehensive income. Revenue from other sales
and services provided is included in other property income on the statement of comprehensive income.
We make estimates of the collectability of our current accounts receivable and straight-line rents receivable which
requires significant judgment by management. The collectability of receivables is affected by numerous different factors
including current economic trends, including the impact of the COVID-19 on tenant's businesses and changes in tenants'
payment patterns, tenant bankruptcies, the status of collectability of current cash rents receivable, tenants' recent and historical
financial and operating results, changes in our tenants' credit ratings, communications between our operating personnel and
tenants, the extent of security deposits and letters of credits held with respect to tenants, and the ability of the tenant to perform
under the terms of their lease agreement when evaluating the adequacy of the allowance for doubtful accounts. If our
assessment of these factors indicates that it is no longer probable that we will be able to collect substantially all rents, we
recognize a charge to rental income and limit our rental income to the lesser of lease income on a straight-line basis plus
variable rents when they become accruable or cash collected. If we change our conclusion regarding the probability of
collecting rent payments required by a lessee, we may recognize an adjustment to rental income in the period we make a change
to our prior conclusion.
At December 31, 2022 and December 31, 2021, our allowance for doubtful accounts was $2.1 million and $4.6 million,
respectively. Total collectability related adjustments for rental income, which includes the allowance for doubtful accounts and
deferred rent receivables, was $2.3 million, $2.3 million and $18.4 million for the years ended December 31, 2022, 2021 and
2020, respectively.
Due to the impacts of COVID-19, in 2020 through 2022 we provided lease concessions to certain tenants, primarily
within the retail segment, in the form of rent deferrals and abatements. We assess each lease concession and determine whether
it represents a lease modifications under Accounting Standards Codification Topic 842, Leases ("ASC 842"). The Company has
elected to account for such COVID-19-related concessions as lease modifications.
Real Estate
Land, buildings and improvements are recorded at cost. Depreciation is computed using the straight-line method.
Estimated useful lives range generally from 30 years to a maximum of 40 years on buildings and major improvements. Minor
improvements, furniture and equipment are capitalized and depreciated over useful lives ranging from 3 years to 15 years.
Maintenance and repairs that do not improve or extend the useful lives of the related assets are charged to operations as
incurred. Tenant improvements are capitalized and depreciated over the life of the related lease or their estimated useful life,
whichever is shorter. If a tenant vacates its space prior to the contractual termination of its lease, the undepreciated balance of
any tenant improvements are written off if they are replaced or have no future value. For the years ended December 31, 2022,
2021 and 2020, real estate depreciation expense was $108.1 million, $102.0 million and $95.8 million, respectively.
Acquisitions of properties are accounted for in accordance with the authoritative accounting guidance on acquisitions and
business combinations. Our methodology of allocating the cost of acquisitions to assets acquired and liabilities assumed is
based on estimated fair values, replacement cost and appraised values. When we acquire operating real estate properties, the
purchase price is allocated to land and buildings, intangibles such as in-place leases, and to current assets and liabilities
acquired, if any. Such valuations include a consideration of the noncancelable terms of the respective leases as well as any
applicable renewal periods. The fair values associated with below market renewal options are determined based on a review of
several qualitative and quantitative factors on a lease-by-lease basis at acquisition to determine whether it is probable that the
tenant would exercise its option to renew the lease agreement. These factors include: (1) the type of tenant in relation to the
property it occupies, (2) the quality of the tenant, including the tenant's long term business prospects and (3) whether the fixed
rate renewal option was sufficiently lower than the fair rental of the property at the date the option becomes exercisable such
that it would appear to be reasonably assured that the tenant would exercise the option to renew. The value allocated to in-place
leases is amortized over the related lease term and reflected as depreciation and amortization in the statement of comprehensive
income.
The value of above and below market leases associated with the original noncancelable lease terms are amortized to
rental income over the terms of the respective noncancelable lease periods and are reflected as either an increase (for below
market leases) or a decrease (for above market leases) to rental income in the statement of comprehensive income. The value of
the leases associated with below market lease renewal options that are likely to be exercised are amortized to rental income over
F-20
the respective renewal periods. If a tenant vacates its space prior to contractual termination of its lease or the lease is not
renewed, the unamortized balance of any in-place lease value is written off to rental income and amortization expense.
Transaction costs related to the acquisition of a business, such as broker fees, transfer taxes, legal, accounting, valuation,
and other professional and consulting fees, are expensed as incurred and included in “general and administrative expenses” in
our consolidated statements of comprehensive income. For asset acquisitions not meeting the definition of a business,
transaction costs are capitalized as part of the acquisition cost.
Capitalized Costs
We capitalize certain costs related to the development and redevelopment of real estate including pre-construction costs,
real estate taxes, insurance and construction costs and salaries and related costs of personnel directly involved. Additionally, we
capitalize interest costs related to development and significant redevelopment activities. Capitalization of these costs begins
when the activities and related expenditures commence and cease when the project is substantially complete and ready for its
intended use, at which time the project is placed in service and depreciation commences. Additionally, we make estimates as to
the probability of certain development and redevelopment projects being completed. If we determine that the completion of
development or redevelopment is no longer probable, we expense all capitalized costs which are not recoverable.
Impairment of Long Lived Assets
We review for impairment on a property by property basis whenever events or changes in circumstances indicate that the
carrying value of a property may not be fully recoverable. Impairment is recognized on properties held for use when the
expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down to
fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell.
As discussed above, as a result of COVID-19, certain of the our tenants may be unable to operate their businesses, maintain
profitability and make timely rental payments under their leases. Accordingly, the reduction of estimated future cash flows
could result in the recognition of an impairment charge on certain of our long-lived assets. Management does not believe that
the value of our real estate investments was impaired at December 31, 2022 or December 31, 2021. There were no impairment
charges during the years ended December 31, 2022, 2021 and 2020.
Financial Instruments
The estimated fair values of financial instruments are determined using available market information and appropriate
valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair values. The use of
different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.
Accordingly, estimated fair values are not necessarily indicative of the amounts that could be realized in current market
exchanges.
F-21 Derivative Instruments
At times, we may use derivative instruments to manage exposure to variable interest rate risk. We may enter into interest
rate swaps to manage our exposure to variable interest rate risk. If and when we enter into derivative instruments, we ensure
that such instruments qualify as cash flow hedges and would not enter into derivative instruments for speculative purposes.
Any interest rate swaps associated with our cash flow hedges are recorded at fair value on a recurring basis. We assess
effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value
of the interest rate swaps associated with our cash flow hedges is recorded in accumulated other comprehensive income (loss)
and is subsequently reclassified into interest expense as interest is incurred on the related variable rate debt. Our cash flow
hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as
notional amounts, settlement dates, reset dates, calculation period and LIBOR or Secured Overnight Financing Rate. In
addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty. When
ineffectiveness exists, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow
hedges is recognized in earnings in the period affected. See the discussion under Note 8 for certain quantitative details related to
interest rate swaps and for a discussion on how we value derivative financial instruments.
Cash and Cash Equivalents
We define cash and cash equivalents as cash on hand, demand deposits with financial institutions and short term liquid
investments with an initial maturity of less than 3 months. Cash balances in individual banks may exceed the federally insured
limit of $250,000 by the Federal Deposit Insurance Corporation (the "FDIC"). No losses have been experienced related to such
accounts. At December 31, 2022 and December 31, 2021, we had $39.9 million and $62.2 million, respectively, in excess of the
FDIC insured limit. At December 31, 2022 and December 31, 2021, we had $0.5 million and $70.8 million, respectively, in
money market funds that are not FDIC insured.
Restricted Cash
Restricted cash consists of amounts held by lenders to provide for future real estate tax expenditures, insurance
expenditures and reserves for capital improvements. As of December 31, 2022 and 2021, we had no restricted cash.
Other Assets
Other assets consist primarily of lease costs, lease incentives, acquired in-place leases and acquired above market leases.
Capitalized lease costs are direct costs incurred which were essential to originate a lease and would not have been incurred had
the leasing transaction not taken place and include third party commissions related to obtaining a lease. Capitalized lease costs
are amortized over the life of the related lease and included in depreciation and amortization expense on the statement of
comprehensive income. If a tenant vacates its space prior to the contractual termination of its lease, the unamortized balance of
any lease costs are written off. We view these lease costs as part of the up-front initial investment we made in order to generate
a long-term cash inflow. Therefore, we classify cash outflows for lease costs as an investing activity in our consolidated
statements of cash flows.
Variable Interest Entities
Certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling
financial interest qualify as variable interest entities (“VIEs”). VIEs are required to be consolidated by their primary
beneficiary. The primary beneficiary of a VIE is the party that has a controlling interest in the VIE. Identifying the party with
the controlling interest requires a focus on which entity has the power to direct the activities of the VIE that most significantly
impact the VIE's economic performance and (1) the obligation to absorb the expected losses of the VIE or (2) the right to
receive the benefits from the VIE. At December 31, 2022 and December 31, 2021 we had no investments in real estate joint
ventures, and no other interests in VIEs to be evaluated for consolidated.
Stock-Based Compensation
We grant stock-based compensation awards to our employees and directors typically in the form of restricted shares of
common stock, options to purchase common stock and/or shares of common stock. For the grants of market-based restricted
stock awards in December 2019 (the “2019 grant”) and December 2020 grant (the “2020 grant”), we measure stock-based
compensation expense based on the fair value of the award on the grant date and recognize the expense ratably over the vesting
period.
F-22 For the grants of performance and market-based restricted stock awards in December 2021 (the “2021 grant”) and
December 2022 (the "2022 grant"), we measure stock-based compensation expense based on the fair value of the award on the
grant date, adjusted for changes to probabilities of achieving performance targets, and recognize expense ratably over the
vesting period.
Modifications of stock-based compensation awards are treated as an exchange of the original award for a new award with
the resulting total compensation cost equal to the grant-date fair value of the original award plus the incremental value of the
modification to the award. The calculation of the incremental value is based on the excess of the fair value of the new
(modified) award based on current circumstances over the fair value of the original award measured immediately before its
terms are modified. For the year ended December 31, 2022, 2021 and 2020, we incurred incremental compensation cost of
approximately $1.4 million, $2.6 million and $1.2 million respectively, related to the discretionary vesting of previously
granted restricted stock awards that did not meet the original vesting criteria.
Deferred Compensation
Our Operating Partnership has adopted the American Assets Trust Executive Deferral Plan V (“EDP V”) and the
American Assets Trust Executive Deferral Plan VI (“EDP VI”). These plans were adopted by our Operating Partnership as
successor plans to those deferred compensation plans maintained by American Assets, Inc. ("AAI") in which certain employees
of AAI, who were transferred to us in connection with the Offering (the “Transferred Participants”), participated prior to the
Offering. EDP V and EDP VI contain substantially the same terms and conditions as these predecessor plans. AAI transferred
to our Operating Partnership the Transferred Participants' account balances under the predecessor plans. These transferred
account balances represent amounts deferred by the Transferred Participants prior to the Offering while they were employed by
AAI.
At the time eligible participants defer compensation, we record compensation cost and a corresponding deferred
compensation plan liability, which is included in other liabilities and deferred credits on our consolidated balance sheets. This
liability is adjusted to fair value at the end of each accounting period based on the performance of the benchmark funds selected
by each participant, and the impact of adjusting the liability to fair value is recorded as an increase or decrease to compensation
cost.
Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with
the taxable year ended December 31, 2011. To maintain our qualification as a REIT, we are required to distribute at least 90%
of our REIT taxable income to our stockholders and meet the various other requirements imposed by the Code relating to such
matters as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided we maintain our
qualification for taxation as a REIT, we are generally not subject to corporate level income tax on the earnings distributed
currently to our stockholders. If we fail to maintain our qualification as a REIT in any taxable year, and are unable to avail
ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to regular U.S. federal
income tax. We are subject to certain state and local income taxes.
We, together with one of our subsidiaries, have elected to treat such subsidiary as a taxable REIT subsidiary (a “TRS”)
for federal income tax purposes. Certain activities that we undertake must be conducted by a TRS, such as non-customary
services for our tenants, and holding assets that we cannot hold directly. A TRS is subject to federal and state income taxes.
Segment Information
Segment information is prepared on the same basis that our management reviews information for operational decision-
making purposes. We operate in four reportable segments: the acquisition, redevelopment, ownership and management of
office real estate, retail real estate, multifamily real estate and mixed-use real estate. The products for our retail segment
primarily include rental of retail space and other tenant services, including tenant reimbursements, parking and storage space
rental. The products for our office segment primarily include rental of office space and other tenant services, including tenant
reimbursements, parking and storage space rental. The products for our multifamily segment include rental of apartments and
other tenant services. The products of our mixed-use segment include rental of retail space and other tenant services, including
tenant reimbursements, parking and storage space rental and operation of a 369-room all-suite hotel.
F-23 Recent Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides companies
with optional practical expedients to ease the accounting burden for contract modifications associated with transitioning away
from LIBOR and other interbank offered rates that are expected to be discontinued as part of reference rate reform. For hedges,
the guidance generally allows changes to the reference rate and other critical terms without having to de-designate the hedging
relationship, as well as allows the shortcut method to continue to be applied. For contract modifications, changes in the
reference rate or other critical terms will be treated as a continuation of the prior contract. This guidance can be applied
immediately, however, is generally only available with a newly proposed sunset date of December 31, 2024. We are still
evaluating the impact of reference rate reform and whether we will apply any of these practical expedients.
NOTE 2. REAL ESTATE
A summary of our real estate investments is as follows (in thousands):
December 31, 2022
Land
Buildings
Land improvements
Tenant improvements
Furniture, fixtures, and equipment
Construction in progress (1)
Retail
Office
Multifamily
Mixed-Use
Total
$
254,016 $
298,007 $
72,668 $
76,635 $
701,326
529,589
1,316,916
397,731
129,470
2,373,706
49,512
92,225
1,290
7,471
15,284
221,163
5,530
151,734
8,132
—
19,059
3,739
2,606
2,353
15,427
912
75,534
315,741
41,306
163,856
934,103
2,008,634
501,329
227,403
3,671,469
Accumulated depreciation
(354,884)
(393,155)
(130,336)
(58,538)
(936,913)
Net real estate
December 31, 2021
Land
Buildings
Land improvements
Tenant improvements
Furniture, fixtures, and equipment
Construction in progress (1)
Accumulated depreciation
Net real estate
$
$
579,219 $
1,615,479 $
370,993 $
168,865 $
2,734,556
254,016 $
284,263 $
72,668 $
76,635 $
687,582
527,262
1,270,131
393,713
129,226
2,320,332
47,425
89,520
1,098
7,160
14,269
218,639
5,003
87,340
7,764
—
18,039
4,448
2,606
2,366
15,416
364
72,064
310,525
39,556
99,312
926,481
1,879,645
496,632
226,613
3,529,371
(335,374)
(343,433)
(115,317)
(53,266)
(847,390)
$
591,107 $
1,536,212 $
381,315 $
173,347 $
2,681,981
(1) Land related to held for development and construction in progress is included in the Held for Development and Construction in Progress classifications on
the consolidated balance sheets.
Property Asset Acquisitions
On July 7, 2021, we acquired Eastgate Office Park, consisting of an approximately 280,000 square feet, multi-tenant
office campus in Bellevue, Washington. The purchase price was approximately $125 million, excluding closing costs of
approximately $0.2 million. The property was acquired with cash on hand.
On September 10, 2021, we acquired Corporate Campus East III in Bellevue, Washington, consisting of an approximately
161,000 square feet, multi-tenant office campus. The purchase price was approximately $84 million, less seller credits of (i)
approximately $1.1 million of future rent abatement (ii) approximately $2.1 million of contractual tenant improvements and
closing costs of approximately $0.1 million. The property was acquired with cash on hand.
F-24
On March 8, 2022, we acquired Bel-Spring 520 in Bellevue, Washington, consisting of an approximately 93,000 square
feet, multi-tenant office campus. The purchase price was $45.5 million, less seller credits of approximately $0.1 million of
future rent abatement, and approximately $0.6 million of contractual tenant improvements. Additionally, closing costs were
approximately $0.1 million.
The financial information set forth below summarizes the company’s purchase price allocation for Bel-Spring 520 during
the year ended December 31, 2022 (in thousands):
Bel-Spring 520
Land
Building
Land improvements
Furniture, fixtures, and equipment
Total real estate
Lease intangibles
Prepaid expenses and other assets
Assets acquired
Accounts payable and accrued expenses
Security deposits payable
Other liabilities and deferred credits
Liabilities assumed
$
$
$
$
13,744
27,793
713
1,833
44,083
2,036
10
46,129
(14)
(189)
(641)
(844)
The value allocated to lease intangibles is amortized over the related lease term as depreciation and amortization
expense in the statement of comprehensive income. The remaining weighted average amortization period as of December 31,
2022, is 3 years.
The following table summarizes the operating results for Bel-Spring 520 included in the company's historical consolidated
statement of operations for the period of acquisition through December 31, 2022 (in thousands):
Revenues
Operating expenses
Operating income
Net income attributable to American Assets Trust, Inc.
Bel-Spring 520
2,512
2,417
95
95
$
$
NOTE 3. ACQUIRED IN-PLACE LEASES AND ABOVE/BELOW MARKET LEASES
The following summarizes our acquired lease intangibles, which are included in other assets and other liabilities and
deferred credits (in thousands):
In-place leases
Accumulated amortization
Above market leases
Accumulated amortization
Acquired lease intangible assets, net
Below market leases
Accumulated accretion
Acquired lease intangible liabilities, net
December 31, 2022
$
58,119 $
(34,593)
1,885
(1,778)
23,633 $
52,832 $
(33,168)
19,664 $
December 31, 2021
67,215
(38,130)
2,532
(2,383)
29,234
58,655
(36,253)
22,402
$
$
$
F-25
The value allocated to in-place leases is amortized over the related lease term as depreciation and amortization expense in
the statement of comprehensive income. Above and below market leases are amortized over the related lease term as additional
rental income for below market leases or a reduction of rental income for above market leases in the statement of
comprehensive income. Rental income (loss) includes net amortization from acquired above and below market leases of $3.3
million, $3.2 million and $3.9 million in 2022, 2021 and 2020, respectively. The remaining weighted-average amortization
period as of December 31, 2022, is 5.9 years, 2.8 years and 10.5 years for in-place leases, above market leases and below
market leases, respectively. Below market leases include $10.2 million related to below market renewal options, and the
weighted-average period prior to the commencement of the renewal options is 7.6 years.
Increases (decreases) in net income as a result of amortization of our in-place leases, above market leases and below
market leases are as follows (in thousands):
Amortization of in-place leases
Amortization of above market leases
Amortization of below market leases
Year Ended December 31,
2022
2021
2020
$
$
(7,188) $
(41)
3,348
(3,881) $
(6,664) $
(34)
3,271
(3,427) $
(5,018)
(62)
3,994
(1,086)
As of December 31, 2022, the amortization for acquired leases during the next five years and thereafter, assuming no
early lease terminations, is as follows (in thousands):
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
In-Place
Leases
Above Market
Leases
Below Market
Leases
$
4,914 $
41 $
4,499
3,742
3,387
3,012
3,972
38
25
3
—
—
3,109
2,742
2,200
1,776
1,460
8,376
$
23,526 $
107 $
19,664
NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability.
The hierarchy for inputs used in measuring fair value is as follows:
1. Level 1 Inputs—quoted prices in active markets for identical assets or liabilities
2. Level 2 Inputs—observable inputs other than quoted prices in active markets for identical assets and liabilities
3. Level 3 Inputs—unobservable inputs
The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued
liabilities are reasonable estimates of fair value, using Level 1 inputs, because of the short-term nature of these instruments. In
certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is
significant to the fair value measurement.
We measure the fair value of our deferred compensation liability, which is included in other liabilities and deferred
credits on the consolidated balance sheet, on a recurring basis using Level 2 inputs. We measure the fair value of this liability
based on prices provided by independent market participants that are based on observable inputs using market-based valuation
techniques.
F-26
The fair value of the interest rate swap agreements are based on the estimated amounts we would receive or pay to
terminate the contract at the reporting date and are determined using interest rate pricing models and interest rate related
observable inputs. The changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in
accumulated other comprehensive income (loss) and will be subsequently reclassified into earnings during the period in which
the hedged forecasted transaction affects earnings.
We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the
respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative
contracts for the effect of non-performance risk, we considered the impact of netting and any applicable credit enhancements,
such as collateral postings, thresholds, mutual puts, and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair
value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of
current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2022
we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative
position and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivative.
As a result, we have determined that our derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.
A summary of our financial liabilities that are measured at fair value on a recurring basis by level within the fair value
hierarchy is as follows (in thousands):
December 31, 2022
December 31, 2021
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Deferred compensation liability
Interest rate swap asset
Interest rate swap liability
$
$
$
— $ 2,411 $
— $ 2,411 $
— $ 2,503 $
— $ 2,503
— $ 9,986 $
— $ 9,986 $
— $
— $
— $
—
— $
196 $
— $
196 $
— $ 1,807 $
— $ 1,807
The fair value of our secured notes payable and unsecured notes payable is sensitive to fluctuations in interest rates.
Discounted cash flow analysis (Level 2) is generally used to estimate the fair value of our mortgages and notes payable, using
rates ranging from 5.3% to 6.5%.
Considerable judgment is necessary to estimate the fair value of financial instruments. The estimates of fair value
presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial
instruments. The carrying values of our line of credit and term loan set forth below are deemed to be at fair value since the
outstanding debt is directly tied to monthly LIBOR or SOFR contracts. A summary of the carrying amount and fair value of our
financial instruments, all of which are based on Level 2 inputs, is as follows (in thousands):
Secured notes payable
Unsecured term loan
Unsecured senior guaranteed notes
Senior unsecured notes, net
Unsecured line of credit
December 31, 2022
December 31, 2021
Carrying Value
Fair Value
Carrying Value
Fair Value
$
$
$
$
$
74,578 $
249,428 $
75,129 $
250,000 $
110,965 $
249,654 $
798,362 $
761,470 $
797,953 $
491,663 $
403,500 $
490,631 $
34,057 $
36,000 $
— $
113,207
250,000
832,795
503,000
—
F-27
NOTE 5. OTHER ASSETS
Other assets consist of the following (in thousands):
Leasing commissions, net of accumulated amortization of $43,078 and $40,595,
respectively
Interest rate swap asset
Acquired above market leases, net
Acquired in-place leases, net
Lease incentives, net of accumulated amortization of $1,012 and $913, respectively
Other intangible assets, net of accumulated amortization of $1,549 and $1,382,
respectively
Right-of-use lease asset, net
Prepaid expenses, deposits and other
Total other assets
December 31, 2022
December 31, 2021
$
38,436 $
38,589
9,986
107
23,526
1,296
2,165
23,921
9,277
—
149
29,085
595
2,445
26,254
9,136
$
108,714 $
106,253
Lease incentives are amortized over the term of the related lease and included as a reduction of rental income in the
statement of comprehensive income.
NOTE 6. OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits consist of the following (in thousands):
December 31, 2022
December 31, 2021
Acquired below market leases, net
Prepaid rent and deferred revenue
Interest rate swap liability
Straight-line rent liability
Deferred compensation
Deferred tax liability
Lease liability
Other liabilities
$
19,664 $
17,971
196
12,746
2,411
852
25,676
61
Total other liabilities and deferred credits, net
$
79,577 $
22,402
16,309
1,807
14,274
2,503
967
27,917
36
86,215
Straight-line rent liability relates to leases which have rental payments that decrease over time or one-time upfront
payments for which the rental revenue is deferred and recognized on a straight-line basis.
F-28
NOTE 7. DEBT
Debt of American Assets Trust, Inc.
American Assets Trust, Inc. does not hold any indebtedness. All debt is held directly or indirectly by the Operating
Partnership; however, American Assets Trust, Inc. has guaranteed the Operating Partnership's obligations under the (i) amended
and restated credit facility, (ii) term loans, (iii) senior guaranteed notes, and (iv) senior unsecured notes.
Debt of American Assets Trust, L.P.
Secured notes payable
The following is a summary of the Operating Partnership's total secured notes payable outstanding as of December 31,
2022 and December 31, 2021 (in thousands):
Description of Debt
City Center Bellevue (1)
City Center Bellevue (1)
Debt issuance costs, net of accumulated
amortization of $452 and $387,
respectively
Total Secured Notes Payable
(1)
Interest only.
Principal Balance as of
Stated Interest Rate
December 31, 2022
December 31, 2021
as of December 31, 2022
Stated Maturity Date
—
75,000
75,000
111,000
—
111,000
3.98 % November 1, 2022
5.08 %
October 1, 2027
(422)
(35)
$
74,578 $
110,965
On September 16, 2022, the Operating Partnership repaid in full, without premium or penalty, the $111 million principal
balance of the mortgage on City Center Bellevue. Concurrent therewith, the Operating Partnership entered into a new
$75 million non-recourse mortgage on City Center Bellevue. The new five-year mortgage has a maturity date of October 1,
2027, bears interest at a fixed rate per annum of 5.08% (interest only) and is secured by a first-priority deed of trust on City
Center Bellevue and an assignment of all leases, rents and security deposits related to City Center Bellevue.
Additionally, the Operating Partnership has provided a carve-out guarantee on the new mortgage at City Center
Bellevue. Certain loans require the Operating Partnership to comply with various financial covenants. As of December 31,
2022, the Operating Partnership was in compliance with these financial covenants.
Certain loans require the Operating Partnership to comply with various financial covenants, including the maintenance of
minimum debt coverage ratios. As of December 31, 2022, we were in compliance with all loan covenants.
F-29
Unsecured notes payable
The following is a summary of the Operating Partnership's total unsecured notes payable outstanding as of December 31,
2022 and December 31, 2021 (in thousands):
Description of Debt
Term Loan A
Term Loan B
Term Loan C
Senior Guaranteed Notes, Series F
Senior Guaranteed Notes, Series B
Senior Guaranteed Notes, Series C
Senior Guaranteed Notes, Series D
Senior Guaranteed Notes, Series E
Senior Guaranteed Notes, Series G
3.375% Senior Unsecured Notes
Principal Balance as of
December 31, 2022
December 31, 2021
Stated Interest Rate
as of December 31,
2022
$
100,000 $
100,000
50,000
100,000
100,000
100,000
250,000
100,000
150,000
500,000
100,000
100,000
50,000
100,000
100,000
100,000
250,000
100,000
150,000
500,000
Variable (1)
Variable (3)
Variable (4)
3.78 % (5)
4.45 %
4.50 %
4.29 % (6)
4.24 % (7)
3.91 % (8)
3.38 %
Stated Maturity Date
January 5, 2027
March 1, 2023 (2)
March 1, 2023 (2)
July 19, 2024
February 2, 2025
April 1, 2025
March 1, 2027
May 23, 2029
July 30, 2030
February 1, 2031
Debt discount and issuance costs, net of
accumulated amortization of $11,709
and $9,462, respectively
Total Unsecured Notes Payable
$
1,550,000
1,550,000
(10,547)
1,539,453 $
(11,762)
1,538,238
(1) The Operating Partnership has entered into two interest rate swap agreements that are intended to fix the interest rate associated with Term Loan A at
approximately 2.70% through its maturity date, subject to adjustments based on our consolidated leverage ratio.
(2) On January 5, 2023, we extended Term Loan B and Term Loan C to a maturity date of January 5, 2025 with one, twelve-month extension option and
increased the fully drawn borrowings thereunder to $150 million and $75 million, respectively.
(3) The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan B at
approximately 3.15% through its maturity date, subject to adjustments based on our consolidated leverage ratio. Effective March 1, 2018, the effective
interest rate associated with Term Loan B is approximately 2.65% through November 30, 2022, subject to adjustments based on our consolidated leverage
ratio. The interest rate swap agreement was terminated as of November 30, 2022. As such, the variable interest paid from December 1, 2022 through
December 31, 2022 was 5.32%.
(4) The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan C at
approximately 3.14% through its maturity date, subject to adjustments based on our consolidated leverage ratio. Effective March 1, 2018, the effective
interest rate associated with Term Loan C is approximately 2.64% through November 30, 2022, subject to adjustments based on our consolidated leverage
ratio. The interest rate swap agreement was terminated as of November 30, 2022. As such, the variable interest paid from December 1, 2022 through
December 31, 2022 was 5.32%.
(5) The Operating Partnership entered into a treasury lock contract on May 31, 2017, which was settled on June 23, 2017 at a loss of approximately $0.5
million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.85%
per annum.
(6) The Operating Partnership entered into forward-starting interest rate swap contracts on March 29, 2016 and April 7, 2016, which were settled on January
18, 2017 at a gain of approximately $10.4 million. The forward-starting interest swap rate contracts were deemed to be highly effective cash flow hedges,
accordingly, the effective interest rate is approximately 3.87% per annum.
(7) The Operating Partnership entered into a treasury lock contract on April 25, 2017, which was settled on May 11, 2017 at a gain of approximately $0.7
million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 4.18%
per annum.
(8) The Operating Partnership entered into a treasury lock contract on June 20, 2019, which was settled on July 17, 2019 at a gain of approximately $0.5
million. The treasury lock contract was deemed to be a highly effective cash flow hedge, accordingly, the effective interest rate is approximately 3.88%
per annum.
F-30
Senior Unsecured Notes
On January 26, 2021, the Operating Partnership issued $500 million of senior unsecured notes (the "3.375% Senior
Notes") that mature February 1, 2031 and bear interest at 3.375% per annum. The 3.375% Senior Notes were priced at 98.935%
of the principal amount with a yield to maturity of 3.502%. The net proceeds of the 3.375% Senior Notes, after the issuance
discount, underwriting fees, and other costs were approximately $489.7 million, which were primarily used to (i) prepay our
$150 million Senior Guaranteed Notes, Series A, with a make-whole payment (as defined in the Note Purchase Agreement for
the Series A Notes) thereon of approximately $3.9 million, on January 26, 2021, (ii) repay our $100 million then outstanding
balance under our Revolver Loan on January 26, 2021, (iii) fund the development of the La Jolla Commons III office building
and (iv) for general corporate purposes.
Term Loan Agreement
On March 1, 2016, the Operating Partnership entered into a Term Loan Agreement with each lender from time to time
party thereto, and U.S. Bank National Association, as Administrative Agent (as amended, the “Term Loan Agreement”). The
Term Loan Agreement provides for a new, seven years unsecured term loan to the Operating Partnership of $100 million that
matures on March 1, 2023 (“Term Loan B”). Concurrent with the closing of the Term Loan Agreement, the Operating
Partnership drew down the entirety of Term Loan B.
On May 2, 2016, the Operating Partnership entered into a Joinder and First Amendment to the Term Loan Agreement to
provide for a new lender to fund an incremental term loan. The Joinder and First Amendment provides for a new, seven years
unsecured term loan to the Operating Partnership of $50 million that matures on March 1, 2023 ("Term Loan C"). Term Loan
C has the same borrowing terms as the Term Loan Agreement noted below. Concurrent with the closing of the Joinder and First
Amendment, the Operating Partnership drew down the entirety of Term Loan C.
Borrowings under the Term Loan Agreement with respect to Term Loan B and Term Loan C bear interest at floating rates
equal to, at our option, either (1) LIBOR, plus a spread which ranges from 1.70% to 2.35% based on our consolidated leverage
ratio, or (2) a base rate equal to the highest of (a) 0%, (b) the prime rate, (c) the federal funds rate plus 50 bps or (d) the
Eurodollar rate plus 100 bps, in each case plus a spread which ranges from 0.70% to 1.35% based on our consolidated leverage
ratio. The company entered into interest rate swap agreements intended to fix the interest rates associated with Term Loan B
and Term Loan C at approximately 3.15% and 3.14%, respectively, through the maturity dates, subject to adjustments based on
our consolidated leverage ratio.
The Term Loan Agreement contains a number of customary financial covenants, including, without limitation, tangible
net worth thresholds, secured and unsecured leverage ratios and fixed charge coverage ratios. Subject to the terms of the Term
Loan Agreement, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal or
interest under Term Loan B or Term Loan C, and (ii) a default in the payment of certain other indebtedness of the Operating
Partnership, the company or their subsidiaries, the principal and accrued and unpaid interest and prepayment penalties on the
outstanding Term Loan B or Term Loan C will become due and payable at the option of the lenders.
On January 9, 2018, we entered into the Third Amendment (“Third Amendment”) to the Term Loan Agreement, which
maintains the $150 million unsecured term loan (Term Loan B and Term Loan C) to the Operating Partnership that matures on
March 1, 2023 (the “$150mm Term Loan”). Effective as of March 1, 2018, borrowings under the Term Loan Agreement with
respect to the $150mm Term Loan bear interest at floating rates equal to, at the Operating Partnership’s option, either (1)
LIBOR, plus a spread which ranges from 1.20% to 1.70% based on the Operating Partnership’s consolidated leverage ratio, or
(2) a base rate equal to the highest of (a) 0%, (b) the prime rate, (c) the federal funds rate plus 50 bps or (d) the Eurodollar rate
plus 100 bps, in each case plus a spread which ranges from 0.70% to 1.35% based on the Operating Partnership’s consolidated
leverage ratio. The foregoing rates are intended to be more favorable than previously contained in the Term Loan Agreement.
Additionally, the Operating Partnership may elect for borrowings to bear interest based on a ratings-based pricing grid as per
the Operating Partnership’s then-applicable investment grade debt ratings under the terms set forth in the Term Loan
Agreement.
On January 5, 2023, we entered into the Amended and Restated Term Loan Agreement, which increased the aggregate
unsecured borrowings from $150 million to $225 million and extended the maturity date of Term Loan B and Term Loan C
from March 1, 2023 to January 5, 2025, with one, twelve-month extension option, subject to certain conditions. Borrowings
under the Amended and Restated Term Loan Agreement bear interest at floating rates equal to, at the Operating Partnership’s
F-31 option, either (1) the applicable Secured Overnight Financing Rate (“SOFR”), plus a SOFR adjustment and a spread (based on
the Operating Partnership’s consolidated leverage ratio and applicable year of Term Loan B and Term Loan C) ranging from
1.20% to 1.90%, or (2) a base rate equal to the highest of (a) 0%, (b) the prime rate, (c) the federal funds rate plus 50 bps and
(d) the one-month SOFR, plus a SOFR adjustment and 100 bps, plus, in each case, a spread (based on the Operating
Partnership’s consolidated leverage ratio and applicable year of the Term Loan B and Term Loan C) ranging from 0.20% to
0.90%. Additionally, the Operating Partnership may elect for borrowings to bear interest based on a ratings-based pricing grid
based on the Operating Partnership’s then-applicable investment grade debt ratings under the terms set forth in the Amended
and Restated Term Loan Agreement.
Prior to entering into the Amended and Restated Term Loan Agreement, the Operating Partnership entered into interest
rate swaps that are intended to fix the interest rate associated with Term Loan B and Term Loan C at approximately (1) 5.47%
for the first year of Term Loan B and Term Loan C and (2) 5.57% for the second year of Term Loan B and Term Loan C,
subject to adjustments based on the Company’s consolidated leverage ratio.
Senior Guaranteed Notes
On October 31, 2014, the Operating Partnership entered into a note purchase agreement (the "Note Purchase Agreement")
with a group of institutional purchasers that provided for the private placement of an aggregate of $350 million of senior
guaranteed notes, of which (i) $150 million are designated as 4.04% Senior Guaranteed Notes, Series A, due October 31, 2021
(the “Series A Notes”), (ii) $100 million are designated as 4.45% Senior Guaranteed Notes, Series B, due February 2, 2025 (the
“Series B Notes”) and (iii) $100 million are designated as 4.50% Senior Guaranteed Notes, Series C, due April 1, 2025 (the
“Series C Notes”). The Series A Notes were issued on October 31, 2014, the Series B Notes were issued on February 2, 2015
and the Series C Notes were issued on April 2, 2015. The Series A Notes, the Series B Notes and the Series C Notes will pay
interest quarterly on the last day of January, April, July and October until their respective maturities. On January 26, 2021, we
repaid the entirety of the $150.0 million Series A Notes with a make-whole payment (as defined in the Note Purchase
Agreement) of approximately $3.9 million.
On March 1, 2017, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $250
million of 4.29% Senior Guaranteed Notes, Series D, due March 1, 2027 (the "Series D Notes"). The Series D Notes were
issued on March 1, 2017 and will pay interest quarterly on the last day of January, April, July and October until their respective
maturities.
On May 23, 2017, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $100
million of 4.24% Senior Guaranteed Notes, Series E, due May 23, 2029 (the "Series E Notes"). The Series E Notes were issued
on May 23, 2017 and will pay interest semi-annually on the 23rd of May and November until their respective maturities.
On July 19, 2017, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $100
million of 3.78% Senior Guaranteed Notes, Series F, due July 19, 2024 (the "Series F Notes"). The Series F Notes were issued
on July 19, 2017 and will pay interest semi-annually on the 31st of January and July until their respective maturities.
On July 30, 2019, the Operating Partnership entered into a Note Purchase Agreement for the private placement of $150
million of 3.91% Senior Guaranteed Notes, Series G, due July 30, 2030 (the "Series G Notes" and collectively with the Series A
Notes, Series B Notes, Series C Notes, Series D Notes, Series E Notes, and Series G Notes are referred to herein as, the
“Notes".) The Series G Notes were issued on July 30, 2019 and will pay interest semi-annually on the 30th of July and January
until their maturity.
The Operating Partnership may prepay at any time all, or from time to time any part of, the Notes, in an amount not less
than 5% of the aggregate principal amount of any series of the Notes then outstanding in the case of a partial prepayment, at
100% of the principal amount so prepaid plus a Make-Whole Amount.
The Note Purchase Agreements contain a number of customary financial covenants, including, without limitation, tangible
net worth thresholds, secured and unsecured leverage ratios and fixed charge coverage ratios. Subject to the terms of the Note
Purchase Agreement and the Notes, upon certain events of default, including, but not limited to, (i) a default in the payment of
any principal, Make-Whole Amount or interest under the Notes, and (ii) a default in the payment of certain other indebtedness
by us or our subsidiaries, the principal, accrued and unpaid interest, and the Make-Whole Amount on the outstanding Notes will
become due and payable at the option of the purchasers.
F-32 The Operating Partnership's obligations under the Notes are fully and unconditionally guaranteed by the Operating
Partnership and certain of the Operating Partnership's subsidiaries.
Certain loans require the Operating Partnership to comply with various financial covenants, including the maintenance of
minimum debt coverage ratios. As of December 31, 2022, the Operating Partnership was in compliance with all loan covenants.
Scheduled principal payments on secured and unsecured notes payable as of December 31, 2022 are as follows (in
thousands):
2023 (1)
2024
2025
2026
2027
Thereafter
$
150,000
100,000
200,000
—
425,000
750,000
$
1,625,000
(1) On January 5, 2023, we entered into a $225 million Amended and Restated Term Loan Agreement, which increased the aggregate unsecured borrowings
from $150 million to $225 million and extended the maturity date of the Term Loans B & C from March 1, 2023 to January 5, 2025, with one, twelve-
month extension option, subject to certain conditions.
Credit Facility
On January 9, 2014, the company and the Operating Partnership entered into an amended and restated credit agreement
(the "Prior Credit Facility"), or the amended and restated credit facility, which amended and restated the then in-place credit
facility. The amended and restated credit facility provides for aggregate, unsecured borrowing of $350 million, consisting of a
revolving line of credit of $250 million (the "Prior Revolver Loan") and a term loan of $100 million ("Term Loan A"). The
Prior Credit Facility had an accordion feature that allowed the Operating Partnership to increase the availability thereunder up
to an additional $250 million, subject to meeting specified requirements and obtaining additional commitments from lenders.
On October 16, 2014, we entered into a first amendment to the Prior Credit Agreement that amended provisions of the
Prior Credit Agreement to, among other things, (1) describe the treatment of our pari passu obligations under the amended and
restated credit agreement and (2) remove the material acquisition provisions previously set forth in the Prior Credit Agreement.
Borrowings under the Prior Credit Facility initially bore interest at floating rates equal to, at our option, either (1) LIBOR,
plus a spread which ranges from (a) 1.35%-1.95% (with respect to the Prior Revolver Loan) and (b) 1.30% to 1.90% (with
respect to Term Loan A), in each case based on our consolidated leverage ratio, or (2) a base rate equal to the highest of (a) the
prime rate, (b) the federal funds rate plus 50 bps or (c) the Eurodollar rate plus 100 bps, plus a spread which ranges from (i)
0.35%-0.95% (with respect to the Prior Revolver Loan) and (ii) 0.30% to 0.90% (with respect to Term Loan A), in each case
based on our consolidated leverage ratio. The foregoing rates were more favorable than previously contained in the credit
agreement in place as of December 31, 2013. If American Assets Trust, Inc. obtained an investment grade debt rating, under the
terms set forth in the Prior Credit Facility, the spreads would further improve.
The Prior Revolver Loan initially matured on January 9, 2018, subject to the Operating Partnership's option to extend the
Prior Revolver Loan up to two times, with each such extension for a six months period. Term Loan A initially matured on
January 9, 2016, subject to our option to extend Term Loan A up to three times, with each such extension for a 12-month
period. The foregoing extension options were exercisable by us subject to the satisfaction of certain conditions. Effective as of
January 8, 2018, the Operating Partnership exercised the third of three options to extend the maturity date of Term Loan A to
January 9, 2019.
Concurrent with the closing of the Prior Credit Facility, the Operating Partnership drew down on the entirety of the $100
million Term Loan, which remains outstanding and is included in unsecured notes payable as discussed above.
The Prior Credit Facility provided that American Assets Trust, Inc.'s annual distributions may not exceed the greater of
(1) 95% of our funds from operations (“FFO”) or (2) the amount required for us to (a) qualify and maintain our REIT status and
(b) avoid the payment of federal or state income or excise tax. If certain events of default exist or would result from a
F-33
distribution, we may be precluded from making distributions other than those necessary to qualify and maintain our status as a
REIT.
American Assets Trust, Inc. and certain of its subsidiaries guaranteed the obligations under the Prior Credit Agreement,
and certain of its subsidiaries pledged specified equity interests in our subsidiaries as collateral for our obligations under the
Prior Credit Facility.
On January 9, 2018, we entered into a second amended and restated credit agreement (the "Second Amended and Restated
Credit Facility"), which amended and restated the Prior Credit Agreement. The Second Amended and Restated Credit Facility
provided for aggregate, unsecured borrowing of $450 million, consisting of a revolving line of credit of $350 million (the
"Revolver Loan") and a term loan of $100 million (the "Term Loan A"). The Second Amended and Restated Credit Facility had
an accordion feature that would have allowed us to increase the availability thereunder up to an additional $250 million, subject
to meeting specified requirements and obtaining additional commitments from lenders.
Borrowings under the Second Amended and Restated Credit Facility had interest at floating rates equal to, at our option,
either (1) LIBOR, plus a spread which ranges from (a) 1.05% to 1.50% (with respect to the Revolver Loan) and (b) 1.30% to
1.90% (with respect to Term Loan A), in each case based on our consolidated leverage ratio, or (2) a base rate equal to the
highest of (a) the prime rate, (b) the federal funds rate plus 50 bps or (c) LIBOR plus 100 bps, plus a spread which ranges from
(i) 0.10% to 0.50% (with respect to the Revolver Loan) and (ii) 0.30% to 0.90% (with respect to Term Loan A), in each case
based on our consolidated leverage ratio. The foregoing rates were more favorable than previously contained in the Prior Credit
Facility in place as of December 31, 2017.
The Revolver Loan initially matured on January 9, 2022, subject to our option to extend the Revolver Loan up to two
times, with each such extension for a six months period. The extension options are exercisable by us subject to the satisfaction
of certain conditions.
On January 9, 2019, we entered into the first amendment (“First Amendment”) to the Second Amended and Restated
Credit Facility, which extended the maturity date of Term Loan A to January 9, 2021, subject to three, one year extension
options. On October 16, 2020, we exercised an option to extend the maturity date of Term Loan A to January 9, 2022.
Additionally, in connection with the First Amendment, borrowings under the Second Amended and Restated Credit Facility
with respect to Term Loan bear interest at floating rates equal to, at our option, either (1) LIBOR, plus a spread which ranges
from 1.20% to 1.70% based on our consolidated total leverage ratio, or (2) a base rate equal to the highest of (a) the prime rate,
(b) the federal funds rate plus 50 bps or (c) the Eurodollar rate plus 100 bps, in each case plus a spread which ranges from
0.20% to 0.70% based on our consolidated total leverage ratio. The foregoing rates were more favorable than previously
contained in the Second Amended and Restated Credit Facility (prior to entry into the First Amendment) with respect to Term
Loan A.
On January 5, 2022, we entered into the Third Amended and Restated Credit Facility, which provides for aggregate,
unsecured borrowings of up to $500 million, consisting of a revolving line of credit of $400 million (the “2022 Revolver
Loan”) and a term loan of $100 million (the “2022 Term Loan A”). The 2022 Revolver Loan initially matures on January 5,
2026, subject to two, six-month extension options. The 2022 Term Loan A matures on January 5, 2027, with no further
extension options. Borrowings under the Third Amended and Restated Credit Agreement bear interest at floating rates equal to,
at the Operating Partnership’s option, either (1) the applicable Secured Overnight Financing Rate (“SOFR”), plus the applicable
SOFR Adjustment and a spread which ranges from (a) 1.05%-1.50% (with respect to the 2022 Revolver Loans) and (b) 1.20%
to 1.70% (with respect to the 2022 Term Loan A), in each case based on our consolidated leverage ratio, or (2) a base rate equal
to the highest of (a) the prime rate, (b) the federal funds rate plus 50 bps, (c) the Term SOFR Screen Rate with a term of one
month plus 100 bps and (d) 1.00%, plus a spread which ranges from (i) 0.10%-0.50% (with respect to 2022 Revolver Loan) and
(ii) 0.20% to 0.70% (with respect to the 2022 Term Loan A), in each case based on our consolidated leverage ratio. Note that on
January 14, 2022, the Operating Partnership entered into an interest rate swap agreement that is intended to fix the interest rate
associated with the 2022 Term Loan A at approximately 2.70% through January 5, 2027, subject to adjustments based on our
consolidated leverage ratio. At December 31, 2022, there was $36 million outstanding under the 2022 Revolver Loan.
Approximately $1.9 million of net debt issuance costs are included in the unsecured line of credit, net on the balance sheet. For
the year ended December 31, 2022, the weighted average interest rate on the 2022 Revolver Loan was 4.38%.
Additionally, the Third Amended and Restated Credit Facility included a number of customary financial covenants that
were unchanged from the Second Amended and Restated Credit Facility, including:
F-34
•
•
•
•
•
•
A maximum leverage ratio (defined as total indebtedness net of certain cash and cash equivalents to total asset
value) of 60%,
A maximum secured leverage ratio (defined as total secured debt to secured total asset value) of 40%,
A minimum fixed charge coverage ratio (defined as consolidated earnings before interest, taxes, depreciation and
amortization to consolidated fixed charges) of 1.50x,
A minimum unsecured interest coverage ratio of 1.75x,
A maximum unsecured leverage ratio of 60%, and
Recourse indebtedness at any time cannot exceed 15% of total asset value.
Consistent with the Second Amended and Restated Credit Facility, the Third Amended and Restated Credit Facility
provided that our annual distributions may not exceed the greater of (1) 95% of our FFO or (2) the amount required for us to (a)
qualify and maintain our REIT status and (b) avoid the payment of federal or state income or excise tax. If certain events of
default exist or would result from a distribution, we may be precluded from making distributions other than those necessary to
qualify and maintain our status as a REIT.
As of December 31, 2022, the Operating Partnership was in compliance with all then in-place Third Amended and
Restated Credit Facility covenants.
F-35 NOTE 8. DERIVATIVE AND HEDGING ACTIVITIES
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest
rate movement. To accomplish these objectives, we use interest rate swaps as part of our interest rate risk management
strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in
exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional
amount.
Concurrent with the closing of our second amended and restated credit facility, we entered into an interest rate swap
agreement that is intended to fix the interest rate associated with our term loan of $100 million at approximately 4.13% through
its original maturity date, subject to adjustments based on our consolidated leverage ratio.
On January 29, 2016, we entered into a forward-starting interest rate swap contract with U.S. Bank National Association
to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective $100 million seven-
year term loan. The forward-starting seven years swap contract had a notional amount of $100 million, a termination date
of March 1, 2023, a fixed pay rate of 1.4485%, and a receive rate equal to the one-month LIBOR, with fixed rate payments due
monthly commencing April 1, 2016, floating payments due monthly commencing April 1, 2016, and floating reset dates two
days prior to the first day of each calculation period. The forward-starting seven-year swap contract accrual period, March 1,
2016 to March 1, 2023, was designed to match the expected tenor of our then prospective $100 million seven years term loan,
which successfully closed on March 1, 2016.
On March 23, 2016, we entered into a forward-starting interest rate swap contract with Wells Fargo Bank, National
Association to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective
incremental $50 million seven-year term loan. The forward-starting seven years swap contract had a notional amount of $50
million, a termination date of March 1, 2023, a fixed pay rate of 1.4410%, and a receive rate equal to the one-month LIBOR,
with fixed rate payments due monthly commencing June 1, 2016, floating payments due monthly commencing June 1, 2016,
and floating reset dates two days prior to the first day of each calculation period. The forward-starting seven-year swap contract
accrual period, May 2, 2016 to March 1, 2023, was designed to match the expected tenor of our then prospective incremental
$50 million seven years term loan, which successfully closed on May 2, 2016.
On March 29, 2016, we entered into a forward-starting interest rate swap contract with Wells Fargo Bank, National
Association to reduce the interest rate variability exposure of the projected interest cash flows of our prospective new ten-year
debt offering (private placement, investment grade bonds, term loan or otherwise) (anticipated to close on or before March 31,
2017). The forward-starting ten years swap contract had a notional amount of $150 million, a termination date of March 31,
2027, a fixed pay rate of 1.8800%, and a receive rate equal to the three-month LIBOR, with fixed rate payments due semi-
annually commencing September 29, 2017, floating payments due semi-annually commencing September 29, 2017, and
floating reset dates the first day of each quarterly period. The forward-starting ten-year swap contract accrual period, March 31,
2017 to March 31, 2027, was designed to match the expected tenor of our prospective new ten years debt offering (private
placement, investment grade bonds, term loan or otherwise).
On April 7, 2016, we entered into a forward-starting interest rate swap contract with Wells Fargo Bank, National
Association to reduce the interest rate variability exposure of the projected interest cash flows of our prospective new ten-year
debt offering (private placement, investment grade bonds, term loan or otherwise) (anticipated to close on or before March 31,
2017). The forward-starting ten years swap contract had a notional amount of $100 million, a termination date of March 31,
2027, a fixed pay rate of 1.7480%, and a receive rate equal to the three-month LIBOR, with fixed rate payments due semi-
annually commencing September 29, 2017, floating payments due semi-annually commencing September 29, 2017, and
floating reset dates the first day of each quarterly period. The forward-starting ten-year swap contract accrual period, March 31,
2017 to March 31, 2027, was designed to match the expected tenor of our prospective new ten years debt offering (private
placement, investment grade bonds, term loan or otherwise).
On January 18, 2017, we settled the March 29, 2016 $150 million and April 7, 2016 $100 million ten-year forward-
starting interest rate swaps resulting in an aggregate gain of approximately $10.4 million. This gain is included in accumulated
other comprehensive income and will be amortized to interest expense over the life of the Series D Notes. The forward-starting
interest rate swap contracts have been deemed to be highly effective cash flow hedges and we elected to designate all the
forward-starting swap contracts as accounting hedges.
F-36 On April 25, 2017, we entered into a treasury lock contract (the "April 2017 Treasury Lock") with Bank of America,
National Association, to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective
new twelve years private placement. The April 2017 Treasury Lock had a notional amount of $100 million, termination date of
May 18, 2017, a fixed pay rate of 2.313%, and a receive rate equal to the ten years treasury rate on the settlement date.
On May 11, 2017, we settled the April 2017 Treasury Lock, resulting in a gain of approximately $0.7 million. This gain is
included in accumulated other comprehensive income and will be amortized to interest expense over ten years. The April 2017
Treasury Lock has been deemed to be a highly effective cash flow hedge and we elected to designate the April 2017 Treasury
Lock as an accounting hedge.
On May 31, 2017, we entered into a treasury lock contract (the "May 2017 Treasury Lock") with Bank of America,
National Association, to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective
new seven years private placement. The May 2017 Treasury Lock had a notional amount of $100 million, termination date of
July 26, 2017, a fixed pay rate of 2.064%, and a receive rate equal to the seven years treasury rate on the settlement date.
On June 23, 2017, we settled the May 2017 Treasury Lock, resulting in a loss of approximately $0.5 million. This loss is
included in accumulated other comprehensive income and will be amortized to interest expense over seven years. The May
2017 Treasury Lock has been deemed to be a highly effective cash flow hedge and we elected to designate the May 2017
Treasury Lock as an accounting hedge.
On November 26, 2018, we entered into an interest rate swap agreement with Bank of America, National Association, to
fix the interest rate associated with Term Loan A associated with our then prospective First Amendment at approximately
4.13% through its maturity date of January 9, 2021, subject to adjustments based on our consolidated leverage ratio.
On June 20, 2019, we entered into a treasury lock contract (the "June 2019 Treasury Lock") with Wells Fargo Bank, N.A.,
to reduce the interest rate variability exposure of the projected interest cash flows of our then prospective eleven-year private
placement. The treasury lock contract has a notional amount of $100 million, termination date of July 31, 2019, a fixed pay rate
of 1.9925%, and a receive rate equal to the ten years treasury rate on the settlement date.
On July 17, 2019, we settled the June 2019 Treasury Lock, resulting in a gain of approximately $0.5 million, which is
included in accumulated other comprehensive income and will be amortized to interest expense over ten years. The treasury
lock contract has been deemed to be a highly effective cash flow hedge and we elected to designate the treasury lock contract as
an accounting hedge.
On August 11, 2020, we entered into a treasury lock contract (the "August 2020 Treasury Lock") with Wells Fargo Bank,
N.A., to reduce the interest rate variability exposure of the projected interest cash flows of a then prospective future financing.
The treasury lock contract had a notional amount of $200 million, termination date of November 12, 2020, a fixed pay rate of
0.7115%, and a receive rate equal to the ten years treasury rate on the settlement date. We determined that there was no
compelling reason from a capital requirement perspective to move forward with the prospective financing at prevailing rates
and, as a result, on October 1, 2020, we settled the August 2020 Treasury Lock, resulting in no gain or loss.
On January 14, 2022, we entered into two separate interest rate swap contracts, one with Wells Fargo Bank, National
Association and one with Bank of America, National Association, to reduce the interest rate variability exposure of the interest
cash flows of the 2022 Term Loan A. Each of the two five year swap contracts have a notional amount of $50 million, a
termination date of January 5, 2027, a fixed pay rate of 2.7% (both swaps combined), and a receive rate equal to the one-month
SOFR, with fixed rate payments due monthly commencing February 1, 2022, floating payments due monthly commencing
February 1, 2022, and floating reset dates two days prior to the first day of each calculation period. The five-year swap
contracts accrual period, January 14, 2022 to January 5, 2027, was designed to match the tenor of our 2022 Term Loan A,
which successfully closed on January 5, 2022.
On November 30, 2022, we terminated the $100 million and $50 million forward-starting interest rate swaps entered into
on January 29, 2016 and March 23, 2016, respectively, resulting in an aggregate gain of approximately $1.1 million. This gain
is included in accumulated other comprehensive income and will be amortized to interest expense, net through March 1, 2023,
the original maturity of the forward-starting interest rate swaps. The forward-starting interest rate swap contracts have been
deemed to be highly effective cash flow hedges and we elected to designate all the forward-starting swap contracts as
accounting hedges.
F-37 Concurrent therewith on November 30, 2022 we entered into two separate forward-starting interest rate swap contracts,
one with Wells Fargo Bank, National Association and one with Mizuho Capital Markets LLC, to reduce the interest rate
variability exposure of the projected interest cash flows of our then prospective $225 million two-year amended and restated
term loan. The forward-starting two years swap contract had a notional amount of $225 million, a termination date of January
5, 2025, a fixed pay rate of 4.17% (both swaps combined), and a receive rate equal to the one-month SOFR, with fixed rate
payments due monthly commencing February 6, 2023, floating payments due monthly commencing February 1, 2023, and
floating reset dates two days prior to the first day of each calculation period. The forward-starting two-year swap contract
accrual period, January 5, 2023 to January 5, 2025, was designed to match the expected tenor of our then prospective
$225 million two-year term loan, which successfully closed on January 5, 2023.
The following is a summary of the terms of the interest rate swaps as of December 31, 2022 (dollars in thousands):
Swap Counterparty
Bank of America, N.A.
Wells Fargo Bank, N.A.
Wells Fargo Bank, N.A.
Mizuho Capital Markets LLC
$
$
$
$
Notional Amount
50,000
50,000
150,000
75,000
Effective Date
1/14/2022
1/14/2022
1/5/2023
1/5/2023
Maturity Date
1/5/2027
1/5/2027
1/5/2025
1/5/2025
$
$
$
$
Fair Value
4,468
4,476
1,042
(196)
The effective portion of changes in the fair value of the derivatives that are designated as cash flow hedges are being
recorded as accumulated other comprehensive income and will be subsequently reclassified into earnings during the period in
which the hedged forecasted transaction affects earnings. During the next twelve months, we estimate that $1.1 million will be
reclassified as a decrease to interest expense.
The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash
flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative,
including the period to maturity, and uses observable market-based inputs, including interest rate curves, and implied
volatilities. The fair value of the interest rate swaps is determined using the market standard methodology of netting the
discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The
variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from
observable market interest rate curves.
NOTE 9. PARTNERS' CAPITAL OF AMERICAN ASSETS TRUST, L.P.
As of December 31, 2022, the Operating Partnership had 16,181,537 common units (the “Noncontrolling Common
Units”) outstanding. American Assets Trust, Inc. owned 78.8% of the Operating Partnership at December 31, 2022. The
remaining 21.2% of the partnership interests are owned by non-affiliated investors and certain of our directors and executive
officers. Common units and shares of the company's common stock have essentially the same economic characteristics in that
common units and shares of the company's common stock share equally in the total net income or loss distributions of the
Operating Partnership.
American Assets Trust, Inc. is the Operating Partnership’s general partner and is responsible for the management of the
Operating Partnership’s business. As the general partner of the Operating Partnership, the company effectively controls the
ability to issue common stock of American Assets Trust, Inc. upon a limited partner’s notice of redemption. Investors who own
common units have the right to cause the Operating Partnership to redeem any or all of their common units for cash equal to the
then-current market value of one share of the company's common stock, or, at the company's election, shares of the company's
common stock on a one-for-one basis. In addition, American Assets Trust, Inc. has generally acquired common units upon a
limited partner’s notice of redemption in exchange for shares of the company's common stock. The redemption provisions of
common units owned by limited partners that permit the Operating Partnership to settle in either cash or common stock at the
option of the company are further evaluated in accordance with applicable accounting guidance to determine whether temporary
or permanent equity classification on the balance sheet is appropriate. The Operating Partnership evaluated this guidance,
including the requirement to settle in unregistered shares, and determined that these common units meet the requirements to
qualify for presentation as permanent equity.
During the years ended December 31, 2022, 2021 and 2020, approximately 0, 0 and 209,011, respectively, common units
were converted into shares of the company's common stock.
F-38
NOTE 10. EQUITY OF AMERICAN ASSETS TRUST, INC.
Stockholders' Equity
On December 3, 2021, we entered into a new ATM equity program, with five sales agents under which we may, from
time to time, offer and sell shares of our common stock having an aggregate offering price of up to $250 million. The sale of
shares of our common stock made through the ATM equity program are made in "at-the-market" offerings as defined in Rule
415 of the Securities Act of 1933, as amended. For the year ended December 31, 2022, no shares of common stock were sold
through the ATM equity program.
We intend to use the net proceeds from the ATM equity program to fund our development or redevelopment activities,
repay amounts outstanding from time to time under our revolving line of credit or other debt financing obligations, fund
potential acquisition opportunities and/or for general corporate purposes. As of December 31, 2022, we had the capacity to
issue up to $250 million in shares of our common stock under our current ATM equity program. Actual future sales will depend
on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital
needs. As of December 31, 2022, we have no obligation to sell the remaining shares available for sale under the active ATM
equity program.
Preferred Stock Authorized Shares
We have been authorized to issue 10,000,000 shares of preferred stock with a par value of $0.01, of which no shares were
outstanding at December 31, 2022. Upon issuance, our board of directors has the ability to define the terms of the preferred
shares, including voting rights, liquidation preferences, conversion and redemption provisions and dividend rates.
F-39
Dividends
The following table lists the dividends declared and paid on our shares of common stock and Noncontrolling Common
Units for the years ended December 31, 2022, 2021 and 2020:
Period
Amount per
Share/Unit
Period Covered
Dividend Paid Date
First Quarter 2020
Second Quarter 2020
Third Quarter 2020
Fourth Quarter 2020
First Quarter 2021
Second Quarter 2021
Third Quarter 2021
Fourth Quarter 2021
First Quarter 2022
Second Quarter 2022
Third Quarter 2022
Fourth Quarter 2022
Taxability of Dividends
$
$
$
$
$
$
$
$
$
$
$
$
0.30
January 1, 2020 to March 31, 2020
0.20 April 1, 2020 to June 30, 2020
March 26, 2020
June 25, 2020
0.25
July 1, 2020 to September 30, 2020
September 24, 2020
0.25 October 1, 2020 to December 31, 2020
December 24, 2020
0.28
January 1, 2021 to March 31, 2021
0.28 April 1, 2021 to June 30, 2021
March 25, 2021
June 24, 2021
0.30
July 1, 2021 to September 30, 2021
September 23, 2021
0.30 October 1, 2021 to December 31, 2021
December 23, 2021
0.32
January 1, 2022 to March 31, 2022
0.32 April 1, 2022 to June 30, 2022
March 24, 2022
June 23, 2022
0.32
July 1, 2022 to September 30, 2022
September 22, 2022
0.32 October 1, 2022 to December 31, 2022
December 22, 2022
Earnings and profits, which determine the taxability of distributions to stockholders and holders of common units, may
differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the
treatment of loss on extinguishment of debt, revenue recognition and compensation expense and in the basis of depreciable
assets and estimated useful lives used to compute depreciation. A summary of the income tax status of dividends per share paid
is as follows:
Ordinary income
Capital gain
Return of capital
Total
Stock-Based Compensation
Year Ended December 31,
2022
2021
2020
Per Share
%
Per Share
%
Per Share
%
$
$
1.18
—
0.10
1.28
92.1 % $
— %
7.9 %
100.0 % $
0.73
—
0.43
1.16
62.6 % $
0.66
— %
37.4 %
100.0 % $
—
0.34
1.00
66.0 %
— %
34.0 %
100.0 %
The company has established the 2011 Equity Incentive Award Plan, which provides for grants to directors, employees
and consultants of the company and the Operating Partnership of stock options, restricted stock, dividend equivalents, stock
payments, performance shares, LTIP units, stock appreciation rights and other incentive awards. In June 2020, at the annual
shareholder meeting, the shareholders approved the Amended and Restated 2011 Equity Incentive Award Plan (the "Amended
and Restated 2011 Plan"). An aggregate of 4,054,411 shares of our common stock are authorized for issuance under awards
granted pursuant to the Amended and Restated 2011 Plan, and as of December 31, 2022, 2,183,962 shares of common stock
remain available for future issuance.
F-40
The following shares of restricted common stock have been issued as of December 31, 2022:
Grant
June 9, 2020 (1)
December 4, 2020 (2)
June 8, 2021 (1)
December 9, 2021 (3)
June 7, 2022 (1)
December 7, 2022 (4)
Fair Value at Grant Date
Number
$33.29
19.02 - 20.83
38.59
24.27 - 25.17
32.94
$18.53 - $19.52
6,008
311,566
5,184
224,635
6,072
319,610
(1) Restricted common stock issued to members of the company's non-employee directors. These awards of restricted stock will vest subject to the director's
continued service on the Board of Directors on the earlier of (i) the one year anniversary of the date of grant or (ii) the date of the next annual meeting of
our stockholders, if such non-employee director continues his or her service on the Board of Directors until the next annual meeting of stockholders, but
not thereafter, pursuant to our independent director compensation policy.
(2) Restricted common stock issued to certain of the company's senior management and other employees, which are subject to quantitative and qualitative
performance criteria based vesting. Up to one-third of the shares of restricted stock may vest based on such performance criteria determined as of
November 30, 2021, 2022 and 2023, subject to the employee's continued employment on those dates.
(3) Restricted common stock issued to certain of the company's senior management and other employees, which are subject to quantitative and qualitative
performance criteria based vesting. Up to one-third of the shares of restricted stock may vest based on such performance criteria determined as of
November 30, 2022, 2023 and 2024, subject to the employee's continued employment on those dates.
(4) Restricted common stock issued to certain of the company's senior management and other employees, which are subject to quantitative and qualitative
performance criteria based vesting. Up to one-third of the shares of restricted stock may vest based on such performance criteria determined as of
November 30, 2023, 2024 and 2025, subject to the employee's continued employment on those dates.
For the 2019 grants and 2020 grants, the fair value of the awards was estimated using a Monte Carlo Simulation model.
Our stock price, along with the stock prices of the group of peer REITs, is assumed to follow the Multivariate Geometric
Brownian Motion Process. Multivariate Geometric Brownian Motion is a common assumption when modeling in financial
markets, as it allows the modeled quantity (in this case, the stock price) to vary randomly from its current value and take any
value greater than zero. The volatilities of the returns on the stock price of the company and the group REITs were estimated
based on a three year look-back period. The expected growth rate of the stock prices over the “derived service period” of the
employee is determined with consideration of the risk free rate as of the grant date.
For the 2021 grants and 2022 grants, the fair value of the awards was estimated using a Monte Carlo Simulation model.
For the 2021 and 2022 grants vesting is subject to multiple vesting conditions as follows: (1) a service condition which requires
continued employment of the employee as of each vesting date during the three-year vesting term for the employee to be
eligible for vesting, (2) a performance condition with respect to our FFO per share for the FFO performance periods and (3) a
market condition with respect to our relative total shareholder return performance over a one-year, two-year and three-year
performance as compared to a pre-determined index. On each measurement date the performance condition and market
condition performance will determine the number of shares that vest. We measure stock-based compensation expense based on
the fair value of the award on the grant date, adjusted for changes to probabilities of achieving performance targets, and
recognize expense over the vesting period. For the restricted stock grants that are time-vesting, issued to our non-employee
directors, we estimate the stock compensation expense based on the fair value of the stock at the grant date.
The following table summarizes the activity of non-vested restricted stock awards during the year ended December 31,
2022:
Balance at beginning of year
Granted
Vested
Forfeited
Balance at end of year
2022
Units
Weighted Average
Grant Date Fair
Value
487,397 $
325,682
(132,239)
(106,796)
574,044 $
23.78
19.28
24.86
23.78
20.98
We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $8.7
million, $8.5 million and $6.3 million in noncash compensation expense for the years ended December 31, 2022, 2021 and
F-41
2020, respectively, each of which is included in general and administrative expense on the statement of comprehensive income.
Unrecognized compensation expense was $9.4 million at December 31, 2022, which will be recognized over a weighted-
average period of 1.52 years.
Earnings Per Share
We have calculated earnings per share (“EPS”) under the two-class method. The two-class method is an earnings
allocation methodology whereby EPS for each class of common stock and participating security is calculated according to
dividends declared and participation rights in undistributed earnings. For the years ended December 31, 2022, 2021 and 2020,
we had a weighted average of approximately 489,765 shares, 485,202 shares and 357,048 unvested shares outstanding,
respectively, which are considered participating securities. Therefore, we have allocated our earnings for basic and diluted EPS
between common shares and unvested shares.
Diluted EPS is calculated by dividing the net income attributable to common stockholders for the period by the weighted
average number of common and dilutive instruments outstanding during the period using the treasury stock method. For the
year ended December 31, 2022, diluted shares exclude incentive restricted stock as these awards are considered contingently
issuable. Additionally, the unvested restricted stock awards subject to time vesting are anti-dilutive for all periods presented and
accordingly, have been excluded from the weighted average common shares used to compute diluted EPS.
Earnings Per Unit of the Operating Partnership
Basic earnings (loss) per unit (“EPU”) of the Operating Partnership is computed by dividing income (loss)
applicable to unitholders by the weighted average Operating Partnership units outstanding, as adjusted for the effect of
participating securities. Operating Partnership units granted in equity-based payment transactions are considered participating
securities prior to vesting. The impact of unvested Operating Partnership unit awards on EPU has been calculated using the
two-class method whereby earnings are allocated to the unvested Operating Partnership unit awards based on distributions and
the unvested Operating Partnership units’ participation rights in undistributed earnings (losses).
The calculation of diluted earnings per unit for the year ended December 31, 2022, 2021 and 2020 does not
include 489,765, 485,202, and 357,048 unvested weighted average Operating Partnership units, respectively, as these equity
securities are either considered contingently issuable or the effect of including these equity securities was anti-dilutive.
The computation of basic and diluted EPS for American Assets Trust, Inc. is presented below (dollars in thousands,
except share and per share amounts):
NUMERATOR
Net income
Less: Net income attributable to restricted shares
Less: Income attributable to unitholders in the Operating Partnership
Net income attributable to common stockholders—basic
Income attributable to American Assets Trust, Inc. common stockholders
—basic
Plus: Income attributable to unitholders in the Operating Partnership
Net income attributable to common stockholders—diluted
DENOMINATOR
Year Ended December 31,
2022
2021
2020
$
55,877 $
36,593 $
35,588
(648)
(11,723)
(564)
(7,653)
43,506 $
28,376 $
43,506 $
28,376 $
11,723
7,653
55,229 $
36,029 $
$
$
$
(383)
(7,545)
27,660
27,660
7,545
35,205
Weighted average common shares outstanding—basic
60,048,970
59,990,740
59,806,309
Effect of dilutive securities—conversion of Operating Partnership units
16,181,537
16,181,537
16,313,454
Weighted average common shares outstanding—diluted
76,230,507
76,172,277
76,119,763
Earnings per common share, basic
Earnings per common share, diluted
$
$
0.72 $
0.47 $
0.46
0.72 $
0.47 $
0.46
F-42
NOTE 11. INCOME TAXES
We elected to be taxed as a REIT and operate in a manner that allows us to qualify as a REIT for federal income tax
purposes commencing with our taxable year ended December 31, 2011. As a REIT, we are generally not subject to corporate
level income tax on the earnings distributed currently to our stockholders. Our TRS is subject to federal and state income taxes.
We lease our hotel property to a wholly owned TRS that is subject to federal and state income taxes. We account for
income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between GAAP carrying amounts and their respective tax bases. Additionally, we
classify certain state taxes as income taxes for financial reporting purposes in accordance with ASC Topic 740, Income Taxes.
A deferred tax asset is included in our consolidated balance sheets of $0.7 million and $0.6 million, and a deferred tax
liability is included in our consolidated balance sheets of $0.9 million and $1.0 million as of December 31, 2022 and 2021,
respectively, in relation to real estate asset basis differences and prepaid expenses for our TRS.
The income tax provision included in other (expense) income on the consolidated statement of comprehensive income is
as follows (in thousands):
Current:
Federal
State
Deferred:
Federal
State
Provision for income taxes (benefit)
Year Ended December 31,
2022
2021
2020
$
$
— $
1,063
8
(221)
850 $
— $
483
118
137
738 $
(542)
412
(80)
201
(9)
F-43
NOTE 12. COMMITMENTS AND CONTINGENCIES
Legal
We are sometimes involved in various disputes, lawsuits, warranty claims, environmental and other matters arising in the
ordinary course of business. Management makes assumptions and estimates concerning the likelihood and amount of any
potential loss relating to these matters.
We are currently a party to various legal proceedings. We accrue a liability for litigation if an unfavorable outcome is
probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate
of the loss is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate
than any other amount, the minimum within the range is accrued. Legal fees related to litigation are expensed as incurred. We
do not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse
effect on our financial position or overall trends in results of operations; however, litigation is subject to inherent uncertainties.
Also, under our leases, tenants are typically obligated to indemnify us from and against all liabilities, costs and expenses
imposed upon or asserted against us as owner of the properties due to certain matters relating to the tenants' operations at our
properties.
Commitments
See Footnote 13 for description of our leases, as a lessee.
We have management agreements with Outrigger Hotels & Resorts or an affiliate thereof (“Outrigger”) pursuant to which
Outrigger manages each of the retail and hotel portions of the Waikiki Beach Walk property. Under the management agreement
with Outrigger relating to the retail portion of Waikiki Beach Walk (the “retail management agreement”), we pay Outrigger a
monthly management fee of 3.0% of net revenues from the retail portion of Waikiki Beach Walk. Pursuant to the terms of the
retail management agreement, if the agreement is terminated in certain instances, including our election not to repair damage or
destruction at the property, a condemnation or our failure to make required working capital infusions, we would be obligated to
pay Outrigger a termination fee equal to the sum of the management fees paid for the two months immediately preceding the
termination date. The retail management agreement may not be terminated by us or by Outrigger without cause. Under our
management agreement with Outrigger relating to the hotel portion of Waikiki Beach Walk (the “hotel management
agreement”), we pay Outrigger a monthly management fee of 6.0% of the hotel's gross operating profit, as well as 3.0% of the
hotel's gross revenues; provided that the aggregate management fee payable to Outrigger for any year shall not exceed 3.5% of
the hotel's gross revenues for such fiscal year. Pursuant to the terms of the hotel management agreement, if the agreement is
terminated in certain instances, including upon a transfer by us of the hotel or upon a default by us under the hotel management
agreement, we would be required to pay a cancellation fee calculated by multiplying (1) the management fees for the previous
12 months by (2) (a) eight, if the agreement is terminated in the first 11 years of its term, or (b) four, three, two or one, if the
agreement is terminated in the twelfth, thirteenth, fourteenth or fifteenth year, respectively, of its term. The hotel management
agreement may not be terminated by us or by Outrigger without cause. Additionally, we have entered into a management
agreement with Outrigger pursuant to which Outrigger manages our Waikele Center and Shops at Kalakaua. In connection with
such management agreement, we pay Outrigger a fixed management fee of $12,000 per month in the aggregate plus additional
amounts for any lease renewal services provided by Outrigger at our request. This management agreement may be terminated
by us at any time and for any reason on at least 30 days' notice without payment of any cancellation or termination fees.
A wholly owned subsidiary of our Operating Partnership, WBW Hotel Lessee LLC, entered into a franchise license
agreement with Embassy Suites Franchise LLC, the franchisor of the brand “Embassy Suites™,” to obtain the non-exclusive
right to operate the hotel under the Embassy Suites brand for 20 years. The franchise license agreement provides that WBW
Hotel Lessee LLC must comply with certain management, operational, record keeping, accounting, reporting and marketing
standards and procedures. In connection with this agreement, we are also subject to the terms of a product improvement plan
pursuant to which we expect to undertake certain actions to ensure that our hotel's infrastructure is maintained in compliance
with the franchisor's brand standards. In addition, we must pay to Embassy Suites Franchise LLC a monthly franchise royalty
fee equal to 4.0% of the hotel's gross room revenue through December 2021 and 5.0% of the hotel's gross room revenue
thereafter, as well as a monthly program fee equal to 4.0% of the hotel's gross room revenue. If the franchise license is
terminated due to our failure to make required improvements or to otherwise comply with its terms, we may be liable to the
franchisor for a termination payment, which could be as high as $6.0 million based on operating performance through
December 31, 2022.
F-44 Our Del Monte Center property has ongoing environmental remediation related to ground water contamination. The
environmental issue existed at purchase and is currently in the final stages of remediation. The final stages of the remediation
will include routine, long term ground monitoring by the appropriate regulatory agency over the next five years to seven years
years. The work performed is financed through an escrow account funded by the seller upon our purchase of the Del Monte
Center. We believe the funds in the escrow account are sufficient for the remaining work to be performed. However, if further
work is required costing more than the remaining escrow funds, we could be required to pay such overage, although we may
have a contractual claim for such costs against the prior owner or our environmental remediation consultant.
As of December 31, 2022, the company accrued approximately $6.6 million for transfer taxes in connection with its
Offering. The company believes that it has filed all necessary forms with the requisite taxing authorities.
Concentrations of Credit Risk
Our properties are located in Southern California, Northern California, Washington, Oregon, Texas and Hawaii. The
ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory and social factors
affecting the markets in which the tenants operate. Fifteen of our consolidated properties, representing 40.2% of our total
revenue for the year ended December 31, 2022, are located in Southern California, which exposes us to greater economic risks
than if we owned a more geographically diverse portfolio. Our mixed-use property located in Honolulu, Hawaii accounted for
14.2% of total revenues for the year ended December 31, 2022.
Tenants in the office industry accounted for 48.1% and 49.6% of total revenues for the years December 31, 2022 and
2021, respectively. This makes us susceptible to demand for office rental space and subject to the risks associated with an
investment in real estate with a concentration of tenants in the office industry.
Tenants in the retail industry accounted for 23.9% and 25.2% of total revenues for the years December 31, 2022 and
2021, respectively. This makes us susceptible to demand for retail rental space and subject to the risks associated with an
investment in real estate with a concentration of tenants in the retail industry. Two retail properties, Alamo Quarry Market and
Waikele Center, accounted for 9.0% and 9.1% of total revenues for the years ended December 31, 2022 and 2021, respectively.
For the years ended December 31, 2022 and 2021, no tenant accounted for more than 10.0% of our total rental revenue.
At December 31, 2022, Google LLC at The Landmark at One Market accounted for 9.4% of total annualized base rent. Three
other tenants (LPL Holdings, Inc., Autodesk, Inc., and Smartsheet, Inc.) comprise 14.3% of our total annualized base rent at
December 31, 2022, in the aggregate. No other tenants represent greater than 2.0% of our total annualized base rent. Total
annualized base rent used for the percentage calculations includes the annualized base rent as of December 31, 2022 for our
office properties, retail properties and the retail portion of our mixed-use property.
NOTE 13. LEASES
Lessor Operating Leases
We determine if an arrangement is a lease at inception. Our lease agreements are generally for real estate, and the
determination of whether such agreements contain leases generally does not require significant estimates or judgments. We
lease real estate under operating leases.
Our leases with office, retail, mixed-use and residential tenants are classified as operating leases. Leases at our office and
retail properties and the retail portion of our mixed-use property generally range from three years to ten years (certain leases
with anchor tenants may be longer), and in addition to minimum rents, usually provide for cost recoveries for the tenant’s share
of certain operating costs. Our leases may also include variable lease payments in the form of percentage rents based on the
tenant’s level of sales achieved in excess of a breakpoint threshold. Leases on apartments generally range from seven months to
fifteen months, with a majority having 12 months lease terms. Rooms at the hotel portion of our mixed-use property are rented
on a nightly basis.
Leases at our office and retail properties and the retail portion of our mixed-use property may contain lease extension
options, at our lessee's discretion. The extension options are generally for 3 to 10 years and contain primarily rent at fixed rates
or the prevailing market rent. The extension options are generally exercisable 6 to 12 months prior to the expiration of the lease
and require the lessee to not be in default of the lease terms.
F-45 We attempt to maximize the amount we expect to derive from the underlying real estate property following the end of a
lease, to the extent it is not extended. We maintain a proactive leasing and capital improvement program that, combined with
the quality and locations of our properties, has made our properties attractive to tenants. However, the residual value of a real
estate property is still subject to various market-specific, asset-specific, and tenant-specific risks and characteristics.
At December 31, 2022, our office, retail and mixed-use properties are located in five states: California, Washington,
Oregon, Texas and Hawaii. At December 31, 2022, we had approximately 894 leases with office and retail tenants, including
the retail portion of our mixed-use property. Our multifamily properties are located in Southern California and Portland,
Oregon, and we had 1,818 leases with residential tenants at December 31, 2022, excluding Santa Fe Park RV Resort.
As of December 31, 2022, minimum future rentals from noncancelable operating leases before any reserve for
uncollectible amounts and assuming no early lease terminations, at our office and retail properties and the retail portion of our
mixed-use property are as follows for the years ended December 31 (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total
$
249,967
226,431
202,843
186,930
163,204
298,683
$
1,328,058
The above future minimum rentals exclude residential leases, which are typically range from seven months to fifteen
months, and exclude the hotel, as rooms are rented on a nightly basis.
Lessee Operating Leases
We determine if an arrangement is a lease at inception. Our lease agreements are generally for real estate, and the
determination of whether such agreements contain leases generally does not require significant estimates or judgments. We
lease real estate under operating leases.
At The Landmark at One Market, we lease, as lessee, a building adjacent to The Landmark at One Market under an
operating lease effective through June 30, 2026, which we have the option to extend until 2031 by way of the remaining five
years extension option (the "Annex Lease"). The lease payments under the extension option provided for under the Annex
Lease will be equal to the fair rental value at the time the extension option is exercised. The extension option is included in the
calculation of the right-of-use asset and lease liability as we are reasonably certain of exercising the extension option. In March
2020, we exercised a five years extension option to extend the Annex Lease through June 30, 2026, which was memorialized in
a lease amendment executed in August 2020 that additionally modified other certain lease payment terms.
Our lease agreements do not contain any residual value guarantees or material restrictive covenants. As our leases do not
provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement in
determining the present value of lease payments.
F-46
Current annual payments under the operating leases are as follows, as of December 31, 2022 (in thousands):
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Imputed interest
Present value of lease liability
Lease costs under the operating leases are as follows (in thousands):
Operating lease cost
Sublease income
Total lease (income) cost
$
$
$
3,328
3,428
3,531
3,584
3,584
12,543
29,998
(4,322)
25,676
Year Ended December 31,
2022
2021
$
$
3,377
$
(3,416)
(39) $
3,926
(3,634)
292
Weighted-average remaining lease term - operating leases (in years)
Weighted-average discount rate - operating leases
8.5
3.19 %
Supplemental cash flow information and non-cash activity related to our operating leases are as follow (in thousands):
Year Ended December 31,
2022
2021
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities
$
3,232 $
2,791
Subleases
At The Landmark at One Market, we (as sublandlord) sublease the Annex Lease building under operating leases effective
through December 31, 2029. The subleases contain extension options, subject to our ability to extend the Annex Lease, that can
extend the subleases through December 31, 2039 at the fair rental value at the time the extension option is exercised.
At Waikiki Beach Walk, we (as sublandlord) subleased a portion of the building to Quiksilver under an operating lease
effective through December 31, 2021. The operating lease and sublease were terminated, without penalty as of June 30, 2021.
F-47
NOTE 14. COMPONENTS OF RENTAL INCOME AND EXPENSE
The principal components of rental income are as follows (in thousands):
Minimum rents
Office
Retail
Multifamily
Mixed-Use
Percentage rent
Hotel revenue
Other
Total rental income
Year Ended December 31,
2022
2021
2020
$
$
196,793 $
95,574
53,816
11,590
4,004
38,115
2,615
402,507 $
180,704 $
89,326
48,654
9,901
4,337
24,935
2,351
360,208 $
170,853
82,176
47,071
7,302
3,516
17,209
2,185
330,312
Minimum rents include $5.9 million, $14.0 million and $18.9 million for the years ended December 31, 2022, 2021 and
2020, respectively, to recognize minimum rents on a straight-line basis. In addition, minimum rents include $3.3 million, $3.2
million and $3.9 million for the years ended December 31, 2022, 2021 and 2020, respectively, to recognize the amortization of
above and below market leases.
The principal components of rental expenses are as follows (in thousands):
Rental operating
Hotel operating
Repairs and maintenance
Marketing
Rent
Hawaii excise tax
Management fees
Total rental expenses
Year Ended December 31,
2022
2021
2020
$
$
47,832 $
25,833
22,222
2,379
3,215
4,081
2,083
107,645 $
41,488 $
17,518
18,113
1,779
4,023
2,792
1,267
86,980 $
38,194
13,691
17,813
2,023
3,955
2,479
1,023
79,178
NOTE 15. OTHER (EXPENSE) INCOME
The principal components of other (expense) income, net are as follows (in thousands):
Interest and investment income
Income tax (expense) benefit
Other non-operating (expense) income
Total other (expense) income
Year Ended December 31,
2022
2021
2020
$
$
225 $
(850)
—
(625) $
324 $
(738)
(4)
(418) $
436
9
2
447
F-48
NOTE 16. RELATED PARTY TRANSACTIONS
During the first quarter of 2019, we terminated the lease agreement with American Assets, Inc. ("AAI"), an entity owned
and controlled by Mr. Rady, and entered into a new lease agreement with AAI for office space at Torrey Reserve Campus.
Rents commenced on March 1, 2019 for an initial lease term of three years at an average annual rental rate of $0.2 million.
During the third quarter of 2020, we entered into a new lease with AAI for office space at Torrey Point to replace its existing
lease at Torrey Reserve Campus. Rents commenced on March 1, 2021 for an initial lease term of ten years at an average annual
rental rate of $0.2 million. Rental revenue recognized on the leases of $0.3 million, $0.3 million and $0.2 million for the years
ended December 31, 2022, 2021 and 2020, respectively, is included in rental income on the consolidated statements of
comprehensive income.
At Torrey Reserve Campus, we lease space to EDisability, LLC, an entity majority owned and controlled by Mr. Rady.
During the fourth quarter of 2020, we entered into a lease termination agreement with EDisability, LLC and entered into a new
lease agreement for office space at Torrey Reserve Campus. Rents under the new lease agreement commenced on June 1, 2021
for an initial three years at an average rental rate of $0.1 million. Rent revenue recognized on the lease of $0.1 million, $0.1
million and $0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively, is included in rental income on
the consolidated statements of comprehensive income.
On occasion, the company utilizes aircraft services provided by AAI Aviation, Inc. ("AAIA"), an entity owned and
controlled by Mr. Rady. For the years ending December 31, 2022, 2021 and 2020, we incurred approximately $0.2 million,
$0.2 million and $0.0 million, respectively, of expenses related to aircraft services of AAIA or reimbursement to Mr. Rady (or
his trust) for use of the aircraft owned by AAIA. These expenses are recorded as general and administrative expenses in our
consolidated statements of comprehensive income.
As of December 31, 2022, Mr. Rady and his affiliates owned approximately 15.5% of our outstanding common stock and
19.4% of our outstanding common units, which together represent an approximate 34.7% beneficial interest in our company on
a fully diluted basis.
The Waikiki Beach Walk entities have a 47.7% investment in WBW CHP LLC, an entity that was formed to, among
other things, construct a chilled water plant to provide air conditioning to the property and other adjacent facilities. The
operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW
CHP LLC of $1.3 million, $1.0 million and $1.0 million were made for the years ended December 31, 2022, 2021 and 2020,
respectively, and included in rental expenses on the statements of comprehensive income.
NOTE 17. SEGMENT REPORTING
Segment information is prepared on the same basis that our management reviews information for operational decision-
making purposes. We review operating and financial information for each property on an individual basis and therefore, each
property represents an individual operating segment. However, we have aggregated our properties into reportable segments as
the properties share similar long-term economic characteristics and have other similarities including the fact that they are
operated using consistent business strategies.
We operate in four business segments: the acquisition, redevelopment, ownership and management of retail real estate,
office real estate, multifamily real estate and mixed-use real estate. The products for our retail segment primarily include rental
of retail space and other tenant services, including tenant reimbursements, parking and storage space rental. The products for
our office segment primarily include rental of office space and other tenant services, including tenant reimbursements, parking
and storage space rental. The products for our multifamily segment include rental of apartments and other tenant services. The
products of our mixed-use segment include rental of retail space and other tenant services, including tenant reimbursements,
parking and storage space rental and operation of a 369-room all-suite hotel.
We evaluate the performance of our segments based on segment profit which is defined as property revenue less property
expenses. We do not use asset information as a measure to assess performance and make decisions to allocate resources.
Therefore, depreciation and amortization expense is not allocated among segments. General and administrative expenses,
interest expense, depreciation and amortization expense and other income and expense are not included in segment profit as our
internal reporting addresses these items on a corporate level.
F-49 Segment profit is not a measure of operating income or cash flows from operating activities as measured by GAAP, and it
is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of
liquidity. Not all companies calculate segment profit in the same manner. We consider segment profit to be an appropriate
supplemental measure to net income because it assists both investors and management in understanding the core operations of
our properties.
The following table represents operating activity within our reportable segments (in thousands):
Total Office
Property revenue
Property expense
Segment profit
Total Retail
Property revenue
Property expense
Segment profit
Total Multifamily
Property revenue
Property expense
Segment profit
Total Mixed-Use
Property revenue
Property expense
Segment profit
Total segments’ profit
Year Ended December 31,
2022
2021
2020
$
203,391 $
(57,478)
145,913
186,366 $
(50,233)
136,133
177,554
(47,424)
130,130
100,912
(30,306)
70,606
58,139
(26,256)
31,883
94,662
(27,983)
66,679
52,315
(23,211)
29,104
60,206
(38,393)
21,813
270,215 $
42,485
(28,347)
14,138
246,054 $
$
88,280
(27,374)
60,906
50,327
(22,074)
28,253
28,412
(24,247)
4,165
223,454
The following table is a reconciliation of segment profit to net income attributable to stockholders (in thousands):
Total segments' profit
General and administrative
Depreciation and amortization
Interest expense
Loss on early extinguishment of debt
Other (expense) income, net
Net income
Net income attributable to restricted shares
Net income attributable to unitholders in the Operating Partnership
Net income attributable to American Assets Trust, Inc. stockholders
Year Ended December 31,
$
2022
270,215 $
(32,143)
(123,338)
(58,232)
—
(625)
55,877
(648)
(11,723)
43,506 $
$
2021
246,054 $
(29,879)
(116,306)
(58,587)
(4,271)
(418)
36,593
(564)
(7,653)
28,376 $
2020
223,454
(26,581)
(108,292)
(53,440)
—
447
35,588
(383)
(7,545)
27,660
F-50
The following table shows net real estate and secured note payable balances for each of the segments, along with their
capital expenditures for each year (in thousands):
Net real estate
Office
Retail
Multifamily
Mixed-Use
Secured Notes Payable (1)
Office
Retail
Capital Expenditures (2)
Office
Retail
Multifamily
Mixed-Use
December 31, 2022
December 31, 2021
$
1,615,479 $
1,536,212
$
$
$
$
579,219
370,993
168,865
591,107
381,315
173,347
2,734,556 $
2,681,981
75,000 $
111,000
—
—
75,000 $
111,000
102,443 $
93,116
12,177
4,889
1,646
7,232
5,841
1,541
$
121,155 $
107,730
(1) Excludes unamortized debt issuance costs of $0.4 million and $0.0 million as of December 31, 2022 and 2021, respectively.
(2) Capital expenditures represent cash paid for capital expenditures during the year and includes leasing commissions paid.
F-51
NOTE 18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The tables below reflect selected American Assets Trust, Inc. quarterly information for 2022 and 2021 (in thousands,
except per shares data):
Total revenue
Operating income
Net income
Net income attributable to restricted shares
Net income attributable to unitholders in the Operating
Partnership
Net income attributable to American Assets Trust, Inc.
stockholders
Net income per share attributable to common stockholders
- basic and diluted
$
$
Total revenue
Operating income
Net income
Net income attributable to restricted shares
Net income attributable to unitholders in the Operating
Partnership
Net income attributable to American Assets Trust, Inc.
stockholders
Net income per share attributable to common stockholders
- basic and diluted
$
$
Three Months Ended
December 31,
2022
September 30,
2022
June 30,
2022
March 31,
2022
$
106,000 $
111,023 $
104,155 $
101,470
27,073
12,406
31,003
16,369
28,316
13,588
(184)
(155)
(154)
28,342
13,514
(155)
(2,593)
(3,442)
(2,852)
(2,836)
9,629 $
12,772 $
10,582 $
10,523
0.16 $
0.21 $
0.18 $
0.18
Three Months Ended
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
$
101,747 $
98,286 $
91,809 $
25,715
10,478
27,669
12,895
26,423
11,487
(147)
(145)
(135)
(2,194)
(2,709)
(2,411)
83,986
20,062
1,733
(137)
(339)
8,137 $
10,041 $
8,941 $
1,257
0.14 $
0.17 $
0.15 $
0.02
F-52
The tables below reflect selected American Assets Trust, L.P. quarterly information for 2022 and 2021 (in thousands,
except per shares data):
Total revenue
Operating income
Net income
Net income attributable to restricted shares
Net income attributable to American Assets Trust, L.P.
unit holders
Net income per unit attributable to unit holders - basic and
diluted
$
$
Three Months Ended
December 31,
2022
September 30,
2022
June 30,
2022
March 31,
2022
$
106,000 $
111,023 $
104,155 $
101,470
27,073
12,406
31,003
16,369
28,316
13,588
(184)
(155)
(154)
28,342
13,514
(155)
12,222 $
16,214 $
13,434 $
13,359
0.16 $
0.21 $
0.18 $
0.18
Total revenue
Operating income
Net income
Three Months Ended
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
$
101,747 $
98,286 $
91,809 $
25,715
10,478
27,669
12,895
26,423
11,487
83,986
20,062
1,733
Net income attributable to restricted shares
(147)
(145)
(135)
(137)
Net income attributable to American Assets Trust, L.P.
unit holders
Net income per unit attributable to common unit holders -
basic and diluted
$
$
10,331 $
12,750 $
11,352 $
1,596
0.14 $
0.17 $
0.15 $
0.02
F-53
NOTE 19. SUBSEQUENT EVENTS
On January 3, 2023, we entered into a settlement agreement relating to certain building systems at our Hassalo on Eighth
in which we received a net settlement payment of approximately $6.3 million.
On January 5, 2023, we entered into the Amended and Restated Term Loan Agreement, which increased the aggregate,
unsecured borrowings from $150 million to $225 million and extended the maturity date of Term Loan B and Term Loan C
from March 1, 2023 to January 5, 2025, with one, twelve-month extension option, subject to certain conditions.
On January 6, 2023, we repaid in full the $36 million outstanding balance on our revolving line of credit under our Third
Amended and Restated Credit Facility.
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F-56
American Assets Trust, Inc. and American Assets Trust, L.P.
SCHEDULE III—Consolidated Real Estate and Accumulated Depreciation -(Continued)
(In Thousands)
Real estate assets
Balance, beginning of period
Additions:
Property acquisitions
Improvements
Deductions:
Cost of Real Estate Sold
Other (1)
Balance, end of period
Accumulated depreciation
Balance, beginning of period
Additions—depreciation
Deductions:
Cost of Real Estate Sold
Other (1)
Balance, end of period
Year Ended December 31,
2022
2021
2020
$
3,529,371
3,246,874
3,188,697
44,076
116,613
197,754
93,455
—
64,997
—
(18,591)
3,671,469 $
—
(8,712)
3,529,371 $
—
(6,820)
3,246,874
847,390 $
108,118
754,140 $
101,962
665,222
95,738
—
(18,595)
936,913 $
—
(8,712)
847,390 $
—
(6,820)
754,140
$
$
$
(1) Other deductions for the years ended December 31, 2022, 2021 and 2020 represent the write-off of fully depreciated assets.
F-57 CORPORATE
INFORMATION
NAMED EXECUTIVE OFFICERS
CORPORATE HEADQUARTERS
Ernest Rady
Chairman and
Chief Executive Officer
Adam Wyll
President and
Chief Operating Officer
Robert Barton
Executive Vice President
and Chief Financial Officer
Jerry Gammieri
Senior Vice President of
Construction and Development
BOARD OF DIRECTORS
Ernest Rady
Thomas Olinger
Joy Schaefer
Dr. Robert Sullivan
Nina Tran
3420 Carmel Mountain Road, Suite 100
San Diego, CA 92121
Phone: (858) 350-2600
Fax: (858) 350-2620
INDEPENDENT AUDITORS
Ernst & Young LLP
San Diego, CA
LEGAL COUNSEL
Latham & Watkins LLP
San Diego, CA
STOCK EXCHANGE LISTING
NYSE Symbol: AAT
REGISTRAR & TRANSFER AGENT
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Phone: (800) 937-5449
www.astfinancial.com
WEBSITE
For additional information on the
Company, visit our website at
www.AmericanAssetsTrust.com
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3420 CARMEL MOUNTAIN ROAD, SUITE 100
SAN DIEGO, CA 92121
PHONE: (858) 350-2600 // FAX: (858) 350-2620
(NYSE: AAT)
WWW.AMERICANASSETSTRUST.COM