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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
aat-20220331_g1.jpg
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: 333-202342-01
 
Maryland  (American Assets Trust, Inc.) 27-3338708  (American Assets Trust, Inc.)
Maryland  (American Assets Trust, L.P.) 27-3338894  (American Assets Trust, L.P.)
(State or other jurisdiction of incorporation or organization) (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)
 
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 days.    

    American Assets Trust, Inc.             ☒  Yes   ☐  No
    American Assets Trust, L.P.            ☒  Yes   ☐  No
(American Assets Trust, L.P. became subject to filing requirements under Section 13 of the Securities Exchange Act of 1934, as amended, upon effectiveness of its Registration Statement on Form S-3 on February 6, 2015 and has filed all required reports subsequent to that date.)
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    
    
    American Assets Trust, Inc.             ☒  Yes   ☐   No
    American Assets Trust, L.P.            ☒  Yes   ☐   No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
American Assets Trust, Inc.
Large Accelerated Filer ☒ Accelerated Filer ☐
Non-Accelerated Filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐
Emerging growth company ☐

American Assets Trust, L.P.
Large Accelerated Filer ☐ Accelerated Filer ☐
Non-Accelerated Filer ☒ (Do not check if a smaller reporting company) Smaller reporting company ☐
Emerging growth 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).      
    
    American Assets Trust, Inc.             ☐  Yes    ☒  No
    American Assets Trust, L.P.            ☐  Yes    ☒  No

Securities registered pursuant to Section 12(b) of the Act:
Name of Registrant Title of each class Trading Symbol Name of each exchange on which registered
American Assets Trust, Inc. Common Stock, par value $0.01 per share AAT New York Stock Exchange
American Assets Trust, L.P. None None None

American Assets Trust, Inc. had 60,522,043 shares of common stock, par value $0.01 per share, outstanding as of April 29, 2022.


EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended March 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. 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 real estate investment trust, or REIT, and is the sole general partner of the Operating Partnership. As of March 31, 2022, American Assets Trust, Inc. owned an approximate 78.8% partnership interest in the Operating Partnership. The remaining approximately 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 debt refinancings, and can cause changes in its line of business, capital structure and distribution policies.

American Assets Trust, Inc. believes that combining the quarterly reports on Form 10-Q 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 American Assets Trust, Inc., directly or indirectly holds the ownership interests in American Assets Trust, Inc.'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 American Assets Trust, Inc.'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:

•consolidated financial statements;
•the following notes to the consolidated financial statements:
◦Debt;
◦Equity/Partners' Capital; and
◦Earnings Per Share/Unit; and

•Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations.

This report also includes separate Item 4. 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.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2022
 
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements of American Assets Trust, Inc.:
1
2
3
4
Consolidated Financial Statements of American Assets Trust, L.P.:
5
6
7
8
9
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


American Assets Trust, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)
 
March 31, December 31,
2022 2021
  (unaudited)
ASSETS
Real estate, at cost
Operating real estate $ 3,440,692  $ 3,389,726 
Construction in progress 159,066  139,098 
Held for development 547  547 
3,600,305  3,529,371 
Accumulated depreciation (868,848) (847,390)
Real estate, net 2,731,457  2,681,981 
Cash and cash equivalents 73,573  139,524 
Accounts receivable, net 7,876  7,445 
Deferred rent receivables, net 85,551  82,724 
Other assets, net 112,677  106,253 
TOTAL ASSETS $ 3,011,134  $ 3,017,927 
LIABILITIES AND EQUITY
LIABILITIES:
Secured notes payable, net $ 110,976  $ 110,965 
Unsecured notes payable, net 1,538,052  1,538,238 
Accounts payable and accrued expenses 68,797  64,531 
Security deposits payable 8,280  7,855 
Other liabilities and deferred credits, net 79,142  86,215 
Total liabilities 1,805,247  1,807,804 
Commitments and contingencies (Note 11)
EQUITY:
American Assets Trust, Inc. stockholders’ equity
Common stock, $0.01 par value, 490,000,000 shares authorized, 60,522,043 and 60,525,580 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
 605  605 
Additional paid-in capital 1,454,746  1,453,272 
Accumulated dividends in excess of net income (226,474) (217,785)
Accumulated other comprehensive income 7,063  2,872 
Total American Assets Trust, Inc. stockholders’ equity 1,235,940  1,238,964 
Noncontrolling interests (30,053) (28,841)
Total equity 1,205,887  1,210,123 
TOTAL LIABILITIES AND EQUITY $ 3,011,134  $ 3,017,927 
The accompanying notes are an integral part of these consolidated financial statements.
1
American Assets Trust, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
(In Thousands, Except Shares and Per Share Data)
  Three Months Ended March 31,
  2022 2021
REVENUE:
Rental income $ 96,986  $ 81,130 
Other property income 4,484  2,856 
Total revenue 101,470  83,986 
EXPENSES:
Rental expenses 24,145  18,246 
Real estate taxes 11,429  11,354 
General and administrative 7,142  6,823 
Depreciation and amortization 30,412  27,501 
Total operating expenses 73,128  63,924 
OPERATING INCOME 28,342  20,062 
Interest expense (14,666) (14,005)
Loss on early extinguishment of debt —  (4,271)
Other (expense) income, net (162) (53)
NET INCOME 13,514  1,733 
Net income attributable to restricted shares (155) (137)
Net income attributable to unitholders in the Operating Partnership (2,836) (339)
NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, INC. STOCKHOLDERS $ 10,523  $ 1,257 
EARNINGS PER COMMON SHARE
Earnings per common share, basic
 $ 0.18  $ 0.02 
Weighted average shares of common stock outstanding - basic 60,038,683  59,984,335 
Earnings per common share, diluted
 $ 0.18  $ 0.02 
Weighted average shares of common stock outstanding - diluted 76,220,220  76,165,872 
DIVIDENDS DECLARED PER COMMON SHARE $ 0.32  $ 0.28 
COMPREHENSIVE INCOME
Net income $ 13,514  $ 1,733 
Other comprehensive income - unrealized income on swap derivatives during the period 5,596  747 
Reclassification of amortization of forward-starting swap realized gains included in interest expense (275) (275)
Reclassification of amortization of forward-starting swap realized gain included in loss on early extinguishment of debt —  (193)
Comprehensive income 18,835  2,012 
Comprehensive income attributable to non-controlling interests (3,966) (407)
Comprehensive income attributable to American Assets Trust, Inc. $ 14,869  $ 1,605 
The accompanying notes are an integral part of these consolidated financial statements.
2
American Assets Trust, Inc.
Consolidated Statement of Equity
(Unaudited)
(In Thousands, Except Share Data)
  American Assets Trust, Inc. Stockholders’ Equity Noncontrolling Interests - Unitholders in the Operating Partnership Total
  Common Shares Additional
Paid-in
Capital		 Accumulated
Dividends in
Excess of Net
Income		 Accumulated Other Comprehensive Income (Loss)
  Shares Amount
Balance at December 31, 2021 60,525,580  $ 605  $ 1,453,272  $ (217,785) $ 2,872  $ (28,841) $ 1,210,123 
Net income —  —  —  10,678  —  2,836  13,514 
Forfeiture of restricted stock (3,121) —  —  —  —  —  — 
Dividends declared and paid —  —  —  (19,367) —  (5,178) (24,545)
Stock-based compensation —  —  1,489  —  —  —  1,489 
Shares withheld for employee taxes (416) —  (15) —  —  —  (15)
Other comprehensive gain - change in value of interest rate swaps —  —  —  —  4,408  1,188  5,596 
Reclassification of amortization of forward-starting swap realized gains included in interest expense —  —  —  —  (217) (58) (275)
Balance at March 31, 2022 60,522,043  $ 605  $ 1,454,746  $ (226,474) $ 7,063  $ (30,053) $ 1,205,887 
  Common Shares Additional
Paid-in
Capital		 Accumulated
Dividends in
Excess of Net
Income		 Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests - Unitholders in the Operating Partnership Total
  Shares Amount
Balance at December 31, 2020 60,476,292  $ 605  $ 1,445,644  $ (176,560) $ 1,753  $ (18,036) $ 1,253,406 
Net income —  —  —  1,394  —  339  1,733 
Forfeiture of restricted stock (4,006) —  —  —  —  —  — 
Dividends declared and paid —  —  —  (16,932) —  (4,531) (21,463)
Stock-based compensation —  —  1,484  —  —  —  1,484 
Other comprehensive gain - change in value of interest rate swaps —  —  —  —  579  168  747 
Reclassification of amortization of forward-starting swap realized gains included in interest expense —  —  —  —  (216) (59) (275)
Reclassification of amortization of forward-starting swap realized gains included in loss on early extinguishment of debt —  $ —  $ —  $ —  $ (152) $ (41) $ (193)
Balance at March 31, 2021 60,472,286  $ 605  $ 1,447,128  $ (192,098) $ 1,964  $ (22,160) $ 1,235,439 

The accompanying notes are an integral part of these consolidated financial statements.
3
American Assets Trust, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
  Three Months Ended March 31,
  2022 2021
OPERATING ACTIVITIES
Net income $ 13,514  $ 1,733 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred rent revenue and amortization of lease intangibles (4,508) (6,292)
Depreciation and amortization 30,412  27,501 
Amortization of debt issuance costs and debt discounts 640  577 
Loss on early extinguishment of debt —  4,271 
Provision for uncollectable rental income 92  3,213 
Stock-based compensation expense 1,489  1,484 
Unearned rents (3,758) (193)
Other, net (280) (50)
Changes in operating assets and liabilities
Change in accounts receivable (517) (1,841)
Change in other assets 50  651 
Change in accounts payable and accrued expenses 1,776  11,098 
Change in security deposits payable 237  39 
Change in other liabilities and deferred credits 2  314 
Net cash provided by operating activities 39,149  42,505 
INVESTING ACTIVITIES
Acquisition of real estate (45,167) — 
Capital expenditures (29,829) (11,372)
Leasing commissions (2,299) (844)
Net cash used in investing activities (77,295) (12,216)
FINANCING ACTIVITIES
Repayment of unsecured line of credit —  (100,000)
Proceeds from unsecured notes payable —  494,675 
Repayment of unsecured notes payable —  (155,375)
Repayment of notes payable to affiliates —  — 
Debt issuance costs (3,245) (5,025)
Dividends paid to common stock and unitholders (24,545) (21,463)
Shares withheld for employee taxes (15) — 
Net cash (used in) provided by financing activities (27,805) 212,812 
Net (decrease) increase in cash and cash equivalents (65,951) 243,101 
Cash, cash equivalents and restricted cash, beginning of period 139,524  139,049 
Cash, cash equivalents and restricted cash, end of period $ 73,573  $ 382,150 

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:
Three Months Ended March 31,
2022 2021
Cash and cash equivalents $ 73,573  $ 380,434 
Restricted cash —  1,716 
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows $ 73,573  $ 382,150 
The accompanying notes are an integral part of these consolidated financial statements.
4
American Assets Trust, L.P.
Consolidated Balance Sheets
(In Thousands, Except Unit Data)
 
March 31, December 31,
2022 2021
  (unaudited)
ASSETS
Real estate, at cost
Operating real estate $ 3,440,692  $ 3,389,726 
Construction in progress 159,066  139,098 
Held for development 547  547 
3,600,305  3,529,371 
Accumulated depreciation (868,848) (847,390)
Real estate, net 2,731,457  2,681,981 
Cash and cash equivalents 73,573  139,524 
Accounts receivable, net 7,876  7,445 
Deferred rent receivables, net 85,551  82,724 
Other assets, net 112,677  106,253 
TOTAL ASSETS $ 3,011,134  $ 3,017,927 
LIABILITIES AND CAPITAL
LIABILITIES:
Secured notes payable, net $ 110,976  $ 110,965 
Unsecured notes payable, net 1,538,052  1,538,238 
Accounts payable and accrued expenses 68,797  64,531 
Security deposits payable 8,280  7,855 
Other liabilities and deferred credits, net 79,142  86,215 
Total liabilities 1,805,247  1,807,804 
Commitments and contingencies (Note 11)
CAPITAL:
Limited partners' capital, 16,181,537 and 16,181,537 units issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
 (32,480) (30,138)
General partner's capital, 60,522,043 and 60,525,580 units issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
 1,228,877  1,236,092 
Accumulated other comprehensive income 9,490  4,169 
Total capital 1,205,887  1,210,123 
TOTAL LIABILITIES AND CAPITAL $ 3,011,134  $ 3,017,927 

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

5
American Assets Trust, L.P.
Consolidated Statements of Comprehensive Income
(Unaudited)
(In Thousands, Except Shares and Per Unit Data)
  Three Months Ended March 31,
  2022 2021
REVENUE:
Rental income $ 96,986  $ 81,130 
Other property income 4,484  2,856 
Total revenue 101,470  83,986 
EXPENSES:
Rental expenses 24,145  18,246 
Real estate taxes 11,429  11,354 
General and administrative 7,142  6,823 
Depreciation and amortization 30,412  27,501 
Total operating expenses 73,128  63,924 
OPERATING INCOME 28,342  20,062 
Interest expense (14,666) (14,005)
Loss on early extinguishment of debt —  (4,271)
Other (expense) income, net (162) (53)
NET INCOME 13,514  1,733 
Net income attributable to restricted shares (155) (137)
NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, L.P. $ 13,359  $ 1,596 
EARNINGS PER UNIT - BASIC
Earnings per unit, basic
 $ 0.18  $ 0.02 
Weighted average units outstanding - basic 76,220,220  76,165,872 
EARNINGS PER UNIT - DILUTED
Earnings per unit, diluted
 $ 0.18  $ 0.02 
Weighted average units outstanding - diluted 76,220,220  76,165,872 
DISTRIBUTIONS PER UNIT $ 0.32  $ 0.28 
COMPREHENSIVE INCOME
Net income $ 13,514  $ 1,733 
Other comprehensive income (loss) - unrealized income (loss) on swap derivatives during the period 5,596  747 
Reclassification of amortization of forward-starting swap realized gains included in interest expense (275) (275)
Reclassification of amortization of forward-starting swap realized gain included in loss on early extinguishment of debt —  (193)
Comprehensive income 18,835  2,012 
Comprehensive income attributable to Limited Partners (3,966) (407)
Comprehensive income attributable to General Partner $ 14,869  $ 1,605 

The accompanying notes are an integral part of these consolidated financial statements.
6
American Assets Trust, L.P.
Consolidated Statement of Partners' Capital
(Unaudited)
(In Thousands, Except Unit Data)

Limited Partners' Capital (1)
General Partner's Capital (2)
 Accumulated Other Comprehensive Income (Loss) Total Capital
Units Amount Units Amount
Balance at December 31, 2021 16,181,537  $ (30,138) 60,525,580  $ 1,236,092  $ 4,169  $ 1,210,123 
Net income —  2,836  —  10,678  —  13,514 
Forfeiture of restricted units —  —  (3,121) —  —  — 
Distributions —  (5,178) —  (19,367) —  (24,545)
Stock-based compensation —  —  —  1,489  —  1,489 
Units withheld for employee taxes —  —  (416) (15) —  (15)
Other comprehensive gain - change in value of interest rate swap —  —  —  —  5,596  5,596 
Reclassification of amortization of forward-starting swap realized gains included in interest expense —  —  —  —  (275) (275)
Balance at March 31, 2022 16,181,537  $ (32,480) 60,522,043  $ 1,228,877  $ 9,490  $ 1,205,887 
 
Limited Partners' Capital (1)
General Partner's Capital (2)
 Accumulated Other Comprehensive Income (Loss) Total Capital
  Units Amount Units Amount
Balance at December 31, 2020 16,181,537  $ (19,020) 60,476,292  $ 1,269,689  $ 2,737  $ 1,253,406 
Net income —  339  —  1,394  —  1,733 
Forfeiture of restricted units —  —  (4,006) —  —  — 
Distributions —  (4,531) —  (16,932) —  (21,463)
Stock-based compensation —  —  —  1,484  —  1,484 
Other comprehensive gain - change in value of interest rate swap —  —  —  —  747  747 
Reclassification of amortization of forward-starting swap realized gains included in interest expense —  —  —  —  (275) (275)
Reclassification of amortization of forward-starting swap included in loss on early extinguishment of debt —  $ —  —  $ —  $ (193) (193)
Balance at March 31, 2021 16,181,537  $ (23,212) 60,472,286  $ 1,255,635  $ 3,016  $ 1,235,439 


(1) Consists of limited partnership interests held by third parties.
(2) Consists of general partnership interests held by American Assets Trust, Inc.
The accompanying notes are an integral part of these consolidated financial statements.
7
American Assets Trust, L.P.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
  Three Months Ended March 31,
  2022 2021
OPERATING ACTIVITIES
Net income $ 13,514  $ 1,733 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred rent revenue and amortization of lease intangibles (4,508) (6,292)
Depreciation and amortization 30,412  27,501 
Amortization of debt issuance costs and debt discounts 640  577 
Loss on early extinguishment of debt —  4,271 
Provision for uncollectable rental income 92  3,213 
Stock-based compensation expense 1,489  1,484 
Unearned rents (3,758) (193)
Other, net (280) (50)
Changes in operating assets and liabilities
Change in accounts receivable (517) (1,841)
Change in other assets 50  651 
Change in accounts payable and accrued expenses 1,776  11,098 
Change in security deposits payable 237  39 
Change in other liabilities and deferred credits 2  314 
Net cash provided by operating activities 39,149  42,505 
INVESTING ACTIVITIES
Acquisition of real estate (45,167) — 
Capital expenditures (29,829) (11,372)
Leasing commissions (2,299) (844)
Net cash used in investing activities (77,295) (12,216)
FINANCING ACTIVITIES
Repayment of unsecured line of credit —  (100,000)
Proceeds from unsecured notes payable —  494,675 
Repayment of unsecured notes payable —  (155,375)
Debt issuance costs (3,245) (5,025)
Distributions (24,545) (21,463)
Shares withheld for employee taxes (15) — 
Net cash (used in) provided by financing activities (27,805) 212,812 
Net (decrease) increase in cash and cash equivalents (65,951) 243,101 
Cash, cash equivalents and restricted cash, beginning of period 139,524  139,049 
Cash, cash equivalents and restricted cash, end of period $ 73,573  $ 382,150 

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:
Three Months Ended March 31,
2022 2021
Cash and cash equivalents $ 73,573  $ 380,434 
Restricted cash —  1,716 
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows $ 73,573  $ 382,150 
The accompanying notes are an integral part of these consolidated financial statements.
8
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
American Assets Trust, Inc. (which may be referred to in these financial statements as the “Company,” “we,” “us,” or “our”) is a Maryland corporation formed on July 16, 2010 that did not have any operating activity until the consummation of our initial public offering on January 19, 2011. The Company is the sole general partner of American Assets Trust, L.P., a Maryland limited partnership formed on July 16, 2010 (the “Operating Partnership”). The Company’s operations are carried on through our Operating Partnership and its subsidiaries, including our taxable real estate investment trust ("REIT") subsidiary ("TRS"). Since the formation of our Operating Partnership, the Company has controlled our Operating Partnership as its general partner and has consolidated its assets, liabilities and results of operations.
We are a full service, vertically integrated, and self-administered REIT with approximately 207 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.
As of March 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 March 31, 2022, we owned land at three of our properties that we classify as held for development and/or construction in progress. A summary of the properties owned by us is as follows:
Retail
Carmel Country Plaza Gateway Marketplace Alamo Quarry Market
Carmel Mountain Plaza Del Monte Center Hassalo on Eighth - Retail
South Bay Marketplace Geary Marketplace
Lomas Santa Fe Plaza The Shops at Kalakaua
Solana Beach Towne Centre Waikele Center
Office
La Jolla Commons One Beach Street Corporate Campus East III
Torrey Reserve Campus First & Main Bel-Spring 520
Torrey Point Lloyd Portfolio
Solana Crossing City Center Bellevue
The Landmark at One Market Eastgate Office Park
Multifamily
Loma Palisades Hassalo on Eighth - Residential
Imperial Beach Gardens
Mariner's Point
Santa Fe Park RV Resort
Pacific Ridge Apartments
Mixed-Use
Waikiki Beach Walk Retail and Embassy Suites™ Hotel
Held for Development and/or Construction in Progress
La Jolla Commons – Land
Solana Crossing – Land
Lloyd Portfolio – Construction in Progress
9
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)


Basis of Presentation
Our consolidated financial statements include the accounts of the Company, our Operating Partnership and our subsidiaries. The equity interests of other investors in our Operating Partnership are reflected as noncontrolling interests.
The Company follows the Financial Accounting Standards Board (the "FASB") guidance for determining whether an entity is a variable interest entity (“VIE”) 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.
The accompanying consolidated financial statements of the Company and the Operating Partnership have been prepared in accordance with the rules applicable to Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (“GAAP”) for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and notes therein included in the Company's and Operating Partnership's annual report on Form 10-K for the year ended December 31, 2021.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using our best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.
Any reference to the number of properties, number of units, square footage, employee numbers or percentages of beneficial ownership of our shares are unaudited and outside the scope of our independent registered public accounting firm’s review of our financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.
Consolidated Statements of Cash Flows—Supplemental Disclosures
The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows (in thousands): 
  Three Months Ended March 31,
  2022 2021
Supplemental cash flow information
Total interest costs incurred $ 15,847  $ 14,564 
Interest capitalized $ 1,181  $ 559 
Interest expense $ 14,666  $ 14,005 
Cash paid for interest, net of amounts capitalized $ 19,722  $ 13,069 
Cash paid for income taxes $ 127  $ 71 
Supplemental schedule of noncash investing and financing activities    
Accounts payable and accrued liabilities for construction in progress $ 19,677  $ 7,109 
Accrued leasing commissions $ 3,389  $ 631 


10
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

 Significant Accounting Policies

We describe our significant accounting policies in Note 1 to the consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no changes to our significant accounting policies during the three months ended March 31, 2022.

Segment Information
Segment information is prepared on the same basis that our chief operating decision maker reviews information for operational decision-making purposes. We operate in four business segments: the acquisition, redevelopment, ownership and management of 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.
Revenue Recognition and Accounts Receivable
Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed rent escalations which occur at specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease, net of valuation adjustments, based on management's assessment of credit, collection and other business risks.
We make estimates of the collectability of our current accounts receivable and straight-line rents receivable which require significant judgment by management. The collectability of receivables is affected by numerous different factors including current economic conditions, the impact of tenant bankruptcies, the status of collectability of current cash rents receivable, tenants' recent and historical financial and operating results, changes in our tenants' credit ratings, communications between our operating personnel and tenants, the extent of security deposits and letters of credit held with respect to tenants, and the ability of tenants to perform under the terms of their lease agreement. The provision for doubtful accounts at March 31, 2022 and December 31, 2021 was approximately $4.4 million and $4.6 million, respectively.
Rent Concessions – COVID-19
In 2021, we provided lease concessions to certain tenants, primarily within the retail segment, as a result of the COVID-19 pandemic, in the form of rent deferrals and abatements. These lease concessions generally included an increase in our rights as a lessor. We assess each lease concession and determine whether it represents a lease modifications under Accounting Standards Codification Topic 842, Leases ("ASC 842"). During the first quarter of 2022, we provided an immaterial amount of lease concessions to certain tenants that continued being impacted by the Covid-19 pandemic.
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, and permits the shortcut method to continue to be applied. For contract modifications, changes in the reference rate or other critical terms will be treated as a continuation of the prior contract. This guidance can be applied immediately, however, it is generally only available through December 31, 2022. We are still evaluating the impact of reference rate reform and whether we will apply any of these practical expedients.
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American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

NOTE 2. REAL ESTATE
Property Asset Acquisitions
On March 8, 2022, we acquired Bel-Spring 520 in Bellevue, Washington, consisting of an approximately 93,000 square feet, multi-tenant office campus. The purchase price was $45.5 million, less seller credits of approximately $0.1 million of future rent abatement, and approximately $0.6 million of contractual tenant improvements. Additionally, closing costs were approximately $0.1 million.
The property was acquired with cash on hand.
The financial information set forth below summarizes the Company’s purchase price allocation for Bel-Spring 520 during the three months ended March 31, 2022 (in thousands):
 
Bel-Spring 520
Land $ 13,744 
Building 27,793 
Land improvements 713 
Furniture, fixtures, and equipment 1,833 
Total real estate 44,083 
Lease intangibles 2,036 
Prepaid expenses and other assets 10 
Assets acquired $ 46,129 
Accounts payable and accrued expenses $ (14)
Security deposits payable (189)
Other liabilities and deferred credits (641)
Liabilities assumed $ (844)

The value allocated to lease intangibles is amortized over the related lease term as depreciation and amortization expense in the statement of income. The remaining weighted average amortization period as of March 31, 2022, is 3.8.
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 March 31, 2022 (in thousands):

Bel-Spring 520
Revenues $ 201 
Operating expenses 212 
Operating loss (11)
Net loss attributable to American Assets Trust, Inc. $ (11)

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American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

NOTE 3. ACQUIRED IN-PLACE LEASES AND ABOVE/BELOW MARKET LEASES
The following summarizes our acquired lease intangibles and leasing costs, which are included in other assets and other liabilities and deferred credits, as of March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022 December 31, 2021
In-place leases $ 68,803  $ 67,215 
Accumulated amortization (40,389) (38,130)
Above market leases 2,532  2,532 
Accumulated amortization (2,394) (2,383)
Acquired lease intangible assets, net $ 28,552  $ 29,234 
Below market leases $ 59,266  $ 58,655 
Accumulated accretion (37,093) (36,253)
Acquired lease intangible liabilities, net $ 22,173  $ 22,402 

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.

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.

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American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with 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 March 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):
  March 31, 2022 December 31, 2021
  Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Deferred compensation liability $ —  $ 2,193  $ —  $ 2,193  $ —  $ 2,503  $ —  $ 2,503 
Interest rate swap asset $ —  $ 3,789  $ —  $ 3,789  $ —  $ —  $ —  $ — 
Interest rate swap liability $ —  $ —  $ —  $ —  $ —  $ 1,807  $ —  $ 1,807 
 The fair value of our secured notes payable and unsecured senior guaranteed notes are sensitive to fluctuations in interest rates. Discounted cash flow analysis using observable market interest rates (Level 2) is generally used to estimate the fair value of our secured notes payable, using rates ranging from 3.5% to 4.5%.
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 revolving 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 contracts. A summary of the carrying amount and fair value of our secured financial instruments, all of which are based on Level 2 inputs, is as follows (in thousands):  
  March 31, 2022 December 31, 2021
  Carrying Value Fair Value Carrying Value Fair Value
Secured notes payable, net $ 110,976  $ 111,900  $ 110,965  $ 113,207 
Unsecured term loans, net $ 249,107  $ 250,000  $ 249,654  $ 250,000 
Unsecured senior guaranteed notes, net $ 798,055  $ 805,048  $ 797,953  $ 832,795 
Senior unsecured notes, net $ 490,890  $ 470,150  $ 490,631  $ 503,000 

NOTE 5. DERIVATIVE AND HEDGING ACTIVITIES

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements.  To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 
The following is a summary of the terms of our outstanding interest rate swaps as of March 31, 2022 (dollars in thousands):
Swap Counterparty   Notional Amount   Effective Date   Maturity Date   Fair Value
U.S. Bank N.A. $ 100,000  3/1/2016 3/1/2023 $ 125 
Wells Fargo Bank, N.A. $ 50,000  5/2/2016 3/1/2023 $ 55 
Bank of America, N.A. $ 50,000  1/14/2022 1/5/2027 $ 1,807 
Wells Fargo Bank, N.A. $ 50,000  1/14/2022 1/5/2027 $ 1,802 
The effective portion of changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income and will be subsequently reclassified into earnings during the period in
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American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

which the hedged forecasted transaction affects earnings for as long as hedged cash flows remain probable. During the next twelve months, we estimate the cash flow hedges in place will reduce interest expense by approximately $1.1 million.
The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative.  This analysis reflects the contractual terms of the derivative, including the period to maturity, counter party credit risk and uses observable market-based inputs, including interest rate curves, and implied volatilities.  The fair value of the interest rate swap is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts).  The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. 
NOTE 6. OTHER ASSETS

Other assets consist of the following (in thousands): 
March 31, 2022 December 31, 2021
Leasing commissions, net of accumulated amortization of $41,291 and $40,595, respectively
 $ 40,110  $ 38,589 
Interest rate swap asset 3,789  — 
Acquired above market leases, net 138  149 
Acquired in-place leases, net 28,414  29,085 
Lease incentives, net of accumulated amortization of $928 and $913, respectively
 662  595 
Other intangible assets, net of accumulated amortization of $1,477 and $1,382, respectively
 2,452  2,445 
Debt issuance costs, net of accumulated amortization of $2,232 and $2,070, respectively
 2,430  — 
Right-of-use lease asset, net 25,678  26,254 
Prepaid expenses and other 9,004  9,136 
Total other assets $ 112,677  $ 106,253 

NOTE 7. OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits consist of the following (in thousands):
March 31, 2022 December 31, 2021
Acquired below market leases, net $ 22,173  $ 22,402 
Prepaid rent and deferred revenue 12,964  16,309 
Interest rate swap liability —  1,807 
Deferred rent expense and lease intangible —  3 
Deferred compensation 2,193  2,503 
Deferred tax liability 967  967 
Straight-line rent liability 13,420  14,274 
Lease liability 27,378  27,917 
Other liabilities 47  33 
Total other liabilities and deferred credits, net $ 79,142  $ 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.

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American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

NOTE 8. 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. Additionally, American Assets Trust, Inc. has provided a carve-out guarantee on the property-level mortgage debt at City Center Bellevue.
Debt of American Assets Trust, L.P.
Secured notes payable
The following table is a summary of our total secured notes payable outstanding as of March 31, 2022 and December 31, 2021 (in thousands):
  Principal Balance as of Stated Interest Rate Stated Maturity Date
Description of Debt March 31, 2022 December 31, 2021 as of March 31, 2022
City Center Bellevue (1)
 $ 111,000  $ 111,000  3.98  % November 1, 2022
111,000  111,000 
Debt issuance costs, net of accumulated amortization of $397 and $387, respectively
 (24) (35)
Total Secured Notes Payable Outstanding $ 110,976  $ 110,965 

(1)Interest only.
Certain loans require the Operating Partnership to comply with various financial covenants. As of March 31, 2022, the Operating Partnership was in compliance with these financial covenants.
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American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

Unsecured notes payable
The following table is a summary of the Operating Partnership's total unsecured notes payable outstanding as of March 31, 2022 and December 31, 2021 (in thousands):
Description of Debt Principal Balance as of Stated Interest Rate Stated Maturity Date
March 31, 2022 December 31, 2021 as of March 31, 2022
Term Loan A $ 100,000  $ 100,000  Variable
(1)
 January 5, 2027
Term Loan B 100,000  100,000  Variable
(2)
 March 1, 2023
Term Loan C 50,000  50,000  Variable
(3)
 March 1, 2023
Senior Guaranteed Notes, Series F 100,000  100,000  3.78  %
(4)
 July 19, 2024
Senior Guaranteed Notes, Series B 100,000  100,000  4.45  % February 2, 2025
Senior Guaranteed Notes, Series C 100,000  100,000  4.50  % April 1, 2025
Senior Guaranteed Notes, Series D 250,000  250,000  4.29  %
(5)
 March 1, 2027
Senior Guaranteed Notes, Series E 100,000  100,000  4.24  %
(6)
 May 23, 2029
Senior Guaranteed Notes, Series G 150,000  150,000  3.91  %
(7)
 July 30, 2030
3.375% Senior Unsecured Notes 500,000  500,000  3.38  % February 1, 2031
1,550,000  1,550,000 
Debt discount and issuance costs, net of accumulated amortization of $9,798 and $9,462, respectively
 (11,948) (11,762)
Total Unsecured Notes Payable $ 1,538,052  $ 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)The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan B at approximately 3.15% through its maturity date, subject to adjustments based on our consolidated leverage ratio. Effective March 1, 2018, the effective interest rate associated with Term Loan B is approximately 2.65%, subject to adjustments based on our consolidated leverage ratio.
(3)The Operating Partnership has entered into an interest rate swap agreement that is intended to fix the interest rate associated with Term Loan C at approximately 3.14% through its maturity date, subject to adjustments based on our consolidated leverage ratio. Effective March 1, 2018, the effective interest rate associated with Term Loan C is approximately 2.64%, subject to adjustments based on our consolidated leverage ratio.
(4)The Operating Partnership entered into a treasury lock contract on May 31, 2017, which was settled on June 23, 2017 at a loss of approximately $0.5 million. The treasury lock contract was deemed to be a highly effective cash flow hedge; accordingly, the effective interest rate is approximately 3.85% per annum.
(5)The Operating Partnership entered into forward-starting interest rate swap contracts on March 29, 2016 and April 7, 2016, which were settled on January 18, 2017 at a gain of approximately $10.4 million. Each of the forward-starting interest swap rate contracts were deemed to be a highly effective cash flow hedge; accordingly, the effective interest rate is approximately 3.87% per annum.
(6)The Operating Partnership entered into a treasury lock contract on April 25, 2017, which was settled on May 11, 2017 at a gain of approximately $0.7 million. The treasury lock contract was deemed to be a highly effective cash flow hedge; accordingly, the effective interest rate is approximately 4.18% per annum.
(7)The Operating Partnership entered into a treasury lock contract on June 20, 2019, which was settled on July 17, 2019 at a gain of approximately $0.5 million. The treasury lock contract was deemed to be a highly effective cash flow hedge; accordingly, the effective interest rate is approximately 3.88% per annum.

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.
Certain unsecured loans and notes require the Operating Partnership to comply with various financial covenants. As of March 31, 2022, the Operating Partnership was in compliance with these financial covenants.

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American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

Amended Term Loan Agreement

On January 9, 2018, we entered into the Third Amendment to the Term Loan Agreement (as so amended, the "Term Loan Agreement"), which maintains the seven years $150 million unsecured term loan (referred to herein as 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. 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.

Third Amended and Restated Credit Facility
On January 9, 2018, we entered into a second amended and restated credit agreement (the "Second Amended and Restated Credit Facility"). The Second Amended and Restated Credit Facility provides 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 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 Agreement initially bore interest at floating rates equal to, at our option, either (1) LIBOR, plus a spread which ranges from (a) 1.05% to 1.50% (with respect to the Revolver Loan) and (b) 1.30% to 1.90% (with respect to Term Loan A), in each case based on our consolidated leverage ratio, or (2) a base rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 50 bps or (c) LIBOR plus 100 bps, plus a spread which ranges from (i) 0.10% to 0.50% (with respect to the Revolver Loan) and (ii) 0.30% to 0.90% (with respect to Term Loan A), in each case based on our consolidated leverage ratio.
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. In October 2020, we exercised an option to extend the maturity date of Term Loan A to January 9, 2022, subject to certain conditions. Additionally, in connection with the First Amendment, borrowings under the Second Amended and Restated Credit Facility with respect to Term Loan A bore 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 intended to be 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% to 1.50% (with respect to the 2022 Revolver Loans) and (b) 1.20% to 1.70% (with respect to the 2022 Term Loan A), in each case based on our consolidated leverage ratio, or (2) a base rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 50 bps, (c) the Term SOFR Screen Rate with a term of one month plus 100 bps and (d) 1.00%, plus a spread which ranges from (i) 0.10% to 0.50% (with respect to the 2022 Revolver Loan) and (ii) 0.20% to 0.70% (with respect to the 2022 Term Loan A), in each case based on our consolidated leverage ratio. On January 14, 2022, the Operating Partnership entered into two interest rate swap agreements that are intended to fix the interest rate associated with the 2022 Term Loan A at approximately 2.70% through January 5, 2027, subject to adjustments based on our consolidated leverage ratio. At March 31, 2022, there were no amounts outstanding under the 2022 Revolver Loan and we had incurred approximately $2.4 million of debt issuance costs, net, which are recorded in other assets,
18
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

net on the consolidated balance sheets. For the three months ended March 31, 2022, the weighted average interest rate on the 2022 Revolver Loan was 1.24%

Additionally, the Third Amended and Restated Credit Facility includes a number of customary financial covenants, including:
•A maximum leverage ratio (defined as total indebtedness net of certain cash and cash equivalents to total asset value) of 60%;
•A maximum secured leverage ratio (defined as total secured debt to secured total asset value) of 40%;
•A minimum fixed charge coverage ratio (defined as consolidated earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 1.50x;
•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.
The Third Amended and Restated Credit Facility provides that our annual distributions may not exceed the greater of (1) 95% of our funds from operation ("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 March 31, 2022, the Operating Partnership was in compliance with the financial covenants in the Third Amended and Restated Credit Facility.
NOTE 9. PARTNERS' CAPITAL OF AMERICAN ASSETS TRUST, L.P.
Noncontrolling interests in our Operating Partnership are interests in the Operating Partnership that are not owned by us. Noncontrolling interests consisted of 16,181,537 common units (the “noncontrolling common units”), and represented approximately 21.2% of the ownership interests in our Operating Partnership at March 31, 2022. Common units and shares of our common stock have essentially the same economic characteristics in that common units and shares of our common stock share equally in the total net income or loss distributions of our Operating Partnership. Investors who own common units have the right to cause our Operating Partnership to redeem any or all of their common units for cash equal to the then-current market value of one share of our common stock, or, at our election, shares of our common stock on a one-for-one basis.
During the three months ended March 31, 2022, no common units were converted into shares of our common stock.
Earnings Per Unit of the Operating Partnership
Basic earnings per unit (“EPU”) of the Operating Partnership is computed by dividing income applicable to unitholders by the weighted average Operating Partnership units outstanding, as adjusted for the effect of participating securities. Operating Partnership units granted in equity-based payment transactions that have non-forfeitable dividend equivalent rights are considered participating securities prior to vesting. The impact of unvested Operating Partnership unit awards on EPU has been calculated using the two-class method whereby earnings are allocated to the unvested Operating Partnership unit awards based on distributions and the unvested Operating Partnership units’ participation rights in undistributed earnings.
The calculation of diluted EPU for the three months ended March 31, 2022 and 2021 does not include the weighted average of 485,493 and 489,775 unvested outstanding Operating Partnership units, respectively, as these equity securities are either considered contingently issuable or the effect of including these equity securities was anti-dilutive to income from continuing operations and net income attributable to the unitholders.
19
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

NOTE 10. EQUITY OF AMERICAN ASSETS TRUST, INC.
Stockholders' Equity
On December 3, 2021, we entered into an at-the-market ("ATM") equity program with five sales agents in which we may, from time to time, offer and sell shares of our common stock having an aggregate offering price of up to $250.0 million. The sales of shares of our common stock made through the ATM equity program, as amended, are made in "at-the-market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended. For the three months ended March 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 March 31, 2022, we had the capacity to issue up to $250.0 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 March 31, 2022, we have no obligation to sell the remaining shares available for sale under the ATM equity program.
Dividends
The following table lists the dividends declared and paid on our shares of common stock and noncontrolling common units during the three months ended March 31, 2022:
Period Amount per
Share/Unit		 Period Covered Dividend Paid Date
First Quarter 2022 $ 0.32  January 1, 2022 to March 31, 2022 March 24, 2022
Taxability of Dividends
Earnings and profits, which determine the taxability of distributions to stockholders and holders of common units, may differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of revenue recognition and compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation.
Stock-Based Compensation

We follow the FASB guidance related to stock-based compensation which establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer.  The guidance also defines a fair value-based method of accounting for an employee stock award or similar equity instrument.
The following table summarizes the activity of restricted stock awards during the three months ended March 31, 2022:
Units Weighted Average Grant Date Fair Value
Nonvested at January 1, 2022 487,397  $ 23.78 
Granted —  — 
Vested (1,166) 22.66 
Forfeited (3,121) 23.18 
Nonvested at March 31, 2022 483,110  $ 23.78 
We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $1.5 million and $1.5 million in noncash compensation expense for the three months ended March 31, 2022 and 2021, respectively, which is included in general and administrative expenses on the consolidated statements of comprehensive income.
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American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

Earnings Per Share
We have calculated earnings per share (“EPS”) under the two-class method. The two-class method is an earnings allocation methodology whereby EPS for each class of common stock and participating security is calculated according to dividends declared and participation rights in undistributed earnings. The weighted average unvested shares outstanding, which are considered participating securities, were 485,493 and 489,775 for the three months ended March 31, 2022 and 2021, respectively. Therefore, we have allocated our earnings for basic and diluted EPS between common shares and unvested shares as these unvested shares have nonforfeitable dividend equivalent rights.
Diluted EPS is calculated by dividing the net income applicable to common stockholders for the period by the weighted average number of common and dilutive instruments outstanding during the period using the treasury stock method. For the three months ended March 31, 2022 and 2021, 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.
The computation of basic and diluted EPS is presented below (dollars in thousands, except share and per share amounts): 
Three Months Ended March 31,
2022 2021
NUMERATOR
Net income $ 13,514  $ 1,733 
Less: Net income attributable to restricted shares (155) (137)
Less: Income from operations attributable to unitholders in the Operating Partnership
 (2,836) (339)
Net income attributable to common stockholders—basic
 $ 10,523  $ 1,257 
Income from operations attributable to American Assets Trust, Inc. common stockholders—basic
 $ 10,523  $ 1,257 
Plus: Income from operations attributable to unitholders in the Operating Partnership
 2,836  339 
Net income attributable to common stockholders—diluted
 $ 13,359  $ 1,596 
DENOMINATOR
Weighted average common shares outstanding—basic 60,038,683  59,984,335 
Effect of dilutive securities—conversion of Operating Partnership units
 16,181,537  16,181,537 
Weighted average common shares outstanding—diluted 76,220,220  76,165,872 
Earnings per common share, basic $ 0.18  $ 0.02 
Earnings per common share, diluted $ 0.18  $ 0.02 

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 initial taxable year. As a REIT, we are generally not subject to corporate level income tax on the earnings distributed currently to our stockholders that we derive from our REIT qualifying activities. Taxable income from non-REIT activities managed through our TRS is subject to federal and state income taxes.

We lease our hotel property to a wholly owned TRS that is subject to federal and state income taxes. We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between GAAP carrying amounts and their respective tax bases. Additionally, we classify certain state taxes as income taxes for financial reporting purposes in accordance with ASC Topic 740, Income Taxes.
A deferred tax liability is included in the other liabilities and deferred credits, net on our consolidated balance sheets of $1.0 million and $1.0 million as of March 31, 2022 and December 31, 2021, respectively, in relation to real estate asset basis differences of property subject to state taxes based on income and certain prepaid expenses of our TRS.
21
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

Income tax expense is recorded in other (expense) income, net on our consolidated statements of comprehensive income. For the three months ended March 31, 2022, we recorded income tax expense of $0.2 million. For the three months ended March 31, 2021, we recorded income tax expense of $0.1 million.
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 operation of the properties by the tenant.
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 a management agreement with Outrigger pursuant to which Outrigger manages our Waikele Center and Shops at Kalakaua. In connection with such management agreement, we pay Outrigger a fixed management fee of $12,000 per month in the aggregate plus additional amounts for any lease renewal services provided by Outrigger at our request. This management agreement can be terminated by us at any time and for any reason on 30 days' notice without any cancellation or termination fees.
22
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

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 SuitesTM 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 2022 and 5.0% of the hotel's gross room revenue thereafter, as well as a monthly program fee equal to 4.0% of the hotel's gross room revenue. If the franchise license is terminated due to our failure to make required improvements or to otherwise comply with its terms, we may be liable to the franchisor for a termination payment, which could be as high as $4.0 million based on operating performance through March 31, 2022.
Our Del Monte Center property has ongoing environmental remediation related to ground water contamination. The environmental issue existed at purchase and remains in remediation. The final stages of the remediation will include routine, long term ground monitoring by the appropriate regulatory agency over the next five years to seven years. The work performed is financed through an escrow account funded by the seller upon 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.
Concentrations of Credit Risk
Our properties are located in Southern California, Northern California, Washington, Oregon, Texas and Hawaii. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory, social, and health factors affecting the markets in which the tenants operate including, without limitation, the impact the COVID-19 pandemic has had on our tenants. Fifteen of our consolidated properties are located in Southern California, which exposes us to greater economic risks than if we owned a more geographically diverse portfolio. Tenants in the retail industry accounted for 24.5% of total revenues for the three months ended March 31, 2022. This makes us susceptible to demand for retail rental space and subject to the risks associated with an investment in real estate with a concentration of tenants in the retail industry. Furthermore, tenants in the office industry accounted for 48.9% of total revenues for the three months ended March 31, 2022. This makes us susceptible to demand for office rental space and subject to the risks associated with an investment in real estate with a concentration of tenants in the office industry. For the three months ended March 31, 2022 and 2021, no tenant accounted for more than 10% of our total rental revenue.
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 7 to 15 months, with a majority having 12-month lease terms. Rooms at the hotel portion of our mixed-use property are rented on a nightly basis.
23
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

Leases at our office and retail properties and the retail portion of our mixed-use property may contain lease extension options, at our lessee's discretion. The extension options are generally for 3 to 10 years and contain primarily rent at fixed rates or the prevailing market rent. The extension options are generally exercisable 6 to 12 months prior to the expiration of the lease and require the lessee to not be in default of the lease terms.
We attempt to maximize the amount we expect to derive from the underlying real estate property following the end of a lease, to the extent it is not extended.  We maintain a proactive leasing and capital improvement program that, combined with the quality and locations of our properties, has made our properties attractive to tenants. However, the residual value of a real estate property is still subject to various market-specific, asset-specific, and tenant-specific risks and characteristics. 
As of March 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 (in thousands):
 
Year Ending December 31,
2022 (nine months ending December 31, 2022) $ 239,547 
2023 234,623 
2024 205,630 
2025 181,665 
2026 166,468 
Thereafter 409,675 
Total $ 1,437,608 
 
The above future minimum rentals exclude residential leases, which typically have a term of 12 months or less, and exclude the hotel, as rooms are rented on a nightly basis.

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.
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.
24
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

Current annual payments under the operating leases are as follows, as of March 31, 2022 (in thousands): 
Year Ending December 31,
2022 (nine months ending December 31, 2022) $ 2,436 
2023 3,328 
2024 3,428 
2025 3,531 
2026 3,584 
Thereafter 16,126 
Total lease payments 32,433 
Imputed interest (5,055)
Present value of lease liability $ 27,378 

Lease costs under the operating leases are as follows (in thousands):    
Three Months Ended March 31,
2022 2021
Operating lease cost $ 844  $ 1,132 
Variable lease cost —  — 
Sublease income (763) (1,194)
Total lease (income) cost $ 81  $ (62)
Weighted-average remaining lease term - operating leases (in years) 9.3
Weighted-average discount rate - operating leases 3.19  %

Supplemental cash flow information and non-cash activity related to our operating leases are as follow (in thousands):
Three Months Ended March 31,
2022 2021
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities $ 796  $ 865 


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.
25
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

NOTE 14. COMPONENTS OF RENTAL INCOME AND EXPENSE
The principal components of rental income are as follows (in thousands): 
  Three Months Ended March 31,
  2022 2021
Lease rental income
Office $ 48,050  $ 43,362 
Retail 24,041  20,853 
Multifamily 12,916  11,752 
Mixed-use 2,800  795 
Percentage rent 482  526 
Hotel revenue 8,055  3,271 
Other 642  571 
Total rental income $ 96,986  $ 81,130 
Lease rental income includes $3.7 million and $5.5 million for the three months ended March 31, 2022 and 2021, respectively, to recognize lease rental income on a straight-line basis. In addition, net amortization of above and below market leases included in lease rental income was $0.8 million and $0.8 million for the three months ended March 31, 2022 and 2021, respectively.
The principal components of rental expenses are as follows (in thousands): 
  Three Months Ended March 31,
  2022 2021
Rental operating $ 11,144  $ 9,496 
Hotel operating 5,648  2,724 
Repairs and maintenance 4,760  3,742 
Marketing 519  393 
Rent 809  1,152 
Hawaii excise tax 809  532 
Management fees 456  207 
Total rental expenses $ 24,145  $ 18,246 

NOTE 15. OTHER (EXPENSE) INCOME, NET
The principal components of other expense, net, are as follows (in thousands):
 
  Three Months Ended March 31,
  2022 2021
Interest and investment income $ 36  $ 74 
Income tax expense (198) (127)
Other non-operating expense —  — 
Total other (expense) income, net $ (162) $ (53)

26
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

NOTE 16. RELATED PARTY TRANSACTIONS

During the first quarter of 2019, we terminated a lease agreement with American Assets, Inc. ("AAI"), an entity owned and controlled by Ernest Rady, our Chief Executive Officer and Chairman of the Board, 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 AAI leases of $0.1 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively, is included in rental income on the statements of comprehensive income.
    
The Waikiki Beach Walk entities have a 47.7% investment in WBW CHP LLC, an entity that was formed to, among other things, construct a chilled water plant to provide air conditioning to the property and other adjacent facilities. The operating expenses of WBW CHP LLC are recovered through reimbursements from its members, and reimbursements to WBW CHP LLC of $0.3 million and $0.3 million for the three months ended March 31, 2022 and 2021, respectively, are included in rental expenses on the consolidated 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 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.
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): 
27
American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
March 31, 2022
(Unaudited)

  Three Months Ended March 31,
  2022 2021
Total Office
Property revenue $ 49,569  $ 44,464 
Property expense (13,330) (11,364)
Segment profit 36,239  33,100 
Total Retail
Property revenue 24,841  21,774 
Property expense (7,728) (7,442)
Segment profit 17,113  14,332 
Total Multifamily
Property revenue 13,889  12,552 
Property expense (6,079) (5,491)
Segment profit 7,810  7,061 
Total Mixed-Use
Property revenue 13,171  5,196 
Property expense (8,437) (5,303)
Segment profit 4,734  (107)
Total segments’ profit $ 65,896  $ 54,386 
The following table is a reconciliation of segment profit to net income attributable to stockholders (in thousands):
  Three Months Ended March 31,
  2022 2021
Total segments’ profit $ 65,896  $ 54,386 
General and administrative