Edgar Filing: American Assets Trust, Inc.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

AMERICAN ASSETS TRUST, INC.

(Exact Name of Registrant as Specified in its Charter)

Commission file number: 001-35030

AMERICAN ASSETS TRUST, L.P.

(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.)

	11455 El Camino Real, Suite 200, San Diego, California (Address of Principal Executive Offices)	92130 (Zip Code)
		92130 (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. x Yes o No

American Assets Trust, L.P. x Yes o 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. x Yes o No

American Assets Trust, L.P. x Yes o 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	x		Accelerated Filer	o
Non-Accelerated Filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o
Emerging growth company	o

American Assets Trust, L.P.



Large Accelerated Filer	o		Accelerated Filer	o
Non-Accelerated Filer	x	(Do not check if a smaller reporting company)	Smaller reporting company	o
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



o

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. o Yes x No

American Assets Trust, L.P. o Yes x No

American Assets Trust, Inc. had 47,222,121 shares of common stock, par value $0.01 per share, outstanding as of November 2, 2018.

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2018 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 September 30, 2018, American Assets Trust, Inc. owned an approximate 73.2% partnership interest in the Operating Partnership. The remaining 26.8% partnership interests are owned by non-affiliated investors and certain of our directors and executive officers. As the sole general partner of the Operating Partnership, American Assets Trust, Inc. has full, exclusive and complete authority and control over the Operating Partnership’s day-to-day management and business, can cause it to enter into certain major transactions, including acquisitions, dispositions and refinancings, and can cause changes in its line of business, capital structure and distribution policies.

The company believes that combining the 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.

Management operates American Assets Trust, Inc. and the Operating Partnership as one enterprise. The management of American Assets Trust, Inc. and the Operating Partnership are the same.

There are a few differences between American Assets Trust, Inc. and the Operating Partnership, which are reflected in the disclosures in this report. We believe it is important to understand the differences between American Assets Trust, Inc. and the Operating Partnership in the context of how American Assets Trust, Inc. and the Operating Partnership operate as an interrelated consolidated company. American Assets Trust, Inc. is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership. As a result, American Assets Trust, Inc. does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain debt of the Operating Partnership. American Assets Trust, Inc. itself does not hold any indebtedness. The Operating Partnership holds substantially all the assets of the company, directly or indirectly holds the ownership interests in the company’s real estate ventures, conducts the operations of the business and is structured as a partnership with no publicly-traded equity. Except for net proceeds from public equity issuances by American Assets Trust, Inc., which are generally contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of operating partnership units.

Noncontrolling interests and stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of American Assets Trust, Inc. and those of American Assets Trust, L.P. The partnership interests in the Operating Partnership that are not owned by American Assets Trust, Inc. are accounted for as partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in American Assets Trust, Inc.’s financial statements. To help investors understand the significant differences between the company 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.

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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.

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AMERICAN ASSETS TRUST, INC. AND AMERICAN ASSETS TRUST, L.P.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2018



PART 1. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Financial Statements of American Assets Trust, Inc.:
		Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017	1
		Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2018 and 2017	2
		Consolidated Statement of Equity for the nine months ended September 30, 2018	3
		Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2018 and 2017	4
	Consolidated Financial Statements of American Assets Trust, L.P.:
		Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017	5
		Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2018 and 2017	6
		Consolidated Statement of Partners' Capital (unaudited) for the nine months ended September 30, 2018	7
		Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2018 and 2017	8
	Notes to Consolidated Financial Statements (unaudited)		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		45
Item 4.	Controls and Procedures		46
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		47
Item 1A.	Risk Factors		47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 3.	Defaults Upon Senior Securities		47
Item 4.	Mine Safety Disclosures		47
Item 5.	Other Information		47
Item 6.	Exhibits		48
SIGNATURES			49

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PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

American Assets Trust, Inc.

Consolidated Balance Sheets

(In Thousands, Except Share Data)



	September 30,			December 31,
	2018			2017
	(unaudited)
ASSETS
Real estate, at cost
Operating real estate	$	2,540,319		$	2,536,474
Construction in progress	60,375			68,272
Held for development	9,392			9,392
	2,610,086			2,614,138
Accumulated depreciation	(574,519		)	(537,431		)
Net real estate	2,035,567			2,076,707
Cash and cash equivalents	56,220			82,610
Restricted cash	9,918			9,344
Accounts receivable, net	8,345			9,869
Deferred rent receivables, net	40,305			38,973
Other assets, net	46,421			42,361
TOTAL ASSETS	$	2,196,776		$	2,259,864
LIABILITIES AND EQUITY
LIABILITIES:
Secured notes payable, net	$	204,818		$	279,550
Unsecured notes payable, net	1,045,635			1,045,470
Unsecured line of credit, net	20,235			—
Accounts payable and accrued expenses	54,575			38,069
Security deposits payable	8,748			6,570
Other liabilities and deferred credits, net	47,274			46,061
Total liabilities	1,381,285			1,415,720
Commitments and contingencies (Note 11)
EQUITY:
American Assets Trust, Inc. stockholders’ equity
Common stock, $0.01 par value, 490,000,000 shares authorized, 47,222,121 and 47,204,588 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively	473			473
Additional paid-in capital	920,324			919,066
Accumulated dividends in excess of net income	(122,293		)	(97,280		)
Accumulated other comprehensive income	13,915			11,451
Total American Assets Trust, Inc. stockholders’ equity	812,419			833,710
Noncontrolling interests	3,072			10,434
Total equity	815,491			844,144
TOTAL LIABILITIES AND EQUITY	$	2,196,776		$	2,259,864

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

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American Assets Trust, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

(In Thousands, Except Shares and Per Share Data)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
REVENUE:
Rental income	$	78,079		$	78,135		$	231,172		$	221,100
Other property income	4,428			4,204			17,090			12,137
Total revenue	82,507			82,339			248,262			233,237
EXPENSES:
Rental expenses	21,383			21,177			62,685			60,877
Real estate taxes	8,787			8,535			25,961			23,975
General and administrative	5,176			4,958			16,139			15,171
Depreciation and amortization	19,886			21,192			86,033			63,360
Total operating expenses	55,232			55,862			190,818			163,383
OPERATING INCOME	27,275			26,477			57,444			69,854
Interest expense	(12,879		)	(13,873		)	(39,387		)	(39,856		)
Other (expense) income, net	(125		)	(99		)	(64		)	403
NET INCOME	14,271			12,505			17,993			30,401
Net income attributable to restricted shares	(71		)	(60		)	(215		)	(181		)
Net income attributable to unitholders in the Operating Partnership	(3,806		)	(3,351		)	(4,765		)	(8,220		)
NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, INC. STOCKHOLDERS	$	10,394		$	9,094		$	13,013		$	22,000

EARNINGS PER COMMON SHARE
Earnings per common share, basic	$	0.22		$	0.19		$	0.28		$	0.47
Weighted average shares of common stock outstanding - basic	46,959,752			46,898,086			46,945,095			46,650,403

Earnings per common share, diluted	$	0.22		$	0.19		$	0.28		$	0.47
Weighted average shares of common stock outstanding - diluted	64,137,360			64,093,066			64,133,584			64,081,697

DIVIDENDS DECLARED PER COMMON SHARE	$	0.27		$	0.26		$	0.81		$	0.78

COMPREHENSIVE INCOME
Net income	$	14,271		$	12,505		$	17,993		$	30,401
Other comprehensive income (loss) - unrealized income (loss) on swap derivative during the period	567			87			4,303			(1,427		)
Reclassification of amortization of forward-starting swap included in interest expense	(320		)	(319		)	(959		)	(794		)
Comprehensive income	14,518			12,273			21,337			28,180
Comprehensive income attributable to non-controlling interest	(3,872		)	(3,263		)	(5,645		)	(7,447		)
Comprehensive income attributable to American Assets Trust, Inc.	$	10,646		$	9,010		$	15,692		$	20,733

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

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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		Additional Paid-in Capital			Accumulated Dividends in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2017	47,204,588		$	473	$	919,066		$	(97,280	)	$	11,451		$	10,434		$	844,144
Net income	—		—		—			13,228			—			4,765			17,993
Issuance of restricted stock	5,320		—		—			—			—			—			—
Forfeiture of restricted stock	(5,000	)	—		—			—			—			—			—
Conversion of operating partnership units	17,372		—		(916		)	—			—			916			—
Dividends declared and paid	—		—		—			(38,241		)	—			(13,923		)	(52,164		)
Stock-based compensation	—		—		2,180			—			—			—			2,180
Shares withheld for employee taxes	(159	)	—		(6		)	—			—			—			(6		)
Other comprehensive income - change in value of interest rate swaps	—		—		—			—			3,166			1,137			4,303
Reclassification of amortization of forward-starting swap included in interest expense	—		—		—			—			(702		)	(257		)	(959		)
Balance at September 30, 2018	47,222,121		$	473	$	920,324		$	(122,293	)	$	13,915		$	3,072		$	815,491

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

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American Assets Trust, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In Thousands)



	Nine Months Ended September 30,
	2018			2017
OPERATING ACTIVITIES
Net income	$	17,993		$	30,401
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred rent revenue and amortization of lease intangibles	153			(2,233		)
Depreciation and amortization	86,033			63,360
Amortization of debt issuance costs and debt fair value adjustments	1,165			2,625
Stock-based compensation expense	2,180			1,917
Settlement of derivative instruments	—			10,667
Other noncash interest expense	(959		)	(794		)
Other, net	4			1,665
Changes in operating assets and liabilities
Change in accounts receivable	1,001			211
Change in other assets	(12		)	(547		)
Change in accounts payable and accrued expenses	8,292			17,299
Change in security deposits payable	2,178			622
Change in other liabilities and deferred credits	885			462
Net cash provided by operating activities	118,913			125,655
INVESTING ACTIVITIES
Acquisition of real estate	—			(278,141		)
Capital expenditures	(31,666		)	(34,757		)
Leasing commissions	(5,127		)	(3,742		)
Net cash used in investing activities	(36,793		)	(316,640		)
FINANCING ACTIVITIES
Repayment of secured notes payable	(74,843		)	(166,781		)
Proceeds from unsecured line of credit	35,000			173,000
Repayment of unsecured line of credit	(13,000		)	(193,000		)
Proceeds from unsecured notes payable	—			450,000
Debt issuance costs	(2,687		)	(2,557		)
Proceeds from issuance of common stock, net	(236		)	30,075
Dividends paid to common stock and unitholders	(52,164		)	(50,172		)
Shares withheld for employee taxes	(6		)	—
Net cash (used in) provided by financing activities	(107,936		)	240,565
Net decrease (increase) in cash and cash equivalents	(25,816		)	49,580
Cash, cash equivalents and restricted cash, beginning of period	91,954			54,751
Cash, cash equivalents and restricted cash, end of period	$	66,138		$	104,331

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:



	Nine Months Ended September 30,
	2018		2017
Cash and cash equivalents	$	56,220	$	94,207
Restricted cash	9,918		10,124
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	66,138	$	104,331

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

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American Assets Trust, L.P.

Consolidated Balance Sheets

(In Thousands, Except Unit Data)



	September 30,			December 31,
	2018			2017
	(unaudited)
ASSETS
Real estate, at cost
Operating real estate	$	2,540,319		$	2,536,474
Construction in progress	60,375			68,272
Held for development	9,392			9,392
	2,610,086			2,614,138
Accumulated depreciation	(574,519		)	(537,431		)
Net real estate	2,035,567			2,076,707
Cash and cash equivalents	56,220			82,610
Restricted cash	9,918			9,344
Accounts receivable, net	8,345			9,869
Deferred rent receivables, net	40,305			38,973
Other assets, net	46,421			42,361
TOTAL ASSETS	$	2,196,776		$	2,259,864
LIABILITIES AND CAPITAL
LIABILITIES:
Secured notes payable, net	$	204,818		$	279,550
Unsecured notes payable, net	1,045,635			1,045,470
Unsecured line of credit, net	20,235			—
Accounts payable and accrued expenses	54,575			38,069
Security deposits payable	8,748			6,570
Other liabilities and deferred credits	47,274			46,061
Total liabilities	1,381,285			1,415,720
Commitments and contingencies (Note 11)
CAPITAL:
Limited partners' capital, 17,177,608 and 17,194,980 units issued and outstanding as of September 30, 2018 and December 31, 2017, respectively	(2,107		)	6,135
General partner's capital, 47,222,121 and 47,204,588 units issued and outstanding as of September 30, 2018 and December 31, 2017, respectively	798,504			822,259
Accumulated other comprehensive income	19,094			15,750
Total capital	815,491			844,144
TOTAL LIABILITIES AND CAPITAL	$	2,196,776		$	2,259,864

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

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American Assets Trust, L.P.

Consolidated Statements of Comprehensive Income

(Unaudited)

(In Thousands, Except Shares and Per Unit Data)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
REVENUE:
Rental income	$	78,079		$	78,135		$	231,172		$	221,100
Other property income	4,428			4,204			17,090			12,137
Total revenue	82,507			82,339			248,262			233,237
EXPENSES:
Rental expenses	21,383			21,177			62,685			60,877
Real estate taxes	8,787			8,535			25,961			23,975
General and administrative	5,176			4,958			16,139			15,171
Depreciation and amortization	19,886			21,192			86,033			63,360
Total operating expenses	55,232			55,862			190,818			163,383
OPERATING INCOME	27,275			26,477			57,444			69,854
Interest expense	(12,879		)	(13,873		)	(39,387		)	(39,856		)
Other (expense) income, net	(125		)	(99		)	(64		)	403
NET INCOME	14,271			12,505			17,993			30,401
Net income attributable to restricted shares	(71		)	(60		)	(215		)	(181		)
NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, L.P.	$	14,200		$	12,445		$	17,778		$	30,220

EARNINGS PER UNIT - BASIC
Earnings per unit, basic	$	0.22		$	0.19		$	0.28		$	0.47
Weighted average units outstanding - basic	64,137,360			64,093,066			64,133,584			64,081,697

EARNINGS PER UNIT - DILUTED
Earnings per unit, diluted	$	0.22		$	0.19		$	0.28		$	0.47
Weighted average units outstanding - diluted	64,137,360			64,093,066			64,133,584			64,081,697

DISTRIBUTIONS PER UNIT	$	0.27		$	0.26		$	0.81		$	0.78

COMPREHENSIVE INCOME
Net income	$	14,271		$	12,505		$	17,993		$	30,401
Other comprehensive income (loss) - unrealized income (loss) on swap derivative during the period	567			87			4,303			(1,427		)
Reclassification of amortization of forward-starting swap included in interest expense	(320		)	(319		)	(959		)	(794		)
Comprehensive income	14,518			12,273			21,337			28,180
Comprehensive income attributable to Limited Partners	(3,872		)	(3,263		)	(5,645		)	(7,447		)
Comprehensive income attributable to General Partner	$	10,646		$	9,010		$	15,692		$	20,733

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

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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			Accumulated Other Comprehensive Income (Loss)			Total Capital
Balance at December 31, 2017	17,194,980		$	6,135		47,204,588		$	822,259		$	15,750		$	844,144
Net income	—		4,765			—		13,228			—			17,993
Conversion of operating partnership units	(17,372	)	916			17,372		(916		)	—			—
Issuance of restricted units	—		—			5,320		—			—			—
Forfeiture of restricted units	—		—			(5,000	)	—			—			—
Distributions	—		(13,923		)	—		(38,241		)	—			(52,164		)
Stock-based compensation	—		—			—		2,180			—			2,180
Units withheld for employee taxes	—		—			(159	)	(6		)	—			(6		)
Other comprehensive income - change in value of interest rate swap	—		—			—		—			4,303			4,303
Reclassification of amortization of forward-starting swap included in interest expense	—		—			—		—			(959		)	(959		)
Balance at September 30, 2018	17,177,608		$	(2,107	)	47,222,121		$	798,504		$	19,094		$	815,491

(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.

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American Assets Trust, L.P.

Consolidated Statements of Cash Flows

(Unaudited, In Thousands)



	Nine Months Ended September 30,
	2018			2017
OPERATING ACTIVITIES
Net income	$	17,993		$	30,401
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred rent revenue and amortization of lease intangibles	153			(2,233		)
Depreciation and amortization	86,033			63,360
Amortization of debt issuance costs and debt fair value adjustments	1,165			2,625
Stock-based compensation expense	2,180			1,917
Settlement of derivative instruments	—			10,667
Other noncash interest expense	(959		)	(794		)
Other, net	4			1,665
Changes in operating assets and liabilities
Change in accounts receivable	1,001			211
Change in other assets	(12		)	(547		)
Change in accounts payable and accrued expenses	8,292			17,299
Change in security deposits payable	2,178			622
Change in other liabilities and deferred credits	885			462
Net cash provided by operating activities	118,913			125,655
INVESTING ACTIVITIES
Acquisition of real estate	—			(278,141		)
Capital expenditures	(31,666		)	(34,757		)
Leasing commissions	(5,127		)	(3,742		)
Net cash used in investing activities	(36,793		)	(316,640		)
FINANCING ACTIVITIES
Repayment of secured notes payable	(74,843		)	(166,781		)
Proceeds from unsecured line of credit	35,000			173,000
Repayment of unsecured line of credit	(13,000		)	(193,000		)
Proceeds from unsecured notes payable	—			450,000
Debt issuance costs	(2,687		)	(2,557		)
Contributions from American Assets Trust, Inc.	(236		)	30,075
Distributions	(52,164		)	(50,172		)
Shares withheld for employee taxes	(6		)	—
Net cash (used in) provided by financing activities	(107,936		)	240,565
Net (decrease) increase in cash and cash equivalents	(25,816		)	49,580
Cash, cash equivalents and restricted cash, beginning of period	91,954			54,751
Cash, cash equivalents and restricted cash, end of period	$	66,138		$	104,331



	Nine Months Ended September 30,
	2018		2017
Cash and cash equivalents	$	56,220	$	94,207
Restricted cash	9,918		10,124
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	66,138	$	104,331

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

Table of Contents

American Assets Trust, Inc. and American Assets Trust, L.P.

Notes to Consolidated Financial Statements

September 30, 2018

(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 196 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.

As of September 30, 2018, we owned or had a controlling interest in 27 office, retail, multifamily and mixed-use operating properties, the operations of which we consolidate. Additionally, as of September 30, 2018, 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
Torrey Reserve Campus	First & Main
Torrey Point	Lloyd District Portfolio
Solana Beach Corporate Centre	City Center Bellevue
The Landmark at One Market
One Beach Street

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
Solana Beach Corporate Centre – Land
Solana Beach – Highway 101 – Land
Lloyd District Portfolio – Construction in Progress

Table of Contents

American Assets Trust, Inc. and American Assets Trust, L.P.

Notes to Consolidated Financial Statements—(Continued)

September 30, 2018

(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.

All significant 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, 2017.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using our best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.

Any reference to the number of properties, number of units, square footage, employee numbers or percentages of beneficial ownership of our shares are unaudited and outside the scope of our independent registered public accounting firm’s review of our financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

Consolidated Statements of Cash Flows—Supplemental Disclosures

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



	Nine Months Ended September 30,
	2018		2017
Supplemental cash flow information
Total interest costs incurred	$	40,602	$	41,009
Interest capitalized	$	1,215	$	1,153
Interest expense	$	39,387	$	39,856
Cash paid for interest, net of amounts capitalized	$	39,674	$	33,720