Quarterly Report (10-q)

Date : 08/02/2019 @ 8:05PM
Source : Edgar (US Regulatory)
Stock : American Assets Trust Inc (AAT)
Quote : 47.02  0.06 (0.13%) @ 9:00PM
After Hours
Last Trade
Last $ 47.02 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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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 June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             

 
AMERICAN ASSETS TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
Commission file number: 001-35030

AMERICAN ASSETS TRUST, L.P.
(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.)
 
 
 
 
 
 
 
 
 
1455 El Camino Real, Suite 200
 
92130
 
 
San Diego
California
 
 
(Address of Principal Executive Offices)
 
(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 59,722,158 shares of common stock, par value $0.01 per share, outstanding as of August 2, 2019 .




EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended  June 30, 2019  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  June 30, 2019 , American Assets Trust, Inc. owned an approximate  78.4%  partnership interest in the Operating Partnership. The remaining 21.6% 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.




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 JUNE 30, 2019
 
PART 1. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
Consolidated Financial Statements of American Assets Trust, Inc.:
 
 
 
 
 
 
 
 
 
 
Consolidated Financial Statements of American Assets Trust, L.P.:
 
 
 
 
 
 
 
 
 
 
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)
 
 
June 30,
 
December 31,
 
2019
 
2018
 
(unaudited)
 
 
ASSETS
 
 
 
Real estate, at cost
 
 
 
Operating real estate
$
3,056,767

 
$
2,549,571

Construction in progress
83,461

 
71,228

Held for development
547

 
9,392

 
3,140,775

 
2,630,191

Accumulated depreciation
(621,852
)
 
(590,338
)
Net real estate
2,518,923

 
2,039,853

Cash and cash equivalents
44,778

 
47,956

Restricted cash
9,702

 
9,316

Accounts receivable, net
10,104

 
9,289

Deferred rent receivables, net
42,098

 
39,815

Other assets, net
93,153

 
52,021

TOTAL ASSETS
$
2,718,758

 
$
2,198,250

LIABILITIES AND EQUITY
 
 
 
LIABILITIES:
 
 
 
Secured notes payable, net
$
162,426

 
$
182,572

Unsecured notes payable, net
1,045,949

 
1,045,863

Unsecured line of credit, net
93,540

 
62,337

Accounts payable and accrued expenses
54,652

 
46,616

Security deposits payable
7,907

 
8,844

Other liabilities and deferred credits, net
62,362

 
49,547

Total liabilities
1,426,836

 
1,395,779

Commitments and contingencies (Note 12)

 


EQUITY:
 
 
 
American Assets Trust, Inc. stockholders’ equity
 
 
 
Common stock, $0.01 par value, 490,000,000 shares authorized, 59,722,748 and 47,335,409 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
597

 
474

Additional paid-in capital
1,438,768

 
920,661

Accumulated dividends in excess of net income
(135,497
)
 
(128,778
)
Accumulated other comprehensive income
5,876

 
10,620

Total American Assets Trust, Inc. stockholders’ equity
1,309,744

 
802,977

Noncontrolling interests
(17,822
)
 
(506
)
Total equity
1,291,922

 
802,471

TOTAL LIABILITIES AND EQUITY
$
2,718,758

 
$
2,198,250

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 June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
REVENUE:
 
 
 
 
 
 
 
Rental income
$
79,656

 
$
76,892

 
$
156,487

 
$
153,093

Other property income
4,457

 
8,131

 
12,945

 
12,662

Total revenue
84,113

 
85,023

 
169,432

 
165,755

EXPENSES:
 
 
 
 
 
 
 
Rental expenses
21,826

 
20,882

 
42,622

 
41,302

Real estate taxes
9,275

 
8,628

 
18,321

 
17,174

General and administrative
5,943

 
5,396

 
12,016

 
10,963

Depreciation and amortization
22,582

 
32,868

 
43,165

 
66,147

Total operating expenses
59,626

 
67,774

 
116,124

 
135,586

OPERATING INCOME
24,487

 
17,249

 
53,308

 
30,169

Interest expense
(13,129
)
 
(12,688
)
 
(26,478
)
 
(26,508
)
Gain on sale of real estate
633

 

 
633

 

Other (expense) income, net
(50
)
 
(148
)
 
(279
)
 
61

NET INCOME
11,941

 
4,413

 
27,184

 
3,722

Net income attributable to restricted shares
(92
)
 
(216
)
 
(185
)
 
(144
)
Net income attributable to unitholders in the Operating Partnership
(2,933
)
 
(1,125
)
 
(6,988
)
 
(959
)
NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, INC. STOCKHOLDERS
$
8,916

 
$
3,072

 
$
20,011

 
$
2,619

 
 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE
 
 
 
 
 
 
 
Earnings per common share, basic
$
0.18

 
$
0.07

 
$
0.41

 
$
0.06

Weighted average shares of common stock outstanding - basic
50,135,978

 
46,939,449

 
48,578,872

 
46,937,645

 
 
 
 
 
 
 
 
Earnings per common share, diluted
$
0.18

 
$
0.07

 
$
0.41

 
$
0.06

Weighted average shares of common stock outstanding - diluted
66,889,784

 
64,132,520

 
65,543,409

 
64,131,665

 
 
 
 
 
 
 
 
DIVIDENDS DECLARED PER COMMON SHARE
$
0.28

 
$
0.27

 
$
0.56

 
$
0.54

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
 
 
 
 
 
 
 
Net income
$
11,941

 
$
4,413

 
$
27,184

 
$
3,722

Other comprehensive (loss) income - unrealized (loss) income on swap derivative during the period
(3,891
)
 
875

 
(6,023
)
 
3,736

Reclassification of amortization of forward-starting swap included in interest expense
(319
)
 
(319
)
 
(639
)
 
(639
)
Comprehensive income
7,731

 
4,969

 
20,522

 
6,819

Comprehensive income attributable to non-controlling interest
(1,820
)
 
(1,271
)
 
(5,218
)
 
(1,773
)
Comprehensive income attributable to American Assets Trust, Inc.
$
5,911

 
$
3,698

 
$
15,304

 
$
5,046


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, 2018
47,335,409

 
$
474

 
$
920,661

 
$
(128,778
)
 
$
10,620

 
$
(506
)
 
$
802,471

Net income

 

 

 
11,188

 

 
4,055

 
15,243

Common shares issued
162,531

 
1

 
7,033

 

 

 

 
7,034

Forfeiture of restricted stock
(11,046
)
 

 

 

 

 

 

Dividends declared and paid

 

 

 
(13,251
)
 

 
(4,810
)
 
(18,061
)
Stock-based compensation

 

 
1,098

 

 

 

 
1,098

Other comprehensive income - change in value of interest rate swaps

 

 

 

 
(1,561
)
 
(571
)
 
(2,132
)
Reclassification of amortization of forward-starting swap included in interest expense

 

 

 

 
(234
)
 
(86
)
 
(320
)
Balance at March 31, 2019
47,486,894

 
$
475

 
$
928,792

 
$
(130,841
)
 
$
8,825

 
$
(1,918
)
 
$
805,333

Net income

 

 

 
9,008

 

 
2,933

 
11,941

Common shares issued
11,444,382

 
114

 
495,866

 

 

 

 
495,980

Issuance of restricted stock
4,412

 

 

 

 

 

 

Conversion of operating partnership units
787,060

 
8

 
12,979

 

 
148

 
(13,135
)
 

Dividends declared and paid

 

 

 
(13,664
)
 

 
(4,589
)
 
(18,253
)
Stock-based compensation

 

 
1,131

 

 

 

 
1,131

Other comprehensive income - change in value of interest rate swaps

 

 

 

 
(2,857
)
 
(1,034
)
 
(3,891
)
Reclassification of amortization of forward-starting swap included in interest expense

 

 

 

 
(240
)
 
(79
)
 
(319
)
Balance at June 30, 2019
59,722,748

 
$
597

 
$
1,438,768

 
$
(135,497
)
 
$
5,876

 
$
(17,822
)
 
$
1,291,922


3


 
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, 2017
47,204,588

 
$
473

 
$
919,066

 
$
(97,280
)
 
$
11,451

 
$
10,434

 
$
844,144

Net loss

 

 

 
(525
)
 

 
(166
)
 
(691
)
Forfeiture of restricted stock
(1,104
)
 

 

 

 

 

 

Dividends declared and paid

 

 

 
(12,745
)
 

 
(4,643
)
 
(17,388
)
Stock-based compensation

 

 
727

 

 

 

 
727

Other comprehensive income - change in value of interest rate swaps

 

 

 

 
2,107

 
754

 
2,861

Reclassification of amortization of forward-starting swap included in interest expense

 

 

 

 
(234
)
 
(86
)
 
(320
)
Balance at March 31, 2018
47,203,484

 
$
473

 
$
919,793

 
$
(110,550
)
 
$
13,324

 
$
6,293

 
$
829,333

Net income

 

 

 
3,288

 
$

 
1,125

 
4,413

Issuance of restricted stock
5,320

 

 

 

 

 

 

Forfeiture of restricted stock
(2,208
)
 

 

 

 

 

 

Conversion of operating partnership units
17,372

 

 
(916
)
 

 

 
916

 

Dividends declared and paid

 

 

 
(12,746
)
 

 
(4,642
)
 
(17,388
)
Stock-based compensation

 

 
727

 

 

 

 
727

Shares withheld for employee taxes
(159
)
 

 
(6
)
 

 

 

 
(6
)
Other comprehensive income - change in value of interest rate swaps

 

 

 

 
643

 
232

 
875

Reclassification of amortization of forward-starting swap included in interest expense

 

 

 

 
(233
)
 
(86
)
 
(319
)
Balance at June 30, 2018
47,223,809

 
$
473

 
$
919,598

 
$
(120,008
)
 
$
13,734

 
$
3,838

 
$
817,635




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

4


American Assets Trust, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
 
Six Months Ended June 30,
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
27,184

 
$
3,722

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Deferred rent revenue and amortization of lease intangibles
2,562

 
2,096

Depreciation and amortization
43,165

 
66,147

Amortization of debt issuance costs and debt fair value adjustments
724

 
806

Gain on sale of real estate
(633
)
 

Stock-based compensation expense
2,229

 
1,454

Lease termination income
(4,518
)
 

Other noncash interest expense
(639
)
 
(639
)
Other, net
(380
)
 
1,495

Changes in operating assets and liabilities
 
 
 
Change in accounts receivable
(177
)
 
2,220

Change in other assets
1,305

 
755

Change in accounts payable and accrued expenses
3,453

 
1,749

Change in security deposits payable
(1,380
)
 
2,142

Change in other liabilities and deferred credits
(2,726
)
 
370

Net cash provided by operating activities
70,169

 
82,317

INVESTING ACTIVITIES
 
 
 
Acquisition of real estate
(507,780
)
 

Capital expenditures
(47,838
)
 
(20,353
)
Proceeds from sale of real estate, net of selling costs
8,191

 

Leasing commissions
(2,623
)
 
(3,057
)
Net cash used in investing activities
(550,050
)
 
(23,410
)
FINANCING ACTIVITIES
 
 
 
Repayment of secured notes payable
(20,187
)
 
(74,476
)
Proceeds from unsecured line of credit
59,000


35,000

Repayment of unsecured line of credit
(28,000
)
 
(13,000
)
Debt issuance costs
(424
)
 
(2,656
)
Proceeds from issuance of common stock, net
503,014

 
(236
)
Dividends paid to common stock and unitholders
(36,314
)
 
(34,776
)
Shares withheld for employee taxes

 
(6
)
Net cash provided by (used in) financing activities
477,089

 
(90,150
)
Net increase (decrease) in cash and cash equivalents
(2,792
)
 
(31,243
)
Cash, cash equivalents and restricted cash, beginning of period
57,272

 
91,954

Cash, cash equivalents and restricted cash, end of period
$
54,480

 
$
60,711


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:
 
Six Months Ended June 30,
 
2019
 
2018
Cash and cash equivalents
$
44,778

 
$
51,326

Restricted cash
9,702

 
9,385

Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows
$
54,480

 
$
60,711

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

5


American Assets Trust, L.P.
Consolidated Balance Sheets
(In Thousands, Except Unit Data)
 
 
June 30,
 
December 31,
 
2019
 
2018
 
(unaudited)
 
 
ASSETS
 
 
 
Real estate, at cost
 
 
 
Operating real estate
$
3,056,767

 
$
2,549,571

Construction in progress
83,461

 
71,228

Held for development
547

 
9,392

 
3,140,775

 
2,630,191

Accumulated depreciation
(621,852
)
 
(590,338
)
Net real estate
2,518,923

 
2,039,853

Cash and cash equivalents
44,778

 
47,956

Restricted cash
9,702

 
9,316

Accounts receivable, net
10,104

 
9,289

Deferred rent receivables, net
42,098

 
39,815

Other assets, net
93,153

 
52,021

TOTAL ASSETS
$
2,718,758

 
$
2,198,250

LIABILITIES AND CAPITAL
 
 
 
LIABILITIES:
 
 
 
Secured notes payable, net
$
162,426

 
$
182,572

Unsecured notes payable, net
1,045,949

 
1,045,863

Unsecured line of credit, net
93,540

 
62,337

Accounts payable and accrued expenses
54,652

 
46,616

Security deposits payable
7,907

 
8,844

Other liabilities and deferred credits
62,362

 
49,547

Total liabilities
1,426,836

 
1,395,779

Commitments and contingencies (Note 12)

 


CAPITAL:
 
 
 
Limited partners' capital, 16,390,548 and 17,177,608 units issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
(19,875
)
 
(4,477
)
General partner's capital, 59,722,748 and 47,335,409 units issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
1,303,868

 
792,357

Accumulated other comprehensive income
7,929

 
14,591

Total capital
1,291,922

 
802,471

TOTAL LIABILITIES AND CAPITAL
$
2,718,758

 
$
2,198,250


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


6


American Assets Trust, L.P.
Consolidated Statements of Comprehensive Income
(Unaudited)
(In Thousands, Except Shares and Per Unit Data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
REVENUE:
 
 
 
 
 
 
 
Rental income
$
79,656

 
$
76,892

 
$
156,487

 
$
153,093

Other property income
4,457

 
8,131

 
12,945

 
12,662

Total revenue
84,113

 
85,023

 
169,432

 
165,755

EXPENSES:
 
 
 
 
 
 
 
Rental expenses
21,826

 
20,882

 
42,622

 
41,302

Real estate taxes
9,275

 
8,628

 
18,321

 
17,174

General and administrative
5,943

 
5,396

 
12,016

 
10,963

Depreciation and amortization
22,582

 
32,868

 
43,165

 
66,147

Total operating expenses
59,626

 
67,774

 
116,124

 
135,586

OPERATING INCOME
24,487

 
17,249

 
53,308

 
30,169

Interest expense
(13,129
)
 
(12,688
)
 
(26,478
)
 
(26,508
)
Gain on sale of real estate
633

 

 
633

 

Other (expense) income, net
(50
)
 
(148
)
 
(279
)
 
61

NET INCOME
11,941

 
4,413

 
27,184

 
3,722

Net income attributable to restricted shares
(92
)
 
(216
)
 
(185
)
 
(144
)
NET INCOME ATTRIBUTABLE TO AMERICAN ASSETS TRUST, L.P.
$
11,849

 
$
4,197

 
$
26,999

 
$
3,578

 
 
 
 
 
 
 
 
EARNINGS PER UNIT - BASIC
 
 
 
 
 
 
 
Earnings per unit, basic
$
0.18

 
$
0.07

 
$
0.41

 
$
0.06

Weighted average units outstanding - basic
66,889,784

 
64,132,520

 
65,543,409

 
64,131,665

 
 
 
 
 
 
 
 
EARNINGS PER UNIT - DILUTED
 
 
 
 
 
 
 
Earnings per unit, diluted
$
0.18

 
$
0.07

 
$
0.41

 
$
0.06

Weighted average units outstanding - diluted
66,889,784

 
64,132,520

 
65,543,409

 
64,131,665

 
 
 
 
 
 
 
 
DISTRIBUTIONS PER UNIT
$
0.28

 
$
0.27

 
$
0.56

 
$
0.54

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
 
 
 
 
 
 
 
Net income
$
11,941

 
$
4,413

 
$
27,184

 
$
3,722

Other comprehensive income (loss) - unrealized income (loss) on swap derivative during the period
(3,891
)
 
875

 
(6,023
)
 
3,736

Reclassification of amortization of forward-starting swap included in interest expense
(319
)
 
(319
)
 
(639
)
 
(639
)
Comprehensive income
7,731

 
4,969

 
20,522

 
6,819

Comprehensive income attributable to Limited Partners
(1,820
)
 
(1,271
)
 
(5,218
)
 
(1,773
)
Comprehensive income attributable to General Partner
$
5,911

 
$
3,698

 
$
15,304

 
$
5,046


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


7


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, 2018
17,177,608

 
$
(4,477
)
 
47,335,409

 
$
792,357

 
$
14,591

 
$
802,471

Net income

 
4,055

 

 
11,188

 

 
15,243

Contributions from American Assets Trust, Inc.

 

 
162,531

 
7,034

 

 
7,034

Forfeiture of restricted units

 

 
(11,046
)
 

 

 

Distributions

 
(4,810
)
 

 
(13,251
)
 

 
(18,061
)
Stock-based compensation

 

 

 
1,098

 

 
1,098

Other comprehensive income - change in value of interest rate swap

 

 

 

 
(2,132
)
 
(2,132
)
Reclassification of amortization of forward-starting swap included in interest expense

 

 

 

 
(320
)
 
(320
)
Balance at March 31, 2019
17,177,608

 
$
(5,232
)
 
47,486,894

 
$
798,426

 
$
12,139

 
$
805,333

Net income

 
2,933

 

 
9,008

 

 
11,941

Contributions from American Assets Trust, Inc.

 

 
11,444,382

 
495,980

 

 
495,980

Issuance of restricted units

 

 
4,412

 

 

 

Conversion of operating partnership units
(787,060
)
 
(12,987
)
 
787,060

 
12,987

 

 

Distributions

 
(4,589
)
 

 
(13,664
)
 

 
(18,253
)
Stock-based compensation

 

 

 
1,131

 

 
1,131

Other comprehensive income - change in value of interest rate swap

 

 

 

 
(3,891
)
 
(3,891
)
Reclassification of amortization of forward-starting swap included in interest expense

 

 

 

 
(319
)
 
(319
)
Balance at June 30, 2019
16,390,548

 
$
(19,875
)
 
59,722,748

 
$
1,303,868

 
$
7,929

 
$
1,291,922



8


 
Limited Partners' Capital (1)
 
General Partner's Capital (2)
 
Accumulated Other Comprehensive Income (Loss)
 
Total Capital
 
Units
 
Amount
 
Units
 
Amount
 
Balance at December 31, 2017
17,194,980

 
$
6,135

 
47,204,588

 
$
822,259

 
$
15,750

 
$
844,144

Net loss

 
(166
)
 

 
(525
)
 

 
(691
)
Forfeiture of restricted units

 

 
(1,104
)
 

 

 

Distributions

 
(4,643
)
 

 
(12,745
)
 

 
(17,388
)
Stock-based compensation

 

 

 
727

 

 
727

Other comprehensive income - change in value of interest rate swap

 

 

 

 
2,861

 
2,861

Reclassification of amortization of forward-starting swap included in interest expense

 

 

 

 
(320
)
 
(320
)
Balance at March 31, 2018
17,194,980

 
$
1,326

 
47,203,484

 
$
809,716

 
$
18,291

 
$
829,333

Net income

 
1,125

 

 
3,288

 

 
4,413

Issuance of restricted units

 

 
5,320

 

 

 

Forfeiture of restricted units

 

 
(2,208
)
 

 

 

Conversion of operating partnership units
(17,372
)
 
916

 
17,372

 
(916
)
 

 

Distributions

 
(4,642
)
 

 
(12,746
)
 

 
(17,388
)
Stock-based compensation

 

 

 
727

 

 
727

Units withheld for employee taxes

 

 
(159
)
 
(6
)
 

 
(6
)
Other comprehensive income - change in value of interest rate swap

 

 

 

 
875

 
875

Reclassification of amortization of forward-starting swap included in interest expense

 

 

 

 
(319
)
 
(319
)
Balance at June 30, 2018
17,177,608

 
$
(1,275
)
 
47,223,809

 
$
800,063

 
$
18,847

 
$
817,635



(1) Consists of limited partnership interests held by third parties.
(2) Consists of general partnership interests held by American Assets Trust, Inc.
The accompanying notes are an integral part of these consolidated financial statements.


9


American Assets Trust, L.P.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
 
Six Months Ended June 30,
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
27,184

 
$
3,722

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Deferred rent revenue and amortization of lease intangibles
2,562

 
2,096

Depreciation and amortization
43,165

 
66,147

Amortization of debt issuance costs and debt fair value adjustments
724

 
806

Gain on sale of real estate
(633
)
 

Stock-based compensation expense
2,229

 
1,454

Lease termination income
(4,518
)
 

Other noncash interest expense
(639
)
 
(639
)
Other, net
(380
)
 
1,495

Changes in operating assets and liabilities
 
 
 
Change in accounts receivable
(177
)
 
2,220

Change in other assets
1,305

 
755

Change in accounts payable and accrued expenses
3,453

 
1,749

Change in security deposits payable
(1,380
)
 
2,142

Change in other liabilities and deferred credits
(2,726
)
 
370

Net cash provided by operating activities
70,169

 
82,317

INVESTING ACTIVITIES
 
 
 
Acquisition of real estate
(507,780
)
 

Capital expenditures
(47,838
)
 
(20,353
)
Proceeds from sale of real estate, net of selling costs
8,191

 

Leasing commissions
(2,623
)
 
(3,057
)
Net cash used in investing activities
(550,050
)
 
(23,410
)
FINANCING ACTIVITIES
 
 
 
Repayment of secured notes payable
(20,187
)
 
(74,476
)
Proceeds from unsecured line of credit
59,000

 
35,000

Repayment of unsecured line of credit
(28,000
)
 
(13,000
)
Debt issuance costs
(424
)
 
(2,656
)
Contributions from American Assets Trust, Inc.
503,014

 
(236
)
Distributions
(36,314
)
 
(34,776
)
Shares withheld for employee taxes

 
(6
)
Net cash provided by (used in) financing activities
477,089

 
(90,150
)
Net increase (decrease) in cash and cash equivalents
(2,792
)
 
(31,243
)
Cash, cash equivalents and restricted cash, beginning of period
57,272

 
91,954

Cash, cash equivalents and restricted cash, end of period
$
54,480

 
$
60,711


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:
 
Six Months Ended June 30,
 
2019
 
2018
Cash and cash equivalents
$
44,778

 
$
51,326

Restricted cash
9,702

 
9,385

Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows
$
54,480

 
$
60,711

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


10

American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements
June 30, 2019
(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 197 employees providing substantial in-house expertise in asset management, property management, property development, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment and financing.
As of June 30, 2019 , we owned or had a controlling interest in 28 office, retail, multifamily and mixed-use operating properties, the operations of which we consolidate. Additionally, as of June 30, 2019 , 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
 
Torrey Reserve Campus
First & Main
 
Torrey Point
Lloyd District Portfolio
 
Solana Crossing (formerly Solana Beach Corporate Centre)
City Center Bellevue
 
The Landmark at One Market
 
 
 
 
 
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 District Portfolio – Construction in Progress


11

American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019
(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, 2018 .
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):  
 
Six Months Ended June 30,
 
2019
 
2018
Supplemental cash flow information
 
 
 
Total interest costs incurred
$
26,808

 
$
27,419

Interest capitalized
$
330

 
$
911

Interest expense
$
26,478

 
$
26,508

Cash paid for interest, net of amounts capitalized
$
26,574

 
$
26,926

Cash paid for income taxes
$
601

 
$
337

Supplemental schedule of noncash investing and financing activities
 

 
 

Accounts payable and accrued liabilities for construction in progress
$
12,245

 
$
8,156

Accrued leasing commissions
$
7,963

 
$
2,735

Reduction to capital for prepaid offering costs
$

 
$
236



  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, 2018 . Except for the adoption of the accounting standards during the first quarter of 2019 as discussed below, there have been no changes to our significant accounting policies during the six months ended June 30, 2019 .
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

12

American Assets Trust, Inc. and American Assets Trust, L.P.
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019
(Unaudited)


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.
Recent Accounting Pronouncements
 
In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), which provides the principles for the recognition, measurement, presentation and disclosure of leases. This ASU significantly changes the accounting for leases by requiring lessees to recognize assets and liabilities for leases greater than 12 months on their balance sheet. The lessor model stays substantially the same; however, there were modifications to conform lessor accounting with the lessee model, eliminate real estate specific guidance, further define certain lease and non-lease components, and change the definition of initial direct costs of leases requiring significantly more leasing related costs to be expensed upfront.

We adopted the provisions of ASU No. 2016-02 effective January 1, 2019 using the modified retrospective approach. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements , which allows lessors to elect a practical expedient by class of underlying assets to not separate non-lease components from the lease component if certain conditions are met. The lessor’s practical expedient election would be limited to circumstances in which the non-lease components otherwise would be accounted for under the new revenue guidance and both (i) the timing and pattern of transfer are the same for the non-lease component and the related lease component and (ii) the lease component would be classified as an operating lease. The Company elected the practical expedient, which allows the Company the ability to combine the lease and non-lease components if the underlying asset meets the criteria abov