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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
or
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)
 
(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.


Table of Contents


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.




Table of Contents

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 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.



Table of Contents

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.

1

Table of Contents

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.

2

Table of Contents

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, 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.

3

Table of Contents

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.

4

Table of Contents

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.


5

Table of Contents

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.


6

Table of Contents

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, 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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Table of Contents

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


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.


8

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


9

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

Cash paid for income taxes
$
337