NOTE 10. EQUITY

Noncontrolling Interests

Noncontrolling interests in our Operating Partnership are interests in the Operating Partnership that are not owned by us. Noncontrolling interests consisted of 18,396,089 common units (the "noncontrolling common units"), and represented approximately 32% of the ownership interests in our Operating Partnership at December 31, 2011. Common units and shares of our common stock have essentially the same economic characteristics in that common units and shares of our common stock share equally in the total net income or loss distributions of our Operating Partnership. Investors who own common units have the right to cause our Operating Partnership to redeem any or all of their common units for cash equal to the then-current market value of one share of our common stock, or, at our election, shares of our common stock on a one-for-one basis.

On February 14, 2011, we completed a private placement transaction of 251,050 common units for approximately $5.4 million.

Preferred Stock Authorized Shares

We have authorized to issue 10,000,000 shares of preferred stock with a par value of $0.01, of which no shares were outstanding at December 31, 2011. Upon issuance, our Board of Directors has the ability to define the terms of the preferred shares, including voting rights, liquidation preferences, conversion and redemption provisions and dividend rates.

Dividends

The following table lists the dividends declared and paid on our shares of common stock and noncontrolling common units for the year ended December 31, 2011:


Period	Amount per Share/Unit		Period Covered	Dividend Paid Date
First Quarter 2011	$	0.17	January 19, 2011 to March 31, 2011		March 31, 2011
Second Quarter 2011	$	0.21	April 1, 2011 to June 30, 2011		June 30, 2011
Third Quarter 2011	$	0.21	July 1, 2011 to September 30, 2011		September 30, 2011
Fourth Quarter 2011	$	0.21	October 1, 2011 to December 31, 2011		December 29, 2011

Taxability of Dividends

Earnings and profits, which determine the taxability of distributions to stockholders and holders of common units, may differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of loss on extinguishment of debt, revenue recognition and compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation. A summary of the income tax status of dividends per share paid is as follows:


	Per Share		%
Ordinary income	$	0.22		27.5	%
Capital gain		—		—	%
Return of capital		0.58		72.5	%

Total	$	0.80		100.0	%

Stock-Based Compensation

In connection with Offering, we adopted our 2011 Equity Incentive Award Plan ("2011 Plan"). The 2011 Plan provides for grants to directors, employees and consultants of the Company and the Operating Partnership of stock options, restricted stock, dividend equivalents, stock payments, performance shares, LTIP units, stock appreciation rights and other incentive awards. An aggregate of 4,054,411 shares of our common stock are authorized for issuance under awards granted pursuant to the 2011 Plan, and as of December 31, 2011, 3,425,699 shares of common stock remain available for future issuance.

Concurrently with the closing of the Offering, we made grants of restricted shares of our common stock to certain executive officers under the 2011 Plan. At such time, we granted to such executive officers a total of 198,000 shares that are subject to timing-based vesting and 297,000 shares that are subject to performance-based vesting, with fair market values of $4.1 million for the timing-based vesting awards and $3.9 million for the performance-based vesting awards. Those awards subject to time-based vesting will vest, subject to the recipient's continued employment, in two substantially equal installments on each of the third and fourth anniversaries of the date of grant. The vesting of those restricted stock awards subject to performance-based vesting is based on the achievement of absolute and relative total shareholder return hurdles over a three-year performance period, commencing on January 19, 2011. Following the completion of the three-year performance period, our compensation committee will determine the number of shares to which the executive officer is entitled based on our performance relative to the performance hurdles set forth in the restricted stock award agreement he entered into in connection with his initial award grant. These shares will then vest in two substantially equal installments, with the first installment vesting on the third anniversary of the date of grant and the second installment vesting on the fourth anniversary of the date of grant, subject to the executive officer's continued employment on those dates.

Concurrently with the closing of the Offering, we also granted each of our non-employee directors 1,951 restricted shares of our common stock pursuant to the 2011 Plan. These awards of restricted stock will vest ratably as to one-third of the shares granted on each of the first three anniversaries of the date of grant, subject to the director's continued service on our board of directors, and had an aggregate fair value of $0.2 million on the date of the grants. On June 29, 2011, one of our directors notified us of his resignation as a director of the Company and, as a result, immediately forfeited the 1,951 restricted shares of our common stock previously granted to him, none of which had vested. On August 5, 2011, we granted 1,957 restricted shares of our common stock to a new non-employee director, with a fair value of $0.04 million on the date of the grant. The restricted stock will vest ratably as to one-third of the shares granted on each of the first three anniversaries of the date of grant, subject to the director's continued service on our board of directors.

On March 16, 2011, we granted a total of 123,950 restricted shares of our common stock to certain other employees pursuant to the 2011 Plan with a fair value of $1.6 million. These shares are subject to performance-based vesting, with the terms described above related to performance-based vesting.

For the performance-based stock awards, the fair value of the awards was estimated using a Monte Carlo Simulation model. Our stock price, along with the stock prices of the group of peer REITs, is assumed to follow the Multivariate Geometric Brownian Motion Process. Multivariate Geometric Brownian Motion is a common assumption when modeling in financial markets, as it allows the modeled quantity (in this case, the stock price) to vary randomly from its current value and take any value greater than zero. The volatilities of the returns on the stock price of the Company and the group REITs were estimated based on a three year look-back period. The expected growth rate of the stock prices over the "derived service period" of the employee is determined with consideration of the risk free rate as of the grant date. For the restricted stock grants that are time-vesting, we estimate the stock compensation expense based on the fair value of the stock at the grant date.

The following table summarizes the activity of non-vested restricted stock awards during the year ended December 31, 2011:


	Units			Weighted Average Grant Date Fair Value
Balance at beginning of year		—		$	—
Granted		630,663			15.45
Vested		—			—
Forfeited		(1,951	)		20.50

Balance at end of year		628,712		$	15.43

None of the restricted shares were vested at December 31, 2011. We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $2.6 million in noncash compensation expense for the year ended December 31, 2011, which is included in general and administrative expense on the statement of operations. Unrecognized compensation expense was $7.1 million, which will be recognized over a weighted-average period of 2.6 years.

Earnings Per Share

We have calculated earnings per share ("EPS") under the two-class method. The two-class method is an earnings allocation methodology whereby EPS for each class of common stock and participating security is calculated according to dividends declared and participation rights in undistributed earnings. For the year ended December 31, 2011, we had a weighted average of approximately 578,489 unvested shares outstanding, respectively, which are considered participating securities. Therefore, we have allocated our earnings for basic and diluted EPS between common shares and unvested shares.

Diluted EPS is calculated by dividing the net income applicable to common stockholders for the period by the weighted average number of common and dilutive instruments outstanding during the period using the treasury stock method. For the year ended December 31, 2011, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable. Additionally, the unvested restricted stock awards subject to time vesting are anti-dilutive for all periods presented and accordingly, have been excluded from the weighted average common shares used to compute diluted EPS.

The computation of basic and diluted EPS is presented below (dollars in thousands, except share and per share amounts):


	Year Ended December 31, 2011
Numerator
Income from continuing operations	$	14,244
Less: Net income attributable to restricted shares		(482	)
Plus: Loss from continuing operations attributable to Predecessor's noncontrolling interests in consolidated real estate entities		2,454
Less: Income from continuing operations attributable to Predecessor's controlled owners' equity		(17,009	)
Plus: Loss from continuing operations attributable to unitholders in the Operating Partnership		255

Loss from continuing operations attributable to American Assets Trust, Inc. common stockholders—basic		(538	)
Plus: Results from discontinued operations attributable to American Assets Trust, Inc. common stockholders		3,455

Net income attributable to common stockholders—basic	$	2,917

Loss from continuing operations attributable to American Assets Trust, Inc. common stockholders—basic	$	(538	)
Less: Loss from continuing operations attributable to unitholders in the Operating Partnership		(255	)

Loss from continuing operations attributable to common stockholders—diluted		(793	)
Plus: Results from discontinued operations attributable to American Assets Trust, Inc. common stockholders		3,455
Plus: Results from discontinued operations attributable to unitholders in the Operating Partnership		1,643

Net income attributable to common stockholders—diluted	$	4,305

Denominator
Weighted average common shares outstanding—basic		36,748,806
Effect of dilutive securities—conversion of Operating Partnership units		17,471,001

Weighted average common shares outstanding—diluted		54,219,807

Earnings (loss) per common share—basic
Continuing operations	$	(0.01	)
Discontinued operations		0.09

	$	0.08

Earnings (loss) per common share—diluted
Continuing operations	$	(0.01	)
Discontinued operations		0.09

	$	0.08