EQUITY

Stockholders' Equity

On May 6, 2013, we entered into an at-the-market (“ATM”) equity program with four sales agents in which we may, from time to time, offer and sell shares of our common stock having an aggregate offering price of up to $150.0 million. The sales of shares of our common stock made through the ATM equity program are made in "at-the-market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended. For the three months ended June 30, 2013, we issued 718,714 shares of common stock through the ATM equity program at a weighted average price per share of $35.09 for gross proceeds of $25.2 million and paid $0.3 million in sales agent compensation and $0.6 million in additional offering expenses related to the sales of these shares of common stock. We intend to use the net proceeds to fund our development or redevelopment activities, repay amounts outstanding from time to time under our revolving credit facility or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes. As of June 30, 2013, we had the capacity to issue up to an additional $124.8 million in shares of our common stock under our ATM equity program. Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under the ATM equity program.

Noncontrolling Interests

Noncontrolling interests in our Operating Partnership are interests in the Operating Partnership that are not owned by us. Noncontrolling interests consisted of 17,961,924 common units (the “noncontrolling common units”), and represented approximately 31% of the ownership interests in our Operating Partnership at June 30, 2013. Common units and shares of our common stock have essentially the same economic characteristics in that common units and shares of our common stock share equally in the total net income or loss distributions of our Operating Partnership. Investors who own common units have the right to cause our Operating Partnership to redeem any or all of their common units for cash equal to the then-current market value of one share of our common stock, or, at our election, shares of our common stock on a one-for-one basis.

During the six months ended June 30, 2013, approximately 61,511 common units were converted into shares of our common stock.

Dividends

The following table lists the dividends declared and paid on our shares of common stock and noncontrolling common units during the six months ended June 30, 2013:



Period	Amount per Share/Unit		Period Covered	Dividend Paid Date
First Quarter 2013	$	0.21	January 1, 2013 to March 31, 2013	March 29, 2013
Second Quarter 2013	$	0.21	April 1, 2013 to June 30, 2013	June 28, 2013

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.

Stock-Based Compensation

Pursuant to our 2011 Equity Incentive Award Plan (the “2011 Plan”), we have made grants of restricted shares of our common stock to certain executive officers pursuant to the terms of their employment agreements, which are subject to either timing-based vesting or performance-based vesting. 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.

We granted each of our non-employee directors restricted shares of our common stock pursuant to the 2011 Plan, either concurrently with the closing of our initial public offering or at the time the director was formally appointed to our board of directors (the "Board"). In addition, on the date of each annual meeting of our stockholders, each non-employee director who continues to serve on the Board following such annual meeting will be granted 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 pursuant to our independent director compensation policy.

We have also granted restricted shares of our common stock to certain other employees pursuant to the 2011 Plan. These shares are subject to performance-based vesting, with substantially the same terms described above.

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 a 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 of 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 restricted stock awards during the six months ended June 30, 2013:



	Units		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2013	633,222		$	15.64
Granted	5,004		31.97
Vested	(2,601	)	20.50
Forfeited	(3,863	)	20.39
Nonvested at June 30, 2013	631,762		$	15.61

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $1.4 million in noncash compensation expense for both the six months ended June 30, 2013 and 2012, which is included in general and administrative expense on the consolidated statements of income. Unrecognized compensation expense was $3.0 million at June 30, 2013.

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 three and six months ended June 30, 2013 and 2012, we had a weighted average of approximately 630,374, 630,784, 626,274 and 626,771 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 three and six months ended June 30, 2013 and 2012, diluted shares exclude incentive restricted stock as these awards are considered contingently issuable. Additionally, the unvested restricted stock awards subject to time vesting are anti-dilutive for all periods presented and accordingly, have been excluded from the weighted average common shares used to compute diluted EPS.

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012

NUMERATOR
Income from continuing operations	$	4,564		$	2,397		$	9,429		$	5,161
Less: Net income attributable to restricted shares	(133		)	(131		)	(265		)	(263		)
Less: Income from continuing operations attributable to unitholders in the Operating Partnership	(1,354		)	(804		)	(2,849		)	(1,687		)
Income from continuing operations attributable to American Assets Trust, Inc. common stockholders—basic	3,077			1,462			6,315			3,211
Plus: Results from discontinued operations attributable to American Assets Trust, Inc. common stockholders	—			154			—			226
Net income attributable to common stockholders—basic	$	3,077		$	1,616		$	6,315		$	3,437
Income from continuing operations attributable to American Assets Trust, Inc. common stockholders—basic	$	3,077		$	1,462		$	6,315		$	3,211
Plus: Income from continuing operations attributable to unitholders in the Operating Partnership	1,354			804			2,849			1,687
Income from continuing operations attributable to common stockholders—diluted	4,431			2,266			9,164			4,898
Plus: Results from discontinued operations attributable to American Assets Trust, Inc. common stockholders	—			154			—			226
Plus: Results from discontinued operations attributable to unitholders in the Operating Partnership	—			73			—			108
Net income attributable to common stockholders—diluted	$	4,431		$	2,493		$	9,164		$	5,232
DENOMINATOR
Weighted average common shares outstanding—basic	39,460,086			38,659,155			39,247,729			38,658,162
Effect of dilutive securities—conversion of Operating Partnership units	17,969,751			18,396,089			17,996,445			18,396,347
Weighted average common shares outstanding—diluted	57,429,837			57,055,244			57,244,174			57,054,509
EARNINGS PER COMMON SHARE-BASIC
Continuing operations	$	0.08		$	0.04		$	0.16		$	0.08
Discontinued operations	—			—			—			0.01
	$	0.08		$	0.04		$	0.16		$	0.09
EARNINGS PER COMMON SHARE-DILUTED
Continuing operations	$	0.08		$	0.04		$	0.16		$	0.08
Discontinued operations	—			—			—			0.01
	$	0.08		$	0.04		$	0.16		$	0.09