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 December 31, 2013, we issued 22,738 shares of common stock through the ATM equity program at a weighted average price per share of $32.25 for gross proceeds of $0.7 million and paid $0.01 million in sales agent compensation and $0.1 million in additional offering expenses related to the sales of these shares of common stock. For the year ended December 31, 2013, we issued 741,452 shares of common stock through the ATM equity program at a weighted average price per share of $35.00 for gross proceeds of $26.0 million and paid $0.3 million in sales agent compensation and $0.8 million in additional offering expenses related to the sales of these shares of common stock. As of December 31, 2013, we had the capacity to issue up to an additional $124.0 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 17,917,109 common units (the “noncontrolling common units”), and represented approximately 31% of the ownership interests in our Operating Partnership at December 31, 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.

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

During the years ended December 31, 2013 and 2012, 106,236 and 372,654, respectively, common units were converted into shares of our common stock. During the year ended December 31, 2011, no common units were converted into shares of our common stock.

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, 2013. 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 years ended December 31, 2013, 2012 and 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
First Quarter 2012	$	0.21	January 1, 2012 to March 31, 2012	March 30, 2012
Second Quarter 2012	$	0.21	April 1, 2012 to June 30, 2012	June 29, 2012
Third Quarter 2012	$	0.21	July 1, 2012 to September 30, 2012	September 28, 2012
Fourth Quarter 2012	$	0.21	October 1, 2012 to December 31, 2012	December 28, 2012
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
Third Quarter 2013	$	0.21	July 1, 2013 to September 30, 2013	September 27, 2013
Fourth Quarter 2013	$	0.22	October 1, 2013 to December 31, 2013	December 27, 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. A summary of the income tax status of dividends per share paid is as follows:



	Year Ended December 31,
	2013				2012				2011
	Per Share		%		Per Share		%		Per Share		%
Ordinary income	$	0.83	97.6	%	$	0.56	66.7	%	$	0.22	27.5	%
Return of capital	0.02		2.4	%	0.28		33.3	%	0.58		72.5	%
Total	$	0.85	100.0	%	$	0.84	100.0	%	$	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, 2013, 3,425,353 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 vest, subject to the recipient's continued employment, in two substantially equal installments. The first installment vested on the third anniversary of the date of grant and the second installment will vest on the fourth anniversary of the date of grant. The vesting of those restricted stock awards subject to performance-based vesting was based on the achievement of absolute and relative total stockholder 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 determined the number of shares to which the executive officer was 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 then vest in two substantially equal installments, with the first installment vested 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 vested 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.

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 the Offering or at the time the director was formally appointed to our board of directors (the "Board"). Additionally, on June 13, 2013 and July 10, 2012, we granted a total of 5,004 and 8,015 restricted shares of our common stock, respectively, to members of our Board. 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.

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, 2013:



	2013
	Units		Weighted Average Grant Date Fair Value
Balance at beginning of year	633,222		$	15.64
Granted	5,004		31.97
Vested	(4,737	)	22.55
Forfeited	(4,431	)	19.38
Balance at end of year	629,058		$	15.58

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $2.8 million, $2.9 million and $2.6 million in noncash compensation expense for the years ended December 31, 2013, 2012 and 2011, each of which is included in general and administrative expense on the statement of income. Unrecognized compensation expense was $1.6 million at December 31, 2013, which will be recognized over a weighted-average period of 0.6 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 years ended December 31, 2013, 2012 and 2011, we had a weighted average of approximately 630,130, 629,493 and 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 attributable 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, 2013, 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,
	2013			2012			2011
NUMERATOR
Income from continuing operations	$	22,594		$	13,949		$	13,671
Less: Net income attributable to restricted shares	(536		)	(529		)	(482		)
Plus: Loss from continuing operations attributable to Predecessor's noncontrolling interests in consolidated real estate entities	—			—			2,455
Less: Income from continuing operations attributable to Predecessor's controlled owners' equity	—			—			(16,962		)
Plus: (Income) loss from continuing operations attributable to unitholders in the Operating Partnership	(6,838		)	(4,239		)	425
Income (loss) from continuing operations attributable to American Assets Trust, Inc. common stockholders—basic	15,220			9,181			(893		)
Plus: Results from discontinued operations attributable to American Assets Trust, Inc. common stockholders	—			25,758			3,810
Net income attributable to common stockholders—basic	$	15,220		$	34,939		$	2,917
Income (loss) from continuing operations attributable to American Assets Trust, Inc. common stockholders—basic	$	15,220		$	9,181		$	(893	)
Less: Income (loss) from continuing operations attributable to unitholders in the Operating Partnership	6,838			4,239			(425		)
Income (loss) from continuing operations attributable to common stockholders—diluted	22,058			13,420			(1,318		)
Plus: Results from discontinued operations attributable to American Assets Trust, Inc. common stockholders	—			25,758			3,810
Plus: Results from discontinued operations attributable to unitholders in the Operating Partnership	—			11,894			1,813
Net income attributable to common stockholders—diluted	$	22,058		$	51,072		$	4,305
DENOMINATOR
Weighted average common shares outstanding—basic	39,539,457			38,736,113			36,748,806
Effect of dilutive securities—conversion of Operating Partnership units	17,976,353			18,317,796			17,471,001
Weighted average common shares outstanding—diluted	57,515,810			57,053,909			54,219,807
Earnings (loss) per common share—basic
Continuing operations	$	0.38		$	0.24		$	(0.02	)
Discontinued operations	—			0.66			0.10
	$	0.38		$	0.90		$	0.08
Earnings (loss) per common share—diluted
Continuing operations	$	0.38		$	0.24		$	(0.02	)
Discontinued operations	—			0.66			0.10
	$	0.38		$	0.90		$	0.08