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. During the three and nine months ended September 30, 2014, the following shares of common stock and related proceeds were sold through the ATM equity program (in thousands, except per share data):



	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014
Number of shares of common stock issued through ATM program	599,582			2,710,067
Weighted average price per share	$35.01			$33.84

Proceeds, gross	$	20,994		$	91,707
Sales agent compensation	(210		)	(918		)
Offering costs	(49		)	(145		)
Proceeds, net	$	20,735		$	90,644

We intend to use the net proceeds from the ATM equity program 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 September 30, 2014, we had the capacity to issue up to an additional $32.3 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.

On September 12, 2014, we entered into a common stock purchase agreement (the “Purchase Agreement”) with Insurance Company of the West, a California corporation ("ICW") which is an insurance company majority owned and controlled by Ernest Rady, the Executive Chairman of our board of directors. The Purchase Agreement provided for the sale by us to ICW, in a private placement, of 400,000 shares of our common stock at a purchase price of $33.76 per share, resulting in gross proceeds to us of approximately $13.5 million. The price per share paid by ICW was equal to the closing price of a share of our common stock on the New York Stock Exchange on the date of the Purchase Agreement. These shares are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from us in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under securities laws only in certain limited circumstances. ICW must bear the economic risk of this investment indefinitely unless the shares are registered pursuant to applicable securities laws, or an exemption from registration is available.

Noncontrolling Interests

Noncontrolling interests in our Operating Partnership are interests in the Operating Partnership that are not owned by us. Noncontrolling interests consisted of 17,905,257 common units (the “noncontrolling common units”), and represented approximately 29.3% of the ownership interests in our Operating Partnership at September 30, 2014. 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 nine months ended September 30, 2014, approximately 11,852 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 nine months ended September 30, 2014:



Period	Amount per Share/Unit		Period Covered	Dividend Paid Date
First Quarter 2014	$	0.22	January 1, 2014 to March 31, 2014	March 28, 2014
Second Quarter 2014	$	0.22	April 1, 2014 to June 30, 2014	June 27, 2014
Third Quarter 2014	$	0.22	July 1, 2014 to September 30, 2014	September 26, 2014

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 revenue recognition and compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation.

Stock-Based Compensation

We follow the FASB guidance related to stock compensation which establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer, or the employer incurs liabilities to employees in amounts based on the price of the employer's stock. The guidance also defines a fair value-based method of accounting for an employee stock option or similar equity instrument.

On March 25, 2014, we awarded 112,119 shares of restricted common stock pursuant to our 2011 Equity Incentive Award Plan (the “2011 Plan”), which are subject to performance-based vesting. Up to one-third of the shares of restricted stock may vest on November 30, 2014, 2015 and 2016 based upon pre-defined market specific performance criteria.

In addition, on the date of each annual meeting of our stockholders, each non-employee director who continues to serve on our board of directors (the "Board") following such annual meeting will be granted restricted shares of our common stock pursuant to the 2011 Plan. On June 17, 2014, we awarded a total of 5,864 shares of restricted common stock pursuant to our 2011 Plan to our non-employee directors. These awards of restricted stock will vest subject to the director's continued service on the Board on the earlier of (i) the one year anniversary of the date of grant or (ii) the date of the next annual meeting of our stockholders, if such non-employee director continues his or her service on the Board until the next annual meeting of stockholders, but not thereafter, pursuant to our independent director compensation policy.

For the performance-based stock awards, the fair value of the awards were 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.

The following table summarizes the activity of restricted stock awards during the nine months ended September 30, 2014:



	Units		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2014	629,058		$	15.58
Granted	117,983		30.17
Vested	(313,998	)	15.57
Forfeited	(941	)	29.96
Nonvested at September 30, 2014	432,102		$	19.54

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $2.6 million and $2.1 million, respectively, in noncash compensation expense for the nine months ended September 30, 2014 and 2013, which is included in general and administrative expense on the consolidated statements of comprehensive income. Unrecognized compensation expense was $2.6 million at September 30, 2014.

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. The weighted average unvested shares outstanding, which are considered participating securities, were 432,311 and 629,835 for the three months ended September 30, 2014 and 2013, respectively, and 423,502 and 630,464 for the nine months ended September 30, 2014 and 2013, respectively. Therefore, we have allocated our earnings for basic and diluted EPS between common shares and unvested shares as these unvested shares have nonforfeitable dividend equivalent rights.

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 nine months ended September 30, 2014 and 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):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
NUMERATOR
Income from operations	$	9,090		$	6,258		$	21,099		$	15,687
Less: Net income attributable to restricted shares	(95		)	(132		)	(259		)	(397		)
Less: Income from operations attributable to unitholders in the Operating Partnership	(2,578		)	(1,903		)	(6,108		)	(4,752		)
Net income attributable to common stockholders—basic	$	6,417		$	4,223		$	14,732		$	10,538
Income from operations attributable to American Assets Trust, Inc. common stockholders—basic	$	6,417		$	4,223		$	14,732		$	10,538
Plus: Income from operations attributable to unitholders in the Operating Partnership	2,578			1,903			6,108			4,752
Net income attributable to common stockholders—diluted	$	8,995		$	6,126		$	20,840		$	15,290
DENOMINATOR
Weighted average common shares outstanding—basic	42,539,019			39,816,753			41,653,229			39,439,488
Effect of dilutive securities—conversion of Operating Partnership units	17,905,257			17,960,914			17,906,715			17,984,471
Weighted average common shares outstanding—diluted	60,444,276			57,777,667			59,559,944			57,423,959

Earnings per common share, basic	$	0.15		$	0.11		$	0.35		$	0.27
Earnings per common share, diluted	$	0.15		$	0.11		$	0.35		$	0.27