EQUITY OF AMERICAN ASSETS TRUST, INC.

Stockholders' Equity

On May 6, 2013, we entered into an at-the-market (“ATM”) equity program with four sales agents pursuant to 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 ("the Securities Act"). For the year ended December 31, 2014, we issued 2,710,067 shares of common stock through the ATM equity program at a weighted average price per share of $33.84 for gross proceeds of $91.7 million and paid $0.9 million in sales agent compensation and $0.1 million in additional offering expenses related to the sales of these shares of common stock. As of December 31, 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 ("Board of Directors"). The Purchase Agreement provided for the sale by the company to ICW, in a private placement, of 400,000 shares of the company's common stock at a purchase price of $33.76 per share, resulting in gross proceeds to the company of approximately $13.5 million. The price per share paid by ICW was equal to the closing price of a share of the company's common stock on the New York Stock Exchange on the date of the Purchase Agreement. These shares were registered in connection with the filing of our universal shelf registration statement on Form S-3 ASR on February 6, 2015.

Preferred Stock Authorized Shares

We have been 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, 2014. 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, 2014, 2013 and 2012:



Period	Amount per Share/Unit		Period Covered	Dividend Paid Date
First Quarter 2012	$	0.2100	January 1, 2012 to March 31, 2012	March 30, 2012
Second Quarter 2012	$	0.2100	April 1, 2012 to June 30, 2012	June 29, 2012
Third Quarter 2012	$	0.2100	July 1, 2012 to September 30, 2012	September 28, 2012
Fourth Quarter 2012	$	0.2100	October 1, 2012 to December 31, 2012	December 28, 2012
First Quarter 2013	$	0.2100	January 1, 2013 to March 31, 2013	March 29, 2013
Second Quarter 2013	$	0.2100	April 1, 2013 to June 30, 2013	June 28, 2013
Third Quarter 2013	$	0.2100	July 1, 2013 to September 30, 2013	September 27, 2013
Fourth Quarter 2013	$	0.2200	October 1, 2013 to December 31, 2013	December 27, 2013
First Quarter 2014	$	0.2200	January 1, 2014 to March 31, 2014	March 28, 2014
Second Quarter 2014	$	0.2200	April 1, 2014 to June 30, 2014	June 27, 2014
Third Quarter 2014	$	0.2200	July 1, 2014 to September 30, 2014	September 26, 2014
Fourth Quarter 2014	$	0.2325	October 1, 2014 to December 31, 2014	December 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 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,
	2014				2013				2012
	Per Share		%		Per Share		%		Per Share		%
Ordinary income	$	0.61	68.9	%	$	0.83	97.6	%	$	0.56	66.7	%
Return of capital	0.28		31.1	%	0.02		2.4	%	0.28		33.3	%
Total	$	0.89	100.0	%	$	0.85	100.0	%	$	0.84	100.0	%

Stock-Based Compensation

The company has established the 2011 Equity Incentive Award Plan (the "2011 Plan"), which 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, 2014, 3,560,872 shares of common stock remain available for future issuance.

The following shares of restricted common stock have been issued as of December 31, 2014:



Grant	Price at Grant Date	Number
January 19, 2012 ⁽¹⁾	$11.91 - $12.61	2,000
July 10, 2012 ⁽²⁾	$25.05	8,015
July 13, 2013 ⁽²⁾	$31.97	5,004
March 25, 2014 ⁽³⁾	$28.89 - $31.25	112,119
June 17, 2014 ⁽⁴⁾	$34.10	5,864
December 1, 2014 ⁽⁵⁾	$36.28 - $36.32	98,765

⁽¹⁾Restricted common stock issued to certain of the company's senior management and other employees, which are subject to performance-based vesting. These shares 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 employee's continued employment on those dates.

⁽²⁾ Restricted common stock issued to members of the company's non-employee directors. These awards of restricted stock 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.

⁽³⁾ Restricted common stock issued to certain of the company's senior management and other employees, which are subject to pre-defined market specific performance criteria based vesting. Up to one-third of the shares of restricted stock may vest on each of November 30, 2014, 2015 and 2016, subject to the employee's continued employment on those dates.

⁽⁴⁾ Restricted common stock issued to members of the company's non-employee directors. These awards of restricted stock will vest subject to the director's continued service on the Board of Directors 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 of Directors until the next annual meeting of stockholders, but not thereafter, pursuant to our independent director compensation policy.

⁽⁵⁾ Restricted common stock issued to certain of the company's senior management and other employees, which are subject to pre-defined market specific performance criteria based vesting. Up to one-third of the shares of restricted stock may vest on each of November 30, 2015, 2016 and 2017, subject to the employee's continued employment on those dates.

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, 2014:



	2014
	Units		Weighted Average Grant Date Fair Value
Balance at beginning of year	629,058		$	15.58
Granted	216,748		32.96
Vested	(351,075	)	17.22
Forfeited	(1,192	)	29.83
Balance at end of year	493,539		$	22.01

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $3.7 million, $2.8 million and $2.9 million in noncash compensation expense for the years ended December 31, 2014, 2013 and 2012, each of which is included in general and administrative expense on the statement of income. Unrecognized compensation expense was $5.1 million at December 31, 2014, which will be recognized over a weighted-average period of 1.0 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, 2014, 2013 and 2012, we had a weighted average of approximately 430,584shares_, 630,130 shares and 629,493 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, 2014, 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.

Earnings Per Unit of the Operating Partnership

Basic earnings (loss) per unit (“EPU”) of the Operating Partnership is computed by dividing income (loss) applicable to unitholders by the weighted average Operating Partnership units outstanding, as adjusted for the effect of participating securities. Operating Partnership units granted in equity-based payment transactions are considered participating securities prior to vesting. The impact of unvested Operating Partnership unit awards on EPU has been calculated using the two-class method whereby earnings are allocated to the unvested Operating Partnership unit awards based on distributions and the unvested Operating Partnership units’ participation rights in undistributed earnings (losses).

The calculation of diluted earnings per unit for the year ended December 31, 2014, 2013, and 2012 does not include 430,584 units, 630,130 units, and 629,493 unvested weighted average Operating Partnership units, respectively, as the effect of including these equity securities was anti-dilutive to income from continuing operations and net income attributable to the unitholders.

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



	Year Ended December 31,
	2014			2013			2012
NUMERATOR
Income from continuing operations	$	31,145		$	22,594		$	13,949
Less: Net income attributable to restricted shares	(374		)	(536		)	(529		)
Less: Income from continuing operations attributable to unitholders in the Operating Partnership	(9,015		)	(6,838		)	(4,239		)
Income from continuing operations attributable to American Assets Trust, Inc. common stockholders—basic	21,756			15,220			9,181
Plus: Results from discontinued operations attributable to American Assets Trust, Inc. common stockholders	—			—			25,757
Net income attributable to common stockholders—basic	$	21,756		$	15,220		$	34,938
Income from continuing operations attributable to American Assets Trust, Inc. common stockholders—basic	$	21,756		$	15,220		$	9,181
Plus: Income from continuing operations attributable to unitholders in the Operating Partnership	9,015			6,838			4,239
Income from continuing operations attributable to common stockholders—diluted	30,771			22,058			13,420
Plus: Results from discontinued operations attributable to American Assets Trust, Inc. common stockholders	—			—			25,757
Plus: Results from discontinued operations attributable to unitholders in the Operating Partnership	—			—			11,895
Net income attributable to common stockholders—diluted	$	30,771		$	22,058		$	51,072
DENOMINATOR
Weighted average common shares outstanding—basic	42,041,126			39,539,457			38,736,113
Effect of dilutive securities—conversion of Operating Partnership units	17,906,348			17,976,353			18,317,796
Weighted average common shares outstanding—diluted	59,947,474			57,515,810			57,053,909
Earnings per common share—basic
Continuing operations	$	0.52		$	0.38		$	0.24
Discontinued operations	—			—			0.66
	$	0.52		$	0.38		$	0.90
Earnings per common share—diluted
Continuing operations	$	0.51		$	0.38		$	0.24
Discontinued operations	—			—			0.66
	$	0.51		$	0.38		$	0.90