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. We completed $150.0 million of issuances under such ATM program on May 21, 2015. On May 27, 2015, we entered into a new ATM equity program with five sales agents under which we may, from time to time, offer and sell shares of our common stock having an aggregate offering price of up to $250.0 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, 2016, we issued 219,480 shares of common stock through the ATM equity program at a weighted average price per share of $45.50 for gross proceeds of $10.0 million and paid $0.1 million in sales agent compensation and $0.2 million in additional offering expenses related to the sales of these shares of common stock. As of December 31, 2016, we had the capacity to issue up to an additional $206.6 million in shares of our common stock under our active ATM equity program.

In January 2017, we issued 700,000 shares of common stock through the ATM equity program at a weighted average price per share of $43.46 for gross proceeds of $30.4 million and paid $0.3 million in sales agent compensation expense related to the sales of these shares of common stock.

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 active ATM equity program.

On March 9, 2015, we entered into a common stock purchase agreement (the “Purchase Agreement”) with Explorer Insurance Company, a California corporation ("EIC"), an entity owned and controlled by Ernest Rady, our Chairman, President and Chief Executive Officer. The Purchase Agreement provided for the sale by us to EIC, in a private placement, of 200,000 shares of our common stock at a purchase price of $40.54 per share, resulting in gross proceeds to us of approximately $8.1 million. The price per share paid by EIC 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 were registered on March 27, 2015 by virtue of our filing of a prospectus supplement to our universal shelf registration statement on Form S-3 filed on February 6, 2015.

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 owned and controlled by Ernest Rady. 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, 2016. 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, 2016, 2015 and 2014:



Period	Amount per Share/Unit		Period Covered	Dividend Paid Date
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
First Quarter 2015	$	0.2325	January 1, 2015 to March 31, 2015	March 27, 2015
Second Quarter 2015	$	0.2325	April 1, 2015 to June 30, 2015	June 26, 2015
Third Quarter 2015	$	0.2325	July 1, 2015 to September 30, 2015	September 25, 2015
Fourth Quarter 2015	$	0.2500	October 1, 2015 to December 31, 2015	December 23, 2015
First Quarter 2016	$	0.2500	January 1, 2016 to March 31, 2016	March 25, 2016
Second Quarter 2016	$	0.2500	April 1, 2016 to June 30, 2016	June 24, 2016
Third Quarter 2016	$	0.2500	July 1, 2016 to September 30, 2016	September 29, 2016
Fourth Quarter 2016	$	0.2600	October 1, 2016 to December 31, 2016	December 22, 2016

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,
	2016				2015				2014
	Per Share		%		Per Share		%		Per Share		%
Ordinary income	$	1.01	100.0	%	$	0.72	75.9	%	$	0.61	68.9	%
Capital gain	—		—	%	0.04		4.4	%	—		—	%
Return of capital	—		—	%	0.19		19.7	%	0.28		31.1	%
Total	$	1.01	100.0	%	$	0.95	100.0	%	$	0.89	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, 2016, 2,945,517 shares of common stock remain available for future issuance.

The following shares of restricted common stock have been issued as of December 31, 2016:



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
June 16, 2015 ⁽⁴⁾	$39.64	5,044
December 1, 2015 ⁽⁶⁾	$13.67 - $26.39	93,310
June 14, 2016⁽⁴⁾	$40.81	4,900
December 1, 2016 ⁽⁷⁾	$28.24 - $35.71	143,210

(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 based on performance calculations determined as 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 based on performance calculations determined as of November 30, 2015, 2016 and 2017, subject to the employee's continued employment on those dates.


(6)	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 based on performance calculations determined as of November 30, 2016, 2017 and 2018, subject to the employee's continued employment on those dates.


(7)	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 based on performance calculations determined as of November 30, 2017, 2018 and 2019, 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, 2016:



	2016
	Units		Weighted Average Grant Date Fair Value
Balance at beginning of year	174,744		$	27.11
Granted	148,110		32.39
Vested	(56,382	)	27.60
Forfeited	(33,707	)	26.42
Balance at end of year	232,765		$	31.24

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $2.4 million, $2.9 million and $3.7 million in noncash compensation expense for the years ended December 31, 2016, 2015 and 2014, each of which is included in general and administrative expense on the statement of income. Unrecognized compensation expense was $3.7 million at December 31, 2016, which will be recognized over a weighted-average period of 1.7 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, 2016, 2015 and 2014, we had a weighted average of approximately 176,408shares_, 184,545 shares and 430,584 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, 2016, 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, 2016, 2015, and 2014 does not include 176,408 units, 184,545 units, and 430,584 unvested weighted average Operating Partnership units, respectively, as these equity securities are either considered contingently issuable or the effect of including these equity securities was anti-dilutive.

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



	Year Ended December 31,
	2016			2015			2014
NUMERATOR
Income from operations	$	45,637		$	53,915		$	31,145
Less: Net income attributable to restricted shares	(189		)	(168		)	(374		)
Less: Income from operations attributable to unitholders in the Operating Partnership	(12,863		)	(15,238		)	(9,015		)
Net income attributable to common stockholders—basic	$	32,585		$	38,509		$	21,756
Income from operations attributable to American Assets Trust, Inc. common stockholders—basic	$	32,585		$	38,509		$	21,756
Plus: Income from operations attributable to unitholders in the Operating Partnership	12,863			15,238			9,015
Net income attributable to common stockholders—diluted	$	45,448		$	53,747		$	30,771
DENOMINATOR
Weighted average common shares outstanding—basic	45,332,471			44,439,112			42,041,126
Effect of dilutive securities—conversion of Operating Partnership units	17,895,688			17,900,051			17,906,348
Weighted average common shares outstanding—diluted	63,228,159			62,339,163			59,947,474

Earnings per common share, basic	$	0.72		$	0.87		$	0.52

Earnings per common share, diluted	$	0.72		$	0.86		$	0.51