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Equity of American Assets Trust, Inc. (Notes)

12 Months Ended

Dec. 31, 2019

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. For the year ended December 31, 2019, we issued 946,552 shares of common stock through the ATM equity program at a weighted average price per share of $46.04 for gross proceeds of $43.6 million and paid $0.4 million in sales agent compensation and $0.5 million in additional offering expenses related to the sales of these shares of common stock.

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 line of credit or other debt financing obligations, fund potential acquisition opportunities and/or for general corporate purposes. As of December 31, 2019, we had the capacity to issue up to an additional $132.6 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 active ATM equity program.

In June 2019, we issued and sold 10,925,000 shares of common stock in an underwritten public offering. The shares of

common stock that we issued and sold included the full exercise of the underwriters' option to purchase 1,425,000 additional

shares. We received net proceeds of approximately $472.6 million, after deducting underwriting discounts, commissions and

offering expenses.

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, 2019. 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, 2019, 2018 and 2017:



Period	Amount per Share/Unit		Period Covered	Dividend Paid Date
First Quarter 2017	$	0.26	January 1, 2017 to March 31, 2017	March 30, 2017
Second Quarter 2017	$	0.26	April 1, 2017 to June 30, 2017	June 29, 2017
Third Quarter 2017	$	0.26	July 1, 2017 to September 30, 2017	September 28, 2017
Fourth Quarter 2017	$	0.27	October 1, 2017 to December 31, 2017	December 21, 2017
First Quarter 2018	$	0.27	January 1, 2018 to March 31, 2018	March 19, 2018
Second Quarter 2018	$	0.27	April 1, 2018 to June 30, 2018	June 28, 2018
Third Quarter 2018	$	0.27	July 1, 2018 to September 30, 2018	September 27, 2018
Fourth Quarter 2018	$	0.28	October 1, 2018 to December 31, 2018	December 27, 2018
First Quarter 2019	$	0.28	January 1, 2019 to March 31, 2019	March 28, 2019
Second Quarter 2019	$	0.28	April 1, 2019 to June 30, 2019	June 27, 2019
Third Quarter 2019	$	0.28	July 1, 2019 to September 30, 2019	September 26, 2019
Fourth Quarter 2019	$	0.30	October 1, 2019 to December 31, 2019	December 26, 2019

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,
	2019				2018				2017
	Per Share		%		Per Share		%		Per Share		%
Ordinary income	$	1.09	95.6	%	$	1.05	96.3	%	$	1.05	100.0	%
Capital gain	—		—	%	—		—	%	—		—	%
Return of capital	0.05		4.4	%	0.04		3.7	%	—		—	%
Total	$	1.14	100.0	%	$	1.09	100.0	%	$	1.05	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, 2019, 2,422,181 shares of common stock remain available for future issuance.

The following shares of restricted common stock have been issued as of December 31, 2019:



Grant	Fair Value at Grant Date	Number
June 13, 2017 ⁽¹⁾	$40.99	4,880
December 15, 2017 ⁽²⁾	$27.27	145,218
June 12, 2018 ⁽¹⁾	$37.58	5,320
December 6, 2018 ⁽³⁾	$25.68 - $28.18	199,790
June 11, 2019 ⁽¹⁾	$45.35	4,412
December 9, 2019 ⁽⁴⁾	$28.06 - $30.97	168,596

(1)

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.


(2)	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, 2018, subject to the employee's continued employment on November 30, 2018, 2019 and 2020.


(3)	Restricted common stock issued to certain of the company's senior management and other employees, which are subject to quantitative and qualitative performance criteria based vesting. Up to one-third of the shares of restricted stock may vest based on such performance criteria determined as of November 30, 2019, 2020 and 2021, subject to the employee's continued employment on those dates.


(4)	Restricted common stock issued to certain of the company's senior management and other employees, which are subject to quantitative and qualitative performance criteria based vesting. Up to one-third of the shares of restricted stock may vest based on such performance criteria determined as of November 30, 2020, 2021 and 2022, 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, 2019:



	2019
	Units		Weighted Average Grant Date Fair Value
Balance at beginning of year	342,093		$	28.33
Granted	173,008		29.99
Vested	(99,304	)	28.23
Forfeited	(70,644	)	30.44
Balance at end of year	345,153		$	28.75

We recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $4.5 million, $3.0 million and $4.7 million in noncash compensation expense for the years ended December 31, 2019, 2018 and 2017, respectively, each of which is included in general and administrative expense on the statement of income. Unrecognized compensation expense was $7.1 million at December 31, 2019, which will be recognized over a weighted-average period of 1.6 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, 2019, 2018 and 2017, we had a weighted average of approximately 330,197shares, 271,905 shares and 230,602 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, 2019, 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, 2019, 2018 and 2017 does not include 330,197 units, 271,905 units, and 230,602 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 for American Assets Trust, Inc. is presented below (dollars in thousands, except share and per share amounts):



	Year Ended December 31,
	2019			2018			2017
NUMERATOR
Net income	$	60,188		$	27,202		$	40,132
Less: Net income attributable to restricted shares	(381		)	(311		)	(241		)
Less: Income attributable to unitholders in the Operating Partnership	(14,089		)	(7,205		)	(10,814		)
Net income attributable to common stockholders—basic	$	45,718		$	19,686		$	29,077
Income attributable to American Assets Trust, Inc. common stockholders—basic	$	45,718		$	19,686		$	29,077
Plus: Income attributable to unitholders in the Operating Partnership	14,089			7,205			10,814
Net income attributable to common stockholders—diluted	$	59,807		$	26,891		$	39,891
DENOMINATOR
Weighted average common shares outstanding—basic	54,110,949			46,950,812			46,715,520
Effect of dilutive securities—conversion of Operating Partnership units	16,675,183			17,185,747			17,371,730
Weighted average common shares outstanding—diluted	70,786,132			64,136,559			64,087,250

Earnings per common share, basic	$	0.84		$	0.42		$	0.62

Earnings per common share, diluted	$	0.84		$	0.42		$	0.62