Good day, ladies and gentlemen, and welcome to the Q2 2014 American Assets Trust Earnings Conference Call. My name is Whitley and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Adam Wyll, Senior Vice President and General Counsel. Please proceed sir.

Good morning I would like to thank everyone for joining us today for American Assets Trust second quarter 2014 earnings conference call. Joining me on the call are Ernest Rady, John Chamberlain and Bob Barton. These and other members of our management team are available to take your questions at the conclusion of our prepared remarks. Our second quarter 2014 supplemental disclosure package provides a significant amount of valuable information with respect to the company’s operating and financial performance. The document is currently available on our website. Certain matters discussed on this call maybe deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, our future operations and our actual performance may differ materially from the information contained in our forward-looking statements and we can give no assurance that these expectations will be attained. Risks inherent in these assumptions include but are not limited to future economic conditions including interest rates, real estate conditions and the risks and cost of construction. The earnings release and supplemental reporting package that we issued yesterday, our annual report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of Risk Factors that may affect our financial conditions and results of operations. Additionally this call will contain non-GAAP financial information including funds from operations or FFO, earnings before interest, taxes, depreciation and amortization or EBITDA and net operating income or NOI. American Assets is providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Explanations of such non-GAAP items and reconciliations to net income are contained in the company's supplemental operating and financial data for the second quarter of 2014 furnished to the Securities and Exchange Commission and this information is available on the Company's website at www.americanassetstrust.com. I'll now turn the call over to our Executive Chairman, Ernest Rady to begin our discussion of second quarter results. Ernest?

Thanks Adam and good morning everyone. Good morning, [John] (ph). Thank you for joining American Assets Trust second quarter 2014 earnings call. Our multi-asset class platform and disciplined investment strategy continues to demonstrate that diversity is additive to our ability to provide consistent growth, strong returns and value creation. We do not operate or make decisions with the view of how things will look next quarter or even the quarter after that. Our view of value creation for our shareholders is long term. As you all have heard me say before, AAT trades one of the highest FFO multiples amongst our peers. Yet we are still trading at a discount to our net asset value as we published during this past quarter. This is very frustrating. As I think back about the time when we went public, we had about $1.8 billion in assets. Now we have about $3.2 billion in assets. This accomplished over the last three years. If you look at our internal net asset value estimate of approximately $22.78 when we went public almost four years ago and compare that to where we are today, we believe we’ve created approximately $16 in net asset value, a 70% increase. That growth in net asset value is split approximately 50-50 between cap rate compression and what we believe is value added by management or what we refer to as alpha. That increase in net asset value has increased our total return of approximately 20% annually for our stockholders. If you attribute 50% of that total return to rate compression, that released a balance of approximately 10% attributable to what management has added through accretive acquisitions and good management, development, asset management and exchanges. This reconfirms our view that we can and will continue to try and create a 10% annual compound return for our shareholders over the next decade excluding cap rate compression. On top of that acquisitions, development opportunities and the recycling of equity is what we like to call icing on the cake and we hope we have a well iced cake. It won’t be every year. Some years will be up and some years will not be up and some years will be down. But in the long run, our focus will always be on creating long term asset value for our shareholders, which we believe, hope and count on translating into at least a 10% compound annual return over the long run. It’s what we’ve been doing for almost a half a century. Looking forward we feel -- continue to feel confident about our assets, our momentums and our strategy for the remainder of this year and into 2015. On behalf of all of American Assets, we thank you for your confidence in allowing us to manage your company and we look forward to your continued support. I would now like to turn it over to our President and CEO John Chamberlain. John, would you please take it from here?

Good morning and thank you Ernest. Overall conditions in our core markets Seattle, Portland, San Francisco, San Diego and Oahu continue to show significant signs of strength in all three of our asset classes. We expect this to continue into the foreseeable future. In addition to the FFO performance Ernest just mentioned, net income available to common stockholders was $3.7 million for the three months ended June 30, 2014, or $0.9 per diluted share. Bob will provide more details on our FFO and same store NOI shortly. In San Diego we complete construction this month on phase 3 of Torrey Reserve both on track and on budget. Building 6 is 100% leased, Buildings 4 and 5 are experiencing considerable tenant interest. Our 500 Kilowatt photovoltaic instillation is complete and was attached to the grid on July 21, 2014. Phase 4, buildings 13 and 14 are well underway and now anticipated to be complete in April of 2015. The final steps are taking place in the building permitting process for Sorrento point are approximate 90,000 square feet two building complex across the freeway from Torrey Reserve. Grading is now anticipated to commence in October of this year. At Lomas Santa Fe plaza, we are pleased to report that we executed a lease with TJX companies for our home goods in place of the previous Ross units. Home goods will be a welcome addition to the center when it opens anticipated to be in February 2015. Also in San Diego, at Carmel Mountain Plaza, Saks Fifth Avenue’s off 5th outlet store opened adjacent to Nordstrom Rack on May 23, to an all-time chain-wide record sales opening. Both stores continue to have very strong sales performance. In San Antonio, at our Alamo Quarry market, we replaced bankrupt Baileys Gym with Gold’s Gym, a…

Thank you, John and good morning everyone. Last night we reported second quarter 2014 FFO of $0.39 per share. Net income attributable to common stockholders was $0.09 per share for the second quarter. The company’s Board of Directors has declared a dividend on its common stock of $0.22 per share for the quarterly period ending September 30, 2014. American Assets had a solid second quarter performance. Our high quality, coastal West Coast diversified strategy continues to have stellar performance. Our retail portfolio ended the quarter with 98.8% occupancy combined with the highest annualized base rents amongst our peers. That represents less than 90,000 square feet of vacancy in a three million plus square foot portfolio. Our office portfolio ended the quarter at approximately 88.5% occupancy as we expected. Total office vacancy represents approximately 300,000 square feet of a 2.6 million square feet office portfolio. Approximately 60% of the vacancy relates to our development projects at Torrey Reserve Campus and the Lloyd District portfolio due to tenants that have been impacted by ongoing construction activity. For this reason, we continue to exclude these two projects from same store NOI metrics. The tax and treasury administration at our first Maine building in Portland, Oregon, represents approximately 23% of the vacancy and is consistent with our expectations from our initial underwriting when we acquired the property. I can tell you that Jim Durfey who heads up our office leasing is working closely with the local brokerage community to fill the 70,000 square feet vacancy. Portland continues to achieve levels of job growth with the year-over-year expansion hitting 2.8%, one of the highest levels of major western metro areas. According to a recent research report from JLL, the Portland CBD office market has again tightened with vacancy dropping to 8.4%, its lowest level in…

[Operator Instructions] Your first question comes from the line of Jason White with Green Street Advisors. Please proceed.

Good morning, guys. Just had a quick question for you. You backfill and re-leased some of the retail spaces and some of the boxes that you discussed in the prepared remarks. Can you give me an idea of kind of the length of the line for negotiations and how many tenants are showing up and what types of tenants and really what’s driving the kind of supply-demand dynamic for your portfolio, which is at the high end of the quality spectrum?

This is Chris Sullivan the VP of leasing for the retail. On the big boss leasing, it could take anywhere from six to nine months to get a deal done and even at sometimes longer because you have the positioning or I should say the scheduling of when that particular retailer is going to open, so typically they’re only going to open in the spring or the fall, so that’s kind of what takes that. The guidance that we're lining up for the boxes, the discount clothing apparel guys have gotten pretty aggressive and the sports guys have got pretty aggressive. As you read the grocery category, it has also gotten pretty aggressive, but not portfolio guys with most portfolios, the grocery categories usually taken so it’s hard to do -- you can’t do two grocery stores. Does that answer your question?

Yeah, yeah and just also what you're seeing is the competition and not to where you're seeing a descent amount of rent growth in these boxes as you're looking at let's say back filling the Waikele box and home goods have replaced the Ross box. What are you seeing in terms of rent increases from the prior tenant? And obviously, it’s a roll down, but I am just kind of curious where you thought you are going to end up versus where you maybe trending towards.

Getting into the low to mid 20s typically on a box when you have got your triple net is probably where you’re going to end up in San Diego all depending on that particular location. But the boxes are so selective of where they’re going to go and so most of San Diego’s pretty much a built out market. So there’s not a whole lot of room left for them, but yet they’re also not going to triple over each other just to get into a position of paying lot of higher rent. Their spreadsheet and their return on cost is just as important as ours.

Okay. Thank you.

Your next question comes from the line of Todd Thomas of KeyBanc Capital Markets. Please proceed.

Hey, good morning. This is actually [Gran] (ph) for Todd. I just want a touch on the termination fee from the [indiscernible] acquisition. Was that related to a single acquisition or was it a portfolio and maybe just some more color on anything else you can provide in terms of the property type or geography or anything like that?

It was a single property -- it was a single property acquisition. We negotiated first time and we had an NOI and then the seller changed his mind, actually to characterize it correctly, he [was] (ph) and the second time he said he would like to come and do the transaction again. I said okay, don't go through with it this time, you got to write us a check for $1 million and sure enough he wrote us a check for $1 million. He changed mind the second time. It was for a type of property that would have resulted in additional apartment portfolio and some additional commercial in San Diego and we’re really sorry that it didn’t go ahead. It would have been a great, great acquisition but you win some, you lose some.

Well I guess, given that can you just update us on the pipeline then for acquisitions. I think that you guys have mentioned some Hawaii and also Southern California but maybe just an update there.

Yeah. We continue to look. That’s probably the best way to characterize the acquisition activity. We continue to underwrite assets. We are constantly looking at the recycling of capital internally but frankly the pricing of assets today believe it or not is continuing to get more and more aggressive. Every time we’ve thought we had seen the bottom for cap rate compression another deal gets reported and the cap rates are even lower. So we’re looking but we’re not actively pursuing anything at this time.

Okay. And then in terms of funding the development, obviously a very robust development pipeline and you’re active in issuance in some shares and at ATM, which is below the $39 internal NAV but I think the short term dilution kind of makes sense for the long term growth that you guys have mentioned before but just other options, you mentioned selling assets. How do you feel about like bringing on JV partners, anything like that, I guess, how do you rank the other options there?

Okay. Historically we have not done joint ventures. We had one joint venture partner in the history of the company that I can remember, one significant anyway the General Electric Pension Fund and joint venture partners are apparently not a good thing to -- from an accounting point of view they are not good thing from a transaction point of view. So we don’t think joint ventures are really something that’s on our radar screen, but you never know, something may come up that maybe compelling. What we look at really is the market for assets today is heated. One might even describe it as overheated. So our opportunity should present itself and as John pointed out we constantly are examining the opportunity. Do we have something that sells at a heated price that we can buy -- transition it into another asset at heated price that will be a better asset for us in the long run and that’s really where our efforts are focused now and that’s where we’re constantly looking at. Can we buy something and it has to be at a heated price, but can we sell something and it has to be at a heated price and improve our overall position. That’s our strategy. That’s where we’re looking at and we have a history of doing this over many years, I think over the life of the -- recent life of the company we’ve done over $2 billion of lease transactions and I refer that as icing on the cake. We hope to have an icing on the cake at some point in the future. We don’t know when. It’s something we constantly look at. It’s something we dream about and something we hope for.

Would you sell one of these assets that are at a heated price if you didn’t have an acquisition [indiscernible] raise proceeds?

Probably and probably not because first of all, there are tax consequences. Second of all, our objective is to be a larger enterprise rather being a smaller enterprise. The cost of being public is very significant and as I said in the opening statement, our total assets have grown from $1.8 billion to $3.2 billion. Our objective is to grow, to increase the quality assets and increase the NAV for the stock holders. So selling something just for the sake of selling is -- are not to be on our radar screen. We although look to be selling something where it’ll improve our overall position now and going into the future.

Okay, that’s fair and just lastly quickly on Alamo Quarry, I found the lease trade increase from 94.5 to 99.5 and you mentioned that Gold Gym signing, so that opens in January. I was just curious, there’s a rent commence in January and then what kind of cash rent spread was that?

Yeah this is Chris Sullivan again. So your question was does the rent start in January?

And the spread.

Yeah, they should open in January and then the spread of the Baileys it was approximately the same, I think the average rent was approximately 15 bucks and that’s about where Baileys was on the overage but now Baileys went bankrupt two years ago so we had a subtenant in the Baileys, which was called Blast. It was operating at a substantially less rent than that but that really wasn’t a fair comparison. Remember this space is the majority of the second floor space.

Okay. Thank you.

Thank you.

Your next question comes from the line of Blaine Heck of Wells Fargo Securities. Please proceed.

Good morning. Hello.

It’s a possibility his line is muted.

Let’s go to the next guy.

Your next question comes from the line of Craig Smith of Bank of America, Merrill Lynch. Please proceed.

Good morning, Craig.

Good morning, it’s actually Katy on for Craig. It sounds like the Lloyd District interior Reserve developments are going well and perhaps a little better than expected I guess from a demand perspective. Just wondering if you guys had any update related to the yields on these projects at this point?

Hi Katy, Bob. Now we’re keeping the yields where they are. We’re halfway through the development and probably 80% of the contract is bought out. So we’re very comfortable on that side, but on a project of this magnitude we’re going to keep a conservative yield that we’ve currently published and if something changes we’ll let you know on a personal basis.

Okay. Okay.

I am pretty excited Katy about having the opportunity to participate in that market with the product we’re bringing online.

Great and then I guess just, you mentioned being pleased with the multifamily portfolio. Is that a format that you -- be looking to do more acquisitions, I know you mentioned the one of the apartments. Would you be willing to increase the size of the multifamily as a percentage of the total portfolio?

We would love to. It’s the difficulty of finding a product that meets our quality standards, that meets our opportunities for the future we look for and that matches the other opportunities, but we would love to have more multifamily.

Okay. Great, thanks.

Thanks Katy.

Your next question comes from the line of Wes Golladay of RBC Capital Markets. Please proceed.

Yeah. Good morning guys. Sticking with that last question, would you guys consider developing more multifamily once the Lloyd district portfolio is complete?

Yes.

You're actively looking to permit or is just too soon?

We’ve started planning.

What Ernest was referring to is Phase 2 of the Lloyd district project. That is in the planning stages. We continue to look for other opportunities. As Ernest just mentioned the one that we were just looking at -- that we were paid the termination fee was fairly large site about a 35 acre site over here in San Diego and that would have been a project that would have commenced concurrent with what we’re doing up in the Lloyd district. But at the moment finding opportunities is difficult and at the same time we are very pleased with the pipeline that we have up in the Lloyd District so we’ve got plenty of work ahead of us up there and as I’ve mentioned, we’ve started planning for Phase 2 and it will be in a position to break ground upon the completion of Phase 1.

I think that pretty well sums it up. We have a great pipeline. We’re looking forward to adding to these sites of the portfolio and increasing the quality and the income from the portfolio and the metrics are in place and the properties are in place too.

The next question comes from the line of Blaine Heck of Wells Fargo Securities. Please proceed.

Hey guys, can you hear me?

Yes.

All right. So Bob, when I look at your office same store NOI, it looks like there is a pretty sizeable difference between cash up 6.5 and gap is down 0.2. Was there a lease that just had a large amount of free rent burn off or is there something else that’s driving that?

Yeah, on the -- between the gap and the office, the office same store is primarily just first in Maine, the impact, the others are CCB and Landmark, which impact the cash same store NOI.

Okay, so -- but there is nothing kind of out of the ordinary there that caused the big difference between cash and gap?

No, on the cash side it’s really -- so for instance on the cash side, the difference is 648,000 if you look at -- for the three months ended June 30 and that’s really a lift in the CCB City Center Bellevue in Bellevue, Washington and that’s probably 150,000. Landmark continues to increase by about 1.1 million, 1.2 million a year because our large anchor tenant in there has $2 per square feet bumps a year, which take place generally in the second quarter and then first in Maine reduce that because of the tax and treasury that have left in the first quarter. So that’s where you come out with your same store.

That makes more sense. Not sure if Jim’s on the call but can we get a little more detailed update on how leasing negotiations are for the backfill of tax and treasury at first in Maine and maybe some feel for when we may see a lease come through.

Blaine, let’s talk about first and Maine first.

This is Jim Durfey who is responsible for office leasing and does a great job.

We have several prospects for the portions of the first in Maine states. I can’t go into elaborate detail on who those people are but we’re currently negotiating approximately a full floor deal and we’ve several other interested prospects for other portions of that 70,000 square feet. So that market as you know has improved markedly in the last six months not only in the CBD but also in Lloyd District. Although you didn’t ask the question, I will tell you in the Lloyd District, we’re working on 100,000 square feet of leases in combination of the Lloyd 700 building and Lloyd 700 Tower. So very active over there. So things are definitely improving in both of those submarkets.

It would be difficult to over describe the turmoil that was created by the construction. So the fact that our occupancy went down in the Lloyd 700 building is not surprising. On the other hand, as the project starts to materialize I think that the people who are looking at the recent leasing there, realize that it’s going to be a very, very good place to locate their businesses.

Understood. That sounds great. And then similar question on the Foodland space, I think the last time we talked it seemed as though you are getting close to signing a tenant for about half of that space. Can you give an update on what your thoughts are for timing at that property?

Hi, this is Chris Sullivan again the VP of the Retail and Leasing. I am still working with several prospects on it. My timing is -- I don’t want to leave that punch for you and give you an exact timing because I have just had a difficulty positioning tenants. There’s a lot of activity on the island right now with respect to developments and retail is looking for space. Quite a bit of it as you know [Alamo] (ph) is just exploding with growth at their mall there. Puts a lot of opportunities in the market, which is causing a little extra confusion for me. So to the long and short answer to the question, I am still working on it and I hope we’ll have some data in the next three to six months.

Okay. Great. That’s fair enough. And then last one for Bob. Is there any change to the AFFO guidance, I think it was 95 to 101 or any of the same store NOI guidance numbers.

No. Pretty much on track.

Okay. Great. Thanks guys.

Thanks.

The next question comes from the line of [Hendo] (ph) with Morgan Stanley. Please proceed.

Yes, good morning out there.

Good morning, Hendo.

So Ernest, a question for you, wanted to follow-up on that theoretical asset swap that you put forth in your earlier comments, was curious perhaps of extensive forward IRR expectations for maybe high quality apartments in your core markets, which appear to be a bit later in the cycle -- in the apartment recovery cycle and also perhaps a lower forward IRR versus perhaps strips and office, which may have more room to run, maybe a little earlier recovery cycle. Just curious as you're looking at potentially again I know it's theoretical looking at that potential swap, how you are thinking about IRRs for the various asset classes in your portfolio at this point?

Well, [Hendo] this is Bob. Let me address that. It's probably helpful to just walk you through our acquisition strategy. So we place focus on the IRR, our focus is more on unlevered cash on cash returns and the reason for that is because the IRR can be manipulated on the back end through a terminal CAP rate, whatever you want to put in there to achieve that return, that would make you want to pull the trigger and buy the property. The way we look at things is that we are less concerned with the going in CAP rate or the going in yield, but what we're focused on is the growth and we want to relate it back to our weighted average cost of capital. So for multifamily asset out there, is trading at let's say a four, or a five, or whatever the CAP rate is, that doesn’t bother us. We will take it down if it meets our other criteria of high quality in the markets that we're looking at, but then it has to have growth so that it will get our unlevered cash on cash over our weighted average cost of capital within the three year period of time and if it doesn’t meet that, then we're destroying shareholder value. If it does, then we're creating shareholder value or creating value for our shareholders. I hope that answers your question.

It gives me some context. I appreciate that. One more small one. We've heard from some apartment REITs who have high quality West Coast assets that they're starting to see Condo bidders reemerge in the marketplace, curious if you’ve seen that, if you’ve been approached etcetera, thanks?

Not to my knowledge.

Okay, guys. Thank you.

Thank you.

Thanks [Hendo] (ph).

Your next question comes from the line of Wes Golladay of RBC Capital Markets. Please proceed.

Hey, good morning, guys. Sorry about dropping off. Looking at the multifamily portfolio it seems like you're running at 100% occupancy ex the RV resort, are you going to start pushing rate there more aggressively?

Yes.

Okay. So it maybe 5% rate growth next year would be a good estimate, is that true?

We will try and get all we can providing that we provide good value for our tenants and with the occupancy rate, we're running, I am optimistic that the portfolio will have very good returns. Do you have a progress around that portfolio?

Hi, I agree with Ernest. We have an aggressive pricing philosophy and the fundamentals of our vacancy compression with occupancy allows us to push these rents and we're going to absolutely push the limit next year.

Hey Wes, we have no history of leaving money on the table, I will tell you that.

This is Bob. So just to kind of put it in perspective, the multifamily is what 98% occupied at yearend or I am sorry as of the end of this quarter. For our guidance perspective, we factored in the 95%. So we factored in a reduction in occupancy for guidance to 95%, but we had an increase in rates which has got us to -- we're projecting a same store cash NOI increase of about 3%, 3.5% for next year. Puts it in context for you.

No that's excellent color there and then when we look at the office portfolio you have about 200,000 square feet of leasing next year assuming options are exercised and you mentioned the portfolio on average in just about 19% below market, is there any one off difficult comps in next year's leasing or for the next 18 months?

For the next 18 months, no. and Jim might want to add some to that, but landmark is pretty much locked up. City Center Bellevue is where we'll see some roll. When we underwrote that property, we knew during the first five years from the point of acquisition probably 50% of the building would roll and we see that -- we saw that as an opportunity because at the time of acquisition, we determined and it was confirmed by third party that 23% would -- in place rents were below market by approximately 23% and we're seeing that come to fruition on each roll that we're doing. In fact in one of the leasing -- releasing spreads, on this quarter it was like a 30% increase over the prior cash rents, but over the next 18 months, no, but after that we're going to see some activity.

Okay. Thanks a lot guys.

Thank you.

That concludes our Q&A. I'll now turn the call back over to Executive Chairman, Ernest Rady for closing remarks. Please proceed. Ernest Rady Again, thank you all. It's a great pleasure to be able to bring you the good news that our top quality portfolio continues to produce and we appreciate your confidence and allowing us to continue to manage our assets on your behalf. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.