Paramount Group, Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 30, 2019


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36746

PARAMOUNT GROUP, INC.

(Exact name of registrant as specified in its charter)

Maryland

32-0439307

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

1633 Broadway, Suite 1801, New York, NY

10019

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (212) 237-3100

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class	Trading Symbol	Name of each exchange on which registered
Common stock of Paramount Group, Inc., $0.01 par value per share	PGRE	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 15, 2019, there were 227,433,050 shares of the registrant’s common stock outstanding.

Table of Contents

Item		Page Number
Part I.	Financial Information

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets (Unaudited) as of September 30, 2019 and December 31, 2018	3

	Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2019 and 2018	4

	Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2019 and 2018	5

	Consolidated Statements of Changes in Equity (Unaudited) for the three and nine months ended September 30, 2019 and 2018	6

	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2019 and 2018	8

	Notes to Consolidated Financial Statements (Unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

Item 4.	Controls and Procedures	63

Part II.	Other Information

Item 1.	Legal Proceedings	64

Item 1A.	RiskFactors	64

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	65

Item 4.	Mine Safety Disclosures	65

Item 5.	Other Information	65

Item 6.	Exhibits	65

Signatures		66

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

PARAMOUNT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(Amounts in thousands, except share, unit and per share amounts)	September 30, 2019			December 31, 2018
Assets
Real estate, at cost:
Land	$	2,018,805		$	2,065,206
Buildings and improvements		5,984,703			6,036,445
		8,003,508			8,101,651
Accumulated depreciation and amortization		(764,151	)		(644,639	)
Real estate, net		7,239,357			7,457,012
Cash and cash equivalents		298,066			339,653
Restricted cash		25,372			25,756
Investments in unconsolidated joint ventures		231,983			78,863
Investments in unconsolidated real estate funds		11,582			10,352
Preferred equity investments		-			36,042
Accounts and other receivables, net of allowance of $593 in 2018		20,400			20,076
Deferred rent receivable		295,520			267,456
Deferred charges, net of accumulated amortization of $39,576 and $30,129		127,427			117,858
Intangible assets, net of accumulated amortization of $264,802 and $245,444		222,709			270,445
Other assets		107,334			132,465
Total assets ⁽¹⁾	$	8,579,750		$	8,755,978

Liabilities and Equity
Notes and mortgages payable, net of deferred financing costs of $26,266 and $32,883	$	3,576,734		$	3,566,917
Revolving credit facility		-			-
Accounts payable and accrued expenses		119,362			124,334
Dividends and distributions payable		25,307			25,902
Intangible liabilities, net of accumulated amortization of $98,829 and $89,200		78,836			95,991
Other liabilities		76,768			51,170
Total liabilities ⁽¹⁾		3,877,007			3,864,314
Commitments and contingencies
Paramount Group, Inc. equity:
Common stock $0.01 par value per share; authorized 900,000,000 shares; issued and outstanding 227,865,810 and 233,135,704 shares in 2019 and 2018, respectively		2,279			2,329
Additional paid-in-capital		4,134,389			4,201,756
Earnings less than distributions		(276,659	)		(219,906	)
Accumulated other comprehensive (loss) income		(9,219	)		16,621
Paramount Group, Inc. equity		3,850,790			4,000,800
Noncontrolling interests in:
Consolidated joint ventures		363,211			394,995
Consolidated real estate fund		72,241			66,887
Operating Partnership (24,762,564 and 25,127,003 units outstanding)		416,501			428,982
Total equity		4,702,743			4,891,664
Total liabilities and equity	$	8,579,750		$	8,755,978

⁽¹⁾

Represents the consolidated assets and liabilities of Paramount Group Operating Partnership LP, a Delaware limited partnership (the “Operating Partnership”). The Operating Partnership is a consolidated variable interest entity (“VIE”), of which we are the sole general partner and own approximately 90.2% as of September 30, 2019. The assets and liabilities of the Operating Partnership, as of September 30, 2019, include $1,966,042 and $1,275,702 of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. See Note 14, Variable Interest Entities (“VIEs”).

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Amounts in thousands, except share and per share amounts)	2019			2018			2019			2018
Revenues:
Rental revenue	$	188,079		$	185,074		$	551,835		$	545,475
Fee and other income		10,238			7,522			26,857			22,811
Total revenues		198,317			192,596			578,692			568,286
Expenses:
Operating		71,648			69,811			207,601			206,435
Depreciation and amortization		63,058			64,610			188,772			194,541
General and administrative		16,319			14,452			51,457			44,278
Transaction related costs		786			450			1,704			863
Total expenses		151,811			149,323			449,534			446,117
Other income (expense):
(Loss) income from unconsolidated joint ventures		(1,332	)		472			(2,815	)		2,931
Income (loss) from unconsolidated real estate funds		206			(188	)		271			(268	)
Interest and other income, net		1,222			2,778			7,705			6,888
Interest and debt expense		(37,325	)		(37,105	)		(111,462	)		(109,996	)
Real estate impairment loss		-			-			-			(46,000	)
Gain on sale of real estate		1,140			36,845			1,140			36,845
Net income before income taxes		10,417			46,075			23,997			12,569
Income tax benefit (expense)		583			(1,814	)		(823	)		(2,171	)
Net income		11,000			44,261			23,174			10,398
Less net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures		(3,051	)		(2,713	)		(8,253	)		(5,520	)
Consolidated real estate fund		(109	)		(86	)		(256	)		(668	)
Operating Partnership		(758	)		(3,931	)		(1,419	)		(381	)
Net income attributable to common stockholders	$	7,082		$	37,531		$	13,246		$	3,829


Income per Common Share - Basic:
Income per common share	$	0.03		$	0.16		$	0.06		$	0.02
Weighted average shares outstanding		231,197,838			240,447,921			232,974,210			240,365,882

Income per Common Share - Diluted:
Income per common share	$	0.03		$	0.16		$	0.06		$	0.02
Weighted average shares outstanding		231,229,939			240,489,138			233,004,917			240,391,184

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Amounts in thousands)	2019			2018			2019			2018
Net income	$	11,000		$	44,261		$	23,174		$	10,398
Other comprehensive (loss) income:
Change in value of interest rate swaps		(4,131	)		3,392			(28,502	)		23,738
Pro rata share of other comprehensive income (loss) of unconsolidated joint ventures		41			(262	)		(143	)		(105	)
Comprehensive income (loss)		6,910			47,391			(5,471	)		34,031
Less comprehensive (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures		(3,051	)		(2,713	)		(8,253	)		(5,520	)
Consolidated real estate fund		(106	)		(30	)		(205	)		(612	)
Operating Partnership		(362	)		(4,233	)		1,335			(2,622	)
Comprehensive income (loss) attributable to common stockholders	$	3,391		$	40,415		$	(12,594	)	$	25,277

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

													Accumulated			Noncontrolling Interests in
							Additional			Earnings			Other			Consolidated			Consolidated
(Amounts in thousands, except per share	Common Shares						Paid-in-			Less than			Comprehensive			Joint			Real Estate			Operating			Total
and unit amounts)	Shares			Amount			Capital			Distributions			(Loss) Income			Ventures			Fund			Partnership			Equity
Balance as of June 30, 2019		234,124		$	2,341		$	4,214,193		$	(260,939	)	$	(5,525	)	$	365,278		$	81,949		$	416,092		$	4,813,389
Net income		-			-			-			7,082			-			3,051			109			758			11,000
Common shares issued upon redemption of common units		1			-			16			-			-			-			-			(16	)		-
Common shares issued under Omnibus share plan, net of shares withheld for taxes		(7	)		-			-			(7	)		-			-			-			-			(7	)
Repurchases of common shares		(6,252	)		(62	)		(82,455	)		-			-			-			-			-			(82,517	)
Dividends and distributions ($0.10 per share and unit)		-			-			-			(22,795	)		-			-			-			(2,512	)		(25,307	)
Contributions from noncontrolling interests		-			-			-			-			-			-			23			-			23
Distributions to noncontrolling interests		-			-			-			-			-			(5,118	)		-			-			(5,118	)
Change in value of interest rate swaps		-			-			-			-			(3,731	)		-			-			(400	)		(4,131	)
Pro rata share of other comprehensive income of unconsolidated joint ventures		-			-			-			-			37			-			-			4			41
Amortization of equity awards		-			-			644			-			-			-			-			4,566			5,210
Acquisition of noncontrolling interest		-			-			-			-			-			-			(9,840	)		-			(9,840	)
Other		-			-			1,991			-			-			-			-			(1,991	)		-
Balance as of September 30, 2019		227,866		$	2,279		$	4,134,389		$	(276,659	)	$	(9,219	)	$	363,211		$	72,241		$	416,501		$	4,702,743

Balance as of June 30, 2018		240,529		$	2,403		$	4,297,823		$	(215,353	)	$	28,647		$	403,686		$	57,816		$	430,726		$	5,005,748
Net income		-			-			-			37,531			-			2,713			86			3,931			44,261
Common shares issued upon redemption of common units		176			2			2,990			-			-			-			-			(2,992	)		-
Common shares issued under Omnibus share plan, net of shares withheld for taxes		(7	)		-			-			-			-			-			-			-			-
Repurchases of common shares		(237	)		(3	)		(3,566	)		-			-			-			-			-			(3,569	)
Dividends and distributions ($0.10 per share and unit)		-			-			-			(24,046	)		-			-			-			(2,550	)		(26,596	)
Contributions from noncontrolling interests		-			-			-			-			-			-			8,253			-			8,253
Distributions to noncontrolling interests		-			-			-			-			-			(6,465	)		-			-			(6,465	)
Change in value of interest rate swaps		-			-			-			-			3,070			-			-			322			3,392
Pro rata share of other comprehensive loss of unconsolidated joint ventures		-			-			-			-			(186	)		-			(56	)		(20	)		(262	)
Amortization of equity awards		-			-			736			-			-			-			-			3,915			4,651
Other		-			-			3,346			-			(1	)		-			-			(3,346	)		(1	)
Balance as of September 30, 2018		240,461		$	2,402		$	4,301,329		$	(201,868	)	$	31,530		$	399,934		$	66,099		$	429,986		$	5,029,412

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED

(UNAUDITED)

													Accumulated			Noncontrolling Interests in
							Additional			Earnings			Other			Consolidated			Consolidated
(Amounts in thousands, except per share	Common Shares						Paid-in-			Less than			Comprehensive			Joint			Real Estate			Operating			Total
and unit amounts)	Shares			Amount			Capital			Distributions			(Loss) Income			Ventures			Fund			Partnership			Equity
Balance as of December 31, 2018		233,136		$	2,329		$	4,201,756		$	(219,906	)	$	16,621		$	394,995		$	66,887		$	428,982		$	4,891,664
Net income		-			-			-			13,246			-			8,253			256			1,419			23,174
Common shares issued upon redemption of common units		1,407			14			23,992			-			-			-			-			(24,006	)		-
Common shares issued under Omnibus share plan, net of shares withheld for taxes		49			3			-			(317	)		-			-			-			-			(314	)
Repurchases of common shares		(6,726	)		(67	)		(88,938	)		-			-			-			-			-			(89,005	)
Dividends and distributions ($0.30 per share and unit)		-			-			-			(69,682	)		-			-			-			(7,527	)		(77,209	)
Contributions from noncontrolling interests		-			-			-			-			-			-			14,989			-			14,989
Distributions to noncontrolling interests		-			-			-			-			-			(40,037	)		-			-			(40,037	)
Change in value of interest rate swaps		-			-			-			-			(25,757	)		-			-			(2,745	)		(28,502	)
Pro rata share of other comprehensive loss of unconsolidated joint ventures		-			-			-			-			(83	)		-			(51	)		(9	)		(143	)
Amortization of equity awards		-			-			1,984			-			-			-			-			15,982			17,966
Acquisition of noncontrolling interest		-			-			-			-			-			-			(9,840	)		-			(9,840	)
Other		-			-			(4,405	)		-			-			-			-			4,405			-
Balance as of September 30, 2019		227,866		$	2,279		$	4,134,389		$	(276,659	)	$	(9,219	)	$	363,211		$	72,241		$	416,501		$	4,702,743

Balance as of December 31, 2017		240,427		$	2,403		$	4,297,948		$	(133,693	)	$	10,083		$	404,997		$	14,549		$	425,797		$	5,022,084
Basis adjustment upon adoption of ASU 2017-05		-			-			-			529			-			-			6,557			-			7,086
Balance as of January 1, 2018		240,427			2,403			4,297,948			(133,164	)		10,083			404,997			21,106			425,797			5,029,170
Net income		-			-			-			3,829			-			5,520			668			381			10,398
Common shares issued upon redemption of common units		203			2			3,459			-			-			-			-			(3,461	)		-
Common shares issued under Omnibus share plan, net of shares withheld for taxes		68			-			-			(213	)		-			-			-			-			(213	)
Repurchases of common shares		(237	)		(3	)		(3,566	)		-			-			-			-			-			(3,569	)
Dividends and distributions ($0.30 per share and unit)		-			-			-			(72,149	)		-			-			-			(7,694	)		(79,843	)
Contributions from noncontrolling interests		-			-			-			-			-			-			44,381			-			44,381
Distributions to noncontrolling interests		-			-			-			-			-			(10,583	)		-			-			(10,583	)
Change in value of interest rate swaps		-			-			-			-			21,492			-			-			2,246			23,738
Pro rata share of other comprehensive loss of unconsolidated joint ventures		-			-			-			-			(44	)		-			(56	)		(5	)		(105	)
Amortization of equity awards		-			-			2,206			-			-			-			-			14,003			16,209
Other		-			-			1,282			(171	)		(1	)		-			-			(1,281	)		(171	)
Balance as of September 30, 2018		240,461		$	2,402		$	4,301,329		$	(201,868	)	$	31,530		$	399,934		$	66,099		$	429,986		$	5,029,412

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended September 30,
(Amounts in thousands)	2019			2018
Cash Flows from Operating Activities:
Net income	$	23,174		$	10,398
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		188,772			194,541
Straight-lining of rental revenue		(33,407	)		(45,671	)
Amortization of stock-based compensation expense		17,859			15,245
Amortization of above and below-market leases, net		(8,555	)		(12,611	)
Amortization of deferred financing costs		8,450			8,267
Receipt of accrued interest on preferred equity investment		2,339			-
Realized and unrealized gains on marketable securities		(2,395	)		(802	)
Distributions of earnings from unconsolidated joint ventures		2,852			4,910
Loss (income) from unconsolidated joint ventures		2,815			(2,931	)
Distributions of earnings from unconsolidated real estate funds		1,288			232
(Income) loss from unconsolidated real estate funds		(271	)		268
Real estate impairment loss		-			46,000
Gain on sale of real estate		(1,140	)		(36,845	)
Other non-cash adjustments		(153	)		308
Changes in operating assets and liabilities:
Accounts and other receivables		(324	)		877
Deferred charges		(16,620	)		(20,637	)
Other assets		25,963			(31,148	)
Accounts payable and accrued expenses		(5,457	)		700
Other liabilities		1,457			3,067
Net cash provided by operating activities		206,647			134,168

Cash Flows from Investing Activities:
Due from affiliates		(181,000	)		-
Repayment of amounts due from affiliates		181,000			-
Proceeds from sale of real estate		150,307			349,013
Investments in and contributions of capital to unconsolidated joint ventures		(148,896	)		(25,491	)
Additions to real estate		(70,094	)		(85,621	)
Redemption of preferred equity investment		33,750			-
Real estate acquisition deposits		(25,000	)		-
Sales of marketable securities		15,738			16,352
Purchases of marketable securities		(11,945	)		(13,192	)
Contributions of capital to unconsolidated real estate funds		(3,860	)		(2,254	)
Distributions of capital from unconsolidated real estate funds		1,613			-
Escrow deposits and loans receivable for Residential Development Fund		-			(15,680	)
Net cash (used in) provided by investing activities		(58,387	)		223,127

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

	For the Nine Months Ended September 30,
(Amounts in thousands)	2019			2018
Cash Flows from Financing Activities:
Borrowings under revolving credit facility	$	195,000		$	-
Repayment of borrowings under revolving credit facility		(195,000	)		-
Repurchases of common shares		(89,005	)		(3,569	)
Dividends paid to common stockholders		(70,243	)		(70,944	)
Distributions paid to common unitholders		(7,561	)		(7,514	)
Distributions to noncontrolling interests		(40,037	)		(10,583	)
Contributions from noncontrolling interests		14,989			44,381
Proceeds from notes and mortgages payable		3,200			16,700
Acquisition of noncontrolling interest in consolidated real estate fund		(1,000	)		-
Repurchase of shares related to stock compensation agreements and related tax withholdings		(314	)		(213	)
Debt issuance costs		(260	)		(6,351	)
Net cash used in financing activities		(190,231	)		(38,093	)

Net (decrease) increase in cash and cash equivalents and restricted cash		(41,971	)		319,202
Cash and cash equivalents and restricted cash at beginning of period		365,409			250,425
Cash and cash equivalents and restricted cash at end of period	$	323,438		$	569,627


Reconciliation of Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents at beginning of period	$	339,653		$	219,381
Restricted cash at beginning of period		25,756			31,044
Cash and cash equivalents and restricted cash at beginning of period	$	365,409		$	250,425

Cash and cash equivalents at end of period	$	298,066		$	538,725
Restricted cash at end of period		25,372			30,902
Cash and cash equivalents and restricted cash at end of period	$	323,438		$	569,627

Supplemental Disclosure of Cash Flow Information:
Cash payments for interest	$	104,616		$	101,989
Cash payments for income taxes, net of refunds		2,049			1,541

Non-Cash Transactions:

Change in value of interest rate swaps	$	28,502		$	(23,738	)
Dividends and distributions declared but not yet paid		25,307			26,596
Common shares issued upon redemption of common units		24,006			3,461
Additions to real estate included in accounts payable and accrued expenses		13,342			32,790
Note payable issued in connection with the acquisition of noncontrolling interest in consolidated real estate fund		8,771			-
Write-off of fully amortized and/or depreciated assets		5,292			3,141
Basis adjustment to investment in unconsolidated joint ventures upon adoption of ASU 2017-05		-			7,086

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	Organization and Business

As used in these consolidated financial statements, unless otherwise indicated, all references to “we,” “us,” “our,” the “Company,” and “Paramount” refer to Paramount Group, Inc., a Maryland corporation, and its consolidated subsidiaries, including Paramount Group Operating Partnership LP (the “Operating Partnership”), a Delaware limited partnership. We are a fully-integrated real estate investment trust (“REIT”) focused on owning, operating, managing, acquiring and redeveloping high-quality, Class A office properties in select central business district submarkets of New York City, San Francisco and Washington, D.C. As of September 30, 2019, our portfolio consisted of 13 Class A office properties aggregating approximately 12.4 million square feet. We conduct our business through, and substantially all of our interests in properties and investments are held by, the Operating Partnership. We are the sole general partner of, and owned approximately 90.2% of, the Operating Partnership as of September 30, 2019.

2.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted. These consolidated financial statements include the accounts of Paramount and its consolidated subsidiaries, including the Operating Partnership. In the opinion of management, all significant adjustments (which include only normal recurring adjustments) and eliminations (which include intercompany balances and transactions) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. The consolidated balance sheet as of December 31, 2018 was derived from audited financial statements as of that date, but does not include all information and disclosures required by GAAP. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC.

Significant Accounting Policies

There are no material changes to our significant accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Use of Estimates

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. The results of operations for the three and nine months ended September 30, 2019, are not necessarily indicative of the operating results for the full year.

Reclassifications

Certain prior year balances have been reclassified to conform to current year presentation.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Recently Issued Accounting Pronouncements Not Materially Impacting Our Financial Statements

In June 2016, the FASB issued ASU 2016-13, an update to ASC Topic 326, Financial Instruments – Credit Losses. ASU 2016- 13 requires measurement and recognition of expected credit losses on financial instruments measured at amortized cost at the end of each reporting period rather than recognizing the credit losses when it is probable that the loss has been incurred in accordance with current guidance. In November 2018, the FASB issued ASU 2018-19, which clarified that receivables arising from operating leases are not within the scope of ASC Topic 326, and instead, impairment of receivables arising from operating leases should be accounted for under the scope of ASC Topic 842, Leases. In May 2019, the FASB issued ASU 2019-05, which provides transition relief for entities adopting ASU 2016-13 by allowing entities to elect the fair value option on certain financial instruments. ASU 2016-13 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2019, with early adoption permitted. We do not believe the adoption of ASU 2016-13 will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, an update to ASC Topic 820, Fair Value Measurements. ASU 2018-13 modifies the disclosure requirements in ASC Topic 820, by (i) removing certain disclosure requirements related to transfers between Level 1 and Level 2 of the fair value hierarchy and the valuation processes for Level 3 fair value measurements, (ii) modifying existing disclosure requirements related to measurement uncertainty and (iii) adding new disclosure requirements related to changes in unrealized gains or losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and disclosures related to the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2019, with early adoption permitted. We do not believe the adoption of ASU 2018-13 will have an impact on our consolidated financial statements.

In December 2018, the FASB issued ASU 2018-20, an update to ASC Topic 842, Leases. ASU 2018-20 allows lessors to make an accounting policy election not to evaluate whether sales taxes and similar taxes imposed by a governmental authority on a specific lease transaction and collected by the lessor from the lessee are the primary obligation of the lessor. A lessor that makes this election must exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all taxes within the scope of the election and make additional disclosures. ASU 2018-20 requires a lessor to exclude lessor costs paid directly by a lessee to third parties on the lessor’s behalf from variable payments, but lessor costs that are paid by the lessor and reimbursed by the lessee are required to be included in variable payments. The effective date of ASU 2018-20 is required to coincide with the effective date of ASU 2016-02. We adopted the provisions of ASU 2018-20 on January 1, 2019 in conjunction with the adoption of ASU 2016-02. This adoption did not have an impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements Impacting or Potentially Impacting Our Financial Statements

In February 2016, the FASB issued ASU 2016-02, an update to ASC Topic 842, Leases. ASU 2016-02 amends the existing guidance for lease accounting by requiring lessees to, among other things, (i) recognize most leases on their balance sheets, (ii) classify leases as either financing or operating, and (iii) record a right-of-use asset and a lease liability for all leases with a term greater than 12 months. ASU 2016-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2018, with early adoption permitted. We adopted the provisions of ASU 2016-02 on January 1, 2019, using the alternative modified retrospective method, also known as the transition relief method, permitted under ASU 2018-11 which allows companies to not recast comparative periods in the period of adoption. Accordingly, we have applied the provisions of the standard on January 1, 2019, the date of adoption. Upon adoption of this ASU, we recorded a $4,184,000 right-of-use asset and a lease liability for leases in which we are a lessee, which are included as components of “other assets” and “other liabilities”, respectively, on our consolidated balance sheet.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

While accounting for lessors under ASU 2016-02 is substantially similar to existing lease accounting guidance, lessors are required to separate payments received pursuant to a lease between lease components (payments received towards the leased space) and non-lease components (payments received towards common area maintenance activities). In July 2018, the FASB issued ASU 2018-11, which provided lessors with a practical expedient to not separate lease and non-lease components, if certain criteria are met. Upon the adoption of ASU 2016-02, we elected this practical expedient and accordingly, have combined lease and non-lease components into rental revenue on our consolidated statements of income. We account for both components under ASC Topic 842. ASU 2016-02 also requires companies to account for the impairment of receivables arising from operating leases (previously recorded as bad debt expense, a component of “operating expenses”), as a reduction to “rental income”. Accordingly, beginning on January 1, 2019, impairment of receivables arising from operating leases have been recorded as a reduction of rental income and are no longer reflected as bad debt expense.

Furthermore, ASU 2016-02 also updates the definition of initial direct costs for both lessees and lessors to include only incremental costs of a lease that would not have been incurred if the lease had not been obtained. This ASU also provides a package of practical expedients which permits companies not to reassess under ASC Topic 842, its prior conclusions about lease identification, lease classification and initial direct costs. Upon adoption of ASU 2016-02, we elected this practical expedient and accordingly, effective January 1, 2019, we no longer capitalize internal leasing costs.

In October 2018, the FASB issued ASU 2018-17, an update to ASC Topic 810, Consolidations. ASU 2018-17 requires reporting entities to consider indirect interests held by related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety in determining whether a decision-making fee is a variable interest. ASU 2018-17 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2019, with early adoption permitted. We are evaluating the impact of ASU 2018-17 on our consolidated financial statements.

3.	Acquisitions

Market Center

On August 16, 2019, we entered into an agreement to acquire Market Center, a two-building Class A office complex comprising 753,000 square feet, in San Francisco, California, for $722,000,000. The complex consists of 555 Market Street and 575 Market Street comprising 280,000 square feet and 473,000 square feet, respectively. In connection therewith, we made a $25,000,000 deposit, which is included in “other assets” on our consolidated balance sheet. The transaction, which is subject to customary closing conditions, is expected to close by the end of the fourth quarter of 2019. We intend to bring in a joint venture partner at the asset and plan to use the proceeds from the sale of Liberty Place (discussed below) to fund our share of the acquisition.

4.	Dispositions

Liberty Place

On September 26, 2019, we sold Liberty Place, a 172,000 square foot office building in Washington, D.C., for $154,500,000. In connection therewith, we recognized a gain of $1,140,000, which is included in “gain on sale of real estate” on our consolidated statements of income for the three and nine months ended September 30, 2019. We intend to use the proceeds from the sale to fund our share of the acquisition of Market Center (discussed above).

2099 Pennsylvania Avenue

On August 9, 2018, we sold 2099 Pennsylvania Avenue, a 209,000 square foot office building in Washington, D.C. for $219,900,000. In connection therewith, we recognized a gain of $35,836,000, which is included in “gain on sale of real estate” on our consolidated statements of income for the three and nine months ended September 30, 2018.

425 Eye Street

On September 27, 2018, we sold 425 Eye Street, a 373,000 square foot office building in Washington, D.C. for $157,000,000. In connection therewith, we recognized a gain of $1,009,000, which is included in “gain on sale of real estate” on our consolidated statements of income for the three and nine months ended September 30, 2018.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

5.	Investments in Unconsolidated Joint Ventures

On February 7, 2019, we completed the acquisition of 111 Sutter Street, a 293,000 square foot office building in San Francisco, California. Simultaneously with closing, we brought in a joint venture partner to acquire 51.0% of the equity interest. We have retained the remaining 49.0% equity interest and manage and lease the asset. The purchase price was $227,000,000. In connection with the acquisition, the joint venture completed a $138,200,000 financing of the property. The four-year loan is interest only at LIBOR plus 215 basis points and has three one-year extension options. We began accounting for our investment in 111 Sutter Street, under the equity method, from the date of the acquisition.

Prior to 2019, our consolidated Residential Development Fund (“RDF”), in which we have a 7.4% interest, owned a 25.0% economic interest in One Steuart Lane, a residential condo development project (the “project”) in San Francisco, California. Accordingly, prior to 2019, our economic interest in the project was 1.85%. In March 2019 and again in September 2019, RDF acquired an additional 10.0% economic interest in the project, in two separate transactions, for an aggregate of $19,110,000. Subsequent to these transactions, RDF’s economic interest in the project increased to 35.0% and our economic interest (based on our 7.4% ownership) increased to 2.6%. We continue to consolidate our 7.4% interest in RDF and reflect the 92.6% interest we do not own, as “noncontrolling interests” in our consolidated financial statements.

On August 21, 2019, we acquired a 44.1% equity interest in a joint venture that owns 55 Second Street, a 384,000 square foot Class A office building in San Francisco, California. The transaction valued the property at $401,700,000. In connection with the acquisition, the joint venture assumed the existing $137,500,000 mortgage loan and upsized it by an additional $50,000,000. The $187,500,000 mortgage loan is interest-only at a fixed rate of 3.88% and matures in October 2026. We began accounting for our investment in 55 Second Street, under the equity method of accounting from the date of the acquisition.

The following tables summarize our investments in unconsolidated joint ventures as of the dates thereof and the income or loss from these investments for the periods set forth below.

(Amounts in thousands)	Paramount	As of
Our Share of Investments:	Ownership	September 30, 2019		December 31, 2018
712 Fifth Avenue ⁽¹⁾	50.0%	$	-	$	-
111 Sutter Street	49.0%		42,625		-
55 Second Street ⁽²⁾	44.1%		95,874		-
60 Wall Street ⁽²⁾	5.0%		20,425		22,353
One Steuart Lane ⁽²⁾	35.0% ⁽³⁾		69,545		52,923	⁽⁴⁾
Oder-Center, Germany ⁽²⁾	9.5%		3,514		3,587
Investments in unconsolidated joint ventures		$	231,983	$	78,863

	For the Three Months Ended							For the Nine Months Ended
(Amounts in thousands)	September 30,							September 30,
Our Share of Net (Loss) Income:	2019				2018			2019				2018
712 Fifth Avenue ⁽¹⁾	$	373			$	558		$	1,290			$	3,166
111 Sutter Street		(1,266	)			-			(3,387	)	⁽⁵⁾		-
55 Second Street ⁽²⁾		(336	)	⁽⁵⁾		-			(336	)	⁽⁵⁾		-
60 Wall Street ⁽²⁾		(138	)			(116	)		(436	)			(291	)
One Steuart Lane ⁽²⁾		1				-			(6	)			(18	)
Oder-Center, Germany ⁽²⁾		34				30			60				74
(Loss) income from unconsolidated joint ventures	$	(1,332	)		$	472		$	(2,815	)		$	2,931

⁽¹⁾

As of September 30, 2019, our basis in the partnership that owns 712 Fifth Avenue, was negative $18,647 resulting from distributions made to us in excess of our share of earnings recognized. Accordingly, we no longer recognize our proportionate share of earnings from the venture because we have no further obligation to fund additional capital to the venture. Instead, we only recognize earnings to the extent we receive cash distributions from the venture.

⁽²⁾

As of September 30, 2019, the carrying amount of our investments in 55 Second Street, 60 Wall Street, One Steuart Lane and Oder-Center is greater than our share of equity in these investments by $499, $2,728, $969 and $4,786, respectively, and primarily represents the unamortized portion of our capitalized acquisition costs. Basis differences allocated to depreciable assets are being amortized into “(loss) income from unconsolidated joint ventures” over the estimated useful life of the related assets.

⁽³⁾	Represents RDF’s economic interest in One Steuart Lane.

⁽⁴⁾

Includes a $7,086 basis adjustment which was recorded upon the adoption of ASU 2017-05 on January 1, 2018.

⁽⁵⁾

Represents our share of earnings from the date of acquisition through September 30, 2019.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables provide the combined summarized financial information of 712 Fifth Avenue, 111 Sutter Street, 55 Second Street and 60 Wall Street as of the dates and for the periods set forth below.

(Amounts in thousands)	As of
Balance Sheets:	September 30, 2019		December 31, 2018
Real estate, net	$	1,645,769	$	1,055,240
Intangible assets, net		121,687		97,658
Other assets		95,341		84,864
Total assets	$	1,862,797	$	1,237,762

Notes and mortgages payable, net	$	1,192,646	$	866,079
Intangible liabilities, net		25,610		-
Other liabilities		24,580		15,177
Total liabilities		1,242,836		881,256
Equity		619,961		356,506
Total liabilities and equity	$	1,862,797	$	1,237,762


(Amounts in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
Income Statements:	2019			2018			2019			2018
Revenues:
Rental revenue	$	39,359		$	34,088		$	111,981		$	102,666
Fee and other income		267			125			617			371
Total revenues		39,626			34,213			112,598			103,037
Expenses:
Operating expenses		17,065			13,090			46,060			38,873
Depreciation and amortization		17,156			11,898			46,166			35,888
Total expenses		34,221			24,988			92,226			74,761
Other income (expense):
Interest and other income, net		179			192			478			559
Interest and debt expense		(12,673	)		(9,820	)		(36,046	)		(28,209	)
Net (loss) income before income taxes		(7,089	)		(403	)		(15,196	)		626
Income tax benefit		2			-			2			-
Net (loss) income	$	(7,087	)	$	(403	)	$	(15,194	)	$	626

6.	Investments in Unconsolidated Real Estate Funds

We are the general partner and investment manager of Paramount Group Real Estate Fund VII, LP (“Fund VII”) and its parallel fund, Paramount Group Real Estate Fund VII-H, LP (“Fund VII-H”), our Property Funds. On January 25, 2019, Fund VII and Fund VII-H sold their only remaining asset, 0 Bond Street, a 65,000 square foot creative office building in the NoHo submarket of Manhattan, for $130,500,000.

We also manage Paramount Group Real Estate Fund VIII, LP (“Fund VIII”) and Paramount Group Real Estate Fund X, LP (“Fund X”), our Alternative Investment Funds, which invest in mortgage and mezzanine loans and preferred equity investments. As of September 30, 2019, Fund VIII has invested $615,897,000 of the $775,200,000 of capital committed and Fund X, which completed its initial closing in December 2018 with $172,000,000 of capital commitments, has invested $40,000,000. As of September 30, 2019, our ownership interest in Fund VIII and Fund X was approximately 1.3% and 8.7%, respectively.

At September 30, 2019 and December 31, 2018, our investments in the above mentioned unconsolidated real estate funds aggregated $11,582,000 and $10,352,000, respectively, and we recognized income of $206,000 and $271,000 for the three and nine months ended September 30, 2019, respectively, and losses of $188,000 and $268,000, for the three and nine months ended September 30, 2018, respectively.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7.	Preferred Equity Investments

We owned a 24.4% interest in PGRESS Equity Holdings LP (“PGRESS”), an entity that owned a preferred equity investment in a partnership that owned 470 Vanderbilt, a 686,000 square foot office building in Brooklyn, New York. The preferred equity had a dividend rate of 10.3%, of which 8.0% was paid in cash through February 2016 and the unpaid portion accreted to the balance of the investment. Subsequent to February 2016, the entire 10.3% dividend was paid in cash. On March 1, 2019, the partnership that owned 470 Vanderbilt redeemed the preferred equity investment for $36,089,000 consisting of the investment balance and accrued interest.

8.	Intangible Assets and Liabilities

The following tables summarize our intangible assets (acquired above-market leases and acquired in-place leases) and intangible liabilities (acquired below-market leases) and the related amortization as of the dates and for the periods set forth below.

	As of
(Amounts in thousands)	September 30, 2019			December 31, 2018
Intangible assets:
Gross amount	$	487,511		$	515,889
Accumulated amortization		(264,802	)		(245,444	)
	$	222,709		$	270,445
Intangible liabilities:
Gross amount	$	177,665		$	185,191
Accumulated amortization		(98,829	)		(89,200	)
	$	78,836		$	95,991

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Amounts in thousands)	2019		2018		2019		2018
Amortization of above and below-market leases, net (component of "rental revenue")	$	2,552	$	3,887	$	8,555	$	12,611
Amortization of acquired in-place leases (component of "depreciation and amortization")		11,917		14,865		37,580		44,879

The following table sets forth annual amortization of acquired above and below-market leases, net and amortization of acquired in-place leases for each of the five succeeding years commencing from January 1, 2020.

(Amounts in thousands) For the Year Ending December 31,	Above and Below-Market Leases, Net		In-Place Leases
2020	$	6,224	$	37,848
2021		3,549		27,879
2022		1,079		23,381
2023		4,588		18,714
2024		5,633		14,470

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Debt

The following table summarizes our outstanding debt.


			Interest Rate
	Maturity	Fixed/	as of			As of
(Amounts in thousands)	Date	Variable Rate	September 30, 2019			September 30, 2019				December 31, 2018
Notes and mortgages payable:
1633 Broadway
	Dec-2022	Fixed ⁽¹⁾		3.54	%	$	1,000,000			$	1,000,000
	Dec-2022	L + 175 bps		3.85	%		50,000		⁽²⁾		46,800		⁽²⁾
				3.55	%		1,050,000				1,046,800

One Market Plaza ⁽³⁾	Feb-2024	Fixed		4.03	%		975,000				975,000

1301 Avenue of the Americas
	Nov-2021	Fixed		3.05	%		500,000				500,000
	Nov-2021	L + 180 bps		3.93	%		350,000				350,000
				3.41	%		850,000				850,000

31 West 52nd Street	May-2026	Fixed		3.80	%		500,000				500,000

300 Mission Street ⁽³⁾	Oct-2021	Fixed		3.65	%		228,000				228,000

Total notes and mortgages payable				3.69	%		3,603,000				3,599,800
Less: deferred financing costs							(26,266	)			(32,883	)
Total notes and mortgages payable, net						$	3,576,734			$	3,566,917

$1.0 Billion Revolving Credit Facility	Jan-2022	L + 115 bps	n/a			$	-			$	-

⁽¹⁾	Represents loans with variable interest rates that have been fixed by interest rate swaps. See Note 10, Derivative Instruments and Hedging Activities.

⁽²⁾	Represents amounts borrowed to fund leasing costs at the property. The loan balance can be increased by an additional $200,000 upon the satisfaction of certain performance hurdles related to the property.

⁽³⁾	Our ownership interest in One Market Plaza and 300 Mission Street (formerly 50 Beale Street) is 49.0% and 31.1%, respectively.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

10.	Derivative Instruments and Hedging Activities

Interest Rate Swaps – Designated as Cash Flow Hedges

We have interest rate swaps with an aggregate notional amount of $1.0 billion that are designated as cash flow hedges. We also have entered into forward starting interest rate swaps with an aggregate notional amount of $400,000,000 to extend the maturity of certain swaps for an additional year. Changes in the fair value of interest rate swaps that are designated as cash flow hedges are recognized in “other comprehensive (loss) income” (outside of earnings). We recognized other comprehensive loss of $4,131,000 and $28,502,000 for the three and nine months ended September 30, 2019, respectively, and other comprehensive income of $3,392,000 and $23,738,000 for the three and nine months ended September 30, 2018, respectively, from the changes in fair value of these interest rate swaps. See Note 12, Accumulated Other Comprehensive (Loss) Income. During the next twelve months, we estimate that $1,422,000 of the amounts recognized in accumulated other comprehensive (loss) income will be reclassified as an increase to interest expense.

The following table summarizes the fair value of our interest rate swaps that are designated as cash flow hedges.

	Fair Value as of
(Amounts in thousands)	September 30, 2019		December 31, 2018
Interest rate swap assets designated as cash flow hedges (included in "other assets")	$	-	$	16,859

Interest rate swap liabilities designated as cash flow hedges (included in "other liabilities")	$	11,691	$	48

We have agreements with various derivative counterparties that contain provisions wherein a default on our indebtedness could be deemed a default on our derivative obligations, which would require us to either post collateral up to the fair value of our derivative obligations or settle the obligations for cash. As of September 30, 2019, the fair value of the derivative obligations with such provisions aggregated $8,473,000.

11.

Equity

Stock Repurchase Program

On August 1, 2017, we received authorization from our Board of Directors to repurchase up to $200,000,000 of our common stock from time to time, in the open market or in privately negotiated transactions. Prior to 2019, we had repurchased 7,555,601 common shares at a weighted average price of $13.95 per share, or $105,383,000 in the aggregate. During 2019, we repurchased an additional 7,158,804 common shares at a weighted average price of $13.22 or $94,617,000 in the aggregate. As a result, we completed our $200,000,000 stock repurchase program by repurchasing 14,714,405 common shares at a weighted average price of $13.59 per share.

Of the 7,158,804 common shares repurchased in 2019, 6,726,203 common shares were repurchased as of September 30, 2019 at a weighted average price of $13.23 per share, or $89,005,000 in the aggregate. The remaining 432,601 common shares were repurchased in October 2019, at a weighted average price of $12.97 per share, or $5,612,000 in the aggregate.

On November 5, 2019, we received authorization from our Board of Directors to repurchase up to an additional $200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. The amount and timing of future repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume and general market conditions. The stock repurchase program may be suspended or discontinued at any time.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

12.	Accumulated Other Comprehensive (Loss) Income

The following table sets forth changes in accumulated other comprehensive (loss) income by component for the three and nine months ended September 30, 2019 and 2018, including amounts attributable to noncontrolling interests in the Operating Partnership.

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Amounts in thousands)	2019			2018			2019			2018
Amount of (loss) income related to the effective portion of cash flow hedges recognized in other comprehensive (loss) income	$	(2,958	)	$	4,161		$	(23,804	)	$	24,363
Amounts reclassified from accumulated other comprehensive (loss) income (decreasing) increasing interest and debt expense		(1,173	)		(769	)		(4,698	)		(625	)
Amount of income (loss) related to unconsolidated joint ventures recognized in other comprehensive (loss) income ⁽¹⁾		41			(262	)		(143	)		(105	)

⁽¹⁾	No amounts were reclassified from accumulated other comprehensive (loss) income during any of the periods set forth above.

13.	Noncontrolling Interests

Consolidated Joint Ventures

Noncontrolling interests in consolidated joint ventures consist of equity interests held by third parties in One Market Plaza, 300 Mission Street and PGRESS Equity Holdings LP. As of September 30, 2019 and December 31, 2018, noncontrolling interests in our consolidated joint ventures aggregated $363,211,000 and $394,995,000, respectively.

Consolidated Real Estate Fund

Noncontrolling interests in our consolidated real estate fund consists of equity interests held by third parties in RDF. As of September 30, 2019 and December 31, 2018, the noncontrolling interest in our consolidated real estate fund aggregated $72,241,000 and $66,887,000, respectively.

Operating Partnership

Noncontrolling interests in the Operating Partnership represent common units of the Operating Partnership that are held by third parties, including management, and units issued to management under equity incentive plans. Common units of the Operating Partnership may be tendered for redemption to the Operating Partnership for cash. We, at our option, may assume that obligation and pay the holder either cash or common shares on a one-for-one basis. Since the number of common shares outstanding is equal to the number of common units owned by us, the redemption value of each common unit is equal to the market value of each common share and distributions paid to each common unitholder is equivalent to dividends paid to common stockholders. As of September 30, 2019 and December 31, 2018, noncontrolling interests in the Operating Partnership on our consolidated balance sheets had a carrying amount of $416,501,000 and $428,982,000, respectively, and a redemption value of $330,580,000 and $315,595,000, respectively.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14.	Variable Interest Entities (“VIEs”)

In the normal course of business, we are the general partner of various types of investment vehicles, which may be considered VIEs. We may, from time to time, own equity or debt securities through vehicles, each of which are considered variable interests. Our involvement in financing the operations of the VIEs is generally limited to our investments in the entity. We consolidate these entities when we are deemed to be the primary beneficiary.

Consolidated VIEs

We are the sole general partner of, and owned approximately 90.2% of, the Operating Partnership as of September 30, 2019. The Operating Partnership is considered a VIE and is consolidated in our consolidated financial statements. Since we conduct our business through and substantially all of our interests are held by the Operating Partnership, the assets and liabilities on our consolidated financial statements represent the assets and liabilities of the Operating Partnership. As of September 30, 2019 and December 31, 2018, the Operating Partnership held interests in consolidated VIEs owning properties, a real estate fund and preferred equity investments that were determined to be VIEs. The assets of these consolidated VIEs may only be used to settle the obligations of the entities and such obligations are secured only by the assets of the entities and are non-recourse to the Operating Partnership or us. The following table summarizes the assets and liabilities of consolidated VIEs of the Operating Partnership.

	As of
(Amounts in thousands)	September 30, 2019		December 31, 2018
Real estate, net	$	1,685,697	$	1,699,618
Cash and restricted cash		71,581		63,450
Investments in unconsolidated joint ventures		69,544		52,923
Preferred equity investments		-		36,042
Accounts and other receivables, net		4,642		2,107
Deferred rent receivable		55,888		51,926
Deferred charges, net		23,461		14,160
Intangible assets, net		33,511		45,818
Other assets		21,718		16,635
Total VIE assets	$	1,966,042	$	1,982,679

Notes and mortgages payable, net	$	1,198,421	$	1,197,644
Accounts payable and accrued expenses		41,784		24,183
Intangible liabilities, net		22,474		31,582
Other liabilities		13,023		5
Total VIE liabilities	$	1,275,702	$	1,253,414

Unconsolidated VIEs

As of September 30, 2019, the Operating Partnership held variable interests in entities that own our unconsolidated real estate funds that were deemed to be VIEs. The following table summarizes our investments in these unconsolidated real estate funds and the maximum risk of loss from these investments.

	As of
(Amounts in thousands)	September 30, 2019		December 31, 2018
Investments	$	11,582	$	10,352
Asset management fees and other receivables		549		722
Maximum risk of loss	$	12,131	$	11,074

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

15.	Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of marketable securities and interest rate swaps. The following table summarizes the fair values of these financial assets and liabilities as of the dates set forth below, based on their levels in the fair value hierarchy.

	As of September 30, 2019
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Marketable securities (included in "other assets")	$	21,263	$	21,263	$	-	$	-
Total assets	$	21,263	$	21,263	$	-	$	-

Interest rate swap liabilities (included in "other liabilities")	$	11,691	$	-	$	11,691	$	-
Total liabilities	$	11,691	$	-	$	11,691	$	-

	As of December 31, 2018
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Marketable securities (included in "other assets")	$	22,660	$	22,660	$	-	$	-
Interest rate swap assets (included in "other assets")		16,859		-		16,859		-
Total assets	$	39,519	$	22,660	$	16,859	$	-

Interest rate swap liabilities (included in "other liabilities")	$	48	$	-	$	48	$	-
Total liabilities	$	48	$	-	$	48	$	-

Financial Assets and Liabilities Not Measured at Fair Value

Financial assets and liabilities not measured at fair value on our consolidated balance sheets consists of preferred equity investments, notes and mortgages payable and the revolving credit facility. The following table summarizes the carrying amounts and fair value of these financial instruments as of the dates set forth below.

	As of September 30, 2019				As of December 31, 2018
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Preferred equity investments ⁽¹⁾	$	-	$	-	$	36,042	$	36,339
Total assets	$	-	$	-	$	36,042	$	36,339

Notes and mortgages payable	$	3,603,000	$	3,671,118	$	3,599,800	$	3,617,961
Revolving credit facility		-		-		-		-
Total liabilities	$	3,603,000	$	3,671,118	$	3,599,800	$	3,617,961

______________

⁽¹⁾	On March 1, 2019, the preferred equity investment was redeemed. See Note 7, Preferred Equity Investments.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

16.

Revenues

Our revenues consist of rental revenues and revenues from contracts with customers. The following table sets forth the details of our revenues.

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
(Amounts in thousands)	2019			2018		2019			2018
Rental revenue	$	188,079	⁽¹⁾	$	185,074	$	551,835	⁽¹⁾	$	545,475
Fee and other income:
Fee income:
Property management		1,692			1,476		4,933			4,468
Asset management		2,665			2,222		7,273			5,655
Acquisition, disposition and leasing		2,104			-		3,435			1,750
Other		698			381		1,730			1,080
Total fee income		7,159			4,079		17,371			12,953
Other income ⁽²⁾		3,079			3,443		9,486			9,858
Total fee and other income		10,238			7,522		26,857			22,811
Total revenues	$	198,317		$	192,596	$	578,692		$	568,286

⁽¹⁾

Includes $20,295 and $52,982 for the three and nine months ended September 30, 2019, respectively, of variable rental revenue, primarily related to tenant reimbursements.

⁽²⁾

Primarily comprised of (i) tenant requested services, including overtime heating and cooling and (ii) parking income.

Rental Revenue

Rental revenue is recognized in accordance with ASC Topic 842, Leases, and consists of (i) cash rents, which represents revenue each tenant pays in accordance with the terms of its respective lease and that is recognized on a straight-line basis over the non-cancellable term of the lease, and includes the effects of rent steps and rent abatements under the leases, (ii) amortization of acquired above and below-market leases, net, (iii) tenant reimbursements, which are recoveries of all or a portion of the operating expenses and real estate taxes of the property and is recognized in the same period as the expenses are incurred and (iv) lease termination income. Our leases, which comprise the lease-up of office, retail and storage space to tenants, primarily under non-cancellable operating leases, have terms generally ranging from five to fifteen years. Most of our leases provide tenants with extension options at either fixed or market rates and few of our leases provide tenants with options to early terminate, but such options generally impose an economic penalty on the tenant upon exercising.

The following table is a schedule of future undiscounted cash flows under non-cancelable operating leases in effect as of September 30, 2019, for the three month period from October 1, 2019 through December 31, 2019 and each of the five succeeding years commencing January 1, 2020.

(Amounts in thousands)
2019	$	151,552
2020		621,135
2021		615,208
2022		590,421
2023		562,482
2024		530,413
Thereafter		2,700,941
Total	$	5,772,152

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Revenue from Contracts with Customers

Revenue from contracts with customers, which is primarily comprised of (i) property management fees, (ii) asset management fees, (iii) fees relating to acquisitions, dispositions and leasing services and (iv) other fee income, is recognized in accordance with ASC Topic 606, Revenue From Contracts With Customers. Fee income is generated from the various services we provide to our customers and is disaggregated based on the types of services we provide pursuant to ASC Topic 606.

Fee income is recognized as and when we satisfy our performance obligations pursuant to contractual agreements. Property management and asset management services are provided continuously over time and revenue is recognized over that time. Fee income relating to acquisitions, dispositions and leasing services is recognized upon completion of the acquisition, disposition or leasing services as required in the contractual agreements. The amount of fee income to be recognized is stated in the contract as a fixed price or as a stated percentage of revenues, contributed capital or transaction price. Fee income is reported in a non-operating segment, and therefore is shown as a reconciling item to net income in Note 23, Segments.

17.	Interest and Other Income, net

The following table sets forth the details of interest and other income, net.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Amounts in thousands)	2019		2018		2019		2018
Interest income, net	$	1,072	$	858	$	4,190	$	2,862
Mark-to-market of investments in our deferred compensation plans ⁽¹⁾		150		990		3,061		1,280
Preferred equity investment income⁽²⁾		-		930		454		2,746
Total interest and other income, net	$	1,222	$	2,778	$	7,705	$	6,888

⁽¹⁾

The change resulting from the mark-to-market of the deferred compensation plan assets is entirely offset by the change in deferred compensation plan liabilities, which is included as a component of “general and administrative” expenses on our consolidated statements of income.

⁽²⁾

Represents income from our preferred equity investments in PGRESS Equity Holdings LP, of which our 24.4% share is $227 for the three months ended September 30, 2018 and $111 and $669 for the nine months ended September 30, 2019 and 2018, respectively. On March 1, 2019, our only remaining preferred equity investment was redeemed. See Note 7, Preferred Equity Investments.

18.	Interest and Debt Expense

The following table sets forth the details of interest and debt expense.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Amounts in thousands)	2019		2018		2019		2018
Interest expense	$	34,501	$	34,353	$	103,012	$	101,729
Amortization of deferred financing costs		2,824		2,752		8,450		8,267
Total interest and debt expense	$	37,325	$	37,105	$	111,462	$	109,996

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

19.	Incentive Compensation

Stock-Based Compensation

We account for all stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. As of September 30, 2019, we have 8,338,280 shares available for future grants under the 2014 Equity Incentive Plan (the “Plan”), if all awards granted are full value awards, as defined in the Plan. Stock-based compensation expense was $5,174,000 and $4,330,000 for the three months ended September 30, 2019 and 2018, respectively, and $17,859,000 and $15,245,000 for the nine months ended September 30, 2019 and 2018, respectively.

2018 Performance-Based Awards Program (“2018 Performance Program”)

On January 14, 2019, the Compensation Committee of our Board of Directors (the “Compensation Committee”) approved the 2018 Performance Program. Under the 2018 Performance Program, participants may earn awards in the form of Long Term Incentive Plan (“LTIP”) units based on our Total Shareholder Return (“TSR”) over a three-year performance measurement period beginning on January 1, 2019 and continuing through December 31, 2021, on both an absolute basis and relative basis. Awards granted to our Chief Executive Officer, under the 2018 Performance Program include an additional performance feature requiring threshold TSR performance on both an absolute and a relative basis in order for any awards to be earned. If the designated performance objectives are achieved, awards earned under the 2018 Performance Program are subject to vesting based on continued employment with us through December 31, 2022, with 50.0% of each award vesting upon the conclusion of the performance measurement period, and the remaining 50.0% vesting on December 31, 2022. Furthermore, our Named Executive Officers are required to hold earned awards for an additional year following vesting. The fair value of the awards granted under the 2018 Performance Program on the date of the grant was $8,106,000 and is being amortized into expense over the four-year vesting period using a graded vesting attribution method.

2015 Performance-Based Awards Program (“2015 Performance Program”)

On March 18, 2019, the Compensation Committee determined that the performance goals set forth in the 2015 Performance Program were not satisfied during the performance measurement period, which ended on March 17, 2019. Accordingly, all of the 1,109,358 outstanding LTIP units that were granted on March 18, 2016, were forfeited, with no awards being earned. This award had a grant date fair value of $10,914,000 and a remaining unrecognized compensation cost of $589,000 as of September 30, 2019, which will be amortized over a weighted-average period of 0.5 years.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

20.	Earnings Per Share

The following table summarizes our net income and the number of common shares used in the computation of basic and diluted income per common share, which includes the weighted average number of common shares outstanding and the effect of dilutive potential common shares, if any.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(Amounts in thousands, except per share amounts)	2019			2018			2019			2018
Numerator:
Net income attributable to common stockholders	$	7,082		$	37,531		$	13,246		$	3,829
Earnings allocated to unvested participating securities		(17	)		(27	)		(54	)		(63	)
Numerator for income per common share - basic and diluted	$	7,065		$	37,504		$	13,192		$	3,766
Denominator:
Denominator for basic income per common share - weighted average shares		231,198			240,448			232,974			240,366
Effect of dilutive stock-based compensation plans ⁽¹⁾		32			41			31			25
Denominator for diluted income per common share - weighted average shares		231,230			240,489			233,005			240,391

Income per common share - basic and diluted	$	0.03		$	0.16		$	0.06		$	0.02

⁽¹⁾

The effect of dilutive securities excludes 26,936 and 27,322 weighted average share equivalents for the three months ended September 30, 2019 and 2018, respectively, and 27,112 and 26,452 weighted average share equivalents for the nine months ended September 30, 2019 and 2018, respectively, as their effect was anti-dilutive.

21.	Related Parties

Management Agreements

We provide property management, leasing and other related services to certain properties owned by members of the Otto Family. We recognized fee income of $212,000 and $200,000 for the three months ended September 30, 2019 and 2018, respectively, and $632,000 and $624,000 for the nine months ended September 30, 2019 and 2018, respectively, in connection with these agreements, which is included as a component of “fee and other income” on our consolidated statements of income. As of December 31, 2018, we were owed $51,000 under these agreements, which is included as a component of “accounts and other receivables, net” on our consolidated balance sheet. There were no amounts owed to us under these agreements as of September 30, 2019.

We also provide property management, asset management, leasing and other related services to our unconsolidated joint ventures and real estate funds. We recognized fee income of $4,880,000 and $3,235,000 for the three months ended September 30, 2019 and 2018, respectively, and $12,938,000 and $10,329,000 for the nine months ended September 30, 2019 and 2018, respectively, in connection with these agreements. As of September 30, 2019 and December 31, 2018, amounts owed to us under these agreements aggregated $2,573,000 and $1,836,000, respectively, which are included as a component of “accounts and other receivables, net” on our consolidated balance sheets.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Hamburg Trust Consulting GMBH (“HTC”)

We have an agreement with HTC, a licensed broker in Germany, to supervise selling efforts for our private equity real estate funds (or investments in feeder vehicles for these funds) to investors in Germany, including distribution of securitized notes of feeder vehicles for Fund VIII and Fund X. Pursuant to this agreement, we have agreed to pay HTC for the costs incurred to sell investments in these feeder vehicles, which primarily consist of commissions paid to third party agents, and other incremental costs incurred by HTC as a result of the engagement, plus, in each case, a mark-up of 10%. HTC is 100% owned by Albert Behler, our Chairman, Chief Executive Officer and President. We incurred expense of $72,000 and $69,000 for the three months ended September 30, 2019 and 2018, respectively, and $758,000 and $129,000 for the nine months ended September 30, 2019 and 2018, respectively, in connection with this agreement, which is included as a component of “transaction related costs” on our consolidated statements of income. As of September 30, 2019 and December 31, 2018, we owed $72,000 and $40,000, respectively, to HTC under this agreement, which are included as a component of “accounts payable and accrued expenses” on our consolidated balance sheets.

Mannheim Trust

A subsidiary of Mannheim Trust leases office space at 712 Fifth Avenue, our 50.0% owned unconsolidated joint venture, pursuant to a lease agreement which expires in April 2023. Dr. Martin Bussmann (a member of our Board of Directors) is also a trustee and a director of Mannheim Trust. During the three months ended September 30, 2019 and 2018, we recognized $90,000 and $92,000, respectively, and during the nine months ended September 30, 2019 and 2018, we recognized $271,000 and $273,000, respectively, for our share of rental income pursuant to this lease.

Other

Kramer Design Services (“Kramer Design”) has entered into agreements with 712 Fifth Avenue, our 50.0% owned unconsolidated joint venture, to, among other things, create and design marketing materials with respect to the vacant retail space at 712 Fifth Avenue. Kramer Design is owned by the spouse of Albert Behler, our Chairman, Chief Executive Officer and President. During the three and nine months ended September 30, 2019, we recognized expense of $183,000 and $286,000 for our share of the fees incurred in connection with these agreements.

On August 21, 2019, we acquired a 44.1% equity interest in a joint venture that owns 55 Second Street, a 384,000 square foot Class A office building in San Francisco, California. The transaction valued the property at $401,700,000 and included $187,500,000 of mortgage debt. In connection with the acquisition, Imperial Associates, LP, an entity owned by the members of the Otto family, purchased a 2.3% equity interest for $5,000,000.

22.	Commitments and Contingencies

Insurance

We carry commercial general liability coverage on our properties, with limits of liability customary within the industry. Similarly, we are insured against the risk of direct and indirect physical damage to our properties including coverage for the perils such as floods, earthquakes and windstorms. Our policies also cover the loss of rental income during an estimated reconstruction period. Our policies reflect limits and deductibles customary in the industry and specific to the buildings and portfolio. We also obtain title insurance policies when acquiring new properties. We currently have coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. While we do carry commercial general liability insurance, property insurance and terrorism insurance with respect to our properties, these policies include limits and terms we consider commercially reasonable. In addition, there are certain losses (including, but not limited to, losses arising from known environmental conditions or acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. We believe the policy specifications and insured limits are adequate given the relative risk of loss, the cost of the coverage and industry practice and, in consultation with our insurance advisors, we believe the properties in our portfolio are adequately insured.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Other Commitments and Contingencies

We are a party to various claims and routine litigation arising in the ordinary course of business. Some of these claims or others to which we may be subject from time to time, including claims arising specifically from the formation transactions, in connection with our initial public offering, may result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured could have an adverse impact on our financial position and results of operations. Should any litigation arise in connection with the formation transactions, we would contest it vigorously. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flow, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

The terms of our mortgage debt and certain side letters in place include certain restrictions and covenants which may limit, among other things, certain investments, the incurrence of additional indebtedness and liens and the disposition or other transfer of assets and interests in the borrower and other credit parties, and require compliance with certain debt yield, debt service coverage and loan to value ratios. In addition, our revolving credit facility contains representations, warranties, covenants, other agreements and events of default customary for agreements of this type with comparable companies. As of September 30, 2019, we believe we are in compliance with all of our covenants.

718 Fifth Avenue - Put Right

Prior to the formation transactions, an affiliate of our predecessor owned a 25.0% interest in 718 Fifth Avenue, a five-story building containing 19,050 square feet of prime retail space that is located on the southwest corner of 56th Street and Fifth Avenue in New York, (based on its 50.0% interest in a joint venture that held a 50.0% tenancy-in-common interest in the property). Prior to the completion of the formation transactions, this interest was sold to its partner in the 718 Fifth Avenue joint venture, who is also our joint venture partner in 712 Fifth Avenue, New York, New York. In connection with this sale, we granted our joint venture partner a put right, pursuant to which the 712 Fifth Avenue joint venture would be required to purchase the entire direct or indirect interests then held by our joint venture partner or its affiliates in 718 Fifth Avenue at a purchase price equal to the fair market value of such interests. The put right may be exercised at any time with the actual purchase occurring no earlier than 12 months after written notice is provided. If the put right is exercised and the 712 Fifth Avenue joint venture acquires the 50.0% tenancy-in-common interest in the property by our joint venture partner, we will own a 25.0% interest in 718 Fifth Avenue based on current ownership interests.

Transfer Tax Assessments

During 2017, the New York City Department of Finance issued Notices of Determination (“Notices”) assessing additional transfer taxes (including interest and penalties) in connection with the transfer of interests in certain properties during our 2014 initial public offering. We believe, after consultation with legal counsel, that the likelihood of a loss is reasonably possible, and while it is not possible to predict the outcome of these Notices, we estimate the range of loss could be between $0 and $42,500,000. Since no amount in this range is a better estimate than any other amount within the range, we have not accrued any liability arising from potential losses relating to these Notices in our consolidated financial statements.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

23.

Segments

Our reportable segments are separated by region based on the three regions in which we conduct our business: New York, San Francisco and Washington, D.C. Our determination of segments is aligned with our method of internal reporting and the way our Chief Executive Officer, who is also our Chief Operating Decision Maker, makes key operating decisions, evaluates financial results and manages our business.

The following tables provide Net Operating Income (“NOI”) for each reportable segment for the periods set forth below.

	For the Three Months Ended September 30, 2019
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Property-related revenues	$	191,158		$	122,365		$	61,999		$	7,064		$	(270	)
Property-related operating expenses		(71,648	)		(49,825	)		(18,068	)		(2,802	)		(953	)
NOI from unconsolidated joint ventures		4,973			2,776			2,106			-			91
NOI⁽¹⁾	$	124,483		$	75,316		$	46,037		$	4,262		$	(1,132	)

	For the Three Months Ended September 30, 2018
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Property-related revenues	$	188,517		$	118,539		$	57,568		$	12,685		$	(275	)
Property-related operating expenses		(69,811	)		(48,257	)		(15,206	)		(4,782	)		(1,566	)
NOI from unconsolidated joint ventures		4,448			4,356			-			-			92
NOI⁽¹⁾	$	123,154		$	74,638		$	42,362		$	7,903		$	(1,749	)

	For the Nine Months Ended September 30, 2019
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Property-related revenues	$	561,321		$	362,202		$	177,614		$	21,707		$	(202	)
Property-related operating expenses		(207,601	)		(144,432	)		(51,893	)		(8,558	)		(2,718	)
NOI from unconsolidated joint ventures		14,569			10,319			4,019			-			231
NOI⁽¹⁾	$	368,289		$	228,089		$	129,740		$	13,149		$	(2,689	)

	For the Nine Months Ended September 30, 2018
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Property-related revenues	$	555,333		$	347,720		$	164,811		$	43,569		$	(767	)
Property-related operating expenses		(206,435	)		(140,710	)		(44,370	)		(16,363	)		(4,992	)
NOI from unconsolidated joint ventures		13,757			13,514			-			-			243
NOI⁽¹⁾	$	362,655		$	220,524		$	120,441		$	27,206		$	(5,516	)

⁽¹⁾

NOI is used to measure the operating performance of our properties. NOI consists of rental revenue (which includes property rentals, tenant reimbursements and lease termination income) and certain other property-related revenue less operating expenses (which includes property-related expenses such as cleaning, security, repairs and maintenance, utilities, property administration and real estate taxes). We use NOI internally as a performance measure and believe it provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Other real estate companies may use different methodologies for calculating NOI and, accordingly, our presentation of NOI may not be comparable to other real estate companies.

⁽²⁾

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table provides a reconciliation of NOI to net income attributable to common stockholders for the periods set forth below.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(Amounts in thousands)	2019			2018			2019			2018
NOI	$	124,483		$	123,154		$	368,289		$	362,655
Add (subtract) adjustments to arrive to net income:
Fee income		7,159			4,079			17,371			12,953
Depreciation and amortization expense		(63,058	)		(64,610	)		(188,772	)		(194,541	)
General and administrative expenses		(16,319	)		(14,452	)		(51,457	)		(44,278	)
NOI from unconsolidated joint ventures		(4,973	)		(4,448	)		(14,569	)		(13,757	)
Interest and other income, net		1,222			2,778			7,705			6,888
Interest and debt expense		(37,325	)		(37,105	)		(111,462	)		(109,996	)
Real estate impairment loss		-			-			-			(46,000	)
Gain on sale of real estate		1,140			36,845			1,140			36,845
Other, net		(1,912	)		(166	)		(4,248	)		1,800
Net income before income taxes		10,417			46,075			23,997			12,569
Income tax benefit (expense)		583			(1,814	)		(823	)		(2,171	)
Net income		11,000			44,261			23,174			10,398
Less: net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures		(3,051	)		(2,713	)		(8,253	)		(5,520	)
Consolidated real estate fund		(109	)		(86	)		(256	)		(668	)
Operating Partnership		(758	)		(3,931	)		(1,419	)		(381	)
Net income attributable to common stockholders	$	7,082		$	37,531		$	13,246		$	3,829

The following table provides the total assets for each of our reportable segments as of the dates set forth below.

(Amounts in thousands)
Total Assets as of:	Total		New York		San Francisco		Washington, D.C.		Other
September 30, 2019	$	8,579,750	$	5,473,479	$	2,534,510	$	150,001	$	421,760
December 31, 2018		8,755,978		5,583,022		2,388,094		305,980		478,882

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, including the related notes included therein.

Forward-Looking Statements

We make statements in this Quarterly Report on Form 10-Q that are considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are usually identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation:

•

unfavorable market and economic conditions in the United States and globally and in New York City, San Francisco and Washington, D.C.;

•

risks associated with our high concentrations of properties in New York City, San Francisco and Washington, D.C.;

•

risks associated with ownership of real estate;

•

decreased rental rates or increased vacancy rates;

•

the risk we may lose a major tenant;

•

limited ability to dispose of assets because of the relative illiquidity of real estate investments;

•

intense competition in the real estate market that may limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities;

•

insufficient amounts of insurance;

•

uncertainties and risks related to adverse weather conditions, natural disasters and climate change;

•

risks associated with actual or threatened terrorist attacks;

•

exposure to liability relating to environmental and health and safety matters;

•

high costs associated with compliance with the Americans with Disabilities Act;

•

failure of acquisitions to yield anticipated results;

•

risks associated with real estate activity through our joint ventures and private equity real estate funds;

•

general volatility of the capital and credit markets and the market price of our common stock;

•

exposure to litigation or other claims;

•

loss of key personnel;

•

risks associated with security breaches through cyber attacks or cyber intrusions and other significant disruptions of our information technology (IT) networks and related systems;

•

risks associated with our substantial indebtedness;

•

failure to refinance current or future indebtedness on favorable terms, or at all;

•

failure to meet the restrictive covenants and requirements in our existing debt agreements;

•

fluctuations in interest rates and increased costs to refinance or issue new debt;

•

risks associated with variable rate debt, derivatives or hedging activity;

•

risks associated with the market for our common stock;

•

regulatory changes, including changes to tax laws and regulations;

•

failure to qualify as a real estate investment trust (“REIT”);

•

compliance with REIT requirements, which may cause us to forgo otherwise attractive opportunities or liquidate certain of our investments; or

•

any of the other risks included in this Quarterly Report on Form 10-Q or in our Annual Report on Form 10-K for the year ended December 31, 2018, including those set forth in Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the U.S. federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. A reader should review carefully our consolidated financial statements and the notes thereto, as well as Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

Critical Accounting Policies

There are no material changes to our critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Issued Accounting Literature

A summary of our recently issued accounting literature and their potential impact on our consolidated financial statements, if any, are included in Note 2, Basis of Presentation and Significant Accounting Policies, to our consolidated financial statements in this Quarterly Report on Form 10-Q.

Business Overview

We are a fully-integrated REIT focused on owning, operating, managing, acquiring and redeveloping high-quality, Class A office properties in select central business district submarkets of New York City, San Francisco, and Washington, D.C. We conduct our business through, and substantially all of our interests in properties and investments are held by, Paramount Group Operating Partnership LP, a Delaware limited partnership (the “Operating Partnership”). We are the sole general partner of, and owned approximately 90.2%, of the Operating Partnership as of September 30, 2019.

Acquisitions

On August 16, 2019, we entered into an agreement to acquire Market Center, a two-building Class A office complex comprising 753,000 square feet, in San Francisco, California, for $722,000,000. The complex consists of 555 Market Street and 575 Market Street comprising 280,000 square feet and 473,000 square feet, respectively. The transaction, which is subject to customary closing conditions, is expected to close by the end of the fourth quarter of 2019. We intend to bring in a joint venture at the asset and plan to use the proceeds from the sale of Liberty Place (discussed below) to fund our share of the acquisition.

Dispositions

Stock Repurchase Program

Leasing Results - Three Months Ended September 30, 2019

In the three months ended September 30, 2019, we leased 209,016 square feet, of which our share was 160,022 square feet that was leased at a weighted average initial rent of $83.16 per square foot. This leasing activity, offset by lease expirations in the three months, and including the occupancy impact of the acquired and sold properties discussed below, decreased leased occupancy by 20 basis points to 96.5% at September 30, 2019 from 96.7% at June 30, 2019. Same store leased occupancy (properties owned by us during both reporting periods), which excludes the occupancy impact from the acquisition of 55 Second Street and the disposition of Liberty Place, decreased by 10 basis points to 96.5% at September 30, 2019 from 96.6% at June 30, 2019. Of the 209,016 square feet leased in the three months, 93,003 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which we achieved rental rate increases of 11.1% on a cash basis and 13.8% on a GAAP basis. The weighted average lease term for leases signed during the three months was 7.1 years and weighted average tenant improvements and leasing commissions on these leases were $10.08 per square foot per annum, or 12.1% of initial rent.

New York:

In the three months ended September 30, 2019, we leased 115,052 square feet in our New York portfolio, of which our share was 111,884 square feet that was leased at a weighted average initial rent of $73.29 per square foot. This leasing activity, offset by the lease expirations in the three months, decreased our leased occupancy and same store leased occupancy by 50 basis points to 96.1% at September 30, 2019 from 96.6% at June 30, 2019. Of the 115,052 square feet leased in the three months, 64,497 square feet represented our share of second generation space for which rental rate increased by 2.5% on a cash basis and decreased by 2.8% on a GAAP basis. The weighted average lease term for leases signed during the three months was 6.1 years and weighted average tenant improvements and leasing commissions on these leases were $9.31 per square foot per annum, or 12.7% of initial rent.

San Francisco:

In the three months ended September 30, 2019, we leased 89,854 square feet in our San Francisco portfolio, of which our share was 44,028 square feet that was leased at a weighted average initial rent of $102.17 per square foot. This leasing activity, partially offset by lease expirations in the three months, and including the occupancy impact of the acquisition of 55 Second Street, increased our leased occupancy by 90 basis points to 98.2% at September 30, 2019 from 97.3% at June 30, 2019. Same store leased occupancy, which excludes the occupancy impact from the acquisition of 55 Second Street, increased by 130 basis points to 98.6% at September 30, 2019 from 97.3% at June 30, 2019. Of the 89,854 square feet leased in the three months, 24,396 square feet represented our share of second generation space for which we achieved rental rate increases of 29.9% on a cash basis and 47.7% on GAAP basis. The weighted average lease term for leases signed during the three months was 9.4 years and weighted average tenant improvements and leasing commissions on these leases were $11.05 per square foot per annum, or 10.8% of initial rent.

Washington, D.C.:

In the three months ended September 30, 2019, we leased 4,110 square feet in our Washington, D.C. portfolio, at a weighted average initial rent of $91.11 per square foot. This leasing activity, partially offset by lease expirations in the three months, and including the occupancy impact of the sale of Liberty Place, decreased leased occupancy by 370 basis points to 90.4% at September 30, 2019 from 94.1% at June 30, 2019. Same store leased occupancy, which excludes the occupancy impact from the sale of Liberty Place, remained at 90.4% leased at September 30, 2019, in-line with leased occupancy at June 30, 2019. All of the square feet leased in the three months represented second generation space for which we achieved rental rate increases of 1.0% on a cash basis and 4.9% on GAAP basis. The weighted average lease term for leases signed during the three months was 3.3 years and weighted average tenant improvements and leasing commissions on these leases were $11.04 per square foot per annum, or 12.1% of initial rent.

The following table presents additional details on the leases signed during the three months ended September 30, 2019. It is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The leasing statistics, except for square feet leased, represent office space only.

Three Months Ended September 30, 2019				Total			New York			San Francisco			Washington, D.C.
	Total square feet leased				209,016			115,052			89,854			4,110
	Pro rata share of total square feet leased:				160,022			111,884			44,028			4,110
		Initial rent ⁽¹⁾		$	83.16		$	73.29		$	102.17		$	91.11
		Weighted average lease term (in years)			7.1			6.1			9.4			3.3

		Tenant improvements and leasing commissions:
			Per square foot	$	71.58		$	56.98		$	104.06		$	36.81
			Per square foot per annum	$	10.08		$	9.31		$	11.05		$	11.04
			Percentage of initial rent		12.1	%		12.7	%		10.8	%		12.1	%

		Rent concessions:
			Average free rent period (in months)		5.1			5.9			3.5			4.0
			Average free rent period per annum (in months)		0.7			1.0			0.4			1.2

		Second generation space: ⁽²⁾
		Square feet			93,003			64,497			24,396			4,110
		Cash basis:
			Initial rent ⁽¹⁾	$	81.48		$	68.29		$	114.70		$	91.11
			Prior escalated rent ⁽³⁾	$	73.33		$	66.60		$	88.27		$	90.19
			Percentage increase		11.1	%		2.5	%		29.9	%		1.0	%
		GAAP basis:
			Straight-line rent	$	81.73		$	63.31		$	129.53		$	87.07
			Prior straight-line rent	$	71.82		$	65.11		$	87.69		$	82.98
			Percentage increase (decrease)		13.8	%		(2.8	%)		47.7	%		4.9	%

⁽¹⁾	Represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent.

⁽²⁾	Represents space leased that has been vacant for less than twelve months.

⁽³⁾	Represents the weighted average cash basis rents (including reimbursements) per square foot at expiration.

Leasing Results - Nine Months Ended September 30, 2019

In the nine months ended September 30, 2019, we leased 1,258,775 square feet, of which our share was 905,210 square feet that was leased at a weighted average initial rent of $90.65 per square foot. This leasing activity, partially offset by lease expirations in the nine months, and including the occupancy impact of the acquired and sold properties discussed below, increased leased occupancy by 10 basis points to 96.5% at September 30, 2019 from 96.4% at December 31, 2018. Same store leased occupancy (properties owned by us during both reporting periods), which excludes the occupancy impact from the acquisition of 111 Sutter Street and 55 Second Street and the disposition of Liberty Place, increased by 30 basis points to 96.7% at September 30, 2019 from 96.4% at December 31, 2018. Of the 1,258,775 square feet leased in the nine months, 761,257 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which we achieved rental rate increases of 17.6% on a cash basis and 18.4% on a GAAP basis. The weighted average lease term for leases signed during the nine months was 9.1 years and weighted average tenant improvements and leasing commissions on these leases were $10.50 per square foot per annum, or 11.6% of initial rent.

New York:

In the nine months ended September 30, 2019, we leased 416,760 square feet in our New York portfolio, of which our share was 390,105 square feet that was leased at a weighted average initial rent of $83.81 per square foot. This leasing activity, partially offset by lease expirations during the nine months, increased our leased occupancy and same store leased occupancy by 10 basis points to 96.1% at September 30, 2019 from 96.0% at December 31, 2018. Of the 416,760 square feet leased in the nine months, 271,547 square feet represented our share of second generation space for which rental rates decreased by 0.2% on a cash basis and 2.6% on a GAAP basis. The decrease was primarily due to a prior tenant’s lease, which was previously extended on a short-term basis for which we had achieved above-market rents during the short-term extension period. The weighted average lease term for leases signed during the nine months was 9.1 years and weighted average tenant improvements and leasing commissions on these leases were $10.15 per square foot per annum, or 12.1% of initial rent.

San Francisco:

In the nine months ended September 30, 2019, we leased 824,570 square feet in our San Francisco portfolio, of which our share was 497,660 square feet that was leased at a weighted average initial rent of $95.63 per square foot. This leasing activity, offset by lease expirations in the nine months, and including the occupancy impact of the acquisition of 111 Sutter Street and 55 Second Street, increased our leased occupancy by 20 basis points to 98.2% at September 30, 2019 from 98.0% at December 31, 2018. Same store leased occupancy, which excludes the occupancy impact from the acquisition of 111 Sutter Street and 55 Second Street, increased by 180 basis points to 99.8% at September 30, 2019 from 98.0% at December 31, 2018. Of the 824,570 square feet leased in the nine months, 474,907 square feet represented our share of second generation space for which we achieved rental rate increases of 29.2% on a cash basis and 30.5% on GAAP basis. The weighted average lease term for leases signed during the nine months was 9.2 years and weighted average tenant improvements and leasing commissions on these leases were $10.81 per square foot per annum, or 11.3% of initial rent.

Washington, D.C.:

In the nine months ended September 30, 2019, we leased 17,445 square feet in our Washington, D.C. portfolio, at a weighted average initial rent of $88.97 per square foot. This leasing activity, offset by lease expirations in the nine months, and including the occupancy impact of the sale of Liberty Place, decreased leased occupancy by 760 basis points to 90.4% at September 30, 2019 from 98.0% at December 31, 2018. Same store leased occupancy, which excludes the occupancy impact from the sale of Liberty Place, decreased by 960 basis points to 90.4% from 100.0% at December 31, 2018. Of the 17,445 square feet leased in the nine months, 14,803 represented our share of second generation space for which we achieved rental rate increases of 3.5% on a cash basis and 7.5% on GAAP basis. The weighted average lease term for leases signed during the nine months was 6.9 years and weighted average tenant improvements and leasing commissions on these leases were $7.91 per square foot per annum, or 8.9% of initial rent.

The following table presents additional details on the leases signed during the nine months ended September 30, 2019. It is not intended to coincide with the commencement of rental revenue in accordance with GAAP. The leasing statistics, except for square feet leased, represent office space only.

Nine Months Ended September 30, 2019				Total			New York			San Francisco			Washington, D.C.
	Total square feet leased				1,258,775			416,760			824,570			17,445
	Pro rata share of total square feet leased:				905,210			390,105			497,660			17,445
		Initial rent ⁽¹⁾		$	90.65		$	83.81		$	95.63		$	88.97
		Weighted average lease term (in years)			9.1			9.1			9.2			6.9

		Tenant improvements and leasing commissions:
			Per square foot	$	95.81		$	92.11		$	99.92		$	54.59
			Per square foot per annum	$	10.50		$	10.15		$	10.81		$	7.91
			Percentage of initial rent		11.6	%		12.1	%		11.3	%		8.9	%

		Rent concessions:
			Average free rent period (in months)		5.8			8.9			3.4			7.1
			Average free rent period per annum (in months)		0.6			1.0			0.4			1.0

		Second generation space: ⁽²⁾
		Square feet			761,257			271,547			474,907			14,803
		Cash basis:
			Initial rent ⁽¹⁾	$	91.43		$	83.29		$	96.01		$	89.22
			Prior escalated rent ⁽³⁾	$	77.74		$	83.45		$	74.31		$	86.24
			Percentage increase (decrease)		17.6	%		(0.2	%)		29.2	%		3.5	%
		GAAP basis:
			Straight-line rent	$	95.47		$	78.90		$	104.88		$	88.19
			Prior straight-line rent	$	80.60		$	80.99		$	80.34		$	82.07
			Percentage increase (decrease)		18.4	%		(2.6	%)		30.5	%		7.5	%

⁽¹⁾	Represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent.

⁽²⁾	Represents space leased that has been vacant for less than twelve months.

⁽³⁾	Represents the weighted average cash basis rents (including reimbursements) per square foot at expiration.

Financial Results - Three Months Ended September 30, 2019 and 2018

Net Income, FFO and Core FFO

Net income attributable to common stockholders was $7,082,000, or $0.03 per diluted share, for the three months ended September 30, 2019, compared to $37,531,000, or $0.16 per diluted share, for the three months ended September 30, 2018. Net income attributable to common stockholders for the three months ended September 30, 2019 included $1,030,000, or $0.00 per diluted share, of gain on sale of real estate and net income attributable to common stockholders for the three months ended September 30, 2018 included $32,222,000, or $0.13 per diluted share, of gain on sale of real estate, net of “sting” taxes.

Funds from Operations (“FFO”) attributable to common stockholders was $58,776,000, or $0.25 per diluted share, for the three months ended September 30, 2019, compared to $55,606,000, or $0.23 per diluted share, for the three months ended September 30, 2018. FFO attributable to common stockholders for the three months ended September 30, 2019 and 2018 includes the impact of non-core items, which are listed in the table on page 60. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO attributable to common stockholders for the three months ended September 30, 2019 by $236,000, or $0.00 per diluted share, and decreased FFO attributable to common stockholders for the three months ended September 30, 2018 by $2,142,000, or $0.01 per diluted share.

Core Funds from Operations (“Core FFO”) attributable to common stockholders, which excludes the impact of the non-core items listed on page 60, was $58,540,000, or $0.25 per diluted share, for the three months ended September 30, 2019, compared to $57,748,000, or $0.24 per diluted share, for the three months ended September 30, 2018.

Same Store Results

The table below summarizes the percentage increase (decrease) in our share of Same Store NOI and Same Store Cash NOI, by segment, for the three months ended September 30, 2019 versus September 30, 2018.

	Total			New York			San Francisco			Washington, D.C.
Same Store NOI		1.8	%		1.1	%		3.5	%		(9.2	%)
Same Store Cash NOI		4.2	%		2.1	%		11.4	%		(9.7	%)

See pages 52-60 “Non-GAAP Financial Measures” for a reconciliation of these measures to the most directly comparable GAAP measure and the reasons why we believe these non-GAAP measures are useful.

Financial Results - Nine Months Ended September 30, 2019 and 2018

Net Income, FFO and Core FFO

Net income attributable to common stockholders was $13,246,000, or $0.06 per diluted share, for the nine months ended September 30, 2019, compared to $3,829,000, or $0.02 per diluted share, for the nine months ended September 30, 2018. Net income attributable to common stockholders for the nine months ended September 30, 2019 included $1,030,000, or $0.00 per diluted share, of gain on sale of real estate and net income attributable to common stockholders for the nine months ended September 30, 2018, included $32,222,000, or $0.13 per diluted share, of gain on sale of real estate, net of “sting” taxes, and a $41,618,000, or $0.17 per diluted share, real estate impairment loss.

FFO attributable to common stockholders was $168,209,000, or $0.72 per diluted share, for the nine months ended September 30, 2019, compared to $168,194,000, or $0.70 per diluted share, for the nine months ended September 30, 2018. FFO attributable to common stockholders for the nine months ended September 30, 2019 and 2018 includes the impact of non-core items, which are listed in the table on page 60. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the nine months ended September 30, 2019 and 2018 by $683,000 and $2,416,000, respectively, or $0.00 and $0.01 per diluted share, respectively.

Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 60, was $168,892,000, or $0.72 per diluted share, for the nine months ended September 30, 2019, compared to $170,610,000, or $0.71 per diluted share, for the nine months ended September 30, 2018.

Same Store Results

The table below summarizes the percentage increase (decrease) in our share of Same Store NOI and Same Store Cash NOI, by segment, for the nine months ended September 30, 2019 versus September 30, 2018.

	Total			New York			San Francisco			Washington, D.C.
Same Store NOI		3.0	%		2.6	%		2.1	%		(7.2	%)
Same Store Cash NOI		7.8	%		4.5	%		17.4	%		(5.2	%)

Results of Operations - Three Months Ended September 30, 2019 and 2018

The following pages summarize our consolidated results of operations for the three months ended September 30, 2019 and 2018.

			For the Three Months Ended September 30,
(Amounts in thousands)			2019			2018			Change
Revenues:
	Rental revenue		$	188,079		$	185,074		$	3,005
	Fee and other income			10,238			7,522			2,716
		Total revenues		198,317			192,596			5,721
Expenses:
	Operating			71,648			69,811			1,837
	Depreciation and amortization			63,058			64,610			(1,552	)
	General and administrative			16,319			14,452			1,867
	Transaction related costs			786			450			336
		Total expenses		151,811			149,323			2,488
Other income (expense):
	(Loss) income from unconsolidated joint ventures			(1,332	)		472			(1,804	)
	Income (loss) from unconsolidated real estate funds			206			(188	)		394
	Interest and other income, net			1,222			2,778			(1,556	)
	Interest and debt expense			(37,325	)		(37,105	)		(220	)
	Gain on sale of real estate			1,140			36,845			(35,705	)
Net income before income taxes				10,417			46,075			(35,658	)
	Income tax benefit (expense)			583			(1,814	)		2,397
Net income				11,000			44,261			(33,261	)
Less net (income) loss attributable to noncontrolling interests in:
	Consolidated joint ventures			(3,051	)		(2,713	)		(338	)
	Consolidated real estate fund			(109	)		(86	)		(23	)
	Operating Partnership			(758	)		(3,931	)		3,173
Net income attributable to common stockholders			$	7,082		$	37,531		$	(30,449	)

Revenues

Our revenues, which consist primarily of rental revenue and fee and other income, were $198,317,000 for the three months ended September 30, 2019, compared to $192,596,000 for the three months ended September 30, 2018, an increase of $5,721,000. Below are the details of the increase (decrease) by segment.

(Amounts in thousands)	Total			New York				San Francisco			Washington, D.C.				Other
Rental revenue
Acquisitions / Dispositions	$	(5,051	)	$	-			$	-		$	(5,051	)	⁽¹⁾	$	-
Same store operations		8,254			4,216		⁽²⁾		4,421	⁽³⁾		(383	)			-
Other, net		(198	)		(202	)			4			-				-
Increase (decrease) in rental revenue	$	3,005		$	4,014			$	4,425		$	(5,434	)		$	-

Fee and other income
Fee income
Property management	$	216		$	-			$	-		$	-			$	216
Asset management		443			-				-			-				443
Acquisition, disposition and leasing		2,104			-				-			-				2,104
Other		317			-				-			-				317
Increase in fee income		3,080			-				-			-				3,080
Other income
Acquisitions / Dispositions		(157	)		-				-			(157	)	⁽¹⁾		-
Same store operations		(207	)		(188	)			6			(30	)			5
(Decrease) increase in other income		(364	)		(188	)			6			(187	)			5
Increase (decrease) in fee and other income	$	2,716		$	(188	)		$	6		$	(187	)		$	3,085

Total increase (decrease) in revenues	$	5,721		$	3,826			$	4,431		$	(5,621	)		$	3,085

⁽¹⁾	Represents revenues attributable to 2099 Pennsylvania Avenue and 425 Eye Street in Washington, D.C. (sold in August 2018 and September 2018, respectively) for the months in which they were not owned by us in both reporting periods.

⁽²⁾	Primarily due to an increase in occupancy at 31 West 52^nd Street and 1325 Avenue of the Americas.

⁽³⁾	Primarily due to an increase in occupancy at 300 Mission Street (formerly 50 Beale Street) and higher tenant reimbursement income resulting primarily from the new “gross receipts” tax in 2019 (see note 2 on page 40).

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative and transaction related costs, were $151,811,000 for the three months ended September 30, 2019, compared to $149,323,000 for the three months ended September 30, 2018, an increase of $2,488,000. Below are the details of the increase (decrease) by segment.


(Amounts in thousands)	Total			New York			San Francisco				Washington, D.C.				Other
Operating
Acquisitions / Dispositions	$	(1,999	)	$	-		$	-			$	(1,999	)	⁽¹⁾	$	-
Same store operations		3,896			1,620			2,870		⁽²⁾		19				(613	)
Bad debt expense		(60	)		(52	)		(8	)
Increase (decrease) in operating	$	1,837		$	1,568		$	2,862			$	(1,980	)		$	(613	)

Depreciation and amortization
Acquisitions / Dispositions	$	(1,501	)	$	-		$	-			$	(1,501	)	⁽¹⁾	$	-
Operations		(51	)		1,365			(1,503	)			(40	)			127
(Decrease) increase in depreciation
and amortization	$	(1,552	)	$	1,365		$	(1,503	)		$	(1,541	)		$	127

General and administrative
Stock-based compensation	$	844		$	-		$	-			$	-			$	844
Mark-to-market of investments
in our deferred compensation plan		(840	)		-			-				-				(840	)	⁽³⁾
Operations		1,863			-			-				-				1,863
Increase in general and
administrative	$	1,867		$	-		$	-			$	-			$	1,867

Increase in transaction related costs	$	336		$	-		$	-			$	-			$	336

Total increase (decrease) in expenses	$	2,488		$	2,933		$	1,359			$	(3,521	)		$	1,717

⁽¹⁾	Represents expenses attributable to 2099 Pennsylvania Avenue and 425 Eye Street in Washington, D.C. (sold in August 2018 and September 2018, respectively) for the months in which they were not owned by us in both reporting periods.

⁽²⁾	Primarily due to the new “gross receipts” tax in 2019, which is partially offset by higher reimbursement income (see note 3 on page 39).

⁽³⁾	Represents the change in the mark-to-market of investments in our deferred compensation plan liabilities. This change is entirely offset by the change in plan assets which is included in “interest and other income, net”.

(Loss) Income from Unconsolidated Joint Ventures

In the three months ended September 30, 2019, we recognized a $1,332,000 net loss from unconsolidated joint ventures compared to $472,000 of net income in the three months ended September 30, 2018, a decrease in income of $1,804,000. This decrease resulted primarily from (i) $1,266,000 for our share of net loss from 111 Sutter Street, which was acquired in February 2019, and (ii) $336,000 for our share of net loss from 55 Second Street, which was acquired in August 2019, primarily due to depreciation and amortization expense on these properties.

Income (Loss) from Unconsolidated Real Estate Funds

Income from unconsolidated real estate funds was $206,000 for the three months ended September 30, 2019, compared to a loss of $188,000 for the three months ended September 30, 2018, an increase in income of $394,000.

Interest and Other Income, net

Interest and other income was $1,222,000 for the three months ended September 30, 2019, compared to $2,778,000 for the three months ended September 30, 2018, a decrease of $1,556,000. This decrease resulted from:

(Amounts in thousands)
Decrease in the value of investments in our deferred compensation plan (which is offset by a decrease in "general and administrative")	$	(840	)
Other, net		(716	)
Total decrease	$	(1,556	)

Interest and Debt Expense

Interest and debt expense was $37,325,000 for the three months ended September 30, 2019, compared to $37,105,000 for the three months ended September 30, 2018, an increase of $220,000. This increase resulted primarily from higher interest on variable rate debt at 1301 Avenue of the Americas and 1633 Broadway due to an increase in average LIBOR rates in the current year’s three months compared to prior year’s three months.

Gain on Sale of Real Estate

In the three months ended September 30, 2019, we recognized a $1,140,000 gain on sale of Liberty Place, which was sold in September 2019 and in the three months ended September 30, 2018, we recognized a $36,845,000 gain on sale of real estate, comprised of (i) a $35,836,000 gain on sale of 2099 Pennsylvania Avenue, which was sold for $219,900,000 in August 2018 and (ii) a $1,009,000 gain on sale of 425 Eye Street, which was sold for $157,000,000 in September 2018.

Income Tax Benefit (Expense)

Income tax benefit was $583,000 for the three months ended September 30, 2019, compared to an income tax expense of $1,814,000 for the three months ended September 30, 2018, a decrease in expense of $2,397,000. The decrease was primarily due to a true-up of the prior year tax provision in the three months ended September 30, 2019 and $1,248,000 of “sting” taxes in connection with the sale of real estate in the three months ended September 30, 2018.

Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures

Net income attributable to noncontrolling interest in consolidated joint ventures was $3,051,000 for the three months ended September 30, 2019, compared to $2,713,000 for the three months ended September 30, 2018, an increase of $338,000. This increase resulted from:

(Amounts in thousands)
Higher income attributable to 300 Mission Street ($390 in 2019, compared to $126 in 2018)	$	264
Other, net		74
Total increase	$	338

Net Income Attributable to Noncontrolling Interests in Consolidated Real Estate Fund

Net income attributable to noncontrolling interests in consolidated real estate fund was $109,000 for the three months ended September 30, 2019, compared to $86,000 for the three months ended September 30, 2018, an increase of $23,000.

Net Income Attributable to Noncontrolling Interests in Operating Partnership

Net income attributable to noncontrolling interests in Operating Partnership was $758,000 for the three months ended September 30, 2019, compared to $3,931,000 for the three months ended September 30, 2018, a decrease in income attributable to noncontrolling interests of $3,173,000. This decrease resulted from lower net income subject to allocation to the unitholders of the operating partnership for the three months ended September 30, 2019.

Results of Operations - Nine Months Ended September 30, 2019 and 2018

The following pages summarize our consolidated results of operations for the nine months ended September 30, 2019 and 2018.

			For the Nine Months Ended September 30,
(Amounts in thousands)			2019			2018			Change
Revenues:
	Rental revenue		$	551,835		$	545,475		$	6,360
	Fee and other income			26,857			22,811			4,046
		Total revenues		578,692			568,286			10,406
Expenses:
	Operating			207,601			206,435			1,166
	Depreciation and amortization			188,772			194,541			(5,769	)
	General and administrative			51,457			44,278			7,179
	Transaction related costs			1,704			863			841
		Total expenses		449,534			446,117			3,417
Other income (expense):
	(Loss) income from unconsolidated joint ventures			(2,815	)		2,931			(5,746	)
	Income (loss) from unconsolidated real estate funds			271			(268	)		539
	Interest and other income, net			7,705			6,888			817
	Interest and debt expense			(111,462	)		(109,996	)		(1,466	)
	Real estate impairment loss			-			(46,000	)		46,000
	Gain on sale of real estate			1,140			36,845			(35,705	)
Net income before income taxes				23,997			12,569			11,428
	Income tax expense			(823	)		(2,171	)		1,348
Net income				23,174			10,398			12,776
Less net (income) loss attributable to noncontrolling interests in:
	Consolidated joint ventures			(8,253	)		(5,520	)		(2,733	)
	Consolidated real estate fund			(256	)		(668	)		412
	Operating Partnership			(1,419	)		(381	)		(1,038	)
Net income attributable to common stockholders			$	13,246		$	3,829		$	9,417

Revenues

Our revenues, which consist primarily of rental revenue and fee and other income, were $578,692,000 for the nine months ended September 30, 2019, compared to $568,286,000 for the nine months ended September 30, 2018, an increase of $10,406,000. Below are the details of the increase (decrease) by segment.

(Amounts in thousands)	Total			New York				San Francisco			Washington, D.C.				Other
Rental revenue
Acquisitions / Dispositions	$	(20,596	)	$	-			$	-		$	(20,596	)	⁽¹⁾	$	-
Same store operations		26,550			15,199		⁽²⁾		12,094	⁽³⁾		(640	)			(103	)
Other, net		406			361				45			-				-
Increase (decrease) in rental revenue	$	6,360		$	15,560			$	12,139		$	(21,236	)		$	(103	)

Fee and other income
Fee income
Property management	$	465		$	-			$	-		$	-			$	465
Asset management		1,618			-				-			-				1,618
Acquisition, disposition and leasing		1,685			-				-			-				1,685
Other		650			-				-			-				650
Increase in fee income		4,418			-				-			-				4,418
Other income
Acquisitions / Dispositions		(641	)		-				-			(641	)	⁽¹⁾		-
Same store operations		269			(1,078	)			664			15				668
(Decrease) increase in other income		(372	)		(1,078	)			664			(626	)			668
Increase (decrease) in fee and other income	$	4,046		$	(1,078	)		$	664		$	(626	)		$	5,086

Total increase (decrease) in revenues	$	10,406		$	14,482			$	12,803		$	(21,862	)		$	4,983

__________________________________________________________

⁽¹⁾	Represents revenues attributable to 2099 Pennsylvania Avenue and 425 Eye Street in Washington, D.C. (sold in August 2018 and September 2018, respectively) for the months in which they were not owned by us in both reporting periods.

⁽²⁾	Primarily due to an increase in occupancy at 31 West 52^nd Street, 1325 Avenue of the Americas and 1633 Broadway.

⁽³⁾	Primarily due to an increase in occupancy at 300 Mission Street (formerly 50 Beale Street) and One Market Plaza, and higher tenant reimbursement income resulting primarily from the new “gross receipts” tax in 2019 (see note 2 on page 45).

⁽⁴⁾

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative and transaction related costs, were $449,534,000 for the nine months ended September 30, 2019, compared to $446,117,000 for the nine months ended September 30, 2018, an increase of $3,417,000. Below are the details of the increase (decrease) by segment.

(Amounts in thousands)	Total			New York			San Francisco				Washington, D.C.				Other
Operating
Acquisitions / Dispositions	$	(8,204	)	$	-		$	-			$	(8,204	)	⁽¹⁾	$	-
Same store operations		9,604			3,948			7,531		⁽²⁾		399				(2,274	)
Bad debt expense		(234	)		(226	)		(8	)			-				-
Increase (decrease) in operating	$	1,166		$	3,722		$	7,523			$	(7,805	)		$	(2,274	)

Depreciation and amortization
Acquisitions / Dispositions	$	(7,692	)	$	-		$	-			$	(7,692	)	⁽¹⁾	$	-
Operations		1,923			4,760			(3,136	)			(176	)			475
(Decrease) increase in depreciation
and amortization	$	(5,769	)	$	4,760		$	(3,136	)		$	(7,868	)		$	475

General and administrative
Stock-based compensation	$	2,614		$	-		$	-			$	-			$	2,614
Mark-to-market of investments
in our deferred compensation plan		1,781			-			-				-				1,781		⁽³⁾
Operations		2,784			-			-				-				2,784
Increase in general
and administrative	$	7,179		$	-		$	-			$	-			$	7,179

Increase in transaction related costs	$	841		$	-		$	-			$	-			$	841

Total increase (decrease) in expenses	$	3,417		$	8,482		$	4,387			$	(15,673	)		$	6,221

⁽¹⁾	Represents expenses attributable to 2099 Pennsylvania Avenue and 425 Eye Street in Washington, D.C. (sold in August 2018 and September 2018, respectively) for the months in which they were not owned by us in both reporting periods.

⁽²⁾	Primarily due to the new “gross receipts” tax in 2019, which is partially offset by higher reimbursement income (see note 3 on page 44).

⁽³⁾	Represents the change in the mark-to-market of investments in our deferred compensation plan liabilities. This change is entirely offset by the change in plan assets which is included in “interest and other income, net”.

(Loss) Income from Unconsolidated Joint Ventures

In the nine months ended September 30, 2019, we recognized a $2,815,000 net loss from unconsolidated joint ventures compared to $2,931,000 of net income in the nine months ended September 30, 2018, a decrease in income of $5,746,000. This decrease resulted primarily from (i) $3,387,000 for our share of net loss from 111 Sutter Street, which was acquired in February 2019 (primarily due to depreciation and amortization expense), and (ii) $1,876,000 of lower income from 712 Fifth Avenue, resulting from lower cash distributions in the nine months ended September 30, 2019 (since we only recognize earnings from 712 Fifth Avenue to the extent we receive cash distributions from the joint venture).

Income (Loss) from Unconsolidated Real Estate Funds

Income from unconsolidated real estate funds was $271,000 for the nine months ended September 30, 2019, compared to a loss of $268,000 for the nine months ended September 30, 2018, an increase in income of $539,000.

Interest and Other Income, net

Interest and other income was $7,705,000 for the nine months ended September 30, 2019, compared to $6,888,000 for the nine months ended September 30, 2018, an increase of $817,000. This increase resulted from:

(Amounts in thousands)
Increase in the value of investments in our deferred compensation plan (which is offset by an increase in "general and administrative")	$	1,781
Other, net		(964	)
Total increase	$	817

Interest and Debt Expense

Interest and debt expense was $111,462,000 for the nine months ended September 30, 2019, compared to $109,996,000 for the nine months ended September 30, 2018, an increase of $1,466,000. This increase resulted primarily from higher interest on variable rate debt at 1301 Avenue of the Americas and 1633 Broadway due to an increase in average LIBOR rates in the current year’s nine months compared to prior year’s nine months.

Real Estate Impairment Loss

In the nine months ended September 30, 2018, we wrote down the value of certain real estate assets in our Washington, D.C. portfolio. Accordingly, we recorded a $46,000,000 real estate impairment loss based on the excess of the carrying value over the estimated fair value.

Gain on Sale of Real Estate

In the nine months ended September 30, 2019, we recognized a $1,140,000 gain on sale of Liberty Place, which was sold in September 2019 and in the nine months ended September 30, 2018, we recognized a $36,845,000 gain on sale of real estate, comprised of (i) a $35,836,000 gain on sale of 2099 Pennsylvania Avenue, which was sold for $219,900,000 in August 2018 and (ii) a $1,009,000 gain on sale of 425 Eye Street, which was sold for $157,000,000 in September 2018.

Income Tax Expense

Income tax expense was $823,000 for the nine months ended September 30, 2019, compared to $2,171,000 for the nine months ended September 30, 2018, a decrease of $1,348,000. The decrease was primarily due to $1,248,000 of “sting” taxes in connection with the sale of real estate in the nine months ended September 30, 2018.

Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures

Net income attributable to noncontrolling interest in consolidated joint ventures was $8,253,000 for the nine months ended September 30, 2019, compared to $5,520,000 for the nine months ended September 30, 2018, an increase of $2,733,000. This increase resulted from:

(Amounts in thousands)
Higher income attributable to 300 Mission Street ($1,289 in 2019, compared to a loss of $1,566 in 2018)	$	2,855
Other, net		(122	)
Total increase	$	2,733

Net Income Attributable to Noncontrolling Interests in Consolidated Real Estate Fund

Net income attributable to noncontrolling interests in consolidated real estate fund was $256,000 for the nine months ended September 30, 2019, compared to $668,000 for the nine months ended September 30, 2018, a decrease of $412,000.

Net Income Attributable to Noncontrolling Interests in Operating Partnership

Net income attributable to noncontrolling interests in Operating Partnership was $1,419,000 for the nine months ended September 30, 2019, compared to $381,000 for the nine months ended September 30, 2018, an increase in income attributable to noncontrolling interests of $1,038,000. This increase resulted from higher net income subject to allocation to the unitholders of the Operating Partnership for the nine months ended September 30, 2019.

Liquidity and Capital Resources

Liquidity

Our primary sources of liquidity include existing cash balances, cash flow from operations and borrowings available under our revolving credit facility. We expect that these sources will provide adequate liquidity over the next 12 months for all anticipated needs, including scheduled principal and interest payments on our outstanding indebtedness, existing and anticipated capital improvements, the cost of securing new and renewal leases, dividends to stockholders and distributions to unitholders, and all other capital needs related to the operations of our business. We anticipate that our long-term needs including debt maturities and the acquisition of additional properties will be funded by operating cash flow, mortgage financings and/or re-financings, the issuance of long-term debt or equity and cash on hand.

Although we may be able to anticipate and plan for certain of our liquidity needs, unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise, or our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or required.

As of September 30, 2019, we had $1.32 billion of liquidity comprised of $298,066,000 of cash and cash equivalents, $25,372,000 of restricted cash and $1.0 billion of borrowing capacity under our revolving credit facility. As of September 30, 2019, our outstanding consolidated debt aggregated $3.60 billion. We had no amounts outstanding under our revolving credit facility as of September 30, 2019 and none of our debt matures until 2021. We may refinance our maturing debt when it comes due or refinance or repay it early depending on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.

Revolving Credit Facility

Our $1.0 billion revolving credit facility matures in January 2022 and has two six-month extension options. The interest rate on the facility, at current leverage levels, is LIBOR plus 115 basis points and has a 20 basis points facility fee. We also have an option, subject to customary conditions and incremental lender commitments, to increase the capacity under the facility to $1.5 billion at any time prior to the maturity date of the facility. The facility contains certain restrictions and covenants that require us to maintain, on an ongoing basis, (i) a leverage ratio not to exceed 60%, however, the leverage ratio may be increased to 65% for any fiscal quarter in which an acquisition of real estate is completed and for up to the next three subsequent consecutive fiscal quarters, (ii) a secured leverage ratio not to exceed 50%, (iii) a fixed charge coverage ratio of at least 1.50, (iv) an unsecured leverage ratio not to exceed 60%, however, the unsecured leverage ratio may be increased to 65% for any fiscal quarter in which an acquisition of real estate is completed and for up to the next three subsequent consecutive fiscal quarters and (v) an unencumbered interest coverage ratio of at least 1.75. The facility also contains customary representations and warranties, limitations on permitted investments and other covenants

Dividend Policy

On September 13, 2019, we declared a regular quarterly cash dividend of $0.10 per share of common stock for the third quarter ending September 30, 2019, which was paid on October 15, 2019 to stockholders of record as of the close of business on September 30, 2019. This dividend policy, if continued, would require us to pay out approximately $25,300,000 each quarter to common stockholders and unitholders.

Off Balance Sheet Arrangements

As of September 30, 2019, our unconsolidated joint ventures had $1.22 billion of outstanding indebtedness, of which our share was $332,303,000. We do not guarantee the indebtedness of our unconsolidated joint ventures other than providing customary environmental indemnities and guarantees of specified non-recourse carve outs relating to specified covenants and representations; however, we may elect to fund additional capital to a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans in order to enable the joint venture to repay this indebtedness upon maturity.

Stock Repurchase Program

Insurance

Other Commitments and Contingencies

Transfer Tax Assessments

During 2017, the New York City Department of Finance issued Notices of Determination (“Notices”) assessing additional transfer taxes (including interest and penalties) in connection with the transfer of interests in certain properties during our 2014 initial public offering. We believe, after consultation with legal counsel that the likelihood of a loss is reasonably possible, and while it is not possible to predict the outcome of these Notices, we estimate the range of loss could be between $0 and $42,500,000. Since no amount in this range is a better estimate than any other amount within the range, we have not accrued any liability arising from potential losses relating to these Notices in our consolidated financial statements.

Inflation

Substantially all of our leases provide for separate real estate tax and operating expense escalations. In addition, many of the leases provide for fixed base rent increases. We believe inflationary increases in expenses may be at least partially offset by the contractual rent increases and expense escalations described above. We do not believe inflation has had a material impact on our historical financial position or results of operations.

Cash Flows

Cash and cash equivalents and restricted cash were $323,438,000 and $365,409,000 as of September 30, 2019 and December 31, 2018, respectively, and $569,627,000 and $250,425,000 as of September 30, 2018 and December 31, 2017, respectively. Cash and cash equivalents and restricted cash decreased by $41,971,000 for the nine months ended September 30, 2019 and increased by $319,202,000 for the nine months ended September 30, 2018. The following table sets forth the changes in cash flow.

	For the Nine Months Ended September 30,
(Amounts in thousands)	2019			2018
Net cash provided by (used in):
Operating activities	$	206,647		$	134,168
Investing activities		(58,387	)		223,127
Financing activities		(190,231	)		(38,093	)

Operating Activities

Nine months ended September 30, 2019 – We generated $206,647,000 of cash from operating activities for the nine months ended September 30, 2019, primarily from (i) $195,149,000 of net income (before $173,115,000 of noncash adjustments and $1,140,000 of gain on sale of real estate), (ii) $4,140,000 of distributions from unconsolidated joint ventures and real estate funds, (iii) $2,339,000 from the receipt of accrued interest on preferred equity investment, and (iv) $5,019,000 of net changes in operating assets and liabilities. Noncash adjustments of $173,115,000 were primarily comprised of depreciation and amortization, straight-lining of rental revenue, amortization of above and below market leases and amortization of stock-based compensation.

Nine months ended September 30, 2018 – We generated $134,168,000 of cash from operating activities for the nine months ended September 30, 2018, primarily from (i) $176,167,000 of net income (before $156,614,000 of noncash adjustments, $46,000,000 of real estate impairment loss and $36,845,000 of gain on sale of real estate) and (ii) $5,142,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii) $47,141,000 of net changes in operating assets and liabilities. Noncash adjustments of $156,614,000 were primarily comprised of depreciation and amortization, straight-lining of rental income, amortization of above and below market leases and amortization of stock-based compensation.

Investing Activities

Nine months ended September 30, 2019 – We used $58,387,000 of cash for investing activities for the nine months ended September 30, 2019, primarily due to (i) $148,896,000 for investments in and contributions of capital to unconsolidated joint ventures, (ii) $70,094,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements, (iii) $25,000,000 for real estate acquisition deposit and (iv) $2,247,000 of net contributions to our unconsolidated real estate funds, partially offset by (v) $150,307,000 of proceeds from sale of real estate, (vi) $33,750,000 from the redemption of a preferred equity investment, and (vii) $3,793,000 from the net sales of marketable securities (which are held in our deferred compensation plan).

Nine months ended September 30, 2018 – We generated $223,127,000 of cash from investing activities for the nine months ended September 30, 2018, primarily from (i) $349,013,000 of proceeds from the sales of real estate and (ii) $3,160,000 from the net sales of marketable securities (which are held in our deferred compensation plan), partially offset by, (iii) $85,621,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements, (iv) $25,491,000 for investments in unconsolidated joint ventures, (v) $15,680,000 for escrow deposits and loans receivable for RDF and (vi) $2,254,000 for contributions to our unconsolidated real estate funds.

Financing Activities

Nine months ended September 30, 2019 – We used $190,231,000 of cash in financing activities for the nine months ended September 30, 2019, primarily due to (i) $89,005,000 for the repurchases of common shares, (ii) $77,804,000 for dividends and distributions paid to common stockholders and unitholders, (iii) $40,037,000 for distributions to noncontrolling interests, (iv) $1,000,000 for acquisition of noncontrolling interest in consolidated real estate funds (v) $314,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings and (vi) $260,000 for the payment of debt issuance costs, partially offset by (vii) $14,989,000 of contributions from noncontrolling interests and (viii) $3,200,000 of proceeds from notes and mortgages payable.

Nine months ended September 30, 2018 – We used $38,093,000 of cash for financing activities for the nine months ended September 30, 2018, primarily due to (i) $78,458,000 for dividends and distributions paid to common stockholders and unitholders, (ii) $10,583,000 for distributions to noncontrolling interests, (iii) $6,351,000 for the payment of debt issuance costs and (iv) $3,569,000 for the repurchase of common shares, partially offset by, (v) $44,381,000 of contributions from noncontrolling interests and (vi) $16,700,000 of proceeds from notes and mortgages payable.

Non-GAAP Financial Measures

We use and present NOI, Same Store NOI, FFO and Core FFO, as supplemental measures of our performance. The summary below describes our use of these measures, provides information regarding why we believe these measures are meaningful supplemental measures of our performance and reconciles these measures from net income or loss, the most directly comparable GAAP measure. Other real estate companies may use different methodologies for calculating these measures, and accordingly, our presentation of these measures may not be comparable to other real estate companies. These non-GAAP measures should not be considered a substitute for, and should only be considered together with and as a supplement to, financial information presented in accordance with GAAP.

Net Operating Income (“NOI”)

We use NOI to measure the operating performance of our properties. NOI consists of rental revenue (which includes property rentals, tenant reimbursements and lease termination income) and certain other property-related revenue less operating expenses (which includes property-related expenses such as cleaning, security, repairs and maintenance, utilities, property administration and real estate taxes). We also present Cash NOI which deducts from NOI, straight-line rent adjustments and the amortization of above and below-market leases, including our share of such adjustments of unconsolidated joint ventures. In addition, we present PGRE's share of NOI and Cash NOI which represents our share of NOI and Cash NOI of consolidated and unconsolidated joint ventures, based on our percentage ownership in the underlying assets. We use NOI and Cash NOI internally as performance measures and believe they provide useful information to investors regarding our financial condition and results of operations because they reflect only those income and expense items that are incurred at property level.

The following tables present reconciliations of our net income (loss) to NOI and Cash NOI for the three and nine months ended September 30, 2019 and 2018.

	For the Three Months Ended September 30, 2019
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Reconciliation of net income (loss) to NOI and Cash NOI:
Net income (loss)	$	11,000		$	8,905		$	10,361		$	3,040		$	(11,306	)
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization		63,058			40,052			19,821			2,362			823
General and administrative		16,319			-			-			-			16,319
Interest and debt expense		37,325			23,818			12,383			-			1,124
Income tax benefit		(583	)		-			-			-			(583	)
NOI from unconsolidated joint ventures		4,973			2,776			2,106			-			91
Fee income		(7,159	)		-			-			-			(7,159	)
Interest and other income, net		(1,222	)		-			(236	)		-			(986	)
Gain on sale of real estate		(1,140	)		-			-			(1,140	)		-
Other, net		1,912			(235	)		1,602			-			545
NOI		124,483			75,316			46,037			4,262			(1,132	)
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(18,765	)		-			(18,765	)		-			-
Consolidated real estate fund		-			-			-			-			-
Paramount's share of NOI	$	105,718		$	75,316		$	27,272		$	4,262		$	(1,132	)

NOI	$	124,483		$	75,316		$	46,037		$	4,262		$	(1,132	)
Less:
Straight-line rent adjustments (including our share
of unconsolidated joint ventures)		(11,484	)		(8,593	)		(2,941	)		72			(22	)
Amortization of above and below-market leases, net (including our share of unconsolidated joint ventures)		(2,768	)		436			(3,223	)		19			-
Cash NOI		110,231			67,159			39,873			4,353			(1,154	)
Less Cash NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(16,680	)		-			(16,680	)		-			-
Consolidated real estate fund		-			-			-			-			-
Paramount's share of Cash NOI	$	93,551		$	67,159		$	23,193		$	4,353		$	(1,154	)

	For the Three Months Ended September 30, 2018
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Reconciliation of net income (loss) to NOI and Cash NOI:
Net income (loss)	$	44,261		$	8,464		$	8,856		$	41,026		$	(14,085	)
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization		64,610			38,687			21,324			3,903			696
General and administrative		14,452			-			-			-			14,452
Interest and debt expense		37,105			23,573			12,383			-			1,149
Income tax expense		1,814			-			2			-			1,812
NOI from unconsolidated joint ventures		4,448			4,356			-			-			92
Fee income		(4,079	)		-			-			-			(4,079	)
Interest and other income, net		(2,778	)		-			(203	)		(181	)		(2,394	)
Gain on sale of real estate		(36,845	)		-			-			(36,845	)		-
Other, net		166			(442	)		-			-			608
NOI		123,154			74,638			42,362			7,903			(1,749	)
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(18,303	)		-			(18,303	)		-			-
Consolidated real estate fund		7			-			-			-			7
Paramount's share of NOI	$	104,858		$	74,638		$	24,059		$	7,903		$	(1,742	)

NOI	$	123,154		$	74,638		$	42,362		$	7,903		$	(1,749	)
Less:
Straight-line rent adjustments (including our share
of unconsolidated joint ventures)		(15,752	)		(9,254	)		(4,292	)		(2,184	)		(22	)
Amortization of above and below-market leases, net (including our share of unconsolidated joint ventures)		(3,724	)		534			(3,928	)		(330	)		-
Cash NOI		103,678			65,918			34,142			5,389			(1,771	)
Less Cash NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(14,968	)		-			(14,968	)		-			-
Consolidated real estate fund		7			-			-			-			7
Paramount's share of Cash NOI	$	88,717		$	65,918		$	19,174		$	5,389		$	(1,764	)

	For the Nine Months Ended September 30, 2019
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Reconciliation of net income (loss) to NOI and Cash NOI:
Net income (loss)	$	23,174		$	27,178		$	26,495		$	7,202		$	(37,701	)
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization		188,772			120,002			59,257			7,087			2,426
General and administrative		51,457			-			-			-			51,457
Interest and debt expense		111,462			71,444			36,822			-			3,196
Income tax expense		823			-			19			-			804
NOI from unconsolidated joint ventures		14,569			10,319			4,019			-			231
Fee income		(17,371	)		-			-			-			(17,371	)
Interest and other income, net		(7,705	)		-			(595	)		-			(7,110	)
Gain on sale of real estate		(1,140	)		-			-			(1,140	)		-
Other, net		4,248			(854	)		3,723			-			1,379
NOI		368,289			228,089			129,740			13,149			(2,689	)
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(54,513	)		-			(54,513	)		-			-
Consolidated real estate fund		23			-			-			-			23
Paramount's share of NOI	$	313,799		$	228,089		$	75,227		$	13,149		$	(2,666	)

NOI	$	368,289		$	228,089		$	129,740		$	13,149		$	(2,689	)
Less:
Straight-line rent adjustments (including our share
of unconsolidated joint ventures)		(34,119	)		(27,142	)		(7,243	)		243			23
Amortization of above and below-market leases, net (including our share of unconsolidated joint ventures)		(8,713	)		1,391			(10,163	)		59			-
Cash NOI		325,457			202,338			112,334			13,451			(2,666	)
Less Cash NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(47,048	)		-			(47,048	)		-			-
Consolidated real estate fund		23			-			-			-			23
Paramount's share of Cash NOI	$	278,432		$	202,338		$	65,286		$	13,451		$	(2,643	)

	For the Nine Months Ended September 30, 2018
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Reconciliation of net income (loss) to NOI and Cash NOI:
Net income (loss)	$	10,398		$	25,058		$	21,763		$	3,277		$	(39,700	)
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization		194,541			115,242			62,393			14,955			1,951
General and administrative		44,278			-			-			-			44,278
Interest and debt expense		109,996			69,585			36,823			-			3,588
Income tax expense		2,171			-			10			-			2,161
NOI from unconsolidated joint ventures		13,757			13,514			-			-			243
Fee income		(12,953	)		-			-			-			(12,953	)
Interest and other income, net		(6,888	)		-			(548	)		(181	)		(6,159	)
Real estate impairment loss		46,000			-			-			46,000			-
Gain on sale of real estate		(36,845	)		-			-			(36,845	)		-
Other, net		(1,800	)		(2,875	)		-			-			1,075
NOI		362,655			220,524			120,441			27,206			(5,516	)
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(50,991	)		-			(50,991	)		-			-
Consolidated real estate fund		20			-			-			-			20
Paramount's share of NOI	$	311,684		$	220,524		$	69,450		$	27,206		$	(5,496	)

NOI	$	362,655		$	220,524		$	120,441		$	27,206		$	(5,516	)
Less:
Straight-line rent adjustments (including our share
of unconsolidated joint ventures)		(45,802	)		(30,259	)		(13,736	)		(1,822	)		15
Amortization of above and below-market leases, net (including our share of unconsolidated joint ventures)		(12,122	)		1,624			(12,319	)		(1,427	)		-
Cash NOI		304,731			191,889			94,386			23,957			(5,501	)
Less Cash NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(41,599	)		-			(41,599	)		-			-
Consolidated real estate fund		20			-			-			-			20
Paramount's share of Cash NOI	$	263,152		$	191,889		$	52,787		$	23,957		$	(5,481	)

Same Store NOI

The tables below set forth the reconciliations of our share of NOI to our share of Same Store NOI and Same Store Cash NOI for the three and nine months September 30, 2019 and 2018. These metrics are used to measure the operating performance of our properties that were owned by us in a similar manner during both the current and prior reporting periods, and represents our share of Same Store NOI and Same Store Cash NOI from consolidated and unconsolidated joint ventures based on our percentage ownership in the underlying assets. Same Store NOI also excludes lease termination income, impairment of receivables arising from operating leases and certain other items that vary from period to period. Same Store Cash NOI excludes the effect of non-cash items such as the straight-line rent adjustments and the amortization of above and below-market leases.

	For the Three Months Ended September 30, 2019
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Paramount's share of NOI for the three
months ended September 30, 2019⁽¹⁾	$	105,718		$	75,316		$	27,272		$	4,262		$	(1,132	)
Acquisitions ⁽²⁾		(2,106	)		-			(2,106	)		-			-
Dispositions		-			-			-			-			-
Lease termination income (including our share
of unconsolidated joint ventures)		(751	)		-			(751	)		-			-
Other, net		172			174			(2	)		-			-
Paramount's share of Same Store NOI for
the three months ended September 30, 2019	$	103,033		$	75,490		$	24,413		$	4,262		$	(1,132	)

	For the Three Months Ended September 30, 2018
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Paramount's share of NOI for the three
months ended September 30, 2018⁽¹⁾	$	104,858		$	74,638		$	24,059		$	7,903		$	(1,742	)
Acquisitions		-			-			-			-			-
Dispositions ⁽³⁾		(3,209	)		-			-			(3,209	)		-
Lease termination income (including our share
of unconsolidated joint ventures)		(506	)		(28	)		(478	)		-			-
Other, net		56			52			4			-			-
Paramount's share of Same Store NOI for
the three months ended September 30, 2018	$	101,199		$	74,662		$	23,585		$	4,694		$	(1,742	)



Increase (decrease) in Same Store NOI	$	1,834		$	828		$	828		$	(432	)	$	610

% Increase (decrease)		1.8	%		1.1	%		3.5	%		(9.2	%)

⁽¹⁾	See page 52 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income in accordance with GAAP and the reasons why we believe these non-GAAP measures are useful.

⁽²⁾	Represents our share of NOI attributable to acquired properties (111 Sutter Street and 55 Second Street in San Francisco) for the months in which they were not owned by us in both reporting periods.

⁽³⁾	Represents our share of NOI attributable to sold properties (2099 Pennsylvania Avenue and 425 Eye Street in Washington, D.C.) for the months in which they were not owned by us in both reporting periods.

	For the Three Months Ended September 30, 2019
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Paramount's share of Cash NOI for the three
months ended September 30, 2019 ⁽¹⁾	$	93,551		$	67,159		$	23,193		$	4,353		$	(1,154	)
Acquisitions ⁽²⁾		(1,606	)		-			(1,606	)		-			-
Dispositions		-			-			-			-			-
Lease termination income (including our share
of unconsolidated joint ventures)		(751	)		-			(751	)		-			-
Other, net		172			174			(2	)		-			-
Paramount's share of Same Store Cash NOI
for the three months ended September 30, 2019	$	91,366		$	67,333		$	20,834		$	4,353		$	(1,154	)

	For the Three Months Ended September 30, 2018
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Paramount's share of Cash NOI for the three
months ended September 30, 2018 ⁽¹⁾	$	88,717		$	65,918		$	19,174		$	5,389		$	(1,764	)
Acquisitions		-			-			-			-			-
Dispositions ⁽³⁾		(568	)		-			-			(568	)		-
Lease termination income (including our share
of unconsolidated joint ventures)		(506	)		(28	)		(478	)		-			-
Other, net		56			52			4			-			-
Paramount's share of Same Store Cash NOI
for the three months ended September 30, 2018	$	87,699		$	65,942		$	18,700		$	4,821		$	(1,764	)


Increase (decrease) in Same Store Cash NOI	$	3,667		$	1,391		$	2,134		$	(468	)	$	610

% Increase (decrease)		4.2	%		2.1	%		11.4	%		(9.7	%)

⁽¹⁾	See page 52 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income in accordance with GAAP and the reasons why we believe these non-GAAP measures are useful.

⁽²⁾	Represents our share of Cash NOI attributable to acquired properties (111 Sutter Street and 55 Second Street in San Francisco) for the months in which they were not owned by us in both reporting periods.

⁽³⁾	Represents our share of Cash NOI attributable to sold properties (2099 Pennsylvania Avenue and 425 Eye Street in Washington, D.C.) for the months in which they were not owned by us in both reporting periods.

	For the Nine Months Ended September 30, 2019
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Paramount's share of NOI for the nine months
ended September 30, 2019 ⁽¹⁾	$	313,799		$	228,089		$	75,227		$	13,149		$	(2,666	)
Acquisitions ⁽²⁾		(4,019	)		-			(4,019	)		-			-
Dispositions		-			-			-			-			-
Lease termination income (including our share
of unconsolidated joint ventures)		(3,097	)		(2,346	)		(751	)		-			-
Other, net		448			473			(25	)		-			-
Paramount's share of Same Store NOI for
the nine months ended September 30, 2019	$	307,131		$	226,216		$	70,432		$	13,149		$	(2,666	)

	For the Nine Months Ended September 30, 2018
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Paramount's share of NOI for the nine months
ended September 30, 2018 ⁽¹⁾	$	311,684		$	220,524		$	69,450		$	27,206		$	(5,496	)
Acquisitions		-			-			-			-			-
Dispositions ⁽³⁾		(13,033	)		-			-			(13,033	)		-
Lease termination income (including our share of unconsolidated joint ventures)		(750	)		(272	)		(478	)		-			-
Other, net		230			226			4			-			-
Paramount's share of Same Store NOI for
the nine months ended September 30, 2018	$	298,131		$	220,478		$	68,976		$	14,173		$	(5,496	)



Increase (decrease) in Same Store NOI	$	9,000		$	5,738		$	1,456		$	(1,024	)	$	2,830

% Increase (decrease)		3.0	%		2.6	%		2.1	%		(7.2	%)

⁽¹⁾	See page 52 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income in accordance with GAAP and the reasons why we believe these non-GAAP measures are useful.

⁽²⁾	Represents our share of NOI attributable to acquired properties (111 Sutter Street and 55 Second Street in San Francisco) for the months in which they were not owned by us in both reporting periods.

⁽³⁾	Represents our share of NOI attributable to sold properties (2099 Pennsylvania Avenue and 425 Eye Street in Washington, D.C.) for the months in which they were not owned by us in both reporting periods.

	For the Nine Months Ended September 30, 2019
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Paramount's share of Cash NOI for the nine
months ended September 30, 2019 ⁽¹⁾	$	278,432		$	202,338		$	65,286		$	13,451		$	(2,643	)
Acquisitions ⁽²⁾		(3,117	)		-			(3,117	)		-			-
Dispositions		-			-			-			-			-
Lease termination income (including our share
of unconsolidated joint ventures)		(3,097	)		(2,346	)		(751	)		-			-
Other, net		448			473			(25	)		-			-
Paramount's share of Same Store Cash NOI
for the nine months ended September 30, 2019	$	272,666		$	200,465		$	61,393		$	13,451		$	(2,643	)

	For the Nine Months Ended September 30, 2018
(Amounts in thousands)	Total			New York			San Francisco			Washington, D.C.			Other
Paramount's share of Cash NOI for the nine
months ended September 30, 2018 ⁽¹⁾	$	263,152		$	191,889		$	52,787		$	23,957		$	(5,481	)
Acquisitions		-			-			-			-			-
Dispositions ⁽³⁾		(9,773	)		-			-			(9,773	)		-
Lease termination income (including our share
of unconsolidated joint ventures)		(750	)		(272	)		(478	)		-			-
Other, net		230			226			4			-			-
Paramount's share of Same Store Cash NOI
for the nine months ended September 30, 2018	$	252,859		$	191,843		$	52,313		$	14,184		$	(5,481	)



Increase (decrease) in Same Store Cash NOI	$	19,807		$	8,622		$	9,080		$	(733	)	$	2,838

% Increase (decrease)		7.8	%		4.5	%		17.4	%		(5.2	%)

⁽¹⁾	See page 52 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income in accordance with GAAP and the reasons why we believe these non-GAAP measures are useful.

⁽²⁾	Represents our share of Cash NOI attributable to acquired properties (111 Sutter Street and 55 Second Street in San Francisco) for the months in which they were not owned by us in both reporting periods.

⁽³⁾	Represents our share of Cash NOI attributable to sold properties (2099 Pennsylvania Avenue and 425 Eye Street in Washington, D.C.) for the months in which they were not owned by us in both reporting periods.

Funds from Operations (“FFO”) and Core Funds from Operations (“Core FFO”)

FFO is a supplemental measure of our performance. We present FFO in accordance with the definition adopted by the National Association of Real Estate Investment Trusts (“Nareit”). Nareit defines FFO as net income or loss, calculated in accordance with GAAP, adjusted to exclude depreciation and amortization from real estate assets, impairment losses on certain real estate assets and gains or losses from the sale of certain real estate assets or from change in control of certain real estate assets, including our share of such adjustments of unconsolidated joint ventures. FFO is commonly used in the real estate industry to assist investors and analysts in comparing results of real estate companies because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. In addition, we present Core FFO as an alternative measure of our operating performance, which adjusts FFO for certain other items that we believe enhance the comparability of our FFO across periods. Core FFO, when applicable, excludes the impact of certain items, including, transaction related costs, realized and unrealized gains or losses on real estate fund investments, unrealized gains or losses on interest rate swaps, severance costs and gains or losses on early extinguishment of debt, in order to reflect the Core FFO of our real estate portfolio and operations. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results.

FFO and Core FFO are presented as supplemental financial measures and do not fully represent our operating performance. Neither FFO nor Core FFO is intended to be a measure of cash flow or liquidity. Please refer to our consolidated financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations and cash flows. The following table presents a reconciliation of net income to FFO and Core FFO for the periods set forth below.

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Amounts in thousands, except share and per share amounts)	2019			2018			2019			2018
Reconciliation of net income to FFO and Core FFO:
Net income	$	11,000		$	44,261		$	23,174		$	10,398
Real estate depreciation and amortization (including our
share of unconsolidated joint ventures)		67,461			66,533			199,595			200,404
Real estate impairment loss		-			-			-			46,000
Gain on sale of real estate		(1,140	)		(36,845	)		(1,140	)		(36,845	)
FFO		77,321			73,949			221,629			219,957
Less FFO attributable to noncontrolling interests in:
Consolidated joint ventures		(12,142	)		(12,432	)		(35,167	)		(33,479	)
Consolidated real estate fund		(109	)		(86	)		(256	)		(668	)
Operating Partnership		(6,294	)		(5,825	)		(17,997	)		(17,616	)
FFO attributable to common stockholders	$	58,776		$	55,606		$	168,209		$	168,194
Per diluted share	$	0.25		$	0.23		$	0.72		$	0.70

FFO	$	77,321		$	73,949		$	221,629		$	219,957
Non-core items:
Our share of (distributions from 712 Fifth Avenue in
excess of earnings) and earnings in excess of distribution		(976	)		398			(1,037	)		81
Other, net		715			1,968			1,798			2,586
Core FFO		77,060			76,315			222,390			222,624
Less Core FFO attributable to noncontrolling interests in:
Consolidated joint ventures		(12,142	)		(12,432	)		(35,167	)		(33,479	)
Consolidated real estate fund		(109	)		(86	)		(256	)		(668	)
Operating Partnership		(6,269	)		(6,049	)		(18,075	)		(17,867	)
Core FFO attributable to common stockholders	$	58,540		$	57,748		$	168,892		$	170,610
Per diluted share	$	0.25		$	0.24		$	0.72		$	0.71

Reconciliation of weighted average shares outstanding:
Weighted average shares outstanding		231,197,838			240,447,921			232,974,210			240,365,882
Effect of dilutive securities		32,101			41,217			30,707			25,302
Denominator for FFO and Core FFO per diluted share		231,229,939			240,489,138			233,004,917			240,391,184

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Our primary market risk results from our indebtedness, which bears interest at both fixed and variable rates. We manage our market risk on variable rate debt by entering into swap agreements to fix the rate on all or a portion of the debt for varying periods through maturity. This in turn, reduces the risks of variability of cash flows created by variable rate debt and mitigates the risk of increases in interest rates. Our objective when undertaking such arrangements is to reduce our floating rate exposure and we do not enter into hedging arrangements for speculative purposes. Subject to maintaining our status as a REIT for Federal income tax purposes, we may utilize swap arrangements in the future.

The following table summarizes our consolidated debt, the weighted average interest rates and the fair value as of September 30, 2019.

Property		Rate	2019		2020		2021		2022		2023		Thereafter		Total		Fair Value
(Amounts in thousands)
Fixed Rate Debt:
	1633 Broadway ⁽¹⁾	3.54%	$	-	$	-	$	-	$	1,000,000	$	-	$	-	$	1,000,000	$	1,006,257
	1301 Avenue of the Americas	3.05%		-		-		500,000		-		-		-		500,000		499,303
	31 West 52nd Street	3.80%		-		-		-		-		-		500,000		500,000		516,120
	One Market Plaza	4.03%		-		-		-		-		-		975,000		975,000		1,016,452
	300 Mission Street	3.65%		-		-		228,000		-		-		-		228,000		230,262
Total Fixed Rate Debt		3.66%	$	-	$	-	$	728,000	$	1,000,000	$	-	$	1,475,000	$	3,203,000	$	3,268,394

Variable Rate Debt:
	1633 Broadway	3.85%	$	-	$	-	$	-	$	50,000	$	-	$	-	$	50,000	$	50,313
	1301 Avenue of the Americas	3.93%		-		-		350,000		-		-		-		350,000		352,411
	Revolving Credit Facility	n/a		-		-		-		-		-		-		-		-
Total Variable Rate Debt		3.92%	$	-	$	-	$	350,000	$	50,000	$	-	$	-	$	400,000	$	402,724

Total Consolidated Debt		3.69%	$	-	$	-	$	1,078,000	$	1,050,000	$	-	$	1,475,000	$	3,603,000	$	3,671,118

⁽¹⁾	All of this debt has been swapped from floating rate debt to fixed rate debt. See table below.

In addition to the above, our unconsolidated joint ventures had $1.22 billion of outstanding indebtedness as of September 30, 2019, of which our share was $332,303,000.

The following table summarizes our fixed rate debt that has been swapped from floating rate to fixed as of September 30, 2019.

	Notional				Strike			Fair Value as of
Property	Amount		Effective Date	Maturity Date	Rate			September 30, 2019
(Amounts in thousands)
1633 Broadway ⁽¹⁾	$	400,000	Dec-2015	Dec-2020		1.65	%	$	(163	)
1633 Broadway ⁽¹⁾		300,000	Dec-2015	Dec-2021		1.82	%		(2,282	)
1633 Broadway ⁽¹⁾		300,000	Dec-2015	Dec-2022		1.95	%		(5,081	)
1633 Broadway ⁽¹⁾		400,000	Dec-2020	Dec-2021		2.35	%		(4,165	)
Total interest rate swap liabilities designated as cash flow hedges (included in "other liabilities")								$	(11,691	)

⁽¹⁾	Represents interest rate swaps designated as cash flow hedges. Changes in the fair value of these hedges are recognized in “other comprehensive (loss) income” (outside of earnings).

The following table summarizes our share of total indebtedness and the effect to interest expense of a 100 basis point increase in LIBOR.

	As of September 30, 2019								As of December 31, 2018
(Amounts in thousands, except per share amount)	Balance		Weighted Average Interest Rate			Effect of 1% Increase in Base Rates			Balance		Weighted Average Interest Rate
Paramount's share of consolidated debt:
Variable rate	$	400,000		3.92	%	$	4,000		$	396,800		4.17	%
Fixed rate ⁽¹⁾		2,548,658		3.59	%		-			2,548,658		3.59	%
	$	2,948,658		3.63	%	$	4,000		$	2,945,458		3.67	%

Paramount's share of debt of non-consolidated entities
(non-recourse):
Variable rate	$	97,758		4.32	%	$	978		$	28,808		4.91	%
Fixed rate		234,545		3.57	%		-			152,071		3.41	%
	$	332,303		3.79	%	$	978		$	180,879		3.65	%

Noncontrolling interests' in the Operating Partnership share of above						$	(481	)
Total change in annual net income						$	4,497
Per diluted share						$	0.02

_____

⁽¹⁾	Our fixed rate debt includes floating rate debt that has been swapped to fixed. See table on page 61.

Our variable rate debt outstanding as of September 30, 2019 is based on LIBOR, which is expected to remain available through the end of 2021, but may be discontinued or otherwise become unavailable thereafter. In the event that LIBOR is discontinued, the interest rate for our variable rate debt and interest rate swaps, including interest rates for our variable rate debt and interest rate swaps of our unconsolidated joint ventures following such event will be based on an alternative variable rate as specified in the applicable documentation governing such debt or swaps or as otherwise agreed upon. Such an event would not affect our ability to borrow or maintain already outstanding borrowings or swaps, but the alternative variable rate could be higher and more volatile than LIBOR prior to its discontinuance.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and regulations, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As of September 30, 2019, the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures. Based on the foregoing evaluation, as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting in connection with the evaluation referenced above that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

From time to time, we are a party to various claims and routine litigation arising in the ordinary course of business. As of September 30, 2019, we do not believe that the results of any such claims or litigation, individually or in the aggregate, will have a material adverse effect on our business, financial position, results of operations or cash flows.

ITEM 1A.

RISK FACTORS

Except to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

None.

Recent Purchases of Equity Securities

Stock Repurchase Program

The following table summarizes our purchases of equity securities in the three months ended September 30, 2019.

Period	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Approximate Dollar Value Available for Future Purchase
July 2019		419,513		$	13.68		419,513	$	82,390,000
August 2019		4,715,557	⁽¹⁾		13.17		4,715,041		20,315,000
September 2019		1,117,149			13.16		1,117,149		5,612,000

_____________________________________

⁽¹⁾	Of the 4,715,557 common shares repurchased in August 2019, 516 common shares represent shares surrendered by employees for the satisfaction of tax withholding obligations in connection with the vesting of restricted common stock.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

None.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the following Exhibit Index:

EXHIBIT INDEX

Exhibit Number		Exhibit Description


31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.SCH*		Inline XBRL Taxonomy Extension Schema.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase.

104		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)
		_______________________________
*		Filed herewith

**		Furnished herewith

†		Indicates management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Paramount Group, Inc.

Date: November 6, 2019	By:	/s/ Wilbur Paes
		Wilbur Paes
		Executive Vice President, Chief Financial Officer and Treasurer (duly authorized officer and principal financial and accounting officer)