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Paramount Group, Inc. - Quarter Report: 2022 June (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: June 30, 2022

 

OR

 

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 shar
e

PGRE

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, an 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 July 15, 2022, there were 225,355,435 shares of the registrant’s common stock outstanding.

 

 

 


 

 

 

Table of Contents

 

Item

 

 

 

Page Number

Part I.

 

Financial Information

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of June 30, 2022 and December 31, 2021

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the three and six months

ended June 30, 2022 and 2021

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months
ended June 30, 2022 and 2021

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the three and six months
ended June 30, 2022 and 2021

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the six months
ended June 30, 2022 and 2021

 

8

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

59

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

61

 

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

62

 

 

 

 

 

Item 1A.

 

Risk Factors

 

62

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

62

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

62

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

62

 

 

 

 

 

Item 5.

 

Other Information

 

62

 

 

 

 

 

Item 6.

 

Exhibits

 

63

 

 

 

 

 

Signatures

 

64

 

 

 

2


 

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)

June 30, 2022

 

 

December 31, 2021

 

 

Assets

 

 

 

 

 

 

Real estate, at cost:

 

 

 

 

 

 

Land

$

1,966,237

 

 

$

1,966,237

 

 

Buildings and improvements

 

6,103,782

 

 

 

6,061,824

 

 

 

 

8,070,019

 

 

 

8,028,061

 

 

Accumulated depreciation and amortization

 

(1,199,035

)

 

 

(1,112,977

)

 

Real estate, net

 

6,870,984

 

 

 

6,915,084

 

 

Cash and cash equivalents

 

506,933

 

 

 

524,900

 

 

Restricted cash

 

24,934

 

 

 

4,766

 

 

Investments in unconsolidated joint ventures

 

429,418

 

 

 

408,096

 

 

Investments in unconsolidated real estate funds

 

14,156

 

 

 

11,421

 

 

Accounts and other receivables

 

17,788

 

 

 

15,582

 

 

Deferred rent receivable

 

336,736

 

 

 

332,735

 

 

Deferred charges, net of accumulated amortization of $61,033 and $70,666

 

119,431

 

 

 

122,177

 

 

Intangible assets, net of accumulated amortization of $234,001 and $252,142

 

104,929

 

 

 

119,413

 

 

Other assets

 

56,920

 

 

 

40,388

 

 

Total assets (1)

$

8,482,229

 

 

$

8,494,562

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

Notes and mortgages payable, net of unamortized deferred financing costs
   of $
20,032 and $22,380

$

3,837,968

 

 

$

3,835,620

 

 

Revolving credit facility

 

-

 

 

 

-

 

 

Accounts payable and accrued expenses

 

108,464

 

 

 

116,192

 

 

Dividends and distributions payable

 

18,787

 

 

 

16,895

 

 

Intangible liabilities, net of accumulated amortization of $97,607 and $105,790

 

41,119

 

 

 

45,328

 

 

Other liabilities

 

24,537

 

 

 

25,495

 

 

Total liabilities (1)

 

4,030,875

 

 

 

4,039,530

 

 

Commitments and contingencies

 

 

 

 

 

 

Paramount Group, Inc. equity:

 

 

 

 

 

 

Common stock $0.01 par value per share; authorized 900,000,000 shares; issued and
   outstanding
225,625,481 and 218,991,795 shares in 2022 and 2021, respectively

 

2,255

 

 

 

2,190

 

 

Additional paid-in-capital

 

4,228,674

 

 

 

4,122,680

 

 

Earnings less than distributions

 

(570,577

)

 

 

(538,845

)

 

Accumulated other comprehensive income

 

36,840

 

 

 

2,138

 

 

Paramount Group, Inc. equity

 

3,697,192

 

 

 

3,588,163

 

 

Noncontrolling interests in:

 

 

 

 

 

 

Consolidated joint ventures

 

412,189

 

 

 

428,833

 

 

Consolidated real estate fund

 

80,557

 

 

 

81,925

 

 

Operating Partnership (15,900,186 and 21,740,404 units outstanding)

 

261,416

 

 

 

356,111

 

 

Total equity

 

4,451,354

 

 

 

4,455,032

 

 

Total liabilities and equity

$

8,482,229

 

 

$

8,494,562

 

 

 

 

(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 93.4% as of June 30, 2022. As of June 30, 2022, the assets and liabilities of the Operating Partnership include $3,954,957 and $2,569,935 of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. See Note 11, Variable Interest Entities (“VIEs”).

 

See notes to consolidated financial statements (unaudited).

3


 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands, except share and per share amounts)

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

177,243

 

 

$

174,628

 

 

$

347,165

 

 

$

347,774

 

Fee and other income

 

8,274

 

 

 

7,641

 

 

 

22,037

 

 

 

15,661

 

Total revenues

 

185,517

 

 

 

182,269

 

 

 

369,202

 

 

 

363,435

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Operating

 

67,814

 

 

 

64,072

 

 

 

134,475

 

 

 

130,690

 

Depreciation and amortization

 

57,398

 

 

 

59,925

 

 

 

113,022

 

 

 

118,230

 

General and administrative

 

16,706

 

 

 

18,418

 

 

 

32,351

 

 

 

32,782

 

Transaction related costs

 

159

 

 

 

135

 

 

 

276

 

 

 

416

 

Total expenses

 

142,077

 

 

 

142,550

 

 

 

280,124

 

 

 

282,118

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Loss from unconsolidated joint ventures

 

(4,416

)

 

 

(15,717

)

 

 

(9,529

)

 

 

(21,033

)

Income from unconsolidated real estate funds

 

155

 

 

 

148

 

 

 

325

 

 

 

328

 

Interest and other income, net

 

796

 

 

 

1,070

 

 

 

1,027

 

 

 

2,372

 

Interest and debt expense

 

(35,578

)

 

 

(34,914

)

 

 

(69,855

)

 

 

(69,653

)

Net income (loss) before income taxes

 

4,397

 

 

 

(9,694

)

 

 

11,046

 

 

 

(6,669

)

Income tax expense

 

(359

)

 

 

(434

)

 

 

(886

)

 

 

(1,575

)

Net income (loss)

 

4,038

 

 

 

(10,128

)

 

 

10,160

 

 

 

(8,244

)

Less net (income) loss attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(4,779

)

 

 

(7,428

)

 

 

(8,204

)

 

 

(13,156

)

Consolidated real estate fund

 

352

 

 

 

29

 

 

 

1,368

 

 

 

(56

)

Operating Partnership

 

29

 

 

 

1,584

 

 

 

(313

)

 

 

1,935

 

Net (loss) income attributable to common stockholders

$

(360

)

 

$

(15,943

)

 

$

3,011

 

 

$

(19,521

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income per Common Share - Basic:

 

 

 

 

 

 

 

 

 

 

 

(Loss) income per common share

$

(0.00

)

 

$

(0.07

)

 

$

0.01

 

 

$

(0.09

)

Weighted average shares outstanding

 

222,971,886

 

 

 

218,696,284

 

 

 

220,888,664

 

 

 

218,681,228

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income per Common Share - Diluted:

 

 

 

 

 

 

 

 

 

 

 

(Loss) income per common share

$

(0.00

)

 

$

(0.07

)

 

$

0.01

 

 

$

(0.09

)

Weighted average shares outstanding

 

222,971,886

 

 

 

218,696,284

 

 

 

220,930,019

 

 

 

218,681,228

 

 

See notes to consolidated financial statements (unaudited).

 

4


 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income (loss)

$

4,038

 

 

$

(10,128

)

 

$

10,160

 

 

$

(8,244

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

Change in value of interest rate swaps and interest rate caps

 

6,109

 

 

 

-

 

 

 

24,654

 

 

 

-

 

Pro rata share of other comprehensive income of
   unconsolidated joint ventures

 

2,949

 

 

 

365

 

 

 

13,402

 

 

 

4,749

 

Comprehensive income (loss)

 

13,096

 

 

 

(9,763

)

 

 

48,216

 

 

 

(3,495

)

Less comprehensive (income) loss attributable to
   noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(4,779

)

 

 

(7,428

)

 

 

(8,204

)

 

 

(13,156

)

Consolidated real estate fund

 

352

 

 

 

29

 

 

 

1,368

 

 

 

(68

)

Operating Partnership

 

(655

)

 

 

1,552

 

 

 

(3,667

)

 

 

1,511

 

Comprehensive income (loss) attributable to common stockholders

$

8,014

 

 

$

(15,610

)

 

$

37,713

 

 

$

(15,208

)

 

 

See notes to consolidated financial statements (unaudited).

 

5


 

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

 

 

Income (Loss)

 

 

Ventures

 

 

Fund

 

 

Partnership

 

 

Equity

 

Balance as of March 31, 2022

 

 

219,077

 

 

$

2,190

 

 

$

4,120,077

 

 

$

(552,732

)

 

$

28,466

 

 

$

417,577

 

 

$

80,909

 

 

$

366,536

 

 

$

4,463,023

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(360

)

 

 

-

 

 

 

4,779

 

 

 

(352

)

 

 

(29

)

 

 

4,038

 

Common shares issued upon redemption of
   common units

 

 

6,530

 

 

 

65

 

 

 

107,147

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(107,212

)

 

 

-

 

Common shares issued under Omnibus
   share plan, net of shares withheld for taxes

 

 

18

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dividends and distributions ($0.0775 per share
   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17,485

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,302

)

 

 

(18,787

)

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,167

)

 

 

-

 

 

 

-

 

 

 

(10,167

)

Change in value of interest rate swaps and
   interest rate caps

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,648

 

 

 

-

 

 

 

-

 

 

 

461

 

 

 

6,109

 

Pro rata share of other comprehensive income
   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,726

 

 

 

-

 

 

 

-

 

 

 

223

 

 

 

2,949

 

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

317

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,872

 

 

 

4,189

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

1,133

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,133

)

 

 

-

 

Balance as of June 30, 2022

 

 

225,625

 

 

$

2,255

 

 

$

4,228,674

 

 

$

(570,577

)

 

$

36,840

 

 

$

412,189

 

 

$

80,557

 

 

$

261,416

 

 

$

4,451,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2021

 

 

218,950

 

 

$

2,189

 

 

$

4,111,144

 

 

$

(476,051

)

 

$

(8,809

)

 

$

438,937

 

 

$

79,114

 

 

$

359,411

 

 

$

4,505,935

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,943

)

 

 

-

 

 

 

7,428

 

 

 

(29

)

 

 

(1,584

)

 

 

(10,128

)

Common shares issued upon redemption of
   common units

 

 

10

 

 

 

-

 

 

 

165

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(165

)

 

 

-

 

Common shares issued under Omnibus
   share plan, net of shares withheld for taxes

 

 

2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dividends and distributions ($0.07 per share
   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,327

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,570

)

 

 

(16,897

)

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,937

)

 

 

-

 

 

 

-

 

 

 

(3,937

)

Pro rata share of other comprehensive income
   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

331

 

 

 

-

 

 

 

-

 

 

 

34

 

 

 

365

 

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

304

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,481

 

 

 

4,785

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

2,276

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,276

)

 

 

-

 

Balance as of June 30, 2021

 

 

218,962

 

 

$

2,189

 

 

$

4,113,889

 

 

$

(507,321

)

 

$

(8,478

)

 

$

442,428

 

 

$

79,085

 

 

$

358,331

 

 

$

4,480,123

 

 

 

See notes to consolidated financial statements (unaudited).

 

6


 

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

 

 

Income (Loss)

 

 

Ventures

 

 

Fund

 

 

Partnership

 

 

Equity

 

Balance as of December 31, 2021

 

 

218,992

 

 

$

2,190

 

 

$

4,122,680

 

 

$

(538,845

)

 

$

2,138

 

 

$

428,833

 

 

$

81,925

 

 

$

356,111

 

 

$

4,455,032

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,011

 

 

 

-

 

 

 

8,204

 

 

 

(1,368

)

 

 

313

 

 

 

10,160

 

Common shares issued upon redemption of
   common units

 

 

6,530

 

 

 

65

 

 

 

107,147

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(107,212

)

 

 

-

 

Common shares issued under Omnibus
   share plan, net of shares withheld for taxes

 

 

103

 

 

 

-

 

 

 

-

 

 

 

(280

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(280

)

Dividends and distributions ($0.155 per share
   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(34,463

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,101

)

 

 

(37,564

)

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24,848

)

 

 

-

 

 

 

-

 

 

 

(24,848

)

Change in value of interest rate swaps and
   interest rate caps

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,485

 

 

 

-

 

 

 

-

 

 

 

2,169

 

 

 

24,654

 

Pro rata share of other comprehensive income
   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,217

 

 

 

-

 

 

 

-

 

 

 

1,185

 

 

 

13,402

 

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

639

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,159

 

 

 

10,798

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

(1,792

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,792

 

 

 

-

 

Balance as of June 30, 2022

 

 

225,625

 

 

$

2,255

 

 

$

4,228,674

 

 

$

(570,577

)

 

$

36,840

 

 

$

412,189

 

 

$

80,557

 

 

$

261,416

 

 

$

4,451,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

218,817

 

 

$

2,188

 

 

$

4,120,173

 

 

$

(456,393

)

 

$

(12,791

)

 

$

437,161

 

 

$

79,017

 

 

$

346,379

 

 

$

4,515,734

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,521

)

 

 

-

 

 

 

13,156

 

 

 

56

 

 

 

(1,935

)

 

 

(8,244

)

Common shares issued upon redemption of
   common units

 

 

10

 

 

 

-

 

 

 

165

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(165

)

 

 

-

 

Common shares issued under Omnibus
   share plan, net of shares withheld for taxes

 

 

135

 

 

 

1

 

 

 

-

 

 

 

(201

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(200

)

Dividends and distributions ($0.14 per share
   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30,654

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,132

)

 

 

(33,786

)

Contributions from noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

121

 

 

 

-

 

 

 

-

 

 

 

121

 

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,562

)

 

 

-

 

 

 

-

 

 

 

(8,562

)

Pro rata share of other comprehensive income of
   unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,313

 

 

 

-

 

 

 

12

 

 

 

424

 

 

 

4,749

 

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

611

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,700

 

 

 

10,311

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

(7,060

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,060

 

 

 

-

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(552

)

 

 

-

 

 

 

552

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance as of June 30, 2021

 

 

218,962

 

 

$

2,189

 

 

$

4,113,889

 

 

$

(507,321

)

 

$

(8,478

)

 

$

442,428

 

 

$

79,085

 

 

$

358,331

 

 

$

4,480,123

 

 

 

See notes to consolidated financial statements (unaudited).

7


 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

2022

 

 

2021

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income (loss)

$

10,160

 

 

$

(8,244

)

Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:

 

 

 

 

 

Depreciation and amortization

 

113,022

 

 

 

118,230

 

Straight-lining of rental revenue

 

(4,001

)

 

 

(9,632

)

Amortization of stock-based compensation expense

 

10,704

 

 

 

10,229

 

Loss from unconsolidated joint ventures

 

9,529

 

 

 

21,033

 

Amortization of deferred financing costs

 

3,077

 

 

 

4,640

 

Distributions of earnings from unconsolidated real estate funds

 

304

 

 

 

266

 

Distributions of earnings from unconsolidated joint ventures

 

34

 

 

 

623

 

Amortization of above and below-market leases, net

 

(673

)

 

 

(1,613

)

Income from unconsolidated real estate funds

 

(325

)

 

 

(328

)

Realized and unrealized gains on marketable securities

 

-

 

 

 

(1,480

)

Other non-cash adjustments

 

560

 

 

 

868

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts and other receivables

 

(2,206

)

 

 

4,136

 

Deferred charges

 

(5,097

)

 

 

(4,506

)

Other assets

 

2,741

 

 

 

(5,569

)

Accounts payable and accrued expenses

 

(4,714

)

 

 

3,698

 

Other liabilities

 

(2,013

)

 

 

2,107

 

Net cash provided by operating activities

 

131,102

 

 

 

134,458

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Additions to real estate

 

(54,136

)

 

 

(52,114

)

Due from affiliates

 

(51,916

)

 

 

-

 

Repayment of amounts due from affiliates

 

51,916

 

 

 

-

 

Investments in and contributions of capital to unconsolidated joint ventures

 

(11,252

)

 

 

(11,750

)

Contributions of capital to unconsolidated real estate funds

 

(4,219

)

 

 

-

 

Distributions of capital from unconsolidated real estate funds

 

1,506

 

 

 

-

 

Purchases of marketable securities

 

-

 

 

 

(9,562

)

Sales of marketable securities

 

-

 

 

 

11,381

 

Net cash used in investing activities

 

(68,101

)

 

 

(62,045

)

 

 

See notes to consolidated financial statements (unaudited).

 

8


 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

2022

 

 

2021

 

Cash Flows from Financing Activities:

 

 

 

 

 

Dividends paid to common stockholders

$

(32,307

)

 

$

(30,643

)

Distributions paid to common unitholders

 

(3,365

)

 

 

(3,042

)

Distributions to noncontrolling interests

 

(24,848

)

 

 

(8,562

)

Contributions from noncontrolling interests

 

-

 

 

 

121

 

Repurchase of shares related to stock compensation agreements
   and related tax withholdings

 

(280

)

 

 

(200

)

Proceeds from notes and mortgages payable

 

-

 

 

 

12,430

 

Net cash used in financing activities

 

(60,800

)

 

 

(29,896

)

 

 

 

 

 

 

Net increase in cash and cash equivalents and restricted cash

 

2,201

 

 

 

42,517

 

Cash and cash equivalents and restricted cash at beginning of period

 

529,666

 

 

 

465,324

 

Cash and cash equivalents and restricted cash at end of period

$

531,867

 

 

$

507,841

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Cash and Cash Equivalents and Restricted Cash:

 

 

 

 

Cash and cash equivalents at beginning of period

$

524,900

 

 

$

434,530

 

Restricted cash at beginning of period

 

4,766

 

 

 

30,794

 

Cash and cash equivalents and restricted cash at beginning of period

$

529,666

 

 

$

465,324

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

506,933

 

 

$

475,289

 

Restricted cash at end of period

 

24,934

 

 

 

32,552

 

Cash and cash equivalents and restricted cash at end of period

$

531,867

 

 

$

507,841

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash payments for interest

$

67,332

 

 

$

65,227

 

Cash payments for income taxes, net of refunds

 

1,941

 

 

 

210

 

 

 

 

 

 

 

Non-Cash Transactions:

 

 

 

 

 

Common shares issued upon redemption of common units

 

107,212

 

 

 

165

 

Change in value of interest rate swaps and interest rate caps

 

24,654

 

 

 

-

 

Dividends and distributions declared but not yet paid

 

18,787

 

 

 

16,897

 

Write-off of fully amortized and/or depreciated assets

 

8,617

 

 

 

37,149

 

Additions to real estate included in accounts payable and accrued expenses

 

7,212

 

 

 

10,484

 

Transfer of deposit to investment in unconsolidated joint ventures

 

6,230

 

 

 

-

 

 

See notes to consolidated financial statements (unaudited).

 

9


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, a Delaware limited partnership (the “Operating 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 and San Francisco. 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 93.4% of, the Operating Partnership as of June 30, 2022.

 

As of June 30, 2022, we own and/or manage a portfolio aggregating 14.0 million square feet comprised of:

Eight wholly and partially owned properties aggregating 8.7 million square feet in New York, comprised of 8.2 million square feet of office space and 0.5 million square feet of retail, theater and amenity space;
Six wholly and partially owned properties aggregating 4.3 million square feet in San Francisco, comprised of 4.1 million square feet of office space and 0.2 million square feet of retail space; and
Six managed properties aggregating 1.0 million square feet in New York and Washington, D.C.

Additionally, we have an investment management business, where we serve as the general partner of real estate funds for institutional investors and high net-worth individuals.

 

 

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, 2021 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, 2021, as filed with the SEC.

 

10


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

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, 2021.

 

 

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 six months ended June 30, 2022, are not necessarily indicative of the operating results for the full year.

 

 

Recently Issued Accounting Pronouncements

 

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, which adds Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU 2021-01 to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively to such transactions through December 31, 2022 and ASU 2021-01 is effective beginning on January 7, 2021 and may be applied retrospectively or prospectively to such transactions through December 31, 2022. We will apply ASU 2020-04 and ASU 2021-01 prospectively as and when we enter into transactions to which these updates apply.

 

In August 2020, the FASB issued ASU 2020-06, an update to ASC Topic 470, Subtopic - 20, Debt - Debt with Conversion and Other Options, and ASC Topic 815, Subtopic - 4, Derivatives and Hedging - Contracts in Entity's Own Equity. ASU 2020-06 simplifies the guidance for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts on an entity’s own equity by reducing the number of accounting models for convertible instruments and amends guidance in ASC Topic 260, Earnings Per Share, relating to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2021, with early adoption permitted for fiscal years that begin after December 15, 2020. We adopted the provisions of ASU 2020-06 on January 1, 2022. This adoption did not have an impact on our consolidated financial statements.

 

 

 

 

 

 

11


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

3.
Investments in Unconsolidated Joint Ventures

 

 

On February 24, 2022, a joint venture, in which we own a 9.2% interest, acquired a 26,000 square foot retail condominium at 1600 Broadway in Manhattan for $191,500,000. In connection with the acquisition, the joint venture obtained a 10-year, $98,000,000 interest-only loan that has a fixed rate of 3.45%. The property, which is located in the heart of Times Square, is 100% leased to Mars, Inc. for a 15-year term and serves as the New York flagship location for M&M’s World. We account for our investment in 1600 Broadway under the equity method of accounting from the date of 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

 

June 30, 2022

 

 

December 31, 2021

 

712 Fifth Avenue (1)

 

50.0%

 

$

-

 

 

$

-

 

Market Center

 

67.0%

 

 

194,000

 

 

 

185,344

 

55 Second Street (2)

 

44.1%

 

 

86,813

 

 

 

88,284

 

111 Sutter Street

 

49.0%

 

 

33,744

 

 

 

35,182

 

1600 Broadway (2)(3)

 

9.2%

 

 

9,882

 

 

 

-

 

60 Wall Street (2)

 

5.0%

 

 

20,623

 

 

 

19,230

 

One Steuart Lane (2)

 

35.0% (4)

 

 

80,870

 

 

 

76,428

 

Oder-Center, Germany (2)

 

9.5%

 

 

3,486

 

 

 

3,628

 

Investments in unconsolidated joint ventures

 

$

429,418

 

 

$

408,096

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

(Amounts in thousands)

June 30,

 

 

June 30,

 

Our Share of Net Income (Loss):

2022

 

 

2021

 

 

2022

 

 

2021

 

712 Fifth Avenue (1)

$

-

 

 

$

(11,128

)

 

$

-

 

 

$

(11,128

)

Market Center

 

(2,487

)

 

 

(2,914

)

 

 

(4,850

)

 

 

(7,044

)

55 Second Street (2)

 

(792

)

 

 

(847

)

 

 

(1,471

)

 

 

(1,469

)

111 Sutter Street

 

(681

)

 

 

(699

)

 

 

(1,459

)

 

 

(1,189

)

1600 Broadway (2)(3)

 

(20

)

 

 

-

 

 

 

(68

)

 

 

-

 

60 Wall Street (2)

 

53

 

 

 

17

 

 

 

65

 

 

 

34

 

One Steuart Lane (2)

 

(518

)

 

 

(132

)

 

 

(1,787

)

 

 

(225

)

Oder-Center, Germany (2)

 

29

 

 

 

(14

)

 

 

41

 

 

 

(12

)

Loss from unconsolidated joint ventures

$

(4,416

)

 

$

(15,717

)

 

$

(9,529

)

 

$

(21,033

)

 

 

(1)
At December 31, 2021, our basis in the joint venture that owns 712 Fifth Avenue was negative $14,329. Since we have no further obligation to fund additional capital to the joint venture, we no longer recognize our proportionate share of earnings from the joint venture. Instead, we recognize income only to the extent we receive cash distributions from the joint venture and recognize losses to the extent we make cash contributions to the joint venture. For the six months ended June 30, 2022, the joint venture had net losses of $830 of which our 50.0% share was $415. Accordingly, our basis in the joint venture, taking into account our share of losses, was negative $14,744 as of June 30, 2022. Additionally, during the three and six months ended June 30, 2021, we received a $622 distribution from the joint venture and made an $11,750 contribution to the joint venture, which are included in "loss from unconsolidated joint ventures" on our consolidated statements of income for the three and six months ended June 30, 2021.
(2)
As of June 30, 2022, the carrying amount of our investments in 55 Second Street, 1600 Broadway, 60 Wall Street, One Steuart Lane and Oder-Center is greater than our share of equity in these investments by $473, $866, $2,598, $668 and $4,399, respectively, and primarily represents the unamortized portion of our capitalized acquisition costs.
(3)
Acquired on February 24, 2022.
(4)
Represents our consolidated Residential Development Fund’s (“RDF”) economic interest in One Steuart Lane, a for-sale residential condominium project. Our economic interest in One Steuart Lane (based on our 7.4% ownership interest in RDF) is 2.6%.

 

12


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

The following tables provide the combined summarized financial information of our unconsolidated joint ventures as of the dates thereof and for the periods set forth below.

 

 

(Amounts in thousands)

As of

 

Balance Sheets:

June 30, 2022

 

 

December 31, 2021

 

Real estate, net

$

2,384,038

 

 

$

2,246,152

 

Cash and cash equivalents and restricted cash

 

264,334

 

 

 

216,910

 

Intangible assets, net

 

80,237

 

 

 

58,590

 

For-sale residential condominium units (1)

 

327,538

 

 

 

359,638

 

Other assets

 

68,817

 

 

 

46,646

 

Total assets

$

3,124,964

 

 

$

2,927,936

 

 

 

 

 

 

 

Notes and mortgages payable, net

$

1,845,996

 

 

$

1,791,404

 

Intangible liabilities, net

 

14,489

 

 

 

18,397

 

Other liabilities

 

61,123

 

 

 

61,097

 

Total liabilities

 

1,921,608

 

 

 

1,870,898

 

Equity

 

1,203,356

 

 

 

1,057,038

 

Total liabilities and equity

$

3,124,964

 

 

$

2,927,936

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

Income Statements:

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

54,516

 

 

$

57,195

 

 

$

112,036

 

 

$

113,723

 

Other income

 

31,444

 

(2)

 

581

 

 

 

50,026

 

(2)

 

1,338

 

Total revenues

 

85,960

 

 

 

57,776

 

 

 

162,062

 

 

 

115,061

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Operating

 

52,293

 

(2)

 

25,467

 

 

 

94,801

 

(2)

 

50,577

 

Depreciation and amortization

 

23,508

 

 

 

27,014

 

 

 

50,406

 

 

 

54,467

 

Total expenses

 

75,801

 

 

 

52,481

 

 

 

145,207

 

 

 

105,044

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest and other income (loss)

 

58

 

 

 

(23

)

 

 

16

 

 

 

(56

)

Interest and debt expense

 

(16,335

)

 

 

(13,892

)

 

 

(33,933

)

 

 

(27,632

)

Net loss before income taxes

 

(6,118

)

 

 

(8,620

)

 

 

(17,062

)

 

 

(17,671

)

Income tax (expense) benefit

 

(14

)

 

 

1

 

 

 

(43

)

 

 

(15

)

Net loss

$

(6,132

)

 

$

(8,619

)

 

$

(17,105

)

 

$

(17,686

)

 

 

(1)
Represents the cost of residential condominium units at One Steuart Lane that are available for sale.
(2)
Includes proceeds and cost of sales from the sale of residential condominium units at One Steuart Lane.

 

13


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

4.
Investments in Unconsolidated Real Estate Funds

 

 

We are the general partner and investment manager of Paramount Group Real Estate Fund VIII, LP (“Fund VIII”) and Paramount Group Real Estate Fund X, LP and its parallel fund, Paramount Group Real Estate Fund X-ECI, LP, (collectively, “Fund X”), our Alternative Investment Funds, which invest in mortgage and mezzanine loans and preferred equity investments. While Fund VIII’s investment period has ended, Fund X’s investment period ends in December 2025. As of June 30, 2022, Fund X has $192,000,000 of capital committed, of which $134,225,000 has been invested and $48,401,000 has been reserved for future funding. Our ownership interest in Fund VIII and Fund X was approximately 1.3% and 7.8%, respectively, as of June 30, 2022.

 

As of June 30, 2022 and December 31, 2021, our share of the investments in the unconsolidated real estate funds aggregated $14,156,000 and $11,421,000, respectively. We recognized $155,000 and $148,000 for our share of income in the three months ended June 30, 2022 and 2021, respectively, and $325,000 and $328,000 for our share of income in the six months ended June 30, 2022 and 2021, respectively.

 

 

5.
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 thereof and for the periods set forth below.

 

 

As of

 

(Amounts in thousands)

June 30, 2022

 

 

December 31, 2021

 

Intangible assets:

 

 

 

 

 

Gross amount

$

338,930

 

 

$

371,555

 

Accumulated amortization

 

(234,001

)

 

 

(252,142

)

 

$

104,929

 

 

$

119,413

 

Intangible liabilities:

 

 

 

 

 

Gross amount

$

138,726

 

 

$

151,118

 

Accumulated amortization

 

(97,607

)

 

 

(105,790

)

 

$

41,119

 

 

$

45,328

 

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

Amortization of above and below-market leases, net
   (component of "rental revenue")

$

315

 

 

$

758

 

 

$

673

 

 

$

1,613

 

Amortization of acquired in-place leases
   (component of "depreciation and amortization")

 

5,412

 

 

 

6,551

 

 

 

10,943

 

 

 

13,770

 

 

 

The following table sets forth amortization of acquired above and below-market leases, net and amortization of acquired in-place leases for the six-month period from July 1, 2022 through December 31, 2022, and each of the five succeeding years commencing from January 1, 2023.

 

(Amounts in thousands)
For the Year Ending December 31,

 

Above and
Below-Market
 Leases, Net

 

 

In-Place Leases

 

2022

 

$

673

 

 

$

10,702

 

2023

 

 

5,080

 

 

 

17,705

 

2024

 

 

6,020

 

 

 

14,248

 

2025

 

 

4,674

 

 

 

10,451

 

2026

 

 

2,801

 

 

 

7,896

 

2027

 

 

2,489

 

 

 

7,252

 

 

14


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

6.
Debt

 

 

The following table summarizes our consolidated outstanding debt.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate

 

 

 

 

 

 

Maturity

 

Fixed/

 

as of

 

 

As of

 

 

(Amounts in thousands)

Date

 

Variable Rate

 

June 30, 2022

 

 

June 30, 2022

 

 

December 31, 2021

 

 

Notes and mortgages payable:

 

 

 

 

 

 

 

 

 

 

 

 

1633 Broadway (1)

Dec-2029

 

Fixed

 

 

2.99

%

 

$

1,250,000

 

 

$

1,250,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Market Plaza (1)

Feb-2024

 

Fixed

 

 

4.03

%

 

 

975,000

 

 

 

975,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1301 Avenue of the Americas

 

 

 

 

 

 

 

 

 

 

 

 

 

Aug-2026

 

Fixed (2)

 

 

2.46

%

 

 

500,000

 

 

 

500,000

 

 

 

Aug-2026

 

L + 356 bps (3)

 

 

4.68

%

 

 

360,000

 

 

 

360,000

 

 

 

 

 

 

 

 

3.39

%

 

 

860,000

 

 

 

860,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 West 52nd Street

Jun-2026

 

Fixed

 

 

3.80

%

 

 

500,000

 

 

 

500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300 Mission Street (1)

Oct-2023

 

Fixed

 

 

3.65

%

 

 

273,000

 

 

 

273,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total notes and mortgages payable

 

 

3.49

%

 

 

3,858,000

 

 

 

3,858,000

 

 

Less: unamortized deferred financing costs

 

 

 

 

 

(20,032

)

 

 

(22,380

)

 

Total notes and mortgages payable, net

 

 

 

 

$

3,837,968

 

 

$

3,835,620

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$750 Million Revolving
   Credit Facility

Mar-2026

 

SOFR + 115 bps

 

n/a

 

 

$

-

 

 

$

-

 

 

 

 

(1)
Our ownership interests in 1633 Broadway, One Market Plaza and 300 Mission Street are 90.0%, 49.0% and 31.1%, respectively.
(2)
Represents variable rate loans that have been fixed by interest rate swaps through August 2024. See Note 7, Derivative Instruments and Hedging Activities.
(3)
Represents variable rate loans, where LIBOR has been capped at 2.00% through August 2023. See Note 7, Derivative Instruments and Hedging Activities.

 

 

15


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

7.
Derivative Instruments and Hedging Activities

 

 

We have entered into interest rate swap agreements with an aggregate notional amount of $500,000,000 to fix LIBOR at 0.46% through August 2024. We also entered into interest rate cap agreements with an aggregate notional amount of $360,000,000 to cap LIBOR at 2.00% through August 2023. These interest rate swaps and interest rate caps are designated as cash flow hedges and therefore changes in their fair values are recognized in other comprehensive income or loss (outside of earnings). We recognized other comprehensive income of $6,109,000 and $24,654,000 for the three and six months ended June 30, 2022, respectively, from the changes in fair value of these derivative financial instruments. See Note 9, Accumulated Other Comprehensive Income. During the next twelve months, we estimate that $17,227,000 of the amounts to be recognized in accumulated other comprehensive income will be reclassified as a decrease to interest expense.

 

The tables below provide additional details on our interest rate swaps and interest rate caps that are designated as cash flow hedges.

 

 

 

 

Notional

 

 

Effective

 

Maturity

 

Benchmark

 

Strike

 

 

Fair Value as of

 

Property

 

Amount

 

 

Date

 

Date

 

Rate

 

Rate

 

 

June 30, 2022

 

 

December 31, 2021

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   1301 Avenue of the Americas

 

$

500,000

 

 

Jul-2021

 

Aug-2024

 

LIBOR

 

 

0.46

%

 

$

26,820

 

 

$

6,691

 

Total interest rate swap assets designated as cash flow hedges (included in "other assets")

$

26,820

 

 

$

6,691

 

 

 

 

 

Notional

 

 

Effective

 

Maturity

 

Benchmark

 

Strike

 

 

Fair Value as of

 

Property

 

Amount

 

 

Date

 

Date

 

Rate

 

Rate

 

 

June 30, 2022

 

 

December 31, 2021

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   1301 Avenue of the Americas

 

$

360,000

 

 

Jul-2021

 

Aug-2023

 

LIBOR

 

 

2.00

%

 

$

4,826

 

 

$

306

 

Total interest rate cap assets designated as cash flow hedges (included in "other assets")

$

4,826

 

 

$

306

 

 

 

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 settle our derivative obligations for cash. As of June 30, 2022, we did not have any obligations relating to our interest rate swaps or interest rate caps that contained such provisions.

 

 

8.
Equity

 

 

Stock Repurchase Program

 

On November 5, 2019, 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. During 2020, we repurchased 13,813,158 common shares at a weighted average price of $8.69 per share, or $120,000,000 in the aggregate. As of June 30, 2022, we had $80,000,000 available for future repurchases under the existing program. Subsequent to June 30, 2022, we repurchased 268,231 common shares at a weighted average price of $6.96 per share, or $1,867,000 in the aggregate; accordingly, as of July 25, 2022, we have $78,133,000 available for future repurchases. 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, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.

 

16


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

9.
Accumulated Other Comprehensive Income

 

 

The following table sets forth changes in accumulated other comprehensive income by component for the three and six months ended June 30, 2022 and 2021, respectively, including amounts attributable to noncontrolling interests in the Operating Partnership.

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Amount of income related to the cash flow hedges recognized
   in other comprehensive income

 

$

6,479

 

(1)

$

-

 

 

$

24,652

 

(1)

$

-

 

Amounts reclassified from accumulated other comprehensive
   income (decreasing) increasing interest and debt expense

 

 

(370

)

(1)

 

-

 

 

 

2

 

(1)

 

-

 

Amount of income (loss) related to unconsolidated joint ventures
   recognized in other comprehensive income (loss)
(2)

 

 

2,401

 

 

 

(637

)

 

 

11,896

 

 

 

2,785

 

Amounts reclassified from accumulated other comprehensive
   income increasing loss from unconsolidated joint ventures
 (2)

 

 

548

 

 

 

1,002

 

 

 

1,506

 

 

 

1,964

 

 

(1)
Represents amounts related to interest rate swaps with an aggregate notional value of $500,000 and interest rate caps with an aggregate notional value of $360,000, which were designated as cash flow hedges.
(2)
Primarily represents amounts related to an interest rate swap with a notional value of $402,000, which was designated as a cash flow hedge.

 

 

10.
Noncontrolling Interests

 

 

Consolidated Joint Ventures

 

Noncontrolling interests in consolidated joint ventures consist of equity interests held by third parties in 1633 Broadway, One Market Plaza and 300 Mission Street. As of June 30, 2022 and December 31, 2021, noncontrolling interests in our consolidated joint ventures aggregated $412,189,000 and $428,833,000, respectively.

 

 

Consolidated Real Estate Fund

 

Noncontrolling interests in our consolidated real estate fund consists of equity interests held by third parties in our Residential Development Fund. As of June 30, 2022 and December 31, 2021, the noncontrolling interest in our consolidated real estate fund aggregated $80,557,000 and $81,925,000, 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 June 30, 2022 and December 31, 2021, noncontrolling interests in the Operating Partnership on our consolidated balance sheets had a carrying amount of $261,416,000 and $356,111,000, respectively, and a redemption value of $114,958,000 and $181,315,000, respectively, based on the closing share price of our common stock on the New York Stock Exchange at the end of each period.

 

 

17


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

11.
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 93.4% of, the Operating Partnership as of June 30, 2022. 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 June 30, 2022 and December 31, 2021, the Operating Partnership held interests in consolidated VIEs owning properties and a real estate fund 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)

 

June 30, 2022

 

 

December 31, 2021

 

Real estate, net

 

$

3,380,167

 

 

$

3,415,735

 

Cash and cash equivalents and restricted cash

 

 

167,173

 

 

 

198,154

 

Investments in unconsolidated joint ventures

 

 

80,870

 

 

 

76,428

 

Accounts and other receivables

 

 

8,830

 

 

 

6,801

 

Deferred rent receivable

 

 

195,704

 

 

 

197,794

 

Deferred charges, net

 

 

51,886

 

 

 

53,013

 

Intangible assets, net

 

 

56,543

 

 

 

62,380

 

Other assets

 

 

13,784

 

 

 

15,551

 

Total VIE assets

 

$

3,954,957

 

 

$

4,025,856

 

 

 

 

 

 

 

 

Notes and mortgages payable, net

 

$

2,488,886

 

 

$

2,487,871

 

Accounts payable and accrued expenses

 

 

50,172

 

 

 

54,738

 

Intangible liabilities, net

 

 

25,170

 

 

 

27,674

 

Other liabilities

 

 

5,707

 

 

 

6,427

 

Total VIE liabilities

 

$

2,569,935

 

 

$

2,576,710

 

 

 

Unconsolidated VIEs

 

As of June 30, 2022, 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)

 

June 30, 2022

 

 

December 31, 2021

 

 

Investments

 

$

14,156

 

 

$

11,421

 

 

Asset management fees and other receivables

 

 

2

 

 

 

9

 

 

Maximum risk of loss

 

$

14,158

 

 

$

11,430

 

 

 

18


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

12.
Fair Value Measurements

 

 

Financial Assets Measured at Fair Value

 

The following table summarizes the fair value of our financial assets that are measured at fair value on our consolidated balance sheets as of the dates set forth below, based on their levels in the fair value hierarchy.

 

 

As of June 30, 2022

 

(Amounts in thousands)

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Interest rate swap assets (included in "other assets")

$

26,820

 

 

$

-

 

 

$

26,820

 

 

$

-

 

Interest rate cap assets (included in "other assets")

 

4,826

 

 

 

-

 

 

 

4,826

 

 

 

-

 

Total assets

$

31,646

 

 

$

-

 

 

$

31,646

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2021

 

(Amounts in thousands)

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Interest rate swap assets (included in "other assets")

$

6,691

 

 

$

-

 

 

$

6,691

 

 

$

-

 

Interest rate cap assets (included in "other assets")

 

306

 

 

 

-

 

 

 

306

 

 

 

-

 

Total assets

$

6,997

 

 

$

-

 

 

$

6,997

 

 

$

-

 

 

 

Financial Liabilities Not Measured at Fair Value

 

Financial liabilities not measured at fair value on our consolidated balance sheets consist of 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 June 30, 2022

 

 

As of December 31, 2021

 

(Amounts in thousands)

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

Notes and mortgages payable

$

3,858,000

 

 

$

3,686,354

 

 

$

3,858,000

 

 

$

3,893,252

 

Revolving credit facility

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total liabilities

$

3,858,000

 

 

$

3,686,354

 

 

$

3,858,000

 

 

$

3,893,252

 

 

 

19


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

13.
Leases

 

 

We lease office, retail and storage space to tenants, primarily under non-cancellable operating leases which generally have terms 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. Rental revenue is recognized in accordance with ASC Topic 842, Leases, and includes (i) fixed payments of 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) variable payments of 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, (iii) amortization of acquired above and below-market leases, net and (iv) lease termination income.

 

The following table sets forth the details of our rental revenue.

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

(Amounts in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

 

Rental revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

$

163,545

 

 

$

159,641

 

 

$

318,322

 

 

$

320,270

 

 

Variable

 

13,698

 

 

 

14,987

 

(1)

 

28,843

 

 

 

27,504

 

(1)

Total rental revenue

$

177,243

 

 

$

174,628

 

 

$

347,165

 

 

$

347,774

 

 

 

 

(1)
Includes $5,051 of income in connection with a tenant’s lease termination at 300 Mission Street.

 

 

The following table is a schedule of future undiscounted cash flows under non-cancellable operating leases in effect as of June 30, 2022, for the six-month period from July 1, 2022 through December 31, 2022, and each of the five succeeding years and thereafter commencing January 1, 2023.

 

(Amounts in thousands)

 

 

2022

 

$

321,344

 

2023

 

 

630,105

 

2024

 

 

630,171

 

2025

 

 

575,286

 

2026

 

 

479,154

 

2027

 

 

414,169

 

Thereafter

 

 

2,025,747

 

Total

 

$

5,075,976

 

 

 

 

20


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

14.
Fee and Other Income

 

 

The following table sets forth the details of our fee and other income.

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

(Amounts in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management

$

3,087

 

 

$

3,409

 

 

$

5,972

 

 

$

6,895

 

 

Property management

 

 

2,103

 

 

 

2,085

 

 

 

4,322

 

 

 

4,281

 

 

Acquisition, disposition, leasing and other

 

784

 

 

 

707

 

 

 

7,668

 

 

 

1,695

 

 

Total fee income

 

5,974

 

 

 

6,201

 

 

 

17,962

 

 

 

12,871

 

 

Other income (1)

 

2,300

 

 

 

1,440

 

 

 

4,075

 

 

 

2,790

 

 

Total fee and other income

$

8,274

 

 

$

7,641

 

 

$

22,037

 

 

$

15,661

 

 

 

 

(1)
Primarily comprised of (i) tenant requested services, including cleaning, overtime heating and cooling and (ii) parking income.

 

 

15.
Interest and Other Income, net

 

 

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

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Interest income, net

 

$

796

 

 

$

397

 

 

$

1,027

 

 

$

787

 

Mark-to-market of investments in our
   deferred compensation plans
(1)

 

 

-

 

 

 

673

 

 

 

-

 

 

 

1,585

 

Total interest and other income, net

 

$

796

 

 

$

1,070

 

 

$

1,027

 

 

$

2,372

 

 

 

(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. In December 2021, the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants.

 

 

16.
Interest and Debt Expense

 

 

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

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Interest expense

 

$

34,039

 

 

$

32,593

 

 

$

66,778

 

 

$

65,013

 

Amortization of deferred financing costs

 

 

1,539

 

 

 

2,321

 

 

 

3,077

 

 

 

4,640

 

Total interest and debt expense

 

$

35,578

 

 

$

34,914

 

 

$

69,855

 

 

$

69,653

 

 

 

 

21


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

17.
Incentive Compensation

 

 

Stock-Based Compensation

 

Our Amended and Restated 2014 Equity Incentive Plan provides for grants of equity awards to our executive officers, non-employee directors and employees in order to attract and motivate talent for which we compete. In addition, equity awards are an effective management retention tool as they vest over multiple years based on continued employment. Equity awards are granted in the form of (i) restricted stock and (ii) long-term incentive plan (“LTIP”) units, which represent a class of partnership interests in our Operating Partnership and are typically comprised of performance-based LTIP units, time-based LTIP units and time-based appreciation only LTIP (“AOLTIP”) units. We account for all stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. We recognized stock-based compensation expense of $4,142,000 and $4,743,000 for the three months ended June 30, 2022 and 2021, respectively, and $10,704,000 and $10,229,000 for the six months ended June 30, 2022 and 2021, respectively, related to awards granted in prior periods, including the equity awards granted on January 13, 2022 (“2022 Equity Grants”) described below.

 

2022 Equity Grants

 

2022 Performance-Based Awards Program (“2022 Performance Program”)

 

On January 13, 2022, the Compensation Committee of our Board of Directors (the “Compensation Committee”) approved the 2022 Performance Program, a multi-year performance-based long-term incentive compensation program. Under the 2022 Performance Program, participants may earn awards in the form of LTIP units based on our achievement of rigorous Net Operating Income (“NOI”) goals over a three-year performance measurement period beginning on January 1, 2022 and continuing through December 31, 2024. The amount of LTIP units otherwise earned based on the achievement of the NOI goals would then be increased or decreased based on our Total Shareholder Return (“TSR”) versus that of our New York City office REIT peers (comprised of Vornado Realty Trust, SL Green Realty Corp. and Empire State Realty Trust) but the modifier will not result in a total payout exceeding 100% of the units granted. Additionally, if our TSR is negative over the three-year performance measurement period, then the number of LTIP units that are earned under the 2022 Performance Program will be reduced by 30.0% of the number of such awards that otherwise would have been earned. Furthermore, awards earned under the 2022 Performance Program are subject to vesting based on continued employment with us through December 31, 2025, with 50.0% of each award vesting upon the conclusion of the performance measurement period, and the remaining 50.0% vesting on December 31, 2025. Lastly, our Named Executive Officers are required to hold earned awards for an additional year following vesting. Awards granted under the 2022 Performance Program had a fair value of $7,188,000 on the date of the grant, which is being amortized into expense over the four-year vesting period using a graded vesting attribution method.

 

Time-Based Unit Awards Program (LTIP Units, AOLTIP Units and Restricted Stock)

 

On January 13, 2022, we also granted an aggregate of 626,942 LTIP units, 2,703,499 AOLTIP units and 120,243 shares of Restricted Stock to our executive officers and employees that will vest over a period of three to four years. The fair value of LTIP units, AOLTIP units and restricted stock on the date of grant were $5,313,000, $5,831,000, and $1,119,000, respectively, and these awards are being amortized into expense on a straight-line basis over the vesting period.

 

 

Completion of the 2019 Performance-Based Awards Program (“2019 Performance Program”)

 

On December 31, 2021, the performance measurement period for the 2019 Performance Program ended. On January 13, 2022, the Compensation Committee determined that the performance goals set forth in the 2019 Performance Program were not met. Accordingly, all of the LTIP units that were granted on January 14, 2019, were forfeited, with no awards being earned. These awards had a grant date fair value of $8,106,000 and a remaining unrecognized compensation cost of $475,000 as of June 30, 2022, which will be amortized over a weighted-average period of 0.5 years.

 

 

22


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

18.
Earnings Per Share

 

 

The following table summarizes our net (loss) income and the number of common shares used in the computation of basic and diluted (loss) 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

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands, except per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to common stockholders

 

$

(360

)

 

$

(15,943

)

 

$

3,011

 

 

$

(19,521

)

Earnings allocated to unvested participating securities

 

 

(22

)

 

 

(18

)

 

 

(43

)

 

 

(37

)

Numerator for (loss) income per common share -
   basic and diluted

 

 

(382

)

 

 

(15,961

)

 

 

2,968

 

 

 

(19,558

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic loss per common share -
   weighted average shares

 

 

222,972

 

 

 

218,696

 

 

 

220,889

 

 

 

218,681

 

Effect of dilutive stock-based compensation plans (1)

 

 

-

 

 

 

-

 

 

 

41

 

 

 

-

 

Denominator for diluted loss per common share -
   weighted average shares

 

 

222,972

 

 

 

218,696

 

 

 

220,930

 

 

 

218,681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income per common share - basic and diluted

 

$

(0.00

)

 

$

(0.07

)

 

$

0.01

 

 

$

(0.09

)

 

(1)
The effect of dilutive securities excludes 20,354 and 23,822 weighted average share equivalents for the three months ended June 30, 2022 and 2021, respectively, and 22,347 and 23,738 weighted average share equivalents for the six months ended June 30, 2022 and 2021, respectively, as their effect was anti-dilutive.

 

 

23


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

19.
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 $260,000 and $710,000 for the three months ended June 30, 2022 and 2021, respectively, and $749,000 and $1,227,000 for the six months ended June 30, 2022 and 2021, 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 June 30, 2022 and December 31, 2021, amounts owed to us under these agreements aggregated $46,000 and $484,000, respectively, which are included as a component of “accounts and other receivables” on our consolidated balance sheets.

 

We also provide asset management, property management, leasing and other related services to our unconsolidated joint ventures and real estate funds. We recognized fee income of $5,015,000 and $4,916,000 for the three months ended June 30, 2022 and 2021, respectively, and $15,798,000 and $10,502,000 for the six months ended June 30, 2022 and 2021, 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 June 30, 2022 and December 31, 2021, amounts owed to us under these agreements aggregated $2,846,000 and $2,883,000, respectively, which are included as a component of “accounts and other receivables” on our consolidated balance sheets.

 

 

Hamburg Trust Consulting HTC GmbH (“HTC”)

 

We have an agreement with HTC, a licensed broker in Germany, to supervise selling efforts for our joint ventures and 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 X. Pursuant to this agreement, we have agreed to pay HTC for the costs incurred plus a mark-up of 10%. HTC is 100% owned by Albert Behler, our Chairman, Chief Executive Officer and President. We incurred costs aggregating $124,000 and $123,000 for the three months ended June, 2022 and 2021, respectively, and $513,000 and $245,000 for the six months ended June 30, 2022 and 2021, respectively, in connection with this agreement. As of June 30, 2022 and December 31, 2021, we owed $124,000 and $523,000, 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. We recognized $91,000 in each of the three months ended June 30, 2022 and 2021, respectively, and $182,000 and $181,000 for the six months ended June 30, 2022 and 2021, respectively, for our share of rental income pursuant to this lease.

 

 

Due from Affiliates

 

During the six months ended June 30, 2022, Fund X borrowed $51,916,000 from us at an interest rate of Secured Overnight Financing Rate (“SOFR”) plus 220 basis points. On June 28, 2022, Fund X repaid the $51,916,000 loan, together with $385,000 of accrued interest.

 

24


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

20.
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.

 

 

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 agreements 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 June 30, 2022, we believe we are in compliance with all of our covenants.

 

 

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 $54,500,000. 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.

 

25


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

21.
Segments

 

 

Our reportable segments are separated by region, based on the two regions in which we conduct our business: New York and San Francisco. 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 June 30, 2022

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

 

$

179,543

 

 

$

116,300

 

 

$

64,042

 

 

$

(799

)

Property-related operating expenses

 

 

(67,814

)

 

 

(48,147

)

 

 

(18,581

)

 

 

(1,086

)

NOI from unconsolidated joint ventures
   (excluding One Steuart Lane)

 

 

11,585

 

 

 

3,528

 

 

 

7,971

 

 

 

86

 

NOI (1)

 

$

123,314

 

 

$

71,681

 

 

$

53,432

 

 

$

(1,799

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2021

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

 

$

176,068

 

 

$

108,191

 

 

$

68,674

 

 

$

(797

)

Property-related operating expenses

 

 

(64,072

)

 

 

(45,801

)

 

 

(17,067

)

 

 

(1,204

)

NOI from unconsolidated joint ventures

 

 

10,557

 

 

 

2,749

 

 

 

7,852

 

 

 

(44

)

NOI (1)

 

$

122,553

 

 

$

65,139

 

 

$

59,459

 

 

$

(2,045

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2022

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

 

$

351,240

 

 

$

231,705

 

 

$

121,131

 

 

$

(1,596

)

Property-related operating expenses

 

 

(134,475

)

 

 

(96,358

)

 

 

(35,873

)

 

 

(2,244

)

NOI from unconsolidated joint ventures
   (excluding One Steuart Lane)

 

 

22,819

 

 

 

6,346

 

 

 

16,325

 

 

 

148

 

NOI (1)

 

$

239,584

 

 

$

141,693

 

 

$

101,583

 

 

$

(3,692

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2021

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

 

$

350,564

 

 

$

220,028

 

 

$

132,146

 

 

$

(1,610

)

Property-related operating expenses

 

 

(130,690

)

 

 

(94,825

)

 

 

(34,005

)

 

 

(1,860

)

NOI from unconsolidated joint ventures

 

 

20,883

 

 

 

5,570

 

 

 

15,389

 

 

 

(76

)

NOI (1)

 

$

240,757

 

 

$

130,773

 

 

$

113,530

 

 

$

(3,546

)

 

 

(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.

 

26


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

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

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

NOI

$

123,314

 

 

$

122,553

 

 

$

239,584

 

 

$

240,757

 

Add (subtract) adjustments to arrive to net income:

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

5,974

 

 

 

6,201

 

 

 

17,962

 

 

 

12,871

 

Depreciation and amortization expense

 

(57,398

)

 

 

(59,925

)

 

 

(113,022

)

 

 

(118,230

)

General and administrative expenses

 

(16,706

)

 

 

(18,418

)

 

 

(32,351

)

 

 

(32,782

)

NOI from unconsolidated joint ventures (excluding
   One Steuart Lane)

 

(11,585

)

 

 

(10,557

)

 

 

(22,819

)

 

 

(20,883

)

Loss from unconsolidated joint ventures

 

(4,416

)

 

 

(15,717

)

 

 

(9,529

)

 

 

(21,033

)

Interest and other income, net

 

796

 

 

 

1,070

 

 

 

1,027

 

 

 

2,372

 

Interest and debt expense

 

(35,578

)

 

 

(34,914

)

 

 

(69,855

)

 

 

(69,653

)

Other, net

 

(4

)

 

 

13

 

 

 

49

 

 

 

(88

)

Net income (loss) before income taxes

 

4,397

 

 

 

(9,694

)

 

 

11,046

 

 

 

(6,669

)

Income tax expense

 

(359

)

 

 

(434

)

 

 

(886

)

 

 

(1,575

)

Net income (loss)

 

4,038

 

 

 

(10,128

)

 

 

10,160

 

 

 

(8,244

)

Less: net (income) loss attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(4,779

)

 

 

(7,428

)

 

 

(8,204

)

 

 

(13,156

)

Consolidated real estate fund

 

352

 

 

 

29

 

 

 

1,368

 

 

 

(56

)

Operating Partnership

 

29

 

 

 

1,584

 

 

 

(313

)

 

 

1,935

 

Net (loss) income attributable to common stockholders

$

(360

)

 

$

(15,943

)

 

$

3,011

 

 

$

(19,521

)

 

 

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

 

 

Other

 

June 30, 2022

 

$

8,482,229

 

 

$

5,315,584

 

 

$

2,676,453

 

 

$

490,192

 

December 31, 2021

 

 

8,494,562

 

 

 

5,336,210

 

 

 

2,696,131

 

 

 

462,221

 

 

 

27


 

 

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:

 

the negative impact of the coronavirus 2019 (“COVID-19”) global pandemic on the U.S., regional and global economies and our tenants’ financial condition and results of operations;
unfavorable market and economic conditions in the United States, including New York City and San Francisco, and globally, including as a result of rising inflation and interest rates;
risks associated with high concentrations of our properties in New York City and San Francisco;
risks associated with ownership of real estate;
decreased rental rates or increased vacancy rates;
the risk we may lose a major tenant;
trends in the office real estate industry including telecommuting, flexible work schedules, open workplaces and teleconferencing;
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;

28


 

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, 2021, including those set forth in Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

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, 2021.

 

 

Critical Accounting Estimates

 

There are no material changes to our critical accounting estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

 

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.

 

 

29


 

 

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 and San Francisco. 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 93.4% of, the Operating Partnership as of June 30, 2022.

 

As of June 30, 2022, we own and/or manage a portfolio aggregating 14.0 million square feet comprised of:

Eight wholly and partially owned properties aggregating 8.7 million square feet in New York, comprised of 8.2 million square feet of office space and 0.5 million square feet of retail, theater and amenity space;
Six wholly and partially owned properties aggregating 4.3 million square feet in San Francisco, comprised of 4.1 million square feet of office space and 0.2 million square feet of retail space; and
Six managed properties aggregating 1.0 million square feet in New York and Washington, D.C.

Additionally, we have an investment management business, where we serve as the general partner of real estate funds for institutional investors and high net-worth individuals.

 

 

Acquisitions

 

On February 24, 2022, a joint venture, in which we own a 9.2% interest, acquired a 26,000 square foot retail condominium at 1600 Broadway in Manhattan for $191,500,000. In connection with the acquisition, the joint venture obtained a 10-year, $98,000,000 interest-only loan that has a fixed rate of 3.45%. The property, which is located in the heart of Times Square, is 100% leased to Mars, Inc. for a 15-year term and serves as the New York flagship location for M&M’s World.

 

 

Stock Repurchase Program

 

On November 5, 2019, 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. During 2020, we repurchased 13,813,158 common shares at a weighted average price of $8.69 per share, or $120,000,000 in the aggregate. As of June 30, 2022, we had $80,000,000 available for future repurchases under the existing program. Subsequent to June 30, 2022, we repurchased 268,231 common shares at a weighted average price of $6.96 per share, or $1,867,000 in the aggregate, accordingly, as of July 25, 2022, we have $78,133,000 available for future repurchases. 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, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.

 

30


 

 

Leasing Results - Three Months Ended June 30, 2022

 

 

In the three months ended June 30, 2022, we leased 250,231 square feet, of which our share was 188,175 that was leased at a weighted average initial rent of $78.28 per square foot. This leasing activity, partially offset by lease expirations in the three months, increased leased occupancy by 80 basis points to 91.4% at June 30, 2022 from 90.6% at March 31, 2022. Same store leased occupancy (properties owned by us in a similar manner during both reporting periods), increased by 90 basis points to 91.4% at June 30, 2022 from 90.5% at March 31, 2022. Of the 188,175 square feet leased, 96,052 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 5.3% on a cash basis and increased by 0.5% on a GAAP basis. The weighted average lease term for leases signed during the three months was 9.0 years and weighted average tenant improvements and leasing commissions on these leases were $10.43 per square foot per annum, or 13.3% of initial rent.

 

 

New York

 

In the three months ended June 30, 2022, we leased 152,970 square feet in our New York portfolio, of which our share was 141,575 square feet that was leased at a weighted average initial rent of $69.48 per square foot. This leasing activity, partially offset by lease expirations in the three months, increased leased occupancy by 120 basis points to 92.0% at June 30, 2022 from 90.8% at March 31, 2022. Same store leased occupancy increased by 130 basis points to 92.0% at June 30, 2022 from 90.7% at March 31, 2022. Of the 141,575 square feet leased, 63,280 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 9.6% on a cash basis and 9.1% on a GAAP basis. The weighted average lease term for leases signed during the three months was 9.3 years and weighted average tenant improvements and leasing commissions on these leases were $10.43 per square foot per annum, or 15.0% of initial rent.

 

 

San Francisco

 

In the three months ended June 30, 2022, we leased 97,261 square feet in our San Francisco portfolio, of which our share was 46,600 square feet that was leased at a weighted average initial rent of $105.02 per square foot. This leasing activity, offset by lease expirations in the three months, decreased leased occupancy and same store leased occupancy by 30 basis points to 89.8% at June 30, 2022 from 90.1% at March 31, 2022. Of the 46,600 square feet leased in the three months, 32,772 square feet represented our share of second generation space for which we achieved rental rate increases of 0.2% on a cash basis and 13.1% on a GAAP basis. The weighted average lease term for leases signed during the three months was 7.9 years and weighted average tenant improvements and leasing commissions on these leases were $10.44 per square foot per annum, or 9.9% of initial rent.

 

 

 

31


 

 

 

The following table presents additional details on the leases signed during the three months ended June 30, 2022. 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 June 30, 2022

Total

 

 

New York

 

 

San Francisco

 

 

 

Total square feet leased

 

250,231

 

 

 

152,970

 

 

 

97,261

 

 

 

Pro rata share of total square feet leased:

 

188,175

 

 

 

141,575

 

 

 

46,600

 

 

 

 

Initial rent (1)

$

78.28

 

 

$

69.48

 

 

$

105.02

 

 

 

 

Weighted average lease term (in years)

 

9.0

 

 

 

9.3

 

 

 

7.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

Per square foot

$

93.63

 

 

$

97.15

 

 

$

82.94

 

 

 

 

 

Per square foot per annum

$

10.43

 

 

$

10.43

 

 

$

10.44

 

 

 

 

 

Percentage of initial rent

 

13.3

%

 

 

15.0

%

 

 

9.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent concessions:

 

 

 

 

 

 

 

 

 

 

 

Average free rent period (in months)

 

9.6

 

 

 

10.7

 

 

 

6.1

 

 

 

 

 

Average free rent period per annum (in months)

 

1.1

 

 

 

1.1

 

 

 

0.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second generation space: (2)

 

 

 

 

 

 

 

 

 

 

Square feet

 

96,052

 

 

 

63,280

 

 

 

32,772

 

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent (1)

$

81.80

 

 

$

66.63

 

 

$

111.07

 

 

 

 

 

Prior escalated rent (3)

$

86.37

 

 

$

73.71

 

 

$

110.82

 

 

 

 

 

Percentage (decrease) increase

 

(5.3

%)

 

 

(9.6

%)

 

 

0.2

%

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent

$

81.34

 

 

$

63.62

 

 

$

115.54

 

 

 

 

 

Prior straight-line rent

$

80.96

 

 

$

69.96

 

 

$

102.20

 

 

 

 

 

Percentage increase (decrease)

 

0.5

%

 

 

(9.1

%)

 

 

13.1

%

 

 

 

(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.

 

 

The following table presents same store leased occupancy as of the dates set forth below.

 

 

Same Store Leased Occupancy (1)

Total

 

 

New York

 

 

San Francisco

 

 

As of June 30, 2022

 

91.4

%

 

 

92.0

%

 

 

89.8

%

 

As of March 31, 2022

 

90.5

%

 

 

90.7

%

 

 

90.1

%

 

 

(1)
Represents percentage of square feet that is leased, including signed leases not yet commenced, for properties that were owned by us in a similar manner during both the current and prior reporting periods.

 

 

32


 

 

Leasing Results - Six Months Ended June 30, 2022

 

 

In the six months ended June 30, 2022, we leased 453,051 square feet, of which our share was 340,377 that was leased at a weighted average initial rent of $73.54 per square foot. This leasing activity, partially offset by lease expirations in the six months, increased leased occupancy by 70 basis points to 91.4% at June 30, 2022 from 90.7% at December 31, 2021. Same store leased occupancy (properties owned by us in a similar manner during both reporting periods), increased by 80 basis points to 91.4% at June 30, 2022 from 90.6% at December 31, 2021. Of the 340,377 square feet leased, 237,321 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 2.5% on a cash basis and were in-line with prior rent on a GAAP basis. The weighted average lease term for leases signed during the six months was 8.5 years and weighted average tenant improvements and leasing commissions on these leases were $9.59 per square foot per annum, or 13.0% of initial rent.

 

 

New York

 

In the six months ended June 30, 2022, we leased 328,494 square feet in our New York portfolio, of which our share was 275,679 square feet that was leased at a weighted average initial rent of $66.50 per square foot. This leasing activity, partially offset by lease expirations in the six months, increased leased occupancy by 160 basis points to 92.0% at June 30, 2022 from 90.4% at December 31, 2021. Same store leased occupancy increased by 170 basis points to 92.0% at June 30, 2022 from 90.3% at December 31, 2021. Of the 275,679 square feet leased, 189,405 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 4.3% on a cash basis and 6.1% on a GAAP basis. The weighted average lease term for leases signed during the six months was 8.8 years and weighted average tenant improvements and leasing commissions on these leases were $9.66 per square foot per annum, or 14.5% of initial rent.

 

 

San Francisco

 

In the six months ended June 30, 2022, we leased 124,557 square feet in our San Francisco portfolio, of which our share was 64,698 square feet that was leased at a weighted average initial rent of $103.53 per square foot. This leasing activity, offset by lease expirations in the six months, decreased leased occupancy and same store leased occupancy by 180 basis points to 89.8% at June 30, 2022 from 91.6% at December 31, 2021. Of the 64,698 square feet leased in the six months, 47,916 square feet represented our share of second generation space for which we achieved rental rate increases of 2.0% on a cash basis and 16.3% on a GAAP basis. The weighted average lease term for leases signed during the six months was 7.0 years and weighted average tenant improvements and leasing commissions on these leases were $9.24 per square foot per annum, or 8.9% of initial rent.

 

 

33


 

 

The following table presents additional details on the leases signed during the six months ended June 30, 2022. 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.

 

 

Six Months Ended June 30, 2022

Total

 

 

New York

 

 

San Francisco

 

 

Total square feet leased

 

453,051

 

 

 

328,494

 

 

 

124,557

 

 

Pro rata share of total square feet leased:

 

340,377

 

 

 

275,679

 

 

 

64,698

 

 

 

Initial rent (1)

$

73.54

 

 

$

66.50

 

 

$

103.53

 

 

 

Weighted average lease term (in years)

 

8.5

 

 

 

8.8

 

 

 

7.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

Per square foot

$

81.20

 

 

$

85.04

 

 

$

64.84

 

 

 

 

Per square foot per annum

$

9.59

 

 

$

9.66

 

 

$

9.24

 

 

 

 

Percentage of initial rent

 

13.0

%

 

 

14.5

%

 

 

8.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent concessions:

 

 

 

 

 

 

 

 

 

 

Average free rent period (in months)

 

9.1

 

 

 

10.1

 

 

 

4.8

 

 

 

 

Average free rent period per annum (in months)

 

1.1

 

 

 

1.1

 

 

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second generation space: (2)

 

 

 

 

 

 

 

 

 

Square feet

 

237,321

 

 

 

189,405

 

 

 

47,916

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

Initial rent (1)

$

72.43

 

 

$

63.37

 

 

$

108.25

 

 

 

 

Prior escalated rent (3)

$

74.27

 

 

$

66.20

 

 

$

106.15

 

 

 

 

Percentage (decrease) increase

 

(2.5

%)

 

 

(4.3

%)

 

 

2.0

%

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent

$

71.28

 

 

$

61.07

 

 

$

111.64

 

 

 

 

Prior straight-line rent

$

71.31

 

 

$

65.06

 

 

$

96.02

 

 

 

 

Percentage (decrease) increase

 

(0.0

%)

 

 

(6.1

%)

 

 

16.3

%

 

 

(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.

 

 

The following table presents same store leased occupancy as of the dates set forth below.

 

Same Store Leased Occupancy (1)

Total

 

 

New York

 

 

San Francisco

 

 

As of June 30, 2022

 

91.4

%

 

 

92.0

%

 

 

89.8

%

 

As of December 31, 2021

 

90.6

%

 

 

90.3

%

 

 

91.6

%

 

 

(1)
Represents percentage of square feet that is leased, including signed leases not yet commenced, for properties that were owned by us in a similar manner during both the current and prior reporting periods.

 

 

 

34


 

 

Financial Results - Three Months Ended June 30, 2022 and 2021

 

 

Net Income, FFO and Core FFO

 

Net loss attributable to common stockholders was $360,000, or $0.00 per diluted share, for the three months ended June 30, 2022, compared to $15,943,000, or $0.07 per diluted share, for the three months ended June 30, 2021. Net loss attributable to common stockholders for the three months ended June 30, 2021 includes a $10,688,000 contribution to an unconsolidated joint venture that was expensed in accordance with GAAP.

 

Funds from Operations (“FFO”) attributable to common stockholders was $53,322,000, or $0.24 per diluted share, for the three months ended June 30, 2022, compared to $37,943,000, or $0.17 per diluted share, for the three months ended June 30, 2021. FFO attributable to common stockholders for the three months ended June 30, 2021 includes a $10,688,000 contribution to an unconsolidated joint venture that was expensed in accordance with GAAP. FFO attributable to common stockholders for the three months ended June 30, 2022 and 2021 also includes the impact of other non-core items, which are listed in the table on page 58. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the three months ended June 30, 2022 and 2021 by $311,000 and $9,665,000, respectively, or $0.00 and $0.05 per diluted share, respectively.

 

Core Funds from Operations (“Core FFO”) attributable to common stockholders, which excludes the impact of the non-core items listed on page 58, was $53,633,000, or $0.24 per diluted share, for the three months ended June 30, 2022, compared to $47,608,000, or $0.22 per diluted share, for the three months ended June 30, 2021.

 

 

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 June 30, 2022 versus June 30, 2021.

 

 

 

 

Total

 

 

New York

 

 

San Francisco

 

Same Store NOI

 

 

9.0

%

 

 

11.6

%

 

 

4.1

%

Same Store Cash NOI

 

 

5.6

%

 

 

9.2

%

 

 

(2.0

%)

 

See pages 50-58 “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.

 

 

35


 

Financial Results - Six Months Ended June 30, 2022 and 2021

 

 

Net Income, FFO and Core FFO

 

Net income attributable to common stockholders was $3,011,000, or $0.01 per diluted share, for the six months ended June 30, 2022, compared to net loss attributable to common stockholders of $19,521,000, or $0.09 per diluted share, for the six months ended June 30, 2021. Net loss attributable to common stockholders for the six months ended June 30, 2021 includes a $10,688,000 contribution to an unconsolidated joint venture that was expensed in accordance with GAAP.

 

FFO attributable to common stockholders was $108,195,000, or $0.49 per diluted share, for the six months ended June 30, 2022, compared to $88,817,000, or $0.40 per diluted share, for the six months ended June 30, 2021. FFO attributable to common stockholders for the six months ended June 30, 2021 includes a $10,688,000 contribution to an unconsolidated joint venture that was expensed in accordance with GAAP. FFO attributable to common stockholders for the six months ended June 30, 2022 and 2021 also includes the impact of other non-core items, which are listed in the table on page 58. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the six months ended June 30, 2022 and 2021 by $16,000 and $9,363,000, respectively, or $0.00 and $0.05 per diluted share, respectively.

 

Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 58, was $108,211,000, or $0.49 per diluted share, for the six months ended June 30, 2022, compared to $98,180,000, or $0.45 per diluted share, for the six months ended June 30, 2021.

 

 

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 six months ended June 30, 2022 versus June 30, 2021.

 

 

 

 

Total

 

 

New York

 

 

San Francisco

 

Same Store NOI

 

 

3.0

%

 

 

7.3

%

 

 

(4.8

%)

Same Store Cash NOI

 

 

4.7

%

 

 

7.9

%

 

 

(1.8

%)

 

See pages 50-58 “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.

 

 

36


 

 

Results of Operations - Three Months Ended June 30, 2022 and 2021

 

 

The following pages summarize our consolidated results of operations for the three months ended June 30, 2022 and 2021.

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

 

 

(Amounts in thousands)

2022

 

 

2021

 

 

Change

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental revenue

$

177,243

 

 

$

174,628

 

 

$

2,615

 

 

Fee and other income

 

8,274

 

 

 

7,641

 

 

 

633

 

 

 

Total revenues

 

185,517

 

 

 

182,269

 

 

 

3,248

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating

 

67,814

 

 

 

64,072

 

 

 

3,742

 

 

Depreciation and amortization

 

57,398

 

 

 

59,925

 

 

 

(2,527

)

 

General and administrative

 

16,706

 

 

 

18,418

 

 

 

(1,712

)

 

Transaction related costs

 

159

 

 

 

135

 

 

 

24

 

 

 

Total expenses

 

142,077

 

 

 

142,550

 

 

 

(473

)

Other income (expense):

 

 

 

 

 

 

 

 

 

Loss from unconsolidated joint ventures

 

(4,416

)

 

 

(15,717

)

 

 

11,301

 

 

Income from unconsolidated real estate funds

 

155

 

 

 

148

 

 

 

7

 

 

Interest and other income, net

 

796

 

 

 

1,070

 

 

 

(274

)

 

Interest and debt expense

 

(35,578

)

 

 

(34,914

)

 

 

(664

)

Net income (loss) before income taxes

 

4,397

 

 

 

(9,694

)

 

 

14,091

 

 

Income tax expense

 

(359

)

 

 

(434

)

 

 

75

 

Net income (loss)

 

4,038

 

 

 

(10,128

)

 

 

14,166

 

Less net (income) loss attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(4,779

)

 

 

(7,428

)

 

 

2,649

 

 

Consolidated real estate fund

 

352

 

 

 

29

 

 

 

323

 

 

Operating Partnership

 

29

 

 

 

1,584

 

 

 

(1,555

)

Net loss attributable to common stockholders

$

(360

)

 

$

(15,943

)

 

$

15,583

 

 

37


 

 

Revenues

 

Our revenues, which consist of rental revenue and fee and other income, were $185,517,000 for the three months ended June 30, 2022, compared to $182,269,000 for the three months ended June 30, 2021, an increase of $3,248,000. Below are the details of the increase (decrease) by segment.

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Rental revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

7,650

 

 

$

8,177

 

 (1)

$

(527

)

 

$

-

 

 

Other, net

 

 

(5,035

)

 

 

(471

)

 

 

(4,564

)

 (2)

 

-

 

 

Increase (decrease) in rental revenue

 

$

2,615

 

 

$

7,706

 

 

$

(5,091

)

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management

 

$

(322

)

 

$

-

 

 

$

-

 

 

$

(322

)

 

Property management

 

 

18

 

 

 

-

 

 

 

-

 

 

 

18

 

 

Acquisition, disposition, leasing and other

 

 

77

 

 

 

-

 

 

 

-

 

 

 

77

 

 

Decrease in fee income

 

 

(227

)

 

 

-

 

 

 

-

 

 

 

(227

)

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

 

860

 

 

 

403

 

 

 

459

 

 

 

(2

)

 

Increase (decrease) in other income

 

 

860

 

 

 

403

 

 

 

459

 

 

 

(2

)

 

Increase (decrease) in fee and other income

 

$

633

 

 

$

403

 

 

$

459

 

 

$

(229

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

3,248

 

 

$

8,109

 

 

$

(4,632

)

 

$

(229

)

 

 

 

(1)
Primarily due to higher occupancy at 1301 Avenue of the Americas in the current year.
(2)
Primarily due to income of $5,051 in the prior year’s six months, in connection with a tenant’s lease termination at 300 Mission Street.

 

 

38


 

 

Expenses

 

Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $142,077,000 for the three months ended June 30, 2022, compared to $142,550,000 for the three months ended June 30, 2021, a decrease of $473,000. Below are the details of the (decrease) increase by segment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Operating

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

3,859

 

 

$

2,346

 

 

$

1,513

 

 

$

-

 

 

Other, net

 

 

(117

)

 

 

-

 

 

 

-

 

 

 

(117

)

 

Increase (decrease) in operating

 

$

3,742

 

 

$

2,346

 

 

$

1,513

 

 

$

(117

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

$

(2,527

)

 

$

382

 

 

$

(2,861

)

(1)

$

(48

)

 

(Decrease) increase in depreciation and amortization

 

$

(2,527

)

 

$

382

 

 

$

(2,861

)

 

$

(48

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of investments

 

 

 

 

 

 

 

 

 

 

 

 

 

in our deferred compensation plan

 

$

(673

)

 

$

-

 

 

$

-

 

 

$

(673

)

(2)

Operations

 

 

(1,039

)

 

 

-

 

 

 

-

 

 

 

(1,039

)

 

Decrease in general and administrative

 

$

(1,712

)

 

$

-

 

 

$

-

 

 

$

(1,712

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in transaction related costs

 

$

24

 

 

$

-

 

 

$

-

 

 

$

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total (decrease) increase in expenses

 

$

(473

)

 

$

2,728

 

 

$

(1,348

)

 

$

(1,853

)

 

 

 

(1)
Primarily due to accelerated depreciation of tenant improvements in the prior year’s three months resulting from a tenant’s lease termination at 300 Mission Street.
(2)
Represents the mark-to-market of investments in our deferred compensation plan liabilities in the prior year’s three months, which is entirely offset by the change in deferred compensation plan assets that is included in “interest and other income, net” for the same period. In December 2021, the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants.

 

 

 

 

39


 

 

Loss from Unconsolidated Joint Ventures

 

Loss from unconsolidated joint ventures was $4,416,000 for the three months ended June 30, 2022, compared to $15,717,000 in the three months ended June 30, 2021, a decrease in loss of $11,301,000. This decrease resulted from:

 

(Amounts in thousands)

 

 

 

 

712 Fifth Avenue

 

$

11,128

 

(1)

Other, net

 

 

173

 

 

Total decrease in loss

 

$

11,301

 

 

 

 

(1)
Primarily due to an $11,750 contribution in the prior year’s three months to the joint venture that owns 712 Fifth Avenue that was expensed in accordance with GAAP. See Note 3, Investments in Unconsolidated Joint Ventures.

 

 

Income from Unconsolidated Real Estate Funds

 

Income from unconsolidated real estate funds was $155,000 for the three months ended June 30, 2022, compared to $148,000 for the three months ended June 30, 2021, an increase in income of $7,000.

 

 

Interest and Other Income, net

 

Interest and other income was $796,000 for the three months ended June 30, 2022, compared to $1,070,000 for the three months ended June 30, 2021, a decrease in income of $274,000. This decrease resulted from:

 

(Amounts in thousands)

 

 

 

 

Mark-to-market of investments in our deferred compensation plan in 2021 (1)

 

$

(673

)

 

Other, net (primarily higher yields on short-term investments)

 

 

399

 

 

Total decrease in income

 

$

(274

)

 

 

 

(1)
Represents the mark-to-market of investments in our deferred compensation plan assets in the prior year’s three months, which is entirely offset by the change in deferred compensation plan liabilities that is included in “general and administrative” expenses for the same period. In December 2021, the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants.

 

 

Interest and Debt Expense

 

Interest and debt expense was $35,578,000 for the three months ended June 30, 2022, compared to $34,914,000 for the three months ended June 30, 2021, an increase of $664,000. This increase resulted primarily from higher interest on variable rate debt due to an increase in average LIBOR rates in the current year's three months compared to prior year's three months, partially offset by lower amortization of deferred financing costs in connection with the refinancing of 1301 Avenue of the Americas in July 2021.

 

 

Income Tax Expense

 

Income tax expense was $359,000 for the three months ended June 30, 2022, compared to $434,000 for the three months ended June 30, 2021, a decrease of $75,000.

 

 

40


 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures

 

Net income attributable to noncontrolling interests in consolidated joint ventures was $4,779,000 for the three months ended June 30, 2022, compared to $7,428,000 for the three months ended June 30, 2021, a decrease in income allocated to noncontrolling interests of $2,649,000. This decrease in income resulted from:

 

(Amounts in thousands)

 

 

 

 

Lower income attributable to 300 Mission Street ($1,096 of income in 2022,
   compared to $4,345 in 2021)

 

$

(3,249

)

(1)

Other, net

 

 

600

 

 

Total decrease in income attributable to noncontrolling interests

 

$

(2,649

)

 

 

 

(1)
Primarily due to a decrease in occupancy in the current year's three months and lease termination income in the prior year's three months.

 

 

Net Loss Attributable to Noncontrolling Interests in Consolidated Real Estate Fund

 

Net loss attributable to noncontrolling interests in consolidated real estate fund was $352,000 for the three months ended June 30, 2022, compared to $29,000 for the three months ended June 30, 2021, an increase in loss allocated to noncontrolling interest of $323,000. This increase resulted primarily from a lower loss in the prior year’s three months due to the capitalization of expenses at One Steuart Lane (which was under development last year), partially offset by gains on sale of residential condominium units at One Steuart Lane in the current year’s three months.

 

 

Net Loss Attributable to Noncontrolling Interests in Operating Partnership

 

Net loss attributable to noncontrolling interests in the Operating Partnership was $29,000 for the three months ended June 30, 2022, compared to net loss attributable to noncontrolling interests of $1,584,000 for the three months ended June 30, 2021, a decrease in loss allocated to noncontrolling interests of $1,555,000. This decrease in loss resulted from lower net loss subject to allocation to the unitholders of the Operating Partnership for the three months ended June 30, 2022.

 

 

41


 

 

Results of Operations - Six Months Ended June 30, 2022 and 2021

 

 

The following pages summarize our consolidated results of operations for the six months ended June 30, 2022 and 2021.

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

 

 

 

(Amounts in thousands)

2022

 

 

2021

 

 

Change

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental revenue

$

347,165

 

 

$

347,774

 

 

$

(609

)

 

Fee and other income

 

22,037

 

 

 

15,661

 

 

 

6,376

 

 

 

Total revenues

 

369,202

 

 

 

363,435

 

 

 

5,767

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating

 

134,475

 

 

 

130,690

 

 

 

3,785

 

 

Depreciation and amortization

 

113,022

 

 

 

118,230

 

 

 

(5,208

)

 

General and administrative

 

32,351

 

 

 

32,782

 

 

 

(431

)

 

Transaction related costs

 

276

 

 

 

416

 

 

 

(140

)

 

 

Total expenses

 

280,124

 

 

 

282,118

 

 

 

(1,994

)

Other income (expense):

 

 

 

 

 

 

 

 

 

Loss from unconsolidated joint ventures

 

(9,529

)

 

 

(21,033

)

 

 

11,504

 

 

Income from unconsolidated real estate funds

 

325

 

 

 

328

 

 

 

(3

)

 

Interest and other income, net

 

1,027

 

 

 

2,372

 

 

 

(1,345

)

 

Interest and debt expense

 

(69,855

)

 

 

(69,653

)

 

 

(202

)

Income (loss) from continuing operations, before income taxes

 

11,046

 

 

 

(6,669

)

 

 

17,715

 

 

Income tax expense

 

(886

)

 

 

(1,575

)

 

 

689

 

Net income (loss)

 

10,160

 

 

 

(8,244

)

 

 

18,404

 

Less net (income) loss attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(8,204

)

 

 

(13,156

)

 

 

4,952

 

 

Consolidated real estate fund

 

1,368

 

 

 

(56

)

 

 

1,424

 

 

Operating Partnership

 

(313

)

 

 

1,935

 

 

 

(2,248

)

Net income (loss) attributable to common stockholders

$

3,011

 

 

$

(19,521

)

 

$

22,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42


 

 

Revenues

 

Our revenues, which consist of rental revenue and fee and other income, were $369,202,000 for the six months ended June 30, 2022, compared to $363,435,000 for the six months ended June 30, 2021, an increase of $5,767,000. Below are the details of the increase (decrease) by segment.

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Rental revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

1,737

 

 

$

9,214

 

(1)

$

(7,477

)

(2)

$

-

 

 

Other, net

 

 

(2,346

)

 

 

1,840

 

 

 

(4,191

)

(3)

 

5

 

 

(Decrease) increase in rental revenue

 

$

(609

)

 

$

11,054

 

 

$

(11,668

)

 

$

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management

 

$

(923

)

 

$

-

 

 

$

-

 

 

$

(923

)

 

Property management

 

 

41

 

 

 

-

 

 

 

-

 

 

 

41

 

 

Acquisition, disposition, leasing and other

 

 

5,973

 

 

 

-

 

 

 

-

 

 

 

5,973

 

(4)

Increase in fee income

 

 

5,091

 

 

 

-

 

 

 

-

 

 

 

5,091

 

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

 

1,285

 

 

 

623

 

 

 

653

 

 

 

9

 

 

Increase in other income

 

 

1,285

 

 

 

623

 

 

 

653

 

 

 

9

 

 

Increase in fee and other income

 

$

6,376

 

 

$

623

 

 

$

653

 

 

$

5,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

5,767

 

 

$

11,677

 

 

$

(11,015

)

 

$

5,105

 

 

 

 

(1)
Primarily due to higher occupancy at 1301 Avenue of the Americas in the current year.
(2)
Primarily due to lower occupancy at One Market Plaza, One Front Street and 300 Mission Street in the current year.
(3)
Primarily due to income of $5,051 in the prior year’s six months, in connection with a tenant’s lease termination at 300 Mission Street.
(4)
Primarily due to fee income earned in connection with the acquisition of 1600 Broadway in February 2022.

 

 

43


 

 

Expenses

 

Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $280,124,000 for the six months ended June 30, 2022, compared to $282,118,000 for the six months ended June 30, 2021, a decrease of $1,994,000. Below are the details of the (decrease) increase by segment.

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Operating

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

3,400

 

 

$

1,533

 

 

$

1,867

 

 

$

-

 

 

Other, net

 

 

385

 

 

 

-

 

 

 

-

 

 

 

385

 

 

Increase in operating

 

$

3,785

 

 

$

1,533

 

 

$

1,867

 

 

$

385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

$

(5,208

)

 

$

(1,289

)

 

$

(3,848

)

(1)

$

(71

)

 

Decrease in depreciation
   and amortization

 

$

(5,208

)

 

$

(1,289

)

 

$

(3,848

)

 

$

(71

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of investments

 

 

 

 

 

 

 

 

 

 

 

 

 

in our deferred compensation plan

 

$

(1,585

)

 

$

-

 

 

$

-

 

 

$

(1,585

)

(2)

Operations

 

 

1,154

 

 

 

-

 

 

 

-

 

 

 

1,154

 

 

Decrease in general and administrative

 

$

(431

)

 

$

-

 

 

$

-

 

 

$

(431

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in transaction related costs

 

$

(140

)

 

$

-

 

 

$

-

 

 

$

(140

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total (decrease) increase in expenses

 

$

(1,994

)

 

$

244

 

 

$

(1,981

)

 

$

(257

)

 

 

 

(1)
Primarily due to accelerated depreciation of tenant improvements in the prior year’s six months resulting from a tenant’s lease termination at 300 Mission Street.
(2)
Represents the mark-to-market of investments in our deferred compensation plan liabilities in the prior year’s six months, which is entirely offset by the change in deferred compensation plan assets that is included in “interest and other income, net” for the same period. In December 2021, the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants.

 

 

44


 

 

Loss from Unconsolidated Joint Ventures

 

Loss from unconsolidated joint ventures was $9,529,000 for the six months ended June 30, 2022, compared to $21,033,000 in the six months ended June 30, 2021, a decrease in loss of $11,504,000. This decrease resulted from:

 

712 Fifth Avenue

 

$

11,128

 

(1)

Other, net

 

 

376

 

 

Total decrease in loss

 

$

11,504

 

 

 

 

(1)
Primarily due to an $11,750 contribution in the prior year’s six months to the joint venture that owns 712 Fifth Avenue that was expensed in accordance with GAAP. See Note 3, Investments in Unconsolidated Joint Ventures.

 

 

Income from Unconsolidated Real Estate Funds

 

Income from unconsolidated real estate funds was $325,000 for the six months ended June 30, 2022, compared to $328,000 for the six months ended June 30, 2021, a decrease in income of $3,000.

 

 

Interest and Other Income, net

 

Interest and other income was $1,027,000 for the six months ended June 30, 2022, compared to $2,372,000 for the six months ended June 30, 2021, a decrease in income of $1,345,000. This decrease resulted from:

 

(Amounts in thousands)

 

 

 

Mark-to-market of investments in our deferred compensation plan in 2021 (1)

 

$

(1,585

)

Other, net (primarily higher yields on short-term investments)

 

 

240

 

Total decrease in income

 

$

(1,345

)

 

 

(1)
Represents the mark-to-market of investments in our deferred compensation plan assets in the prior year’s six months, which is entirely offset by the change in deferred compensation plan liabilities that is included in “general and administrative” expenses for the same period. In December 2021, the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants.

 

 

Interest and Debt Expense

 

Interest and debt expense was $69,855,000 for the six months ended June 30, 2022, compared to $69,653,000 for the six months ended June 30, 2021, an increase of $202,000. This increase resulted primarily from higher interest on variable rate debt due to an increase in average LIBOR rates in the current year's six months compared to prior year's six months, partially offset by lower amortization of deferred financing costs in connection with the refinancing of 1301 Avenue of the Americas in July 2021.

 

 

Income Tax Expense

 

Income tax expense was $886,000 for the six months ended June 30, 2022, compared to $1,575,000 for the six months ended June 30, 2021, a decrease of $689,000. This decrease resulted primarily from lower taxable income attributable to our taxable REIT subsidiaries in the current year’s six months.

 

 

45


 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures

 

Net income attributable to noncontrolling interests in consolidated joint ventures was $8,204,000 for the six months ended June 30, 2022, compared to $13,156,000 for the six months ended June 30, 2021, a decrease in income allocated to noncontrolling interests of $4,952,000. This decrease in income resulted from:

 

(Amounts in thousands)

 

 

 

 

Lower income attributable to 300 Mission Street ($1,710 of income in 2022,
   compared to $6,582 in 2021)

 

$

(4,872

)

(1)

Other, net

 

 

(80

)

 

Total decrease in income attributable to noncontrolling interests

 

$

(4,952

)

 

 

 

(1)
Primarily due to a decrease in occupancy in the current year's six months and lease termination income in the prior year's six months.

 

Net Loss (Income) Attributable to Noncontrolling Interests in Consolidated Real Estate Fund

 

Net loss attributable to noncontrolling interests in consolidated real estate fund was $1,368,000 for the six months ended June 30, 2022, compared to net income attributable to noncontrolling interests in consolidated real estate fund of $56,000 for the six months ended June 30, 2021, an increase in loss allocated to noncontrolling interest of $1,424,000. This increase resulted primarily from a lower loss in the prior year’s six months due to the capitalization of expenses at One Steuart Lane (which was under development last year), partially offset by gains on sale of residential condominium units at One Steuart Lane in the current year’s six months.

 

 

Net (Income) Loss Attributable to Noncontrolling Interests in Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $313,000 for the six months ended June 30, 2022, compared to net loss attributable to noncontrolling interests of $1,935,000 for the six months ended June 30, 2021, an increase in income allocated to noncontrolling interests of $2,248,000. This increase in income resulted from higher net income subject to allocation to the unitholders of the Operating Partnership for the three months ended June 30, 2022.

 

 

 

46


 

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. As of June 30, 2022, we had $1.28 billion of liquidity comprised of $506,933,000 of cash and cash equivalents, $24,934,000 of restricted cash and $750,000,000 of borrowing capacity 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 potential acquisitions will be funded by operating cash flow, third-party joint venture capital, mortgage financings and/or re-financings, and 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.

 

 

Consolidated Debt

 

As of June 30, 2022, our outstanding consolidated debt aggregated $3.86 billion. We had no amounts outstanding under our revolving credit facility and none of our debt matures until October 2023. We may refinance our maturing debt when it comes due 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 $750,000,000 revolving credit facility matures in March 2026 and has two six-month extension options. The interest rate on the facility is 115 basis points over the Secured Overnight Financing Rate (“SOFR”) with adjustments based on the terms of advances, plus a facility fee of 20 basis points. The facility also features a sustainability-linked pricing component such that if we meet certain sustainability performance targets, the applicable per annum interest rate will be reduced by one basis point. The facility contains certain restrictions and covenants that require us to maintain, on an ongoing basis, (i) a leverage ratio not to exceed 60%, which 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 coverage ratio of at least 1.50, (iv) an unsecured leverage ratio to not to exceed 60%, which 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 June 15, 2022, we declared a quarterly cash dividend of $0.0775 per share of common stock for the second quarter ended June 30, 2022, which was paid on July 15, 2022 to stockholders of record as of the close of business on June 30, 2022. This dividend policy, if continued, would require us to pay out approximately $18,800,000 each quarter to common stockholders and unitholders.

 

 

Off Balance Sheet Arrangements

 

As of June 30, 2022, our unconsolidated joint ventures had $1.74 billion of outstanding indebtedness, of which our share was $623,714,000. We do not guarantee the indebtedness of our unconsolidated joint ventures other than providing customary environmental indemnities and guarantees of non-recourse carve-outs; 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.

 

47


 

Stock Repurchase Program

 

On November 5, 2019, 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. During 2020, we repurchased 13,813,158 common shares at a weighted average price of $8.69 per share, or $120,000,000 in the aggregate. As of June 30, 2022, we had $80,000,000 available for future repurchases under the existing program. Subsequent to June 30, 2022, we repurchased 268,231 common shares at a weighted average price of $6.96 per share, or $1,867,000 in the aggregate; accordingly, as of July 25, 2022, we have $78,133,000 available for future repurchases. 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, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.

 

 

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.

 

 

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 agreements 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 June 30, 2022, we believe we are in compliance with all of our covenants.

 

 

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 $54,500,000. 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.

 

48


 

Cash Flows

Cash and cash equivalents and restricted cash were $531,867,000 and $529,666,000 as of June 30, 2022 and December 31, 2021, respectively, and $507,841,000 and $465,324,000 as of June 30, 2021 and December 31, 2020, respectively. Cash and cash equivalents and restricted cash increased by $2,201,000 and $42,517,000 for the six months ended June 30, 2022 and 2021, respectively. The following table sets forth the changes in cash flow.

 

 

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

2022

 

 

2021

 

Net cash provided by (used in):

 

 

 

 

 

Operating activities

$

131,102

 

 

$

134,458

 

Investing activities

 

(68,101

)

 

 

(62,045

)

Financing activities

 

(60,800

)

 

 

(29,896

)

 

 

Operating Activities

 

Six months ended June 30, 2022 – We generated $131,102,000 of cash from operating activities for the six months ended June 30, 2022, primarily from (i) $142,053,000 of net income (before $131,893,000 of non-cash adjustments) and (ii) $338,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii) $11,289,000 of net changes in operating assets and liabilities. Non-cash adjustments of $131,893,000 were primarily comprised of depreciation and amortization, straight-lining of rental revenue, amortization of above and below-market leases, net and amortization of stock-based compensation.

 

Six months ended June 30, 2021 – We generated $134,458,000 of cash from operating activities for the six months ended June 30, 2021, primarily from (i) $133,703,000 of net income (before $141,947,000 of non-cash adjustments) and (ii) $889,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii) $134,000 of net changes in operating assets and liabilities. Non-cash adjustments of $141,947,000 were primarily comprised of depreciation and amortization, straight-lining of rental revenue, amortization of above and below-market leases, net and amortization of stock-based compensation.

 

 

Investing Activities

 

Six months ended June 30, 2022 – We used $68,101,000 of cash for investing activities for the six months ended June 30, 2022, primarily for (i) $54,136,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements, (ii) $11,252,000 for investments in an unconsolidated joint venture, and (iii) $2,713,000 of contributions of capital to unconsolidated real estate funds, net of distributions received.

 

Six months ended June 30, 2021 – We used $62,045,000 of cash for investing activities for the six months ended June 30, 2021, primarily for (i) $52,114,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements and (ii) $11,750,000 of contributions to an unconsolidated joint venture, partially offset by (iii) $1,819,000 from net sales of marketable securities (which are held in our deferred compensation plan).

 

 

Financing Activities

 

Six months ended June 30, 2022 – We used $60,800,000 of cash for financing activities for the six months ended June 30, 2022, primarily for (i) $35,672,000 for dividends and distributions to common stockholders and unitholders, (ii) $24,848,000 for distributions to noncontrolling interests and (iii) $280,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings.

 

Six months ended June 30, 2021 – We used $29,896,000 of cash for financing activities for the six months ended June 30, 2021, primarily for (i) $33,685,000 for dividends and distributions paid to common stockholders and unitholders, (ii) $8,562,000 for distributions to noncontrolling interests and (iii) $200,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (iv) $12,430,000 of proceeds from notes and mortgages payable and (v) $121,000 of contributions from noncontrolling interests.

 

49


 

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 Paramount’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 net income or loss to NOI and Cash NOI for the three and six months ended June 30, 2022 and 2021.

 

 

 

For the Three Months Ended June 30, 2022

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Reconciliation of net income (loss) to NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

4,038

 

 

$

7,427

 

 

$

11,069

 

 

$

(14,458

)

Add (subtract) adjustments to arrive at NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

57,398

 

 

 

38,671

 

 

 

17,799

 

 

 

928

 

General and administrative

 

16,706

 

 

 

-

 

 

 

-

 

 

 

16,706

 

Interest and debt expense

 

35,578

 

 

 

22,136

 

 

 

12,684

 

 

 

758

 

Income tax expense

 

359

 

 

 

1

 

 

 

-

 

 

 

358

 

NOI from unconsolidated joint ventures (excluding
   One Steuart Lane)

 

11,585

 

 

 

3,528

 

 

 

7,971

 

 

 

86

 

Loss (income) from unconsolidated joint ventures

 

4,416

 

 

 

(33

)

 

 

3,960

 

 

 

489

 

Fee income

 

(5,974

)

 

 

-

 

 

 

-

 

 

 

(5,974

)

Interest and other income, net

 

(796

)

 

 

(49

)

 

 

(51

)

 

 

(696

)

Other, net

 

4

 

 

 

-

 

 

 

-

 

 

 

4

 

NOI

 

123,314

 

 

 

71,681

 

 

 

53,432

 

 

 

(1,799

)

Less NOI attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(21,796

)

 

 

(2,616

)

 

 

(19,180

)

 

 

-

 

Paramount's share of NOI

$

101,518

 

 

$

69,065

 

 

$

34,252

 

 

$

(1,799

)

 

 

 

 

 

 

 

 

 

 

 

 

NOI

$

123,314

 

 

$

71,681

 

 

$

53,432

 

 

$

(1,799

)

Less:

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent adjustments (including our share

 

 

 

 

 

 

 

 

 

 

 

of unconsolidated joint ventures)

 

(5,977

)

 

 

(1,180

)

 

 

(4,767

)

 

 

(30

)

Amortization of above and below-market leases, net
   (including our share of unconsolidated joint ventures)

 

(1,128

)

 

 

422

 

 

 

(1,550

)

 

 

-

 

Cash NOI

 

116,209

 

 

 

70,923

 

 

 

47,115

 

 

 

(1,829

)

Less Cash NOI attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(20,693

)

 

 

(2,769

)

 

 

(17,924

)

 

 

-

 

Paramount's share of Cash NOI

$

95,516

 

 

$

68,154

 

 

$

29,191

 

 

$

(1,829

)

 

 

50


 

 

 

For the Three Months Ended June 30, 2021

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Reconciliation of net (loss) income to NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(10,128

)

 

$

(8,357

)

 

$

13,965

 

 

$

(15,736

)

Add (subtract) adjustments to arrive at NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

59,925

 

 

 

38,289

 

 

 

20,660

 

 

 

976

 

General and administrative

 

18,418

 

 

 

-

 

 

 

-

 

 

 

18,418

 

Interest and debt expense

 

34,914

 

 

 

21,339

 

 

 

12,540

 

 

 

1,035

 

Income tax expense

 

434

 

 

 

5

 

 

 

-

 

 

 

429

 

NOI from unconsolidated joint ventures

 

10,557

 

 

 

2,749

 

 

 

7,852

 

 

 

(44

)

Loss from unconsolidated joint ventures

 

15,717

 

 

 

11,111

 

 

 

4,460

 

 

 

146

 

Fee income

 

(6,201

)

 

 

-

 

 

 

-

 

 

 

(6,201

)

Interest and other (income) loss, net

 

(1,070

)

 

 

3

 

 

 

(18

)

 

 

(1,055

)

Other, net

 

(13

)

 

 

-

 

 

 

-

 

 

 

(13

)

NOI

 

122,553

 

 

 

65,139

 

 

 

59,459

 

 

 

(2,045

)

Less NOI attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(26,233

)

 

 

(2,519

)

 

 

(23,714

)

 

 

-

 

Consolidated real estate fund

 

121

 

 

 

-

 

 

 

-

 

 

 

121

 

Paramount's share of NOI

$

96,441

 

 

$

62,620

 

 

$

35,745

 

 

$

(1,924

)

 

 

 

 

 

 

 

 

 

 

 

 

NOI

$

122,553

 

 

$

65,139

 

 

$

59,459

 

 

$

(2,045

)

Less:

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent adjustments (including our share

 

 

 

 

 

 

 

 

 

 

 

of unconsolidated joint ventures)

 

(2,958

)

 

 

158

 

 

 

(3,086

)

 

 

(30

)

Amortization of above and below-market leases, net
   (including our share of unconsolidated joint ventures)

 

(1,662

)

 

 

371

 

 

 

(2,033

)

 

 

-

 

Cash NOI

 

117,933

 

 

 

65,668

 

 

 

54,340

 

 

 

(2,075

)

Less Cash NOI attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(24,198

)

 

 

(2,479

)

 

 

(21,719

)

 

 

-

 

Consolidated real estate fund

 

121

 

 

 

-

 

 

 

-

 

 

 

121

 

Paramount's share of Cash NOI

$

93,856

 

 

$

63,189

 

 

$

32,621

 

 

$

(1,954

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51


 

 

 

For the Six Months Ended June 30, 2022

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Reconciliation of net income (loss) to NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

10,160

 

 

$

16,031

 

 

$

17,429

 

 

$

(23,300

)

Add (subtract) adjustments to arrive at NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

113,022

 

 

 

76,284

 

 

 

34,864

 

 

 

1,874

 

General and administrative

 

32,351

 

 

 

-

 

 

 

-

 

 

 

32,351

 

Interest and debt expense

 

69,855

 

 

 

43,073

 

 

 

25,260

 

 

 

1,522

 

Income tax expense

 

886

 

 

 

2

 

 

 

4

 

 

 

880

 

NOI from unconsolidated joint ventures (excluding
   One Steuart Lane)

 

22,819

 

 

 

6,346

 

 

 

16,325

 

 

 

148

 

Loss from unconsolidated joint ventures

 

9,529

 

 

 

3

 

 

 

7,780

 

 

 

1,746

 

Fee income

 

(17,962

)

 

 

-

 

 

 

-

 

 

 

(17,962

)

Interest and other income, net

 

(1,027

)

 

 

(46

)

 

 

(79

)

 

 

(902

)

Other, net

 

(49

)

 

 

-

 

 

 

-

 

 

 

(49

)

NOI

 

239,584

 

 

 

141,693

 

 

 

101,583

 

 

 

(3,692

)

Less NOI attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(42,118

)

 

 

(5,425

)

 

 

(36,693

)

 

 

-

 

Paramount's share of NOI

$

197,466

 

 

$

136,268

 

 

$

64,890

 

 

$

(3,692

)

 

 

 

 

 

 

 

 

 

 

 

 

NOI

$

239,584

 

 

$

141,693

 

 

$

101,583

 

 

$

(3,692

)

Less:

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent adjustments (including our share

 

 

 

 

 

 

 

 

 

 

 

of unconsolidated joint ventures)

 

(4,319

)

 

 

(631

)

 

 

(3,748

)

 

 

60

 

Amortization of above and below-market leases, net
   (including our share of unconsolidated joint ventures)

 

(2,325

)

 

 

889

 

 

 

(3,214

)

 

 

-

 

Cash NOI

 

232,940

 

 

 

141,951

 

 

 

94,621

 

 

 

(3,632

)

Less Cash NOI attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(41,206

)

 

 

(5,684

)

 

 

(35,522

)

 

 

-

 

Paramount's share of Cash NOI

$

191,734

 

 

$

136,267

 

 

$

59,099

 

 

$

(3,632

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52


 

 

 

For the Six Months Ended June 30, 2021

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Reconciliation of net (loss) income to NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(8,244

)

 

$

(6,084

)

 

$

24,885

 

 

$

(27,045

)

Add (subtract) adjustments to arrive at NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

118,230

 

 

 

77,573

 

 

 

38,712

 

 

 

1,945

 

General and administrative

 

32,782

 

 

 

-

 

 

 

-

 

 

 

32,782

 

Interest and debt expense

 

69,653

 

 

 

42,598

 

 

 

24,893

 

 

 

2,162

 

Income tax expense

 

1,575

 

 

 

5

 

 

 

4

 

 

 

1,566

 

NOI from unconsolidated joint ventures

 

20,883

 

 

 

5,570

 

 

 

15,389

 

 

 

(76

)

Loss from unconsolidated joint ventures

 

21,033

 

 

 

11,094

 

 

 

9,702

 

 

 

237

 

Fee income

 

(12,871

)

 

 

-

 

 

 

-

 

 

 

(12,871

)

Interest and other (income) loss, net

 

(2,372

)

 

 

17

 

 

 

(55

)

 

 

(2,334

)

Other, net

 

88

 

 

 

-

 

 

 

-

 

 

 

88

 

NOI

 

240,757

 

 

 

130,773

 

 

 

113,530

 

 

 

(3,546

)

Less NOI attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(48,958

)

 

 

(5,112

)

 

 

(43,846

)

 

 

-

 

Consolidated real estate fund

 

206

 

 

 

-

 

 

 

-

 

 

 

206

 

Paramount's share of NOI

$

192,005

 

 

$

125,661

 

 

$

69,684

 

 

$

(3,340

)

 

 

 

 

 

 

 

 

 

 

 

 

NOI

$

240,757

 

 

$

130,773

 

 

$

113,530

 

 

$

(3,546

)

Less:

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent adjustments (including our share

 

 

 

 

 

 

 

 

 

 

 

of unconsolidated joint ventures)

 

(11,060

)

 

 

(1,637

)

 

 

(9,483

)

 

 

60

 

Amortization of above and below-market leases, net
   (including our share of unconsolidated joint ventures)

 

(3,465

)

 

 

638

 

 

 

(4,103

)

 

 

-

 

Cash NOI

 

226,232

 

 

 

129,774

 

 

 

99,944

 

 

 

(3,486

)

Less Cash NOI attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(43,139

)

 

 

(4,964

)

 

 

(38,175

)

 

 

-

 

Consolidated real estate fund

 

206

 

 

 

-

 

 

 

-

 

 

 

206

 

Paramount's share of Cash NOI

$

183,299

 

 

$

124,810

 

 

$

61,769

 

 

$

(3,280

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53


 

 

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 six months ended June 30, 2022 and 2021. 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 June 30, 2022

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Paramount's share of NOI for the three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022 (1)

 

$

101,518

 

 

$

69,065

 

 

$

34,252

 

 

$

(1,799

)

 

Acquisitions / Redevelopment

 

 

(164

)

 

 

(164

)

(2)

 

-

 

 

 

-

 

 

Lease termination income

 

 

(157

)

 

 

(157

)

 

 

-

 

 

 

-

 

 

Other, net

 

 

1,578

 

 

 

-

 

 

 

(221

)

 

 

1,799

 

 

Paramount's share of Same Store NOI for the three

 

 

 

 

 

 

 

 

 

 

 

 

 

months ended June 30, 2022

 

$

102,775

 

 

$

68,744

 

 

$

34,031

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2021

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Paramount's share of NOI for the three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021 (1)

 

$

96,441

 

 

$

62,620

 

 

$

35,745

 

 

$

(1,924

)

 

Acquisitions / Redevelopment

 

 

(231

)

 

 

(231

)

(3)

 

-

 

 

 

-

 

 

Lease termination income

 

 

(1,614

)

 

 

(44

)

 

 

(1,570

)

 

 

-

 

 

Other, net

 

 

(294

)

 

 

(732

)

 

 

(1,486

)

 

 

1,924

 

 

Paramount's share of Same Store NOI for the three

 

 

 

 

 

 

 

 

 

 

 

 

 

months ended June 30, 2021

 

$

94,302

 

 

$

61,613

 

 

$

32,689

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in Same Store NOI

 

$

8,473

 

 

$

7,131

 

 

$

1,342

 

 

$

-

 

 

% Increase

 

 

9.0

%

 

 

11.6

%

 

 

4.1

%

 

 

 

 

 

 

(1)
See page 50 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income or loss in accordance with GAAP and the reasons why we believe these non-GAAP measures are useful.
(2)
Represents our share of NOI attributable to 1600 Broadway for the months in which it was not owned by us in both reporting periods.
(3)
Represents our share of NOI attributable to 60 Wall Street which was taken "out-of-service" for redevelopment.

 

54


 

 

 

 

For the Three Months Ended June 30, 2022

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Paramount's share of Cash NOI for the three months

 

 

 

 

 

 

 

 

 

 

 

 

 

ended June 30, 2022 (1)

 

$

95,516

 

 

$

68,154

 

 

$

29,191

 

 

$

(1,829

)

 

Acquisitions / Redevelopment

 

 

(176

)

 

 

(176

)

(2)

 

-

 

 

 

-

 

 

Lease termination income

 

 

(157

)

 

 

(157

)

 

 

-

 

 

 

-

 

 

Other, net

 

 

1,608

 

 

 

-

 

 

 

(221

)

 

 

1,829

 

 

Paramount's share of Same Store Cash NOI for the

 

 

 

 

 

 

 

 

 

 

 

 

 

three months ended June 30, 2022

 

$

96,791

 

 

$

67,821

 

 

$

28,970

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2021

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Paramount's share of Cash NOI for the three months

 

 

 

 

 

 

 

 

 

 

 

 

 

ended June 30, 2021 (1)

 

$

93,856

 

 

$

63,189

 

 

$

32,621

 

 

$

(1,954

)

 

Acquisitions / Redevelopment

 

 

(287

)

 

 

(287

)

(3)

 

-

 

 

 

-

 

 

Lease termination income

 

 

(1,614

)

 

 

(44

)

 

 

(1,570

)

 

 

-

 

 

Other, net

 

 

(271

)

 

 

(732

)

 

 

(1,493

)

 

 

1,954

 

 

Paramount's share of Same Store Cash NOI for the

 

 

 

 

 

 

 

 

 

 

 

 

 

three months ended June 30, 2021

 

$

91,684

 

 

$

62,126

 

 

$

29,558

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in Same Store Cash NOI

 

$

5,107

 

 

$

5,695

 

 

$

(588

)

 

$

-

 

 

% Increase (decrease)

 

 

5.6

%

 

 

9.2

%

 

 

(2.0

%)

 

 

 

 

 

 

(1)
See page 50 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income or loss 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 1600 Broadway for the months in which it was not owned by us in both reporting periods.
(3)
Represents our share of Cash NOI attributable to 60 Wall Street which was taken "out-of-service" for redevelopment.

 

 

55


 

 

 

 

For the Six Months Ended June 30, 2022

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Paramount's share of NOI for the six months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022 (1)

 

$

197,466

 

 

$

136,268

 

 

$

64,890

 

 

$

(3,692

)

 

Acquisitions / Redevelopment

 

 

(211

)

 

 

(211

)

(2)

 

-

 

 

 

-

 

 

Lease termination income

 

 

(1,875

)

 

 

(1,875

)

 

 

-

 

 

 

-

 

 

Other, net

 

 

3,577

 

 

 

106

 

 

 

(221

)

 

 

3,692

 

 

Paramount's share of Same Store NOI for the six

 

 

 

 

 

 

 

 

 

 

 

 

 

months ended June 30, 2022

 

$

198,957

 

 

$

134,288

 

 

$

64,669

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2021

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Paramount's share of NOI for the six months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021 (1)

 

$

192,005

 

 

$

125,661

 

 

$

69,684

 

 

$

(3,340

)

 

Acquisitions / Redevelopment

 

 

(231

)

 

 

(231

)

(3)

 

-

 

 

 

-

 

 

Lease termination income

 

 

(1,712

)

 

 

(128

)

 

 

(1,584

)

 

 

-

 

 

Other, net

 

 

3,044

 

 

 

(103

)

 

 

(193

)

 

 

3,340

 

 

Paramount's share of Same Store NOI for the six

 

 

 

 

 

 

 

 

 

 

 

 

 

months ended June 30, 2021

 

$

193,106

 

 

$

125,199

 

 

$

67,907

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in Same Store NOI

 

$

5,851

 

 

$

9,089

 

 

$

(3,238

)

 

$

-

 

 

% Increase (decrease)

 

 

3.0

%

 

 

7.3

%

 

 

(4.8

%)

 

 

 

 

 

 

(1)
See page 50 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income or loss in accordance with GAAP and the reasons why we believe these non-GAAP measures are useful.
(2)
Represents our share of NOI attributable to 1600 Broadway for the months in which it was not owned by us in both reporting periods.
(3)
Represents our share of NOI attributable to 60 Wall Street which was taken "out-of-service" for redevelopment.

 

 

56


 

 

 

 

For the Six Months Ended June 30, 2022

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Paramount's share of Cash NOI for the six months

 

 

 

 

 

 

 

 

 

 

 

 

 

ended June 30, 2022 (1)

 

$

191,734

 

 

$

136,267

 

 

$

59,099

 

 

$

(3,632

)

 

Acquisitions / Redevelopment

 

 

(242

)

 

 

(242

)

(2)

 

-

 

 

 

-

 

 

Lease termination income

 

 

(1,875

)

 

 

(1,875

)

 

 

-

 

 

 

-

 

 

Other, net

 

 

3,211

 

 

 

(200

)

 

 

(221

)

 

 

3,632

 

 

Paramount's share of Same Store Cash NOI for the

 

 

 

 

 

 

 

 

 

 

 

 

 

six months ended June 30, 2022

 

$

192,828

 

 

$

133,950

 

 

$

58,878

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2021

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Paramount's share of Cash NOI for the six months

 

 

 

 

 

 

 

 

 

 

 

 

 

ended June 30, 2021 (1)

 

$

183,299

 

 

$

124,810

 

 

$

61,769

 

 

$

(3,280

)

 

Acquisitions / Redevelopment

 

 

(287

)

 

 

(287

)

(3)

 

-

 

 

 

-

 

 

Lease termination income

 

 

(1,712

)

 

 

(128

)

 

 

(1,584

)

 

 

-

 

 

Other, net

 

 

2,835

 

 

 

(245

)

 

 

(200

)

 

 

3,280

 

 

Paramount's share of Same Store Cash NOI for the

 

 

 

 

 

 

 

 

 

 

 

 

 

six months ended June 30, 2021

 

$

184,135

 

 

$

124,150

 

 

$

59,985

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in Same Store Cash NOI

 

$

8,693

 

 

$

9,800

 

 

$

(1,107

)

 

$

-

 

 

% Increase (decrease)

 

 

4.7

%

 

 

7.9

%

 

 

(1.8

%)

 

 

 

 

 

 

(1)
See page 50 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income or loss 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 1600 Broadway for the months in which it was not owned by us in both reporting periods.
(3)
Represents our share of Cash NOI attributable to 60 Wall Street which was taken "out-of-service" for redevelopment.

 

 

 

57


 

 

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 (loss) to FFO and Core FFO for the periods set forth below.

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands, except share and per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Reconciliation of net income (loss) to FFO and Core FFO:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

4,038

 

 

$

(10,128

)

 

$

10,160

 

 

$

(8,244

)

Real estate depreciation and amortization (including our

 

 

 

 

 

 

 

 

 

 

 

 

share of unconsolidated joint ventures)

 

 

67,235

 

 

 

70,264

 

 

 

133,060

 

 

 

139,405

 

FFO

 

 

71,273

 

 

 

60,136

 

 

 

143,220

 

 

 

131,161

 

Less FFO attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

 

(13,945

)

 

 

(18,453

)

 

 

(26,460

)

 

 

(33,527

)

Consolidated real estate fund

 

 

346

 

 

 

29

 

 

 

1,355

 

 

 

(56

)

Operating Partnership

 

 

(4,352

)

 

 

(3,769

)

 

 

(9,920

)

 

 

(8,761

)

FFO attributable to common stockholders

 

$

53,322

 

 

$

37,943

 

 

$

108,195

 

 

$

88,817

 

Per diluted share

 

$

0.24

 

 

$

0.17

 

 

$

0.49

 

 

$

0.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO

 

$

71,273

 

 

$

60,136

 

 

$

143,220

 

 

$

131,161

 

Non-core items:

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to equity in earnings for contributions to
    (distributions from) an unconsolidated joint venture

 

 

168

 

 

 

10,492

 

 

 

(415

)

 

 

9,915

 

Consolidated real estate fund's share of after-tax net gain on
     sale of residential condominium units (One Steuart Lane)

 

 

(1,022

)

 

 

-

 

 

 

(1,684

)

 

 

-

 

Other, net

 

 

1,664

 

 

 

133

 

 

 

3,752

 

 

 

379

 

Core FFO

 

 

72,083

 

 

 

70,761

 

 

 

144,873

 

 

 

141,455

 

Less Core FFO attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

 

(13,945

)

 

 

(18,453

)

 

 

(26,460

)

 

 

(33,527

)

Consolidated real estate fund

 

 

(128

)

 

 

29

 

 

 

(287

)

 

 

(56

)

Operating Partnership

 

 

(4,377

)

 

 

(4,729

)

 

 

(9,915

)

 

 

(9,692

)

Core FFO attributable to common stockholders

 

$

53,633

 

 

$

47,608

 

 

$

108,211

 

 

$

98,180

 

Per diluted share

 

$

0.24

 

 

$

0.22

 

 

$

0.49

 

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

222,971,886

 

 

 

218,696,284

 

 

 

220,888,664

 

 

 

218,681,228

 

Effect of dilutive securities

 

 

26,594

 

 

 

51,117

 

 

 

41,355

 

 

 

50,563

 

Denominator for FFO and Core FFO per diluted share

 

 

222,998,480

 

 

 

218,747,401

 

 

 

220,930,019

 

 

 

218,731,791

 

 

 

 

58


 

 

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 interest rate swap agreements to fix the rate or interest rate cap agreements to limit exposure to increases in rates, 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 June 30, 2022.

 

Property

 

Rate

 

2022

 

 

2023

 

 

 

2024

 

 

 

2025

 

 

 

2026

 

 

Thereafter

 

 

Total

 

 

Fair Value

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300 Mission Street

 

3.65%

 

$

-

 

 

$

273,000

 

 

 

 

$

-

 

 

 

 

$

-

 

 

 

 

$

-

 

 

$

-

 

 

$

273,000

 

 

$

267,783

 

 

One Market Plaza

 

4.03%

 

 

-

 

 

 

-

 

 

 

 

975,000

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

975,000

 

 

 

960,383

 

 

31 West 52nd Street

 

3.80%

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

500,000

 

 

 

-

 

 

 

500,000

 

 

 

476,130

 

 

1301 Avenue of the Americas (1)

 

2.46%

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

500,000

 

 

 

-

 

 

 

500,000

 

 

 

498,309

 

 

1633 Broadway

 

2.99%

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

1,250,000

 

 

 

1,250,000

 

 

 

1,124,967

 

Total Fixed Rate Debt

 

3.37%

 

$

-

 

 

$

273,000

 

 

 

$

975,000

 

 

 

$

-

 

 

 

$

1,000,000

 

 

$

1,250,000

 

 

$

3,498,000

 

 

$

3,327,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Rate Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1301 Avenue of the Americas (2)

 

4.68%

 

$

-

 

 

$

-

 

 

 

$

-

 

 

 

 

$

-

 

 

 

 

$

360,000

 

 

$

-

 

 

$

360,000

 

 

$

358,782

 

 

Revolving Credit Facility

 

n/a

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total Variable Rate Debt

 

4.68%

 

$

-

 

 

$

-

 

 

 

$

-

 

 

 

$

-

 

 

 

$

360,000

 

 

$

-

 

 

$

360,000

 

 

$

358,782

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Consolidated Debt

 

3.49%

 

$

-

 

 

$

273,000

 

 

 

$

975,000

 

 

 

$

-

 

 

 

$

1,360,000

 

 

$

1,250,000

 

 

$

3,858,000

 

 

$

3,686,354

 

 

 

(1)
Represents variable rate loans that have been fixed by interest rate swaps through August 2024. See table below.
(2)
Represents variable rate loans, where LIBOR has been capped at 2.00% through August 2023. See table below.

 

 

In addition to the above, our unconsolidated joint ventures had $1.74 billion of outstanding indebtedness as of June 30, 2022, of which our share was $623,714,000.

 

The tables below provide additional details on our interest rate swaps and interest rate caps as of June 30, 2022.

 

 

 

 

Notional

 

 

Effective

 

Maturity

 

Benchmark

 

Strike

 

 

Fair Value as of

 

Property

 

Amount

 

 

Date

 

Date

 

Rate

 

Rate

 

 

June 30, 2022

 

 

December 31, 2021

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1301 Avenue of the Americas

 

$

500,000

 

 

Jul-2021

 

Aug-2024

 

LIBOR

 

 

0.46

%

 

$

26,820

 

 

$

6,691

 

Total interest rate swap assets designated as cash flow hedges (included in "other assets")

$

26,820

 

 

$

6,691

 

 

 

 

 

 

Notional

 

 

Effective

 

Maturity

 

Benchmark

 

Strike

 

 

Fair Value as of

 

Property

 

Amount

 

 

Date

 

Date

 

Rate

 

Rate

 

 

June 30, 2022

 

 

December 31, 2021

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1301 Avenue of the Americas

 

$

360,000

 

 

Jul-2021

 

Aug-2023

 

LIBOR

 

 

2.00

%

 

$

4,826

 

 

$

306

 

Total interest rate cap assets designated as cash flow hedges (included in "other assets")

$

4,826

 

 

$

306

 

 

59


 

 

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

 

 

 

As of June 30, 2022

 

 

As of December 31, 2021

 

(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

 

$

360,000

 

 

 

4.68

%

 

$

3,600

 

 

$

360,000

 

 

 

3.67

%

Fixed rate

 

 

2,687,665

 

 

 

3.25

%

 

 

-

 

 

 

2,687,665

 

 

 

3.25

%

 

 

$

3,047,665

 

 

 

3.42

%

 

$

3,600

 

 

$

3,047,665

 

 

 

3.30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paramount's share of debt of non-consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   entities (non-recourse):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate

 

$

111,238

 

 

 

3.63

%

 

$

1,112

 

 

$

108,963

 

 

 

3.27

%

Fixed rate

 

 

512,476

 

 

 

3.30

%

 

 

-

 

 

 

503,598

 

 

 

3.30

%

 

 

$

623,714

 

 

 

3.36

%

 

$

1,112

 

 

$

612,561

 

 

 

3.30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests' share of above

 

 

$

(356

)

 

 

 

 

 

 

Total change in annual net income

 

 

 

 

 

 

 

$

4,356

 

 

 

 

 

 

 

Per diluted share

 

 

 

 

 

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

On December 31, 2021, the Financial Conduct Authority (“FCA”) ceased the publication of the one-week and two-month LIBOR rates. The remaining LIBOR rates will continue to be published through June 30, 2023, after which the interest rate for our variable rate debt and derivative instruments, including interest rates for our variable rate debt and derivative instruments of our unconsolidated joint ventures, will be based on an alternative variable rate as specified in the applicable documentation governing such debt or derivative instruments or as otherwise agreed upon. While we expect LIBOR to be available in substantially its current form until at least the end of June 2023, if sufficient banks decline to make submission to the LIBOR administrator, it is possible that LIBOR may become unavailable prior to that point, which could increase our risk associated with the transition to an alternative variable rate. As of December 31, 2021, banks are no longer issuing any new LIBOR debt. The discontinuation of LIBOR and the related transition to an alternative rate would not affect our ability to borrow or maintain already outstanding borrowings or swaps, however, future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. As of June 30, 2022, all of our outstanding variable rate notes and mortgages payable and derivative instruments are indexed to LIBOR and we will continue to monitor and evaluate the related risks.

 

 

60


 

 

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 June 30, 2022, 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.

61


 

 

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 June 30, 2022, 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 2Management’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, 2021.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Recent Sales of Unregistered Securities

 

None.

 

Recent Purchases of Equity Securities

 

On November 5, 2019, 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. During 2020, we repurchased 13,813,158 common shares at a weighted average price of $8.69 per share, or $120,000,000 in the aggregate. As of June 30, 2022, we had $80,000,000 available for future repurchases under the existing program. Subsequent to June 30, 2022, we repurchased 268,231 common shares at a weighted average price of $6.96 per share, or $1,867,000 in the aggregate; accordingly, as of July 25, 2022, we have $78,133,000 available for future repurchases. 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, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

62


 

 

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

3.1

 

Sixth Amended and Restated Bylaws of Paramount Group, Inc., effective July 26, 2022, incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K filed with the SEC on July 26, 2022.

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

63


 

 

 

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:

 July 26, 2022

By:

 /s/ Wilbur Paes

 

Chief Operating Officer, Chief Financial Officer and Treasurer

 

 

 

Wilbur Paes

 

(duly authorized officer and principal financial officer)

 

 

 

 

 

 

 

 

 

 

 

 

Date:

 July 26, 2022

By:

 /s/ Ermelinda Berberi

 

Senior Vice President, Chief Accounting Officer

 

 

 

Ermelinda Berberi

 

(duly authorized officer and principal accounting officer)

 

 

 

64