Paramount Group, Inc. - Quarter Report: 2023 June (Form 10-Q)

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, 2023


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

For the transition period from to .

Commission File Number: 001-36746

PARAMOUNT GROUP, INC.

(Exact name of registrant as specified in its charter)

Maryland

32-0439307

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

1633 Broadway, Suite 1801, New York, NY

10019

(Address of principal executive offices)

(Zip Code)

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

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


Title of each Class	Trading Symbol	Name of each exchange on which registered
Common stock of Paramount Group, Inc., $0.01 par value per share	PGRE	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 14, 2023, there were 217,306,498 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, 2023 and December 31, 2022	3

	Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2023 and 2022	4

	Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2023 and 2022	5

	Consolidated Statements of Changes in Equity (Unaudited) for the three and six months ended June 30, 2023 and 2022	6

	Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2023 and 2022	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	57

Item 4.	Controls and Procedures	59

Part II.	Other Information

Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 3.	Defaults Upon Senior Securities	60

Item 4.	Mine Safety Disclosures	60

Item 5.	Other Information	60

Item 6.	Exhibits	61

Signatures		62

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, 2023			December 31, 2022
Assets
Real estate, at cost
Land	$	1,966,237		$	1,966,237
Buildings and improvements		6,199,074			6,177,540
		8,165,311			8,143,777
Accumulated depreciation and amortization		(1,377,917	)		(1,297,553	)
Real estate, net		6,787,394			6,846,224
Cash and cash equivalents		434,751			408,905
Restricted cash		72,680			40,912
Accounts and other receivables		13,692			23,866
Real estate related fund investments		66,606			105,369
Investments in unconsolidated real estate related funds		5,270			3,411
Investments in unconsolidated joint ventures		398,677			393,503
Deferred rent receivable		346,583			346,338
Deferred charges, net of accumulated amortization of $75,732 and $68,686		113,271			120,685
Intangible assets, net of accumulated amortization of $189,123 and $246,723		79,558			90,381
Other assets		49,497			73,660
Total assets (1)	$	8,367,979		$	8,453,254

Liabilities and Equity
Notes and mortgages payable, net of unamortized deferred financing costs of $15,331 and $17,682	$	3,842,669		$	3,840,318
Revolving credit facility		-			-
Accounts payable and accrued expenses		113,449			123,176
Dividends and distributions payable		8,188			18,026
Intangible liabilities, net of accumulated amortization of $106,393 and $102,533		31,960			36,193
Other liabilities		23,700			24,775
Total liabilities (1)		4,019,966			4,042,488
Commitments and contingencies
Paramount Group, Inc. equity:
Common stock $0.01 par value per share; authorized 900,000,000 shares; issued and outstanding 217,306,498 and 216,559,406 shares in 2023 and 2022, respectively		2,172			2,165
Additional paid-in-capital		4,183,662			4,186,161
Earnings less than distributions		(714,785	)		(644,331	)
Accumulated other comprehensive income		36,431			48,296
Paramount Group, Inc. equity		3,507,480			3,592,291
Noncontrolling interests in:
Consolidated joint ventures		407,647			402,118
Consolidated real estate related funds		183,988			173,375
Operating Partnership (15,366,522 and 14,586,411 units outstanding)		248,898			242,982
Total equity		4,348,013			4,410,766
Total liabilities and equity	$	8,367,979		$	8,453,254

(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, 2023. As of June 30, 2023, the assets and liabilities of the Operating Partnership include $4,003,965 and $2,570,004 of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. See Note 12, Variable Interest Entities (“VIEs”).

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
(Amounts in thousands, except share and per share amounts)	2023			2022			2023			2022
Revenues:
Rental revenue	$	165,506		$	177,243		$	347,219		$	347,165
Fee and other income		7,156			8,274			13,917			22,037
Total revenues		172,662			185,517			361,136			369,202
Expenses:
Operating		71,078			67,814			141,387			134,475
Depreciation and amortization		62,627			57,398			121,515			113,022
General and administrative		16,224			16,706			30,847			32,351
Transaction related costs		63			159			191			276
Total expenses		149,992			142,077			293,940			280,124
Other income (expense):
Loss from real estate related fund investments		(42,644	)		-			(39,094	)		-
Income (loss) from unconsolidated real estate related funds		32			155			(146	)		325
Loss from unconsolidated joint ventures		(28,402	)		(4,416	)		(34,164	)		(9,529	)
Interest and other income, net		2,967			796			5,892			1,027
Interest and debt expense		(36,879	)		(35,578	)		(73,338	)		(69,855	)
(Loss) income before income taxes		(82,256	)		4,397			(73,654	)		11,046
Income tax expense		(573	)		(359	)		(861	)		(886	)
Net (loss) income		(82,829	)		4,038			(74,515	)		10,160
Less net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures		(5,351	)		(4,779	)		(10,992	)		(8,204	)
Consolidated real estate related funds		37,301			352			36,478			1,368
Operating Partnership		3,341			29			3,220			(313	)
Net (loss) income attributable to common stockholders	$	(47,538	)	$	(360	)	$	(45,809	)	$	3,011


(Loss) Income per Common Share - Basic:
(Loss) income per common share	$	(0.22	)	$	(0.00	)	$	(0.21	)	$	0.01
Weighted average shares outstanding		217,003,931			222,971,886			216,784,737			220,888,664

(Loss) Income per Common Share - Diluted:
(Loss) income per common share	$	(0.22	)	$	(0.00	)	$	(0.21	)	$	0.01
Weighted average shares outstanding		217,003,931			222,971,886			216,784,737			220,930,019

See notes to consolidated financial statements (unaudited).

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)	2023			2022			2023			2022
Net (loss) income	$	(82,829	)	$	4,038		$	(74,515	)	$	10,160
Other comprehensive (loss) income:
Change in value of interest rate swaps and interest rate caps		(3,135	)		6,109			(11,525	)		24,654
Pro rata share of other comprehensive income (loss) of unconsolidated joint ventures		1,394			2,949			(1,169	)		13,402
Comprehensive (loss) income		(84,570	)		13,096			(87,209	)		48,216
Less comprehensive (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures		(5,351	)		(4,779	)		(10,992	)		(8,204	)
Consolidated real estate related funds		37,301			352			36,478			1,368
Operating Partnership		3,455			(655	)		4,049			(3,667	)
Comprehensive (loss) income attributable to common stockholders	$	(49,165	)	$	8,014		$	(57,674	)	$	37,713

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)


										Accumulated			Noncontrolling Interests in
					Additional		Earnings			Other			Consolidated			Consolidated
(Amounts in thousands, except per share	Common Shares				Paid-in-		Less than			Comprehensive			Joint			Real Estate			Operating			Total
and unit amounts)	Shares		Amount		Capital		Distributions			Income			Ventures			Related Funds			Partnership			Equity
Balance as of March 31, 2023		217,212	$	2,171	$	4,181,983	$	(659,641	)	$	38,058		$	403,902		$	220,206		$	250,401		$	4,437,080
Net (loss) income		-		-		-		(47,538	)		-			5,351			(37,301	)		(3,341	)		(82,829	)
Common shares issued upon redemption of common units		39		1		648		-			-			-			-			(649	)		-
Common shares issued under Omnibus share plan, net of shares withheld for taxes		55		-		-		-			-			-			-			-			-
Dividends and distributions ($0.035 per share and unit)		-		-		-		(7,606	)		-			-			-			(582	)		(8,188	)
Contributions from noncontrolling interests		-		-		-		-			-			-			3,606			-			3,606
Distributions to noncontrolling interests		-		-		-		-			-			(1,606	)		(2,523	)		-			(4,129	)
Change in value of interest rate swaps and interest rate caps		-		-		-		-			(2,929	)		-			-			(206	)		(3,135	)
Pro rata share of other comprehensive income of unconsolidated joint ventures		-		-		-		-			1,302			-			-			92			1,394
Amortization of equity awards		-		-		300		-			-			-			-			3,914			4,214
Reallocation of noncontrolling interest		-		-		731		-			-			-			-			(731	)		-
Balance as of June 30, 2023		217,306	$	2,172	$	4,183,662	$	(714,785	)	$	36,431		$	407,647		$	183,988		$	248,898		$	4,348,013

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

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)


											Accumulated			Noncontrolling Interests in
					Additional			Earnings			Other			Consolidated			Consolidated
(Amounts in thousands, except per share	Common Shares				Paid-in-			Less than			Comprehensive			Joint			Real Estate			Operating			Total
and unit amounts)	Shares		Amount		Capital			Distributions			Income			Ventures			Related Funds			Partnership			Equity
Balance as of December 31, 2022		216,559	$	2,165	$	4,186,161		$	(644,331	)	$	48,296		$	402,118		$	173,375		$	242,982		$	4,410,766
Net (loss) income		-		-		-			(45,809	)		-			10,992			(36,478	)		(3,220	)		(74,515	)
Common shares issued upon redemption of common units		653		7		10,870			-			-			-			-			(10,877	)		-
Common shares issued under Omnibus share plan, net of shares withheld for taxes		94		-		-			(205	)		-			-			-			-			(205	)
Dividends and distributions ($0.1125 per share and unit)		-		-		-			(24,440	)		-			-			-			(1,858	)		(26,298	)
Contributions from noncontrolling interests		-		-		-			-			-			-			53,354			-			53,354
Distributions to noncontrolling interests		-		-		-			-			-			(5,463	)		(6,263	)		-			(11,726	)
Change in value of interest rate swaps and interest rate caps		-		-		-			-			(10,771	)		-			-			(754	)		(11,525	)
Pro rata share of other comprehensive loss of unconsolidated joint ventures		-		-		-			-			(1,094	)		-			-			(75	)		(1,169	)
Amortization of equity awards		-		-		624			-			-			-			-			8,707			9,331
Reallocation of noncontrolling interest		-		-		(13,993	)		-			-			-			-			13,993			-
Balance as of June 30, 2023		217,306	$	2,172	$	4,183,662		$	(714,785	)	$	36,431		$	407,647		$	183,988		$	248,898		$	4,348,013

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

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the Six Months Ended June 30,
(Amounts in thousands)	2023			2022
Cash Flows from Operating Activities:
Net (loss) income	$	(74,515	)	$	10,160
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		121,515			113,022
Straight-lining of rental revenue		(245	)		(4,001	)
Amortization of stock-based compensation expense		9,331			10,704
Amortization of deferred financing costs		3,077			3,077
Loss from unconsolidated joint ventures		34,164			9,529
Distributions of earnings from unconsolidated joint ventures		208			34
Realized and unrealized losses on real estate related fund investments		46,803			-
Loss (income) from unconsolidated real estate related funds		146			(325	)
Distributions of earnings from unconsolidated real estate related funds		72			304
Amortization of above and below-market leases, net		(2,484	)		(673	)
Other non-cash adjustments		460			560
Changes in operating assets and liabilities:
Real estate related fund investments		(8,040	)		-
Accounts and other receivables		10,174			(2,206	)
Deferred charges		(3,402	)		(5,097	)
Other assets		9,081			2,741
Accounts payable and accrued expenses		(7,263	)		(4,714	)
Other liabilities		(1,026	)		(2,013	)
Net cash provided by operating activities		138,056			131,102

Cash Flows from Investing Activities:
Additions to real estate		(44,310	)		(54,136	)
Investments in and contributions of capital to unconsolidated joint ventures		(40,715	)		(11,252	)
Advances to a partner in One Steuart Lane		(35,715	)		-
Repayment of advances by a partner in One Steuart Lane		38,935			-
Contributions of capital to unconsolidated real estate related funds		(2,077	)		(4,219	)
Due from affiliates		-			(51,916	)
Repayment of amounts due from affiliates		-			51,916
Distributions of capital from unconsolidated real estate related funds		-			1,506
Net cash used in investing activities		(83,882	)		(68,101	)

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)


	For the Six Months Ended June 30,
(Amounts in thousands)	2023			2022
Cash Flows from Financing Activities:
Contributions from noncontrolling interests in consolidated real estate related funds	$	53,354		$	-
Distributions to noncontrolling interests in consolidated real estate related funds		(6,263	)		-
Dividends paid to common stockholders		(33,660	)		(32,307	)
Distributions paid to common unitholders		(2,476	)		(3,365	)
Distributions to noncontrolling interests in consolidated joint ventures		(5,463	)		(24,848	)
Settlement of accounts payable in connection with repurchases of common shares		(1,847	)		-
Repurchase of shares related to stock compensation agreements and related tax withholdings		(205	)		(280	)
Net cash provided by (used in) financing activities		3,440			(60,800	)

Net increase in cash and cash equivalents and restricted cash		57,614			2,201
Cash and cash equivalents and restricted cash at beginning of period		449,817			529,666
Cash and cash equivalents and restricted cash at end of period	$	507,431		$	531,867


Reconciliation of Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents at beginning of period	$	408,905		$	524,900
Restricted cash at beginning of period		40,912			4,766
Cash and cash equivalents and restricted cash at beginning of period	$	449,817		$	529,666

Cash and cash equivalents at end of period	$	434,751		$	506,933
Restricted cash at end of period		72,680			24,934
Cash and cash equivalents and restricted cash at end of period	$	507,431		$	531,867

Supplemental Disclosure of Cash Flow Information:
Cash payments for interest	$	68,892		$	67,332
Cash payments for income taxes, net of refunds		598			1,941

Non-Cash Transactions:
Common shares issued upon redemption of common units		10,877			107,212
Dividends and distributions declared but not yet paid		8,188			18,787
Change in value of interest rate swaps and interest rate caps		(11,525	)		24,654
Write-off of fully amortized and/or depreciated assets		20,229			8,617
Additions to real estate included in accounts payable and accrued expenses		12,715			7,212
Transfer of deposit to investment in unconsolidated joint ventures		-			6,230

See notes to consolidated financial statements (unaudited).

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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, 2023.

As of June 30, 2023, we owned and/or managed a portfolio of 18 properties aggregating 13.8 million square feet comprised of:

•

Eight wholly and partially owned Class A 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 Class A 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

•

Four managed properties aggregating 0.8 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 several real estate related funds for institutional investors and high net-worth individuals.

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, 2022 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, 2022, as filed with the SEC.

Significant Accounting Policies

There are no material changes to our significant accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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, 2023, 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 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. ASU 2020-04 was effective beginning March 12, 2020 to December 31, 2022. 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 2021-01 was effective beginning January 7, 2021 to December 31, 2022. In December 2022, the FASB issued ASU 2022-06 to extend the effectiveness date of ASU 2020-04 and ASU 2021-01 from December 31, 2022 to December 31, 2024. During the three months ended June 30, 2023, we entered into loan modifications in connection with the transition from LIBOR to Secured Overnight Financing Rate (“SOFR”) for our variable rate loans and we applied the practical expedient to all such modifications. We will continue to apply ASU 2020-04 and ASU 2021-01 prospectively as and when we enter into transactions to which these updates apply.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Consolidated Real Estate Related Funds

Real Estate Related Fund Investments (Fund X)

Real estate related fund investments on our consolidated balance sheets represent the investments of Paramount Group Real Estate Fund X, LP (“Fund X”), which invests in mezzanine loans. We are the general partner and investment manager of Fund X, which, prior to December 12, 2022, was accounted for under the equity method of accounting (see Note 4, Investments in Unconsolidated Real Estate Related Funds). Subsequent to December 12, 2022, we increased our ownership interest in Fund X to 13.0% and began consolidating Fund X into our consolidated financial statements.

The following table sets forth the details of income or loss from real estate related fund investments for the three and six months ended June 30, 2023.



	For the Three Months Ended			For the Six Months Ended
(Amounts in thousands)	June 30, 2023			June 30, 2023
Net investment income	$	3,048		$	7,709
Net realized losses		(1,224	)		(1,224	)
Net unrealized losses (1)		(44,468	)		(45,579	)
Loss from real estate related fund investments		(42,644	)		(39,094	)
Less: noncontrolling interests in consolidated real estate related funds		37,390			34,573
Loss from real estate related fund investments attributable to Paramount Group, Inc.	$	(5,254	)	$	(4,521	)

(1)

Primarily represents an unrealized loss on a mezzanine loan investment based on a negotiated transaction price.

Residential Development Fund (“RDF”)

We are also the general partner of RDF in which we own a 7.4% interest. RDF owns a 35.0% interest in One Steuart Lane, a for-sale residential condominium project, in San Francisco, California. We consolidate the financial results of RDF into our consolidated financial statements and reflect the 92.6% interest that we do not own as noncontrolling interests in consolidated real estate related funds. RDF accounts for its 35.0% interest in One Steuart Lane under the equity method of accounting. Accordingly, our economic interest in One Steuart Lane (based on our 7.4% ownership interest in RDF) is 2.6%. See Note 5, Investments in Unconsolidated Joint Ventures.

Investments in Unconsolidated Real Estate Related Funds

We are the general partner and investment manager of Paramount Group Real Estate Fund VIII, LP (“Fund VIII”) which invests in real estate and related investments. As of June 30, 2023, our ownership interest in Fund VIII was approximately 1.3%. We account for our investment in Fund VIII under the equity method of accounting.

Prior to December 12, 2022, we owned an 8.2% interest in Fund X and accounted for our investment in Fund X under the equity method of accounting. Subsequent to December 12, 2022, we began consolidating Fund X into our consolidated financial statements (see Note 3, Consolidated Real Estate Related Funds).

As of June 30, 2023 and December 31, 2022, our share of the investments in the unconsolidated real estate related funds was $5,270,000 and $3,411,000, respectively, which is reflected as “investments in unconsolidated real estate related funds” on our consolidated balance sheets. We recognized an income of $32,000 and $155,000 during the three months ended June 30, 2023 and 2022, respectively, and a loss of $146,000 and an income of $325,000 during the six months ended June 30, 2023 and 2022, respectively, for our share of earnings, which is reflected as “income (loss) from unconsolidated real estate related funds” on our consolidated statements of income.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Investments in Unconsolidated Joint Ventures

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, 2023			December 31, 2022
712 Fifth Avenue (1)	50.0%	$	-		$	-
Market Center	67.0%		186,233			192,948
55 Second Street (2)	44.1%		84,202			85,340
111 Sutter Street (3)	49.0%		-			-
1600 Broadway (2)	9.2%		8,907			9,113
60 Wall Street	5.0%		-	(4)		25,034
One Steuart Lane (2)	35.0% (5)		115,902			77,961
Oder-Center, Germany (2)	9.5%		3,433			3,107
Investments in unconsolidated joint ventures		$	398,677		$	393,503


	For the Three Months Ended							For the Six Months Ended
(Amounts in thousands)	June 30,							June 30,
Our Share of Net Income (Loss):	2023				2022			2023				2022
712 Fifth Avenue (1)	$	-			$	-		$	-			$	-
Market Center		(2,579	)			(2,487	)		(5,234	)			(4,850	)
55 Second Street (2)		(499	)			(792	)		(1,138	)			(1,471	)
111 Sutter Street (3)		-				(681	)		-				(1,459	)
1600 Broadway (2)		3				(20	)		-				(68	)
60 Wall Street		(24,984	)	(4)		53			(25,001	)	(4)		65
One Steuart Lane (2)		(358	)			(518	)		(2,774	)			(1,787	)
Oder-Center, Germany (2)		15				29			(17	)			41
Loss from unconsolidated joint ventures	$	(28,402	)		$	(4,416	)	$	(34,164	)		$	(9,529	)

(1)

At December 31, 2022, our basis in the joint venture that owns 712 Fifth Avenue was negative $13,427. 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, 2023, the joint venture had net income of $2,374 of which our 50.0% share was $1,187. Accordingly, our basis in the joint venture, taking into account our share of income, was negative $12,240 as of June 30, 2023.

(2)

As of June 30, 2023, the carrying amount of our investments in 55 Second Street, 1600 Broadway, One Steuart Lane and Oder-Center is greater than our share of equity in these investments by $464, $308, $640 and $4,223, respectively, and primarily represents the unamortized portion of our capitalized acquisition costs.

(3)

At December 31, 2022, our basis in the joint venture that owns 111 Sutter Street was negative $107. 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, 2023, the joint venture had net loss of $7,773 of which our 49.0% share was $3,809. Accordingly, our basis in the joint venture, taking into account our share of loss, was negative $3,916 as of June 30, 2023.

(4)

In May 2023, the joint venture that owns 60 Wall Street defaulted on the $575,000 non-recourse mortgage loan securing the property. The joint venture is currently in negotiations with the lender to modify the loan. Additionally, in the second quarter of 2023, the joint venture recognized a $455,893 real estate impairment loss. Accordingly, we recognized a $24,734 impairment loss on our investment in 60 Wall Street. This impairment, together with our share of operating losses recognized in the second quarter, reduced our investment balance to below zero as of June 30, 2023. Since we have no further obligation to fund additional capital to the joint venture, we are no longer required to recognize our proportionate share of earnings from the joint venture until such time that our basis in the joint venture becomes positive. In the meantime, we will 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.

(5)

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%.

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, 2023		December 31, 2022
Real estate, net	$	1,962,354	$	2,377,084
Cash and cash equivalents and restricted cash		213,591		252,540
Intangible assets, net		59,545		69,599
For-sale residential condominium units (1)		317,818		322,232
Other assets		87,951		87,054
Total assets	$	2,641,259	$	3,108,509

Notes and mortgages payable, net	$	1,738,958	$	1,834,916
Intangible liabilities, net		7,644		10,972
Other liabilities		56,801		50,783
Total liabilities		1,803,403		1,896,671
Equity		837,856		1,211,838
Total liabilities and equity	$	2,641,259	$	3,108,509


(Amounts in thousands)	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Income Statements:	2023			2022			2023			2022
Revenues:
Rental revenue	$	40,385		$	54,516		$	80,606		$	112,036
Other income (2)		3,861			31,444			5,618			50,026
Total revenues		44,246			85,960			86,224			162,062
Expenses:
Operating (2)		24,990			52,293			49,691			94,801
Depreciation and amortization		17,713			23,508			35,478			50,406
Total expenses		42,703			75,801			85,169			145,207
Other income (expense):
Interest and other income		783			58			1,492			16
Interest and debt expense		(17,915	)		(16,335	)		(33,361	)		(33,933	)
Real estate impairment loss		(455,893	)		-			(455,893	)		-
Loss before income taxes		(471,482	)		(6,118	)		(486,707	)		(17,062	)
Income tax expense		(19	)		(14	)		(30	)		(43	)
Net loss	$	(471,501	)	$	(6,132	)	$	(486,737	)	$	(17,105	)

(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.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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, 2023			December 31, 2022
Intangible assets:
Gross amount	$	268,681		$	337,104
Accumulated amortization		(189,123	)		(246,723	)
	$	79,558		$	90,381
Intangible liabilities:
Gross amount	$	138,353		$	138,726
Accumulated amortization		(106,393	)		(102,533	)
	$	31,960		$	36,193


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(Amounts in thousands)	2023		2022		2023		2022
Amortization of above and below-market leases, net (component of "rental revenue")	$	1,448	$	315	$	2,484	$	673
Amortization of acquired in-place leases (component of "depreciation and amortization")		4,262		5,412		9,071		10,943

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, 2023 through December 31, 2023, and each of the five succeeding years commencing from January 1, 2024.


(Amounts in thousands)	Above and Below-Market Leases, Net		In-Place Leases
2023	$	2,893	$	8,499
2024		5,862		14,340
2025		4,541		10,504
2026		2,711		7,895
2027		2,398		7,251
2028		2,317		6,979

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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, 2023			June 30, 2023			December 31, 2022
Notes and mortgages payable:
1633 Broadway (1)	Dec-2029	Fixed		2.99	%	$	1,250,000		$	1,250,000

One Market Plaza (1)	Feb-2024 (2)	Fixed		4.03	%		975,000			975,000

1301 Avenue of the Americas
	Aug-2026	Fixed (3)		2.46	%		500,000			500,000
	Aug-2026	LIBOR + 356 bps (4)		5.56	%		360,000			360,000
				3.76	%		860,000			860,000

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

300 Mission Street (1)	Oct-2023 (2)	Fixed		3.65	%		273,000			273,000

Total notes and mortgages payable				3.58	%		3,858,000			3,858,000
Less: unamortized deferred financing costs							(15,331	)		(17,682	)
Total notes and mortgages payable, net						$	3,842,669		$	3,840,318

$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)

We are currently exploring various alternatives to refinance these loans and believe it is probable that we will be successful in refinancing them prior to their maturity.

(3)

Represents variable rate loans that have been fixed by interest rate swaps through August 2024. See Note 8, Derivative Instruments and Hedging Activities. On June 16, 2023, we amended the loans to replace LIBOR with SOFR, effective July 7, 2023.

(4)

Represents variable rate loans, where LIBOR has been capped at 2.00% through August 2023. See Note 8, Derivative Instruments and Hedging Activities. On June 16, 2023, we amended the loans to replace LIBOR with SOFR, effective July 7, 2023.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Derivative Instruments and Hedging Activities

On July 29, 2021, in connection with the $860,000,000 refinancing of 1301 Avenue of the Americas, we had 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. On June 16, 2023, we amended the swap agreements to replace LIBOR with SOFR, effective July 7, 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 loss of $3,135,000 and $11,525,000 for the three and six months ended June 30, 2023, respectively, and 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 the fair value of these derivative financial instruments. See Note 10, Accumulated Other Comprehensive Income. During the next twelve months, we estimate that $25,069,000 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

Rate

June 30, 2023

December 31, 2022

(Amounts in thousands)

1301 Avenue of the Americas

500,000

Jul-2021

Aug-2024

LIBOR

0.46

26,010

32,681

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

26,010

32,681

Notional

Effective

Maturity

Benchmark

Strike

Fair Value as of

Property

Amount

Date

Rate

June 30, 2023

December 31, 2022

(Amounts in thousands)

1301 Avenue of the Americas

360,000

Jul-2021

Aug-2023

LIBOR

2.00

1,187

6,123

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

1,187

6,123

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, 2023, we did not have any obligations relating to our interest rate swaps or interest rate caps that contained such provisions.

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. As of December 31, 2022, we had repurchased a total of 24,183,768 common shares at a weighted average price of $7.65 per share, or $185,000,000 in the aggregate. As of June 30, 2023, we have $15,000,000 available for future repurchases under the existing program. 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.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

10.

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, 2023 and 2022, respectively, including amounts attributable to noncontrolling interests in the Operating Partnership.


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(Amounts in thousands)	2023			2022			2023			2022
Amount of income related to the cash flow hedges recognized in other comprehensive (loss) income (1)	$	5,489		$	6,479		$	4,450		$	24,652
Amounts reclassified from accumulated other comprehensive income (decreasing) increasing interest and debt expense (1)		(8,624	)		(370	)		(15,975	)		2
Amount of income related to unconsolidated joint ventures recognized in other comprehensive (loss) income (2)		3,714			2,401			3,141			11,896
Amounts reclassified from accumulated other comprehensive income (decreasing) increasing loss from unconsolidated joint ventures (2)		(2,320	)		548			(4,310	)		1,506

(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.

11.

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, 2023 and December 31, 2022, noncontrolling interests in our consolidated joint ventures aggregated $407,647,000 and $402,118,000, respectively.

Consolidated Real Estate Related Funds

Noncontrolling interests in our consolidated real estate related funds consist of equity interests held by third parties in our Residential Development Fund and Fund X. As of June 30, 2023 and December 31, 2022, the noncontrolling interests in our consolidated real estate related funds aggregated $183,988,000 and $173,375,000, 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, 2023 and December 31, 2022, noncontrolling interests in the Operating Partnership on our consolidated balance sheets had a carrying amount of $248,898,000 and $242,982,000, respectively, and a redemption value of $68,074,000 and $86,644,000, respectively, based on the closing share price of our common stock on the New York Stock Exchange at the end of each period.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

12.

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, 2023. 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, 2023 and December 31, 2022, the Operating Partnership held interests in consolidated VIEs owning properties and real estate related funds 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, 2023		December 31, 2022
Real estate, net	$	3,325,697	$	3,364,482
Cash and cash equivalents and restricted cash		182,501		144,446
Accounts and other receivables		5,326		13,647
Real estate related fund investments		66,606		105,369
Investments in unconsolidated joint ventures		115,902		77,961
Deferred rent receivable		204,890		197,658
Deferred charges, net		46,399		49,485
Intangible assets, net		45,376		50,553
Other assets		11,268		9,860
Total VIE assets	$	4,003,965	$	4,013,461

Notes and mortgages payable, net	$	2,490,920	$	2,489,902
Accounts payable and accrued expenses		54,775		61,492
Intangible liabilities, net		19,558		21,936
Other liabilities		4,751		6,051
Total VIE liabilities	$	2,570,004	$	2,579,381

Unconsolidated VIEs

As of June 30, 2023, the Operating Partnership held variable interests in entities that own our unconsolidated real estate related funds that were deemed to be VIEs. The following table summarizes our investments in these unconsolidated real estate related funds and the maximum risk of loss from these investments.


	As of
(Amounts in thousands)	June 30, 2023		December 31, 2022
Investments	$	5,270	$	3,411
Asset management fees and other receivables		-		21
Maximum risk of loss	$	5,270	$	3,432

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

13.

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, 2023
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Real estate related fund investments	$	66,606	$	-	$	-	$	66,606
Interest rate swap assets (included in "other assets")		26,010		-		26,010		-
Interest rate cap assets (included in "other assets")		1,187		-		1,187		-
Total assets	$	93,803	$	-	$	27,197	$	66,606


	As of December 31, 2022
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Real estate related fund investments	$	105,369	$	-	$	-	$	105,369
Interest rate swap assets (included in "other assets")		32,681		-		32,681		-
Interest rate cap assets (included in "other assets")		6,123		-		6,123		-
Total assets	$	144,173	$	-	$	38,804	$	105,369

Real Estate Related Fund Investments

As of June 30, 2023, real estate related fund investments were comprised of investments in two mezzanine loans made by Fund X. These investments are measured at fair value on our consolidated balance sheet and are classified as Level 3. The primary unobservable input used in determining the fair value of one mezzanine loan is the credit spread over the base rate, which was 10.00% as of June 30, 2023. A significant increase or decrease in the credit spread would result in a significantly lower or higher fair value, respectively. The fair value of the other mezzanine loan investment is based on a negotiated transaction price.

The table below summarizes the changes in the fair value of real estate related fund investments that are classified as Level 3 for the three and six months ended June 30, 2023.


	For the Three Months Ended			For the Six Months Ended
(Amounts in thousands)	June 30, 2023			June 30, 2023
Beginning balance	$	108,176		$	105,369
Additional investments		4,122			8,040
Net realized losses		(1,224	)		(1,224	)
Net unrealized losses (1)		(44,468	)		(45,579	)
Ending balance	$	66,606		$	66,606

(1)

Primarily represents an unrealized loss on a mezzanine loan investment based on a negotiated transaction price.

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, 2023				As of December 31, 2022
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Notes and mortgages payable	$	3,858,000	$	3,527,140	$	3,858,000	$	3,566,096
Revolving credit facility		-		-		-		-
Total liabilities	$	3,858,000	$	3,527,140	$	3,858,000	$	3,566,096

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14.

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)	2023		2022		2023		2022
Rental revenue:
Fixed	$	148,961	$	163,545	$	314,824	$	318,322
Variable		16,545		13,698		32,395		28,843
Total rental revenue	$	165,506	$	177,243	$	347,219	$	347,165

The following table is a schedule of future undiscounted cash flows under non-cancellable operating leases in effect as of June 30, 2023, for the six-month period from July 1, 2023 through December 31, 2023, and each of the five succeeding years and thereafter commencing January 1, 2024.


(Amounts in thousands)
2023	$	315,265
2024		621,616
2025		573,439
2026		490,657
2027		428,889
2028		426,382
Thereafter		1,885,995
Total	$	4,742,243

15.

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)	2023		2022		2023		2022
Fee income:
Asset management	$	2,326	$	3,087	$	4,501	$	5,972
Property management		1,831		2,103		3,693		4,322
Acquisition, disposition, leasing and other		819		784		1,339		7,668
Total fee income		4,976		5,974		9,533		17,962
Other income (1)		2,180		2,300		4,384		4,075
Total fee and other income	$	7,156	$	8,274	$	13,917	$	22,037

(1)

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

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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)	2023		2022		2023		2022
Interest expense	$	35,340	$	34,039	$	70,261	$	66,778
Amortization of deferred financing costs		1,539		1,539		3,077		3,077
Total interest and debt expense	$	36,879	$	35,578	$	73,338	$	69,855

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 $4,214,000 and $4,142,000 for the three months ended June 30, 2023 and 2022, respectively, and $9,331,000 and $10,704,000 for the six months ended June 30, 2023 and 2022, respectively, related to awards granted in prior periods, including the equity awards granted on January 25, 2023 (“2023 Equity Grants”) described below.

2023 Equity Grants

2023 Performance-Based Awards Program (“2023 Performance Program”)

On January 25, 2023, the Compensation Committee of our Board of Directors (the “Compensation Committee”) approved the 2023 Performance Program, a multi-year performance-based long-term incentive compensation program. Under the 2023 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, 2023 and continuing through December 31, 2025. 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 2023 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 2023 Performance Program are subject to vesting based on continued employment with us through December 31, 2026, with 50.0% of each award vesting upon the conclusion of the performance measurement period, and the remaining 50.0% vesting on December 31, 2026. Our Named Executive Officers are required to hold earned awards for an additional year following vesting. Awards granted under the 2023 Performance Program had a fair value of $7,067,000 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 25, 2023, we also granted an aggregate of 796,349 LTIP units, 2,054,270 AOLTIP units and 81,531 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 the grant were $4,528,000, $3,752,000, and $503,000, respectively, and these awards are being amortized into expense on a straight-line basis over the vesting period.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Completion of the 2020 Performance-Based Awards Program (“2020 Performance Program”)

The three-year performance measurement period with respect to our 2020 Performance Program ended on December 31, 2022. On January 25, 2023, the Compensation Committee determined that (i) our TSR ranked in the 75th percentile amongst the TSR of our New York City office REIT peers and (ii) our TSR ranked in the 37th percentile amongst the performance of the SNL U.S. Office REIT Index constituents, resulting in a payout of approximately 59.7% of the LTIP units granted. Additionally, in accordance with the 2020 Performance Program, the final payout was reduced by 30.0% since our TSR was negative over the three-year performance measurement period. Accordingly, of the 1,068,693 LTIP units that were granted under the 2020 Performance Program, 443,713 LTIP units were earned. Of the LTIP units that were earned, 221,850 LTIP units vested immediately on January 25, 2023 and the remaining 221,863 LTIP units will vest on December 31, 2023. This award had a grant date fair value of $7,488,000 and a remaining unrecognized compensation cost of $409,000 as of June 30, 2023, which will be amortized into expense over a weighted-average period of 0.5 years.

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 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 June 30,						For the Six Months Ended June 30,
(Amounts in thousands, except per share amounts)	2023			2022			2023			2022
Numerator:
Net (loss) income attributable to common stockholders	$	(47,538	)	$	(360	)	$	(45,809	)	$	3,011
Earnings allocated to unvested participating securities		(10	)		(22	)		(30	)		(43	)
Numerator for (loss) income per common share - basic and diluted	$	(47,548	)	$	(382	)	$	(45,839	)	$	2,968
Denominator:
Denominator for basic (loss) income per common share - weighted average shares		217,004			222,972			216,785			220,889
Effect of dilutive stock-based compensation plans (1)		-			-			-			41
Denominator for diluted (loss) income per common share - weighted average shares		217,004			222,972			216,785			220,930

(Loss) income per common share - basic and diluted	$	(0.22	)	$	(0.00	)	$	(0.21	)	$	0.01

(1)

The effect of dilutive securities excludes 17,517 and 20,354 weighted average share equivalents for the three months ended June 30, 2023 and 2022, respectively, and 17,427 and 22,347 weighted average share equivalents for the six months ended June 30, 2023 and 2022, respectively, as their effect was anti-dilutive.

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 $266,000 and $260,000 for the three months ended June 30, 2023 and 2022, respectively, and $529,000 and $749,000 for the six months ended June 30, 2023 and 2022, 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, 2023 and December 31, 2022, amounts owed to us under these agreements aggregated $44,000 and $52,000, 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 related funds. We recognized fee income of $4,050,000 and $5,015,000 for the three months ended June 30, 2023 and 2022, respectively, and $7,703,000 and $15,798,000 for the six months ended June 30, 2023 and 2022, 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, 2023 and December 31, 2022, amounts owed to us under these agreements aggregated $2,111,000 and $3,032,000, respectively, which are included as a component of “accounts and other receivables” on our consolidated balance sheets.

HT Consulting GmbH

We have an agreement with HT Consulting GmbH (“HTC”), a licensed broker in Germany, to supervise selling efforts for our joint ventures and private equity real estate related 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 $63,000 and $124,000 for the three months ended June 30, 2023 and 2022, respectively, and $191,000 and $513,000 for the six months ended June 30, 2023 and 2022, respectively, in connection with this agreement. As of June 30, 2023 and December 31, 2022, we owed $102,000 and $119,000, respectively, to HTC under this agreement, which are included as a component of “accounts payable and accrued expenses” on our consolidated balance sheets.

ParkProperty Capital, LP

ParkProperty Capital, LP (“ParkProperty”), an entity partially owned by Katharina Otto-Bernstein (a member of our Board of Directors), leased 3,330 square feet at 1633 Broadway (“1633 Lease”). In December 2022, upon expiration of the 1633 Lease, ParkProperty entered into a five-year lease for 4,233 square feet at 1325 Avenue of the Americas. We recognized rental revenue of $69,000 and $54,000 for the three months ended June 30, 2023 and 2022, respectively, and $138,000 and $108,000 for the six months ended June 30, 2023 and 2022, respectively, pursuant to these leases.

Mannheim Trust

A subsidiary of Mannheim Trust leases 3,127 square feet of office space at 712 Fifth Avenue, our 50.0% owned unconsolidated joint venture, pursuant to a lease agreement which expires in June 2025. The Mannheim Trust is for the benefit of the children of Dr. Martin Bussmann, who is a member of our Board of Directors. We recognized $31,000 and $91,000 for the three months ended June 30, 2023 and 2022, respectively, and $124,000 and $182,000 for the six months ended June 30, 2023 and 2022, respectively, for our share of rental income pursuant to this lease.

Other

We have entered into an agreement with Kramer Design Services (“Kramer Design”) to develop branding and signage for the amenity center at 1301 Avenue of the Americas. Kramer Design is 100% owned by the spouse of Albert Behler, our Chairman, Chief Executive Officer and President. During the three and six months ended June 30, 2023, we incurred and paid Kramer Design $84,000 in connection with services rendered pursuant to this agreement.

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 consolidated 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, 2023, 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 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 $59,000,000. Since no amount in this range is a better estimate than any other amount within the range, we have not accrued any liability arising from potential losses relating to these Notices in our consolidated financial statements.

PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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, 2023
(Amounts in thousands)	Total			New York			San Francisco			Other
Property-related revenues	$	167,686		$	106,837		$	61,010		$	(161	)
Property-related operating expenses		(71,078	)		(48,685	)		(21,814	)		(579	)
NOI from unconsolidated joint ventures (excluding One Steuart Lane)		10,720			3,404			7,256			60
NOI (1)	$	107,328		$	61,556		$	46,452		$	(680	)

	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 Six Months Ended June 30, 2023
(Amounts in thousands)	Total			New York			San Francisco			Other
Property-related revenues	$	351,603		$	224,063		$	128,312		$	(772	)
Property-related operating expenses		(141,387	)		(98,206	)		(42,082	)		(1,099	)
NOI from unconsolidated joint ventures (excluding One Steuart Lane)		21,101			6,767			14,275			59
NOI (1)	$	231,317		$	132,624		$	100,505		$	(1,812	)

	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	)

(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.

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 June 30,						For the Six Months Ended June 30,
(Amounts in thousands)	2023			2022			2023			2022
NOI	$	107,328		$	123,314		$	231,317		$	239,584
Add (subtract) adjustments to arrive to net income:
Fee income		4,976			5,974			9,533			17,962
Depreciation and amortization expense		(62,627	)		(57,398	)		(121,515	)		(113,022	)
General and administrative expenses		(16,224	)		(16,706	)		(30,847	)		(32,351	)
Loss from real estate related fund investments		(42,644	)		-			(39,094	)		-
NOI from unconsolidated joint ventures (excluding One Steuart Lane)		(10,720	)		(11,585	)		(21,101	)		(22,819	)
Loss from unconsolidated joint ventures		(28,402	)		(4,416	)		(34,164	)		(9,529	)
Interest and other income, net		2,967			796			5,892			1,027
Interest and debt expense		(36,879	)		(35,578	)		(73,338	)		(69,855	)
Other, net		(31	)		(4	)		(337	)		49
(Loss) income before income taxes		(82,256	)		4,397			(73,654	)		11,046
Income tax expense		(573	)		(359	)		(861	)		(886	)
Net (loss) income		(82,829	)		4,038			(74,515	)		10,160
Less net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures		(5,351	)		(4,779	)		(10,992	)		(8,204	)
Consolidated real estate related funds		37,301			352			36,478			1,368
Operating Partnership		3,341			29			3,220			(313	)
Net (loss) income attributable to common stockholders	$	(47,538	)	$	(360	)	$	(45,809	)	$	3,011

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, 2023	$	8,367,979	$	5,234,190	$	2,615,147	$	518,642
December 31, 2022		8,453,254		5,311,636		2,631,265		510,353

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Forward-Looking Statements

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

•

unfavorable market and economic conditions in the United States, 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 or that a major tenant may be adversely impacted by market and economic conditions, including rising inflation and interest rates;

•

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 real estate related funds;

•

the negative impact of any future pandemic, endemic or outbreak of infectious disease on the U.S., regional and global economies and our tenants’ financial condition and results of operations;

•

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

•

exposure to litigation or other claims;

•

loss of key personnel;

•

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

•

risks associated with our substantial indebtedness;

•

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

•

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

•

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

•

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

•

risks associated with the market for our common stock;

•

regulatory changes, including changes to tax laws and regulations;

•

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

•

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

•

any of the other risks included in this Quarterly Report on Form 10-Q or in our Annual Report on Form 10-K for the year ended December 31, 2022, including those set forth in Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

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, 2022 or in Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023.

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, 2022.

Recently Issued Accounting Literature

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

Business Overview

We are a fully-integrated REIT focused on owning, operating, managing, acquiring and redeveloping high-quality, Class A office properties in select central business district submarkets of New York City 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, 2023.

As of June 30, 2023, we owned and/or managed a portfolio of 18 properties aggregating 13.8 million square feet comprised of:

•

Four managed properties aggregating 0.8 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 several real estate related funds for institutional investors and high net-worth individuals.

Stock Repurchase Program

Other Items

We, through a wholly-owned subsidiary, were the landlord under certain lease agreements with First Republic Bank (“First Republic”) aggregating 460,726 square feet at our One Front Street property in San Francisco, CA. On May 1, 2023, First Republic was closed by the California Department of Financial Protection and Innovation and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. Subsequent thereto, JPMorgan Chase Bank, N.A. (“JPMorgan”) acquired all deposit accounts and substantially all the assets and assumed certain of the liabilities of First Republic from the FDIC. In connection therewith, JPMorgan had 60 days to assess whether or not to assume or reject our lease agreements with First Republic. On June 30, 2023, we entered into a surrender and assumption agreement with JPMorgan whereby JPMorgan (i) assumed, under the same lease terms that we had with First Republic, 344,010 square feet of existing space, and (ii) surrendered the remaining 116,716 square feet of space, which largely represented space that was not being utilized by First Republic, and a majority of which (88,236 square feet) was subleased to various other tenants under lease agreements expiring between 2023 and 2024.

Additionally, we, through a different wholly-owned subsidiary are also the landlord under a long-term lease agreement with SVB Securities (“SVB Securities”), at our 1301 Avenue of the Americas property in Manhattan, NY. SVB Securities leased an aggregate of 108,994 square feet from us and is a subsidiary of SVB Financial Group, which filed for Chapter 11 bankruptcy relief on March 17, 2023. On June 28, 2023, we executed a termination of our lease with SVB Securities and entered into a new lease with the entity acquiring substantially all of the assets of SVB Securities, including 68,183 square feet on a long-term basis, and 40,811 square feet on a short-term basis. The effectiveness of our new lease is subject to certain approvals.

Leasing Results - Three Months Ended June 30, 2023

In the three months ended June 30, 2023, we leased 71,847 square feet, of which our share was 57,404 square feet that was leased at a weighted average initial rent of $78.14 per square foot. This leasing activity, offset by the lease expirations in the three months, decreased leased occupancy and same store leased occupancy (properties owned by us in a similar manner during both reporting periods) by 20 basis points to 89.6% at June 30, 2023 from 89.8% at March 31, 2023. Of the 71,847 square feet leased in the three months ended June 30, 2023, 34,514 square feet represented our share of second generation space (space leased in the current period (i) prior to its originally scheduled expiration, or (ii) that has been vacant for less than twelve months) for which rental rates increased by 3.9% on a GAAP basis and decreased by 3.1% on a cash basis. The weighted average lease term for leases signed during the three months was 10.6 years and weighted average tenant improvements and leasing commissions on these leases were $12.16 per square foot per annum, or 15.6% of initial rent.

New York

In the three months ended June 30, 2023, we leased 59,781 square feet in our New York portfolio, of which our share was 53,087 square feet that was leased at a weighted average initial rent of $73.92 per square foot. This leasing activity, partially offset by lease expirations in the three months, increased leased occupancy and same store leased occupancy by 30 basis points to 90.5% at June 30, 2023 from 90.2% at March 31, 2023. Of the 59,781 square feet leased in the three months ended June 30, 2023, 30,197 square feet represented second generation space for which rental rates increased by 1.2% on a GAAP basis and decreased by 5.7% on a cash basis. The weighted average lease term for leases signed during the three months was 11.3 years and weighted average tenant improvements and leasing commissions on these leases were $12.23 per square foot per annum, or 16.5% of initial rent.

San Francisco

In the three months ended June 30, 2023, we leased 12,066 square feet in our San Francisco portfolio, of which our share was 4,317 square feet that was leased at a weighted average initial rent of $130.00 per square foot. This leasing activity, offset by lease expirations in the three months, decreased leased occupancy and same store leased occupancy by 150 basis points to 87.2% at June 30, 2023 from 88.7% at March 31, 2023. The 150 basis point decrease in leased occupancy and same store leased occupancy was driven primarily by the surrendered JPMorgan space at One Front Street. Of the 12,066 square feet leased in the three months, 4,317 square feet represented our share of second generation space for which rental rates increased by 17.6% on a GAAP basis and 9.1% on a cash basis. The weighted average lease term for leases signed during the three months was 1.1 years and weighted average tenant improvements and leasing commissions on these leases were $3.99 per square foot per annum, or 3.1% of initial rent.

The following table presents additional details on the leases signed during the three months ended June 30, 2023. 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, 2023				Total			New York			San Francisco
	Total square feet leased				71,847			59,781			12,066
	Pro rata share of total square feet leased:				57,404			53,087			4,317
		Initial rent (1)		$	78.14		$	73.92		$	130.00
		Weighted average lease term (in years)			10.6			11.3			1.1

		Tenant improvements and leasing commissions:
			Per square foot	$	128.47		$	138.57		$	4.32
			Per square foot per annum	$	12.16		$	12.23		$	3.99
			Percentage of initial rent		15.6	%		16.5	%		3.1	%

		Rent concessions:
			Average free rent period (in months)		11.0			11.8			1.0
			Average free rent period per annum (in months)		1.0			1.0			0.9

		Second generation space: (2)
		Square feet			34,514			30,197			4,317
		Cash basis:
			Initial rent (1)	$	82.72		$	75.96		$	130.00
			Prior escalated rent (3)	$	85.38		$	80.55		$	119.15
			Percentage (decrease) increase		(3.1	%)		(5.7	%)		9.1	%
		GAAP basis:
			Straight-line rent	$	79.07		$	73.18		$	120.30
			Prior straight-line rent	$	76.09		$	72.34		$	102.34
			Percentage increase		3.9	%		1.2	%		17.6	%

(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 in the current period (i) prior to its scheduled expiration, or (ii) 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, 2023		89.6	%		90.5	%		87.2	%
	As of March 31, 2023		89.8	%		90.2	%		88.7	%

(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.

Leasing Results - Six Months Ended June 30, 2023

In the six months ended June 30, 2023, we leased 267,481 square feet, of which our share was 227,737 square feet that was leased at a weighted average initial rent of $81.18 per square foot. This leasing activity, offset by the lease expirations in the six months, decreased leased occupancy and same store leased occupancy (properties owned by us in a similar manner during both reporting periods) by 170 basis points to 89.6% at June 30, 2023 from 91.3% at December 31, 2022. The 170 basis point decrease in leased occupancy was driven primarily by the scheduled expiration of Credit Agricole’s 305,132 square foot lease in February 2023, partially offset by O’Melveny & Myers’ 160,708 square foot lease; both of which were at 1301 Avenue of the Americas in our New York portfolio.

Of the 267,481 square feet leased in the six months ended June 30, 2023, 178,396 square feet represented our share of second generation space (space leased in the current period (i) prior to its originally scheduled expiration, or (ii) that has been vacant for less than twelve months) for which rental rates increased by 1.4% on a GAAP basis and decreased by 2.1% on a cash basis. The weighted average lease term for leases signed during the six months was 12.4 years and weighted average tenant improvements and leasing commissions on these leases were $12.64 per square foot per annum, or 15.6% of initial rent.

New York

In the six months ended June 30, 2023, we leased 178,748 square feet in our New York portfolio, of which our share was 172,054 square feet that was leased at a weighted average initial rent of $78.82 per square foot. This leasing activity, offset by lease expirations in the six months, decreased leased occupancy and same store leased occupancy by 160 basis points to 90.5% at June 30, 2023 from 92.1% at December 31, 2022. The 160 basis point decrease in leased occupancy was driven primarily by scheduled expiration of Credit Agricole’s 305,132 square foot lease in February 2023, partially offset by O’Melveny & Myers’ 160,708 square foot lease; both of which were at 1301 Avenue of the Americas.

Of the 178,748 square feet leased in the six months ended June 30, 2023, 122,713 square feet represented second generation space for which rental rates increased by 6.9% on a GAAP basis and decreased by 4.1% on a cash basis. The weighted average lease term for leases signed during the six months was 14.9 years and weighted average tenant improvements and leasing commissions on these leases were $11.92 per square foot per annum, or 15.1% of initial rent.

San Francisco

In the six months ended June 30, 2023, we leased 88,733 square feet in our San Francisco portfolio, of which our share was 55,683 square feet that was leased at a weighted average initial rent of $88.49 per square foot. This leasing activity, offset by lease expirations in the six months, decreased leased occupancy and same store leased occupancy by 170 basis points to 87.2% at June 30, 2023 from 88.9% at December 31, 2022. The 170 basis point decrease in leased occupancy and same store leased occupancy was driven primarily by the surrendered JPMorgan space at One Front Street. Of the 88,733 square feet leased in the six months ended June 30, 2023, 55,683 square feet represented our share of second generation space for which rental rates decreased by 8.4% on a GAAP basis and increased by 2.1% on a cash basis. The weighted average lease term for leases signed during the six months was 4.7 years and weighted average tenant improvements and leasing commissions on these leases were $19.71 per square foot per annum, or 22.3% of initial rent.

The following table presents additional details on the leases signed during the six months ended June 30, 2023. 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, 2023				Total			New York			San Francisco
	Total square feet leased				267,481			178,748			88,733
	Pro rata share of total square feet leased:				227,737			172,054			55,683
		Initial rent (1)		$	81.18		$	78.82		$	88.49
		Weighted average lease term (in years)			12.4			14.9			4.7

		Tenant improvements and leasing commissions:
			Per square foot	$	156.83		$	177.62		$	92.58
			Per square foot per annum	$	12.64		$	11.92		$	19.71
			Percentage of initial rent		15.6	%		15.1	%		22.3	%

		Rent concessions:
			Average free rent period (in months)		14.0			16.1			7.5
			Average free rent period per annum (in months)		1.1			1.1			1.6

		Second generation space: (2)
		Square feet			178,396			122,713			55,683
		Cash basis:
			Initial rent (1)	$	82.48		$	79.76		$	88.49
			Prior escalated rent (3)	$	84.27		$	83.17		$	86.70
			Percentage (decrease) increase		(2.1	%)		(4.1	%)		2.1	%
		GAAP basis:
			Straight-line rent	$	79.60		$	78.55		$	81.89
			Prior straight-line rent	$	78.47		$	73.50		$	89.43
			Percentage increase (decrease)		1.4	%		6.9	%		(8.4	%)

(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 in the current period (i) prior to its scheduled expiration, or (ii) 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, 2023	89.6%	90.5%	87.2%
	As of December 31, 2022	91.3%	92.1%	88.9%

(1)

Financial Results - Three Months Ended June 30, 2023 and 2022

Net Income, FFO and Core FFO

Net loss attributable to common stockholders was $47,538,000, or $0.22 per diluted share, for the three months ended June 30, 2023, compared to $360,000, or $0.00 per diluted share, for the three months ended June 30, 2022. Net loss attributable to common stockholders for the three months ended June 30, 2023, includes (i) $23,110,000, or $0.11 per diluted share, for our share of a non-cash real estate impairment loss related to an unconsolidated joint venture, and (ii) non-cash straight-line rent receivable write-offs aggregating $12,993,000, or $0.06 per diluted share, related to the terminated SVB Securities lease and the surrendered JPMorgan space.

Funds from Operations (“FFO”) attributable to common stockholders was $34,017,000, or $0.16 per diluted share, for the three months ended June 30, 2023, compared to $53,322,000, or $0.24 per diluted share, for the three months ended June 30, 2022. FFO attributable to common stockholders for the three months ended June 30, 2023 includes non-cash straight-line rent receivable write-offs aggregating $12,993,000, or $0.06 per diluted share, related to the terminated SVB Securities lease and the surrendered JPMorgan space. FFO attributable to common stockholders for the three months ended June 30, 2023 and 2022 also includes the impact of non-core items, which are listed in the table on page 55. 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, 2023 and 2022 by $4,649,000 and $311,000, or $0.02 and $0.00 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 55, was $38,666,000, or $0.18 per diluted share, for the three months ended June 30, 2023, compared to $53,633,000, or $0.24 per diluted share, for the three months ended June 30, 2022.

Same Store Results

The table below summarizes the percentage (decrease) increase in our share of Same Store NOI and Same Store Cash NOI, by segment, for the three months ended June 30, 2023 versus June 30, 2022.


	Total			New York			San Francisco
Same Store NOI		(5.0	%)		(7.4	%)		(0.2	%)
Same Store Cash NOI		(4.7	%)		(9.5	%)		6.3	%

See pages 48-56 “Non-GAAP Financial Measures” for a reconciliation of these measures to the most directly comparable GAAP measure and the reasons why we believe these non-GAAP measures are useful.

Financial Results - Six Months Ended June 30, 2023 and 2022

Net Income, FFO and Core FFO

Net loss attributable to common stockholders was $45,809,000, or $0.21 per diluted share, for the six months ended June 30, 2023, compared to net income attributable to common stockholders of $3,011,000, or $0.01 per diluted share, for the six months ended June 30, 2022. Net loss attributable to the common stockholders for the six months ended June 30, 2023 includes (i) $23,110,000, or $0.11 per diluted share, for our share of a non-cash real estate impairment loss related to an unconsolidated joint venture, and (ii) non-cash straight-line rent receivable write-offs aggregating $12,993,000, or $0.06 per diluted share, related to the terminated SVB Securities lease and the surrendered JPMorgan space.

FFO attributable to common stockholders was $90,796,000, or $0.42 per diluted share, for the six months ended June 30, 2023, compared to $108,195,000, or $0.49 per diluted share, for the six months ended June 30, 2022. FFO attributable to common stockholders for the six months ended June 30, 2023 includes non-cash straight-line rent receivable write-offs aggregating $12,993,000, or $0.06 per diluted share, related to the terminated SVB Securities lease and the surrendered JPMorgan space. FFO attributable to common stockholders for the six months ended June 30, 2023 and 2022 also includes the impact of non-core items, which are listed in the table on page 55. 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, 2023 by $4,044,000, or $0.02 per diluted share, and did not meaningfully impact FFO attributable to common stockholders for the six months ended June 30, 2022.

Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 55, was $94,840,000, or $0.44 per diluted share, for the six months ended June 30, 2023, compared to $108,211,000, or $0.49 per diluted share, for the six months ended June 30, 2022.

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, 2023 versus June 30, 2022.


	Total	New York	San Francisco
Same Store NOI	0.9%	(1.2%)	5.1%
Same Store Cash NOI	(2.3%)	(5.1%)	4.0%

Results of Operations - Three Months Ended June 30, 2023 and 2022

The following pages summarize our consolidated results of operations for the three months ended June 30, 2023 and 2022.


			For the Three Months Ended June 30,
(Amounts in thousands)			2023			2022			Change
Revenues:
	Rental revenue		$	165,506		$	177,243		$	(11,737	)
	Fee and other income			7,156			8,274			(1,118	)
		Total revenues		172,662			185,517			(12,855	)
Expenses:
	Operating			71,078			67,814			3,264
	Depreciation and amortization			62,627			57,398			5,229
	General and administrative			16,224			16,706			(482	)
	Transaction related costs			63			159			(96	)
		Total expenses		149,992			142,077			7,915
Other income (expense):
	Loss from real estate related fund investments			(42,644	)		-			(42,644	)
	Income from unconsolidated real estate related funds			32			155			(123	)
	Loss from unconsolidated joint ventures			(28,402	)		(4,416	)		(23,986	)
	Interest and other income, net			2,967			796			2,171
	Interest and debt expense			(36,879	)		(35,578	)		(1,301	)
(Loss) income before income taxes				(82,256	)		4,397			(86,653	)
	Income tax expense			(573	)		(359	)		(214	)
Net (loss) income				(82,829	)		4,038			(86,867	)
Less net (income) loss attributable to noncontrolling
	interests in:
	Consolidated joint ventures			(5,351	)		(4,779	)		(572	)
	Consolidated real estate related funds			37,301			352			36,949
	Operating Partnership			3,341			29			3,312
Net loss attributable to common stockholders			$	(47,538	)	$	(360	)	$	(47,178	)

Revenues

Our revenues, which consist of rental revenue and fee and other income, were $172,662,000 for the three months ended June 30, 2023, compared to $185,517,000 for the three months ended June 30, 2022, a decrease of $12,855,000. Below are the details of the increase or decrease by segment.


(Amounts in thousands)	Total			New York				San Francisco				Other
Rental revenue
Same store operations	$	95		$	(5,074	)	(1)	$	5,169		(2)	$	-
Non-cash write-offs of straight-line rent receivables		(13,906	)		(6,563	)	(3)		(7,343	)	(3)		-
Other, net		2,074			2,127		(4)		(691	)			638
(Decrease) increase in rental revenue	$	(11,737	)	$	(9,510	)		$	(2,865	)		$	638

Fee and other income
Fee income
Asset management	$	(761	)	$	-			$	-			$	(761	)
Property management		(272	)		-				-				(272	)
Acquisition, disposition, leasing and other		35			-				-				35
Decrease in fee income		(998	)		-				-				(998	)
Other income
Same store operations		(120	)		47				(167	)			-
(Decrease) increase in other income		(120	)		47				(167	)			-
(Decrease) increase in fee and other income	$	(1,118	)	$	47			$	(167	)		$	(998	)

Total decrease in revenues	$	(12,855	)	$	(9,463	)		$	(3,032	)		$	(360	)

(1)

Primarily due to lower average occupancy at 1301 Avenue of the Americas in the current year.

(2)

Primarily due to higher average occupancy at One Market Plaza in the current year and higher expense reimbursements from increased operating expenses (See note 1 on page 39).

(3)

Represents write-offs in the current year related to the terminated SVB Securities lease at 1301 Avenue of the Americas in our New York portfolio and the surrendered JPMorgan space at One Front Street in our San Francisco portfolio.

(4)

Primarily due to income of $2,284 in the current year, in connection with a tenant’s lease termination at 1633 Broadway.

Expenses

Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $149,992,000 for the three months ended June 30, 2023, compared to $142,077,000 for the three months ended June 30, 2022, an increase of $7,915,000. Below are the details of the increase or decrease by segment.



(Amounts in thousands)	Total			New York			San Francisco			Other
Operating
Same store operations	$	3,772		$	538		$	3,234	(1)	$	-
Other, net		(508	)		-			-			(508	)
Increase (decrease) in operating	$	3,264		$	538		$	3,234		$	(508	)

Depreciation and amortization
Operations	$	5,229		$	(390	)	$	5,293	(2)	$	326
Increase (decrease) in depreciation and amortization	$	5,229		$	(390	)	$	5,293		$	326

General and administrative
Operations	$	(482	)	$	-		$	-		$	(482	)
Decrease in general and administrative	$	(482	)	$	-		$	-		$	(482	)

Decrease in transaction related costs	$	(96	)	$	-		$	-		$	(96	)

Total increase (decrease) in expenses	$	7,915		$	148		$	8,527		$	(760	)

(1)

Primarily due to higher operating expenses driven by higher average occupancy at One Market Plaza in the current year (see note 2 on page 38).

(2)

Primarily due to write-off of deferred leasing commissions in connection with the surrendered JPMorgan space at One Front Street.

Loss from Real Estate Related Fund Investments

Loss from real estate related fund investments was $42,644,000 for the three months ended June 30, 2023, and represented loss attributable to Paramount Group Real Estate Fund X, LP (“Fund X”), which we began consolidating into our consolidated financial statements effective December 12, 2022, and in which we have a 13.0% ownership interest. The loss resulted primarily from a $45,658,000 unrealized loss on a mezzanine loan investment based on a negotiated transaction price.

Income from Unconsolidated Real Estate Related Funds

Income from unconsolidated real estate related funds was $32,000 for the three months ended June 30, 2023, which represented our share of income from Paramount Group Real Estate Fund VIII, LP (“Fund VIII”). Income from unconsolidated real estate related funds was $155,000 for the three months ended June 30, 2022, which represented our share of income from Fund VIII and Fund X.

Loss from Unconsolidated Joint Ventures

Loss from unconsolidated joint ventures was $28,402,000 for the three months ended June 30, 2023, compared to $4,416,000 for the three months ended June 30, 2022, an increase in loss of $23,986,000. This increase in loss resulted primarily from a $24,734,000 non-cash real estate impairment loss on 60 Wall Street in the current year.

Interest and Other Income, net

Interest and other income was $2,967,000 for the three months ended June 30, 2023, compared to $796,000 for the three months ended June 30, 2022, an increase in income of $2,171,000. This increase resulted primarily from higher yields on short-term investments in the current year.

Interest and Debt Expense

Interest and debt expense was $36,879,000 for the three months ended June 30, 2023, compared to $35,578,000 for the three months ended June 30, 2022, an increase of $1,301,000. This increase resulted primarily from higher interest on the variable rate portion of our debt at 1301 Avenue of the Americas due to an increase in average LIBOR rates in the current year’s three months compared to the prior year.

Income Tax Expense

Income tax expense was $573,000 for the three months ended June 30, 2023, compared to $359,000 for the three months ended June 30, 2022, an increase of $214,000. This increase resulted primarily from higher taxable income attributable to our taxable REIT subsidiaries in the current year.

Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures

Net income attributable to noncontrolling interests in consolidated joint ventures was $5,351,000 for the three months ended June 30, 2023, compared to $4,779,000 for the three months ended June 30, 2022, a $572,000 increase in net income attributable to noncontrolling interests in consolidated joint ventures. This increase was primarily due to higher net income attributable to One Market Plaza, resulting from higher average occupancy in the current year.

Net Loss Attributable to Noncontrolling Interests in Consolidated Real Estate Related Funds

Net loss attributable to noncontrolling interest in consolidated real estate related funds was $37,301,000 for the three months ended June 30, 2023, compared to $352,000 for the three months ended June 30, 2022, an increase in loss of $36,949,000. This increase was primarily due to the noncontrolling interests' share of the $45,658,000 unrealized loss on an investment in a mezzanine loan.

Net Loss Attributable to Noncontrolling Interests in Operating Partnership

Net loss attributable to noncontrolling interests in the Operating Partnership was $3,341,000 for the three months ended June 30, 2023, compared to $29,000 for the three months ended June 30, 2022, an increase in net loss allocated to noncontrolling interests of $3,312,000. This increase in loss resulted from higher net loss subject to allocation to the unitholders of the Operating Partnership in the current year.

Results of Operations - Six Months Ended June 30, 2023 and 2022

The following pages summarize our consolidated results of operations for the six months ended June 30, 2023 and 2022.


			For the Six Months Ended June 30,
(Amounts in thousands)			2023			2022			Change
Revenues:
	Rental revenue		$	347,219		$	347,165		$	54
	Fee and other income			13,917			22,037			(8,120	)
		Total revenues		361,136			369,202			(8,066	)
Expenses:
	Operating			141,387			134,475			6,912
	Depreciation and amortization			121,515			113,022			8,493
	General and administrative			30,847			32,351			(1,504	)
	Transaction related costs			191			276			(85	)
		Total expenses		293,940			280,124			13,816
Other income (expense):
	Loss from real estate related fund investments			(39,094	)		-			(39,094	)
	(Loss) income from unconsolidated real estate funds			(146	)		325			(471	)
	Loss from unconsolidated joint ventures			(34,164	)		(9,529	)		(24,635	)
	Interest and other income, net			5,892			1,027			4,865
	Interest and debt expense			(73,338	)		(69,855	)		(3,483	)
(Loss) income before income taxes				(73,654	)		11,046			(84,700	)
	Income tax expense			(861	)		(886	)		25
Net (loss) income				(74,515	)		10,160			(84,675	)
Less net (income) loss attributable to noncontrolling
	interests in:
	Consolidated joint ventures			(10,992	)		(8,204	)		(2,788	)
	Consolidated real estate fund			36,478			1,368			35,110
	Operating Partnership			3,220			(313	)		3,533
Net (loss) income attributable to common stockholders			$	(45,809	)	$	3,011		$	(48,820	)

Revenues

Our revenues, which consist of rental revenue and fee and other income, were $361,136,000 for the six months ended June 30, 2023, compared to $369,202,000 for the six months ended June 30, 2022, a decrease of $8,066,000. Below are the details of the increase or decrease by segment.


(Amounts in thousands)	Total			New York				San Francisco				Other
Rental revenue
Same store operations	$	13,470		$	(1,977	)	(1)	$	15,447		(2)	$	-
Non-cash write-offs of straight-line rent receivables		(13,578	)		(6,235	)	(3)		(7,343	)	(4)		-
Other, net		162			28		(5)		(692	)			826
Increase (decrease) in rental revenue	$	54		$	(8,184	)		$	7,412			$	826

Fee and other income
Fee income
Asset management	$	(1,471	)	$	-			$	-			$	(1,471	)
Property management		(629	)		-				-				(629	)
Acquisition, disposition, leasing and other		(6,329	)		-				-				(6,329	)	(6)
Decrease in fee income		(8,429	)		-				-				(8,429	)
Other income
Same store operations		309			542				(231	)			(2	)
Increase (decrease) in other income		309			542				(231	)			(2	)
(Decrease) increase in fee and other income	$	(8,120	)	$	542			$	(231	)		$	(8,431	)

Total (decrease) increase in revenues	$	(8,066	)	$	(7,642	)		$	7,181			$	(7,605	)

(1)

Primarily due to lower average occupancy at 1301 Avenue of the Americas in the current year.

(2)

Primarily due to higher average occupancy in the current year and higher expense reimbursements from increased operating expenses (See note 1 on page 43).

(3)

Primarily due to a write-off of $6,563 in the current year related to the terminated SVB Securities lease at 1301 Avenue of the Americas.

(4)

Represents a write-off in the current year related to the surrendered JPMorgan space at One Front Street.

(5)

Primarily due to income of $2,284 in the current year, in connection with a tenant's lease termination at 1633 Broadway, partially offset by lease termination income of $2,056 in the prior year.

(6)

Primarily due to fee income earned in connection with the acquisition of 1600 Broadway in the prior year.

Expenses

Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $293,940,000 for the six months ended June 30, 2023, compared to $280,124,000 for the six months ended June 30, 2022, an increase of $13,816,000. Below are the details of the increase or decrease by segment.


(Amounts in thousands)	Total			New York		San Francisco			Other
Operating
Same store operations	$	8,058		$	1,848	$	6,210	(1)	$	-
Other, net		(1,146	)		-		-			(1,146	)
Increase in operating	$	6,912		$	1,848	$	6,210		$	(1,146	)

Depreciation and amortization
Operations	$	8,493		$	1,164	$	6,710	(2)	$	619
Increase in depreciation and amortization	$	8,493		$	1,164	$	6,710		$	619

General and administrative
Operations	$	(1,504	)	$	-	$	-		$	(1,504	)
Decrease in general and administrative	$	(1,504	)	$	-	$	-		$	(1,504	)

Decrease in transaction related costs	$	(85	)	$	-	$	-		$	(85	)

Total increase (decrease) in expenses	$	13,816		$	3,012	$	12,920		$	(2,116	)

(1)

Primarily due to higher operating expenses driven by higher average occupancy at One Market Plaza in the current year (see note 2 on page 42)

(2)

Primarily due to a write-off of deferred leasing commissions in the current year in connection with the surrendered JPMorgan space at One Front Street.

Loss from Real Estate Related Fund Investments

Loss from real estate related fund investments was $39,094,000 for the six months ended June 30, 2023, and represented loss attributable to Fund X, which we began consolidating into our consolidated financial statements effective December 12, 2022, and in which we have a 13.0% ownership interest. The loss resulted primarily from a $45,658,000 unrealized loss on a mezzanine loan investment based on a negotiated transaction price.

(Loss) Income from Unconsolidated Real Estate Related Funds

Loss from unconsolidated real estate related funds was $146,000 for the six months ended June 30, 2023, which represented our share of loss from Fund VIII. Income from unconsolidated real estate related funds was $325,000 for the six months ended June 30, 2022, which represented our share of income from Fund VIII and Fund X.

Loss from Unconsolidated Joint Ventures

Loss from unconsolidated joint ventures was $34,164,000 for the six months ended June 30, 2023, compared to $9,529,000 for the six months ended June 30, 2022, an increase in loss of $24,635,000. This increase in loss resulted primarily from a $24,734,000 non-cash real estate impairment loss on 60 Wall Street in the current year.

Interest and Other Income, net

Interest and other income was $5,892,000 for the six months ended June 30, 2023, compared to $1,027,000 for the six months ended June 30, 2022, an increase in income of $4,865,000. This increase resulted primarily from higher yields on short-term investments in the current year.

Interest and Debt Expense

Interest and debt expense was $73,338,000 for the six months ended June 30, 2023, compared to $69,855,000 for the six months ended June 30, 2022, an increase of $3,483,000. This increase resulted primarily from higher interest on the variable rate portion of our debt at 1301 Avenue of the Americas due to an increase in average LIBOR rates in the current year’s six months compared to the prior year.

Income Tax Expense

Income tax expense was $861,000 for the six months ended June 30, 2023, compared to $886,000 for the six months ended June 30, 2022, a decrease of $25,000.

Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures

Net income attributable to noncontrolling interests in consolidated joint ventures was $10,992,000 for the six months ended June 30, 2023, compared to $8,204,000 for the six months ended June 30, 2022, a $2,788,000 increase in net income attributable to noncontrolling interests in consolidated joint ventures. This increase was primarily due to higher net income attributable to One Market Plaza, resulting from higher average occupancy in the current year.

Net Loss Attributable to Noncontrolling Interests in Consolidated Real Estate Related Funds

Net loss attributable to noncontrolling interest in consolidated real estate related funds was $36,478,000 for the six months ended June 30, 2023, compared to $1,368,000 for the six months ended June 30, 2022, an increase in loss of $35,110,000. This increase was primarily due to the noncontrolling interests' share of the $45,658,000 unrealized loss on an investment in a mezzanine loan.

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

Net loss attributable to noncontrolling interests in the Operating Partnership was $3,220,000 for the six months ended June 30, 2023, compared to a net income attributable to noncontrolling interests in the Operating Partnership of $313,000 for the six months ended June 30, 2022, an increase in net loss allocated to noncontrolling interests of $3,533,000. This increase in loss resulted from higher net loss subject to allocation to the unitholders of the Operating Partnership in the current year.

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, 2023, we had $1.26 billion of liquidity comprised of $434,751,000 of cash and cash equivalents, $72,680,000 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, 2023, our outstanding consolidated debt aggregated $3.86 billion. We had no amounts outstanding under our revolving credit facility. In October 2023, the $273,000,000 mortgage loan at 300 Mission Street is scheduled to mature and in February 2024, the $975,000,000 mortgage loan at One Market Plaza is also scheduled to mature. We are exploring various alternatives to refinance these loans. We may refinance these debts or any of 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, 2023, we declared a quarterly cash dividend of $0.035 per share of common stock for the second quarter ended June 30, 2023, which was paid on July 14, 2023 to stockholders of record as of the close of business on June 30, 2023. This dividend policy, if continued, would require us to pay out approximately $8,200,000 each quarter to common stockholders and unitholders.

Off Balance Sheet Arrangements

As of June 30, 2023, our unconsolidated joint ventures had $1.74 billion of outstanding indebtedness, of which our share was $625,530,000. In May 2023, the joint venture that owns 60 Wall Street defaulted on the $575,000,000 non-recourse mortgage loan securing the property. The joint venture is currently in negotiations with the lender to modify the loan. 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.

Stock Repurchase Program

Insurance

Other Commitments and Contingencies

Transfer Tax Assessments

Inflation

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

Cash Flows

Cash and cash equivalents and restricted cash were $507,431,000 and $449,817,000 as of June 30, 2023 and December 31, 2022, respectively, and $531,867,000 and $529,666,000 as of June 30, 2022 and December 31, 2021, respectively. Cash and cash equivalents and restricted cash increased by $57,614,000 and $2,201,000 for the six months ended June 30, 2023 and 2022, respectively. The following table sets forth the changes in cash flow.


	For the Six Months Ended June 30,
(Amounts in thousands)	2023			2022
Net cash provided by (used in):
Operating activities	$	138,056		$	131,102
Investing activities		(83,882	)		(68,101	)
Financing activities		3,440			(60,800	)

Operating Activities

Six months ended June 30, 2023 – We generated $138,056,000 of cash from operating activities for the six months ended June 30, 2023, primarily from (i) $138,252,000 of net income (before $212,767,000 of non-cash adjustments) and (ii) $280,000 of distributions from unconsolidated joint ventures and real estate related funds, partially offset by (iii) $476,000 of net changes in operating assets and liabilities. Non-cash adjustments of $212,767,000 were primarily comprised of depreciation and amortization, realized and unrealized losses on real estate related fund investments, loss from unconsolidated joint ventures, straight-lining of rental revenue, amortization of above and below-market leases, net and amortization of stock-based compensation.

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 related 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.

Investing Activities

Six months ended June 30, 2023 – We used $83,882,000 of cash for investing activities for the six months ended June 30, 2023, primarily (i) $44,310,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements, (ii) $40,715,000 for contributions to an unconsolidated joint venture, (iii) $35,715,000 for advances to a partner in One Steuart Lane and (iv) $2,077,000 for contributions of capital to Fund VIII, partially offset by (v) $38,935,000 from repayment of advances by a partner in One Steuart Lane.

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 (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 our investment in 1600 Broadway, and (iii) $2,713,000 for contributions of capital to unconsolidated real estate related funds, net of distributions received.

Financing Activities

Six months ended June 30, 2023 – We generated $3,440,000 of cash from financing activities for the six months ended June 30, 2023, primarily from (i) $53,354,000 of contributions from noncontrolling interests in consolidated real estate related funds, partially offset by (ii) $36,136,000 for payment of dividends and distributions to common stockholders and unitholders, (iii) $5,463,000 for distributions to noncontrolling interests in 300 Mission Street and 1633 Broadway, (iv) $6,263,000 for distributions to noncontrolling interests in Fund X, (v) $1,847,000 for the settlement of accounts payable in connection with repurchases of common shares in 2022 and (vi) $205,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings.

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 (i) $35,672,000 for dividends and distributions to common stockholders and unitholders, (ii) $24,848,000 for distributions to noncontrolling interests in One Market Plaza, 300 Mission Street and 1633 Broadway and (iii) $280,000 for the repurchases of shares related to stock compensation agreements and related tax withholdings.

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 the property level. The following tables present reconciliations of our net income or loss to NOI and Cash NOI for the three and six months ended June 30, 2023 and 2022.


	For the Three Months Ended June 30, 2023
(Amounts in thousands)	Total			New York			San Francisco			Other
Reconciliation of net (loss) income to NOI and Cash NOI:
Net (loss) income	$	(82,829	)	$	(28,032	)	$	653		$	(55,450	)
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization		62,627			38,281			23,092			1,254
General and administrative		16,224			-			-			16,224
Interest and debt expense		36,879			23,436			12,684			759
Income tax expense (benefit)		573			5			(101	)		669
Loss from real estate related fund investments		42,644			-			-			42,644
NOI from unconsolidated joint ventures (excluding One Steuart Lane)		10,720			3,404			7,256			60
Loss from unconsolidated joint ventures		28,402			24,981			3,078			343
Fee income		(4,976	)		-			-			(4,976	)
Interest and other income, net		(2,967	)		(519	)		(210	)		(2,238	)
Other, net		31			-			-			31
NOI		107,328			61,556			46,452			(680	)
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(22,564	)		(2,743	)		(19,821	)		-
Paramount's share of NOI	$	84,764		$	58,813		$	26,631		$	(680	)

NOI	$	107,328		$	61,556		$	46,452		$	(680	)
Less:
Straight-line rent adjustments (including our share
of unconsolidated joint ventures)		7,515			5,110			2,667			(262	)
Amortization of above and below-market leases, net (including our share of unconsolidated joint ventures)		(2,239	)		(730	)		(1,509	)		-
Cash NOI		112,604			65,936			47,610			(942	)
Less Cash NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(19,707	)		(2,880	)		(16,827	)		-
Paramount's share of Cash NOI	$	92,897		$	63,056		$	30,783		$	(942	)


	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	)


	For the Six Months Ended June 30, 2023
(Amounts in thousands)	Total			New York			San Francisco			Other
Reconciliation of net (loss) income to NOI and Cash NOI:
Net (loss) income	$	(74,515	)	$	(22,194	)	$	13,740		$	(66,061	)
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization		121,515			77,448			41,574			2,493
General and administrative		30,847			-			-			30,847
Interest and debt expense		73,338			46,558			25,266			1,514
Income tax expense (benefit)		861			5			(78	)		934
Loss from real estate related fund investments		39,094			-			-			39,094
NOI from unconsolidated joint ventures (excluding One Steuart Lane)		21,101			6,767			14,275			59
Loss from unconsolidated joint ventures		34,164			25,001			6,372			2,791
Fee income		(9,533	)		-			-			(9,533	)
Interest and other income, net		(5,892	)		(961	)		(644	)		(4,287	)
Other, net		337			-			-			337
NOI		231,317			132,624			100,505			(1,812	)
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(45,276	)		(5,366	)		(39,910	)		-
Paramount's share of NOI	$	186,041		$	127,258		$	60,595		$	(1,812	)

NOI	$	231,317		$	132,624		$	100,505		$	(1,812	)
Less:
Straight-line rent adjustments (including our share
of unconsolidated joint ventures)		(176	)		2,086			(2,322	)		60
Amortization of above and below-market leases, net (including our share of unconsolidated joint ventures)		(4,077	)		(1,050	)		(3,027	)		-
Cash NOI		227,064			133,660			95,156			(1,752	)
Less Cash NOI attributable to noncontrolling interests in:
Consolidated joint ventures		(39,552	)		(5,658	)		(33,894	)		-
Paramount's share of Cash NOI	$	187,512		$	128,002		$	61,262		$	(1,752	)


	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	)

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, 2023 and 2022. 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 represent 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, 2023
(Amounts in thousands)	Total			New York				San Francisco				Other
Paramount's share of NOI for the three months ended
June 30, 2023 (1)	$	84,764		$	58,813			$	26,631			$	(680	)
Lease termination income		(2,055	)		(2,055	)			-				-
Non-cash write-offs of straight-line receivables		13,906			6,563		(2)		7,343		(2)		-
Acquisitions / Redevelopment and other, net		686			6		(3)		-				680
Paramount's share of Same Store NOI for the
three months ended June 30, 2023	$	97,301		$	63,327			$	33,974			$	-

	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	)
Lease termination income		(157	)		(157	)			-				-
Acquisitions / Redevelopment and other, net		1,057			(521	)	(3)		(221	)			1,799
Paramount's share of Same Store NOI for the
three months ended June 30, 2022	$	102,418		$	68,387			$	34,031			$	-

Decrease in Same Store NOI	$	(5,117	)	$	(5,060	)		$	(57	)		$	-
% Decrease		(5.0	%)		(7.4	%)			(0.2	%)

(1)

See page 48 “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 write-offs related to the terminated SVB Securities lease at 1301 Avenue of the Americas in our New York portfolio and the surrendered JPMorgan space at One Front Street in our San Francisco portfolio.

(3)

Includes our share of NOI attributable to 60 Wall Street which was taken “out-of-service” for redevelopment.


	For the Three Months Ended June 30, 2023
(Amounts in thousands)	Total			New York				San Francisco			Other
Paramount's share of Cash NOI for the three months
ended June 30, 2023 (1)	$	92,897		$	63,056			$	30,783		$	(942	)
Lease termination income		(2,055	)		(2,055	)			-			-
Acquisitions / Redevelopment and other, net		948			6		(2)		-			942
Paramount's share of Same Store Cash NOI for the
three months ended June 30, 2023	$	91,790		$	61,007			$	30,783		$	-

	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	)
Lease termination income		(157	)		(157	)			-			-
Acquisitions / Redevelopment and other, net		989			(619	)	(2)		(221	)		1,829
Paramount's share of Same Store Cash NOI for the
three months ended June 30, 2022	$	96,348		$	67,378			$	28,970		$	-

(Decrease) increase in Same Store Cash NOI	$	(4,558	)	$	(6,371	)		$	1,813		$	-
% (Decrease) increase		(4.7	%)		(9.5	%)			6.3	%

(1)

See page 48 “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)

Includes our share of Cash NOI attributable to 60 Wall Street which was taken “out-of-service” for redevelopment.


	For the Six Months Ended June 30, 2023
(Amounts in thousands)	Total			New York				San Francisco				Other
Paramount's share of NOI for the six months ended
June 30, 2023 (1)	$	186,041		$	127,258			$	60,595			$	(1,812	)
Lease termination income		(2,055	)		(2,055	)			-				-
Non-cash write-offs of straight-line rent receivables		13,906			6,563		(2)		7,343		(2)		-
Acquisitions / Redevelopment and other, net		1,765			(47	)	(3)		-				1,812
Paramount's share of Same Store NOI for the
six months ended June 30, 2023	$	199,657		$	131,719			$	67,938			$	-

	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	)
Lease termination income		(1,875	)		(1,875	)			-				-
Non-cash write-offs of straight-line rent receivables		306			306				-				-
Acquisitions / Redevelopment and other, net		2,065			(1,406	)	(3)		(221	)			3,692
Paramount's share of Same Store NOI for the
six months ended June 30, 2022	$	197,962		$	133,293			$	64,669			$	-

Increase (decrease) in Same Store NOI	$	1,695		$	(1,574	)		$	3,269			$	-
% Increase (decrease)		0.9	%		(1.2	%)			5.1	%

(1)

See page 48 “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)

(3)

Includes our share of NOI attributable to 60 Wall Street which was taken “out-of-service” for redevelopment.


	For the Six Months Ended June 30, 2023
(Amounts in thousands)	Total			New York				San Francisco			Other
Paramount's share of Cash NOI for the six months
ended June 30, 2023 (1)	$	187,512		$	128,002			$	61,262		$	(1,752	)
Lease termination income		(2,055	)		(2,055	)			-			-
Acquisitions / Redevelopment and other, net		1,701			(51	)	(2)		-			1,752
Paramount's share of Same Store Cash NOI for the
six months ended June 30, 2023	$	187,158		$	125,896			$	61,262		$	-

	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	)
Lease termination income		(1,875	)		(1,875	)			-			-
Acquisitions / Redevelopment and other, net		1,738			(1,673	)	(2)		(221	)		3,632
Paramount's share of Same Store Cash NOI for the
six months ended June 30, 2022	$	191,597		$	132,719			$	58,878		$	-

(Decrease) increase in Same Store Cash NOI	$	(4,439	)	$	(6,823	)		$	2,384		$	-
% (Decrease) increase		(2.3	%)		(5.1	%)			4.0	%

(1)

See page 48 “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)

Includes our share of Cash NOI attributable to 60 Wall Street which was taken “out-of-service” for redevelopment.

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 and adjustments, realized and unrealized gains or losses on real estate related 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 (loss) income 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)	2023			2022			2023			2022
Reconciliation of net (loss) income to FFO and Core FFO:
Net (loss) income	$	(82,829	)	$	4,038		$	(74,515	)	$	10,160
Real estate depreciation and amortization (including our
share of unconsolidated joint ventures)		72,096			67,235			140,527			133,060
Our share of non-cash real estate impairment loss related to an unconsolidated joint venture		24,734			-			24,734			-
FFO		14,001			71,273			90,746			143,220
Less FFO attributable to noncontrolling interests in:
Consolidated joint ventures		(14,889	)		(13,945	)		(30,064	)		(26,460	)
Consolidated real estate related funds		37,295			346			36,465			1,355
Operating Partnership		(2,390	)		(4,352	)		(6,351	)		(9,920	)
FFO attributable to common stockholders	$	34,017		$	53,322		$	90,796		$	108,195
Per diluted share	$	0.16		$	0.24		$	0.42		$	0.49

FFO	$	14,001		$	71,273		$	90,746		$	143,220
Non-core items:
Adjustments to equity in earnings for contributions to (distributions from) unconsolidated joint ventures		(1,301	)		168			(2,623	)		(415	)
Adjustment for realized and unrealized losses from consolidated and unconsolidated real estate related fund investments		45,686			(29	)		47,021			18
Other, net (including after-tax net gains or losses on sale of residential condominium units at One Steuart Lane)		659			671			3,196			2,050
Core FFO		59,045			72,083			138,340			144,873
Less Core FFO attributable to noncontrolling interests in:
Consolidated joint ventures		(14,889	)		(13,945	)		(30,064	)		(26,460	)
Consolidated real estate related funds		(2,773	)		(128	)		(6,800	)		(287	)
Operating Partnership		(2,717	)		(4,377	)		(6,636	)		(9,915	)
Core FFO attributable to common stockholders	$	38,666		$	53,633		$	94,840		$	108,211
Per diluted share	$	0.18		$	0.24		$	0.44		$	0.49

Reconciliation of weighted average shares outstanding:
Weighted average shares outstanding		217,003,931			222,971,886			216,784,737			220,888,664
Effect of dilutive securities		11,089			26,594			31,669			41,355
Denominator for FFO and Core FFO per diluted share		217,015,020			222,998,480			216,816,406			220,930,019

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, 2023.


Property		Rate	2023		2024		2025		2026		2027		Thereafter		Total		Fair Value
(Amounts in thousands)
Fixed Rate Debt:
	300 Mission Street (1)	3.65%	$	273,000	$	-	$	-	$	-	$	-	$	-	$	273,000	$	270,309
	One Market Plaza	4.03%		-		975,000		-		-		-		-		975,000		955,729
	31 West 52nd Street	3.80%		-		-		-		500,000		-		-		500,000		455,842
	1301 Avenue of the Americas (2)	2.46%		-		-		-		500,000		-		-		500,000		500,077
	1633 Broadway	2.99%		-		-		-		-		-		1,250,000		1,250,000		985,127
Total Fixed Rate Debt		3.37%	$	273,000	$	975,000	$	-	$	1,000,000	$	-	$	1,250,000	$	3,498,000	$	3,167,084

Variable Rate Debt:
	1301 Avenue of the Americas (3)	5.56%	$	-	$	-	$	-	$	360,000	$	-	$	-	$	360,000	$	360,056
	Revolving Credit Facility	n/a		-		-		-		-		-		-		-		-
Total Variable Rate Debt		5.56%	$	-	$	-	$	-	$	360,000	$	-	$	-	$	360,000	$	360,056

Total Consolidated Debt		3.58%	$	273,000	$	975,000	$	-	$	1,360,000	$	-	$	1,250,000	$	3,858,000	$	3,527,140

(1)

Matures in October 2023.

(2)

Represents variable rate loans that have been fixed by interest rate swaps through August 2024. See table below. On June 16, 2023, we amended the loans to replace LIBOR with SOFR, effective July 7, 2023.

(3)

Represents variable rate loans, where LIBOR has been capped at 2.00% through August 2023. See table below. On June 16, 2023, we amended the loans to replace LIBOR with SOFR, effective July 7, 2023.

In addition to the above, our unconsolidated joint ventures had $1.74 billion of outstanding indebtedness as of June 30, 2023, of which our share was $625,530,000.

The tables below provide additional details on our interest rate swaps and interest rate caps as of June 30, 2023.

Notional

Effective

Maturity

Benchmark

Strike

Fair Value as of

Property

Amount

Date

Rate

June 30, 2023

December 31, 2022

(Amounts in thousands)

1301 Avenue of the Americas

500,000

Jul-2021

Aug-2024

LIBOR

0.46

26,010

32,681

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

26,010

32,681

Notional

Effective

Maturity

Benchmark

Strike

Fair Value as of

Property

Amount

Date

Rate

June 30, 2023

December 31, 2022

(Amounts in thousands)

1301 Avenue of the Americas

360,000

Jul-2021

Aug-2023

LIBOR

2.00

1,187

6,123

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

1,187

6,123

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, 2023								As of December 31, 2022
(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		5.56	%	$	3,600		$	360,000		5.56	%
Fixed Rate (1)		2,687,665		3.25	%		-			2,687,665		3.25	%
	$	3,047,665		3.52	%	$	3,600		$	3,047,665		3.52	%

Paramount's share of debt of non-consolidated
entities (non-recourse):
Variable rate	$	114,505		7.34	%	$	1,145		$	113,739		6.12	%
Fixed rate		511,025		3.32	%		-			511,025		3.30	%
	$	625,530		4.06	%	$	1,145		$	624,764		3.82	%

Noncontrolling interests' share of above						$	(312	)
Total change in annual net income						$	4,433
Per diluted share						$	0.02

(1)

Our fixed rate debt includes floating rate debt that has been swapped to fixed. See page 57.

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, 2023, the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures. Based on the foregoing evaluation, as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are a party to various claims and routine litigation arising in the ordinary course of business. As of June 30, 2023, 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 updated below or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 or in Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023.

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. As of December 31, 2022, we had repurchased a total of 24,183,768 common shares at a weighted average price of $7.65 per share, or $185,000,000 in the aggregate. We did not repurchase any shares in the three and six months ended June 30, 2023 under our stock repurchase program. As of June 30, 2023, we have $15,000,000 available for future repurchases under the existing program. 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

Rule 10b5-1 Trading Arrangement

During the three months ended June 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

ITEM 6. EXHIBITS

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

EXHIBIT INDEX


Exhibit Number		Exhibit Description

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

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

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

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

101.SCH*		Inline XBRL Taxonomy Extension Schema.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase.

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

**		Furnished herewith

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 31, 2023	By:	/s/ Wilbur Paes	Chief Operating Officer, Chief Financial Officer and Treasurer
			Wilbur Paes	(duly authorized officer and principal financial officer)


Date:	July 31, 2023	By:	/s/ Ermelinda Berberi	Senior Vice President, Chief Accounting Officer
			Ermelinda Berberi	(duly authorized officer and principal accounting officer)