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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

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

 

For the Quarterly Period Ended: September 30, 2024

 

OR

 

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

For the transition period from to .

 

Commission File Number: 001-36746

 

PARAMOUNT GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

Maryland

 

32-0439307

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

1633 Broadway, 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 October 15, 2024, there were 217,518,587 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 September 30, 2024 and December 31, 2023

3

 

 

 

 

 

 

 

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

ended September 30, 2024 and 2023

4

 

 

 

 

 

 

 

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

ended September 30, 2024 and 2023

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the three and nine months

ended September 30, 2024 and 2023

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the nine months

ended September 30, 2024 and 2023

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

56

 

 

 

 

 

Item 4.

Controls and Procedures

58

 

Part II.

Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

59

 

 

 

 

 

Item 1A.

Risk Factors

59

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

59

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

59

 

 

 

 

 

Item 4.

Mine Safety Disclosures

59

 

 

 

 

 

Item 5.

Other Information

59

 

 

 

 

 

Item 6.

Exhibits

60

 

 

 

 

 

Signatures

61

 

 

 

2


 

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

 

PARAMOUNT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

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

September 30, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

Real estate, at cost

 

 

 

 

 

Land

$

1,966,237

 

 

$

1,966,237

 

Buildings and improvements

 

6,290,976

 

 

 

6,250,379

 

 

 

8,257,213

 

 

 

8,216,616

 

Accumulated depreciation and amortization

 

(1,596,069

)

 

 

(1,471,819

)

Real estate, net

 

6,661,144

 

 

 

6,744,797

 

Cash and cash equivalents

 

318,725

 

 

 

428,208

 

Restricted cash

 

173,510

 

 

 

81,391

 

Accounts and other receivables

 

18,662

 

 

 

18,053

 

Real estate related fund investments

 

-

 

 

 

775

 

Investments in unconsolidated real estate related funds

 

4,607

 

 

 

4,549

 

Investments in unconsolidated joint ventures

 

128,919

 

 

 

132,239

 

Deferred rent receivable

 

355,555

 

 

 

351,209

 

Deferred charges, net of accumulated amortization of $88,932 and $82,265

 

103,858

 

 

 

108,751

 

Intangible assets, net of accumulated amortization of $151,820 and $194,536

 

54,125

 

 

 

68,005

 

Other assets

 

71,847

 

 

 

68,238

 

Total assets (1)

$

7,890,952

 

 

$

8,006,215

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Notes and mortgages payable, net of unamortized deferred financing costs
   of $
17,683 and $13,566

$

3,674,367

 

 

$

3,803,484

 

Revolving credit facility

 

-

 

 

 

-

 

Accounts payable and accrued expenses

 

114,808

 

 

 

114,463

 

Dividends and distributions payable

 

-

 

 

 

8,360

 

Intangible liabilities, net of accumulated amortization of $103,154 and $108,817

 

22,465

 

 

 

28,003

 

Other liabilities

 

27,906

 

 

 

37,017

 

Total liabilities (1)

 

3,839,546

 

 

 

3,991,327

 

Commitments and contingencies

 

 

 

 

 

Paramount Group, Inc. equity:

 

 

 

 

 

Common stock $0.01 par value per share; authorized 900,000,000 shares; issued and
   outstanding
217,518,587 and 217,366,089 shares in 2024 and 2023, respectively

 

2,175

 

 

 

2,173

 

Additional paid-in-capital

 

4,140,427

 

 

 

4,133,801

 

Earnings less than distributions

 

(966,973

)

 

 

(943,935

)

Accumulated other comprehensive (loss) income

 

(1,762

)

 

 

11,246

 

Paramount Group, Inc. equity

 

3,173,867

 

 

 

3,203,285

 

Noncontrolling interests in:

 

 

 

 

 

Consolidated joint ventures

 

492,135

 

 

 

413,925

 

Consolidated real estate related funds

 

92,759

 

 

 

110,589

 

Operating Partnership (20,038,028 and 19,468,095 units outstanding)

 

292,645

 

 

 

287,089

 

Total equity

 

4,051,406

 

 

 

4,014,888

 

Total liabilities and equity

$

7,890,952

 

 

$

8,006,215

 

 

(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 91.6% as of September 30, 2024. As of September 30, 2024, the assets and liabilities of the Operating Partnership include $3,847,438 and $2,397,092 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).

3


 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

September 30,

 

 

September 30,

 

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

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

184,235

 

 

$

182,515

 

 

$

543,636

 

 

$

529,734

 

Fee and other income

 

10,664

 

 

 

6,666

 

 

 

27,548

 

 

 

20,583

 

Total revenues

 

194,899

 

 

 

189,181

 

 

 

571,184

 

 

 

550,317

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Operating

 

80,316

 

 

 

75,502

 

 

 

226,248

 

 

 

216,889

 

Depreciation and amortization

 

60,071

 

 

 

60,263

 

 

 

182,920

 

 

 

181,778

 

General and administrative

 

16,672

 

 

 

15,460

 

 

 

49,938

 

 

 

46,307

 

Transaction related costs

 

242

 

 

 

132

 

 

 

843

 

 

 

323

 

Total expenses

 

157,301

 

 

 

151,357

 

 

 

459,949

 

 

 

445,297

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from real estate related fund investments

 

(22

)

 

 

2,060

 

 

 

(92

)

 

 

(37,034

)

Income (loss) from unconsolidated real estate related funds

 

109

 

 

 

(721

)

 

 

199

 

 

 

(867

)

Loss from unconsolidated joint ventures

 

(981

)

 

 

(28,974

)

 

 

(3,098

)

 

 

(63,138

)

Interest and other income, net

 

3,517

 

 

 

4,115

 

 

 

26,830

 

 

 

10,007

 

Interest and debt expense

 

(43,805

)

 

 

(39,102

)

 

 

(124,078

)

 

 

(112,440

)

(Loss) income before income taxes

 

(3,584

)

 

 

(24,798

)

 

 

10,996

 

 

 

(98,452

)

Income tax expense

 

(619

)

 

 

(263

)

 

 

(1,328

)

 

 

(1,124

)

Net (loss) income

 

(4,203

)

 

 

(25,061

)

 

 

9,668

 

 

 

(99,576

)

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

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(6,959

)

 

 

(4,887

)

 

 

(18,434

)

 

 

(15,879

)

Consolidated real estate related funds

 

581

 

 

 

20,934

 

 

 

408

 

 

 

57,412

 

Operating Partnership

 

893

 

 

 

629

 

 

 

716

 

 

 

3,849

 

Net loss attributable to common stockholders

$

(9,688

)

 

$

(8,385

)

 

$

(7,642

)

 

$

(54,194

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per Common Share - Basic:

 

 

 

 

 

 

 

 

 

 

 

Loss per common share

$

(0.04

)

 

$

(0.04

)

 

$

(0.04

)

 

$

(0.25

)

Weighted average common shares outstanding

 

217,314,706

 

 

 

217,043,022

 

 

 

217,208,809

 

 

 

216,871,778

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per Common Share - Diluted:

 

 

 

 

 

 

 

 

 

 

 

Loss per common share

$

(0.04

)

 

$

(0.04

)

 

$

(0.04

)

 

$

(0.25

)

Weighted average common shares outstanding

 

217,314,706

 

 

 

217,043,022

 

 

 

217,208,809

 

 

 

216,871,778

 

 

See notes to consolidated financial statements (unaudited).

 

4


 

 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands)

2024

 

 

2023

 

 

2024

 

 

2023

 

Net (loss) income

$

(4,203

)

 

$

(25,061

)

 

$

9,668

 

 

$

(99,576

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

Change in value of interest rate swaps and interest rate caps

 

(3,586

)

 

 

(6,105

)

 

 

(14,241

)

 

 

(17,630

)

Pro rata share of other comprehensive (loss) income
    of unconsolidated joint ventures

 

(34

)

 

 

(1,534

)

 

 

38

 

 

 

(2,703

)

Comprehensive loss

 

(7,823

)

 

 

(32,700

)

 

 

(4,535

)

 

 

(119,909

)

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

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(6,959

)

 

 

(4,887

)

 

 

(18,434

)

 

 

(15,879

)

Consolidated real estate related funds

 

581

 

 

 

20,934

 

 

 

408

 

 

 

57,412

 

Operating Partnership

 

1,198

 

 

 

1,162

 

 

 

1,911

 

 

 

5,211

 

Comprehensive loss attributable to common stockholders

$

(13,003

)

 

$

(15,491

)

 

$

(20,650

)

 

$

(73,165

)

 

 

See notes to consolidated financial statements (unaudited).

 

5


 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Noncontrolling Interests in

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Other

 

 

Consolidated

 

 

Consolidated

 

 

 

 

 

 

 

(Amounts in thousands, except per share

 

Common Shares

 

 

Paid-in-

 

 

Less than

 

 

Comprehensive

 

 

Joint

 

 

Real Estate

 

 

Operating

 

 

Total

 

   and unit amounts)

 

Shares

 

 

Amount

 

 

Capital

 

 

Distributions

 

 

(Loss) Income

 

 

Ventures

 

 

Related Funds

 

 

Partnership

 

 

Equity

 

Balance as of June 30, 2024

 

 

217,455

 

 

$

2,173

 

 

$

4,135,472

 

 

$

(957,285

)

 

$

1,553

 

 

$

485,983

 

 

$

93,340

 

 

$

294,427

 

 

$

4,055,663

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,688

)

 

 

-

 

 

 

6,959

 

 

 

(581

)

 

 

(893

)

 

 

(4,203

)

Common shares issued upon redemption of
   common units

 

 

66

 

 

 

2

 

 

 

954

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(956

)

 

 

-

 

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

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(807

)

 

 

-

 

 

 

-

 

 

 

(807

)

Change in value of interest rate swaps and
   interest rate caps

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,285

)

 

 

-

 

 

 

-

 

 

 

(301

)

 

 

(3,586

)

Pro rata share of other comprehensive loss
   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30

)

 

 

-

 

 

 

-

 

 

 

(4

)

 

 

(34

)

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

239

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,134

 

 

 

4,373

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

3,762

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,762

)

 

 

-

 

Balance as of September 30, 2024

 

 

217,519

 

 

$

2,175

 

 

$

4,140,427

 

 

$

(966,973

)

 

$

(1,762

)

 

$

492,135

 

 

$

92,759

 

 

$

292,645

 

 

$

4,051,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,385

)

 

 

-

 

 

 

4,887

 

 

 

(20,934

)

 

 

(629

)

 

 

(25,061

)

Common shares issued upon redemption of
   common units

 

 

50

 

 

 

-

 

 

 

793

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(793

)

 

 

-

 

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

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dividends and distributions ($0.035 per share
   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,607

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(750

)

 

 

(8,357

)

Contributions from noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,458

 

 

 

-

 

 

 

1,458

 

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,590

)

 

 

(1,539

)

 

 

-

 

 

 

(3,129

)

Change in value of interest rate swaps and
   interest rate caps

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,679

)

 

 

-

 

 

 

-

 

 

 

(426

)

 

 

(6,105

)

Pro rata share of other comprehensive loss
   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,427

)

 

 

-

 

 

 

-

 

 

 

(107

)

 

 

(1,534

)

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

299

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,381

 

 

 

4,680

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

(56,262

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

56,262

 

 

 

-

 

Balance as of September 30, 2023

 

 

217,354

 

 

$

2,172

 

 

$

4,128,492

 

 

$

(730,777

)

 

$

29,325

 

 

$

410,944

 

 

$

162,973

 

 

$

306,836

 

 

$

4,309,965

 

 

 

See notes to consolidated financial statements (unaudited).

6


 

 

 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Noncontrolling Interests in

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Other

 

 

Consolidated

 

 

Consolidated

 

 

 

 

 

 

 

(Amounts in thousands, except per share

 

Common Shares

 

 

Paid-in-

 

 

Less than

 

 

Comprehensive

 

 

Joint

 

 

Real Estate

 

 

Operating

 

 

Total

 

   and unit amounts)

 

Shares

 

 

Amount

 

 

Capital

 

 

Distributions

 

 

(Loss) Income

 

 

Ventures

 

 

Related Funds

 

 

Partnership

 

 

Equity

 

Balance as of December 31, 2023

 

 

217,366

 

 

$

2,173

 

 

$

4,133,801

 

 

$

(943,935

)

 

$

11,246

 

 

$

413,925

 

 

$

110,589

 

 

$

287,089

 

 

$

4,014,888

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,642

)

 

 

-

 

 

 

18,434

 

 

 

(408

)

 

 

(716

)

 

 

9,668

 

Common shares issued upon redemption of
   common units

 

 

142

 

 

 

2

 

 

 

2,071

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,073

)

 

 

-

 

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

 

 

11

 

 

 

-

 

 

 

-

 

 

 

(178

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(178

)

Dividends and distributions ($0.07 per share
   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,218

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,540

)

 

 

(16,758

)

Contributions from noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

62,220

 

 

 

889

 

 

 

-

 

 

 

63,109

 

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,444

)

 

 

(18,311

)

 

 

-

 

 

 

(20,755

)

Change in value of interest rate swaps and
   interest rate caps

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,044

)

 

 

-

 

 

 

-

 

 

 

(1,197

)

 

 

(14,241

)

Pro rata share of other comprehensive income
   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

36

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

38

 

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

748

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14,887

 

 

 

15,635

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

3,807

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,807

)

 

 

-

 

Balance as of September 30, 2024

 

 

217,519

 

 

$

2,175

 

 

$

4,140,427

 

 

$

(966,973

)

 

$

(1,762

)

 

$

492,135

 

 

$

92,759

 

 

$

292,645

 

 

$

4,051,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(54,194

)

 

 

-

 

 

 

15,879

 

 

 

(57,412

)

 

 

(3,849

)

 

 

(99,576

)

Common shares issued upon redemption of
   common units

 

 

703

 

 

 

7

 

 

 

11,663

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11,670

)

 

 

-

 

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

 

 

92

 

 

 

-

 

 

 

-

 

 

 

(205

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(205

)

Dividends and distributions ($0.1475 per share
   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(32,047

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,608

)

 

 

(34,655

)

Contributions from noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

54,812

 

 

 

-

 

 

 

54,812

 

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,053

)

 

 

(7,802

)

 

 

-

 

 

 

(14,855

)

Change in value of interest rate swaps and
   interest rate caps

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,450

)

 

 

-

 

 

 

-

 

 

 

(1,180

)

 

 

(17,630

)

Pro rata share of other comprehensive loss
   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,521

)

 

 

-

 

 

 

-

 

 

 

(182

)

 

 

(2,703

)

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

923

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,088

 

 

 

14,011

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

(70,255

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

70,255

 

 

 

-

 

Balance as of September 30, 2023

 

 

217,354

 

 

$

2,172

 

 

$

4,128,492

 

 

$

(730,777

)

 

$

29,325

 

 

$

410,944

 

 

$

162,973

 

 

$

306,836

 

 

$

4,309,965

 

 

 

See notes to consolidated financial statements (unaudited).

 

7


 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

For the Nine Months Ended September 30,

 

(Amounts in thousands)

2024

 

 

2023

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income (loss)

$

9,668

 

 

$

(99,576

)

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

 

 

 

 

 

Depreciation and amortization

 

182,920

 

 

 

181,778

 

Straight-lining of rental revenue

 

(5,300

)

 

 

(1,305

)

Amortization of stock-based compensation expense

 

15,635

 

 

 

14,011

 

Amortization of deferred financing costs

 

7,622

 

 

 

4,630

 

Loss from unconsolidated joint ventures

 

3,098

 

 

 

63,138

 

Distributions of earnings from unconsolidated joint ventures

 

372

 

 

 

354

 

Realized and unrealized losses on real estate related fund investments

 

775

 

 

 

46,775

 

(Income) loss from unconsolidated real estate related funds

 

(199

)

 

 

867

 

Distributions of earnings from unconsolidated real estate related funds

 

141

 

 

 

84

 

Amortization of above and below-market leases, net

 

(4,351

)

 

 

(3,929

)

Non-cash gain on extinguishment of IPO related tax liability

 

(15,437

)

 

 

-

 

Other non-cash adjustments

 

180

 

 

 

526

 

Changes in operating assets and liabilities:

 

 

 

 

 

Real estate related fund investments

 

-

 

 

 

(9,631

)

Accounts and other receivables

 

(609

)

 

 

9,526

 

Deferred charges

 

(7,163

)

 

 

(5,874

)

Other assets

 

(26,340

)

 

 

(19,734

)

Accounts payable and accrued expenses

 

9,079

 

 

 

(9,738

)

Other liabilities

 

6,479

 

 

 

3,695

 

Net cash provided by operating activities

 

176,570

 

 

 

175,597

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Additions to real estate

 

(85,231

)

 

 

(67,373

)

Proceeds from repayment of a mezzanine loan investment

 

10,000

 

 

 

-

 

Investments in and contributions of capital to unconsolidated joint ventures

 

(1,904

)

 

 

(40,715

)

Distribution of capital from an unconsolidated joint venture

 

1,792

 

 

 

-

 

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

)

Net cash used in investing activities

 

(75,343

)

 

 

(106,945

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Repayment of notes and mortgages payable

 

(975,000

)

 

 

(273,000

)

Proceeds from notes and mortgages payable

 

850,000

 

 

 

232,050

 

Debt issuance costs

 

(10,649

)

 

 

(576

)

Contributions from noncontrolling interests in consolidated joint ventures

 

62,220

 

 

 

-

 

Distributions to noncontrolling interests in consolidated joint ventures

 

(2,444

)

 

 

(7,053

)

Contributions from noncontrolling interests in consolidated real estate related funds

 

889

 

 

 

54,812

 

Distributions to noncontrolling interests in consolidated real estate related funds

 

(18,311

)

 

 

(7,802

)

Dividends paid to common stockholders

 

(22,826

)

 

 

(41,267

)

Distributions paid to common unitholders

 

(2,292

)

 

 

(3,058

)

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

 

(178

)

 

 

(205

)

Settlement of accounts payable in connection with repurchases of common shares

 

-

 

 

 

(1,847

)

Net cash used in financing activities

$

(118,591

)

 

$

(47,946

)

 

See notes to consolidated financial statements (unaudited).

8


 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

(Amounts in thousands)

2024

 

 

2023

 

Net (decrease) increase in cash and cash equivalents and restricted cash

$

(17,364

)

 

$

20,706

 

Cash and cash equivalents and restricted cash at beginning of period

 

509,599

 

 

 

449,817

 

Cash and cash equivalents and restricted cash at end of period

$

492,235

 

 

$

470,523

 

 

 

 

 

 

 

Reconciliation of Cash and Cash Equivalents and Restricted Cash:

 

 

 

 

Cash and cash equivalents at beginning of period

$

428,208

 

 

$

408,905

 

Restricted cash at beginning of period

 

81,391

 

 

 

40,912

 

Cash and cash equivalents and restricted cash at beginning of period

$

509,599

 

 

$

449,817

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

318,725

 

 

$

399,631

 

Restricted cash at end of period

 

173,510

 

 

 

70,892

 

Cash and cash equivalents and restricted cash at end of period

$

492,235

 

 

$

470,523

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash payments for interest

$

116,298

 

 

$

106,633

 

Cash payments for income taxes, net of refunds

 

1,036

 

 

 

723

 

 

 

 

 

 

 

Non-Cash Transactions:

 

 

 

 

 

Write-off of fully amortized and/or depreciated assets

$

35,875

 

 

$

22,274

 

Change in value of interest rate swaps and interest rate caps

 

(14,241

)

 

 

(17,630

)

Additions to real estate included in accounts payable and accrued expenses

 

9,240

 

 

 

10,165

 

Common shares issued upon redemption of common units

 

2,073

 

 

 

11,670

 

Dividends and distributions declared but not yet paid

 

-

 

 

 

8,357

 

 

See notes to consolidated financial statements (unaudited).

 

9


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.
Organization and Business

 

 

As used in these consolidated financial statements, unless otherwise indicated, all references to “we,” “us,” “our,” the “Company,” and “Paramount” refer to Paramount Group, Inc., a Maryland corporation, and its consolidated subsidiaries, including Paramount Group Operating Partnership LP, a Delaware limited partnership (the “Operating Partnership”). We are a fully-integrated real estate investment trust (“REIT”) focused on owning, operating, managing, acquiring and redeveloping high-quality, Class A office properties in select central business district submarkets of New York City and San Francisco. We conduct our business through, and substantially all of our interests in properties and investments are held by, the Operating Partnership. We are the sole general partner of, and owned approximately 91.6% of, the Operating Partnership as of September 30, 2024.

 

As of September 30, 2024, we own and/or manage 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 and theater 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.

 

2.
Basis of Presentation and Significant Accounting Policies

 

 

Basis of Presentation

 

The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted. These consolidated financial statements include the accounts of Paramount and its consolidated subsidiaries, including the Operating Partnership. In the opinion of management, all significant adjustments (which include only normal recurring adjustments) and eliminations (which include intercompany balances and transactions) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. The consolidated balance sheet as of December 31, 2023 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, 2023, 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, 2023.

 

10


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 nine months ended September 30, 2024 are not necessarily indicative of the operating results for the full year. Certain prior year balances have been reclassified to conform to current year presentation.

 

 

Recently Issued Accounting Pronouncements

 

In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, an update to Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. ASU 2023-05 clarifies existing guidance by requiring a joint venture to recognize and initially measure assets contributed and liabilities assumed at fair value, upon its formation in the joint venture’s separate financial statements. These amendments are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025, with early adoption permitted. We will apply the provisions of ASU 2023-05 to new joint ventures, as applicable, but do not believe the adoption of ASU 2023-05 will have a material impact on our consolidated financial statements.

 

In November 2023, the FASB issued ASU 2023-07, an update to ASC Topic 280, Segment Reporting. ASU 2023-07 enhances the segment reporting by requiring disclosures of (i) the significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss, (ii) the composition of the other segment items, including the nature and type of the other segment items, and (iii) the title and position of the CODM. ASU 2023-07 is effective for our year ending December 31, 2024 and for our interim periods that begin on January 1, 2025, with early adoption permitted. While we do not believe the adoption of ASU 2023-07 will have a material impact on our consolidated financial statements, it may result in additional disclosures on our consolidated financial statements.

 

In December 2023, the FASB issued ASU 2023-09, an update to ASC Topic 740, Income Taxes. ASU 2023-09 enhances income tax disclosures by expanding the effective tax rate reconciliation and requiring disaggregated income tax information by jurisdictions. ASU 2023-09 is effective for fiscal years that begin after December 15, 2024, with early adoption permitted. We are evaluating the impact of ASU 2023-09 on our consolidated financial statements.

 

In March 2024, the SEC issued final rules on the enhancement and standardization of climate-related disclosures, and in April 2024, as a result of pending legal challenges, the SEC voluntarily stayed the new rules. The rules require disclosures relating to (i) material climate-related risks, (ii) governance and management of such risks and (iii) greenhouse gas emissions. Additionally, the rules require disclosure of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds, in the notes to the financial statements. The requirements in the rule will be phased in starting with our Annual Report on Form 10-K for the year ending December 31, 2025. We are evaluating the impact of the new rules on our consolidated financial statements and the related disclosures.

11


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3.
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 and own a 13.0% interest in the fund. The following table sets forth the details of income or loss from real estate related fund investments for the three and nine months ended September 30, 2024 and 2023.

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands)

2024

 

 

2023

 

 

2024

 

 

2023

 

Net investment (loss) income

$

(22

)

 

$

2,032

 

 

$

683

 

 

$

9,741

 

Net realized losses

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,224

)

Net unrealized income (losses)

 

-

 

 

 

28

 

 

 

(775

)

 

 

(45,551

)

(Loss) income from real estate related fund investments

 

(22

)

 

 

2,060

 

 

 

(92

)

 

 

(37,034

)

Less: noncontrolling interests in consolidated real
    estate related funds

 

19

 

 

 

(1,517

)

 

 

93

 

 

 

33,056

 

(Loss) income from real estate related fund
    investments attributable to Paramount Group, Inc.

$

(3

)

 

$

543

 

 

$

1

 

 

$

(3,978

)

 

 

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.

 

 

4.
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 September 30, 2024, our ownership interest in Fund VIII was approximately 1.3%. We account for our investment in Fund VIII under the equity method of accounting.

 

As of September 30, 2024 and December 31, 2023, our share of the investments in the unconsolidated real estate related funds was $4,607,000 and $4,549,000, respectively, which is reflected as “investments in unconsolidated real estate related funds” on our consolidated balance sheets. We recognized income of $109,000 and $199,000 during the three and nine months ended September 30, 2024, respectively, and loss of $721,000 and $867,000 during the three and nine months ended September 30, 2023, respectively, for our share of earnings, which is reflected as “ income (loss) from unconsolidated real estate related funds” in our consolidated statements of income.

12


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

5.
Investments in Unconsolidated Joint Ventures

 

On March 29, 2024, the joint venture that owns 60 Wall Street, in which we have a 5.0% ownership interest, modified the existing $575,000,000 non-recourse mortgage loan and extended the maturity to May 2029. In connection with the modification, the loan was split into (i) a $316,250,000 A-Note that bears interest at Term Secured Overnight Financing Rate (“SOFR”) plus 245 basis points, of which 4.0% is current pay and the remaining is accrued, and (ii) a $258,750,000 B-Note that accrues interest at 12.0%. The joint venture plans to redevelop the property and all amounts funded by the joint venture will be senior to the B-Note and all accrued interest.

 

On April 30, 2024, the joint venture that owns 111 Sutter Street, in which we have a 49.0% ownership interest, modified the existing $164,775,000 non-recourse mortgage loan to extend the maturity date to December 2025. The loan bears interest at a rate of SOFR plus 215 basis points and all interest shortfalls will continue to accrue to the principal balance of the loan.

 

On August 13, 2024, the joint venture that owns Market Center, in which we have a 67.0% ownership interest, defaulted on the $416,544,000 non-recourse mortgage loan securing the property. The loan bears interest at SOFR plus 161 basis points and is scheduled to mature in January 2025.

 

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

 

(Amounts in thousands)

 

Paramount

 

As of

 

Our Share of Investments:

 

Ownership

 

September 30, 2024

 

 

December 31, 2023

 

712 Fifth Avenue (1)

 

50.0%

 

$

-

 

 

$

-

 

Market Center (1)

 

67.0%

 

 

-

 

 

 

-

 

55 Second Street (2)

 

44.1%

 

 

29,731

 

 

 

30,322

 

111 Sutter Street (1)

 

49.0%

 

 

-

 

 

 

-

 

1600 Broadway (2)

 

9.2%

 

 

8,274

 

 

 

8,646

 

60 Wall Street (3)

 

5.0%

 

 

327

 

 

 

-

 

One Steuart Lane (2)

 

35.0% (4)

 

 

87,329

 

 

 

89,949

 

Oder-Center, Germany (2)

 

9.5%

 

 

3,258

 

 

 

3,322

 

Investments in unconsolidated joint ventures

 

$

128,919

 

 

$

132,239

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

(Amounts in thousands)

September 30,

 

 

September 30,

 

 

Our Share of Net (Loss) Income:

2024

 

 

2023

 

 

2024

 

 

2023

 

 

712 Fifth Avenue (1)

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

Market Center (1)

 

-

 

 

 

(3,248

)

 

 

-

 

 

 

(8,482

)

 

55 Second Street (2)

 

(225

)

 

 

(642

)

 

 

(590

)

 

 

(1,780

)

 

111 Sutter Street (1)

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

1600 Broadway (2)

 

-

 

 

 

1

 

 

 

1

 

 

 

1

 

 

60 Wall Street (3)

 

55

 

 

 

-

 

 

 

(1,576

)

 

 

(25,001

)

 

One Steuart Lane (2)

 

(721

)

 

 

(25,037

)

(5)

 

(828

)

 

 

(27,811

)

(5)

Oder-Center, Germany (2)

 

(90

)

 

 

(48

)

 

 

(105

)

 

 

(65

)

 

Loss from unconsolidated joint ventures

$

(981

)

 

$

(28,974

)

 

$

(3,098

)

 

$

(63,138

)

 

 

(1)
At September 30, 2024, our basis in the joint ventures that own 712 Fifth Avenue, Market Center and 111 Sutter Street were negative. Since we have no further obligation to fund additional capital to these joint ventures, we have discontinued the equity method of accounting, and accordingly, we no longer recognize our proportionate share of earnings. Instead, we recognize income only to the extent we receive cash distributions from the joint ventures and recognize losses to the extent we make cash contributions to the joint ventures.
(2)
As of September 30, 2024, the carrying amount of our investments in 55 Second Street, 1600 Broadway, One Steuart Lane and Oder-Center, Germany was greater than our share of equity in these investments by $457, $300, $564 and $4,033, respectively, and primarily represents the unamortized portion of our capitalized acquisition costs.
(3)
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 that quarter, reduced our investment balance below zero as of June 30, 2023. As a result, in the second quarter of 2023, we discontinued the equity method of accounting. In the first quarter of 2024, the non-recourse mortgage loan was modified and the joint venture committed to fund the development costs related to the project. As a result, in the first quarter of 2024, we resumed the equity method of accounting and recognized all previously deferred losses.
(4)
Represents RDF’s 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%.
(5)
In the third quarter of 2023, One Steuart Lane recognized $68,407 of impairment losses related to residential condominium units, of which RDF’s share was $23,942.

13


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:

September 30, 2024

 

 

December 31, 2023

 

Real estate, net

$

1,606,587

 

 

$

1,528,595

 

Cash and cash equivalents and restricted cash

 

157,328

 

 

 

167,355

 

Intangible assets, net

 

43,829

 

 

 

52,164

 

For-sale residential condominium units (1)

 

235,366

 

 

 

246,824

 

Deferred rent receivable

 

40,215

 

 

 

35,448

 

Other assets

 

43,852

 

 

 

48,731

 

Total assets

$

2,127,177

 

 

$

2,079,117

 

 

 

 

 

 

 

Notes and mortgages payable, net

$

1,770,748

 

 

$

1,744,706

 

Accounts payable and accrued expenses

 

61,749

 

 

 

92,770

 

Intangible liabilities, net

 

1,940

 

 

 

5,026

 

Other liabilities

 

74,602

 

 

 

5,692

 

Total liabilities

 

1,909,039

 

 

 

1,848,194

 

Equity

 

218,138

 

 

 

230,923

 

Total liabilities and equity

$

2,127,177

 

 

$

2,079,117

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

(Amounts in thousands)

September 30,

 

 

September 30,

 

 

Income Statements:

2024

 

 

2023

 

 

2024

 

 

2023

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

35,374

 

 

$

38,629

 

 

$

106,557

 

 

$

119,235

 

 

Other income (2)

 

2,188

 

 

 

874

 

 

 

20,432

 

 

 

6,492

 

 

Total revenues

 

37,562

 

 

 

39,503

 

 

 

126,989

 

 

 

125,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Operating (2)

 

23,985

 

 

 

92,348

 

(3)

 

80,345

 

 

 

142,039

 

(3)

Depreciation and amortization

 

12,464

 

 

 

16,863

 

 

 

38,232

 

 

 

52,341

 

 

Total expenses

 

36,449

 

 

 

109,211

 

 

 

118,577

 

 

 

194,380

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

1,855

 

 

 

734

 

 

 

4,351

 

 

 

2,226

 

 

Interest and debt expense

 

(14,782

)

 

 

(19,895

)

 

 

(44,729

)

 

 

(53,256

)

 

Gain on settlement of interest rate swap

 

2,498

 

 

 

-

 

 

 

2,498

 

 

 

-

 

 

Real estate impairment loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(455,893

)

(4)

Loss before income taxes

 

(9,316

)

 

 

(88,869

)

 

 

(29,468

)

 

 

(575,576

)

 

Income tax expense

 

(1

)

 

 

(2

)

 

 

(26

)

 

 

(32

)

 

Net loss

$

(9,317

)

 

$

(88,871

)

 

$

(29,494

)

 

$

(575,608

)

 

 

(1)
Represents 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.
(3)
Includes $68,407 of impairment losses related to condominium units at One Steuart Lane, of which RDF’s share was $23,942. See note 5 on page 13.
(4)
Represents real estate impairment loss related to 60 Wall Street, of which our share was $24,734. See note 3 on page 13.

 

14


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

6.
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)

September 30, 2024

 

 

December 31, 2023

 

Intangible assets:

 

 

 

 

 

Gross amount

$

205,945

 

 

$

262,541

 

Accumulated amortization

 

(151,820

)

 

 

(194,536

)

 

$

54,125

 

 

$

68,005

 

Intangible liabilities:

 

 

 

 

 

Gross amount

$

125,619

 

 

$

136,820

 

Accumulated amortization

 

(103,154

)

 

 

(108,817

)

 

$

22,465

 

 

$

28,003

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands)

2024

 

 

2023

 

 

2024

 

 

2023

 

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

$

1,379

 

 

$

1,445

 

 

$

4,351

 

 

$

3,929

 

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

 

2,970

 

 

 

4,635

 

 

 

12,070

 

 

 

13,706

 

 

 

The following table sets forth amortization of acquired above and below-market leases, net and amortization of acquired in-place leases for the three-month period from October 1, 2024 through December 31, 2024, and each of the five succeeding years commencing from January 1, 2025.

 

(Amounts in thousands)

 

Above and
Below-Market Leases, Net

 

 

In-Place Leases

 

2024

 

$

1,318

 

 

$

3,256

 

2025

 

 

4,350

 

 

 

10,070

 

2026

 

 

2,977

 

 

 

7,190

 

2027

 

 

2,665

 

 

 

6,546

 

2028

 

 

2,584

 

 

 

6,467

 

2029

 

 

2,146

 

 

 

5,810

 

 

 

15


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

7.
Debt

 

 

On February 1, 2024, we, together with our joint venture partner, modified and extended the existing non-recourse mortgage loan at One Market Plaza, a 1.6 million square-foot two-building trophy asset in San Francisco, California. The existing $975,000,000 loan, which bore interest at a fixed rate of 4.03%, was scheduled to mature on February 6, 2024. In connection with the modification, the loan balance was reduced to $850,000,000, following a $125,000,000 paydown by the joint venture, of which our 49.0% share was $61,250,000. The modified loan bears interest at a fixed rate of 4.08%, matures in February 2027 and has an option to extend for an additional year, subject to certain conditions.

 

The following table summarizes our consolidated outstanding debt.

 

 

 

 

 

 

 

 

 

Interest Rate

 

 

 

 

 

Paramount

 

Maturity

 

Fixed/

 

as of

 

As of

 

(Amounts in thousands)

 

Ownership

 

Date

 

Variable Rate

 

September 30, 2024

 

September 30, 2024

 

 

December 31, 2023

 

Notes and mortgages payable:

 

 

 

 

 

 

 

 

 

 

1633 Broadway

 

90.0%

 

Dec-2029

 

Fixed

 

2.99%

 

$

1,250,000

 

 

$

1,250,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Market Plaza

 

49.0%

 

Feb-2027

 

Fixed

 

4.08%

 

 

850,000

 

 

 

975,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1301 Avenue of the Americas

 

100.0%

 

Aug-2026

 

SOFR + 277 bps (1)

 

6.27%

 

 

860,000

 

 

 

860,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 West 52nd Street

 

100.0%

 

Jun-2026

 

Fixed

 

3.80%

 

 

500,000

 

 

 

500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300 Mission Street

 

31.1%

 

Oct-2026

 

Fixed

 

4.50%

 

 

232,050

 

 

 

232,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total notes and mortgages payable

 

4.21%

 

 

3,692,050

 

 

 

3,817,050

 

Less: unamortized deferred financing costs

 

 

 

 

(17,683

)

 

 

(13,566

)

Total notes and mortgages payable, net

 

 

 

$

3,674,367

 

 

$

3,803,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$750 Million Revolving
   Credit Facility

 

100.0%

 

Mar-2026

 

SOFR + 135 bps

n/a

 

$

-

 

 

$

-

 

 

(1)
Represents variable rate loans, where SOFR has been capped at 3.50% through August 2025. See Note 8, Derivative Instruments and Hedging Activities.

16


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

8.
Derivative Instruments and Hedging Activities

 

 

Prior to August 2024, we had interest rate swap agreements with an aggregate notional amount of $500,000,000 to fix SOFR at 0.49% through August 2024. We also had interest rate cap agreements with an aggregate notional amount of $360,000,000 to cap SOFR at 4.50% through August 2024. In August 2024, upon the expiration of these agreements, we entered into new interest rate cap agreements with an aggregate notional amount of $860,000,000 to cap SOFR at 3.50% through August 2025. 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 losses of $3,586,000 and $6,105,000 for the three months ended September 30, 2024 and 2023, respectively, and $14,241,000 and $17,630,000 for the nine months ended September 30, 2024 and 2023, respectively, from the changes in the fair value of these derivative financial instruments, which are recorded as a component of other comprehensive loss in our consolidated financial statements. See Note 10, Accumulated Other Comprehensive (Loss) Income. During the next twelve months, we estimate that $2,128,000 of the amounts to be recognized in accumulated other comprehensive (loss) income will be reclassified as an increase to interest expense.

 

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

 

 

 

Notional

 

 

Effective

 

Maturity

 

Benchmark

 

Strike

 

 

Fair Value as of

 

Property

 

Amount

 

 

Date

 

Date

 

Rate

 

Rate

 

 

September 30, 2024

 

 

December 31, 2023

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   1301 Avenue of the Americas

 

$

500,000

 

 

Jul-2021

 

Aug-2024

 

SOFR

 

 

0.49

%

 

$

-

 

 

$

13,726

 

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

$

-

 

 

$

13,726

 

 

 

 

 

Notional

 

 

Effective

 

Maturity

 

Benchmark

 

Strike

 

 

Fair Value as of

 

Property

 

Amount

 

 

Date

 

Date

 

Rate

 

Rate

 

 

September 30, 2024

 

 

December 31, 2023

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   1301 Avenue of the Americas

 

$

860,000

 

 

Aug-2024

 

Aug-2025

 

SOFR

 

 

3.50

%

 

$

4,342

 

 

$

-

 

   1301 Avenue of the Americas

 

 

360,000

 

 

Aug-2023

 

Aug-2024

 

SOFR

 

 

4.50

%

 

 

-

 

 

 

1,263

 

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

$

4,342

 

 

$

1,263

 

 

 

9.
Equity

 

 

Stock Repurchase Program

 

We currently have $15,000,000 of capacity under a $200,000,000 stock repurchase program which was approved by our board of directors in November 2019. We did not repurchase any shares in the nine months ended September 30, 2024. The amount and timing of 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.

17


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

10.
Accumulated Other Comprehensive (Loss) Income

 

 

The following table sets forth changes in accumulated other comprehensive (loss) income by component for the three and nine months ended September 30, 2024 and 2023, respectively, including amounts attributable to noncontrolling interests in the Operating Partnership.

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

(Amounts in thousands)

2024

 

 

2023

 

 

2024

 

 

2023

 

 

Amount of (loss) income related to the cash flow hedges recognized
    in other comprehensive loss
(1)

$

(876

)

 

$

1,804

 

 

$

1,008

 

 

$

6,254

 

 

Amounts reclassified from accumulated other comprehensive
    (loss) income decreasing interest and debt expense
(1)

 

(2,710

)

 

 

(7,909

)

 

 

(15,249

)

 

 

(23,884

)

 

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

 

(34

)

 

 

1,055

 

(2)

 

38

 

 

 

4,196

 

(2)

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

 

-

 

 

 

(2,589

)

(2)

 

-

 

 

 

(6,899

)

(2)

 

(1)
Represents amounts related to interest rate caps and interest rate swaps which were designated as cash flow hedges.
(2)
Primarily represents amounts related to our share of an unconsolidated joint venture’s interest rate swap 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 September 30, 2024 and December 31, 2023, noncontrolling interests in our consolidated joint ventures aggregated $492,135,000 and $413,925,000, respectively.

 

 

Consolidated Real Estate Related Funds

 

Noncontrolling interests in our consolidated real estate related funds consist of equity interests held by third parties in RDF and Fund X. As of September 30, 2024 and December 31, 2023, the noncontrolling interests in our consolidated real estate related funds aggregated $92,759,000 and $110,589,000, respectively.

 

 

Operating Partnership

 

Noncontrolling interests in the Operating Partnership represent common units of the Operating Partnership that are held by third parties, including management, and units issued to management under equity incentive plans. Common units of the Operating Partnership may be tendered for redemption to the Operating Partnership for cash. We, at our option, may assume that obligation and pay the holder either cash or common shares on a one-for-one basis. Since the number of common shares outstanding is equal to the number of common units owned by us, the redemption value of each common unit is equal to the market value of each common share and distributions paid to each common unitholder is equivalent to dividends paid to common stockholders. As of September 30, 2024 and December 31, 2023, noncontrolling interests in the Operating Partnership on our consolidated balance sheets had a carrying amount of $292,645,000 and $287,089,000, respectively, and a redemption value of $98,587,000 and $100,650,000, respectively, based on the closing share price of our common stock on the New York Stock Exchange at the end of each period.

 

18


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 91.6% of, the Operating Partnership as of September 30, 2024. The Operating Partnership is considered a VIE and is consolidated in our consolidated financial statements. Since we conduct our business through and substantially all of our interests are held by the Operating Partnership, the assets and liabilities on our consolidated financial statements represent the assets and liabilities of the Operating Partnership. As of September 30, 2024 and December 31, 2023, 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)

 

September 30, 2024

 

 

December 31, 2023

 

Real estate, net

 

$

3,220,763

 

 

$

3,284,532

 

Cash and cash equivalents and restricted cash

 

 

237,622

 

 

 

176,354

 

Accounts and other receivables

 

 

11,664

 

 

 

10,005

 

Real estate related fund investments

 

 

-

 

 

 

775

 

Investments in unconsolidated joint ventures

 

 

87,329

 

 

 

89,949

 

Deferred rent receivable

 

 

197,284

 

 

 

207,938

 

Deferred charges, net

 

 

40,198

 

 

 

45,190

 

Intangible assets, net

 

 

30,824

 

 

 

38,209

 

Other assets

 

 

21,754

 

 

 

7,374

 

Total VIE assets

 

$

3,847,438

 

 

$

3,860,326

 

 

 

 

 

 

 

 

Notes and mortgages payable, net

 

$

2,319,284

 

 

$

2,450,401

 

Accounts payable and accrued expenses

 

 

58,632

 

 

 

48,952

 

Intangible liabilities, net

 

 

13,740

 

 

 

17,180

 

Other liabilities

 

 

5,436

 

 

 

5,852

 

Total VIE liabilities

 

$

2,397,092

 

 

$

2,522,385

 

 

 

Unconsolidated VIEs

 

As of September 30, 2024, the Operating Partnership held variable interests in entities that own our unconsolidated real estate related funds and an unconsolidated joint venture that were deemed to be VIEs. The following table summarizes our investments in these entities and the maximum risk of loss from these investments.

 

 

 

 

As of

 

(Amounts in thousands)

 

September 30, 2024

 

 

December 31, 2023

 

Investments in unconsolidated real estate funds

 

$

4,607

 

 

$

4,549

 

Investment in unconsolidated joint venture

 

 

327

 

 

 

-

 

Asset management fees and other receivables

 

 

555

 

 

 

18

 

Maximum risk of loss

 

$

5,489

 

 

$

4,567

 

 

19


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 September 30, 2024

 

(Amounts in thousands)

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

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

$

4,342

 

 

$

-

 

 

$

4,342

 

 

$

-

 

Total assets

$

4,342

 

 

$

-

 

 

$

4,342

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2023

 

(Amounts in thousands)

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

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

$

14,989

 

 

$

-

 

 

$

14,989

 

 

$

-

 

Total assets

$

14,989

 

 

$

-

 

 

$

14,989

 

 

$

-

 

 

 

Real Estate Related Fund Investments

 

Real estate related fund investments are comprised of investments in mezzanine loans made by Fund X. The investments are measured at fair value on our consolidated balance sheets and are classified as Level 3. As of September 30, 2024 and December 31, 2023, the fair value of the investments was $0. The table below summarizes the changes in the fair value of real estate related fund investments for the three and nine months ended September 30, 2023.

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

(Amounts in thousands)

 

September 30, 2023

 

 

September 30, 2023

 

Beginning balance

 

$

66,606

 

 

$

105,369

 

Additional investments

 

 

1,591

 

 

 

9,631

 

Net realized losses

 

 

-

 

 

 

(1,224

)

Net unrealized gains (losses)

 

 

28

 

 

 

(45,551

)

Ending balance

 

$

68,225

 

 

$

68,225

 

 

 

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 September 30, 2024

 

 

As of December 31, 2023

 

(Amounts in thousands)

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

Notes and mortgages payable

$

3,692,050

 

 

$

3,436,785

 

 

$

3,817,050

 

 

$

3,517,549

 

Revolving credit facility

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total liabilities

$

3,692,050

 

 

$

3,436,785

 

 

$

3,817,050

 

 

$

3,517,549

 

 

20


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 represent 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 are 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 September 30,

 

 

For the Nine Months Ended September 30,

 

(Amounts in thousands)

2024

 

 

2023

 

 

2024

 

 

2023

 

Rental revenue:

 

 

 

 

 

 

 

 

 

 

 

Fixed

$

156,190

 

 

$

160,107

 

 

$

475,420

 

 

$

474,931

 

Variable

 

28,045

 

 

 

22,408

 

 

 

68,216

 

 

 

54,803

 

Total rental revenue

$

184,235

 

 

$

182,515

 

 

$

543,636

 

 

$

529,734

 

 

The following table is a schedule of future undiscounted cash flows under non-cancellable operating leases in effect as of September 30, 2024, for the three-month period from October 1, 2024 through December 31, 2024, and each of the five succeeding years and thereafter commencing January 1, 2025.

 

(Amounts in thousands)

 

 

2024

 

$

150,933

 

2025

 

 

584,675

 

2026

 

 

512,175

 

2027

 

 

456,147

 

2028

 

 

451,922

 

2029

 

 

431,564

 

Thereafter

 

 

1,736,414

 

Total

 

$

4,323,830

 

 

 

15.
Fee and Other Income

 

 

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

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(Amounts in thousands)

2024

 

 

2023

 

 

2024

 

 

2023

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

Asset management

$

2,134

 

 

$

2,459

 

 

$

6,756

 

 

$

6,960

 

Property management

 

 

1,695

 

 

 

1,810

 

 

 

5,096

 

 

 

5,503

 

Acquisition, disposition, leasing and other

 

2,947

 

 

 

304

 

 

 

5,476

 

 

 

1,643

 

Total fee income

 

6,776

 

 

 

4,573

 

 

 

17,328

 

 

 

14,106

 

Other income (1)

 

3,888

 

 

 

2,093

 

 

 

10,220

 

 

 

6,477

 

Total fee and other income

$

10,664

 

 

$

6,666

 

 

$

27,548

 

 

$

20,583

 

 

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

21


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

16.
Interest and Other Income, net

 

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

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(Amounts in thousands)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Interest income, net

 

$

3,517

 

 

$

4,115

 

 

$

11,393

 

 

$

10,007

 

Non-cash gain on extinguishment of IPO
    related tax liability

 

 

-

 

 

 

-

 

 

 

15,437

 

 

 

-

 

Total interest and other income, net

 

$

3,517

 

 

$

4,115

 

 

$

26,830

 

 

$

10,007

 

 

 

17.
Interest and Debt Expense

 

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

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(Amounts in thousands)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Interest expense

 

$

41,178

 

 

$

37,549

 

 

$

116,456

 

 

$

107,810

 

Amortization of deferred financing costs

 

 

2,627

 

 

 

1,553

 

 

 

7,622

 

 

 

4,630

 

Total interest and debt expense

 

$

43,805

 

 

$

39,102

 

 

$

124,078

 

 

$

112,440

 

 

 

18.
Incentive Compensation

 

Stock-Based Compensation

 

On May 16, 2024, our shareholders approved the 2024 Equity Incentive Plan (the “2024 Plan”), which allows for a maximum of 24,778,731 shares to be issued under the plan. The 2024 Plan, which is scheduled to expire in March 2034, replaced our Amended and Restated 2014 Equity Incentive Plan. The 2024 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 Time-Based LTIP units, Performance-Based LTIP units, Time-Based Appreciation Only LTIP units and Performance-Based Appreciation Only LTIP units.

 

We account for all stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. We recognized stock-based compensation expense of $4,373,000 and $4,680,000 for the three months ended September 30, 2024 and 2023, respectively, and $15,635,000 and $14,011,000 for the nine months ended September 30, 2024 and 2023, respectively, related to awards granted in prior periods.

 

 

Completion of the 2021 Performance-Based Awards Program (“2021 Performance Program”)

 

On December 31, 2023, the three-year performance measurement period for our 2021 Performance Program ended. On January 30, 2024, the Compensation Committee determined that only 24.2%, or 409,046 of the LTIP units that were granted under the 2021 Performance Program, were earned. Of the LTIP units that were earned, 204,727 units vested immediately on January 30, 2024 and the remaining 204,319 units are scheduled to vest on December 31, 2024. As of September 30, 2024, the 2021 Performance Program had $196,000 of unrecognized compensation cost, which will be amortized into expense over the remaining weighted-average service period of 0.25 years.

22


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

19.
Earnings Per Share

 

 

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

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands, except per share amounts)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(9,688

)

 

$

(8,385

)

 

$

(7,642

)

 

$

(54,194

)

Earnings allocated to unvested participating securities

 

 

-

 

 

 

(10

)

 

 

(14

)

 

 

(40

)

Numerator for loss per common share -
    basic and diluted

 

$

(9,688

)

 

$

(8,395

)

 

$

(7,656

)

 

$

(54,234

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic loss per common share -
    weighted average shares

 

 

217,315

 

 

 

217,043

 

 

 

217,209

 

 

 

216,872

 

Effect of dilutive stock-based compensation plans (1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Denominator for diluted loss per common share -
    weighted average shares

 

 

217,315

 

 

 

217,043

 

 

 

217,209

 

 

 

216,872

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share - basic and diluted

 

$

(0.04

)

 

$

(0.04

)

 

$

(0.04

)

 

$

(0.25

)

 

(1)
The effect of dilutive securities excludes 22,105 and 18,470 weighted average share equivalents for the three months ended September 30, 2024 and 2023, respectively, and 22,079 and 17,804 weighted average share equivalents for the nine months ended September 30, 2024 and 2023, respectively, as their effect was anti-dilutive.

 

23


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

20.
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 $195,000 and $262,000 for the three months ended September 30, 2024 and 2023, respectively, and $562,000 and $791,000 for the nine months ended September 30, 2024 and 2023, respectively, in connection with these agreements, which is included as a component of “fee and other income” in our consolidated statements of income. As of September 30, 2024 and December 31, 2023, amounts owed to us under these agreements aggregated $52,000 and $40,000, 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 $5,404,000 and $3,585,000 for the three months ended September 30, 2024 and 2023, respectively, and $14,214,000 and $11,288,000 for the nine months ended September 30, 2024 and 2023, respectively, in connection with these agreements, which is included as a component of “fee and other income” in our consolidated statements of income. As of September 30, 2024 and December 31, 2023, amounts owed to us under these agreements aggregated $1,520,000 and $2,552,000, 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. 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 $141,000 and $102,000 for the three months ended September 30, 2024 and 2023, respectively, and $386,000 and $293,000 for the nine months ended September 30, 2024 and 2023, respectively, in connection with this agreement. As of September 30, 2024 and December 31, 2023, we owed $120,000 and $102,000, 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, who is a member of our board of directors, leases 4,233 square feet at 1325 Avenue of the Americas, pursuant to a lease agreement that expires in November 2027. We recognized rental revenue of $71,000 and $69,000 for the three months ended September 30, 2024 and 2023, respectively, and $212,000 and $207,000 for the nine months ended September 30, 2024 and 2023, respectively, pursuant to this lease.

 

 

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 $30,000 in each of the three months ended September 30, 2024 and 2023, respectively, and $89,000 and $154,000 for the nine months ended September 30, 2024 and 2023, 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 Paramount Club at 1301 Avenue of the Americas. Kramer Design is 100% owned by the spouse of Albert Behler, our Chairman, Chief Executive Officer and President. We incurred and paid Kramer Design $42,000 for the nine months ended September 30, 2024, and $19,000 and $103,000 for the three and nine months ended September 30, 2023, respectively, in connection with services rendered pursuant to this agreement.

24


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

21.
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 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 our 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, as well as cybersecurity incidents. While we do carry commercial general liability insurance, property insurance, terrorism insurance and cybersecurity insurance, 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 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, 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 September 30, 2024, we believe we are in compliance with all of our covenants.

 

On March 29, 2024, the joint venture that owns 60 Wall Street, in which we have a 5.0% ownership interest, modified the existing $575,000,000 non-recourse mortgage loan and extended the maturity to May 2029. In connection with the modification, the joint venture committed to redevelop the property and fund the necessary costs to complete the project. On behalf of the joint venture, we have provided the lender with certain guarantees, including a completion guarantee. We have agreements with our joint venture partners that indemnify us for their share of guarantees we provided. In accordance with GAAP, we are required to record a liability equal to the fair value of the obligations undertaken in issuing the guarantees and record an asset equal to the fair value of the indemnification we have received. As of September 30, 2024, we have a $7,914,000 asset and an $8,061,000 liability, which are included as a component of “other assets” and “other liabilities”, respectively, on our consolidated balance sheets.

 

 

Transfer Tax Assessments

 

During 2017, the New York City Department of Finance (“NYCDOF”) 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 (“IPO”). We disagreed with the assessment and strongly contested the Notices. While we estimated that the range of loss from these Notices could be between $0 and $62,500,000, we concluded, after consultation with legal counsel, that it was not possible to predict any estimate within that range and as such we did not accrue any liability in our consolidated financial statements for potential losses that may arise relating to such Notices. In February 2024, the NYCDOF completed its assessment and concluded that no additional taxes were due.

 

25


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

22.
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 CODM, makes key operating decisions, evaluates financial results and manages our business.

 

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

 

 

For the Three Months Ended September 30, 2024

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

$

188,123

 

 

$

116,383

 

 

$

71,523

 

 

$

217

 

Property-related operating expenses

 

(80,316

)

 

 

(55,612

)

 

 

(23,498

)

 

 

(1,206

)

NOI attributable to noncontrolling interests in
   consolidated joint ventures

 

(23,723

)

 

 

(2,424

)

 

 

(21,299

)

 

 

-

 

NOI from unconsolidated joint ventures (1)

 

5,384

 

 

 

3,407

 

 

 

2,018

 

 

 

(41

)

Paramount's share of NOI (2)

$

89,468

 

 

$

61,754

 

 

$

28,744

 

 

$

(1,030

)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2023

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

$

184,608

 

 

$

118,749

 

 

$

66,252

 

 

$

(393

)

Property-related operating expenses

 

(75,502

)

 

 

(52,470

)

 

 

(22,447

)

 

 

(585

)

NOI attributable to noncontrolling interests in
   consolidated joint ventures

 

(22,275

)

 

 

(3,049

)

 

 

(19,226

)

 

 

-

 

NOI from unconsolidated joint ventures (1)

 

5,240

 

 

 

3,376

 

 

 

1,865

 

 

 

(1

)

Paramount's share of NOI (2)

$

92,071

 

 

$

66,606

 

 

$

26,444

 

 

$

(979

)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2024

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

$

553,856

 

 

$

347,669

 

 

$

206,337

 

 

$

(150

)

Property-related operating expenses

 

(226,248

)

 

 

(156,992

)

 

 

(66,391

)

 

 

(2,865

)

NOI attributable to noncontrolling interests in
   consolidated joint ventures

 

(70,532

)

 

 

(7,600

)

 

 

(62,932

)

 

 

-

 

NOI from unconsolidated joint ventures (1)

 

16,611

 

 

 

10,442

 

 

 

6,128

 

 

 

41

 

Paramount's share of NOI (2)

$

273,687

 

 

$

193,519

 

 

$

83,142

 

 

$

(2,974

)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2023

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

$

536,211

 

 

$

342,812

 

 

$

194,564

 

 

$

(1,165

)

Property-related operating expenses

 

(216,889

)

 

 

(150,676

)

 

 

(64,529

)

 

 

(1,684

)

NOI attributable to noncontrolling interests in
   consolidated joint ventures

 

(67,551

)

 

 

(8,415

)

 

 

(59,136

)

 

 

-

 

NOI from unconsolidated joint ventures (1)

 

16,048

 

 

 

10,143

 

 

 

5,847

 

 

 

58

 

Paramount's share of NOI (2)

$

267,819

 

 

$

193,864

 

 

$

76,746

 

 

$

(2,791

)

 

(1)
Excludes NOI from One Steuart Lane, a for-sale residential condominium project, and “non-core” assets (Market Center and 111 Sutter Street).
(2)
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 include property-related expenses such as cleaning, security, repairs and maintenance, utilities, property administration and real estate taxes). We use NOI internally as a performance measure and believe it provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Other real estate companies may use different methodologies for calculating NOI and, accordingly, our presentation of NOI may not be comparable to other real estate companies.

26


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following table provides a reconciliation of Paramount's share of NOI to net loss attributable to common stockholders for the periods set forth below.

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands)

2024

 

 

2023

 

 

2024

 

 

2023

 

Paramount's share of NOI

$

89,468

 

 

$

92,071

 

 

$

273,687

 

 

$

267,819

 

NOI attributable to noncontrolling interests in
    consolidated joint ventures

 

23,723

 

 

 

22,275

 

 

 

70,532

 

 

 

67,551

 

Adjustments to arrive to net loss:

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

6,776

 

 

 

4,573

 

 

 

17,328

 

 

 

14,106

 

Depreciation and amortization expense

 

(60,071

)

 

 

(60,263

)

 

 

(182,920

)

 

 

(181,778

)

General and administrative expenses

 

(16,672

)

 

 

(15,460

)

 

 

(49,938

)

 

 

(46,307

)

(Loss) income from real estate related fund investments

 

(22

)

 

 

2,060

 

 

 

(92

)

 

 

(37,034

)

Loss from unconsolidated joint ventures

 

(981

)

 

 

(28,974

)

 

 

(3,098

)

 

 

(63,138

)

NOI from unconsolidated joint ventures (1)

 

(5,384

)

 

 

(5,240

)

 

 

(16,611

)

 

 

(16,048

)

Interest and other income, net

 

3,517

 

 

 

4,115

 

 

 

26,830

 

 

 

10,007

 

Interest and debt expense

 

(43,805

)

 

 

(39,102

)

 

 

(124,078

)

 

 

(112,440

)

Other, net

 

(133

)

 

 

(853

)

 

 

(644

)

 

 

(1,190

)

(Loss) income before income taxes

 

(3,584

)

 

 

(24,798

)

 

 

10,996

 

 

 

(98,452

)

Income tax expense

 

(619

)

 

 

(263

)

 

 

(1,328

)

 

 

(1,124

)

Net (loss) income

 

(4,203

)

 

 

(25,061

)

 

 

9,668

 

 

 

(99,576

)

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

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(6,959

)

 

 

(4,887

)

 

 

(18,434

)

 

 

(15,879

)

Consolidated real estate related funds

 

581

 

 

 

20,934

 

 

 

408

 

 

 

57,412

 

Operating Partnership

 

893

 

 

 

629

 

 

 

716

 

 

 

3,849

 

Net loss attributable to common stockholders

$

(9,688

)

 

$

(8,385

)

 

$

(7,642

)

 

$

(54,194

)

 

(1)
Excludes NOI from One Steuart Lane, a for-sale residential condominium project, and “non-core” assets (Market Center and 111 Sutter Street).

 

 

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

 

September 30, 2024

$

7,890,952

 

 

$

5,175,797

 

 

$

2,357,819

 

 

$

357,336

 

December 31, 2023

 

8,006,215

 

 

 

5,214,504

 

 

 

2,342,395

 

 

 

449,316

 

 

27


 

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

 

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

 

 

Forward-Looking Statements

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

unfavorable market and economic conditions in the United States, including New York City and San Francisco, and globally, including as a result of elevated 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 elevated 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;

28


 

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, 2023, including those set forth in Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

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, 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, 2023.

 

 

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 91.6% of, the Operating Partnership as of September 30, 2024.

29


 

 

As of September 30, 2024, we own and/or manage 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 and theater 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.

 

 

Financing

 

On February 1, 2024, we, together with our joint venture partner, modified and extended the existing mortgage loan at One Market Plaza, a 1.6 million square-foot two-building trophy asset in San Francisco, California. The existing $975,000,000 loan, which bore interest at a fixed rate of 4.03%, was scheduled to mature on February 6, 2024. In connection with the modification, the loan balance was reduced to $850,000,000, following a $125,000,000 paydown by the joint venture, of which our 49.0% share was $61,250,000. The modified loan bears interest at a fixed rate of 4.08%, matures in February 2027 and has an option to extend for an additional year, subject to certain conditions.

 

On March 29, 2024, the joint venture that owns 60 Wall Street, in which we have a 5.0% ownership interest, modified the existing $575,000,000 non-recourse mortgage loan and extended the maturity to May 2029. In connection with the modification, the loan was split into (i) a $316,250,000 A-Note that bears interest at Term Secured Overnight Financing Rate (“SOFR”) plus 245 basis points, of which 4.0% is current pay and the remaining is accrued, and (ii) a $258,750,000 B-Note that accrues interest at 12.0%. The joint venture plans to redevelop the property and all amounts funded by the joint venture will be senior to the B-Note and all accrued interest.

 

On April 30, 2024, the joint venture that owns 111 Sutter Street, in which we have a 49.0% ownership interest, modified the existing $164,775,000 non-recourse mortgage loan to extend the maturity date to December 2025. The loan bears interest at a rate of SOFR plus 215 basis points and all interest shortfalls will continue to accrue to the principal balance of the loan.

 

On August 13, 2024, the joint venture that owns Market Center, in which we have a 67.0% ownership interest, defaulted on the $416,544,000 non-recourse mortgage loan securing the property. The loan bears interest at SOFR plus 161 basis points and is scheduled to mature in January 2025.

 

 

Transfer Tax Assessments

 

During 2017, the New York City Department of Finance (“NYCDOF”) 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 (“IPO”). We disagreed with the assessment and strongly contested the Notices. While we estimated that the range of loss from these Notices could be between $0 and $62,500,000, we concluded, after consultation with legal counsel, that it was not possible to predict any estimate within that range and as such we did not accrue any liability in our consolidated financial statements for potential losses that may arise relating to such Notices. In February 2024, the NYCDOF completed its assessment and concluded that no additional taxes were due.

 

 

Stock Repurchase Program

 

We currently have $15,000,000 of capacity under a $200,000,000 stock repurchase program which was approved by our board of directors in November 2019. We did not repurchase any shares in the nine months ended September 30, 2024. The amount and timing of repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.

30


 

 

Leasing Results - Three Months Ended September 30, 2024

 

The following table presents the details on the leases signed during the three months ended September 30, 2024. It is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The leasing statistics, except for square feet leased, represent office space only.

 

 

Three Months Ended September 30, 2024

Total

 

New York

 

San Francisco

 

Total square feet leased

179,403 (1)

 

72,374

 

107,029 (1)

 

Pro rata share of total square feet leased:

115,026

 

54,489

 

60,537

 

 

Initial rent (2)

$ 84.55

 

$ 81.76

 

$ 87.06

 

 

Weighted average lease term (in years)

8.1

 

13.6

 

3.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

Per square foot

$ 72.72

 

$ 138.15

 

$ 13.83

 

 

 

Per square foot per annum

$ 9.03

 

$ 10.17

 

$ 4.50

 

 

 

Percentage of initial rent

10.7%

 

12.4%

 

5.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent concessions:

 

 

 

 

 

 

 

Average free rent period (in months)

7.3

 

12.0

 

3.1

 

 

 

Average free rent period per annum (in months)

0.9

 

0.9

 

1.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Second generation space: (3)

 

 

 

 

 

 

Square feet

96,320

 

35,783

 

60,537

 

 

Cash basis:

 

 

 

 

 

 

 

 

Initial rent (2)

$ 82.97

 

$ 76.06

 

$ 87.06

 

 

 

Prior escalated rent (4)

$ 92.58

 

$ 87.12

 

$ 95.81

 

 

 

Percentage decrease

(10.4%)

 

(12.7%)

 

(9.1%)

 

 

GAAP basis:

 

 

 

 

 

 

 

 

Straight-line rent

$ 81.00

 

$ 76.86

 

$ 83.45

 

 

 

Prior straight-line rent

$ 84.57

 

$ 84.16

 

$ 84.82

 

 

 

Percentage decrease

(4.2%)

 

(8.7%)

 

(1.6%)

 

(1)
Includes an aggregate of 46,312 square feet leased at Market Center and 111 Sutter Street, which have been designated as “non-core” assets and accordingly excluded from the statistics below.
(2)
Represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent.
(3)
Represents space leased in the current period (i) prior to its scheduled expiration, or (ii) that has been vacant for less than twelve months.
(4)
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 September 30, 2024

 

84.7

%

 

 

85.0

%

 

 

83.6

%

 

As of June 30, 2024

 

86.3

%

 

 

86.9

%

 

 

84.2

%

 

(1)
Represents percentage of square feet that is leased, including signed leases not yet commenced, for properties in our same store portfolio. Our same store portfolio excludes 60 Wall Street in New York, and Market Center and 111 Sutter Street in San Francisco.

31


 

 

Leasing Results - Three Months Ended September 30, 2024

 

 

In the three months ended September 30, 2024, we leased 179,403 square feet, of which 133,091 square feet was leased in our same store portfolio. Of the 133,091 square feet leased, our share was 115,026 square feet that was leased at a weighted average initial rent of $84.55 per square foot. This leasing activity, offset by lease expirations in the three months, decreased same store leased occupancy by 160 basis points to 84.7% at September 30, 2024 from 86.3% at June 30, 2024.

 

Of the 179,403 square feet leased in the three months ended September 30, 2024, 96,320 square feet represented our share of second generation space for which rental rates decreased by 10.4% on a cash basis and 4.2% on a GAAP basis. The weighted average lease term for leases signed during the three months was 8.1 years and weighted average tenant improvements and leasing commissions on these leases were $9.03 per square foot per annum, or 10.7% of initial rent.

 

 

New York

 

In the three months ended September 30, 2024, we leased 72,374 square feet in our New York portfolio, of which our share was 54,489 square feet that was leased at a weighted average initial rent of $81.76 per square foot. This leasing activity, offset by lease expirations in the three months, decreased same store leased occupancy by 190 basis points to 85.0% at September 30, 2024 from 86.9% at June 30, 2024.

 

Of the 72,374 square feet leased in the three months ended September 30, 2024, 35,783 square feet represented second generation space for which rental rates decreased by 12.7% on a cash basis and 8.7% on a GAAP basis. The weighted average lease term for leases signed during the three months was 13.6 years and weighted average tenant improvements and leasing commissions on these leases were $10.17 per square foot per annum, or 12.4% of initial rent.

 

 

San Francisco

 

In the three months ended September 30, 2024, we leased 107,029 square feet in our San Francisco portfolio, of which 60,717 square feet was leased in our same store portfolio. Of the 60,717 square feet leased, our share was 60,537 square feet that was leased at a weighted average initial rent of $87.06 per square foot. This leasing activity, offset by lease expirations in the three months, decreased same store leased occupancy by 60 basis points to 83.6% at September 30, 2024 from 84.2% at June 30, 2024.

 

Of the 107,029 square feet leased in the three months, 60,537 square feet represented our share of second generation space for which rental rates decreased by 9.1% on a cash basis and 1.6% on a GAAP basis. The weighted average lease term for leases signed during the three months was 3.1 years and weighted average tenant improvements and leasing commissions on these leases were $4.50 per square foot per annum, or 5.2% of initial rent.

32


 

 

Leasing Results - Nine Months Ended September 30, 2024

 

The following table presents the details on the leases signed during the nine months ended September 30, 2024. It is not intended to coincide with the commencement of rental revenue in accordance with GAAP. The leasing statistics, except for square feet leased, represent office space only.

 

 

Nine Months Ended September 30, 2024

Total

 

New York

 

San Francisco

 

Total square feet leased

654,625 (1)

 

367,236

 

287,389 (1)

 

Pro rata share of total square feet leased:

444,140

 

322,601

 

121,539

 

 

Initial rent (2)

$ 74.94

 

$ 73.97

 

$ 77.49

 

 

Weighted average lease term (in years)

8.2

 

10.4

 

2.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

Per square foot

$ 90.37

 

$ 120.81

 

$ 9.55

 

 

 

Per square foot per annum

$ 11.02

 

$ 11.63

 

$ 3.97

 

 

 

Percentage of initial rent

14.7%

 

15.7%

 

5.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent concessions:

 

 

 

 

 

 

 

Average free rent period (in months)

6.2

 

7.9

 

1.6

 

 

 

Average free rent period per annum (in months)

0.8

 

0.8

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Second generation space: (3)

 

 

 

 

 

 

Square feet

290,157

 

168,618

 

121,539

 

 

Cash basis:

 

 

 

 

 

 

 

 

Initial rent (2)

$ 74.22

 

$ 71.86

 

$ 77.49

 

 

 

Prior escalated rent (4)

$ 78.13

 

$ 73.83

 

$ 84.10

 

 

 

Percentage decrease

(5.0%)

 

(2.7%)

 

(7.9%)

 

 

GAAP basis:

 

 

 

 

 

 

 

 

Straight-line rent

$ 72.01

 

$ 69.38

 

$ 75.65

 

 

 

Prior straight-line rent

$ 78.69 (5)

 

$ 72.40

 

$ 87.43 (5)

 

 

 

Percentage decrease

(8.5%) (5)

 

(4.2%)

 

(13.5%) (5)

 

(1)
Includes an aggregate of 88,346 square feet leased at Market Center and 111 Sutter Street, which have been designated as “non-core” assets and accordingly excluded from the statistics below.
(2)
Represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent.
(3)
Represents space leased in the current period (i) prior to its scheduled expiration, or (ii) that has been vacant for less than twelve months.
(4)
Represents the weighted average cash basis rents (including reimbursements) per square foot at expiration.
(5)
The rental rate decrease was driven primarily by a below-market lease adjustment that was included in the prior GAAP rent. Excluding the below-market lease adjustment from the prior GAAP rent, the rental rate decrease would have been 3.4% for the total portfolio and 2.3% for San Francisco.

 

 

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 September 30, 2024

 

84.7

%

 

 

85.0

%

 

 

83.6

%

 

As of December 31, 2023

 

90.1

%

 

 

90.2

%

 

 

89.8

%

 

(1)
Represents percentage of square feet that is leased, including signed leases not yet commenced, for properties in our same store portfolio. Our same store portfolio excludes 60 Wall Street in New York, and Market Center and 111 Sutter Street in San Francisco.

33


 

 

Leasing Results - Nine Months Ended September 30, 2024

 

 

In the nine months ended September 30, 2024, we leased 654,625 square feet, of which 566,279 was leased in our same store portfolio. Of the 566,279 square feet leased, our share was 444,140 square feet that was leased at a weighted average initial rent of $74.94 per square foot. This leasing activity, offset by lease expirations in the nine months, decreased same store leased occupancy by 540 basis points to 84.7% at September 30, 2024 from 90.1% at December 31, 2023. The decrease in same store leased occupancy was driven primarily by the scheduled expiration of Clifford Chance’s lease in June 2024 at 31 West 52nd Street in our New York portfolio.

 

Of the 654,625 square feet leased in the nine months ended September 30, 2024, 290,157 square feet represented our share of second generation space for which rental rates decreased by 5.0% on a cash basis and 8.5% on a GAAP basis. The rental rate decrease of 8.5% on a GAAP basis was driven primarily by a below-market lease adjustment in our San Francisco portfolio that was included in the prior GAAP rent. Excluding the below-market lease adjustment from the prior GAAP rent, the rental rate decrease on a GAAP basis would have been 3.4%. The weighted average lease term for leases signed during the nine months was 8.2 years and weighted average tenant improvements and leasing commissions on these leases were $11.02 per square foot per annum, or 14.7% of initial rent.

 

 

New York

 

In the nine months ended September 30, 2024, we leased 367,236 square feet in our New York portfolio, of which our share was 322,601 square feet that was leased at a weighted average initial rent of $73.97 per square foot. This leasing activity, offset by lease expirations in the nine months, decreased same store leased occupancy by 520 basis points to 85.0% at September 30, 2024 from 90.2% at December 31, 2023. The decrease in same store leased occupancy was driven primarily by the scheduled expiration of Clifford Chance’s lease in June 2024 at 31 West 52nd Street.

 

Of the 367,236 square feet leased in the nine months ended September 30, 2024, 168,618 square feet represented second generation space for which rental rates decreased by 2.7% on a cash basis and 4.2% on a GAAP basis. The weighted average lease term for leases signed during the nine months was 10.4 years and weighted average tenant improvements and leasing commissions on these leases were $11.63 per square foot per annum, or 15.7% of initial rent.

 

 

San Francisco

 

In the nine months ended September 30, 2024, we leased 287,389 square feet in our San Francisco portfolio, of which 199,043 square feet was leased in our same store portfolio. Of the 199,043 square feet leased, our share was 121,539 square feet that was leased at a weighted average initial rent of $77.49 per square foot. This leasing activity, offset by lease expirations in the nine months, decreased same store leased occupancy by 620 basis points to 83.6% at September 30, 2024 from 89.8% at December 31, 2023.

 

Of the 287,369 square feet leased in the nine months, 121,539 square feet represented our share of second generation space for which rental rates decreased by 7.9% on a cash basis and 13.5% on a GAAP basis. The rental rate decrease of 13.5% on a GAAP basis was driven primarily by a below-market lease adjustment that was included in the prior GAAP rent. Excluding the below-market lease adjustment from the prior GAAP rent, the rental rate decrease on a GAAP basis would have been 2.3%. The weighted average lease term for leases signed during the nine months was 2.4 years and weighted average tenant improvements and leasing commissions on these leases were $3.97 per square foot per annum, or 5.1% of initial rent.

 

34


 

 

Financial Results - Three Months Ended September 30, 2024 and 2023

 

 

Net Income, FFO and Core FFO

 

Net loss attributable to common stockholders was $9,688,000, or $0.04 per diluted share, for the three months ended September 30, 2024, compared to $8,385,000, or $0.04 per diluted share, for the three months ended September 30, 2023.

 

Funds from Operations (“FFO”) attributable to common stockholders was $40,078,000, or $0.18 per diluted share, for the three months ended September 30, 2024, compared to $46,721,000, or $0.21 per diluted share, for the three months ended September 30, 2023. FFO attributable to common stockholders for the three months ended September 30, 2024 and 2023 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 September 30, 2024 and 2023 by $445,000 and $860,000, respectively, or $0.01 per diluted share.

 

Core Funds from Operations (“Core FFO”) attributable to common stockholders, which excludes the impact of the non-core items listed on page 55, was $40,523,000, or $0.19 per diluted share, for the three months ended September 30, 2024, compared to $47,581,000, or $0.22 per diluted share, for the three months ended September 30, 2023.

 

 

Same Store Results

 

The table below summarizes the percentage increase or decrease in our share of Same Store NOI and Same Store Cash NOI, by segment, for the three months ended September 30, 2024 versus September 30, 2023.

 

 

 

 

Total

 

 

New York

 

 

San Francisco

 

Same Store NOI

 

 

1.8

%

 

 

(1.0

%)

 

 

8.6

%

Same Store Cash NOI

 

 

(2.9

%)

 

 

(12.7

%)

 

 

22.0

%

 

See pages 49-55Non-GAAP Financial Measures” for a reconciliation of these measures to the most directly comparable GAAP measure and the reasons why we believe these non-GAAP measures are useful.

35


 

 

Financial Results - Nine Months Ended September 30, 2024 and 2023

 

 

Net Income, FFO and Core FFO

 

Net loss attributable to common stockholders was $7,642,000, or $0.04 per diluted share, for the nine months ended September 30, 2024, compared to $54,194,000, or $0.25 per diluted share, for the nine months ended September 30, 2023. Net loss attributable to common stockholders for the nine months ended September 30, 2024 includes $14,148,000, or $0.07 per diluted share, of a non-cash gain on extinguishment of a tax liability related to our initial public offering. Net loss attributable to the common stockholders for the nine months ended September 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 at 1301 Avenue of the Americas and the surrendered JPMorgan Chase space at One Front Street.

 

FFO attributable to common stockholders was $142,554,000, or $0.66 per diluted share, for the nine months ended September 30, 2024, compared to $137,517,000, or $0.63 per diluted share, for the nine months ended September 30, 2023. FFO attributable to common stockholders for the nine months ended September 30, 2024 includes $14,148,000, or $0.07 per diluted share, of a non-cash gain on extinguishment of a tax liability related to our initial public offering. FFO attributable to common stockholders for the nine months ended September 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 at 1301 Avenue of the Americas and the surrendered JPMorgan Chase space at One Front Street. FFO attributable to common stockholders for the nine months ended September 30, 2024 and 2023 also includes the impact other 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, increased FFO attributable to common stockholders for the nine months ended September 30, 2024 by $10,665,000, or $0.05 per diluted share, and decreased FFO attributable to common stockholders for the nine months ended September 30, 2023 by $1,842,000, or $0.01 per diluted share.

 

Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 55, was $131,889,000, or $0.61 per diluted share, for the nine months ended September 30, 2024, compared to $139,359,000, or $0.64 per diluted share, for the nine months ended September 30, 2023.

 

 

Same Store Results

 

The table below summarizes the percentage increase or decrease in our share of Same Store NOI and Same Store Cash NOI, by segment, for the nine months ended September 30, 2024 versus September 30, 2023.

 

 

 

 

Total

 

 

New York

 

 

San Francisco

 

Same Store NOI

 

 

(1.1

%)

 

 

(1.0

%)

 

 

(1.1

%)

Same Store Cash NOI

 

 

(1.4

%)

 

 

(7.1

%)

 

 

12.6

%

 

See pages 49-55Non-GAAP Financial Measures” for a reconciliation of these measures to the most directly comparable GAAP measure and the reasons why we believe these non-GAAP measures are useful.

 

36


 

 

Results of Operations - Three Months Ended September 30, 2024 and 2023

 

 

The following pages summarize our consolidated results of operations for the three months ended September 30, 2024 and 2023.

 

 

 

 

 

 

 

 

For the Three Months Ended September 30,

 

 

 

 

(Amounts in thousands)

2024

 

 

2023

 

 

Change

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental revenue

$

184,235

 

 

$

182,515

 

 

$

1,720

 

 

Fee and other income

 

10,664

 

 

 

6,666

 

 

 

3,998

 

 

 

Total revenues

 

194,899

 

 

 

189,181

 

 

 

5,718

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating

 

80,316

 

 

 

75,502

 

 

 

4,814

 

 

Depreciation and amortization

 

60,071

 

 

 

60,263

 

 

 

(192

)

 

General and administrative

 

16,672

 

 

 

15,460

 

 

 

1,212

 

 

Transaction related costs

 

242

 

 

 

132

 

 

 

110

 

 

 

Total expenses

 

157,301

 

 

 

151,357

 

 

 

5,944

 

Other income (expense):

 

 

 

 

 

 

 

 

 

(Loss) income from real estate related fund investments

 

(22

)

 

 

2,060

 

 

 

(2,082

)

 

Income (loss) from unconsolidated real estate related funds

 

109

 

 

 

(721

)

 

 

830

 

 

Loss from unconsolidated joint ventures

 

(981

)

 

 

(28,974

)

 

 

27,993

 

 

Interest and other income, net

 

3,517

 

 

 

4,115

 

 

 

(598

)

 

Interest and debt expense

 

(43,805

)

 

 

(39,102

)

 

 

(4,703

)

Loss before income taxes

 

(3,584

)

 

 

(24,798

)

 

 

21,214

 

 

Income tax expense

 

(619

)

 

 

(263

)

 

 

(356

)

Net loss

 

(4,203

)

 

 

(25,061

)

 

 

20,858

 

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

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(6,959

)

 

 

(4,887

)

 

 

(2,072

)

 

Consolidated real estate related funds

 

581

 

 

 

20,934

 

 

 

(20,353

)

 

Operating Partnership

 

893

 

 

 

629

 

 

 

264

 

Net loss attributable to common stockholders

$

(9,688

)

 

$

(8,385

)

 

$

(1,303

)

 

37


 

 

Revenues

 

Our revenues, which consist of rental revenue and fee and other income, were $194,899,000 for the three months ended September 30, 2024, compared to $189,181,000 for the three months ended September 30, 2023, an increase of $5,718,000. 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

 

$

5,316

 

 

$

617

 

 

$

4,699

 

(1)

$

-

 

Lease termination income

 

 

(3,290

)

 

 

(3,340

)

(2)

 

50

 

 

 

-

 

Other, net

 

 

(306

)

 

 

77

 

 

 

-

 

 

 

(383

)

Increase (decrease) in rental revenue

 

$

1,720

 

 

$

(2,646

)

 

$

4,749

 

 

$

(383

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

 

 

 

 

 

 

 

Asset management

 

$

(325

)

 

$

-

 

 

$

-

 

 

$

(325

)

Property management

 

 

(115

)

 

 

-

 

 

 

-

 

 

 

(115

)

Acquisition, disposition, leasing and other

 

 

2,643

 

 

 

-

 

 

 

-

 

 

 

2,643

 

Increase in fee income

 

 

2,203

 

 

 

-

 

 

 

-

 

 

 

2,203

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

 

1,795

 

 

 

280

 

 

 

522

 

 

 

993

 

Increase in other income

 

 

1,795

 

 

 

280

 

 

 

522

 

 

 

993

 

Increase in fee and other income

 

$

3,998

 

 

$

280

 

 

$

522

 

 

$

3,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

5,718

 

 

$

(2,366

)

 

$

5,271

 

 

$

2,813

 

 

(1)
Primarily due to a true-up of billings in the current year.
(2)
Due to income of $4,519 in the prior year in connection with a tenant’s lease termination at 1633 Broadway, offset by income of $1,179 in the current year in connection with a tenant’s lease termination at 31 West 52nd Street.

 

38


 

Expenses

 

Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $157,301,000 for the three months ended September 30, 2024, compared to $151,357,000 for the three months ended September 30, 2023, an increase of $5,944,000. Below are the details of the increase or decrease by segment.

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Operating

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

2,796

 

 

$

1,745

 

(1)

$

1,051

 

(1)

$

-

 

 

Other, net

 

 

2,018

 

 

 

1,397

 

 

 

-

 

 

 

621

 

 

Increase in operating

 

$

4,814

 

 

$

3,142

 

 

$

1,051

 

 

$

621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

$

(192

)

 

$

156

 

 

$

(282

)

 

$

(66

)

 

(Decrease) increase in depreciation and amortization

$

(192

)

 

$

156

 

 

$

(282

)

 

$

(66

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

$

1,212

 

 

$

-

 

 

$

-

 

 

$

1,212

 

(2)

Increase in general and administrative

 

$

1,212

 

 

$

-

 

 

$

-

 

 

$

1,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in transaction related costs

 

$

110

 

 

$

-

 

 

$

-

 

 

$

110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase in expenses

 

$

5,944

 

 

$

3,298

 

 

$

769

 

 

$

1,877

 

 

 

(1)
Primarily due to higher real estate taxes and insurance expense.
(2)
Primarily due to higher payroll and fringe benefits.

 

 

Loss (Income) from Real Estate Related Fund Investments

 

Loss from real estate related fund investments was $22,000 for the three months ended September 30, 2024, compared to income from real estate related fund investments of $2,060,000 for the three months ended September 30, 2023, a decrease in income of $2,082,000. This decrease resulted primarily from higher investment income from Fund X in the prior year.

 

 

Income (Loss) from Unconsolidated Real Estate Related Funds

 

Income from unconsolidated real estate related funds was $109,000 for the three months ended September 30, 2024, compared to loss from unconsolidated real estate related funds of $721,000 for the three months ended September 30, 2023, a decrease in loss of $830,000. This decrease resulted primarily from unrealized losses on mezzanine loan investments in the prior year.

39


 

Loss from Unconsolidated Joint Ventures

 

Loss from unconsolidated joint ventures was $981,000 for the three months ended September 30, 2024, compared to $28,974,000 for the three months ended September 30, 2023, a decrease in loss of $27,993,000. This decrease resulted from:

 

(Amounts in thousands)

 

 

 

 

One Steuart Lane (RDF's share of impairment losses related to residential
    condominium units recognized in 2023)

 

$

23,942

 

 

Market Center (our share of net loss recognized in 2023)

 

 

3,248

 

(1)

Other, net

 

 

803

 

 

Total decrease in loss

 

$

27,993

 

 

 

(1)
In the fourth quarter of 2023, we discontinued the equity method of accounting, and accordingly, we no longer recognize our proportionate share of earnings. 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.

 

 

Interest and Other Income, net

 

Interest and other income, net was $3,517,000 for the three months ended September 30, 2024, compared to $4,115,000 for the three months ended September 30, 2023, a decrease in income of $598,000. This decrease resulted primarily from lower yields on investments.

 

 

Interest and Debt Expense

 

Interest and debt expense was $43,805,000 for the three months ended September 30, 2024, compared to $39,102,000 for the three months ended September 30, 2023, an increase of $4,703,000. This increase resulted primarily from the expiration of interest rate swaps on $500,000,000 of our debt at 1301 Avenue of the Americas in August 2024.

 

 

Income Tax Expense

 

Income tax expense was $619,000 for the three months ended September 30, 2024, compared to $263,000 for the three months ended September 30, 2023, an increase of $356,000. 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 $6,959,000 for the three months ended September 30, 2024, compared to $4,887,000 for the three months ended September 30, 2023, a $2,072,000 increase in net income attributable to noncontrolling interests in consolidated joint ventures. This increase in income resulted primarily from higher net income attributable to noncontrolling interests in 300 Mission Street in the current year.

 

 

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

 

Net loss attributable to noncontrolling interests in consolidated real estate related funds was $581,000 for the three months ended September 30, 2024, compared to $20,934,000 for the three months ended September 30, 2023, a decrease in net loss attributable to noncontrolling interests in consolidated real estate related funds of $20,353,000. This decrease in loss was primarily due to the noncontrolling interests’ share of $23,942,000 of impairment loss related to residential condominium units at One Steuart Lane in the prior year.

 

 

Net Loss Attributable to Noncontrolling Interests in Operating Partnership

 

Net loss attributable to noncontrolling interests in the Operating Partnership was $893,000 for the three months ended September 30, 2024, compared to $629,000 for the three months ended September 30, 2023, an increase in net loss allocated to noncontrolling interests of $264,000. This increase in loss resulted from higher net loss subject to allocation to the unitholders of the Operating Partnership in the current year.

40


 

 

Results of Operations - Nine Months Ended September 30, 2024 and 2023

 

 

The following pages summarize our consolidated results of operations for the nine months ended September 30, 2024 and 2023.

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

 

(Amounts in thousands)

2024

 

 

2023

 

 

Change

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental revenue

$

543,636

 

 

$

529,734

 

 

$

13,902

 

 

Fee and other income

 

27,548

 

 

 

20,583

 

 

 

6,965

 

 

 

Total revenues

 

571,184

 

 

 

550,317

 

 

 

20,867

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating

 

226,248

 

 

 

216,889

 

 

 

9,359

 

 

Depreciation and amortization

 

182,920

 

 

 

181,778

 

 

 

1,142

 

 

General and administrative

 

49,938

 

 

 

46,307

 

 

 

3,631

 

 

Transaction related costs

 

843

 

 

 

323

 

 

 

520

 

 

 

Total expenses

 

459,949

 

 

 

445,297

 

 

 

14,652

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Loss from real estate related fund investments

 

(92

)

 

 

(37,034

)

 

 

36,942

 

 

Income (loss) from unconsolidated real estate funds

 

199

 

 

 

(867

)

 

 

1,066

 

 

Loss from unconsolidated joint ventures

 

(3,098

)

 

 

(63,138

)

 

 

60,040

 

 

Interest and other income, net

 

26,830

 

 

 

10,007

 

 

 

16,823

 

 

Interest and debt expense

 

(124,078

)

 

 

(112,440

)

 

 

(11,638

)

Income (loss) before income taxes

 

10,996

 

 

 

(98,452

)

 

 

109,448

 

 

Income tax expense

 

(1,328

)

 

 

(1,124

)

 

 

(204

)

Net income (loss)

 

9,668

 

 

 

(99,576

)

 

 

109,244

 

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

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(18,434

)

 

 

(15,879

)

 

 

(2,555

)

 

Consolidated real estate related funds

 

408

 

 

 

57,412

 

 

 

(57,004

)

 

Operating Partnership

 

716

 

 

 

3,849

 

 

 

(3,133

)

Net loss attributable to common stockholders

$

(7,642

)

 

$

(54,194

)

 

$

46,552

 

 

41


 

 

Revenues

 

Our revenues, which consist of rental revenue and fee and other income, were $571,184,000 for the nine months ended September 30, 2024, compared to $550,317,000 for the nine months ended September 30, 2023, an increase of $20,867,000. 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

 

$

3,948

 

 

$

548

 

 

$

3,400

 

(1)

$

-

 

Non-cash write-offs of straight-line rent receivables

 

 

13,983

 

 

 

6,640

 

(2)

 

7,343

 

(2)

 

-

 

Lease termination income

 

 

(3,601

)

 

 

(3,651

)

(3)

 

50

 

 

 

-

 

Other, net

 

 

(428

)

 

 

-

 

 

 

(19

)

 

 

(409

)

Increase (decrease) in rental revenue

 

$

13,902

 

 

$

3,537

 

 

$

10,774

 

 

$

(409

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

 

 

 

 

 

 

 

Asset management

 

$

(204

)

 

$

-

 

 

$

-

 

 

$

(204

)

Property management

 

 

(407

)

 

 

-

 

 

 

-

 

 

 

(407

)

Acquisition, disposition, leasing and other

 

 

3,833

 

 

 

-

 

 

 

-

 

 

 

3,833

 

Increase in fee income

 

 

3,222

 

 

 

-

 

 

 

-

 

 

 

3,222

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

 

3,743

 

 

 

1,320

 

 

 

999

 

 

 

1,424

 

Increase in other income

 

 

3,743

 

 

 

1,320

 

 

 

999

 

 

 

1,424

 

Increase in fee and other income

 

$

6,965

 

 

$

1,320

 

 

$

999

 

 

$

4,646

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase in revenues

 

$

20,867

 

 

$

4,857

 

 

$

11,773

 

 

$

4,237

 

 

(1)
Primarily due to a true-up of billings in the current year, partially offset by lower average occupancy at One Front Street.
(2)
Represents write-offs in the prior year related to the terminated SVB Securities lease at 1301 Avenue of the Americas in our New York portfolio and the surrendered JPMorgan Chase space at One Front Street in our San Francisco portfolio.
(3)
Due to income of $6,803 in the prior year in connection with a tenant’s lease termination at 1633 Broadway, offset by income of $3,152 in the current year in connection with a tenant’s lease termination at 31 West 52nd Street.

 

42


 

Expenses

 

Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $459,949,000 for the nine months ended September 30, 2024, compared to $445,297,000 for the nine months ended September 30, 2023, an increase of $14,652,000. Below are the details of the increase or decrease by segment.

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Operating

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

6,227

 

 

$

4,365

 

(1)

$

1,862

 

(1)

$

-

 

 

Other, net

 

 

3,132

 

 

 

1,951

 

 

 

-

 

 

 

1,181

 

 

Increase in operating

 

$

9,359

 

 

$

6,316

 

 

$

1,862

 

 

$

1,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

$

1,142

 

 

$

5,912

 

(2)

$

(4,624

)

(3)

$

(146

)

 

Increase (decrease) in depreciation and amortization

 

$

1,142

 

 

$

5,912

 

 

$

(4,624

)

 

$

(146

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

$

3,631

 

 

$

-

 

 

$

-

 

 

$

3,631

 

(4)

Increase in general and administrative

 

$

3,631

 

 

$

-

 

 

$

-

 

 

$

3,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in transaction related costs

 

$

520

 

 

$

-

 

 

$

-

 

 

$

520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in expenses

 

$

14,652

 

 

$

12,228

 

 

$

(2,762

)

 

$

5,186

 

 

 

(1)
Primarily due to higher real estate taxes and insurance expense.
(2)
Primarily due to a write-off of tenant improvements in the current year at 1633 Broadway.
(3)
Primarily due to a write-off of deferred leasing commissions in the prior year in connection with the surrendered JPMorgan Chase space at One Front Street.
(4)
Primarily due to higher stock-based compensation resulting from the Incentive and Retention Plan grants that were made in September 2023, and higher payroll and fringe benefits in the current year.

 

 

Loss from Real Estate Related Fund Investments

 

Loss from real estate related fund investments was $92,000 for the nine months ended September 30, 2024, compared to $37,034,000 for the nine months ended September 30, 2023, a decrease in loss of $36,942,000. This decrease resulted primarily from a $45,658,000 unrealized loss on a mezzanine loan investment in the prior year, partially offset by investment income from Fund X in the same period.

 

 

Income (Loss) from Unconsolidated Real Estate Related Funds

 

Income from unconsolidated real estate related funds was $199,000 for the nine months ended September 30, 2024, compared to loss from unconsolidated real estate related funds of $867,000 for the nine months ended September 30, 2023, a decrease in loss of $1,066,000. This decrease resulted primarily from unrealized losses on mezzanine loan investments a in the prior year.

43


 

Loss from Unconsolidated Joint Ventures

 

Loss from unconsolidated joint ventures was $3,098,000 for the nine months ended September 30, 2024, compared to $63,138,000 for the nine months ended September 30, 2023, a decrease in loss of $60,040,000. This decrease in loss resulted from:

 

(Amounts in thousands)

 

 

 

 

60 Wall Street (our share of an impairment loss recognized in 2023)

 

$

24,734

 

 

One Steuart Lane (RDF's share of impairment losses related to residential
    condominium units recognized in 2023)

 

 

23,942

 

 

Market Center (our share of net loss recognized in 2023)

 

 

8,482

 

(1)

Other, net

 

 

2,882

 

 

Total decrease in loss

 

$

60,040

 

 

 

(1)
In the fourth quarter of 2023, we discontinued the equity method of accounting, and accordingly, we no longer recognize our proportionate share of earnings. 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.

 

 

Interest and Other Income, net

 

Interest and other income, net was $26,830,000 for the nine months ended September 30, 2024, compared to $10,007,000 for the nine months ended September 30, 2023, an increase in income of $16,823,000. This increase resulted from:

 

(Amounts in thousands)

 

 

 

Non-cash gain on extinguishment of IPO related transfer tax liability

 

$

15,437

 

Other, net (primarily higher yields on investments)

 

 

1,386

 

Total increase in income

 

$

16,823

 

 

 

Interest and Debt Expense

 

Interest and debt expense was $124,078,000 for the nine months ended September 30, 2024, compared to $112,440,000 for the nine months ended September 30, 2023, an increase of $11,638,000. This increase resulted primarily from (i) higher interest expense on the $360,000,000 variable rate portion of our debt at 1301 Avenue of the Americas and (ii) the expiration of interest rate swaps on $500,000,000 of our debt at 1301 Avenue of the Americas in August 2024.

 

 

Income Tax Expense

 

Income tax expense was $1,328,000 for the nine months ended September 30, 2024, compared to $1,124,000 for the nine months ended September 30, 2023, an increase of $204,000. 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 $18,434,000 for the nine months ended September 30, 2024, compared to $15,879,000 for the nine months ended September 30, 2023, a $2,555,000 increase in net income attributable to noncontrolling interests in consolidated joint ventures. This increase in income resulted primarily from higher net income attributable to noncontrolling interests in 300 Mission Street.

 

 

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

 

Net loss attributable to noncontrolling interests in consolidated real estate related funds was $408,000 for the nine months ended September 30, 2024, compared to $57,412,000 for the nine months ended September 30, 2023, a decrease in net loss attributable to noncontrolling interests in consolidated real estate related funds of $57,004,000. This decrease in loss resulted primarily from the noncontrolling interests’ share of (i) the $45,658,000 unrealized loss on an investment in a mezzanine loan in the prior year, and (ii) $23,942,000 of impairment losses related to residential condominium units at One Steuart Lane in the prior year.

 

 

Net Loss Attributable to Noncontrolling Interests in Operating Partnership

 

Net loss attributable to noncontrolling interests in the Operating Partnership was $716,000 for the nine months ended September 30, 2024, compared to $3,849,000 for the nine months ended September 30, 2023, a decrease in net loss allocated to noncontrolling interests of $3,133,000. This decrease in loss resulted from lower net loss subject to allocation to the unitholders of the Operating Partnership in the current year.

44


 

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 September 30, 2024, we had $1.24 billion of liquidity comprised of $318,725,000 of cash and cash equivalents, $173,510,000 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, any 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 September 30, 2024, our outstanding consolidated debt aggregated $3.69 billion. We had no amounts outstanding under our revolving credit facility and none of our debt matures until June 2026. We may refinance 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 135 basis points over 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

 

In September 2024, we suspended our regular quarterly dividend. During 2024, we paid three regular quarterly dividends aggregating $0.1050 per share of common stock, which we believe is sufficient to meet our annual REIT distribution requirement. The decision by our board of directors to suspend our regular quarterly dividend aligns with our commitment to fortify our balance sheet and maintain the utmost financial flexibility. The timing and frequency of future dividends will depend on a variety of factors, including our financial performance, our debt service requirements, our capital expenditure requirements, the requirements to maintain our qualification as a REIT and other factors that our board of directors may deem relevant from time to time.

45


 

Off Balance Sheet Arrangements

 

As of September 30, 2024, our unconsolidated joint ventures had $1.78 billion of outstanding indebtedness, of which our share was $633,938,000. On August 13, 2024, the joint venture that owns Market Center, in which we have a 67.0% ownership interest, defaulted on the $416,544,000 non-recourse mortgage loan securing the property. The loan bears interest at SOFR plus 161 basis points and is scheduled to mature in January 2025. We do not guarantee the indebtedness of our unconsolidated joint ventures other than providing customary environmental indemnities and guarantees of specified non-recourse carve outs relating to specified covenants and representations; however, we may elect to fund additional capital to a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans in order to enable the joint venture to repay this indebtedness upon maturity.

 

 

Stock Repurchase Program

 

We currently have $15,000,000 of capacity under a $200,000,000 stock repurchase program which was approved by our board of directors in November 2019. We did not repurchase any shares in the nine months ended September 30, 2024. The amount and timing of repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.

 

 

Insurance

 

We carry commercial general liability coverage on our properties, with limits of liability customary within the industry. Similarly, we are insured against the risk of direct and indirect physical damage to our properties including coverage for 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 our 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, as well as cybersecurity incidents. While we do carry commercial general liability insurance, property insurance, terrorism insurance and cybersecurity insurance, 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 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, 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 September 30, 2024, we believe we are in compliance with all of our covenants.

 

On March 29, 2024, the joint venture that owns 60 Wall Street, in which we have a 5.0% ownership interest, modified the existing $575,000,000 non-recourse mortgage loan and extended the maturity to May 2029. In connection with the modification, the joint venture committed to redevelop the property and fund the necessary costs to complete the project. On behalf of the joint venture, we have provided the lender with certain guarantees, including a completion guarantee. We have agreements with our joint venture partners that indemnify us for their share of guarantees we provided. In accordance with GAAP, we are required to record a liability equal to the fair value of the obligations undertaken in issuing the guarantees and record an asset equal to the fair value of the indemnification we have received. As of September 30, 2024, we have a $7,914,000 asset and an $8,061,000 liability, which are included as a component of “other assets” and “other liabilities”, respectively, on our consolidated balance sheets.

46


 

 

Transfer Tax Assessments

 

During 2017, the New York City Department of Finance (“NYCDOF”) 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 disagreed with the assessment and strongly contested the Notices. While we estimated that the range of loss from these Notices could be between $0 and $62,500,000, we concluded, after consultation with legal counsel, that it was not possible to predict any estimate within that range and as such we did not accrue any liability in our consolidated financial statements for potential losses that may arise relating to such Notices. In February 2024, the NYCDOF completed its assessment and concluded that no additional taxes were due.

 

 

Cash Flows

 

Cash and cash equivalents and restricted cash were $492,235,000 and $509,599,000 as of September 30, 2024 and December 31, 2023, respectively, and $470,523,000 and $449,817,000 as of September 30, 2023 and December 31, 2022, respectively. Cash and cash equivalents and restricted cash decreased by $17,364,000 for the nine months ended September 30, 2024, and increased by $20,706,000 for the nine months ended September 30, 2023. The following table sets forth the changes in cash flow.

 

 

 

For the Nine Months Ended September 30,

 

(Amounts in thousands)

2024

 

 

2023

 

Net cash provided by (used in):

 

 

 

 

 

Operating activities

$

176,570

 

 

$

175,597

 

Investing activities

 

(75,343

)

 

 

(106,945

)

Financing activities

 

(118,591

)

 

 

(47,946

)

 

 

Operating Activities

 

Nine months ended September 30, 2024 – We generated $176,570,000 of cash from operating activities for the nine months ended September 30, 2024, primarily from (i) $194,611,000 of net income (before $184,943,000 of non-cash adjustments), (ii) $513,000 of distributions from unconsolidated joint ventures and real estate related funds, and (iii) $18,554,000 of net changes in operating assets and liabilities. Non-cash adjustments of $184,943,000 were primarily comprised of depreciation and amortization, non-cash gain on extinguishment of a tax liability related to our initial public offering, loss from unconsolidated joint ventures, straight-lining of rental revenue, amortization of above and below-market leases, net and amortization of stock-based compensation.

 

Nine months ended September 30, 2023 – We generated $175,597,000 of cash from operating activities for the nine months ended September 30, 2023, primarily from (i) $206,915,000 of net income (before $306,491,000 of non-cash adjustments) and (ii) $438,000 of distributions from unconsolidated joint ventures and real estate related funds, partially offset by (iii) $31,756,000 of net changes in operating assets and liabilities. Non-cash adjustments of $306,491,000 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.

 

 

Investing Activities

 

Nine months ended September 30, 2024 – We used $75,343,000 of cash for investing activities for the nine months ended September 30, 2024, for (i) $85,231,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements and (ii) $1,904,000 for contributions of capital to an unconsolidated joint venture, partially offset by (iii) $10,000,000 of proceeds from the repayment of a mezzanine loan investment, and (iv) $1,792,000 of a distribution of capital from an unconsolidated joint venture.

 

Nine months ended September 30, 2023 – We used $106,945,000 of cash for investing activities for the nine months ended September 30, 2023, primarily (i) $67,373,000 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.

47


 

 

Financing Activities

 

Nine months ended September 30, 2024 – We used $118,591,000 of cash for financing activities for the nine months ended September 30, 2024, primarily for (i) $975,000,000 for repayment of notes and mortgages payable in connection with the modification and extension of the One Market Plaza non-recourse mortgage loan and $10,649,000 for payment of the related debt issuance costs, (ii) $25,118,000 for dividends and distributions to common stockholders and unitholders, (iii) $18,311,000 for distributions to noncontrolling interests in Fund X and RDF, (iv) $2,444,000 for distributions to noncontrolling interests in 1633 Broadway, and (v) $178,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (vi) $850,000,000 of proceeds from notes and mortgages payable in connection with the modification and extension of the One Market Plaza non-recourse mortgage loan, (vii) $62,220,000 of contributions from noncontrolling interests in One Market Plaza and (viii) $889,000 of contributions from noncontrolling interests in Fund X.

 

Nine months ended September 30, 2023 – We used $47,946,000 of cash for financing activities for the nine months ended September 30, 2023, primarily (i) $273,000,000 for the repayment of notes and mortgages payable in connection with the refinancing of 300 Mission Street, (ii) $44,325,000 for payment of dividends and distributions to common stockholders and unitholders, (iii) $7,802,000 for distributions to noncontrolling interests in Fund X, (iv) $7,053,000 for distributions to noncontrolling interests in 300 Mission Street and 1633 Broadway, (v) $1,847,000 for the settlement of accounts payable in connection with repurchases of common shares in 2022, (vi) $576,000 for the payment of debt issuance costs in connection with the refinancing of 300 Mission Street and (vii) $205,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (viii) $232,050,000 of proceeds from notes and mortgages payable in connection with the refinancing of 300 Mission Street and (ix) $54,812,000 of contributions from noncontrolling interests in consolidated real estate related funds.

48


 

 

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. In the first quarter of 2024, we updated our presentation of NOI, Cash NOI and Core FFO attributable to common stockholders to exclude the impact of Market Center and 111 Sutter Street, which we have designated as “non-core” assets. Accordingly, we have recast the presentation for all prior periods presented to reflect this change.

 

 

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 include 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 Paramount's share of NOI and Cash NOI for the three and nine months ended September 30, 2024 and 2023.

 

 

 

For the Three Months Ended September 30, 2024

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

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

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(4,203

)

 

$

(9,078

)

 

$

17,213

 

 

$

(12,338

)

Adjustments to arrive at NOI:

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

(6,776

)

 

 

-

 

 

 

-

 

 

 

(6,776

)

Depreciation and amortization

 

60,071

 

 

 

40,587

 

 

 

18,272

 

 

 

1,212

 

General and administrative

 

16,672

 

 

 

-

 

 

 

-

 

 

 

16,672

 

Loss from real estate related fund investments

 

22

 

 

 

-

 

 

 

-

 

 

 

22

 

Loss (income) from unconsolidated joint ventures

 

981

 

 

 

(55

)

 

 

225

 

 

 

811

 

NOI from unconsolidated joint ventures (1)

 

5,384

 

 

 

3,407

 

 

 

2,018

 

 

 

(41

)

Interest and other income, net

 

(3,517

)

 

 

(899

)

 

 

(502

)

 

 

(2,116

)

Interest and debt expense

 

43,805

 

 

 

30,216

 

 

 

12,817

 

 

 

772

 

Income tax expense

 

619

 

 

 

-

 

 

 

-

 

 

 

619

 

Other, net

 

133

 

 

 

-

 

 

 

-

 

 

 

133

 

Amounts attributable to noncontrolling interests in
    consolidated joint ventures

 

(23,723

)

 

 

(2,424

)

 

 

(21,299

)

 

 

-

 

Paramount's share of NOI

$

89,468

 

 

$

61,754

 

 

$

28,744

 

 

$

(1,030

)

Adjustments to arrive at Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent adjustments (including our share of
    unconsolidated joint ventures)

 

(2,191

)

 

 

(6,115

)

 

 

3,818

 

 

 

106

 

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

 

(1,697

)

 

 

(767

)

 

 

(930

)

 

 

-

 

Amounts attributable to noncontrolling interests in
    consolidated joint ventures

 

(1,470

)

 

 

(214

)

 

 

(1,256

)

 

 

-

 

Paramount's share of Cash NOI

$

84,110

 

 

$

54,658

 

 

$

30,376

 

 

$

(924

)

 

(1)
Excludes NOI from One Steuart Lane, a for-sale residential condominium project, and “non-core” assets (Market Center and 111 Sutter Street).

49


 

 

For the Three Months Ended September 30, 2023

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

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

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(25,061

)

 

$

981

 

 

$

9,285

 

 

$

(35,327

)

Adjustments to arrive at NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

(4,573

)

 

 

-

 

 

 

-

 

 

 

(4,573

)

Depreciation and amortization

 

60,263

 

 

 

40,431

 

 

 

18,554

 

 

 

1,278

 

General and administrative

 

15,460

 

 

 

-

 

 

 

-

 

 

 

15,460

 

Income from real estate related fund investments

 

(2,060

)

 

 

-

 

 

 

-

 

 

 

(2,060

)

Loss (income) from unconsolidated joint ventures

 

28,974

 

 

 

(1

)

 

 

3,890

 

 

 

25,085

 

NOI from unconsolidated joint ventures (1)

 

5,240

 

 

 

3,376

 

 

 

1,865

 

 

 

(1

)

Interest and other income, net

 

(4,115

)

 

 

(655

)

 

 

(740

)

 

 

(2,720

)

Interest and debt expense

 

39,102

 

 

 

25,523

 

 

 

12,816

 

 

 

763

 

Income tax expense

 

263

 

 

 

-

 

 

 

-

 

 

 

263

 

Other, net

 

853

 

 

 

-

 

 

 

-

 

 

 

853

 

Amounts attributable to noncontrolling interests in
    consolidated joint ventures

 

(22,275

)

 

 

(3,049

)

 

 

(19,226

)

 

 

-

 

Paramount's share of NOI

$

92,071

 

 

$

66,606

 

 

$

26,444

 

 

$

(979

)

Adjustments to arrive at Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent adjustments (including our share of
    unconsolidated joint ventures)

 

(1,253

)

 

 

1,184

 

 

 

(2,407

)

 

 

(30

)

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

 

(1,765

)

 

 

(729

)

 

 

(1,036

)

 

 

-

 

Amounts attributable to noncontrolling interests in
    consolidated joint ventures

 

1,755

 

 

 

(130

)

 

 

1,885

 

 

 

-

 

Paramount's share of Cash NOI

$

90,808

 

 

$

66,931

 

 

$

24,886

 

 

$

(1,009

)

 

(1)
Excludes NOI from One Steuart Lane, a for-sale residential condominium project, and “non-core” assets (Market Center and 111 Sutter Street).

50


 

 

 

For the Nine Months Ended September 30, 2024

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

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

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

9,668

 

 

$

(15,297

)

 

$

46,470

 

 

$

(21,505

)

Adjustments to arrive at NOI:

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

(17,328

)

 

 

-

 

 

 

-

 

 

 

(17,328

)

Depreciation and amortization

 

182,920

 

 

 

123,791

 

 

 

55,504

 

 

 

3,625

 

General and administrative

 

49,938

 

 

 

-

 

 

 

-

 

 

 

49,938

 

Loss from real estate related fund investments

 

92

 

 

 

-

 

 

 

-

 

 

 

92

 

Loss from unconsolidated joint ventures

 

3,098

 

 

 

1,575

 

 

 

590

 

 

 

933

 

NOI from unconsolidated joint ventures (1)

 

16,611

 

 

 

10,442

 

 

 

6,128

 

 

 

41

 

Interest and other income, net

 

(26,830

)

 

 

(2,723

)

 

 

(1,183

)

 

 

(22,924

)

Interest and debt expense

 

124,078

 

 

 

83,315

 

 

 

38,481

 

 

 

2,282

 

Income tax expense

 

1,328

 

 

 

16

 

 

 

84

 

 

 

1,228

 

Other, net

 

644

 

 

 

-

 

 

 

-

 

 

 

644

 

Amounts attributable to noncontrolling interests in
    consolidated joint ventures

 

(70,532

)

 

 

(7,600

)

 

 

(62,932

)

 

 

-

 

Paramount's share of NOI

$

273,687

 

 

$

193,519

 

 

$

83,142

 

 

$

(2,974

)

Adjustments to arrive at Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent adjustments (including our share of
    unconsolidated joint ventures)

 

(6,694

)

 

 

(14,290

)

 

 

7,561

 

 

 

35

 

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

 

(5,304

)

 

 

(2,275

)

 

 

(3,029

)

 

 

-

 

Amounts attributable to noncontrolling interests in
    consolidated joint ventures

 

(2,059

)

 

 

(479

)

 

 

(1,580

)

 

 

-

 

Paramount's share of Cash NOI

$

259,630

 

 

$

176,475

 

 

$

86,094

 

 

$

(2,939

)

 

(1)
Excludes NOI from One Steuart Lane, a for-sale residential condominium project, and “non-core” assets (Market Center and 111 Sutter Street).

 

 

 

For the Nine Months Ended September 30, 2023

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

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

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(99,576

)

 

$

(21,213

)

 

$

23,025

 

 

$

(101,388

)

Adjustments to arrive at NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

(14,106

)

 

 

-

 

 

 

-

 

 

 

(14,106

)

Depreciation and amortization

 

181,778

 

 

 

117,879

 

 

 

60,128

 

 

 

3,771

 

General and administrative

 

46,307

 

 

 

-

 

 

 

-

 

 

 

46,307

 

Income from real estate related fund investments

 

37,034

 

 

 

-

 

 

 

-

 

 

 

37,034

 

Loss from unconsolidated joint ventures

 

63,138

 

 

 

25,000

 

 

 

10,262

 

 

 

27,876

 

NOI from unconsolidated joint ventures (1)

 

16,048

 

 

 

10,143

 

 

 

5,847

 

 

 

58

 

Interest and other income, net

 

(10,007

)

 

 

(1,616

)

 

 

(1,384

)

 

 

(7,007

)

Interest and debt expense

 

112,440

 

 

 

72,081

 

 

 

38,082

 

 

 

2,277

 

Income tax expense (benefit)

 

1,124

 

 

 

5

 

 

 

(78

)

 

 

1,197

 

Other, net

 

1,190

 

 

 

-

 

 

 

-

 

 

 

1,190

 

Amounts attributable to noncontrolling interests in
    consolidated joint ventures

 

(67,551

)

 

 

(8,415

)

 

 

(59,136

)

 

 

-

 

Paramount's share of NOI

$

267,819

 

 

$

193,864

 

 

$

76,746

 

 

$

(2,791

)

Adjustments to arrive at Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent adjustments (including our share of
    unconsolidated joint ventures)

 

(1,815

)

 

 

3,270

 

 

 

(5,115

)

 

 

30

 

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

 

(4,896

)

 

 

(1,779

)

 

 

(3,117

)

 

 

-

 

Amounts attributable to noncontrolling interests in
    consolidated joint ventures

 

7,479

 

 

 

(422

)

 

 

7,901

 

 

 

-

 

Paramount's share of Cash NOI

$

268,587

 

 

$

194,933

 

 

$

76,415

 

 

$

(2,761

)

 

(1)
Excludes NOI from One Steuart Lane, a for-sale residential condominium project, and “non-core” assets (Market Center and 111 Sutter Street).

51


 

 

Same Store NOI

 

The tables below set forth the reconciliations of our share of NOI to our share of Same Store NOI and Same Store Cash NOI for the three and nine months ended September 30, 2024 and 2023. 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 September 30, 2024

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Paramount's share of NOI for the three months ended

 

 

 

 

 

 

 

 

 

 

 

September 30, 2024 (1)

$

89,468

 

 

$

61,754

 

 

$

28,744

 

 

$

(1,030

)

Non-same store adjustments:

 

 

 

 

 

 

 

 

 

 

 

Lease termination income

 

(1,204

)

 

 

(1,179

)

 

 

(25

)

 

 

-

 

Other, net

 

2,435

 

 

 

1,405

 

 

 

-

 

 

 

1,030

 

Paramount's share of Same Store NOI for the

 

 

 

 

 

 

 

 

 

 

 

three months ended September 30, 2024

$

90,699

 

 

$

61,980

 

 

$

28,719

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2023

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Paramount's share of NOI for the three months ended

 

 

 

 

 

 

 

 

 

 

 

September 30, 2023 (1)

$

92,071

 

 

$

66,606

 

 

$

26,444

 

 

$

(979

)

Non-same store adjustments:

 

 

 

 

 

 

 

 

 

 

 

Lease termination income

 

(4,066

)

 

 

(4,066

)

 

 

-

 

 

 

-

 

Non-cash write-offs of straight-line receivables

 

77

 

 

 

77

 

 

 

-

 

 

 

-

 

Other, net

 

982

 

 

 

3

 

 

 

-

 

 

 

979

 

Paramount's share of Same Store NOI for the

 

 

 

 

 

 

 

 

 

 

 

 three months ended September 30, 2023

$

89,064

 

 

$

62,620

 

 

$

26,444

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

% Increase (decrease)

 

1.8

%

 

 

(1.0

%)

 

 

8.6

%

 

 

 

 

(1)
See page 49Non-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.

52


 

 

 

For the Three Months Ended September 30, 2024

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Paramount's share of Cash NOI for the three months ended

 

 

 

 

 

 

 

 

 

 

 

September 30, 2024 (1)

$

84,110

 

 

$

54,658

 

 

$

30,376

 

 

$

(924

)

Non-same store adjustments:

 

 

 

 

 

 

 

 

 

 

 

Lease termination income

 

(1,204

)

 

 

(1,179

)

 

 

(25

)

 

 

-

 

Other, net

 

2,329

 

 

 

1,405

 

 

 

-

 

 

 

924

 

Paramount's share of Same Store Cash NOI for the

 

 

 

 

 

 

 

 

 

 

 

three months ended September 30, 2024

$

85,235

 

 

$

54,884

 

 

$

30,351

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2023

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Paramount's share of Cash NOI for the three months ended

 

 

 

 

 

 

 

 

 

 

 

September 30, 2023 (1)

$

90,808

 

 

$

66,931

 

 

$

24,886

 

 

$

(1,009

)

Non-same store adjustments:

 

 

 

 

 

 

 

 

 

 

 

Lease termination income

 

(4,066

)

 

 

(4,066

)

 

 

-

 

 

 

-

 

Other, net

 

1,012

 

 

 

3

 

 

 

-

 

 

 

1,009

 

Paramount's share of Same Store Cash NOI for the

 

 

 

 

 

 

 

 

 

 

 

three months ended September 30, 2023

$

87,754

 

 

$

62,868

 

 

$

24,886

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

% (Decrease) increase

 

(2.9

%)

 

 

(12.7

%)

 

 

22.0

%

 

 

 

 

(1)
See page 49Non-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.

53


 

 

 

For the Nine Months Ended September 30, 2024

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Paramount's share of NOI for the nine months ended

 

 

 

 

 

 

 

 

 

 

 

September 30, 2024 (1)

$

273,687

 

 

$

193,519

 

 

$

83,142

 

 

$

(2,974

)

Non-same store adjustments:

 

 

 

 

 

 

 

 

 

 

 

Lease termination income

 

(3,177

)

 

 

(3,152

)

 

 

(25

)

 

 

-

 

Other, net

 

5,038

 

 

 

2,055

 

 

 

9

 

 

 

2,974

 

Paramount's share of Same Store NOI for the

 

 

 

 

 

 

 

 

 

 

 

nine months ended September 30, 2024

$

275,548

 

 

$

192,422

 

 

$

83,126

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2023

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Paramount's share of NOI for the nine months ended

 

 

 

 

 

 

 

 

 

 

 

September 30, 2023 (1)

$

267,819

 

 

$

193,864

 

 

$

76,746

 

 

$

(2,791

)

Non-same store adjustments:

 

 

 

 

 

 

 

 

 

 

 

Lease termination income

 

(6,121

)

 

 

(6,121

)

 

 

-

 

 

 

-

 

Non-cash write-offs of straight-line rent receivables

 

13,983

 

 

 

6,640

 

(2)

 

7,343

 

(2)

 

-

 

Other, net

 

2,805

 

 

 

14

 

 

 

-

 

 

 

2,791

 

Paramount's share of Same Store NOI for the

 

 

 

 

 

 

 

 

 

 

 

nine months ended September 30, 2023

$

278,486

 

 

$

194,397

 

 

$

84,089

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

% Decrease

 

(1.1

%)

 

 

(1.0

%)

 

 

(1.1

%)

 

 

 

 

(1)
See page 49Non-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 Chase space at One Front Street in our San Francisco portfolio.

 

 

 

For the Nine Months Ended September 30, 2024

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Paramount's share of Cash NOI for the nine months ended

 

 

 

 

 

 

 

 

 

 

 

September 30, 2024 (1)

$

259,630

 

 

$

176,475

 

 

$

86,094

 

 

$

(2,939

)

Non-same store adjustments:

 

 

 

 

 

 

 

 

 

 

 

Lease termination income

 

(3,177

)

 

 

(3,152

)

 

 

(25

)

 

 

-

 

Other, net

 

5,003

 

 

 

2,055

 

 

 

9

 

 

 

2,939

 

Paramount's share of Same Store Cash NOI for the

 

 

 

 

 

 

 

 

 

 

 

nine months ended September 30, 2024

$

261,456

 

 

$

175,378

 

 

$

86,078

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2023

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Paramount's share of Cash NOI for the nine months ended

 

 

 

 

 

 

 

 

 

 

 

September 30, 2023 (1)

$

268,587

 

 

$

194,933

 

 

$

76,415

 

 

$

(2,761

)

Non-same store adjustments:

 

 

 

 

 

 

 

 

 

 

 

Lease termination income

 

(6,121

)

 

 

(6,121

)

 

 

-

 

 

 

-

 

Other, net

 

2,775

 

 

 

14

 

 

 

-

 

 

 

2,761

 

Paramount's share of Same Store Cash NOI for the

 

 

 

 

 

 

 

 

 

 

 

nine months ended September 30, 2023

$

265,241

 

 

$

188,826

 

 

$

76,415

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

% (Decrease) increase

 

(1.4

%)

 

 

(7.1

%)

 

 

12.6

%

 

 

 

 

(1)
See page 49Non-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.

54


 

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

 

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

 

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

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

 

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(4,203

)

 

$

(25,061

)

 

$

9,668

 

 

$

(99,576

)

 

Real estate depreciation and amortization (including our
    share of unconsolidated joint ventures)

 

 

63,487

 

 

 

69,160

 

 

 

192,946

 

 

 

209,687

 

 

Our share of a non-cash real estate impairment loss related to
    an unconsolidated joint venture

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,734

 

 

Amounts attributable to noncontrolling interests in
    consolidated joint ventures and real estate related funds

 

 

(15,511

)

 

 

6,132

 

 

 

(46,981

)

 

 

12,533

 

 

FFO attributable to the Operating Partnership

 

 

43,773

 

 

 

50,231

 

 

 

155,633

 

 

 

147,378

 

 

Amounts attributable to noncontrolling interests in the
    Operating Partnership

 

 

(3,695

)

 

 

(3,510

)

 

 

(13,079

)

 

 

(9,861

)

 

FFO attributable to common stockholders

 

$

40,078

 

 

$

46,721

 

 

$

142,554

 

 

$

137,517

 

 

 

Per diluted share

 

$

0.18

 

 

$

0.21

 

 

$

0.66

 

 

$

0.63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO attributable to the Operating Partnership

 

$

43,773

 

 

$

50,231

 

 

$

155,633

 

 

$

147,378

 

 

Adjustments for non-core items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash gain on extinguishment of IPO related
    tax liability

 

 

-

 

 

 

-

 

 

 

(15,437

)

 

 

-

 

 

 

Non-core assets (1)

 

 

-

 

 

 

(259

)

 

 

-

 

 

 

(3,535

)

 

 

Our share of realized and unrealized gains and losses from
    consolidated and unconsolidated real estate related funds

 

 

(26

)

 

 

735

 

 

 

101

 

 

 

7,047

 

 

 

Other, net (primarily adjustments related to unconsolidated
    joint ventures)

 

 

512

 

 

 

448

 

 

 

3,701

 

 

 

(1,535

)

 

Core FFO attributable to the Operating Partnership

 

 

44,259

 

 

 

51,155

 

 

 

143,998

 

 

 

149,355

 

 

Amounts attributable to noncontrolling interests in the
    Operating Partnership

 

 

(3,736

)

 

 

(3,574

)

 

 

(12,109

)

 

 

(9,996

)

 

Core FFO attributable to common stockholders

 

$

40,523

 

 

$

47,581

 

 

$

131,889

 

 

$

139,359

 

 

 

Per diluted share

 

$

0.19

 

 

$

0.22

 

 

$

0.61

 

 

$

0.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

217,314,706

 

 

 

217,043,022

 

 

 

217,208,809

 

 

 

216,871,778

 

 

Effect of dilutive securities

 

 

14,505

 

 

 

32,676

 

 

 

36,985

 

 

 

21,638

 

 

Denominator for FFO and Core FFO per diluted share

 

 

217,329,211

 

 

 

217,075,698

 

 

 

217,245,794

 

 

 

216,893,416

 

 

(1)
Represents Market Center and 111 Sutter Street.

55


 

 

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 September 30, 2024.

 

Property

 

 

Rate

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

2028

 

 

Thereafter

 

 

Total

 

 

Fair Value

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 West 52nd Street

3.80%

 

$

-

 

 

$

-

 

 

$

500,000

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

500,000

 

 

$

480,446

 

 

300 Mission Street

4.50%

 

 

-

 

 

 

-

 

 

 

232,050

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

232,050

 

 

 

224,264

 

 

One Market Plaza

4.08%

 

 

-

 

 

 

-

 

 

 

-

 

 

 

850,000

 

 

 

-

 

 

 

-

 

 

 

850,000

 

 

 

825,436

 

 

1633 Broadway

2.99%

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,250,000

 

 

 

1,250,000

 

 

 

1,046,323

 

Total Fixed Rate Debt

 

 

3.58%

 

$

-

 

 

$

-

 

 

$

732,050

 

 

$

850,000

 

 

$

-

 

 

$

1,250,000

 

 

$

2,832,050

 

 

$

2,576,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Rate Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1301 Avenue of the Americas (1)

6.27%

 

$

-

 

 

$

-

 

 

$

860,000

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

860,000

 

 

$

860,316

 

 

Revolving Credit Facility

n/a

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total Variable Rate Debt

6.27%

 

$

-

 

 

$

-

 

 

$

860,000

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

860,000

 

 

$

860,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Consolidated Debt

4.21%

 

$

-

 

 

$

-

 

 

$

1,592,050

 

 

$

850,000

 

 

$

-

 

 

$

1,250,000

 

 

$

3,692,050

 

 

$

3,436,785

 

 

(1)
Represents variable rate loans, where SOFR has been capped at 3.50% through August 2025. See table below.

 

 

In addition to the above, our unconsolidated joint ventures had $1.78 billion of outstanding indebtedness as of September 30, 2024, of which our share was $633,938,000.

 

The tables below provide additional details on our interest rate caps as of September 30, 2024.

 

 

 

Notional

 

 

Effective

 

Maturity

 

Benchmark

 

Strike

 

 

Fair Value as of

 

Property

 

Amount

 

 

Date

 

Date

 

Rate

 

Rate

 

 

September 30, 2024

 

 

December 31, 2023

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   1301 Avenue of the Americas

 

$

500,000

 

 

Jul-2021

 

Aug-2024

 

SOFR

 

 

0.49

%

 

$

-

 

 

$

13,726

 

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

$

-

 

 

$

13,726

 

 

 

 

 

Notional

 

 

Effective

 

Maturity

 

Benchmark

 

Strike

 

 

Fair Value as of

 

Property

 

Amount

 

 

Date

 

Date

 

Rate

 

Rate

 

 

September 30, 2024

 

 

December 31, 2023

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   1301 Avenue of the Americas

 

$

860,000

 

 

Aug-2024

 

Aug-2025

 

SOFR

 

 

3.50

%

 

$

4,342

 

 

$

-

 

   1301 Avenue of the Americas

 

 

360,000

 

 

Aug-2023

 

Aug-2024

 

SOFR

 

 

4.50

%

 

 

-

 

 

 

1,263

 

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

$

4,342

 

 

$

1,263

 

 

56


 

 

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 September 30, 2024

 

 

As of December 31, 2023

 

(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

 

$

860,000

 

 

 

6.27

%

 

$

8,600

 

 

$

360,000

 

 

 

8.18

%

Fixed rate

 

2,113,680

 

 

 

3.45

%

 

 

-

 

 

 

2,674,930

 

(1)

 

3.27

%

 

 

$

2,973,680

 

 

 

4.26

%

 

$

8,600

 

 

$

3,034,930

 

 

 

3.86

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paramount's share of debt of non-consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   entities (non-recourse):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate

 

$

378,378

 

 

 

6.96

%

 

$

3,784

 

 

$

117,913

 

 

 

7.51

%

Fixed rate

 

 

255,560

 

 

 

4.02

%

 

 

-

 

 

 

511,025

 

 

 

3.32

%

 

 

$

633,938

 

 

 

5.77

%

 

$

3,784

 

 

$

628,938

 

 

 

4.11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests' share of above

 

 

$

(1,045

)

 

 

 

 

 

 

Total change in annual net income

 

 

 

 

 

 

 

$

11,339

 

 

 

 

 

 

 

Per diluted share

 

 

 

 

 

 

 

$

0.05

 

 

 

 

 

 

 

 

(1)
Includes floating rate debt that had been swapped to fixed.

 

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 September 30, 2024, 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.

58


 

PART II – OTHER INFORMATION

 

 

 

From time to time, we are a party to various claims and routine litigation arising in the ordinary course of business. As of September 30, 2024, 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 2Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.

 

 

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

 

Recent Sales of Unregistered Securities

 

None.

 

Recent Purchases of Equity Securities

 

We currently have $15,000,000 of capacity under a $200,000,000 stock repurchase program which was approved by our board of directors in November 2019. We did not repurchase any shares under the stock repurchase program in the three and nine months ended September 30, 2024. The amount and timing of 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 September 30, 2024, 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).

59


 

 

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*

 

The following materials from the Paramount Group, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 formatted in Inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the related Notes to Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

104*

 

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.)

 

 

_______________________________

*

 

Filed herewith

 

 

 

**

 

Furnished herewith

 

 

 

 

 

 

 

 

 

 

 

60


 

 

 

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:

 October 30, 2024

By:

 /s/ Wilbur Paes

 

Chief Operating Officer, Chief Financial Officer and Treasurer

Wilbur Paes

 

(duly authorized officer and principal financial officer)

 

 

 

 

 

 

 

 

 

 

 

 

Date:

 October 30, 2024

By:

 /s/ Ermelinda Berberi

 

Senior Vice President, Chief Accounting Officer

Ermelinda Berberi

 

(duly authorized officer and principal accounting officer)

 

 

 

61