Paramount Announces Fourth Quarter 2023 Results
New York, NY –Paramount Group reported Q4 results
Fourth Quarter Highlights:
Results of Operations:
- Reported net loss attributable to common stockholders of $205.6 million, or $0.95 per diluted share, for the quarter ended December 31, 2023, compared to $37.9 million, or $0.17 per diluted share, for the quarter ended December 31, 2022. Net loss attributable to common stockholders for the quarter ended December 31, 2023 includes (i) $185.0 million, or $0.85 per diluted share, for our share of non-cash real estate impairment losses on unconsolidated joint ventures and (ii) $7.3 million, or $0.03 per diluted share, for our share of realized and unrealized losses on consolidated real estate related fund investments. Net loss attributable to common stockholders for the quarter ended December 31, 2022 includes $29.6 million, or $0.14 per diluted share, for our share of a real estate impairment loss on an unconsolidated joint venture.
- Reported Core Funds from Operations (“Core FFO”) attributable to common stockholders of $46.1 million, or $0.21 per diluted share, for the quarter ended December 31, 2023, compared to $54.4 million, or $0.25 per diluted share, for the quarter ended December 31, 2022.
- Reported an 8.0% decrease in Same Store Cash Net Operating Income (“NOI”) and a 7.2% decrease in Same Store NOI in the quarter ended December 31, 2023, compared to the same period in the prior year.
- Leased 173,770 square feet, of which the Company’s share was 142,391 square feet that was leased at a weighted average initial rent of $80.17 per square foot. Of the 173,770 square feet leased, 112,898 square feet represented the Company’s share of second generation space(1), for which mark-to-markets were negative 2.5% on a GAAP basis and negative 7.5% on a cash basis.
- Declared a fourth quarter cash dividend of $0.035 per common share on December 15, 2023, which was paid on January 12, 2024.
Transactions Subsequent to Fourth Quarter:
- On February 1, 2024, the Company, together with its 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 $975.0 million 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 $850.0 million, following a $125.0 million paydown by the joint venture, of which the Company’s 49.0% share was $61.25 million. 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.
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(1) Second generation space represents space leased in the current period (i) prior to its originally scheduled expiration, or (ii) that has been vacant for less than twelve months.
Financial Results
Quarter Ended December 31, 2023
Net loss attributable to common stockholders was $205.6 million, or $0.95 per diluted share, for the quarter ended December 31, 2023, compared to $37.9 million, or $0.17 per diluted share, for the quarter ended December 31, 2022. Net loss attributable to common stockholders for the quarter ended December 31, 2023 includes (i) $185.0 million, or $0.85 per diluted share, for our share of non-cash real estate impairment losses on unconsolidated joint ventures and (ii) $7.3 million, or $0.03 per diluted share, for our share of realized and unrealized losses on consolidated real estate related fund investments. Net loss attributable to common stockholders for the quarter ended December 31, 2022 includes $29.6 million, or $0.14 per diluted share, for our share of a real estate impairment loss on an unconsolidated joint venture.
Funds from Operations (“FFO”) attributable to common stockholders was $40.5 million, or $0.19 per diluted share, for the quarter ended December 31, 2023, compared to $48.5 million, or $0.22 per diluted share, for the quarter ended December 31, 2022. FFO attributable to common stockholders for the quarters ended December 31, 2023 and 2022 includes the impact of non-core items, which are listed in the table on page 10. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the quarters ended December 31, 2023 and 2022 by $5.6 million, and $5.9 million, respectively, or $0.02 and $0.03 per diluted share, respectively.
Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 10, was $46.1 million, or $0.21 per diluted share, for the quarter ended December 31, 2023, compared to $54.4 million, or $0.25 per diluted share, for the quarter ended December 31, 2022.
Year Ended December 31, 2023
Net loss attributable to common stockholders was $259.7 million, or $1.20 per diluted share, for the year ended December 31, 2023, compared to $36.4 million, or $0.16 per diluted share, for the year ended December 31, 2022. Net loss attributable to common stockholders for the year ended December 31, 2023 includes (i) $208.1 million, or $0.96 per diluted share, for our share of non-cash real estate impairment losses on unconsolidated joint ventures, (ii) non-cash straight-line rent receivable write-offs aggregating $13.0 million, 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 and (iii) $13.0 million, or $0.06 per diluted share, for our share of realized and unrealized losses on consolidated real estate related fund investments. Net loss attributable to common stockholders for the year ended December 31, 2022 includes $29.6 million, or $0.14 per diluted share, for our share of a real estate impairment loss on an unconsolidated joint venture.
FFO attributable to common stockholders was $178.0 million, or $0.82 per diluted share, for the year ended December 31, 2023, compared to $210.1 million, or $0.95 per diluted share, for the year ended December 31, 2022. FFO attributable to common stockholders for the year ended December 31, 2023 includes non-cash straight-line rent receivable write-offs aggregating $13.0 million, or $0.06 per diluted share, related to the terminated SVB Securities lease and the surrendered JPMorgan Chase space. FFO attributable to common stockholders for the years ended December 31, 2023 and 2022 also includes the impact of non-core items, which are listed in the table on page 10. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the years ended December 31, 2023 and 2022 by $10.8 million and $6.7 million, respectively, or $0.05 and $0.03 per diluted share, respectively.
Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 10, was $188.8 million, or $0.87 per diluted share, for the year ended December 31, 2023, compared to $216.8 million, or $0.98 per diluted share, for the year ended December 31, 2022.
Portfolio Operations
Quarter Ended December 31, 2023
Same Store Cash NOI decreased by $7.8 million, or 8.0%, to $89.0 million for the quarter ended December 31, 2023 from $96.8 million for the quarter ended December 31, 2022. Same Store NOI decreased by $7.3 million, or 7.2%, to $94.1 million for the quarter ended December 31, 2023 from $101.4 million for the quarter ended December 31, 2022.
During the quarter ended December 31, 2023, the Company leased 173,770 square feet, of which the Company’s share was 142,391 square feet that was leased at a weighted average initial rent of $80.17 per square foot. This leasing activity, offset by lease expirations in the quarter, decreased leased occupancy and same store leased occupancy (properties owned by the Company in a similar manner during both reporting periods) by 40 basis points to 87.7% at December 31, 2023 from 88.1% at September 30, 2023.
Of the 173,770 square feet leased in the fourth quarter, 112,898 square feet represented the Company’s share of second generation space for which mark-to-markets were negative 2.5% on a GAAP basis and negative 7.5% on a cash basis. The weighted average lease term for leases signed during the fourth quarter was 10.2 years and weighted average tenant improvements and leasing commissions on these leases were $12.38 per square foot per annum, or 15.4% of initial rent.
Year Ended December 31, 2023
Same Store Cash NOI decreased by $19.1 million, or 5.0%, to $366.1 million for the year ended December 31, 2023 from $385.2 million for the year ended December 31, 2022. Same Store NOI decreased by $16.2 million, or 4.0%, to $385.6 million for the year ended December 31, 2023 from $401.8 million for the year ended December 31, 2022.
During the year ended December 31, 2023, the Company leased 739,510 square feet, of which the Company’s share was 597,210 square feet that was leased at a weighted average initial rent of $78.84 per square foot. This leasing activity, offset by lease expirations during the year, decreased leased occupancy and same store leased occupancy by 360 basis points to 87.7% at December 31, 2023 from 91.3% at December 31, 2022. The 360 basis point decrease in leased occupancy was driven primarily by the scheduled expiration of (i) Credit Agricole’s lease in February 2023 at 1301 Avenue of the Americas in the Company’s New York portfolio and (ii) Uber’s lease in July 2023 at Market Center in the Company’s San Francisco portfolio.
Of the 739,510 square feet leased during the year, 511,789 square feet represented the Company’s share of second generation space for which mark-to-markets were positive 0.1% on a GAAP basis and negative 2.8% on a cash basis. The weighted average lease term for leases signed during the year was 9.6 years and weighted average tenant improvements and leasing commissions on these leases were $11.62 per square foot per annum, or 14.7% of initial rent.
Guidance
The Company is providing, in its Supplemental Information for the quarter ended December 31, 2023, its Estimated Core FFO Guidance for the full year of 2024, which is reconciled to estimated net loss attributable to common stockholders in accordance with GAAP. The Supplemental Information for the quarter ended December 31, 2023 can be found on the Company’s website at www.pgre.com.
| Paramount Group, Inc. | ||||||||
| Consolidated Balance Sheets | ||||||||
| (Unaudited and in thousands) | ||||||||
| Assets: | December 31, 2023 | December 31, 2022 | ||||||
| Real estate, at cost: | ||||||||
| Land | $ | 1,966,237 | $ | 1,966,237 | ||||
| Buildings and improvements | 6,250,379 | 6,177,540 | ||||||
| 8,216,616 | 8,143,777 | |||||||
| Accumulated depreciation and amortization | (1,471,819 | ) | (1,297,553 | ) | ||||
| Real estate, net | 6,744,797 | 6,846,224 | ||||||
| Cash and cash equivalents | 428,208 | 408,905 | ||||||
| Restricted cash | 81,391 | 40,912 | ||||||
| Accounts and other receivables | 18,053 | 23,866 | ||||||
| Real estate related fund investments | 775 | 105,369 | ||||||
| Investments in unconsolidated real estate related funds | 4,549 | 3,411 | ||||||
| Investments in unconsolidated joint ventures | 132,239 | 393,503 | ||||||
| Deferred rent receivable | 351,209 | 346,338 | ||||||
| Deferred charges, net | 108,751 | 120,685 | ||||||
| Intangible assets, net | 68,005 | 90,381 | ||||||
| Other assets | 68,238 | 73,660 | ||||||
| Total assets | $ | 8,006,215 | $ | 8,453,254 | ||||
| Liabilities: | ||||||||
| Notes and mortgages payable, net | $ | 3,803,484 | $ | 3,840,318 | ||||
| Revolving credit facility | – | – | ||||||
| Accounts payable and accrued expenses | 114,463 | 123,176 | ||||||
| Dividends and distributions payable | 8,360 | 18,026 | ||||||
| Intangible liabilities, net | 28,003 | 36,193 | ||||||
| Other liabilities | 37,017 | 24,775 | ||||||
| Total liabilities | 3,991,327 | 4,042,488 | ||||||
| Equity: | ||||||||
| Paramount Group, Inc. equity | 3,203,285 | 3,592,291 | ||||||
| Noncontrolling interests in: | ||||||||
| Consolidated joint ventures | 413,925 | 402,118 | ||||||
| Consolidated real estate related funds | 110,589 | 173,375 | ||||||
| Operating Partnership | 287,089 | 242,982 | ||||||
| Total equity | 4,014,888 | 4,410,766 | ||||||
| Total liabilities and equity | $ | 8,006,215 | $ | 8,453,254 | ||||
| Paramount Group, Inc. | ||||||||||||||||
| Consolidated Statements of Income | ||||||||||||||||
| (Unaudited and in thousands, except share and per share amounts) | ||||||||||||||||
| For the Three Months Ended | For the Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Rental revenue | $ | 181,736 | $ | 176,404 | $ | 711,470 | $ | 702,819 | ||||||||
| Fee and other income | 10,735 | 7,624 | 31,318 | 37,558 | ||||||||||||
| Total revenues | 192,471 | 184,028 | 742,788 | 740,377 | ||||||||||||
| Expenses: | ||||||||||||||||
| Operating | 77,076 | 70,102 | 293,965 | 277,422 | ||||||||||||
| Depreciation and amortization | 68,866 | 61,211 | 250,644 | 232,517 | ||||||||||||
| General and administrative | 15,679 | 13,986 | 61,986 | 59,487 | ||||||||||||
| Transaction related costs | 99 | 89 | 422 | 470 | ||||||||||||
| Total expenses | 161,720 | 145,388 | 607,017 | 569,896 | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Loss from real estate related fund investments | (59,341 | ) | (2,233 | ) | (96,375 | ) | (2,233 | ) | ||||||||
| Income (loss) from unconsolidated real estate related funds | 45 | (1,864 | ) | (822 | ) | (1,239 | ) | |||||||||
| Loss from unconsolidated joint ventures | (207,160 | ) | (37,925 | ) | (270,298 | ) | (53,251 | ) | ||||||||
| Interest and other income, net | 4,830 | 2,567 | 14,837 | 5,174 | ||||||||||||
| Interest and debt expense | (40,550 | ) | (37,060 | ) | (152,990 | ) | (143,864 | ) | ||||||||
| Loss before income taxes | (271,425 | ) | (37,875 | ) | (369,877 | ) | (24,932 | ) | ||||||||
| Income tax expense | (302 | ) | (1,706 | ) | (1,426 | ) | (3,265 | ) | ||||||||
| Net loss | (271,727 | ) | (39,581 | ) | (371,303 | ) | (28,197 | ) | ||||||||
| Less net (income) loss attributable to noncontrolling interests in: | ||||||||||||||||
| Consolidated joint ventures | (4,585 | ) | (1,598 | ) | (20,464 | ) | (13,981 | ) | ||||||||
| Consolidated real estate related funds | 52,383 | 665 | 109,795 | 3,342 | ||||||||||||
| Operating Partnership | 18,379 | 2,637 | 22,228 | 2,433 | ||||||||||||
| Net loss attributable to common stockholders | $ | (205,550 | ) | $ | (37,877 | ) | $ | (259,744 | ) | $ | (36,403 | ) | ||||
| Per Share: | ||||||||||||||||
| Basic | $ | (0.95 | ) | $ | (0.17 | ) | $ | (1.20 | ) | $ | (0.16 | ) | ||||
| Diluted | $ | (0.95 | ) | $ | (0.17 | ) | $ | (1.20 | ) | $ | (0.16 | ) | ||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 217,071,959 | 218,583,895 | 216,922,235 | 221,309,938 | ||||||||||||
| Diluted | 217,071,959 | 218,583,895 | 216,922,235 | 221,309,938 | ||||||||||||
| Paramount Group, Inc. | ||||||||||||||||
| Reconciliation of Net Loss to FFO and Core FFO | ||||||||||||||||
| (Unaudited and in thousands, except share and per share amounts) | ||||||||||||||||
| For the Three Months Ended | For the Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Reconciliation of Net Loss to FFO and Core FFO: | ||||||||||||||||
| Net loss | $ | (271,727 | ) | $ | (39,581 | ) | $ | (371,303 | ) | $ | (28,197 | ) | ||||
| Real estate depreciation and amortization (including our share of unconsolidated joint ventures) | 76,723 | 70,720 | 286,410 | 271,789 | ||||||||||||
| Our share of non-cash real estate impairment losses related to unconsolidated joint ventures | 201,496 | 31,685 | 226,230 | 31,685 | ||||||||||||
| FFO | 6,492 | 62,824 | 141,337 | 275,277 | ||||||||||||
| Less FFO attributable to noncontrolling interests in: | ||||||||||||||||
| Consolidated joint ventures | (14,774 | ) | (11,565 | ) | (59,639 | ) | (51,433 | ) | ||||||||
| Consolidated real estate related funds | 52,383 | 659 | 109,781 | 3,318 | ||||||||||||
| FFO attributable to Paramount Group Operating Partnership | 44,101 | 51,918 | 191,479 | 227,162 | ||||||||||||
| Less FFO attributable to noncontrolling interests in Operating Partnership | (3,620 | ) | (3,380 | ) | (13,481 | ) | (17,063 | ) | ||||||||
| FFO attributable to common stockholders | $ | 40,481 | $ | 48,538 | $ | 177,998 | $ | 210,099 | ||||||||
| Per diluted share | $ | 0.19 | $ | 0.22 | $ | 0.82 | $ | 0.95 | ||||||||
| FFO | $ | 6,492 | $ | 62,824 | $ | 141,337 | $ | 275,277 | ||||||||
| Non-core items: | ||||||||||||||||
| Adjustments for realized and unrealized gains and losses on consolidated and unconsolidated real estate related fund investments, including residential condominium units at One Steuart Lane | 61,859 | 4,238 | 137,387 | 7,560 | ||||||||||||
| Adjustments to equity in earnings of unconsolidated joint ventures | (2,326 | ) | 561 | (6,866 | ) | 855 | ||||||||||
| Other, net | 492 | 2,716 | 1,440 | 3,097 | ||||||||||||
| Core FFO | 66,517 | 70,339 | 273,298 | 286,789 | ||||||||||||
| Less Core FFO attributable to noncontrolling interests in: | ||||||||||||||||
| Consolidated joint ventures | (14,774 | ) | (11,565 | ) | (59,639 | ) | (51,433 | ) | ||||||||
| Consolidated real estate related funds | (1,477 | ) | (625 | ) | (10,503 | ) | (1,006 | ) | ||||||||
| Core FFO attributable to Paramount Group Operating Partnership | 50,266 | 58,149 | 203,156 | 234,350 | ||||||||||||
| Less Core FFO attributable to noncontrolling interests in Operating Partnership | (4,126 | ) | (3,785 | ) | (14,354 | ) | (17,526 | ) | ||||||||
| Core FFO attributable to common stockholders | $ | 46,140 | $ | 54,364 | $ | 188,802 | $ | 216,824 | ||||||||
| Per diluted share | $ | 0.21 | $ | 0.25 | $ | 0.87 | $ | 0.98 | ||||||||
| Reconciliation of weighted average shares outstanding: | ||||||||||||||||
| Weighted average shares outstanding | 217,071,959 | 218,583,895 | 216,922,235 | 221,309,938 | ||||||||||||
| Effect of dilutive securities | 77,069 | 59,378 | 20,527 | 31,487 | ||||||||||||
| Denominator for FFO and Core FFO per diluted share | 217,149,028 | 218,643,273 | 216,942,762 | 221,341,425 | ||||||||||||
| Paramount Group, Inc. | |||||||||||||||
| Reconciliation of Net Loss to Same Store NOI and Same Store Cash NOI | |||||||||||||||
| (Unaudited and in thousands) | |||||||||||||||
| For the Three Months Ended | For the Year Ended | ||||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Reconciliation of Net Loss to Same Store NOI and Same Store Cash NOI: | |||||||||||||||
| Net loss | $ | (271,727 | ) | $ | (39,581 | ) | $ | (371,303 | ) | $ | (28,197 | ) | |||
| Add (subtract) adjustments to arrive at NOI and Cash NOI: | |||||||||||||||
| Depreciation and amortization | 68,866 | 61,211 | 250,644 | 232,517 | |||||||||||
| General and administrative | 15,679 | 13,986 | 61,986 | 59,487 | |||||||||||
| Interest and debt expense | 40,550 | 37,060 | 152,990 | 143,864 | |||||||||||
| Income tax expense | 302 | 1,706 | 1,426 | 3,265 | |||||||||||
| Loss from real estate related fund investments | 59,341 | 2,233 | 96,375 | 2,233 | |||||||||||
| NOI from unconsolidated joint ventures (excluding One Steuart Lane) | 7,026 | 10,782 | 37,360 | 45,141 | |||||||||||
| Loss from unconsolidated joint ventures | 207,160 | 37,925 | 270,298 | 53,251 | |||||||||||
| Fee income | (7,491 | ) | (5,327 | ) | (21,597 | ) | (28,421 | ) | |||||||
| Interest and other income, net | (4,830 | ) | (2,567 | ) | (14,837 | ) | (5,174 | ) | |||||||
| Other, net | 54 | 1,953 | 1,244 | 1,709 | |||||||||||
| NOI | 114,930 | 119,381 | 464,586 | 479,675 | |||||||||||
| Less NOI attributable to noncontrolling interests in: | |||||||||||||||
| Consolidated joint ventures | (22,397 | ) | (19,247 | ) | (89,948 | ) | (82,587 | ) | |||||||
| PGRE’s share of NOI | 92,533 | 100,134 | 374,638 | 397,088 | |||||||||||
| Lease termination income | (766 | ) | – | (8,070 | ) | (1,875 | ) | ||||||||
| Non-cash write-offs of straight-line rent receivables | 363 | 445 | 14,413 | 2,425 | |||||||||||
| Redevelopment and other, net | 1,939 | 829 | 4,629 | 4,136 | |||||||||||
| PGRE’s share of Same Store NOI | $ | 94,069 | $ | 101,408 | $ | 385,610 | $ | 401,774 | |||||||
| NOI | $ | 114,930 | $ | 119,381 | $ | 464,586 | $ | 479,675 | |||||||
| Add (subtract) adjustments to arrive at Cash NOI: | |||||||||||||||
| Straight-line rent adjustments (including our share of unconsolidated joint ventures) | (4,476 | ) | (5,746 | ) | (6,166 | ) | (14,034 | ) | |||||||
| Amortization of above and below-market leases, net (including our share of unconsolidated joint ventures) | (1,912 | ) | (1,984 | ) | (8,099 | ) | (5,099 | ) | |||||||
| Cash NOI | 108,542 | 111,651 | 450,321 | 460,542 | |||||||||||
| Less Cash NOI attributable to noncontrolling interests in: | |||||||||||||||
| Consolidated joint ventures | (20,737 | ) | (16,147 | ) | (80,809 | ) | (77,341 | ) | |||||||
| PGRE’s share of Cash NOI | 87,805 | 95,504 | 369,512 | 383,201 | |||||||||||
| Lease termination income | (766 | ) | – | (8,070 | ) | (1,875 | ) | ||||||||
| Redevelopment and other, net | 1,969 | 1,266 | 4,682 | 3,921 | |||||||||||
| PGRE’s share of Same Store Cash NOI | $ | 89,008 | $ | 96,770 | $ | 366,124 | $ | 385,247 | |||||||
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