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Paramount Announces Fourth Quarter 2023 Results image

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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