PARAMOUNT GROUP, INC. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, including the related notes included therein.
Forward-Looking Statements
We make statements in this Quarterly Report on Form 10-Q that are considered "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are usually identified by the use of words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "seeks," "should," "will," and variations of such words or similar expressions. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation:
•
the negative impact of the coronavirus 2019 ("COVID-19") global pandemic on the
U.S. , regional and global economies and our tenants' financial condition and
results of operations;
•
unfavorable market and economic conditions in
•
risks associated with high concentrations of our properties in
•
risks associated with ownership of real estate;
•
decreased rental rates or increased vacancy rates;
•
the risk we may lose a major tenant;
•
trends in the office real estate industry including telecommuting, flexible work schedules, open workplaces and teleconferencing;
•
limited ability to dispose of assets because of the relative illiquidity of real estate investments;
•
intense competition in the real estate market that may limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities;
•
insufficient amounts of insurance;
•
uncertainties and risks related to adverse weather conditions, natural disasters and climate change;
•
risks associated with actual or threatened terrorist attacks;
•
exposure to liability relating to environmental and health and safety matters;
•
high costs associated with compliance with the Americans with Disabilities Act;
•
failure of acquisitions to yield anticipated results;
•
risks associated with real estate activity through our joint ventures and private equity real estate funds;
•
general volatility of the capital and credit markets and the market price of our common stock;
•
exposure to litigation or other claims;
•
loss of key personnel;
•
risks associated with security breaches through cyber attacks or cyber intrusions and other significant disruptions of our information technology ("IT") networks and related systems;
•
risks associated with our substantial indebtedness;
•
failure to refinance current or future indebtedness on favorable terms, or at all;
28
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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 endedDecember 31, 2021 , including those set forth in Item 1A entitled "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by theU.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 endedDecember 31, 2021 .
Critical Accounting Estimates
There are no material changes to our critical accounting estimates disclosed in
our Annual Report on Form 10-K for the year ended
Recently Issued Accounting Literature
A summary of our recently issued accounting literature and their potential
impact on our consolidated financial statements, if any, are included in Note 2,
Basis of Presentation and Significant Accounting Policies, to our consolidated
financial statements in this Quarterly Report on Form 10-Q.
29
--------------------------------------------------------------------------------Business Overview
We are a fully-integrated REIT focused on owning, operating, managing, acquiring and redeveloping high-quality, Class A office properties in select central business district submarkets ofNew York City andSan Francisco . We conduct our business through, and substantially all of our interests in properties and investments are held by,Paramount Group Operating Partnership LP , aDelaware limited partnership (the "Operating Partnership"). We are the sole general partner of, and owned approximately 93.4% of, theOperating Partnership as ofSeptember 30, 2022 .
As of
•
Eight wholly and partially owned properties aggregating 8.7 million square feet
in
•
Six wholly and partially owned properties aggregating 4.3 million square feet in
•
Five managed properties aggregating 1.0 million square feet in
Additionally, we have an investment management business, where we serve as the general partner of real estate funds for institutional investors and high net-worth individuals.
Acquisitions OnFebruary 24, 2022 , a joint venture, in which we own a 9.2% interest, acquired a 26,000 square foot retail condominium at1600 Broadway inManhattan for$191,500,000 . In connection with the acquisition, the joint venture obtained a 10-year,$98,000,000 interest-only loan that has a fixed rate of 3.45%. The property, which is located in the heart ofTimes Square , is 100% leased toMars, Inc. for a 15-year term and serves as theNew York flagship location forM&M's World . Stock Repurchase Program OnNovember 5, 2019 , we received authorization from our Board of Directors to repurchase up to$200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. During 2022, we repurchased 6,498,232 common shares at a weighted average price of$6.41 per share, or$41,674,000 in the aggregate, of which 3,237,392 shares were repurchased in the three months endedSeptember 30, 2022 at a weighted average price of$6.58 per share, or$21,313,000 in the aggregate, and the remaining 3,260,840 shares were repurchased inOctober 2022 at a weighted average price of$6.24 per share, or$20,361,000 in the aggregate. During 2020, we repurchased 13,813,158 common shares at a weighted average price of$8.69 per share, or$120,000,000 in the aggregate. Accordingly, we have$38,326,000 available for future repurchases under the existing program. The amount and timing of future repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time. 30 --------------------------------------------------------------------------------
Leasing Results - Three Months Ended
In the three months endedSeptember 30, 2022 , we leased 288,554 square feet, of which our share was 215,922 that was leased at a weighted average initial rent of$82.76 per square foot. This leasing activity, offset by the lease expirations in the three months, caused our leased occupancy and same store leased occupancy (properties owned by us in a similar manner during both reporting periods) to remain at 91.4% atSeptember 30, 2022 , in-line with the lease occupancy reported atJune 30, 2022 . Of the 215,922 square feet leased, 204,178 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 10.5% on a cash basis and increased by 2.7% on a GAAP basis. The weighted average lease term for leases signed during the three months was 12.5 years and weighted average tenant improvements and leasing commissions on these leases were$11.92 per square foot per annum, or 14.4% of initial rent.
In the three months endedSeptember 30, 2022 , we leased 253,774 square feet in ourNew York portfolio, of which our share was 197,828 square feet that was leased at a weighted average initial rent of$79.95 per square foot. This leasing activity, partially offset by lease expirations in the three months, increased leased occupancy and same store leased occupancy by 10 basis points to 92.1% atSeptember 30, 2022 from 92.0% atJune 30, 2022 . Of the 197,828 square feet leased, 190,828 square feet represented our share of second generation space for which rental rates decreased by 11.6% on a cash basis and increased 1.5% on a GAAP basis. The weighted average lease term for leases signed during the three months was 12.9 years and weighted average tenant improvements and leasing commissions on these leases were$11.97 per square foot per annum, or 15.0% of initial rent.San Francisco In the three months endedSeptember 30, 2022 , we leased 34,780 square feet in ourSan Francisco portfolio, of which our share was 18,094 square feet that was leased at a weighted average initial rent of$113.53 per square foot. This leasing activity, offset by lease expirations in the three months, decreased leased occupancy and same store leased occupancy by 50 basis points to 89.3% atSeptember 30, 2022 from 89.8% atJune 30, 2022 . Of the 18,094 square feet leased in the three months, 13,350 square feet represented our share of second generation space for which we achieved rental rate increases of 1.6% on a cash basis and 14.7% on a GAAP basis. The weighted average lease term for leases signed during the three months was 7.3 years and weighted average tenant improvements and leasing commissions on these leases were$10.86 per square foot per annum, or 9.6% of initial rent. 31 -------------------------------------------------------------------------------- The following table presents additional details on the leases signed during the three months endedSeptember 30, 2022 . It is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The leasing statistics, except for square feet leased, represent office space only. Three Months EndedSeptember 30, 2022 Total
Total square feet leased 288,554 253,774 34,780
Pro rata share of total square feet leased: 215,922 197,828 18,094
Initial rent (1) $ 82.76 $ 79.95 $ 113.53
Weighted average lease term (in years) 12.5 12.9 7.3
Tenant improvements and leasing commissions:
Per square foot $ 148.56 $ 154.86 $ 79.72
Per square foot per annum $ 11.92 $ 11.97 $ 10.86
Percentage of initial rent 14.4 % 15.0 % 9.6 %
Rent concessions:
Average free rent period (in months) 14.3 15.1 5.8
Average free rent period per annum (in
months) 1.1 1.2 0.8
Second generation space: (2)
Square feet 204,178 190,828 13,350
Cash basis:
Initial rent (1) $ 80.78 $ 78.41 $ 114.63
Prior escalated rent (3) $ 90.28 $ 88.71 $ 112.78
Percentage (decrease) increase (10.5 %) (11.6 %) 1.6 %
GAAP basis:
Straight-line rent $ 79.32 $ 76.54 $ 119.02
Prior straight-line rent $ 77.23 $ 75.38 $ 103.72
Percentage increase 2.7 % 1.5 % 14.7 %
(1)
Represents the weighted average cash basis starting rent per square foot and
does not include free rent or periodic step-ups in rent.
(2)
Represents space leased that has been vacant for less than twelve months.
(3)
Represents the weighted average cash basis rents (including reimbursements) per
square foot at expiration.
The following table presents same store leased occupancy as of the dates set forth below.
Same Store Leased Occupancy (1) Total
As of September 30, 2022 91.4 % 92.1 % 89.3 %
As of June 30, 2022 91.4 % 92.0 % 89.8 %
(1)
Represents percentage of square feet that is leased, including signed leases not
yet commenced, for properties that were owned by us in a similar manner during
both the current and prior reporting periods.
32
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Leasing Results - Nine Months Ended
In the nine months endedSeptember 30, 2022 , we leased 741,605 square feet, of which our share was 556,299 that was leased at a weighted average initial rent of$77.12 per square foot. This leasing activity, partially offset by lease expirations in the nine months, increased leased occupancy by 70 basis points to 91.4% atSeptember 30, 2022 from 90.7% atDecember 31, 2021 . Same store leased occupancy (properties owned by us in a similar manner during both reporting periods), increased by 80 basis points to 91.4% atSeptember 30, 2022 from 90.6% atDecember 31, 2021 . Of the 556,299 square feet leased, 441,499 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 6.6% on a cash basis and increased 1.3% on a GAAP basis. The weighted average lease term for leases signed during the nine months was 10.0 years and weighted average tenant improvements and leasing commissions on these leases were$10.72 per square foot per annum, or 13.9% of initial rent.
In the nine months endedSeptember 30, 2022 , we leased 582,268 square feet in ourNew York portfolio, of which our share was 473,507 square feet that was leased at a weighted average initial rent of$72.12 per square foot. This leasing activity, partially offset by lease expirations in the nine months, increased leased occupancy by 170 basis points to 92.1% atSeptember 30, 2022 from 90.4% atDecember 31, 2021 . Same store leased occupancy increased by 180 basis points to 92.1% atSeptember 30, 2022 from 90.3% atDecember 31, 2021 . Of the 473,507 square feet leased, 380,233 square feet represented our share of second generation space for which rental rates decreased by 8.5% on a cash basis and 2.0% on a GAAP basis. The weighted average lease term for leases signed during the nine months was 10.5 years and weighted average tenant improvements and leasing commissions on these leases were$10.85 per square foot per annum, or 15.0% of initial rent.San Francisco In the nine months endedSeptember 30, 2022 , we leased 159,337 square feet in ourSan Francisco portfolio, of which our share was 82,792 square feet that was leased at a weighted average initial rent of$105.71 per square foot. This leasing activity, offset by lease expirations in the nine months, decreased leased occupancy and same store leased occupancy by 230 basis points to 89.3% atSeptember 30, 2022 from 91.6% atDecember 31, 2021 . Of the 82,792 square feet leased in the nine months, 61,266 square feet represented our share of second generation space for which we achieved rental rate increases of 1.9% on a cash basis and 15.9% on a GAAP basis. The weighted average lease term for leases signed during the nine months was 7.1 years and weighted average tenant improvements and leasing commissions on these leases were$9.61 per square foot per annum, or 9.1% of initial rent. 33 -------------------------------------------------------------------------------- The following table presents additional details on the leases signed during the nine months endedSeptember 30, 2022 . It is not intended to coincide with the commencement of rental revenue in accordance with GAAP. The leasing statistics, except for square feet leased, represent office space only. Nine Months EndedSeptember 30, 2022 Total
Total square feet leased 741,605 582,268 159,337
Pro rata share of total square feet leased: 556,299 473,507 82,792
Initial rent (1) $ 77.12 $ 72.12 $ 105.71
Weighted average lease term (in years) 10.0 10.5 7.1
Tenant improvements and leasing commissions:
Per square foot $ 107.35 $ 114.21 $ 68.09
Per square foot per annum $ 10.72 $ 10.85 $ 9.61
Percentage of initial rent 13.9 % 15.0 % 9.1 %
Rent concessions:
Average free rent period (in months) 11.1 12.2 5.0
Average free rent period per annum
(in months) 1.1 1.2 0.7
Second generation space: (2)
Square feet 441,499 380,233 61,266
Cash basis:
Initial rent (1) $ 76.29 $ 70.92 $ 109.64
Prior escalated rent (3) $ 81.67 $ 77.50 $ 107.60
Percentage (decrease) increase (6.6 %) (8.5 %) 1.9 %
GAAP basis:
Straight-line rent $ 75.00 $ 68.83 $ 113.25
Prior straight-line rent $ 74.05 $ 70.24 $ 97.70
Percentage increase (decrease) 1.3 % (2.0 %) 15.9 %
(1)
Represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent. (2) Represents space leased that has been vacant for less than twelve months. (3) Represents the weighted average cash basis rents (including reimbursements) per square foot at expiration.
The following table presents same store leased occupancy as of the dates set forth below.
Same Store Leased Occupancy (1) Total
As of September 30, 2022 91.4 % 92.1 % 89.3 %
As of December 31, 2021 90.6 % 90.3 % 91.6 %
(1)
Represents percentage of square feet that is leased, including signed leases not
yet commenced, for properties that were owned by us in a similar manner during
both the current and prior reporting periods.
34
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Financial Results - Three Months Ended
Net Income, FFO and Core FFO
Net loss attributable to common stockholders was
Funds from Operations ("FFO") attributable to common stockholders was
$53,366,000 , or $0.24 per diluted share, for the three months ended September
30, 2022 , compared to $50,318,000 , or $0.23 per diluted share, for the three
months ended September 30, 2021 . FFO attributable to common stockholders for the
three months ended September 30, 2022 and 2021 includes the impact of other
non-core items, which are listed in the table on page 57. 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, 2022 by $883,000 , or $0.00 per diluted share, and increased FFO
attributable to common stockholders for the three months ended September 30,
2021 by $249,000 , respectively, or $0.00 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 57, was
$54,249,000 , or $0.24 per diluted share, for the three months ended September
30, 2022 , compared to $50,069,000 , or $0.23 per diluted share, for the three
months ended September 30, 2021 .
Same Store Results
The table below summarizes the percentage increase (decrease) in our share of Same Store NOI and Same Store Cash NOI, by segment, for the three months endedSeptember 30, 2022 versusSeptember 30, 2021 . Total New York San Francisco Same Store NOI 6.3 % 10.0 % (0.4 %) Same Store Cash NOI 0.4 % 6.2 % (11.0 %)
See pages 49-57 "Non-GAAP Financial Measures" for a reconciliation of these measures to the most directly comparable GAAP measure and the reasons why we believe these non-GAAP measures are useful.
35
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Financial Results - Nine Months Ended
Net Income, FFO and Core FFO
Net income attributable to common stockholders was$1,474,000 , or$0.01 per diluted share, for the nine months endedSeptember 30, 2022 , compared to net loss attributable to common stockholders of$21,576,000 , or$0.10 per diluted share, for the nine months endedSeptember 30, 2021 . Net loss attributable to common stockholders for the nine months endedSeptember 30, 2021 includes a$10,688,000 contribution to an unconsolidated joint venture that was expensed in accordance with GAAP. FFO attributable to common stockholders was$161,561,000 , or$0.73 per diluted share, for the nine months endedSeptember 30, 2022 , compared to$139,135,000 , or$0.64 per diluted share, for the nine months endedSeptember 30, 2021 . FFO attributable to common stockholders for the nine months endedSeptember 30, 2021 includes a$10,688,000 contribution to an unconsolidated joint venture that was expensed in accordance with GAAP. FFO attributable to common stockholders for the nine months endedSeptember 30, 2022 and 2021 also includes the impact of other non-core items, which are listed in the table on page 57. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the nine months endedSeptember 30, 2022 and 2021 by$899,000 and$9,114,000 , respectively, or$0.00 and$0.04 per diluted share, respectively. Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 57, was$162,460,000 , or$0.73 per diluted share, for the nine months endedSeptember 30, 2022 , compared to$148,249,000 , or$0.68 per diluted share, for the nine months endedSeptember 30, 2021 .
Same Store Results
The table below summarizes the percentage increase (decrease) in our share of Same Store NOI and Same Store Cash NOI, by segment, for the nine months endedSeptember 30, 2022 versusSeptember 30, 2021 . Total New York San Francisco Same Store NOI 4.1 % 8.2 % (3.3 %) Same Store Cash NOI 3.2 % 7.3 % (5.1 %)
See pages 49-57 "Non-GAAP Financial Measures" for a reconciliation of these measures to the most directly comparable GAAP measure and the reasons why we believe these non-GAAP measures are useful.
36
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Results of Operations - Three Months Ended
The following pages summarize our consolidated results of operations for the
three months ended
For the Three Months Ended September 30,
(Amounts in thousands) 2022 2021 Change
Revenues:
Rental revenue $ 179,250 $ 170,851 $ 8,399
Fee and other income 7,897 8,280 (383 )
Total revenues 187,147 179,131 8,016
Expenses:
Operating 72,845 67,131 5,714
Depreciation and amortization 58,284 57,522 762
General and administrative 13,150 13,257 (107 )
Transaction related costs 105 87 18
Total expenses 144,384 137,997 6,387
Other income (expense):
(Loss) income from unconsolidated joint ventures (5,797 ) 223 (6,020 )
Income from unconsolidated real estate funds 300 276 24
Interest and other income, net 1,580 138 1,442
Interest and debt expense (36,949 ) (36,266 ) (683 )
Income before income taxes 1,897 5,505 (3,608 )
Income tax expense (673 ) (873 ) 200
Net income 1,224 4,632 (3,408 )Less net (income) loss attributable to noncontrolling
interests in:
Consolidated joint ventures (4,179 ) (3,768 ) (411 )
Consolidated real estate fund 1,309 (3,123 ) 4,432
Operating Partnership 109 204 (95 )
Net loss attributable to common stockholders $ (1,537 ) $ (2,055 ) $ 518
37--------------------------------------------------------------------------------
Revenues
Our revenues, which consist of rental revenue and fee and other income, were
(Amounts in thousands) Total New York San Francisco Other Rental revenue Same store operations$ 9,750 $ 9,272 (1) $ 478 $ - Other, net (1,351 ) (2,287 ) 474 462 Increase in rental revenue$ 8,399 $ 6,985 $ 952$ 462 Fee and other income Fee income Asset management$ (114 ) $ - $ -$ (114 ) Property management (327 ) - - (327 ) Acquisition, disposition, leasing and other (988 ) - - (988 ) Decrease in fee income (1,429 ) - - (1,429 ) Other income Same store operations 1,046 604 188 254 Increase in other income 1,046 604 188 254 (Decrease) increase in fee and other income$ (383 ) $ 604 $ 188$ (1,175 ) Total increase (decrease) in revenues$ 8,016 $ 7,589 $ 1,140$ (713 ) (1)
Primarily due to (i) higher occupancy at
38
--------------------------------------------------------------------------------Expenses
Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were$144,384,000 for the three months endedSeptember 30, 2022 , compared to$137,997,000 for the three months endedSeptember 30, 2021 , an increase of$6,387,000 . Below are the details of the increase or decrease by segment. (Amounts in thousands) Total New York San Francisco Other Operating Same store operations$ 5,727 $ 4,876 (1) $ 851 $ - Other, net (13 ) - - (13 )
Increase (decrease) in operating
851 $ (13 )
Depreciation and amortization
Operations $ 762 $ 1,940 $ (1,416 ) (2) $ 238
Increase (decrease) in depreciation and
amortization $ 762 $ 1,940 $ (1,416 ) $ 238
General and administrative
Mark-to-market of investments
in our deferred compensation plan $ 83 $ - $ - $ 83 (3)
Operations (190 ) - - (190 )
Decrease in general and
administrative $ (107 ) $ - $
-
Increase in transaction related costs
-
Total increase (decrease) in expenses
(565 ) $ 136
(1)
Primarily due to higher utilities and repairs and maintenance, which are
partially offset by higher expense reimbursements (see note 1 on page 38).
(2)
Primarily due to accelerated depreciation of tenant improvements in the prior
year's three months resulting from a tenant's lease termination at 300 Mission
Street .
(3)
Represents the mark-to-market of investments in our deferred compensation plan
liabilities in the prior year's three months, which is entirely offset by the
change in deferred compensation plan assets that is included in "interest and
other income, net" for the same period. In December 2021 , the deferred
compensation plan was terminated and the net proceeds were distributed to the
plan participants.
(Loss) Income from
Loss from unconsolidated joint ventures was
(Amounts in thousands)One Steuart Lane $ (4,879 ) (1) Other, net (1,141 )
Total decrease in income
(1)
Primarily due to lower gain on sale of residential condominium units at
Income from Unconsolidated Real Estate Funds
Income from unconsolidated real estate funds was
39
--------------------------------------------------------------------------------Interest and Other Income, net
Interest and other income was$1,580,000 for the three months endedSeptember 30, 2022 , compared to$138,000 for the three months endedSeptember 30, 2021 , an increase in income of$1,442,000 . This increase resulted from: (Amounts in thousands) Higher yields on short-term investments $
1,195
Mark-to-market of investments in our deferred compensation plan in 2021 (1) 83 Other, net 164 Total increase in income$ 1,442 (1) Represents the mark-to-market of investments in our deferred compensation plan assets in the prior year's three months, which is entirely offset by the change in deferred compensation plan liabilities that is included in "general and administrative" expenses for the same period. InDecember 2021 , the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants. Interest and Debt Expense Interest and debt expense was$36,949,000 for the three months endedSeptember 30, 2022 , compared to$36,266,000 for the three months endedSeptember 30, 2021 , an increase of$683,000 . This increase resulted primarily from higher interest on variable rate debt due to an increase in average LIBOR rates in the current year's three months compared to prior year's three months, partially offset by lower amortization of deferred financing costs in connection with the refinancing of1301 Avenue of the Americas inJuly 2021 .
Income Tax Expense
Income tax expense was$673,000 for the three months endedSeptember 30, 2022 , compared to$873,000 for the three months endedSeptember 30, 2021 , a decrease of$200,000 . This decrease resulted primarily from lower taxable income attributable to our taxable REIT subsidiaries in the current year's three months.
Net Income Attributable to Noncontrolling Interests in
Net income attributable to noncontrolling interests in consolidated joint
ventures was
Net Loss (Income) Attributable to Noncontrolling Interests in
Net loss attributable to noncontrolling interests in consolidated real estate fund was$1,309,000 for the three months endedSeptember 30, 2022 , compared to net income attributable to noncontrolling interests of$3,123,000 for the three months endedSeptember 30, 2021 , a decrease in income allocated to noncontrolling interest of$4,432,000 . This decrease in income resulted primarily from lower gain on sale of residential condominium units atOne Steuart Lane resulting from fewer units sold in the current year's three months.
Net Loss Attributable to Noncontrolling Interests in
Net loss attributable to noncontrolling interests in theOperating Partnership was$109,000 for the three months endedSeptember 30, 2022 , compared to$204,000 for the three months endedSeptember 30, 2021 , a decrease in loss allocated to noncontrolling interests of$95,000 . This decrease in loss resulted from lower net loss subject to allocation to the unitholders of theOperating Partnership for the three months endedSeptember 30, 2022 . 40 --------------------------------------------------------------------------------
Results of Operations - Nine Months Ended
The following pages summarize our consolidated results of operations for the
nine months ended
For the Nine Months Ended September 30,
(Amounts in thousands) 2022 2021 Change
Revenues:
Rental revenue $ 526,415 $ 518,625 $ 7,790
Fee and other income 29,934 23,941 5,993
Total revenues 556,349 542,566 13,783
Expenses:
Operating 207,320 197,821 9,499
Depreciation and amortization 171,306 175,752 (4,446 )
General and administrative 45,501 46,039 (538 )
Transaction related costs 381 503 (122 )
Total expenses 424,508 420,115 4,393
Other income (expense):
Loss from unconsolidated joint ventures (15,326 ) (20,810 ) 5,484
Income from unconsolidated real estate funds 625 604 21
Interest and other income, net 2,607 2,510 97
Interest and debt expense (106,804 ) (105,919 ) (885 )
Income (loss) before income taxes 12,943 (1,164 ) 14,107
Income tax expense (1,559 ) (2,448 ) 889
Net income (loss) 11,384 (3,612 ) 14,996Less net (income) loss attributable to noncontrolling
interests in:
Consolidated joint ventures (12,383 ) (16,924 ) 4,541
Consolidated real estate fund 2,677 (3,179 ) 5,856
Operating Partnership (204 ) 2,139 (2,343 )
Net income (loss) attributable to common stockholders $ 1,474 $ (21,576 ) $ 23,050
41--------------------------------------------------------------------------------
Revenues
Our revenues, which consist of rental revenue and fee and other income, were
(Amounts in thousands) Total New York San Francisco Other Rental revenue Same store operations$ 12,023 $ 18,454 (1)$ (6,431 ) (2) $ - Other, net (4,233 ) (415 ) (4,285 ) (3) 467 Increase (decrease) in rental revenue$ 7,790 $ 18,039 $ (10,716 ) $ 467 Fee and other income Fee income Asset management$ (1,037 ) $ - $ -$ (1,037 ) Property management (286 ) - - (286 ) Acquisition, disposition, (4) leasing and other 4,985 - - 4,985 Increase in fee income 3,662 - - 3,662 Other income Same store operations 2,331 1,227 841 263 Increase in other income 2,331 1,227 841 263 Increase in fee and other income$ 5,993 $ 1,227 $ 841$ 3,925 Total increase (decrease) in revenues$ 13,783 $ 19,266 $ (9,875 ) $ 4,392 (1) Primarily due to (i) higher occupancy at1301 Avenue of the Americas and31 West 52nd Street and (ii) higher expense reimbursements due to an increase in operating expenses (see note 1 on page 43). (2) Primarily due to lower occupancy in the current year. (3) Primarily due to income of$5,051 in the prior year's nine months, in connection with a tenant's lease termination at300 Mission Street . (4) Primarily due to fee income earned in connection with the acquisition of1600 Broadway inFebruary 2022 . 42
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Expenses
Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were$424,508,000 for the nine months endedSeptember 30, 2022 , compared to$420,115,000 for the nine months endedSeptember 30, 2021 , an increase of$4,393,000 . Below are the details of the increase or decrease by segment. (Amounts in thousands) Total New York San Francisco Other Operating Same store operations$ 9,127 $ 6,409 (1) $ 2,718 $ - Other, net 372 - - 372 Increase in operating$ 9,499 $ 6,409 $ 2,718$ 372 Depreciation and amortization Operations$ (4,446 ) $ 651 $ (5,264 ) (2)$ 167 (Decrease) increase in depreciation and amortization$ (4,446 ) $ 651 $ (5,264 ) $ 167 General and administrative Mark-to-market of investments in our deferred compensation$ (1,502 ) $ - $ -$ (1,502 ) (3) plan Operations 964 - - 964 Decrease in general and administrative$ (538 ) $ - $ -$ (538 ) Decrease in transaction related costs$ (122 ) $ - $ -$ (122 ) Total increase (decrease) in expenses$ 4,393 $ 7,060 $ (2,546 ) $ (121 ) (1) Primarily due to higher utilities and repairs and maintenance, which are partially offset by higher expense reimbursements (see note 1 on page 42). (2) Primarily due to accelerated depreciation of tenant improvements in the prior year's nine months resulting from a tenant's lease termination at300 Mission Street . (3) Represents the mark-to-market of investments in our deferred compensation plan liabilities in the prior year's nine months, which is entirely offset by the change in deferred compensation plan assets that is included in "interest and other income, net" for the same period. InDecember 2021 , the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants. 43
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Loss from
Loss from unconsolidated joint ventures was
712 Fifth Avenue$ 10,697 (1) One Steuart Lane (6,441 ) (2) Other, net 1,228 Total decrease in loss$ 5,484
(1)
Primarily due to an$11,750 contribution in the prior year's nine months to the joint venture that owns712 Fifth Avenue that was expensed in accordance with GAAP. See Note 3, Investments inUnconsolidated Joint Ventures . (2) Primarily due to lower gain on sale of residential condominium units atOne Steuart Lane resulting from fewer units sold in the current year's nine months and lower loss in the prior year's nine months due to the capitalization of expenses atOne Steuart Lane (which was under development during the first half of last year).
Income from Unconsolidated Real Estate Funds
Income from unconsolidated real estate funds was
Interest and Other Income, net
Interest and other income was$2,607,000 for the nine months endedSeptember 30, 2022 , compared to$2,510,000 for the nine months endedSeptember 30, 2021 , an increase in income of$97,000 . This increase resulted from: (Amounts in thousands) Higher yields on short-term investments $
1,692
Mark-to-market of investments in our deferred compensation plan in 2021 (1) (1,502 ) Other, net (93 ) Total increase in income $ 97 (1) Represents the mark-to-market of investments in our deferred compensation plan assets in the prior year's nine months, which is entirely offset by the change in deferred compensation plan liabilities that is included in "general and administrative" expenses for the same period. InDecember 2021 , the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants. Interest and Debt Expense Interest and debt expense was$106,804,000 for the nine months endedSeptember 30, 2022 , compared to$105,919,000 for the nine months endedSeptember 30, 2021 , an increase of$885,000 . This increase resulted primarily from higher interest on variable rate debt due to an increase in average LIBOR rates in the current year's nine months compared to prior year's nine months, partially offset by lower amortization of deferred financing costs in connection with the refinancing of1301 Avenue of the Americas inJuly 2021 .
Income Tax Expense
Income tax expense was$1,559,000 for the nine months endedSeptember 30, 2022 , compared to$2,448,000 for the nine months endedSeptember 30, 2021 , a decrease of$889,000 . This decrease resulted primarily from lower taxable income attributable to our taxable REIT subsidiaries in the current year's nine months. 44 --------------------------------------------------------------------------------
Net Income Attributable to Noncontrolling Interests in
Net income attributable to noncontrolling interests in consolidated joint
ventures was
(Amounts in thousands) Lower income attributable to300 Mission Street ($2,141 of income in 2022, compared to$7,411 in 2021)$ (5,270 ) (1) Other, net 729 Total decrease in income attributable to noncontrolling interests$ (4,541 ) (1)
Primarily due to a decrease in occupancy in the current year's nine months and
Net Loss (Income) Attributable to Noncontrolling Interests in
Net loss attributable to noncontrolling interests in consolidated real estate fund was$2,677,000 for the nine months endedSeptember 30, 2022 , compared to net income attributable to noncontrolling interests in consolidated real estate fund of$3,179,000 for the nine months endedSeptember 30, 2021 , a decrease in income allocated to noncontrolling interest of$5,856,000 . This decrease resulted primarily from lower gain on sale of residential condominium units atOne Steuart Lane resulting from fewer units sold in the current year's nine months and a lower loss in the prior year's nine months due to the capitalization of expenses atOne Steuart Lane (which was under development during the first half of last year).
Net (Income) Loss Attributable to Noncontrolling Interests in
Net income attributable to noncontrolling interests in theOperating Partnership was$204,000 for the nine months endedSeptember 30, 2022 , compared to net loss attributable to noncontrolling interests of$2,139,000 for the nine months endedSeptember 30, 2021 , an increase in income allocated to noncontrolling interests of$2,343,000 . This increase in income resulted from higher net income subject to allocation to the unitholders of theOperating Partnership for the nine months endedSeptember 30, 2022 . 45 --------------------------------------------------------------------------------
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 ofSeptember 30, 2022 , we had$1.26 billion of liquidity comprised of$469,398,000 of cash and cash equivalents,$40,456,000 of restricted cash and$750,000,000 of borrowing capacity under our revolving credit facility. We expect that these sources will provide adequate liquidity over the next 12 months for all anticipated needs, including scheduled principal and interest payments on our outstanding indebtedness, existing and anticipated capital improvements, the cost of securing new and renewal leases, dividends to stockholders and distributions to unitholders, share repurchases 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 existing cash balances. 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 ofSeptember 30, 2022 , our outstanding consolidated debt aggregated$3.86 billion . We had no amounts outstanding under our revolving credit facility and we have no debt maturing untilOctober 2023 . We may refinance our maturing debt when it comes due or repay it early depending on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements. Revolving Credit Facility Our$750,000,000 revolving credit facility matures inMarch 2026 and has two six-month extension options. The interest rate on the facility is 115 basis points over the Secured Overnight Financing Rate ("SOFR") with adjustments based on the terms of advances, plus a facility fee of 20 basis points. The facility also features a sustainability-linked pricing component such that if we meet certain sustainability performance targets, the applicable per annum interest rate will be reduced by one basis point. The facility contains certain restrictions and covenants that require us to maintain, on an ongoing basis, (i) a leverage ratio not to exceed 60%, which may be increased to 65% for any fiscal quarter in which an acquisition of real estate is completed, and for up to the next three subsequent consecutive fiscal quarters, (ii) a secured leverage ratio not to exceed 50%, (iii) a fixed coverage ratio of at least 1.50, (iv) an unsecured leverage ratio to not to exceed 60%, which may be increased to 65% for any fiscal quarter in which an acquisition of real estate is completed, and for up to the next three subsequent consecutive fiscal quarters and (v) an unencumbered interest coverage ratio of at least 1.75. The facility also contains customary representations and warranties, limitations on permitted investments and other covenants.
Dividend Policy
OnSeptember 15, 2022 , we declared a quarterly cash dividend of$0.0775 per share of common stock for the third quarter endedSeptember 30, 2022 , which was paid onOctober 14, 2022 to stockholders of record as of the close of business onSeptember 30, 2022 . This dividend policy, if continued, would require us to pay out approximately$18,300,000 each quarter to common stockholders and unitholders.
Off Balance Sheet Arrangements
As ofSeptember 30, 2022 , our unconsolidated joint ventures had$1.74 billion of outstanding indebtedness, of which our share was$623,785,000 . In 2023,$105,508,000 , representing our share of unconsolidated debt, is scheduled to mature. We do not guarantee the indebtedness of our unconsolidated joint ventures other than providing customary environmental indemnities and guarantees of non-recourse carve-outs; however, we may elect to fund additional capital to a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans in order to enable the joint venture to repay this indebtedness upon maturity. 46 --------------------------------------------------------------------------------
Stock Repurchase Program
OnNovember 5, 2019 , we received authorization from our Board of Directors to repurchase up to$200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. During 2022, we repurchased 6,498,232 common shares at a weighted average price of$6.41 per share, or$41,674,000 in the aggregate, of which 3,237,392 shares were repurchased in the three months endedSeptember 30, 2022 at a weighted average price of$6.58 per share, or$21,313,000 in the aggregate, and the remaining 3,260,840 shares were repurchased inOctober 2022 at a weighted average price of$6.24 per share, or$20,361,000 in the aggregate. During 2020, we repurchased 13,813,158 common shares at a weighted average price of$8.69 per share, or$120,000,000 in the aggregate. Accordingly, we have$38,326,000 available for future repurchases under the existing program. The amount and timing of future repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.
Insurance
We carry commercial general liability coverage on our properties, with limits of liability customary within the industry. Similarly, we are insured against the risk of direct and indirect physical damage to our properties including coverage for the perils such as floods, earthquakes and windstorms. Our policies also cover the loss of rental income during an estimated reconstruction period. Our policies reflect limits and deductibles customary in the industry and specific to the buildings and portfolio. We also obtain title insurance policies when acquiring new properties. We currently have coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. While we do carry commercial general liability insurance, property insurance and terrorism insurance with respect to our properties, these policies include limits and terms we consider commercially reasonable. In addition, there are certain losses (including, but not limited to, losses arising from known environmental conditions or acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. We believe the policy specifications and insured limits are adequate given the relative risk of loss, the cost of the coverage and industry practice and, in consultation with our insurance advisors, we believe the properties in our portfolio are adequately insured.
Other Commitments and Contingencies
We are a party to various claims and routine litigation arising in the ordinary course of business. Some of these claims or others to which we may be subject from time to time, including claims arising specifically from the formation transactions, in connection with our initial public offering, may result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured could have an adverse impact on our financial position and results of operations. Should any litigation arise in connection with the formation transactions, we would contest it vigorously. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flow, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors. The terms of our mortgage debt agreements in place include certain restrictions and covenants which may limit, among other things, certain investments, the incurrence of additional indebtedness and liens and the disposition or other transfer of assets and interests in the borrower and other credit parties, and require compliance with certain debt yield, debt service coverage and loan to value ratios. In addition, our revolving credit facility contains representations, warranties, covenants, other agreements and events of default customary for agreements of this type with comparable companies. As ofSeptember 30, 2022 , we believe we are in compliance with all of our covenants.
Transfer Tax Assessments
During 2017, theNew York City Department of Finance issued Notices of Determination ("Notices") assessing additional transfer taxes (including interest and penalties) in connection with the transfer of interests in certain properties during our 2014 initial public offering. We believe, after consultation with legal counsel that the likelihood of a loss is reasonably possible, and while it is not possible to predict the outcome of these Notices, we estimate the range of loss could be between$0 and$55,800,000 . Since no amount in this range is a better estimate than any other amount within the range, we have not accrued any liability arising from potential losses relating to these Notices in our consolidated financial statements.
Inflation
Substantially all of our leases provide for separate real estate tax and
operating expense escalations. In addition, many of the leases provide for fixed
base rent increases. We believe inflationary increases in expenses may be at
least partially offset by the contractual rent increases and expense escalations
described above. We do not believe inflation has had a material impact on our
historical financial position or results of operations.
47
--------------------------------------------------------------------------------Cash Flows
Cash and cash equivalents and restricted cash were$509,854,000 and$529,666,000 as ofSeptember 30, 2022 andDecember 31, 2021 , respectively, and$522,546,000 and$465,324,000 as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. Cash and cash equivalents and restricted cash decreased by$19,812,000 for the nine months endedSeptember 30, 2022 and increased by$57,222,000 for the nine months endedSeptember 30, 2021 . The following table sets forth the changes in cash flow. For the Nine Months Ended September 30, (Amounts in thousands) 2022 2021 Net cash provided by (used in): Operating activities $ 174,417 $ 188,060 Investing activities (85,672 ) (88,380 ) Financing activities (108,557 ) (42,458 ) Operating Activities Nine months endedSeptember 30, 2022 - We generated$174,417,000 of cash from operating activities for the nine months endedSeptember 30, 2022 , primarily from (i)$209,545,000 of net income (before$198,161,000 of non-cash adjustments) and (ii)$658,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii)$35,786,000 of net changes in operating assets and liabilities. Non-cash adjustments of$198,161,000 were primarily comprised of depreciation and amortization, straight-lining of rental revenue, amortization of above and below-market leases, net and amortization of stock-based compensation. Nine months endedSeptember 30, 2021 - We generated$188,060,000 of cash from operating activities for the nine months endedSeptember 30, 2021 , primarily from (i)$204,872,000 of net income (before$208,484,000 of non-cash adjustments) and (ii)$4,485,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii)$21,297,000 of net changes in operating assets and liabilities. Non-cash adjustments of$208,484,000 were primarily comprised of depreciation and amortization, straight-lining of rental revenue, amortization of above and below-market leases and amortization of stock-based compensation.
Investing Activities
Nine months endedSeptember 30, 2022 - We used$85,672,000 of cash for investing activities for the nine months endedSeptember 30, 2022 , primarily for (i)$71,284,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements, (ii)$11,252,000 for investments in an unconsolidated joint venture, and (iii)$3,136,000 of contributions of capital to unconsolidated real estate funds, net of distributions received. Nine months endedSeptember 30, 2021 - We used$88,380,000 of cash for investing activities for the nine months endedSeptember 30, 2021 , primarily for (i)$74,134,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements, (ii)$11,750,000 of contributions to an unconsolidated joint venture and (iii)$3,257,000 of net purchases of marketable securities (which are held in our deferred compensation plan), partially offset by (iv)$761,000 of distributions of capital from unconsolidated real estate funds, net of contributions made.
Financing Activities
Nine months endedSeptember 30, 2022 - We used$108,557,000 of cash for financing activities for the nine months endedSeptember 30, 2022 , primarily for (i)$54,459,000 for dividends and distributions to common stockholders and unitholders, (ii)$33,814,000 for distributions to noncontrolling interests, (iii)$20,000,000 for the repurchases of common shares and (iv)$284,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings. Nine months endedSeptember 30, 2021 - We used$42,458,000 of cash for financing activities for the nine months endedSeptember 30, 2021 , primarily for (i)$850,000,000 for the repayment of notes and mortgages payable in connection with the refinancing of1301 Avenue of the Americas , (ii)$50,582,000 for dividends and distributions to common stockholders and unitholders, (iii)$19,616,000 for distributions to noncontrolling interests, (iv)$10,593,000 for the payment of debt issuance costs in connection with the refinancing of1301 Avenue of the Americas , (v)$214,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings, and (vi)$140,000 for the purchase of interest rate caps, partially offset by (vii)$888,566,000 of proceeds from notes and mortgages payable (including$860,000,000 from the refinancing of1301 Avenue of the Americas ) and (viii)$121,000 of contributions from noncontrolling interests. 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.
Net Operating Income ("NOI")
We use NOI to measure the operating performance of our properties. NOI consists of rental revenue (which includes property rentals, tenant reimbursements and lease termination income) and certain other property-related revenue less operating expenses (which includes property-related expenses such as cleaning, security, repairs and maintenance, utilities, property administration and real estate taxes). We also present Cash NOI, which deducts from NOI, straight-line rent adjustments and the amortization of above and below-market leases, including our share of such adjustments of unconsolidated joint ventures. In addition, we presentParamount's share of NOI and Cash NOI which represents our share of NOI and Cash NOI of consolidated and unconsolidated joint ventures, based on our percentage ownership in the underlying assets. We use NOI and Cash NOI internally as performance measures and believe they provide useful information to investors regarding our financial condition and results of operations because they reflect only those income and expense items that are incurred at property level. The following tables present reconciliations of net income or loss to NOI and Cash NOI for the three and nine months endedSeptember 30, 2022 and 2021. For the Three Months Ended September 30, 2022 (Amounts in thousands) Total New York San Francisco Other Reconciliation of net income (loss) to NOI and Cash NOI: Net income (loss)$ 1,224 $ 2,701 $ 10,276 $ (11,753 ) Add (subtract) adjustments to arrive at NOI and Cash NOI: Depreciation and amortization 58,284 39,155 17,918 1,211 General and administrative 13,150 - - 13,150 Interest and debt expense 36,949 23,392 12,794 763 Income tax expense 673 5 - 668 NOI from unconsolidated joint ventures (excluding One Steuart Lane) 11,540 3,556 7,837 147 Loss (income) from unconsolidated joint ventures 5,797 (7 ) 4,384 1,420 Fee income (5,132 ) - - (5,132 ) Interest and other income, net (1,580 ) (236 ) (201 ) (1,143 ) Other, net (195 ) - - (195 ) NOI 120,710 68,566 53,008 (864 ) Less NOI attributable to noncontrolling interests in: Consolidated joint ventures (21,222 ) (2,383 ) (18,839 ) - Paramount's share of NOI$ 99,488 $ 66,183 $ 34,169 $ (864 ) NOI$ 120,710 $ 68,566 $ 53,008 $ (864 ) Less: Straight-line rent adjustments (including our share of unconsolidated joint ventures) (3,969 ) 1,514 (5,453 ) (30 ) Amortization of above and below-market leases, net (including our share of unconsolidated joint ventures) (790 ) 708 (1,498 ) - Cash NOI 115,951 70,788 46,057 (894 ) Less Cash NOI attributable to noncontrolling interests in: Consolidated joint ventures (19,988 ) (2,775 ) (17,213 ) -
28,844 $ (894 )
49--------------------------------------------------------------------------------
For the Three Months Ended September 30, 2021
(Amounts in thousands) Total New York San Francisco Other
Reconciliation of net income (loss)
to NOI and Cash NOI:
Net income (loss) $ 4,632 $ 3,063 $ 9,204 $ (7,635 )
Add (subtract) adjustments to arrive
at NOI and Cash NOI:
Depreciation and amortization 57,522 37,215 19,334 973
General and administrative 13,257 - - 13,257
Interest and debt expense 36,266 22,458 12,760 1,048
Income tax expense 873 7 1 865
NOI from unconsolidated joint
ventures (excluding
One Steuart Lane) 11,627 2,875 8,665 87
(Income) loss from unconsolidated
joint ventures (223 ) (449 ) 3,615 (3,389 )
Fee income (6,561 ) - - (6,561 )
Interest and other (income) loss, net (138 ) 3 (33 ) (108 )
Other, net (189 ) - - (189 )
NOI 117,066 65,172 53,546 (1,652 )
Less NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (21,809 ) (2,573 ) (19,236 ) -
Paramount's share of NOI $ 95,257 $ 62,599 $ 34,310 $ (1,652 )
NOI $ 117,066 $ 65,172 $ 53,546 $ (1,652 )
Less:
Straight-line rent adjustments
(including our share
of unconsolidated joint ventures) 1,260 1,848 (558 ) (30 )
Amortization of above and
below-market leases, net
(including our share of
unconsolidated joint ventures) (1,622 ) 406 (2,028 ) -
Cash NOI 116,704 67,426 50,960 (1,682 )
Less Cash NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (21,174 ) (2,635 ) (18,539 ) -
32,421 $ (1,682 )
50--------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2022
(Amounts in thousands) Total New York San Francisco Other
Reconciliation of net income (loss)
to NOI and Cash NOI:
Net income (loss) $ 11,384 $ 18,732 $ 27,705 $ (35,053 )
Add (subtract) adjustments to arrive
at NOI and Cash NOI:
Depreciation and amortization 171,306 115,439 52,782 3,085
General and administrative 45,501 - - 45,501
Interest and debt expense 106,804 66,465 38,054 2,285
Income tax expense 1,559 7 4 1,548
NOI from unconsolidated joint
ventures (excluding
One Steuart Lane) 34,359 9,902 24,162 295
Loss (income) from unconsolidated
joint ventures 15,326 (4 ) 12,164 3,166
Fee income (23,094 ) - - (23,094 )
Interest and other income, net (2,607 ) (282 ) (280 ) (2,045 )
Other, net (244 ) - - (244 )
NOI 360,294 210,259 154,591 (4,556 )
Less NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (63,340 ) (7,808 ) (55,532 ) -
Paramount's share of NOI $ 296,954 $ 202,451 $ 99,059 $ (4,556 )
NOI $ 360,294 $ 210,259 $ 154,591 $ (4,556 )
Less:
Straight-line rent adjustments
(including our share
of unconsolidated joint ventures) (8,288 ) 883 (9,201 ) 30
Amortization of above and
below-market leases, net
(including our share of
unconsolidated joint ventures) (3,115 ) 1,597 (4,712 ) -
Cash NOI 348,891 212,739 140,678 (4,526 )
Less Cash NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (61,194 ) (8,459 ) (52,735 ) -
87,943 $ (4,526 )
51--------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2021
(Amounts in thousands) Total New York San Francisco Other
Reconciliation of net (loss) income
to NOI and Cash NOI:
Net (loss) income $ (3,612 ) $ (3,021 ) $ 34,089 $ (34,680 )
Add (subtract) adjustments to arrive
at NOI and Cash NOI:
Depreciation and amortization 175,752 114,788 58,046 2,918
General and administrative 46,039 - - 46,039
Interest and debt expense 105,919 65,056 37,653 3,210
Income tax expense 2,448 12 5 2,431
NOI from unconsolidated joint
ventures (excluding
One Steuart Lane) 32,510 8,445 24,054 11
Loss (income) from unconsolidated
joint ventures 20,810 10,645 13,317 (3,152 )
Fee income (19,432 ) - - (19,432 )
Interest and other (income) loss, net (2,510 ) 20 (88 ) (2,442 )
Other, net (101 ) - - (101 )
NOI 357,823 195,945 167,076 (5,198 )
Less NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (70,767 ) (7,685 ) (63,082 ) -
Consolidated real estate fund 206 - - 206
Paramount's share of NOI $ 287,262 $ 188,260 $ 103,994 $ (4,992 )
NOI $ 357,823 $ 195,945 $ 167,076 $ (5,198 )
Less:
Straight-line rent adjustments
(including our share
of unconsolidated joint ventures) (9,800 ) 211 (10,041 ) 30
Amortization of above and
below-market leases, net
(including our share of
unconsolidated joint ventures) (5,087 ) 1,044 (6,131 ) -
Cash NOI 342,936 197,200 150,904 (5,168 )
Less Cash NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (64,313 ) (7,599 ) (56,714 ) -
Consolidated real estate fund 206 - - 206
94,190 $ (4,962 )
52--------------------------------------------------------------------------------
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 endedSeptember 30, 2022 and 2021. These metrics are used to measure the operating performance of our properties that were owned by us in a similar manner during both the current and prior reporting periods, and represents our share of Same Store NOI and Same Store Cash NOI from consolidated and unconsolidated joint ventures based on our percentage ownership in the underlying assets. Same Store NOI also excludes lease termination income, impairment of receivables arising from operating leases and certain other items that vary from period to period. Same Store Cash NOI excludes the effect of non-cash items such as the straight-line rent adjustments and the amortization of above and below-market leases. For the Three Months Ended September 30, 2022 (Amounts in thousands) Total New York San Francisco OtherParamount's share of NOI for the three months ended September 30, 2022 (1)$ 99,488 $ 66,183 $ 34,169 $ (864 ) Acquisitions / Redevelopment (2) (3) (155 ) (155 ) - - Other, net 2,893 2,029 - 864Paramount's share of Same Store NOI for the three months ended September 30, 2022$ 102,226 $ 68,057 $ 34,169 $ - For the Three Months Ended September 30, 2021 (Amounts in thousands) Total New York San Francisco OtherParamount's share of NOI for the three months ended September 30, 2021 (1)$ 95,257 $ 62,599 $ 34,310 $ (1,652 ) Acquisitions / Redevelopment (3) (693 ) (693 ) - - Lease termination income (33 ) (33 ) - - Other, net 1,642 - (10 ) 1,652Paramount's share of Same Store NOI for the three months ended September 30, 2021$ 96,173 $ 61,873 $
34,300 $ -
Increase (decrease) in Same Store
(131 ) $ -
NOI
% Increase (decrease) 6.3 % 10.0 % (0.4 %)
(1)
See page 49 "Non-GAAP Financial Measures - NOI" for a reconciliation to net
income or loss in accordance with GAAP and the reasons why we believe these
non-GAAP measures are useful.
(2)
Represents our share of NOI attributable to 1600 Broadway for the months in
which it was not owned by us in both reporting periods.
(3)
Represents our share of NOI attributable to 60 Wall Street which was taken
"out-of-service" for redevelopment.
53
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For the Three Months Ended September 30, 2022
(Amounts in thousands) Total New York San Francisco Other
Paramount's share of Cash NOI for
the three months
ended September 30, 2022 (1) $ 95,963 $ 68,013 $ 28,844 $ (894 )
Acquisitions / Redevelopment (2)
(3) (154 ) (154 ) - -
Other, net 894 - - 894
Paramount's share of Same Store
Cash NOI for the
three months ended September 30,
2022 $ 96,703 $ 67,859 $ 28,844 $ -
For the Three Months Ended September 30, 2021
(Amounts in thousands) Total New York San Francisco Other
Paramount's share of Cash NOI for
the three months
ended September 30, 2021 (1) $ 95,530 $ 64,791 $ 32,421 $ (1,682 )
Acquisitions / Redevelopment (3) (861 ) (861 ) - -
Lease termination income (33 ) (33 ) - -
Other, net 1,672 - (10 ) 1,682
Paramount's share of Same Store
Cash NOI for the
three months ended September 30,
2021 $ 96,308 $ 63,897 $ 32,411 $ -
Increase (decrease) in Same Store
(3,567 ) $ -
Cash NOI
% Increase (decrease) 0.4 % 6.2 % (11.0 %)
(1)
See page 49 "Non-GAAP Financial Measures - NOI" for a reconciliation to net
income or loss in accordance with GAAP and the reasons why we believe these
non-GAAP measures are useful.
(2)
Represents our share of Cash NOI attributable to 1600 Broadway for the months in
which it was not owned by us in both reporting periods.
(3)
Represents our share of Cash NOI attributable to 60 Wall Street which was taken
"out-of-service" for redevelopment.
54
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For the Nine Months Ended September 30, 2022
(Amounts in thousands) Total New York San Francisco Other
Paramount's share of NOI for the
nine months ended
September 30, 2022 (1) $ 296,954 $ 202,451 $ 99,059 $ (4,556 )
Acquisitions / Redevelopment (2)
(3) (366 ) (366 ) - -
Lease termination income (1,875 ) (1,875 ) - -
Other, net 6,470 2,135 (221 ) 4,556
Paramount's share of Same Store
NOI for the nine
months ended September 30, 2022 $ 301,183 $ 202,345 $ 98,838 $ -
For the Nine Months Ended September 30, 2021
(Amounts in thousands) Total New York San Francisco Other
Paramount's share of NOI for the
nine months ended
September 30, 2021 (1) $ 287,262 $ 188,260 $ 103,994 $ (4,992 )
Acquisitions / Redevelopment (3) (924 ) (924 ) - -
Lease termination income (1,745 ) (161 ) (1,584 ) -
Other, net 4,686 (103 ) (203 ) 4,992
Paramount's share of Same Store
NOI for the nine
months ended September 30, 2021 $ 289,279 $ 187,072 $ 102,207 $ -
Increase (decrease) in Same Store NOI$ 11,904 $ 15,273 $ (3,369 ) $ - % Increase (decrease) 4.1 % 8.2 % (3.3 %) (1) See page 49 "Non-GAAP Financial Measures - NOI" for a reconciliation to net income or loss in accordance with GAAP and the reasons why we believe these non-GAAP measures are useful. (2) Represents our share of NOI attributable to1600 Broadway for the months in which it was not owned by us in both reporting periods. (3) Represents our share of NOI attributable to60 Wall Street which was taken "out-of-service" for redevelopment. 55 --------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2022
(Amounts in thousands) Total New York San Francisco Other
Paramount's share of Cash NOI for
the nine months
ended September 30, 2022 (1) $ 287,697 $ 204,280 $ 87,943 $ (4,526 )
Acquisitions / Redevelopment (2)
(3) (396 ) (396 ) - -
Lease termination income (1,875 ) (1,875 ) - -
Other, net 4,105 (200 ) (221 ) 4,526
Paramount's share of Same Store
Cash NOI for the
nine months ended September 30,
2022 $ 289,531 $ 201,809 $ 87,722 $ -
For the Nine Months Ended September 30, 2021
(Amounts in thousands) Total New York San Francisco Other
Paramount's share of Cash NOI for
the nine months
ended September 30, 2021 (1) $ 278,829 $ 189,601 $ 94,190 $ (4,962 )
Acquisitions / Redevelopment (3) (1,148 ) (1,148 ) - -
Lease termination income (1,745 ) (161 ) (1,584 ) -
Other, net 4,507 (245 ) (210 ) 4,962
Paramount's share of Same Store
Cash NOI for the
nine months ended September 30,
2021 $ 280,443 $ 188,047 $ 92,396 $ -
Increase (decrease) in Same Store Cash NOI$ 9,088 $ 13,762 $ (4,674 ) $ - % Increase (decrease) 3.2 % 7.3 % (5.1 %) (1) See page 49 "Non-GAAP Financial Measures - NOI" for a reconciliation to net income or loss in accordance with GAAP and the reasons why we believe these non-GAAP measures are useful. (2) Represents our share of Cash NOI attributable to1600 Broadway for the months in which it was not owned by us in both reporting periods. (3) Represents our share of Cash NOI attributable to60 Wall Street which was taken "out-of-service" for redevelopment. 56 --------------------------------------------------------------------------------
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 theNational Association of Real Estate Investment Trusts ("Nareit"). Nareit defines FFO as net income or loss, calculated in accordance with GAAP, adjusted to exclude depreciation and amortization from real estate assets, impairment losses on certain real estate assets and gains or losses from the sale of certain real estate assets or from change in control of certain real estate assets, including our share of such adjustments of unconsolidated joint ventures. FFO is commonly used in the real estate industry to assist investors and analysts in comparing results of real estate companies because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. In addition, we present Core FFO as an alternative measure of our operating performance, which adjusts FFO for certain other items that we believe enhance the comparability of our FFO across periods. Core FFO, when applicable, excludes the impact of certain items, including, transaction related costs, realized and unrealized gains or losses on real estate fund investments, unrealized gains or losses on interest rate swaps, severance costs and gains or losses on early extinguishment of debt, in order to reflect the Core FFO of our real estate portfolio and operations. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results. FFO and Core FFO are presented as supplemental financial measures and do not fully represent our operating performance. Neither FFO nor Core FFO is intended to be a measure of cash flow or liquidity. Please refer to our consolidated financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations and cash flows.
The following table presents a reconciliation of net income (loss) to FFO and Core FFO for the periods set forth below.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(Amounts in thousands, except share 2022 2021 2022 2021
and per share amounts)
Reconciliation of net income (loss)
to FFO and Core FFO:
Net income (loss) $ 1,224 $ 4,632 $ 11,384 $ (3,612 )
Real estate depreciation and
amortization (including our
share of unconsolidated joint
ventures) 68,009 67,717 201,069 207,122
FFO 69,233 72,349 212,453 203,510
Less FFO attributable to
noncontrolling interests in:
Consolidated joint ventures (13,408 ) (13,895 ) (39,868 ) (47,422 )
Consolidated real estate fund 1,304 (3,127 ) 2,659 (3,183 )
Operating Partnership (3,763 ) (5,009 ) (13,683 ) (13,770 )
FFO attributable to common
stockholders $ 53,366 $ 50,318 $ 161,561 $ 139,135
Per diluted share $ 0.24 $ 0.23 $ 0.73 $ 0.64
FFO $ 69,233 $ 72,349 $ 212,453 $ 203,510
Non-core items:
Adjustments to equity in earnings
for contributions to
(distributions from) an
unconsolidated joint venture 709 (938 ) 294 8,977
FFO attributable to One Steuart
Lane , including after-tax
net gain on sale of residential
condominium units 1,509 (3,267 ) 3,283 (3,267 )
Non-cash write-off of deferred
financing costs - 761 - 761
Other, net 126 53 420 432
Core FFO 71,577 68,958 216,450 210,413
Less Core FFO attributable to
noncontrolling interests in:
Consolidated joint ventures (13,408 ) (13,895 ) (39,868 ) (47,422 )
Consolidated real estate fund (94 ) (9 ) (381 ) (65 )
Operating Partnership (3,826 ) (4,985 ) (13,741 ) (14,677 )
Core FFO attributable to common
stockholders $ 54,249 $ 50,069 $ 162,460 $ 148,249
Per diluted share $ 0.24 $ 0.23 $ 0.73 $ 0.68
Reconciliation of weighted average
shares outstanding:
Weighted average shares outstanding 224,864,791 218,706,356 222,228,605 218,689,696
Effect of dilutive securities 28,555 44,880 34,143 41,461
Denominator for FFO and Core FFO
per diluted share 224,893,346 218,751,236 222,262,748 218,731,157
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