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
and results of operations;
• unfavorable market and economic conditions in
and in
• risks associated with our high concentrations of properties in
and San Francisco ;
• risks associated with ownership of real estate;
• decreased rental rates or increased vacancy rates;
• the risk we may lose a major tenant;
• 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;
• failure to meet the restrictive covenants and requirements in our existing
debt agreements;
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• fluctuations in interest rates and increased costs to refinance or issue new
debt;
• risks associated with variable rate debt, derivatives or hedging activity;
• risks associated with the market for our common stock;
• regulatory changes, including changes to tax laws and regulations;
• failure to qualify as a real estate investment trust ("REIT");
• compliance with REIT requirements, which may cause us to forgo otherwise
attractive opportunities or liquidate certain of our investments; or
• any of the other risks included in this Quarterly Report on Form 10-Q or in
our Annual Report on Form 10-K for the year ended
including those set forth in Item 1A entitled "Risk Factors" in our Annual
Report on Form 10-K for the year ended December 31, 2019 and in this
Quarterly Report on Form 10-Q.
Accordingly, there is no assurance that our expectations will be realized.
Except as otherwise required by the U.S. federal securities laws, we disclaim
any obligations or undertaking to publicly release any updates or revisions to
any forward-looking statement contained herein (or elsewhere) to reflect any
change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based. A reader
should review carefully our consolidated financial statements and the notes
thereto, as well as Item 1A entitled "Risk Factors" in our Annual Report on Form
10-K for the year ended December 31, 2019 and in this Quarterly Report on Form
10-Q.
Critical Accounting Policies
There are no material changes to our critical accounting policies 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. 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 91.4%, of theOperating Partnership as ofJune 30, 2020 . 31
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COVID-19 Update InMarch 2020 , theWorld Health Organization declared COVID-19 a global pandemic. The outbreak of COVID-19 has caused, and continues to cause, severe disruptions in the global economy, and has adversely impacted businesses and financial markets, including that ofthe United States . Specifically,New York andSan Francisco , the markets in which we operate and where a majority of our assets are located, initially reacted by instituting quarantines, "pause" orders, "shelter-in-place" rules, restrictions on travel, and restriction on the types of business that could operate. These measures have had and continue to have a significant adverse impact on businesses. InJune 2020 ,New York andSan Francisco began their "re-opening" process by easing restrictions that were initially imposed and provided for a phased-in approach towards reopening that would enable businesses to operate. While some businesses inNew York have begun to operate, albeit with certain restrictions, in mid-July San Francisco announced an indefinite "pause" to all re-openings, including a closure of all "non-essential" businesses. As ofJune 30, 2020 , our portfolio consisted of 14 Class A properties aggregating 13.1 million square feet that was 95.6% leased, primarily to office tenants. The office tenants in our portfolio account for approximately 96.5% of our annualized rents and the remaining 3.5% is derived from non-office tenants (i.e. retail, parking garages and two theatres). During the three months endedJune 30, 2020 , we received several requests from tenants seeking "short-term" rent relief and have entered into agreements with select tenants (primarily retail) to defer a portion of their 2020 rental obligations. We continue to evaluate tenant requests on a case-by-case basis and are closely monitoring all rent collections. During the three months endedJune 30, 2020 , our portfolio-wide rent collections were 96.4%, including over 97.8% from office tenants and 57.6% from all other tenants. We continue to monitor the impact of COVID-19 on our business, our tenants and the industry as a whole. During the three and six months endedJune 30, 2020 , we recorded$11,309,000 of non-cash write-offs, primarily for straight-line rent receivables, and$2,051,000 of reserves for uncollectible accounts receivable. The rapid development and fluidity of this situation precludes us at this time from making any predictions as to the ultimate impact COVID-19 may have on our future financial condition, results of operations and cash flows. Dispositions1633 Broadway OnMay 27, 2020 , we completed the sale of a 10.0% interest in1633 Broadway , a 2.5 million square foot trophy office building located inNew York City . The transaction valued the property at$2.4 billion , or$960 per square foot and included the assumption of the existing$1.25 billion mortgage loan. Accordingly, we realized net proceeds of$111,984,000 from the sale after transaction costs.1899 Pennsylvania Avenue OnMarch 6, 2020 , we entered into an agreement to sell1899 Pennsylvania Avenue , a 191,000 square foot, unencumbered office building located inWashington, D.C. , for$115,000,000 . The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter of 2020. Stock Repurchase Program OnNovember 5, 2019 , we received authorization from our Board of Directors to repurchase up to an additional$200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. In the three months endedMarch 31, 2020 , we repurchased 10,856,865 common shares at a weighted average price of$9.21 per share, or$100,000,000 in the aggregate. We did not repurchase any shares in the three months endedJune 30, 2020 . As ofJuly 1, 2020 , we have$100,000,000 available for future repurchases under the existing program. The amount and timing of future repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume and general market conditions. The stock repurchase program may be suspended or discontinued at any time. 32
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Leasing Results - Three Months Ended
In the three months endedJune 30, 2020 , we leased 300,570 square feet, of which our share was 169,898 square feet that was leased at a weighted average initial rent of$93.47 per square foot. This leasing activity, offset by lease expirations in the three months decreased same store leased occupancy (properties owned by us during both reporting periods in a similar manner and not classified as discontinued operations) by 20 basis points to 95.7% atJune 30, 2020 from 95.9% atMarch 31, 2020 . Of the 300,570 square feet leased in the year, 159,548 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which we achieved rental rate increases of 24.2% on a cash basis and 19.2% on a GAAP basis. The weighted average lease term for leases signed during the three months was 4.2 years and weighted average tenant improvements and leasing commissions on these leases were$8.93 per square foot per annum, or 9.6% of initial rent.New York : In the three months endedJune 30, 2020 , we leased 51,890 square feet in ourNew York portfolio at a weighted average initial rent of$82.00 per square foot. This leasing activity, offset by lease expirations in the three months, caused our same store leased occupancy to remain at 95.3% leased atJune 30, 2020 , in-line with same store leased occupancy atMarch 31, 2020 . All of the 51,890 square feet leased in the three months represented second generation space for which rental rate increased by 0.3% on a cash basis and 2.7% on a GAAP basis. The weighted average lease term for leases signed during the three months was 5.3 years and weighted average tenant improvements and leasing commissions on these leases were$4.76 per square foot per annum, or 5.8% of initial rent.San Francisco : In the three months endedJune 30, 2020 , we leased 248,680 square feet in ourSan Francisco portfolio, of which our share was 118,008 square feet that was leased at a weighted average initial rent of$98.51 per square foot. This leasing activity, offset by lease expirations in the three months, decreased same store leased occupancy by 50 basis points to 96.9% atJune 30, 2020 from 97.4% atMarch 31, 2020 . Of the 248,680 square feet leased in the three months, 107,658 square feet represented our share of second generation space for which we achieved rental rate increases of 37.4% on a cash basis and 27.0% on a GAAP basis. The weighted average lease term for leases signed during the three months was 3.8 years and weighted average tenant improvements and leasing commissions on these leases were$11.46 per square foot per annum, or 11.6% of initial rent. 33
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The following table presents additional details on the leases signed during the
three months ended
Three Months Ended June 30, 2020 Total New York San Francisco
Total square feet leased 300,570 51,890 248,680
Pro rata share of total square feet leased: 169,898 51,890 118,008
Initial rent (1) $ 93.47 $ 82.00 $ 98.51
Weighted average lease term (in years) 4.2 5.3 3.8
Tenant improvements and leasing commissions:
Per square foot $ 37.89 $ 25.00 $ 43.56
Per square foot per annum $ 8.93 $ 4.76 $ 11.46
Percentage of initial rent 9.6 % 5.8 % 11.6 %
Rent concessions:
Average free rent period (in months) 2.7 3.0 2.5
Average free rent period per annum (in
months) 0.6 0.6 0.7
Second generation space: (2)
Square feet 159,548 51,890 107,658
Cash basis:
Initial rent (1) $ 92.72 $ 82.00 $ 97.89
Prior escalated rent (3) $ 74.67 $ 81.78 $ 71.25
Percentage increase 24.2 % 0.3 % 37.4 %
GAAP basis:
Straight-line rent $ 92.02 $ 78.10 $ 98.74
Prior straight-line rent $ 77.18 $ 76.01 $ 77.75
Percentage increase 19.2 % 2.7 % 27.0 %
(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 Total
As of June 30, 2020 95.7 % 95.3 % 96.9 %
As of March 31, 2020 95.9 % 95.3 % 97.4 %
34
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Leasing Results - Six Months Ended
In the six months endedJune 30, 2020 , we leased 507,354 square feet, of which our share was 295,966 square feet that was leased at a weighted average initial rent of$92.67 per square foot. This leasing activity, offset by lease expirations in the six months decreased same store leased occupancy (properties owned by us during both reporting periods in a similar manner and not classified as discontinued operations) by 20 basis points to 95.7% atJune 30, 2020 from 95.9% atDecember 31, 2019 . Of the 507,354 square feet leased in the year, 263,856 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which we achieved rental rate increases of 26.9% on a cash basis and 26.0% on a GAAP basis. The weighted average lease term for leases signed during the six months was 4.5 years and weighted average tenant improvements and leasing commissions on these leases were$8.04 per square foot per annum, or 8.7% of initial rent.New York : In the six months endedJune 30, 2020 , we leased 100,762 square feet in ourNew York portfolio, of which our share was 96,494 square feet that was leased at a weighted average initial rent of$77.95 per square foot. This leasing activity, offset by lease expirations in the six months, caused our same store leased occupancy to remain at 95.3% leased atJune 30, 2020 , in-line with same store leased occupancy atDecember 31, 2019 . Of the 100,762 square feet leased in the six months, 88,212 square feet represented our share of second generation space for which rental rate increased by 1.5% on a cash basis and 4.9% on a GAAP basis. The weighted average lease term for leases signed during the six months was 4.7 years and weighted average tenant improvements and leasing commissions on these leases were$6.04 per square foot per annum, or 7.7% of initial rent.San Francisco : In the six months endedJune 30, 2020 , we leased 406,592 square feet in ourSan Francisco portfolio, of which our share was 199,472 square feet that was leased at a weighted average initial rent of$99.79 per square foot. This leasing activity, offset by lease expirations in the six months, decreased same store leased occupancy by 60 basis points to 96.9% leased atJune 30, 2020 from 97.5% atDecember 31, 2019 . Of the 406,592 square feet leased in the six months, 175,644 square feet represented our share of second generation space for which we achieved rental rate increases of 40.0% on a cash basis and 35.9% on a GAAP basis. The weighted average lease term for leases signed during the six months was 4.4 years and weighted average tenant improvements and leasing commissions on these leases were$9.09 per square foot per annum, or 9.1% of initial rent. 35
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The following table presents additional details on the leases signed during the
six months ended
Six Months EndedJune 30, 2020 Total
Total square feet leased 507,354 100,762 406,592
Pro rata share of total square feet leased: 295,966 96,494 199,472
Initial rent (1) $ 92.67 $ 77.95 $ 99.79
Weighted average lease term (in years) 4.5 4.7 4.4
Tenant improvements and leasing commissions:
Per square foot $ 35.96 $ 28.34 $ 39.65
Per square foot per annum $ 8.04 $ 6.04 $ 9.09
Percentage of initial rent 8.7 % 7.7 % 9.1 %
Rent concessions:
Average free rent period (in months) 2.4 2.1 2.5
Average free rent period per annum (in
months) 0.5 0.4 0.6
Second generation space: (2)
Square feet 263,856 88,212 175,644
Cash basis:
Initial rent (1) $ 91.71 $ 75.06 $ 100.07
Prior escalated rent (3) $ 72.29 $ 73.93 $ 71.47
Percentage increase 26.9 % 1.5 % 40.0 %
GAAP basis:
Straight-line rent $ 91.67 $ 72.77 $ 101.17
Prior straight-line rent $ 72.74 $ 69.39 $ 74.43
Percentage increase 26.0 % 4.9 % 35.9 %
(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 Total
As of June 30, 2020 95.7 % 95.3 % 96.9 %
As of December 31, 2019 95.9 % 95.3 % 97.5 %
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Financial Results - Three Months Ended
Net Income, FFO and Core FFO Net loss attributable to common stockholders was$6,270,000 , or$0.03 per diluted share, for the three months endedJune 30, 2020 , compared to net income attributable to common stockholders of$2,455,000 , or$0.01 per diluted share, for the three months endedJune 30, 2019 . Net loss attributable to common stockholders for the three months endedJune 30, 2020 includes (i)$7,030,000 , or$0.03 per diluted share, of non-cash write-offs, primarily for straight-line rent receivables, and (ii)$1,775,000 , or$0.01 per diluted share, of reserves for uncollectible accounts receivable. Funds from Operations ("FFO") attributable to common stockholders was$50,663,000 , or$0.23 per diluted share, for the three months endedJune 30, 2020 , compared to$54,208,000 , or$0.23 per diluted share, for the three months endedJune 30, 2019 . FFO attributable to common stockholders for the three months endedJune 30, 2020 includes (i)$7,030,000 , or$0.03 per diluted share, of non-cash write-offs, primarily for straight-line rent receivables, and (ii)$1,775,000 , or$0.01 per diluted share, of reserves for uncollectible accounts receivable. In addition, FFO attributable to common stockholders for the three months endedJune 30, 2020 and 2019 includes the impact of non-core items, which are listed in the table on page 61. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, increased FFO attributable to common stockholders for the three months endedJune 30, 2020 and 2019 by$545,000 and$969,000 , 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 61, was$50,118,000 , or$0.23 per diluted share, for the three months endedJune 30, 2020 , compared to$53,239,000 , or$0.23 per diluted share, for the three months endedJune 30, 2019 . 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 endedJune 30, 2020 versusJune 30, 2019 . Total New York San Francisco Same Store NOI 0.9 % (3.4 %) 13.9 % Same Store Cash NOI (4.1 %) (6.6 %) 3.6 %
See pages 53-61 "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.
37
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Financial Results - Six Months Ended
Net Income, FFO and Core FFO Net loss attributable to common stockholders was$2,922,000 , or$0.01 per diluted share, for the six months endedJune 30, 2020 , compared to net income attributable to common stockholders of$6,164,000 , or$0.03 per diluted share, for the six months endedJune 30, 2019 . Net loss attributable to common stockholders for the six months endedJune 30, 2020 includes (i)$7,030,000 , or$0.03 per diluted share, of non-cash write-offs, primarily for straight-line rent receivables, and (ii)$1,775,000 , or$0.01 per diluted share, of reserves for uncollectible accounts receivable. Funds from Operations ("FFO") attributable to common stockholders was$112,249,000 , or$0.50 per diluted share, for the six months endedJune 30, 2020 , compared to$109,433,000 , or$0.47 per diluted share, for the six months endedJune 30, 2019 . FFO attributable to common stockholders for the six months endedJune 30, 2020 includes (i)$7,030,000 , or$0.03 per diluted share, of non-cash write-offs, primarily for straight-line rent receivables, and (ii)$1,775,000 , or$0.01 per diluted share, of reserves for uncollectible accounts receivable. In addition, FFO attributable to common stockholders for the six months endedJune 30, 2020 and 2019 includes the impact of non-core items, which are listed in the table on page 61. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, increased FFO attributable to common stockholders for the six months endedJune 30, 2020 by$622,000 , or$0.00 per diluted share, and decreased FFO attributable to common stockholders for the six months endedJune 30, 2019 by$919,000 , 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 61, was$111,627,000 , or$0.50 per diluted share, for the six months endedJune 30, 2020 , compared to$110,352,000 , or$0.47 per diluted share, for the six months endedJune 30, 2019 . Same Store Results The table below summarizes the percentage increase (decrease) in our share of Same Store NOI and Same Store Cash NOI, by segment, for the six months endedJune 30, 2020 versusJune 30, 2019 . Total New York San Francisco Same Store NOI 1.2 % (1.7 %) 10.2 % Same Store Cash NOI 0.1 % (1.2 %) 4.2 %
See pages 53-61 "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.
38
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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 June 30,
(Amounts in thousands) 2020 2019 Change
Revenues:
Rental revenue $ 163,989 $ 174,044 $ (10,055 )
Fee and other income 7,129 7,299 (170 )
Total revenues 171,118 181,343 (10,225 )Expenses:
Operating 64,313 64,736 (423 )
Depreciation and amortization 58,716 60,277 (1,561 )
General and administrative 17,901 17,695 206
Transaction related costs 258 182 76
Total expenses 141,188 142,890 (1,702 )Other income (expense):
Loss from unconsolidated joint ventures (5,955 ) (456 ) (5,499 )
Income from unconsolidated real estate funds 89 19 70
Interest and other income, net 2,252 2,583 (331 )
Interest and debt expense (36,009 ) (37,213 ) 1,204
(Loss) income from continuing operations, before
income taxes (9,693 ) 3,386 (13,079 )
Income tax expense (138 ) (268 ) 130
(Loss) income from continuing operations, net (9,831 ) 3,118 (12,949 )
Income from discontinued operations, net 2,147 2,056 91
Net (loss) income (7,684 ) 5,174 (12,858 )
Less net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures (405 ) (2,408 ) 2,003
Consolidated real estate fund 1,235 (53 ) 1,288
Operating Partnership 584 (258 ) 842Net (loss) income attributable to common stockholders $ (6,270 )
$ 2,455$ (8,725 ) 39
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Revenues
Our revenues, which consist primarily of rental revenue and fee and other
income, were
(Amounts in thousands) Total New York San Francisco Other Rental revenue Acquisitions / Dispositions $ - $ - $ - $ - Same store operations 3,620 (602 ) (1) 4,222 (2) - Non-cash write-offs (primarily straight-line rent receivables) (11,309 ) (5,400 ) (5,909 ) - Reserves for uncollectible accounts receivable (2,051 ) (1,019 ) (1,032 ) - Other, net (315 ) 114 (39 ) (390 ) Decrease in rental revenue$ (10,055 ) $ (6,907 ) $ (2,758 ) $ (390 ) Fee and other income Fee income Property management$ 640 $ - $ -$ 640 Asset management 1,281 - - 1,281 Other 75 - - 75 Increase in fee income 1,996 - - 1,996 Other income Acquisitions / Dispositions $ - $ - $ - $ - Same store operations (2,001 ) (1,155 ) (3) (846 ) (3) - Other, net (165 ) - - (165 ) Decrease in other income (2,166 ) (1,155 ) (846 ) (165 ) (Decrease) increase in fee and other income$ (170 ) $ (1,155 ) $ (846 )$ 1,831 Total (decrease) increase in revenues$ (10,225 ) $ (8,062 ) $ (3,604 ) $ 1,441
(1) Primarily due to lower occupancy at
(2) Primarily due to an increase in occupancy at
Street.
(3) Primarily due to lower income from tenant requested services, including
overtime heating and cooling.
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Expenses Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative and transaction related costs, were$141,188,000 for the three months endedJune 30, 2020 , compared to$142,890,000 for the three months endedJune 30, 2019 , a decrease of$1,702,000 . Below are the details of the (decrease) increase by segment. (Amounts in thousands) Total New York San Francisco Other Operating Acquisitions / Dispositions $ - $ - $ - $ - Same store operations (716 ) 709 (1,425 ) - Other, net 293 - - 293
(Decrease) increase in operating
(1,425 ) $ 293
Depreciation and amortization
Acquisitions / Dispositions $ - $ - $ - $ -
Operations (1,561 ) 1 (1,865 ) (1) 303
(Decrease) increase in depreciation
and amortization $ (1,561 ) $ 1 $ (1,865 ) $ 303
General and administrative
Mark-to-market of investments
in our deferred compensation plan $ 982 $ - $ - $ 982
Operations (776 ) - - (776 )
Increase in general and
administrative $ 206 $ - $ - $ 206 Increase in transaction related costs
-
Total (decrease) increase in expenses
(3,290 ) $ 878 (1) Primarily due to lower amortization of in-place lease assets at 300 Mission
Street due to the expiration of such leases.
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Loss from
In the three months endedJune 30, 2020 , we recognized a$5,955,000 net loss from unconsolidated joint ventures compared to$456,000 of net loss in the three months endedJune 30, 2019 , an increase in loss of$5,499,000 . This increase in loss resulted from: (Amounts in thousands) Net loss attributable to recently acquired properties (1)$ 3,732 (2) Other, net 1,767 Total increase in net loss$ 5,499 (1) Represents net loss from properties acquired subsequent to June 30, 2019 (55 Second Street - acquired in August 2019 and Market Center - acquired in December 2019). (2) Results primarily from depreciation and amortization expense.
Income from Unconsolidated Real Estate Funds
Income from unconsolidated real estate funds was$89,000 for the three months endedJune 30, 2020 , compared to$19,000 for the three months endedJune 30, 2019 , an increase of$70,000 .
Interest and Other Income, net
Interest and other income was$2,252,000 for the three months endedJune 30, 2020 , compared to income of$2,583,000 for the three months endedJune 30, 2019 , a decrease in income of$331,000 . This decrease resulted from: (Amounts in thousands) Decrease in interest income (resulting from lower interest rates)$ (1,397 ) Increase in the value of investments in our deferred compensation plan (which is offset by an increase in "general and administrative") 982 Other, net 84 Total decrease$ (331 ) Interest and Debt Expense Interest and debt expense was$36,009,000 for the three months endedJune 30, 2020 , compared to$37,213,000 for the three months endedJune 30, 2019 , a decrease in expense of$1,204,000 . This decrease resulted primarily from (i) lower interest on variable rate debt due to a decrease in average LIBOR rates in the current year's three months compared to prior year's three months, partially offset by (ii) interest on$200,000,000 of borrowing under our revolving credit facility in the current year's three months. Income Tax Expense Income tax expense was$138,000 for the three months endedJune 30, 2020 , compared to$268,000 for the three months endedJune 30, 2019 , a decrease of$130,000 . This decrease was primarily due to lower taxable income on our taxable REIT subsidiaries in the current year's three months. 42 --------------------------------------------------------------------------------
Income from Discontinued Operations
Income from discontinued operations was$2,147,000 for the three months endedJune 30, 2020 , compared to$2,056,000 for the three months endedJune 30, 2019 , an increase of$91,000 . This increase resulted from: (Amounts in thousands)1899 Pennsylvania Avenue ($2,147 of income in 2020 compared to
(1)
$1,079 in 2019) $
1,068
Liberty Place (sold in September 2019) (977 )
Total increase $ 91
(1) Primarily due to lower depreciation and amortization expense
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
(Amounts in thousands)
Lower income attributable to
compared to income of$410 in 2019) $
(3,146 ) (1)
Higher income attributable to
compared to income of$2,041 in 2019) 1,600 (2) Other, net (457 ) Total decrease$ (2,003 ) (1) Primarily due to the non-cash write-off of straight-line rent receivables in the current year's three months. (2) Primarily due to higher occupancy in the current year's three months.
Net Loss (Income) Attributable to Noncontrolling Interests in
Net loss attributable to noncontrolling interests in consolidated real estate fund was$1,235,000 for the three months endedJune 30, 2020 , compared to net income attributable to noncontrolling interests in consolidated real estate fund of$53,000 for the three months endedJune 30, 2019 , a decrease in income allocated to noncontrolling interest of$1,288,000 .
Net Loss (Income) Attributable to Noncontrolling Interests in
Net loss attributable to noncontrolling interests inOperating Partnership was$584,000 for the three months endedJune 30, 2020 , compared to net income attributable to noncontrolling interests inOperating Partnership of$258,000 for the three months endedJune 30, 2019 , a decrease in income attributable to noncontrolling interests of$842,000 . This decrease resulted from lower net income subject to allocation to the unitholders of the operating partnership for the three months endedJune 30, 2020 . 43 --------------------------------------------------------------------------------
Results of Operations - Six Months Ended
The following pages summarize our consolidated results of operations for the six
months ended
For the Six Months Ended June 30,
(Amounts in thousands) 2020 2019 Change
Revenues:
Rental revenue $ 339,414 $ 349,385 $ (9,971 )
Fee and other income 15,690 16,347 (657 )
Total revenues 355,104 365,732 (10,628 )Expenses:
Operating 131,327 130,197 1,130
Depreciation and amortization 117,143 120,989 (3,846 )
General and administrative 30,150 35,138 (4,988 )
Transaction related costs 461 918 (457 )
Total expenses 279,081 287,242 (8,161 )Other income (expense):
Loss from unconsolidated joint ventures (10,176 ) (1,483 ) (8,693 )
Income from unconsolidated real estate funds 141 65 76
Interest and other income, net 1,256 6,483 (5,227 )
Interest and debt expense (72,628 ) (74,137 ) 1,509
(Loss) income from continuing operations, before
income taxes (5,384 ) 9,418 (14,802 )
Income tax expense (742 ) (1,406 ) 664
(Loss) Income from continuing operations, net (6,126 ) 8,012 (14,138 )
Income from discontinued operations, net 3,668 4,162 (494 )
Net (loss) income (2,458 ) 12,174 (14,632 )
Less net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures (1,919 ) (5,202 ) 3,283
Consolidated real estate fund 1,212 (147 ) 1,359
Operating Partnership 243 (661 ) 904Net (loss) income attributable to common stockholders $ (2,922 )
$ 6,164$ (9,086 ) 44
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Revenues Our revenues, which consist primarily of rental revenue and fee and other income, were$355,104,000 for the six months endedJune 30, 2020 , compared to$365,732,000 for the six months endedJune 30, 2019 , a decrease of$10,628,000 . Below are the details of the (decrease) increase by segment. (Amounts in thousands) Total New York San Francisco Other Rental revenue Acquisitions / Dispositions $ - $ - $ - $ - Same store operations 4,743 1,275 (1) 3,468 (2) - Non-cash write-offs (primarily straight-line rent receivables) (11,309 ) (5,400 ) (5,909 ) - Reserves for uncollectible accounts receivable (2,051 ) (1,019 ) (1,032 ) - Other, net (1,354 ) (620 ) (18 ) (716 ) Decrease in rental revenue$ (9,971 ) $ (5,764 ) $ (3,491 ) $ (716 ) Fee and other income Fee income Property management$ 1,448 $ - $ -$ 1,448 Asset management 2,484 - - 2,484 Acquisition, disposition and leasing (1,331 ) - - (1,331 ) Other (274 ) - - (274 ) Increase in fee income 2,327 - - 2,327 Other income Acquisitions / Dispositions - - - - Same store operations (2,984 ) (1,817 ) (3) (630 ) (3) (537 ) Decrease in other income (2,984 ) (1,817 ) (630 ) (537 ) (Decrease) increase in fee and other income$ (657 ) $ (1,817 ) $ (630 )$ 1,790 Total (decrease) increase in revenues$ (10,628 ) $ (7,581 ) $ (4,121 ) $ 1,074
(1) Primarily due to an increase in occupancy at
the
(2) Primarily due to an increase in occupancy at
Street, partially offset by lower occupancy at
(3) Primarily due to lower income from tenant requested services, including
overtime heating and cooling.
45
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Expenses Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative and transaction related costs, were$279,081,000 for the six months endedJune 30, 2020 , compared to$287,242,000 for the six months endedJune 30, 2019 , a decrease of$8,161,000 . Below are the details of the (decrease) increase by segment. (Amounts in thousands) Total New York San Francisco Other Operating Acquisitions / Dispositions $ - $ - $ - $ - Same store operations 783 1,635 (1) (852 ) - Other, net 347 - - 347
Increase (decrease) in operating
(852 ) $ 347
Depreciation and amortization
Acquisitions / Dispositions $ - $ - $ - $ -
Operations (3,846 ) (4 ) (4,429 ) (2) 587
(Decrease) increase in depreciation
and amortization $ (3,846 ) $ (4 ) $ (4,429 ) $ 587
General and administrative
Mark-to-market of investments
in our deferred compensation plan $ (3,071 ) - $ - $ (3,071 ) (3)
Operations (1,917 ) - - (1,917 ) (4)
Decrease in general
and administrative $ (4,988 ) $ - $ - $ (4,988 )
Decrease in transaction related
costs $ (457 ) $ - $ - $ (457 )
Total (decrease) increase in
expenses $ (8,161 ) $ 1,631 $ (5,281 ) $ (4,511 ) (1) Primarily due to higher real estate taxes.
(2) Primarily due to lower amortization of in-place lease assets at 300 Mission
Street due to the expiration of such leases.
(3) Represents the change in the mark-to-market of investments in our deferred
compensation plan liabilities. This change is entirely offset by the change
in plan assets which is included in "interest and other (loss) income, net".
(4) Primarily due to lower stock-based compensation expense.
46
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Loss from
In the six months endedJune 30, 2020 , we recognized a$10,176,000 net loss from unconsolidated joint ventures compared to$1,483,000 of net loss in the six months endedJune 30, 2019 , an increase in loss of$8,693,000 . This increase in loss resulted from: (Amounts in thousands) Net loss attributable to recently acquired properties (1)$ 7,270 (2) Other, net 1,423 Total increase in net loss$ 8,693 (1) Represents net loss from properties acquired subsequent to June 30, 2019 (55 Second Street - acquired in August 2019 and Market Center - acquired in December 2019). (2) Results primarily from depreciation and amortization expense.
Income from Unconsolidated Real Estate Funds
Income from unconsolidated real estate funds was$141,000 for the six months endedJune 30, 2020 , compared to$65,000 for the six months endedJune 30, 2019 , an increase of$76,000 .
Interest and Other Income, net
Interest and other income was
(Amounts in thousands) Decrease in the value of investments in our deferred compensation plan (which
is offset by a decrease in "general and administrative")$ (3,071 ) Decrease in interest income (resulting from lower interest rates) (1,855 ) Other, net (301 ) Total decrease$ (5,227 )
Interest and Debt Expense
Interest and debt expense was$72,628,000 for the six months endedJune 30, 2020 , compared to$74,137,000 for the six months endedJune 30, 2019 , a decrease in expense of$1,509,000 . This decrease resulted primarily from (i) lower interest on variable rate debt due to a decrease in average LIBOR rates in the current year's six months compared to prior year's six months, partially offset by (ii) interest on$200,000,000 of borrowing under our revolving credit facility in the current year's six months. Income Tax Expense Income tax expense was$742,000 for the six months endedJune 30, 2020 , compared to$1,406,000 for the six months endedJune 30, 2019 , a decrease of$664,000 . This decrease was primarily due to lower taxable income on our taxable REIT subsidiaries in the current year's six months. 47
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Income from Discontinued Operations
Income from discontinued operations was
(Amounts in thousands) Liberty Place (sold in September 2019)$ (1,952 ) 1899 Pennsylvania Avenue ($3,668 of income in 2020 compared to (1)$2,210 in 2019) 1,458 Total decrease$ (494 ) (1) Primarily due to lower depreciation and amortization expense in the current year's six months.
Net Income Attributable to Noncontrolling Interests in
Net income attributable to noncontrolling interests in consolidated joint
ventures was
(Amounts in thousands)
Lower income attributable to
compared to income of$899 in 2019) $
(4,719 ) (1)
Higher income attributable to
compared to income of$4,003 in 2019) 2,236 (2) Other, net (800 ) Total decrease$ (3,283 ) (1) Primarily due to the non-cash write-off of straight-line rent receivables and lower occupancy in the current year's six months. (2) Primarily due to higher occupancy in the current year's six months.
Net Loss (Income) Attributable to Noncontrolling Interests in
Net loss attributable to noncontrolling interests in consolidated real estate fund was$1,212,000 for the six months endedJune 30, 2020 , compared to net income attributable to noncontrolling interests in consolidated real estate fund of$147,000 for the six months endedJune 30, 2019 , a decrease in income allocated to noncontrolling interest of$1,359,000 .
Net Loss (Income) Attributable to Noncontrolling Interests in
Net loss attributable to noncontrolling interests inOperating Partnership was$243,000 for the six months endedJune 30, 2020 , compared to net income attributable to noncontrolling interests inOperating Partnership of$661,000 for the six months endedJune 30, 2019 , a decrease in income attributable to noncontrolling interests of$904,000 . This decrease resulted from lower net income subject to allocation to the unitholders of the operating partnership for the six months endedJune 30, 2020 . 48
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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. We expect that these sources will provide adequate liquidity over the next 12 months for all anticipated needs, including scheduled principal and interest payments on our outstanding indebtedness, existing and anticipated capital improvements, the cost of securing new and renewal leases, dividends to stockholders and distributions to unitholders, and all other capital needs related to the operations of our business. We anticipate that our long-term needs including debt maturities and the acquisition of additional properties will be funded by operating cash flow, mortgage financings and/or re-financings, the issuance of long-term debt or equity and cash on hand.
Although we may be able to anticipate and plan for certain of our liquidity needs, unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise, or our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or required.
As ofJune 30, 2020 , we had$1.36 billion of liquidity comprised of$522,502,000 of cash and cash equivalents,$33,957,000 of restricted cash and$800,000,000 of borrowing capacity under our revolving credit facility. As ofJune 30, 2020 , our outstanding consolidated debt aggregated$4.0 billion , including$200,000,000 outstanding under our revolving credit facility. None of our debt matures untilNovember 2021 . We may refinance our maturing debt when it comes due or refinance 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$1.0 billion revolving credit facility matures inJanuary 2022 and has two six-month extension options. The interest rate on the facility, at current leverage levels, is LIBOR plus 115 basis points and has a 20 basis points facility fee. We also have an option, subject to customary conditions and incremental lender commitments, to increase the capacity under the facility to$1.5 billion at any time prior to the maturity date of the facility. The facility contains certain restrictions and covenants that require us to maintain, on an ongoing basis, (i) a leverage ratio not to exceed 60%, however, the leverage ratio 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 charge coverage ratio of at least 1.50, (iv) an unsecured leverage ratio not to exceed 60%, however, the unsecured leverage ratio 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 OnJune 15, 2020 , we declared a regular quarterly cash dividend of$0.10 per share of common stock for the second quarter endingJune 30, 2020 , which was paid onJuly 15, 2020 to stockholders of record as of the close of business onJune 30, 2020 . This dividend policy, if continued, would require us to pay out approximately$24,300,000 each quarter to common stockholders and unitholders. 49
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Off Balance Sheet Arrangements
As ofJune 30, 2020 , our unconsolidated joint ventures had$1.63 billion of outstanding indebtedness, of which our share was$604,469,000 . We do not guarantee the indebtedness of our unconsolidated joint ventures other than providing customary environmental indemnities and guarantees of specified non-recourse carve outs relating to specified covenants and representations; however, we may elect to fund additional capital to a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans in order to enable the joint venture to repay this indebtedness upon maturity. Stock Repurchase Program OnNovember 5, 2019 , we received authorization from our Board of Directors to repurchase up to an additional$200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. In the three months endedMarch 31, 2020 , we repurchased 10,856,865 common shares at a weighted average price of$9.21 per share, or$100,000,000 in the aggregate. We did not repurchase any shares in the three months endedJune 30, 2020 . As ofJuly 1, 2020 , we have$100,000,000 available for future repurchases under the existing program. The amount and timing of future repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume and general market conditions. 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 and certain side letters 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 ofJune 30, 2020 , we believe we are in compliance with all of our covenants. 50
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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$45,500,000 . 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. Cash Flows Cash and cash equivalents and restricted cash were$556,459,000 and$331,487,000 as ofJune 30, 2020 andDecember 31, 2019 , respectively, and$306,379,000 and$365,409,000 as ofJune 30, 2019 andDecember 31, 2018 , respectively. Cash and cash equivalents and restricted cash increased by$224,972,000 for the six months endedJune 30, 2020 and decreased by$59,030,000 for the six months endedJune 30, 2019 . The following table sets forth the changes in cash flow. For the Six Months Ended June 30, (Amounts in thousands) 2020 2019 Net cash provided by (used in): Operating activities$ 103,111 $ 106,813 Investing activities (2,792 ) (256,984 ) Financing activities 124,653 91,141 Operating Activities Six months endedJune 30, 2020 - We generated$103,111,000 of cash from operating activities for the six months endedJune 30, 2020 , primarily from (i)$117,922,000 of net income (before$120,380,000 of noncash adjustments), and (ii)$1,812,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii)$16,623,000 of net changes in operating assets and liabilities. Noncash adjustments of$120,380,000 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. Six months endedJune 30, 2019 - We generated$106,813,000 of cash from operating activities for the six months endedJune 30, 2019 , primarily from (i)$126,691,000 of net income (before$114,517,000 of noncash adjustments), (ii)$3,117,000 of distributions from unconsolidated joint ventures and real estate funds, (iii)$2,339,000 from the receipt of accrued interest on preferred equity investment, offset by (iv)$25,334,000 of net changes in operating assets and liabilities. Noncash adjustments of$114,517,000 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. 51
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Investing Activities Six months endedJune 30, 2020 -We used$2,792,000 of cash for investing activities for the six months endedJune 30, 2020 , primarily due to (i)$46,575,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements, and (ii)$2,936,000 of contributions to our unconsolidated real estate funds, partially offset by (iii)$36,918,000 repayment of amounts due from affiliates, and (iv)$9,801,000 from the net sales of marketable securities (which are held in our deferred compensation plan). Six months endedJune 30, 2019 - We used$256,984,000 of cash for investing activities for the six months endedJune 30, 2019 , primarily due to (i)$170,000,000 for net amounts due from affiliates, (ii)$52,525,000 for investments in and contributions of capital to unconsolidated joint ventures, (iii)$50,766,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements and (iv)$20,000,000 for real estate acquisition deposit, partially offset by (v)$33,750,000 from the redemption of a preferred equity investment, (vi)$1,540,000 from the net sales of marketable securities (which are held in our deferred compensation plan), and (vii)$1,017,000 of net distributions from our unconsolidated real estate funds. Financing Activities Six months endedJune 30, 2020 - We generated$124,653,000 of cash from financing activities for the six months endedJune 30, 2020 , primarily from (i)$163,082,000 of borrowings under the revolving credit facility, (ii)$111,984,000 of proceeds from the sale of a 10.0% interest in1633 Broadway , (iii)$11,555,000 of contributions from noncontrolling interests, and (iv)$3,073,000 of proceeds from notes and mortgages payable, partially offset by (v)$100,000,000 for the repurchases of common shares, (vi)$49,597,000 for dividends and distributions paid to common stockholders and unitholders, (vii)$8,771,000 for repayment of note payable issued in connection with the acquisition of noncontrolling interest in consolidated real estate fund, (viii)$6,357,000 for distributions to noncontrolling interests and (ix)$316,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings. Six months endedJune 30, 2019 - We generated$91,141,000 of cash from financing activities for the six months endedJune 30, 2019 , primarily from (i)$170,000,000 of borrowings under the revolving credit facility and (ii)$14,966,000 of contributions from noncontrolling interests, partially offset by (iii)$51,851,000 for dividends and distributions paid to common stockholders and unitholders, (iv)$34,919,000 for distributions to noncontrolling interests, (v)$6,488,000 for the repurchases of common shares, (vi)$307,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings and (vii)$260,000 for the payment of debt issuance costs. 52 --------------------------------------------------------------------------------
Non-GAAP Financial Measures
We use and present NOI, Same Store NOI, FFO and Core FFO, as supplemental
measures of our performance. The summary below describes our use of these
measures, provides information regarding why we believe these measures are
meaningful supplemental measures of our performance and reconciles these
measures from net income or loss, the most directly comparable GAAP measure.
Other real estate companies may use different methodologies for calculating
these measures, and accordingly, our presentation of these measures may not be
comparable to other real estate companies. These non-GAAP measures should not be
considered a substitute for, and should only be considered together with and as
a supplement to, financial information presented in accordance with GAAP.
Net Operating Income ("NOI")
We use NOI to measure the operating performance of our properties. NOI consists
of rental revenue (which includes property rentals, tenant reimbursements and
lease termination income) and certain other property-related revenue less
operating expenses (which includes property-related expenses such as cleaning,
security, repairs and maintenance, utilities, property administration and real
estate taxes). We also present Cash NOI which deducts from NOI, straight-line
rent adjustments and the amortization of above and below-market leases,
including our share of such adjustments of unconsolidated joint ventures. In
addition, we present Paramount's share of NOI and Cash NOI which represents our
share of NOI and Cash NOI of consolidated and unconsolidated joint ventures,
based on our percentage ownership in the underlying assets. We use NOI and Cash
NOI internally as performance measures and believe they provide useful
information to investors regarding our financial condition and results of
operations because they reflect only those income and expense items that are
incurred at property level. The following tables present reconciliations of our
net (loss) income to NOI and Cash NOI for the three and six months ended June
30, 2020 and 2019.
For the Three Months Ended June 30, 2020
(Amounts in thousands) Total New York San Francisco Other
Reconciliation of net (loss) income to
NOI and Cash NOI:
Net (loss) income $ (7,684 ) $ 1,955 $ 4,169 $ (13,808 )
Add (subtract) adjustments to arrive
at NOI and Cash NOI:
Depreciation and amortization 58,716 39,927 17,680 1,109
General and administrative 17,901 - - 17,901
Interest and debt expense 36,009 21,804 12,323 1,882
Income tax expense 138 - - 138
NOI from unconsolidated joint ventures 10,376 2,680 9,165 (1,469 )
Loss (income) from unconsolidated
joint ventures 5,955 (220 ) 4,651 1,524
Fee income (6,209 ) - - (6,209 )
Interest and other income, net (2,252 ) - (50 ) (2,202 )
Other, net 169 - - 169
NOI 113,119 66,146 47,938 (965 )
Less NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (15,733 ) (430 ) (15,303 ) -
Consolidated real estate fund 1,437 - - 1,437
Paramount's share of NOI $ 98,823 $ 65,716 $ 32,635 $ 472
NOI $ 113,119 $ 66,146 $ 47,938 $ (965 )
Less:
Straight-line rent adjustments
(including our share
of unconsolidated joint ventures) (10,037 ) (5,768 ) (4,241 ) (28 )
Amortization of above and below-market
leases, net
(including our share of
unconsolidated joint ventures) (1,701 ) 388 (2,089 ) -
Adjustments related to discontinued
operations 114 - - 114
Cash NOI 101,495 60,766 41,608 (879 )
Less Cash NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (13,716 ) (504 ) (13,212 ) -
Consolidated real estate fund 1,437 - - 1,437
Paramount's share of Cash NOI $ 89,216 $ 60,262 $ 28,396 $ 558
53
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For the Three Months Ended June 30, 2019
(Amounts in thousands) Total New York San Francisco Other
Reconciliation of net income (loss) to
NOI and Cash NOI:
Net income (loss) $ 5,174 $ 9,196 $ 8,097 $ (12,119 )
Add (subtract) adjustments to arrive
at NOI and Cash NOI:
Depreciation and amortization 60,277 39,926 19,545 806
General and administrative 17,695 - - 17,695
Interest and debt expense 37,213 23,883 12,273 1,057
Income tax expense 268 - 13 255
NOI from unconsolidated joint ventures 4,185 2,886 1,213 86
Loss (income) from unconsolidated
joint ventures 456 (768 ) 1,249 (25 )
Fee income (4,213 ) - - (4,213 )
Interest and other income, net (2,583 ) - (225 ) (2,358 )
Adjustments related to discontinued
operations 2,348 - - 2,348
Other, net 163 - - 163
NOI 120,983 75,123 42,165 3,695
Less NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (17,839 ) - (17,839 ) -
Consolidated real estate fund (6 ) - - (6 )
Paramount's share of NOI $ 103,138 $ 75,123 $ 24,326 $ 3,689
NOI $ 120,983 $ 75,123 $ 42,165 $ 3,695
Less:
Straight-line rent adjustments
(including our share
of unconsolidated joint ventures) (10,937 ) (9,225 ) (1,690 ) (22 )
Amortization of above and below-market
leases, net
(including our share of
unconsolidated joint ventures) (2,745 ) 480 (3,225 ) -
Adjustments related to discontinued
operations 100 - - 100
Cash NOI 107,401 66,378 37,250 3,773
Less Cash NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (15,583 ) - (15,583 ) -
Consolidated real estate fund (6 ) - - (6 )
Paramount's share of Cash NOI $ 91,812 $ 66,378 $ 21,667 $ 3,767
54
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For the Six Months Ended June 30, 2020
(Amounts in thousands) Total New York San Francisco Other
Reconciliation of net (loss) income
to NOI and Cash NOI:
Net (loss) income $ (2,458 ) $ 11,670 $ 10,074 $ (24,202 )
Add (subtract) adjustments to arrive
at NOI and Cash NOI:
Depreciation and amortization 117,143 79,946 35,007 2,190
General and administrative 30,150 - - 30,150
Interest and debt expense 72,628 44,536 24,885 3,207
Income tax expense (benefit) 742 - (7 ) 749
NOI from unconsolidated joint
ventures 23,768 5,624 19,547 (1,403 )
Loss (income) from unconsolidated
joint ventures 10,176 (138 ) 8,799 1,515
Fee income (12,539 ) - - (12,539 )
Interest and other income, net (1,256 ) - (237 ) (1,019 )
Adjustments related to discontinued
operations 690 - - 690
Other, net 320 - - 320
NOI 239,364 141,638 98,068 (342 )
Less NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (31,424 ) (430 ) (30,994 ) -
Consolidated real estate fund 1,440 - - 1,440
Paramount's share of NOI $ 209,380 $ 141,208 $ 67,074 $ 1,098
NOI $ 239,364 $ 141,638 $ 98,068 $ (342 )
Less:
Straight-line rent adjustments
(including our share
of unconsolidated joint ventures) (21,841 ) (12,178 ) (9,716 ) 53
Amortization of above and
below-market leases, net
(including our share of
unconsolidated joint ventures) (4,533 ) 776 (5,309 ) -
Adjustments related to discontinued
operations 233 - - 233
Cash NOI 213,223 130,236 83,043 (56 )
Less Cash NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (26,918 ) (504 ) (26,414 ) -
Consolidated real estate fund 1,440 - - 1,440
Paramount's share of Cash NOI $ 187,745 $ 129,732 $ 56,629 $ 1,384
55
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For the Six Months Ended June 30, 2019
(Amounts in thousands) Total New York San Francisco Other
Reconciliation of net income (loss)
to NOI and Cash NOI:
Net income (loss) $ 12,174 $ 18,273 $ 16,134 $ (22,233 )
Add (subtract) adjustments to arrive
at NOI and Cash NOI:
Depreciation and amortization 120,989 79,950 39,436 1,603
General and administrative 35,138 - - 35,138
Interest and debt expense 74,137 47,626 24,439 2,072
Income tax expense 1,406 - 19 1,387
NOI from unconsolidated joint
ventures 9,596 7,543 1,913 140
Loss (income) from unconsolidated
joint ventures 1,483 (619 ) 2,121 (19 )
Fee income (10,212 ) - - (10,212 )
Interest and other income, net (6,483 ) - (359 ) (6,124 )
Adjustments related to discontinued
operations 4,725 - - 4,725
Other, net 853 - - 853
NOI 243,806 152,773 83,703 7,330
Less NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (35,748 ) - (35,748 ) -
Consolidated real estate fund 23 - - 23
Paramount's share of NOI $ 208,081 $ 152,773 $ 47,955 $ 7,353
NOI $ 243,806 $ 152,773 $ 83,703 $ 7,330
Less:
Straight-line rent adjustments
(including our share
of unconsolidated joint ventures) (22,806 ) (18,549 ) (4,302 ) 45
Amortization of above and
below-market leases, net
(including our share of
unconsolidated joint ventures) (5,985 ) 955 (6,940 ) -
Adjustments related to discontinued
operations 211 - - 211
Cash NOI 215,226 135,179 72,461 7,586
Less Cash NOI attributable to
noncontrolling interests in:
Consolidated joint ventures (30,368 ) - (30,368 ) -
Consolidated real estate fund 23 - - 23
Paramount's share of Cash NOI $ 184,881 $ 135,179 $ 42,093 $ 7,609
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Same Store NOI The tables below set forth the reconciliations of our share of NOI to our share of Same Store NOI and Same Store Cash NOI for the three and six months endedJune 30, 2020 and 2019. These metrics are used to measure the operating performance of our properties in ourNew York andSan Francisco portfolios 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 June 30, 2020 (Amounts in thousands) Total New York San Francisco Other
Paramount's share of NOI for the three months ended June 30, 2020 (1)$ 98,823 $ 65,716 $ 32,635 $ 472 Acquisitions (2) (8,425 ) - (8,425 ) - Dispositions / Discontinued (3) Operations (2,147 ) - - (2,147 ) Non-cash write-offs (primarily straight-line rent receivables) (4) 7,685 4,993 2,692 - Reserves for uncollectible accounts receivable (4) 1,940 1,152 788 - Lease termination income and other, net 1,598 (77 ) - 1,675Paramount's share of Same Store NOI for the three months ended June 30, 2020$ 99,474 $ 71,784 $ 27,690 $ - For the Three Months Ended June 30, 2019 (Amounts in thousands) Total New York
Paramount's share of NOI for the three months ended June 30, 2019 (1)$ 103,138 $ 75,123 $ 24,326 $ 3,689 Acquisitions - - - - Dispositions / Discontinued (5) (3) Operations (5,339 ) (935 ) - (4,404 ) Reserves for uncollectible accounts receivable (4) 91 114 (23 ) - Lease termination income and other, net 715 - - 715Paramount's share of Same Store NOI for the three months ended June 30, 2019$ 98,605 $ 74,302 $ 24,303 $ - Increase (decrease) in Same Store$ 869 $ (2,518 ) $ 3,387 $ - NOI % Increase (decrease) 0.9 % (3.4 %) 13.9 %
(1) See page 53 "Non-GAAP Financial Measures - NOI" for a reconciliation to net
income in accordance with GAAP and the reasons why we believe these non-GAAP
measures are useful.
(2) Represents our share of Same Store NOI attributable to acquired properties
(Market Center and
they were not owned by us in both reporting periods.
(3) Represents NOI from discontinued operations (
and
(4) Represents impairments of receivables arising from operating leases that have
been consistently excluded from our same store results in prior periods as
noted in our definition of these terms. In prior periods, adjustments for
these items have been relatively small and as such, were included within
"other".
(5) Represents NOI attributable to 10.0% sale of
which it was not owned by us in both reporting periods.
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For the Three Months Ended June 30, 2020
(Amounts in thousands) Total New York San Francisco OtherParamount's share of Cash NOI for the three months ended June 30, 2020 (1)$ 89,216 $ 60,262 $ 28,396 $ 558 Acquisitions (2) (6,754 ) - (6,754 ) - Dispositions / Discontinued (3) Operations (2,261 ) - - (2,261 ) Reserves for uncollectible accounts receivable (4) 1,940 1,152 788 - Lease termination income and other, net 1,626 (77 ) - 1,703Paramount's share of Same Store Cash NOI for the three months ended June 30, 2020$ 83,767 $ 61,337 $ 22,430 $ - For the Three Months Ended June 30, 2019 (Amounts in thousands) Total New York
Paramount's share of Cash NOI for the three months ended June 30, 2019 (1)$ 91,812 $ 66,378 $ 21,667 $ 3,767 Acquisitions - - - - Dispositions / Discontinued (5) (3) Operations (5,310 ) (806 ) - (4,504 ) Reserves for uncollectible accounts receivable (4) 91 114 (23 ) - Lease termination income and other, net 737 - - 737Paramount's share of Same Store Cash NOI for the three months ended June 30, 2019$ 87,330 $ 65,686 $ 21,644 $ - (Decrease) increase in Same Store$ (3,563 ) $ (4,349 ) $ 786 $ - Cash NOI % (Decrease) increase (4.1 %) (6.6 %) 3.6 %
(1) See page 53 "Non-GAAP Financial Measures - NOI" for a reconciliation to net
income in accordance with GAAP and the reasons why we believe these non-GAAP
measures are useful.
(2) Represents our share of Same Store Cash NOI attributable to acquired
properties (Market Center and
months in which they were not owned by us in both reporting periods.
(3) Represents Cash NOI from discontinued operations (
(4) Represents impairments of receivables arising from operating leases that have
been consistently excluded from our same store results in prior periods as
noted in our definition of these terms. In prior periods, adjustments for
these items have been relatively small and as such, were included within
"other".
(5) Represents Cash NOI attributable to 10.0% sale of
months in which it was not owned by us in both reporting periods.
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For the Six Months Ended June 30, 2020
(Amounts in thousands) Total New York San Francisco OtherParamount's share of NOI for the six months ended June 30, 2020 (1)$ 209,380 $ 141,208 $ 67,074 $ 1,098 Acquisitions (2) (17,717 ) - (17,717 ) - Dispositions / Discontinued (3) Operations (4,358 ) - - (4,358 ) Non-cash write-offs (primarily straight-line rent receivables) (4) 7,685 4,993 2,692 Reserves for uncollectible accounts receivable (4) 1,940 1,152 788 - Lease termination income and other, net 3,100 (153 ) (7 ) 3,260Paramount's share of Same Store NOI for the six months ended June 30, 2020$ 200,030 $ 147,200 $ 52,830 $ - For the Six Months Ended June 30, 2019 (Amounts in thousands) Total New York San
Francisco Other
Paramount's share of NOI for the six months ended June 30, 2019 (1)$ 208,081 $ 152,773 $ 47,955 $ 7,353 Acquisitions - - - - Dispositions / Discontinued (5) (3) Operations (9,822 ) (935 ) - (8,887 ) Reserves for uncollectible accounts receivable (4) 276 299 (23 ) - Lease termination income and other, net (812 ) (2,346 ) - 1,534Paramount's share of Same Store NOI for the nine months ended June 30, 2019$ 197,723 $ 149,791 $ 47,932 $ - Increase (decrease) in Same Store NOI$ 2,307 $ (2,591 ) $ 4,898 $ - % Increase (decrease) 1.2 % (1.7 %) 10.2 %
(1) See page 53 "Non-GAAP Financial Measures - NOI" for a reconciliation to net
income in accordance with GAAP and the reasons why we believe these non-GAAP
measures are useful.
(2) Represents our share of Same Store NOI attributable to acquired properties
(Market Center,
the months in which they were not owned by us in both reporting periods.
(3) Represents NOI from discontinued operations (
and
(4) Represents impairments of receivables arising from operating leases that have
been consistently excluded from our same store results in prior periods as
noted in our definition of these terms. In prior periods, adjustments for
these items have been relatively small and as such, were included within
"other".
(5) Represents NOI attributable to 10.0% sale
which it was not owned by us in both reporting periods.
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For the Six Months Ended June 30, 2020
(Amounts in thousands) Total New York San Francisco OtherParamount's share of Cash NOI for the six months ended June 30, 2020 (1)$ 187,745 $ 129,732 $ 56,629 $ 1,384 Acquisitions (2) (13,560 ) - (13,560 ) - Dispositions / Discontinued (3) Operations (4,591 ) - - (4,591 ) Reserves for uncollectible accounts receivable (4) 1,940 1,152 788 - Lease termination income and other, net 3,047 (153 ) (7 ) 3,207Paramount's share of Same Store Cash NOI for the six months ended June 30, 2020$ 174,581 $ 130,731 $ 43,850 $ - For the Six Months Ended June 30, 2019 (Amounts in thousands) Total New York San
Francisco Other
Paramount's share of Cash NOI for the six months ended June 30, 2019 (1)$ 184,881 $ 135,179 $ 42,093 $ 7,609 Acquisitions - - - - Dispositions / Discontinued (5) (3) Operations (9,904 ) (806 ) - (9,098 ) Reserves for uncollectible accounts receivable (4) 276 299 (23 ) - Lease termination income and other, net (857 ) (2,346 ) - 1,489Paramount's share of Same Store Cash NOI for the six months ended June 30, 2019$ 174,396 $ 132,326 $ 42,070 $ - Increase (decrease) in Same Store Cash NOI$ 185 $ (1,595 ) $ 1,780 $ - % Increase (decrease) 0.1 % (1.2 %) 4.2 %
(1) See page 53 "Non-GAAP Financial Measures - NOI" for a reconciliation to net
income in accordance with GAAP and the reasons why we believe these non-GAAP
measures are useful.
(2) Represents our share of Same Store Cash NOI attributable to acquired
properties (Market Center,
Francisco) for the months in which they were not owned by us in both
reporting periods.
(3) Represents Cash NOI from discontinued operations (
(4) Represents impairments of receivables arising from operating leases that have
been consistently excluded from our same store results in prior periods as
noted in our definition of these terms. In prior periods, adjustments for
these items have been relatively small and as such, were included within
"other".
(5) Represents Cash NOI attributable to 10.0% sale
in which it was not owned by us in both reporting periods.
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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 (loss) income to FFO and Core FFO for the periods set forth below. For the Three Months Ended June 30, For the Six Months Ended June 30, (Amounts in thousands, except share and 2020 2019 2020 2019 per share amounts) Reconciliation of net (loss) income to FFO and Core FFO: Net (loss) income $ (7,684 ) $ 5,174 $ (2,458 )$ 12,174 Real estate depreciation and amortization (including our share of unconsolidated joint ventures) 70,546 63,721 141,486 127,409 Adjustments related to discontinued operations - 2,348 690 4,725 FFO 62,862 71,243 139,718 144,308 Less FFO attributable to noncontrolling interests in: Consolidated joint ventures (8,711 ) (11,277 ) (17,680 ) (23,025 ) Consolidated real estate fund 1,235 (53 ) 1,212 (147 ) Operating Partnership (4,723 ) (5,705 ) (11,001 ) (11,703 ) FFO attributable to common stockholders $ 50,663 $ 54,208 $ 112,249$ 109,433 Per diluted share $ 0.23 $ 0.23 $ 0.50 $ 0.47 FFO $ 62,862 $ 71,243 $ 139,718$ 144,308 Non-core items: Our share of distributions received from712 Fifth Avenue in excess of earnings (920 ) (1,331 ) (1,308 ) (61 ) Other, net 324 260 627 1,083 Core FFO 62,266 70,172 139,037 145,330 Less Core FFO attributable to noncontrolling interests in: Consolidated joint ventures (8,711 ) (11,277 ) (17,680 ) (23,025 ) Consolidated real estate fund 1,235 (53 ) 1,212 (147 ) Operating Partnership (4,672 ) (5,603 ) (10,942 ) (11,806 ) Core FFO attributable to common stockholders $ 50,118 $ 53,239 $ 111,627$ 110,352 Per diluted share $ 0.23 $ 0.23 $ 0.50 $ 0.47 Reconciliation of weighted average shares outstanding: Weighted average shares outstanding 221,573,199 234,329,904 224,671,206 233,877,117 Effect of dilutive securities 4,225 25,960 20,164 31,119 Denominator for FFO and Core FFO per diluted share 221,577,424 234,355,864 224,691,370 233,908,236 61
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