Paramount Announces Fourth Quarter 2016 Results

– Initiates Guidance for Full Year 2017 –

NEW YORK--()--Paramount Group, Inc. (NYSE: PGRE) (“Paramount” or the “Company”) filed its Annual Report on Form 10-K for the year ended December 31, 2016 today and reported results for the quarter ended December 31, 2016.

Fourth Quarter Highlights:

  • Net loss attributable to common stockholders was $6.5 million, or $0.03 per diluted share, for the quarter ended December 31, 2016, compared to net income attributable to common stockholders of $8.9 million, or $0.04 per diluted share, for the quarter ended December 31, 2015.
  • Core Funds from Operations (“Core FFO”) attributable to common stockholders was $40.6 million, or $0.18 per diluted share, for the quarter ended December 31, 2016, compared to $45.2 million, or $0.21 per diluted share, for the quarter ended December 31, 2015.
  • Leased 241,551 square feet at a weighted average initial rent of $81.90 per square foot, of which 210,090 square feet represents second generation space for which the Company achieved positive mark-to-markets of 1.5% on a GAAP basis and 2.0% on a cash basis.
  • On October 6, 2016, the Company completed an $850 million financing of 1301 Avenue of the Americas, a 1.8 million square foot Class A trophy office building in Midtown Manhattan. The five-year interest-only loan matures in October 2021, has two one-year extension options and has an initial weighted average interest rate of 2.77%, based on a $500 million tranche at a fixed rate of 3.05% and a $350 million tranche at a floating rate of LIBOR plus 180 basis points (2.36% at closing). The Company retained net proceeds of approximately $330 million after closing costs and the repayment of existing debt at 900 Third Avenue and Waterview, including swap breakage and defeasance costs, which were used to fund a portion of the acquisition of One Front Street.
  • On December 1, 2016, the Company completed the acquisition of One Front Street, a 644,000 square foot Class A office building in San Francisco, California, for $521 million, or approximately $800 per square foot.
  • On December 15, 2016, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.095 per share for the quarter ended December 31, 2016, which was paid on January 13, 2017.

Transactions Subsequent to Fourth Quarter:

  • On January 12, 2017, the Company entered into an agreement to sell Waterview, a 637,000 square foot, Class A office building in Rosslyn, Virginia, for $460 million. The sale will result in a financial statement gain of approximately $110 million and a tax gain of approximately $393 million, which will be deferred as part of a like-kind exchange for the acquisition of One Front Street. The transaction, which is subject to customary closing conditions, is expected to close in the second quarter of 2017.
  • On January 19, 2017, the Company completed a $975 million refinancing of One Market Plaza, a 1.6 million square foot Class A office and retail property in San Francisco, California. The new seven-year interest-only loan matures in January 2024 and has a fixed rate of 4.03%. The net proceeds from the refinancing were used to repay the existing $873 million loan that had an interest rate of 6.12% and was scheduled to mature in December 2019. The Company retained approximately $23 million for its 49% share of net proceeds, after the repayment of the existing loan, closing costs and required reserves.
  • On January 24, 2017, a joint venture in which the Company has a 5% ownership interest acquired 60 Wall Street, a 1.6 million square foot Class A office tower in the Financial District of Downtown Manhattan, for $1.04 billion, or approximately $640 per square foot. In connection with the acquisition, the joint venture completed a $575 million financing of the property.

Financial Results

Quarter Ended December 31, 2016

Net loss attributable to common stockholders was $6.5 million, or $0.03 per diluted share, for the quarter ended December 31, 2016, compared to net income of $8.9 million, or $0.04 per diluted share, for the quarter ended December 31, 2015.

Funds from Operations (“FFO”) attributable to common stockholders was $41.0 million, or $0.18 per diluted share, for the quarter ended December 31, 2016, compared to $61.6 million, or $0.29 per diluted share, for the quarter ended December 31, 2015. FFO attributable to common stockholders for the quarters ended December 31, 2016 and 2015 includes the impact of non-core items, which are listed in the table on page 10. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO attributable to common stockholders for the quarters ended December 31, 2016 and 2015 by $0.4 million and $16.4 million, or $0.00 and $0.08 per diluted share, respectively.

Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 10, was $40.6 million, or $0.18 per diluted share, for the quarter ended December 31, 2016, compared to $45.2 million, or $0.21 per diluted share, for the quarter ended December 31, 2015.

Year Ended December 31, 2016

Net loss attributable to common stockholders was $9.9 million, or $0.05 per diluted share, for the year ended December 31, 2016, compared to $4.4 million, or $0.02 per diluted share, for the year ended December 31, 2015.

FFO attributable to common stockholders was $195.1 million, or $0.89 per diluted share, for the year ended December 31, 2016, compared to $209.3 million, or $0.99 per diluted share, for the year ended December 31, 2015. FFO attributable to common stockholders for the years ended December 31, 2016 and 2015 includes the impact of non-core items, which are listed in the table on page 10. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO attributable to common stockholders for the year ended December 31, 2016 and 2015 by $12.0 million and $36.5 million, or $0.05 and $0.18 per diluted share, respectively.

Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 10, was $183.1 million, or $0.84 per diluted share, for the year ended December 31, 2016, compared to $172.8 million, or $0.81 per diluted share, for the year ended December 31, 2015.

Portfolio Operations

Quarter Ended December 31, 2016

During the quarter ended December 31, 2016, the Company leased 241,551 square feet at a weighted average initial rent of $81.90 per square foot. The current quarter’s leasing activity, offset by lease expirations during the quarter, increased leased occupancy by 140 basis points to 92.7% at December 31, 2016 from 91.3% at September 30, 2016. Of the 241,551 square feet leased in the fourth quarter, 210,090 square feet represents second generation space (space that has been vacant for less than twelve months) for which the Company achieved positive mark-to-markets of 1.5% on a GAAP basis and 2.0% on a cash basis. The weighted average lease term for leases signed during the fourth quarter was 8.5 years and weighted average tenant improvements and leasing commissions on these leases were $9.96 per square foot per annum, or 12.2% of initial rent.

Year Ended December 31, 2016

During the year ended December 31, 2016, the Company leased 734,238 square feet at a weighted average initial rent of $74.12 per square foot. The current year’s leasing activity, offset by lease expirations during the year, decreased leased occupancy by 210 basis points to 92.7% at December 31, 2016 from 94.8% at December 31, 2015. Of the 734,238 square feet leased in the year, 485,809 square feet represents second generation space (space that has been vacant for less than twelve months) for which the Company achieved positive mark-to-markets of 10.3% on a GAAP basis and 3.6% on a cash basis. The weighted average lease term for leases signed during the year was 8.0 years and weighted average tenant improvements and leasing commissions on these leases were $7.93 per square foot per annum, or 10.7% of initial rent.

The year ended December 31, 2016 mark-to-market includes the effect of two above-market leases aggregating 89,135 square feet that were terminated and subsequently released at market rates. Excluding the impact of these leases, GAAP basis and cash basis mark-to-markets were positive 10.4% and 10.3%, respectively.

Guidance

The Company is providing Estimated Core FFO Guidance for the full year of 2017, which is reconciled below to estimated net income per diluted share in accordance with GAAP. The Company estimates net income to be between $0.33 and $0.37 per diluted share. The estimated net income per diluted share is not a projection and is being provided solely to satisfy the disclosure requirements of the U.S. Securities and Exchange Commission. The Company estimates 2017 Core FFO to be between $0.83 and $0.87 per diluted share. The estimated Core FFO of $0.85 per diluted share at the midpoint of the Company’s Guidance for 2017, when compared to Core FFO of $0.84 per diluted share for 2016, assumes, among other items, increases and decreases in the Company’s share of the following components: (i) an increase in Same Store Cash NOI of 6.0% to 9.0%, resulting in an incremental $0.08 per diluted share, (ii) an increase in Cash NOI of $0.08 per diluted share from the acquisition of One Front Street and 60 Wall Street, (iii) an increase in fee income, net of income taxes, of $0.01 per diluted share and (iv) a decrease in interest expense of $0.02 per diluted share, which includes the impact of repaying the mortgage debt at 1899 Pennsylvania Avenue and Liberty Place using the Waterview sales proceeds, partially offset by (v) a decrease in Cash NOI of $0.07 per diluted share from the disposition of Waterview, (vi) a decrease in lease termination income of $0.06 per diluted share, (vii) a decrease in non-cash straight-line rent and amortization of above and below-market lease revenue of $0.03 per diluted share, and (viii) an increase in non-cash general and administrative expenses of $0.02 per diluted share, resulting from the amortization of a new layer of equity grants.

For the Year Ending December 31, 2017:

  Low   High
Estimated net income attributable to common stockholders
per diluted share $ 0.33 $ 0.37
Pro rata share of real estate depreciation and amortization, including
the Company's share of unconsolidated joint ventures 0.92 0.92
Net gain on sale of real estate   (0.42 )   (0.42 )
Estimated Core FFO per diluted share $ 0.83 $ 0.87
 

Except as described above, these estimates reflect management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of the events referenced in this release and otherwise to be referenced during the conference call referred to below. Except for the acquisition of 60 Wall Street and the disposition of Waterview, these estimates do not include the impact on operating results from possible future property acquisitions or dispositions, capital markets activity or unrealized gains or losses on real estate fund investments. The estimates set forth above may be subject to fluctuations as a result of several factors, including the straight-lining of rental income and the amortization of above and below-market leases. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth above.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Federal securities laws. You can identify these statements by our use of the words “assumes,” “believes,” “estimates,” “expects,” “guidance,” “intends,” “plans,” “projects” and similar expressions that do not relate to historical matters. You should exercise caution in interpreting and relying on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company’s control and could materially affect actual results, performance or achievements. These factors include, without limitation, the ability to enter into new leases or renew leases on favorable terms, dependence on tenants’ financial condition, the uncertainties of real estate development, acquisition and disposition activity, the ability to effectively integrate acquisitions, the costs and availability of financing, the ability of our joint venture partners to satisfy their obligations, the effects of local, national and international economic and market conditions, the effects of acquisitions, dispositions and possible impairment charges on our operating results, regulatory changes and other risks and uncertainties detailed from time to time in the Company’s filings with the Securities and Exchange Commission. The Company does not undertake a duty to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

FFO is a supplemental measure of our performance. We present FFO in accordance with the definition adopted by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gain from sales of depreciated real estate assets, impairment losses on depreciable real estate and depreciation and amortization expense from 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, including acquisition and transaction related costs, severance costs and unrealized gains or losses on interest rate swaps, which we believe enhances the comparability of our FFO across periods.

FFO and Core FFO are presented as supplemental financial measures and do not fully represent our operating performance. Other REITs may use different methodologies for calculating FFO and Core FFO or use other definitions of FFO and Core FFO and, accordingly, our presentation of these measures may not be comparable to other real estate companies. Neither FFO nor Core FFO is intended to be a measure of cash flow or liquidity. Please refer to our financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations and cash flows.

A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure can be found in this press release and in our Supplemental Information for the quarter ended December 31, 2016, which is available on our website.

Investor Conference Call and Webcast

The Company will host a conference call and audio webcast on Thursday, February 23, 2017 at 10:00 a.m. Eastern Time (ET) to discuss the fourth quarter 2016 results. The conference call can be accessed by dialing 877-407-0789 (domestic) or 201-689-8562 (international). An audio replay of the conference call will be available from 1:00 p.m. ET on February 23, 2017 through March 2, 2017 and can be accessed by dialing 844-512-2921 (domestic) or 412-317-6671 (international) and entering the passcode 13652753. A live audio webcast of the conference call will be available through the “Investors” section of the Company’s website, www.paramount-group.com. A replay of the webcast will be archived on the Company’s website.

About Paramount Group, Inc.

Headquartered in New York City, Paramount Group, Inc. is a fully-integrated real estate investment trust that owns, operates, manages, acquires and redevelops high-quality, Class A office properties located in select central business district submarkets of New York City, Washington, D.C. and San Francisco. Paramount is focused on maximizing the value of its portfolio by leveraging the sought-after locations of its assets and its proven property management capabilities to attract and retain high-quality tenants.

Paramount Group, Inc.

Consolidated Balance Sheets

(Unaudited and in thousands)

 
ASSETS: December 31, 2016   December 31, 2015
Rental property, at cost
Land $ 2,091,535 $ 2,042,071
Buildings and improvements   5,757,558   5,610,046
7,849,093 7,652,117
Accumulated depreciation and amortization   (318,161 )   (243,089 )
Rental property, net 7,530,932 7,409,028
Cash and cash equivalents 162,965 143,884
Restricted cash 29,374 41,823
Real estate fund investments - 416,438
Investments in unconsolidated real estate funds 28,173 -
Investments in unconsolidated joint ventures 6,411 7,102
Preferred equity investments 55,051 53,941
Marketable securities 22,393 21,521
Deferred rent receivable 163,695 77,792
Accounts and other receivables, net 15,251 10,844
Deferred charges, net 71,184 74,991
Intangible assets, net 412,225 511,207
Assets held for sale 346,685 -
Other assets   22,829   6,658
Total assets $ 8,867,168 $ 8,775,229
 
LIABILITIES:
Notes and mortgages payable, net $ 3,364,898 $ 2,922,610
Revolving credit facility 230,000 20,000
Due to affiliates 27,299 27,299
Loans payable to noncontrolling interests - 45,662
Accounts payable and accrued expenses 103,896 102,730
Dividends and distributions payable 25,151 25,067
Deferred income taxes 1,467 2,533
Interest rate swap liabilities 22,446 93,936
Intangible liabilities, net 153,018 179,741
Other liabilities   53,046   45,101
Total liabilities   3,981,221   3,464,679
 
EQUITY:
Paramount Group, Inc. equity 3,990,005 3,761,017
Noncontrolling interests in:
Consolidated real estate funds 64,793 414,637
Consolidated joint ventures 253,788 236,849
Operating Partnership   577,361   898,047
Total equity   4,885,947   5,310,550
Total liabilities and equity $ 8,867,168 $ 8,775,229
 

Paramount Group, Inc.

Consolidated Statements of Income

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

   
For the Three Months Ended For the Year Ended
December 31, December 31,
2016   2015 2016   2015
REVENUES:
Property rentals $ 127,041 $ 124,559 $ 498,057 $ 507,091
Straight-line rent adjustments 14,725 19,663 82,568 69,522
Amortization of above and below-market
leases, net   2,943   6,678   9,536   9,917
Rental income 144,709 150,900 590,161 586,530
Tenant reimbursement income 11,842 10,929 44,943 50,885
Fee and other income   10,251   8,699   48,237   24,993
Total revenues 166,802 170,528 683,341 662,408
 
EXPENSES:
Operating 63,076 61,735 250,040 244,754
Depreciation and amortization 60,975 70,966 269,450 294,624
General and administrative 14,175 13,644 53,510 42,056
Transaction related costs   679   523   2,404   10,355
Total expenses   138,905   146,868   575,404   591,789
 
Operating income 27,897 23,660 107,937 70,619
 
Income from real estate fund investments - 7,749 - 37,975
Income (loss) from unconsolidated
real estate funds 2,042 - (498 ) -
Income from unconsolidated joint ventures 2,122 2,406 7,413 6,850
Interest and other income, net 1,905 1,268 6,934 871
Interest and debt expense (44,340 ) (41,421 ) (157,746 ) (168,366 )
Unrealized gain on interest rate swaps   10,153   26,263   39,814   75,760
Net (loss) income before income taxes (221 ) 19,925 3,854 23,709
Income tax (expense) benefit   (2,602 )   140   (1,785 )   (2,566 )
Net (loss) income (2,823 ) 20,065 2,069 21,143
Less net (income) loss attributable to
noncontrolling interests in:
Consolidated real estate funds 497 (4,496 ) 1,316 (21,173 )
Consolidated joint ventures (5,361 ) (4,495 ) (15,423 ) (5,459 )
Operating Partnership   1,198   (2,169 )   2,104   1,070
Net (loss) income attributable to
common stockholders $ (6,489 ) $ 8,905 $ (9,934 ) $ (4,419 )
Per share:
Basic $ (0.03 ) $ 0.04 $ (0.05 ) $ (0.02 )
Diluted $ (0.03 ) $ 0.04 $ (0.05 ) $ (0.02 )
 
Weighted average common shares outstanding:
Basic   223,221,284   212,106,718   218,053,062   212,106,718
Diluted   223,221,284   212,111,790   218,053,062   212,106,718
 

Paramount Group, Inc.

Reconciliation of Net (Loss) Income to FFO and Core FFO

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

   
For the Three Months Ended For The Year Ended
December 31, December 31,
2016   2015 2016   2015
Reconciliation of Net (Loss) Income to FFO
and Core FFO:
Net (loss) income $ (2,823 ) $ 20,065 $ 2,069 $ 21,143
Real estate depreciation and amortization (including
our share of unconsolidated joint ventures)   62,451   72,469   275,653   300,645
FFO 59,628 92,534 277,722 321,788
Less FFO attributable to noncontrolling interests in:
Consolidated real estate funds 272 (4,726 ) 419 (22,096 )
Consolidated joint ventures   (11,294 )   (11,256 )   (41,320 )   (39,383 )
FFO attributable to Paramount Group
Operating Partnership 48,606 76,552 236,821 260,309
Less FFO attributable to noncontrolling interests
in Operating Partnership   (7,572 )   (14,993 )   (41,681 )   (50,960 )
FFO attributable to common stockholders $ 41,034 $ 61,559 $ 195,140 $ 209,349
Per diluted share $ 0.18 $ 0.29 $ 0.89 $ 0.99
 
FFO $ 59,628 $ 92,534 $ 277,722 $ 321,788
Non-core items:
Unrealized gain on interest rate swaps (including
our share of unconsolidated joint ventures) (10,930 ) (27,328 ) (41,869 ) (77,872 )
Defeasance and debt breakage costs 4,608 - 4,608 -
Transaction related costs 679 523 2,404 4,483
Severance costs - - 2,874 3,315
Transfer taxes due in connection with the sale of
shares by a former joint venture partner - - - 5,872
Predecessor income tax true-up   -   -   -   721
Core FFO 53,985 65,729 245,739 258,307
Less Core FFO attributable to noncontrolling
interests in:
Consolidated real estate funds 272 (4,726 ) 419 (22,096 )
Consolidated joint ventures   (6,114 )   (4,809 )   (23,890 )   (21,355 )
Core FFO attributable to Paramount Group
Operating Partnership 48,143 56,194 222,268 214,856
Less Core FFO attributable to noncontrolling interests
in Operating Partnership   (7,500 )   (11,006 )   (39,152 )   (42,060 )
Core FFO attributable to common stockholders $ 40,643 $ 45,188 $ 183,116 $ 172,796
Per diluted share $ 0.18 $ 0.21 $ 0.84 $ 0.81
 
Reconciliation of weighted average
shares outstanding:
Weighted average shares outstanding 223,221,284 212,106,718 218,053,062 212,106,718
Effect of dilutive securities   23,141   5,072   15,869   4,572
Denominator for FFO and Core FFO per diluted share   223,244,425   212,111,790   218,068,931   212,111,290

Contacts

Paramount Group, Inc.
Wilbur Paes, 212-237-3122
Executive Vice President, Chief Financial Officer
ir@paramount-group.com
Christopher Brandt, 212-237-3134
Vice President, Investor Relations
ir@paramount-group.com
or
Media:
212-492-2285
pr@paramount-group.com

Recent Stories

RSS feed for Paramount Group, Inc.

Paramount Group, Inc.