Paramount Announces Second Quarter 2017 Results

– Leases over 680,000 square feet through the end of July –

– Raises Guidance for Full Year 2017 –

NEW YORK--()--Paramount Group, Inc. (NYSE:PGRE) (“Paramount” or the “Company”) filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 today and reported results for the quarter ended June 30, 2017.

Second Quarter Highlights:

  • Reported net income attributable to common stockholders of $103.0 million, or $0.44 per diluted share, for the quarter ended June 30, 2017, compared to $3.2 million, or $0.01 per diluted share, for the quarter ended June 30, 2016. The Company’s revised estimate for net income attributable to common stockholders is between $0.41 and $0.45 per diluted share, compared to its prior estimate of $0.33 and $0.37 per diluted share.
  • Reported Core Funds from Operations (“Core FFO”) attributable to common stockholders of $54.6 million, or $0.23 per diluted share, for the quarter ended June 30, 2017, compared to $50.1 million, or $0.23 per diluted share, for the quarter ended June 30, 2016. Raised full-year 2017 Core FFO Guidance to $0.88 per diluted share at the midpoint of the Company’s guidance, up $0.03 per diluted share from the midpoint of the Company’s prior guidance.
  • Leased 292,238 square feet, of which the Company’s share was 223,273 square feet that was leased at a weighted average initial rent of $84.70 per square foot. Of the square footage leased, 211,873 square feet represents second generation space, for which the Company achieved positive mark-to-markets of 19.8% on a cash basis and 7.5% on a GAAP basis.
  • Completed the previously announced sale of Waterview, a 637,000 square foot, Class A office building in Rosslyn, Virginia on May 3, 2017, for $460 million, resulting in a net gain of $110.6 million.
  • Used the net proceeds from the Waterview sale to repay $371.2 million of debt, comprised of (i) the $87.2 million loan at 1899 Pennsylvania Avenue, (ii) the $84.0 million loan at Liberty Place and (iii) $200.0 million outstanding under the Company’s revolving credit facility.
  • Completed a $300 million refinancing of 712 Fifth Avenue, a 543,000 square foot Class A office and retail building located in the Plaza District of New York, on June 13, 2017. The new 10-year interest-only loan matures in July 2027 and has a fixed rate of 3.39%. The net proceeds from the refinancing were used to repay the existing $246.5 million loan bearing interest at 4.41%. The Company’s 50% share of net proceeds, after the repayment of the existing loan, closing costs and required reserves, was $20.0 million.
  • Declared a second quarter cash dividend of $0.095 per common share on June 15, 2017, which was paid on July 14, 2017.

Transactions Subsequent to Second Quarter:

  • Increased ownership in 50 Beale Street, a 661,000 square foot Class A office building in San Francisco, California, to 31.1% from 3.1%. The transaction values the property at $517.5 million. The property, which is currently 78.2% leased, is encumbered by an existing $228.0 million loan that bears interest at a fixed rate of 3.65%, that is scheduled to mature in October 2021.
  • Received authorization from the Board of Directors to repurchase up to $200 million of the Company's common stock from time to time, in the open market or in privately negotiated transactions. The amount and timing of repurchases, if any, will depend on a number of factors, including, the price and availability of the Company's shares, trading volume and general market conditions. The stock repurchase program may be suspended or discontinued at any time.
  • Leased an additional 105,897 square feet at 1633 Broadway in July, bringing its leased rate to 90.6%.

Financial Results

Quarter Ended June 30, 2017

Net income attributable to common stockholders was $103.0 million, or $0.44 per diluted share, for the quarter ended June 30, 2017, compared to $3.2 million, or $0.01 per diluted share, for the quarter ended June 30, 2016.

Funds from Operations (“FFO”) attributable to common stockholders was $62.3 million, or $0.27 per diluted share, for the quarter ended June 30, 2017, compared to $54.2 million, or $0.25 per diluted share, for the quarter ended June 30, 2016. FFO attributable to common stockholders for the quarters ended June 30, 2017 and 2016 includes the impact of non-core items, which are listed in the table on page 9. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO attributable to common stockholders for the quarters ended June 30, 2017 and 2016 by $7.7 million and $4.1 million, or $0.04 and $0.02 per diluted share, respectively.

Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 9, was $54.6 million, or $0.23 per diluted share, for the quarter ended June 30, 2017, compared to $50.1 million, or $0.23 per diluted share, for the quarter ended June 30, 2016.

Six Months Ended June 30, 2017

Net income attributable to common stockholders was $103.4 million, or $0.44 per diluted share, for the six months ended June 30, 2017, compared to a net loss of $3.3 million, or $0.02 per diluted share, for the six months ended June 30, 2016.

FFO attributable to common stockholders was $113.9 million, or $0.49 per diluted share, for the six months ended June 30, 2017, compared to $103.5 million, or $0.48 per diluted share, for the six months ended June 30, 2016. FFO attributable to common stockholders for the six months ended June 30, 2017 and 2016 includes the impact of non-core items, which are listed in the table on page 9. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO attributable to common stockholders for the six months ended June 30, 2017 and 2016 by $7.8 million and $4.2 million, or $0.04 and $0.02 per diluted share, respectively.

Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 9, was $106.1 million, or $0.45 per diluted share, for the quarter ended June 30, 2017, compared to $99.3 million, or $0.46 per diluted share, for the six months ended June 30, 2016.

Portfolio Operations

Quarter Ended June 30, 2017

During the quarter ended June 30, 2017, the Company leased 292,238 square feet, of which the Company’s share was 223,273 square feet that was leased at a weighted average initial rent of $84.70 per square foot. This leasing activity, partially offset by lease expirations in the quarter, increased leased occupancy by 10 basis points to 90.9% at June 30, 2017 from 90.8% at March 31, 2017. Same store leased occupancy increased by 70 basis points to 90.9% at June 30, 2017 from 90.2% at March 31, 2017. Of the 292,238 square feet leased in the second quarter, 211,873 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 19.8% on a cash basis and 7.5% on a GAAP basis. The weighted average lease term for leases signed during the second quarter was 7.5 years and weighted average tenant improvements and leasing commissions on these leases were $10.42 per square foot per annum, or 12.3% of initial rent.

Six Months Ended June 30, 2017

During the six months ended June 30, 2017, the Company leased 577,744 square feet, of which the Company’s share was 503,019 square feet that was leased at a weighted average initial rent of $76.60 per square foot. This leasing activity, offset by lease expirations in the six months, decreased leased occupancy by 180 basis points to 90.9% at June 30, 2017 from 92.7% at December 31, 2016. Same store leased occupancy decreased by 150 basis points to 90.8% from 92.3% at December 31, 2016. Of the 577,744 square feet leased in the six months, 431,120 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 19.2% on a cash basis and 12.2% on a GAAP basis. The weighted average lease term for leases signed during the six months was 8.3 years and weighted average tenant improvements and leasing commissions on these leases were $8.69 per square foot per annum, or 11.3% of initial rent.

Guidance

The Company is updating its Estimated Core FFO Guidance for the full year of 2017, which is reconciled below to estimated net income attributable to common stockholders per diluted share in accordance with GAAP. The Company estimates that net income attributable to common stockholders will be between $0.41 and $0.45 per diluted share, up from its prior estimate of $0.33 to $0.37 per diluted share. The estimated net income attributable to common stockholders 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.

Based on the Company’s performance for the six months ended June 30, 2017 and its outlook for the remainder of 2017, the Company is raising its Estimated Core FFO Guidance for 2017 to be between $0.86 and $0.90 per diluted share, up from its prior range of $0.83 to $0.87 per diluted share. This represents an increase of $0.03 per diluted share at the midpoint of the Company’s guidance based on (i) an assumed increase in Same Store Cash NOI of 8.0% to 11.0%, compared to its prior assumption of 6.0% to 9.0%, resulting in an incremental $0.02 per diluted share, and (ii) an increase of $0.01 per diluted share from the acquisition of the 31.1% interest in 50 Beale Street in July 2017.

     

For the Year Ending December 31, 2017:

   Low   

   High   

Estimated net income attributable to common stockholders
per diluted share $ 0.41 $ 0.45
Pro rata share of real estate depreciation and amortization, including
the Company's share of unconsolidated joint ventures 0.91 0.91
Net gain on sale of real estate   (0.42 )   (0.42 )
Estimated FFO per diluted share 0.90 0.94
Adjustments for non-core items (1)   (0.04 )   (0.04 )
Estimated Core FFO per diluted share $ 0.86 $ 0.90
 

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 acquisitions of 60 Wall Street and 50 Beale 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.

______________

(1)   Represents non-core items for the six months ended June 30, 2017, which are summarized in this press release and the Company’s Supplemental Information for the quarter ended June 30, 2017, which is available on the Company’s website. The Company is not making projections for non-core items that may impact its financial results for the remainder of 2017, which may include realized and unrealized gains or losses from unconsolidated real estate funds, transaction related costs and other items that are not included in Core FFO.
 

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, including changes to tax laws and regulations, 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 gains 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 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 defeasance and debt breakage costs, 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. 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 June 30, 2017, which is available on our website.

Investor Conference Call and Webcast

The Company will host a conference call and audio webcast on Friday, August 4, 2017 at 10:00 a.m. Eastern Time (ET), during which management will discuss the second quarter results and provide commentary on business performance. A question and answer session with analysts and investors will follow the prepared remarks.

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 August 4, 2017 through August 11, 2017 and can be accessed by dialing 844-512-2921 (domestic) or 412-317-6671 (international) and entering the passcode 13665136.

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: June 30, 2017 December 31, 2016
Real estate, at cost
  Land $ 2,068,409 $ 2,091,535
Buildings and improvements   5,726,499   5,757,558
7,794,908 7,849,093
Accumulated depreciation and amortization   (397,972 )   (318,161 )
Real estate, net 7,396,936 7,530,932
Cash and cash equivalents 254,763 162,965
Restricted cash 42,384 29,374
Investments in unconsolidated joint ventures 45,644 6,411
Investments in unconsolidated real estate funds 22,001 28,173
Preferred equity investments 55,300 55,051
Marketable securities 21,564 22,393
Accounts and other receivables, net 12,032 15,251
Deferred rent receivable 196,799 163,695
Deferred charges, net 80,352 71,184
Intangible assets, net 363,523 412,225
Assets held for sale - 346,685
Other assets   26,205   22,829
Total assets $ 8,517,503 $ 8,867,168
     
LIABILITIES:
Notes and mortgages payable, net $ 3,308,845 $ 3,364,898
Revolving credit facility - 230,000
Due to affiliates 27,299 27,299
Accounts payable and accrued expenses 83,334 103,896
Dividends and distributions payable 25,211 25,151
Deferred income taxes 1,283 1,467
Interest rate swap liabilities 1,819 22,446
Intangible liabilities, net 133,748 153,018
Other liabilities   50,053   53,046
Total liabilities   3,631,592   3,981,221
 
EQUITY:
Paramount Group, Inc. equity 4,185,874 3,990,005
Noncontrolling interests in:
Consolidated joint ventures 229,133 253,788
Consolidated real estate fund 14,833 64,793
Operating Partnership   456,071   577,361
Total equity   4,885,911   4,885,947
Total liabilities and equity $ 8,517,503 $ 8,867,168
 
 

Paramount Group, Inc.

Consolidated Statements of Income

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

             
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2017   2016 2017   2016
REVENUES:
Property rentals $ 138,232 $ 123,408 $ 270,467 $ 248,410
Straight-line rent adjustments 11,974 24,673 32,121 44,542
Amortization of above and below-market leases, net   7,981   7,100   10,989   3,481
Rental income 158,187 155,181 313,577 296,433
Tenant reimbursement income 11,856 10,334 24,708 21,123
Fee and other income   7,661   6,788   20,655   27,665
Total revenues 177,704 172,303 358,940 345,221
 
EXPENSES:
Operating 63,461 59,994 129,432 122,939
Depreciation and amortization 68,636 67,287 131,628 142,099
General and administrative 16,573 12,139 30,154 26,100
Transaction related costs   502   508   777   1,443
Total expenses   149,172   139,928   291,991   292,581
 
Operating income 28,532 32,375 66,949 52,640
 
Income from unconsolidated joint ventures 16,535 2,003 18,472 3,499
Loss from unconsolidated real estate funds (2,411 ) (960 ) (2,123 ) (1,286 )
Interest and other income, net 2,486 1,030 5,686 2,730
Interest and debt expense (34,817 ) (38,009 ) (71,835 ) (75,128 )
Debt breakage costs (5,162 ) - (7,877 ) -
Gain on sale of real estate 133,989 - 133,989 -
Unrealized gain on interest rate swaps   -   10,073   1,802   16,933
Net income (loss) before income taxes 139,152 6,512 145,063 (612 )
Income tax (expense) benefit   (970 )   1,398   (5,252 )   1,035
Net income 138,182 7,910 139,811 423
Less net (income) loss attributable to
noncontrolling interests in:
Consolidated joint ventures (1,897 ) (4,107 ) (3,188 ) (5,359 )
Consolidated real estate fund (20,169 ) 78 (20,081 ) 752
Operating Partnership   (13,100 )   (693 )   (13,154 )   878
Net income (loss) attributable to common stockholders $ 103,016 $ 3,188 $ 103,388 $ (3,306 )
Per share:
Basic $ 0.44 $ 0.01 $ 0.44 $ (0.02 )
Diluted $ 0.44 $ 0.01 $ 0.44 $ (0.02 )
 
Weighted average common shares outstanding:
Basic   234,990,468   217,121,592   232,968,602   214,762,593
Diluted   235,010,830   217,137,557   232,995,822   214,762,593
 
 

Paramount Group, Inc.

Reconciliation of Net Income to FFO and Core FFO

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

             
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2017   2016 2017   2016
Reconciliation of Net Income to FFO and Core FFO:
Net income $ 138,182 $ 7,910 $ 139,811 $ 423
Real estate depreciation and amortization (including
our share of unconsolidated joint ventures) 70,660 68,843 135,500 145,194
Gain on sale of Waterview   (110,583 )   -   (110,583 )   -
FFO 98,259 76,753 164,728 145,617
Less FFO attributable to noncontrolling interests in:
Consolidated joint ventures (7,740 ) (10,560 ) (14,935 ) (18,707 )
Consolidated real estate fund   (20,276 )   (144 )   (20,416 )   304
FFO attributable to Paramount Group
Operating Partnership 70,243 66,049 129,377 127,214
Less FFO attributable to noncontrolling interests
in Operating Partnership   (7,925 )   (11,806 )   (15,470 )   (23,723 )
FFO attributable to common stockholders $ 62,318 $ 54,243 $ 113,907 $ 103,491
Per diluted share $ 0.27 $ 0.25 $ 0.49 $ 0.48
 
FFO $ 98,259 $ 76,753 $ 164,728 $ 145,617
Non-core items:
After-tax net gain on sale of residential
condominium land parcel (21,568 ) - (21,568 ) -
Distributions in excess of basis of 712 Fifth Avenue (15,072 ) - (15,072 ) -
Debt breakage costs 5,162 - 7,877 -
Realized and unrealized loss on unconsolidated
real estate funds 2,482 892 2,247 1,139
Unrealized gain on interest rate swaps (including
our share of unconsolidated joint ventures) (364 ) (10,490 ) (2,750 ) (17,350 )
Transaction related costs 502 508 777 1,443
Severance costs   -   -   -   2,874
Core FFO 69,401 67,663 136,239 133,723
Less Core FFO attributable to noncontrolling interests in:
Consolidated joint ventures (7,740 ) (6,488 ) (15,401 ) (11,902 )
Consolidated real estate fund   12   (144 )   (128 )   304
Core FFO attributable to Paramount Group
Operating Partnership 61,673 61,031 120,710 122,125
Less Core FFO attributable to noncontrolling interests
in Operating Partnership   (7,108 )   (10,909 )   (14,640 )   (22,812 )
Core FFO attributable to common stockholders $ 54,565 $ 50,122 $ 106,070 $ 99,313
Per diluted share $ 0.23 $ 0.23 $ 0.45 $ 0.46
 
Reconciliation of weighted average shares outstanding:
Weighted average shares outstanding 234,990,468 217,121,592 232,968,602 214,762,593
Effect of dilutive securities   20,362   15,965   27,220   -
Denominator for FFO and Core FFO per diluted share   235,010,830   217,137,557   232,995,822   214,762,593

Contacts

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

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