,
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36746
PARAMOUNT GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland
32-0439307
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
1633 Broadway, Suite 1801, New York, NY
10019
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (212) 237-3100
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Trading Symbol
Name of each exchange on which registered
Common stock of Paramount Group, Inc.,$0.01 par value per share
PGRE
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 15, 2021, there were 218,961,000 shares of the registrant’s common stock outstanding.
Table of Contents
Item
Page Number
Part I.
Financial Information
Item 1.
Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited) as of June 30, 2021 and December 31, 2020
3
Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2021 and 2020
4
Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2021 and 2020
5
Consolidated Statements of Changes in Equity (Unaudited) for the three and six months ended June 30, 2021 and 2020
6
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2021 and 2020
8
Notes to Consolidated Financial Statements (Unaudited)
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
60
Item 4.
Controls and Procedures
62
Part II.
Other Information
Legal Proceedings
63
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Item 6.
Exhibits
64
Signatures
65
2
PART I – FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except share, unit and per share amounts)
June 30, 2021
December 31, 2020
Assets
Real estate, at cost:
Land
$
1,966,237
Buildings and improvements
6,011,239
5,997,078
7,977,476
7,963,315
Accumulated depreciation and amortization
(1,026,542
)
(966,697
Real estate, net
6,950,934
6,996,618
Cash and cash equivalents
475,289
434,530
Restricted cash
32,552
30,794
Investments in unconsolidated joint ventures
407,564
412,724
Investments in unconsolidated real estate funds
12,979
12,917
Accounts and other receivables
13,366
17,502
Deferred rent receivable
339,874
330,239
Deferred charges, net of accumulated amortization of $62,761 and $56,612
111,275
116,278
Intangible assets, net of accumulated amortization of $245,405 and $283,332
135,764
153,519
Other assets
53,543
48,976
Total assets (1)
8,533,140
8,554,097
Liabilities and Equity
Notes and mortgages payable, net of unamortized deferred financing costs
of $15,105 and $18,695
3,816,759
3,800,739
Revolving credit facility
-
Accounts payable and accrued expenses
103,895
101,901
Dividends and distributions payable
16,897
16,796
Intangible liabilities, net of accumulated amortization of $106,086 and $107,981
50,392
55,996
Other liabilities
65,074
62,931
Total liabilities (1)
4,053,017
4,038,363
Commitments and contingencies
Paramount Group, Inc. equity:
Common stock $0.01 par value per share; authorized 900,000,000 shares; issued
and outstanding 218,961,870 and 218,817,337 shares in 2021 and 2020, respectively
2,189
2,188
Additional paid-in-capital
4,113,889
4,120,173
Earnings less than distributions
(507,321
(456,393
Accumulated other comprehensive loss
(8,478
(12,791
Paramount Group, Inc. equity
3,600,279
3,653,177
Noncontrolling interests in:
Consolidated joint ventures
442,428
437,161
Consolidated real estate fund
79,085
79,017
Operating Partnership (21,799,022 and 20,756,618 units outstanding)
358,331
346,379
Total equity
4,480,123
4,515,734
Total liabilities and equity
(1)
Represents the consolidated assets and liabilities of Paramount Group Operating Partnership LP, a Delaware limited partnership (the “Operating Partnership”). The Operating Partnership is a consolidated variable interest entity (“VIE”), of which we are the sole general partner and own approximately 91.0% as of June 30, 2021. As of June 30, 2021, the Operating Partnership includes $4,053,771 and $2,560,820 of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. See Note 11, Variable Interest Entities (“VIEs”).
See notes to consolidated financial statements (unaudited).
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended
For the Six Months Ended
June 30,
(Amounts in thousands, except share and per share amounts)
2021
2020
Revenues:
Rental revenue
174,628
163,989
347,774
339,414
Fee and other income
7,641
7,129
15,661
15,690
Total revenues
182,269
171,118
363,435
355,104
Expenses:
Operating
64,072
64,313
130,690
131,327
Depreciation and amortization
59,925
58,716
118,230
117,143
General and administrative
18,418
17,901
32,782
30,150
Transaction related costs
135
258
416
461
Total expenses
142,550
141,188
282,118
279,081
Other income (expense):
Loss from unconsolidated joint ventures
(15,717
(5,955
(21,033
(10,176
Income from unconsolidated real estate funds
148
89
328
141
Interest and other income, net
1,070
2,252
2,372
1,256
Interest and debt expense
(34,914
(36,009
(69,653
(72,628
Loss from continuing operations, before income taxes
(9,694
(9,693
(6,669
(5,384
Income tax expense
(434
(138
(1,575
(742
Loss from continuing operations, net
(10,128
(9,831
(8,244
(6,126
Income from discontinued operations, net
2,147
3,668
Net loss
(7,684
(2,458
Less net (income) loss attributable to noncontrolling interests in:
(7,428
(405
(13,156
(1,919
29
1,235
(56
1,212
Operating Partnership
1,584
584
1,935
243
Net loss attributable to common stockholders
(15,943
(6,270
(19,521
(2,922
(Loss) Income per Common Share - Basic
(0.07
(0.04
(0.09
(0.03
0.01
0.02
Net loss per common share
(0.01
Weighted average common shares outstanding
218,696,284
221,573,199
218,681,228
224,671,206
(Loss) Income per Common Share - Diluted
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Other comprehensive loss:
Pro rata share of other comprehensive income (loss) of
unconsolidated joint ventures
365
(1,696
4,749
(16,357
Comprehensive loss
(9,763
(9,380
(3,495
(18,815
Less comprehensive (income) loss attributable to noncontrolling
interests in:
1,233
(68
1,208
1,552
729
1,511
1,744
Comprehensive loss attributable to common stockholders
(15,610
(7,823
(15,208
(17,782
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated
Noncontrolling Interests in
Additional
Earnings
Other
Consolidated
(Amounts in thousands, except per share
Common Shares
Paid-in-
Less than
Comprehensive
Joint
Real Estate
Total
and unit amounts)
Shares
Amount
Capital
Distributions
Loss
Ventures
Fund
Partnership
Equity
Balance as of March 31, 2021
218,950
4,111,144
(476,051
(8,809
438,937
79,114
359,411
4,505,935
Net (loss) income
7,428
(29
(1,584
Common shares issued upon redemption of
common units
165
(165
Common shares issued under Omnibus
share plan, net of shares withheld for taxes
Dividends and distributions ($0.07 per share
and unit)
(15,327
(1,570
(16,897
Distributions to noncontrolling interests
(3,937
Pro rata share of other comprehensive income
of unconsolidated joint ventures
331
34
Amortization of equity awards
304
4,481
4,785
Reallocation of noncontrolling interest
2,276
(2,276
Balance as of June 30, 2021
218,962
Balance as of March 31, 2020
221,750
2,219
4,102,287
(368,767
(13,478
359,120
80,476
345,335
4,507,192
405
(1,235
(584
14
(7
Dividends and distributions ($0.10 per share
(22,176
(2,116
(24,292
Contributions from noncontrolling interests
3,500
(3,185
Pro rata share of other comprehensive (loss) income
(1,553
(145
294
3,981
4,275
Sale of a 10.0% interest in 1633 Broadway
33,230
76,343
109,573
(2,269
2,269
Balance as of June 30, 2020
221,764
4,133,542
(397,220
(15,031
436,183
79,243
348,740
4,587,676
Balance as of December 31, 2020
218,817
13,156
56
(1,935
1
(201
(200
Dividends and distributions ($0.14 per share
(30,654
(3,132
(33,786
121
(8,562
4,313
12
424
611
9,700
10,311
(7,060
7,060
(552
552
Balance as of December 31, 2019
227,432
2,274
4,133,184
(349,557
(171
360,778
72,396
412,058
4,630,962
1,919
(1,212
(243
5,126
51
85,260
(85,311
(319
(316
Repurchases of common shares
(10,857
(109
(99,891
(100,000
Dividends and distributions ($0.20 per share
(44,422
(4,212
(48,634
8,055
11,555
(6,357
(14,860
(1,501
692
9,016
9,708
(18,933
18,933
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
Cash Flows from Operating Activities:
Adjustments to reconcile net loss to net cash provided by
operating activities:
117,833
Straight-lining of rental revenue
(9,632
(19,731
Amortization of stock-based compensation expense
10,229
9,638
21,033
10,176
Amortization of deferred financing costs
4,640
4,637
Distributions of earnings from unconsolidated joint ventures
623
1,459
Distributions of earnings from unconsolidated real estate funds
266
353
Amortization of above and below-market leases, net
(1,613
(2,744
Realized and unrealized (gains) losses on marketable securities
(1,480
560
(328
(141
Other non-cash adjustments
868
152
Changes in operating assets and liabilities:
4,136
493
Deferred charges
(4,506
(8,107
(5,569
(4,367
3,698
(4,148
2,107
(494
Net cash provided by operating activities
134,458
103,111
Cash Flows from Investing Activities:
Additions to real estate
(52,114
(46,575
Contributions of capital to unconsolidated joint ventures
(11,750
Purchases of marketable securities
(9,562
(9,248
Sales of marketable securities
11,381
19,049
Repayment of amounts due from affiliates
36,918
Contributions of capital to unconsolidated real estate funds
(2,936
Net cash used in investing activities
(62,045
(2,792
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Cash Flows from Financing Activities:
Dividends paid to common stockholders
(30,643
(44,989
Proceeds from notes and mortgages payable
12,430
3,073
Distributions paid to common unitholders
(3,042
(4,608
Repurchase of shares related to stock compensation agreements
and related tax withholdings
Borrowings under revolving credit facility
163,082
Proceeds from the sale of a 10.0% interest in 1633 Broadway
111,984
Repayment of note payable issued in connection with the acquisition of
noncontrolling interest in unconsolidated real estate fund
(8,771
Net cash (used in) provided by financing activities
(29,896
124,653
Net increase in cash and cash equivalents and restricted cash
42,517
224,972
Cash and cash equivalents and restricted cash at beginning of period
465,324
331,487
Cash and cash equivalents and restricted cash at end of period
507,841
556,459
Reconciliation of Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents at beginning of period
306,215
Restricted cash at beginning of period
25,272
Cash and cash equivalents at end of period
522,502
Restricted cash at end of period
33,957
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest
65,227
68,920
Cash payments for income taxes, net of refunds
210
1,130
Non-Cash Transactions:
Dividends and distributions declared but not yet paid
24,292
Additions to real estate included in accounts payable and accrued expenses
10,484
16,232
Write-off of fully amortized and/or depreciated assets
37,149
8,612
Common shares issued upon redemption of common units
85,311
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Business
As used in these consolidated financial statements, unless otherwise indicated, all references to “we,” “us,” “our,” the “Company,” and “Paramount” refer to Paramount Group, Inc., a Maryland corporation, and its consolidated subsidiaries, including Paramount Group Operating Partnership LP (the “Operating Partnership”), a Delaware limited partnership. We are a fully-integrated real estate investment trust (“REIT”) focused on owning, operating, managing, acquiring and redeveloping high-quality, Class A office properties in select central business district submarkets of New York City and San Francisco. As of June 30, 2021, our portfolio consisted of 13 Class A properties aggregating 12.9 million square feet. We conduct our business through, and substantially all of our interests in properties and investments are held by, the Operating Partnership. We are the sole general partner of, and owned approximately 91.0% of, the Operating Partnership as of June 30, 2021.
In March 2020, the World Health Organization declared coronavirus 2019 (“COVID-19”) a global pandemic. The outbreak of COVID-19 caused severe disruptions in the global economy. These disruptions have adversely impacted businesses and financial markets, including that of New York and San Francisco, the markets in which we operate and where all of our assets are located. As a result, several of our tenants sought deferrals and/or short-term relief of their rental obligations and we provided relief to select tenants.
By February 2021, the U.S. Food and Drug Administration had issued emergency use authorizations of three vaccines for the prevention of COVID-19. In July 2021, New York and San Francisco lifted most COVID-19 restrictions since a significant portion of their populations have been vaccinated. Notwithstanding the vaccination success, multiple variants of the virus that cause COVID-19 continue to persist globally and in the United States. While we continue to navigate the crisis and monitor the impact of the pandemic on our business, 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.
2.
Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted. These consolidated financial statements include the accounts of Paramount and its consolidated subsidiaries, including the Operating Partnership. In the opinion of management, all significant adjustments (which include only normal recurring adjustments) and eliminations (which include intercompany balances and transactions) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. The consolidated balance sheet as of December 31, 2020 was derived from audited financial statements as of that date, but does not include all information and disclosures required by GAAP. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.
Significant Accounting Policies
There are no material changes to our significant accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Use of Estimates
We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the operating results for the full year.
Recently Issued Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, an update to ASC Topic 740, Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by (i) eliminating certain exceptions within ASC Topic 740 and (ii) clarifying and amending the existing guidance to enable consistent application of ASC Topic 740. ASU 2019-12 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2020, with early adoption permitted. We adopted the provisions of ASU 2019-12 on January 1, 2021. This adoption did not have an impact on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, which adds ASC Topic 848, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU 2021-01 to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively to such transactions through December 31, 2022 and ASU 2021-01 is effective beginning on January 7, 2021 and may be applied retrospectively or prospectively to such transactions through December 31, 2022. We will apply ASU 2020-04 and ASU 2021-01 prospectively as and when we enter into transactions to which these updates apply.
In August 2020, the FASB issued ASU 2020-06, an update to ASC Topic 470, Subtopic - 20, Debt - Debt with Conversion and Other Options, and ASC Topic 815, Subtopic - 4, Derivatives and Hedging - Contracts in Entity's Own Equity. ASU 2020-06 simplifies the guidance for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts on an entity’s own equity by reducing the number of accounting models for convertible instruments and amends guidance in ASC Topic 260, Earnings Per Share, relating to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2021, with early adoption permitted for fiscal years that begin after December 15, 2020. We are evaluating the impact of ASU 2020-06 on our consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements. ASU 2020-10 codifies the disclosure guidance of all codifications which provide entities with an option to either present information on the face or disclose it in the notes to the financial statements. ASU 2020-10 also clarifies application of various provisions in the codifications where the guidance may have been unclear. ASU 2020-10 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2020, with early adoption permitted. We adopted the provisions of ASU 2020-10 on January 1, 2021. This adoption did not have an impact on our consolidated financial statements.
11
3.
Discontinued Operations
Over the past three years, we sold the remaining assets in our Washington, D.C. portfolio, thereby exiting the Washington, D.C. office market. These dispositions represented a strategic shift in our operations and met the criteria for classifying our Washington, D.C. segment as “discontinued operations,” in accordance with ASC Topic 205, Presentation of Financial Statements. Accordingly, effective March 31, 2020, we reclassified the results of operations of our Washington, D.C. segment as discontinued operations.
The tables below provide the details of the results of operations and the details of the cash flows related to discontinued operations for the periods set forth below.
For the Three Months
For the Six Months
Income Statement: (1)
Ended June 30, 2020
3,515
7,078
Other income
31
130
3,546
7,208
1,399
2,850
690
3,540
Statement of Cash Flows: (1)
Cash provided by operating activities
2,292
Additional Cash Flow information:
Represents revenues, expenses, net income and cash flow information of 1899 Pennsylvania Avenue, which was sold on December 24, 2020.
4.
Investments in Unconsolidated Joint Ventures
The following tables summarize our investments in unconsolidated joint ventures as of the dates thereof and the income or loss from these investments for the periods set forth below.
Paramount
As of
Our Share of Investments:
Ownership
712 Fifth Avenue (1)
50.0%
Market Center
67.0%
189,985
192,306
55 Second Street (2)
44.1%
90,829
92,298
111 Sutter Street
49.0%
36,634
37,818
60 Wall Street (2)
5.0%
19,198
19,164
One Steuart Lane (2)
35.0% (3)
67,292
67,505
Oder-Center, Germany (2)
9.5%
3,626
3,633
Our Share of Net Loss:
(11,128
229
(2,914
(3,070
(7,044
(5,924
(847
(662
(1,469
(1,346
(699
(919
(1,189
(1,529
17
(9
(91
(132
(1,549
(225
(1,550
(14
25
(12
35
At December 31, 2020, our basis in the joint venture that owns 712 Fifth Avenue was negative $22,345. Since we have no further obligation to fund additional capital to the joint venture, we no longer recognize our proportionate share of earnings from the joint venture. Instead, we recognize income only to the extent we receive cash distributions from the joint venture and recognize losses to the extent we make cash contributions to the joint venture. During the three months ended June 30, 2021, we received a $622 distribution from the joint venture and made an $11,750 contribution to the joint venture. Accordingly, we recognized a loss of $11,128, which is included in “loss from unconsolidated joint ventures” on our consolidated statements of income for the three and six months ended June 30, 2021. Additionally, the joint venture had net losses of $2,426 for the six months ended June 30, 2021, of which our 50.0% share was $1,213. Accordingly, our basis in the joint venture, taking into account distributions received, contributions made and our share of losses, was negative $12,430 as of June 30, 2021.
(2)
As of June 30, 2021, the carrying amount of our investments in 55 Second Street, 60 Wall Street, One Steuart Lane and Oder-Center is greater than our share of equity in these investments by $483, $2,640, $970 and $4,781, respectively, and primarily represents the unamortized portion of our capitalized acquisition costs. Basis differences allocated to depreciable assets are being amortized into income or loss from the unconsolidated joint ventures to which they relate, over the estimated useful life of the related assets.
(3)
Represents our consolidated Residential Development Fund’s economic interest in One Steuart Lane.
13
The following tables provide the combined summarized financial information of our unconsolidated joint ventures as of the dates thereof and for the periods set forth below.
Balance Sheets:
2,709,681
2,674,858
Cash and cash equivalents and restricted cash
173,497
120,149
Intangible assets, net
83,907
110,307
45,704
45,761
Total assets
3,012,789
2,951,075
Notes and mortgages payable, net
1,871,120
1,801,084
Intangible liabilities, net
22,524
26,772
71,917
87,575
Total liabilities
1,965,561
1,915,431
1,047,228
1,035,644
For the Three Months Ended June 30,
Income Statements:
57,195
59,136
113,723
121,583
581
777
1,338
1,524
57,776
59,913
115,061
123,107
25,467
29,642
50,577
55,582
27,014
29,099
54,467
59,281
52,481
58,741
105,044
114,863
Interest and other (loss) income
(23
48
(13,892
(14,305
(27,632
(30,214
Net loss before income taxes
(8,620
(13,162
(17,671
(21,922
Income tax benefit (expense)
(5
(15
(44
(8,619
(13,167
(17,686
(21,966
5.
Investments in Unconsolidated Real Estate Funds
We are the general partner and investment manager of Paramount Group Real Estate Fund VIII, LP (“Fund VIII”) and Paramount Group Real Estate Fund X, LP and its parallel fund, Paramount Group Real Estate Fund X-ECI, LP, (collectively, “Fund X”), our Alternative Investment Funds, which invest in mortgage and mezzanine loans and preferred equity investments. While Fund VIII’s investment period has ended, Fund X’s investment period ends in December 2025. As of June 30, 2021, Fund X has invested $78,791,000 of the $192,000,000 of capital committed. Our ownership interest in Fund VIII and Fund X was approximately 1.3% and 7.8%, respectively, as of June 30, 2021.
As of June 30, 2021 and December 31, 2020, our share of the investments in the above mentioned unconsolidated real estate funds aggregated $12,979,000 and $12,917,000, respectively, and we recognized $148,000 and $89,000 for our share of income in the three months ended June 30, 2021 and 2020, respectively, and $328,000 and $141,000 for our share of income in the six months ended June 30, 2021 and 2020, respectively.
6.
Intangible Assets and Liabilities
The following tables summarize our intangible assets (acquired above-market leases and acquired in-place leases) and intangible liabilities (acquired below-market leases) and the related amortization as of the dates thereof and for the periods set forth below.
Intangible assets:
Gross amount
381,169
436,851
Accumulated amortization
(245,405
(283,332
Intangible liabilities:
156,478
163,977
(106,086
(107,981
(component of "rental revenue")
758
1,613
2,778
Amortization of acquired in-place leases
(component of "depreciation and amortization")
6,551
9,190
13,770
18,682
The following table sets forth annual amortization of acquired above and below-market leases, net and amortization of acquired in-place leases for each of the five succeeding years commencing from January 1, 2022.
For the Year Ending December 31,
Above and
Below-Market
Leases, Net
In-Place Leases
2022
1,345
21,644
2023
5,080
17,705
2024
6,020
14,248
2025
4,674
10,451
2026
2,801
7,896
15
7.
Debt
The following table summarizes our consolidated outstanding debt.
Interest Rate
Maturity
Fixed/
as of
Date
Variable Rate
Notes and mortgages payable:
1633 Broadway (1)
Dec-2029
Fixed
2.99
%
1,250,000
One Market Plaza (1)
Feb-2024
4.03
975,000
1301 Avenue of the Americas (2)
Nov-2021
3.05
500,000
L + 180 bps
1.93
350,000
2.59
850,000
31 West 52nd Street
June-2026
3.80
300 Mission Street (1)
Oct-2023
3.65
256,864
244,434
Total notes and mortgages payable
3.32
3,831,864
3,819,434
Less: unamortized deferred financing costs
(15,105
(18,695
Total notes and mortgages payable, net
$1.0 Billion Revolving Credit
Facility
Jan-2022 (3)
L + 115 bps
n/a
Our ownership interests in 1633 Broadway, One Market Plaza and 300 Mission Street are 90.0%, 49.0% and 31.1%, respectively.
We are currently exploring various alternatives to refinance this debt.
The $1.0 billion revolving credit facility matures on January 10, 2022 and has two six-month extension options.
8.
Stock Repurchase Program
On November 5, 2019, we received authorization from our Board of Directors to repurchase up to $200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. During 2020, we repurchased 13,813,158 common shares at a weighted average price of $8.69 per share, or $120,000,000 in the aggregate, of which 10,856,865 common shares were repurchased in the six months ended June 30, 2020, 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 six months ended June 30, 2021. We have $80,000,000 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, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.
16
9.
Accumulated Other Comprehensive Loss
The following table sets forth changes in accumulated other comprehensive loss by component for the three and six months ended June 30, 2021 and 2020, including amounts attributable to noncontrolling interests in the Operating Partnership.
Amount of (loss) income related to unconsolidated joint ventures
recognized in other comprehensive loss (1)
(637
(2,104
2,785
(16,672
Amounts reclassified from accumulated other comprehensive
loss increasing loss from unconsolidated joint ventures (1)
1,002
408
1,964
315
Represents amounts related to interest rate swap with a notional value of $402,000, which was designated as cash flow hedge.
10.
Noncontrolling Interests
Consolidated Joint Ventures
Noncontrolling interests in consolidated joint ventures consist of equity interests held by third parties in 1633 Broadway, One Market Plaza and 300 Mission Street. As of June 30, 2021 and December 31, 2020, noncontrolling interests in our consolidated joint ventures aggregated $442,428,000 and $437,161,000, respectively.
Consolidated Real Estate Fund
Noncontrolling interests in our consolidated real estate fund consists of equity interests held by third parties in our Residential Development Fund. As of June 30, 2021 and December 31, 2020, the noncontrolling interest in our consolidated real estate fund aggregated $79,085,000 and $79,017,000, respectively.
Noncontrolling interests in the Operating Partnership represent common units of the Operating Partnership that are held by third parties, including management, and units issued to management under equity incentive plans. Common units of the Operating Partnership may be tendered for redemption to the Operating Partnership for cash. We, at our option, may assume that obligation and pay the holder either cash or common shares on a one-for-one basis. Since the number of common shares outstanding is equal to the number of common units owned by us, the redemption value of each common unit is equal to the market value of each common share and distributions paid to each common unitholder is equivalent to dividends paid to common stockholders. As of June 30, 2021 and December 31, 2020, noncontrolling interests in the Operating Partnership on our consolidated balance sheets had a carrying amount of $358,331,000 and $346,379,000, respectively, and a redemption value of $219,516,000 and $187,640,000, respectively, based on the closing share price of our common stock on the New York Stock Exchange.
11.
Variable Interest Entities (“VIEs”)
In the normal course of business, we are the general partner of various types of investment vehicles, which may be considered VIEs. We may, from time to time, own equity or debt securities through vehicles, each of which are considered variable interests. Our involvement in financing the operations of the VIEs is generally limited to our investments in the entity. We consolidate these entities when we are deemed to be the primary beneficiary.
Consolidated VIEs
We are the sole general partner of, and owned approximately 91.0% of, the Operating Partnership as of June 30, 2021. The Operating Partnership is considered a VIE and is consolidated in our consolidated financial statements. Since we conduct our business through and substantially all of our interests are held by the Operating Partnership, the assets and liabilities on our consolidated financial statements represent the assets and liabilities of the Operating Partnership. As of June 30, 2021 and December 31, 2020, the Operating Partnership held interests in consolidated VIEs owning properties and a real estate fund that were determined to be VIEs. The assets of these consolidated VIEs may only be used to settle the obligations of the entities and such obligations are secured only by the assets of the entities and are non-recourse to the Operating Partnership or us. The following table summarizes the assets and liabilities of consolidated VIEs of the Operating Partnership.
3,454,201
3,470,766
178,873
134,647
5,236
6,871
202,371
192,401
Deferred charges, net
52,008
55,156
69,171
76,545
24,619
21,496
Total VIE assets
4,053,771
4,025,387
2,470,718
2,457,272
54,186
51,590
30,504
33,566
5,412
4,486
Total VIE liabilities
2,560,820
2,546,914
Unconsolidated VIEs
As of June 30, 2021, the Operating Partnership held variable interests in entities that own our unconsolidated real estate funds that were deemed to be VIEs. The following table summarizes our investments in these unconsolidated real estate funds and the maximum risk of loss from these investments.
Investments
Asset management fees and other receivables
236
561
Maximum risk of loss
13,215
13,478
18
12.
Fair Value Measurements
Financial Assets Measured at Fair Value
The following table summarizes the fair value of our financial assets that are measured at fair value on our consolidated balance sheets as of the dates set forth below, based on their levels in the fair value hierarchy.
As of June 30, 2021
Level 1
Level 2
Level 3
Marketable securities (included in "other assets")
16,839
As of December 31, 2020
17,178
Financial Liabilities Not Measured at Fair Value
Financial liabilities not measured at fair value on our consolidated balance sheets consist of notes and mortgages payable, and the revolving credit facility. The following table summarizes the carrying amounts and fair value of these financial instruments as of the dates set forth below.
Carrying Amount
Fair Value
Notes and mortgages payable
3,878,237
3,871,644
19
13.
Leases
We lease office, retail and storage space to tenants, primarily under non-cancellable operating leases, which generally have terms ranging from five to fifteen years. Most of our leases provide tenants with extension options at either fixed or market rates and few of our leases provide tenants with options to early terminate, but such options generally impose an economic penalty on the tenant upon exercising. Rental revenue is recognized in accordance with ASC Topic 842, Leases, and includes (i) fixed payments of cash rents, which represents revenue each tenant pays in accordance with the terms of its respective lease and that is recognized on a straight-line basis over the non-cancellable term of the lease, and includes the effects of rent steps and rent abatements under the leases, (ii) variable payments of tenant reimbursements, which are recoveries of all or a portion of the operating expenses and real estate taxes of the property and is recognized in the same period as the expenses are incurred, (iii) amortization of acquired above and below-market leases, net and (iv) lease termination income.
The following table sets forth the details of our rental revenue.
Rental revenue:
159,641
153,868
320,270
314,544
Variable
14,987
10,121
27,504
24,870
Total rental revenue
Includes $11,309 of non-cash write-offs, primarily for straight-line rent receivables, and $2,051 of reserves for uncollectible accounts receivable in the three and six months ended June 30, 2020.
Includes $5,051 of income in connection with a tenant’s lease termination at 300 Mission Street.
The following table is a schedule of future undiscounted cash flows under non-cancellable operating leases in effect as of June 30, 2021, for the six-month period from July 1, 2021 through December 31, 2021, and each of the five succeeding years and thereafter commencing January 1, 2022.
320,578
632,390
607,310
580,419
522,620
426,925
Thereafter
2,007,828
5,098,070
20
14. Fee and Other Income
The following table sets forth the details of our fee and other income.
Fee income:
Asset management
3,409
3,571
6,895
7,092
Property management
2,085
2,239
4,281
4,689
Acquisition, disposition and leasing
439
268
399
Total fee income
6,201
6,209
12,871
12,539
Other income (1)
1,440
920
2,790
3,151
Total fee and other income
Primarily comprised of (i) tenant requested services, including overtime heating and cooling and (ii) parking income.
15.
Interest and Other Income, net
The following table sets forth the details of interest and other income, net.
Interest income, net
397
428
787
1,416
Mark-to-market of investments in our
deferred compensation plans (1)
673
1,824
1,585
(160
Total interest and other income, net
The change resulting from the mark-to-market of the deferred compensation plan assets is entirely offset by the change in deferred compensation plan liabilities, which is included as a component of “general and administrative” expenses on our consolidated statements of income.
16.
Interest and Debt Expense
The following table sets forth the details of interest and debt expense.
Interest expense
32,593
33,690
65,013
67,991
2,321
2,319
Total interest and debt expense
34,914
36,009
69,653
72,628
21
17.
Incentive Compensation
Stock-Based Compensation
Our Amended and Restated 2014 Equity Incentive Plan provides for grants of equity awards to our executive officers, non-employee directors and employees in order to attract and motivate talent for which we compete. In addition, equity awards are an effective management retention tool as they vest over multiple years based on continued employment. Equity awards are granted in the form of (i) restricted stock and (ii) long-term incentive plan (“LTIP”) units, which represent a class of partnership interests in our Operating Partnership and are typically comprised of performance-based LTIP units, time-based LTIP units and time-based appreciation only LTIP (“AOLTIP”) units. We account for all stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. We recognized stock-based compensation expense of $4,743,000 and $4,241,000 for the three months ended June 30, 2021 and 2020, respectively, and $10,229,000 and $9,638,000 for the six months ended June 30, 2021 and 2020, respectively, related to awards granted in prior periods, including the 2020 equity grants (“2020 Equity Grants”) described below.
2020 Equity Grants
2020 Performance-Based Awards Program (“2020 Performance Program”)
On January 11, 2021, the Compensation Committee of our Board of Directors (the “Compensation Committee”) approved the 2020 Performance Program, a multi-year performance-based long-term incentive compensation program. Under the 2020 Performance Program, participants may earn awards in the form of LTIP units based on our Total Shareholder Return (“TSR”) over a three-year performance measurement period beginning on January 1, 2021 and continuing through December 31, 2023. Specifically, 50.0% of the awards would be earned based on the rank of our TSR relative to the TSR of our Central Business District focused New York City office peers, comprised of Vornado Realty Trust, SL Green Realty Corp., Empire State Realty Trust and Columbia Property Trust, and the remaining 50.0% of the awards would be earned based on the percentile rank of our TSR relative to performance of the SNL U.S. Office REIT Index constituents. Furthermore, if our TSR is negative over the three-year performance measurement period, then the number of LTIP units that are earned under the 2020 Performance Program will be reduced by 30.0% of the number of such awards that otherwise would have been earned. Additionally, if the designated performance objectives are achieved, awards earned under the 2020 Performance Program are subject to vesting based on continued employment with us through December 31, 2024, with 50.0% of each award vesting upon the conclusion of the performance measurement period, and the remaining 50.0% vesting on December 31, 2024. Lastly, our Named Executive Officers are required to hold earned awards for an additional year following vesting. The fair value of the awards granted under the 2020 Performance Program on the date of the grant was $7,303,000 and is being amortized into expense over the four-year vesting period using a graded vesting attribution method.
Time-Based Unit Awards Program (“LTIP and AOLTIP Units”)
On January 11, 2021, we granted an aggregate of 579,520 LTIP units and 2,171,875 AOLTIP units to our executive officers and employees that will vest over a period of three to four years. LTIP units are similar to common units of our Operating Partnership in that they are redeemable for cash, or at our election, may be converted on a one-for-one basis into shares of our common stock. AOLTIP units are similar to stock options in that it permits the holder to realize the benefit of any increase in the per share value of our common stock above the value at the time the AOLTIP units were granted and can be converted into a number of common units of our Operating Partnership that have an aggregate value equal to such increase. The common units issued upon the conversion of AOLTIP units are redeemable for cash, or at our election, may be converted on a one-for-one basis into shares of our common stock. The fair value of LTIP units and AOLTIP units on the date of grant were $4,598,000 and $4,344,000, respectively, and these awards are being amortized into expense on a straight-line basis over the vesting period.
Restricted Stock
On January 11, 2021, we granted an aggregate of 166,686 shares of restricted stock to our employees that will vest over a period of four years. The fair value of the shares of restricted stock on the date of grant was $1,439,000, which is being amortized into expense on a straight-line basis over the vesting period.
22
Completion of the 2017 Performance-Based Awards Program (“2017 Performance Program”)
On January 11, 2021, the Compensation Committee determined that the performance goals set forth in the 2017 Performance Program were not satisfied during the performance measurement period, which ended on December 31, 2020. Accordingly, all of the 1,382,807 LTIP units that were granted on February 5, 2018, were forfeited, with no awards being earned. These awards had a grant date fair value of $7,009,000 and a remaining unrecognized compensation cost of $416,000 as of June 30, 2021, which will be amortized over a weighted-average period of 0.5 years.
18.
Earnings Per Share
The following table summarizes our net loss and the number of common shares used in the computation of basic and diluted loss per common share, which includes the weighted average number of common shares outstanding and the effect of dilutive potential common shares, if any.
(Amounts in thousands, except per share amounts)
Numerator:
Continuing Operations:
Net loss from continuing operations attributable to
common stockholders
(8,234
(6,266
Earnings allocated to unvested participating securities
(18
(37
(26
Numerator for loss from continuing operations per
common share - basic and diluted
(15,961
(8,248
(19,558
(6,292
Discontinued Operations:
Net income from discontinued operations attributable to
3,344
(4
(11
Numerator for income from discontinued operations
per common share - basic and diluted
1,960
3,333
Numerator for loss per common share - basic and diluted
(6,288
(2,959
Denominator:
Denominator for basic loss per common share - weighted
average shares
218,696
221,573
218,681
224,671
Effect of dilutive stock-based compensation plans (1)
Denominator for diluted loss per common share - weighted
(Loss) Income per Common Share - Basic and Diluted:
Continuing operations, net
Discontinued operations, net
Loss per common share - basic and diluted
The effect of dilutive securities excludes 23,822 and 22,917 weighted average share equivalents for the three months ended June 30, 2021 and 2020, respectively, and 23,738 and 24,201 weighted average share equivalents for the six months ended June 30, 2021 and 2020, respectively, as their effect was anti-dilutive.
23
19.
Related Parties
Management Agreements
We provide property management, leasing and other related services to certain properties owned by members of the Otto Family. We recognized fee income of $710,000 and $259,000 for the three months ended June 30, 2021 and 2020, respectively, and $1,227,000 and $707,000 for the six months ended June 30, 2021 and 2020, respectively, in connection with these agreements, which is included as a component of “fee and other income” on our consolidated statements of income. As of June 30, 2021 and December 31, 2020, amounts owed to us under these agreements aggregated $474,000 and $34,000, respectively, which are included as a component of “accounts and other receivables” on our consolidated balance sheets.
We also provide property management, asset management, leasing and other related services to our unconsolidated joint ventures and real estate funds. We recognized fee income of $4,916,000 and $5,396,000 for the three months ended June 30, 2021 and 2020, respectively, and $10,502,000 and $10,709,000 for the six months ended June 30, 2021 and 2020, respectively, in connection with these agreements, which is included as a component of “fee and other income” on our consolidated statements of income. As of June 30, 2021 and December 31, 2020, amounts owed to us under these agreements aggregated $4,399,000 and $5,011,000, respectively, which are included as a component of “accounts and other receivables” on our consolidated balance sheets.
Hamburg Trust Consulting HTC GmbH (“HTC”)
We have an agreement with HTC, a licensed broker in Germany, to supervise selling efforts for our private equity real estate funds (or investments in feeder vehicles for these funds) to investors in Germany, including distribution of securitized notes of feeder vehicles for Fund X. Pursuant to this agreement, we have agreed to pay HTC for the costs incurred to sell investments in these funds or their feeder vehicles, including certain incremental costs incurred by HTC as a result of the engagement, plus a mark-up of 10%. HTC is 100% owned by Albert Behler, our Chairman, Chief Executive Officer and President. We incurred expenses of $123,000 and $126,000 for the three months ended June 30, 2021 and 2020, respectively, and $245,000 and $265,000 for the six months ended June 30, 2021 and 2020, respectively, in connection with this agreement, which is included as a component of “transaction related costs” on our consolidated statements of income. As of June 30, 2021 and December 31, 2020, we owed $123,000 to HTC under this agreement, which are included as a component of “accounts payable and accrued expenses” on our consolidated balance sheets.
Mannheim Trust
A subsidiary of Mannheim Trust leases office space at 712 Fifth Avenue, our 50.0% owned unconsolidated joint venture, pursuant to a lease agreement which expires in April 2023. Dr. Martin Bussmann (a member of our Board of Directors) is also a trustee and a director of Mannheim Trust. We recognized $91,000 and $90,000 in the three months ended June 30, 2021 and 2020, respectively, and $181,000 in each of the six months ended June 30, 2021 and 2020 for our share of rental income pursuant to this lease.
24
20.
Commitments and Contingencies
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 of June 30, 2021, we believe we are in compliance with all of our covenants.
Transfer Tax Assessments
During 2017, the New 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 $49,800,000. Since no amount in this range is a better estimate than any other amount within the range, we have not accrued any liability arising from potential losses relating to these Notices in our consolidated financial statements.
21.
Segments
Our reportable segments are separated by region, based on the two regions in which we conduct our business: New York and San Francisco. Our determination of segments is aligned with our method of internal reporting and the way our Chief Executive Officer, who is also our Chief Operating Decision Maker, makes key operating decisions, evaluates financial results and manages our business.
The following tables provide Net Operating Income (“NOI”) for each reportable segment for the periods set forth below.
For the Three Months Ended June 30, 2021
New York
San Francisco
Property-related revenues
176,068
108,191
68,674
(797
Property-related operating expenses
(64,072
(45,801
(17,067
(1,204
NOI from unconsolidated joint ventures
10,557
2,749
7,852
NOI (1)
122,553
65,139
59,459
(2,045
For the Three Months Ended June 30, 2020
Other (2)
168,455
110,679
54,827
2,949
(65,712
(47,213
(16,054
(2,445
10,376
2,680
9,165
113,119
66,146
47,938
(965
For the Six Months Ended June 30, 2021
350,564
220,028
132,146
(1,610
(130,690
(94,825
(34,005
(1,860
20,883
5,570
15,389
(76
240,757
130,773
113,530
(3,546
For the Six Months Ended June 30, 2020
349,773
232,256
111,494
6,023
(134,177
(96,242
(32,973
(4,962
23,768
5,624
19,547
(1,403
239,364
141,638
98,068
(342
NOI is used 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 use NOI internally as a performance measure and believe it provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Other real estate companies may use different methodologies for calculating NOI and, accordingly, our presentation of NOI may not be comparable to other real estate companies.
NOI for the three and six months ended June 30, 2020 includes NOI from discontinued operations. See Note 3, Discontinued Operations.
26
The following table provides a reconciliation of NOI to net loss attributable to common stockholders for the periods set forth below.
NOI
Add (subtract) adjustments to arrive to net income:
Fee income
Depreciation and amortization expense
(59,925
(58,716
(118,230
(117,143
General and administrative expenses
(18,418
(17,901
(32,782
(30,150
(10,557
(10,376
(20,883
(23,768
Adjustments related to discontinued operations
(2,147
(4,358
Other, net
(169
(88
(320
Less: net (income) loss attributable to noncontrolling interests in:
The following table provides the total assets for each of our reportable segments as of the dates set forth below.
Total Assets as of:
5,359,621
2,711,847
461,672
5,388,596
2,698,983
466,518
27
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, including the related notes included therein.
Forward-Looking Statements
We make statements in this Quarterly Report on Form 10-Q that are considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are usually identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation:
•
the negative impact of the coronavirus 2019 (“COVID-19”) global pandemic on the U.S., regional and global economies and our tenants’ financial condition and results of operations;
unfavorable market and economic conditions in the United States, including New York City and San Francisco, and globally;
risks associated with our high concentrations of our properties in New York City 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;
trends in the office real estate industry including telecommuting, flexible work schedules, open workplaces and teleconferencing;
limited ability to dispose of assets because of the relative illiquidity of real estate investments;
intense competition in the real estate market that may limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities;
insufficient amounts of insurance;
uncertainties and risks related to adverse weather conditions, natural disasters and climate change;
risks associated with actual or threatened terrorist attacks;
exposure to liability relating to environmental and health and safety matters;
high costs associated with compliance with the Americans with Disabilities Act;
failure of acquisitions to yield anticipated results;
risks associated with real estate activity through our joint ventures and private equity real estate funds;
general volatility of the capital and credit markets and the market price of our common stock;
exposure to litigation or other claims;
loss of key personnel;
risks associated with security breaches through cyber attacks or cyber intrusions and other significant disruptions of our information technology (“IT”) networks and related systems;
risks associated with our substantial indebtedness;
failure to refinance current or future indebtedness on favorable terms, or at all;
failure to meet the restrictive covenants and requirements in our existing debt agreements;
fluctuations in interest rates and increased costs to refinance or issue new debt;
risks associated with variable rate debt, derivatives or hedging activity;
risks associated with the market for our common stock;
regulatory changes, including changes to tax laws and regulations;
failure to qualify as a real estate investment trust (“REIT”);
compliance with REIT requirements, which may cause us to forgo otherwise attractive opportunities or liquidate certain of our investments; or
any of the other risks included in this Quarterly Report on Form 10-Q or in our Annual Report on Form 10-K for the year ended December 31, 2020, including those set forth in Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
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, 2020.
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 December 31, 2020.
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 of New York City and San Francisco. We conduct our business through, and substantially all of our interests in properties and investments are held by, Paramount Group Operating Partnership LP, a Delaware limited partnership (the “Operating Partnership”). We are the sole general partner of, and owned approximately 91.0% of, the Operating Partnership as of June 30, 2021.
COVID-19 Update
30
Leasing Results - Three Months Ended June 30, 2021
In the three months ended June 30, 2021, we leased 246,922 square feet, including 81,516 square feet that served to backfill the recent vacancy at 31 West 52nd Street, that was leased for a weighted average term of 14 years and 34,570 square feet that was leased to the Thespian Theatre at 1633 Broadway for a 15-year term. This leasing activity, offset by lease expirations in the three months (comprised primarily of the expiration of TD Bank’s 131,300 square foot lease at 31 West 52nd Street), decreased leased occupancy and same store leased occupancy (properties owned by us in a similar manner during both reporting periods) by 60 basis points to 88.0% at June 30, 2021 from 88.6% at March 31, 2021. Excluding the theatre lease, 212,352 square feet was leased in the three months, of which our share was 197,035 square feet that was leased at a weighted average initial rent of $70.81 per square foot. Of the 212,352 square feet leased, 156,117 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 1.4% on a cash basis and 5.2% on a GAAP basis. The weighted average lease term for leases signed during the three months was 9.3 years and weighted average tenant improvements and leasing commissions on these leases were $10.64 per square foot per annum, or 15.0% of initial rent.
In the three months ended June 30, 2021, we leased 224,649 square feet in our New York portfolio, including 81,516 square feet that served to backfill the recent vacancy at 31 West 52nd Street, that was leased for a weighted average term of 14 years and 34,570 square feet that was leased to the Thespian Theatre at 1633 Broadway for a 15-year term. This leasing activity, offset by the lease expirations in the three months (comprised primarily of TD Bank’s 131,300 square foot lease at 31 West 52nd Street), decreased leased occupancy and same store leased occupancy by 80 basis points to 86.5% at June 30, 2021 from 87.3% at March 31, 2021. Excluding the theatre lease, 190,079 square feet was leased in the three months, of which our share was 184,234 square feet that was leased at a weighted average initial rent of $69.94 per square foot. Of the 190,079 square feet leased, 147,216 represented our share of second generation space for which rental rates decreased by 1.1% on a cash basis and 4.9% on a GAAP basis. The weighted average lease term for leases signed during the three months was 9.6 years and weighted average tenant improvements and leasing commissions on these leases were $10.86 per square foot per annum, or 15.5% of initial rent.
In the three months ended June 30, 2021, we leased 22,273 square feet in our San Francisco portfolio, of which our share was 12,801 square feet that was leased at a weighted average initial rent of $83.33 per square foot. This leasing activity, partially offset by lease expirations in the three months, increased leased occupancy and same store leased occupancy by 10 basis points to 92.1% at June 30, 2021 from 92.0% at March 31, 2021. Of the 22,273 square feet leased in the three months, 8,901 square feet represented our share of second generation space for which rental rates decreased by 6.0% on a cash basis and 9.3% on a GAAP basis. The weighted average lease term for leases signed during the three months was 5.1 years and weighted average tenant improvements and leasing commissions on these leases were $4.62 per square foot per annum, or 5.5% of initial rent.
The following table presents additional details on the leases signed during the three months ended June 30, 2021. It is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The leasing statistics, except for square feet leased, represent office space only.
Three Months Ended June 30, 2021
Total square feet leased
246,922
224,649
22,273
Pro rata share of total square feet leased:
197,035
184,234
12,801
Initial rent (2)
70.81
69.94
83.33
Weighted average lease term (in years)
9.3
9.6
5.1
Tenant improvements and leasing commissions:
Per square foot
99.43
104.70
23.63
Per square foot per annum
10.64
10.86
4.62
Percentage of initial rent
15.0
15.5
5.5
Rent concessions:
Average free rent period (in months)
12.7
13.3
4.8
Average free rent period per annum (in months)
1.4
0.9
Second generation space: (3)
Square feet
156,117
147,216
8,901
Cash basis:
74.27
73.64
84.78
Prior escalated rent (4)
75.35
74.45
90.23
Percentage decrease
(1.4
%)
(1.1
(6.0
GAAP basis:
Straight-line rent
70.03
69.27
82.61
Prior straight-line rent
73.86
72.82
91.04
(5.2
(4.9
(9.3
Includes 34,570 square feet that was leased to the Thespian Theatre at 1633 Broadway for a 15-year term that is excluded from our pro rata share of total square feet leased and the related statistics.
Represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent.
Represents space leased that has been vacant for less than twelve months.
(4)
Represents the weighted average cash basis rents (including reimbursements) per square foot at expiration.
The following table presents same store leased occupancy as of the dates set forth below.
Same Store Leased Occupancy (1)
88.0
86.5
92.1
As of March 31, 2021
88.6
87.3
92.0
Represents percentage of square feet that is leased, including signed leases not yet commenced, for properties that were owned by us in a similar manner during both the current and prior reporting periods.
Primarily due to the May 1, 2021 expiration of TD Bank’s 131,300 square foot lease at 31 West 52nd Street.
32
Leasing Results – Six Months Ended June 30, 2021
In the six months ended June 30, 2021, we leased 435,563 square feet, including 81,516 square feet that served to backfill the recent vacancy at 31 West 52nd Street, that was leased for a weighted average term of 14 years and an aggregate of 190,526 square feet of theatre space that was leased at 1633 Broadway for a weighted average term of 19 years. This leasing activity, offset by lease expirations in the six months (comprised primarily of the expiration of Barclays’ 497,500 square foot lease at 1301 Avenue of the Americas and TD Bank’s 131,300 square foot lease at 31 West 52nd Street), decreased leased occupancy and same store leased occupancy (properties owned by us in a similar manner during both reporting periods) by 720 basis points to 88.0% at June 30, 2021 from 95.2% at December 31, 2020. Excluding the theatre leases, 245,037 square feet was leased in the six months, of which our share was 216,690 square feet at a weighted average initial rent of $71.29 per square foot. Of the 245,037 square feet leased, 174,328 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 2.2% on a cash basis and 6.6% on a GAAP basis. The weighted average lease term for leases signed during the six months was 8.9 years and weighted average tenant improvements and leasing commissions on these leases were $10.38 per square foot per annum, or 14.6% of initial rent.
In the six months ended June 30, 2021, we leased 380,605 square feet in our New York portfolio, including 81,516 square feet that served to backfill the recent vacancy at 31 West 52nd Street, that was leased for a weighted average term of 14 years and an aggregate of 190,526 square feet of theatre space that was leased at 1633 Broadway for a weighted average term of 19 years. This leasing activity, offset by the lease expirations in the six months (comprised primarily of the expiration of Barclays’ 497,500 square foot lease at 1301 Avenue of the Americas and TD Bank’s 131,300 square foot lease at 31 West 52nd Street), decreased leased occupancy and same store leased occupancy by 860 basis points to 86.5% at June 30, 2021 from 95.1% at December 31, 2020. Excluding the theatre leases, 190,079 square feet was leased in the six months, of which our share was 184,234 square feet at a weighted average initial rent of $69.94 per square foot. Of the 190,079 square feet leased in the six months, 147,216 square feet represented our share of second generation space for which rental rates decreased by 1.1% on a cash basis and 4.9% on a GAAP basis. The weighted average lease term for leases signed during the six months was 9.6 years and weighted average tenant improvements and leasing commissions on these leases were $10.86 per square foot per annum, or 15.5% of initial rent.
In the six months ended June 30, 2021, we leased 54,958 square feet in our San Francisco portfolio, of which our share was 32,456 square feet that was leased at a weighted average initial rent of $78.94 per square foot. This leasing activity, offset by lease expirations in the six months, decreased leased occupancy and same store leased occupancy by 360 basis points to 92.1% at June 30, 2021 from 95.7% at December 31, 2020. Of the 54,958 square feet leased in the six months, 27,112 square feet represented our share of second generation space for which rental rates decreased by 7.7% on a cash basis and 13.8% 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 $4.38 per square foot per annum, or 5.5% of initial rent.
33
The following table presents additional details on the leases signed during the six months ended June 30, 2021. It is not intended to coincide with the commencement of rental revenue in accordance with GAAP. The leasing statistics, except for square feet leased, represent office space only.
Six Months Ended June 30, 2021
435,563
380,605
54,958
216,690
32,456
71.29
78.94
8.9
4.4
91.89
19.18
10.38
4.38
14.6
11.8
3.1
1.3
0.7
174,328
27,112
74.42
78.68
76.13
85.25
(2.2
(7.7
71.09
81.01
76.11
94.00
(6.6
(13.8
Includes an aggregate of 190,526 square feet of theatre space that was leased at 1633 Broadway for a weighted average term of 19 years that is excluded from our pro rata share of total square feet leased and the related statistics.
95.2
95.1
95.7
Primarily due to the January 1, 2021 expiration of Barclays’ 497,500 square foot lease at 1301 Avenue of the Americas and the May 1, 2021 expiration of TD Bank’s 131,300 square foot lease at 31 West 52nd Street.
Financial Results - Three Months Ended June 30, 2021 and 2020
Net Income, FFO and Core FFO
Net loss attributable to common stockholders was $15,943,000, or $0.07 per diluted share, for the three months ended June 30, 2021, compared to $6,270,000, or $0.03 per diluted share, for the three months ended June 30, 2020. Net loss attributable to common stockholders for the three months ended June 30, 2021 includes (i) a contribution to an unconsolidated joint venture of $10,688,000 that was expensed in accordance with GAAP and (ii) lower earnings resulting from a reduction in weighted average portfolio occupancy levels (87.1% for the three months ended June 30, 2021 compared to 94.5% for the three months ended June 30, 2020). Net loss attributable to common stockholders for the three months ended June 30, 2020 includes non-cash write-offs (primarily for straight-line rent receivables) aggregating $7,030,000.
Funds from Operations (“FFO”) attributable to common stockholders was $37,943,000, or $0.17 per diluted share, for the three months ended June 30, 2021, compared to $50,663,000, or $0.23 per diluted share, for the three months ended June 30, 2020. FFO attributable to common stockholders for the three months ended June 30, 2021 includes (i) a contribution to an unconsolidated joint venture of $10,688,000 that was expensed in accordance with GAAP and (ii) lower earnings resulting from a reduction in weighted average portfolio occupancy levels (87.1% for the three months ended June 30, 2021 compared to 94.5% for the three months ended June 30, 2020). FFO attributable to common stockholders for the three months ended June 30, 2020 includes non-cash write-offs (primarily for straight-line rent receivables) aggregating $7,030,000. FFO attributable to common stockholders for the three months ended June 30, 2021 and 2020 also includes the impact of non-core items, which are listed in the table on page 59. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the three months ended June 30, 2021 by $9,665,000, or $0.05 per diluted share, and increased FFO attributable to common stockholders for the three months ended June 30, 2020 by $545,000, 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 59, was $47,608,000, or $0.22 per diluted share, for the three months ended June 30, 2021, compared to $50,118,000, or $0.23 per diluted share, for the three months ended June 30, 2020.
Same Store Results
The table below summarizes the percentage (decrease) increase in our share of Same Store NOI and Same Store Cash NOI, by segment, for the three months ended June 30, 2021 versus June 30, 2020.
Same Store NOI
(11.0
(11.7
(9.5
Same Store Cash NOI
3.0
3.8
See pages 51-59 “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.
Financial Results - Six Months Ended June 30, 2021 and 2020
Net loss attributable to common stockholders was $19,521,000, or $0.09 per diluted share, for the six months ended June 30, 2021, compared to $2,922,000, or $0.01 per diluted share, for the six months ended June 30, 2020. Net loss attributable to common stockholders for the six months ended June 30, 2021 includes (i) a contribution to an unconsolidated joint venture of $10,688,000 that was expensed in accordance with GAAP and (ii) lower earnings resulting from a reduction in weighted average portfolio occupancy levels (87.9% for the six months ended June 30, 2021 compared to 94.0% for the six months ended June 30, 2020). Net loss attributable to common stockholders for the six months ended June 30, 2020 includes non-cash write-offs (primarily for straight-line rent receivables) aggregating $7,030,000.
FFO attributable to common stockholders was $88,817,000, or $0.40 per diluted share, for the six months ended June 30, 2021, compared to $112,249,000, or $0.50 per diluted share, for the six months ended June 30, 2020. FFO attributable to common stockholders for the six months ended June 30, 2021 includes (i) a contribution to an unconsolidated joint venture of $10,688,000 that was expensed in accordance with GAAP and (ii) lower earnings resulting from a reduction in weighted average portfolio occupancy levels (87.9% for the six months ended June 30, 2021 compared to 94.0% for the six months ended June 30, 2020). FFO attributable to common stockholders for the six months ended June 30, 2020 includes non-cash write-offs (primarily for straight-line rent receivables) aggregating $7,030,000. FFO attributable to common stockholders for the six months ended June 30, 2021 and 2020 also includes the impact of non-core items, which are listed in the table on page 59. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the six months ended June 30, 2021 by $9,363,000, or $0.05 per diluted share, and increased FFO attributable to common stockholders for the six months ended June 30, 2020 by $622,000, or $0.00 per diluted share.
Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 59, was $98,180,000, or $0.45 per diluted share, for the six months ended June 30, 2021, compared to $111,627,000, or $0.50 per diluted share, for the six months ended June 30, 2020.
The table below summarizes the percentage (decrease) increase in our share of Same Store NOI and Same Store Cash NOI, by segment, for the six months ended June 30, 2021 versus June 30, 2020.
(9.2
(11.9
(3.7
0.1
(1.9
4.5
36
Results of Operations - Three Months Ended June 30, 2021 and 2020
The following pages summarize our consolidated results of operations for the three months ended June 30, 2021 and 2020.
Change
10,639
512
11,151
(241
1,209
517
(123
1,362
(9,762
59
(1,182
1,095
(1
(296
(297
(2,444
(7,023
(1,206
1,000
(9,673
37
Revenues
Our revenues, which consist of rental revenue and fee and other income, were $182,269,000 for the three months ended June 30, 2021, compared to $171,118,000 for the three months ended June 30, 2020, an increase of $11,151,000. Below are the details of the increase (decrease) by segment.
Same store operations
(8,531
(9,788
1,257
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
5,810
628
5,253
(71
Increase (decrease) in rental revenue
(2,741
13,451
(162
(154
(131
Decrease in fee income
(8
520
253
396
(129
Increase (decrease) in other income
Increase (decrease) in fee and other income
(137
Total increase (decrease) in revenues
(2,488
13,847
(208
Primarily due to a decrease in occupancy resulting from the expiration of Barclays’ 497,500 square foot lease at 1301 Avenue of the Americas and TD Bank’s 131,300 square foot lease at 31 West 52nd Street.
Primarily due to income of $5,051 in the current year’s three months, in connection with a tenant’s lease termination at 300 Mission Street.
38
Expenses
Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $142,550,000 for the three months ended June 30, 2021, compared to $141,188,000 for the three months ended June 30, 2020, an increase of $1,362,000. Below are the details of the increase (decrease) by segment.
(399
(1,412
1,013
158
(Decrease) increase in operating
Operations
(1,638
2,980
(133
Increase (decrease) in depreciation
and amortization
Mark-to-market of investments
in our deferred compensation plan
(1,151
1,668
Increase in general and administrative
Decrease in transaction related costs
Total increase (decrease) in expenses
(3,050
3,993
419
Primarily due to lower amortization of in-place lease assets at 1301 Avenue of the Americas due to the expiration of such leases.
Primarily due to accelerated depreciation of tenant improvements in the current year’s three months resulting from a tenant’s lease termination at 300 Mission Street.
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 income, net”.
39
Loss from Unconsolidated Joint Ventures
Loss from unconsolidated joint ventures was $15,717,000 for the three months ended June 30, 2021 compared to $5,955,000 in the three months ended June 30, 2020, an increase of $9,762,000. This increase resulted from:
712 Fifth Avenue
(11,357
1,595
Total increase in loss
Primarily due to an $11,750 contribution in the current year’s three months to the joint venture that owns 712 Fifth Avenue that was expensed in accordance with GAAP. See Note 4, Investments in Unconsolidated Joint Ventures.
Income from Unconsolidated Real Estate Funds
Income from unconsolidated real estate funds was $148,000 for the three months ended June 30, 2021, compared to $89,000 for the three months ended June 30, 2020, an increase of $59,000.
Interest and other income was $1,070,000 for the three months ended June 30, 2021, compared to $2,252,000 of income for the three months ended June 30, 2020, a decrease in income of $1,182,000. This decrease in income resulted from:
Decrease in the value of investments in our deferred compensation plan (which
is entirely offset by a decrease in "general and administrative")
Other, net (primarily lower yields on short-term investments)
(31
Total decrease in income
Interest and debt expense was $34,914,000 for the three months ended June 30, 2021, compared to $36,009,000 for the three months ended June 30, 2020, a decrease of $1,095,000. This decrease resulted primarily from lower borrowings from our revolving credit facility.
Income Tax Expense
Income tax expense was $434,000 for the three months ended June 30, 2021, compared to $138,000 for the three months ended June 30, 2020, an increase of $296,000. This increase resulted primarily from higher taxable income attributable to our taxable REIT subsidiaries in the current year’s three months.
Income from Discontinued Operations
Income from discontinued operations was $2,147,000 for the three months ended June 30, 2020 and represented income from 1899 Pennsylvania Avenue in Washington, D.C., which was sold in December 2020.
40
Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures
Net income attributable to noncontrolling interests in consolidated joint ventures was $7,428,000 for the three months ended June 30, 2021, compared to $405,000 for the three months ended June 30, 2020, an increase in income allocated to noncontrolling interests of $7,023,000. This increase in income resulted from:
Higher income attributable to 300 Mission Street ($4,345 of income in 2021,
compared to loss of $2,736 in 2020)
7,081
(58
Total increase in income attributable to noncontrolling interests
7,023
Primarily due to an increase in occupancy and lease termination income in the current year’s three months.
Net Loss Attributable to Noncontrolling Interests in Consolidated Real Estate Fund
Net loss attributable to noncontrolling interests in consolidated real estate fund was $29,000 for the three months ended June 30, 2021, compared to $1,235,000 for the three months ended June 30, 2020, a decrease in loss allocated to noncontrolling interest of $1,206,000. This decrease was primarily due to higher marketing expense for One Steuart Lane in the prior year’s three months.
Net Loss Attributable to Noncontrolling Interests in Operating Partnership
Net loss attributable to noncontrolling interests in the Operating Partnership was $1,584,000 for the three months ended June 30, 2021, compared to $584,000 of loss for the three months ended June 30, 2020, an increase in loss allocated to noncontrolling interests of $1,000,000. This increase in loss resulted from higher net loss subject to allocation to the unitholders of the Operating Partnership for the three months ended June 30, 2021.
41
Results of Operations - Six Months Ended June 30, 2021 and 2020
The following pages summarize our consolidated results of operations for the six months ended June 30, 2021 and 2020.
8,360
8,331
1,087
2,632
(45
3,037
187
1,116
2,975
(1,285
(833
(2,118
(3,668
(5,786
(11,237
(1,268
1,692
(16,599
42
Our revenues, which consist of rental revenue and fee and other income, were $363,435,000 for the six months ended June 30, 2021, compared to $355,104,000 for the six months ended June 30, 2020, an increase of $8,331,000. Below are the details of the increase (decrease) by segment.
(9,660
(18,580
8,920
4,660
88
4,860
(288
(12,073
20,721
(197
(408
498
Increase in fee income
332
(361
(155
(69
Decrease in other income
(Decrease) increase in fee and other income
195
(12,228
20,652
(93
Primarily due to an increase in occupancy at 300 Mission Street.
Primarily due to income of $5,051 in the current year’s six months, in connection with a tenant’s lease termination at 300 Mission Street.
43
Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $282,118,000 for the six months ended June 30, 2021, compared to $279,081,000 for the six months ended June 30, 2020, an increase of $3,037,000. Below are the details of the increase (decrease) by segment.
(385
(1,417
(252
(2,373
3,705
(245
1,745
887
(3,790
4,737
2,090
Primarily due to accelerated depreciation of tenant improvements in the current year’s six months resulting from a tenant’s lease termination at 300 Mission Street.
44
Loss from unconsolidated joint ventures was $21,033,000 for the six months ended June 30, 2021 compared to $10,176,000 in the six months ended June 30, 2020, an increase of $10,857,000. This increase resulted from:
500
Primarily due to an $11,750 contribution in the current year’s six months to the joint venture that owns 712 Fifth Avenue that was expensed in accordance with GAAP. See Note 4, Investments in Unconsolidated Joint Ventures.
Income from unconsolidated real estate funds was $328,000 for the six months ended June 30, 2021, compared to $141,000 for the six months ended June 30, 2020, an increase of $187,000.
Interest and other income was $2,372,000 for the six months ended June 30, 2021, compared to $1,256,000 of income for the six months ended June 30, 2020, an increase in income of $1,116,000. This increase in income resulted from:
Increase in the value of investments in our deferred compensation plan (which
is entirely offset by an increase in "general and administrative")
(629
Total increase in income
Interest and debt expense was $69,653,000 for the six months ended June 30, 2021, compared to $72,628,000 for the six months ended June 30, 2020, a decrease of $2,975,000. This decrease resulted primarily from (i) lower average LIBOR rates on variable rate debt in the current year’s six months compared to prior year’s six months and (ii) lower borrowings from our revolving credit facility.
Income tax expense was $1,575,000 for the six months ended June 30, 2021, compared to $742,000 for the six months ended June 30, 2020, an increase of $833,000. This increase resulted primarily from higher taxable income attributable to our taxable REIT subsidiaries in the current year’s six months.
Income from discontinued operations was $3,668,000 for the six months ended June 30, 2020 and represented income from 1899 Pennsylvania Avenue in Washington, D.C., which was sold in December 2020.
45
Net income attributable to noncontrolling interests in consolidated joint ventures was $13,156,000 for the six months ended June 30, 2021, compared to $1,919,000 for the six months ended June 30, 2020, an increase in income allocated to noncontrolling interests of $11,237,000. This increase in income resulted from:
Higher income attributable to 300 Mission Street ($6,582 of income in 2021,
compared to loss of $3,820 in 2020)
10,402
835
11,237
Primarily due to an increase in occupancy and lease termination income in the current year’s six months.
Net Income (Loss) Attributable to Noncontrolling Interests in Consolidated Real Estate Fund
Net income attributable to noncontrolling interests in consolidated real estate fund was $56,000 for the six months ended June 30, 2021, compared to net loss attributable to noncontrolling interest in consolidated real estate fund of $1,212,000 for the six months ended June 30, 2020, a decrease in loss allocated to noncontrolling interest of $1,268,000. This decrease was primarily due to higher marketing expenses for One Steuart Lane in the prior year’s six months.
Net loss attributable to noncontrolling interests in the Operating Partnership was $1,935,000 for the six months ended June 30, 2021, compared to $243,000 for the six months ended June 30, 2020, an increase in loss attributable to noncontrolling interests of $1,692,000. This increase in loss resulted from higher net loss subject to allocation to the unitholders of the Operating Partnership for the six months ended June 30, 2021.
46
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 of June 30, 2021, we had $1.51 billion of liquidity comprised of $475,289,000 of cash and cash equivalents, $32,552,000 of restricted cash and $1.0 billion of borrowing capacity under our revolving credit facility. As of June 30, 2021, our outstanding consolidated debt aggregated $3.83 billion. We had no amounts outstanding under our revolving credit facility. In November 2021, the $850,000,000 mortgage loan at 1301 Avenue of the Americas is scheduled to mature. We are currently exploring various alternatives to refinance this debt. We may refinance this debt or any of our maturing debt when it comes due or repay it early depending on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
Revolving Credit Facility
Our $1.0 billion revolving credit facility matures in January 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
On June 15, 2021, we declared a regular quarterly cash dividend of $0.07 per share of common stock for the second quarter ended June 30, 2021, which was paid on July 15, 2021 to stockholders of record as of the close of business on June 30, 2021. This dividend policy, if continued, would require us to pay out approximately $16,900,000 each quarter to common stockholders and unitholders.
47
Off Balance Sheet Arrangements
As of June 30, 2021, our unconsolidated joint ventures had $1.64 billion of outstanding indebtedness, of which our share was $611,320,000. We do not guarantee the indebtedness of our unconsolidated joint ventures other than providing customary environmental indemnities and guarantees of non-recourse carve-outs; however, we may elect to fund additional capital to a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans in order to enable the joint venture to repay this indebtedness upon maturity.
During 2017, the New 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 $49,800,000. Since no amount in this range is a better estimate than any other amount within the range, we have not accrued any liability arising from potential losses relating to these Notices in our consolidated financial statements.
Inflation
Substantially all of our leases provide for separate real estate tax and operating expense escalations. In addition, many of the leases provide for fixed base rent increases. We believe inflationary increases in expenses may be at least partially offset by the contractual rent increases and expense escalations described above. We do not believe inflation has had a material impact on our historical financial position or results of operations.
Cash Flows
Cash and cash equivalents and restricted cash were $507,841,000 and $465,324,000 as of June 30, 2021 and December 31, 2020, respectively, and $556,459,000 and $331,487,000 as of June 30, 2020 and December 31, 2019, respectively. Cash and cash equivalents and restricted cash increased by $42,517,000 and $224,972,000 for the six months ended June 30, 2021 and 2020, respectively. The following table sets forth the changes in cash flow.
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Operating Activities
Six months ended June 30, 2021 – We generated $134,458,000 of cash from operating activities for the six months ended June 30, 2021, primarily from (i) $133,703,000 of net income (before $141,947,000 of non-cash adjustments) and (ii) $889,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii) $134,000 of net changes in operating assets and liabilities. Non-cash adjustments of $141,947,000 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 ended June 30, 2020 – We generated $103,111,000 of cash from operating activities for the six months ended June 30, 2020, primarily from (i) $117,922,000 of net income (before $120,380,000 of non-cash 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. Non-cash 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.
49
Investing Activities
Six months ended June 30, 2021 – We used $62,045,000 of cash for investing activities for the six months ended June 30, 2021, primarily for (i) $52,114,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements and (ii) $11,750,000 of contributions to an unconsolidated joint venture, partially offset by (iii) $1,819,000 from net sales of marketable securities (which are held in our deferred compensation plan).
Six months ended June 30, 2020 – We used $2,792,000 of cash for investing activities for the six months ended June 30, 2020, primarily for (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).
Financing Activities
Six months ended June 30, 2021 – We used $29,896,000 of cash for financing activities for the six months ended June 30, 2021, primarily for (i) $33,685,000 for dividends and distributions paid to common stockholders and unitholders, (ii) $8,562,000 for distributions to noncontrolling interests and (iii) $200,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (iv) $12,430,000 of proceeds from notes and mortgages payable and (v) $121,000 of contributions from noncontrolling interests.
Six months ended June 30, 2020 – We generated $124,653,000 of cash from financing activities for the six months ended June 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 in 1633 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.
50
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, 2021 and 2020.
Reconciliation of net (loss) income to NOI and Cash NOI:
(8,357
13,965
(15,736
Add (subtract) adjustments to arrive at NOI and Cash NOI:
38,289
20,660
976
21,339
12,540
1,035
434
429
15,717
11,111
4,460
146
(6,201
Interest and other (income) loss, net
(1,070
(1,055
(13
Less NOI attributable to noncontrolling interests in:
(26,233
(2,519
(23,714
Paramount's share of NOI
96,441
62,620
35,745
(1,924
Less:
Straight-line rent adjustments (including our share
of unconsolidated joint ventures)
(2,958
(3,086
(30
(including our share of unconsolidated joint ventures)
(1,662
371
(2,033
Cash NOI
117,933
65,668
54,340
(2,075
Less Cash NOI attributable to noncontrolling interests in:
(24,198
(2,479
(21,719
Paramount's share of Cash NOI
93,856
63,189
32,621
(1,954
1,955
4,169
(13,808
39,927
17,680
1,109
21,804
12,323
1,882
138
Loss (income) from unconsolidated joint ventures
5,955
(220
4,651
(6,209
(2,252
(50
(2,202
169
(15,733
(430
(15,303
1,437
98,823
65,716
32,635
472
(10,037
(5,768
(4,241
(28
(1,701
388
(2,089
114
101,495
60,766
41,608
(879
(13,716
(504
(13,212
89,216
60,262
28,396
558
52
(6,084
24,885
(27,045
77,573
38,712
1,945
42,598
24,893
2,162
1,575
1,566
11,094
9,702
237
(12,871
(2,372
(55
(2,334
(48,958
(5,112
(43,846
206
192,005
125,661
69,684
(3,340
(11,060
(1,637
(9,483
(3,465
638
(4,103
226,232
129,774
99,944
(3,486
(43,139
(4,964
(38,175
183,299
124,810
61,769
(3,280
53
11,670
10,074
(24,202
79,946
35,007
2,190
44,536
3,207
Income tax expense (benefit)
742
749
8,799
1,515
(12,539
(1,256
(237
(1,019
320
(31,424
(30,994
209,380
141,208
67,074
1,098
(21,841
(12,178
(9,716
(4,533
776
(5,309
233
213,223
130,236
83,043
(26,918
(26,414
187,745
129,732
56,629
1,384
54
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 ended June 30, 2021 and 2020. These metrics are used to measure the operating performance of our properties that were owned by us in a similar manner during both the current and prior reporting periods, and represents our share of Same Store NOI and Same Store Cash NOI from consolidated and unconsolidated joint ventures based on our percentage ownership in the underlying assets. Same Store NOI also excludes lease termination income, impairment of receivables arising from operating leases and certain other items that vary from period to period. Same Store Cash NOI excludes the effect of non-cash items such as the straight-line rent adjustments and the amortization of above and below-market leases.
Paramount's share of NOI for the three months ended
June 30, 2021 (1)
Dispositions / Discontinued Operations
(1,908
(776
(3,056
1,924
Paramount's share of Same Store NOI for the three
months ended June 30, 2021
94,533
61,844
32,689
June 30, 2020 (1)
(3,881
(1,734
7,685
4,993
2,692
1,940
1,152
788
1,598
(77
1,675
months ended June 30, 2020
106,165
70,050
36,115
Decrease in Same Store NOI
(11,632
(8,206
(3,426
% Decrease
See page 51 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income or loss in accordance with GAAP and the reasons why we believe these non-GAAP measures are useful.
Represents NOI attributable to the 10.0% sale of 1633 Broadway for the months in which it was not owned by us in both reporting periods.
Represents NOI from discontinued operations (1899 Pennsylvania Avenue in Washington, D.C.).
55
Paramount's share of Cash NOI for the three months
ended June 30, 2021 (1)
(1,885
(3,063
1,954
Paramount's share of Same Store Cash NOI for the
three months ended June 30, 2021
91,971
62,413
29,558
ended June 30, 2020 (1)
(3,456
(1,195
(2,261
1,626
1,703
three months ended June 30, 2020
89,326
60,142
29,184
Increase in Same Store Cash NOI
2,645
2,271
374
% Increase
Represents Cash NOI attributable to the 10.0% sale of 1633 Broadway for the months in which it was not owned by us in both reporting periods.
Represents Cash NOI from discontinued operations (1899 Pennsylvania Avenue in Washington, D.C.).
Paramount's share of NOI for the six months ended
1,332
(231
(1,777
3,340
Paramount's share of Same Store NOI for the six
193,337
125,430
67,907
(9,155
(4,797
3,100
(153
3,260
212,950
142,403
70,547
(19,613
(16,973
(2,640
57
Paramount's share of Cash NOI for the six months
1,123
(373
(1,784
3,280
six months ended June 30, 2021
184,422
124,437
59,985
(8,480
(3,889
(4,591
3,047
six months ended June 30, 2020
184,252
126,842
57,410
Increase (decrease) in Same Store Cash NOI
170
(2,405
2,575
% Increase (decrease)
58
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 the National 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 to FFO and Core FFO for the periods set forth below.
Reconciliation of net loss to FFO and Core FFO:
Real estate depreciation and amortization (including our
share of unconsolidated joint ventures)
70,264
70,546
139,405
141,486
FFO
60,136
62,862
131,161
139,718
Less FFO attributable to noncontrolling interests in:
(18,453
(8,711
(33,527
(17,680
(3,769
(4,723
(8,761
(11,001
FFO attributable to common stockholders
37,943
50,663
88,817
112,249
Per diluted share
0.17
0.23
0.40
0.50
Non-core items:
Adjustments to equity in earnings for contributions to
(distributions from) an unconsolidated joint venture
10,492
(920
9,915
(1,308
133
324
379
627
Core FFO
70,761
62,266
141,455
139,037
Less Core FFO attributable to noncontrolling interests in:
(4,729
(4,672
(9,692
(10,942
Core FFO attributable to common stockholders
47,608
50,118
98,180
111,627
0.22
0.45
Reconciliation of weighted average shares outstanding:
Weighted average shares outstanding
Effect of dilutive securities
51,117
4,225
50,563
20,164
Denominator for FFO and Core FFO per diluted share
218,747,401
221,577,424
218,731,791
224,691,370
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Our primary market risk results from our indebtedness, which bears interest at both fixed and variable rates. We manage our market risk on variable rate debt by entering into swap agreements to fix the rate on all or a portion of the debt for varying periods through maturity. This in turn, reduces the risks of variability of cash flows created by variable rate debt and mitigates the risk of increases in interest rates. Our objective when undertaking such arrangements is to reduce our floating rate exposure and we do not enter into hedging arrangements for speculative purposes. Subject to maintaining our status as a REIT for Federal income tax purposes, we may utilize swap arrangements in the future.
The following table summarizes our consolidated debt, the weighted average interest rates and the fair value as of June 30, 2021.
Property
Rate
Fixed Rate Debt:
1633 Broadway
2.99%
1,250,176
1301 Avenue of the Americas
3.05%
500,061
3.80%
517,906
One Market Plaza
4.03%
1,000,849
300 Mission Street
3.65%
260,513
Total Fixed Rate Debt
3.46%
1,750,000
3,481,864
3,529,505
Variable Rate Debt:
1.93%
348,732
Total Variable Rate Debt
Total Consolidated Debt
3.32%
This debt matures in November 2021. We are currently exploring various alternatives to refinance this debt.
In addition to the above, our unconsolidated joint ventures had $1.64 billion of outstanding indebtedness as of June 30, 2021, of which our share was $611,320,000.
The following table summarizes our share of total indebtedness and the effect to interest expense of a 100 basis point increase in LIBOR.
(Amounts in thousands, except per share amount)
Balance
Weighted
Average
Interest
Effect of 1% Increase in Base Rates
Paramount's share of consolidated debt:
Variable rate
1.99
Fixed rate
2,682,647
3.36
2,678,781
3,032,647
3.19
3,028,781
3.20
Paramount's share of debt of non-consolidated
entities (non-recourse):
107,623
3.27
1,076
103,880
3.31
503,697
3.30
503,767
611,320
607,647
Noncontrolling interests' share of above
(413
Total change in annual net income
4,163
On March 5, 2021, the Financial Conduct Authority (“FCA”) confirmed it will cease the publication of the one-week and two-month LIBOR rates after December 31, 2021. The remaining LIBOR rates will continue to be published through June 30, 2023, after which the interest rate for our variable rate debt and interest rate swaps, including interest rates for our variable rate debt and interest rate swaps of our unconsolidated joint ventures, will be based on an alternative variable rate as specified in the applicable documentation governing such debt or swaps or as otherwise agreed upon. While we expect LIBOR to be available in substantially its current form until at least the end of June 2023, it is possible that LIBOR may become unavailable prior to that point. The discontinuation of LIBOR and the related transition to an alternative rate would not affect our ability to borrow or maintain already outstanding borrowings or swaps, however, future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. As of June 30, 2021, all of our variable rate debt outstanding is indexed to LIBOR and we will continue to monitor and evaluate the related risks.
61
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and regulations, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As of June 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures. Based on the foregoing evaluation, as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting in connection with the evaluation referenced above that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
From time to time, we are a party to various claims and routine litigation arising in the ordinary course of business. As of June 30, 2021, we do not believe that the results of any such claims or litigation, individually or in the aggregate, will have a material adverse effect on our business, financial position, results of operations or cash flows.
ITEM 1A.
RISK FACTORS
Except to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None.
Recent Purchases of Equity Securities
On November 5, 2019, we received authorization from our Board of Directors to repurchase up to $200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. During 2020, we repurchased 13,813,158 common shares at a weighted average price of $8.69 per share, or $120,000,000 in the aggregate. We did not repurchase any shares in the three and six months ended June 30, 2021. We have $80,000,000 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, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
ITEM 4.
MINE SAFETY DISCLOSURES
ITEM 5.
OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the following Exhibit Index:
EXHIBIT INDEX
ExhibitNumber
Exhibit Description
10.1†
Amended and Restated 2014 Equity Incentive Plan, effective as of May 13, 2021, incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on May 17, 2021.
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH*
Inline XBRL Taxonomy Extension Schema.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase.
104*
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.)
_______________________________
*
Filed herewith
**
Furnished herewith
†
Indicates management contract or compensatory plan or arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Paramount Group, Inc.
Date:
July 27, 2021
By:
/s/ Wilbur Paes
Chief Operating Officer, Chief Financial Officer and Treasurer
Wilbur Paes
(duly authorized officer and principal financial officer)
/s/ Ermelinda Berberi
Senior Vice President, Chief Accounting Officer
Ermelinda Berberi
(duly authorized officer and principal accounting officer)