Q4 2023 Paramount Group Inc Earnings Call

Good day, ladies and gentlemen, thank you for standing by welcome to the Paramount Group fourth quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group fourth quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.

Operator: A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today, February 15, 2024. I will now turn the call over to Tom Hennessy, Vice President of Business Development and Investor Relations. Thank you, operator, and good morning, everyone.

That answer session will follow the formal presentation. Please note that this conference call is being recorded two day February 15th plus 24, I will now turn the call over to Tom Hennessy, Vice President of business development and Investor Relations.

Thank you operator, and good morning, everyone before we begin I would like to point, everyone to our fourth quarter 2023 earnings release, and supplemental information, which we released yesterday.

Thomas Francis Hennessy: Before we begin, I would like to point everyone to our fourth quarter 2023 earnings release and supplemental information, which were released yesterday. Both can be found under the heading Financial Results in the Investors section of the Paramount Group website at www.pgre.com. Some of our comments will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of the words such as will, expect, should, or other similar phrases, are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on it.

Both can be found under the heading financial results in the investors section of the Paramount website at Www Dot P. G. R E Dot com.

Some of our comments will be forward looking statements within the meaning of the federal Securities laws forward looking statements, which are usually identified by the use of the words such as will expect should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

Therefore, you should exercise caution in interpreting and relying on them we.

Thomas Francis Hennessy: We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. However, these measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

During the call we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

Thomas Francis Hennessy: A reconciliation of these measures to the most directly comparable gap measure is available in our fourth quarter 2023 earnings release and our supplemental information. Hosting the call today, we have Mr. Albert Behler, Chairman, Chief Executive Officer, and President of the company. Wilbur Paes, Chief Operating Officer, Chief Financial Officer, and Treasurer.

A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2023 earnings release, and our supplemental information.

Hosting the call today, we have Mr. Albert Behler, Chairman, Chief Executive Officer, and President of the company.

Silver page, Chief operating Officer, Chief Financial Officer, and Treasurer, and Peter Brindley Executive Vice President head of real estate.

Thomas Francis Hennessy: And Peter Brindley, Executive Vice President, Head of Real Estate. Management will provide some opening remarks, and we will then open the call to questions. With that, I will turn the call over to Albert. Thank you, Tom, and thank you all for joining us today.

Management will provide some opening remarks, and we will then open the call up to questions with that I will turn the call over to Albert.

Thank you Tom and thank you all for joining us today.

Yesterday, we reported core <unk> of 21 cents per share for the fourth quarter, bringing our total for the year to 87 cents per share the high end of our most recent guidance range.

Albert P. Behler: Yesterday, we reported core FFO of $0.21 per share for the fourth quarter, bringing our total for the year to $0.87 per share, the high end of our most recent guidance range. We leased 174,000 square feet in the fourth quarter, bringing the full-year leasing volume to 740,000 square feet, roughly in line with the midpoint of our guidance that was established at the beginning of 2023. Today, we are initiating 2024 core FFO per share guidance with a range between 73 and 79 cents per share and a leasing guidance range between 650,000 and 900,000 square feet. Wilbur will review our financial results and guidance in greater detail.

We leased 174000 square feet in the fourth quarter.

The full year leasing volume grew 740000 square feet roughly in line with the midpoint of our guidance. It was established at the beginning of 2023.

Today, we are initiating 2024 core <unk> per share guidance with a range between 73 and 79 cents per share.

The leasing guidance range between 650000, and 900000 square feet.

Liberty will review, our financial results and guidance in greater detail.

Albert P. Behler: 2023 was an eventful year for Paramount. We began the year in a rising interest rates environment and one with elevated inflation. We had the regional bank crisis early in the year in which two of our key tenants, SBB Securities and First Republic, who also happen to be our largest tenant, failed. We worked diligently to make good of a bad situation, and we did.

2023 was an eventful year for Paramount.

We began the year and rising interest rate environment, and one was elevated inflation.

We have the regional bank crisis early in the year in which two of our key tenants.

B B Securities and Trust Republic, who also happened to be our largest tenant fails.

We work diligently to make good for a bad situation.

And we did.

We negotiated with J P. Morgan Chase you assume 75% of space. It is leased by first Republic under the same economic terms.

Albert P. Behler: We negotiated with JPMorgan Chase to assume 75% of the space that was leased by First Republic under the same economic terms. The remaining 25% that they didn't assume was because it wasn't utilized, and a large portion was subleased to other tenants. We then entered into a direct lease with a subtenant for most of the remaining space. All said, we took a potential $43 million problem and mitigated it down to $500 million.

There are amazing, 25%, if they didn't assume plus because it wasn't utilized and the large portion or.

At least two other tenants.

We then entered into a direct lease with the shop tenants well most of the remaining space.

All said, we took a potential 43 million dollar problem and mitigated it down to 5 million.

Albert P. Behler: Concurrently with that negotiation in San Francisco, we also negotiated a new lease with the entity acquiring substantially all of the assets of SBB Security. The new entity retained about 62% of the space previously leased by SVB Securities on a long-term basis and kept the remaining 38% on a short-term basis. We focus on protecting our balance sheet by making strategic decisions on which debt maturities we sought to extend, where modest debt paid down to new or favorable interest rates and extended terms made sense, like at 300 Mission Street, and where investing additional capital to support the asset didn't make sense, like at 111 Sutter Street. We deployed capital into Paramount Club, our 32,000-square-foot, state-of-the-art amenity center that will serve the Paramount Paramount Club is set to open this spring, and it has already served as a magnet for our New York's most discerning tenants. We also reduced our dividend, enabling us to retain an additional $40 million in cash annually.

Concurrently with that negotiation in San Francisco, We also negotiated a new lease with the entity acquiring.

Essentially all of the assets of <unk> Securities.

The new entity retained about 62% of the space previously leased by SBB Securities on a long term basis and kept the remaining 38% on a short term basis.

You focus on protecting our balance sheet by making strategic decisions on which debt maturities, we shot to extent.

We have modest debt pay down should do all favorable interest rates and extended Travis made sense like at 300 Mission Street and.

We're investing additional capital to support the asset didn't makes sense like at 111 South of St.

We deployed capital into Paramount plus 32000 square foot state of the art Amenity center that will serve the Paramount campus.

Paramount clubs is set to open this spring.

And it's already shift as a magnet in attracting our new York's most discerning tenants.

We also reduced our dividend, enabling us to retain an additional $40 million in cash annually.

Now with 200 to 2023 behind US we look.

Albert P. Behler: Now, with 2023 behind us, we will carry that momentum into 2024, where our primary focus in 2024 will undoubtedly be on leasing. Our lease expiration profile over the next couple of years is elevated, and our goal is simple: de-risk the role. The biggest expiration in 2024 is Clifford Chance's 329,000-square-foot lease at 31 West, which is set to expire at the end of May.

Carried that momentum into 2024.

Our primary focus in 2024 undoubtedly be on leasing.

Our lease expiration profile over the next couple of years, there's elevated and our goal is simple derisk the role.

The biggest exploration in 2024, it's Clifford chance is 329000 square feet leased at 31, West which is set to expire at the end of May.

Albert P. Behler: As you know, we have already de-risked 106,000 square feet, or over 32% of this space, and we are underway in dealing with the remaining availability. Peter will provide additional color on this in our leasing pipeline. Though headline vacancy rates in Manhattan remain elevated, it's important to understand each sub-market and the quality of the assets within each sub-market, as variations can be pronounced. Poinsett.

As you know, we have already Derisked 106000 square feet or over 32% of the space and we are underway in dealing with the remaining availability.

Peter will provide additional color on this and our leasing pipeline.

So headline vacancy rates in Manhattan would mean elevated it's important to understand each sub market and the quality of the assets.

In each sub market as variations can be pronounced.

For instance, the sixth Avenue Submarket.

Albert P. Behler: The Sixth Avenue Submarket has among the lowest overall availability rates, over 500 basis points lower than the overall Midtown office market. We have continued to capture more than our fair share of demand in this corridor where a majority of our assets sit, and that is demonstrated by the same store, the least occupancy rate of our New York portfolio, which is at 90.2%. The bulk of our current availabilities also happen to be on assets in this corridor, and we are poised to continue to capture more than our fair share in 2024. We believe this is reflective of the quality of our assets and our ability to execute in all different types of competitive market environments. We are confident that we will continue to benefit from the ongoing demand for high-quality office space in the 6th Avenue corridor. However, in San Francisco, the market continues to lag.

The lowest overall availability rates over 500 basis points lower than the overall Midtown office market.

We have continued to capture more than our fair share of demand in this corridor.

Majority of our assets sit.

And that is demonstrated by the same store leased occupancy rate of our New York portfolio, which is at 19.

2%.

The bulk of our current availabilities also happened to be on assets in this quarter and we are poised to continue to capture more than our fair share in 2024.

We believe this is to be reflective of the quality of our assets and our ability to execute in all different types of competitive market environments.

We are confident that we will continue to benefit from the ongoing demand for high quality office space and the sixth Avenue corridor.

In San Francisco, the market continues to lag.

Albert P. Behler: Although there are green shoots in the form of record venture capital funding, [inaudible] We are long-term believers in the San Francisco market, and our focus here will be to remain a core portfolio of assets in this market that will flourish as the market recovers. Just last week, we announced the modification and extension of the loan at OneMarketPlaza wherein we paid down less than 13% of the principal balance of the loan in return for a three-year extension and a favorable interest rate. One Market Plaza continues to raise the bar in San Francisco. In 2023, we signed two leases over $130 per square foot, and the asset is currently 94.7% leased. Turning to the transaction market, Activity remains muted.

Although there are green shoots in the formal record venture capital funding.

AI based leasing demand and an improving return to the office statistics.

We are long term believers in the San Francisco market and our focus here will be to remain a core portfolio of assets in this market. That's the flourish as the market recovers.

Just last week, we announced the modification and extension of the loan at one market Plaza, where it can be paid down less than 13% of the principal balance of the loan in return for a three year extension and a favorable interest rate.

One market Plaza continues to raise the bar in San Francisco and.

In 2023, we signed two leases over $130 per square foot and see as it is currently 94, 7% leased.

Turning to the transaction market activity remains muted.

Albert P. Behler: However, we anticipate that 2024 will see increased activity. We believe the number of distressed assets coming to market will rise, and once interest rates begin to decline, as many expect, bid-ask spreads will begin to narrow. That said, equity markets have remained volatile, and there have been very few high-quality assets brought to the market.

However, we anticipate that 2024, well see increased activity, we believe the number of distressed assets coming to market the rice and once interest rates begin to decline as many expect.

Bid ask spreads will begin to narrow.

That said equity markets have remained volatile and there have been very few <unk>.

Quality assets brought to the market.

Albert P. Behler: As always, we will be strategic and disciplined in allocating capital towards external growth opportunities. Lastly, we are very proud of the remarkable progress we made in our sustainability initiatives this year. Our dedication to sustainability and ESG as a whole is one of our fundamental operating tenets. We are leaders in the field.

Always we will be strategic and disciplined in allocating capital towards external growth opportunities.

Lastly, we are very proud of the remarkable progress we've made in a.

Sustainability initiatives this year.

Our dedication to sustainability and ESG as a whole.

One of our fundamental operating tenants.

We are leaders in the field and we know that this has not only enabled us to reduce operating expenses.

Albert P. Behler: And we know that this has not only enabled us to reduce operating expenses, secure high-quality tenants, and ultimately increase portfolio value, but also minimize the environmental footprint we leave behind. For this reason, we were honored to receive the 2023 ENERGY STAR Partner of the Year Award for the second consecutive year, with ENERGY STAR labels for 100% of our portfolio. Additionally, we earned a five-star rating in the 2023 GRASB real estate assessment for the fifth year in a row. We aim to build on these impressive achievements in 2024 as ESG will remain a priority in how we run our business. To close, our priorities for 2024 are clear. We are laser focused on the lease-up of our available space. With our portfolio of stable trophy assets and our proven ability to allocate capital, we remain well positioned for the long term. [inaudible] Thanks, Albert, and good morning.

<unk> high quality tenants.

Ultimately increased portfolio value, but also minimize the environmental footprint, we leave behind.

For this reason we were honored to receive the 2023 energy Star partner of the year Award for the second consecutive year.

Energy Star labels for 100% of our portfolio.

Additionally, we earned a five star rating in the 2023 recipe real estate assessment for the fifth year in a row.

We aim to build on these impressive achievements in 2024.

<unk> will remain a priority and how we run our business.

To close our parallel routines for 2024 are clear.

We are laser focused on the lease up of available space with our portfolio of stable trophy assets into our proven ability to allocate capital we remain well positioned for the long term.

With that I will turn the call over to Peter.

Thanks, Albert and good morning during.

Peter R.C. Brindley: During the fourth quarter, we leased approximately 174,000 square feet, with approximately 139,000 square feet leased in New York and approximately 35,000 square feet in San Francisco. The weighted average term of leases signed during the quarter was 10.2 years. During the fourth quarter, we signed a 49,000 square foot lease with the Major League Baseball Players Association at 1325 Avenue of the Americas for an initial term of approximately 17 years. We also signed a 41,000 square foot lease with Smith Campbell and Russell, a leading law firm, for a term of approximately 11 years. Smith-Gambrel will relocate to 1301 Avenue of the Americas and expand its footprint by approximately 40%.

During the fourth quarter, we leased approximately 174000 square feet with approximately 139000 square feet, Houston, New York, and approximately 35000 square feet in San Francisco.

The weighted average term of leases signed during the quarter was 10 two years.

During the fourth quarter, we signed a 49000 square foot lease with Major League Baseball players Association at 13 25 have moved to the Americas for an initial term of approximately 17 years. We also signed a 41000 square foot lease with Smith Camper Allan Russell, a leading law firm.

For a term of approximately 11 years.

Miss Gambro, well relocate within 13 O One avenue of the Americas and expand their footprint by approximately 40%.

Peter R.C. Brindley: These transactions demonstrate our ability to attract and retain high-quality tenants in our Midtown portfolio and serve as two good examples of tenants expanding their existing footprint, a trend we are seeing more of in our own pipeline, particularly in New York. For the full year, we lease approximately 740,000 square feet for a weighted average lease term of 9.6 years. Tenants continue to prioritize the highest quality assets in our two markets, choosing to pursue well-located, amenity-rich buildings run by best-in-class, well-regarded owners. Our portfolio is uniquely positioned to capitalize on these pronounced trends. We remain laser-focused on delivering exceptional services and executing on our business plan.

These transactions demonstrate our ability to attract and retain high quality tenants and our Midtown portfolio and service two good examples of tenants expanding their existing footprint. The trend we are seeing more of in our own pipeline, particularly in New York.

For the full year, we leased approximately 740000 square feet for weighted average lease term.

Nine six years.

Tenants continue to prioritize the highest quality assets in our two markets choosing to pursue well located amenity rich buildings run by best in class well regarded owners our portfolio is uniquely positioned to capitalize on these pronounced trends, we remain laser focused on delivering exceptional services and executing.

On our business plan.

At quarter end, our same store portfolio wide leased occupancy rate at share was 87, 7% down 40 basis points from last quarter and down 360 basis points year over year.

Peter R.C. Brindley: At quarter end, our same-store portfolio-wide least occupancy rate at share was 87.7 percent, down 40 basis points from last quarter and down 360 basis points year over year. As we look ahead, our 2024 lease expirations are manageable, with 9.8% of annualized rent for approximately 764,000 square feet at share expiring by year-end. Our focus for 2024 is the renewal of tenants in our portfolio with expirations over the next several years and the development of currently vacant or soon to be vacant space. Our pipeline continues to strengthen.

As we look ahead, our 2024 lease explorations are manageable with nine 8% of annualized rent or approximately 764000 square feet.

Sure expiring by year end.

Our focus for 2024 is the renewal of tenants in our portfolio with explorations over the next several years and the lease up of currently vacant or soon to be vacant spaces.

Our pipeline continues to strengthen we currently have leases in negotiation and proposals in advanced stages more than 300000 square feet. A good portion of which is for vacant or soon to be vacant space.

Peter R.C. Brindley: We currently have leases in negotiation and proposals in advanced stages for more than 300,000 square feet, a good portion of which is for vacant or soon-to-be-vacant space. Beyond the 300,000 square feet, we have a healthy and growing pipeline with ongoing negotiations at various stages. Turning to our markets, Midtown's fourth-quarter leasing activity of approximately 4.3 million square feet, excluding renewals, was up 49% quarter-over-quarter and 29% ahead of the five-year quarterly average. While availability in Midtown remains elevated at 18%, select submarkets in Midtown's core have far less availability, hovering at or close to equilibrium. The result of this has been improved economics in premier buildings, particularly on upper floors in the sought-after submarkets. Absorption in Midtown was positive during the fourth quarter and positive for the full year.

And the 300000 square feet, you have a healthy and growing pipeline with ongoing negotiations at various stages.

Turning to our markets.

Fourth quarter leasing activity of approximately $4 3 million square feet, excluding renewals was up 49% quarter over quarter and 29% ahead of the five year quarterly average while availability in Midtown remains elevated at 18%.

Submarkets in Midtown score as far less availability hovering at or close to equilibrium.

The results of this has been improved economics and premier buildings, particularly on upper floors. In these sought after submarkets.

Absorption in Midtown was positive during the fourth quarter positive for the full year first full year of positive absorption in Midtown since 2018.

Peter R.C. Brindley: First full year of positive absorption in Midtown since 2018. This was driven by leasing activity, largely by the financial services industry, and by space withdrawals attributable to building purchases and residential conversions. Tour activity in our New York portfolio continues to increase, as does our pipeline of prospective tenants, most notably for the remaining vacancy at 1301 Avenue of the Americas and the block of space we are currently marketing at 31 West 52nd Street. At 1301 Avenue of the Americas, our market-leading amenity center is set to open in May 2024 and continues to be a differentiator in our pursuit of leading companies.

This was driven by leasing activity largely by the financial services industry and by space withdrawals attributable to building purchases residential conversions.

Tour activity in our New York portfolio continues to increase as our pipeline of prospective tenants most notably for the remaining vacancy at $13. One Avenue of the Americas and the block of space. We are currently marketing at 31 West 50 <unk> Street.

At 13 O One avenue of the Americas, our market, leading amenity center is set to open in May 2024.

Continues to be a differentiator in our pursuit of leading companies.

Our New York portfolio is currently 92% leased on a same store basis S share down 20 basis points quarter over quarter, and down 190 basis points year over year.

Peter R.C. Brindley: Our New York portfolio is currently 90.2% leased on a same-store basis as a share, down 20 basis points quarter over quarter, and down 190 basis points year over year. During the fourth quarter, we leased approximately 139,000 square feet with a weighted average term of 12.4 years and an initial rent of approximately $78 per square foot.

During the fourth quarter, we leased approximately 139000 square feet with a weighted average term of 12 four years with an initial rent of approximately $78 per square foot.

Peter R.C. Brindley: In New York, lease expirations during 2024 will be 10% of annualized rent, or approximately 572,000 square feet at share, driven largely by the known move out of Clifford Chance at 31 West 52nd Street. Shifting our focus to San Francisco, San Francisco recorded 1.5 million square feet of leasing during the fourth quarter, up 25% above the pandemic era quarterly average, but 34.8% below the quarterly average during the preceding 10 years. For the full year, leafing activity in San Francisco remained muted, with very little demand coming from traditional technology companies.

In New York lease explorations during 2024.

10% of annualized rent or approximately 572000 square feet at share driven largely by the known move out Clifford chance at 31, West 50 <unk> Street.

Shifting our focus to San Francisco, San Francisco recorded $1 5 million square feet of leasing during the fourth quarter up 25% above the pandemic era quarterly average of 34, 8% below the quarterly average during the preceding 10 year period.

For the full year leasing activity in San Francisco remain muted with very little demand coming from the traditional technology companies.

Peter R.C. Brindley: Despite a lackluster year of leasing transactions, we are optimistic that San Francisco remains a hotbed for premier tech talent with high growth potential. Return to Office continues to accelerate, and San Francisco-based companies, particularly AI-based companies, continue to attract significant venture capital funding. As a result, total square footage of tenants in the market continues to increase, moving closer to San Francisco's historical average.

Despite a lackluster year of leasing transactions, we are optimistic in San Francisco remains a hotbed for Premier Tech talent with high growth potential.

Return to office continues to accelerate and San Francisco based companies, particularly AI based companies continue to attract significant venture capital funding.

As a result total square footage of tenants in the market continues to increase will be closer to San Francisco to historical average.

Peter R.C. Brindley: AI-based companies contributed to approximately 25% of the leasing activity in 2023 and have become an increasingly large percentage of the demand pipeline in San Francisco, pursuing space of varying sizes in San Francisco's premier buildings. At year-end, our San Francisco portfolio was 80.8% leased on a same-store basis at share, down 120 basis points quarter-over-quarter and down 810 basis points year-over-year, driven by the known move-out of Uber, which we have partially backfilled with the previously announced Waymo. Looking ahead, our San Francisco portfolio has 9.3% of annualized rent, or approximately 192,000 square feet at share, expiring by year-end. We look forward to updating you on our progress. With that summary, I will turn the call over to Wilbur, who will discuss the financial results. Thank you, Peter, and good morning, everyone.

AI based companies contributed to approximately 25% of the leasing activity in 2023 and have become an increasingly large percentage of the demand pipeline in San Francisco pursuing space of varying sizes and San Francisco's Premier buildings.

At year end, our San Francisco portfolio was 88% leased on a same store basis at share down 120 basis points quarter over quarter down 810 basis points year over year, driven by the known move out Uber, which we have partially backfill with the previously announced windmill lease.

Looking ahead, our San Francisco portfolio has nine 3% of annualized rent or approximately 192000 square feet.

Sure expiring by year end.

We look forward to updating you on our progress.

With that summary, I will turn the call over to Wilbur, who will discuss the financial results.

Thank you Peter and good morning, everyone.

Wilbur Paes: I will start off my prepared remarks by covering the details of our fourth quarter results and then get into the building blocks of our 2024 earnings guidance. Yesterday, we reported core FFO of $0.21 per share for the fourth quarter, which came in at the high end of our guidance range and $0.01 above the consensus estimate. Gain still growth in the fourth quarter, as expected, was negative 8% on a cash basis and negative 7.2% on a gap basis, driven by Tuffer Comps and the previously talked about lease termination of an 83,000 square foot tenant at 1633 Broadway in our New York portfolio and Uber lease exploration at Market Center in our San Francisco portfolio. During the fourth quarter, we completed 173,770 square feet of leasing at a weighted average starting rent of $80.17 Marked to markets on 112,898 square feet of second generation space was negative 2.5% on a gap basis and negative 7.5% on a cash basis. Turning to our balance sheet, outstanding debt at year-end was $3.66 billion at a weighted average interest rate of 3.9% and a weighted average maturity of 3.1 years.

I will start off my prepared remarks by covering the details of our fourth quarter results and then get into the building blocks of our 2024 earnings guidance.

Yesterday, we reported core <unk> of 21 per share for the fourth quarter, which came in at the high end of our guidance range and one cents above consensus estimates.

Same store growth in the fourth quarter as expected was negative 8% on a cash basis and negative seven 2% on a GAAP basis.

Driven by tougher comps and the previously talked about lease termination of an 83000 square foot tenant at 16 33 Broadway in our New York portfolio and Uber lease exploration at market Center, and our San Francisco portfolio.

During the fourth quarter, we completed a 173770 square feet of leasing at a weighted average starting rent of $80 17 per square foot and a weighted average lease term of 10 two years.

Mark to markets on 112898 square feet of second generation space was negative two 5% on a GAAP basis and negative seven 5% on a cash basis.

Turning to our balance sheet outstanding debt at year end was $3 six 6 billion at a weighted average interest rate of three 9% and a weighted average maturity of three one years 80.

Wilbur Paes: 87% of our debt is fixed and has a weighted average interest rate of 3.28%. The remaining 13% is floating and has a weighted average interest rate of 8.01%. Our liquidity position at year-end remains strong at over $1.2 billion, comprised of $469.1 million of cash and restricted cash at share and a full $750 million of capacity under our revolver. As you all saw last week, we announced that we, together with our partner, had modified and extended the loan at One Market Plaza. We paid the loan balance down by $125 million, of which our share was a little over $61 million.

87% of our debt is fixed and has a weighted average interest rate of 328%.

The remaining 13% is floating and has a weighted average interest rate of eight point or 1%.

Our liquidity position at year end remains strong at over $1 2 billion comprised of $469 1 million of cash and restricted cash at share and the full $750 million of capacity under our revolver.

As you all saw last week, we announced that we together with our partner had modified and extended the loan at one market Plaza.

We paid the loan balance down by 125 million of which our share was a little over $61 million.

There was a minimal uptick in the rate and we pushed out the term by three years to 2027.

Needless to say this was a terrific outcome in a very challenging capital markets environment.

Wilbur Paes: There was a minimal uptick in the rate, and we pushed out the term by three years to 2027. Needless to say, this was a terrific outcome in a very challenging capital markets environment. As we have reiterated throughout the year, protecting our balance sheet has been and continues to remain our top priority. On the one hand, we have dealt with several near-term maturities by opting to pay down a portion of the debt on certain assets like One Market Plaza and 300 Mission in exchange for favorable rates and extended terms. On the other hand, we have opted not to pay down any debt or invest additional capital in certain assets like 111 Sutter Street and now Market Center. 111 Sutter and Market Center have been dealt a hard blow with the timing of several key lease explorations coinciding with a tough leasing environment and upcoming debt maturity. In the case of 111 Sutter, at year-end 2022, we wrote down our investment to zero, and in early 2023, we defaulted on the loan and negotiated a cash flow loan, whereby we did not invest any capital from our balance sheet.

And as we have reiterated throughout the protecting our balance sheet has been and continues to remain our top priority.

On the one hand, we have dealt with several near term maturities by opting to pay down a portion of the debt on certain assets like one market Plaza and 300 mission in exchange for favorable rates and extended terms.

On the other hand, we have opted not to pay down any debt or invest additional capital in certain assets like 111 Center Street and now market Center.

111, Sutter and market center had been dealt a hard blow with the timing of several key lease explorations, coinciding with a tough leasing environment and upcoming debt maturities.

In the case of 111 Sutter at year end 2022, we wrote down our investment to zero and in early 2023, we defaulted on the loan and negotiated a cash flow loan whereby we did not invest any capital from our balance sheet.

The loan is set to mature in may of 2024, and our position on the asset hasn't changed.

In the fourth quarter of 2023, we also wrote down our investment in market center to zero.

The occupancy at market Center dropped significantly as a result of ubers move out and currently sits at 55, 1%.

Furthermore, over 110000 square feet is set to expire in 2024 and the debt is scheduled to mature in.

Wilbur Paes: The loan is set to mature in May of 2024, and our position on the asset hasn't changed. In the fourth quarter of 2023, we also wrote down our investment in Market Center to zero. The occupancy at Market Center dropped significantly as a result of Uber's move out and currently sits at 55.1%. Furthermore, over 110,000 square feet is set to expire in 2024, and the deck is scheduled to mature in January 2025. These two assets are in workout mode.

In January 2025.

These two assets I and workout mode.

We do not know what an ultimate resolution will look like and there is a strong possibility that these assets may not be in the paramount portfolio going forward.

The value of these assets on our books had been taken down to zero and the fair value of the assets are significantly below the existing debtor mountains.

Currently a drag on occupancy a drag on earnings and a drag on our leverage and we get no credit for it in our stock price.

So all that said, we decided to remove these assets from our core and same store portfolio effective January one 2024.

Until we reach a resolution with our respective lenders on a solution that makes sense for all parties involved.

To that end, we have provided additional disclosure in our supplemental package and our investor deck to help investors understand the impact those two assets currently have on portfolio operations.

Wilbur Paes: We do not know what an ultimate resolution will look like, and there is a strong possibility that these assets may not be in the Paramount portfolio going forward. The value of these assets on our books has been taken down to zero, and the fair value of the assets is significantly below the existing debt amount. They are currently a drag on occupancy, a drag on earnings, and a drag on leverage, and we get no credit for it in our stock price. So, all that said, we decided to remove these assets from our core and same-store portfolio effective January 1, 2024, until we reach a resolution with our respective lenders on a solution that makes sense for all parties involved. To that end, we have provided additional disclosure in our supplemental package and our investor deck to help investors understand the impact those two assets currently have on the portfolio operation.

Now, let me spend a minute on the assumptions used in arriving at 2024 core <unk> guidance.

We expect 2024 core off therefore, which again excludes the impact of the two non core assets I described earlier.

To range between 73, and 79 cents per share or <unk> 76 per share at the midpoint.

In order to facilitate an apples to apples comparison between 23 and 24. We have also presented in our supplemental package in 2023 core <unk> figure as adjusted.

Which is 86 cents per share and excludes one cents per share of earnings contribution from the two noncore assets.

So on a comparable basis for F. F. O is expected to decrease by 10 cents per share from adjusted from an adjusted figure of 86 cents in 'twenty, three 276, which represents the midpoint of our 2020 full guidance.

Wilbur Paes: Now let me spend a minute on the assumptions used in deriving our 2024 core FFO guidance. We expect 2024 Core SFO, which again excludes the impact of the two non-core assets I described earlier, to range between $0.73 and $0.79 per share or $0.76 per share at the midpoint. In order to facilitate an apples-to-apples comparison between 23 and 24, we have also presented in our supplemental package a 2023 core FFO figure as adjusted, which is 86 cents per share and excludes one cent per share of earnings contribution from the two non-core assets. So, on a comparable basis, 4FFO is expected to decrease by $0.10 per share from an adjusted figure of $0.86 in 2023 to $0.76, which represents the mid The $0.10 per share decrease in core FFO is comprised of the following.

The 10 cent per share decrease in <unk> is comprised of the following.

And eight net decrease in cash NOI, driven primarily by significant lease explorations.

A <unk> <unk> decrease in termination income.

That is not budgeted for in 2024.

<unk> decrease in interest fee and other income net of taxes.

A full cent increase in interest expense and a <unk> <unk> increase in G&A.

These negatives aggregating <unk> 18 per share, partially offset by an 8% increase in straight line rent adjustments due to new lease Commencements are same store growth is expected to range between negative, 6% and negative 4% on a cash basis and negative four five person.

Sent and negative two 5% on a GAAP basis.

We expect to lease between 650000, and 900000 square feet and we expect to end the year with the same store leased occupancy rate between 86, 1% and 88, 1%.

Wilbur Paes: An 8 cent net decrease in cash NOI driven primarily by significant lease expirations. A 3 cent decrease in termination income that is not budgeted for in 2024. A two-cent decrease in interest, fee, and other income net of taxes, a four cent increase in interest expense, and a $0.01 increase in GNA.

For additional information on our 2020 full guidance. Please refer to our supplemental package and investor presentation, both of which are available on our website at www Dot <unk> Dot com.

With that operator, please open the lines for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is that the question queue.

Wilbur Paes: These negatives, aggregating $0.18 per share, are partially offset by an $0.08 increase in straight-line rent adjustments due to new lease commencement. Our same-store growth is expected to range between negative 6% and negative 4% on a cash basis and negative 4.5% and negative 2.5% on a gap basis. We expect to lease between 650,000 and 900,000 square feet, and we expect to end the year with the same still lease occupancy rate between 86.1% and 88.1%. For additional information on our 2020 full guidance, please refer to our Supplemental Package and Investor Presentation, both of which are available on our website at www.pgre.com. [inaudible] Thank you.

The press Star two if he would like to remove your question from the queue for.

For participants using speaker equipment, it may be as necessary to pick up your handset before pressing the star keys.

First question comes from Camille Zotto with Bank of America. Please go ahead.

Good morning, I appreciate your comments well over on market Center and Uh Huh.

111 Sutter.

So just wanted to better understand the motivations here because of the refinancing risk has been down for a while and if we look back to prior discussions around these assets.

They've been highlighted as top quality and uniquely positioned within the market.

So has something around the team's expectation for re leasing. These buildings just been pushed so far out that it just doesn't make sense to own anymore.

Sure.

I mean, obviously, we bought these assets because we do believe they are top quality assets.

We invested in these assets in 2019.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

And the World has changed dramatically since then with Covid and interest a rising interest rate environment inflation, etcetera, etcetera, and San Francisco continues to lag New York in terms of fundamentals and we have limited resources and we gotta make relative bets, we have a certain amount of cash.

Camille Bonnel: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. The first question comes from Camille Bonnel with Bank of America. Please go ahead. Good morning.

We have a certain amount of ability to work these loans and we have to make the right capital allocation decisions on where we see fit to invest additional capital and where we deem it Matt.

In the case of these two assets they will also delta terrific.

Wilbur Paes: Appreciate your comments, Wilbur, on Market Center and 111 Sutter. I just want to better understand the motivations here because the refinancing risk has been known for a while. And if we look back to prior discussions around these assets, they've been highlighted as top quality and uniquely positioned within the market. So has something around the team's expectation for releasing these buildings just been pushed so far out that it just doesn't make sense to own anymore? Sure.

Terrible blow in.

In the midst of this declining fundamental environment with significant lease explorations they sit at 55% and in the case of market Center will probably go down to the 40% with the roll in 'twenty four and you have an impending debt maturity. There. So we sit here as a group on the capital allocation table.

And making a decision on which assets, we think makes sense to invest the capital in which it doesn't and so we decided.

Albert P. Behler: Camille, I mean, obviously, we bought these assets because we do believe they are top quality assets. We invested in these assets in 2019, and the world has changed dramatically since then with COVID and interest, rising interest rates, the environment, inflation, et cetera, et cetera. And San Francisco continues to lag New York in terms of fundamentals.

The ultimate resolution of this will take some time to play out but it muddies are.

Poor portfolio operations, so by excluding it from the get go.

Does that able to appreciate the impact on a go forward basis should the resolution be where we ended up handing the keys back to the lender.

And so it sounds like that also.

Mhm.

It also shows that we are that we are.

We're really focusing on shareholders.

L does value yet then doing the right thing for for the Paramount shareholders. There are certain assets, where it makes a hell of a lot of sense to invest more capital and normally these situations.

Wilbur Paes: And we have limited resources, and we have to make relative bets. We have a certain amount of cash. We have a certain amount of ability to work these loans, and we have to make the right capital allocation decisions on where we see fit to invest additional capital and where we deem it not. In the case of these two assets, they were also dealt a terrible blow in the midst of this declining fundamental environment with significant lease expirations.

They they get negotiated and are we are we are starting that negotiation at market Center and.

We are.

You might recall I mean, we are in the.

Good situation as a company that we have.

Wilbur Paes: They sit at 55 percent, and in the case of Market Center, will probably go down to 40 percent with the roll in 24. And you have an impending debt maturity there. So, you know, we sit here as a group at the capital allocation table, making a decision on which assets we think make sense to invest the capital in and which ones don't. And so we decided the ultimate resolution on this will take some time to play out, but it muddies our core portfolio operations. So, by excluding it from the get go, investors are able to appreciate the impact on a going forward basis should the resolution be where we end up handing the keys back to the lender. And so it sounds like this is happening live.

A clean balance sheet without any debt and was cash available and we wanted to keep that company is strong and it's like but there's always saying we were focused on the assets where there is equity currently.

Could there be equity and market center.

And 111 charter of course, if the market turns around since San Francisco seems to be.

Historically turning around quicker.

And more dramatic in both ways.

Up and down.

We will see what what time will bring but for but currently it doesn't make sense to invest expensive shareholder capital.

Got it so it sounds like this is more of a capital allocation decision.

Albert P. Behler: Camille, it also shows that we are really focusing on shareholder value here and doing the right thing for the Paramount shareholders. There are certain assets where it makes a hell of a lot of sense to invest more capital, and normally, these situations get negotiated, and we are starting that negotiation at Market Center. You might recall, I mean, we are in a good situation as a company that we have a clean balance sheet without any debt and with cash available, and we want to keep that company strong, and it's like what Wilbur was saying, we are focused on the assets where there's equity currently. Could there be equity in Market Center and 111 Sutter? Of course, if the market turns around since San Francisco seems to be historically turning around quicker and more dramatic in both ways, up and down. We will see what time brings, but currently, it doesn't make sense to invest. I got it.

Looking though at how tight your concentration is in that market.

I'm, sorry, if I missed your earlier comments theater, but how confident argue and back filling or retaining the large lease expiries.

One front street, and one market Plaza for 2025.

Yes. Good morning, so so you're right we do have.

Significant lease roll in 2025 in San Francisco, approximately one 1 million square feet or 35% at share approximately.

Roughly 65% of that role is made up of three three tenants in.

Those being KPMG, Google and JP Morgan I will tell you that we enjoy a very very good relationship with all three.

We are in discussions with all three and Theres not much more I can say beyond that.

Okay, and just finally, the mark to market on leasing during the quarter declined quite a bit has anything changed around how you're approaching our leasing strategy and overall, how should we be thinking about the pace of leasing this year.

Camille Bonnel: So, sounds like this is more of a capital allocation decision. Looking, though, at how tight your concentration is in that market. And sorry if I missed your earlier comments, Peter, but how confident are you in backfilling or retaining the large lease expiry in One Market Front Street and One Market Plaza through 2025? Yes, Camille, good morning.

Yeah.

No I think I think it's hard to look at it on a quarter by quarter basis, what I would say is that our properties and will start in New York are in Submarkets predominantly the sixth Avenue, Submarket, which has an availability rate thats hovering.

Peter R.C. Brindley: So you're right, we do have a significant lease role in 2025 in San Francisco, approximately 1.1 million square feet or a 35% share of property. Roughly 65% of that role is made up of three tenants, those being KPMG, Google, and JP Morgan. I will tell you that we enjoy a very, very good relationship with all three.

Close to equilibrium and I think what we are seeing is is for the first time a bit of pricing power on upper floors. As an example, we do know that a disproportionate amount of Midtown availability happens to be concentrated on lower floors.

So when and where we have availability and our very high quality buildings of course, we are starting to push on spaces that we are now marketing an upper floors.

Peter R.C. Brindley: We are in discussions with all three, and there's not much more I can say. Okay. And just finally, the mark to market on leasing during the quarter declined quite a bit. Has anything changed about how you're approaching your leasing strategy? And overall, how should we be thinking about the pace of leasing this year? No, I think it's hard to look at it on a quarter by quarter basis.

No I will say on your Mark to comment as Peter said, it does fluctuate quarter to quarter, it's a function of tenant mix that expires in that given quarter in leases that you execute but if you look at the full year for 2023, Mark to markets were flat on a GAAP basis and down less than 3% on a cash basis.

Thank you.

Next question Zach around Malhotra with Mizuho. Please go ahead.

Peter R.C. Brindley: What I would say is that our properties, and I'll start in New York, are in submarkets, predominantly the Sixth Avenue submarket, which has an availability rate that's hovering close to equilibrium. And I think what we are seeing is, for the first time, a bit of pricing power on upper floors, as an example. We do know that a disproportionate amount of Midtown's availability happens to be concentrated on lower floors. So when and where we have availability in our very high-quality buildings, of course, we are starting to push on spaces that we're now marketing on upper floors. Camille, on your mark-to-market comment, as Peter said, it does fluctuate quarter-to-quarter.

Hi, Thanks.

I just wanted to go back to the building that you mentioned 111 soccer.

In our markets and I guess in the Q, you've also mentioned 712 fifth.

And then 60 wall.

In terms of the bases.

And then additional catheter so maybe just any.

Any thoughts on those other two properties in and I guess, what about if you can clarify if these buildings are.

Given back is there a tax implication in terms of the debt value versus you know you're writing them down to zero.

Sure.

Let me, let me start with the first part of your question Vikram.

Youre talking about the basis being negative there is an accounting convention for.

Wilbur Paes: It's a function of the tenant mix that expires in that given quarter and the leases that you execute. But if you look at the full year for 2023, mark-to-markets were flat on a gap basis and down less than 3% on a cash-back basis. Thank you. Next question, Vikram Malhotra with Mizzouho, please go ahead.

Investments in equity method joint ventures, upon which when you get to zero.

Get to negative basis, you discontinue the equity method of accounting, Okay, and and so you are no longer allowed to pick up your pro rata share of earnings from that venture.

Vikram L. Malhotra: Thanks. I guess I just wanted to go back to the buildings that you mentioned, 111 Sutter, you know, Market Center, I guess in the K, you've also mentioned 712 Fifth and then 60 Wall in terms of the bases and an additional capital. So, maybe just any thoughts on those other two properties and, I guess, Wilbur, if you can clarify if these buildings are given back, is there a tax implication in terms of the debt value versus, you know, you're writing them down to zero?

And you only recognize earnings to the extent of cash flow distributions.

So that's the comment with respect to 60 wall oven shutter the impairments on these assets have taken our investment down to zero in the case of <unk>.

111, Southern market Center, that's a deliberate decision for us not to invest additional capital in that so that's a strategic decision versus the others are more an accounting convention.

Wilbur Paes: Sure. Let me start with the first part of your question, Vikram. You're talking about the basis being negative.

As far as the.

The second part of your question I'm, sorry can you repeat that again, yeah. Just are there any tax implications like if you give back yeah yeah.

Wilbur Paes: There is an accounting convention for investments in equity method joint ventures, upon which when you get to zero or you get to a negative basis, you discontinue the equity method of accounting. Okay, and so you're no longer allowed to pick up your pro rata share of earnings from that venture, and you only recognize earnings to the extent of cash flow distribution. So, that's the comment with respect to 60 Wall and 11 Sutter. The impairments on these assets have taken our investment down to zero.

Okay.

So there are essentially the way you should think about it is <unk>.

Why these assets for some number in 2019, the if you hand, the keys back Youre handing it effectively at the debt balance so thats. Your your proceeds you'll have.

A dell.

Delta between that and the basis of the asset.

In this case will generate tax losses, given when these assets were acquired so theres no punitive element of handing back the keys, if that's where you're you were trying to do that okay. Yeah. I was just trying to clarify like if the base is actually yours. So there's actually a tax bill but youre.

Wilbur Paes: In the case of 111 Sutter and Market Center, that's a deliberate decision for us not to invest additional capital in that. So that's a strategic decision versus the others, which are more an accounting convention. As far as the second part of your question, I'm sorry, Vikram, can you repeat that again?

Wilbur Paes: Yeah, just, are there any back simplifications, like if you give back the assets? So there are, essentially, the way you should think about it is, you know, you acquired these assets for some number in 2019. If you hand the keys back, you're handing it effectively at the debt balance. So that's your profit. You'll have a delta between that and the basis of the asset, which in this case will generate tax losses, given when these assets were acquired. So there's no punitive element to handing back the keys if that's what you were trying to do.

That's D clarifying that no there.

So punitive impact so that's helpful.

Just a second question on the drop in my mind.

We've gone from my end with regard to 712 712 as an asset there's no negative.

Would that asset as such.

The asset is.

As a prime assets in <unk> portfolio. It has been bought a long time ago.

And I think I answered that question, but I don't want investors to get away from this at 712 as in any kind of financial distress.

Wilbur Paes: Okay. Yeah, I was just trying to clarify, like, if the base is actually zero, so there's actually a tax bill, but you're actually clarifying that, no, there's..., Vikram, from my end, we've got to 712. 712 is an asset. There's no negative, with that asset as such. The asset is a prime asset in Paramount's portfolio. It was bought a long time ago, and Wilbur, I think, answered that question. But I don't want investors to get away with thinking that 712 is in any kind of financial distress. That's helpful. I guess, Albert, just sticking with you, if some of your peers have decided to buy out JV Stakes and take, I guess, operation or execution opportunities down the road, you know, hoping for a lease up or just redevelopment, I'm wondering, either in the fund business or in general, how are you thinking about, you know, deploying select capital towards some of these JV Stakes or even mezzanine investments? Like So if you can just clarify, like, is this the time right now? What are you watching for, if not? I think it's too early to really go into this in detail.

That's helpful. I guess, Albert just sticking with you. The if some of your peers have decided to buy out JV Stakes and <expletive> I guess operational execution opportunities down the road.

You know, hoping for lease up or just redevelopment I'm wondering either in the fund business or in general how are you thinking about you know the.

Flooring select capital towards some of these JV stakes or even mezzanine investments like you have or do have a debt book.

So if you can just clarify that because at the time right now what are you watching for is not.

I think it's too early to really go into this in detail.

We like to we like to treat our partners as real partners.

Wouldn't take advantage of them unless they really are.

Decide against certain.

Going forward situation.

And we have the opportunity.

To to buy.

At at below market level, we will be again in each and every case very very selective because I said over and over on these calls that our cash is a very valuable to us.

And we don't want to spread it out among.

Other assets, if it's not crystal clear that we can generate superior returns.

Albert P. Behler: We like to treat our partners as real partners. We wouldn't take advantage of them unless they really decide against a certain, um, uh, going forward situation and we have the opportunity to buy a piece at a below-market level. We will again, in each and every case, be very, very selective because I said over and over on these calls that our cash is very valuable to us and we don't want to spread it out amongst other assets if it's not crystal clear Okay, great.

Our returns to our shareholders.

Okay, Great and last one if I can just clarify Peter.

Did you say there were 200000 square feet of deals under LOI or is that sort of a pipeline that you're pursuing are towards the the the leasing goal that you laid out.

My victory My reference to 300000 square feet was specifically related to leases in negotiation or proposals in very advanced stage.

Albert P. Behler: And last one, if I could just clarify, Peter, did you say there were 300,000 square feet of deals under LOI? Or is that sort of a pipeline that you're pursuing towards the leasing goal that you laid out? My, Vikram, my reference to 300,000 square feet was specifically related to leases and negotiations or proposals in very advanced stages.

Stages.

Beyond beyond that we have a pipeline that we feel good about as well it is growing and as I mentioned in my remarks. It is it is healthy and better than it was a year ago, I would say, but but specifically leases out or proposals in advanced stages that was my reference to the 300000 and could you break that up just roughly between New York.

Peter R.C. Brindley: Beyond that, we have a pipeline that we feel good about as well. It is growing, and as I mentioned in my remarks, healthy and better than it was a year ago, I would say, but specifically leases out or proposals in advanced stages. That was my record.

In San Fran.

It's roughly 50 50.

Okay. Thank you.

Thank you.

Next question, Steve <unk> with Evercore ISI. Please go ahead.

Yeah. Thanks, I guess Albert you know we've seen a couple of very high profile retail transactions, along fifth Avenue at that sort of eye-popping pricing.

Peter R.C. Brindley: And could you break that up just roughly between New York and San Francisco? It's roughly 50-50. Okay, thank you. Thank you. Next question, Steve Sakwa with Evercore ISI, please go ahead. Yeah, thanks.

I know you still have some they can see from the old the Henri Bendel space and I'm. Just curious you know how you're sort of thinking about you know some of those street retail positions that you own today.

Stephen Thomas Sakwa: I guess, Albert, we've seen a couple of very high-profile retail transactions along Fifth Avenue at sort of eye-popping prices. I know you still have some vacancy from the old Henry Vandell space, and I'm just curious how you're sort of thinking about some of those street retail positions that you own today. Well, we do.

We are.

We have quite a presence on fifth Avenue as you rightfully said.

712 is right in the mix and the.

Peter and his team have been cautious.

Albert P. Behler: We have quite a presence on Fifth Avenue, as you rightfully said, 7-12 is right in the mix, and Peter and his team have been cautiously marketing the, I would call it, leftover space from Henry Vandell. You might recall that we leased a relatively small portion of that former Henry Vandell space to Harry Winston at roughly the price that the entire Henry Vandell space brought for the investors. The retail market is clearly picking up, not only on the investment side but also on the demand side in the luxury area, and we are also in discussions with regard to various opportunities with regard to the assets where we hold 1%, which is 745 Fifth Avenue. It's an asset management opportunity for Paramount. And I don't want to go into more details.

Cautiously marketing the.

I'd call it leftover space from Henri Bendel.

You might recall that to be released.

As a relatively small space.

Of that.

Of that former Henri Bendel space to Harry Winston at roughly the price at the entire Henri Bendel space.

Brought for.

For the investors.

The retail market is clearly picking up not only on the investment side, but also on the demand side in the luxury area.

And we are also in discussions.

With was various.

Attunity is with regard to the assets, where we hold 1% which is 745.

<unk> Avenue, it's in asset management.

Opportunity for Paramount and I don't want to go into into more details of course, we have watched.

Albert P. Behler: Of course, we have watched the transactions that just happened between the end of last year and early this year. So we think it's great news that Fifth Avenue, in that location, which is a world-leading retail location, is picking up significantly. It's good for Paramount, it's good for New York, and it's good for our shareholders. Okay, thanks, Wilbur.

The the.

Transactions that just happened between end of last year and early this year.

So we.

We think it's great news that the fifth Avenue is.

In that location, which is.

A world leading retail location is picking up significantly it's good for Paramount is good for New York is good for our shareholders.

Okay. Thanks Wilbur.

Stephen Thomas Sakwa: You know, the refinancing that you and your partner did in one market was certainly great. I guess we were certainly surprised, pleasantly, at the rate that you guys were able to achieve. And, you know, I can understand the banks and the CNBS folks sort of pushing problems out. I guess I was just really surprised at the rate. It was basically flat to where the old rate was, which is certainly sort of a below-market rate today.

The the refinancing that you and your partner did it at one market you know it was certainly great. I guess, we were certainly surprised I guess pleasantly it at the rate that you guys were able to achieve and you know I can understand the banks and the C. N B S folks sort of pushing problems out I guess I was just really surprised that the rate.

It was basically flat to where the old rate was which is certainly sort of a below market rate today, just any color you can sort of offer on how the banks and lenders are thinking about resetting these loans, if they're willing to push them out.

Wilbur Paes: Just any color you can sort of offer on how the banks and lenders are thinking about resetting these loans, if they're willing to push them out. Stephen, I think I kind of alluded to this last quarter. Each process is bespoke.

Steve and I think I kind of alluded last quarter on this each spot processes bespoke.

It depends on the quality of the asset it depends on the quality of the sponsorship.

Wilbur Paes: It depends on the quality of the asset. It depends on the quality of the sponsorship. And in this case, obviously, One Market Plaza is arguably the best asset in San Francisco. And it's close to 95% leased in place, and rent is north of $100 a foot.

And.

In this case obviously.

One market Plaza is arguably the best asset in San Francisco.

And.

It's close to 95% leased in place rent is north of $100 a foot.

Wilbur Paes: So it has a great, great quality together with great sponsorship. I think, you know, we were very early on talking to our lenders in this instance. I think the sponsorship, the relationships all factor into the factor of getting a superb execution done. And relationships, Wilbur mentioned it, relationships are very important. It's part of our culture at Paramount, and we think that they're very important for the long term. And we try to have the best relationships with our lenders. And I think the straightforwardness and the forthrightness in dealing with these situations have helped Wilbur and his team, and that's the way we approach things.

So it has it has.

Great Great quality together back with great sponsorship I think.

We're very early on talking to our lenders in this instance.

I think the sponsorship the relationships all display into into.

Into the factor of getting.

Superb execution done.

And then relationships those are mentioned it relationships.

As a as a very important.

It's part of our culture at Paramount and we think that is very important.

For the long term.

We try to have the best relationships with our lenders and I think the straightforwardness and forthrightness and dealing with these situations.

Uh huh.

The Bill Bryan this is team.

And that's the way how we approach things.

Okay. Just last question maybe for Peter just on the leasing.

Albert P. Behler: Okay, just last question maybe for Peter, just on the leasing, I appreciate the color on kind of the pipeline, just any color around the types of tenants that you are speaking to, is it broadening out at all from financial services and legal? And I guess I know you've got this big Google expiration coming up in 25, the loan there got extended for three years. Is that sufficient to maybe allay any fears that maybe they had about the kind of ownership of that building as they think about, you know, space needs in San Francisco? Certainly, I think they acknowledge that, and they're all in the same place.

I appreciate the color on the kind of the pipeline just any color around the types of tenants that you're speaking to is it broadening out at all from financial services and in legal and I guess I know you've got this big Google exploration coming up in 'twenty five the the loan there got extended for three years does that.

Does that is that sufficient to maybe allay any fears that maybe they had about kind of the ownership of that building as they think about space needs in San Francisco.

Certainly I think.

They acknowledge that.

It was really very important what we accomplished and it shows our investment and our commitment to that to that property and.

Peter R.C. Brindley: So, I think it's really very important what we accomplished, and it shows our investment and our commitment to that property. And we've had productive conversations, and there's not much, really, as I said earlier, I can say as it relates specifically to Google. But I will generally say one market, in terms of the limited availability and vacancy that we do have, happens to be active currently. And so, we feel good about that. As it relates to the types of tenants we're speaking to, in New York, it's predominantly financial services and legal. The legal industry contributed 20% towards leasing velocity in 2023. They represent about 11% to 12% of our market in Midtown.

We've had productive conversations and theres not much really as I said earlier I can say as it relates specifically to Google.

But I will generally say one market in terms of the limited availability and vacancy that we do have happens to be.

Active currently and so we feel good about that as it relates to the types of tenants were speaking to in New York, It's predominantly financial services and legal the legal industry in 2023 contributed 20% towards leasing velocity, they represent about 11% 12% of our market in Midtown so.

Peter R.C. Brindley: So they continue to show up, and we're seeing them with proposals and tours, and they're generally very active. In San Francisco, it's predominantly tech that we're communicating with, and we're speaking with and trading paper with some smaller AI-based companies. It's interesting, at this time last year, AI was not really much in terms of part of the tenants in the market pipeline, and by year's end, they had contributed about $25,000. www.paramountgroupinc.com When I refer to the 25%, of course, that was made up primarily of anthropic and open AI. These are requirements that come about very quickly, and we're in front of them, and we're trading paper with So, as Albert mentioned earlier, this is a market that can change very quickly, and I think the team is doing a very nice job being ahead of every single requirement.

So they continue to show up and we're seeing them with proposals and tours and they're generally very active in San Francisco, It's predominantly tech that we're communicating with and we're speaking and trade.

Trading paper with some smaller AI based companies. It's interesting at this time last year and I was not really much in terms of part of the tenants in the market pipeline and by year's end.

Contributed about 25% towards total leasing activity in 2023. So these requirements come about very quickly we have our eyes wide open we're in front of every one of these requirements.

When I refer to the 25% of course that was made up primarily of anthropic an open AI.

These are these are requirements that come about very quickly and we're in front of them and we're trading paper with them. So as Albert mentioned earlier. This is a market that can change very quickly.

And I think the team is doing a very nice job being in front of every single requirement and when we have an opportunity or are building show very very well. So we are hyper focused on on leasing our vacant spaces and then of course dealing with the role that we have in front of us in San Francisco.

Stephen Thomas Sakwa: And when we have an opportunity, our buildings sell very, very well. So we are hyper-focused on leasing our vacant spaces and then, of course, dealing with the role that we have in front of us in San Francisco. Great, that's it for me, thanks.

Great that's it for me thanks.

Thank you Steve.

William Thomas Catherwood: Thank you, Steve. Next question, Tom Catherwood with BTIG, please go ahead. Thanks and good morning everybody.

Next question, Tom Catherine Wood with BTG. Please go ahead.

Thanks, and good morning, everybody.

Albert P. Behler: Perhaps going back to your comments about capital allocation and focusing on retaining tenants with expiring leases over the next few years, do you have near-term plans to invest additional capital into select buildings to facilitate these expansions beyond just the normal course of leasing expenses? Well, we do.

Maybe going back to your comments about capital allocation and focusing on retaining tenants with expiring leases over the next few years.

Do you have near term plans to invest additional capital into select buildings to facilitate these expansions beyond just the normal course leasing expenses.

Well we have.

As you know we have.

Albert P. Behler: As you know, we have worked on the amenity center that we call the Paramount Club here at 13016 Avenue that's going to open in the second quarter of this year. Peter has talked about it a couple of times. We got some very positive feedback already from tenants. They are already booking space for events, and that's something that the team spent a lot of time on it to really structure it, so it's helpful for the infrastructure of the and Paramount buildings here in Midtown. So we are very focused on hospitality. We are very focused, but these are soft factors on security in these assets. Other than that,

Worked on the amenity center.

Called the Paramount Club here 31, six Avenue, that's going to open in the second quarter of this year.

Peter has talked about it a couple of times, you've got some very positive feedback already.

From tenants are already booking space.

For for events and that's something that is really.

The team has spent a lot of time on it to really structure. So it is helpful for us.

The infrastructure of the.

The Paramount.

Buildings here in Midtown. So we are very focused on hospitality. We are very focused but these are soft factors on security in these assets.

Other than that I think we told them we talked about in the past our assets.

Albert P. Behler: I think we, Tom, as we talked about in the past, our assets are pretty well maintained, and they are kept very modern. We do upgrades where they are necessary, and we have done that in San Francisco.

Pretty well maintained.

Maintained and kept very modern and we do upgrades, where they are necessary.

And we have done that in San Francisco, we have a couple of amenity facilities.

Wilbur Paes: We have a couple of amenity facilities in the various buildings there, and I think that's why tenants like these kinds of assets. Tom, maybe just to add to what Albert says, obviously, in terms of major CapEx, when you look at the portfolio, it's really the amenity center that we have about $10 million or so left to spend. We had talked about that, you know, being roughly a $39 million project of which $29 million have already been spent through the year, so you've got about a $10 million spend there, and the only other outside of regular TI And we only have 5% of that asset. So let's say there was a long negotiation that was held with the lending team and with our partners, and there will be a large amount of capital being invested. We talked about that, and as Wilbur was saying, that's basically for Paramount since our share is limited. It will be relatively benign.

In the various buildings there and.

I think that's my wide tenants and tenants like these kind of assets.

I appreciate that.

Just to just to add to what Albert said, obviously in terms of major Capex. When you when you look at.

The portfolio, it's really the amenity center that we have about $10 million or so left to spend we had talked about that being roughly at $39 million project of which 29 has already been spent through year. So you've got about a $10 million spend there.

The only other outside of regular Ti Capex is.

Our share of the development on 60 wall and again, that's going to get offset by the fee stream.

We generate from that project.

And we only have 5% in that asset so, let's say a long negotiation that was held with the with the lending team and with our partners and.

There will be a.

The large amount of capital being invested we talked about that and Thats, what were saying thats basically for Paramount since with Powershares limited.

Albert P. Behler: Got it. I appreciate that, but let me just make sure I... put this all together and understand it.

It will be relatively benign.

Yeah.

Got it appreciate that let me just make sure I.

Put this together and understand it so.

William Thomas Catherwood: So going back to Peter's comments on the 1.1 million square feet expiring in San Francisco through 25. So there aren't then major capital projects to get ahead of some of those expirations in one front or one market plaza. They think the buildings are up for it.

Going back to Peter's comments on the $1 1 million square feet expiring in San Francisco through 25, so there arent there and major capital projects to get ahead of some of those explorations in one front or one market Plaza. They think the buildings are up for it and then in that case its just the leasing costs.

Peter R.C. Brindley: And in that case, it's just the leasing costs from a capital allocation point of view. That's correct. Got it. Got it.

From a capital allocation front.

That's correct.

Okay.

Got it got it than maybe you want to add 1 million square feet in 2025 in 2025 not through 2020.

Wilbur Paes: Then maybe 1.1 million square feet in 2025 in 2025 not through. Got it. Thanks, Peter. Let me go over to the non-core portfolio and Wilbur. I appreciated all the explanation, thought process, and the capital allocation, but what is the risk of other assets heading in that direction, especially given the impairment on 55 second in 4Q? Look, I think, you know, each asset has to be looked at differently. We've said this at the risk of sounding like a broken record, but the impairment that was taken on 55 Second and Market Center was taken at the joint venture level. It wasn't us impairing our investment in the JV. There are two very different models for impairment.

Got it thanks Peter.

And then maybe going over to the non core portfolio and well Brian I. Appreciate it all the exploration of a thought process on the capital allocation, but what is the risk of other assets heading in that direction, especially given the impairment on 55 second in <unk>.

Look I think you know each asset has to be looked at differently. We've said this.

At risk of sounding like a broken record, but the impairment that was taken on 55 second and market Center.

Was taken at the joint venture level it wasn't us impairing our investment in the JV, they're two very different models.

Wilbur Paes: So there was a real estate impairment at the property level that we picked up our pro rata share of, which caused our basis to go to zero. So, in the case of 55 Second, you run through the model, you run through lease expirations, you know, and obviously, you have KPMG's lease expiration that's looming on that. And so all those things are factored in, and you run through an undiscounted model. And if the undiscounted cash flows are lower than the basis, then you go to a step two approach where you measure it at fair value. And that's how that impairment loss was derived. However, I would not take a gap impairment loss as an indication of strategy. I appreciate that color, Wilbur.

Impairments are there was a real estate impairment at the property level that we picked up our pro rata share which caused pieces to go to zero. So in the case of 55 second you run through the model you run through lease expirations.

And obviously you have kpmg's lease exploration.

Looming on that and so.

All of those things were factored in and you want to and understand and model and if the <unk> cash flows.

Slower than the basis, then you go to a step two approach where you measure it on fair value and that's how that impairment loss was derived I would not take a.

GAAP impairment loss as an indication of our strategy.

Okay.

I appreciate that color wolbert. Thank you for that and kind of last one for me.

William Thomas Catherwood: Thank you for that. And kind of last one for me, Albert, you mentioned very distinctly remaining disciplined on allocating capital along those lines, though there's a number of firms out either raising opportunistic funds or now deploying opportunistic funds. And, you know, over time, that was very much part of Paramount's DNA.

Albert.

Mentioned very distinctly remaining disciplined on allocating capital.

Along those lines, though theres number of firms out either raising opportunistic funds are now deploying opportunistic funds and over time that was very much part of Paramount's DNA.

Albert P. Behler: What is your appetite for maybe expanding your involvement in this side of the fund business again? Well, we are not this to you. We have been in the market to just now raise our special opportunity fund. And that fund is. It's focused especially on these opportunities. It's a fund very similar to the previous funds. We had a special situation fund before we before the company went public in 2007 2008, and that special situation fund number one did very well for our investors.

What is your appetite for maybe expanding your involvement in this side of the fund business again.

Well, we this is not.

Do we are we have been.

In the market to just now to raise our special opportunities fund.

And that that fund.

He is.

Signet is focused especially on these opportunities.

So far very similar to the.

Previous funds, we had a special situations funds fund before we.

Before the company went public in 2007 2008 that special situation fund number one did very well for our investors.

Albert P. Behler: And we are out marketing that fund. I don't want to say what kind of numbers we are expecting. We are hopeful currently that we will have the first closing in the first half of this year, and then we will take it from there. I think it's a great opportunity because I think in the later part of this year, 2025.

And we are out marketing that fund I don't want to.

Jay what kind of numbers, we were expecting we are hopeful currently.

That we have the first closing in the first half of this year and then we take it from there I think it's a great opportunity because I think.

The later part of this year.

In 2025, there will be opportunities there and we will take advantage of it.

Albert P. Behler: There will be opportunities there, and we will take advantage of them. We appreciate all the interest. Thank you. Once again, if you would like to ask a question, please press star 1 on your telephone keypad. The next question comes from Blaine Heck with Wells Fargo. Please go ahead. Great, thanks. Good morning.

Yeah.

I appreciate all the answers thanks, everyone.

Thank you.

Once again, if you would like to ask a question. Please press star one on your telephone keypad.

Question comes from Blaine Heck with Wells Fargo. Please go ahead.

Great. Thanks, good morning.

Blaine Matthew Heck: So, just to be clear, the core 2024 guidance excludes the income from 111 Sutter and Market Center but also excludes the interest expense from those assets. So, first, is that correct? And second, you know, I guess I understand putting some NOI into continued operations, but I'm not sure I've ever seen the associated interest expense excluded. So, can you just talk about how you came to that decision and whether you guys will continue to, in your presentation, get both total FFO, including the impact from non-core assets, along with the core FFO, excluding all impacts, you know, from those assets, as long as they' So, to answer your first question, that is correct. The core figures exclude any contribution, positive or negative, from those assets.

Just to be clear the core 2024 guidance excludes the income from 111, Sutter and market Center, but also excludes the interest expense from those assets. So firstly is that correct and second I guess I understand putting some NOI in discontinued operations, but I'm not sure I've ever seen the associated interest expense excluded. So can you just talk about.

How you came to that decision and whether you guys will continue to you in your presentation get both total <unk>, including the impact from noncore asset along with the core <unk>, excluding all impacts from those assets as long as they are still in the portfolio.

So to answer your first part that is correct. The core figures exclude any contribution positive or negative from those assets. We have dimension that boat for 2023 and 2024.

Wilbur Paes: We have dimensioned it both for 2023 and 2024. To answer the second part of your question, it will absolutely be included in FFO. Hence, the alternative measure, core FFO, where we are taking out, Thank you for joining us. Okay, yeah, I've definitely seen some of your peers carve out non-core portfolios. You know, one of them did that late last year, but they're still including the interest expense on debt secured by those assets and guidance. So I just, I'm not sure I've seen that part of it before. Blaine, that peer that you're referring to does not present two measures of FFO.

To answer the second part of your question.

Absolutely be included in <unk>, hence the alternative measure core <unk>, where we are taking out.

Elements that distort the comparability of earnings period over period, and because a decision has been made on these assets not to invest additional capital nor fund the interest expense shortfalls. It.

It is entirely appropriate to remove that from your core operations and show it.

The way, we look at our business. So that investors can appreciate the comparability of results quarter on a year over year, but it absolutely will be included in the NAREIT definition of <unk>.

Okay, Yes.

I've definitely seen some of your peers carve out noncore portfolios one of them did that late last year, but theyre still including the interest expense on debt secured by those assets in guidance. So I just I'm not sure I've seen that part of it before but that's helpful.

Blaine Matthew Heck: Just to be clear. OK. All right, that's helpful. And then just a second question, you're sitting on, you know, a relatively large cash balance at $428 million. You guys talked about the $10 million for common area development with Tom's question, and you'll have leasing costs as well. But past those, you know, can you just talk about potential uses for that capital in the near term? Are you guys interested in share repurchases here? Or do you have better opportunities to pay down debt? Blaine, this is Albert. We have been saying over and over on these calls that we want to be very selective in what we do with our capital, especially in times like these. These are very unusual times.

Helpful commentary.

Brian that peer that youre, referring to does not present two measures of <unk>.

Just to be clear okay.

Alright, that's helpful. And then just second question Youre sitting on.

Relatively large cash balance at $428 million you guys talked about the $10 million for common area development with Toms question, you'll have leasing costs as well, but pass those can you just talk about potential uses for that capital in the near term are you guys interested in share repurchases here or do you have better.

<unk> to pay down debt.

Blayne. This is Albert we have been saying over and over on these calls that we want to be very selective in what we do with our capital, especially in times like these.

These are very unusual times.

Albert P. Behler: We want to protect our cash on the balance sheet. I think that's in the best interest of shareholders. There could be things coming up that require cash, and there could be opportunities to pay down debt.

We wanted to.

We want to protect our cash.

On balance sheet.

I think thats in the best interest of shareholders.

There could be things coming up that require cash.

There could be opportunities to pay down debt, but we want to we want to keep our optionality I think theres nothing.

Albert P. Behler: But we want to, we want to keep our optionality. I think there's nothing more important. And we have the wonderful opportunity that our balance sheet is crystal clear. We don't have any debt on the balance sheet.

More important and we have the the wonderful opportunity that our balance sheet is crystal clear, we don't have any debt on balance sheet I'll say this again.

Albert P. Behler: I say this again, and we don't want to get into a situation where the company gets into any kind of distress. So we will be. We will be very, very selective in using that cash.

<unk>.

We don't want to get in a situation, where the company gets into any kind of distress. So we will be.

We will be very very selective and using that cash.

Okay, great. Thank you guys.

Blaine Matthew Heck: Okay, great. Thank you, guys. Thank you, Blaine. I would now like to turn the floor over to Albert Behler for closing comments. Thank you. Thank you all for joining us today. We look forward to giving you all an update on our continued progress when we report our first quarter 2024 results. Goodbye. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

Thank you Blayne.

I would now like to turn the floor over to Albert Taylor for closing comments.

Thank you. Thank you all for joining US today, we look forward to give you all an update on our continued progress when we report our first quarter 2024 results.

Goodbye.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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Albert P. Behler: The Ultimate Parody Site!.. The Ultimate Parody Site! BF-WATCH TV 2021

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