Paramount Group's earnings call revealed big new lease, and another followed

Paramount Group's Q2 insights highlighted positive leasing activity, including a 140,000 sq ft lease with Piper Sandler at 1301 Sixth Avenue and a subsequent 40,000 sq ft deal with Adler & Stachenfeld, both commanding rents above $90/sq ft. While the company reported its New York portfolio at 88.1% leased year-to-date, its highest since early 2022, this figure notably excludes the 1.6 million sq ft vacant 60 Wall Street, currently undergoing a $250 million modernization, which materially impacts the true overall occupancy. Management expressed confidence in refinancing the $860 million loan on 1301 Sixth Avenue and is actively marketing 260,000 sq ft at 1633 Broadway ahead of Showtime Networks' 2024 departure, with strong interest reported.

Analysis

Paramount Group (PGRE) is demonstrating strong leasing momentum in its prime New York office portfolio, securing two significant leases at 1301 Sixth Avenue with starting rents exceeding $90 per square foot. The company reported a total of 690,000 square feet leased year-to-date across New York and San Francisco, pushing its New York portfolio occupancy to 88.1%, the highest level since early 2022. However, this key metric is materially misleading as it deliberately excludes the 1.6 million square foot, entirely vacant 60 Wall Street tower, which is undergoing a $250 million modernization. The inclusion of this asset would substantially reduce the actual portfolio occupancy rate, a critical detail overlooked by analysts on the earnings call. On the financing front, management expressed confidence in its ability to refinance an $860 million loan on the well-performing 1301 Sixth Avenue asset, which is over 97% leased. Looking ahead, a key challenge is the planned 2024 departure of Showtime Networks from 260,000 square feet at 1633 Broadway, though management reports active negotiations to backfill this space.

Key Decisions for Investors

• Investors should adjust Paramount's reported 88.1% New York portfolio occupancy downwards to account for the 1.6 million square feet of vacancy at the excluded 60 Wall Street asset to get a true picture of operational performance.
• Monitor progress on refinancing the $860 million loan for 1301 Sixth Avenue, as successful execution at favorable terms would de-risk the company's near-term debt profile.
• Closely track leasing developments for the 260,000 square foot block at 1633 Broadway, as securing a new tenant ahead of Showtime's departure is critical to mitigating a future revenue gap.