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PGRE Paramount

Filed: 27 Jul 21, 4:44pm

,  

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended: June 30, 2021

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

Commission File Number: 001-36746

 

PARAMOUNT GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

Maryland

 

32-0439307

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

1633 Broadway, Suite 1801, New York, NY

 

10019

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (212) 237-3100

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading Symbol

Name of each exchange on which registered

Common stock of Paramount Group, Inc.,
$0.01 par value per share

PGRE

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes      No

 

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

Smaller Reporting Company

 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  

 

As of July 15, 2021, there were 218,961,000 shares of the registrant’s common stock outstanding.

 

 

 


 

 

 

 

Table of Contents

 

Item

 

 

 

Page Number

Part I.

 

Financial Information

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of June 30, 2021 and December 31, 2020

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the three and six months
   ended June 30, 2021 and 2020

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months
   ended June 30, 2021 and 2020

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the three and six months
   ended June 30, 2021 and 2020

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the six months
   ended June 30, 2021 and 2020

 

8

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

60

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

62

 

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

63

 

 

 

 

 

Item 1A.

 

Risk Factors

 

63

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

63

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

63

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

63

 

 

 

 

 

Item 5.

 

Other Information

 

63

 

 

 

 

 

Item 6.

 

Exhibits

 

64

 

 

 

 

 

Signatures

 

65

 

 

 

2


 

 

PART I – FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

 

 

PARAMOUNT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

(Amounts in thousands, except share, unit and per share amounts)

June 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

Real estate, at cost:

 

 

 

 

 

 

 

Land

$

1,966,237

 

 

$

1,966,237

 

Buildings and improvements

 

6,011,239

 

 

 

5,997,078

 

 

 

7,977,476

 

 

 

7,963,315

 

Accumulated depreciation and amortization

 

(1,026,542

)

 

 

(966,697

)

Real estate, net

 

6,950,934

 

 

 

6,996,618

 

Cash and cash equivalents

 

475,289

 

 

 

434,530

 

Restricted cash

 

32,552

 

 

 

30,794

 

Investments in unconsolidated joint ventures

 

407,564

 

 

 

412,724

 

Investments in unconsolidated real estate funds

 

12,979

 

 

 

12,917

 

Accounts and other receivables

 

13,366

 

 

 

17,502

 

Deferred rent receivable

 

339,874

 

 

 

330,239

 

Deferred charges, net of accumulated amortization of $62,761 and $56,612

 

111,275

 

 

 

116,278

 

Intangible assets, net of accumulated amortization of $245,405 and $283,332

 

135,764

 

 

 

153,519

 

Other assets

 

53,543

 

 

 

48,976

 

Total assets (1)

$

8,533,140

 

 

$

8,554,097

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

Notes and mortgages payable, net of unamortized deferred financing costs

   of $15,105 and $18,695

$

3,816,759

 

 

$

3,800,739

 

Revolving credit facility

 

0

 

 

 

0

 

Accounts payable and accrued expenses

 

103,895

 

 

 

101,901

 

Dividends and distributions payable

 

16,897

 

 

 

16,796

 

Intangible liabilities, net of accumulated amortization of $106,086 and $107,981

 

50,392

 

 

 

55,996

 

Other liabilities

 

65,074

 

 

 

62,931

 

Total liabilities (1)

 

4,053,017

 

 

 

4,038,363

 

Commitments and contingencies

 

 

 

 

 

 

 

Paramount Group, Inc. equity:

 

 

 

 

 

 

 

Common stock $0.01 par value per share; authorized 900,000,000 shares; issued

   and outstanding 218,961,870 and 218,817,337 shares in 2021 and 2020, respectively

 

2,189

 

 

 

2,188

 

Additional paid-in-capital

 

4,113,889

 

 

 

4,120,173

 

Earnings less than distributions

 

(507,321

)

 

 

(456,393

)

Accumulated other comprehensive loss

 

(8,478

)

 

 

(12,791

)

Paramount Group, Inc. equity

 

3,600,279

 

 

 

3,653,177

 

Noncontrolling interests in:

 

 

 

 

 

 

 

Consolidated joint ventures

 

442,428

 

 

 

437,161

 

Consolidated real estate fund

 

79,085

 

 

 

79,017

 

Operating Partnership (21,799,022 and 20,756,618 units outstanding)

 

358,331

 

 

 

346,379

 

Total equity

 

4,480,123

 

 

 

4,515,734

 

Total liabilities and equity

$

8,533,140

 

 

$

8,554,097

 

 

 

(1)

Represents the consolidated assets and liabilities of Paramount Group Operating Partnership LP, a Delaware limited partnership (the “Operating Partnership”). The Operating Partnership is a consolidated variable interest entity (“VIE”), of which we are the sole general partner and own approximately 91.0% as of June 30, 2021. As of June 30, 2021, the Operating Partnership includes $4,053,771 and $2,560,820 of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. See Note 11, Variable Interest Entities (“VIEs”).

 

See notes to consolidated financial statements (unaudited).

3


 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

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

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

174,628

 

 

$

163,989

 

 

$

347,774

 

 

$

339,414

 

Fee and other income

 

7,641

 

 

 

7,129

 

 

 

15,661

 

 

 

15,690

 

Total revenues

 

182,269

 

 

 

171,118

 

 

 

363,435

 

 

 

355,104

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

64,072

 

 

 

64,313

 

 

 

130,690

 

 

 

131,327

 

Depreciation and amortization

 

59,925

 

 

 

58,716

 

 

 

118,230

 

 

 

117,143

 

General and administrative

 

18,418

 

 

 

17,901

 

 

 

32,782

 

 

 

30,150

 

Transaction related costs

 

135

 

 

 

258

 

 

 

416

 

 

 

461

 

Total expenses

 

142,550

 

 

 

141,188

 

 

 

282,118

 

 

 

279,081

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from unconsolidated joint ventures

 

(15,717

)

 

 

(5,955

)

 

 

(21,033

)

 

 

(10,176

)

Income from unconsolidated real estate funds

 

148

 

 

 

89

 

 

 

328

 

 

 

141

 

Interest and other income, net

 

1,070

 

 

 

2,252

 

 

 

2,372

 

 

 

1,256

 

Interest and debt expense

 

(34,914

)

 

 

(36,009

)

 

 

(69,653

)

 

 

(72,628

)

Loss from continuing operations, before income taxes

 

(9,694

)

 

 

(9,693

)

 

 

(6,669

)

 

 

(5,384

)

Income tax expense

 

(434

)

 

 

(138

)

 

 

(1,575

)

 

 

(742

)

Loss from continuing operations, net

 

(10,128

)

 

 

(9,831

)

 

 

(8,244

)

 

 

(6,126

)

Income from discontinued operations, net

 

-

 

 

 

2,147

 

 

 

-

 

 

 

3,668

 

Net loss

 

(10,128

)

 

 

(7,684

)

 

 

(8,244

)

 

 

(2,458

)

Less net (income) loss attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(7,428

)

 

 

(405

)

 

 

(13,156

)

 

 

(1,919

)

Consolidated real estate fund

 

29

 

 

 

1,235

 

 

 

(56

)

 

 

1,212

 

Operating Partnership

 

1,584

 

 

 

584

 

 

 

1,935

 

 

 

243

 

Net loss attributable to common stockholders

$

(15,943

)

 

$

(6,270

)

 

$

(19,521

)

 

$

(2,922

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income per Common Share - Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations, net

$

(0.07

)

 

$

(0.04

)

 

$

(0.09

)

 

$

(0.03

)

Income from discontinued operations, net

 

-

 

 

 

0.01

 

 

 

-

 

 

 

0.02

 

Net loss per common share

$

(0.07

)

 

$

(0.03

)

 

$

(0.09

)

 

$

(0.01

)

Weighted average common shares outstanding

 

218,696,284

 

 

 

221,573,199

 

 

 

218,681,228

 

 

 

224,671,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income per Common Share - Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations, net

$

(0.07

)

 

$

(0.04

)

 

$

(0.09

)

 

$

(0.03

)

Income from discontinued operations, net

 

-

 

 

 

0.01

 

 

 

-

 

 

 

0.02

 

Net loss per common share

$

(0.07

)

 

$

(0.03

)

 

$

(0.09

)

 

$

(0.01

)

Weighted average common shares outstanding

 

218,696,284

 

 

 

221,573,199

 

 

 

218,681,228

 

 

 

224,671,206

 

 

 

See notes to consolidated financial statements (unaudited).

 

4


 

 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands)

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

$

(10,128

)

 

$

(7,684

)

 

$

(8,244

)

 

$

(2,458

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro rata share of other comprehensive income (loss) of

   unconsolidated joint ventures

 

365

 

 

 

(1,696

)

 

 

4,749

 

 

 

(16,357

)

Comprehensive loss

 

(9,763

)

 

 

(9,380

)

 

 

(3,495

)

 

 

(18,815

)

Less comprehensive (income) loss attributable to noncontrolling

   interests in:

 

Consolidated joint ventures

 

(7,428

)

 

 

(405

)

 

 

(13,156

)

 

 

(1,919

)

Consolidated real estate fund

 

29

 

 

 

1,233

 

 

 

(68

)

 

 

1,208

 

Operating Partnership

 

1,552

 

 

 

729

 

 

 

1,511

 

 

 

1,744

 

Comprehensive loss attributable to common stockholders

$

(15,610

)

 

$

(7,823

)

 

$

(15,208

)

 

$

(17,782

)

 

 

See notes to consolidated financial statements (unaudited).

 

 

5


 

 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Noncontrolling Interests in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Other

 

 

Consolidated

 

 

Consolidated

 

 

 

 

 

 

 

 

 

(Amounts in thousands, except per share

 

Common Shares

 

 

Paid-in-

 

 

Less than

 

 

Comprehensive

 

 

Joint

 

 

Real Estate

 

 

Operating

 

 

Total

 

   and unit amounts)

 

Shares

 

 

Amount

 

 

Capital

 

 

Distributions

 

 

Loss

 

 

Ventures

 

 

Fund

 

 

Partnership

 

 

Equity

 

Balance as of March 31, 2021

 

 

218,950

 

 

$

2,189

 

 

$

4,111,144

 

 

$

(476,051

)

 

$

(8,809

)

 

$

438,937

 

 

$

79,114

 

 

$

359,411

 

 

$

4,505,935

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,943

)

 

 

-

 

 

 

7,428

 

 

 

(29

)

 

 

(1,584

)

 

 

(10,128

)

Common shares issued upon redemption of

   common units

 

 

10

 

 

 

-

 

 

 

165

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(165

)

 

 

-

 

Common shares issued under Omnibus

   share plan, net of shares withheld for taxes

 

 

2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dividends and distributions ($0.07 per share

   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,327

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,570

)

 

 

(16,897

)

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,937

)

 

 

-

 

 

 

-

 

 

 

(3,937

)

Pro rata share of other comprehensive income

   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

331

 

 

 

-

 

 

 

-

 

 

 

34

 

 

 

365

 

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

304

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,481

 

 

 

4,785

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

2,276

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,276

)

 

 

-

 

Balance as of June 30, 2021

 

 

218,962

 

 

$

2,189

 

 

$

4,113,889

 

 

$

(507,321

)

 

$

(8,478

)

 

$

442,428

 

 

$

79,085

 

 

$

358,331

 

 

$

4,480,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2020

 

 

221,750

 

 

$

2,219

 

 

$

4,102,287

 

 

$

(368,767

)

 

$

(13,478

)

 

$

359,120

 

 

$

80,476

 

 

$

345,335

 

 

$

4,507,192

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,270

)

 

 

-

 

 

 

405

 

 

 

(1,235

)

 

 

(584

)

 

 

(7,684

)

Common shares issued under Omnibus

   share plan, net of shares withheld for taxes

 

 

14

 

 

 

-

 

 

 

-

 

 

 

(7

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7

)

Dividends and distributions ($0.10 per share

   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,176

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,116

)

 

 

(24,292

)

Contributions from noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,500

 

 

 

-

 

 

 

-

 

 

 

3,500

 

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,185

)

 

 

-

 

 

 

-

 

 

 

(3,185

)

Pro rata share of other comprehensive (loss) income

   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,553

)

 

 

-

 

 

 

2

 

 

 

(145

)

 

 

(1,696

)

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

294

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,981

 

 

 

4,275

 

Sale of a 10.0% interest in 1633 Broadway

 

 

-

 

 

 

-

 

 

 

33,230

 

 

 

-

 

 

 

-

 

 

 

76,343

 

 

 

-

 

 

 

-

 

 

 

109,573

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

(2,269

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,269

 

 

 

-

 

Balance as of June 30, 2020

 

 

221,764

 

 

$

2,219

 

 

$

4,133,542

 

 

$

(397,220

)

 

$

(15,031

)

 

$

436,183

 

 

$

79,243

 

 

$

348,740

 

 

$

4,587,676

 

 

 

See notes to consolidated financial statements (unaudited).


6


 

 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Noncontrolling Interests in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Other

 

 

Consolidated

 

 

Consolidated

 

 

 

 

 

 

 

 

 

(Amounts in thousands, except per share

 

Common Shares

 

 

Paid-in-

 

 

Less than

 

 

Comprehensive

 

 

Joint

 

 

Real Estate

 

 

Operating

 

 

Total

 

   and unit amounts)

 

Shares

 

 

Amount

 

 

Capital

 

 

Distributions

 

 

Loss

 

 

Ventures

 

 

Fund

 

 

Partnership

 

 

Equity

 

Balance as of December 31, 2020

 

 

218,817

 

 

$

2,188

 

 

$

4,120,173

 

 

$

(456,393

)

 

$

(12,791

)

 

$

437,161

 

 

$

79,017

 

 

$

346,379

 

 

$

4,515,734

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,521

)

 

 

-

 

 

 

13,156

 

 

 

56

 

 

 

(1,935

)

 

 

(8,244

)

Common shares issued upon redemption of

   common units

 

 

10

 

 

 

-

 

 

 

165

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(165

)

 

 

-

 

Common shares issued under Omnibus

   share plan, net of shares withheld for taxes

 

 

135

 

 

 

1

 

 

 

-

 

 

 

(201

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(200

)

Dividends and distributions ($0.14 per share

   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30,654

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,132

)

 

 

(33,786

)

Contributions from noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

121

 

 

 

-

 

 

 

-

 

 

 

121

 

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,562

)

 

 

-

 

 

 

-

 

 

 

(8,562

)

Pro rata share of other comprehensive income

   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,313

 

 

 

-

 

 

 

12

 

 

 

424

 

 

 

4,749

 

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

611

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,700

 

 

 

10,311

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

(7,060

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,060

 

 

 

-

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(552

)

 

 

-

 

 

 

552

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance as of June 30, 2021

 

 

218,962

 

 

$

2,189

 

 

$

4,113,889

 

 

$

(507,321

)

 

$

(8,478

)

 

$

442,428

 

 

$

79,085

 

 

$

358,331

 

 

$

4,480,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

227,432

 

 

$

2,274

 

 

$

4,133,184

 

 

$

(349,557

)

 

$

(171

)

 

$

360,778

 

 

$

72,396

 

 

$

412,058

 

 

$

4,630,962

 

Net (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,922

)

 

 

-

 

 

 

1,919

 

 

 

(1,212

)

 

 

(243

)

 

 

(2,458

)

Common shares issued upon redemption of

   common units

 

 

5,126

 

 

 

51

 

 

 

85,260

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(85,311

)

 

 

-

 

Common shares issued under Omnibus

   share plan, net of shares withheld for taxes

 

 

63

 

 

 

3

 

 

 

-

 

 

 

(319

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(316

)

Repurchases of common shares

 

 

(10,857

)

 

 

(109

)

 

 

(99,891

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(100,000

)

Dividends and distributions ($0.20 per share

   and unit)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,422

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,212

)

 

 

(48,634

)

Contributions from noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,500

 

 

 

8,055

 

 

 

-

 

 

 

11,555

 

Distributions to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,357

)

 

 

-

 

 

 

-

 

 

 

(6,357

)

Pro rata share of other comprehensive (loss) income

   of unconsolidated joint ventures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,860

)

 

 

-

 

 

 

4

 

 

 

(1,501

)

 

 

(16,357

)

Amortization of equity awards

 

 

-

 

 

 

-

 

 

 

692

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,016

 

 

 

9,708

 

Sale of a 10.0% interest in 1633 Broadway

 

 

-

 

 

 

-

 

 

 

33,230

 

 

 

-

 

 

 

-

 

 

 

76,343

 

 

 

-

 

 

 

-

 

 

 

109,573

 

Reallocation of noncontrolling interest

 

 

-

 

 

 

-

 

 

 

(18,933

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,933

 

 

 

-

 

Balance as of June 30, 2020

 

 

221,764

 

 

$

2,219

 

 

$

4,133,542

 

 

$

(397,220

)

 

$

(15,031

)

 

$

436,183

 

 

$

79,243

 

 

$

348,740

 

 

$

4,587,676

 

 

 

See notes to consolidated financial statements (unaudited).

 

7


 

 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

2021

 

 

2020

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net loss

$

(8,244

)

 

$

(2,458

)

Adjustments to reconcile net loss to net cash provided by

   operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

118,230

 

 

 

117,833

 

Straight-lining of rental revenue

 

(9,632

)

 

 

(19,731

)

Amortization of stock-based compensation expense

 

10,229

 

 

 

9,638

 

Loss from unconsolidated joint ventures

 

21,033

 

 

 

10,176

 

Amortization of deferred financing costs

 

4,640

 

 

 

4,637

 

Distributions of earnings from unconsolidated joint ventures

 

623

 

 

 

1,459

 

Distributions of earnings from unconsolidated real estate funds

 

266

 

 

 

353

 

Amortization of above and below-market leases, net

 

(1,613

)

 

 

(2,744

)

Realized and unrealized (gains) losses on marketable securities

 

(1,480

)

 

 

560

 

Income from unconsolidated real estate funds

 

(328

)

 

 

(141

)

Other non-cash adjustments

 

868

 

 

 

152

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts and other receivables

 

4,136

 

 

 

493

 

Deferred charges

 

(4,506

)

 

 

(8,107

)

Other assets

 

(5,569

)

 

 

(4,367

)

Accounts payable and accrued expenses

 

3,698

 

 

 

(4,148

)

Other liabilities

 

2,107

 

 

 

(494

)

Net cash provided by operating activities

 

134,458

 

 

 

103,111

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Additions to real estate

 

(52,114

)

 

 

(46,575

)

Contributions of capital to unconsolidated joint ventures

 

(11,750

)

 

 

-

 

Purchases of marketable securities

 

(9,562

)

 

 

(9,248

)

Sales of marketable securities

 

11,381

 

 

 

19,049

 

Repayment of amounts due from affiliates

 

-

 

 

 

36,918

 

Contributions of capital to unconsolidated real estate funds

 

-

 

 

 

(2,936

)

Net cash used in investing activities

 

(62,045

)

 

 

(2,792

)

 

 

See notes to consolidated financial statements (unaudited).


8


 

 

PARAMOUNT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

2021

 

 

2020

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Dividends paid to common stockholders

$

(30,643

)

 

$

(44,989

)

Proceeds from notes and mortgages payable

 

12,430

 

 

 

3,073

 

Distributions to noncontrolling interests

 

(8,562

)

 

 

(6,357

)

Distributions paid to common unitholders

 

(3,042

)

 

 

(4,608

)

Contributions from noncontrolling interests

 

121

 

 

 

11,555

 

Repurchase of shares related to stock compensation agreements

   and related tax withholdings

 

(200

)

 

 

(316

)

Borrowings under revolving credit facility

 

-

 

 

 

163,082

 

Proceeds from the sale of a 10.0% interest in 1633 Broadway

 

-

 

 

 

111,984

 

Repurchases of common shares

 

-

 

 

 

(100,000

)

Repayment of note payable issued in connection with the acquisition of

   noncontrolling interest in unconsolidated real estate fund

 

-

 

 

 

(8,771

)

Net cash (used in) provided by financing activities

 

(29,896

)

 

 

124,653

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents and restricted cash

 

42,517

 

 

 

224,972

 

Cash and cash equivalents and restricted cash at beginning of period

 

465,324

 

 

 

331,487

 

Cash and cash equivalents and restricted cash at end of period

$

507,841

 

 

$

556,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Cash and Cash Equivalents and Restricted Cash:

 

 

 

 

 

Cash and cash equivalents at beginning of period

$

434,530

 

 

$

306,215

 

Restricted cash at beginning of period

 

30,794

 

 

 

25,272

 

Cash and cash equivalents and restricted cash at beginning of period

$

465,324

 

 

$

331,487

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

475,289

 

 

$

522,502

 

Restricted cash at end of period

 

32,552

 

 

 

33,957

 

Cash and cash equivalents and restricted cash at end of period

$

507,841

 

 

$

556,459

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

Cash payments for interest

$

65,227

 

 

$

68,920

 

Cash payments for income taxes, net of refunds

 

210

 

 

 

1,130

 

 

 

 

 

 

 

 

 

Non-Cash Transactions:

 

 

 

 

 

 

 

Dividends and distributions declared but not yet paid

 

16,897

 

 

 

24,292

 

Additions to real estate included in accounts payable and accrued expenses

 

10,484

 

 

 

16,232

 

Write-off of fully amortized and/or depreciated assets

 

37,149

 

 

 

8,612

 

Common shares issued upon redemption of common units

 

165

 

 

 

85,311

 

 

See notes to consolidated financial statements (unaudited).

9


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

1.

Organization and Business

 

 

As used in these consolidated financial statements, unless otherwise indicated, all references to “we,” “us,” “our,” the “Company,” and “Paramount” refer to Paramount Group, Inc., a Maryland corporation, and its consolidated subsidiaries, including Paramount Group Operating Partnership LP (the “Operating Partnership”), a Delaware limited partnership. We are a fully-integrated real estate investment trust (“REIT”) focused on owning, operating, managing, acquiring and redeveloping high-quality, Class A office properties in select central business district submarkets of New York City and San Francisco. As of June 30, 2021, our portfolio consisted of 13 Class A properties aggregating 12.9 million square feet. We conduct our business through, and substantially all of our interests in properties and investments are held by, the Operating Partnership. We are the sole general partner of, and owned approximately 91.0% of, the Operating Partnership as of June 30, 2021.

 

In March 2020, the World Health Organization declared coronavirus 2019 (“COVID-19”) a global pandemic. The outbreak of COVID-19 caused severe disruptions in the global economy. These disruptions have adversely impacted businesses and financial markets, including that of New York and San Francisco, the markets in which we operate and where all of our assets are located. As a result, several of our tenants sought deferrals and/or short-term relief of their rental obligations and we provided relief to select tenants.

 

By February 2021, the U.S. Food and Drug Administration had issued emergency use authorizations of three vaccines for the prevention of COVID-19.  In July 2021, New York and San Francisco lifted most COVID-19 restrictions since a significant portion of their populations have been vaccinated. Notwithstanding the vaccination success, multiple variants of the virus that cause COVID-19 continue to persist globally and in the United States. While we continue to navigate the crisis and monitor the impact of the pandemic on our business, the rapid development and fluidity of this situation precludes us at this time from making any predictions as to the ultimate impact COVID-19 may have on our future financial condition, results of operations and cash flows.

 

 

2.

Basis of Presentation and Significant Accounting Policies

 

 

Basis of Presentation

 

The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted. These consolidated financial statements include the accounts of Paramount and its consolidated subsidiaries, including the Operating Partnership. In the opinion of management, all significant adjustments (which include only normal recurring adjustments) and eliminations (which include intercompany balances and transactions) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. The consolidated balance sheet as of December 31, 2020 was derived from audited financial statements as of that date, but does not include all information and disclosures required by GAAP. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

 

 

Significant Accounting Policies

 

There are no material changes to our significant accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.


10


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

Use of Estimates

 

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the operating results for the full year.

 

 

Recently Issued Accounting Pronouncements

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, an update to ASC Topic 740, Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by (i) eliminating certain exceptions within ASC Topic 740 and (ii) clarifying and amending the existing guidance to enable consistent application of ASC Topic 740.  ASU 2019-12 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2020, with early adoption permitted. We adopted the provisions of ASU 2019-12 on January 1, 2021. This adoption did not have an impact on our consolidated financial statements.

 

In March 2020, the FASB issued ASU 2020-04, which adds ASC Topic 848, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU 2021-01 to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively to such transactions through December 31, 2022 and ASU 2021-01 is effective beginning on January 7, 2021 and may be applied retrospectively or prospectively to such transactions through December 31, 2022. We will apply ASU 2020-04 and ASU 2021-01 prospectively as and when we enter into transactions to which these updates apply.

 

In August 2020, the FASB issued ASU 2020-06, an update to ASC Topic 470, Subtopic - 20, Debt - Debt with Conversion and Other Options, and ASC Topic 815, Subtopic - 4, Derivatives and Hedging - Contracts in Entity's Own Equity. ASU 2020-06 simplifies the guidance for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts on an entity’s own equity by reducing the number of accounting models for convertible instruments and amends guidance in ASC Topic 260, Earnings Per Share, relating to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2021, with early adoption permitted for fiscal years that begin after December 15, 2020. We are evaluating the impact of ASU 2020-06 on our consolidated financial statements.

 

In October 2020, the FASB issued ASU 2020-10, Codification Improvements. ASU 2020-10 codifies the disclosure guidance of all codifications which provide entities with an option to either present information on the face or disclose it in the notes to the financial statements. ASU 2020-10 also clarifies application of various provisions in the codifications where the guidance may have been unclear. ASU 2020-10 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2020, with early adoption permitted. We adopted the provisions of ASU 2020-10 on January 1, 2021. This adoption did not have an impact on our consolidated financial statements.

 

 


11


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

3.

Discontinued Operations

 

 

Over the past three years, we sold the remaining assets in our Washington, D.C. portfolio, thereby exiting the Washington, D.C. office market. These dispositions represented a strategic shift in our operations and met the criteria for classifying our Washington, D.C. segment as “discontinued operations,” in accordance with ASC Topic 205, Presentation of Financial Statements. Accordingly, effective March 31, 2020, we reclassified the results of operations of our Washington, D.C. segment as discontinued operations.

 

The tables below provide the details of the results of operations and the details of the cash flows related to discontinued operations for the periods set forth below.

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months

 

 

For the Six Months

 

Income Statement: (1)

 

Ended June 30, 2020

 

 

Ended June 30, 2020

 

Revenues:

 

 

 

 

 

 

 

 

Rental revenue

 

$

3,515

 

 

$

7,078

 

Other income

 

 

31

 

 

 

130

 

Total revenues

 

 

3,546

 

 

 

7,208

 

Expenses:

 

 

 

 

 

 

 

 

Operating

 

 

1,399

 

 

 

2,850

 

Depreciation and amortization

 

 

-

 

 

 

690

 

Total expenses

 

 

1,399

 

 

 

3,540

 

Income from discontinued operations, net

 

$

2,147

 

 

$

3,668

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Six Months

 

Statement of Cash Flows: (1)

 

Ended June 30, 2020

 

Cash provided by operating activities

$

2,292

 

 

 

 

 

 

Additional Cash Flow information:

 

 

 

 

Depreciation and amortization

 

$

690

 

 

 

 

(1)

Represents revenues, expenses, net income and cash flow information of 1899 Pennsylvania Avenue, which was sold on December 24, 2020.

 

 


12


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

4.

Investments in Unconsolidated Joint Ventures

 

 

The following tables summarize our investments in unconsolidated joint ventures as of the dates thereof and the income or loss from these investments for the periods set forth below.

 

(Amounts in thousands)

 

Paramount

 

 

As of

 

 

Our Share of Investments:

 

Ownership

 

 

June 30, 2021

 

 

December 31, 2020

 

 

712 Fifth Avenue (1)

 

50.0%

 

 

$

-

 

 

$

-

 

 

Market Center

 

67.0%

 

 

 

189,985

 

 

 

192,306

 

 

55 Second Street (2)

 

44.1%

 

 

 

90,829

 

 

 

92,298

 

 

111 Sutter Street

 

49.0%

 

 

 

36,634

 

 

 

37,818

 

 

60 Wall Street (2)

 

5.0%

 

 

 

19,198

 

 

 

19,164

 

 

One Steuart Lane (2)

 

35.0% (3)

 

 

 

67,292

 

 

 

67,505

 

 

Oder-Center, Germany (2)

 

9.5%

 

 

 

3,626

 

 

 

3,633

 

 

Investments in unconsolidated joint ventures

 

 

$

407,564

 

 

$

412,724

 

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

(Amounts in thousands)

June 30,

 

 

June 30,

 

Our Share of Net Loss:

2021

 

 

2020

 

 

2021

 

 

2020

 

712 Fifth Avenue (1)

$

(11,128

)

 

$

229

 

 

$

(11,128

)

 

$

229

 

Market Center

 

(2,914

)

 

 

(3,070

)

 

 

(7,044

)

 

 

(5,924

)

55 Second Street (2)

 

(847

)

 

 

(662

)

 

 

(1,469

)

 

 

(1,346

)

111 Sutter Street

 

(699

)

 

 

(919

)

 

 

(1,189

)

 

 

(1,529

)

60 Wall Street (2)

 

17

 

 

 

(9

)

 

 

34

 

 

 

(91

)

One Steuart Lane (2)

 

(132

)

 

 

(1,549

)

 

 

(225

)

 

 

(1,550

)

Oder-Center, Germany (2)

 

(14

)

 

 

25

 

 

 

(12

)

 

 

35

 

Loss from unconsolidated joint ventures

$

(15,717

)

 

$

(5,955

)

 

$

(21,033

)

 

$

(10,176

)

 

 

(1)

At December 31, 2020, our basis in the joint venture that owns 712 Fifth Avenue was negative $22,345. Since we have no further obligation to fund additional capital to the joint venture, we no longer recognize our proportionate share of earnings from the joint venture. Instead, we recognize income only to the extent we receive cash distributions from the joint venture and recognize losses to the extent we make cash contributions to the joint venture. During the three months ended June 30, 2021, we received a $622 distribution from the joint venture and made an $11,750 contribution to the joint venture. Accordingly, we recognized a loss of $11,128, which is included in “loss from unconsolidated joint ventures” on our consolidated statements of income for the three and six months ended June 30, 2021. Additionally, the joint venture had net losses of $2,426 for the six months ended June 30, 2021, of which our 50.0% share was $1,213. Accordingly, our basis in the joint venture, taking into account distributions received, contributions made and our share of losses, was negative $12,430 as of June 30, 2021.

(2)

As of June 30, 2021, the carrying amount of our investments in 55 Second Street, 60 Wall Street, One Steuart Lane and Oder-Center is greater than our share of equity in these investments by $483, $2,640, $970 and $4,781, respectively, and primarily represents the unamortized portion of our capitalized acquisition costs. Basis differences allocated to depreciable assets are being amortized into income or loss from the unconsolidated joint ventures to which they relate, over the estimated useful life of the related assets.

(3)

Represents our consolidated Residential Development Fund’s economic interest in One Steuart Lane.


13


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

The following tables provide the combined summarized financial information of our unconsolidated joint ventures as of the dates thereof and for the periods set forth below.

 

 

 

 

(Amounts in thousands)

As of

 

Balance Sheets:

June 30, 2021

 

 

December 31, 2020

 

Real estate, net

$

2,709,681

 

 

$

2,674,858

 

Cash and cash equivalents and restricted cash

 

173,497

 

 

 

120,149

 

Intangible assets, net

 

83,907

 

 

 

110,307

 

Other assets

 

45,704

 

 

 

45,761

 

Total assets

$

3,012,789

 

 

$

2,951,075

 

 

 

 

 

 

 

 

 

Notes and mortgages payable, net

$

1,871,120

 

 

$

1,801,084

 

Intangible liabilities, net

 

22,524

 

 

 

26,772

 

Other liabilities

 

71,917

 

 

 

87,575

 

Total liabilities

 

1,965,561

 

 

 

1,915,431

 

Equity

 

1,047,228

 

 

 

1,035,644

 

Total liabilities and equity

$

3,012,789

 

 

$

2,951,075

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

Income Statements:

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

57,195

 

 

$

59,136

 

 

$

113,723

 

 

$

121,583

 

Other income

 

581

 

 

 

777

 

 

 

1,338

 

 

 

1,524

 

Total revenues

 

57,776

 

 

 

59,913

 

 

 

115,061

 

 

 

123,107

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

25,467

 

 

 

29,642

 

 

 

50,577

 

 

 

55,582

 

Depreciation and amortization

 

27,014

 

 

 

29,099

 

 

 

54,467

 

 

 

59,281

 

Total expenses

 

52,481

 

 

 

58,741

 

 

 

105,044

 

 

 

114,863

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other (loss) income

 

(23

)

 

 

(29

)

 

 

(56

)

 

 

48

 

Interest and debt expense

 

(13,892

)

 

 

(14,305

)

 

 

(27,632

)

 

 

(30,214

)

Net loss before income taxes

 

(8,620

)

 

 

(13,162

)

 

 

(17,671

)

 

 

(21,922

)

Income tax benefit (expense)

 

1

 

 

 

(5

)

 

 

(15

)

 

 

(44

)

Net loss

$

(8,619

)

 

$

(13,167

)

 

$

(17,686

)

 

$

(21,966

)

 

 

5.

Investments in Unconsolidated Real Estate Funds

 

 

We are the general partner and investment manager of Paramount Group Real Estate Fund VIII, LP (“Fund VIII”) and Paramount Group Real Estate Fund X, LP and its parallel fund, Paramount Group Real Estate Fund X-ECI, LP, (collectively, “Fund X”), our Alternative Investment Funds, which invest in mortgage and mezzanine loans and preferred equity investments. While Fund VIII’s investment period has ended, Fund X’s investment period ends in December 2025. As of June 30, 2021, Fund X has invested $78,791,000 of the $192,000,000 of capital committed. Our ownership interest in Fund VIII and Fund X was approximately 1.3% and 7.8%, respectively, as of June 30, 2021.

 

As of June 30, 2021 and December 31, 2020, our share of the investments in the above mentioned unconsolidated real estate funds aggregated $12,979,000 and $12,917,000, respectively, and we recognized $148,000 and $89,000 for our share of income in the three months ended June 30, 2021 and 2020, respectively, and $328,000 and $141,000 for our share of income in the six months ended June 30, 2021 and 2020, respectively.


14


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

 

6.

Intangible Assets and Liabilities

 

 

The following tables summarize our intangible assets (acquired above-market leases and acquired in-place leases) and intangible liabilities (acquired below-market leases) and the related amortization as of the dates thereof and for the periods set forth below.

 

 

As of

 

(Amounts in thousands)

June 30, 2021

 

 

December 31, 2020

 

Intangible assets:

 

 

 

 

 

 

 

Gross amount

$

381,169

 

 

$

436,851

 

Accumulated amortization

 

(245,405

)

 

 

(283,332

)

 

$

135,764

 

 

$

153,519

 

Intangible liabilities:

 

 

 

 

 

 

 

Gross amount

$

156,478

 

 

$

163,977

 

Accumulated amortization

 

(106,086

)

 

 

(107,981

)

 

$

50,392

 

 

$

55,996

 

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands)

2021

 

 

2020

 

 

2021

 

 

2020

 

Amortization of above and below-market leases, net

   (component of "rental revenue")

$

758

 

 

$

1,235

 

 

$

1,613

 

 

$

2,778

 

Amortization of acquired in-place leases

   (component of "depreciation and amortization")

 

6,551

 

 

 

9,190

 

 

 

13,770

 

 

 

18,682

 

 

 

The following table sets forth annual amortization of acquired above and below-market leases, net and amortization of acquired in-place leases for each of the five succeeding years commencing from January 1, 2022.

 

(Amounts in thousands)

For the Year Ending December 31,

 

Above and

Below-Market

Leases, Net

 

 

In-Place Leases

 

2022

 

$

1,345

 

 

$

21,644

 

2023

 

 

5,080

 

 

 

17,705

 

2024

 

 

6,020

 

 

 

14,248

 

2025

 

 

4,674

 

 

 

10,451

 

2026

 

 

2,801

 

 

 

7,896

 


15


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

7.

Debt

 

 

The following table summarizes our consolidated outstanding debt.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate

 

 

 

 

 

 

Maturity

 

Fixed/

 

as of

 

 

As of

 

 

(Amounts in thousands)

Date

 

Variable Rate

 

June 30, 2021

 

 

June 30, 2021

 

 

December 31, 2020

 

 

Notes and mortgages payable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1633 Broadway (1)

Dec-2029

 

Fixed

 

 

2.99

%

 

$

1,250,000

 

 

$

1,250,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Market Plaza (1)

Feb-2024

 

Fixed

 

 

4.03

%

 

 

975,000

 

 

 

975,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1301 Avenue of the Americas (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nov-2021

 

Fixed

 

 

3.05

%

 

 

500,000

 

 

 

500,000

 

 

 

Nov-2021

 

L + 180 bps

 

 

1.93

%

 

 

350,000

 

 

 

350,000

 

 

 

 

 

 

 

 

2.59

%

 

 

850,000

 

 

 

850,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 West 52nd Street

June-2026

 

Fixed

 

 

3.80

%

 

 

500,000

 

 

 

500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300 Mission Street (1)

Oct-2023

 

Fixed

 

 

3.65

%

 

 

256,864

 

 

 

244,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total notes and mortgages payable

 

 

3.32

%

 

 

3,831,864

 

 

 

3,819,434

 

 

Less: unamortized deferred financing costs

 

 

 

 

 

 

(15,105

)

 

 

(18,695

)

 

Total notes and mortgages payable, net

 

 

 

 

 

$

3,816,759

 

 

$

3,800,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.0 Billion Revolving Credit

     Facility

Jan-2022 (3)

 

L + 115 bps

 

n/a

 

 

$

-

 

 

$

-

 

 

 

 

(1)

Our ownership interests in 1633 Broadway, One Market Plaza and 300 Mission Street are 90.0%, 49.0% and 31.1%, respectively.

(2)

We are currently exploring various alternatives to refinance this debt.

(3)

The $1.0 billion revolving credit facility matures on January 10, 2022 and has two six-month extension options.

 

 

8.

Equity

 

 

Stock Repurchase Program

 

On November 5, 2019, we received authorization from our Board of Directors to repurchase up to $200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. During 2020, we repurchased 13,813,158 common shares at a weighted average price of $8.69 per share, or $120,000,000 in the aggregate, of which 10,856,865 common shares were repurchased in the six months ended June 30, 2020, at a weighted average price of $9.21 per share, or $100,000,000 in the aggregate. We did not repurchase any shares in the six months ended June 30, 2021. We have $80,000,000 available for future repurchases under the existing program. The amount and timing of future repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.

 

 


16


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

9.

Accumulated Other Comprehensive Loss

 

 

The following table sets forth changes in accumulated other comprehensive loss by component for the three and six months ended June 30, 2021 and 2020, including amounts attributable to noncontrolling interests in the Operating Partnership.

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Amount of (loss) income related to unconsolidated joint ventures

   recognized in other comprehensive loss (1)

 

$

(637

)

 

$

(2,104

)

 

 

2,785

 

 

 

(16,672

)

Amounts reclassified from accumulated other comprehensive

   loss increasing loss from unconsolidated joint ventures (1)

 

 

1,002

 

 

 

408

 

 

 

1,964

 

 

 

315

 

 

(1)

Represents amounts related to interest rate swap with a notional value of $402,000, which was designated as cash flow hedge.

 

 

 

10.

Noncontrolling Interests

 

 

Consolidated Joint Ventures

 

Noncontrolling interests in consolidated joint ventures consist of equity interests held by third parties in 1633 Broadway, One Market Plaza and 300 Mission Street. As of June 30, 2021 and December 31, 2020, noncontrolling interests in our consolidated joint ventures aggregated $442,428,000 and $437,161,000, respectively.

 

 

Consolidated Real Estate Fund

 

Noncontrolling interests in our consolidated real estate fund consists of equity interests held by third parties in our Residential Development Fund. As of June 30, 2021 and December 31, 2020, the noncontrolling interest in our consolidated real estate fund aggregated $79,085,000 and $79,017,000, respectively.

 

 

Operating Partnership

 

Noncontrolling interests in the Operating Partnership represent common units of the Operating Partnership that are held by third parties, including management, and units issued to management under equity incentive plans. Common units of the Operating Partnership may be tendered for redemption to the Operating Partnership for cash. We, at our option, may assume that obligation and pay the holder either cash or common shares on a one-for-one basis. Since the number of common shares outstanding is equal to the number of common units owned by us, the redemption value of each common unit is equal to the market value of each common share and distributions paid to each common unitholder is equivalent to dividends paid to common stockholders. As of June 30, 2021 and December 31, 2020, noncontrolling interests in the Operating Partnership on our consolidated balance sheets had a carrying amount of $358,331,000 and $346,379,000, respectively, and a redemption value of $219,516,000 and $187,640,000, respectively, based on the closing share price of our common stock on the New York Stock Exchange.


17


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

11.

Variable Interest Entities (“VIEs”)

 

 

In the normal course of business, we are the general partner of various types of investment vehicles, which may be considered VIEs. We may, from time to time, own equity or debt securities through vehicles, each of which are considered variable interests. Our involvement in financing the operations of the VIEs is generally limited to our investments in the entity. We consolidate these entities when we are deemed to be the primary beneficiary.

 

 

Consolidated VIEs

 

We are the sole general partner of, and owned approximately 91.0% of, the Operating Partnership as of June 30, 2021. The Operating Partnership is considered a VIE and is consolidated in our consolidated financial statements. Since we conduct our business through and substantially all of our interests are held by the Operating Partnership, the assets and liabilities on our consolidated financial statements represent the assets and liabilities of the Operating Partnership. As of June 30, 2021 and December 31, 2020, the Operating Partnership held interests in consolidated VIEs owning properties and a real estate fund that were determined to be VIEs. The assets of these consolidated VIEs may only be used to settle the obligations of the entities and such obligations are secured only by the assets of the entities and are non-recourse to the Operating Partnership or us. The following table summarizes the assets and liabilities of consolidated VIEs of the Operating Partnership.

 

 

 

As of

 

(Amounts in thousands)

 

June 30, 2021

 

 

December 31, 2020

 

Real estate, net

 

$

3,454,201

 

 

$

3,470,766

 

Cash and cash equivalents and restricted cash

 

 

178,873

 

 

 

134,647

 

Investments in unconsolidated joint ventures

 

 

67,292

 

 

 

67,505

 

Accounts and other receivables

 

 

5,236

 

 

 

6,871

 

Deferred rent receivable

 

 

202,371

 

 

 

192,401

 

Deferred charges, net

 

 

52,008

 

 

 

55,156

 

Intangible assets, net

 

 

69,171

 

 

 

76,545

 

Other assets

 

 

24,619

 

 

 

21,496

 

Total VIE assets

 

$

4,053,771

 

 

$

4,025,387

 

 

 

 

 

 

 

 

 

 

Notes and mortgages payable, net

 

$

2,470,718

 

 

$

2,457,272

 

Accounts payable and accrued expenses

 

 

54,186

 

 

 

51,590

 

Intangible liabilities, net

 

 

30,504

 

 

 

33,566

 

Other liabilities

 

 

5,412

 

 

 

4,486

 

Total VIE liabilities

 

$

2,560,820

 

 

$

2,546,914

 

 

 

Unconsolidated VIEs

 

As of June 30, 2021, the Operating Partnership held variable interests in entities that own our unconsolidated real estate funds that were deemed to be VIEs. The following table summarizes our investments in these unconsolidated real estate funds and the maximum risk of loss from these investments.

 

 

 

As of

 

 

(Amounts in thousands)

 

June 30, 2021

 

 

December 31, 2020

 

 

Investments

 

$

12,979

 

 

$

12,917

 

 

Asset management fees and other receivables

 

 

236

 

 

 

561

 

 

Maximum risk of loss

 

$

13,215

 

 

$

13,478

 

 

 


18


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

12.

Fair Value Measurements

 

 

Financial Assets Measured at Fair Value

 

The following table summarizes the fair value of our financial assets that are measured at fair value on our consolidated balance sheets as of the dates set forth below, based on their levels in the fair value hierarchy.

 

 

As of June 30, 2021

 

(Amounts in thousands)

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Marketable securities (included in "other assets")

$

16,839

 

 

$

16,839

 

 

$

-

 

 

$

-

 

Total assets

$

16,839

 

 

$

16,839

 

 

$

-

 

 

$

-

 

 

 

 

As of December 31, 2020

 

(Amounts in thousands)

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Marketable securities (included in "other assets")

$

17,178

 

 

$

17,178

 

 

$

-

 

 

$

-

 

Total assets

$

17,178

 

 

$

17,178

 

 

$

-

 

 

$

-

 

 

 

Financial Liabilities Not Measured at Fair Value

 

Financial liabilities not measured at fair value on our consolidated balance sheets consist of notes and mortgages payable, and the revolving credit facility. The following table summarizes the carrying amounts and fair value of these financial instruments as of the dates set forth below.

 

 

As of June 30, 2021

 

 

As of December 31, 2020

 

(Amounts in thousands)

Carrying Amount

 

 

Fair Value

 

 

Carrying Amount

 

 

Fair Value

 

Notes and mortgages payable

$

3,831,864

 

 

$

3,878,237

 

 

$

3,819,434

 

 

$

3,871,644

 

Revolving credit facility

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total liabilities

$

3,831,864

 

 

$

3,878,237

 

 

$

3,819,434

 

 

$

3,871,644

 

 


19


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

 

13.

Leases

 

 

We lease office, retail and storage space to tenants, primarily under non-cancellable operating leases, which generally have terms ranging from five to fifteen years. Most of our leases provide tenants with extension options at either fixed or market rates and few of our leases provide tenants with options to early terminate, but such options generally impose an economic penalty on the tenant upon exercising. Rental revenue is recognized in accordance with ASC Topic 842, Leases, and includes (i) fixed payments of cash rents, which represents revenue each tenant pays in accordance with the terms of its respective lease and that is recognized on a straight-line basis over the non-cancellable term of the lease, and includes the effects of rent steps and rent abatements under the leases, (ii) variable payments of tenant reimbursements, which are recoveries of all or a portion of the operating expenses and real estate taxes of the property and is recognized in the same period as the expenses are incurred, (iii) amortization of acquired above and below-market leases, net and (iv) lease termination income.

 

The following table sets forth the details of our rental revenue.

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

(Amounts in thousands)

2021

 

 

2020

 

 

2021

 

 

2020

 

 

Rental revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

$

159,641

 

 

$

153,868

 

(1)

$

320,270

 

 

$

314,544

 

(1)

Variable

 

14,987

 

(2)

 

10,121

 

 

 

27,504

 

(2)

 

24,870

 

 

Total rental revenue

$

174,628

 

 

$

163,989

 

 

$

347,774

 

 

$

339,414

 

 

 

 

(1)

Includes $11,309 of non-cash write-offs, primarily for straight-line rent receivables, and $2,051 of reserves for uncollectible accounts receivable in the three and six months ended June 30, 2020.

(2)

Includes $5,051 of income in connection with a tenant’s lease termination at 300 Mission Street.

 

 

The following table is a schedule of future undiscounted cash flows under non-cancellable operating leases in effect as of June 30, 2021, for the six-month period from July 1, 2021 through December 31, 2021, and each of the five succeeding years and thereafter commencing January 1, 2022.

 

(Amounts in thousands)

 

 

 

2021

 

$

320,578

 

2022

 

 

632,390

 

2023

 

 

607,310

 

2024

 

 

580,419

 

2025

 

 

522,620

 

2026

 

 

426,925

 

Thereafter

 

 

2,007,828

 

Total

 

$

5,098,070

 

 

 

 


20


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

14. Fee and Other Income

 

 

The following table sets forth the details of our fee and other income.

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

2021

 

 

2020

 

 

2021

 

 

2020

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management

$

3,409

 

 

$

3,571

 

 

$

6,895

 

 

$

7,092

 

Property management

 

 

2,085

 

 

 

2,239

 

 

 

4,281

 

 

 

4,689

 

Acquisition, disposition and leasing

 

439

 

 

 

-

 

 

 

439

 

 

 

-

 

Other

 

268

 

 

 

399

 

 

 

1,256

 

 

 

758

 

Total fee income

 

6,201

 

 

 

6,209

 

 

 

12,871

 

 

 

12,539

 

Other income (1)

 

1,440

 

 

 

920

 

 

 

2,790

 

 

 

3,151

 

Total fee and other income

$

7,641

 

 

$

7,129

 

 

$

15,661

 

 

$

15,690

 

 

 

(1)

Primarily comprised of (i) tenant requested services, including overtime heating and cooling and (ii) parking income.

 

 

15.

Interest and Other Income, net

 

 

The following table sets forth the details of interest and other income, net.

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Interest income, net

 

$

397

 

 

$

428

 

 

$

787

 

 

$

1,416

 

Mark-to-market of investments in our

   deferred compensation plans (1)

 

 

673

 

 

 

1,824

 

 

 

1,585

 

 

 

(160

)

Total interest and other income, net

 

$

1,070

 

 

$

2,252

 

 

$

2,372

 

 

$

1,256

 

 

 

(1)

The change resulting from the mark-to-market of the deferred compensation plan assets is entirely offset by the change in deferred compensation plan liabilities, which is included as a component of “general and administrative” expenses on our consolidated statements of income.

 

   

16.

Interest and Debt Expense

 

 

The following table sets forth the details of interest and debt expense.

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Interest expense

 

$

32,593

 

 

$

33,690

 

 

$

65,013

 

 

$

67,991

 

Amortization of deferred financing costs

 

 

2,321

 

 

 

2,319

 

 

 

4,640

 

 

 

4,637

 

Total interest and debt expense

 

$

34,914

 

 

$

36,009

 

 

$

69,653

 

 

$

72,628

 

 


21


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

17.

Incentive Compensation

 

 

Stock-Based Compensation

 

Our Amended and Restated 2014 Equity Incentive Plan provides for grants of equity awards to our executive officers, non-employee directors and employees in order to attract and motivate talent for which we compete. In addition, equity awards are an effective management retention tool as they vest over multiple years based on continued employment. Equity awards are granted in the form of (i) restricted stock and (ii) long-term incentive plan (“LTIP”) units, which represent a class of partnership interests in our Operating Partnership and are typically comprised of performance-based LTIP units, time-based LTIP units and time-based appreciation only LTIP (“AOLTIP”) units. We account for all stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. We recognized stock-based compensation expense of $4,743,000 and $4,241,000 for the three months ended June 30, 2021 and 2020, respectively, and $10,229,000 and $9,638,000 for the six months ended June 30, 2021 and 2020, respectively, related to awards granted in prior periods, including the 2020 equity grants (“2020 Equity Grants”) described below.

 

2020 Equity Grants

 

2020 Performance-Based Awards Program (“2020 Performance Program”)

 

On January 11, 2021, the Compensation Committee of our Board of Directors (the “Compensation Committee”) approved the 2020 Performance Program, a multi-year performance-based long-term incentive compensation program. Under the 2020 Performance Program, participants may earn awards in the form of LTIP units based on our Total Shareholder Return (“TSR”) over a three-year performance measurement period beginning on January 1, 2021 and continuing through December 31, 2023. Specifically, 50.0% of the awards would be earned based on the rank of our TSR relative to the TSR of our Central Business District focused New York City office peers, comprised of Vornado Realty Trust, SL Green Realty Corp., Empire State Realty Trust and Columbia Property Trust, and the remaining 50.0% of the awards would be earned based on the percentile rank of our TSR relative to performance of the SNL U.S. Office REIT Index constituents. Furthermore, if our TSR is negative over the three-year performance measurement period, then the number of LTIP units that are earned under the 2020 Performance Program will be reduced by 30.0% of the number of such awards that otherwise would have been earned. Additionally, if the designated performance objectives are achieved, awards earned under the 2020 Performance Program are subject to vesting based on continued employment with us through December 31, 2024, with 50.0% of each award vesting upon the conclusion of the performance measurement period, and the remaining 50.0% vesting on December 31, 2024. Lastly, our Named Executive Officers are required to hold earned awards for an additional year following vesting. The fair value of the awards granted under the 2020 Performance Program on the date of the grant was $7,303,000 and is being amortized into expense over the four-year vesting period using a graded vesting attribution method.

 

Time-Based Unit Awards Program (“LTIP and AOLTIP Units”)

 

On January 11, 2021, we granted an aggregate of 579,520 LTIP units and 2,171,875 AOLTIP units to our executive officers and employees that will vest over a period of three to four years. LTIP units are similar to common units of our Operating Partnership in that they are redeemable for cash, or at our election, may be converted on a one-for-one basis into shares of our common stock. AOLTIP units are similar to stock options in that it permits the holder to realize the benefit of any increase in the per share value of our common stock above the value at the time the AOLTIP units were granted and can be converted into a number of common units of our Operating Partnership that have an aggregate value equal to such increase. The common units issued upon the conversion of AOLTIP units are redeemable for cash, or at our election, may be converted on a one-for-one basis into shares of our common stock. The fair value of LTIP units and AOLTIP units on the date of grant were $4,598,000 and $4,344,000, respectively, and these awards are being amortized into expense on a straight-line basis over the vesting period.

 

Restricted Stock

 

On January 11, 2021, we granted an aggregate of 166,686 shares of restricted stock to our employees that will vest over a period of four years. The fair value of the shares of restricted stock on the date of grant was $1,439,000, which is being amortized into expense on a straight-line basis over the vesting period.


22


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

Completion of the 2017 Performance-Based Awards Program (“2017 Performance Program”)

 

On January 11, 2021, the Compensation Committee determined that the performance goals set forth in the 2017 Performance Program were not satisfied during the performance measurement period, which ended on December 31, 2020. Accordingly, all of the 1,382,807 LTIP units that were granted on February 5, 2018, were forfeited, with no awards being earned. These awards had a grant date fair value of $7,009,000 and a remaining unrecognized compensation cost of $416,000 as of June 30, 2021, which will be amortized over a weighted-average period of 0.5 years.  

 

 

18.

Earnings Per Share

 

 

The following table summarizes our net loss and the number of common shares used in the computation of basic and diluted loss per common share, which includes the weighted average number of common shares outstanding and the effect of dilutive potential common shares, if any.

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands, except per share amounts)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations attributable to

   common stockholders

 

$

(15,943

)

 

$

(8,234

)

 

$

(19,521

)

 

$

(6,266

)

Earnings allocated to unvested participating securities

 

 

(18

)

 

 

(14

)

 

 

(37

)

 

 

(26

)

Numerator for loss from continuing operations per

   common share - basic and diluted

 

 

(15,961

)

 

 

(8,248

)

 

 

(19,558

)

 

 

(6,292

)

Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from discontinued operations attributable to

   common stockholders

 

 

-

 

 

 

1,964

 

 

 

-

 

 

 

3,344

 

Earnings allocated to unvested participating securities

 

 

-

 

 

 

(4

)

 

 

-

 

 

 

(11

)

Numerator for income from discontinued operations

   per common share - basic and diluted

 

 

-

 

 

 

1,960

 

 

 

-

 

 

 

3,333

 

Numerator for loss per common share - basic and diluted

 

$

(15,961

)

 

$

(6,288

)

 

$

(19,558

)

 

$

(2,959

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic loss per common share - weighted

   average shares

 

 

218,696

 

 

 

221,573

 

 

 

218,681

 

 

 

224,671

 

Effect of dilutive stock-based compensation plans (1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Denominator for diluted loss per common share - weighted

   average shares

 

 

218,696

 

 

 

221,573

 

 

 

218,681

 

 

 

224,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income per Common Share - Basic and Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations, net

 

$

(0.07

)

 

$

(0.04

)

 

$

(0.09

)

 

$

(0.03

)

Discontinued operations, net

 

 

-

 

 

 

0.01

 

 

 

-

 

 

 

0.02

 

Loss per common share - basic and diluted

 

$

(0.07

)

 

$

(0.03

)

 

$

(0.09

)

 

$

(0.01

)

 

(1)

The effect of dilutive securities excludes 23,822 and 22,917 weighted average share equivalents for the three months ended June 30, 2021 and 2020, respectively, and 23,738 and 24,201 weighted average share equivalents for the six months ended June 30, 2021 and 2020, respectively, as their effect was anti-dilutive.

23


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

19.

Related Parties

 

 

Management Agreements

 

We provide property management, leasing and other related services to certain properties owned by members of the Otto Family. We recognized fee income of $710,000 and $259,000 for the three months ended June 30, 2021 and 2020, respectively, and $1,227,000 and $707,000 for the six months ended June 30, 2021 and 2020, respectively, in connection with these agreements, which is included as a component of “fee and other income” on our consolidated statements of income. As of June 30, 2021 and December 31, 2020, amounts owed to us under these agreements aggregated $474,000 and $34,000, respectively, which are included as a component of “accounts and other receivables” on our consolidated balance sheets.

 

We also provide property management, asset management, leasing and other related services to our unconsolidated joint ventures and real estate funds. We recognized fee income of $4,916,000 and $5,396,000 for the three months ended June 30, 2021 and 2020, respectively, and $10,502,000 and $10,709,000 for the six months ended June 30, 2021 and 2020, respectively, in connection with these agreements, which is included as a component of “fee and other income” on our consolidated statements of income. As of June 30, 2021 and December 31, 2020, amounts owed to us under these agreements aggregated $4,399,000 and $5,011,000, respectively, which are included as a component of “accounts and other receivables” on our consolidated balance sheets.

 

 

Hamburg Trust Consulting HTC GmbH (“HTC”)

 

We have an agreement with HTC, a licensed broker in Germany, to supervise selling efforts for our private equity real estate funds (or investments in feeder vehicles for these funds) to investors in Germany, including distribution of securitized notes of feeder vehicles for Fund X. Pursuant to this agreement, we have agreed to pay HTC for the costs incurred to sell investments in these funds or their feeder vehicles, including certain incremental costs incurred by HTC as a result of the engagement, plus a mark-up of 10%. HTC is 100% owned by Albert Behler, our Chairman, Chief Executive Officer and President. We incurred expenses of $123,000 and $126,000 for the three months ended June 30, 2021 and 2020, respectively, and $245,000 and $265,000 for the six months ended June 30, 2021 and 2020, respectively, in connection with this agreement, which is included as a component of “transaction related costs” on our consolidated statements of income. As of June 30, 2021 and December 31, 2020, we owed $123,000 to HTC under this agreement, which are included as a component of “accounts payable and accrued expenses” on our consolidated balance sheets.  

 

 

Mannheim Trust

 

A subsidiary of Mannheim Trust leases office space at 712 Fifth Avenue, our 50.0% owned unconsolidated joint venture, pursuant to a lease agreement which expires in April 2023. Dr. Martin Bussmann (a member of our Board of Directors) is also a trustee and a director of Mannheim Trust. We recognized $91,000 and $90,000 in the three months ended June 30, 2021 and 2020, respectively, and $181,000 in each of the six months ended June 30, 2021 and 2020 for our share of rental income pursuant to this lease.  

 


24


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

20.

Commitments and Contingencies

 

 

Insurance

 

We carry commercial general liability coverage on our properties, with limits of liability customary within the industry. Similarly, we are insured against the risk of direct and indirect physical damage to our properties including coverage for the perils such as floods, earthquakes and windstorms. Our policies also cover the loss of rental income during an estimated reconstruction period. Our policies reflect limits and deductibles customary in the industry and specific to the buildings and portfolio. We also obtain title insurance policies when acquiring new properties. We currently have coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. While we do carry commercial general liability insurance, property insurance and terrorism insurance with respect to our properties, these policies include limits and terms we consider commercially reasonable. In addition, there are certain losses (including, but not limited to, losses arising from known environmental conditions or acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. We believe the policy specifications and insured limits are adequate given the relative risk of loss, the cost of the coverage and industry practice and, in consultation with our insurance advisors, we believe the properties in our portfolio are adequately insured.

 

 

Other Commitments and Contingencies

 

We are a party to various claims and routine litigation arising in the ordinary course of business. Some of these claims or others to which we may be subject from time to time, including claims arising specifically from the formation transactions, in connection with our initial public offering, may result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured could have an adverse impact on our financial position and results of operations. Should any litigation arise in connection with the formation transactions, we would contest it vigorously. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flow, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

 

The terms of our mortgage debt and certain side letters in place include certain restrictions and covenants which may limit, among other things, certain investments, the incurrence of additional indebtedness and liens and the disposition or other transfer of assets and interests in the borrower and other credit parties, and require compliance with certain debt yield, debt service coverage and loan to value ratios. In addition, our revolving credit facility contains representations, warranties, covenants, other agreements and events of default customary for agreements of this type with comparable companies. As of June 30, 2021, we believe we are in compliance with all of our covenants.

 

 

Transfer Tax Assessments

 

During 2017, the New York City Department of Finance issued Notices of Determination (“Notices”) assessing additional transfer taxes (including interest and penalties) in connection with the transfer of interests in certain properties during our 2014 initial public offering. We believe, after consultation with legal counsel, that the likelihood of a loss is reasonably possible, and while it is not possible to predict the outcome of these Notices, we estimate the range of loss could be between $0 and $49,800,000. Since no amount in this range is a better estimate than any other amount within the range, we have not accrued any liability arising from potential losses relating to these Notices in our consolidated financial statements.

 


25


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

 

21.

Segments

 

 

Our reportable segments are separated by region, based on the 2 regions in which we conduct our business: New York and San Francisco. Our determination of segments is aligned with our method of internal reporting and the way our Chief Executive Officer, who is also our Chief Operating Decision Maker, makes key operating decisions, evaluates financial results and manages our business.

 

The following tables provide Net Operating Income (“NOI”) for each reportable segment for the periods set forth below.

 

 

 

For the Three Months Ended June 30, 2021

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

 

$

176,068

 

 

$

108,191

 

 

$

68,674

 

 

$

(797

)

Property-related operating expenses

 

 

(64,072

)

 

 

(45,801

)

 

 

(17,067

)

 

 

(1,204

)

NOI from unconsolidated joint ventures

 

 

10,557

 

 

 

2,749

 

 

 

7,852

 

 

 

(44

)

NOI (1)

 

$

122,553

 

 

$

65,139

 

 

$

59,459

 

 

$

(2,045

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2020

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other (2)

 

Property-related revenues

 

$

168,455

 

 

$

110,679

 

 

$

54,827

 

 

$

2,949

 

Property-related operating expenses

 

 

(65,712

)

 

 

(47,213

)

 

 

(16,054

)

 

 

(2,445

)

NOI from unconsolidated joint ventures

 

 

10,376

 

 

 

2,680

 

 

 

9,165

 

 

 

(1,469

)

NOI (1)

 

$

113,119

 

 

$

66,146

 

 

$

47,938

 

 

$

(965

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2021

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Property-related revenues

 

$

350,564

 

 

$

220,028

 

 

$

132,146

 

 

$

(1,610

)

Property-related operating expenses

 

 

(130,690

)

 

 

(94,825

)

 

 

(34,005

)

 

 

(1,860

)

NOI from unconsolidated joint ventures

 

 

20,883

 

 

 

5,570

 

 

 

15,389

 

 

 

(76

)

NOI (1)

 

$

240,757

 

 

$

130,773

 

 

$

113,530

 

 

$

(3,546

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2020

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other (2)

 

Property-related revenues

 

$

349,773

 

 

$

232,256

 

 

$

111,494

 

 

$

6,023

 

Property-related operating expenses

 

 

(134,177

)

 

 

(96,242

)

 

 

(32,973

)

 

 

(4,962

)

NOI from unconsolidated joint ventures

 

 

23,768

 

 

 

5,624

 

 

 

19,547

 

 

 

(1,403

)

NOI (1)

 

$

239,364

 

 

$

141,638

 

 

$

98,068

 

 

$

(342

)

 

 

(1)

NOI is used to measure the operating performance of our properties. NOI consists of rental revenue (which includes property rentals, tenant reimbursements and lease termination income) and certain other property-related revenue less operating expenses (which includes property-related expenses such as cleaning, security, repairs and maintenance, utilities, property administration and real estate taxes). We use NOI internally as a performance measure and believe it provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Other real estate companies may use different methodologies for calculating NOI and, accordingly, our presentation of NOI may not be comparable to other real estate companies.

(2)

NOI for the three and six months ended June 30, 2020 includes NOI from discontinued operations. See Note 3, Discontinued Operations.


26


PARAMOUNT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

 

The following table provides a reconciliation of NOI to net loss attributable to common stockholders for the periods set forth below.

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

NOI

 

$

122,553

 

 

$

113,119

 

 

$

240,757

 

 

$

239,364

 

Add (subtract) adjustments to arrive to net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

 

6,201

 

 

 

6,209

 

 

 

12,871

 

 

 

12,539

 

Depreciation and amortization expense

 

 

(59,925

)

 

 

(58,716

)

 

 

(118,230

)

 

 

(117,143

)

General and administrative expenses

 

 

(18,418

)

 

 

(17,901

)

 

 

(32,782

)

 

 

(30,150

)

NOI from unconsolidated joint ventures

 

 

(10,557

)

 

 

(10,376

)

 

 

(20,883

)

 

 

(23,768

)

Loss from unconsolidated joint ventures

 

 

(15,717

)

 

 

(5,955

)

 

 

(21,033

)

 

 

(10,176

)

Interest and other income, net

 

 

1,070

 

 

 

2,252

 

 

 

2,372

 

 

 

1,256

 

Interest and debt expense

 

 

(34,914

)

 

 

(36,009

)

 

 

(69,653

)

 

 

(72,628

)

Adjustments related to discontinued operations

 

 

-

 

 

 

(2,147

)

 

 

-

 

 

 

(4,358

)

Other, net

 

 

13

 

 

 

(169

)

 

 

(88

)

 

 

(320

)

Loss from continuing operations, before income taxes

 

 

(9,694

)

 

 

(9,693

)

 

 

(6,669

)

 

 

(5,384

)

Income tax expense

 

 

(434

)

 

 

(138

)

 

 

(1,575

)

 

 

(742

)

Loss from continuing operations, net

 

 

(10,128

)

 

 

(9,831

)

 

 

(8,244

)

 

 

(6,126

)

Income from discontinued operations, net

 

 

-

 

 

 

2,147

 

 

 

-

 

 

 

3,668

 

Net loss

 

 

(10,128

)

 

 

(7,684

)

 

 

(8,244

)

 

 

(2,458

)

Less: net (income) loss attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

 

(7,428

)

 

 

(405

)

 

 

(13,156

)

 

 

(1,919

)

Consolidated real estate fund

 

 

29

 

 

 

1,235

 

 

 

(56

)

 

 

1,212

 

Operating Partnership

 

 

1,584

 

 

 

584

 

 

 

1,935

 

 

 

243

 

Net loss attributable to common stockholders

 

$

(15,943

)

 

$

(6,270

)

 

$

(19,521

)

 

$

(2,922

)

 

 

The following table provides the total assets for each of our reportable segments as of the dates set forth below.

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets as of:

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

June 30, 2021

 

$

8,533,140

 

 

$

5,359,621

 

 

$

2,711,847

 

 

$

461,672

 

December 31, 2020

 

 

8,554,097

 

 

 

5,388,596

 

 

 

2,698,983

 

 

 

466,518

 

 

 

 

27


 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, including the related notes included therein.

 

 

Forward-Looking Statements

 

We make statements in this Quarterly Report on Form 10-Q that are considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are usually identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation:

 

 

the negative impact of the coronavirus 2019 (“COVID-19”) global pandemic on the U.S., regional and global economies and our tenants’ financial condition and results of operations;

 

unfavorable market and economic conditions in the United States, including New York City and San Francisco, and globally;

 

risks associated with our high concentrations of our properties in New York City and San Francisco;  

 

risks associated with ownership of real estate;  

 

decreased rental rates or increased vacancy rates;  

 

the risk we may lose a major tenant;  

 

trends in the office real estate industry including telecommuting, flexible work schedules, open workplaces and teleconferencing;

 

limited ability to dispose of assets because of the relative illiquidity of real estate investments;  

 

intense competition in the real estate market that may limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities;  

 

insufficient amounts of insurance;  

 

uncertainties and risks related to adverse weather conditions, natural disasters and climate change;  

 

risks associated with actual or threatened terrorist attacks;  

 

exposure to liability relating to environmental and health and safety matters;  

 

high costs associated with compliance with the Americans with Disabilities Act;  

 

failure of acquisitions to yield anticipated results;  

 

risks associated with real estate activity through our joint ventures and private equity real estate funds;  

 

general volatility of the capital and credit markets and the market price of our common stock;  

 

exposure to litigation or other claims;

 

loss of key personnel;  

 

risks associated with security breaches through cyber attacks or cyber intrusions and other significant disruptions of our information technology (“IT”) networks and related systems;  

 

risks associated with our substantial indebtedness;  

 

failure to refinance current or future indebtedness on favorable terms, or at all;  

28


 

 

 

failure to meet the restrictive covenants and requirements in our existing debt agreements;

 

fluctuations in interest rates and increased costs to refinance or issue new debt;

 

risks associated with variable rate debt, derivatives or hedging activity;

 

risks associated with the market for our common stock;

 

regulatory changes, including changes to tax laws and regulations;

 

failure to qualify as a real estate investment trust (“REIT”);

 

compliance with REIT requirements, which may cause us to forgo otherwise attractive opportunities or liquidate certain of our investments; or  

 

any of the other risks included in this Quarterly Report on Form 10-Q or in our Annual Report on Form 10-K for the year ended December 31, 2020, including those set forth in Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the U.S. federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. A reader should review carefully our consolidated financial statements and the notes thereto, as well as Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

 

Critical Accounting Policies

 

There are no material changes to our critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

 

Recently Issued Accounting Literature

 

A summary of our recently issued accounting literature and their potential impact on our consolidated financial statements, if any, are included in Note 2, Basis of Presentation and Significant Accounting Policies, to our consolidated financial statements in this Quarterly Report on Form 10-Q.

 


29


 

 

 

Business Overview

 

We are a fully-integrated REIT focused on owning, operating, managing, acquiring and redeveloping high-quality, Class A office properties in select central business district submarkets of New York City and San Francisco. We conduct our business through, and substantially all of our interests in properties and investments are held by, Paramount Group Operating Partnership LP, a Delaware limited partnership (the “Operating Partnership”). We are the sole general partner of, and owned approximately 91.0% of, the Operating Partnership as of June 30, 2021.

 

 

COVID-19 Update

 

In March 2020, the World Health Organization declared coronavirus 2019 (“COVID-19”) a global pandemic. The outbreak of COVID-19 caused severe disruptions in the global economy. These disruptions have adversely impacted businesses and financial markets, including that of New York and San Francisco, the markets in which we operate and where all of our assets are located. As a result, several of our tenants sought deferrals and/or short-term relief of their rental obligations and we provided relief to select tenants.

 

By February 2021, the U.S. Food and Drug Administration had issued emergency use authorizations of three vaccines for the prevention of COVID-19.  In July 2021, New York and San Francisco lifted most COVID-19 restrictions since a significant portion of their populations have been vaccinated. Notwithstanding the vaccination success, multiple variants of the virus that cause COVID-19 continue to persist globally and in the United States. While we continue to navigate the crisis and monitor the impact of the pandemic on our business, the rapid development and fluidity of this situation precludes us at this time from making any predictions as to the ultimate impact COVID-19 may have on our future financial condition, results of operations and cash flows.

 

 

Stock Repurchase Program

 

On November 5, 2019, we received authorization from our Board of Directors to repurchase up to $200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. During 2020, we repurchased 13,813,158 common shares at a weighted average price of $8.69 per share, or $120,000,000 in the aggregate, of which 10,856,865 common shares were repurchased in the six months ended June 30, 2020, at a weighted average price of $9.21 per share, or $100,000,000 in the aggregate. We did not repurchase any shares in the six months ended June 30, 2021. We have $80,000,000 available for future repurchases under the existing program. The amount and timing of future repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.

30


 

 

 

Leasing Results - Three Months Ended June 30, 2021

 

 

In the three months ended June 30, 2021, we leased 246,922 square feet, including 81,516 square feet that served to backfill the recent vacancy at 31 West 52nd Street, that was leased for a weighted average term of 14 years and 34,570 square feet that was leased to the Thespian Theatre at 1633 Broadway for a 15-year term. This leasing activity, offset by lease expirations in the three months (comprised primarily of the expiration of TD Bank’s 131,300 square foot lease at 31 West 52nd Street), decreased leased occupancy and same store leased occupancy (properties owned by us in a similar manner during both reporting periods) by 60 basis points to 88.0% at June 30, 2021 from 88.6% at March 31, 2021. Excluding the theatre lease, 212,352 square feet was leased in the three months, of which our share was 197,035 square feet that was leased at a weighted average initial rent of $70.81 per square foot. Of the 212,352 square feet leased, 156,117 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 1.4% on a cash basis and 5.2% on a GAAP basis. The weighted average lease term for leases signed during the three months was 9.3 years and weighted average tenant improvements and leasing commissions on these leases were $10.64 per square foot per annum, or 15.0% of initial rent.

 

 

New York

 

In the three months ended June 30, 2021, we leased 224,649 square feet in our New York portfolio, including 81,516 square feet that served to backfill the recent vacancy at 31 West 52nd Street, that was leased for a weighted average term of 14 years and 34,570 square feet that was leased to the Thespian Theatre at 1633 Broadway for a 15-year term. This leasing activity, offset by the lease expirations in the three months (comprised primarily of TD Bank’s 131,300 square foot lease at 31 West 52nd Street), decreased leased occupancy and same store leased occupancy by 80 basis points to 86.5% at June 30, 2021 from 87.3% at March 31, 2021. Excluding the theatre lease, 190,079 square feet was leased in the three months, of which our share was 184,234 square feet that was leased at a weighted average initial rent of $69.94 per square foot. Of the 190,079 square feet leased, 147,216 represented our share of second generation space for which rental rates decreased by 1.1% on a cash basis and 4.9% on a GAAP basis. The weighted average lease term for leases signed during the three months was 9.6 years and weighted average tenant improvements and leasing commissions on these leases were $10.86 per square foot per annum, or 15.5% of initial rent.

 

 

San Francisco

 

In the three months ended June 30, 2021, we leased 22,273 square feet in our San Francisco portfolio, of which our share was 12,801 square feet that was leased at a weighted average initial rent of $83.33 per square foot. This leasing activity, partially offset by lease expirations in the three months, increased leased occupancy and same store leased occupancy by 10 basis points to 92.1% at June 30, 2021 from 92.0% at March 31, 2021. Of the 22,273 square feet leased in the three months, 8,901 square feet represented our share of second generation space for which rental rates decreased by 6.0% on a cash basis and 9.3% on a GAAP basis. The weighted average lease term for leases signed during the three months was 5.1 years and weighted average tenant improvements and leasing commissions on these leases were $4.62 per square foot per annum, or 5.5% of initial rent.

 

 

 


31


 

 

 

The following table presents additional details on the leases signed during the three months ended June 30, 2021. It is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The leasing statistics, except for square feet leased, represent office space only.

 

 

Three Months Ended June 30, 2021

Total

 

 

New York

 

 

San Francisco

 

 

 

Total square feet leased

 

246,922

 

 

 

224,649

 

(1)

 

22,273

 

 

 

Pro rata share of total square feet leased:

 

197,035

 

 

 

184,234

 

 

 

12,801

 

 

 

 

Initial rent (2)

$

70.81

 

 

$

69.94

 

 

$

83.33

 

 

 

 

Weighted average lease term (in years)

 

9.3

 

 

 

9.6

 

 

 

5.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

$

99.43

 

 

$

104.70

 

 

$

23.63

 

 

 

 

 

Per square foot per annum

$

10.64

 

 

$

10.86

 

 

$

4.62

 

 

 

 

 

Percentage of initial rent

 

15.0

%

 

 

15.5

%

 

 

5.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent concessions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Average free rent period (in months)

 

12.7

 

 

 

13.3

 

 

 

4.8

 

 

 

 

 

Average free rent period per annum (in months)

 

1.4

 

 

 

1.4

 

 

 

0.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second generation space: (3)

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

156,117

 

 

 

147,216

 

 

 

8,901

 

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent (2)

$

74.27

 

 

$

73.64

 

 

$

84.78

 

 

 

 

 

Prior escalated rent (4)

$

75.35

 

 

$

74.45

 

 

$

90.23

 

 

 

 

 

Percentage decrease

 

(1.4

%)

 

 

(1.1

%)

 

 

(6.0

%)

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent

$

70.03

 

 

$

69.27

 

 

$

82.61

 

 

 

 

 

Prior straight-line rent

$

73.86

 

 

$

72.82

 

 

$

91.04

 

 

 

 

 

Percentage decrease

 

(5.2

%)

 

 

(4.9

%)

 

 

(9.3

%)

 

 

 

(1)

Includes 34,570 square feet that was leased to the Thespian Theatre at 1633 Broadway for a 15-year term that is excluded from our pro rata share of total square feet leased and the related statistics.

(2)

Represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent.

(3)

Represents space leased that has been vacant for less than twelve months.

(4)

Represents the weighted average cash basis rents (including reimbursements) per square foot at expiration.

 

 

The following table presents same store leased occupancy as of the dates set forth below.

 

 

Same Store Leased Occupancy (1)

Total

 

 

New York

 

 

San Francisco

 

 

As of June 30, 2021

 

88.0

%

(2)

 

86.5

%

(2)

 

92.1

%

 

As of March 31, 2021

 

88.6

%

 

 

87.3

%

 

 

92.0

%

 

 

 

(1)

Represents percentage of square feet that is leased, including signed leases not yet commenced, for properties that were owned by us in a similar manner during both the current and prior reporting periods.

 

 

(2)

Primarily due to the May 1, 2021 expiration of TD Bank’s 131,300 square foot lease at 31 West 52nd Street.

 

 


32


 

 

 

Leasing Results – Six Months Ended June 30, 2021

 

 

In the six months ended June 30, 2021, we leased 435,563 square feet, including 81,516 square feet that served to backfill the recent vacancy at 31 West 52nd Street, that was leased for a weighted average term of 14 years and an aggregate of 190,526 square feet of theatre space that was leased at 1633 Broadway for a weighted average term of 19 years. This leasing activity, offset by lease expirations in the six months (comprised primarily of the expiration of Barclays’ 497,500 square foot lease at 1301 Avenue of the Americas and TD Bank’s 131,300 square foot lease at 31 West 52nd Street), decreased leased occupancy and same store leased occupancy (properties owned by us in a similar manner during both reporting periods) by 720 basis points to 88.0% at June 30, 2021 from 95.2% at December 31, 2020. Excluding the theatre leases, 245,037 square feet was leased in the six months, of which our share was 216,690 square feet at a weighted average initial rent of $71.29 per square foot. Of the 245,037 square feet leased, 174,328 square feet represented our share of second generation space (space that had been vacant for less than twelve months) for which rental rates decreased by 2.2% on a cash basis and 6.6% on a GAAP basis. The weighted average lease term for leases signed during the six months was 8.9 years and weighted average tenant improvements and leasing commissions on these leases were $10.38 per square foot per annum, or 14.6% of initial rent.

 

 

New York

 

In the six months ended June 30, 2021, we leased 380,605 square feet in our New York portfolio, including 81,516 square feet that served to backfill the recent vacancy at 31 West 52nd Street, that was leased for a weighted average term of 14 years and an aggregate of 190,526 square feet of theatre space that was leased at 1633 Broadway for a weighted average term of 19 years. This leasing activity, offset by the lease expirations in the six months (comprised primarily of the expiration of Barclays’ 497,500 square foot lease at 1301 Avenue of the Americas and TD Bank’s 131,300 square foot lease at 31 West 52nd Street), decreased leased occupancy and same store leased occupancy by 860 basis points to 86.5% at June 30, 2021 from 95.1% at December 31, 2020. Excluding the theatre leases, 190,079 square feet was leased in the six months, of which our share was 184,234 square feet at a weighted average initial rent of $69.94 per square foot. Of the 190,079 square feet leased in the six months, 147,216 square feet represented our share of second generation space for which rental rates decreased by 1.1% on a cash basis and 4.9% on a GAAP basis. The weighted average lease term for leases signed during the six months was 9.6 years and weighted average tenant improvements and leasing commissions on these leases were $10.86 per square foot per annum, or 15.5% of initial rent.

 

 

San Francisco

 

In the six months ended June 30, 2021, we leased 54,958 square feet in our San Francisco portfolio, of which our share was 32,456 square feet that was leased at a weighted average initial rent of $78.94 per square foot. This leasing activity, offset by lease expirations in the six months, decreased leased occupancy and same store leased occupancy by 360 basis points to 92.1% at June 30, 2021 from 95.7% at December 31, 2020. Of the 54,958 square feet leased in the six months, 27,112 square feet represented our share of second generation space for which rental rates decreased by 7.7% on a cash basis and 13.8% on a GAAP basis. The weighted average lease term for leases signed during the six months was 4.4 years and weighted average tenant improvements and leasing commissions on these leases were $4.38 per square foot per annum, or 5.5% of initial rent.

 

 

 


33


 

 

 

The following table presents additional details on the leases signed during the six months ended June 30, 2021. It is not intended to coincide with the commencement of rental revenue in accordance with GAAP. The leasing statistics, except for square feet leased, represent office space only.

 

 

Six Months Ended June 30, 2021

Total

 

 

New York

 

 

San Francisco

 

 

Total square feet leased

 

435,563

 

 

 

380,605

 

(1)

 

54,958

 

 

Pro rata share of total square feet leased:

 

216,690

 

 

 

184,234

 

 

 

32,456

 

 

 

Initial rent (2)

$

71.29

 

 

$

69.94

 

 

$

78.94

 

 

 

Weighted average lease term (in years)

 

8.9

 

 

 

9.6

 

 

 

4.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

$

91.89

 

 

$

104.70

 

 

$

19.18

 

 

 

 

Per square foot per annum

$

10.38

 

 

$

10.86

 

 

$

4.38

 

 

 

 

Percentage of initial rent

 

14.6

%

 

 

15.5

%

 

 

5.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent concessions:

 

 

 

 

 

 

 

 

 

 

 

 

Average free rent period (in months)

 

11.8

 

 

 

13.3

 

 

 

3.1

 

 

 

 

Average free rent period per annum (in months)

 

1.3

 

 

 

1.4

 

 

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second generation space: (3)

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

174,328

 

 

 

147,216

 

 

 

27,112

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent (2)

$

74.42

 

 

$

73.64

 

 

$

78.68

 

 

 

 

Prior escalated rent (4)

$

76.13

 

 

$

74.45

 

 

$

85.25

 

 

 

 

Percentage decrease

 

(2.2

%)

 

 

(1.1

%)

 

 

(7.7

%)

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent

$

71.09

 

 

$

69.27

 

 

$

81.01

 

 

 

 

Prior straight-line rent

$

76.11

 

 

$

72.82

 

 

$

94.00

 

 

 

 

Percentage decrease

 

(6.6

%)

 

 

(4.9

%)

 

 

(13.8

%)

 

 

(1)

Includes an aggregate of 190,526 square feet of theatre space that was leased at 1633 Broadway for a weighted average term of 19 years that is excluded from our pro rata share of total square feet leased and the related statistics.

(2)

Represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent.

(3)

Represents space leased that has been vacant for less than twelve months.

(4)

Represents the weighted average cash basis rents (including reimbursements) per square foot at expiration.

 

 

The following table presents same store leased occupancy as of the dates set forth below.

 

Same Store Leased Occupancy (1)

Total

 

 

New York

 

 

San Francisco

 

 

As of June 30, 2021  

 

88.0

%

(2)

 

86.5

%

(2)

 

92.1

%

 

As of December 31, 2020

 

95.2

%

 

 

95.1

%

 

 

95.7

%

 

 

 

(1)

Represents percentage of square feet that is leased, including signed leases not yet commenced, for properties that were owned by us in a similar manner during both the current and prior reporting periods.

 

 

(2)

Primarily due to the January 1, 2021 expiration of Barclays’ 497,500 square foot lease at 1301 Avenue of the Americas and the May 1, 2021 expiration of TD Bank’s 131,300 square foot lease at 31 West 52nd Street.

 


34


 

 

 

Financial Results - Three Months Ended June 30, 2021 and 2020

 

 

Net Income, FFO and Core FFO

 

Net loss attributable to common stockholders was $15,943,000, or $0.07 per diluted share, for the three months ended June 30, 2021, compared to $6,270,000, or $0.03 per diluted share, for the three months ended June 30, 2020. Net loss attributable to common stockholders for the three months ended June 30, 2021 includes (i) a contribution to an unconsolidated joint venture of $10,688,000 that was expensed in accordance with GAAP and (ii) lower earnings resulting from a reduction in weighted average portfolio occupancy levels (87.1% for the three months ended June 30, 2021 compared to 94.5% for the three months ended June 30, 2020). Net loss attributable to common stockholders for the three months ended June 30, 2020 includes non-cash write-offs (primarily for straight-line rent receivables) aggregating $7,030,000.

 

Funds from Operations (“FFO”) attributable to common stockholders was $37,943,000, or $0.17 per diluted share, for the three months ended June 30, 2021, compared to $50,663,000, or $0.23 per diluted share, for the three months ended June 30, 2020. FFO attributable to common stockholders for the three months ended June 30, 2021 includes (i) a contribution to an unconsolidated joint venture of $10,688,000 that was expensed in accordance with GAAP and (ii) lower earnings resulting from a reduction in weighted average portfolio occupancy levels (87.1% for the three months ended June 30, 2021 compared to 94.5% for the three months ended June 30, 2020). FFO attributable to common stockholders for the three months ended June 30, 2020 includes non-cash write-offs (primarily for straight-line rent receivables) aggregating $7,030,000. FFO attributable to common stockholders for the three months ended June 30, 2021 and 2020 also includes the impact of non-core items, which are listed in the table on page 59. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the three months ended June 30, 2021 by $9,665,000, or $0.05 per diluted share, and increased FFO attributable to common stockholders for the three months ended June 30, 2020 by $545,000, or $0.00 per diluted share.

 

Core Funds from Operations (“Core FFO”) attributable to common stockholders, which excludes the impact of the non-core items listed on page 59, was $47,608,000, or $0.22 per diluted share, for the three months ended June 30, 2021, compared to $50,118,000, or $0.23 per diluted share, for the three months ended June 30, 2020.

 

 

Same Store Results

 

The table below summarizes the percentage (decrease) increase in our share of Same Store NOI and Same Store Cash NOI, by segment, for the three months ended June 30, 2021 versus June 30, 2020.

 

 

 

 

Total

 

 

New York

 

 

San Francisco

 

Same Store NOI

 

 

(11.0

%)

 

 

(11.7

%)

 

 

(9.5

%)

Same Store Cash NOI

 

 

3.0

%

 

 

3.8

%

 

 

1.3

%

 

See pages 51-59 “Non-GAAP Financial Measures” for a reconciliation of these measures to the most directly comparable GAAP measure and the reasons why we believe these non-GAAP measures are useful.

 

 


35


 

 

 

Financial Results - Six Months Ended June 30, 2021 and 2020

 

 

Net Income, FFO and Core FFO

 

Net loss attributable to common stockholders was $19,521,000, or $0.09 per diluted share, for the six months ended June 30, 2021, compared to $2,922,000, or $0.01 per diluted share, for the six months ended June 30, 2020. Net loss attributable to common stockholders for the six months ended June 30, 2021 includes (i) a contribution to an unconsolidated joint venture of $10,688,000 that was expensed in accordance with GAAP and (ii) lower earnings resulting from a reduction in weighted average portfolio occupancy levels (87.9% for the six months ended June 30, 2021 compared to 94.0% for the six months ended June 30, 2020). Net loss attributable to common stockholders for the six months ended June 30, 2020 includes non-cash write-offs (primarily for straight-line rent receivables) aggregating $7,030,000.

 

FFO attributable to common stockholders was $88,817,000, or $0.40 per diluted share, for the six months ended June 30, 2021, compared to $112,249,000, or $0.50 per diluted share, for the six months ended June 30, 2020. FFO attributable to common stockholders for the six months ended June 30, 2021 includes (i) a contribution to an unconsolidated joint venture of $10,688,000 that was expensed in accordance with GAAP and (ii) lower earnings resulting from a reduction in weighted average portfolio occupancy levels (87.9% for the six months ended June 30, 2021 compared to 94.0% for the six months ended June 30, 2020). FFO attributable to common stockholders for the six months ended June 30, 2020 includes non-cash write-offs (primarily for straight-line rent receivables) aggregating $7,030,000. FFO attributable to common stockholders for the six months ended June 30, 2021 and 2020 also includes the impact of non-core items, which are listed in the table on page 59. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common stockholders for the six months ended June 30, 2021 by $9,363,000, or $0.05 per diluted share, and increased FFO attributable to common stockholders for the six months ended June 30, 2020 by $622,000, or $0.00 per diluted share.

 

Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 59, was $98,180,000, or $0.45 per diluted share, for the six months ended June 30, 2021, compared to $111,627,000, or $0.50 per diluted share, for the six months ended June 30, 2020.

 

 

Same Store Results

 

The table below summarizes the percentage (decrease) increase in our share of Same Store NOI and Same Store Cash NOI, by segment, for the six months ended June 30, 2021 versus June 30, 2020.

 

 

 

 

Total

 

 

New York

 

 

San Francisco

 

Same Store NOI

 

 

(9.2

%)

 

 

(11.9

%)

 

 

(3.7

%)

Same Store Cash NOI

 

 

0.1

%

 

 

(1.9

%)

 

 

4.5

%

 

See pages 51-59 “Non-GAAP Financial Measures” for a reconciliation of these measures to the most directly comparable GAAP measure and the reasons why we believe these non-GAAP measures are useful.

 


36


 

 

 

Results of Operations - Three Months Ended June 30, 2021 and 2020

 

 

The following pages summarize our consolidated results of operations for the three months ended June 30, 2021 and 2020.

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

 

 

 

(Amounts in thousands)

2021

 

 

2020

 

 

Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

174,628

 

 

$

163,989

 

 

$

10,639

 

 

Fee and other income

 

7,641

 

 

 

7,129

 

 

 

512

 

 

 

Total revenues

 

182,269

 

 

 

171,118

 

 

 

11,151

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

64,072

 

 

 

64,313

 

 

 

(241

)

 

Depreciation and amortization

 

59,925

 

 

 

58,716

 

 

 

1,209

 

 

General and administrative

 

18,418

 

 

 

17,901

 

 

 

517

 

 

Transaction related costs

 

135

 

 

 

258

 

 

 

(123

)

 

 

Total expenses

 

142,550

 

 

 

141,188

 

 

 

1,362

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Loss from unconsolidated joint ventures

 

(15,717

)

 

 

(5,955

)

 

 

(9,762

)

 

Income from unconsolidated real estate funds

 

148

 

 

 

89

 

 

 

59

 

 

Interest and other income, net

 

1,070

 

 

 

2,252

 

 

 

(1,182

)

 

Interest and debt expense

 

(34,914

)

 

 

(36,009

)

 

 

1,095

 

Loss from continuing operations, before income taxes

 

(9,694

)

 

 

(9,693

)

 

 

(1

)

 

Income tax expense

 

(434

)

 

 

(138

)

 

 

(296

)

Loss from continuing operations, net

 

(10,128

)

 

 

(9,831

)

 

 

(297

)

Income from discontinued operations, net

 

-

 

 

 

2,147

 

 

 

(2,147

)

Net loss

 

(10,128

)

 

 

(7,684

)

 

 

(2,444

)

Less net (income) loss attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(7,428

)

 

 

(405

)

 

 

(7,023

)

 

Consolidated real estate fund

 

29

 

 

 

1,235

 

 

 

(1,206

)

 

Operating Partnership

 

1,584

 

 

 

584

 

 

 

1,000

 

Net loss attributable to common stockholders

$

(15,943

)

 

$

(6,270

)

 

$

(9,673

)


37


 

 

 

Revenues

 

Our revenues, which consist of rental revenue and fee and other income, were $182,269,000 for the three months ended June 30, 2021, compared to $171,118,000 for the three months ended June 30, 2020, an increase of $11,151,000. Below are the details of the increase (decrease) by segment.

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Rental revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

(8,531

)

 

$

(9,788

)

(1)

$

1,257

 

 

$

-

 

Non-cash write-offs (primarily straight-line rent receivables)

 

 

11,309

 

 

 

5,400

 

 

 

5,909

 

 

 

-

 

Reserves for uncollectible accounts receivable

 

 

2,051

 

 

 

1,019

 

 

 

1,032

 

 

 

-

 

Other, net

 

 

5,810

 

 

 

628

 

 

 

5,253

 

(2)

 

(71

)

Increase (decrease) in rental revenue

 

$

10,639

 

 

$

(2,741

)

 

$

13,451

 

 

$

(71

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management

 

$

(162

)

 

$

-

 

 

$

-

 

 

$

(162

)

Property management

 

 

(154

)

 

 

-

 

 

 

-

 

 

 

(154

)

Acquisition, disposition and leasing

 

 

439

 

 

 

-

 

 

 

-

 

 

 

439

 

Other

 

 

(131

)

 

 

-

 

 

 

-

 

 

 

(131

)

Decrease in fee income

 

 

(8

)

 

 

-

 

 

 

-

 

 

 

(8

)

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

 

520

 

 

 

253

 

 

 

396

 

 

 

(129

)

Increase (decrease) in other income

 

 

520

 

 

 

253

 

 

 

396

 

 

 

(129

)

Increase (decrease) in fee and other income

 

$

512

 

 

$

253

 

 

$

396

 

 

$

(137

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

11,151

 

 

$

(2,488

)

 

$

13,847

 

 

$

(208

)

 

 

(1)

Primarily due to a decrease in occupancy resulting from the expiration of Barclays’ 497,500 square foot lease at 1301 Avenue of the Americas and TD Bank’s 131,300 square foot lease at 31 West 52nd Street.

(2)

Primarily due to income of $5,051 in the current year’s three months, in connection with a tenant’s lease termination at 300 Mission Street.


38


 

 

 

Expenses

 

Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $142,550,000 for the three months ended June 30, 2021, compared to $141,188,000 for the three months ended June 30, 2020, an increase of $1,362,000. Below are the details of the increase (decrease) by segment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Operating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

(399

)

 

$

(1,412

)

 

$

1,013

 

 

$

-

 

 

Other, net

 

 

158

 

 

 

-

 

 

 

-

 

 

 

158

 

 

(Decrease) increase in operating

 

$

(241

)

 

$

(1,412

)

 

$

1,013

 

 

$

158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

$

1,209

 

 

$

(1,638

)

(1)

$

2,980

 

(2)

$

(133

)

 

Increase (decrease) in depreciation

   and amortization

 

$

1,209

 

 

$

(1,638

)

 

$

2,980

 

 

$

(133

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in our deferred compensation plan

 

$

(1,151

)

 

$

-

 

 

$

-

 

 

$

(1,151

)

(3)

Operations

 

 

1,668

 

 

 

-

 

 

 

-

 

 

 

1,668

 

 

Increase in general and administrative

 

$

517

 

 

$

-

 

 

$

-

 

 

$

517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in transaction related costs

 

$

(123

)

 

$

-

 

 

$

-

 

 

$

(123

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in expenses

 

$

1,362

 

 

$

(3,050

)

 

$

3,993

 

 

$

419

 

 

 

 

(1)

Primarily due to lower amortization of in-place lease assets at 1301 Avenue of the Americas due to the expiration of such leases.

 

(2)

Primarily due to accelerated depreciation of tenant improvements in the current year’s three months resulting from a tenant’s lease termination at 300 Mission Street.

 

(3)

Represents the change in the mark-to-market of investments in our deferred compensation plan liabilities. This change is entirely offset by the change in plan assets which is included in “interest and other income, net”.

 

 


39


 

 

 

Loss from Unconsolidated Joint Ventures

 

Loss from unconsolidated joint ventures was $15,717,000 for the three months ended June 30, 2021 compared to $5,955,000 in the three months ended June 30, 2020, an increase of $9,762,000. This increase resulted from:

 

(Amounts in thousands)

 

 

 

 

 

712 Fifth Avenue

 

$

(11,357

)

(1)

Other, net

 

 

1,595

 

 

Total increase in loss

 

$

(9,762

)

 

 

 

 

(1)

Primarily due to an $11,750 contribution in the current year’s three months to the joint venture that owns 712 Fifth Avenue that was expensed in accordance with GAAP. See Note 4, Investments in Unconsolidated Joint Ventures.

 

 

 

Income from Unconsolidated Real Estate Funds

 

Income from unconsolidated real estate funds was $148,000 for the three months ended June 30, 2021, compared to $89,000 for the three months ended June 30, 2020, an increase of $59,000.

 

 

Interest and Other Income, net

 

Interest and other income was $1,070,000 for the three months ended June 30, 2021, compared to $2,252,000 of income for the three months ended June 30, 2020, a decrease in income of $1,182,000. This decrease in income resulted from:

 

(Amounts in thousands)

 

 

 

 

Decrease in the value of investments in our deferred compensation plan (which

   is entirely offset by a decrease in "general and administrative")

 

$

(1,151

)

Other, net (primarily lower yields on short-term investments)

 

 

(31

)

Total decrease in income

 

$

(1,182

)

 

 

Interest and Debt Expense

 

Interest and debt expense was $34,914,000 for the three months ended June 30, 2021, compared to $36,009,000 for the three months ended June 30, 2020, a decrease of $1,095,000. This decrease resulted primarily from lower borrowings from our revolving credit facility.

 

 

Income Tax Expense

 

Income tax expense was $434,000 for the three months ended June 30, 2021, compared to $138,000 for the three months ended June 30, 2020, an increase of $296,000. This increase resulted primarily from higher taxable income attributable to our taxable REIT subsidiaries in the current year’s three months.

 

 

Income from Discontinued Operations

 

Income from discontinued operations was $2,147,000 for the three months ended June 30, 2020 and represented income from 1899 Pennsylvania Avenue in Washington, D.C., which was sold in December 2020.


40


 

 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures

 

Net income attributable to noncontrolling interests in consolidated joint ventures was $7,428,000 for the three months ended June 30, 2021, compared to $405,000 for the three months ended June 30, 2020, an increase in income allocated to noncontrolling interests of $7,023,000. This increase in income resulted from:

 

(Amounts in thousands)

 

 

 

 

 

Higher income attributable to 300 Mission Street ($4,345 of income in 2021,

   compared to loss of $2,736 in 2020)

 

$

7,081

 

(1)

Other, net

 

 

(58

)

 

Total increase in income attributable to noncontrolling interests

 

$

7,023

 

 

 

 

 

(1)

Primarily due to an increase in occupancy and lease termination income in the current year’s three months.

 

 

 

Net Loss Attributable to Noncontrolling Interests in Consolidated Real Estate Fund

 

Net loss attributable to noncontrolling interests in consolidated real estate fund was $29,000 for the three months ended June 30, 2021, compared to $1,235,000 for the three months ended June 30, 2020, a decrease in loss allocated to noncontrolling interest of $1,206,000. This decrease was primarily due to higher marketing expense for One Steuart Lane in the prior year’s three months.

 

 

Net Loss Attributable to Noncontrolling Interests in Operating Partnership

 

Net loss attributable to noncontrolling interests in the Operating Partnership was $1,584,000 for the three months ended June 30, 2021, compared to $584,000 of loss for the three months ended June 30, 2020, an increase in loss allocated to noncontrolling interests of $1,000,000. This increase in loss resulted from higher net loss subject to allocation to the unitholders of the Operating Partnership for the three months ended June 30, 2021.


41


 

 

 

Results of Operations - Six Months Ended June 30, 2021 and 2020

 

 

The following pages summarize our consolidated results of operations for the six months ended June 30, 2021 and 2020.

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

 

 

 

 

(Amounts in thousands)

2021

 

 

2020

 

 

Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

347,774

 

 

$

339,414

 

 

$

8,360

 

 

Fee and other income

 

15,661

 

 

 

15,690

 

 

 

(29

)

 

 

Total revenues

 

363,435

 

 

 

355,104

 

 

 

8,331

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

130,690

 

 

 

131,327

 

 

 

(637

)

 

Depreciation and amortization

 

118,230

 

 

 

117,143

 

 

 

1,087

 

 

General and administrative

 

32,782

 

 

 

30,150

 

 

 

2,632

 

 

Transaction related costs

 

416

 

 

 

461

 

 

 

(45

)

 

 

Total expenses

 

282,118

 

 

 

279,081

 

 

 

3,037

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Loss from unconsolidated joint ventures

 

(21,033

)

 

 

(10,176

)

 

 

(10,857

)

 

Income from unconsolidated real estate funds

 

328

 

 

 

141

 

 

 

187

 

 

Interest and other income, net

 

2,372

 

 

 

1,256

 

 

 

1,116

 

 

Interest and debt expense

 

(69,653

)

 

 

(72,628

)

 

 

2,975

 

Loss from continuing operations, before income taxes

 

(6,669

)

 

 

(5,384

)

 

 

(1,285

)

 

Income tax expense

 

(1,575

)

 

 

(742

)

 

 

(833

)

Loss from continuing operations, net

 

(8,244

)

 

 

(6,126

)

 

 

(2,118

)

Income from discontinued operations, net

 

-

 

 

 

3,668

 

 

 

(3,668

)

Net loss

 

(8,244

)

 

 

(2,458

)

 

 

(5,786

)

Less net (income) loss attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(13,156

)

 

 

(1,919

)

 

 

(11,237

)

 

Consolidated real estate fund

 

(56

)

 

 

1,212

 

 

 

(1,268

)

 

Operating Partnership

 

1,935

 

 

 

243

 

 

 

1,692

 

Net loss attributable to common stockholders

$

(19,521

)

 

$

(2,922

)

 

$

(16,599

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


42


 

 

 

Revenues

 

Our revenues, which consist of rental revenue and fee and other income, were $363,435,000 for the six months ended June 30, 2021, compared to $355,104,000 for the six months ended June 30, 2020, an increase of $8,331,000. Below are the details of the increase (decrease) by segment.

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Rental revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

(9,660

)

 

 

(18,580

)

(1)

$

8,920

 

(2)

$

-

 

Non-cash write-offs (primarily straight-line rent receivables)

 

 

11,309

 

 

 

5,400

 

 

 

5,909

 

 

 

-

 

Reserves for uncollectible accounts receivable

 

 

2,051

 

 

 

1,019

 

 

 

1,032

 

 

 

-

 

Other, net

 

 

4,660

 

 

 

88

 

 

 

4,860

 

(3)

 

(288

)

Increase (decrease) in rental revenue

 

$

8,360

 

 

$

(12,073

)

 

$

20,721

 

 

$

(288

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management

 

$

(197

)

 

$

-

 

 

$

-

 

 

$

(197

)

Property management

 

 

(408

)

 

 

-

 

 

 

-

 

 

 

(408

)

Acquisition, disposition and leasing

 

 

439

 

 

 

-

 

 

 

-

 

 

 

439

 

Other

 

 

498

 

 

 

-

 

 

 

-

 

 

 

498

 

Increase in fee income

 

 

332

 

 

 

-

 

 

 

-

 

 

 

332

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

 

(361

)

 

 

(155

)

 

 

(69

)

 

 

(137

)

Decrease in other income

 

 

(361

)

 

 

(155

)

 

 

(69

)

 

 

(137

)

(Decrease) increase in fee and other income

 

$

(29

)

 

$

(155

)

 

$

(69

)

 

$

195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

8,331

 

 

$

(12,228

)

 

$

20,652

 

 

$

(93

)

 

 

(1)

Primarily due to a decrease in occupancy resulting from the expiration of Barclays’ 497,500 square foot lease at 1301 Avenue of the Americas and TD Bank’s 131,300 square foot lease at 31 West 52nd Street.

(2)

Primarily due to an increase in occupancy at 300 Mission Street.

(3)

Primarily due to income of $5,051 in the current year’s six months, in connection with a tenant’s lease termination at 300 Mission Street.


43


 

 

 

Expenses

 

Our expenses, which consist of operating, depreciation and amortization, general and administrative and transaction related costs, were $282,118,000 for the six months ended June 30, 2021, compared to $279,081,000 for the six months ended June 30, 2020, an increase of $3,037,000. Below are the details of the increase (decrease) by segment.

 

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

 

Operating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations

 

$

(385

)

 

$

(1,417

)

 

$

1,032

 

 

$

-

 

 

Other, net

 

 

(252

)

 

 

-

 

 

 

-

 

 

 

(252

)

 

(Decrease) increase in operating

 

$

(637

)

 

$

(1,417

)

 

$

1,032

 

 

$

(252

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

 

1,087

 

 

 

(2,373

)

(1)

 

3,705

 

(2)

 

(245

)

 

Increase (decrease) in depreciation

   and amortization

 

$

1,087

 

 

$

(2,373

)

 

$

3,705

 

 

$

(245

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in our deferred compensation plan

 

$

1,745

 

 

$

-

 

 

$

-

 

 

$

1,745

 

(3)

Operations

 

 

887

 

 

 

-

 

 

 

-

 

 

 

887

 

 

Increase in general and administrative

 

$

2,632

 

 

$

-

 

 

$

-

 

 

$

2,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in transaction related costs

 

$

(45

)

 

$

-

 

 

$

-

 

 

$

(45

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in expenses

 

$

3,037

 

 

$

(3,790

)

 

$

4,737

 

 

$

2,090

 

 

 

 

(1)

Primarily due to lower amortization of in-place lease assets at 1301 Avenue of the Americas due to the expiration of such leases.

 

(2)

Primarily due to accelerated depreciation of tenant improvements in the current year’s six months resulting from a tenant’s lease termination at 300 Mission Street.

 

(3)

Represents the change in the mark-to-market of investments in our deferred compensation plan liabilities. This change is entirely offset by the change in plan assets which is included in “interest and other income, net”.

 

 

 


44


 

 

 

Loss from Unconsolidated Joint Ventures

 

Loss from unconsolidated joint ventures was $21,033,000 for the six months ended June 30, 2021 compared to $10,176,000 in the six months ended June 30, 2020, an increase of $10,857,000. This increase resulted from:

 

 

(Amounts in thousands)

 

 

 

 

 

712 Fifth Avenue

 

$

(11,357

)

(1)

Other, net

 

 

500

 

 

Total increase in loss

 

$

(10,857

)

 

 

 

 

(1)

Primarily due to an $11,750 contribution in the current year’s six months to the joint venture that owns 712 Fifth Avenue that was expensed in accordance with GAAP. See Note 4, Investments in Unconsolidated Joint Ventures.

 

 

Income from Unconsolidated Real Estate Funds

 

Income from unconsolidated real estate funds was $328,000 for the six months ended June 30, 2021, compared to $141,000 for the six months ended June 30, 2020, an increase of $187,000.

 

 

Interest and Other Income, net

 

Interest and other income was $2,372,000 for the six months ended June 30, 2021, compared to $1,256,000 of income for the six months ended June 30, 2020, an increase in income of $1,116,000. This increase in income resulted from:

 

(Amounts in thousands)

 

 

 

 

Increase in the value of investments in our deferred compensation plan (which

   is entirely offset by an increase in "general and administrative")

 

$

1,745

 

Other, net (primarily lower yields on short-term investments)

 

 

(629

)

Total increase in income

 

$

1,116

 

 

 

Interest and Debt Expense

 

Interest and debt expense was $69,653,000 for the six months ended June 30, 2021, compared to $72,628,000 for the six months ended June 30, 2020, a decrease of $2,975,000. This decrease resulted primarily from (i) lower average LIBOR rates on variable rate debt in the current year’s six months compared to prior year’s six months and (ii) lower borrowings from our revolving credit facility.

 

 

Income Tax Expense

 

Income tax expense was $1,575,000 for the six months ended June 30, 2021, compared to $742,000 for the six months ended June 30, 2020, an increase of $833,000. This increase resulted primarily from higher taxable income attributable to our taxable REIT subsidiaries in the current year’s six months.

 

 

Income from Discontinued Operations

 

Income from discontinued operations was $3,668,000 for the six months ended June 30, 2020 and represented income from 1899 Pennsylvania Avenue in Washington, D.C., which was sold in December 2020.

 


45


 

 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures

 

Net income attributable to noncontrolling interests in consolidated joint ventures was $13,156,000 for the six months ended June 30, 2021, compared to $1,919,000 for the six months ended June 30, 2020, an increase in income allocated to noncontrolling interests of $11,237,000. This increase in income resulted from:

 

(Amounts in thousands)

 

 

 

 

 

Higher income attributable to 300 Mission Street ($6,582 of income in 2021,

   compared to loss of $3,820 in 2020)

 

$

10,402

 

(1)

Other, net

 

 

835

 

 

Total increase in income attributable to noncontrolling interests

 

$

11,237

 

 

 

 

 

(1)

Primarily due to an increase in occupancy and lease termination income in the current year’s six months.

 

 

 

Net Income (Loss) Attributable to Noncontrolling Interests in Consolidated Real Estate Fund

 

Net income attributable to noncontrolling interests in consolidated real estate fund was $56,000 for the six months ended June 30, 2021, compared to net loss attributable to noncontrolling interest in consolidated real estate fund of $1,212,000 for the six months ended June 30, 2020, a decrease in loss allocated to noncontrolling interest of $1,268,000. This decrease was primarily due to higher marketing expenses for One Steuart Lane in the prior year’s six months.

 

 

Net Loss Attributable to Noncontrolling Interests in Operating Partnership

 

Net loss attributable to noncontrolling interests in the Operating Partnership was $1,935,000 for the six months ended June 30, 2021, compared to $243,000 for the six months ended June 30, 2020, an increase in loss attributable to noncontrolling interests of $1,692,000. This increase in loss resulted from higher net loss subject to allocation to the unitholders of the Operating Partnership for the six months ended June 30, 2021.


46


 

 

 

Liquidity and Capital Resources

 

 

Liquidity

 

Our primary sources of liquidity include existing cash balances, cash flow from operations and borrowings available under our revolving credit facility. We expect that these sources will provide adequate liquidity over the next 12 months for all anticipated needs, including scheduled principal and interest payments on our outstanding indebtedness, existing and anticipated capital improvements, the cost of securing new and renewal leases, dividends to stockholders and distributions to unitholders, and all other capital needs related to the operations of our business. We anticipate that our long-term needs including debt maturities and the acquisition of additional properties will be funded by operating cash flow, mortgage financings and/or re-financings, the issuance of long-term debt or equity and cash on hand.

 

Although we may be able to anticipate and plan for certain of our liquidity needs, unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise, or our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or required.

 

As of June 30, 2021, we had $1.51 billion of liquidity comprised of $475,289,000 of cash and cash equivalents, $32,552,000 of restricted cash and $1.0 billion of borrowing capacity under our revolving credit facility. As of June 30, 2021, our outstanding consolidated debt aggregated $3.83 billion. We had no amounts outstanding under our revolving credit facility. In November 2021, the $850,000,000 mortgage loan at 1301 Avenue of the Americas is scheduled to mature. We are currently exploring various alternatives to refinance this debt. We may refinance this debt or any of our maturing debt when it comes due or repay it early depending on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.

 

 

Revolving Credit Facility

 

Our $1.0 billion revolving credit facility matures in January 2022 and has two six-month extension options. The interest rate on the facility, at current leverage levels, is LIBOR plus 115 basis points and has a 20 basis points facility fee. We also have an option, subject to customary conditions and incremental lender commitments, to increase the capacity under the facility to $1.5 billion at any time prior to the maturity date of the facility. The facility contains certain restrictions and covenants that require us to maintain, on an ongoing basis, (i) a leverage ratio not to exceed 60%, however, the leverage ratio may be increased to 65% for any fiscal quarter in which an acquisition of real estate is completed and for up to the next three subsequent consecutive fiscal quarters, (ii) a secured leverage ratio not to exceed 50%, (iii) a fixed charge coverage ratio of at least 1.50, (iv) an unsecured leverage ratio not to exceed 60%, however, the unsecured leverage ratio may be increased to 65% for any fiscal quarter in which an acquisition of real estate is completed and for up to the next three subsequent consecutive fiscal quarters and (v) an unencumbered interest coverage ratio of at least 1.75. The facility also contains customary representations and warranties, limitations on permitted investments and other covenants.

 

 

Dividend Policy

 

On June 15, 2021, we declared a regular quarterly cash dividend of $0.07 per share of common stock for the second quarter ended June 30, 2021, which was paid on July 15, 2021 to stockholders of record as of the close of business on June 30, 2021. This dividend policy, if continued, would require us to pay out approximately $16,900,000 each quarter to common stockholders and unitholders.

 


47


 

 

 

Off Balance Sheet Arrangements

 

As of June 30, 2021, our unconsolidated joint ventures had $1.64 billion of outstanding indebtedness, of which our share was $611,320,000. We do not guarantee the indebtedness of our unconsolidated joint ventures other than providing customary environmental indemnities and guarantees of non-recourse carve-outs; however, we may elect to fund additional capital to a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans in order to enable the joint venture to repay this indebtedness upon maturity.

 

 

Stock Repurchase Program

 

On November 5, 2019, we received authorization from our Board of Directors to repurchase up to $200,000,000 of our common stock, from time to time, in the open market or in privately negotiated transactions. During 2020, we repurchased 13,813,158 common shares at a weighted average price of $8.69 per share, or $120,000,000 in the aggregate, of which 10,856,865 common shares were repurchased in the six months ended June 30, 2020, at a weighted average price of $9.21 per share, or $100,000,000 in the aggregate. We did not repurchase any shares in the six months ended June 30, 2021. We have $80,000,000 available for future repurchases under the existing program. The amount and timing of future repurchases, if any, will depend on a number of factors, including, the price and availability of our shares, trading volume, general market conditions and available funding. The stock repurchase program may be suspended or discontinued at any time.

 

 

Insurance

 

We carry commercial general liability coverage on our properties, with limits of liability customary within the industry. Similarly, we are insured against the risk of direct and indirect physical damage to our properties including coverage for the perils such as floods, earthquakes and windstorms. Our policies also cover the loss of rental income during an estimated reconstruction period. Our policies reflect limits and deductibles customary in the industry and specific to the buildings and portfolio. We also obtain title insurance policies when acquiring new properties. We currently have coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. While we do carry commercial general liability insurance, property insurance and terrorism insurance with respect to our properties, these policies include limits and terms we consider commercially reasonable. In addition, there are certain losses (including, but not limited to, losses arising from known environmental conditions or acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. We believe the policy specifications and insured limits are adequate given the relative risk of loss, the cost of the coverage and industry practice and, in consultation with our insurance advisors, we believe the properties in our portfolio are adequately insured.

 

 

Other Commitments and Contingencies

 

We are a party to various claims and routine litigation arising in the ordinary course of business. Some of these claims or others to which we may be subject from time to time, including claims arising specifically from the formation transactions, in connection with our initial public offering, may result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured could have an adverse impact on our financial position and results of operations. Should any litigation arise in connection with the formation transactions, we would contest it vigorously. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flow, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

 

The terms of our mortgage debt and certain side letters in place include certain restrictions and covenants which may limit, among other things, certain investments, the incurrence of additional indebtedness and liens and the disposition or other transfer of assets and interests in the borrower and other credit parties, and require compliance with certain debt yield, debt service coverage and loan to value ratios. In addition, our revolving credit facility contains representations, warranties, covenants, other agreements and events of default customary for agreements of this type with comparable companies. As of June 30, 2021, we believe we are in compliance with all of our covenants.

 


48


 

 

 

Transfer Tax Assessments

 

During 2017, the New York City Department of Finance issued Notices of Determination (“Notices”) assessing additional transfer taxes (including interest and penalties) in connection with the transfer of interests in certain properties during our 2014 initial public offering. We believe, after consultation with legal counsel that the likelihood of a loss is reasonably possible, and while it is not possible to predict the outcome of these Notices, we estimate the range of loss could be between $0 and $49,800,000. Since no amount in this range is a better estimate than any other amount within the range, we have not accrued any liability arising from potential losses relating to these Notices in our consolidated financial statements.

 

 

Inflation

 

Substantially all of our leases provide for separate real estate tax and operating expense escalations. In addition, many of the leases provide for fixed base rent increases. We believe inflationary increases in expenses may be at least partially offset by the contractual rent increases and expense escalations described above. We do not believe inflation has had a material impact on our historical financial position or results of operations.

 

 

Cash Flows

Cash and cash equivalents and restricted cash were $507,841,000 and $465,324,000 as of June 30, 2021 and December 31, 2020, respectively, and $556,459,000 and $331,487,000 as of June 30, 2020 and December 31, 2019, respectively. Cash and cash equivalents and restricted cash increased by $42,517,000 and $224,972,000 for the six months ended June 30, 2021 and 2020, respectively. The following table sets forth the changes in cash flow.

 

 

 

 

For the Six Months Ended June 30,

 

(Amounts in thousands)

2021

 

 

2020

 

Net cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

$

134,458

 

 

$

103,111

 

Investing activities

 

(62,045

)

 

 

(2,792

)

Financing activities

 

(29,896

)

 

 

124,653

 

 

 

Operating Activities

 

Six months ended June 30, 2021 – We generated $134,458,000 of cash from operating activities for the six months ended June 30, 2021, primarily from (i) $133,703,000 of net income (before $141,947,000 of non-cash adjustments) and (ii) $889,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii) $134,000 of net changes in operating assets and liabilities. Non-cash adjustments of $141,947,000 were primarily comprised of depreciation and amortization, straight-lining of rental revenue, amortization of above and below-market leases and amortization of stock-based compensation.

 

Six months ended June 30, 2020 – We generated $103,111,000 of cash from operating activities for the six months ended June 30, 2020, primarily from (i) $117,922,000 of net income (before $120,380,000 of non-cash adjustments), and (ii) $1,812,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii) $16,623,000 of net changes in operating assets and liabilities. Non-cash adjustments of $120,380,000 were primarily comprised of depreciation and amortization, straight-lining of rental revenue, amortization of above and below-market leases and amortization of stock-based compensation.

49


 

 

 

 

Investing Activities

 

Six months ended June 30, 2021 – We used $62,045,000 of cash for investing activities for the six months ended June 30, 2021, primarily for (i) $52,114,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements and (ii) $11,750,000 of contributions to an unconsolidated joint venture, partially offset by (iii) $1,819,000 from net sales of marketable securities (which are held in our deferred compensation plan).

 

Six months ended June 30, 2020 – We used $2,792,000 of cash for investing activities for the six months ended June 30, 2020, primarily for (i) $46,575,000 for additions to real estate, which were comprised of spending for tenant improvements and other building improvements, and (ii) $2,936,000 of contributions to our unconsolidated real estate funds, partially offset by (iii) $36,918,000 repayment of amounts due from affiliates, and (iv) $9,801,000 from the net sales of marketable securities (which are held in our deferred compensation plan).

 

 

Financing Activities

 

Six months ended June 30, 2021 – We used $29,896,000 of cash for financing activities for the six months ended June 30, 2021, primarily for (i) $33,685,000 for dividends and distributions paid to common stockholders and unitholders, (ii) $8,562,000 for distributions to noncontrolling interests and (iii) $200,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (iv) $12,430,000 of proceeds from notes and mortgages payable and (v) $121,000 of contributions from noncontrolling interests.

 

Six months ended June 30, 2020 – We generated $124,653,000 of cash from financing activities for the six months ended June 30, 2020, primarily from (i) $163,082,000 of borrowings under the revolving credit facility, (ii) $111,984,000 of proceeds from the sale of a 10.0% interest in 1633 Broadway, (iii) $11,555,000 of contributions from noncontrolling interests, and (iv) $3,073,000 of proceeds from notes and mortgages payable, partially offset by (v) $100,000,000 for the repurchases of common shares, (vi) $49,597,000 for dividends and distributions paid to common stockholders and unitholders, (vii) $8,771,000 for repayment of note payable issued in connection with the acquisition of noncontrolling interest in consolidated real estate fund, (viii) $6,357,000 for distributions to noncontrolling interests and (ix) $316,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings.

50


 

 

 

 

Non-GAAP Financial Measures

 

We use and present NOI, Same Store NOI, FFO and Core FFO, as supplemental measures of our performance. The summary below describes our use of these measures, provides information regarding why we believe these measures are meaningful supplemental measures of our performance and reconciles these measures from net income or loss, the most directly comparable GAAP measure. Other real estate companies may use different methodologies for calculating these measures, and accordingly, our presentation of these measures may not be comparable to other real estate companies. These non-GAAP measures should not be considered a substitute for, and should only be considered together with and as a supplement to, financial information presented in accordance with GAAP.

 

 

Net Operating Income (“NOI”)

 

We use NOI to measure the operating performance of our properties. NOI consists of rental revenue (which includes property rentals, tenant reimbursements and lease termination income) and certain other property-related revenue less operating expenses (which includes property-related expenses such as cleaning, security, repairs and maintenance, utilities, property administration and real estate taxes). We also present Cash NOI, which deducts from NOI, straight-line rent adjustments and the amortization of above and below-market leases, including our share of such adjustments of unconsolidated joint ventures. In addition, we present Paramount's share of NOI and Cash NOI which represents our share of NOI and Cash NOI of consolidated and unconsolidated joint ventures, based on our percentage ownership in the underlying assets. We use NOI and Cash NOI internally as performance measures and believe they provide useful information to investors regarding our financial condition and results of operations because they reflect only those income and expense items that are incurred at property level. The following tables present reconciliations of our net (loss) income to NOI and Cash NOI for the three and six months ended June 30, 2021 and 2020.

 

 

For the Three Months Ended June 30, 2021

 

(Amounts in thousands)

Total

 

 

New York

 

 

San Francisco

 

 

Other

 

Reconciliation of net (loss) income to NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(10,128

)

 

$

(8,357

)

 

$

13,965

 

 

$

(15,736

)

Add (subtract) adjustments to arrive at NOI and Cash NOI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

59,925

 

 

 

38,289

 

 

 

20,660

 

 

 

976

 

General and administrative

 

18,418

 

 

 

-

 

 

 

-

 

 

 

18,418

 

Interest and debt expense

 

34,914

 

 

 

21,339

 

 

 

12,540

 

 

 

1,035

 

Income tax expense

 

434

 

 

 

5

 

 

 

-

 

 

 

429

 

NOI from unconsolidated joint ventures

 

10,557

 

 

 

2,749

 

 

 

7,852

 

 

 

(44

)

Loss from unconsolidated joint ventures

 

15,717

 

 

 

11,111

 

 

 

4,460

 

 

 

146

 

Fee income

 

(6,201

)

 

 

-

 

 

 

-

 

 

 

(6,201

)

Interest and other (income) loss, net

 

(1,070

)

 

 

3

 

 

 

(18

)

 

 

(1,055

)

Other, net

 

(13

)

 

 

-

 

 

 

-

 

 

 

(13

)

NOI

 

122,553

 

 

 

65,139

 

 

 

59,459

 

 

 

(2,045

)

Less NOI attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated joint ventures

 

(26,233

)

 

 

(2,519