Paramount Announces Second Quarter 2016 Results

Raises Guidance for Full Year 2016 –

NEW YORK–(BUSINESS WIRE)–Paramount Group, Inc. (NYSE:PGRE) (“Paramount” or the “Company”) filed
its Quarterly Report on Form 10-Q for the quarter ended June 30, 2016
today and reported results for the quarter ended June 30, 2016.

Second Quarter Highlights:

  • Net income attributable to common stockholders was $3.2 million, or
    $0.01 per diluted share, for the quarter ended June 30, 2016, compared
    to a net loss of $4.7 million, or $0.02 per diluted share, for the
    quarter ended June 30, 2015.
  • Core Funds from Operations (“Core FFO”) attributable to common
    stockholders was $49.4 million, or $0.23 per diluted share, for the
    quarter ended June 30, 2016, compared to $46.3 million, or $0.22 per
    diluted share, for the quarter ended June 30, 2015.
  • Leased 148,896 square feet at a weighted average initial rent of
    $74.15 per square foot, of which 32,753 square feet represents second
    generation space for which the Company achieved positive
    mark-to-markets of 22.9% on a cash basis and 11.3% on a GAAP basis.
  • On April 28, 2016, the Company closed Fund VIII (the Company’s debt
    fund) with aggregate capital commitments of $775.2 million.
  • On May 3, 2016, the Company completed a $500.0 million refinancing of
    31 West 52nd Street, a 786,647 square foot Class A office
    building in Manhattan. The new 10-year loan is interest only at a
    fixed rate of 3.80%. The Company realized net proceeds of
    approximately $65.0 million after repaying of the existing loan, swap
    breakage and closing costs. The property was previously encumbered by
    a $413.5 million loan that was scheduled to mature in December 2017
    and had a weighted average interest rate of 4.23%.
  • On May 26, 2016, Fund VIII acquired a $55.0 million junior mezzanine
    loan secured by the indirect equity interests in the owners of 1285
    Avenue of the Americas, a 1.8 million square foot Class A office
    building located between 51st and 52nd streets in Manhattan. The loan
    bears interest at a fixed rate of 6.75% and matures in June 2023.
  • On June 15, 2016, the Company’s Board of Directors declared a regular
    quarterly cash dividend of $0.095 per share for the quarter ended June
    30, 2016, which was paid on July 15, 2016.

Financial Results

Quarter Ended June 30, 2016

Net income attributable to common stockholders was $3.2 million, or
$0.01 per diluted share, for the quarter ended June 30, 2016, compared
to a net loss of $4.7 million, or $0.02 per diluted share, for the
quarter ended June 30, 2015.

FFO attributable to common stockholders was $54.2 million, or $0.25 per
diluted share, for the quarter ended June 30, 2016, compared to $52.7
million, or $0.25 per diluted share, for the quarter ended June 30,
2015. FFO attributable to common stockholders for the quarters ended
June 30, 2016 and 2015 includes the impact of certain non-core items
listed in the table on page 9. The aggregate of these items, net of
amounts attributable to noncontrolling interests, increased FFO
attributable to common stockholders for the quarters ended June 30, 2016
and 2015 by $4.8 million and $6.3 million, or $0.02 and $0.03 per
diluted share, respectively.

Core FFO attributable to common stockholders, which excludes the impact
of the non-core items, was $49.4 million, or $0.23 per diluted share,
for the quarter ended June 30, 2016, compared to $46.3 million, or $0.22
per diluted share for the quarter ended June 30, 2015.

Six Months Ended June 30, 2016

Net loss attributable to common stockholders was $3.3 million, or $0.02
per diluted share, for the six months ended June 30, 2016, compared to a
net loss of $14.4 million, or $0.07 per diluted share, for the six
months ended June 30, 2015.

FFO attributable to common stockholders was $103.5 million, or $0.48 per
diluted share, for the six months ended June 30, 2016, compared to $96.0
million, or $0.45 per diluted share, for the six months ended June 30,
2015. FFO attributable to common stockholders for the six months ended
June 30, 2016 and 2015 includes the impact of certain non-core items
listed in the table on page 9. The aggregate of these items, net of
amounts attributable to noncontrolling interests, increased FFO
attributable to common stockholders for the six months ended June 30,
2016 and 2015 by $5.1 million and $10.7 million, or $0.02 and $0.05 per
diluted share, respectively.

Core FFO attributable to common stockholders, which excludes the impact
of these items, was $98.4 million, or $0.46 per diluted share, for the
six months ended June 30, 2016, compared to $85.3 million, or $0.40 per
diluted share for the six months ended June 30, 2015.

Portfolio Operations

Quarter Ended June 30, 2016

During the quarter ended June 30, 2016, the Company leased 148,896
square feet at a weighted average initial rent of $74.15 per square
foot. This leasing activity, offset by lease expirations during the
quarter, decreased portfolio wide leased occupancy by 270 basis points
to 92.9% at June 30, 2016 from 95.6% at March 31, 2016. Of the 148,896
square feet leased in the second quarter, 32,753 square feet represents
second generation space (space that has been vacant for less than twelve
months) for which the Company achieved positive mark-to-markets of 22.9%
on a cash basis and 11.3% on a GAAP basis. The weighted average lease
term for leases signed during the second quarter was 6.1 years and
weighted average tenant improvements and leasing commissions on these
leases were $9.71 per square foot per annum, or 13.1% of initial rent.

Six Months Ended June 30, 2016

During the six months ended June 30, 2016, the Company leased 303,847
square feet at a weighted average initial rent of $76.67 per square
foot. This leasing activity, offset by lease expirations during the six
months, decreased portfolio wide leased occupancy by 240 basis points to
92.9% at June 30, 2016 from 95.3% at December 31, 2015. Of the 303,847
square feet leased in the six months, 133,096 square feet represents
second generation space (space that has been vacant for less than twelve
months) for which the Company achieved positive mark-to-markets of 12.0%
on a GAAP basis and 4.3% on a cash basis. The weighted average lease
term for leases signed during the six months was 7.0 years and weighted
average tenant improvements and leasing commissions on these leases were
$7.94 per square foot per annum, or 10.4% of initial rent.

The six months ended June 30, 2016 mark-to-market includes the effect of
a 52,500 square foot above-market lease at 1633 Broadway that was
terminated and subsequently released shortly thereafter at market rates.
Excluding the impact of this lease, cash basis and GAAP basis
mark-to-markets were positive 25.1% and 21.3%, respectively.

Guidance

Based on the Company’s performance for the six months ended June 30,
2016 and its outlook for the remainder of 2016, the Company is raising
its Estimated Core FFO Guidance for 2016 to a range of $0.81 to $0.85
per diluted share, from its prior range of $0.80 to $0.84 per diluted
share. The Company is providing the following reconciliation of
Estimated Core FFO per diluted share to estimated net loss per diluted
share in accordance with GAAP. The estimated net loss per diluted share
is not a projection and is being provided solely to satisfy the
disclosure requirements of the U.S. Securities and Exchange Commission.

         

For the Year Ending December 31, 2016:

Low   High

Estimated net loss attributable to common stockholders per diluted

share

$ (0.07) $ (0.03)

Pro rata share of real estate depreciation and amortization,
including

the Company’s share of unconsolidated joint ventures

0.90

0.90

Estimated FFO per diluted share $ 0.83 $ 0.87

Adjustments for non-core items1

  (0.02)   (0.02)
Estimated Core FFO per diluted share $ 0.81 $ 0.85

__________

1 Represents non-core items for the six months ended
June 30, 2016, which are summarized in this press release and the
Company’s Supplemental Information for the quarter ended June 30,
2016, which is available on the Company’s website. The Company is
not making projections for non-core items that may impact its
financial results for the remainder of 2016, which may include
unrealized gains or losses on interest rate swaps, acquisition and
transaction related costs and other items that are not included in
Core FFO.

 

Except as described above, these estimates reflect management’s view of
current and future market conditions, including assumptions with respect
to rental rates, occupancy levels and the earnings impact of the events
referenced in this release and otherwise to be referenced during the
conference call referred to below. The estimates do not include the
impact on operating results from possible future property acquisitions
or dispositions, capital markets activity or unrealized gains or losses
on real estate fund investments. The estimates set forth above may be
subject to fluctuations as a result of several factors, including the
straight-lining of rental income and the amortization of above and
below-market leases. There can be no assurance that the Company’s actual
results will not differ materially from the estimates set forth above.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of the Federal securities laws. You can identify these
statements by our use of the words “assumes,” “believes,” “estimates,”
“expects,” “guidance,” “intends,” “plans,” “projects” and similar
expressions that do not relate to historical matters. You should
exercise caution in interpreting and relying on forward-looking
statements because they involve known and unknown risks, uncertainties
and other factors which are, in some cases, beyond the Company’s control
and could materially affect actual results, performance or achievements.
These factors include, without limitation, the ability to enter into new
leases or renew leases on favorable terms, dependence on tenants’
financial condition, the uncertainties of real estate development,
acquisition and disposition activity, the ability to effectively
integrate acquisitions, the costs and availability of financing, the
ability of our joint venture partners to satisfy their obligations, the
effects of local, national and international economic and market
conditions, the effects of acquisitions, dispositions and possible
impairment charges on our operating results, regulatory changes and
other risks and uncertainties detailed from time to time in the
Company’s filings with the Securities and Exchange Commission. The
Company does not undertake a duty to update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise.

Non GAAP Financial Measures

FFO is a supplemental measure of our performance. We present FFO in
accordance with the definition adopted by the National Association of
Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net
income or loss adjusted to exclude net gain from sales of depreciated
real estate assets, impairment losses on depreciable real estate and
depreciation and amortization expense from real estate assets, including
the pro rata share of such adjustments of unconsolidated joint ventures.
FFO is commonly used in the real estate industry to assist investors and
analysts in comparing results of real estate companies because it
excludes the effect of real estate depreciation and amortization and net
gains on sales, which are based on historical costs and implicitly
assume that the value of real estate diminishes predictably over time,
rather than fluctuating based on existing market conditions. In
addition, we present Core FFO as an alternative measure of our operating
performance, which adjusts FFO for certain other items, including
acquisition and transaction related costs, severance costs and
unrealized gains or losses on interest rate swaps, which we believe
enhances the comparability of our FFO across periods.

FFO and Core FFO are presented as supplemental financial measures and do
not fully represent our operating performance. Other REITs may use
different methodologies for calculating FFO and Core FFO or use other
definitions of FFO and Core FFO and, accordingly, our presentation of
these measures may not be comparable to other real estate companies.
Neither FFO nor Core FFO is intended to be a measure of cash flow or
liquidity. Please refer to our financial statements, prepared in
accordance with GAAP, for purposes of evaluating our financial
condition, results of operations and cash flows.

A reconciliation of each Non-GAAP financial measure to the most directly
comparable GAAP financial measure can be found in this press release and
in our Supplemental Information for the quarter ended June 30, 2016,
which is available on our website.

Investor Conference Call and Webcast

The Company will host a conference call and audio webcast on Thursday,
August 4, 2016 at 5:30 p.m. Eastern Time (ET) to discuss the second
quarter 2016 results. The conference call can be accessed by dialing
877-407-0789 (domestic) or 201-689-8562 (international). An audio replay
of the conference call will be available from 8:30 p.m. ET on August 4,
2016 through August 11, 2016 and can be accessed by dialing 877-870-5176
(domestic) or 858-384-5517 (international) and entering the passcode
13640949. A live audio webcast of the conference call will be available
through the “Investors” section of the Company’s website, www.paramount-group.com.
A replay of the webcast will be archived on the Company’s website.

About Paramount Group, Inc.

Headquartered in New York City, Paramount
Group
, Inc. is a fully-integrated real estate investment trust that
owns, operates, manages, acquires and redevelops high-quality, Class A
office properties located in select central business district submarkets
of New York City, Washington, D.C. and San Francisco. Paramount is
focused on maximizing the value of its portfolio by leveraging the
sought-after locations of its assets and its proven property management
capabilities to attract and retain high-quality tenants.

 

Paramount Group, Inc.
Consolidated Balance Sheets
(Unaudited
and in thousands)

 
ASSETS:       June 30, 2016     December 31, 2015
Rental property
Land $ 2,042,071 $ 2,042,071
Buildings and improvements   5,668,268     5,610,046  
7,710,339 7,652,117
Accumulated depreciation and amortization   (323,224 )   (243,089 )
Rental property, net 7,387,115 7,409,028
Cash and cash equivalents 224,489 143,884
Restricted cash 29,043 41,823
Real estate fund investments 416,438
Investments in unconsolidated real estate funds 25,798
Investments in unconsolidated joint ventures 5,800 7,102
Preferred equity investments 54,595 53,941
Marketable securities 21,477 21,521
Deferred rent receivable 122,334 77,792
Accounts and other receivables, net 10,895 10,844
Deferred charges, net 79,617 74,991
Intangible assets, net 435,450 511,207
Other assets   11,596     6,658  
Total assets $ 8,408,209   $ 8,775,229  
 
LIABILITIES:
Notes and mortgages payable, net $ 3,012,290 $ 2,922,610
Revolving credit facility 20,000 20,000
Due to affiliates 27,299 27,299
Loans payable to noncontrolling interests 45,662
Accounts payable and accrued expenses 147,048 102,730
Dividends and distributions payable 25,151 25,067
Deferred income taxes 246 2,533
Interest rate swap liabilities 102,577 93,936
Intangible liabilities, net 154,658 179,741
Other liabilities   45,997     45,101  
Total liabilities   3,535,266     3,464,679  
 
EQUITY:
Paramount Group, Inc. stockholders’ equity 3,808,073 3,761,017
Noncontrolling interests in:
Consolidated real estate funds 62,857 414,637
Consolidated joint ventures 240,483 236,849
Operating Partnership   761,530     898,047  
Total equity   4,872,943     5,310,550  
Total liabilities and equity $ 8,408,209   $ 8,775,229  
 
 

Paramount Group, Inc.
Consolidated Statements of
Income

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

 
    For the Three Months Ended   For the Six Months Ended
June 30, June 30,
2016   2015 2016   2015
REVENUES:
Property rentals $ 123,408 $ 128,954 $ 248,410 $ 255,356
Straight-line rent adjustments 24,673 16,091 44,542 32,042
Amortization of (above) below-market leases, net   7,100     872     3,481     1,762  
Rental income 155,181 145,917 296,433 289,160
Tenant reimbursement income 10,334 12,063 21,123 25,551
Fee and other income   6,788     4,948     27,665     9,443  
Total revenues 172,303 162,928 345,221 324,154
 
EXPENSES:
Operating 59,994 57,781 122,939 119,665
Depreciation and amortization 67,287 79,421 142,099 153,004
General and administrative 12,139 9,133 26,100 21,746
Acquisition and transaction related costs   508     8,208     1,443     9,347  
Total expenses   139,928     154,543     292,581     303,762  
 
Operating income 32,375 8,385 52,640 20,392
 
Income from real estate fund investments 14,072 19,293
Loss from unconsolidated real estate funds (960 ) (1,286 )
Income from unconsolidated joint ventures 2,003 2,011 3,499 2,986
Interest and other income, net 1,030 512 2,730 1,366
Interest and debt expense (38,009 ) (42,236 ) (75,128 ) (84,124 )
Unrealized gain on interest rate swaps   10,073     21,747     16,933     33,725  
Net income (loss) before income taxes 6,512 4,491 (612 ) (6,362 )
Income tax benefit (expense)   1,398     (1,343 )   1,035     (1,917 )
Net income (loss) 7,910 3,148 423 (8,279 )
Less net (income) loss attributable to
noncontrolling interests in:
Consolidated real estate funds 78 (6,532 ) 752 (8,741 )
Consolidated joint ventures (4,107 ) (2,472 ) (5,359 ) (931 )
Operating Partnership   (693 )   1,147     878     3,511  
Net income (loss) attributable to
common stockholders $ 3,188   $ (4,709 ) $ (3,306 ) $ (14,440 )
Per share:
Basic $ 0.01   $ (0.02 ) $ (0.02 ) $ (0.07 )
Diluted $ 0.01   $ (0.02 ) $ (0.02 ) $ (0.07 )
 
Weighted average common shares outstanding:
Basic   217,121,592     212,106,718     214,762,593     212,106,718  
Diluted   217,137,557     212,106,718     214,762,593     212,106,718  
 
 

Paramount Group, Inc.
Reconciliation of Net Income
(Loss) to Funds from Operations

and Core Funds from
Operations

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

 
    For the Three Months Ended   For the Six Months Ended
June 30, June 30,
2016   2015 2016   2015
Reconciliation of Net Income (Loss) to FFO
and Core FFO:
Net income (loss) $ 7,910 $ 3,148 $ 423 $ (8,279 )
Real estate depreciation and amortization
(including pro rata share of
unconsolidated joint ventures)   68,843     80,951     145,194     156,010  
FFO 76,753 84,099 145,617 147,731
Less FFO attributable to noncontrolling interests in:
Consolidated real estate funds (144 ) (6,790 ) 304 (9,210 )
Consolidated joint ventures   (10,560 )   (11,824 )   (18,707 )   (19,193 )
FFO attributable to Paramount Group
Operating Partnership 66,049 65,485 127,214 119,328
Less FFO attributable to noncontrolling interests
in Operating Partnership   (11,806 )   (12,822 )   (23,723 )   (23,348 )
FFO attributable to common stockholders $ 54,243   $ 52,663   $ 103,491   $ 95,980  
Per diluted share $ 0.25   $ 0.25   $ 0.48   $ 0.45  
 
FFO $ 76,753 $ 84,099 $ 145,617 $ 147,731
Non-core items:
Unrealized gain on interest rate swaps
(including pro rata share of
unconsolidated joint ventures) (10,490 ) (22,371 ) (17,350 ) (34,735 )
Acquisition and transaction related costs 508 2,336 1,443 3,475
Severance costs 2,874 3,315
Transfer taxes due in connection with
the sale of shares by a former
joint venture partner 5,872 5,872
Predecessor income tax true-up       721         721  
Core FFO 66,771 70,657 132,584 126,379
Less Core FFO attributable to noncontrolling
interests in:
Consolidated real estate funds (144 ) (6,790 ) 304 (9,210 )
Consolidated joint ventures   (6,488 )   (6,275 )   (11,902 )   (11,146 )
Core FFO attributable to Paramount Group
Operating Partnership 60,139 57,592 120,986 106,023
Less Core FFO attributable to noncontrolling interests
in Operating Partnership   (10,750 )   (11,277 )   (22,605 )   (20,745 )
Core FFO attributable to common stockholders $ 49,389   $ 46,315   $ 98,381   $ 85,278  
Per diluted share $ 0.23   $ 0.22   $ 0.46   $ 0.40  
 
Reconciliation of weighted average
shares outstanding:
Weighted average shares outstanding 217,121,592 212,106,718 214,762,593 212,106,718
Effect of dilutive securities   15,965     5,004         6,467  
Denominator for FFO per diluted share   217,137,557     212,111,722     214,762,593     212,113,185  
 

Contacts

Paramount Group, Inc.
Investor Relations:
212-492-2298
ir@paramount-group.com
or
Media:
212-492-2285
pr@paramount-group.com