Paramount (US:PGRE)2024-10-30 20:20Part I. Financial Information This section provides the company's consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls Item 1. Consolidated Financial Statements This section presents Paramount Group's unaudited consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flow statements, with detailed notes Consolidated Balance Sheets Total assets decreased to $7.89 billion from $8.01 billion, while total liabilities decreased to $3.84 billion, and total equity slightly increased to $4.05 billion Consolidated Balance Sheet Summary (Unaudited) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $7,890,952 | $8,006,215 | | Real estate, net | $6,661,144 | $6,744,797 | | Cash and cash equivalents | $318,725 | $428,208 | | Total Liabilities | $3,839,546 | $3,991,327 | | Notes and mortgages payable, net | $3,674,367 | $3,803,484 | | Total Equity | $4,051,406 | $4,014,888 | - The Operating Partnership is a consolidated variable interest entity (VIE), of which Paramount is the sole general partner and owns approximately 91.6% as of September 30, 20248 Consolidated Statements of Income The company reported a Q3 2024 net loss of $9.7 million ($0.04 per share), while the nine-month net loss significantly improved to $7.6 million from $54.2 million in 2023 Consolidated Income Statement Highlights (Unaudited) | (In thousands, except per share) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $194,899 | $189,181 | $571,184 | $550,317 | | Rental revenue | $184,235 | $182,515 | $543,636 | $529,734 | | Total Expenses | $157,301 | $151,357 | $459,949 | $445,297 | | Net (Loss) Income | ($4,203) | ($25,061) | $9,668 | ($99,576) | | Net Loss Attributable to Common Stockholders | ($9,688) | ($8,385) | ($7,642) | ($54,194) | | Loss per Common Share - Basic & Diluted | ($0.04) | ($0.04) | ($0.04) | ($0.25) | Consolidated Statements of Comprehensive Income Comprehensive loss attributable to common stockholders improved to $13.0 million in Q3 2024 and $20.7 million for the nine-month period, compared to higher losses in 2023 Comprehensive Loss Summary (Unaudited) | (In thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net (Loss) Income | ($4,203) | ($25,061) | $9,668 | ($99,576) | | Other Comprehensive (Loss) Income | ($3,620) | ($7,639) | ($14,203) | ($20,333) | | Comprehensive Loss | ($7,823) | ($32,700) | ($4,535) | ($119,909) | | Comprehensive Loss Attributable to Common Stockholders | ($13,003) | ($15,491) | ($20,650) | ($73,165) | Consolidated Statements of Changes in Equity Total equity increased to $4.05 billion, driven by net income and noncontrolling interest contributions, partially offset by dividends and interest rate swap value changes Changes in Total Equity (Nine Months Ended Sep 30, 2024) | (In thousands) | Amount | | :--- | :--- | | Balance as of December 31, 2023 | $4,014,888 | | Net income | $9,668 | | Dividends and distributions | ($16,758) | | Contributions from noncontrolling interests | $63,109 | | Distributions to noncontrolling interests | ($20,755) | | Change in value of interest rate swaps and caps | ($14,241) | | Amortization of equity awards | $15,635 | | Balance as of September 30, 2024 | $4,051,406 | Consolidated Statements of Cash Flows Net cash from operations remained flat at $176.6 million, while investing cash outflow decreased, and financing cash outflow significantly increased, resulting in a $17.4 million decrease in cash Cash Flow Summary (Nine Months Ended Sep 30) | (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $176,570 | $175,597 | | Net cash used in investing activities | ($75,343) | ($106,945) | | Net cash used in financing activities | ($118,591) | ($47,946) | | Net (decrease) increase in cash and restricted cash | ($17,364) | $20,706 | - Key financing activities in 2024 included the repayment of a $975 million mortgage and proceeds of $850 million from a new mortgage, both related to One Market Plaza, contrasting with 2023's smaller-scale refinancing activities18 Notes to Consolidated Financial Statements This section provides detailed disclosures on accounting policies, investments, debt, derivatives, equity, fair value, leases, segments, and related party transactions Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business, financing, leasing, and financial performance, including results of operations, liquidity, capital resources, and non-GAAP measures, highlighting loan modifications and dividend suspension Business Overview and Recent Developments Paramount, a REIT with a 13.8 million sq. ft. portfolio in NYC and San Francisco, saw mortgage modifications, a joint venture default, and a resolved IPO tax assessment - The company owns and/or manages a portfolio of 18 properties totaling 13.8 million square feet, concentrated in New York (8.7M sq. ft.) and San Francisco (4.3M sq. ft.)121 - The joint venture owning Market Center defaulted on its $416.5 million non-recourse mortgage loan in August 2024126 - In February 2024, the NYCDOF concluded its assessment related to the 2014 IPO and determined no additional transfer taxes were due, resolving a potential liability of up to $62.5 million127 Leasing Results The company leased 654,625 sq. ft., but same-store leased occupancy decreased by 540 basis points to 84.7%, with second-generation rental rates declining on both cash and GAAP bases Leasing Statistics (Nine Months Ended Sep 30, 2024) | Metric | Total Portfolio | New York | San Francisco | | :--- | :--- | :--- | :--- | | Total Square Feet Leased (sq. ft.) | 654,625 | 367,236 | 287,389 | | Initial Rent (per sq. ft.) | $74.94 | $73.97 | $77.49 | | Weighted Avg. Lease Term (years) | 8.2 | 10.4 | 2.4 | | Second Gen. Space Rent Change (Cash) (%) | (5.0%) | (2.7%) | (7.9%) | | Second Gen. Space Rent Change (GAAP) (%) | (8.5%) | (4.2%) | (13.5%) | Same Store Leased Occupancy Change | Portfolio | Sep 30, 2024 (%) | Dec 31, 2023 (%) | Change (bps) | | :--- | :--- | :--- | :--- | | Total | 84.7% | 90.1% | (540) | | New York | 85.0% | 90.2% | (520) | | San Francisco | 83.6% | 89.8% | (620) | Financial Results Core FFO per diluted share decreased to $0.19 in Q3 and $0.61 for nine months, while Same Store NOI increased 1.8% in Q3, but Same Store Cash NOI declined 2.9% Core FFO per Diluted Share | Period | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $0.19 | $0.22 | | Nine Months Ended Sep 30 | $0.61 | $0.64 | Same Store NOI Growth vs. Prior Year Period | Metric | Period | Total (%) | New York (%) | San Francisco (%) | | :--- | :--- | :--- | :--- | :--- | | Same Store NOI | Q3 2024 | 1.8% | (1.0%) | 8.6% | | Same Store Cash NOI | Q3 2024 | (2.9%) | (12.7%) | 22.0% | | Same Store NOI | YTD 2024 | (1.1%) | (1.0%) | (1.1%) | | Same Store Cash NOI | YTD 2024 | (1.4%) | (7.1%) | 12.6% | Results of Operations Total revenues increased to $571.2 million, and expenses rose to $459.9 million, while net loss significantly improved to $7.6 million due to reduced joint venture losses and a non-cash tax gain - The decrease in loss from unconsolidated joint ventures for the nine months ended Sep 30, 2024 vs 2023 (a $60.0 million improvement) was primarily due to a $24.7 million impairment loss at 60 Wall Street and a $23.9 million impairment loss at One Steuart Lane recognized in 2023, which did not recur in 2024189 - Interest and other income for the nine months of 2024 increased by $16.8 million, mainly due to a $15.4 million non-cash gain on the extinguishment of an IPO-related tax liability190 - Interest and debt expense for the nine months of 2024 increased by $11.6 million YoY, primarily due to higher rates on variable debt and the expiration of interest rate swaps at 1301 Avenue of the Americas in August 2024191 Liquidity and Capital Resources The company maintained $1.24 billion in liquidity, with no debt maturities until June 2026, and suspended its quarterly dividend to strengthen the balance sheet - Total liquidity as of September 30, 2024, was $1.24 billion, comprising cash, restricted cash, and full capacity on its $750 million revolving credit facility196 - The company has no debt maturities until June 2026199 - The regular quarterly dividend was suspended in September 2024 to enhance financial flexibility and strengthen the balance sheet201 Non-GAAP Financial Measures This section defines and reconciles non-GAAP measures like NOI, Same Store NOI, FFO, and Core FFO, used for performance evaluation, with updated exclusions for non-core assets Reconciliation of Net Loss to FFO and Core FFO (Nine Months Ended Sep 30) | (In thousands, except per share) | 2024 | 2023 | | :--- | :--- | :--- | | Net (loss) income | $9,668 | ($99,576) | | Real estate depreciation and amortization | $192,946 | $209,687 | | Our share of non-cash real estate impairment loss | - | $24,734 | | FFO attributable to common stockholders | $142,554 | $137,517 | | FFO per diluted share | $0.66 | $0.63 | | Adjustments for non-core items | ($11,623) | $1,842 | | Core FFO attributable to common stockholders | $131,889 | $139,359 | | Core FFO per diluted share | $0.61 | $0.64 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate changes on its $3.69 billion debt, managed with interest rate caps, where a 100 basis point increase would reduce annual net income by $11.3 million Consolidated Debt Summary (as of Sep 30, 2024) | Debt Type | Amount (in thousands) | Weighted Avg. Rate (%) | | :--- | :--- | :--- | | Fixed Rate Debt | $2,832,050 | 3.58% | | Variable Rate Debt | $860,000 | 6.27% | | Total Consolidated Debt | $3,692,050 | 4.21% | - A 100 basis point increase in variable interest rates would decrease annual net income by an estimated $11.3 million, or $0.05 per diluted share, considering both consolidated and unconsolidated debt241 - The company manages variable rate exposure using derivative instruments, holding interest rate cap agreements with a notional amount of $860 million, capping SOFR at 3.50% through August 2025237 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2024, the company's disclosure controls and procedures were effective244 - No material changes were made to the internal control over financial reporting during the third quarter of 2024245 Part II. Other Information This section covers legal proceedings, risk factors, equity sales, defaults, other information, and a list of exhibits Item 1. Legal Proceedings The company is involved in routine legal claims, but management does not anticipate any material adverse effect on its financial condition or operations - As of September 30, 2024, the company does not expect any ongoing legal proceedings to have a material adverse effect on its business or financial position245 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K were reported, apart from updates within this quarterly report - No material changes to the risk factors disclosed in the 2023 Annual Report on Form 10-K were reported246 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered equity sales and no share repurchases during the period, with $15 million remaining in its stock repurchase program - The company did not repurchase any shares under its stock repurchase program in the three and nine months ended September 30, 2024247 - There is $15,000,000 of capacity remaining under the $200,000,000 stock repurchase program247 Item 3. Defaults Upon Senior Securities The company reported no defaults on its senior securities - None248 Item 5. Other Information No directors or officers adopted, terminated, or modified any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 2024 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the third quarter of 2024249 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including XBRL data and CEO/CFO certifications required by the Sarbanes-Oxley Act - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and Inline XBRL documents249250