1
9
9
6
6
4
_
c
v
r
CORPORATE HEADQUARTERS
1633 Broadway, Suite 1801
New York, New York 10019
(212) 237-3100
w w w.pgre.com
2021
Annual
Report
P
A
R
A
M
O
U
N
T
G
R
O
U
P
,
I
N
C
.
2
0
2
1
A
N
N
U
A
L
R
E
P
O
R
T
1
99664_cvr
99664.indd 1-3
C
M
Y
K
432
17.313 in x 10.875 in
Paramount Group Operating Partnership LP
03.19.2022 09:22AM
99664
craum (sa1) (sa1)
99664_cvr
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
99664_cvr
1
r
v
c
_
4
6
6
9
9
1
3/19/22 9:17 AM
1
9
9
6
6
4
_
c
v
r
i
n
Corporate Highlights
Best in Class
Irreplaceable
OWNER AND OPERATOR OF
CLASS A OFFICE PROPERTIES IN
NEW YORK AND SAN FRANCISCO
PORTFOLIO OF HIGH-QUALITY
AND MODERN TROPHY ASSETS
$14 Billion
ASSETS UNDER MANAGEMENT
13.9 Million
SQUARE FEET ACROSS 19
OWNED AND/OR MANAGED
ASSETS
Conceptual Rendering, 1301 Avenue of the Americas
Corporate Data
PARAMOUNT GROUP 2021 ANNUAL REPORT
BOARD OF DIRECTORS
MANAGEMENT
Albert Behler
Chairman,
Chief Executive Officer & President
Albert Behler
Chairman,
Chief Executive Officer & President
Thomas Armbrust
Chairman of the Supervisory Board,
CURA Vermögensverwaltung
Wilbur Paes
Chief Operating Officer,
Chief Financial Officer and Treasurer
Martin Bussmann
Trustee, Mannheim Trust
Peter Brindley
Executive Vice President,
Head of Real Estate
Colin Dyer
Former Chairman and Current Member
of the Supervisory Board, Unibail-
Rodamco S.E.
Gage Johnson
Senior Vice President,
General Counsel and Secretary
Ermelinda Berberi
Senior Vice President,
Chief Accounting Officer
Karin Klein
Founding Partner, Bloomberg Beta
Peter Linneman
Professor Emeritus,
The University of Pennsylvania,
Wharton School of Business
Katharina Otto-Bernstein
President, Film Manufacturers Inc.
Mark Patterson
President, MRP Holdings LLC
Greg Wright
Chief Investment Officer,
Digital Realty Trust, Inc.
r
e
d
n
a
x
e
A
l
y
d
n
a
S
:
g
n
i
t
n
i
r
P
;
y
n
a
p
m
o
C
+
s
i
g
d
O
:
n
g
i
s
e
d
d
n
a
n
o
i
t
c
e
r
i
d
e
v
i
t
a
e
r
C
99664_cvrin
1
ABOUT OUR STOCK
Our Common Stock is listed on the New
York Stock Exchange under the symbol
PGRE.
ANNUAL MEETING
Thursday, May 12, 2022
INVESTOR RELATIONS
INFORMATION
ir@pgre.com
(212) 492-2298
REGISTRAR & TRANSFER
AGENT
Computershare Trust Company, N.A.
www.computershare.com/us/
(800) 962-4284
CORPORATE COUNSEL
Goodwin Procter LLP
New York, NY
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
New York, NY
n
i
r
v
c
_
4
6
6
9
9
1
3/23/22 1:18 PM
1
99664_cvr in
99664_cvr.indd 4-6
C
M
Y
K
432
17.313 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:25PM
99664
craum (sa1) (sa1)
99664_cvr in
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
1
9
9
6
6
4
t
x
t
100%
REIT PORTFOLIO ENERGY
STAR AND LEED GOLD OR
PLATINUM CERTIFIED
99664txt
1
Nationally Recognized
DIVERSE AND HIGH
CREDITWORTHY TENANT BASE
Experienced and Diverse
MANAGEMENT TEAM WITH
PROVEN TRACK RECORD
t
x
t
4
6
6
9
9
1
Paramount Group | 1
3/23/22 1:47 PM
1
99664 txt
99664_txt_co5.indd 1
C
M
Y
K
432
8.500 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:52PM
99664
craum (sa1) (sa1)
99664 txt
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
2
9
9
6
6
4
t
x
t
99664txt
2
Albert Behler
Chairman, CEO and President
Dear Shareholders,
While 2020 was characterized by uncertainty and defensive
positioning, 2021 can be characterized by recovery and
resilience. After a year of lockdowns and heavy restrictions,
the economic recovery has been apparent, with office-using
employment rising back to pre-COVID levels.
New York office-using jobs have nearly recovered to pre-
pandemic levels, at 97%, while San Francisco has surpassed
what it was pre-COVID by about 2%. While the emergence
of the Omicron variant no doubt delayed the recovery during
winter, the danger posed by the variant, which surfaced late
November, has already subsided. Reported cases have returned
to subdued levels, and vaccinations have continued to rise
nationally. In our markets, New York State recorded 83.4% of
the population as fully vaccinated, and California recorded
77.5%. Over the coming year, we expect the continued
mass distribution of the COVID-19 vaccine coupled with
ongoing economic recovery to improve the current operating
environment for the U.S. office industry, which will undoubtedly
increase office occupancy as employers look for employees to
return to the office.
Our performance over the past year stands on its own. We
executed flawlessly on our business plan. In terms of earnings
expectations, we ended the year with Core FFO of $0.92 per
share, and 10.8% above Wall Street consensus estimates of
$0.83 per share. In terms of leasing, we ended the year with
over one million square feet leased, which is 45.0% above the
amount we leased in the prior year, while maintaining strong
lease terms and market rates.
“Our disciplined approach of
leasing to high-quality and
creditworthy tenants enabled
us, throughout the pandemic,
to have one of the highest rent
collection rates in our sector.”
Heading into 2022, we carry that same momentum, and our
focus remains on the lease-up of our availabilities and near-term
expirations, as well as the gradual reintegration of our tenants
in a safe and healthy manner. Our outlook for 2022 remains
robust, and we are confident in our ability to execute on our
ambitious goal of executing between 825,000 square feet and
1,225,000 square feet of leasing. Our guidance for Core FFO
came in above Wall Street consensus estimates with a range
between $0.91 per share and $0.97 per share.
Leasing
Yet again, leasing stands out as one of Paramount’s greatest
strengths. Our fortitude in this area has served as a reliable
backstop to our portfolio and protected us from the economic
downturn that resulted from the COVID-19 pandemic. Our
disciplined approach of leasing to high-quality and creditworthy
tenants enabled us, throughout the pandemic, to have one of
the highest rent collection rates in our sector. As the pandemic
now fades into the background, the strength of our platform
and the quality of our assets will enable us to capture more
than our fair share of leasing in the marketplace, as we have
done time and again. We anticipate a significant uptick in our
leased occupancy, which stood at 90.7% at year end, as we see
returning to the office discerning tenants who are looking for
high-quality and centrally located office space, a trend perfectly
suited to our portfolio.
We are proud of our leasing team’s results during such a
challenging time. We executed on over one million square
feet, 45.4% above the leasing we reported for last year,
highlighting the strength of our portfolio and the fact that the
market is indeed trending back toward normal. We also remain
encouraged by the long-term commitments on both new
and renewal leases that our team is executing, with a strong
weighted-average lease term of 9.4 years.
In New York, our portfolio is concentrated in Midtown,
where we leased approximately 780,000 square feet this year,
highlighting the demand for high-quality assets, such as ours.
While Midtown’s availability rate year-over-year increased
by 220 bps to 17.6% at year end, leasing velocity in 2021
increased by about 46.0% and average asking rents were also
up modestly, when compared to 2020. We see these as positive
signs for the resurgence of office space in New York City during
2022 and beyond.
Our 2021 leasing activity in New York was highlighted by four
leases — two of which, aggregating 279,000 square feet,
served to backfill 190,000 square feet, or over 40.0% of the
Barclays’ vacancy at 1301 Avenue of the Americas, while the
other two, aggregating 81,500 square feet, served to backfill
2 | Annual Report 2021
2
99664 txt
99664_txt_co5.indd 2
3/23/22 1:47 PM
C
M
Y
K
432
8.500 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:52PM
99664
craum (sa1) (sa1)
99664 txt
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
t
x
t
4
6
6
9
9
2
99664txt
3
3
9
9
6
6
4
t
x
t
over 62.0% of the TD Bank’s vacancy at 31 West 52nd Street.
These significant commitments by discerning and high-quality
tenants demonstrate the importance of our New York assets’
central location and superior property attributes.
In San Francisco, tenants continue to take a more gradual
approach toward a return to offices. Even though our San
Francisco leasing activity still favors renewals over new leases, we
are beginning to see positive signs, as leasing velocity increased
by about 70.0% during 2021, compared to 2020. As we have seen
throughout the pandemic, while asking rents have continued to
come under pressure, landlords with high-quality assets continue
to outperform, maintaining rents at or above prior levels. In other
words, the flight to quality is very noticeable. Our initial rent
on leases signed during 2021 grew to about $100 per square
foot, compared to $94.50 during 2019, before the start of the
pandemic. Our results continue to demonstrate the strength and
resilience of our portfolio as we continue to benefit from the high
quality of our assets.
Overall, in both markets, our offerings are extremely compelling
in a re-opening environment, given attributes such as walkability
to major transit hubs and our adaptability to our tenants. For
example, we have the unique ability to create a private welcome
center that affords not only an enormous branding opportunity
but also a way for a large tenant to control the experience of its
employees and guests. In May, we also announced our plans
for an extensive repositioning of 60 Wall Street’s base and
interiors, including its soaring lobby and vast public atrium. With
construction set to begin in summer of 2022, the postmodern
building’s revitalization includes a transformative opening up of
the facade, new triple-height windows, the addition of a skylight
to cast natural light into the atrium, and the installation of the
largest indoor green wall in North America. The repositioning will
transform 60 Wall Street, to provide tenants with the benefits of
a new building and the opportunity to create an office that best
suits their unique needs.
t
x
t
4
6
6
9
9
3
Paramount Group | 3
3/23/22 1:47 PM
3
99664 txt
99664_txt_co5.indd 3
C
M
Y
K
432
8.500 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:52PM
99664
craum (sa1) (sa1)
99664 txt
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
4
9
9
6
6
4
t
x
t
99664txt
4
Acquisitions & Dispositions
We have remained consistent, disciplined and opportunistic
when evaluating potential acquisition or disposition
opportunities, always with an uncompromising focus on
maximizing long-term value for our shareholders.
Our acquisitions strategy is straightforward: remain
opportunistic and nimble.
We typically like to:
Capitalize on Opportunity – Harvest capital from fully-
stabilized assets and recycle that capital to selectively acquire
underappreciated or under-leased assets in high barrier-to-
entry markets with strong fundamentals.
Create Value – Reposition assets to Paramount’s standards
by leveraging our best-in-class vertically integrated operating
platform, improving the property’s growth profile and
attractiveness in the market, thereby creating value.
The transaction markets remain muted, and our equity currency
remained at levels that were much less-than-desirable. As a
result, we did not partake in any acquisition activity in 2021.
However, there are pockets of opportunities when even a less-
than-desirable equity currency makes sense to deploy. One
such opportunity came to us subsequent to year-end, and we
executed. We announced that a joint venture, in which we have
less than a 10.0% equity interest, acquired the real estate for
a retail condominium at 1600 Broadway. The property is 100%
leased for the long term to Mars, Inc. as the flagship location
for M&Ms World, which was recently extended for 15 years. We
see this commitment by Mars as a testament to the long-term
value of this iconic Times Square attraction and resilience of
the New York market in general. The transaction was valued at
$191.5 million and our equity in this deal, net of upfront fees
earned, was less than $5.0 million. Our shareholders will be
rewarded with handsome returns on the small amount of equity
deployed here.
We will continue to stay disciplined and opportunistic in
managing the portfolio and evaluating potential acquisition
and disposition prospects, remaining prudent with shareholder
capital in order to maximize stable, long-term returns.
Capital Markets
We have always focused on maintaining the strength of our
balance sheet. All our debt is asset-specific and non-recourse…
by design. We do not overleverage an asset, whenever
practical we like to have our borrowing costs fixed; currently,
only 13% is not.
In July, we took advantage of attractive credit markets to
complete the $860.0 million refinancing of 1301 Avenue of the
Americas. The financing of this 1.7 million square foot, Trophy
office building received tremendous reception, notwithstanding
the building’s significant vacancy (~ 30.0%) created by the
departure of Barclays. The execution of this financing represented
a strong endorsement of the strength of the New York City office
market and a testament to the confidence the leading financial
institutions have in our platform.
In December, we also refinanced our credit facility, rightsizing the
capacity to $750.0 million. Aside from providing us with ample
liquidity and financial flexibility, the new facility is also linked to
our industry-leading sustainability metrics and highlights our deep
commitment to lowering our carbon footprint.
“Our team understands that
by prioritizing health and
wellness, we are not only
further modernizing and
enhancing the appeal of our
buildings, but we are also
creating greater levels of trust
among our occupants as they
prepare to return to the office.”
ESG
ESG is an important function that is integrated throughout our
business. In 2021, our Board tasked the Audit Committee with
oversight responsibility of Environmental and Social aspects
of our ESG initiatives. The Governance aspect continued to
remain under the purview of the Nominating and Corporate
Governance Committee. We have a Sustainability Committee that
is responsible for implementing and achieving ESG goals. The
Sustainability Committee is chaired by Gage Johnson, our General
Counsel, and is comprised of individuals from various departments
throughout the organization, for diversity of thought and to ensure
that these efforts are not made in a vacuum. To further integrate
ESG into our business strategy, in 2021, the Compensation
Committee incorporated key ESG-centric goals into our executive
compensation program.
Sustainability has taken on a whole new meaning for office
landlords navigating a pandemic environment, and no company
is more aware of that than Paramount. Even before Paramount
went public in 2014, we had endeavored to provide the safest
and highest-quality workplaces. Our team understands that
4 | Annual Report 2021
4
99664 txt
99664_txt_co5.indd 4
3/23/22 1:47 PM
C
M
Y
432
8.500 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:52PM
99664
craum (sa1) (sa1)
99664 txt
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
t
x
t
4
6
6
9
9
4
99664txt
5
Wilbur Paes, Chief Operating Officer, Chief Financial Officer and Treasurer;
Albert Behler, Chairman, Chief Executive Officer and President; Peter Brindley,
Executive Vice President, Head of Real Estate
and talented. In 2021, the Board and I looked to strengthen
our foundation for the future by promoting Wilbur Paes and
Peter Brindley, two key and talented executives from within our
organization. Wilbur took on the additional responsibility of
Chief Operating Officer, while maintaining his current position
of Chief Financial Officer, and Peter was promoted to Executive
Vice President – Head of Real Estate and took on additional
responsibilities while maintaining his oversight of leasing. Wilbur
and Peter have proven to be immensely skilled leaders and
have been key players in all major decisions we have made at
Paramount for the past few years.
Our long-term strategy remains unchanged: to manage our
portfolio to the highest standards and allocate shareholder capital
toward the best fundamentals and highest risk-adjusted returns,
with an eye toward creating long-term value for our shareholders
and building an enduring company. As always, we remain focused
on the health of our tenants and on leasing up our available
space. I would like to thank you, our investors and stakeholders,
for your continued support and confidence in Paramount’s long-
term strategic goals.
Sincerely,
Albert Behler
Chairman, CEO & President
5
9
9
6
6
4
t
x
t
by prioritizing health and wellness, we are not only further
modernizing and enhancing the appeal of our buildings, but we
are also creating greater levels of trust among our occupants as
they prepare to return to the office. To lead and advance our
sustainability initiatives, in 2021, we hired Evin Epstein as our
SVP of Energy and Sustainability. Evin is a recognized industry
leader in this area, and we are happy to have her represent
Paramount.
We made significant strides in 2021, and we are proud to have
received the following distinctions:
• We achieved Fitwel certification across 10 properties
aggregating approximately nine million square feet, and
we were honored with the “Fitwel Champion” status for
our efforts. Fitwel certifications are awarded to buildings
that support healthier workplace environments by helping
improve their occupants’ health and productivity.
• We achieved, for the third consecutive year, a 5 Star rating
in the 2021 GRESB Real Estate Assessment, the highest
rating designation, which distinguishes Paramount’s ESG
performance among the top 20% of the 1,520 companies
and funds that were surveyed, including the highest Public
Disclosure level of an “A,” securing the #1 ranking among
our peer group of USA Office Properties for 2021.
• We achieved 2021 ENERGY STAR labels across 100% of
our REIT portfolio, spanning 11.3 million square feet. The
U.S. Environmental Protection Agency’s (EPA’s) ENERGY
STAR certification signifies that Paramount’s assets perform
within the top 25% for energy efficiency when compared to
similar buildings nationwide. We also achieved the ENERGY
STAR Tenant Space Recognition at 1325 Avenue of the
Americas.
• We maintained our industry-leading recognition of
operating a REIT portfolio comprised of 100% LEED Gold
or Platinum certified buildings.
We are extremely proud to have achieved these distinctions,
which affirm our dedication to advancing ESG initiatives
that drive positive outcomes for all our stakeholders and
communities.
The Paramount Team & Shareholders
Looking back, while 2021 was not the return to normalcy
everyone was hoping for, we see strong signs of recovery across
our markets. With the economy and the job market returning to
positive growth, and office leasing activity picking up, we see
the return to office as the next step toward full recovery.
I am very proud of how our team has handled themselves
during these volatile times, as they have gone above and
beyond to execute on our strategic goals. Our bench is deep
5
99664 txt
99664_txt_co5.indd 5
C
M
Y
K
432
8.500 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:52PM
99664
craum (sa1) (sa1)
99664 txt
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
t
x
t
4
6
6
9
9
5
Paramount Group | 5
3/23/22 1:47 PM
6
9
9
6
6
4
t
x
t
Property and Financial Highlights
99664txt
6
SAN FRANCISCO
1
2
Spear St
Fremont St
3
t
S
t
e
k
r
a
M
5
t
S
n
o
i
s
s
i
M
4
6
Second St
N
WEST COAST
San Francisco
Property
Square
Footage
Leased
%
1
2
3
4
5
6
One Market Plaza
1.6MM
94.7%
300 Mission Street
0.7MM
94.7%
One Front Street
0.6MM
97.1%
111 Sutter Street
0.3MM
64.2%
Market Center
0.7MM
84.2%
55 Second Street
0.4MM
96.3%
91.6%
LEASED (AT PGRE SHARE)
4.3MM
SQUARE FOOTAGE
CONSOLIDATED REVENUES
$ in thousands
PGRE’S SHARE OF CASH NOI*
$ in thousands
1
7
6
,
7
0
7
8
1
0
2
2
6
8
,
6
4
6
7
1
0
2
4
5
7
,
3
4
7
9
1
0
2
7
3
2
,
4
1
7
0
2
0
2
6
8
7
,
6
2
7
1
2
0
2
3.0% CAGR
5
8
9
,
1
3
3
7
1
0
2
3
1
9
,
5
5
3
7
8
1
,
4
7
3
4
0
5
,
7
7
3
0
6
1
,
7
7
3
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
3.2% CAGR
*For a reconciliation of these measures to their most directly comparable GAAP measures and the reasons we view these
measures to be useful, see pages 61 - 66 of our Annual Report on Form 10-K for the year ended December 31, 2021.
6 | Annual Report 2021
6 | Annual Report 2021
6
99664 txt
99664_txt_co5.indd 6
3/23/22 1:47 PM
t
x
t
4
6
6
9
9
6
C
M
Y
K
432
8.500 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:52PM
99664
craum (sa1) (sa1)
99664 txt
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
99664txt
7
NEW YORK
4
e
v
A
d
r
i
h
T
n
o
s
i
d
a
M
e
v
A
h
t
f
i
F
N
EAST COAST
y
a
w
d
a
o
r
B
2
e
v
A
h
t
n
e
v
e
S
3
5
6
e
v
A
h
t
x
i
S
e
v
A
h
t
h
g
i
E
1
7
7
9
9
6
6
4
t
x
t
New York
Property
Square
Footage
Leased
%
1
2
3
4
5
6
7
1633 Broadway
2.5MM
98.3%
1325 Avenue of
the Americas
0.8MM
93.4%
712 Fifth Avenue
0.6MM
71.4%
900 Third Avenue
0.6MM
79.2%
31 West 52nd Street
0.8MM
1301 Avenue of
the Americas
1.7MM
92.3%
84.3%
60 Wall Street
1.6MM
100%
90.4%
LEASED (AT PGRE SHARE)
8.6MM
SQUARE FOOTAGE
DIVERSIFIED TENANTS
% of annualized rent *
23.4%
21.0%
17.0%
OPS
other
Legal Services
Technology and Media
Financial Services, Commercial
& Investment Banking
Financial Services, All Others
Insurance
Retail
Travel & Leisure
Real Estate
Other Professional Services
Other
real estate
travel
15.6%
6.2%
2.2%
2.1%
retail
1.8%
1.6%
9.1%
Insurance
FS, others
GEOGRAPHIC EXPOSURE
% of annualized rent *
69.1%NEW YORK
30.9%SAN FRANCISCO
Paramount Group | 7
Paramount Group | 7
t
x
t
4
6
6
9
9
7
3/23/22 1:48 PM
*At PGRE Share
FSCIB
tech
legal services
7
99664 txt
99664_txt_co5.indd 7
C
M
Y
K
432
8.500 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:52PM
99664
craum (sa1) (sa1)
99664 txt
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
8
9
9
6
6
4
t
x
t
ESG Highlights
99664txt
8
Paramount is an industry leader in ESG initiatives that have helped us to manage operating costs, attract and retain premium
tenants, and ultimately enhance portfolio value. Our high-quality, efficient and sustainable assets are a key differentiator that
resonates with our tenants and our shareholders. ESG will continue to be integrated throughout our organization and will remain at
the forefront of how we govern our business.
100%
REIT Portfolio LEED Gold
or Platinum Certified
100%
100%
REIT Portfolio achieved a
2021 ENERGY STAR label
REIT Portfolio electricity will be generated
by renewable resources throughout 2022
5
Stars
“A”
Rating
Highest GRESB accolade earned
for the third consecutive year
Highest score on GRESB Public
Disclosure assessment
ISS “Prime”
Rating
Top 10% ESG performance
Top 10%
Global ranking for Sustainalytics ESG
Risk Rating
Top 25%
Performance within MSCI’s
“Opportunities in Green Buildings”
ESG Rating
9 Million
Square feet achieved Fitwel certification
and recognized as a Fitwel Champion
Board-level
Diversity
Advanced through our
expanded DE&I initiatives
Conceptual Rendering, 60 Wall Street
ESG
Pay Link
ESG goals incorporated
in variable pay awards for
Executive Team
Supply
Chain
Critical Suppliers evaluated
on ESG performance annually
8 | Annual Report 2021
8
99664 txt
99664_txt_co5.indd 8
C
M
Y
K
432
8.500 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:52PM
99664
craum (sa1) (sa1)
99664 txt
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
t
x
t
4
6
6
9
9
8
3/23/22 1:48 PM
,
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 2021
OR
☐
1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
For the transition period from To
Commission File Number: 001-36746
PARAMOUNT GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
1633 Broadway, Suite 1801, New York, NY
(Address of principal executive offices)
32-0439307
(IRS Employer
Identification No.)
10019
(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
Common Stock of Paramount Group, Inc.,
$0.01 par value per share
Trading Symbol
PGRE
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
Title of each class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
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, an 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
Non-Accelerated Filer
☒
☐
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 has filed a report on and attestation to its managements’ assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of February 1, 2022, there were 219,105,492 shares of the registrant’s common stock outstanding.
As of June 30, 2021, the aggregate market value of the 185,032,112 shares of common stock held by non-affiliates of the Registrant
was $1,863,273,000 based on the June 30, 2021 closing share price of our common stock of $10.07 per share on the New York Stock
Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Stockholders’ Meeting (which is scheduled to be held on May 12, 2022) to be filed
within 120 days after the end of the registrant’s fiscal year are incorporated by reference in Part III of this Annual Report on Form 10-
K.
Table of Contents
Page
Number
Item
Part I.
Financial Information
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
Part II.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Reserved
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III.
Item 10.
Directors, Executive Officers and Corporate Governance (1)
Item 11.
Executive Compensation (1)
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (1)
Item 13.
Certain Relationships and Related Transactions, and Director Independence (1)
Item 14.
Principal Accounting Fees and Services (1)
Part IV.
Item 15.
Exhibits, Financial Statements Schedules
Item 16.
Form 10-K Summary
(1)
These items are omitted in whole or in part because the registrant will file a definitive Proxy Statement pursuant to Regulation 14A under the
Securities Exchange Act of 1934 with the Securities and Exchange Commission no later than 120 days after December 31, 2021, portions of
which are incorporated by reference herein.
3
8
12
36
37
41
41
42
44
45
67
69
107
107
109
109
109
109
109
109
109
110
110
Forward-Looking Statements
We make statements in this Annual Report on Form 10-K 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:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
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 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;
failure to meet the restrictive covenants and requirements in our existing debt agreements;
4
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
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 Annual Report on Form 10-K, including those set forth under the heading “Risk
Factors.”
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 this report.
5
Summary Risk Factors
The risk factors detailed in Item 1A entitled “Risk Factors” in this Annual Report on Form 10-K, are the risks that we believe are
material to our investors and a reader should carefully consider them. The following is a summary of the risk factors detailed in Item
1A:
(cid:129) Unfavorable market and economic conditions in the United States and globally and in the specific markets or submarkets
where our properties are located could adversely affect occupancy levels, rental rates, rent collections, operating expenses,
and the overall market value of our assets, and impair our ability to sell, recapitalize or refinance our assets.
(cid:129) All of our properties are located in New York City and San Francisco and adverse economic or regulatory developments in
these areas could negatively affect our results of operations, financial condition and ability to make distributions to our
stockholders.
(cid:129) A significant portion of our revenue is generated from three of our properties – 1633 Broadway, 1301 Avenue of the
Americas and One Market Plaza.
(cid:129) We may be unable to renew leases, lease currently vacant space or vacating space on favorable terms or at all as leases
expire.
(cid:129) We are exposed to risks associated with property redevelopment and repositioning that could adversely affect us.
(cid:129) We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in
order to retain and attract tenants.
(cid:129) We would be adversely affected if any of our significant tenants experienced a material business downturn.
(cid:129) We may be adversely affected by trends in the office real estate industry, including telecommuting, flexible work schedules,
open workplaces and teleconferencing.
(cid:129) Real estate investments are relatively illiquid and may limit our flexibility.
(cid:129) Competition could limit our ability to acquire attractive investment opportunities.
(cid:129) We are subject to losses that are uninsurable, not economically insurable or that are in excess of our insurance coverage.
(cid:129) We are subject to risks from natural disasters, and from the effects of climate change.
(cid:129)
Terrorist attacks and/or shooting incidents may adversely affect our ability to generate revenues and the value of our
properties.
(cid:129) We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control and
similar requirements.
(cid:129) We may become subject to liability relating to environmental and health and safety matters.
(cid:129) We may incur significant costs complying with the Americans with Disabilities Act of 1990, and similar laws.
(cid:129) We may be unable to identify and successfully complete acquisitions and, even if acquisitions are identified and completed,
we may fail to successfully operate acquired properties.
(cid:129) We are subject to risks involved in real estate activity through joint ventures and private equity real estate funds.
(cid:129) Contractual commitments with existing private equity real estate funds and our investment club may limit our ability to
acquire properties, issue loans or invest in preferred equity directly in the near term.
(cid:129)
The COVID-19 pandemic or any future pandemic, endemic or outbreak of infectious disease may continue to have an
adverse impact on our tenants’ businesses, including their ability to pay rent, which could materially impact our financial
condition and results of operations.
(cid:129) Capital and credit market conditions may adversely affect our access to various sources of capital or financing and/or the cost
of capital, which could impact our business activities, dividends, earnings and common stock price.
(cid:129) We may be subject to litigation, which could have an adverse effect on us.
6
(cid:129) We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire.
(cid:129)
Extensive regulation of our investment management businesses affects our activities and creates the potential for significant
liabilities and penalties, and increased regulatory focus could result in additional burdens on this business.
(cid:129) We cannot predict the impact future actions by regulators or government bodies, including the U.S. Federal Reserve, will
have on real estate debt markets or on our business, and any such actions may negatively impact us.
(cid:129)
The ability of stockholders to control our policies and effect a change of control of our company is limited by certain
provisions of our charter and bylaws and by Maryland law.
(cid:129) Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of
holders of common units, which may impede business decisions that could benefit our stockholders.
(cid:129)
If there are deficiencies in our disclosure controls and procedures or internal control over financial reporting, we may be
unable to accurately present our financial statements.
(cid:129) We have a substantial amount of indebtedness that may limit our financial and operating activities and may adversely affect
our ability to incur additional debt to fund future needs.
(cid:129) Variable rate debt is subject to interest rate risk that could increase our interest expense, increase the cost to refinance and
increase the cost of issuing new debt.
(cid:129) We may be adversely affected by the potential discontinuation of LIBOR.
(cid:129) Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a
property or group of properties subject to mortgage debt.
(cid:129)
(cid:129)
The market price and trading volume of our common stock may be volatile, and may decline due to the large number of our
shares eligible for future sale.
Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our
common stock.
(cid:129) We may owe certain taxes notwithstanding our qualification as a REIT.
(cid:129) Dividends payable by REITs generally do not qualify for reduced tax rates applicable to non-corporate taxpayers.
(cid:129) Complying with the REIT requirements may cause us to forego otherwise attractive opportunities or liquidate certain of our
investments.
(cid:129) We may be subject to a 100% penalty tax on any prohibited transactions that we enter into, or may be required to forego
certain otherwise beneficial opportunities in order to avoid the penalty tax on prohibited transactions.
(cid:129) REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan.
(cid:129)
Preferred equity and certain debt investments could impact our compliance with REIT income and assets tests.
(cid:129) We depend on key personnel, and the loss of services of members of our senior management team, or our inability to attract
highly qualified personnel, could adversely affect our business.
(cid:129) We face risks associated with cyber security breaches and other significant disruptions of our IT networks and systems.
This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on
forward-looking statements beginning on page 4.
7
ITEM 1.
BUSINESS
General
PART I
Paramount Group, Inc. is a fully-integrated REIT focused on owning, operating, managing, acquiring and redeveloping high-
quality, Class A office properties in select central business district (“CBD”) submarkets of New York City and San Francisco. 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, a Delaware limited partnership (the “Operating
Partnership”). We conduct our business through, and substantially all 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
December 31, 2021.
As of December 31, 2021, we owned and/or managed a portfolio aggregating 13.9 million square feet comprised of:
(cid:129)
(cid:129)
(cid:129)
Seven wholly and partially owned properties aggregating 8.6 million square feet in New York, comprised of 8.2 million
square feet of office space and 0.4 million square feet of retail, theater and amenity space;
Six wholly and partially owned properties aggregating 4.3 million square feet in San Francisco, comprised of 4.1 million
square feet of office space and 0.2 million square feet of retail space; and
Six managed properties aggregating 1.0 million square feet in New York and Washington, D.C.
Additionally, we have an investment management business, where we serve as the general partner of real estate funds for
institutional investors and high net-worth individuals.
Our Competitive Strengths
We believe that we distinguish ourselves from other owners and operators of office properties through the following competitive
strengths:
(cid:129)
Premier Portfolio of High-Quality Office Properties in the Most Desirable Submarkets. We have assembled a premier
portfolio of Class A office properties located exclusively in carefully selected submarkets of New York City and San
Francisco. Our submarkets are among the strongest commercial real estate submarkets in the United States for office
properties due to a combination of their high barriers to entry, constrained supply, strong economic characteristics and a deep
pool of prospective tenants in various industries that have demonstrated a strong demand for high-quality office space. Our
markets are international business centers, characterized by a broad tenant base with a highly educated workforce, a mature
and functional transportation infrastructure and an overall amenity rich environment. These markets are home to a diverse
range of large and growing enterprises in a variety of industries, including financial services, technology, media and
entertainment, consulting, legal and other professional services. As a result of the above factors, the submarkets in which we
are invested have generally outperformed the broader markets in which they are located.
(cid:129) Demonstrated Acquisition and Operational Expertise. Over the past 24 years, we have developed and refined our highly
successful real estate investment strategy. We have a proven reputation as a value-enhancing, hands-on operator of Class A
office properties. We target opportunities with a value-add component, where we can leverage our operating expertise, deep
tenant relationships, and proactive approach to asset and property management. In certain instances, we may acquire
properties with existing or expected future vacancy or with significant value embedded in existing below-market leases,
which we will be able to mark-to-market over time. Even fully leased properties from time to time present us with value-
enhancing opportunities which we have been able to capitalize on in the past.
(cid:129) Value-Add Renovation and Repositioning and Development Capabilities. We have expertise in renovating, repositioning
and developing office properties. We have historically acquired well-located assets that have either suffered from a need for
physical improvement to upgrade the property to Class A space, have been underperforming due to a lack of a coherent
leasing and branding strategy or have been under-managed and could be immediately enhanced by our hands-on approach.
We are experienced in upgrading, renovating and modernizing building lobbies, corridors, bathrooms, elevator cabs and base
building systems and updating antiquated spaces to include new ceilings, lighting and other amenities. We have also
successfully aggregated and are continuing to combine smaller spaces to offer larger blocks of space, including multiple
floors, which are attractive to larger, high credit-quality tenants. We believe that the post-renovation quality of our buildings
and our hands-on asset and property management approach attract high credit-quality tenants and allow us to increase our
cash flow.
8
(cid:129) Deep Relationships with Diverse, High Credit-Quality Tenant Base. We have long-standing relationships with high-
quality tenants, including Allianz Global Investors, LP, Clifford Chance LLP, Credit Agricole Corporate & Investment Bank,
First Republic Bank, Google Inc., Morgan Stanley, Norton Rose Fulbright, Showtime Networks Inc., Uber Technologies, Inc.,
and Warner Music Group.
(cid:129)
(cid:129)
(cid:129)
Sustained Environmental, Social and Governance (“ESG”) Leadership. We are an industry leader in ESG initiatives that
we believe have helped us to manage operating costs, attract and retain premium tenants, and ultimately enhance portfolio
value. ESG has become increasingly important to our stakeholders and the growing importance of socially responsible
investing means that ESG and financial performance are now intertwined. ESG will continue to be integrated throughout our
organization and at the forefront of how we govern our business. Our high quality, efficient, and sustainable assets are key to
the value proposition we offer both existing and prospective tenants. Our leadership in ESG is a differentiator that resonates
with our investors, who continue to advance their ESG expectations. Our success is driven by our employees, and we are
focused on attracting and retaining a skilled workforce by offering leading benefits and human capital development
opportunities, and creating an inclusive environment through diversity, equity, and inclusion initiatives. Our impact extends
beyond our employees and our properties, and we are committed to also supporting our surrounding communities through
responsible operations, volunteerism, and philanthropy.
Proven Investment Management Business. We have a successful investment management business, where we serve as the
general partner and property manager of certain private equity real estate funds for institutional investors and high-net-worth
individuals. We have also entered into a number of joint ventures with institutional investors, high-net-worth individuals and
other sophisticated real estate investors through which we have invested in real estate properties. We expect our investment
management business to be a complementary part of our overall real estate investment business.
Seasoned and Committed Management Team with Proven Track Record. Our senior management team, led by Albert
Behler, our Chairman, Chief Executive Officer and President, has been in the commercial real estate industry for an average
of 28 years, and has worked at our company for an average of 15 years. Our senior management team is highly regarded in
the real estate community and has extensive relationships with a broad range of brokers, owners, tenants and lenders. We
have developed relationships that enable us to secure high credit-quality tenants on attractive terms and provide us with
potential off-market acquisition opportunities. We believe that our proven acquisition and operating expertise enables us to
gain advantages over our competitors through superior acquisition sourcing, focused leasing programs, active asset and
property management and first-class tenant service.
Objectives and Strategy
Our primary business objective is to enhance stockholder value by increasing cash flow from operations. The strategies we intend
to execute to achieve this objective include:
(cid:129)
Leasing vacant and expiring space, at market rents;
(cid:129) Maintaining a disciplined acquisition strategy focused on owning and operating Class A office properties in select central
business district submarkets of New York City and San Francisco;
(cid:129)
(cid:129)
Redeveloping and repositioning properties to increase returns; and
Proactively managing our portfolio to increase occupancy and rental rates.
Significant Tenants
None of our tenants accounted for more than 10% of total revenues in the years ended December 31, 2021, 2020 and 2019.
9
Human Capital
We believe that our employees are our greatest assets. Our continued success and growth depends, in large part, upon the efforts
of our employees and on our ability to attract and retain highly qualified personnel. Our operational and financial performance
depends on their talents, energy, experience and well-being. Our ability to attract and retain talented people depends on a number of
factors, including compensation and benefits, work environment, the health, safety and wellness of our employees and career
development and professional training. As of December 31, 2021, we had 318 employees, including 95 corporate employees and 223
on-site building and property management personnel. Certain of our employees are covered by collective bargaining agreements.
Compensation and Benefits
Our compensation program is designed to incentivize employees by offering competitive compensation comprised of fixed and
variable pay including base salaries and cash bonuses. Several of our employees also receive equity awards that are subject to vesting
over a three-to-five year period based on continued service. We believe equity awards serve as an additional retention tool for our
employees. In addition, we offer our employees benefits that support their health, financial and emotional well-being. Our employee
benefit programs are designed to meet the needs of our diverse workforce, support our employees and their families by offering
comprehensive programs that provide flexibility and choice in coverage, make available valuable resources to protect and enhance
financial security and help balance work and personal life. Some of the benefits that we offer our employees include:
•
•
•
•
•
•
•
•
health, telehealth, dental and vision insurance;
health care and dependent care reimbursement accounts and health savings account;
a 401(k) plan with a generous matching contribution;
paid vacation, holiday, and personal days to balance work and personal life;
income protection through our sick pay, short-term and long-term disability policies and parental leave;
subsidized gym memberships;
a commuter subsidy to support the use of public transportation; and
life and accidental death & dismemberment insurance.
Diversity and Inclusion
We are committed to equal opportunity and workplaces that are free from discrimination or harassment on the basis of race,
religion, sex, color, national origin, creed, ethnicity, age, disability, political affiliation, sexual orientation, gender identity or
expression, or any other status protected by applicable law. We do not accept disrespectful or inappropriate behavior, harassment or
retaliation in the workplace or in any work-related circumstance outside the workplace. We provide each of our employees with
detailed policies and materials related to equal opportunity, discrimination, and harassment, and we require employee training on these
matters. We promote a culture of inclusion and value diverse viewpoints to strengthen our management practices and empower us to
adapt to new challenges. As of December 31, 2021, our employee workforce was approximately 49% racially and ethnically diverse;
women account for approximately 30% of our total employee base and 29% of our management team.
Health, Safety and Wellness
We believe the success of our employees is dependent upon their overall well-being, including their physical health, mental health,
an appropriate work-life balance and financial well-being. In light of the COVID-19 pandemic, our focus on providing a healthy work
environment became even more important. We utilize comprehensive building operational measures including cleaning and
disinfection, air and water quality screening and personal protective equipment and health security communication in order to promote
a safe and healthy work environment. In addition to the benefits outlined above, we also offer an employee wellness program and an
employee assistance program, which include services for financial planning assistance, stress management, mental illness and general
wellness and self-help. Additionally, our Benefits Advocacy Center assists employees with various medical questions, such as general
medical coverage questions, explanation of benefits, claims, prescriptions and pharmacy issues. Furthermore, we offer our employees
one-on-one financial planning sessions with our 401(k) provider annually.
Career Development and Professional Training
We promote the personal and professional growth and development of our employees by providing a wide range of tools and
development opportunities that build and strengthen our employees' leadership and professional skills. These development
opportunities include in-person and virtual training sessions, in-house learning opportunities, various management trainings,
departmental conferences, and external programs. We take pride in promoting our employees from within.
10
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.
Competition
The leasing of real estate is highly competitive in markets in which we operate. We compete with numerous acquirers,
developers, owners and operators of commercial real estate, many of which own or may seek to acquire or develop properties similar
to ours in the same markets in which our properties are located. The principal means of competition are rent charged, location,
services provided and the nature and condition of the facility to be leased. In addition, we face competition from other real estate
companies including other REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies,
pension trusts, partnerships, individual investors and others that may have greater financial resources or access to capital than we do or
that are willing to acquire properties in transactions which are more highly leveraged or are less attractive from a financial viewpoint
than we are willing to pursue. If our competitors offer space at rental rates below current market rates, below the rental rates we
currently charge our tenants, in better locations within our markets or in higher quality facilities, we may lose potential tenants and we
may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire.
Governmental Regulations
Compliance with various governmental regulations has an impact on our business, including our capital expenditures, earnings
and competitive position, which can be material. We incur costs to monitor and take actions to comply with governmental regulations
that are applicable to our business, which include, among others, federal securities laws and regulations, applicable stock exchange
requirements, REIT and other tax laws and regulations, environmental and health and safety laws and regulations, local zoning, usage
and other regulations relating to real property, the Americans with Disabilities Act of 1990 and laws and regulations applicable to our
investment management business, including the U.S. Investment Advisers Act of 1940, the Alternative Investment Fund Managers
Directive, 2011/61/EU and related laws and regulations. See Item 1A, Risk Factors, for a discussion of material risks to us, including,
to the extent material, to our competitive position, relating to governmental regulations, and see Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operation, together with our consolidated financial statements, including the related
notes included therein, for a discussion of material information relevant to an assessment of our financial condition and results of
operations, including, to the extent material, the effects that compliance with governmental regulations may have upon our capital
expenditures and earnings.
Executive Office
Our principal executive offices are located at 1633 Broadway, Suite 1801, New York, NY 10019; telephone (212) 237-3100.
Available Information
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to
these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website
(www.pgre.com) as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange
Commission (“SEC”). You may also obtain our reports by accessing the EDGAR database at the SEC’s website at http://www.sec.gov
or copies of these documents are also available directly from us, free of charge upon written request to Investor Relations, 1633
Broadway, Suite 1801, New York, NY 10019; telephone (212) 237-3100. Also available on our website are copies of our (i)
Nominating and Corporate Governance Committee Charter, (ii) Corporate Governance Guidelines, (iii) Compensation Committee
Charter, (iv) Code of Business Conduct and Ethics, (v) Audit Committee Charter and (vi) Stockholder Communication Policy. In the
event of any changes to these items, revised copies will be made available on our website.
11
ITEM 1A. RISK FACTORS
Set forth below are the risks that we believe are material to our investors. This section contains forward-looking statements. You
should refer to the explanation of the qualifications and limitations on forward-looking statements beginning on page 4.
Risks Related to Real Estate
Unfavorable market and economic conditions in the United States and globally and in the specific markets or submarkets
where our properties are located could adversely affect occupancy levels, rental rates, rent collections, operating expenses, and the
overall market value of our assets, impair our ability to sell, recapitalize or refinance our assets and have an adverse effect on our
results of operations, financial condition and our ability to make distributions to our stockholders.
Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions in the United States and
globally may significantly affect our occupancy levels, rental rates, rent collections, operating expenses, the market value of our assets
and our ability to strategically acquire, dispose, recapitalize or refinance our properties on economically favorable terms or at all. Our
ability to lease our properties at favorable rates may be adversely affected by increases in supply of office space in our markets and is
dependent upon overall economic conditions, which are adversely affected by, among other things, job losses and unemployment
levels, recession, stock market volatility and uncertainty about the future. Some of our major expenses, including mortgage payments
and real estate taxes, generally do not decline when related rents decline. We expect that any declines in our occupancy levels, rental
revenues and/or the values of our buildings would cause us to have less cash available to pay our indebtedness, fund necessary capital
expenditures and to make distributions to our stockholders, which could negatively affect our financial condition and the market value
of our securities. Our business may be affected by the volatility and illiquidity in the financial and credit markets, a general global
economic recession and other market or economic challenges experienced by the real estate industry or the U.S. economy as a whole.
Our business may also be adversely affected by local economic conditions, as all of our revenues are derived from properties located
in New York City and San Francisco. Factors that may affect our occupancy levels, our rental revenues, our net operating income
(“NOI”), our funds from operations (“FFO”) and/or the value of our properties include the following, among others:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
downturns in global, national, regional and local economic conditions;
declines in the financial condition of our tenants, many of which are financial, legal and other professional firms, which may
result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or other reasons;
the inability or unwillingness of our tenants to pay rent increases;
significant job losses in the financial services, professional services and technology and media industries, which may
decrease demand for our office space, causing market rental rates and property values to be impacted negatively;
an oversupply of, or a reduced demand for, Class A office space;
changes in market rental rates in our markets;
changes in space utilization by our tenants due to technology, economic conditions and business culture; and
economic conditions that could cause an increase in our operating expenses, such as increases in property taxes (particularly
as a result of increased local, state and national government budget deficits and debt and potentially reduced federal aid to
state and local governments), utilities, insurance, compensation of on-site associates and routine maintenance.
All of our properties are located in New York City and San Francisco, and adverse economic or regulatory developments in
these areas could negatively affect our results of operations, financial condition and ability to make distributions to our
stockholders.
All of our properties are located in New York City and San Francisco. As a result, our business is dependent on the condition of
the economy in those cities, which may expose us to greater economic risks than if we owned a more geographically diverse portfolio.
We are susceptible to adverse developments in the New York City and San Francisco economic and regulatory environments (such as
business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, costs of
complying with governmental regulations or increased regulation). Such adverse developments could materially reduce the value of
our real estate portfolio and our rental revenues, and thus adversely affect our ability to service current debt and to pay dividends to
stockholders.
12
We are subject to risks inherent in ownership of real estate.
Real estate cash flows and values are affected by a number of factors, including competition from other available properties and
our ability to provide adequate property maintenance and insurance and to control operating costs. Real estate cash flows and values
are also affected by such factors as government regulations (including zoning, usage and tax laws), interest rate levels, the availability
of financing, property tax rates, utility expenses, potential liability under environmental and other laws and changes in environmental
and other laws.
A significant portion of our revenue is generated from three properties.
As of December 31, 2021, approximately 61% of our total consolidated revenue was generated from three of our properties –
1633 Broadway, 1301 Avenue of the Americas and One Market Plaza. Our results of operations and cash available for distribution to
our stockholders would be adversely affected if any of these properties were materially damaged or destroyed. Additionally, our
results of operations and cash available for distribution to our stockholders would be adversely affected if a significant number of our
tenants at these properties experienced a downturn in their business, which may weaken their financial condition and result in their
failure to make timely rental payments, defaulting under their leases or filing for bankruptcy.
We may be unable to renew leases, lease currently vacant space or vacating space on favorable terms or at all as leases expire,
which could adversely affect our financial condition, results of operations and cash flow.
As of December 31, 2021, the vacancy rate of our portfolio (at our share) was 9.3%. During 2022, 300,849 square feet (at our
share), or about 3.4% of the square footage of our portfolio (at our share) is scheduled to expire, which represents approximately 3.5%
of our annualized rents. This includes 81,432 square feet at 60 Wall Street (which represents our 5.0% share of the 1,625,483 square
feet Deutsche Bank lease) that will be taken “out-of-service” for redevelopment upon the expiration of the lease in June of 2022. We
cannot guarantee you that the expiring leases will be renewed or that our properties will be re-leased at rental rates equal to or above
current rental rates. If the rental rates of our properties decrease, our existing tenants do not renew their leases or we do not re-lease a
significant portion of our available and soon-to-be-available space, our financial condition, results of operations, cash flow, market
value of common stock and our ability to satisfy our principal and interest obligations and to make distributions to our stockholders
would be adversely affected.
We are exposed to risks associated with property redevelopment and repositioning that could adversely affect us, including our
financial condition and results of operations.
To the extent that we continue to engage in redevelopment and repositioning activities with respect to our properties, we will be
subject to certain risks, which could adversely affect us, including our financial condition and results of operations. These risks
include, without limitation, (i) the availability and pricing of financing on favorable terms or at all; (ii) the availability and timely
receipt of zoning and other regulatory approvals; (iii) the potential for the fluctuation of occupancy rates and rents at redeveloped
properties, which may result in our investment not being profitable; (iv) start up, repositioning and redevelopment costs may be higher
than anticipated; (v) cost overruns and untimely completion of construction (including risks beyond our control, such as weather or
labor conditions, or material shortages); (vi) the potential that we may fail to recover expenses already incurred if we abandon
development or redevelopment opportunities after we begin to explore them; (vii) the potential that we may expend funds on and
devote management time to projects which we do not complete; (viii) the inability to complete construction and leasing of a property
on schedule, resulting in increased debt service expense and construction or redevelopment costs; and (ix) the possibility that
properties will be leased at below expected rental rates. These risks could result in substantial unanticipated delays or expenses and
could prevent the initiation or the completion of redevelopment activities, any of which could have an adverse effect on our financial
condition, results of operations, cash flow, the market value of our common stock and ability to satisfy our principal and interest
obligations and to make distributions to our stockholders.
13
We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in
order to retain and attract tenants, which could adversely affect us, including our financial condition, results of operations and
cash flow.
In the event that there are adverse economic conditions in the real estate market and demand for office space decreases, with
respect to our current vacant space and upon expiration of leases at our properties, we may be required to increase tenant improvement
allowances or concessions to tenants, accommodate increased requests for renovations, build-to-suit remodeling and other
improvements or provide additional services to our tenants, all of which could negatively affect our cash flow. If the necessary capital
is unavailable, we may be unable to make these significant capital expenditures. This could result in non-renewals by tenants upon
expiration of their leases and our vacant space remaining untenanted, which could adversely affect our financial condition, results of
operations, cash flow and market value of our common stock.
We depend on significant tenants in our office portfolio, which could cause an adverse effect on us, including our results of
operations and cash flow, if any of our significant tenants were adversely affected by a material business downturn or were to
become bankrupt or insolvent.
Our rental revenue depends on entering into leases with and collecting rents from tenants. While no single tenant accounts for
more than 10% of our rental revenue, our six largest tenants in the aggregate account for approximately 25% of our share of rental
revenue. General and regional economic conditions may adversely affect our major tenants and potential tenants in our markets. Our
major tenants may experience a material business downturn, which could potentially result in a failure to make timely rental payments
and/or a default under their leases. In many cases, through tenant improvement allowances and other concessions, we have made
substantial upfront investments in the applicable leases that we may not be able to recover. In the event of a tenant default, we may
experience delays in enforcing our rights and may also incur substantial costs to protect our investments.
The bankruptcy or insolvency of a major tenant or lease guarantor may adversely affect the income produced by our properties
and may delay our efforts to collect past due balances under the relevant leases and could ultimately preclude collection of these sums
altogether. If a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages that is limited
in amount and which may only be paid to the extent that funds are available and in the same percentage as is paid to all other holders
of unsecured claims.
If any of our significant tenants were to become bankrupt or insolvent, suffer a downturn in their business, default under their
leases, fail to renew their leases or renew on terms less favorable to us than their current terms, our results of operations and cash flow
could be adversely affected.
We may be adversely affected by trends in the office real estate industry, including telecommuting, flexible work schedules,
open workplaces and teleconferences.
Telecommuting, flexible work schedules, open workplaces, teleconferencing and video-conferencing are becoming more
common, including due to the impact of the COVID-19 pandemic. These practices enable businesses to reduce their space
requirements. There is also an increasing trend among some businesses to utilize shared office spaces and co-working spaces. A
continuation of the movement towards these practices could over time erode the overall demand for office space and, in turn, place
downward pressure on occupancy, rental rates and property valuations.
Real estate investments are relatively illiquid and may limit our flexibility.
Equity real estate investments are relatively illiquid, which may tend to limit our ability to react promptly to changes in economic
or other market conditions. Our ability to dispose of assets in the future will depend on prevailing economic and market conditions.
Our inability to sell our properties on favorable terms or at all could have an adverse effect on our sources of working capital and our
ability to satisfy our debt obligations. In addition, real estate can at times be difficult to sell quickly at prices we find acceptable. The
Internal Revenue Code of 1986, as amended the (“Code”), also imposes restrictions on REITs, which are not applicable to other types
of real estate companies, on the disposal of properties. Furthermore, we will be subject to U.S. federal income tax at the highest
regular corporate rate, which is currently 21%, on certain built-in gains recognized in connection with a taxable disposition of any
asset we acquire from a C corporation in a transaction in which our basis in such asset is determined by reference to the basis of the
asset in the hands of the C corporation for a period of up to 5 years following the acquisition of such asset, which may make an
otherwise attractive disposition opportunity less attractive or even impractical. These potential difficulties in selling real estate in our
markets may limit our ability to change or reduce the office buildings in our portfolio promptly in response to changes in economic or
other conditions.
14
Competition could limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities,
which may adversely affect us, including our profitability and impede our growth.
We compete with numerous commercial developers, real estate companies and other owners of real estate for office buildings for
acquisition and pursuing buyers for dispositions. We expect that other real estate investors, including insurance companies, private
equity funds, sovereign wealth funds, pension funds, other REITs and other well-capitalized investors will compete with us to acquire
existing properties and to develop new properties. Our markets are each generally characterized by high barriers-to-entry to
construction and limited land on which to build new office space, which contributes to the competition we face to acquire existing
properties and to develop new properties in these markets. This competition could increase prices for properties of the type we may
pursue and adversely affect our profitability and impede our growth.
We are subject to losses that are either uninsurable, not economically insurable or that are in excess of our insurance
coverage.
Our San Francisco properties are located in the general vicinity of active earthquake faults. Our New York City properties are
located in areas that could be subject to windstorm losses. Insurance coverage for earthquakes and windstorms can be costly because
of limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that
insurance is not available or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. In
addition, our properties may be subject to a heightened risk of terrorist attacks. We carry commercial general liability insurance,
property insurance and both domestic and foreign terrorism insurance with respect to our properties with limits and on terms we
consider commercially reasonable. We cannot assure you, however, that our insurance coverage will be sufficient or that any
uninsured loss or liability will not have an adverse effect on our business and our financial condition and results of operations in the
event of a catastrophic loss event. See “Business – Insurance.”
We carry both domestic and foreign terrorism insurance as an inclusion in our property policies for which our carriers may rely,
in part for foreign acts of terrorism, on support from the federal government’s Terrorism Risk Insurance Program Reauthorization Act
of 2019 (“TRIPRA”).
We are subject to risks from natural disasters such as earthquakes and severe weather.
Natural disasters and severe weather such as earthquakes, tornadoes, hurricanes or floods may result in significant damage to our
properties. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity
of the event and the total amount of exposure in the affected area. When we have geographic concentration of exposures, a single
catastrophe (such as an earthquake, especially in the San Francisco Bay Area) or destructive weather event (such as a hurricane,
especially in New York City) affecting a region may have a significant negative effect on our financial condition and results of
operations. As a result, our operating and financial results may vary significantly from one period to the next. Our financial results
may be adversely affected by our exposure to losses arising from natural disasters or severe weather. We also are exposed to risks
associated with inclement winter weather, particularly in the Northeast states in which many of our properties are located, including
increased need for maintenance and repair of our buildings.
Climate change may adversely affect our business.
To the extent that climate change occurs, there are multiple scenarios where our business could be impacted. Climate change
could lead to, among other effects in our target markets, rising sea levels, extreme weather, increased flooding, and changes in
precipitation and temperature. Any of these developments could result in physical damage or a decrease in rent from, and the value of,
our properties located in the areas affected by these conditions. We own a number of assets in low-lying areas close to sea level,
making those assets, and the economies in which they reside, susceptible to adverse effects from a rise in sea level and any associated
increase in episodic storm surges. If sea levels near our target markets were to rise, we may incur material costs to protect our low-
lying assets or sustain damage, a decrease in demand for or total loss to those assets.
We have performed a preliminary analysis using a third-party model to understand the direct impact to our existing properties in a
scenario where global warming increases average temperatures worldwide by two degrees Celsius (the “2⁰ scenario”), a goal aligned
with the Paris Agreement, the United Nations framework convention on climate change. Based on this preliminary analysis, we
believe that essentially all of our properties in New York City would remain above sea level, but that several of our properties in San
Francisco may not, in the absence of mitigating actions. Given that there is a lag in timing between carbon release into the atmosphere
and global warming, which ultimately would result in a potential rise in sea level, reputable models predict that the actual rise in sea
level of that magnitude seems unlikely to occur until after the turn of this century, and perhaps much longer depending on various
assumptions and mitigating factors that one considers – for example, the rate of melt for known glaciers and the Greenland and West
Antarctic Ice Sheets; whether proposals to erect local sea walls in both New York City and San Francisco gain additional traction and
funding and are ultimately successful, and the potential for new discoveries.
15
Even where a property is not directly impacted by such a projected rise in sea levels, there would likely be significant disruptions
to the local economies where our properties are located because other substantial areas of these coastal cities could be below sea level
and the transportation systems that are vital to service CBDs could also be adversely impacted, both by the eventual rise in maximum
sea level but also by episodic storm surges and other events in the decades prior to that time.
The jurisdictions where we operate have made formal public commitments to, and/or have additional legislation pending that will
increase commitments to, carbon reduction aligned with the goal to keep global warming in line with the 2⁰ scenario or similar
scenarios and have begun to take steps to enforce these commitments by regulation on building efficiency and/or mandated purchase
of renewable energy. These and similar changes in federal and state legislation and regulation on climate change could result in
increased capital expenditures to, among other things, improve the energy efficiency of our existing properties in order to comply with
such regulations.
Should the impact of climate change be material in nature or occur for lengthy periods of time, our financial condition or results
of operations would be adversely affected.
Terrorist attacks and/or shooting incidents may adversely affect our ability to generate revenues and the value of our
properties.
We have significant investments in large metropolitan markets, including New York City and San Francisco that have been or
may be in the future the targets of actual or threatened terrorism attacks and/or shooting incidents. As a result, some tenants in these
markets may choose to relocate their businesses to other markets or to lower-profile office buildings within these markets that may be
perceived to be less likely targets of future terrorist activity. This could result in an overall decrease in the demand for office space in
these markets generally or in our properties in particular, which could increase vacancies in our properties or necessitate that we lease
our properties on less favorable terms or both. In addition, future terrorist attacks in these markets could directly or indirectly damage
our properties, both physically and financially, or cause losses that materially exceed our insurance coverage. As a result of the
foregoing, our ability to generate revenues and the value of our properties could decline materially. See also “We are subject to losses
that are either uninsurable, not economically insurable or that are in excess of our insurance coverage.”
We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control and
similar requirements.
Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the
Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”)
from conducting business or engaging in transactions in the United States and thereby restricts our doing business with such
persons. We are required to comply with OFAC and related requirements and may be required to terminate or otherwise amend our
leases, loans and other agreements. If a tenant or other party with whom we conduct business is placed on the OFAC list or is
otherwise a party with which we are prohibited from doing business, we may be required to terminate the lease or other
agreement. Any such termination could result in a loss of revenue or otherwise negatively affect our financial results and cash flows.
We may become subject to liability relating to environmental and health and safety matters, which could have an adverse
effect on us, including our financial condition and results of operations.
Under various federal, state and/or local laws, ordinances and regulations, as a current or former owner or operator of real
property, we may be liable for costs and damages resulting from the presence or release of hazardous substances, waste, or petroleum
products at, on, in, under or from such property, including costs for investigation or remediation, natural resource damages, or third-
party liability for personal injury or property damage. These laws often impose liability without regard to whether the owner or
operator knew of, or was responsible for, the presence or release of such materials, and the liability may be joint and several. Some of
our properties have been or may be impacted by contamination arising from current or prior uses of the property or from adjacent
properties used for commercial, industrial or other purposes. Such contamination may arise from spills of petroleum or hazardous
substances or releases from tanks used to store such materials. We also may be liable for the costs of remediating contamination at off-
site disposal or treatment facilities when we arrange for disposal or treatment of hazardous substances at such facilities, without regard
to whether we comply with environmental laws in doing so. The presence of contamination or the failure to remediate contamination
on our properties may adversely affect our ability to attract and/or retain tenants and our ability to develop or sell or borrow against
those properties. In addition to potential liability for cleanup costs, private plaintiffs may bring claims for personal injury, property
damage or for similar reasons. Environmental laws also may create liens on contaminated sites in favor of the government for
damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental
laws may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property.
16
In addition, our properties are subject to various federal, state and local environmental and health and safety laws and regulations.
Noncompliance with these environmental and health and safety laws and regulations could subject us or our tenants to liability. These
liabilities could affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential costs of
compliance with such laws and regulations or increase liability for noncompliance. This may result in significant unanticipated
expenditures or may otherwise adversely affect our operations, or those of our tenants, which could in turn have an adverse effect on
us.
As the owner or operator of real property, we may also incur liability based on various building conditions. For example,
buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may
contain, or may have contained Asbestos-Containing Material (“ACM”). Environmental and health and safety laws require that ACM
be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with
those requirements. These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be
disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be
subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the
environment.
In addition, our properties may contain or develop harmful mold or suffer from other indoor air quality issues. Indoor air quality
issues also can stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological
contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants can be alleged to cause a variety of
adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other
airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the
mold or other airborne contaminants or to increase ventilation. In addition, the presence of significant mold or other airborne
contaminants could expose us to liability from our tenants or others if property damage or personal injury occurs.
We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make
distributions to our stockholders or that such costs, liabilities, or other remedial measures will not have an adverse effect on our
financial condition and results of operations.
We may incur significant costs complying with the Americans with Disabilities Act of 1990, (the “ADA”), and similar laws,
which could adversely affect us, including our future results of operations and cash flow.
Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. We
have not conducted a recent audit or investigation of all of our properties to determine our compliance with the ADA. If one or more
of our properties were not in compliance with the ADA, then we could be required to incur additional costs to bring the property into
compliance. Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate
our properties. We cannot predict the ultimate amount of the cost of compliance with the ADA or similar laws. Substantial costs
incurred to comply with the ADA and any other legislation could adversely affect us, including our future results of operations and
cash flow.
We may be unable to identify and successfully complete acquisitions and, even if acquisitions are identified and completed, we
may fail to successfully operate acquired properties, which could adversely affect us and impede our growth.
Our ability to identify and acquire properties on favorable terms and successfully operate or redevelop them may be exposed to
significant risks. Agreements for the acquisition of properties are subject to customary conditions to closing, including completion of
due diligence investigations and other conditions that are not within our control, which may not be satisfied. In this event, we may be
unable to complete an acquisition after incurring certain acquisition-related costs. In addition, if mortgage debt is unavailable at
reasonable rates, we may be unable to finance the acquisition on favorable terms in the time period we desire, or at all. We may spend
more than budgeted to make necessary improvements or renovations to acquired properties and may not be able to obtain adequate
insurance coverage for new properties. Further, acquired properties may be located in new markets where we may face risks
associated with a lack of market knowledge or understanding of the local economy, lack of business relationships in the area and
unfamiliarity with local governmental and permitting procedures. We may also be unable to integrate new acquisitions into our
existing operations quickly and efficiently, and as a result, our results of operations and financial condition could be adversely
affected. Further, we may incur significant costs and divert management attention in connection with evaluating and negotiating
potential acquisitions, including ones that we are subsequently unable to complete. Any delay or failure on our part to identify,
negotiate, finance and consummate such acquisitions in a timely manner and on favorable terms, or operate acquired properties to
meet our financial expectations, could impede our growth and have an adverse effect on us, including our financial condition, results
of operations, cash flow and the market value of our securities.
17
Should we decide at some point in the future to expand into new markets, we may not be successful, which could adversely
affect our financial condition, results of operations, cash flow and market value of our securities.
If opportunities arise, we may explore acquisitions of properties in new markets. Each of the risks applicable to our ability to
acquire and integrate successfully and operate properties in our current markets is also applicable in new markets. In addition, we will
not possess the same level of familiarity with the dynamics and market conditions of the new markets we may enter, which could
adversely affect the results of our expansion into those markets, and we may be unable to build a significant market share or achieve
our desired return on our investments in new markets. If we are unsuccessful in expanding into new markets, it could adversely affect
our financial condition, results of operations, cash flow, the market value of our securities and ability to satisfy our principal and
interest obligations and to make distributions to our stockholders.
We are subject to risks involved in real estate activity through joint ventures and private equity real estate funds.
We have in the past, are currently and may in the future acquire and own properties in joint ventures and private equity real estate
funds with other persons or entities when we believe circumstances warrant the use of such structures. Joint venture and fund
investments involve risks, including: the possibility that our partners might refuse to make capital contributions when due; that we
may be responsible to our partners for indemnifiable losses; that our partners might at any time have business or economic goals that
are inconsistent with ours; and that our partners may be in a position to take action or withhold consent contrary to our
recommendations, instructions or requests. We and our respective joint venture partners may each have the right to trigger a buy-sell,
put right or forced sale arrangement, which could cause us to sell our interest, or acquire our partner’s interest, or to sell the underlying
asset, at a time when we otherwise would not have initiated such a transaction, without our consent or on unfavorable terms. In some
instances, joint venture and fund partners may have competing interests in our markets that could create conflicts of interest. These
conflicts may include compliance with the REIT requirements, and our REIT status could be jeopardized if any of our joint ventures
or funds does not operate in compliance with the REIT requirements. Further, our joint venture and fund partners may fail to meet
their obligations to the joint venture or fund as a result of financial distress or otherwise, and we may be forced to make contributions
to maintain the value of the property. We will review the qualifications and previous experience of any co-venturers or partners,
although we do not expect to obtain financial information from, or to undertake independent investigations with respect to, prospective
co-venturers or partners. To the extent our partners do not meet their obligations to us or our joint ventures or funds or they take action
inconsistent with the interests of the joint venture or fund, we may be adversely affected.
Our joint venture partners in 712 Fifth Avenue, One Market Plaza, 300 Mission Street and 111 Sutter Street have forced sale
rights as a result of which we may be forced to sell these assets to third parties at times or prices that may not be favorable to us.
Our partners in the joint ventures that own 712 Fifth Avenue, One Market Plaza, 300 Mission Street and 111 Sutter Street have
forced sale rights pursuant to which, after a specified period, each may require us to sell the property to a third party. At any time on
or after (i) November 24, 2020, with respect to 712 Fifth Avenue, (ii) March 31, 2021, with respect to One Market Plaza, (iii) August
12, 2024, with respect to 300 Mission Street, and (iv) February 7, 2026, with respect to 111 Sutter Street, our joint venture partners
may exercise a forced sale right by delivering a written notice to us designating the sales price and other material terms and conditions
upon which our joint venture partner desires to cause a sale of the property. In the case of 712 Fifth Avenue, 300 Mission Street and
111 Sutter Street, upon receipt of such sales notice, we will have the obligation either to attempt to sell the property to a third party for
not less than 95.0% of the designated sales price or to elect to purchase the interest of our joint venture partner for cash at a price equal
to the amount our joint venture partner would have received if the property had been sold for the designated sales price (and the joint
venture paid any applicable financing breakage costs, transfer taxes, brokerage fees and marketing costs, prepaid all liquidated
liabilities of the joint venture and distributed the balance). In the case of One Market Plaza, upon exercise of forced sale right, we and
our joint venture partner have 60 days to negotiate a mutually agreeable transaction regarding the property. If we cannot mutually
agree upon a transaction, then we will work together in good faith to market the property in a commercially reasonable manner and
neither we nor our joint venture partner will be allowed to bid on the property. If our joint venture partner, after consultation with us
and a qualified broker, finds a third-party bid for the property acceptable, then the joint venture will cause the property to be sold. As a
result of these forced sale rights, our joint venture partners could require us to sell these properties to third parties at times or prices
that may not be favorable to us, which could adversely impact us.
18
Contractual commitments with existing private equity real estate funds and our investment club may limit our ability to
acquire properties, issue loans or invest in preferred equity directly in the near term.
Because of the limited exclusivity requirements of our private equity real estate funds, we may be required to acquire or issue
loans, or invest in preferred equity partially through these funds that we otherwise would have acquired solely through our operating
partnership, which may prevent our operating partnership from acquiring or issuing loans, or investing in preferred equity and
adversely affect our growth prospects. In connection with certain assets that we co-invest in with our private equity real estate funds,
specifically those where such funds owns a majority of the joint venture it is expected that such funds will have the authority, subject
to our consent in limited circumstances, to make most of the decisions in connection with such asset. Such authority in connection
with a co-investment could subject us to the applicable risks described above.
In addition, because of the exclusivity requirements of our strategic real estate co-investment platform (our investment club)
focused on acquiring real estate assets and/or real estate-related equity investments, we may be required to acquire properties through
this platform that we otherwise would have acquired through our operating partnership, which may prevent our operating partnership
from acquiring attractive investment opportunities and adversely affect our growth prospects. Alternatively, we may choose to co-
invest up to 51.0% of the equity required for any property alongside the third-party investors in this platform to the extent we
determine it is in our best interest. In connection with any property in which we co-invest, we will have the authority, subject to major
decision rights in favor of our joint venture partners, to make a majority of the decisions in connection with such property.
We share control of some of our properties with other investors and may have conflicts of interest with those investors.
While we make all operating decisions for certain of our joint ventures and private equity real estate funds, we are required to
make other decisions jointly with other investors who have interests in the relevant property or properties. For example, the approval
of certain of the other investors may be required with respect to operating budgets, including leasing decisions and refinancing,
encumbering, expanding or selling any of these properties, as well as bankruptcy decisions. We might not have the same interests as
the other investors in relation to these decisions or transactions. Accordingly, we might not be able to favorably resolve any of these
issues, or we might have to provide financial or other inducements to the other investors to obtain a favorable resolution.
In addition, various restrictive provisions and third-party rights provisions, such as consent rights to certain transactions, apply to
sales or transfers of interests in our properties owned in joint ventures. Consequently, decisions to buy or sell interests in properties
relating to our joint ventures may be subject to the prior consent of other investors. These restrictive provisions and third-party rights
may preclude us from achieving full value of these properties because of our inability to obtain the necessary consents to sell or
transfer these interests.
19
Risks Related to Our Business and Operations
COVID-19 or any future pandemic, epidemic or outbreak of infectious disease could have an adverse effect on our
performance, financial condition, results of operations and cash flows.
In March 2020, the World Health Organization declared 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.
COVID-19 or any future pandemic, epidemic or outbreak of infectious disease may have the effect of heightening many of the
risks described herein and our and our tenants’ businesses could be adversely impacted by COVID-19 due to, among other factors:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
reduced economic activity impacting the businesses, financial condition and liquidity of our tenants, which could cause our
tenants to be unable to meet their obligations to us, including their ability to make rental payments, in full, or at all, or to
otherwise seek modifications of such obligations, including rent concessions, deferrals or abatements, or to declare
bankruptcy;
our inability to renew leases, lease vacant space or re-lease space as leases expire on favorable terms, or at all, which could
cause a decline in our receipt of rental payments;
adaptions made by companies in response to “stay-at-home” orders and future limitations on in-person work environments
could lead to a sustained shift away from in-person work environments and have an adverse effect on the overall demand for
office space across our portfolio;
a general decline in business activity and demand for real estate transactions (including a related decrease in value of the
underlying real estate), which could adversely affect our ability or desire to make strategic acquisitions or dispositions;
difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global
financial markets or deteriorations in credit and financing conditions may affect our and our tenants' ability to access capital
necessary to fund business activities and repayment of debt on a timely basis, and may adversely affect our ability to meet
liquidity and capital expenditure requirements; and
a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or
tenant action, which could adversely affect our operations and those of our tenants.
The full extent of the impact and effects of COVID-19 on our future financial performance, as a whole, and, specifically, on our
tenants and their businesses, are uncertain at this time. The impact of COVID-19 or any future pandemic, epidemic or outbreak of
infectious disease will depend on, among other factors, the duration and spread of the outbreak, related travel advisories and
restrictions, the impact of vaccines and the accessibility of liquidity and to the capital markets. COVID-19 and any future pandemic,
epidemic or outbreak of infectious disease present uncertainty and risk and may have a material adverse effect on our performance,
financial condition, results of operations and cash flows.
20
Capital and credit market conditions may adversely affect our access to various sources of capital or financing and/or the cost
of capital, which could impact our business activities, dividends, earnings and common stock price, among other things.
In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital available
to us may be adversely affected. We primarily use third-party financing to fund acquisitions and to refinance indebtedness as it
matures. As of December 31, 2021, including debt of our unconsolidated joint ventures, we had $5.5 billion of total debt, of which our
share is $3.7 billion, all of which was secured debt, and we have $750.0 million of available borrowing capacity under our unsecured
revolving credit facility. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to
limit our acquisition, development and redevelopment activity and/or take other actions to fund our business activities and repayment
of debt, such as selling assets, reducing our cash dividend or paying out less than 100% of our taxable income. To the extent that we
are able and/or choose to access capital at a higher cost than we have experienced in recent years (reflected in higher interest rates for
debt financing or a lower stock price for equity financing) our earnings per share and cash flow could be adversely affected. In
addition, the price of our common stock may fluctuate significantly and/or decline in a high interest rate or volatile economic
environment. If economic conditions deteriorate, the ability of lenders to fulfill their obligations under working capital or other credit
facilities that we may have in the future may be adversely impacted.
We may from time to time be subject to litigation which could have an adverse effect on our financial condition, results of
operations, cash flow and trading price of our common stock.
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, 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. 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.
We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire for which we may
have limited or no recourse against the sellers.
Assets and entities that we have acquired or may acquire in the future may be subject to unknown or contingent liabilities for
which we may have limited or no recourse against the sellers, including, as relevant, assets and entities acquired from our Predecessor
as part of the Formation Transactions. Unknown or contingent liabilities might include liabilities for clean-up or remediation of
environmental conditions, claims of customers, vendors or other persons dealing with the acquired entities, tax liabilities and other
liabilities whether incurred in the ordinary course of business or otherwise. In the future we may enter into transactions with limited
representations and warranties or with representations and warranties that do not survive the closing of the transactions, in which event
we would have no or limited recourse against the sellers of such properties. While we usually require the sellers to indemnify us with
respect to breaches of representations and warranties that survive, such indemnification is often limited and subject to various
materiality thresholds, a significant deductible or an aggregate cap on losses, or a time limit.
As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their
representations and warranties. In addition, the total amount of costs and expenses that we may incur with respect to liabilities
associated with acquired properties and entities may exceed our expectations, which may adversely affect our business, financial
condition and results of operations. Finally, indemnification agreements between us and the sellers typically provide that the sellers
will retain certain specified liabilities relating to the assets and entities acquired by us. While the sellers are generally contractually
obligated to pay all losses and other expenses relating to such retained liabilities, there can be no guarantee that such arrangements
will not require us to incur losses or other expenses as well.
21
Extensive regulation of our investment management businesses affects our activities and creates the potential for significant
liabilities and penalties, and increased regulatory focus could result in additional burdens on this business.
Our investment management business is subject to extensive regulation, including periodic examinations and investigations, by
governmental agencies in the jurisdictions in which we operate or raise capital. These authorities have regulatory powers dealing with
many aspects of our investment management business, including the authority to grant, and in specific circumstances to cancel,
permissions to carry on particular activities. These regulations are extensive, complex and require substantial management time and
attention. In particular, two of our subsidiaries, Paramount Group Real Estate Advisor LLC and Paramount Group Real Estate
Advisor II, LP, are registered with the SEC as investment advisers under the U.S. Investment Advisers Act of 1940 (the “Advisers
Act”), and have been, and may in the future be, registered in certain jurisdictions as non-EU alternative investment fund managers of
non-EU alternative investment funds under the Alternative Investment Fund Managers Directive, 2011/61/EU, and various local
European laws implementing this directive (collectively, the “AIFMD”). Such registration results in certain aspects of our investment
management business being supervised by the SEC, and subject to regulation or reporting requirements by the regulatory bodies of the
countries where our subsidiaries are currently, and may in the future be, registered in pursuant to the AIFMD. Our investment
management business is also subject to notification of sales activities for one of our managed funds in Germany, and may in the future
become subject to notification of sales activities for our other managed funds in Germany or other countries, the Bundesanstalt fuer
Finanzdiensleistungsaufsicht, Germany’s Federal Financial Supervisory Authority (“BaFin”), or other foreign regulators. The
Advisers Act, in particular, requires registered investment advisers to comply with numerous obligations, including compliance,
record-keeping, operating and marketing requirements, disclosure obligations and limitations on certain activities. Investment advisers
also owe fiduciary duties to their clients. These regulatory and fiduciary obligations may result in increased costs or administrative
burdens or otherwise adversely impact our business, including by preventing us from recommending investment opportunities that
otherwise meet the respective investment criteria of us or our funds.
Many of these regulators, including U.S. and foreign government agencies, as well as state securities commissions, are also
empowered to conduct investigations and administrative proceedings that can result in fines, compensatory payments, suspensions of
personnel, changes in policies, procedures or disclosure or other sanctions, including censure, the issuance of cease-and-desist orders,
the suspension or expulsion of an investment adviser from registration or memberships or the commencement of a civil or criminal
lawsuit against us or our personnel. Moreover, the financial services industry has been the subject of heightened scrutiny, and the SEC
has specifically focused on private equity fund managers. In that regard, the SEC’s list of examination priorities includes, among other
things, collection of fees and allocation of expenses, marketing and valuation practices, allocation of investment opportunities, and
appropriate management of other conflicts of interest such as related party sales, loans or co-investments, by these fund managers. We
may, from time to time, be subject to requests for information or informal or formal investigations by the SEC and other regulatory
authorities, and, in the current environment, even historical practices that have been previously examined are being revisited. Even if
an investigation or proceeding does not result in a sanction or the sanction imposed against us or our personnel by a regulator is small
in monetary amount, the adverse publicity relating to the investigation, proceeding or imposition of these sanctions could harm our
reputation and cause us to lose existing clients or fail to gain new investors.
We cannot predict the impact future actions by regulators or government bodies, including the U.S. Federal Reserve, will have
on real estate debt markets or on our business, and any such actions may negatively impact us.
Regulators and U.S. government bodies have a major impact on our business. The U.S. Federal Reserve is a major participant in,
and its actions significantly impact, the commercial real estate debt markets. If the U.S. Federal Reserve attempts to raise interest rates,
this could increase the cost of borrowing, which could limit our flexibility. This may result in future acquisitions by us generating
lower overall economic returns and increasing the costs associated with refinancing current debt, which could potentially reduce future
cash flow available for distribution. We cannot predict or control the impact future actions by regulators or government bodies, such
as the U.S. Federal Reserve, will have on our business.
22
Risks Related to Our Organization and Structure
The ability of stockholders to control our policies and effect a change of control of our company is limited by certain
provisions of our charter and bylaws and by Maryland law.
There are provisions in our charter and bylaws that may discourage a third party from making a proposal to acquire us, even if
some of our stockholders might consider the proposal to be in their best interests. These provisions include the following:
Our charter authorizes our board of directors, without stockholder approval, to amend our charter to increase or decrease the
aggregate number of authorized shares of stock, to authorize us to issue additional shares of our common stock or preferred stock and
to classify or reclassify unissued shares of our common stock or preferred stock and thereafter to authorize us to issue such classified
or reclassified shares of stock. We believe these charter provisions provide us with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs that might arise. The additional classes or series, as well as the additional
authorized shares of our common stock, are available for issuance without further action by our stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated quotation system on which our securities are listed or
traded. Although our board of directors does not currently intend to do so, it could authorize us to issue a class or series of stock that
could, depending upon the terms of the particular class or series, delay, defer or prevent a transaction or a change of control of our
company that might involve a premium price for holders of our common stock or that our common stockholders otherwise believe to
be in their best interests.
In order to qualify as a REIT, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities such as private foundations) at any time during the last half of
any taxable year other than our first REIT taxable year. In order to help us qualify as a REIT, our charter generally prohibits any
person or entity from actually owning or being deemed to own by virtue of the applicable constructive ownership provisions, (i) more
than 6.50% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of our common stock or (ii) more
than 6.50% in value of the aggregate of the outstanding shares of all classes and series of our stock, in each case, excluding any shares
of our stock not treated as outstanding for U.S. federal income tax purposes. We refer to these restrictions as the “ownership limits.” In
connection with the Formation Transactions and the concurrent private placement to certain members of the Otto family and their
affiliates, our board of directors granted waivers to the lineal descendants of Professor Dr. h.c. Werner Otto, their spouses and
controlled entities to own stock in excess of the ownership limits (which waiver currently allows them to own up to 21.0% of our
outstanding common stock in the aggregate, which can be automatically increased to an amount greater than 21.0% to the extent that
their aggregate ownership exceeds such percentage solely as a result of a repurchase by the company of its common stock). The term
the “Otto family” refers to the lineal descendants and the surviving former spouse of the late Professor Dr. h.c. Werner Otto. Our
charter also contains a “foreign ownership limit.” The foreign ownership limit is intended to help us qualify as a “domestically
controlled qualified investment entity.” The foreign ownership limit contained in our charter prohibits persons from directly or
indirectly owning shares of our capital stock to the extent such ownership would cause more than 49.8% of the value of the shares of
our capital stock to be owned, directly or indirectly, by Non-U.S. Persons. For this purpose, a “Non-U.S. Person” is defined as a
person other than a “United States person,” as defined in Section 7701(a)(30) of the Code, and it includes a “foreign person” as such
term is used in the provision of the Code defining a domestically controlled qualified investment entity. The ownership limits and the
foreign ownership limit may prevent or delay a change in control and, as a result, could adversely affect our stockholders’ ability to
realize a premium for their shares of our common stock.
In addition, certain provisions of the Maryland General Corporation Law (“MGCL”), may have the effect of inhibiting a third
party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the
holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares,
including the Maryland business combination and control share provisions.
As permitted by the MGCL, our board of directors adopted a resolution exempting any business combinations between us and any
other person or entity from the business combination provisions of the MGCL. Our bylaws provide that this resolution or any other
resolution of our board of directors exempting any business combination from the business combination provisions of the MGCL may
only be revoked, altered or amended, and our board of directors may only adopt any resolution inconsistent with any such resolution
(including an amendment to that bylaw provision), which we refer to as an opt in to the business combination provisions, with the
affirmative vote of a majority of the votes cast on the matter by holders of outstanding shares of our common stock. In addition, as
permitted by the MGCL, our bylaws contain a provision exempting from the control share acquisition provisions of the MGCL any
and all acquisitions by any person of shares of our stock. This bylaw provision may be amended, which we refer to as an opt in to the
control share acquisition provisions, only with the affirmative vote of a majority of the votes cast on such an amendment by holders of
outstanding shares of our common stock.
23
Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently
provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board or increasing the vote
required to remove a director. Such takeover defenses may have the effect of inhibiting a third party from making an acquisition
proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide
our common stockholders with the opportunity to realize a premium over the then current market price.
In addition, the provisions of our charter on the removal of directors and the advance notice provisions of our bylaws, among
others, could delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for
holders of our common stock or otherwise be in their best interest.
Each item discussed above may delay, deter or prevent a change in control of our company, even if a proposed transaction is at a
premium over the then-current market price for our common stock. Further, these provisions may apply in instances where some
stockholders consider a transaction beneficial to them. As a result, our stock price may be negatively affected by these provisions.
Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders
of common units, which may impede business decisions that could benefit our stockholders.
Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one
hand, and our operating partnership or any of its partners, on the other. Our directors and officers have duties to our company under
Maryland law in connection with their management of our company. At the same time, we have duties and obligations to our
operating partnership and its limited partners under Delaware law as modified by the partnership agreement of our operating
partnership in connection with the management of our operating partnership as the sole general partner. The limited partners of our
operating partnership expressly acknowledge that the general partner of our operating partnership acts for the benefit of our operating
partnership, the limited partners and our stockholders collectively. When deciding whether to cause our operating partnership to take
or decline to take any actions, the general partner will be under no obligation to give priority to the separate interests of (i) the limited
partners of our operating partnership (including, without limitation, the tax interests of our limited partners, except as provided in a
separate written agreement) or (ii) our stockholders. Nevertheless, the duties and obligations of the general partner of our operating
partnership may come into conflict with the duties of our directors and officers to our company and our stockholders.
If there are deficiencies in our disclosure controls and procedures or internal control over financial reporting, we may be
unable to accurately present our financial statements, which could materially and adversely affect us, including our business,
reputation, results of operations, financial condition or liquidity.
As a publicly-traded company, we are required to report our financial statements on a consolidated basis. Effective internal
controls are necessary for us to accurately report our financial results. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to
evaluate and report on our internal control over financial reporting and have our independent registered public accounting firm issue
an opinion with respect to the effectiveness of our internal control over financial reporting. There can be no guarantee that our internal
control over financial reporting will be effective in accomplishing all control objectives all of the time. Furthermore, as we grow our
business, our internal controls will become more complex, and we may require significantly more resources to ensure our internal
controls remain effective. Deficiencies, including any material weakness, in our internal control over financial reporting which may
occur in the future could result in misstatements of our results of operations that could require a restatement, failing to meet our public
company reporting obligations and causing investors to lose confidence in our reported financial information. These events could
materially and adversely affect us, including our business, reputation, results of operations, financial condition or liquidity.
24
Risks Related to Our Indebtedness and Financing
We have a substantial amount of indebtedness that may limit our financial and operating activities and may adversely affect
our ability to incur additional debt to fund future needs.
We have a substantial amount of indebtedness. Payments of principal and interest on borrowings may leave us with insufficient
cash resources to operate our properties, fully implement our capital expenditure, acquisition and redevelopment activities, or meet the
REIT distribution requirements imposed by the Code. Our level of debt and the limitations imposed on us by our debt agreements
could have significant adverse consequences, including the following:
(cid:3)
require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on,
indebtedness, thereby reducing the funds available for other purposes;
(cid:3) make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things,
adversely affect our ability to meet operational needs;
(cid:3)
force us to dispose of one or more of our properties, possibly on unfavorable terms (including the possible application of the
100% tax on income from prohibited transactions, discussed below in “We may be subject to a 100% penalty tax on any
prohibited transactions that we enter into, or may be required to forego certain otherwise beneficial opportunities in order to
avoid the penalty tax on prohibited transactions” or in violation of certain covenants to which we may be subject;
(cid:3)
subject us to increased sensitivity to interest rate increases;
(cid:3) make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events;
(cid:3)
(cid:3)
(cid:3)
(cid:3)
limit our ability to withstand competitive pressures;
limit our ability to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our
original indebtedness;
reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or
place us at a competitive disadvantage to competitors that have relatively less debt than we have.
If any one of these events were to occur, our financial condition, results of operations, cash flow and trading price of our common
stock could be adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which
could hinder our ability to meet the REIT distribution requirements imposed by the Code.
We may not have sufficient cash flow to meet the required payments of principal and interest on our debt or to pay
distributions on our shares at expected levels.
In the future, our cash flow could be insufficient to meet required payments of principal and interest or to pay distributions on our
shares at expected levels. In this regard, we note that in order for us to continue to qualify as a REIT, we are required to make annual
distributions generally equal to at least 90% of our taxable income, computed without regard to the dividends paid deduction and
excluding net capital gain. In addition, as a REIT, we are subject to U.S. federal income tax to the extent that we distribute less than
100% of our taxable income (including capital gains) and are subject to a 4% nondeductible excise tax on the amount by which our
distributions in any calendar year are less than a minimum amount specified by the Code. These requirements and considerations may
limit the amount of our cash flow available to meet required principal and interest payments.
If we are unable to make required payments on indebtedness that is secured by a mortgage on our property, the asset may be
transferred to the lender with a consequent loss of income and value to us, including adverse tax consequences related to such a
transfer.
25
Our debt agreements include restrictive covenants, requirements to maintain financial ratios and default provisions which
could limit our flexibility, our ability to make distributions and require us to repay the indebtedness prior to its maturity.
The mortgages on our properties contain customary negative covenants that, among other things, limit our ability, without the
prior consent of the lender, to further mortgage the property and to reduce or change insurance coverage. Additionally, our debt
agreements contain customary covenants that, among other things, restrict our ability to incur additional indebtedness and, in certain
instances, restrict our ability to engage in material asset sales, mergers, consolidations and acquisitions, and restrict our ability to make
capital expenditures. These debt agreements, in some cases, also subject us to guarantor and liquidity covenants and our revolving
credit facility will, and other future debt may, require us to maintain various financial ratios. Some of our debt agreements contain
certain cash flow sweep requirements and mandatory escrows, and our property mortgages generally require certain mandatory
prepayments upon disposition of underlying collateral. Early repayment of certain mortgages may be subject to prepayment penalties.
Variable rate debt is subject to interest rate risk that could increase our interest expense, increase the cost to refinance and
increase the cost of issuing new debt.
As of December 31, 2021, $360.0 million of our outstanding consolidated debt was subject to instruments which bear interest at
variable rates that have been capped at 2.0% through August 2023 and our new $750.0 million unsecured revolving Credit Facility
bears interest at 115 basis points over the secured overnight refinancing rate (“SOFR”) with adjustments based on the terms of
advances, plus a facility fee of 20 basis points. We may also borrow additional money at variable interest rates in the future. Unless we
make arrangements that hedge against the risk of rising interest rates, increases in interest rates would increase our interest expense
under these instruments, increase the cost of refinancing these instruments or issuing new debt, and adversely affect cash flow and our
ability to service our indebtedness and make distributions to our stockholders, which could adversely affect the market price of our
common stock.
We may, in a manner consistent with our qualification as a REIT, seek to manage our exposure to interest rate volatility by using
interest rate hedging arrangements that involve risk, such as the risk that counterparties may fail to honor their obligations under these
arrangements, and that these arrangements may not be effective in reducing our exposure to interest rate changes. Moreover, there can
be no assurance that our hedging arrangements will qualify for hedge accounting or that our hedging activities will have the desired
beneficial impact on our results of operations. Should we desire to terminate a hedging agreement, there could be significant costs and
cash and other collateral requirements involved to fulfill our obligation under the hedging agreement. Failure to hedge effectively
against interest rate changes may adversely affect our results of operations.
We may be adversely affected by the potential discontinuation of LIBOR.
On March 5, 2021, the Financial Conduct Authority (“FCA”) confirmed it will cease the publication of the one-week and two-
month LIBOR rates after December 31, 2021. The remaining LIBOR rates will continue to be published through June 30, 2023, after
which the interest rate for our variable rate debt and derivative instruments, including interest rates for our variable rate debt and
derivative instruments of our unconsolidated joint ventures, will be based on an alternative variable rate as specified in the applicable
documentation governing such debt or derivative instruments or as otherwise agreed upon. While we expect LIBOR to be available in
substantially its current form until at least the end of June 2023, it is possible that LIBOR may become unavailable prior to that point.
The discontinuation of LIBOR and the related transition to an alternative rate would not affect our ability to borrow or maintain
already outstanding borrowings or swaps, however, future changes may result in interest rates and/or payments that are higher or
lower than if LIBOR were to remain available in its current form.
Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a
property or group of properties subject to mortgage debt.
Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness
secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans
for which we are in default. Any foreclosure on a mortgaged property or group of properties could adversely affect the overall value of
our portfolio of properties. For tax purposes, a foreclosure of any of our properties that is subject to a nonrecourse mortgage loan
would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If
the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income
on foreclosure, but would not receive any cash proceeds, which could hinder our ability to meet the distribution requirements
applicable to REITs under the Code.
26
Risks Related to Our Common Stock
The market price and trading volume of our common stock may be volatile.
The trading price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and
cause significant price variations to occur. Some of the factors that could negatively affect our share price or result in fluctuations in
the price or trading volume of our common stock include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
actual or anticipated variations in our quarterly operating results or dividends;
changes in the estimates of our FFO, NOI or income;
publication of research reports about us or the real estate industry;
increases in market interest rates that lead purchasers of our shares to demand a higher yield;
changes in market valuations of similar companies;
adverse market reaction to any additional debt we incur in the future;
additions or departures of key management personnel;
actions by institutional stockholders;
speculation in the press or investment community;
the realization of any of the other risk factors presented in this Form 10-K;
the extent of investor interest in our securities;
the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities,
including securities issued by other real estate-based companies;
our underlying asset value;
investor confidence in the stock and bond markets, generally;
changes in tax laws;
future equity issuances;
failure to meet income estimates;
failure to meet and maintain REIT qualifications; and
general market and economic conditions.
In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the price
of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources,
which could have an adverse effect on our financial condition, results of operations, cash flow and trading price of our common stock.
The market value of our common stock may decline due to the large number of our shares eligible for future sale.
The market value of our common stock could decline as a result of sales of a large number of shares of our common stock in the
market or upon exchange of common units, or the perception that such sales could occur. These sales, or the possibility that these sales
may occur, also might make it more difficult for us to sell shares of our common stock in the future at a time and at a price that we
deem appropriate.
27
As of December 31, 2021, a significant number of our outstanding shares of our common stock are held by our continuing
investors and their affiliates who acquired shares through a series of Formation Transactions (the “Formation Transactions”) and
concurrent private placements at the time of our initial public offering on November 24, 2014. These shares of common stock are
“restricted securities” within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. All of
these shares of our common stock are eligible for future sale and certain of such shares held by our continuing investors have
registration rights pursuant to registration rights agreements that we have entered into with those investors. In addition, limited
partners of our operating partnership, other than us, have the right to require our operating partnership to redeem part or all of their
common units for cash, based upon the value of an equivalent number of shares of our common stock at the time of the election to
redeem, or, at our election, shares of our common stock on a one-for-one basis. The related shares of common stock or securities
convertible into, exchangeable for, exercisable for, or repayable with common stock will be available for sale or resale, as the case
may be, and such sales or resales, or the perception of such sales or resales, could depress the market price for our common stock.
Pursuant to the registration rights agreement we entered into with members of the Otto family and certain affiliated entities
receiving shares of our common stock in the Formation Transactions and concurrent private placements, the parties to this agreement
have the right to demand that we register the resale and/or facilitate an underwritten offering of their shares; provided that the demand
relates to shares having a market value of at least $40.0 million and that such parties may not make more than two such demands in
any consecutive 12-month period.
In addition, upon the request of one or more such parties owning at least 1.0% of our total outstanding common stock, we have
agreed to file a shelf registration statement registering the offering and sale of such parties’ registrable securities on a delayed or
continuous basis, or a resale shelf registration statement, and maintain the effectiveness of the resale shelf registration statement for as
long as the securities registered thereunder continue to qualify as registrable securities.
In connection with the registration rights agreement we entered into with the continuing investors who received common units in
the Formation Transactions, on March 4, 2021, we filed a shelf registration statement with the SEC to register the primary issuance of
the shares of our common stock that they may receive in exchange for their common units. We are required to maintain the
effectiveness of this shelf registration statement for as long as the securities registered thereunder continue to qualify as registrable
securities.
Future issuances of debt securities and equity securities may negatively affect the market price of shares of our common stock
and, in the case of equity securities, may be dilutive to existing stockholders. In addition, share repurchases under our share
repurchase program could also increase the volatility of the price of our common stock and could diminish our cash reserves.
Our charter provides that we may issue up to 900,000,000 shares of our common stock, $0.01 par value per share, and up to
100,000,000 shares of preferred stock, $0.01 par value per share. Moreover, under Maryland law and our charter, our board of
directors has the power to increase the aggregate number of shares of stock or the number of shares of stock of any class or series that
we are authorized to issue without stockholder approval. Similarly, the partnership agreement of our operating partnership authorizes
us to issue an unlimited number of additional common units, which may be exchangeable for shares of our common stock. In addition,
share equivalents are available for future issuance under the Amended and Restated 2014 Equity Incentive Plan.
In the future, we may issue debt or equity securities or incur other financial obligations, including stock dividends and shares that
may be issued in exchange for common units and equity plan shares/units. Upon liquidation, holders of our debt securities and other
loans and preferred stock will receive a distribution of our available assets before common stockholders. We are not required to offer
any such additional debt or equity securities to existing stockholders on a preemptive basis. Therefore, additional common stock
issuances, directly or through convertible or exchangeable securities (including common units and convertible preferred units),
warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such
issuances may reduce the market price of shares of our common stock. Any convertible preferred units would have, and any series or
class of our preferred stock would likely have a preference on distribution payments, periodically or upon liquidation, which could
eliminate or otherwise limit our ability to make distributions to common stockholders.
The existence of our share repurchase program could cause our stock price to be higher than it would be in the absence of such a
program and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program could diminish
our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and
acquisitions. Although our share repurchase program is intended to enhance long-term stockholder value, there is no assurance that it
will do so and short-term stock price fluctuations could reduce the program’s effectiveness.
28
Risks Related to Our Status as a REIT
Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our
common stock.
We elected to be treated as a REIT commencing with our taxable year ended December 31, 2014. The Code generally requires
that a REIT distribute at least 90% of its taxable income (without regard to the dividends paid deduction and excluding net capital
gains) to stockholders annually, and a REIT must pay tax at regular corporate rates to the extent that it distributes less than 100% of its
taxable income (including capital gains) in a given year. In addition, a REIT is required to pay a 4% nondeductible excise tax on the
amount, if any, by which the distributions it makes in a calendar year are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income and 100% of its undistributed income from prior years. To avoid entity-level U.S. federal income and excise
taxes, we anticipate distributing at least 100% of our taxable income annually.
We believe that we have been and are organized, and have operated and will continue to operate, in a manner that will allow us to
qualify as a REIT commencing with our taxable year ended December 31, 2014. However, we cannot assure you that we have been
and are organized and have operated or will continue to operate as such. This is because qualification as a REIT involves the
application of highly technical and complex provisions of the Code as to which there may only be limited judicial and administrative
interpretations and involves the determination of facts and circumstances not entirely within our control. We have not requested and
do not intend to request a ruling from the Internal Revenue Service (the “IRS”), that we qualify as a REIT. The complexity of the
Code provisions and of the applicable Treasury Regulations is greater in the case of a REIT that, like us, acquired certain assets from
taxable C corporations in tax-deferred transactions and holds its assets through one or more partnerships. Moreover, in order to qualify
as a REIT, we must meet, on an ongoing basis, various tests regarding the nature and diversification of our assets and our income, the
ownership of our outstanding stock, the absence of inherited retained earnings from non-REIT periods and the amount of our
distributions. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our
assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our
compliance with the REIT gross income and quarterly asset requirements also depends upon our ability to manage successfully the
composition of our gross income and assets on an ongoing basis. Future legislation, new regulations, administrative interpretations or
court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for U.S.
federal income tax purposes or the U.S. federal income tax consequences of such qualification. Accordingly, it is possible that we may
not meet the requirements for qualification as a REIT.
If, with respect to any taxable year, we fail to maintain our qualification as a REIT, we would not be allowed to deduct
distributions to stockholders in computing our taxable income. If we were not entitled to relief under the relevant statutory provisions,
we would also be disqualified from treatment as a REIT for the four subsequent taxable years. If we fail to qualify as a REIT, we
would be subject to entity-level income tax on our taxable income at regular corporate tax rates. As a result, the amount available for
distribution to holders of our common stock would be reduced for the year or years involved, and we would no longer be required to
make distributions to our stockholders. In addition, our failure to qualify as a REIT could impair our ability to expand our business
and raise capital, and adversely affect the value of our common stock.
We may owe certain taxes notwithstanding our qualification as a REIT.
Even if we qualify as a REIT, we will be subject to certain U.S. federal, state and local taxes on our income and property, on
taxable income that we do not distribute to our stockholders, on net income from certain “prohibited transactions,” and on income
from certain activities conducted as a result of foreclosure. We may, in certain circumstances, be required to pay an excise or penalty
tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our
qualification as a REIT. In addition, we expect to provide certain services that are not customarily provided by a landlord, hold
properties for sale and engage in other activities (such as a portion of our management business) through one or more TRSs, and the
income of those subsidiaries will be subject to U.S. federal income tax at regular corporate rates. Furthermore, to the extent that we
conduct operations outside of the United States, our operations would subject us to applicable non-U.S. taxes, regardless of our status
as a REIT for U.S. federal income tax purposes.
29
In the event we acquire assets on a tax-deferred basis from C corporations, we would be subject to U.S. federal income tax,
sometimes called the “sting tax,” at the highest regular corporate tax rate, which is currently 21%, on all or a portion of the gain
recognized from a taxable disposition of any such assets occurring within the 5-year period following the acquisition date, to the
extent of the asset’s built-in gain based on the fair market value of the asset on the acquisition date in excess of our initial tax basis in
the asset. Additionally, depending upon the location of the asset acquired on a tax deferred basis there may be additional “sting tax”
imposed on a state and local level. Gain from a sale of such an asset occurring after the 5-year period ends will not be subject to this
sting tax.
Our Operating Partnership has limited partners that are non-U.S. persons. Such non-U.S. persons are subject to a variety of U.S.
withholding taxes. A partnership that fails to remit the full amount of withholding taxes is liable for the amount of the under
withholding, as well as interest and potential penalties. Although we believe that we have complied and will comply with the
applicable withholding requirements, the determination of the amounts to be withheld is a complex legal determination and depends
on provisions of the Code and the applicable Treasury Regulations that have little guidance. Accordingly, we may interpret the
applicable law differently from the IRS and the IRS may seek to recover additional withholding taxes from us.
Our property taxes could increase due to property tax rate changes or reassessment, which could impact our cash flow.
Even if we qualify as a REIT for U.S. federal income tax purposes, we are required to pay state and local property taxes on our
properties. The property taxes on our properties may increase as property tax rates change or as our properties are assessed or
reassessed by taxing authorities. Therefore, the amount of property taxes we pay in the future may increase substantially from what we
have paid in the past and such increases may not be covered by tenants pursuant to our lease agreements. If the property taxes we pay
increase, our financial condition, results of operations, cash flow, per share trading price of our common stock and our ability to
satisfy our principal and interest obligations and to make distributions to our stockholders could be adversely affected.
If our operating partnership is treated as a corporation for U.S. federal income tax purposes, we will cease to qualify as a
REIT.
We believe our operating partnership qualifies and will continue to qualify as a partnership for U.S. federal income tax purposes.
Assuming that it qualifies as a partnership for U.S. federal income tax purposes, our operating partnership generally will not be subject
to U.S. federal income tax on its income. Instead, its partners, including us, generally are required to pay tax on their respective
allocable share of our operating partnership’s income. No assurance can be provided, however, that the IRS will not challenge our
operating partnership’s status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge.
For example, our operating partnership would be treated as a corporation for U.S. federal income tax purposes if it were deemed to be
a “publicly traded partnership” and less than 90% of its income consisted of “qualified income” under the Code. If the IRS were
successful in treating our operating partnership as a corporation for U.S. federal income tax purposes, we would fail to meet the gross
income tests and certain of the asset tests applicable to REITs and, therefore, cease to qualify as a REIT, and our operating partnership
would become subject to U.S. federal, state and local income tax. The payment by our operating partnership of income tax would
reduce significantly the amount of cash available to our operating partnership to satisfy obligations to make principal and interest
payments on its debt and to make distribution to its partners, including us.
There are uncertainties relating to our distribution of non-REIT earnings and profits.
To qualify as a REIT, we must not have any non-REIT accumulated earnings and profits, as measured for U.S. federal income tax
purposes, at the end of any REIT taxable year. Such non-REIT earnings and profits generally would have included any accumulated
earnings and profits of the corporations acquired by us (or whose assets we acquired) in the Formation Transactions. We believe that
we have operated, and intend to continue to operate, so that we have not had and will not have any earnings and profits accumulated in
a non-REIT year at the end of any taxable year. However, the determination of the amounts of any such non-REIT earnings and profits
is a complex factual and legal determination, especially in the case of corporations, such as the corporations acquired in the Formation
Transactions that have been in operation for many years. In addition, certain aspects of the computational rules are not completely
clear. Thus, we cannot guarantee that the IRS will not assert that we had accumulated non-REIT earnings as of the end of 2014 or a
subsequent taxable year. If it is subsequently determined that we had any accumulated non-REIT earnings and profits as of the end of
our first taxable year as a REIT or at the end of any subsequent taxable year, we could fail to qualify as a REIT beginning with the
applicable taxable year. Pursuant to Treasury Regulations, however, so long as our failure to comply with the prohibition on non-REIT
earnings and profits was not due to fraud with intent to evade tax, we could cure such failure by paying an interest charge on 50% of
the amount of accumulated non-REIT earnings and profits and by making a special distribution of accumulated non-REIT earnings
and profits. We intend to utilize such cure provisions if ever required to do so. The amount of any such interest charge could be
substantial.
30
Dividends payable by REITs generally do not qualify for reduced tax rates applicable to non-corporate taxpayers.
The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. stockholders that are individuals, trusts
and estates generally is currently 20%. Ordinary dividends payable by REITs, however, are generally not eligible for the reduced rates
and therefore are taxable as ordinary income when paid to such stockholders. However, current law provides a deduction of up to 20%
of a non-corporate taxpayer’s ordinary REIT dividends with such deduction scheduled to expire for taxable years beginning after
December 31, 2025. Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate
dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular
corporate dividends could cause investors who are individuals, trusts and estates or are otherwise sensitive to these lower rates to
perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay
dividends, which could adversely affect the value of the shares of REITs, including our common stock.
Complying with the REIT requirements may cause us to forego otherwise attractive opportunities or liquidate certain of our
investments.
To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the
sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of
our stock. We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds
readily available for distribution. Thus, compliance with the REIT requirements may, for instance, hinder our ability to make certain
otherwise attractive investments or undertake other activities that might otherwise be beneficial to us and our stockholders, or may
require us to borrow or liquidate investments in unfavorable market conditions and, therefore, may hinder our investment
performance.
As a REIT, at the end of each calendar quarter, at least 75% of the value of our assets must consist of cash, cash items,
government securities, debt instruments issued by a publicly traded REIT and qualified real estate assets. The REIT asset tests further
require that with respect to our assets that are not qualifying assets for purposes of this 75% asset test and that are not securities issued
by a TRS, we generally cannot hold at the close of any calendar quarter (i) securities representing more than 10% of the outstanding
voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer or (ii) securities
of any one issuer that represent more than 5% of the value of our total assets. In addition, securities (other than qualified real estate
assets) issued by our TRSs cannot represent more than 20% of the value of our total assets at the close of any calendar quarter.
Further, even though debt instruments issued by a publicly traded REIT that are not secured by a mortgage on real property are
qualifying assets for purposes of the 75% asset test, no more than 25% of the value of our total assets can be represented by such
unsecured debt instruments. After meeting these asset test requirements at the close of a calendar quarter, if we fail to comply with
these requirements at the end of any subsequent calendar quarter, we must correct the failure within 30 days after the end of the
calendar quarter or qualify for certain other statutory relief provisions to avoid losing our REIT qualification. As a result, we may be
required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income
and amounts available for distribution to our stockholders.
31
We may be subject to a 100% penalty tax on any prohibited transactions that we enter into, or may be required to forego
certain otherwise beneficial opportunities in order to avoid the penalty tax on prohibited transactions.
If we are found to have held, acquired or developed property primarily for sale to customers in the ordinary course of business,
we may be subject to a 100% “prohibited transactions” tax under U.S. federal tax laws on the gain from disposition of the property
unless the disposition qualifies for one or more safe harbor exceptions for properties that have been held by us for at least two years
and satisfy certain additional requirements (or the disposition is made through a TRS and, therefore, is subject to corporate U.S.
federal income tax).
Under existing law, whether property is held primarily for sale to customers in the ordinary course of a trade or business is a
question of fact that depends on all the facts and circumstances. We intend to hold, and, to the extent within our control, to have any
joint venture to which our operating partnership is a partner hold, properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, owning, operating and developing the properties, and to make sales of our properties and other
properties acquired subsequent to the date hereof as are consistent with our investment objectives (and to hold investments that do not
meet these criteria through a TRS). Based upon our investment objectives, we believe that overall, our properties (other than certain
interests we intend to hold through a TRS) should not be considered property held primarily for sale to customers in the ordinary
course of business. However, it may not always be practical for us to comply with one of the safe harbors, and, therefore, we may be
subject to the 100% penalty tax on the gain from dispositions of property if we otherwise are deemed to have held the property
primarily for sale to customers in the ordinary course of business.
The potential application of the prohibited transactions tax could cause us to forego potential dispositions of property or to forego
other opportunities that might otherwise be attractive to us, or to hold investments or undertake such dispositions or other
opportunities through a TRS, which would generally result in corporate income taxes being incurred.
REIT distribution requirements could adversely affect our liquidity and adversely affect our ability to execute our business
plan.
In order to maintain our qualification as a REIT and to meet the REIT distribution requirements, we may need to modify our
business plans. Our cash flow from operations may be insufficient to fund required distributions, for example, as a result of
differences in timing between our cash flow, the receipt of income for accounting principles generally accepted in the United States of
America (“GAAP”) purposes and the recognition of income for U.S. federal income tax purposes, the effect of non-deductible capital
expenditures, the effect of limitations on interest and net operating loss deductibility, the creation of reserves, payment of required
debt service or amortization payments, or the need to make additional investments in qualifying real estate assets. The insufficiency of
our cash flow to cover our distribution requirements could require us to (i) sell assets in adverse market conditions, (ii) borrow on
unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions or capital expenditures or used for
the repayment of debt, (iv) pay dividends in the form of “taxable stock dividends” or (v) use cash reserves, in order to comply with the
REIT distribution requirements. As a result, compliance with the REIT distribution requirements could adversely affect the market
value of our common stock. The inability of our cash flow to cover our distribution requirements could have an adverse impact on our
ability to raise short- and long-term debt or sell equity securities. In addition, if we are compelled to liquidate our assets to repay
obligations to our lenders or make distributions to our stockholders, we may be subject to a 100% tax on any resultant gain if we sell
assets that are treated as property held primarily for sale to customers in the ordinary course of business, and, in the case of some of
our properties, we may be subject to an entity-level sting tax.
32
Preferred equity and certain debt investments could impact our compliance with REIT income and assets tests.
We have indirectly held certain preferred equity investments in entities treated as partnerships for U.S. federal income tax
purposes that directly or indirectly owned real property, and we may acquire (directly or indirectly) additional such investments in the
future. In such an event, given such treatment as a partnership for U.S. federal income tax purposes, we will generally be treated as
owning an interest in the underlying real estate and other assets of the partnership for tax purposes. As a result, absent sufficient
controls to ensure that the underlying real property is operated in compliance with the REIT rules, preferred equity investments may
impact our compliance with the REIT income and asset tests. Moreover, the treatment of interest-like preferred returns in a partnership
is not clear under the REIT rules and such returns could be treated as non-qualifying income. In addition, in some cases, the proper
characterization of debt-like preferred equity investments as unsecured indebtedness or as equity for U.S. federal income tax purposes
may be unclear. If the IRS successfully re-characterized a preferred equity investment as unsecured debt for U.S. federal income tax
purposes, the investment would be subject to various asset test limitations on unsecured debt and our preferred return would be treated
as non-qualifying income for purposes of the 75% gross income test. Accordingly, such a recharacterization could impact our
compliance with the REIT income and asset tests and/or be subject to substantial penalty taxes to cure the resulting violations.
Conversely, we may make investments that we treat as indebtedness for U.S. federal income tax purposes (and the REIT
qualification rules) that have certain equity characteristics. If the IRS successfully recharacterized a debt investment in a non-corporate
borrower as equity for U.S. federal income tax purposes, we would generally be required to include our share of the gross assets and
gross income of the borrower in our REIT asset and income tests as described above. Inclusion of such items could impact our
compliance with REIT income and asset tests. Moreover, to the extent a borrower holds its assets as dealer property or inventory, if
we are treated as holding equity in a borrower for U.S. federal income tax purposes, our share of gains from sales by the borrower
would be subject to the 100% tax on prohibited transactions (except to the extent earned through a TRS). To the extent an investment
we treat as a loan to a corporate borrower is recharacterized as equity for U.S. federal income tax purposes, it could also cause us to
fail one or more of the asset tests applicable to REITs.
The ability of our board of directors to revoke our REIT qualification without stockholder approval may cause adverse
consequences to our stockholders.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our
stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will
not be allowed a deduction for dividends paid to stockholders in computing our taxable income and will be subject to U.S. federal
income tax at regular corporate rates and state and local taxes, which may have adverse consequences on our total return to our
stockholders.
Our ability to provide certain services to our tenants may be limited by the REIT rules, or may have to be provided through a
TRS.
As a REIT, we generally cannot provide services to our tenants other than those that are customarily provided by landlords, nor
can we derive income from a third party that provides such services. If we forego providing such services to our tenants, we may be at
a disadvantage to competitors who are not subject to the same restrictions. However, we can provide such non-customary services to
tenants or share in the revenue from such services if we do so through a TRS, though income earned through the TRS will be subject
to corporate income taxes.
33
Although our use of TRSs may partially mitigate the impact of meeting certain requirements necessary to maintain our
qualification as a REIT, there are limits on our ability to own and enter into transactions with TRSs, and a failure to comply with
the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be
qualifying assets or income if held or earned directly by a REIT. For a TRS election with respect to a subsidiary to be valid, both the
subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. However, a corporation of which a TRS directly or
indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than
20% of the value of a REIT’s assets may consist of securities of one or more TRSs. Rules also impose a 100% excise tax on certain
transactions between a TRS and its parent REIT that are treated as not being conducted on an arm’s-length basis.
Any company treated as our TRS under the Code for U.S. federal income tax purposes and any other TRSs that we form will pay
U.S. federal, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us
but is not required to be distributed to us unless necessary to maintain our REIT qualification. Although we will monitor the aggregate
value of the securities of such TRSs and intend to conduct our affairs so that such securities will represent less than 20% of the value
of our total assets, there can be no assurance that we will be able to comply with the TRS limitation in all market conditions.
The partnership audit rules may alter who bears the liability in the event any subsidiary partnership (such as our operating
partnership) is audited and an adjustment is assessed.
In the case of an audit of a partnership for a taxable year beginning after December 31, 2017, the partnership itself may be liable
for a hypothetical increase in partner-level taxes (including interest and penalties) resulting from an adjustment of partnership tax
items on audit, regardless of changes in the composition of the partners (or their relative ownership) between the year under audit and
the year of the adjustment. Thus, for example, an audit assessment attributable to former partners of the operating partnership could
be shifted to the partners in the year of adjustment. The partnership audit rules also include an elective alternative method under
which the additional taxes resulting from the adjustment are assessed from the affected partners (often referred to as a “push-out
election”), subject to a higher rate of interest than otherwise would apply. When a push-out election causes a partner that is itself a
partnership to be assessed with its share of such additional taxes from the adjustment, such partnership may cause such additional
taxes to be pushed out to its own partners. In addition, Treasury Regulations provide that a partnership may be able to request a
modification of an adjustment that is based on deficiency dividends distributed by a partner that is a REIT. Many questions remain as
to how the partnership audit rules will apply, and it is not clear at this time what effect these rules will have on us. However, it is
possible that these changes could increase the federal income tax, interest, and/or penalties otherwise borne by us in the event of a
federal income tax audit of a subsidiary partnership (such as our operating partnership).
Tax legislation or regulatory action could adversely affect us or our investors.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive
application) could adversely affect our stockholders or us. In recent years, many such changes that have been made, which made
major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their stockholders, and
changes are likely to continue to occur in the future. We cannot predict whether, when, in what form, or with what effective dates, tax
laws, regulations and rulings may be enacted, promulgated or decided, or technical corrections made, which could result in an increase
in our, or our stockholders’, tax liability or require changes in the manner in which we operate in order to minimize increases in our
tax liability. A shortfall in tax revenues for states and municipalities in which we operate may lead to an increase in the frequency and
size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income and/or be subject to
additional restrictions. These increased tax costs could, among other things, adversely affect our financial condition, the results of
operations and the amount of cash available for the payment of dividends. Stockholders are urged to consult with their own tax
advisors with respect to the impact that recent legislation may have on their investment and the status of legislative, regulatory or
administrative developments and proposals and their potential effect on their investment in our shares.
34
General Risk Factors
We depend on key personnel, including Albert Behler, our Chairman, Chief Executive Officer and President, and the loss of
services of one or more members of our senior management team, or our inability to attract and retain highly qualified personnel,
could adversely affect our business.
There is substantial competition for qualified personnel in the real estate industry and the loss of our key personnel could have an
adverse effect on us. Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts
of key personnel, particularly Albert Behler, our Chairman, Chief Executive Officer and President, who has extensive market
knowledge and relationships and exercises substantial influence over our acquisition, redevelopment, financing, operational and
disposition activity. Among the reasons that Albert Behler is important to our success is that he has a national, regional and local
industry reputation that attracts business and investment opportunities and assists us in negotiations with financing sources and
industry personnel. If we lose his services, our business and investment opportunities and our relationships with such financing
sources and industry personnel could diminish.
Many of our other senior executives also have extensive experience and strong reputations in the real estate industry, which aid us
in identifying or attracting investment opportunities and negotiating with sellers of properties. The loss of services of one or more
members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our
business, diminish our investment opportunities and weaken our relationships with lenders, business partners and industry participants,
which could negatively affect our financial condition, results of operations and cash flow.
We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other
significant disruptions of our IT networks and related systems.
We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the Internet, malware,
computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization,
and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly
through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally
increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT
networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations (including
managing our building systems) and, in some cases, may be critical to the operations of certain of our tenants. Although we make
efforts to maintain the security and integrity of these types of IT networks and related systems, and we have implemented various
measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be
effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected
information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security
breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected
and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security
barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.
A security breach or other significant disruption involving our IT networks and related systems could:
disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our
tenants;
result in misstated financial reports, violations of loan covenants, missed reporting deadlines and/or missed permitting
deadlines;
result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a
REIT;
result in the loss, theft or misappropriation of our property;
result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential,
sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could
expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes;
result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space;
require significant management attention and resources to remedy any damages that result;
subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or
damage our reputation among our tenants and investors generally.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Any or all of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.
35
Our board of directors may change our policies without stockholder approval.
Our policies, including any policies with respect to investments, leverage, financing, growth, debt and capitalization, are
determined by our board of directors or those committees or officers to whom our board of directors may delegate such authority. Our
board of directors also establishes the amount of any dividends or other distributions that we pay to our stockholders. Our board of
directors or the committees or officers to which such decisions are delegated have the ability to amend or revise these and our other
policies at any time without stockholder vote. Accordingly, our stockholders are not entitled to approve changes in our policies, and,
while not intending to do so, we may adopt policies that may have an adverse effect on our financial condition and results of
operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
There are no unresolved comments from the staff of the Securities and Exchange Commission as of the date of this Annual Report
on Form 10-K.
36
ITEM 2.
PROPERTIES
Portfolio Summary
As of December 31, 2021, we owned and/or managed a portfolio aggregating 13.9 million square feet comprised of:
(cid:129)
(cid:129)
(cid:129)
Seven wholly and partially owned properties aggregating 8.6 million square feet in New York, comprised of 8.2 million
square feet of office space and 0.4 million square feet of retail, theater and amenity space;
Six wholly and partially owned properties aggregating 4.3 million square feet in San Francisco, comprised of 4.1 million
square feet of office space and 0.2 million square feet of retail space; and
Six managed properties aggregating 1.0 million square feet in New York and Washington, D.C.
The table below provides additional details about our owned properties comprised of 13 Class A office properties aggregating
12.9 million square feet as of December 31, 2021.
(Amounts in thousands, except square feet and per square foot amounts)
Annualized Rent (3)
Property
Submarket
New York:
Paramount
Ownership
Number
of
Buildings
Square
Feet
%
Leased(1)
%
Occupied(2)
Amount
Per Square
Foot (4)
West Side
1633 Broadway
1301 Avenue of the Americas Sixth Avenue / Rock Center
1325 Avenue of the Americas Sixth Avenue / Rock Center
Sixth Avenue / Rock Center
31 West 52nd Street
East Side
900 Third Avenue
Madison / Fifth Avenue
712 Fifth Avenue
60 Wall Street
Downtown
Subtotal / Weighted Average
Paramount's Ownership Interest
San Francisco:
One Market Plaza
Market Center
300 Mission Street
One Front Street
55 Second Street
111 Sutter Street
Subtotal / Weighted Average
Paramount's Ownership Interest
South Financial District
South Financial District
South Financial District
North Financial District
South Financial District
North Financial District
90.0%
100.0%
100.0%
100.0%
100.0%
50.0%
5.0%
49.0%
67.0%
31.1%
100.0%
44.1%
49.0%
1 2,499,105
1 1,746,009
810,767
1
766,604
1
591,494
1
1
543,497
1 1,625,483
7 8,582,959
7 6,517,279
98.3%
84.3%
93.4%
92.3%
79.2%
71.4%
100.0%
91.8%
90.4%
98.3% $189,543 $
74.7% 109,644
88.4% 47,666
88.8% 64,805
79.2% 32,755
67.6% 42,803
100.0% 73,600
88.8% 560,816
86.6% 450,549
2 1,604,904
743,703
2
660,704
1
644,923
1
1
376,669
277,817
1
8 4,308,720
8 2,437,327
94.7%
84.2%
94.7%
97.1%
96.3%
64.2%
91.4%
91.6%
94.0% 151,681
84.2% 56,152
94.7% 54,468
95.6% 52,857
96.3% 29,423
64.2% 14,380
90.9% 358,961
91.0% 201,764
78.78
86.78
66.91
92.40
69.91
116.39
45.28
82.34 (5)
81.32 (5)
100.49
89.44
87.30
85.78
81.15
81.75
91.67
91.02
Total / Weighted Average
Paramount's Ownership Interest
15 12,891,679
15 8,954,606
91.6%
90.7%
89.5% 919,777
87.8% 652,313
86.10 (5)
84.15 (5)
(1) Represents the percentage of square feet that is leased, including signed leases not yet commenced.
(2) Represents the percentage of space for which we have commenced rental revenue in accordance with GAAP.
(3)
Except for 60 Wall Street, which is presented on a “triple-net” basis, amounts represent the end of the period monthly base rent plus escalations
in accordance with the lease terms, multiplied by 12.
(4) Represents office and retail space only.
(5)
Excludes 60 Wall Street.
37
Tenant Diversification
As of December 31, 2021, our properties were leased to a diverse base of tenants. Our tenants represent a broad array of
industries, including legal services, financial services, technology and media, insurance and other professional services. The following
table sets forth information regarding the ten largest tenants in our portfolio based on annualized rent as of December 31, 2021.
(Amounts in thousands, except square feet and per square feet amounts)
Tenant
First Republic Bank
Clifford Chance LLP
Allianz Global Investors, LP
Credit Agricole Corporate &
Investment Bank
Norton Rose Fulbright
Morgan Stanley & Company
WMG Acquisition Corporation
(Warner Music Group)
Showtime Networks, Inc.
Google, Inc.
Uber Technologies, Inc.
Lease
Expiration
Total
Square Feet
Occupied (2)
Total
Square Feet
Occupied (2)
Our Share of
Annualized Rent (1)
Amount
Per Square
Foot (2)
% of
Annualized
Rent
Jun-2025 (3)
Jun-2024
Jan-2031
Feb-2023 (4)
Sep-2034 (5)
Mar-2032
Jul-2029
Jan-2026
Apr-2025
Jul-2023
349,304 (3)
328,543
320,911
305,132 (4)
290,875 (5)
260,829
288,250
253,196
339,833
234,783
349,304 (3)
328,543
288,823
305,132 (4)
290,875 (5)
234,749
259,428
227,879
166,518
157,305
30,028
28,912
28,019
27,495
27,139
18,059
17,557
16,751
15,091
14,195
85.72
87.99
97.01
89.25
88.90
76.93
67.04
72.03
90.23
90.24
4.6%
4.4%
4.3%
4.2%
4.2%
2.8%
2.7%
2.6%
2.3%
2.2%
(1) Represents the end of the period monthly base rent plus escalations in accordance with the lease terms, multiplied by 12.
(2) Represents office and retail space only.
(3)
76,999 and 22,690 of the square feet leased expire on December 31, 2029 and December 31, 2030, respectively.
Excludes 159,308 square feet leased through April 30, 2035 for which we have not commenced rental revenue in accordance with GAAP.
111,589 of the square feet leased expires on March 31, 2032.
(4)
(5)
Industry Diversification
The following table sets forth information relating to tenant diversification by industry in our portfolio based on annualized rent
as of December 31, 2021.
(Amounts in thousands, except square feet)
Square Feet
Occupied
Annualized
Our Share of
% of
% of
Annualized
Industry
Legal Services
Technology and Media
Financial Services - Commercial and Investment Banking
Financial Services, all others
Insurance
Retail
Travel & Leisure
Real Estate
Other Professional Services
Other
Occupied
1,806,230
1,718,073
1,360,370
1,106,517
435,586
141,243
192,856
132,065
124,168
845,522
Square Feet
Rent (1)
Rent
23.0% $
21.9%
17.3%
14.1%
5.5%
1.8%
2.4%
1.7%
1.6%
10.7%
152,516
137,238
111,025
101,899
40,682
14,182
13,748
11,556
10,476
58,991
23.4%
21.0%
17.0%
15.6%
6.2%
2.2%
2.1%
1.8%
1.6%
9.1%
(1) Represents the end of the period monthly base rent plus escalations in accordance with the lease terms, multiplied by 12.
38
Lease Expirations
The following table sets forth a summary schedule of lease expirations for leases in place as of December 31, 2021 for each of the
ten calendar years beginning with the year ending December 31, 2022. The information set forth in the table assumes that tenants
exercise no renewal options and no early termination rights.
(Amounts in thousands, except square feet)
Total
Year of
Square Feet of
Square Feet of
Lease Expiration (2)
Month to Month
Expiring Leases
14,738
Expiring Leases
10,021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Thereafter
(4)
2,007,461
912,381
822,557
1,386,205
1,456,374
280,656
257,999
560,528
607,964
589,669
2,917,987
290,828
756,608
720,602
875,683
1,017,539
208,144
209,818
486,740
511,483
522,275
2,514,351
$
(4)
Our Share of
Annualized Rent (1)
Amount
Per Square Foot (3)
$
59.03
880
22,566
61,624
61,086
75,256
87,872
17,868
16,998
38,344
45,163
49,759
197,740
77.56
81.66
84.83
85.91
84.18
85.80
81.13
79.23
88.34
92.06
82.42
% of
Annualized Rent
0.1%
3.4%
9.1%
9.1%
11.1%
13.0%
2.6%
2.5%
5.7%
6.7%
7.4%
29.3%
(1)
(2)
(3)
(4)
Represents the end of the period monthly base rent plus escalations in accordance with the lease terms, multiplied by 12.
Leases that expire on the last day of any given period are treated as occupied and are reflected as expiring space in the following period.
Represents office and retail space only.
Includes 1,625,483 square feet (81,432 square feet at our share) leased by Deutsche Bank at 60 Wall Street (our 5.0% owned unconsolidated joint
venture) that expires in June 2022. The joint venture will take the property “out-of-service” for redevelopment upon the expiration of the lease.
Our portfolio contains a number of large buildings in select central business district submarkets, which often involve large users
occupying multiple floors for relatively long terms. Accordingly, the renewal of one or more large leases may have a material positive
or negative impact on average base rent, tenant improvement and leasing commission costs in a given period. Tenant improvement
costs include expenditures for general improvements related to a new tenant. Leasing commission costs are similarly subject to
significant fluctuations depending upon the anticipated revenue to be received under the leases and the length of leases being signed.
Our ability to re-lease space subject to expiring leases will impact our results of operations and is affected by economic and
competitive conditions in our markets and by the desirability of our individual properties.
As of December 31, 2021, the vacancy rate of our portfolio (at our share) was 9.3%. During 2022, 300,849 square feet (at our
share), or about 3.4% of the square footage of our portfolio (at our share) is scheduled to expire, which represents approximately 3.5%
of our annualized rents. This includes 81,432 square feet at 60 Wall Street (which represents our 5.0% share of the 1,625,483 square
feet Deutsche Bank lease) that will be taken “out-of-service” for redevelopment upon the expiration of the lease in June of 2022.
39
Real Estate Fund Investments
We have an investment management business, where we serve as the general partner of real estate funds for institutional investors
and high net-worth individuals. The following is a summary of our ownership in these funds.
Alternative Investment 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.
Fund VIII’s investment period ended in April 2020. Fund VIII has investments aggregating $385,572,000 with various stated
interest rates ranging from 5.50% to 8.25% and maturities ranging from February 2022 to December 2027. As of December 31, 2021,
our ownership interest in Fund VIII was approximately 1.3%.
Fund X completed its initial closing in December 2018 and has $192,000,000 of capital committed, of which $80,221,000 has
been invested and $32,816,000 has been reserved for future funding as of December 31, 2021. The investments have stated interest
rates ranging from 7.50% to 9.50% and maturity dates ranging from January 2023 to August 2025. Fund X’s investment period ends
in December 2025. As of December 31, 2021, our ownership in Fund X was approximately 7.8%.
Residential Development Fund
We are also the general partner of the Residential Development Fund (“RDF”). RDF owns a 35.0% interest in One Steuart Lane,
a for-sale residential condominium project, in San Francisco, California. As of December 31, 2021, our ownership interest in RDF was
approximately 7.4%.
Other
Oder-Center, Germany
We own a 9.5% interest in a joint venture that owns Oder-Center, a shopping center located in Brandenburg, Germany.
745 Fifth Avenue
We own a 1.0% interest in 745 Fifth Avenue, a 35-story 535,466 square foot art deco style building located on the corner 58th
Street and Fifth Avenue, in New York, New York.
718 Fifth Avenue - Put Right
We manage 718 Fifth Avenue, a five-story building containing 19,050 square feet of prime retail space that is located on the
southwest corner of 56th Street and Fifth Avenue, in New York, New York. Prior to the Formation Transactions, an affiliate of our
Predecessor owned a 25.0% interest in 718 Fifth Avenue (based on its 50.0% interest in a joint venture that held a 50.0% tenancy-in-
common interest in the property). Prior to the completion of the Formation Transactions, this interest was sold to its partner in the 718
Fifth Avenue joint venture, who is also our joint venture partner in 712 Fifth Avenue, New York, New York. In connection with this
sale, we granted our joint venture partner a put right, pursuant to which the 712 Fifth Avenue joint venture would be required to
purchase the entire direct or indirect interests then held by our joint venture partner or its affiliates in 718 Fifth Avenue at a purchase
price equal to the fair market value of such interests. The put right may be exercised at any time with the actual purchase occurring no
earlier than 12 months after written notice is provided. If the put right is exercised and the 712 Fifth Avenue joint venture acquires the
50.0% tenancy-in-common interest in the property held by our joint venture partner, we will own a 25.0% interest in 718 Fifth Avenue
based on the current ownership interests.
40
ITEM 3.
LEGAL PROCEEDINGS
From time to time, we are a party to various claims and routine litigation arising in the ordinary course of business. We do not
believe that the results of any such claims or litigation, individually or in the aggregate, will have a material adverse effect on our
business, financial position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
41
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol PGRE.
As of December 31, 2021, there were approximately 108 registered holders of record of our common stock. This figure does not
reflect the beneficial ownership of shares of our common stock held in nominee or “street” name.
Dividends
In order to maintain our qualification as a REIT under the Code, we must distribute at least 90% of our taxable income to
shareholders (without regard to the deduction for dividends paid and excluding net capital gains). We intend to pay dividends on a
quarterly basis to holders of our common stock. Any dividend distributions we pay in the future will depend upon our actual results of
operations, economic conditions and other factors that could differ materially from our current expectations. Our actual results of
operations will be affected by a number of factors; including the revenue we receive from our properties, our operating expenses,
interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. Distributions declared by us will
be authorized by our board of directors in its sole discretion out of funds legally available and will be dependent upon a number of
factors, including restrictions under applicable law, the capital requirements of our company and the distribution requirements
necessary to maintain our qualification as a REIT. See Item 1A, Risk Factors, and Item 7, Management's Discussion and Analysis of
Financial Conditions and Results of Operations, of this Annual Report on Form 10-K, for information regarding the sources of funds
used for dividends and for a discussion of factors, if any, which may adversely affect our ability to make distributions to our
shareholders.
On December 15, 2021, we declared a regular quarterly cash dividend of $0.07 per share of common stock for the fourth quarter
ended December 31, 2021, which was paid on January 14, 2022 to stockholders of record as of the close of business on
December 31, 2021.
42
Performance Graph
The following graph is a comparison of the cumulative return of our common stock, the MSCI US REIT/Office REIT Index (the
“Office REIT Index”) and the National Association of Real Estate Investment Trusts (“Nareit”) All Equity REIT Index (the “All
Equity REIT Index”). The Office REIT Index replaced the SNL Financials Office REIT Index used in prior years as the index was
discontinued in August 2021. The graph assumes that $100 was invested on December 31, 2016 in our common stock, the Office
REIT Index and the All Equity REIT Index and that all dividends were reinvested without the payment of any commissions. There can
be no assurance that the performance of our stock will continue in line with the same or similar trends depicted in the graph below.
Comparison of Cumulative Return
$200
$150
$100
$50
$-
December 31,
2016
December 31,
2017
December 31,
2018
December 31,
2019
December 31,
2020
December 31,
2021
Paramount Group, Inc.
Office REIT Index
All Equity REIT Index
Paramount Group, Inc.
Office REIT Index
All Equity REIT Index
December 31,
2016
2017
2018
2019
2020
2021
$
$
100.00
100.00
100.00
101.50 $
103.10
108.67
$
82.75
88.88
104.28
$
94.43
114.65
134.17
64.23 $
91.36
127.30
61.06
110.65
179.87
43
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes certain information about our equity compensation plans as of December 31, 2021.
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by
stockholders
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
the first column of this table)
17,765,734 (1)$
12.68 (2)
-
17,765,734 $
-
12.68
7,426,576 (3)
-
7,426,576
(1)
Includes an aggregate of (i) 2,010,993 shares of common stock issuable upon the exercise of outstanding options granted pursuant to our
Amended and Restated 2014 Equity Incentive Plan (the "Plan"), (ii) 10,050,814 shares of common stock issuable in exchange for common units
issued or which may, upon the satisfaction of certain conditions, be issuable pursuant to LTIP units of our Operating Partnership (“LTIP units”)
that were previously granted pursuant to the Plan, (iii) 2,171,875 shares of common stock issuable in exchange for common units which may be
issuable upon the exercise of outstanding Appreciation Only LTIP units of our Operating Partnership (“AOLTIPs”) granted pursuant to the Plan
and (iv) 3,532,052 shares of common stock issuable in exchange for common units issued, pursuant to LTIP units that were previously granted
outside of the Plan in connection with our initial public offering. The 10,050,814 LTIP units include 4,099,887 LTIP units that remain subject to
the achievement of the requisite performance-based vesting criteria.
(2) Represents the weighted average exercise price of outstanding options and AOLTIP units. The outstanding LTIP units and the common units
into which they were converted or are convertible into do not have an exercise price and accordingly, are not included in the weighted-average
exercise price calculation.
(3) Based on awards being granted as "Full Value Awards," as defined in the Plan, including awards such as restricted stock and LTIP units that do
not require the payment of an exercise price. If we were to grant awards other than "Full Value Awards," as defined in the Plan, including
AOLTIP units, stock options or stock appreciation rights, the number of securities remaining available for future issuance would be 13,739,166.
Recent Purchases of Equity Securities
Stock Repurchase Program
On November 5, 2019, we received authorization from our Board of Directors to repurchase up to an additional $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. We did not repurchase
any shares during the year ended December 31, 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.
The following table summarizes our purchases of equity securities in the three months ended December 31, 2021.
Period
October 2021
November 2021
December 2021
Total Number
of Shares
Purchased
Average Price
Paid per Share
-
-
8.45
- $
-
2,322 (1)
Total Number of Shares
Purchased as Part of Publicly
Announced Plan
-
-
-
Maximum Approximate Dollar
Value Available for Future
Purchase
80,000,000
80,000,000
80,000,000
$
(1) Represents shares of common stock surrendered by employees for the satisfaction of tax withholding obligations in connection with the vesting
of restricted common stock.
ITEM 6.
RESERVED
Not applicable.
44
ITEM 7. 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.
Overview
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. We conduct our business through, and substantially all of our interests in properties and investments are held by, the
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 December 31, 2021.
Objectives and Strategy
Our primary business objective is to enhance stockholder value by increasing cash flow from operations. The strategies we intend
to execute to achieve this objective include:
(cid:129)
Leasing vacant and expiring space, at market rents;
(cid:129) Maintaining a disciplined acquisition strategy focused on owning and operating Class A office properties in select central
business district submarkets of New York City and San Francisco;
Redeveloping and repositioning properties to increase returns; and
Proactively managing our portfolio to increase occupancy and rental rates.
(cid:129)
(cid:129)
45
Critical Accounting Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States of America (“GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
The preparation of financial statements in conformity with GAAP requires us to make 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. Some of these estimates and assumptions made in
accordance with GAAP involve a significant level of uncertainty or subjectivity which may cause actual results to differ materially
from those estimates.
The following is a summary of our accounting policies and estimates that we consider to be most critical to our financial
statements.
Acquisition of Real Estate
Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements,
identified intangibles, such as acquired above-market leases and acquired in-place leases) and acquired liabilities (such as
acquired below-market leases) and allocate the purchase price based on these assessments. We assess fair value based on
estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.
Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and
market/economic conditions. We record acquired intangible assets (including acquired above-market leases and acquired in-place
leases) and acquired intangible liabilities (including below-market leases) at their estimated fair value.
Real Estate Impairment
Our properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment analyses are based on our current
plans, intended holding periods and available market information at the time the analyses are prepared. An impairment exists
when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an
undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair
value. Estimates of fair value are determined using discounted cash flow models, which consider, among other things, anticipated
holding periods, current market conditions and utilize unobservable quantitative inputs, including appropriate capitalization and
discount rates. If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our
evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.
The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental
rates and capital requirements that could differ materially from actual results. Plans to hold properties over longer periods
decrease the likelihood of recording impairment losses.
46
Business Overview
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.
While our buildings have remained open throughout the pandemic, a majority of our tenants have worked remotely as new variants of
the virus that cause COVID-19 emerged during 2021. The emergence of new variants of the virus that cause COVID-19 or our tenants’
decision to work remotely did not have a material impact on our portfolio-wide rent collections during 2021. For the year ended
December 31, 2021, we collected 99.6% of rents, comprised of 99.9% from office tenants (which account for approximately 96.5% of
our annualized rents) and 92.9% from non-office tenants (which account for the remaining 3.5% of our annualized rents).
Notwithstanding, we continue to navigate the pandemic and monitor its impact on our business. Given the emergence of new variants
of the virus that cause COVID-19 during 2021 and the possibility of future variants, we are precluded at this time from making any
predictions as the ultimate impact it may have on our future financial condition, results of operations and cash flows.
Financings
1301 Avenue of the Americas
On July 29, 2021, we completed an $860,000,000 refinancing of 1301 Avenue of the Americas, a 1.7 million square foot trophy
office building, located in New York, New York. The new five-year interest-only loan has a weighted average interest rate of 2.96%
(as of December 31, 2021) and is comprised of a $500,000,000 fixed rate tranche and a $360,000,000 variable rate tranche. The
proceeds from the refinancing were used to repay the existing $850,000,000 loan that was scheduled to mature in November 2021.
Revolving Credit Facility
On December 17, 2021, we refinanced our $1.0 billion revolving credit facility with a new $750,000,000 revolving credit facility
that matures in March 2026 and has two six-month extension options. The interest rate on the new facility is 115 basis points over the
secured overnight financing rate (“SOFR”) with adjustments based on the terms of advances, plus a facility fee of 20 basis points. The
facility also features a sustainability-linked pricing component such that if we meet certain sustainability performance targets, the
applicable per annum interest rate will be reduced by one basis point.
Stock Repurchase Program
On November 5, 2019, we received authorization from our Board of Directors to repurchase up to an additional $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. We did not repurchase
any shares during the year ended December 31, 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.
47
Leasing Results – Year Ended December 31, 2021
In the year ended December 31, 2021, we leased 1,016,900 square feet, including 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
during the year, decreased leased occupancy and same store leased occupancy (properties owned by us in a similar manner during
both reporting periods) by 450 basis points to 90.7% at December 31, 2021 from 95.2% at December 31, 2020. Excluding the theatre
leases, 826,374 square feet was leased during the year, of which our share was 660,205 square feet that was leased at a weighted
average initial rent of $76.33 per square foot. Of the 826,374 square feet leased, 543,869 square feet represented our share of second
generation space (space that had been vacant for less than twelve months) for which we achieved rental rate increases of 1.1% on a
cash basis and 3.7% on a GAAP basis. The weighted average lease term for leases signed during the year was 9.4 years and weighted
average tenant improvements and leasing commissions on these leases were $11.36 per square foot per annum, or 14.9% of initial rent.
New York
In the year ended December 31, 2021, we leased 779,164 square feet in our New York portfolio, including 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 during the year, decreased leased occupancy and same store leased occupancy by 470 basis points to 90.4%
at December 31, 2021 from 95.1% at December 31, 2020. Excluding the theatre leases, 588,638 square feet was leased during the year,
of which our share was 544,503 square feet that was leased at a weighted average initial rent of $71.37 per square foot. Of the 588,638
square feet leased in the year, 445,583 square feet represented our share of second generation space for which we achieved rental rate
increases of 0.1% on a cash basis and 1.7% on a GAAP basis. The weighted average lease term for leases signed during the year was
9.7 years and weighted average tenant improvements and leasing commissions on these leases were $11.49 per square foot per annum,
or 16.1% of initial rent.
San Francisco
In the year ended December 31, 2021, we leased 237,736 square feet in our San Francisco portfolio, of which our share was
115,702 square feet that was leased at a weighted average initial rent of $99.70 per square foot. This leasing activity, offset by lease
expirations in the year, decreased leased occupancy and same store leased occupancy by 410 basis points to 91.6% at
December 31, 2021 from 95.7% at December 31, 2020. Of the 237,736 square feet leased in the year, 98,286 square feet represented
our share of second generation space for which we achieved rental rate increases of 4.2% on a cash basis and 10.0% on GAAP basis.
The weighted average lease term for leases signed during the year was 8.0 years and weighted average tenant improvements and
leasing commissions on these leases were $10.62 per square foot per annum, or 10.6% of initial rent.
48
The following table presents additional details on the leases signed during the year ended December 31, 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.
Year Ended December 31, 2021
Total square feet leased
Pro rata share of square feet leased:
Initial rent (2)
Weighted average lease term (in years)
Tenant improvements and leasing commissions:
Per square foot
Per square foot per annum
Percentage of initial rent
Rent concessions:
Average free rent period (in months)
Average free rent period per annum (in months)
Second generation space: (3)
Square feet
Cash basis:
Initial rent (2)
Prior escalated rent (4)
Percentage increase
GAAP basis:
Straight-line rent
Prior straight-line rent
Percentage increase
Total
New York
San Francisco
$
$
$
$
$
$
$
1,016,900
660,205
76.33
9.4
$
$
106.62
11.36
$
14.9%
779,164
544,503
71.37
9.7
(1)
$
$
111.16
11.49
$
16.1%
10.7
1.1
11.3
1.2
543,869
445,583
77.93
77.12
$
$
1.1%
75.85
73.16
$
$
3.7%
72.75
72.66
$
$
0.1%
69.25
68.08
$
$
1.7%
237,736
115,702
99.70
8.0
85.26
10.62
10.6%
8.0
1.0
98,286
101.42
97.32
4.2%
105.81
96.22
10.0%
(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 December 31, 2021
As of December 31, 2020
90.7%
95.2%
90.4%
95.1%
91.6%
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.
49
Financial Results – Years Ended December 31, 2021 and 2020
Net Income, FFO and Core FFO
Net loss attributable to common stockholders was $20,354,000, or $0.09 per diluted share, for the year ended December 31, 2021,
compared to $24,704,000, or $0.11 per diluted share, for the year ended December 31, 2020. The current period net loss attributable to
common stockholders resulted primarily from (i) a $10,688,000 contribution to an unconsolidated joint venture that was expensed in
accordance with GAAP and (ii) lower property rental income as a result of lower weighted average occupancy levels in the portfolio
due to significant lease expirations in the current year. The prior period net loss attributable to common stockholders resulted
primarily from (i) non-cash write-offs (primarily for straight-line rent receivables) aggregating $24,526,000 and (ii) a loss on sale of
real estate related to discontinued operations of $11,662,000.
FFO attributable to common stockholders was $192,498,000, or $0.88 per diluted share, for year ended December 31, 2021,
compared to $214,821,000, or $0.96 per diluted share, for the year ended December 31, 2020. FFO attributable to common
stockholders for the year ended December 31, 2021 and 2020 includes the impact of non-core items, which are listed in the table on
page 66. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to
common stockholders for the year ended December 31, 2021 by $8,557,000, or $0.04 per diluted share, and increased FFO
attributable to common stockholders for the year ended December 31, 2020 by $1,139,000, or $0.00 per diluted share.
Core FFO attributable to common stockholders, which excludes the impact of the non-core items listed on page 66, was
$201,055,000 or $0.92 per diluted share, for the year ended December 31, 2021, compared to $213,682,000, or $0.96 per diluted share,
for the year ended December 31, 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 year ended December 31, 2021 versus December 31, 2020.
Same Store NOI
Same Store Cash NOI
Total
New York
San Francisco
(8.9%)
2.4%
(11.4%)
(0.2%)
(3.9%)
7.9%
See pages 61-66 “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.
50
Results of Operations – Years Ended December 31, 2021 and 2020
The following pages summarize our consolidated results of operations for the years ended December 31, 2021 and 2020. The
results of operations for the years ended December 31, 2020 compared to December 31, 2019 was included in our Annual Report on
Form 10-K for the year ended December 31, 2020 on page 56, under Part II, Item 7, “Management’s Discussion and Analysis of
Financial Conditions and Results of Operations” which was filed with the SEC on February 10, 2021.
(Amounts in thousands)
Revenues:
Rental revenue
Fee and other income
Total revenues
Expenses:
Operating
Depreciation and amortization
General and administrative
Transaction related costs
Total expenses
Other income (expense):
Loss from unconsolidated joint ventures
Income from unconsolidated real estate funds
Interest and other income, net
Interest and debt expense
Income (loss) from continuing operations, before income taxes
Income tax expense
Income (loss) from continuing operations, net
Loss from discontinued operations, net
Net income (loss)
Less net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Operating Partnership
Net loss attributable to common stockholders
For the Year Ended December 31,
2021
2020
Change
$
$
690,418 $
36,368
726,786
265,438
232,487
59,132
916
557,973
(24,896)
782
3,017
(142,014)
5,702
(3,643)
2,059
-
2,059
(21,538)
(2,893)
2,018
(20,354) $
$
679,015
35,222
714,237
267,587
235,200
64,917
1,096
568,800
(18,619)
272
4,490
(144,208)
(12,628)
(1,493)
(14,121)
(5,075)
(19,196)
(9,257)
1,450
2,299
(24,704)
$
11,403
1,146
12,549
(2,149)
(2,713)
(5,785)
(180)
(10,827)
(6,277)
510
(1,473)
2,194
18,330
(2,150)
16,180
5,075
21,255
(12,281)
(4,343)
(281)
4,350
51
Revenues
Our revenues, which consist of rental revenue and fee and other income, were $726,786,000 for the year ended
December 31, 2021, compared to $714,237,000 for the year ended December 31, 2020, an increase of $12,549,000. Below are the
details of the increase (decrease) by segment.
(Amounts in thousands)
Rental revenue
Same store operations
Non-cash write-offs (primarily straight-line
rent receivables)
Reserves for uncollectible accounts receivable
Other, net
Increase (decrease) in rental income
Fee and other income
Fee income
Asset management
Property management
Acquisition, disposition, leasing and other
Increase in fee income
Other income
Same store operations
Increase (decrease) in other income
Increase in fee and other income
Total increase (decrease) in revenues
Total
New York
San Francisco
Other
$
(29,181) $
(35,734) (1) $
6,553 (2) $
33,205
2,051
5,328
11,403 $
23,868
1,019
(41)
(10,888) $
9,337
1,032
5,612 (3)
22,534 $
(982) $
(653)
2,038
403
743
743
1,146 $
- $
-
-
-
201
201
201 $
- $
-
-
-
761
761
761 $
12,549 $
(10,687) $
23,295 $
$
$
$
$
-
-
-
(243)
(243)
(982)
(653)
2,038
403
(219)
(219)
184
(59)
(1)
(2)
(3)
Primarily due to a decrease in occupancy resulting from the expiration of Barclays’ lease at 1301 Avenue of the Americas and TD Bank’s lease
at 31 West 52nd Street.
Primarily due to an increase in occupancy at 300 Mission Street.
Primarily due to income of $5,051 in the current year, in connection with a tenant’s lease termination at 300 Mission Street.
52
Expenses
Our expenses, which consist of operating, depreciation and amortization, general and administrative, and transaction related costs,
were $557,973,000 for year ended December 31, 2021, compared to $568,800,000 for the year ended December 31, 2020, a decrease
of $10,827,000. Below are the details of the (decrease) increase by segment.
(Amounts in thousands)
Operating
Same store operations
Other, net
(Decrease) increase in operating
Depreciation and amortization
Operations
(Decrease) increase in depreciation and
amortization
General and administrative
Mark-to-market of investments
in our deferred compensation plan
Operations
Decrease in general and administrative
Decrease in transaction related costs
Total (decrease) increase in expenses
$
$
$
$
$
$
$
$
Total
New York
San Francisco
Other
(1,803) $
(346)
(2,149) $
$
(2,855)
-
(2,855) $
1,052
$
-
1,052 $
(2,713) $
(7,721) (1) $
5,607 (2) $
(2,713) $
(7,721) $
5,607 $
-
(346)
(346)
(599)
(599)
(602) $
(5,183)
(5,785) $
(180) $
- $
-
- $
- $
- $
-
- $
- $
(602) (3)
(5,183) (4)
(5,785)
(180)
(10,827) $
(10,576) $
6,659 $
(6,910)
(1)
(2)
Primarily due to lower amortization of in-place lease assets and depreciation of tenant improvements at 1301 Avenue of the Americas due to the
expiration of such leases.
Primarily due to accelerated depreciation of tenant improvements in the current year resulting from a tenant’s lease termination at 300
Mission Street and depreciation on tenant improvements placed into service in the current year.
(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”.
Primarily due to lower payroll costs.
(4)
53
Loss from Unconsolidated Joint Ventures
Loss from unconsolidated joint ventures was $24,896,000 for the year ended December 31, 2021 compared to $18,619,000 for the
year ended December 31, 2020, an increase in loss of $6,277,000. This increase in loss resulted from:
(Amounts in thousands)
712 Fifth Avenue
One Steuart Lane
Other, net
Total increase in loss
$
$
(10,952) (1)
4,721 (2)
(46)
(6,277)
(1)
(2)
Primarily due to an $11,750 contribution in the current year to the joint venture that owns 712 Fifth Avenue
that was expensed in accordance with GAAP. See Note 4, Investments in Unconsolidated Joint Ventures.
Primarily due to RDF’s share of gain on sale of residential condominium units at One Steuart Lane in the
current year.
Income from Unconsolidated Real Estate Funds
Income from unconsolidated real estate funds was $782,000 for the year ended December 31, 2021, compared to $272,000 for the
year ended December 31, 2020, an increase in income of $510,000.
Interest and Other Income, net
Interest and other income was $3,017,000 for the year ended December 31, 2021, compared to $4,490,000 for the year ended
December 31, 2020, a decrease in income of $1,473,000. 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")
Other, net (primarily lower yields on short-term investments)
Total decrease in income
$
$
(602)
(871)
(1,473)
Interest and Debt Expense
Interest and debt expense was $142,014,000 for the year ended December 31, 2021, compared to $144,208,000 for the year ended
December 31, 2020, a decrease of $2,194,000. This decrease resulted primarily from lower borrowings under our revolving credit
facility in the current year.
Income Tax Expense
Income tax expense was $3,643,000 for the year ended December 31, 2021, compared to $1,493,000 for the year ended
December 31, 2020, an increase of $2,150,000. This increase resulted primarily from higher taxable income attributable to our taxable
REIT subsidiaries in the current year.
Loss from Discontinued Operations
Loss from discontinued operations was $5,075,000 for the year ended December 31, 2020 and is comprised of loss on sale of
1899 Pennsylvania Avenue of $12,766,000 (sold in December 2020), partially offset by income from 1899 Pennsylvania Avenue in
the months we owned the property.
54
Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures
Net income attributable to noncontrolling interests in consolidated joint ventures was $21,538,000 for the year ended
December 31, 2021, compared to $9,257,000 for the year ended December 31, 2020, a $12,281,000 increase in income allocated to
noncontrolling interests in consolidated joint ventures. This increase resulted from:
(Amounts in thousands)
Higher income attributable to 300 Mission Street ($8,605 of income in 2021,
compared to loss of $784 in 2020)
Higher income attributable to 1633 Broadway ($875 of income in 2021,
compared to loss of $1,437 in 2020)
Other, net
Total increase in income attributable to noncontrolling interests
$
$
9,389 (1)
2,312 (2)
580
12,281
(1)
(2)
Primarily due to an increase in occupancy and lease termination income in the current year and non-cash write-
offs of straight-line rent receivables in the prior year.
Primarily due to the non-cash write-off of straight-line rent receivables in the prior year.
Net (Income) Loss Attributable to Noncontrolling Interest in Consolidated Real Estate Fund
Net income attributable to noncontrolling interest in consolidated real estate fund was $2,893,000 for the year ended
December 31, 2021, compared to net loss attributable to noncontrolling interest in consolidated real estate fund of $1,450,000 for the
year ended December 31, 2020, an increase in income attributable to the noncontrolling interest of $4,343,000. This increase in
income resulted primarily from RDF’s share of gain on sale of residential condominium units at One Steuart Lane in the current year.
Net Loss Attributable to Noncontrolling Interests in Operating Partnership
Net loss attributable to noncontrolling interests in Operating Partnership was $2,018,000 for the year ended December 31, 2021,
compared to $2,299,000 for the year ended December 31, 2020, a decrease in net loss attributable to noncontrolling interests in
Operating Partnership of $281,000. This decrease in loss resulted from a lower net loss subject to allocation to the unitholders of the
Operating Partnership for the year ended December 31, 2021.
55
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. As of December 31, 2021, we had $1.28 billion of liquidity comprised of $524,900,000 of cash and cash
equivalents, $4,766,000 of restricted cash and $750,000,000 of borrowing capacity 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.
The following table provides a summary of our material cash requirements as of December 31, 2021.
(Amounts in thousands)
Our share of:
Consolidated debt (including interest expense) (1)
Unconsolidated debt (including interest expense) (1)
Tenant obligations
Construction obligations
Leasing commissions
Other
Total (2)
Less than
1 year
Payments due by period
1-3
years
3-5
years
Total
Thereafter
$ 3,568,818
686,279
84,104
35,036
2,790
8,424
$ 4,385,451
$ 101,824
20,434
60,423
35,036
2,436
66
$ 220,219
$
$
745,081
139,975
23,681
-
354
139
909,229
$ 1,496,827
373,215
-
-
-
147
$ 1,870,190
$ 1,225,085
152,656
-
-
-
8,072
$ 1,385,813
(1)
Interest expense is calculated using contractual rates for fixed rate debt and the rates in effect as of December 31, 2021 for variable rate debt.
(2) The total above does not include various standing or renewal service contracts with vendors in connection with the operations of our properties.
We anticipate that our long-term needs including debt maturities and potential acquisitions will be funded by operating cash flow,
third-party joint venture capital, mortgage financings and/or re-financings, and 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.
Consolidated Debt
As of December 31, 2021, our outstanding consolidated debt aggregated $3.86 billion. We had no amounts outstanding under our
revolving credit facility and none of our debt matures until October 2023. We may refinance 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
On December 17, 2021, we refinanced our $1.0 billion revolving credit facility with a new $750,000,000 revolving credit facility
that matures in March 2026 and has two six-month extension options. The interest rate on the new facility is 115 basis points over
SOFR with adjustments based on the terms of advances, plus a facility fee of 20 basis points. The facility also features a sustainability-
linked pricing component such that if we meet certain sustainability performance targets, the applicable per annum interest rate will be
reduced by one basis point. The facility contains certain restrictions and covenants that require us to maintain, on an ongoing basis, (i)
a leverage ratio not to exceed 60%, which 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 coverage ratio of at least 1.50, (iv) an unsecured leverage ratio to not to exceed 60%, which 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.
56
Dividend Policy
On December 15, 2021, we declared a regular quarterly cash dividend of $0.07 per share of common stock for the fourth quarter
ended December 31, 2021, which was paid on January 14, 2022 to stockholders of record as of the close of business on
December 31, 2021. During 2021, we paid an aggregate of $67,479,000 in dividends and distributions to our common stockholders
and common unitholders. These dividends were paid utilizing the cash flow from operations, which amounts to $244,306,000 for the
year ended December 31, 2021. If we were to continue our current dividend policy for all of 2022, we would pay out approximately
$68,000,000 to common stockholders and unitholders during 2022.
Off Balance Sheet Arrangements
As of December 31, 2021, our unconsolidated joint ventures had $1.64 billion of outstanding indebtedness, of which our share
was $612,561,000. We do not guarantee the indebtedness of our unconsolidated joint ventures other than providing customary
environmental indemnities and guarantees of specified non-recourse carve outs relating to specified covenants and representations;
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 an additional $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. We did not repurchase
any shares in the year ended December 31, 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.
57
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 agreements 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 December 31, 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 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 $52,100,000. 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.
58
Cash Flows
Cash and cash equivalents and restricted cash were $529,666,000, $465,324,000, $331,487,000 and $365,409,000 as of
December 31, 2021, 2020, 2019 and 2018, respectively. Cash and cash equivalents and restricted cash increased by $64,342,000 and
$133,837,000 for the years ended December 31, 2021 and 2020, respectively, and decreased by $33,922,000 for the year ended
December 31, 2019. The following table sets forth the changes in cash flows.
(Amount in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
For the Year Ended December 31,
2020
2021
2019
$
$
244,306
(103,483)
(76,481)
$
237,272
40,035
(143,470)
285,441
(323,440)
4,077
Operating Activities
Year Ended December 31, 2021 – We generated $244,306,000 of cash from operating activities for the year ended
December 31, 2021, primarily from (i) $282,445,000 of net income (before $280,386,000 of non-cash adjustments) and (ii)
$7,954,000 of distributions from unconsolidated joint ventures and real estate funds, partially offset by (iii) $46,093,000 of net
changes in operating assets and liabilities. Non-cash adjustments of $280,386,000 were primarily comprised of depreciation and
amortization, straight-lining of rental revenue, amortization of above and below-market leases, net and amortization of stock-based
compensation.
Year Ended December 31, 2020 – We generated $237,272,000 of cash from operating activities for the year ended
December 31, 2020, primarily from (i) net income of $241,868,000 (before $248,298,000 of non-cash adjustments and a $12,766,000
loss on sale of real estate related to discontinued operations) and (ii) $4,615,000 of distributions from unconsolidated joint ventures
and real estate funds, partially offset by (iii) $9,211,000 of net changes in operating assets and liabilities. Non-cash adjustments of
$248,298,000 were primarily comprised of depreciation and amortization, straight-lining of rental income, amortization of above and
below market leases, net and amortization of stock-based compensation.
Year Ended December 31, 2019 – We generated $285,441,000 of cash from operating activities for the year ended
December 31, 2019, primarily from (i) net income of $248,909,000 (before $237,652,000 of non-cash adjustments, a $42,000,000 real
estate impairment loss related to discontinued operations and a $1,140,000 gain on sale of real estate related to discontinued
operations), (ii) $5,620,000 of distributions from unconsolidated joint ventures and real estate funds, (iii) $2,339,000 repayment of
accrued interest on preferred equity investment, and (iv) $28,573,000 of net changes in operating assets and liabilities. Non-cash
adjustments of $237,652,000 were primarily comprised of depreciation and amortization, straight-lining of rental income, amortization
of above and below market leases, net and amortization of stock-based compensation.
59
Investing Activities
Year Ended December 31, 2021 – We used $103,483,000 of cash for investing activities for the year ended December 31, 2021,
primarily for (i) $112,001,000 for additions to real estate, which were comprised of spending for tenant improvements and other
building improvements, (ii) $11,750,000 of contributions to an unconsolidated joint venture, partially offset by (iii) $18,666,000 of net
sales of marketable securities (which are held in our deferred compensation plan) and (iv) $1,602,000 of distributions of capital from
unconsolidated real estate funds, net of contributions received.
Year Ended December 31, 2020 – We generated $40,035,000 of cash from investing activities for the year ended
December 31, 2020, primarily from (i) $89,206,000 of proceeds from the sale of real estate related to discontinued operations, (ii)
$36,918,000 from repayment of amounts due from affiliates and (iii) $6,379,000 from net sales of marketable securities (which are
held in our deferred compensation plan), partially offset by (iv) $89,463,000 for additions to real estate, which were comprised of
spending for tenant improvements and other building improvements and (v) $2,945,000 for contributions of capital to unconsolidated
real estate funds.
Year Ended December 31, 2019 – We used $323,440,000 of cash for investing activities for the year ended December 31, 2019,
primarily due to (i) $368,852,000 for investments in and contributions of capital to unconsolidated joint ventures, (ii) $103,916,000
for additions to real estate, which were comprised of spending for tenant improvements and other building improvements, (iii)
$36,918,000 for net amounts due from affiliates, and (iv) $1,861,000 of net distributions from and contributions to unconsolidated real
estate funds, partially offset by (v) $150,307,000 of proceeds from the sale of real estate related to discontinued operations, (vi)
$33,750,000 from the redemption of preferred equity investment and (vii) $4,050,000 for net sales of marketable securities (which are
held in our deferred compensation plan).
Financing Activities
Year Ended December 31, 2021 – We used $76,481,000 of cash for financing activities for the year ended December 31, 2021,
primarily for (i) $850,000,000 for the repayment of notes and mortgages payable in connection with the refinancing of 1301 Avenue
of the Americas, (ii) $67,479,000 for dividends and distributions to common stockholders and unitholders, (iii) $30,539,000 for
distributions to noncontrolling interests, (iv) $16,775,000 for the payment of debt issuance costs in connection with the refinancing of
1301 Avenue of the Americas and the revolving credit facility, (v) $235,000 for the repurchase of shares related to stock compensation
agreements and related tax withholdings, and (vi) $140,000 for the purchase of interest rate caps, partially offset by (vii) $888,566,000
of proceeds from notes and mortgages payable (including $860,000,000 from the refinancing of 1301 Avenue of the Americas) and
(viii) $121,000 of contributions from noncontrolling interests.
Year Ended December 31, 2020 – We used $143,470,000 of cash for financing activities for the year ended December 31, 2020,
primarily for (i) $120,000,000 for repurchase of common shares, (ii) $98,062,000 for dividends and distributions paid to common
stockholders and unitholders, (iii) $36,918,000 of net repayment of borrowings under the revolving credit facility, (iv) $12,717,000 for
distributions to non-controlling interests and (v) $8,771,000 for repayment of note payable issued in connection with the acquisition of
noncontrolling interest in consolidated real estate fund, partially offset by (vi) $111,984,000 of proceeds from the sale of a 10.0%
interest in 1633 Broadway, (vii) $11,555,000 of contributions from non-controlling interests and (viii) $9,791,000 of proceeds from
notes and mortgages payable.
Year Ended December 31, 2019 – We generated $4,077,000 of cash from financing activities for the year ended
December 31, 2019, primarily from (i) $1,259,843,000 of proceeds from notes and mortgages payable, primarily from the refinancing
of 1633 Broadway and (ii) $36,918,000 of net borrowings under the revolving credit facility, partially offset by (iii) $1,050,000,000 of
repayment of notes and mortgages payable in connection with the refinancing of 1633 Broadway, (iv) $103,111,000 for dividends and
distributions paid to common stockholders and unitholders, (v) $97,461,000 for the repurchases of common shares, (vi) $30,250,000
in net contributions and distributions to non-controlling interests, (vii) $10,131,000 in debt issuance and other costs, (viii) $1,000,000
for the acquisition of non-controlling interest in consolidated real estate fund, and (ix) $731,000 of loss on early extinguishment of
debt.
60
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
income or loss to NOI and Cash NOI for the years ended December 31, 2021, 2020 and 2019.
(Amounts in thousands)
Reconciliation of net income (loss) to NOI and Cash NOI:
Net income (loss)
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization
General and administrative
Interest and debt expense
Income tax expense
NOI from unconsolidated joint ventures (excluding
One Steuart Lane)
Loss (income) from unconsolidated joint ventures
Fee income
Interest and other (income) loss, net
Other, net
NOI
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Paramount's share of NOI
NOI
Add (subtract) adjustments to arrive at Cash NOI:
Straight-line rent adjustments (including our
share of unconsolidated joint ventures)
Amortization of above and below-market leases,
net (including our share of unconsolidated joint ventures)
Cash NOI
Less Cash NOI attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Paramount's share of Cash NOI
For the Year Ended December 31, 2021
Total
New York
San Francisco
Other
$
2,059
$
2,129
$
43,891
$
(43,961)
232,487
59,132
142,014
3,643
43,597
24,896
(28,473)
(3,017)
134
476,472
152,023
-
87,205
12
11,303
10,199
-
23
-
262,894
76,569
-
50,448
5
32,221
17,418
-
(119)
-
220,433
(92,890)
206
$
383,788
(10,399)
-
$
252,495
(82,491)
-
$
137,942
3,895
59,132
4,361
3,626
73
(2,721)
(28,473)
(2,921)
134
(6,855)
-
206
(6,649)
476,472
$
262,894
$
220,433
$
(6,855)
(4,983)
1,694
(6,677)
(6,704)
464,785
1,442
266,030
(8,146)
205,610
(87,831)
206
377,160
$
(10,376)
-
255,654
$
(77,455)
-
128,155
$
-
-
(6,855)
-
206
(6,649)
$
$
$
61
(Amounts in thousands)
Reconciliation of net (loss) income to NOI and Cash NOI:
Net (loss) income
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization
General and administrative
Interest and debt expense
Income tax expense
NOI from unconsolidated joint ventures
Loss (income) from unconsolidated joint ventures
Fee income
Interest and other income, net
Adjustments related to discontinued operations (including
loss on sale of real estate)
Other, net
NOI
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Paramount's share of NOI
For the Year Ended December 31, 2020
Total
New York
San Francisco
Other
$
(19,196)
$
12,606
$
28,199
$
(60,001)
235,200
64,917
144,208
1,493
48,631
18,619
(28,070)
(4,490)
13,465
824
475,601
159,744
-
87,687
3
11,540
(617)
-
-
-
-
270,963
70,962
-
49,905
2
38,892
17,210
-
(309)
-
-
204,861
(72,766)
1,892
$
404,727
(4,294)
-
$
266,669
$
(68,461)
-
$
136,400
4,494
64,917
6,616
1,488
(1,801)
2,026
(28,070)
(4,181)
13,465
824
(223)
(11)
1,892
1,658
NOI
Add (subtract) adjustments to arrive at Cash NOI:
Straight-line rent adjustments (including our share of
unconsolidated joint ventures)
Amortization of above and below-market leases, net
(including our share of unconsolidated joint ventures)
Adjustments related to discontinued operations
Cash NOI
Less Cash NOI attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Paramount's share of Cash NOI
$
475,601
$
270,963
$
204,861
$
(223)
(32,325)
(7,728)
(24,681)
(8,645)
507
435,138
23
-
263,258
(8,668)
-
171,512
(59,526)
1,892
377,504
$
(4,290)
-
258,968
$
$
(55,225)
-
116,287
$
84
-
507
368
(11)
1,892
2,249
62
(Amounts in thousands)
Reconciliation of net (loss) income to NOI and Cash NOI:
Net (loss) income
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization
General and administrative
Interest and debt expense
Loss on early extinguishment of debt
Income tax expense
NOI from unconsolidated joint ventures
Loss (income) from unconsolidated joint ventures
Fee income
Interest and other (income) loss, net
Adjustments related to discontinued operations (including
impairments and gain on sale of real estate)
Other, net
NOI
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Paramount's share of NOI
NOI
Add (subtract) adjustments to arrive at Cash NOI:
Straight-line rent adjustments (including our share of
unconsolidated joint ventures)
Amortization of above and below-market leases, net (including
our share of unconsolidated joint ventures)
Adjustments related to discontinued operations
Cash NOI
Less Cash NOI attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Paramount's share of Cash NOI
For the Year Ended December 31, 2019
New York San Francisco
Other
Total
$
(29,603) $
18,634 $
36,560 $
(84,797)
240,104
68,556
156,679
11,989
312
22,409
4,706
(22,744)
(9,844)
49,103
2,342
494,009
159,054
-
103,052
11,989
-
13,151
(1,298)
-
6
-
-
304,588
(72,620)
126
421,515 $
-
-
304,588 $
77,813
-
49,412
-
28
9,065
5,964
-
(784)
-
-
178,058
(72,620)
-
105,438 $
3,237
68,556
4,215
-
284
193
40
(22,744)
(9,066)
49,103
2,342
11,363
-
126
11,489
494,009 $
304,588 $
178,058 $
11,363
(45,580)
(33,359)
(12,222)
1
(11,913)
434
436,950
(62,889)
126
374,187 $
1,745
-
272,974
-
-
272,974 $
(13,658)
-
152,178
(62,889)
-
89,289 $
-
434
11,798
-
126
11,924
$
$
$
63
Same Store NOI
The tables below set forth the reconciliations of our share of NOI to our share of Same Store NOI and Same Store Cash NOI for
the years ended December 31, 2021 and 2020. These metrics are used to measure the operating performance of our properties that
were owned by us in a similar manner during both the current and prior reporting periods, and represents our share of Same Store NOI
and Same Store Cash NOI from consolidated and unconsolidated joint ventures based on our percentage ownership in the underlying
assets. Same Store NOI also excludes lease termination income, impairment of receivables arising from operating leases and certain
other items that vary from period to period. Same Store Cash NOI excludes the effect of non-cash items such as the straight-line rent
adjustments and the amortization of above and below-market leases.
(Amounts in thousands)
Paramount's share of NOI for the year
ended December 31, 2021 (1)
Dispositions / Discontinued Operations
Other, net
Paramount's share of Same Store NOI for the year
ended December 31, 2021
(Amounts in thousands)
Paramount's share of NOI for the year
ended December 31, 2020 (1)
Dispositions / Discontinued Operations
Non-cash write-offs (primarily straight-line receivables)
Reserves for uncollectible accounts receivable
Other, net
Paramount's share of Same Store NOI for the year
ended December 31, 2020
Total
For the Year Ended December 31, 2021
San Francisco
New York
Other
$
$
383,788
-
4,566
$
252,495
-
(295)
$
137,942
-
(1,788)
(6,649)
-
6,649
$
388,354
$
252,200
$
136,154
$
-
Total
For the Year Ended December 31, 2020
San Francisco
New York
Other
$
$
404,727
(13,187)
26,826
1,940
6,114
$
(2)
266,669
(4,797)
22,383
1,152
(619)
$
136,400
-
4,443
788
1
1,658
(8,390) (3)
-
-
6,732
$
426,420
$
284,788
$
141,632
$
Decrease in Same Store NOI
$
(38,066)
$
(32,588)
$
(5,478)
$
% Decrease
(8.9%)
(11.4%)
(3.9%)
(1)
See page 61 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income or loss in accordance with GAAP and the reasons why
we believe these non-GAAP measures are useful.
(2) Represents NOI attributable to the 10.0% sale of 1633 Broadway for the months in which it was not owned by us in both reporting periods.
(3) Represents NOI from discontinued operations (1899 Pennsylvania Avenue in Washington, D.C.).
64
-
-
(Amounts in thousands)
Paramount's share of Cash NOI for the year
ended December 31, 2021 (1)
Dispositions / Discontinued Operations
Other, net
Total
For the Year Ended December 31, 2021
San Francisco
New York
Other
$
$
377,160
-
4,397
$
255,654
-
(457)
$
128,155
-
(1,795)
Paramount's share of Same Store Cash NOI for the year
ended December 31, 2021
$
381,557
$
255,197
$
126,360
$
(6,649)
-
6,649
-
(Amounts in thousands)
Paramount's share of Cash NOI for the year
ended December 31, 2020 (1)
Dispositions / Discontinued Operations
Reserves for uncollectible accounts receivable
Other, net
Total
For the Year Ended December 31, 2020
San Francisco
New York
Other
$
$
377,504
(12,786)
1,940
6,030
$
(2)
258,968
(3,889)
1,152
(619)
$
116,287
-
788
1
2,249
(8,897) (3)
-
6,648
Paramount's share of Same Store Cash NOI for the year
ended December 31, 2020
$
372,688
$
255,612
$
117,076
$
Increase (decrease) in Same Store Cash NOI
$
8,869
$
(415)
$
9,284
$
% Increase (decrease)
2.4%
(0.2%)
7.9%
-
-
(1)
See page 61 “Non-GAAP Financial Measures – NOI” for a reconciliation to net income or loss in accordance with GAAP and the reasons why
we believe these non-GAAP measures are useful.
(2) Represents Cash NOI attributable to the 10.0% sale of 1633 Broadway for the months in which it was not owned by us in both reporting periods.
(3) Represents Cash NOI from discontinued operations (1899 Pennsylvania Avenue in Washington, D.C.).
Funds from Operations (“FFO”) and Core Funds from Operations (“Core FFO”)
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 net income or loss, calculated in accordance with
GAAP, adjusted to exclude depreciation and amortization from real estate assets, impairment losses on certain real estate assets and
gains or losses from the sale of certain real estate assets or from change in control of certain real estate assets, including our 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 that we believe enhance the comparability of our FFO across periods. Core
FFO, when applicable, excludes the impact of certain items, including, transaction related costs, realized and unrealized gains or
losses on real estate fund investments, unrealized gains or losses on interest rate swaps, severance costs and gains or losses on early
extinguishment of debt, in order to reflect the Core FFO of our real estate portfolio and operations. In future periods, we may also
exclude other items from Core FFO that we believe may help investors compare our results.
FFO and Core FFO are presented as supplemental financial measures and do not fully represent our operating performance.
Neither FFO nor Core FFO is intended to be a measure of cash flow or liquidity. Please refer to our consolidated financial statements,
prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations and cash flows.
65
The following table presents a reconciliation of net income (loss) to FFO and Core FFO.
(Amounts in thousands, except share and per share amounts)
Reconciliation of net income (loss) to FFO and Core FFO:
Net income (loss)
Real estate depreciation and amortization (including our
share of unconsolidated joint ventures)
Adjustments related to discontinued operations (including
impairments and gain or loss on sale of real estate)
FFO
Less FFO attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Operating Partnership
FFO attributable to common stockholders
Per diluted share
FFO
Non-core items:
Adjustments to equity in earnings for contributions to
(distributions from) an unconsolidated joint venture
Consolidated real estate fund's share of after-tax net gain on sale
of residential condominium units (One Steuart Lane)
Non-cash write-off of deferred financing costs
Loss on early extinguishment of debt
Other, net
Core FFO
Less Core FFO attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Operating Partnership
Core FFO attributable to common stockholders
Per diluted share
For the Year Ended December 31,
2020
2019
2021
$
2,059
$
(19,196)
$
(29,603)
274,024
283,317
257,876
-
276,083
(61,609)
(2,904)
(19,072)
192,498
0.88
276,083
$
$
$
13,456
277,577
(43,542)
1,450
(20,664)
214,821
0.96
277,577
$
$
$
49,103
277,376
(46,527)
(313)
(22,349)
208,187
0.90
277,376
8,016
(2,697)
(2,038)
(8,184)
761
-
6,116
282,792
(61,609)
(205)
(19,923)
201,055
0.92
$
$
-
-
-
1,450
276,330
(43,542)
1,450
(20,556)
213,682
0.96
$
$
-
8,215
11,989
2,881
298,423
(46,527)
(313)
(24,419)
227,164
0.98
$
$
$
$
$
Reconciliation of weighted average shares outstanding:
Weighted average shares outstanding
Effect of dilutive securities
Denominator for FFO per diluted share
218,701,249
45,709
218,746,958
222,436,170
16,558
222,452,728
231,538,065
35,323
231,573,388
66
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair
values relevant to financial instruments are dependent upon prevalent market interest rates. Our primary market risk results from our
indebtedness, which bears interest at both fixed and variable rates. We manage our market risk on variable rate debt by entering into
swap agreements to fix the rate on all or a portion of the debt for varying periods through maturity. This in turn, reduces the risks of
variability of cash flows created by variable rate debt and mitigates the risk of increases in interest rates. Our objective when
undertaking such arrangements is to reduce our floating rate exposure and we do not enter into hedging arrangements for speculative
purposes. Subject to maintaining our status as a REIT for U.S. federal income tax purposes, we may utilize swap arrangements in the
future.
The following table summarizes our consolidated debt, the weighted average interest rates and the fair value as of
December 31, 2021.
Property
(Amounts in thousands)
Fixed Rate Debt:
300 Mission Street
One Market Plaza
31 West 52nd Street
1301 Avenue of the Americas (1)
1633 Broadway
Total Fixed Rate Debt
Rate
2022
2023
2024
2025
2026
Thereafter
Total
Fair Value
3.65% $
4.03%
3.80%
2.46%
2.99%
3.37% $
- $
- $ 273,000 $
- 975,000
-
-
-
-
-
-
-
-
-
-
- $ 273,000 $ 975,000 $
- $
-
500,000
500,000
- $ 273,000 $ 275,989
- $
995,533
-
-
516,096
-
-
498,120
-
-
-
- 1,250,000 1,250,000 1,248,868
- $ 1,000,000 $ 1,250,000 $ 3,498,000 $ 3,534,606
975,000
500,000
500,000
Variable Rate Debt:
1301 Avenue of the Americas (2)
Revolving Credit Facility
Total Variable Rate Debt
3.67% $
n/a
3.67% $
- $
-
- $
- $
-
- $
- $
-
- $
- $ 360,000 $
-
-
- $ 360,000 $
- $ 360,000 $ 358,646
-
-
- $ 360,000 $ 358,646
-
Total Consolidated Debt
3.40% $
- $ 273,000 $ 975,000 $
- $ 1,360,000 $ 1,250,000 $ 3,858,000 $ 3,893,252
(1) Represents variable rate loans that have been fixed by interest rate swaps through August 2024. See table below.
(2) Represents variable rate loans, where LIBOR has been capped at 2.00% through August 2023.
In addition to the above, our unconsolidated joint ventures had $1.64 billion of outstanding indebtedness as of December 31, 2021,
of which our share was $612,561,000.
The tables below provide additional details on our interest rate swaps as of December 31, 2021.
Property
(Amounts in thousands)
Notional
Amount
Effective Date
Maturity Date
Strike
Rate
Fair Value as of
December 31, 2021
1301 Avenue of the Americas $
500,000
Total interest rate swap assets designated as cash flow hedges (included in "other assets")
Jul-2021
Aug-2024
0.46% $
$
6,691
6,691
67
The following table summarizes our share of total indebtedness and the effect to interest expense of a 100 basis point increase in
LIBOR.
(Amounts in thousands, except per share amount)
Paramount's share of consolidated debt:
Balance
December 31, 2021
Weighted
Average
Interest Rate
Effect of 1%
Increase in
Base Rates
December 31, 2020
Weighted
Average
Interest Rate
Balance
Variable rate
Fixed rate (1)
Paramount's share of debt of non-consolidated entities
(non-recourse):
Variable rate
Fixed rate
$
$
$
$
360,000
2,687,665
3,047,665
3.67% $
3.25%
3.30% $
3,600 $
-
3,600 $
350,000
2,678,781
3,028,781
108,963
503,598
612,561
3.27% $
3.30%
3.30% $
1,090 $
-
1,090 $
103,880
503,767
607,647
1.99%
3.36%
3.20%
3.31%
3.30%
3.30%
Noncontrolling interests' share of above
Total change in annual net income
Per diluted share
$
$
$
(424)
4,266
0.02
(1) Our fixed rate debt includes floating rate debt that has been swapped to fixed. See page 67.
On March 5, 2021, the Financial Conduct Authority (“FCA”) confirmed it will cease the publication of the one-week and two
month LIBOR rates after December 31, 2021. The remaining LIBOR rates will continue to be published through June 30, 2023, after
which the interest rate for our variable rate debt and derivative instruments, including interest rates for our variable rate debt and
derivative instruments of our unconsolidated joint ventures, will be based on an alternative variable rate as specified in the applicable
documentation governing such debt or derivative instruments or as otherwise agreed upon. While we expect LIBOR to be available in
substantially its current form until at least the end of June 2023, it is possible that LIBOR may become unavailable prior to that point.
Additionally, as of December 31, 2021, banks are expected to no longer issue any new LIBOR debt. The discontinuation of LIBOR
and the related transition to an alternative rate would not affect our ability to borrow or maintain already outstanding borrowings or
swaps, however, future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain
available in its current form. As of December 31, 2021, all of our outstanding variable rate notes and mortgages payable and derivative
instruments are indexed to LIBOR and we will continue to monitor and evaluate the related risks.
68
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Page Number
70
72
73
74
75
77
79
69
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Paramount Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Paramount Group, Inc. and subsidiaries (the “Company”) as of
December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in equity, and cash
flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedules listed in the Index at
Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 22, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
70
Real Estate Asset Impairment—Holding Period—Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company’s real estate properties are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of a real estate asset may not be recoverable. Impairment analyses are based on the Company’s current plans,
intended holding periods and available market information at the time the analyses are prepared. The Company uses significant
judgment in assessing events or circumstances which might indicate impairment, including but not limited to, changes in
management’s intended holding periods. Such changes have a significant impact on the estimates of fair value which are determined
using discounted cash flow models.
Evaluating the judgments made by the Company in determining the hold period for real estate assets as part of their impairment
analyses involved especially subjective judgment. This required a high degree of auditor judgment and extensive auditor effort,
especially given the inherent unpredictability involved in the timing of sales of real estate.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the assessment of the Company’s intended holding periods included, among others, the following:
(cid:129) We tested the effectiveness of controls over management’s identification of changes in circumstances that could indicate the
carrying amounts of real estate assets may not be recoverable, including controls over management’s assessment of
significant judgments; specifically, the determination of whether a property was intended to be sold or otherwise disposed of.
(cid:129) We evaluated the reasonableness of management’s assertions regarding the intended holding period of its real estate assets,
more specifically by performing the following:
o Engaged in discussions with management, including the Chief Executive Officer and Chief Financial Officer, and
inspected Board of Directors meeting minutes regarding the assumptions utilized in the determination of intended
holding periods, and evaluated audit evidence to determine whether it supported or contradicted the conclusions
reached by management.
o Corroborated whether an asset is being actively marketed for sale with external tools utilized by our valuation
specialists, including industry intelligence and marketing platforms.
o
Searched public records for indications of whether assets may be actively marketed for sale.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 22, 2022
We have served as the Company's auditor since 2014.
71
PARAMOUNT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share, unit and per share amounts)
Assets
December 31, 2021 December 31, 2020
Real estate, at cost
Land
Buildings and improvements
Accumulated depreciation and amortization
Real estate, net
Cash and cash equivalents
Restricted cash
Investments in unconsolidated joint ventures
Investments in unconsolidated real estate funds
Accounts and other receivables
Deferred rent receivable
Deferred charges, net of accumulated amortization of $70,666 and $56,612
Intangible assets, net of accumulated amortization of $252,142 and $283,332
Other assets
Total assets (1)
Liabilities and Equity
Notes and mortgages payable, net of unamortized deferred financing costs
of $22,380 and $18,695
Revolving credit facility
Accounts payable and accrued expenses
Dividends and distributions payable
Intangible liabilities, net of accumulated amortization of $105,790 and $107,981
Other liabilities
Total liabilities (1)
Commitments and contingencies
Paramount Group, Inc. equity:
Common stock $0.01 par value per share; authorized 900,000,000 shares; issued and
outstanding 218,991,795 and 218,817,337 shares in 2021 and 2020, respectively
Additional paid-in-capital
Earnings less than distributions
Accumulated other comprehensive income (loss)
Paramount Group, Inc. equity
Noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Operating Partnership (21,740,404 and 20,756,618 units outstanding)
Total equity
Total liabilities and equity
$
$
$
$
1,966,237 $
6,061,824
8,028,061
(1,112,977)
6,915,084
524,900
4,766
408,096
11,421
15,582
332,735
122,177
119,413
40,388
8,494,562 $
3,835,620 $
-
116,192
16,895
45,328
25,495
4,039,530
2,190
4,122,680
(538,845)
2,138
3,588,163
428,833
81,925
356,111
4,455,032
8,494,562 $
1,966,237
5,997,078
7,963,315
(966,697)
6,996,618
434,530
30,794
412,724
12,917
17,502
330,239
116,278
153,519
48,976
8,554,097
3,800,739
-
101,901
16,796
55,996
62,931
4,038,363
2,188
4,120,173
(456,393)
(12,791)
3,653,177
437,161
79,017
346,379
4,515,734
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 December 31, 2021. As of December 31, 2021, the Operating Partnership includes $4,025,856 and $2,576,710 of
assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. See Note 12, Variable Interest Entities
(“VIEs”).
See notes to consolidated financial statements.
72
PARAMOUNT GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share amounts)
Revenues:
For the Year Ended December 31,
2020
2019
2021
Rental revenue
Fee and other income
Total revenues
Expenses:
Operating
Depreciation and amortization
General and administrative
Transaction related costs
Total expenses
Other income (expense):
Loss from unconsolidated joint ventures
Income (loss) from unconsolidated real estate funds
Interest and other income, net
Interest and debt expense
Loss on early extinguishment of debt
Income (loss) from continuing operations, before income taxes
Income tax expense
Income (loss) from continuing operations, net
Loss from discontinued operations, net
Net income (loss)
Less net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Operating Partnership
Net loss attributable to common stockholders
Loss per Common Share - Basic:
Loss from continuing operations, net
Loss from discontinued operations, net
Net loss per common share
Weighted average common shares outstanding
Loss per Common Share - Diluted:
Loss from continuing operations, net
Loss from discontinued operations, net
Net loss per common share
Weighted average common shares outstanding
$
690,418 $
36,368
726,786
679,015 $
35,222
714,237
265,438
232,487
59,132
916
557,973
(24,896)
782
3,017
(142,014)
-
5,702
(3,643)
2,059
-
2,059
267,587
235,200
64,917
1,096
568,800
(18,619)
272
4,490
(144,208)
-
(12,628)
(1,493)
(14,121)
(5,075)
(19,196)
(21,538)
(2,893)
2,018
(20,354) $
(9,257)
1,450
2,299
(24,704) $
709,508
34,246
743,754
264,702
240,104
68,556
1,999
575,361
(4,706)
(343)
9,844
(156,679)
(11,989)
4,520
(312)
4,208
(33,811)
(29,603)
(11,022)
(313)
4,039
(36,899)
(0.09) $
-
(0.09) $
(0.09) $
(0.02)
(0.11) $
218,701,249
222,436,170
(0.09) $
-
(0.09) $
(0.09) $
(0.02)
(0.11) $
218,701,249
222,436,170
(0.03)
(0.13)
(0.16)
231,538,065
(0.03)
(0.13)
(0.16)
231,538,065
$
$
$
$
$
See notes to consolidated financial statements.
73
PARAMOUNT GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income (loss)
Other comprehensive (loss) income:
Change in value of interest rate swaps and interest rate caps
Pro rata share of other comprehensive income (loss) of
unconsolidated joint ventures
Comprehensive income (loss)
Less comprehensive (income) loss attributable to
noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Operating Partnership
Comprehensive loss attributable to common stockholders
$
For the Year Ended December 31,
2020
2019
2021
$
2,059 $
(19,196) $
(29,603)
6,857
9,565
18,481
-
(13,894)
(33,090)
(21,538)
(2,908)
540
(5,425) $
(9,257)
1,434
3,589
(37,324) $
(28,069)
206
(57,466)
(11,022)
(360)
6,726
(62,122)
See notes to consolidated financial statements.
74
.
C
N
I
,
P
U
O
R
G
T
N
U
O
M
A
R
A
P
Y
T
I
U
Q
E
N
I
S
E
G
N
A
H
C
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
)
3
0
6
,
9
2
(
)
9
3
0
,
4
(
3
1
3
4
6
6
,
1
9
8
,
4
$
2
8
9
,
8
2
4
$
7
8
8
,
6
6
$
2
2
0
,
1
1
5
9
9
,
4
9
3
l
a
t
o
T
y
t
i
u
q
E
g
n
i
t
a
r
e
p
O
p
i
h
s
r
e
n
t
r
a
P
e
t
a
t
s
E
l
a
e
R
d
n
u
F
t
n
i
o
J
s
e
r
u
t
n
e
V
n
i
s
t
s
e
r
e
t
n
I
g
n
i
l
l
o
r
t
n
o
c
n
o
N
d
e
t
a
l
u
m
u
c
c
A
d
e
t
a
d
i
l
o
s
n
o
C
d
e
t
a
d
i
l
o
s
n
o
C
r
e
h
t
O
$
1
2
6
,
6
1
$
)
6
0
9
,
9
1
2
(
$
6
5
7
,
1
0
2
,
4
$
9
2
3
,
2
$
6
3
1
,
3
3
2
8
1
0
2
,
1
3
r
e
b
m
e
c
e
D
f
o
s
a
e
c
n
a
l
a
B
e
v
i
s
n
e
h
e
r
p
m
o
C
)
s
s
o
L
(
e
m
o
c
n
I
s
n
o
i
t
u
b
i
r
t
s
i
D
s
g
n
i
n
r
a
E
n
a
h
t
s
s
e
L
l
a
n
o
i
t
i
d
d
A
-
n
i
-
d
i
a
P
l
a
t
i
p
a
C
s
e
r
a
h
S
n
o
m
m
o
C
t
n
u
o
m
A
s
e
r
a
h
S
e
r
a
h
s
r
e
p
t
p
e
c
x
e
,
s
d
n
a
s
u
o
h
t
n
i
s
t
n
u
o
m
A
(
)
s
t
n
u
o
m
a
t
i
n
u
d
n
a
-
)
0
3
0
,
4
2
(
)
4
2
3
(
)
7
1
6
,
4
9
(
-
-
)
4
6
4
,
2
0
1
(
)
9
3
0
,
0
1
(
9
8
9
,
4
1
)
9
3
2
,
5
4
(
)
9
6
0
,
8
2
(
8
5
2
,
1
1
-
6
0
2
)
0
4
8
,
9
(
1
0
0
,
3
2
-
-
)
2
0
7
,
2
(
7
2
8
,
2
-
7
0
6
5
1
7
3
4
,
0
2
-
)
0
1
7
,
5
8
(
)
6
9
1
,
9
1
(
)
9
9
2
,
2
(
2
6
9
,
0
3
6
,
4
$
8
5
0
,
2
1
4
$
)
2
3
3
(
)
0
0
0
,
0
2
1
(
-
-
)
3
0
6
,
9
8
(
5
5
5
,
1
1
)
7
1
7
,
2
1
(
-
)
4
9
8
,
3
1
(
6
8
3
,
9
1
3
7
5
,
9
0
1
4
3
7
,
5
1
5
,
4
$
-
-
)
4
0
8
,
7
(
-
)
0
9
2
,
1
(
8
6
0
,
8
1
6
5
3
,
3
1
9
7
3
,
6
4
3
-
-
-
-
-
-
-
-
7
4
9
8
9
,
4
1
-
)
0
4
8
,
9
(
)
0
5
4
,
1
(
6
9
3
,
2
7
-
-
-
-
-
6
1
-
-
-
5
5
0
,
8
-
-
-
-
-
)
9
3
2
,
5
4
(
-
-
-
-
-
-
-
-
-
-
-
-
-
)
7
6
3
,
5
2
(
1
3
4
,
8
-
-
-
4
4
1
)
9
9
8
,
6
3
(
-
-
-
)
7
2
3
(
)
5
2
4
,
2
9
(
-
-
-
-
-
-
-
-
6
1
0
,
4
2
-
)
5
4
5
,
4
9
(
-
-
-
-
-
-
)
7
0
6
(
-
4
6
5
,
2
-
4
1
3
)
2
7
(
-
-
-
-
-
-
-
-
-
-
9
0
4
,
1
6
4
)
9
5
1
,
7
(
-
-
-
-
-
-
-
-
-
$
8
7
7
,
0
6
3
$
)
1
7
1
(
$
)
7
5
5
,
9
4
3
(
$
4
8
1
,
3
3
1
,
4
$
4
7
2
,
2
$
2
3
4
,
7
2
2
)
4
0
7
,
4
2
(
-
-
-
-
-
7
5
2
,
9
0
0
5
,
3
)
7
1
7
,
2
1
(
-
-
-
3
4
3
,
6
7
-
-
-
-
-
-
-
-
-
-
)
0
2
6
,
2
1
(
-
-
)
3
3
3
(
)
9
9
7
,
1
8
(
-
-
-
-
-
-
-
9
5
6
,
5
8
-
-
-
-
8
1
3
,
1
0
3
2
,
3
3
)
6
5
3
,
3
1
(
-
-
-
-
-
-
-
)
2
6
8
,
9
1
1
(
)
8
3
1
(
-
1
5
1
-
0
5
1
,
5
8
4
)
3
1
8
,
3
1
(
-
-
-
-
-
-
-
$
7
1
0
,
9
7
$
1
6
1
,
7
3
4
$
)
1
9
7
,
2
1
(
$
)
3
9
3
,
6
5
4
(
$
3
7
1
,
0
2
1
,
4
$
8
8
1
,
2
$
7
1
8
,
8
1
2
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
e
e
S
5
7
f
o
n
o
i
t
p
m
e
d
e
r
n
o
p
u
d
e
u
s
s
i
s
e
r
a
h
s
n
o
m
m
o
C
s
t
i
n
u
n
o
m
m
o
c
e
r
a
h
s
s
u
b
i
n
m
O
r
e
d
n
u
d
e
u
s
s
i
s
e
r
a
h
s
n
o
m
m
o
C
s
e
x
a
t
r
o
f
d
l
e
h
h
t
i
w
s
e
r
a
h
s
f
o
t
e
n
,
n
a
l
p
e
r
a
h
s
r
e
p
0
4
.
0
$
(
s
n
o
i
t
u
b
i
r
t
s
i
d
d
n
a
s
d
n
e
d
i
v
i
D
s
e
r
a
h
s
n
o
m
m
o
c
f
o
s
e
s
a
h
c
r
u
p
e
R
e
m
o
c
n
i
)
s
s
o
l
(
t
e
N
)
t
i
n
u
d
n
a
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
m
o
r
f
s
n
o
i
t
u
b
i
r
t
n
o
C
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
o
t
s
n
o
i
t
u
b
i
r
t
s
i
D
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
f
o
e
u
l
a
v
n
i
e
g
n
a
h
C
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
o
f
o
e
r
a
h
s
a
t
a
r
o
r
P
s
e
i
t
i
l
i
b
a
i
l
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
f
o
t
n
e
m
e
l
t
t
e
S
f
o
n
o
i
t
p
m
e
d
e
r
n
o
p
u
d
e
u
s
s
i
s
e
r
a
h
s
n
o
m
m
o
C
s
t
i
n
u
n
o
m
m
o
c
e
r
a
h
s
s
u
b
i
n
m
O
r
e
d
n
u
d
e
u
s
s
i
s
e
r
a
h
s
n
o
m
m
o
C
s
e
x
a
t
r
o
f
d
l
e
h
h
t
i
w
s
e
r
a
h
s
f
o
t
e
n
,
n
a
l
p
e
r
a
h
s
r
e
p
7
3
.
0
$
(
s
n
o
i
t
u
b
i
r
t
s
i
d
d
n
a
s
d
n
e
d
i
v
i
D
s
e
r
a
h
s
n
o
m
m
o
c
f
o
s
e
s
a
h
c
r
u
p
e
R
)
t
i
n
u
d
n
a
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
m
o
r
f
s
n
o
i
t
u
b
i
r
t
n
o
C
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
o
t
s
n
o
i
t
u
b
i
r
t
s
i
D
)
s
s
o
l
(
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
o
f
o
e
r
a
h
s
a
t
a
r
o
r
P
s
e
r
u
t
n
e
v
t
n
i
o
j
d
e
t
a
d
i
l
o
s
n
o
c
n
u
f
o
e
m
o
c
n
i
y
a
w
d
a
o
r
B
3
3
6
1
n
i
t
s
e
r
e
t
n
i
%
0
.
0
1
a
f
o
e
l
a
S
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
f
o
n
o
i
t
a
c
o
l
l
a
e
R
0
2
0
2
,
1
3
r
e
b
m
e
c
e
D
f
o
s
a
e
c
n
a
l
a
B
s
d
r
a
w
a
y
t
i
u
q
e
f
o
n
o
i
t
a
z
i
t
r
o
m
A
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
f
o
n
o
i
t
i
s
i
u
q
c
A
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
f
o
n
o
i
t
a
c
o
l
l
a
e
R
9
1
0
2
,
1
3
r
e
b
m
e
c
e
D
f
o
s
a
e
c
n
a
l
a
B
s
e
r
u
t
n
e
v
t
n
i
o
j
d
e
t
a
d
i
l
o
s
n
o
c
n
u
f
o
s
d
r
a
w
a
y
t
i
u
q
e
f
o
n
o
i
t
a
z
i
t
r
o
m
A
e
m
o
c
n
i
)
s
s
o
l
(
t
e
N
.
C
N
I
,
P
U
O
R
G
T
N
U
O
M
A
R
A
P
D
E
U
N
I
T
N
O
C
-
Y
T
I
U
Q
E
N
I
S
E
G
N
A
H
C
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
n
i
s
t
s
e
r
e
t
n
I
g
n
i
l
l
o
r
t
n
o
c
n
o
N
d
e
t
a
l
u
m
u
c
c
A
d
e
t
a
d
i
l
o
s
n
o
C
d
e
t
a
d
i
l
o
s
n
o
C
r
e
h
t
O
)
5
3
2
(
-
-
)
1
6
9
(
)
8
7
5
,
7
6
(
1
2
1
)
9
3
5
,
0
3
(
-
-
)
8
6
2
,
6
(
7
5
8
,
6
0
2
6
-
1
7
2
5
6
5
,
9
7
7
7
,
8
1
-
)
5
5
(
8
5
8
6
5
5
,
7
1
-
-
-
-
-
-
-
-
-
5
1
-
-
-
1
2
1
)
9
3
5
,
0
3
(
-
-
-
-
2
5
5
9
5
0
,
2
)
8
1
0
,
2
(
4
3
7
,
5
1
5
,
4
$
9
7
3
,
6
4
3
$
3
9
8
,
2
7
1
0
,
9
7
$
8
3
5
,
1
2
1
6
1
,
7
3
4
l
a
t
o
T
y
t
i
u
q
E
g
n
i
t
a
r
e
p
O
p
i
h
s
r
e
n
t
r
a
P
e
t
a
t
s
E
l
a
e
R
d
n
u
F
t
n
i
o
J
s
e
r
u
t
n
e
V
$
)
1
9
7
,
2
1
(
$
)
3
9
3
,
6
5
4
(
$
3
7
1
,
0
2
1
,
4
$
8
8
1
,
2
$
7
1
8
,
8
1
2
0
2
0
2
,
1
3
r
e
b
m
e
c
e
D
f
o
s
a
e
c
n
a
l
a
B
-
-
-
-
-
-
-
-
-
7
3
2
,
6
2
9
6
,
8
-
)
6
3
2
(
)
4
5
3
,
0
2
(
)
0
1
3
,
1
6
(
-
-
-
-
-
-
)
2
5
5
(
-
0
6
9
-
-
-
-
-
-
5
5
1
7
2
1
2
2
,
1
-
1
1
-
-
-
-
-
-
-
-
-
9
5
6
1
1
-
-
-
-
-
-
-
-
f
o
n
o
i
t
p
m
e
d
e
r
n
o
p
u
d
e
u
s
s
i
s
e
r
a
h
s
n
o
m
m
o
C
s
t
i
n
u
n
o
m
m
o
c
s
e
x
a
t
r
o
f
d
l
e
h
h
t
i
w
s
e
r
a
h
s
f
o
t
e
n
,
n
a
l
p
e
r
a
h
s
e
r
a
h
s
r
e
p
8
2
.
0
$
(
s
n
o
i
t
u
b
i
r
t
s
i
d
d
n
a
s
d
n
e
d
i
v
i
D
s
u
b
i
n
m
O
r
e
d
n
u
d
e
u
s
s
i
s
e
r
a
h
s
n
o
m
m
o
C
e
m
o
c
n
i
)
s
s
o
l
(
t
e
N
)
t
i
n
u
d
n
a
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
m
o
r
f
s
n
o
i
t
u
b
i
r
t
n
o
C
d
n
a
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
f
o
e
u
l
a
v
n
i
e
g
n
a
h
C
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
o
t
s
n
o
i
t
u
b
i
r
t
s
i
D
s
p
a
c
e
t
a
r
t
s
e
r
e
t
n
i
)
s
s
o
l
(
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
o
f
o
e
r
a
h
s
a
t
a
r
o
r
P
s
e
r
u
t
n
e
v
t
n
i
o
j
d
e
t
a
d
i
l
o
s
n
o
c
n
u
f
o
e
m
o
c
n
i
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
f
o
n
o
i
t
a
c
o
l
l
a
e
R
s
d
r
a
w
a
y
t
i
u
q
e
f
o
n
o
i
t
a
z
i
t
r
o
m
A
r
e
h
t
O
e
v
i
s
n
e
h
e
r
p
m
o
C
s
s
o
L
s
n
o
i
t
u
b
i
r
t
s
i
D
s
g
n
i
n
r
a
E
n
a
h
t
s
s
e
L
l
a
n
o
i
t
i
d
d
A
-
n
i
-
d
i
a
P
l
a
t
i
p
a
C
s
e
r
a
h
S
n
o
m
m
o
C
t
n
u
o
m
A
s
e
r
a
h
S
e
r
a
h
s
r
e
p
t
p
e
c
x
e
,
s
d
n
a
s
u
o
h
t
n
i
s
t
n
u
o
m
A
(
)
s
t
n
u
o
m
a
t
i
n
u
d
n
a
2
3
0
,
5
5
4
,
4
$
1
1
1
,
6
5
3
$
5
2
9
,
1
8
$
3
3
8
,
8
2
4
$
8
3
1
,
2
$
)
5
4
8
,
8
3
5
(
$
0
8
6
,
2
2
1
,
4
$
0
9
1
,
2
$
2
9
9
,
8
1
2
1
2
0
2
,
1
3
r
e
b
m
e
c
e
D
f
o
s
a
e
c
n
a
l
a
B
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
e
e
S
6
7
PARAMOUNT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization
Loss from unconsolidated joint ventures
Amortization of stock-based compensation expense
Amortization of deferred financing costs
Distributions of earnings from unconsolidated joint ventures
Amortization of above and below-market leases, net
Straight-lining of rental revenue
Realized and unrealized gains on marketable securities
(Income) loss from unconsolidated real estate funds
Distributions of earnings from unconsolidated real estate funds
Loss (gain) on sale of real estate related to discontinued operations
Real estate impairment loss related to discontinued operations
Receipt of accrued interest on preferred equity investment
Loss on early extinguishment of debt
Other non-cash adjustments
Changes in operating assets and liabilities:
Accounts and other receivables
Deferred charges
Other assets
Accounts payable and accrued expenses
Other liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities:
Additions to real estate
Sales of marketable securities
Purchases of marketable securities
Investments in and contributions of capital to unconsolidated joint ventures
Distributions of capital from unconsolidated real estate funds
Contributions of capital to unconsolidated real estate funds
Proceeds from the sale of real estate related to discontinued operations
Repayment of amounts due from affiliates
Due from affiliates
Redemption of preferred equity investment
Net cash (used in) provided by investing activities
For the Year Ended December 31,
2020
2019
2021
$
2,059 $
(19,196) $
(29,603)
232,487
24,896
18,612
9,127
7,278
(3,070)
(2,495)
(1,535)
(782)
676
-
-
-
-
3,146
1,920
(18,438)
(8,283)
16,246
(37,538)
244,306
(112,001)
40,228
(21,562)
(11,750)
4,926
(3,324)
-
-
-
-
(103,483)
235,890
18,619
19,239
9,277
3,999
(4,734)
(28,216)
(1,918)
(272)
616
12,766
-
-
-
413
1,729
(10,761)
(2,193)
(1,299)
3,313
237,272
(89,463)
22,188
(15,809)
(60)
-
(2,945)
89,206
36,918
-
-
40,035
248,347
4,706
22,860
19,323
4,067
(10,991)
(43,679)
(3,027)
343
1,553
(1,140)
42,000
2,339
731
(961)
845
(23,029)
57,318
(8,949)
2,388
285,441
(103,916)
19,282
(15,232)
(368,852)
2,076
(3,937)
150,307
181,000
(217,918)
33,750
(323,440)
See notes to consolidated financial statements.
77
PARAMOUNT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
(Amounts in thousands)
Cash Flows from Financing Activities:
Proceeds from notes and mortgages payable
Repayment of notes and mortgages payable
Dividends paid to common stockholders
Distributions paid to common unitholders
Distributions to noncontrolling interests
Contributions from noncontrolling interests
Debt issuance costs
Repurchase of shares related to stock compensation agreements
and related tax withholdings
Purchase of interest rate caps
Repayment of borrowings under revolving credit facility
Borrowings under revolving credit facility
Repurchases of common shares
Proceeds from the sale of a 10.0% interest in 1633 Broadway
Repayment of note payable issued in connection with the acquisition of
noncontrolling interest in consolidated real estate fund
Acquisition of noncontrolling interest in consolidated real estate fund
Loss on early extinguishment of debt
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
Reconciliation of Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents at beginning of period
Restricted cash at beginning of period
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents at end of period
Restricted cash at end of period
Cash and cash equivalents and restricted cash at end of period
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest
Cash payments for income taxes, net of refunds
Non-Cash Transactions:
Write-off of fully amortized and/or depreciated assets
Dividends and distributions declared but not yet paid
Additions to real estate included in accounts payable and accrued expenses
Change in value of interest rate swaps and interest rate caps
Transfer of deposit to investment in unconsolidated joint ventures
Common shares issued upon redemption of common units
Note payable issued in connection with the acquisition of noncontrolling
interest in consolidated real estate fund
For the Year Ended December 31,
2020
2021
2019
$
$
$
$
$
$
$
$
888,566 $
(850,000)
(61,297)
(6,182)
(30,539)
121
(16,775)
(235)
(140)
-
-
-
-
-
-
-
(76,481)
9,791 $
-
(89,225)
(8,837)
(12,717)
11,555
-
1,259,843
(1,050,000)
(93,038)
(10,073)
(45,239)
14,989
(10,131)
(332)
-
(200,000)
163,082
(120,000)
111,984
(8,771)
-
-
(143,470)
(324)
-
(195,000)
231,918
(97,137)
-
-
(1,000)
(731)
4,077
64,342
465,324
529,666 $
133,837
331,487
465,324 $
(33,922)
365,409
331,487
434,530 $
30,794
465,324 $
306,215 $
25,272
331,487 $
524,900 $
4,766
529,666 $
434,530 $
30,794
465,324 $
339,653
25,756
365,409
306,215
25,272
331,487
132,476 $
1,762
135,607 $
1,366
139,130
2,474
46,594 $
16,895
12,177
6,857
6,230
961
9,141 $
16,796
8,640
-
-
85,710
8,727
25,255
21,566
28,069
-
24,030
-
-
8,771
See notes to consolidated financial statements.
78
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, a Delaware limited partnership (the “Operating 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. 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 December 31, 2021.
As of December 31, 2021, we owned and/or managed a portfolio aggregating 13.9 million square feet comprised of:
(cid:129)
(cid:129)
(cid:129)
Seven wholly and partially owned properties aggregating 8.6 million square feet in New York, comprised of 8.2 million
square feet of office space and 0.4 million square feet of retail, theater and amenity space;
Six wholly and partially owned properties aggregating 4.3 million square feet in San Francisco, comprised of 4.1 million
square feet of office space and 0.2 million square feet of retail space; and
Six managed properties aggregating 1.0 million square feet in New York and Washington, D.C.
Additionally, we have an investment management business, where we serve as the general partner of real estate funds for
institutional investors and high net-worth individuals.
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.
While our buildings have remained open throughout the pandemic, a majority of our tenants have worked remotely as new variants of
the virus that cause COVID-19 emerged during 2021. The emergence of new variants of the virus that cause COVID-19 or our tenants’
decision to work remotely did not have a material impact on our portfolio-wide rent collections during 2021. For the year ended
December 31, 2021, we collected 99.6% of rents, comprised of 99.9% from office tenants (which account for approximately 96.5% of
our annualized rents) and 92.9% from non-office tenants (which account for the remaining 3.5% of our annualized rents).
Notwithstanding, we continue to navigate the pandemic and monitor its impact on our business. Given the emergence of new variants
of the virus that cause COVID-19 during 2021 and the possibility of future variants, we are precluded at this time from making any
predictions as the ultimate impact it 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 have been prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission
(the “SEC”). These consolidated financial statements include the accounts of Paramount and its consolidated subsidiaries, including
the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation.
Significant Accounting Policies
Real Estate
Real estate is carried at cost less accumulated depreciation and amortization. Betterments, major renovations and certain costs
directly related to the improvement of real estate are capitalized. Maintenance and repair expenses are charged to expense as incurred.
Depreciation is recognized on a straight-line basis over estimated useful lives of the assets, which range from 5 to 40 years. Tenant
improvements are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the
assets.
79
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements,
identified intangibles, such as acquired above-market leases and acquired in-place leases) and acquired liabilities (such as acquired
below-market leases) and allocate the purchase price based on these assessments. We assess fair value based on estimated cash flow
projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows
are based on a number of factors including historical operating results, known trends, and market/economic conditions. We record
acquired intangible assets (including acquired above-market leases and acquired in-place leases) and acquired intangible liabilities
(including below-market leases) at their estimated fair value. We amortize acquired above-market and below-market leases as a
decrease or increase to rental revenue, respectively, over the lives of the respective leases. Amortization of acquired in-place leases is
included as a component of “depreciation and amortization”.
Our properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment analyses are based on our current
plans, intended holding periods and available market information at the time the analyses are prepared. An impairment exists when the
carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted
basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value. Estimates
of fair value are determined using discounted cash flow models, which consider, among other things, anticipated holding periods,
current market conditions and utilize unobservable quantitative inputs, including appropriate capitalization and discount rates. If our
estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation of impairment
losses may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated
cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that
could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood of recording
impairment losses.
Real estate and related intangibles are classified as held for sale when all the necessary criteria are met. The criteria include (i)
management, having the authority to approve action, commits to a plan to sell the property in its present condition, (ii) the sale of the
property is at a price reasonable in relation to its current fair value and (iii) the sale is probable and expected to be completed within
one year. Real estate and the related intangibles held for sale are carried at the lower of carrying amounts or estimated fair value less
disposal costs. Depreciation and amortization is not recognized on real estate and related intangibles classified as assets held for sale.
Variable Interest Entities (“VIEs”) and Investments in Unconsolidated Joint Ventures and Funds
We consolidate VIEs in which we are considered to be the primary beneficiary. Entities are considered to be the primary
beneficiary if they have both of the following characteristics: (i) the power to direct the activities that, when taken together, most
significantly impact the VIE’s performance, and (ii) the obligation to absorb losses and right to receive the returns from the VIE that
would be significant to the VIE. Our judgment with respect to our level of influence or control of an entity involves the consideration
of various factors including the form of our ownership interest, our representation in the entity’s governance, the size of our
investment, estimates of future cash flows, our ability to participate in policy making decisions and the rights of the other investors to
participate in the decision making process and to replace us as manager and/or liquidate the joint venture, if applicable.
We account for investments under the equity method when the requirements for consolidation are not met, and we have
significant influence over the operations of the investee. Equity method investments, which consist of investments in unconsolidated
joint ventures and funds are initially recorded at cost and subsequently adjusted for (i) our share of net income or loss, (ii) our share of
other comprehensive income or loss, and (iii) cash contributions and distributions. To the extent that our cost basis is different than
our share of the equity in the equity method investment, the basis difference allocated to depreciable assets is amortized into “loss
from unconsolidated joint ventures” over the estimated useful life of the related asset. The agreements that govern our equity method
investments may designate different percentage allocations among investors for profits and losses; however, our recognition of income
or loss generally follows the investment’s distribution priorities, which may change upon the achievement of certain investment return
thresholds. We account for cash distributions in excess of our basis in the equity method investments as income when we have neither
the requirement, nor the intent to provide financial support to the joint venture. Investments accounted for under the equity method are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be
recoverable. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair
value. Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are
prepared.
Investments that do not qualify for consolidation or equity method accounting are accounted for under the cost method.
80
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and short-term highly liquid investments with original maturities of three
months or less. The majority of our cash and cash equivalents are held at major commercial banks, which may at times exceed the
Federal Deposit Insurance Corporation limit. To date, we have not experienced any losses on our invested cash.
Restricted Cash
Restricted cash consists primarily of security deposits held on behalf of our tenants, cash escrowed under loan agreements for
debt service, real estate taxes, property insurance and capital improvements and cash restricted in connection with our deferred
compensation plan. In December 2021, the deferred compensation plan was terminated and the net proceeds were distributed to the
plan participants.
Marketable Securities
Marketable securities consists of investments in trading securities that are held in our deferred compensation plan for which there
is an offsetting liability. These investments are initially recorded at cost and subsequently measured at fair value at the end of each
reporting period, with gains or losses resulting from changes in fair value recognized in earnings, which are included as a component
of “interest and other income, net” on our consolidated statements of income and the earnings are entirely offset by expenses from the
mark-to-market of plan liabilities, which are included as a component of “general and administrative” expenses on our consolidated
statements of income. In December 2021, the deferred compensation plan was terminated and the net proceeds were distributed to the
plan participants.
Deferred Charges
Deferred charges include deferred leasing costs related to successful leasing activities and deferred financing costs related to our
revolving credit facility. Deferred leasing costs consist of fees and direct costs related to successful leasing activities. Such deferred
costs are amortized on a straight-line basis over the lives of the related leases and recognized in our consolidated statements of income
as a component of “depreciation and amortization”. Deferred financing costs consist of fees and direct costs incurred in obtaining our
revolving credit facility. Such deferred financing costs are amortized over the term of the revolving credit facility and are recognized
as a component of “interest and debt expense” on our consolidated statements of income.
Deferred Financing Costs Related to Notes and Mortgages Payable
Deferred financing costs related to notes and mortgages payable consists of fees and direct costs incurred in obtaining such
financing and are recorded as a reduction of our notes and mortgages payable. Such costs are amortized over the terms of the related
debt agreements and recognized as a component of “interest and debt expense” on our consolidated statements of income.
Derivative Instruments and Hedging Activities
We record all derivatives on our consolidated balance sheets at fair value in accordance with Accounting Standards Codification
(“ASC”) Topic 815, Derivatives and Hedging. The accounting for changes in the fair value of derivatives depends on the intended use
of the derivative, whether we have designated a derivative as a hedge and whether the hedging relationship has satisfied the criteria
necessary to apply hedge accounting. We use derivative financial instruments in the normal course of business to selectively manage
or hedge a portion of the risk associated with our indebtedness and interest payments. Our objectives in using interest rate derivatives
are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we
primarily use interest rate swaps and interest rate caps. Interest rate swaps and interest rate caps that are designated as hedges are so
designated at the inception of the contract. We require that hedging derivative instruments be highly effective in reducing the risk
exposure that they are designated to hedge. The changes in the fair value of interest rate swaps and interest rate caps that are
designated as hedges are recognized in “other comprehensive income (loss)” (outside of earnings) and subsequently reclassified to
earnings over the term that the hedged transaction affects earnings.
81
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The objective of fair value is to determine the price that would be received
upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
(the exit price). ASC Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure
fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for
assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data;
and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest
priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider
counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in
determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are
made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of
these assets or settlement of these liabilities.
We use the following methods and assumptions in estimating fair value for financial instruments that are presented at fair value
on our consolidated balance sheets:
Interest Rate Swaps and Interest Rate Caps
Interest rate swaps and interest rate caps are valued by a third-party specialist using widely accepted valuation techniques.
The fair values of interest rate swaps are determined using the market standard methodology of netting the
discounted future fixed and variable cash payments or receipts. The variable cash payments or receipts are based on
future interest rates derived from observable market interest rate curves.
The fair values of interest rate caps are determined using the market standard methodology of discounting the future
expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate caps.
The variable interest rates used in the calculation of expected cash receipts are based on future interest rates derived
from observable market interest rate curves and volatilities.
We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective
counterparty’s nonperformance risk in the fair value measurements.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value
hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs. We have determined that
the significance of the impact of the credit valuation adjustments made to our derivative contracts was not significant to the
overall valuation. As a result, all of our derivatives held as December 31, 2021, are classified as Level 2 in the fair value
hierarchy.
Marketable Securities
Marketable securities are valued by a third-party specialist using quoted prices in active markets.
82
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We use the following methods and assumptions in estimating fair value for financial instruments that are not presented at fair
value on our consolidated balance sheets, but are disclosed in the notes to our consolidated financial statements:
Notes and Mortgages Payable
Notes and mortgages payable are valued by a third-party specialist using the standard practice of modeling the contractual
cash flows required under the instrument and discounting them back to their present value at the appropriate current risk
adjusted interest rate. For floating rate debt, we use forward rates derived from observable market yield curves to project the
expected cash payments we would be required to make under the instrument. The notes and mortgages payable are classified
as Level 2 in fair value hierarchy.
The carrying values of all other financial instruments on our consolidated balance sheets, including cash and cash equivalents,
restricted cash, accounts and other receivables and accounts payable and accrued expenses, approximate their fair values due to the
short-term nature of these instruments.
Revenue Recognition
Rental Revenue
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.
We evaluate the collectability of our tenant receivables for payments required under the lease agreements. If we determine
that collectability is not probable, the difference between rental revenue recognized and rental payments received is recorded
as an adjustment to “rental revenue” in our consolidated statements of income.
Fee and Other Income
Fee income includes (i) asset management fees, (ii) property management fees, (iii) fees relating to acquisitions, dispositions
and leasing services and (iv) other fee income, and is recognized in accordance with ASC Topic 606, Revenue from
Contracts with Customers. Fee income is generated from the various services we provide to our customers and is
disaggregated based on the types of services we provide pursuant to ASC Topic 606. Fee income is recognized as and when
we satisfy our performance obligations pursuant to contractual agreements. Property management and asset management
services are provided continuously over time and revenue is recognized over that time. Fee income relating to acquisitions,
dispositions and leasing services is recognized upon completion of the acquisition, disposition or leasing services as required
in the contractual agreements. The amount of fee income to be recognized is stated in the contract as a fixed price or as a
stated percentage of revenues, contributed capital or transaction price. Other income includes income from tenant requested
services, including cleaning, overtime heating and cooling and parking income.
Gains and Losses on Sale of Real Estate
Gains and losses on the sale of real estate are recognized pursuant to ASC Topic 610-20, Gains and Losses from the
Derecognition of Nonfinancial Assets, when (i) we do not have a controlling financial interest in the buyer and (ii) the buyer has
obtained control of the real estate asset. Any gain or loss on sale is measured based on the difference between the amount of
consideration received and the carrying amount of the real estate assets, less costs to sell. For partial sale of real estate resulting in
transfer of control, we measure any noncontrolling interest retained at fair value and recognize a gain or loss on the difference between
fair value and the carrying amount of the real estate assets retained.
83
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. The fair
value of the award on the date of grant (adjusted for estimated forfeitures) is ratably amortized into expense over the vesting period of
the respective grants. The determination of fair value of these awards involves the use of significant estimates and assumptions,
including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards achieve
the requisite performance criteria.
Income Taxes
We operate and have been organized in conformity with the requirements for qualification and taxation as a REIT for U.S. federal
income tax purposes. So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on our net income
that we distribute currently to our stockholders. In order to maintain our qualification as a REIT, we are required under the Internal
Revenue Code of 1986, as amended, to distribute at least 90% of our taxable income (without regard to the deduction for dividends
paid and excluding net capital gains) to our stockholders and meet certain other requirements. If, with respect to any taxable year, we
fail to maintain our qualification as a REIT, and we are not entitled to relief under the relevant statutory provisions, we would be
subject to income tax at regular corporate tax rates. Even if we qualify as a REIT, we may also be subject to certain state, local and
franchise taxes. Under certain circumstances, U.S. federal income tax may be due on our undistributed taxable income.
We treat certain consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT
subsidiaries (“TRSs”). TRSs may participate in non-real estate related activities and/or perform non-customary services for tenants
and are subject to federal and state income tax at regular corporate tax rates. Our TRSs had a combined current income tax expense of
approximately $2,024,000, $698,000 and $242,000 for the years ended December 31, 2021, 2020 and 2019, respectively. In addition,
our TRSs had combined deferred income tax expense of $703,000 and $32,000 for the years ended December 31, 2021 and 2020,
respectively, and a combined deferred income tax benefit of $28,000 for the year ended December 31, 2019.
The following table reconciles net loss attributable to Paramount Group, Inc. to estimated taxable income for the years ended
December 31, 2021, 2020 and 2019.
(Amounts in thousands)
Net loss attributable to Paramount Group, Inc.
Book to tax differences:
Straight-lining of rents and amortization of above and
below-market leases, net
Depreciation and amortization
Stock-based compensation
Deferred compensation plan
Real estate impairment loss
Sale of real estate
Other, net
For the Year Ended December 31,
2020
2019
2021
$
(20,354) $
(24,704) $
(36,899)
3,082
62,218
16,933
(28,793) (1)
-
-
27,476
60,562 $
(10,462)
62,002
17,766
-
-
55,640
(11,095)
89,147 $
(37,244)
79,750
20,812
500
38,237
12,107
12,253
89,516
Estimated taxable income
$
(1)
In December 2021, the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants.
84
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the characterization of dividend distributions for federal income tax purposes for the years ended
December 31, 2021, 2020 and 2019.
2021
For the Year Ended December 31,
2020
2019
Amount
$
Ordinary income
Long-term capital gain
Return of capital
Total
$
0.253 (1)
0.023
0.004
0.280 (2)
%
Amount
%
Amount
%
90.4%
8.2%
1.4%
100.0%
$
$
0.210 (1)
0.190
0.000
0.400 (2)
52.5%
47.5%
0.0%
100.0%
$
$
0.323 (1)
0.062
0.015
0.400 (2)
80.7%
15.5%
3.8%
100.0%
(1) Represents amounts treated as “qualified REIT dividends” for purposes of Internal Revenue Code Section 199A.
(2) Dividends declared in the fourth quarter of the years ended December 31, 2021, 2020 and 2019 of $0.07, $0.07 and $0.10 per share, respectively,
that were paid in January of the subsequent years, were attributable to the years in which they were paid, for federal income tax purposes.
Segments
Our reportable segments are separated by region, based on the two 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.
See Note 22, Segments.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make 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.
85
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 do not believe the adoption
of ASU 2020-06 will have a material impact 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.
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.
1899 Pennsylvania Avenue
On December 24, 2020, we completed the sale of 1899 Pennsylvania Avenue, a 191,000 square foot trophy office building
located in Washington, D.C., for $103,000,000. We realized net proceeds of $89,206,000 from the sale after transaction costs and
recognized a loss of $12,766,000, which is included as a component of “loss from discontinued operations, net” on our consolidated
statement of income for the year ended December 31, 2020.
86
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Liberty Place
On September 26, 2019, we sold Liberty Place, a 172,000 square foot office building in Washington, D.C., for $154,500,000. In
connection therewith, we recognized a gain of $1,140,000, which is included as a component of “loss from discontinued operations,
net” on our consolidated statement of income for the year ended December 31, 2019.
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)
Income Statements: (1)
Revenues:
Rental revenue
Other income
Total revenues
Expenses:
Operating
Depreciation and amortization
Total expenses
Other income (expense):
Real estate impairment loss
Income (loss) before gain or loss on sale of real estate
(Loss) gain on sale of real estate (2)
Loss before income taxes
Income tax expense
Loss from discontinued operations, net
$
$
For the Year Ended December 31,
2020
2019
13,967 $
276
14,243
5,853
690
6,543
-
7,700
(12,766)
(5,066)
(9)
(5,075) $
24,969
457
25,426
10,134
8,243
18,377
(42,000)
(34,951)
1,140
(33,811)
-
(33,811)
Statements of Cash Flows: (1)
Cash provided by operating activities
Cash provided by investing activities
Proceeds from sale of real estate (3)
Additions to real estate
Total cash provided by investing activities
Cash used in financing activities
$
$
$
$
For the Year Ended December 31,
2020
2019
5,522 $
15,949
89,206 $
-
89,206 $
150,307
(1,514)
148,793
(96,896) $
(162,294)
Additional Cash Flow Information:
Depreciation and amortization
(1) Represents revenues, expenses, net income, and cash flow information of 1899 Pennsylvania Avenue in the year
ended December 31, 2020 and 1899 Pennsylvania Avenue and Liberty Place in the year ended December 31, 2019.
690 $
8,243
$
(2) Represents the loss on sale of 1899 Pennsylvania Avenue in 2020 and gain on sale of Liberty Place in 2019.
(3) Represents the proceeds from the sale of 1899 Pennsylvania Avenue in 2020 and Liberty Place in 2019.
87
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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)
Our Share of Investments:
712 Fifth Avenue (1)
Market Center
55 Second Street (2)
111 Sutter Street
60 Wall Street (2)
One Steuart Lane (2)
Oder-Center, Germany (2)
Investments in unconsolidated joint ventures
Paramount
Ownership
As of December 31,
2021
2020
50.0% $
67.0%
44.1%
49.0%
5.0%
35.0% (3)
9.5%
$
- $
185,344
88,284
35,182
19,230
76,428
3,628
408,096 $
-
192,306
92,298
37,818
19,164
67,505
3,633
412,724
(Amounts in thousands)
Our Share of Net (Loss) Income:
For the Year Ended December 31,
2020
2019
2021
712 Fifth Avenue (1)
Market Center (4)
55 Second Street (2)(5)
111 Sutter Street (6)
60 Wall Street (2)
One Steuart Lane (2)
Oder-Center, Germany (2)
Loss from unconsolidated joint ventures
$
$
$
(10,265)
(11,848)
(2,912)
(2,658)
66
2,678 (7)
43
(24,896)
$
$
687
(11,315)
(2,723)
(3,172)
(70)
(2,043)
17
(18,619) $
1,849
(744)
(826)
(4,394)
(551)
(118)
78
(4,706)
(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 year ended December 31, 2021, we received $1,485 in distributions
from the joint venture and made an $11,750 contribution to the joint venture. Accordingly, we recognized a loss of $10,265, which is
included in “loss from unconsolidated joint ventures” on our consolidated statement of income. Additionally, the joint venture had net
losses of $4,498 for the year ended December 31, 2021, of which our 50.0% share was $2,249. Accordingly, our basis in the joint
venture, taking into account distributions received, contributions made and our share of losses, was negative $14,329 as of December
31, 2021.
(2) As of December 31, 2021, the carrying amount of our investments in 55 Second Street, 60 Wall Street, One Steuart Lane and Oder-
Center, Germany was greater than our share of equity in these investments by $478, $2,617, $751, $4,658, respectively, and primarily
represents the unamortized portion of our capitalized acquisition costs.
(3) Represents our consolidated Residential Development Fund’s (“RDF”) economic interest in One Steuart Lane, a for-sale residential
condominium project.
(4) Acquired on December 11, 2019.
(5) Acquired on August 21, 2019.
(6) Acquired on February 7, 2019.
(7)
Includes RDF’s share of gain on sale of residential condominium units.
88
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables provide the combined summarized financial information of our unconsolidated joint ventures as of the dates
and for the periods set forth below.
(Amounts in thousands)
Balance Sheets:
Real estate, net
Cash and cash equivalents and restricted cash
Intangible assets, net
For-sale residential condominium units (1)
Other assets
Total assets
Notes and mortgages payable, net
Intangible liabilities, net
Other liabilities
Total liabilities
Equity
Total liabilities and equity
$
$
$
$
As of December 31,
2021
2020
2,246,152 $
216,910
58,590
359,638
46,646
2,927,936 $
1,791,404 $
18,397
61,097
1,870,898
1,057,038
2,927,936 $
2,674,858
120,149
110,307
-
45,761
2,951,075
1,801,084
26,772
87,575
1,915,431
1,035,644
2,951,075
(Amounts in thousands)
Income Statements:
Revenues:
Rental revenue
Other income
Total revenues
Expenses:
Operating
Depreciation and amortization
Total expenses
Other income (expense):
Interest and other (loss) income, net
Interest and debt expense
Net loss before income taxes
Income tax expense
Net loss
2021
For the Year Ended December 31,
2020
2019
$
$
229,420 $
139,705 (2)
369,125
220,396 (2)
107,079
327,475
(111)
(63,493)
(21,954)
(32)
(21,986) $
243,713 $
2,828
246,541
109,114
117,640
226,754
(36)
(58,239)
(38,488)
(47)
(38,535) $
164,316
2,108
166,424
68,491
68,318
136,809
663
(51,113)
(20,835)
(16)
(20,851)
(1) Represents the cost of residential condominium units at One Steuart Lane that are available for sale.
(2)
Includes proceeds and cost of sales from the sale of residential condominium units at One Steuart Lane.
89
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2021, Fund X has
$192,000,000 of capital committed, of which $80,221,000 has been invested and $32,816,000 has been reserved for future funding.
Our ownership interest in Fund VIII and Fund X was approximately 1.3% and 7.8%, respectively, as of December 31, 2021.
As of December 31, 2021 and 2020, our share of the investments in the unconsolidated real estate funds aggregated $11,421,000
and $12,917,000, respectively. We recognized income of $782,000 and $272,000 for the years ended December 31, 2021 and 2020,
respectively, and loss of $343,000 for the year ended December 31, 2019.
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.
(Amounts in thousands)
Intangible assets:
Gross amount
Accumulated amortization
Intangible liabilities:
Gross amount
Accumulated amortization
As of December 31,
2021
2020
$
$
$
$
371,555 $
(252,142)
119,413 $
151,118 $
(105,790)
45,328 $
436,851
(283,332)
153,519
163,977
(107,981)
55,996
(Amounts in thousands)
Amortization of above and below-market leases, net
(component of "rental revenue")
Amortization of acquired in-place leases
(component of "depreciation and amortization")
$
$
For the Year Ended December 31,
2020
2021
2019
3,070 $
4,775 $
11,097
26,507 $
36,628 $
46,917
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,
2022
2023
2024
2025
2026
$
Above and
Below-Market
Leases, Net
1,344 $
5,080
6,020
4,674
2,801
In-Place Leases
21,644
17,705
14,248
10,451
7,896
90
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Debt
On July 29, 2021, we completed an $860,000,000 refinancing of 1301 Avenue of the Americas, a 1.7 million square foot trophy
office building, located in New York, New York. The new five-year interest-only loan has a weighted average interest rate of 2.96%
(as of December 31, 2021) and is comprised of a $500,000,000 fixed rate tranche and a $360,000,000 variable rate tranche. The
proceeds from the refinancing were used to repay the existing $850,000,000 loan that was scheduled to mature in November 2021.
On December 17, 2021, we refinanced our $1.0 billion revolving credit facility with a new $750,000,000 revolving credit facility
that matures in March 2026 and has two six-month extension options. The interest rate on the new facility is 115 basis points over the
secured overnight financing rate ("SOFR") with adjustments based on the term of advances, plus a facility fee of 20 basis points. The
facility also features a sustainability-linked pricing component such that if we meet certain sustainability performance targets, the
applicable per annum interest rate will be reduced by one basis point.
The following table summarizes our consolidated outstanding debt.
(Amounts in thousands)
Notes and mortgages payable:
1633 Broadway (1)
Maturity
Date
Fixed/
Variable Rate
Interest Rate
as of
December 31, 2021
As of December 31,
2020
2021
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
Aug-2026
Aug-2026
Fixed (2)
L + 356 bps (3)
2.46%
3.67%
2.96%
500,000
360,000
860,000
500,000
350,000
850,000
31 West 52nd Street
Jun-2026
Fixed
3.80%
500,000
500,000
300 Mission Street (1)
Oct-2023
Fixed
3.65%
273,000
244,434
Total notes and mortgages payable
Less: unamortized deferred financing costs
Total notes and mortgages payable, net
3.40% 3,858,000
(22,380)
3,819,434
(18,695)
$ 3,835,620 $ 3,800,739
$750 Million Revolving
Credit Facility
Mar-2026 SOFR + 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) Represents variable rate loans that have been fixed by interest rate swaps through August 2024. See Note 8, Derivative Instruments and Hedging
Activities.
(3) Represents variable rate loans, where LIBOR has been capped at 2.00% through August 2023. See Note 8, Derivative Instruments and Hedging
Activities.
The following table summarizes the principal repayments required for the next five years and thereafter in connection with our
consolidated notes and mortgages payable and revolving credit facility as of December 31, 2021.
Notes and
Revolving
$
(Amounts in thousands)
2022
2023
2024
2025
2026
Thereafter
Total
Mortgages Payable Credit Facility
-
- $
-
273,000
-
975,000
-
-
-
1,360,000
-
1,250,000
-
1,360,000
1,250,000
- $
273,000
975,000
91
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Derivative Instruments and Hedging Activities
On July 29, 2021, we completed an $860,000,000 refinancing of 1301 Avenue of the Americas. In connection with the
refinancing, we entered into interest rate swap agreements on the loan with an aggregate notional amount of $500,000,000 to fix
LIBOR at 0.46% through August 2024. We also entered into interest rate cap agreements with an aggregate notional amount of
$360,000,000 to cap LIBOR at 2.00% through August 2023. These interest rate swaps and interest rate caps are designated as cash
flow hedges and therefore changes in their fair values are recognized in other comprehensive income or loss (outside of earnings). We
recognized other comprehensive income of $6,857,000 for the year ended December 31, 2021, from the changes in fair value of these
derivative financial instruments. See Note 10, Accumulated Other Comprehensive Income (Loss). During the next twelve months, we
estimate that $3,000 of the amounts to be recognized in accumulated other comprehensive income or loss will be reclassified as a
decrease to interest expense.
The table below provide additional details on our interest rate swaps that are designated as cash flow hedges.
Property
Notional
Amount
Effective Date
Maturity Date Rate
December 31, 2021
Strike
Fair Value as of
(Amounts in thousands)
1301 Avenue of the Americas $
500,000
Total interest rate swap assets designated as cash flow hedges (included in "other assets")
Aug-2024
Jul-2021
0.46% $
$
6,691
6,691
We have agreements with various derivative counterparties that contain provisions wherein a default on our indebtedness could be
deemed a default on our derivative obligations, which would require us to settle our derivative obligations for cash. As of
December 31, 2021, we did not have any obligations relating to our interest rate swaps or interest rate caps that contained such
provisions.
9. Equity
Stock Repurchase Program
On November 5, 2019, we received authorization from our Board of Directors to repurchase up to an additional $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. We did not repurchase
any shares during the year ended December 31, 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.
92
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Accumulated Other Comprehensive Income (Loss)
The following table sets forth changes in accumulated other comprehensive income (loss) by component for the years ended
December 31, 2021, 2020 and 2019, including amounts attributable to noncontrolling interests in the Operating Partnership.
(Amounts in thousands)
Amount of income (loss) related to the cash flow hedges
recognized in other comprehensive income (loss)
Amount reclassified from accumulated other comprehensive
income (loss) increasing (decreasing) interest and debt expense
Amount reclassified to loss on early extinguishment of debt (3)
Amount of income (loss) related to unconsolidated joint ventures
recognized in other comprehensive income (loss) (4)
Amounts reclassified from accumulated other comprehensive
income (loss) increasing loss from unconsolidated joint ventures (4)
For the Year Ended December 31,
2020
2019
2021
$
6,069
(1)
(1)
$
788
-
(2)
(2)
- $
(23,147)
-
-
(4,922)
11,258
5,562
(16,141)
4,003
2,247
206
-
(1) Represents amounts related to interest rate swaps with an aggregate notional value of $500,000 and interest rate caps with an aggregate notional
value of $360,000, which were designated as cash flow hedges.
(2) Represents amounts related to interest rate swaps with an aggregate notional amount of $1.0 billion and forward starting interest rate swaps with
an aggregate notional amount of $400,000 that were designated as cash flow hedges. These hedges were terminated in November 2019 in
connection with the refinancing of the related asset.
(3) Represents costs incurred in connection with the settlement of interest rate swap liabilities upon the refinancing of 1633 Broadway in November
2019.
(4) Primarily represents amounts related to interest rate swap with a notional value of $402,000, which was designated as cash flow hedge.
11. 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 December 31, 2021 and 2020, noncontrolling interests in our consolidated joint ventures
aggregated $428,833,000 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 December 31, 2021 and 2020, the noncontrolling interest in our consolidated real estate fund aggregated
$81,925,000 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 December 31, 2021
and 2020, noncontrolling interests in the Operating Partnership on our consolidated balance sheets had a carrying amount of
$356,111,000 and $346,379,000, respectively, and a redemption value of $181,315,000 and $187,640,000, respectively, based on the
closing share price of our common stock on the New York Stock Exchange at the end of each year.
93
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. 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 December 31, 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 December 31, 2021 and 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.
(Amounts in thousands)
Real estate, net
Cash and cash equivalents and restricted cash
Investments in unconsolidated joint ventures
Accounts and other receivables
Deferred rent receivable
Deferred charges, net
Intangible assets, net
Other assets
Total VIE assets
Notes and mortgages payable, net
Accounts payable and accrued expenses
Intangible liabilities, net
Other liabilities
Total VIE liabilities
$
$
$
$
As of December 31,
2021
2020
3,415,735 $
198,154
76,428
6,801
197,794
53,013
62,380
15,551
4,025,856 $
2,487,871 $
54,738
27,674
6,427
2,576,710 $
3,470,766
134,647
67,505
6,871
192,401
55,156
76,545
21,496
4,025,387
2,457,272
51,590
33,566
4,486
2,546,914
Unconsolidated VIEs
As of December 31, 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.
(Amounts in thousands)
Investments
Asset management fees and other receivables
Maximum risk of loss
As of December 31,
2021
2020
$
$
11,421 $
9
11,430 $
12,917
561
13,478
94
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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.
(Amounts in thousands)
Interest rate swap assets (included in "other assets")
Interest rate cap assets (included in "other assets")
Total assets
(Amounts in thousands)
Marketable securities (included in "other assets") (1)
Total assets
Total
6,691 $
306
6,997 $
As of December 31, 2021
Level 2
Level 1
Level 3
- $
-
-
$
6,691 $
306
6,997
$
Total
As of December 31, 2020
Level 2
Level 1
Level 3
17,178 $
17,178 $
17,178 $
$
17,178
- $
$
-
-
-
-
-
-
$
$
$
$
(1) Represents the assets in our deferred compensation plan. In December 2021, the deferred compensation plan was terminated and the net
proceeds were distributed to the plan participants.
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 December 31, 2021
Fair
Value
Carrying
Amount
As of December 31, 2020
Fair
Value
Carrying
Amount
Notes and mortgages payable
Revolving credit facility
Total liabilities
$
$
3,858,000 $
3,893,252 $
3,819,434 $
-
-
-
3,858,000 $
3,893,252 $
3,819,434 $
3,871,644
-
3,871,644
95
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Leases
The following table sets forth the details of our rental revenue.
(Amounts in thousands)
Rental revenue:
Fixed
Variable
Total rental revenue
2021
For the Year Ended December 31,
2020
2019
$
$
635,513 $
(2)
54,905
690,418 $
(1)$
627,352
51,663
679,015 $
647,345
62,163
709,508
(1)
(2)
Includes (i) $33,205 of non-cash write-offs, primarily for straight-line rent receivables and (ii) $2,051 of reserves for uncollectible accounts
receivable.
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-cancelable operating leases in effect as of
December 31, 2021, for each of the five succeeding years and thereafter commencing January 1, 2022.
(Amounts in thousands)
2022
2023
2024
2025
2026
Thereafter
Total
$
$
635,304
625,493
612,419
557,699
462,128
2,294,340
5,187,383
15. Fee and Other Income
The following table sets forth the details of our fee and other income.
(Amounts in thousands)
Fee income:
Asset management
Property management
Acquisition, disposition, leasing and other
Total fee income
Other income (1)
Total fee and other income
2021
For the Year Ended December 31,
2020
2019
$
$
13,284 $
8,589
6,600
28,473
7,895
36,368 $
14,266 $
9,242
4,562
28,070
7,152
35,222 $
10,442
6,852
5,450
22,744
11,502
34,246
(1)
Primarily comprised of (i) tenant requested services, including cleaning, overtime heating and cooling and (ii) parking income.
96
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the amounts receivable from our customers under our various fee agreements and are included as a
component of “accounts and other receivables” on our consolidated balance sheets.
(Amounts in thousands)
Accounts and other receivables:
Balance as of December 31, 2020
Balance as of December 31, 2021
(Decrease) increase
16. Interest and Other Income, net
Total
Management
Management
and Other
Asset
Property
Disposition, Leasing
Acquisition,
$
$
5,179 $
3,206
(1,973) $
1,949 $
2,072
123 $
793 $
686
(107) $
2,437
448
(1,989)
The following table sets forth the details of interest and other income, net.
(Amounts in thousands)
Interest income, net
Mark-to-market of investments in our deferred
compensation plans (1)
Preferred equity investment income (2)
Total interest and other income, net
$
$
2021
For the Year Ended December 31,
2020
1,183
$
2,054
$
2019
1,834
-
3,017
$
2,436
-
4,490
$
5,484
3,906
454
9,844
(1)
(2)
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.
The preferred equity investment was redeemed on March 1, 2019.
17. Interest and Debt Expense
The following table sets forth the details of interest and debt expense.
(Amounts in thousands)
Interest expense
Amortization of deferred financing costs
Total interest and debt expense
For the Year Ended December 31,
2020
2019
2021
$
$
132,887
9,127 (1)
142,014
$
$
134,931
9,277
144,208
$
$
137,356
19,323 (1)
156,679
(1)
Includes $761 of expense from the non-cash write-off of deferred financing costs in connection with the $860,000 refinancing of 1301
Avenue of the Americas in July 2021 and $8,215 of expense from the non-cash write-off of deferred financing costs in connection with the
$1.25 billion refinancing of 1633 Broadway in November 2019.
97
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Incentive Compensation
Stock-Based Compensation
Our Amended and Restated 2014 Equity Incentive Plan (the “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. Under the Plan, awards may be granted up to a maximum of 20,892,857 shares, if all
awards granted are “full value awards,” as defined, and up to 41,785,714 shares, if all of the awards granted are “not full value awards,”
as defined. “Full value awards” are awards that do not require the payment of an exercise price such as restricted stock, time-based
LTIP units and performance-based LTIP units. “Not full value awards” are awards that require the payment of an exercise price such
as AOLTIP units. As of December 31, 2021, we have 7,426,576 shares available for future grants under the Plan, if all awards granted
are full value awards, as defined in the Plan.
The following table summarizes the components of stock-based compensation expense for the years ended December 31, 2021,
2020 and 2019.
(Amounts in thousands)
Time-based units:
LTIP units
AOLTIP units
Performance-based LTIP units
Restricted stock
Stock options
Total stock-based compensation expense
For the Year Ended December 31,
2020
2019
2021
$
$
8,554 $
1,885
7,023
1,150
-
18,612 $
10,463 $
-
7,499
1,217
60
19,239 $
11,860
-
8,477
1,228
1,295
22,860
Time-Based Unit Awards Program (LTIP and AOLTIP Units)
LTIP Units
We grant our executive officers, non-employee directors and employees LTIP units which vest over a period of three to five
years and are subject to a taxable book-up event, as defined. 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.
The LTIP units granted in the years ended December 31, 2021, 2020 and 2019 had grant date fair values of $8,665,000,
$10,940,000 and $13,091,000, respectively, which are being amortized into expense on a straight-line basis over the vesting
period. As of December 31, 2021, there was $12,675,000 of total unrecognized compensation cost related to unvested LTIP units,
which is expected to be recognized over a weighted-average period of 2.6 years. The following table summarizes our LTIP unit
activity for the year ended December 31, 2021.
Units
Weighted-Average
Grant-Date Fair Value (per unit)
12.36
8.20
11.82
11.98
10.40
$
1,724,809
1,056,395
(726,332)
(14,136)
2,040,736 $
Unvested as of December 31, 2020
Granted
Vested
Cancelled or expired
Unvested as of December 31, 2021
98
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AOLTIP Units
We grant our executive officers AOLTIP units which vest over a period of three to four years. 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
AOLTIP units granted in the year ended December 31, 2021, had a grant date fair value of $4,344,000, which is being amortized
into expense on a straight-line basis over the vesting period. The fair value of the AOLTIP unit is estimated using an option-
pricing model with the following weighted average assumptions for grants in the year ended December 31, 2021.
Expected volatility
Expected life
Risk free interest rate
Expected dividend yield
For the Year Ended
December 31, 2021
34.0%
4.8 years
0.6%
3.0%
As of December 31, 2021, there was $2,239,000 of total unrecognized compensation cost related to unvested AOLTIP units,
which is expected to be recognized over a weighted-average period of 3.1 years. The following table summarizes our AOLTIP
unit activity for the year ended December 31, 2021.
Weighted-
Average
Exercise Price
(per unit)
Weighted-
Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic
Value
Shares
Outstanding as of December 31, 2020
Granted
Exercised
Cancelled or expired
Outstanding as of December 31, 2021
AOLTIP units vested and expected to vest as of
December 31, 2021
AOLTIP units exercisable as of December 31, 2021
- $
2,171,875
-
-
2,171,875 $
2,061,845 $
600,000 $
-
8.63
-
-
8.63
8.63
8.63
6.1 $
6.1 $
6.1 $
-
-
-
Performance-Based Award Programs (“Performance Programs”)
We grant our executive officers and employees LTIP units under multi-year performance-based long-term equity
compensation programs. The purpose of these Performance Programs is to further align the interests of our stockholders with that
of management by encouraging our senior officers to create stockholder value in a “pay for performance” structure. Under the
Performance Programs, participants may earn LTIP units based on our performance over a three-year performance measurement
period relative to the performance of our Central Business District focused New York City office peers, and to the performance of
the constituents of the SNL U.S. Office REIT Index at the time the awards were granted. If the designated performance objectives
are achieved, awards earned under the Performance Programs are subject to vesting over a period of four years and are also
subject to a taxable book-up event, as defined.
99
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The LTIP units granted under the Performance Programs in the years ended December 31, 2021, 2020 and 2019 had grant
date fair values of $7,303,000, $7,488,000 and $8,106,000, respectively, and are being amortized into expense over the four-year
vesting period using a graded vesting attribution method. As of December 31, 2021, there was $8,733,000 of total unrecognized
compensation cost related to unvested LTIP units granted under the Performance Programs, which is expected to be recognized
over a weighted average period of 2.1 years. The following table summarizes our LTIP unit activity granted under the
Performance Programs for the year ended December 31, 2021.
Unvested as of December 31, 2020
Granted
Earned and Vested
Cancelled or expired
Unvested as of December 31, 2021
Units
Weighted-Average
Grant-Date Fair Value (per unit)
5.93
$
4.33
-
5.05
5.57
3,780,792
1,687,202
-
(1,368,107)
4,099,887 $
Completion of the 2017 Performance-Based Awards Program (“2017 Performance Program”)
On December 31, 2020, the performance measurement period for the 2017 Performance Program ended. On
January 11, 2021, the Compensation Committee of our Board of Directors (the “Compensation Committee”) determined that
the performance goals set forth in the 2017 Performance Program were not met. Accordingly, all of the 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 that was amortized into expense over the four-year vesting period through December 31, 2021 using a graded
vesting distribution method.
2020 Performance-Based Awards Program (“2020 Performance Program”)
On January 11, 2021, 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 the performance of the
constituents of the SNL U.S. Office REIT Index at the time the awards were granted. 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.
100
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock
We grant shares of restricted stock to a non-employee director and our employees which vest over four years. The shares of
restricted stock granted in the years ended December 31, 2021, 2020 and 2019 had grant date fair values of $1,584,000,
$1,209,000 and $1,238,000, respectively, which are being amortized into expense on a straight-line basis over the vesting period.
As of December 31, 2021, there was $1,956,000 of total unrecognized compensation cost related to restricted stock, which is
expected to be recognized over a weighted-average period of 2.4 years. The table below summarizes our restricted stock activity
for the year ended December 31, 2021.
Shares
Weighted-Average
Grant-Date Fair Value (per share)
Unvested as of December 31, 2020
Granted
Vested
Cancelled or expired
Unvested as of December 31, 2021
$
168,708
180,861
(80,562)
(38,461)
230,546 $
13.44
8.76
12.76
10.84
10.44
Stock Options
We did not grant any stock options in the years ended December 31, 2021, 2020 and 2019. Stock options granted in prior
years to certain of our executive officers and other employees vest over periods ranging from three to five years and expire 10
years from the date of grant.
The following table summarizes our stock option activity for the year ended December 31, 2021.
Shares
2,032,493 $
Outstanding as of December 31, 2020
-
Granted
-
Exercised
(21,500)
Cancelled or expired
Outstanding as of December 31, 2021
2,010,993 $
Options vested and expected to vest as of December 31, 2021 2,010,993 $
2,010,993 $
Options exercisable as of December 31, 2021
Weighted-
Average
Exercise Price
(per share)
Weighted-
Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic
Value
17.06
-
-
17.50
17.06
17.06
17.06
3.7 $
3.7 $
3.7 $
-
-
-
101
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. 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.
(Amounts in thousands, except per share amounts)
Numerator:
Continuing Operations:
Net loss from continuing operations
attributable to common stockholders
Earnings allocated to unvested participating securities
Numerator for net loss from continuing operations
per common share - basic and diluted
Discontinued Operations:
Net loss from discontinued operations attributable
to common stockholders
Earnings allocated to unvested participating securities
Numerator for net loss from discontinued
operations per common share - basic and diluted
Numerator for net loss per common share - basic and diluted
Denominator:
Denominator for basic loss per common share -
weighted average shares
Effect of dilutive stock-based compensation plans (1)
Denominator for diluted loss per common share -
weighted average shares
Loss per Common Share - Basic and Diluted:
Continuing operations, net
Discontinued operations, net
Net loss per common share - basic and diluted
For the Year Ended December 31,
2020
2019
2021
$
(20,354) $
(70)
(20,063) $
(44)
(20,424)
(20,107)
-
-
-
$
(20,424) $
(4,641)
(22)
(4,663)
(24,770) $
218,701
-
222,436
-
218,701
222,436
$
$
(0.09) $
-
(0.09) $
(0.09) $
(0.02)
(0.11) $
(6,418)
(27)
(6,445)
(30,481)
(44)
(30,525)
(36,970)
231,538
-
231,538
(0.03)
(0.13)
(0.16)
(1)
The effect of dilutive securities for the years ended December 31, 2021, 2020 and 2019 excludes 23,775, 23,540 and 27,191 weighted average
share equivalents, respectively, as their effect was anti-dilutive.
102
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. 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 $1,726,000, $1,227,000 and $842,000 for the years ended December 31, 2021, 2020 and 2019,
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 December 31, 2021 and December 31, 2020, amounts owed to us under these agreements aggregated
$484,000 and $34,000, respectively, which are included as a component of “accounts and other receivables” on our consolidated
balance sheets.
We also provide asset management, property management, leasing and other related services to our unconsolidated joint ventures
and real estate funds. We recognized fee income of $23,240,000, $22,986,000 and $17,466,000, for the years ended
December 31, 2021, 2020 and 2019, respectively, in connection with these agreements. As of December 31, 2021 and 2020, amounts
owed to us under these agreements aggregated $2,883,000 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 joint ventures and 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 plus a
mark-up of 10%. HTC is 100% owned by Albert Behler, our Chairman, Chief Executive Officer and President. We incurred expenses
of $645,000, $512,000 and $796,000 for the years ended December 31, 2021, 2020 and 2019, respectively, in connection with this
agreement, which are included as a component of “transaction related costs” on our consolidated statements of income. As of
December 31, 2021 and 2020, we owed $523,000 and $123,000, respectively, 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 $362,000 in each of the years ended December 31, 2021 and 2020, and
$360,000 for the year ended December 31, 2019 for our share of rental income pursuant to this lease.
Other
We have entered into an agreement with Kramer Design Services (“Kramer Design”) to, among other things, develop company-
wide standard branding guidelines. Kramer Design is owned by the spouse of Albert Behler, our Chairman, Chief Executive Officer
and President. We recognized expenses of $10,000 and $187,000 for the years ended December 31, 2021 and 2020, respectively, in
connection with this agreement. There were no amounts owed to Kramer Design under this agreement as of December 31, 2021 and
December 31, 2020.
Kramer Design has also entered into agreements with 712 Fifth Avenue, our 50.0% owned unconsolidated joint venture, to,
among other things, create and design marketing materials with respect to the vacant retail space at 712 Fifth Avenue. We recognized
expenses of $29,000 for the year ended December 31, 2020 for our share of the fees incurred in connection with these agreements.
103
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. 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 agreements 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 December 31, 2021, we believe we are in
compliance with all of our covenants.
718 Fifth Avenue - Put Right
Prior to the formation transactions, an affiliate of our predecessor owned a 25.0% interest in 718 Fifth Avenue, a five-story
building containing 19,050 square feet of prime retail space that is located on the southwest corner of 56th Street and Fifth Avenue in
New York (based on its 50.0% interest in a joint venture that held a 50.0% tenancy-in-common interest in the property). Prior to the
completion of the formation transactions, this interest was sold to its partner in the 718 Fifth Avenue joint venture, who is also our
joint venture partner in 712 Fifth Avenue, New York, New York. In connection with this sale, we granted our joint venture partner a
put right, pursuant to which the 712 Fifth Avenue joint venture would be required to purchase the entire direct or indirect interests
then held by our joint venture partner or its affiliates in 718 Fifth Avenue at a purchase price equal to the fair market value of such
interests. The put right may be exercised at any time with the actual purchase occurring no earlier than 12 months after written notice
is provided. If the put right is exercised and the 712 Fifth Avenue joint venture acquires the 50.0% tenancy-in-common interest in the
property by our joint venture partner, we will own a 25.0% interest in 718 Fifth Avenue based on current ownership interests.
104
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $52,100,000. 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.
22. Segments
Our reportable segments are separated by region, based on two 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.
(Amounts in thousands)
Property-related revenues
Property-related operating expenses
NOI from unconsolidated joint ventures
(excluding One Steuart Lane)
NOI (1)
(Amounts in thousands)
Property-related revenues
Property-related operating expenses
NOI from unconsolidated joint ventures
NOI (1)
(Amounts in thousands)
Property-related revenues
Property-related operating expenses
NOI from unconsolidated joint ventures
NOI (1)
$
$
$
$
$
$
For the Year Ended December 31, 2021
Total
New York
San Francisco
Other
698,313 $
(265,438)
43,597
476,472 $
443,384 $
(191,793)
11,303
262,894 $
258,188
$
(69,976)
32,221
220,433
$
(3,259)
(3,669)
73
(6,855)
For the Year Ended December 31, 2020
Total
New York
San Francisco
Other (2)
700,410 $
(273,440)
48,631
475,601 $
454,071 $
(194,648)
11,540
270,963 $
234,893
$
(68,924)
38,892
204,861
$
11,446
(9,868)
(1,801)
(223)
For the Year Ended December 31, 2019
Total
New York
San Francisco
Other (2)
746,436 $
(274,836)
22,409
494,009 $
482,648 $
(191,211)
13,151
304,588 $
238,808
$
(69,815)
9,065
178,058
$
24,980
(13,810)
193
11,363
(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 years ended December 31, 2020 and 2019 includes NOI from discontinued operations. See Note 3, Discontinued Operations.
105
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation of NOI to net loss attributable to common stockholders for the periods set forth
below.
(Amounts in thousands)
NOI
Add (subtract) adjustments to arrive to net income (loss):
Fee income
Depreciation and amortization expense
General and administrative expenses
NOI from unconsolidated joint ventures (excluding One Steuart Lane)
Loss from unconsolidated joint ventures
Interest and other income, net
Interest and debt expense
Loss on early extinguishment of debt
Adjustments related to discontinued operations (including
impairments and gain or loss on sale of real estate)
Other, net
Income (loss) from continuing operations, before income taxes
Income tax expense
Income (loss) from continuing operations, net
Loss from discontinued operations, net
Net income (loss)
Less: net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate fund
Operating Partnership
Net loss attributable to common stockholders
$
For the Year Ended December 31,
2020
2019
2021
$
476,472 $
475,601 $
494,009
28,473
(232,487)
(59,132)
(43,597)
(24,896)
3,017
(142,014)
-
-
(134)
5,702
(3,643)
2,059
-
2,059
28,070
(235,200)
(64,917)
(48,631)
(18,619)
4,490
(144,208)
-
(8,390)
(824)
(12,628)
(1,493)
(14,121)
(5,075)
(19,196)
(21,538)
(2,893)
2,018
(20,354) $
(9,257)
1,450
2,299
(24,704) $
22,744
(240,104)
(68,556)
(22,409)
(4,706)
9,844
(156,679)
(11,989)
(15,292)
(2,342)
4,520
(312)
4,208
(33,811)
(29,603)
(11,022)
(313)
4,039
(36,899)
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:
December 31, 2021
December 31, 2020
December 31, 2019
Total
New York
San Francisco
Other
$
8,494,562 $
8,554,097
8,734,135
5,336,210 $
5,388,596
5,439,929
$
2,696,131
2,698,983
2,708,463
462,221
466,518
585,743
106
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed,
recorded, summarized and reported within the time periods specified in the SEC’s rules and regulations, and that such information is
accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives.
As of December 31, 2021, the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under
the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer,
regarding the effectiveness of our disclosure controls and procedures. Based on the foregoing evaluation, as of the end of the period
covered by this Annual Report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted
under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over our financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed
under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with
U.S. generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets,
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance
with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisitions, use or disposition of our assets that could have a material effect on our financial statements.
As of December 31, 2021, management conducted an assessment of the effectiveness of our internal control over financial
reporting based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that our
internal control over financial reporting was effective as of December 31, 2021.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited our financial statements and has issued a
report on the effectiveness of our internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting in connection with the evaluation referenced above that
occurred in the fourth quarter of the fiscal year ended December 31, 2021 that have materially affected, or are reasonably likely to
materially affect our internal control over financial reporting.
107
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Paramount Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Paramount Group, Inc. and subsidiaries (the “Company”) as of
December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control —
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2021, of
the Company and our report dated February 22, 2022, expressed an unqualified opinion on those financial statements and financial
statement schedules.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 22, 2022
108
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 will be set forth in our Definitive Proxy Statement for our 2022 Annual Meeting of
Stockholders (which is scheduled to be held on May 12, 2022), to be filed pursuant to Regulation 14A under the Securities and
Exchange Act of 1934, as amended, or our Proxy Statement, and is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by Item 11 will be set forth in our Proxy Statement and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by Item 12 will be set forth in our Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 will be set forth in our Proxy Statement and is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 relating to our principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34), will be set
forth in our Proxy Statement and is incorporated herein by reference.
109
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
(a) The following documents are filed as part of this report:
PART IV
1. The consolidated financial statements are set forth in Item 8 of this Annual Report on Form 10-K.
2. The following financial statement schedules should be read in conjunction with the financial statements included:
Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2021, 2020 and 2019
111
Pages in this
Annual Report
on Form 10-K
(b) The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index on page 113 of this Annual Report, on Form
10-K, and is incorporated herein by reference.
ITEM 16.
FORM 10-K SUMMARY
None.
110
I
N
M
U
L
O
C
H
N
M
U
L
O
C
G
N
M
U
L
O
C
F
N
M
U
L
O
C
E
N
M
U
L
O
C
D
N
M
U
L
O
C
C
N
M
U
L
O
C
B
N
M
U
L
O
C
A
N
M
U
L
O
C
.
C
N
I
,
P
U
O
R
G
T
N
U
O
M
A
R
A
P
I
I
I
E
L
U
D
E
H
C
S
N
O
I
T
A
I
C
E
R
P
E
D
D
E
T
A
L
U
M
U
C
C
A
D
N
A
E
T
A
T
S
E
L
A
E
R
s
r
a
e
Y
0
4
o
t
s
r
a
e
Y
0
4
o
t
s
r
a
e
Y
0
4
o
t
s
r
a
e
Y
0
4
o
t
s
r
a
e
Y
0
4
o
t
5
5
5
5
5
4
1
0
2
/
1
1
4
1
0
2
/
1
1
4
1
0
2
/
1
1
4
1
0
2
/
1
1
4
1
0
2
/
1
1
s
r
a
e
Y
0
4
o
t
s
r
a
e
Y
0
4
o
t
s
r
a
e
Y
0
4
o
t
5
5
5
4
1
0
2
/
1
1
7
1
0
2
/
7
0
6
1
0
2
/
2
1
1
7
9
1
3
6
9
1
7
8
9
1
9
8
9
1
3
8
9
1
6
7
9
1
8
6
9
1
9
7
9
1
)
0
8
5
,
3
0
3
(
)
4
4
6
,
2
2
2
(
)
1
2
7
,
2
2
1
(
)
1
2
8
,
2
8
(
)
2
4
6
,
0
6
(
)
8
0
4
,
2
9
7
(
)
3
7
4
,
6
5
(
)
1
7
8
,
9
4
(
)
8
6
3
,
8
0
2
(
)
2
1
7
,
4
1
3
(
n
o
e
f
i
L
h
c
i
h
w
n
o
i
t
a
i
c
e
r
p
e
d
t
s
e
t
a
l
n
i
e
m
o
c
n
i
t
n
e
m
e
t
a
t
s
e
t
a
D
f
o
e
t
a
D
d
e
t
a
l
u
m
u
c
c
A
n
o
i
t
a
i
c
e
r
p
e
d
d
n
a
d
e
t
u
p
m
o
c
s
i
d
e
r
i
u
q
c
a
n
o
i
t
c
u
r
t
s
n
o
c
n
o
i
t
a
z
i
t
r
o
m
a
)
1
(
l
a
t
o
T
$
5
6
6
,
3
6
0
,
2
$
5
9
2
,
1
0
9
5
7
7
,
8
0
6
6
7
1
,
4
2
4
1
5
6
,
3
7
5
,
1
h
c
i
h
w
t
a
t
n
u
o
m
a
s
s
o
r
G
d
o
i
r
e
p
f
o
e
s
o
l
c
t
a
d
e
i
r
r
a
c
d
n
a
g
n
i
d
l
i
u
B
s
t
n
e
m
e
v
o
r
p
m
i
9
1
8
,
0
6
5
,
1
2
1
6
,
7
6
1
,
1
7
7
9
,
9
7
6
7
8
0
,
4
3
4
5
3
4
,
0
2
3
$
6
4
8
,
2
0
5
9
3
0
,
6
0
4
8
1
3
,
1
2
2
8
8
6
,
4
7
1
1
4
7
,
3
0
1
d
n
a
L
$
2
6
5
,
1
7
5
,
5
0
3
9
,
2
6
1
,
4
2
3
6
,
8
0
4
,
1
1
6
7
,
7
3
5
2
2
7
,
5
2
5
4
6
6
,
6
9
3
7
5
9
,
7
9
3
8
7
3
,
1
7
3
,
1
5
3
6
,
2
8
0
,
1
1
6
8
,
4
3
4
,
2
6
5
2
,
7
7
8
,
1
3
4
7
,
8
8
2
7
9
0
,
1
4
1
5
6
7
,
7
2
1
5
0
6
,
7
5
5
s
r
a
e
Y
0
4
o
t
5
4
1
0
2
/
1
1
)
7
5
8
,
5
(
8
3
6
,
1
2
8
3
6
,
1
2
-
)
7
7
9
,
2
1
1
,
1
(
$
1
6
0
,
8
2
0
,
8
$
4
2
8
,
1
6
0
,
6
$
7
3
2
,
6
6
9
,
1
$
6
5
4
,
1
3
6
$
d
n
a
g
n
i
d
l
i
u
B
s
t
n
e
m
e
v
o
r
p
m
i
8
7
4
,
2
6
1
5
1
9
,
5
1
1
3
8
9
,
4
7
4
3
5
,
3
6
4
0
4
,
4
2
4
1
3
,
1
4
4
1
2
6
,
4
9
5
4
8
,
2
5
8
3
0
,
1
2
4
0
5
,
8
6
1
8
3
6
,
1
2
$
-
-
-
-
-
-
-
-
-
-
-
-
d
e
z
i
l
a
t
i
p
a
c
s
t
s
o
C
t
n
e
u
q
e
s
b
u
s
n
o
i
t
i
s
i
u
q
c
a
o
t
d
n
a
L
$
y
n
a
p
m
o
c
o
t
t
s
o
c
l
a
i
t
i
n
I
d
n
a
g
n
i
d
l
i
u
B
s
t
n
e
m
e
v
o
r
p
m
i
d
n
a
L
s
e
c
n
a
r
b
m
u
c
n
E
n
o
i
t
p
i
r
c
s
e
D
)
s
d
n
a
s
u
o
h
t
n
i
s
t
n
u
o
m
A
(
$
0
0
0
,
0
5
2
,
1
$
y
a
w
d
a
o
r
B
3
3
6
1
1
4
3
,
8
9
3
,
1
7
9
6
,
1
5
0
,
1
4
9
9
,
4
0
6
3
5
5
,
0
7
3
1
3
0
,
6
9
2
6
1
6
,
1
2
7
,
3
4
1
0
,
8
8
9
9
1
8
,
3
4
3
9
1
9
,
6
7
3
2
5
7
,
8
0
7
,
1
$
6
4
8
,
2
0
5
9
3
0
,
6
0
4
8
1
3
,
1
2
2
8
8
6
,
4
7
1
1
4
7
,
3
0
1
-
-
0
0
0
,
0
6
8
0
0
0
,
0
0
5
2
3
6
,
8
0
4
,
1
0
0
0
,
0
1
6
,
2
3
4
7
,
8
8
2
7
9
0
,
1
4
1
5
6
7
,
7
2
1
5
0
6
,
7
5
5
-
0
0
0
,
5
7
9
0
0
0
,
3
7
2
0
0
0
,
8
4
2
,
1
s
a
c
i
r
e
m
A
e
h
t
f
o
e
u
n
e
v
A
1
0
3
1
s
a
c
i
r
e
m
A
e
h
t
f
o
e
u
n
e
v
A
5
2
3
1
t
e
e
r
t
S
d
n
2
5
t
s
e
W
1
3
k
r
o
Y
w
e
N
l
a
t
o
T
e
u
n
e
v
A
d
r
i
h
T
0
0
9
o
c
s
i
c
n
a
r
F
n
a
S
l
a
t
o
T
a
z
a
l
P
t
e
k
r
a
M
e
n
O
t
e
e
r
t
S
n
o
i
s
s
i
M
0
0
3
t
e
e
r
t
S
t
n
o
r
F
e
n
O
-
-
-
$
8
6
3
,
0
3
4
,
5
$
7
3
2
,
6
6
9
,
1
$
0
0
0
,
8
5
8
,
3
$
r
e
h
t
O
l
a
t
o
T
1
1
1
.
s
e
s
o
p
r
u
p
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
r
o
f
d
e
t
r
o
p
e
r
t
n
u
o
m
a
e
h
t
n
a
h
t
r
e
w
o
l
n
o
i
l
l
i
b
4
.
2
$
y
l
e
t
a
m
i
x
o
r
p
p
a
s
i
s
e
s
o
p
r
u
p
x
a
t
r
o
f
s
t
e
s
s
a
s
’
y
n
a
p
m
o
C
e
h
t
f
o
s
i
s
a
b
e
h
T
)
1
(
PARAMOUNT GROUP, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(Amounts in thousands)
Real Estate:
Beginning balance
Acquisitions
Additions during the year:
Land
Buildings and improvements
Assets sold and written-off
Ending balance
Accumulated Depreciation:
Beginning balance
Additions charged to expense
Accumulated depreciation related
to assets sold and written-off
Ending balance
For the Year Ended December 31,
2020
2019
2021
$
7,963,315 $
7,889,885 $
-
-
-
111,340
(46,594)
8,028,061 $
-
82,571
(9,141)
7,963,315 $
966,697 $
192,874
(46,594)
1,112,977 $
790,216 $
185,622
(9,141)
966,697 $
$
$
$
7,793,784
-
-
104,408
(8,307)
7,889,885
617,974
180,549
(8,307)
790,216
112
Exhibit
Number
EXHIBIT INDEX
Exhibit Description
3.1
3.2
3.3
4.1
4.2
10.1*
10.2
10.3
10.4
10.5
10.6
10.7
10.8†
10.9†
Second Articles of Amendment and Restatement of Paramount Group, Inc., effective May 17, 2019,
incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K, filed with the SEC on May 20, 2019.
Fourth Amended and Restated Bylaws of Paramount Group, Inc., effective as of February 9, 2021, incorporated
by reference to Exhibit 3.2 to the Registrant’s Form 10-K filed with the SEC on February 10, 2021.
First Amendment to the Fourth Amended and Restated Bylaws of Paramount Group, Inc., effective as of
February 18, 2022, incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed with the SEC on
February 22, 2022.
Specimen Certificate of Common Stock of Paramount Group, Inc., incorporated by reference to Exhibit 4.1 to
Amendment No. 3 to the Registrant’s Form S-11 (Registration No. 333-198392) filed with the SEC on
November 12, 2014.
Description of Securities of the Registrant incorporated by reference to Exhibit 4.2 to the Registrant’s Form 10-
K filed with the SEC on February 10, 2021.
Second Amended and Restated Limited Partnership Agreement of Paramount Group Operating Partnership LP,
dated as of October 26, 2020.
Registration Rights Agreement by and among Paramount Group, Inc. and the holders named therein, dated
November 6, 2014, incorporated by reference to Exhibit 10.2 to Amendment No. 3 to the Registrant’s Form S-11
(Registration No. 333-198392) filed with the SEC on November 12, 2014.
Registration Rights Agreement among Paramount Group, Inc. and the persons named therein, dated November
6, 2014, incorporated by reference to Exhibit 10.3 to Amendment No. 3 to the Registrant’s Form S-11
(Registration No. 333-198392) filed with the SEC on November 12, 2014.
Stockholders Agreement between Paramount Group, Inc. and Maren Otto, Alexander Otto and Katharina Otto-
Bernstein, dated November 6, 2014, incorporated by reference to Exhibit 10.4 to Amendment No. 3 to the
Registrant’s Form S-11 (Registration No. 333-198392) filed with the SEC on November 12, 2014.
Amended and Restated Waiver of Ownership Limits granted to The Otto Family by Paramount Group, Inc.,
incorporated by reference to Exhibit 10.11 to the Registrant’s Form 10-K filed with the SEC on
February 12, 2020.
Form of Indemnification Agreement between Paramount Group, Inc. and each of its Directors and Executive
Officers, incorporated by reference to Exhibit 10.6 to Amendment No. 3 to the Registrant’s Form S-11
(Registration No. 333-198392) filed with the SEC on November 12, 2014.
Second Amended and Restated Credit Agreement dated as of December 17, 2021, among Paramount Group
Operating Partnership LP, as the Borrower, Paramount Group, Inc., certain subsidiaries of Paramount Group,
Inc. from time to time party thereto, as Guarantors, each lender from time to time party thereto, Bank of
America, N.A., as Administrative Agent, and the financial institutions party thereto as L/C Issuers, incorporated
by reference to Exhibit 10.1 to the Registrant’s 8-K filed with the SEC on December 21, 2021.
Amended and Restated 2014 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Registrant’s
Form 8-K filed with the SEC on May 17, 2021.
Second Amended and Restated Employment Agreement among Paramount Group Operating Partnership LP,
Paramount Group, Inc. and Albert Behler, dated as of October 26,2021, incorporated by reference to Exhibit
10.1 to the Registrant’s Form 8-K filed with the SEC on October 29, 2021.
113
10.10†
10.11†
10.12*†
Amended and Restated Employment Agreement among Paramount Group, Inc., Paramount Group Operating
Partnership LP and Wilbur Paes, effective February 4, 2021, incorporated by reference to Exhibit 10.1 to the
Registrant’s Form 8-K filed with the SEC on February 5, 2021.
Employment Agreement among Paramount Group, Inc., Paramount Group Operating Partnership LP and Peter
Brindley, effective February 4, 2021, incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K
filed with the SEC on February 5, 2021.
Resignation and Release Agreement among Paramount Group, Inc., Paramount Group Operating Partnership, LP
and David Zobel dated December 20, 2021.
10.13*†
Paramount Group, Inc. Executive Severance Plan.
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
List of Subsidiaries of the Registrant.
Consent of Deloitte & Touche LLP.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.SCH*
Inline XBRL Taxonomy Extension Schema.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase.
104*
*
**
†
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information
contained in Exhibits 101.)
_______________________
Filed herewith.
Furnished herewith.
Indicates management contract or compensatory plan or arrangement required to be filed or incorporated by
reference as an exhibit to this Form 10-K pursuant to Item 15(b) of Form 10-K.
114
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 22, 2022
By:
/s/ Wilbur Paes
(Wilbur Paes)
Chief Operating Officer, Chief Financial Officer and Treasurer
(duly authorized officer and principal financial officer)
Paramount Group, Inc.
Date: February 22, 2022
By:
/s/ Ermelinda Berberi
(Ermelinda Berberi)
Senior Vice President, Chief Accounting Officer
(duly authorized officer and principal accounting officer)
115
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
By:
/s/ Albert Behler
(Albert Behler)
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
February 22, 2022
By:
/s/ Wilbur Paes
(Wilbur Paes)
Chief Operating Officer, Chief Financial Officer and Treasurer
(Principal Financial Officer)
February 22, 2022
By:
/s/ Ermelinda Berberi
(Ermelinda Berberi)
Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer)
February 22, 2022
By:
/s/ Thomas Armbrust
(Thomas Armbrust)
Director
By:
/s/ Martin Bussmann
(Martin Bussmann)
By:
/s/ Colin Dyer
(Colin Dyer)
By:
/s/ Karin Klein
(Karin Klein)
By:
/s/ Peter Linneman
(Peter Linneman)
Director
Director
Director
Director
By:
/s/ Katharina Otto-Bernstein
(Katharina Otto-Bernstein)
Director
By:
/s/ Mark Patterson
(Mark Patterson)
By:
/s/ Greg Wright
(Greg Wright)
Director
Director
116
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
Exhibit 31.1
I, Albert Behler, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of Paramount Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
February 22, 2022
/s/ Albert Behler
Albert Behler
Chairman, Chief Executive Officer and President
Exhibit 31.2
I, Wilbur Paes, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of Paramount Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
February 22, 2022
/s/ Wilbur Paes
Wilbur Paes
Chief Operating Officer, Chief Financial Officer and Treasurer
CERTIFICATION
Exhibit 32.1
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Paramount Group, Inc.
(the “Company”), hereby certifies, to such officer’s knowledge, that:
(cid:129)
(cid:129)
the Annual Report on Form 10-K for the year ended December 31, 2021 (the “Report”) of the
Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, and
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
This certification shall not be deemed “filed” for any purpose, nor shall it be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 regardless of any
general incorporation language in such filing.
February 22, 2022
/s/ Albert Behler
Name: Albert Behler
Title: Chairman, Chief Executive Officer and President
CERTIFICATION
Exhibit 32.2
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Paramount Group, Inc.
(the “Company”), hereby certifies, to such officer’s knowledge, that:
(cid:129)
(cid:129)
the Annual Report on Form 10-K for the year ended December 31, 2021 (the “Report”) of the
Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, and
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
This certification shall not be deemed “filed” for any purpose, nor shall it be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 regardless of any
general incorporation language in such filing.
February 22, 2022
/s/ Wilbur Paes
Name: Wilbur Paes
Title: Chief Operating Officer, Chief Financial Officer and Treasurer
1
9
9
6
6
4
_
c
v
r
i
n
Corporate Highlights
Best in Class
Irreplaceable
OWNER AND OPERATOR OF
CLASS A OFFICE PROPERTIES IN
NEW YORK AND SAN FRANCISCO
PORTFOLIO OF HIGH-QUALITY
AND MODERN TROPHY ASSETS
$14 Billion
ASSETS UNDER MANAGEMENT
13.9 Million
SQUARE FEET ACROSS 19
OWNED AND/OR MANAGED
ASSETS
Conceptual Rendering, 1301 Avenue of the Americas
Corporate Data
PARAMOUNT GROUP 2021 ANNUAL REPORT
BOARD OF DIRECTORS
MANAGEMENT
Albert Behler
Chairman,
Chief Executive Officer & President
Albert Behler
Chairman,
Chief Executive Officer & President
Thomas Armbrust
Chairman of the Supervisory Board,
CURA Vermögensverwaltung
Wilbur Paes
Chief Operating Officer,
Chief Financial Officer and Treasurer
Martin Bussmann
Trustee, Mannheim Trust
Peter Brindley
Executive Vice President,
Head of Real Estate
Colin Dyer
Former Chairman and Current Member
of the Supervisory Board, Unibail-
Rodamco S.E.
Gage Johnson
Senior Vice President,
General Counsel and Secretary
Ermelinda Berberi
Senior Vice President,
Chief Accounting Officer
Karin Klein
Founding Partner, Bloomberg Beta
Peter Linneman
Professor Emeritus,
The University of Pennsylvania,
Wharton School of Business
Katharina Otto-Bernstein
President, Film Manufacturers Inc.
Mark Patterson
President, MRP Holdings LLC
Greg Wright
Chief Investment Officer,
Digital Realty Trust, Inc.
r
e
d
n
a
x
e
A
l
y
d
n
a
S
:
g
n
i
t
n
i
r
P
;
y
n
a
p
m
o
C
+
s
i
g
d
O
:
n
g
i
s
e
d
d
n
a
n
o
i
t
c
e
r
i
d
e
v
i
t
a
e
r
C
99664_cvrin
1
ABOUT OUR STOCK
Our Common Stock is listed on the New
York Stock Exchange under the symbol
PGRE.
ANNUAL MEETING
Thursday, May 12, 2022
INVESTOR RELATIONS
INFORMATION
ir@pgre.com
(212) 492-2298
REGISTRAR & TRANSFER
AGENT
Computershare Trust Company, N.A.
www.computershare.com/us/
(800) 962-4284
CORPORATE COUNSEL
Goodwin Procter LLP
New York, NY
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
New York, NY
n
i
r
v
c
_
4
6
6
9
9
1
3/23/22 1:18 PM
1
99664_cvr in
99664_cvr.indd 4-6
C
M
Y
K
432
17.313 in x 10.875 in
Paramount Group Operating Partnership LP
03.23.2022 13:25PM
99664
craum (sa1) (sa1)
99664_cvr in
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
1
9
9
6
6
4
_
c
v
r
CORPORATE HEADQUARTERS
1633 Broadway, Suite 1801
New York, New York 10019
(212) 237-3100
w w w.pgre.com
2021
Annual
Report
P
A
R
A
M
O
U
N
T
G
R
O
U
P
,
I
N
C
.
2
0
2
1
A
N
N
U
A
L
R
E
P
O
R
T
1
99664_cvr
99664.indd 1-3
C
M
Y
K
432
17.313 in x 10.875 in
Paramount Group Operating Partnership LP
03.19.2022 09:22AM
99664
craum (sa1) (sa1)
99664_cvr
tbujak
file://sanjfs5.sa1.com/Sandy2/99664
99664_cvr
1
r
v
c
_
4
6
6
9
9
1
3/19/22 9:17 AM