Corporate Headquarters
1633 Broadway
New York, New York 10019
(212) 237-3100
w w w.pgre.com
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2023
Paramount Group
Annual Report
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PARAMOUNT GROUP OPERATING PARTNERSHIP LP
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Corporate Highlights
We are a best-in-class owner, operator and manager of
Class A office properties. Our trophy buildings are some
of the most sought-after addresses in New York and
San Francisco.
Nationally Recognized
Diverse and high-creditworthy tenant base
Experienced and Diverse
Management team with proven track record
156473Cover_2023AR_032124
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Corporate Data
Paramount Group 2023 Annual Report
Board of Directors
Management
About Our Stock
Albert Behler
Chairman,
Albert Behler
Chairman,
Our common stock is listed on the
New York Stock Exchange under the
Chief Executive Officer & President
Chief Executive Officer & President
symbol PGRE.
Thomas Armbrust
Wilbur Paes
Chairman of the Supervisory Board,
Chief Operating Officer,
CURA Vermögensverwaltung
Chief Financial Officer and Treasurer
Annual Meeting
Thursday, May 16, 2024
Martin Bussmann
Peter Brindley
Former Trustee, Mannheim Trust
Executive Vice President,
Head of Real Estate
Gage Johnson
Senior Vice President,
General Counsel and Secretary
Ermelinda Berberi
Senior Vice President,
Chief Accounting Officer
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
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
Hitoshi Saito
Former Senior Executive Managing
Director and Global Head,
Mitsui Fudosan CO. Ltd
Paula Sutter
Chief Executive Officer,
Paula Sutter LLC
Greg Wright
Chief Investment Officer,
Digital Realty Trust, Inc.
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Irreplaceable
13.8 Million
Portfolio of high-quality and modern trophy assets
Square feet across 18 owned and/or managed assets
Best in Class
$8.4 Billion
Owner and operator of Class A office properties
Assets under management
Dear Shareholder,
As we reflect on the past year, we continue to make
remarkable strides toward our strategic goals. We are
well positioned for continued success. Notwithstanding a
challenging landscape, characterized by elevated interest
rates and inflation, our commitment is unwavering, and
we remain resilient and focused on our core objectives:
owning and managing premier assets and attracting quality
tenants, providing superior service, and retaining best-in-
class talent. This approach continues to serve us well and
reinforce our standing as a premier owner of Class A and
trophy assets.
We began the year facing a dynamic macro landscape
characterized by a rising interest rate environment
and elevated inflation, a combination that persisted
through most of the year. Early in 2023, we encountered
an unexpected regional banking crisis in which two of
our key tenants, SVB Securities and First Republic, faced
difficulties. This had the potential to significantly impact
our earnings and cash flows. However, adversity has a way
of revealing strength, and our team rose to the occasion
with unwavering determination. Rather than succumbing to
the challenge, we took a proactive approach. Behind the
scenes we worked tirelessly to transform what could have
been a significant blow into an opportunity for growth.
When JPMorgan Chase acquired First Republic,
we immediately entered into negotiations with them.
They agreed to assume approximately 75% of the space
previously leased to First Republic under the same
economic terms as were in place. This outcome wound
up protecting significant value and mitigating substantial
risk. Of the remaining 25% of space that JPMorgan Chase
did not assume, approximately 75% was subleased to other
tenants that we were able to convert into direct leases. In
total, we took what could have been a multi-million-dollar
problem based on lost rent and expenses, and converted
it into a relationship with one of the largest banks in
the world.
Albert Behler
Chairman, CEO and President
“We continue to maintain
our disciplined approach,
confident that the strength
of our Class A portfolio,
high-caliber tenant roster,
and dedicated workforce
will enable us to navigate
market cycles.”
2 | Annual Report 2023
Now with 2023 behind us, we look to carry the positive
momentum into 2024. Our primary focus this year will
undoubtedly be leasing up our availabilities and near-term
expirations while advancing office reintegration. Our goal is
straightforward – de-risk the roll. We have set an ambitious
leasing goal of 650,000 to 900,000 square feet, aligned
with our proven leasing capabilities. Our 2024 Core FFO
guidance range of between $0.73 and $0.79 per share is
also ahead of consensus.
Leasing
Leasing has always been a core competency for Paramount,
exemplified by our reliability, consistency and dedication to
superb service and premier assets. These defining qualities
remain steadfast, notwithstanding market cycles,
We also negotiated a new lease with the entity that acquired
substantially all of the assets of SVB Securities. The new
entity retained about 62% of the space previously leased by
SVB Securities on a long-term basis and kept the remaining
38% on a short-term basis. The negotiations with both
SVB Securities and JPMorgan Chase occurred concurrently,
underscoring the tremendous effort and coordination
required from our team. This virtually simultaneous success
was achievable only through the incredible hard work
and dedication of our talented team, and I could not be
prouder of their efforts. This outcome highlights not only the
strength and desirability of our premium assets, but also our
proactive, hands-on management approach and ability to
tackle challenges head-on to deliver shareholder value.
We continue to maintain our disciplined approach, confident
that the strength of our Class A portfolio, high-caliber tenant
roster, and dedicated workforce will enable us to navigate
market cycles. Positive signs continue to emerge, as we
are encouraged to see tenants increasingly returning to
the office. As more companies implement permanent
back-to-office policies, physical occupancy steadily climbs.
This reaffirms our conviction that the value of in-person
collaboration has become clear. Hybrid and remote models
continue to demonstrate lower productivity over time, while
eroding carefully cultivated corporate cultures. Employers
recognize that thriving long term relies upon reintegrating
the office. Our consistent strategy and premium assets
position us favorably as this trend accelerates.
On the earnings front, we have continued to execute,
as we ended the year with Core FFO of $0.87 per share,
hitting the high end of our guidance range, and above
Wall Street consensus estimates. Regarding leasing, we
executed about 740,000 square feet, near the midpoint of
guidance with solid terms and rates. We are proud of our
2023 performance, showcasing the quality and appeal of
our assets and the skill of our team.
Paramount Group | 3
center at the core of Paramount’s campus. Slated to open
this spring, it has already proven a magnet for attracting
New York’s top tenants.
While San Francisco is lagging New York in recovery, it also
continues to demonstrate a “flight to quality” trend which
benefits our portfolio. As San Francisco’s recovery is driven
by rising office occupancy, record venture capital funding,
and growth of AI-focused companies, we believe our assets
will outperform. We aim to maintain a core portfolio of assets
well positioned to flourish. Earlier this year, we modified and
extended our One Market Plaza loan, paying down a modest
portion of principal to achieve a three-year extension with a
favorable rate, showcasing the asset’s strength.
Capital Allocation
Our approach to capital allocation remains consistent,
disciplined and opportunistic. Every decision is made with an
uncompromising focus on maximizing long-term shareholder
value. Our strategy encompasses:
• Capitalizing on Opportunity: Harvest capital from fully
stabilized assets and recycle that capital selectively to
acquire under-appreciated or under-leased assets in
high-barrier-to-entry markets with strong fundamentals.
• Creating 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.
On the transaction front, activity remained muted in 2023
but is expected to accelerate as market conditions evolve. If
interest rates decline from current levels as many anticipate,
bid-ask spreads could begin to narrow, spurring more deals.
We also foresee more distressed assets surfacing as loans
mature, providing opportunities for well-capitalized investors
like Paramount. When transaction activity increases, we will
remain strategic and disciplined in capital allocation, focused
only on opportunities meeting our rigorous risk-adjusted
return thresholds.
and will continue to distinguish us. We are heartened by
the long-term commitments embodied in our new and
renewal leases, with a sturdy weighted-average term of 9.6
years achieved in 2023. Our leasing prowess persists as an
enduring advantage.
In New York, our portfolio is concentrated in Midtown.
We leased approximately 502,000 square feet this year, at
strong terms averaging 11.1 years, and are encouraged by
the interest we saw in 2023 and are seeing so far in 2024.
While New York’s overall availability remains high,
submarket variations are evident. For instance, Midtown’s
desirable Sixth Avenue corridor has over 500 basis points
lower availability than Midtown overall. This benefits
Paramount, as our assets are concentrated here where we
continue capturing outsized demand and is reflected in
our strong 90.2% same store leased occupancy rate for
New York. The bulk of our near-term availabilities are also
concentrated on Sixth Avenue, where we are well positioned
to lease them given recent velocity. Prospective tenant
activity in our New York portfolio continues to increase, as
does our pipeline of occupancy increasing opportunities,
most notably for the remaining vacancy at 1301 Avenue
of the Americas, where we are proud to showcase the
Paramount Club, our new 32,000 square foot amenity
4 | Annual Report 2023
ESG
We made further tremendous progress on our ESG
initiatives in 2023, which serve as a pillar of our business
strategy and values. Our achievements included:
• Earning a GRESB 5-Star Rating for the fifth straight year,
placing our ESG performance in the top 20% of entrants.
We outperformed the GRESB peer score by 6% and the
GRESB average score by 18%.
• Achieving the ENERGY STAR Partner of the Year
designation for the third consecutive year, exemplifying
our energy efficiency leadership. We also maintained
ENERGY STAR labels across 100% of assets.
• Upholding our industry-leading recognition for operating
a 100% LEED Platinum or Gold certified REIT portfolio.
All of this affirms our comprehensive sustainability
leadership. Our commitment to environmentally certified
buildings is unparalleled, and our ESG efforts deliver tangible
value. Sustainability initiatives lower operating costs
through efficiency. Tenants also increasingly take notice
and prioritize environmentally friendly, healthy workspaces,
knowing how important they are to their workforce. And
ESG strengthens our access to favorable capital.
Our comprehensive ESG initiatives represent who we are
and what we stand for as a company. We strive to drive
positive change through our commitments to sustainability,
diversity, governance and community investment. Looking
ahead, we will continue pioneering new ESG best practices
while further integrating sustainability throughout our
business. Our ambition is to push boundaries that drive
our industry forward and allow us to have an even greater
positive impact. While ESG efforts clearly benefit our
company, we are most excited about how they benefit
our people, stakeholders, communities and planet.
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
The Paramount Team & Shareholders
As we enter 2024, we look to take advantage of the positive
momentum we generated in 2023 and continue to execute on
our goals. Our focus is clear: We will concentrate on leasing
near-term availabilities to de-risk upcoming expirations. With
our trophy portfolio and proven capital allocation discipline,
we are well positioned to deliver shareholder value through
strategic execution. Our team looks forward to building on
our achievements in 2024. Thank you for your continued
confidence in Paramount.
Sincerely,
Albert Behler
Chairman, CEO & President
Paramount Group | 5
Property and
Financial Highlights
San Francisco
1. One Market Plaza
SF 1.6MM | Leased 94.7%
2. One Front Street
SF 0.6MM | Leased 87.3%
3. Market Center
SF 0.7MM | Leased 55.1%
4. 300 Mission Street
SF 0.7MM | Leased 81.4%
5. 55 Second Street
SF 0.4MM | Leased 86.7%
6. 111 Sutter Street
SF 0.3MM | Leased 56.8%
111 Sutter Street in SF, 60 Wall Street
in NYC, and 1600 Broadway in NYC
are not pictured
1
2
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5
Diversified Tenants
% of annualized rent*
26.1%
19.0%
16.3%
other
OPS
16.2%
Legal Services
Technology and Media
Financial Services - Commercial
& Investment Banking
Financial Services - All Others
consumer products
6.1%
travel
2.8%
Insurance
Retail
2.1%
retail
Travel & Leisure
Consumer Products
Other Professional Services
Other
1.6%
Insurance
1.5%
FS, others
8.3%
FSCIB
tech
legal services
*At PGRE share
6 | Annual Report 2023
Consolidated Revenues
$ in thousands
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New York
1. 1633 Broadway
SF 2.5MM | Leased 96.4%
2. 1301 Avenue of the Americas
SF 1.8MM | Leased 82.1%
3. 31 West 52nd Street
SF 0.8MM | Leased 96.1%
4. 1325 Avenue of the Americas
SF 0.8MM | Leased 95.9%
5. 900 Third Avenue
SF 0.6MM | Leased 82.4%
6. 712 Fifth Avenue
SF 0.6MM | Leased 73.9%
7. 60 Wall Street
SF 1.6MM
8. 1600 Broadway Retail
SF 26K | Leased 100%
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PGRE’s Share of Cash NOI�
$ in thousands
Geographic Exposure
% of annualized rent*
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8
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70.7%
New York
8.7MM
Square Footage
90.2%
Leased (at PGRE share)
29.3%
San Francisco
4.3MM
Square Footage
80.8%
Leased (at PGRE share)
¹For a reconciliation of this measure to its most directly comparable GAAP measure and the reasons we view this measure to be useful,
see pages 60–65 of our Annual Report on Form 10-K for the year ended December 31, 2023.
Paramount Group | 7
ESG Highlights
Paramount is an industry leader in ESG initiatives which
has helped us 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%
100%
LEED Platinum or Gold
certified REIT Portfolio
2023 ENERGY STAR labeled
REIT Portfolio
100%
Fitwel rated REIT Portfolio
100%
5 Stars
“A” Rating
Electricity powered by renewable
purchases for REIT Portfolio
Highest GRESB accolade earned for
the fifth consecutive year
Highest score on GRESB Public
Disclosure assessment
1 Decile Rank
88th Percentile
Top 29%
Top performance and “Prime” rating
by exceeding ISS ESG requirements
Performance in S&P Global’s
Corporate Sustainability Assessment
2023 CDP Climate Change Score
among 23,000+ respondents
35+
70%
Organizations supported through
PGRE’s social initiatives
Of new hires in 2023 identify as
members of a minority group by
race / ethnicity
8 | Annual Report 2023
ESG Pay Link
Goals within compensation
framework for Executive Team
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:3)(cid:3)
(cid:1409)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 2023
OR
(cid:1407)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________To____________
Commission File Number: 001-36746
PARAMOUNT GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland
(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 (cid:1409) No (cid:1407)
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 (cid:1407) No (cid:1409)
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 (cid:1409) No (cid:1407)
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 (cid:1409) No (cid:1407)
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
(cid:1409)(cid:3)
(cid:1407)(cid:3)
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
(cid:1407)(cid:3)
(cid:1407)(cid:3)
(cid:1407)(cid:3)
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. (cid:1407)(cid:3)
(cid:3)
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. (cid:1409)(cid:3)
(cid:3)
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. (cid:1407)(cid:3)
(cid:3)
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). (cid:1407)(cid:3)
(cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:1407) No (cid:1409)
As of February 1, 2024, there were 217,366,089 shares of the registrant’s common stock outstanding.
As of June 30, 2023, the aggregate market value of the 182,806,226 shares of common stock held by non-affiliates of the Registrant was
$809,832,000 based on the June 30, 2023 closing share price of our common stock of $4.43 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 16, 2024) 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 1C.
Cybersecurity
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, 2023, portions of which
are incorporated by reference herein.
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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:120) unfavorable market and economic conditions in the United States, including New York City and San Francisco, and globally,
including as a result of elevated inflation and interest rates;
(cid:120)
(cid:120)
risks associated with high concentrations of our properties in New York City and San Francisco;
risks associated with ownership of real estate;
(cid:120) decreased rental rates or increased vacancy rates;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the risk we may lose a major tenant or that a major tenant may be adversely impacted by market and economic conditions,
including elevated inflation and interest rates;
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;
(cid:120) uncertainties and risks related to adverse weather conditions, natural disasters and climate change;
(cid:120)
(cid:120)
risks associated with actual or threatened terrorist attacks;
exposure to liability relating to environmental and health and safety matters;
(cid:120) high costs associated with compliance with the Americans with Disabilities Act;
(cid:120)
(cid:120)
(cid:120)
failure of acquisitions to yield anticipated results;
risks associated with real estate activity through our joint ventures and real estate related funds;
the negative impact of any future pandemic, endemic or outbreak of infectious disease on the U.S., regional and global
economies and our tenants’ financial condition and results of operations;
(cid:120) general volatility of the capital and credit markets and the market price of our common stock;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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;
4
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
failure to meet the restrictive covenants and requirements in our existing debt agreements;
fluctuations in interest rates and increased costs to refinance or issue new debt;
risks associated with variable rate debt, derivatives or hedging activity;
risks associated with the market for our common stock;
regulatory changes, including changes to tax laws and regulations;
failure to qualify as a real estate investment trust (“REIT”);
compliance with REIT requirements, which may cause us to forgo otherwise attractive opportunities or liquidate certain of our
investments; or
any of the other risks included in this 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:120) 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:120) 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:120) We are subject to risk inherent in ownership of real estate.
(cid:120) 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:120) We may be unable to renew leases, lease currently vacant space or vacating space on favorable terms or at all as leases expire.
(cid:120) We are exposed to risks associated with property redevelopment and repositioning that could adversely affect us.
(cid:120) 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:120) We would be adversely affected if any of our significant tenants experienced a material business downturn.
(cid:120) We may be adversely affected by trends in the office real estate industry, including telecommuting, flexible work schedules,
open workplaces and teleconferencing.
(cid:120) Real estate investments are relatively illiquid and may limit our flexibility.
(cid:120) We are subject to losses that are uninsurable, not economically insurable or that are in excess of our insurance coverage.
(cid:120) We are subject to risks from natural disasters, and from the effects of climate change.
(cid:120) Terrorist attacks and/or shooting incidents may adversely affect our ability to generate revenues and the value of our properties.
(cid:120) We may become subject to liability relating to environmental and health and safety matters.
(cid:120) 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:120) We are subject to risks involved in real estate activity through joint ventures and real estate related funds.
(cid:120) Contractual commitments with existing real estate related funds may limit our ability to acquire properties, issue loans or invest
in preferred equity directly in the near term.
(cid:120) Any future pandemic, endemic or outbreak of infectious disease may continue to have an adverse impact on our and our tenants’
businesses, including our tenants’ ability to pay rent, which could materially impact our financial condition and results of
operations.
(cid:120) 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:120) We may be subject to litigation, which could have an adverse effect on us.
(cid:120) We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire.
(cid:120) 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:120) 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.
6
(cid:120) 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:120) 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:120)
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:120) 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:120) We face risks associated with cyber security breaches and other significant disruptions of our IT networks and systems.
(cid:120) Our board of directors may change our policies without stockholder approval.
(cid:120) 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:120) Variable rate debt is subject to interest rate risk, including as a result of elevated inflation, that could increase our interest
expense, increase the cost to refinance and increase the cost of issuing new debt.
(cid:120) 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:120) 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.
(cid:120) Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our
common stock.
(cid:120) We may owe certain taxes notwithstanding our qualification as a REIT.
(cid:120) Dividends payable by REITs generally do not qualify for reduced tax rates applicable to non-corporate taxpayers.
(cid:120) Complying with the REIT requirements may cause us to forego otherwise attractive opportunities or liquidate certain of our
investments.
(cid:120) 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:120) REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan.
(cid:120) Preferred equity and certain debt investments could impact our compliance with REIT income and assets tests.
(cid:120) Tax legislation or regulatory action could adversely affect us or 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.
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 of our interests in properties and investments are held by, the Operating Partnership.
We are the sole general partner of, and owned approximately 91.8% of the Operating Partnership as of December 31, 2023.
As of December 31, 2023, we owned and/or managed a portfolio of 18 properties aggregating 13.8 million square feet comprised
of:
(cid:120) Eight wholly and partially owned Class A properties aggregating 8.7 million square feet in New York, comprised of 8.2 million
square feet of office space and 0.5 million square feet of retail, theater and amenity space;
(cid:120) Six wholly and partially owned Class A 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
(cid:120) Four managed properties aggregating 0.8 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 several real estate related
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:120) 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:120) Demonstrated Acquisition and Operational Expertise. Over the past 26 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:120) 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:120) Deep Relationships with Diverse, High Credit-Quality Tenant Base. We have long-standing relationships with high-quality
tenants, including JPMorgan Chase, Google, Allianz Global Investors, Credit Agricole Corporate & Investment Bank, Morgan
Stanley, Norton Rose Fulbright, Showtime Networks, Warner Music Group, Kasowitz Benson Torres, and O’Melveny &
Myers.
(cid:120) 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.
(cid:120) Proven Investment Management Business. We have a successful investment management business, where we serve as the
general partner and property manager of several real estate related 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. We expect our investment management
business to be a complementary part of our overall real estate investment business.
(cid:120) 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
27 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:120) Leasing vacant and expiring space, at market rents;
(cid:120) Maintaining a disciplined acquisition strategy focused on owning and operating Class A office properties in select CBD
submarkets of New York City and San Francisco;
(cid:120) Redeveloping and repositioning properties to increase returns; and
(cid:120) 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, 2023, 2022 and 2021.
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, 2023, we had 329 employees, including 103 corporate employees and 226 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:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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;
paid volunteer day to enable employees to make a difference within their community;
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 annual, mandatory 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, 2023, our employee workforce was approximately 54% racially and ethnically diverse;
women account for approximately 31% of our total employee base and 27% 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,
and air and water quality screening 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, as well as cybersecurity incidents. While we do carry commercial general liability insurance, property insurance,
terrorism insurance and cybersecurity insurance, 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) Compensation Committee Charter, (iii) Audit Committee Charter, (iv) Corporate
Governance Guidelines, (v) Code of Business Conduct and Ethics, and (vi) Stockholder Communication Policy. In the event of any
changes to these items, revised copies will be made available on our website.
11
Supplemental U.S. Federal Income Tax Considerations
The following discussion supplements and updates the disclosures under “Certain United States Federal Income Tax Considerations” in
the prospectus dated March 4, 2021, contained in our Registration Statement on Form S-3 filed with the SEC on March 4, 2021.
Capitalized terms herein that are not otherwise defined shall have the same meaning as when used in such disclosures (as supplemented).
On December 29, 2022, the Internal Revenue Service promulgated final Treasury Regulations under Sections 897, 1441, 1445, and 1446
of the Code that were, in part, intended to coordinate various withholding regimes for non-U.S. stockholders. The final Treasury
Regulations provide that:
i.
ii.
The withholding rules applicable to ordinary REIT dividends paid to a non-U.S. stockholder (generally, a 30% rate of
withholding on gross amounts unless otherwise reduced by treaty or effectively connected with such non-U.S. stockholder’s
trade or business within the United States and proper certifications are provided) will apply to (a) that portion of any
distribution paid by us that is not designated as a capital gain dividend, a return of basis or a distribution in excess of the
non-U.S. stockholder’s adjusted basis in its stock that is treated as gain from the disposition of such stock and (b) any portion
of a capital gain dividend paid by us that is not treated as gain attributable to the sale or exchange of a U.S. real property
interest by reason of the recipient not owning more than 10% of a class of our stock that is regularly traded on an established
securities market during the one-year period ending on the date of the capital gain dividend.
The withholding rules under FIRPTA will apply to a distribution paid by us in excess of a non-U.S. stockholder’s adjusted
basis in our stock, unless the interest in our stock is not a U.S. real property interest (for example, because we are a
domestically controlled qualified investment entity) or the distribution is paid to a “withholding qualified holder.” A
“withholding qualified holder” means a qualified holder (as defined below) and a foreign partnership all of the interests of
which are held by qualified holders, including through one or more partnerships.
iii.
The withholding rules under FIRPTA will apply to any portion of a capital gain dividend paid to a non-U.S. stockholder
that is attributable to the sale or exchange of a U.S. real property interest, unless it is paid to a withholding qualified holder.
In the case of FIRPTA withholding under clause (ii) above, the applicable withholding rate is currently 15%, and in the case of FIRPTA
withholding under clause (iii) above the withholding rate is currently 21%. For purposes of FIRPTA withholding under clause (iii),
whether a capital gain dividend is attributable to the sale or exchange of a U.S. real property interest is determined taking into account
the general exception from FIRPTA distribution treatment for distributions paid to certain non-U.S. stockholders under which any
distribution by us to a non-U.S. stockholder with respect to any class of stock which is regularly traded on an established securities
market located in the United States is not treated as gain recognized from the sale or exchange of a U.S. real property interest if such
non-U.S. stockholder did not own more than 10% of such class of stock at any time during the 1-year period ending on the date of such
distribution. To the extent inconsistent, these Treasury Regulations supersede the discussion on withholding contained in the above-
referenced disclosures (as supplemented) under the heading “Certain United States Federal Income Tax Considerations—Taxation of
Non-U.S. Stockholders.” However, if, notwithstanding these Treasury Regulations, we encounter difficulties in properly characterizing
a distribution for purposes of the withholding rules, we may decide to withhold on such distribution at the highest possible U.S. federal
withholding rate that we determine could apply.
The final Treasury Regulations also provide new guidance regarding qualified foreign pension funds. Accordingly, the last two sentences
of the first paragraph under the heading “Certain United States Federal Income Tax Considerations—Taxation of Non-U.S.
Stockholders—Qualified Foreign Pension Funds” are hereby deleted and replaced with the following:
Under Treasury Regulations, subject to the discussion below regarding “qualified holders,” a “qualified controlled entity” also is
not generally treated as a foreign person for purposes of FIRPTA. A qualified controlled entity generally includes a trust or
corporation organized under the laws of a foreign country all of the interests of which are held by one or more qualified foreign
pension funds either directly or indirectly through one or more qualified controlled entities.
12
Additionally, the following two paragraphs are added after the first paragraph under the heading “Certain United States Federal Income
Tax Considerations—Taxation of Stockholders and Potential Tax Consequences of Their Investment in Shares of Common Stock—
Taxation of Non-U.S. Stockholders—Qualified Foreign Pension Funds”:
Treasury Regulations further require that a qualified foreign pension fund or qualified controlled entity will not be exempt from
FIRPTA with respect to dispositions of U.S. real property interests or REIT distributions attributable to the same unless the
qualified foreign pension fund or qualified controlled entity is a “qualified holder”. To be a qualified holder, a qualified foreign
pension fund or qualified controlled entity must satisfy one of two alternative tests at the time of the disposition of the U.S. real
property interest or the REIT distribution. Under the first test, a qualified foreign pension fund or qualified controlled entity is a
qualified holder if it owned no U.S. real property interests as of the earliest date during an uninterrupted period ending on the date
of the disposition or distribution during which it qualified as a qualified foreign pension fund or qualified controlled entity.
Alternatively, if a qualified foreign pension fund or qualified controlled entity held U.S. real property interests as of the earliest
date during the period described in the preceding sentence, it can be a qualified holder only if it satisfies certain testing period
requirements.
Treasury Regulations also provide that a foreign partnership all of the interests of which are held by qualified holders, including
through one or more partnerships, may certify its status as such and will not be treated as a foreign person for purposes of
withholding under Code Section 1445 (and Code Section 1446, as applicable).
13
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, elevated inflation, elevated interest rates 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:
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downturns in global, national, regional and local economic conditions, including as a result of elevated inflation and interest
rates;
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 inflation, 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.
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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 the Americans with Disabilities Act of 1990 and similar laws, zoning,
usage and tax laws), inflation, 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, 2023, approximately 64% 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, 2023, the vacancy rate of our portfolio (at our share) was 12.3%. During 2024, 769,746 square feet (at our
share), or about 8.6% of the square footage of our portfolio (at our share) is scheduled to expire, which represents approximately 9.9%
of our annualized rents. 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.
In June 2022, 60 Wall Street, a 1.6 million square foot Class A office building, in which we own a 5.0% interest was taken “out-of-
service” for redevelopment. 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 materials 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 expenses and construction or redevelopment costs; and (ix) the possibility that properties will be leased at
below expected rental rates. Additionally, inflationary pricing may have a negative effect on the construction costs necessary to initiate
or complete redevelopment projects, including, but not limited to, costs of construction materials, labor, and services from third-party
contractors and suppliers. 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.
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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.
Given the current adverse economic conditions and the decreases in demand for office space in the real estate markets where we
operate, 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 24% 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 believe we have been impacted and may continue to 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. These practices have eroded the
overall demand for office space and, to the extent they continue, could in turn, place additional 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 five 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.
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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 and natural disasters, 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 an 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 1.5 degrees Celsius (the “1.5⁰ 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 or enhance local sea walls in both New York City and San Francisco or surrounding areas gain additional
traction and funding and are ultimately successful, and the potential for new discoveries.
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.
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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 1.5⁰ 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 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.
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.
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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 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. 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. 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.
We are subject to risks involved in real estate activity through joint ventures and real estate related funds.
We have in the past, are currently and may in the future acquire and own properties in joint ventures and real estate related 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 cannot guarantee that
we will obtain financial information from, or 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.
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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.
Contractual commitments with existing real estate related funds 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 real estate related funds, whether existing or in formation, we may be required
to acquire real estate assets and/or real estate related equity investments, or issue loans, or invest in preferred equity, partially through
these funds that we otherwise would have acquired or issued solely through our Operating Partnership, which may prevent our Operating
Partnership from acquiring real estate assets and/or real estate related equity investments, 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 real estate related funds,
specifically those where such funds own 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.
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 real estate related 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.
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Risks Related to Our Business and Operations
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.
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 due to, among other factors:
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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;
(cid:120) 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;
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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;
(cid:120) 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
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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 impact of 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. 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.
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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, 2023, including debt of our unconsolidated joint ventures, we had $5.6 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. The current inflation environment
has led to elevated interest rates, which has a direct effect on the interest expense of our borrowings. 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 that occurred at the time of our initial public offering in 2014 (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.
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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 (“PGREA”) and Paramount Group Real
Estate Advisor II, LP (“PGREA II”), are registered with the SEC as investment advisers under the U.S. Investment Advisers Act of
1940 (the “Advisers Act”), and PGREA is currently, and may in the future be, registered in certain jurisdictions as a non-EU alternative
investment fund manager 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 or more of our 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 continues to raise interest rates
or keeps interest rates elevated for a prolonged period, 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.
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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 generally 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, though proposed Treasury Regulations provide for a “look-through” approach
with respect to our stock that is held through certain entities. 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.
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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.
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.
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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:
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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;
subject us to liability under various U.S. federal and state, and foreign data privacy laws and regulations; or
damage our reputation among our tenants and investors generally.
Any or all of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.
Moreover, cyber attacks perpetrated against our tenants, including unauthorized access to the tenant’s or their customers’ confidential
information, could impact our tenants’ operations and negatively impact our business.
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.
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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:
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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:120) 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;
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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;
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subject us to increased sensitivity to interest rate increases;
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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.
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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, 2023, $360.0 million of our outstanding consolidated debt was subject to instruments which bear interest at
variable rates that have been capped at 4.5% through August 2024 and $500.0 million of our outstanding consolidated debt which bears
interest at variable rate has been swapped to fixed rate through August 2024. Additionally, our $750.0 million unsecured revolving
Credit Facility bears interest at 135 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 elevated 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.
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.
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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:
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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;
financial performance of our tenants;
failure to meet and maintain REIT qualifications; and
general market and economic conditions, including the impact of inflation.
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.
Increases in interest rates may also adversely affect the securities markets generally, which could reduce the market price of our
common stock without regard to our operating performance. Any such unfavorable changes to our borrowing costs and stock price could
significantly impact our ability to raise new debt and equity capital going forward.
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.
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As of December 31, 2023, 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 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.
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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 TRSs will be subject
to U.S. federal and state 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.
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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 a taxable year. If it
is subsequently determined that we had any accumulated non-REIT earnings and profits as of the end of any 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.
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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 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.
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.
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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 certain circumstances, we may be
subject to an entity-level sting tax.
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 and will be deemed entitled to its proportionate share of the
income of the partnership for U.S. federal income 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
cause us to 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 such 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.
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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.
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, 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, among other procedures, 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 U.S. federal income
tax, interest, and/or penalties otherwise borne by us in the event of a U.S. federal income tax audit of a subsidiary partnership (such as
our Operating Partnership).
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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 have been made, 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 tax advisors with respect to the impact that 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.
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.
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ITEM 1C. CYBERSECURITY
Governance Related to Cybersecurity Risks
Our board of directors is responsible for overseeing the Company’s risk management process. Our board of directors focuses on
our general risk management strategy and the most significant risks facing the Company, and works to ensure that appropriate risk
mitigation strategies are implemented by management. Our board of directors also is apprised of particular risk management matters in
connection with its general oversight and approval of corporate matters.
Our board of directors has delegated oversight of the Company’s risk management process to the Audit Committee of our board of
directors (the “Audit Committee”). Among its duties, the Audit Committee reviews with management the Company’s policies with
respect to risk assessment and management of risks that may be material to us, including cybersecurity risk management. The Audit
Committee receives, at a minimum, quarterly reports about legal and compliance matters, which can include reporting on cybersecurity
incidents occurring or threats that have been thwarted or are being monitored during the prior period, as reported internally by the Chief
Information Technology Officer (“CITO”).
The CITO, who has served in this role for over eight years, regularly reports cybersecurity updates to our Chief Operating Officer
who, in his dual role as Chief Financial Officer, is our primary liaison with the Audit Committee. To inform about these updates and
help guide cybersecurity related activities across our organization, the CITO has assembled a cybersecurity focus group and steering
committee that meets on a quarterly basis and is made up of experienced representatives from various of our cybersecurity risk
management consultants, external network security experts and cloud storage providers. These meetings are chaired by the CITO and
include discussion of our cybersecurity needs, taking into account the latest industry trends.
On an annual basis, the CITO presents to the Audit Committee a detailed overview of our IT department’s operations, including
staffing and risks inherent in this functional area in order to apprise the Audit Committee, among other things, of our cybersecurity risks,
how they arise throughout our business and what management’s mitigation strategies are. The Audit Committee periodically engages
third-party specialists to perform maturity assessments of our cybersecurity program. The Audit Committee reports on these matters to
our board of directors as needed. In addition, the CITO periodically presents directly to our board of directors on our cyber security
program.
Cyber Risk Management and Strategy
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. Although such risks have not materially affected us, including our business strategy,
results of operations or financial condition, to date, we have, from time to time, experienced threats to and security incidents related to
our data and systems. For more information about the cybersecurity risks we face, see Item 1A, Risk Factors. To help manage these
risks, we have implemented and maintain a cybersecurity risk management program that includes processes for the identification,
assessment, and treatment of cybersecurity risks. These assessments are aligned with industry standards and leading practices, and
provide a comparison based on practices at comparable organizations and recommendations for management to consider.
In addition to these external assessments, compliance readiness is assessed at a minimum annually by our CITO, in the form of
penetration testing and vulnerability assessments. This program extends to a review of the cybersecurity measures in place at the
properties that we own as well as our corporate headquarters, and selected senior managers also have participated in a tabletop exercise
curated by our external security consultant to test and improve our incident response planning. We also maintain processes around third-
party vendor risk management, such as the submission of vendor questionnaires to critical vendors and the inclusion of contractual
security requirements as appropriate.
37
ITEM 2.
PROPERTIES
Portfolio Summary
As of December 31, 2023, we owned and/or managed a portfolio of 18 properties aggregating 13.8 million square feet comprised
of:
(cid:120) Eight wholly and partially owned Class A properties aggregating 8.7 million square feet in New York, comprised of 8.2 million
square feet of office space and 0.5 million square feet of retail, theater and amenity space;
(cid:120) Six wholly and partially owned Class A 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
(cid:120) Four managed properties aggregating 0.8 million square feet in New York and Washington, D.C.
The table below provides additional details about our owned properties comprised of 14 Class A properties aggregating 13.0 million
square feet as of December 31, 2023.
(Amounts in thousands, except square feet and per square foot amounts)
Annualized Rent (3)
Paramount
Ownership
Number of
Buildings
%
Leased(1)
%
Occupied(2)
Amount
Per Square
Foot (4)
In Service
Property
New York:
1633 Broadway
1301 Avenue of the Americas
1325 Avenue of the Americas
31 West 52nd Street
900 Third Avenue
712 Fifth Avenue
1600 Broadway
60 Wall Street (5)
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
90.0 %
100.0 %
100.0 %
100.0 %
100.0 %
50.0 %
9.2 %
5.0 %
49.0 %
67.0 %
31.1 %
100.0 %
44.1 %
49.0 %
1
1
1
1
1
1
1
1
8
8
2
2
1
1
1
1
8
8
96.4 %
82.1 %
95.9 %
96.1 %
82.4 %
73.9 %
100.0 %
N/A
89.8 %
90.2 %
94.7 %
55.1 %
81.4 %
87.3 %
86.7 %
56.8 %
81.6 %
80.8 %
$
$ 191,370
110,652
51,336
69,534
34,365
51,932
10,669
N/A
96.3 %
75.8 %
92.9 %
92.6 %
81.6 %
71.0 %
100.0 %
N/A
87.2 %
87.5 %
82.09
86.44
68.41
94.87
71.35
134.52
316.62
N/A
2,528,838
1,748,337
824,881
768,052
591,276
543,498
25,693
-
7,030,575
6,482,638
$ 519,858
$ 465,070
$
$
86.47
83.94
Square Feet
Out of
Service
-
-
-
-
-
-
-
1,625,483
1,625,483
81,437
94.7 %
55.1 %
81.4 %
87.3 %
86.7 %
56.8 %
81.6 %
80.8 %
166,545
37,784
50,990
50,655
28,202
13,174
$ 347,350
$ 192,327
108.34
91.36
95.86
89.96
86.10
84.50
98.37
97.10
1,609,553
750,357
654,834
644,798
377,945
277,279
4,314,766
2,442,412
-
-
-
-
-
-
-
-
$
$
$
$
Total
2,528,838
1,748,337
824,881
768,052
591,276
543,498
25,693
1,625,483
8,656,058
6,564,075
1,609,553
750,357
654,834
644,798
377,945
277,279
4,314,766
2,442,412
Total / Weighted Average
Paramount's Ownership Interest
16
16
86.7 %
87.7 %
85.1 % $ 867,208
85.7 % $ 657,397
90.93
87.45
11,345,341
8,925,050
1,625,483
81,437
12,970,824
9,006,487
(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) 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) This property has been taken “out-of-service” for redevelopment.
38
Tenant Diversification
As of December 31, 2023, our properties were leased to a diverse base of tenants. Our tenants represent a broad array of industries,
including legal services, technology and media, financial services, 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, 2023.
(Amounts in thousands, except square feet and per square feet amounts)
Our Share of
JPMorgan Chase
Tenant
Clifford Chance
Allianz Global Investors
Norton Rose Fulbright
Morgan Stanley
Warner Music Group
Showtime Networks
Google
Kasowitz Benson Torres
O'Melveny & Myers
Lease
Expiration
Total
Square Feet
Occupied (2)
Total
Annualized Rent (1)
% of
Square Feet
Occupied (2)
Amount
Foot (2)
Rent
Per Square Annualized
Jun-2025
Dec-2029
Dec-2030
Jun-2024
Jan-2031
Mar-2032
Sep-2034
Mar-2032
Jul-2029
Jan-2026
Apr-2025
May-2024
Mar-2037
Feb-2040
241,854
76,999
25,157
344,010
241,854 $
76,999
25,157
344,010
20,883 $
8,015
2,389
31,287
86.04
104.09
94.41
90.69
328,543 (3)
328,543 (3)
320,911
111,589
179,286
290,875
260,829
288,250
253,196
339,833
50,718
152,676
203,394
160,708
288,823
111,589
179,286
290,875
234,749
259,428
227,879
166,518
45,647
137,410
183,057
160,708
29,977
28,698
10,206
17,764
27,970
20,030
18,254
17,353
16,228
3,705
11,154
14,859
12,857
91.23
99.36
91.46
94.81
93.53
85.33
69.40
74.54
97.03
81.17
81.17
81.17
80.00
3.2 %
1.2 %
0.4 %
4.8 %
4.6 %
4.4 %
1.6 %
2.7 %
4.3 %
3.0 %
2.8 %
2.6 %
2.5 %
0.6 %
1.7 %
2.3 %
2.0 %
(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)
Includes 105,756 square feet that has been pre-leased to Wilson Sonsini through March 2041.
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, 2023.
(Amounts in thousands, except square feet)
Industry
Legal Services
Technology and Media
Financial Services - Commercial and Investment Banking
Financial Services, all others
Insurance
Retail
Travel and Leisure
Consumer Products
Other Professional Services
Other
Square Feet
Occupied
% of Occupied
Square Feet
Annualized
Rent (1)
% of Annualized
Rent
Our Share of
1,944,310
1,492,350
1,259,554
1,124,716
408,864
162,193
206,823
121,732
111,420
813,765
25.5 % $
19.5 %
16.5 %
14.7 %
5.3 %
2.1 %
2.7 %
1.6 %
1.5 %
10.6 %
171,545
124,842
107,023
106,733
39,810
18,179
13,959
10,374
10,137
54,795
26.1 %
19.0 %
16.3 %
16.2 %
6.1 %
2.8 %
2.1 %
1.6 %
1.5 %
8.3 %
(1) Represents the end of the period monthly base rent plus escalations in accordance with the lease terms, multiplied by 12.
39
Lease Expirations
The following table sets forth a summary schedule of lease expirations for leases in place as of December 31, 2023 for each of the
ten calendar years beginning with the year ending December 31, 2024. 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)
Year of
Lease Expiration (2)
Square Feet of
Expiring Leases
Square Feet of
Expiring Leases
Total
Our Share of
Annualized Rent (1)
% of
Amount
Per Square Foot (3)
Annualized Rent
Month to Month
8,813
6,132
$
805
$
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Thereafter
875,242
1,524,886
1,390,953
319,521
342,556
643,576
641,275
601,218
954,749
333,984
2,198,926
763,614
1,042,161
957,255
237,899
252,794
551,836
544,794
521,520
649,950
299,518
1,995,912
65,379
93,602
85,438
21,740
21,240
43,129
49,395
51,015
61,085
26,554
150,372
-
85.62
89.80
86.80
91.06
84.11
83.90
90.79
94.38
94.00
88.66
81.30
0.1 %
9.8 %
14.0 %
12.8 %
3.2 %
3.2 %
6.4 %
7.4 %
7.6 %
9.1 %
4.0 %
22.4 %
(1)
(2)
(3)
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.
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, 2023, the vacancy rate of our portfolio (at our share) was 12.3%. During 2024, 769,746 square feet (at our
share and including month to month leases), or about 8.6% of the square footage of our portfolio (at our share) is scheduled to expire,
which represents approximately 9.9% of our annualized rents.
40
Real Estate Related Fund Investments
We have an investment management business, where we serve as the general partner of several real estate related funds for
institutional investors and high net-worth individuals. The following is a summary of our ownership in these 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 (“Fund X”) and its parallel fund, Paramount Group Real Estate Fund X-ECI, LP, (“Fund X-ECI”), which
invest in real estate and related investments. As of December 31, 2023, our ownership interest in Fund VIII and Fund X was
approximately 1.3% and 13.0%, respectively.
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, 2023, 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 535,314 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.
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. As of December
31, 2023, 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, 2023, there were approximately 85 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, 2023, we declared a regular quarterly cash dividend of $0.035 per share of common stock for the fourth quarter
ended December 31, 2023, which was paid on January 12, 2024 to stockholders of record as of the close of business on December 29,
2023.
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 graph assumes that $100 was invested on December 31, 2018 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.
Paramount Group, Inc.
Office REIT Index
All Equity REIT Index
$
December 31,
2020
2019
2018
100.00 $ 114.13
100.00
128.99
100.00
128.66
2021
2022
2023
$
$
77.63
102.79
122.07
73.79 $
124.50
172.49
54.87 $
79.14
129.45
49.69
79.70
144.16
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, 2023.
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)
25,859,075 (1) $
11,630,563 (4)
37,489,638 $
10.08 (2)
5.12
7.77
1,790,937 (3)
-
1,790,937
(1) Consists of (i) 1,988,993 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) 13,809,174 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) 6,642,144 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) 3,418,764
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 13,809,174 LTIP units include 5,933,697 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, AOLTIP units, and Performance-Based 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 3,313,233.
(4) Consists of (i) 4,112,044 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 (“Time-Based LTIP units”) that were previously granted under the incentive and retention plan and
(ii) 7,518,519 shares of common stock issuable in exchange for common units which may be issuable upon the exercise of Performance-Based
AOLTIP units. The 7,518,519 AOLTIP units remain subject to the achievement of the requisite Performance-Based vesting criteria. See Note 17,
Incentive Compensation for a further description. Upon the determination of the Compensation Committee of our board of directors and subject
to a sufficient number of Share Equivalents (as defined in the Plan) being available for issuance thereunder, the Performance-Based AOLTIP units
and Time-Based LTIP units may become part of the Plan in the future. Prior to the time such awards are included in the Plan, any common units
issued upon conversion of the Performance-Based AOLTIP units and Service-Based LTIP units, if tendered for redemption, will be settled in cash
pursuant to the terms of the common units.
Recent Purchases of Equity Securities
Stock Repurchase Program
On November 5, 2019, we received authorization from our board of directors to repurchase up to $200,000,000 of our common
stock, from time to time, in the open market or in privately negotiated transactions. As of December 31, 2022, we had repurchased a
total of 24,183,768 common shares at a weighted average of $7.65 per share, or $185,000,000 in the aggregate. We did not repurchase
any shares in the three months and year ended December 31, 2023 under our stock repurchase program. As of December 31, 2023, we
have $15,000,000 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.
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 91.8% of, the Operating Partnership as of December 31, 2023.
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:120) Leasing vacant and expiring space, at market rents;
(cid:120) 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:120) Redeveloping and repositioning properties to increase returns; and
(cid:120) Proactively managing our portfolio to increase occupancy and rental rates.
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.
Real Estate Related Fund Investments
Our real estate related fund investments include mezzanine loan investments made by Paramount Group Real Estate Fund X, LP
(“Fund X”). Fund X qualifies as an investment company pursuant to Accounting Standards Codification (“ASC”) Topic 946,
Financial Services - Investment Companies. Accordingly, the underlying investments are generally carried at fair value, except
investments that have a fair value above par value and where the borrower has the option to prepay the loan are carried at par value.
These investments are classified as Level 3 in the fair value hierarchy.
46
Business Overview
Financings
On September 27, 2023, a joint venture in which we have a 31.1% interest, completed a $232,050,000 refinancing of 300 Mission
Street, a 655,000 square foot Class A office building in San Francisco. The interest-only loan bears a fixed rate of 4.50% and matures
in October 2026. The loan replaces the previous $273,000,000 loan that bore interest at 3.65% and was scheduled to mature in October
2023.
On February 1, 2024, we, together with our joint venture partner, modified and extended the existing mortgage loan at One Market
Plaza, a 1.6 million square-foot two-building trophy asset in San Francisco, California. The existing $975,000,000 loan, which bore
interest at a fixed rate of 4.03%, was scheduled to mature on February 6, 2024. In connection with the modification, the loan balance
was reduced to $850,000,000, following a $125,000,000 paydown by the joint venture, of which our 49.0% share was $61,250,000. The
modified loan bears interest at a fixed rate of 4.08%, matures in February 2027 and has an option to extend for an additional year, subject
to certain conditions.
Stock Repurchase Program
On November 5, 2019, we received authorization from our board of directors to repurchase up to $200,000,000 of our common
stock, from time to time, in the open market or in privately negotiated transactions. As of December 31, 2022, we had repurchased a
total of 24,183,768 common shares at a weighted average of $7.65 per share or $185,000,000 in the aggregate. As of December 31,
2023, we have $15,000,000 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.
Other Items
We, through a wholly-owned subsidiary, were the landlord under certain lease agreements with First Republic Bank (“First
Republic”) aggregating 460,726 square feet at our One Front Street property in San Francisco, CA. On May 1, 2023, First Republic was
closed by the California Department of Financial Protection and Innovation and the Federal Deposit Insurance Corporation (“FDIC”)
was appointed as receiver. Subsequent thereto, JPMorgan Chase Bank (“JPMorgan”) acquired all deposit accounts and substantially all
the assets and assumed certain of the liabilities of First Republic from the FDIC. In connection therewith, JPMorgan had 60 days to
assess whether or not to assume or reject our lease agreements with First Republic. On June 30, 2023, we entered into a surrender and
assumption agreement with JPMorgan whereby JPMorgan (i) assumed, under the same lease terms that we had with First Republic,
344,010 square feet of existing space, and (ii) surrendered the remaining 116,716 square feet of space.
Additionally, we, through a different wholly-owned subsidiary, are also the landlord under a long-term lease agreement with SVB
Securities (“SVB Securities”), at our 1301 Avenue of the Americas property in Manhattan, NY. SVB Securities leased an aggregate of
108,994 square feet from us and is a subsidiary of SVB Financial Group, which filed for Chapter 11 bankruptcy relief on March 17,
2023. On June 28, 2023, we executed a termination of our lease with SVB Securities and entered into a new lease with the entity
acquiring substantially all of the assets of SVB Securities, including 68,183 square feet on a long-term basis, and 40,811 square feet on
a short-term basis.
47
Leasing Results – Year Ended December 31, 2023
In the year ended December 31, 2023, we leased 739,510 square feet, of which our share was 597,210 square feet that was leased
at a weighted average initial rent of $78.84 per square foot. 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 360
basis points to 87.7% at December 31, 2023 from 91.3% at December 31, 2022. The 360 basis point decrease in leased occupancy was
driven primarily by the scheduled expiration of (i) Credit Agricole’s lease in February 2023 at 1301 Avenue of the Americas in our New
York portfolio and (ii) Uber’s lease in July 2023 at Market Center in our San Francisco portfolio.
Of the 739,510 square feet leased, 511,789 square feet represented our share of second generation space (space leased in the current
period (i) prior to its originally scheduled expiration, or (ii) that has been vacant for less than twelve months) for which rental rates
increased by 0.1% on a GAAP basis and decreased by 2.8% on a cash basis. The weighted average lease term for leases signed during
the year was 9.6 years and weighted average tenant improvements and leasing commissions on these leases were $11.62 per square foot
per annum, or 14.7% of initial rent.
New York
In the year ended December 31, 2023, we leased 501,978 square feet in our New York portfolio, of which our share was 465,716
square feet that was leased at a weighted average initial rent of $76.16 per square foot. This leasing activity, offset by lease expirations
during the year, decreased leased occupancy and same store leased occupancy by 190 basis points to 90.2% at December 31, 2023 from
92.1% at December 31, 2022. The 190 basis point decrease in leased occupancy was driven primarily by scheduled expiration of Credit
Agricole’s lease in February 2023.
Of the 501,978 square feet leased, 385,368 square feet represented our share of second generation space for which rental rates
increased by 0.9% on a GAAP basis and decreased by 3.9% on a cash basis. The weighted average lease term for leases signed during
the year was 11.1 years and weighted average tenant improvements and leasing commissions on these leases were $11.45 per square
foot per annum, or 15.0% of initial rent.
San Francisco
In the year ended December 31, 2023, we leased 237,532 square feet in our San Francisco portfolio, of which our share was 131,494
square feet that was leased at a weighted average initial rent of $88.32 per square foot. This leasing activity, offset by lease expirations
during the year, decreased leased occupancy and same store leased occupancy by 810 basis points to 80.8% at December 31, 2023 from
88.9% at December 31, 2022. The 810 basis point decrease in leased occupancy was driven primarily by (i) the scheduled expiration of
Uber’s lease in July 2023 at Market Center and (ii) the surrendered JPMorgan Chase space at One Front Street.
Of the 237,532 square feet leased, 126,421 square feet represented our share of second generation space for which rental rates
decreased by 1.7% on a GAAP basis and increased by 0.4% on a cash basis. The weighted average lease term for leases signed during
the year was 4.5 years and weighted average tenant improvements and leasing commissions on these leases were $13.19 per square foot
per annum, or 14.9% of initial rent.
48
The following table presents additional details on the leases signed during the year ended December 31, 2023. 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, 2023
Total square feet leased
Pro rata share of square feet leased:
Initial rent (1)
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: (2)
Square feet
Cash basis:
Initial rent (1)
Prior escalated rent (3)
Percentage (decrease) increase
GAAP basis:
Straight-line rent
Prior straight-line rent
Percentage increase (decrease)
Total
New York
San Francisco
$
$
$
739,510
597,210
78.84
9.6
112.01
11.62
14.7 %
10.2
1.1
$
$
$
501,978
465,716
76.16
11.1
126.93
11.45
15.0 %
11.6
1.0
237,532
131,494
88.32
4.5
59.17
13.19
14.9 %
5.3
1.2
511,789
385,368
126,421
79.65
81.90
$
$
(2.8 %)
76.86
76.75
$
$
0.1 %
76.75
79.87
$
$
(3.9 %)
74.15
73.51
$
$
0.9 %
88.50
88.12
0.4 %
85.11
86.60
(1.7 %)
$
$
$
$
$
$
$
(1) Represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent.
(2) Represents space leased in the current period (i) prior to its scheduled expiration, or (ii) that has been vacant for less than twelve months.
(3) 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)
As of December 31, 2023
As of December 31, 2022
Total
New York
San Francisco
87.7 %
91.3 %
90.2 %
92.1 %
80.8 %
88.9 %
(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, 2023 and 2022
Net Income, FFO and Core FFO
Net loss attributable to common stockholders was $259,744,000, or $1.20 per diluted share, for the year ended December 31, 2023,
compared to $36,403,000, or $0.16 per diluted share, for the year ended December 31, 2022. Net loss attributable to common
stockholders for the year ended December 31, 2023 includes (i) $208,069,000, or $0.96 per diluted share, for our share of non-cash real
estate impairment losses on unconsolidated joint ventures, and (ii) non-cash straight-line rent receivable write-offs aggregating
$12,993,000, or $0.06 per diluted share, related to the terminated SVB Securities lease at 1301 Avenue of the Americas and the
surrendered JPMorgan Chase space at One Front Street and (iii) $13,032,000, or $0.06 per diluted share, for our share of realized and
unrealized losses on consolidated real estate related fund investments. Net loss attributable to common stockholders for the year ended
December 31, 2022 includes $29,622,000, or $0.14 per diluted share, for our share of a real estate impairment loss on an unconsolidated
joint venture.
Funds from Operations (“FFO”) attributable to common stockholders was $177,998,000, or $0.82 per diluted share, for year ended
December 31, 2023, compared to $210,099,000, or $0.95 per diluted share, for the year ended December 31, 2022. FFO attributable to
common stockholders for the year ended December 31, 2023 includes non-cash straight-line rent receivable write-offs aggregating
$12,993,000, or $0.06 per diluted share, related to the terminated SVB Securities lease and the surrendered JPMorgan Chase space. FFO
attributable to common stockholders for the years ended December 31, 2023 and 2022 also includes the impact of other non-core items,
which are listed in the table on page 65. The aggregate of the non-core items, net of amounts attributable to noncontrolling interests,
decreased FFO attributable to common stockholders for the years ended December 31, 2023 and 2022 by $10,804,000 and $6,725,000,
respectively, or $0.05 and $0.03 per diluted share, respectively.
Core Funds from Operations (“Core FFO”) attributable to common stockholders, which excludes the impact of the non-core items
listed on page 65, was $188,802,000 or $0.87 per diluted share, for the year ended December 31, 2023, compared to $216,824,000, or
$0.98 per diluted share, for the year ended December 31, 2022.
Same Store Results
The table below summarizes the percentage decrease in our share of Same Store NOI and Same Store Cash NOI, by segment, for
the year ended December 31, 2023 versus December 31, 2022.
Same Store NOI
Same Store Cash NOI
Total
New York
San Francisco
(4.0 %)
(5.0 %)
(4.4 %)
(7.0 %)
(3.2 %)
(0.2 %)
See pages 60 - 65 “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, 2023 and 2022
The following pages summarize our consolidated results of operations for the years ended December 31, 2023 and 2022. The results
of operations for the years ended December 31, 2022 compared to December 31, 2021 was included in our Annual Report on Form 10-
K for the year ended December 31, 2022 on page 50, 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 15, 2023.
For the Year Ended December 31,
2023
2022
Change
$
711,470 $
31,318
742,788
$
702,819
37,558
740,377
277,422
232,517
59,487
470
569,896
(2,233 )
(1,239 )
(53,251 )
5,174
(143,864 )
(24,932 )
(3,265 )
(28,197 )
(13,981 )
3,342
2,433
(36,403 )
$
8,651
(6,240 )
2,411
16,543
18,127
2,499
(48 )
37,121
(94,142 )
417
(217,047 )
9,663
(9,126 )
(344,945 )
1,839
(343,106 )
(6,483 )
106,453
19,795
(223,341 )
293,965
250,644
61,986
422
607,017
(96,375 )
(822 )
(270,298 )
14,837
(152,990 )
(369,877 )
(1,426 )
(371,303 )
(20,464 )
109,795
22,228
(259,744 ) $
(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 real estate related fund investments
Loss from unconsolidated real estate related funds
Loss from unconsolidated joint ventures
Interest and other income, net
Interest and debt expense
Loss before income taxes
Income tax expense
Net loss
Less net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate related funds
Operating Partnership
Net loss attributable to common stockholders
$
51
Revenues
Our revenues, which consist of rental revenue and fee and other income, were $742,788,000 for the year ended December 31, 2023,
compared to $740,377,000 for the year ended December 31, 2022, an increase of $2,411,000. Below are the details of the increase or
decrease by segment.
(Amounts in thousands)
Rental revenue
Same store operations
Non-cash write-offs of straight-line rent receivables
Other, net
Increase (decrease) in rental income
Fee and other income
Fee income
Asset management
Property management
Acquisition, disposition, leasing and other
Decrease in fee income
Other income
Same store operations
Increase (decrease) in other income
(Decrease) increase in fee and other income
Total increase (decrease) in revenues
$
$
$
$
$
Total
New York
San Francisco
Other
15,290 $
(11,362 )
4,723
8,651 $
(9,080 ) (1) $
(4,728 ) (3)
5,778 (5)
(8,030 ) $
24,370 (2) $
(6,634 ) (4)
(1,750 )
15,986 $
-
-
695
695
(1,195 ) $
(703 )
(4,926 )
(6,824 )
584
584
(6,240 ) $
- $
-
-
-
336
336
336 $
- $
-
-
-
408
408
408 $
(1,195 )
(703 )
(4,926 ) (6)
(6,824 )
(160 )
(160 )
(6,984 )
2,411 $
(7,694 ) $
16,394 $
(6,289 )
(1) Primarily due to lower average occupancy at 1301 Avenue of the Americas in the current year.
(2) Primarily due to higher average occupancy at One Market Plaza in the current year and higher expense reimbursements from increased operating
expenses (See note 1 on page 53).
(3) Primarily due to a write-off of $6,563 in the current year related to the terminated SVB Securities lease at 1301 Avenue of the Americas, partially offset
by a write-off in the prior year related to a tenant’s lease termination at 1633 Broadway.
(4) Primarily due to a write-off of $7,343 in the current year related to the surrendered JPMorgan Chase space at One Front Street.
(5) Primarily due to income of $7,640 in the current year, largely in connection with a tenant’s lease termination at 1633 Broadway, partially offset by lease
termination income of $2,056 in the prior year.
(6) Primarily due to fee income earned in connection with the acquisition of 1600 Broadway in the prior year.
52
Expenses
Our expenses, which consist of operating, depreciation and amortization, general and administrative, and transaction related costs,
were $607,017,000 for year ended December 31, 2023, compared to $569,896,000 for the year ended December 31, 2022, an increase
of $37,121,000. Below are the details of the increase or decrease by segment.
(Amounts in thousands)
Operating
Same store operations
Other, net
Increase (decrease) in operating
Depreciation and amortization
Operations
Increase in depreciation and amortization
General and administrative
Operations
Increase in general and administrative
Decrease in transaction related costs
Total increase in expenses
$
$
$
$
$
$
$
$
Total
New York
San Francisco
Other
18,298 $
(1,755 )
16,543 $
5,216 (1) $
-
5,216 $
13,082 (2) $
-
13,082 $
-
(1,755 )
(1,755 )
18,127 $
18,127 $
10,832 (3) $
10,832 $
6,544 (4) $
6,544 $
751
751
2,499 $
2,499 $
(48 ) $
- $
- $
- $
- $
- $
- $
2,499 (5)
2,499
(48 )
37,121 $
16,048 $
19,626 $
1,447
(1) Primarily due to higher utilities, repairs and maintenance, and insurance expense.
(2) Primarily due to higher operating expenses driven by higher average occupancy at One Market Plaza in the current year (see note 2 on page
52).
(3) Primarily due to write-off of tenant improvements in the current year resulting from tenants’ lease termination at 1633 Broadway and 1301
Avenue of the Americas.
(4) Primarily due to a write-off of deferred leasing commissions in the current year in connection with the surrendered JPMorgan Chase space at
One Front Street.
(5) Primarily due to higher stock-based compensation resulting from the Incentive and Retention Plan grants.
53
Loss from Real Estate Related Fund Investments
Loss from real estate related fund investments was $96,375,000 for the year ended December 31, 2023, and represented loss
attributable to Fund X, which we began consolidating into our financial statements effective December 12, 2022, and in which we have
a 13.0% interest. The loss from Fund X resulted from $107,722,000 of realized and unrealized loss on mezzanine loan investments,
partially offset by $11,347,000 of investment income. Loss from real estate related fund investments was $2,233,000 for the period from
December 12, 2022 to December 31, 2022, which resulted primarily from a $2,627,000 loss upon consolidation of Fund X.
Loss from Unconsolidated Real Estate Related Funds
Loss from unconsolidated real estate related funds was $822,000 for the year ended December 31, 2023, which represented our
share of loss from Paramount Group Real Estate Fund VIII, LP (“Fund VIII”). Loss from unconsolidated real estate related funds was
$1,239,000 for the year ended December 31, 2022, which represented our share of loss from Fund VIII and Fund X.
Loss from Unconsolidated Joint Ventures
Loss from unconsolidated joint ventures was $270,298,000 for the year ended December 31, 2023 compared to $53,251,000 for the
year ended December 31, 2022, an increase in loss of $217,047,000. This increase in loss resulted from:
(Amounts in thousands)
Equity in earnings
Our share of real estate impairment losses recognized in 2023:
Market Center
55 Second Street
60 Wall Street
RDF's share of impairment losses related to residential
condominium units at One Steuart Lane (1)
Our share of real estate impairment loss related to 111 Sutter Street
recognized in 2022
Total increase in loss
$
1,440
(148,906 )
(52,590 )
(24,734 )
(23,942 )
31,685
(217,047 )
$
(1) Represents RDF’s 35% share of the impairment losses on One Steuart Lane, of which our share was $1,772 (based
on our 7.4% ownership interest in RDF).
Interest and Other Income, net
Interest and other income was $14,837,000 for the year ended December 31, 2023, compared to $5,174,000 for the year ended
December 31, 2022, an increase in income of $9,663,000. This increase resulted primarily from higher yields on cash balances and
short-term investments in the current year.
Interest and Debt Expense
Interest and debt expense was $152,990,000 for the year ended December 31, 2023, compared to $143,864,000 for the year ended
December 31, 2022, an increase of $9,126,000. This increase resulted primarily from higher interest expense on the variable rate portion
of our debt at 1301 Avenue of the Americas due to an increase in average variable rates in the current year compared to the prior year.
Income Tax Expense
Income tax expense was $1,426,000 for the year ended December 31, 2023, compared to $3,265,000 for the year ended December
31, 2022, a decrease of $1,839,000. This decrease resulted primarily from lower taxable income attributable to our taxable REIT
subsidiaries in the current year.
54
Net Income Attributable to Noncontrolling Interests in Consolidated Joint Ventures
Net income attributable to noncontrolling interests in consolidated joint ventures was $20,464,000 for the year ended December 31,
2023, compared to $13,981,000 for the year ended December 31, 2022, a $6,483,000 increase in income allocated to noncontrolling
interests in consolidated joint ventures. This increase was primarily due to higher net income attributable to One Market Plaza, resulting
from higher average occupancy in the current year.
Net Loss Attributable to Noncontrolling Interest in Consolidated Real Estate Related Funds
Net loss attributable to noncontrolling interest in consolidated real estate related funds was $109,795,000 for the year ended
December 31, 2023 compared to $3,342,000 for the year ended December 31, 2022, an increase in net loss attributable to noncontrolling
interest in real estate funds of $106,453,000. This increase was primarily due to noncontrolling interests’ share of (i) $107,722,000 of
realized and unrealized loss on mezzanine loan investments held by Fund X , which we began consolidating into our financial statements
effective December 12, 2022, and (ii) $23,942,000 of impairment losses related to 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 $22,228,000 for the year ended December 31, 2023,
compared to $2,433,000 for the year ended December 31, 2022, an increase in net loss attributable to noncontrolling interests in
Operating Partnership of $19,795,000. This increase resulted from higher net loss subject to allocation to the unitholders of the Operating
Partnership in the current year.
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, 2023, we had $1.26 billion of liquidity comprised of $428,208,000 of cash and cash
equivalents, $81,391,000 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, 2023.
(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 (3)
Payments due by period
Total
Less than
1 year
1-3
years
3-5
years
Thereafter
$ 3,467,825
674,562
81,042
16,268
3,999
8,289
$ 4,251,985
$ 593,962 (2) $ 1,648,777
377,013
-
161
1,436
147
$ 2,027,534
131,737
81,042
16,107
1,208
70
$ 824,126
$
68,304
154,482
-
-
1,355
156
$ 224,297
$ 1,156,782
11,330
-
-
-
7,916
$ 1,176,028
(1)
(2)
Interest expense is calculated using contractual rates for fixed rate debt and the rates in effect as of December 31, 2023 for variable rate debt.
Includes $477,750 for our share of the $975,000 mortgage loan at One Market Plaza which was modified and extended on February 1, 2024. The
existing loan was scheduled to mature on February 6, 2024. In connection with the modification, the loan balance was reduced to $850,000
($416,500 at our share), following a $125,000 paydown ($61,250 at our share). The modified loan matures in February 2027 and has an option
to extend for an additional year, subject to certain conditions.
(3) 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, 2023, our outstanding consolidated debt aggregated $3.82 billion. We had no amounts outstanding under our
revolving credit facility. On February 1, 2024, we, together with our joint venture partner, modified and extended the existing mortgage
loan at One Market Plaza. The existing $975,000,000 loan, which bore interest at a fixed rate of 4.03%, was scheduled to mature on
February 6, 2024. In connection with the modification, the loan balance was reduced to $850,000,000, following a $125,000,000
paydown by the joint venture. The modified loan bears interest at a fixed rate of 4.08%, matures in February 2027 and has an option to
extend for an additional year, subject to certain conditions. We may refinance any of our other maturing debt when it comes due or repay
it early depending on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with
these transactions could be material to our consolidated financial statements.
Revolving Credit Facility
Our $750,000,000 revolving credit facility matures in March 2026 and has two six-month extension options. The interest rate on
the facility is 135 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, 2023, we declared a regular quarterly cash dividend of $0.035 per share of common stock for the fourth quarter
ended December 31, 2023, which was paid on January 12, 2024 to stockholders of record as of the close of business on
December 29, 2023. During 2023, we paid an aggregate of $52,681,000 in dividends and distributions to our common stockholders and
common unitholders. These dividends were paid utilizing the cash flow from operations, which amounts to $277,859,000 for the year
ended December 31, 2023. If we were to continue our current dividend policy for all of 2024, we would pay out approximately
$33,500,000 to common stockholders and unitholders during 2024.
Off Balance Sheet Arrangements
As of December 31, 2023, our unconsolidated joint ventures had $1.75 billion of outstanding indebtedness, of which our share was
$628,938,000. In May 2023, the joint venture that owns 60 Wall Street defaulted on the $575,000,000 non-recourse mortgage loan
securing the property. We and our joint venture partners are currently in discussions with the lenders to modify and extend this loan.
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 $200,000,000 of our common
stock, from time to time, in the open market or in privately negotiated transactions. As of December 31, 2022, we had repurchased a
total of 24,183,768 common shares at a weighted average of $7.65 per share or $185,000,000 in the aggregate. As of December 31,
2023, we have $15,000,000 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, as well as cybersecurity incidents. While we do carry commercial general liability insurance, property insurance,
terrorism insurance and cybersecurity insurance, 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 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, 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.
57
The terms of our consolidated 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, 2023, 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 $62,500,000. Since no amount in this
range is a better estimate than any other amount within the range, we have not accrued any liability arising from potential losses relating
to these Notices in our consolidated financial statements.
Inflation
Substantially all of our leases provide for separate real estate tax and operating expense escalations. In addition, many of the leases
provide for fixed base rent increases. We believe inflationary increases in expenses may be at least partially offset by the contractual
rent increases and expense escalations described above. We do not believe inflation has had a material impact on our historical financial
position or results of operations.
Cash Flows
Cash and cash equivalents and restricted cash were $509,599,000, $449,817,000, $529,666,000 and $465,324,000 as of December
31, 2023, 2022, 2021 and 2020, respectively. Cash and cash equivalents and restricted cash increased by $59,782,000 for the year ended
December 31, 2023, decreased by $79,849,000 for the year ended December 31, 2022, and increased by $64,342,000 for the year ended
December 31, 2021. 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,
2022
2021
2023
$
$
277,859
(160,098 )
(57,979 )
$
246,637
(152,583 )
(173,903 )
244,306
(103,483 )
(76,481 )
Operating Activities
Year Ended December 31, 2023 – We generated $277,859,000 of cash from operating activities for the year ended December 31,
2023, primarily from (i) $275,142,000 of net income (before $646,445,000 of non-cash adjustments) and (ii) $17,213,000 of distributions
from unconsolidated joint ventures and real estate related funds, partially offset by (iii) $14,496,000 of net changes in operating assets
and liabilities. Non-cash adjustments of $646,445,000 were primarily comprised of depreciation and amortization, realized and
unrealized losses on real estate related fund investments, loss from unconsolidated joint ventures, including our share of real estate
impairment losses on unconsolidated joint ventures, straight-lining of rental revenue, amortization of above and below-market leases,
net and amortization of stock-based compensation.
Year Ended December 31, 2022 – We generated $246,637,000 of cash from operating activities for the year ended
December 31, 2022, primarily from (i) $272,434,000 of net income (before $300,631,000 of non-cash adjustments) and (ii) $2,642,000
of distributions from unconsolidated joint ventures and real estate related funds, partially offset by (iii) $28,439,000 of net changes in
operating assets and liabilities. Non-cash adjustments of $300,631,000 were primarily comprised of depreciation and amortization, loss
from unconsolidated joint ventures (including $31,685,000 of our share of a real estate impairment loss), straight-lining of rental revenue,
amortization of above and below-market leases, net and amortization of stock-based compensation.
58
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 related 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.
Investing Activities
Year Ended December 31, 2023 – We used $160,098,000 of cash for investing activities for the year ended December 31, 2023,
primarily (i) $100,526,000 for additions to real estate, which were comprised of spending for tenant improvements and other building
improvements, (ii) $40,715,000 for contributions to an unconsolidated joint venture, (iii) $35,715,000 for advances to a partner in One
Steuart Lane, (iv) $20,000,000 for an investment in a mezzanine loan, and (v) $2,077,000 for contributions of capital to Fund VIII,
partially offset by (v) $38,935,000 from repayment of advances by a partner in One Steuart Lane.
Year Ended December 31, 2022 – We used $152,583,000 of cash for investing activities for the year December 31, 2022, primarily
(i) $125,805,000 for additions to real estate, which were comprised of spending for tenant improvements and other building
improvements, (ii) $15,812,000 for investments in unconsolidated joint ventures, (iii) $7,454,000 for investment in Fund X and (iv)
$3,512,000 for contributions of capital to unconsolidated real estate related funds, net of distributions received.
Year Ended December 31, 2021 – We used $103,483,000 of cash for investing activities for the year ended December 31, 2021,
primarily (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 for contributions to an unconsolidated joint venture, partially offset by (iii) $18,666,000 of proceeds
from net sales of marketable securities (which were held in our deferred compensation plan) and (iv) $1,602,000 of distributions of
capital from unconsolidated real estate related funds, net of contributions made.
Financing Activities
Year Ended December 31, 2023 – We used $57,979,000 of cash for financing activities for the year ended December 31, 2023,
primarily (i) $273,000,000 for the repayment of notes and mortgages payable in connection with the refinancing of 300 Mission Street,
(ii) $52,681,000 for payment of dividends and distributions to common stockholders and unitholders, (iii) $8,828,000 for distributions
to noncontrolling interests in Fund X, (iv) $8,657,000 for distributions to noncontrolling interests in 300 Mission Street and 1633
Broadway, (v) $1,847,000 for the settlement of accounts payable in connection with repurchases of common shares in 2022, (vi)
$648,000 primarily for the payment of debt issuance costs in connection with the refinancing of 300 Mission Street and (vii) $205,000
for the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (viii)
$232,050,000 of proceeds from notes and mortgages payable in connection with the refinancing of 300 Mission Street and (ix)
$55,837,000 of contributions from noncontrolling interests in consolidated real estate related funds.
Year Ended December 31, 2022 – We used $173,903,000 of cash for financing activities for the year ended December 31, 2022,
primarily (i) $73,024,000 for dividends and distributions to common stockholders and unitholders, (ii) $63,153,000 for the repurchases
of common shares under our stock repurchase program, (iii) $40,699,000 for distributions to noncontrolling interests, (iv) $284,000 for
the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (v) $3,257,000 of
contributions from noncontrolling interests in consolidated real estate related funds.
Year Ended December 31, 2021 – We used $76,481,000 of cash for financing activities for the year ended December 31, 2021,
primarily (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.
59
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, 2023, 2022 and 2021.
(Amounts in thousands)
Reconciliation of net loss to NOI and Cash NOI:
Net loss
Add (subtract) adjustments to arrive at NOI and Cash NOI:
Depreciation and amortization
General and administrative
Interest and debt expense
Income tax expense (benefit)
Loss from real estate related fund investments
NOI from unconsolidated joint ventures (excluding
One Steuart Lane)
Loss from unconsolidated joint ventures
Fee income
Interest and other income, net
Other, net
NOI
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures
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:
For the Year Ended December 31, 2023
Total
New York
San Francisco
Other
$
(371,303 )
$
(31,921 )
$
(169,650 )
$
(169,732 )
250,644
61,986
152,990
1,426
96,375
37,360
270,298
(21,597 )
(14,837 )
1,244
464,586
166,868
-
98,906
5
-
12,880
25,001
-
(2,445 )
-
269,294
78,734
-
51,043
(75 )
-
24,347
216,532
-
(2,108 )
-
198,823
(89,948 )
374,638
$
(11,007 )
258,287
$
(78,941 )
119,882
$
5,042
61,986
3,041
1,496
96,375
133
28,765
(21,597 )
(10,284 )
1,244
(3,531 )
-
(3,531 )
464,586
$
269,294
$
198,823
$
(3,531 )
$
$
(6,166 )
1,625
(7,791 )
-
(8,099 )
450,321
(2,509 )
268,410
(5,590 )
185,442
-
(3,531 )
-
(3,531 )
Consolidated joint ventures
Paramount's share of Cash NOI
(80,809 )
369,512
$
(11,559 )
256,851
$
(69,250 )
116,192
$
$
60
(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
Loss from real estate related fund investments
NOI from unconsolidated joint ventures (excluding
One Steuart Lane)
Loss from unconsolidated joint ventures
Fee income
Interest and other income, net
Other, net
NOI
Less NOI attributable to noncontrolling interests in:
Consolidated joint ventures
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:
For the Year Ended December 31, 2022
Total
New York
San Francisco
Other
$
(28,197 )
$
23,925
$
251 $
(52,373 )
232,517
59,487
143,864
3,265
2,233
45,141
53,251
(28,421 )
(5,174 )
1,709
479,675
156,036
-
89,964
13
-
13,257
98
-
(712 )
-
282,581
72,190
-
50,850
4
-
31,596
48,538
-
(669 )
-
202,760
(82,587 )
397,088
$
(10,384 )
272,197
$
(72,203 )
130,557 $
4,291
59,487
3,050
3,248
2,233
288
4,615
(28,421 )
(3,793 )
1,709
(5,666 )
-
(5,666 )
479,675
$
282,581
$
202,760 $
(5,666 )
$
$
(14,034 )
(5,099 )
460,542
(17 )
(14,017 )
-
1,916
284,480
(7,015 )
181,728
-
(5,666 )
-
(5,666 )
Consolidated joint ventures
Paramount's share of Cash NOI
(77,341 )
383,201
$
(11,202 )
273,278
$
(66,139 )
115,589 $
$
61
(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 related fund
Paramount's share of NOI
Total
For the Year Ended December 31, 2021
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
(10,399 )
-
$
383,788 $
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 )
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 related fund
Paramount's share of Cash NOI
$
476,472 $
262,894
$
220,433
$
(6,855 )
(4,983 )
1,694
(6,704 )
464,785
1,442
266,030
(6,677 )
(8,146 )
205,610
(87,831 )
206
377,160 $
(10,376 )
-
255,654
$
$
(77,455 )
-
128,155
$
-
-
(6,855 )
-
206
(6,649 )
62
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, 2023 and 2022. 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 represent 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, 2023 (1)
Lease termination income
Non-cash write-offs of straight-line rent receivables
Redevelopment and other, net
Paramount's share of Same Store NOI for the year
ended December 31, 2023
(Amounts in thousands)
Paramount's share of NOI for the year
ended December 31, 2022 (1)
Lease termination income
Non-cash write-offs of straight-line rent receivables
Redevelopment and other, net
Paramount's share of Same Store NOI for the year
ended December 31, 2022
Decrease in Same Store NOI
% Decrease
For the Year Ended December 31, 2023
Total
New York
San Francisco
Other
$
$
374,638
(8,070 )
14,413
4,629
258,287
(6,887)
6,917
1,031
$
(2)
(3)
119,882
(1,183)
7,496
67
$
(2)
(3,531 )
-
-
3,531
$
385,610
$
259,348
$
126,262
$
-
For the Year Ended December 31, 2022
Total
New York
San Francisco
Other
$
$
$
$
397,088
(1,875 )
2,425
4,136
272,197
(1,875)
1,980
(910)
$
(3)
$
130,557
-
445
(620)
(5,666 )
-
-
5,666
401,774
$
271,392
$
130,382
$
(16,164 )
$
(12,044)
$
(4,120)
$
(4.0 %)
(4.4%)
(3.2%)
-
-
(1) See page 60 “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.
Includes write-offs related to the terminated SVB Securities lease at 1301 Avenue of the Americas in our New York portfolio and the surrendered
JPMorgan Chase space at One Front Street in our San Francisco portfolio.
Includes our share of NOI attributable to 60 Wall Street which was taken “out-of-service” for redevelopment.
(2)
(3)
63
(Amounts in thousands)
Paramount's share of Cash NOI for the year
ended December 31, 2023 (1)
Lease termination income
Redevelopment and other, net
For the Year Ended December 31, 2023
Total
New York
San Francisco
Other
$
$
369,512
(8,070 )
4,682
256,851
(6,887 )
1,027
$
(2)
$
116,192
(1,183)
124
(3,531 )
-
3,531
Paramount's share of Same Store Cash NOI for the year
ended December 31, 2023
$
366,124
$
250,991
$
115,133
$
-
For the Year Ended December 31, 2022
Total
New York
San Francisco
Other
(Amounts in thousands)
Paramount's share of Cash NOI for the year
ended December 31, 2022 (1)
Lease termination income
Redevelopment and other, net
$
$
383,201
(1,875 )
3,921
273,278
(1,875 )
(1,532 )
$
(2)
Paramount's share of Same Store Cash NOI for the year
ended December 31, 2022
$
385,247
$
269,871
Decrease in Same Store Cash NOI
% Decrease
$
(19,123 )
$
(18,880 )
(5.0 %)
(7.0 %)
$
$
$
115,589
-
(213)
115,376
$
$
(243)
(0.2%)
(5,666 )
-
5,666
-
-
(1) See page 60 “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.
Includes our share of Cash NOI attributable to 60 Wall Street which was taken “out-of-service” for redevelopment.
(2)
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 and adjustments, realized and unrealized gains
or losses on real estate related 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.
64
The following table presents a reconciliation of net income or loss to FFO and Core FFO.
(Amounts in thousands, except share and per share amounts)
Reconciliation of net (loss) income to FFO and Core FFO:
Net (loss) income
Real estate depreciation and amortization (including our
share of unconsolidated joint ventures)
Our share of non-cash real estate impairment losses related to
unconsolidated joint ventures
FFO
Less FFO attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate related funds
Operating Partnership
FFO attributable to common stockholders
Per diluted share
FFO
Non-core items:
For the Year Ended December 31,
2022
2023
2021
$
(371,303 )
$
(28,197 )
$
2,059
286,410
226,230
141,337
(59,639 )
109,781
(13,481 )
177,998
0.82
$
$
271,789
31,685
275,277
(51,433 )
3,318
(17,063 )
210,099
0.95
$
$
274,024
-
276,083
(61,609 )
(2,904 )
(19,072 )
192,498
0.88
141,337
$
275,277
$
276,083
$
$
$
Adjustments for realized and unrealized gains and losses
on consolidated and unconsolidated real estate related
fund investments, including residential condominium
units at One Steuart Lane
Adjustments to equity in earnings of unconsolidated
joint ventures
Other, net
Core FFO
Less Core FFO attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate related funds
Operating Partnership
Core FFO attributable to common stockholders
Per diluted share
$
$
137,387
(6,866 )
1,440
273,298
(59,639 )
(10,503 )
(14,354 )
188,802
0.87
$
$
7,560
855
3,097
286,789
(51,433 )
(1,006 )
(17,526 )
216,824
0.98
$
$
(2,984 )
8,016
1,677
282,792
(61,609 )
(205 )
(19,923 )
201,055
0.92
Reconciliation of weighted average shares outstanding:
Weighted average shares outstanding
Effect of dilutive securities
Denominator for FFO per diluted share
216,922,235
20,527
216,942,762
221,309,938
31,487
221,341,425
218,701,249
45,709
218,746,958
65
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
interest rate swap agreements to fix the rate or interest rate cap agreements to limit exposure to increase in rates, 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 federal
income tax purposes, we may utilize swap and cap arrangements in the future.
The following table summarizes our consolidated debt, the weighted average interest rates and the fair value as of
December 31, 2023.
Property
(Amounts in thousands)
Fixed Rate Debt:
One Market Plaza (1)
31 West 52nd Street
1301 Avenue of the Americas (2)
300 Mission Street
1633 Broadway
Total Fixed Rate Debt
Variable Rate Debt:
1301 Avenue of the Americas (3)
Revolving Credit Facility
Total Variable Rate Debt
Rate
2024
2025
2026
2027
2028
Thereafter
Total
Fair Value
4.03% $ 975,000 $
-
3.80%
-
2.49%
-
4.50%
2.99%
-
3.43% $ 975,000 $
- $
- $
500,000
-
500,000
-
232,050
-
-
-
- $ 1,232,050 $
8.18% $
n/a
8.18% $
- $
-
- $
- $ 360,000 $
-
-
- $ 360,000 $
- $
-
-
-
-
- $
- $
-
- $
- $ 975,000 $ 971,368
- $
465,516
-
-
498,648
-
-
-
218,715
-
- 1,250,000 1,250,000 1,004,276
- $ 1,250,000 $ 3,457,050 $ 3,158,523
500,000
500,000
232,050
- $
-
- $
- $ 360,000 $ 359,026
-
-
- $ 360,000 $ 359,026
-
Total Consolidated Debt
3.88% $ 975,000 $
- $ 1,592,050 $
- $
- $ 1,250,000 $ 3,817,050 $ 3,517,549
(1) On February 1, 2024, we, together with our joint venture partner, modified and extended this loan. In connection with the modification, the loan
balance was reduced to $850,000, following a $125,000 paydown by the joint venture, of which our 49.0% share was $61,250. The modified loan
bears interest at a fixed rate of 4.08%, matures in February 2027 and has an option to extend for an additional year, subject to certain conditions.
(2) Represents variable rate loans that have been fixed by interest rate swaps through August 2024. See table below. On June 16, 2023, we amended
the loans to replace LIBOR with SOFR, effective July 7, 2023.
(3) Represents variable rate loans, where SOFR has been capped at 4.50% through August 2024. See table below. On June 16, 2023, we amended the
loans to replace LIBOR with SOFR, effective July 7, 2023.
In addition to the above, our unconsolidated joint ventures had $1.75 billion of outstanding indebtedness as of December 31, 2023,
of which our share was $628,938,000.
The tables below provide additional details on our interest rate swaps as of December 31, 2023.
Property
(Amounts in thousands)
Notional Effective
Amount
Date
Maturity
Date
Benchmark Strike
Rate
Rate
Fair Value as of
December 31, 2023 December 31, 2022
1301 Avenue of the Americas
$ 500,000
Jul-2021 Aug-2024
SOFR
Total interest rate swap assets designated as cash flow hedges (included in "other assets")
0.49 % $
$
13,726 $
13,726 $
32,681
32,681
Property
(Amounts in thousands)
Notional Effective
Amount
Date
Maturity
Date
Benchmark Strike
Rate
Rate
Fair Value as of
December 31, 2023 December 31, 2022
1301 Avenue of the Americas
1301 Avenue of the Americas
$ 360,000 Aug-2023 Aug-2024
Jul-2021 Aug-2023
360,000
SOFR
LIBOR
Total interest rate cap assets designated as cash flow hedges (included in "other assets")
4.50 % $
2.00 %
$
1,263 $
-
1,263 $
-
6,123
6,123
66
The following table summarizes our share of total indebtedness and the effect to interest expense of a 100 basis point increase in
variable interest rates.
December 31, 2023
December 31, 2022
(Amounts in thousands, except per share amount)
Paramount's share of consolidated debt:
Variable rate
Fixed rate (1)
Balance
$ 360,000
2,674,930
$ 3,034,930
8.18 % $
3.27 %
3.86 % $
3,600 $ 360,000
- 2,687,665
3,600 $ 3,047,665
Weighted
Average
Interest Rate
Effect of 1%
Increase in
Base Rates
Balance
Weighted
Average
Interest Rate
5.56 %
3.25 %
3.52 %
6.12 %
3.30 %
3.82 %
Paramount's share of debt of non-consolidated
entities (non-recourse):
Variable rate
Fixed rate
$ 117,913
511,025
$ 628,938
7.51 % $
3.32 %
4.11 % $
1,179 $ 113,739
511,025
1,179 $ 624,764
-
Noncontrolling interests' share of above
Total change in annual net income
Per diluted share
$
$
$
(392 )
4,387
0.02
(1) Our fixed rate debt includes floating rate debt that has been swapped to fixed. See page 66.
67
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Changes in Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Page Number
69
71
72
73
74
76
78
68
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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2023, 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, 2023, 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 14, 2024, 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.
69
Impairment of real estate properties – 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 property may not be recoverable. The Company uses significant judgment in (i) assessing events or
circumstances which might indicate impairment, including but not limited to, anticipated hold periods and current market conditions,
(ii) estimating future undiscounted cash flows used to test real estate properties for recoverability, including but not limited to terminal
capitalization rates and future market rents, and (iii) measuring an impairment loss, including but not limited to discount rates and
available market information.
Evaluating the judgments made by the Company to perform these 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 future
market or industry considerations.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the assessment of the Company’s impairment analysis included, among others, the following:
(cid:120) 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 assessments of significant
judgments.
(cid:120) We evaluated management's assumptions, including management’s intended hold periods. We engaged in discussions with
management, including the Chief Executive Officer and Chief Financial Officer to evaluate the assumptions utilized in
determining the intended hold periods. We corroborated whether an asset is being actively marketed for sale with external tools
utilized by our valuation specialists, including industry intelligence and marketing platforms.
(cid:120) We utilized professionals with specialized skills and knowledge to assist in evaluating the reasonableness of the assumptions
used by management, including discount rates, future market rents, down-time leasing period and terminal capitalization rates
for certain properties, for which impairment indicators have been identified.
(cid:120) We evaluated the reasonableness of management’s projected estimated future cash flow analyses by comparing management’s
projections to historical results.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 14, 2024
We have served as the Company's auditor since 2014.
70
PARAMOUNT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share, unit and per share amounts)
Assets
December 31, 2023 December 31, 2022
Real estate, at cost
Land
Buildings and improvements
Accumulated depreciation and amortization
Real estate, net
Cash and cash equivalents
Restricted cash
Accounts and other receivables
Real estate related fund investments
Investments in unconsolidated real estate related funds
Investments in unconsolidated joint ventures
Deferred rent receivable
Deferred charges, net of accumulated amortization of $82,265 and $68,686
Intangible assets, net of accumulated amortization of $194,536 and $246,723
Other assets
Total assets (1)
Liabilities and Equity
Notes and mortgages payable, net of unamortized deferred financing costs
of $13,566 and $17,682
Revolving credit facility
Accounts payable and accrued expenses
Dividends and distributions payable
Intangible liabilities, net of accumulated amortization of $108,817 and $102,533
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 217,366,089 and 216,559,406 shares in 2023 and 2022, respectively
Additional paid-in-capital
Earnings less than distributions
Accumulated other comprehensive income
Paramount Group, Inc. equity
Noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate related funds
Operating Partnership (19,468,095 and 14,586,411 units outstanding)
Total equity
Total liabilities and equity
$
$
$
$
1,966,237 $
6,250,379
8,216,616
(1,471,819 )
6,744,797
428,208
81,391
18,053
775
4,549
132,239
351,209
108,751
68,005
68,238
8,006,215 $
3,803,484 $
-
114,463
8,360
28,003
37,017
3,991,327
2,173
4,133,801
(943,935 )
11,246
3,203,285
413,925
110,589
287,089
4,014,888
8,006,215 $
1,966,237
6,177,540
8,143,777
(1,297,553)
6,846,224
408,905
40,912
23,866
105,369
3,411
393,503
346,338
120,685
90,381
73,660
8,453,254
3,840,318
-
123,176
18,026
36,193
24,775
4,042,488
2,165
4,186,161
(644,331)
48,296
3,592,291
402,118
173,375
242,982
4,410,766
8,453,254
(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 91.8% as of December 31, 2023. As of December 31, 2023, the assets and liabilities of the Operating Partnership include $3,860,326
and $2,522,385 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.
71
PARAMOUNT GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share amounts)
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 real estate related fund investments
(Loss) income from unconsolidated real estate related funds
Loss from unconsolidated joint ventures
Interest and other income, net
Interest and debt expense
(Loss) income before income taxes
Income tax expense
Net (loss) income
Less net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate related funds
Operating Partnership
Net loss attributable to common stockholders
Loss per Common Share - Basic:
Net loss per common share
Weighted average common shares outstanding
Loss per Common Share - Diluted:
Net loss per common share
Weighted average common shares outstanding
$
$
$
For the Year Ended December 31,
2022
2021
2023
$
711,470 $
702,819 $
31,318
742,788
293,965
250,644
61,986
422
607,017
(96,375 )
(822 )
(270,298 )
14,837
(152,990 )
(369,877 )
(1,426 )
(371,303 )
37,558
740,377
277,422
232,517
59,487
470
569,896
(2,233 )
(1,239 )
(53,251 )
5,174
(143,864 )
(24,932 )
(3,265 )
(28,197 )
(20,464 )
109,795
22,228
(259,744 ) $
(13,981 )
3,342
2,433
(36,403 ) $
690,418
36,368
726,786
265,438
232,487
59,132
916
557,973
-
782
(24,896 )
3,017
(142,014 )
5,702
(3,643 )
2,059
(21,538 )
(2,893 )
2,018
(20,354 )
(1.20 ) $
(0.16 ) $
216,922,235
221,309,938
(0.09 )
218,701,249
(1.20 ) $
(0.16 ) $
216,922,235
221,309,938
(0.09 )
218,701,249
See notes to consolidated financial statements.
72
PARAMOUNT GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net (loss) income
Other comprehensive income (loss):
Change in value of interest rate swaps and interest rate caps
Pro rata share of other comprehensive (loss) income of
unconsolidated joint ventures
Comprehensive (loss) income
Less comprehensive (income) loss attributable to
noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate related funds
Operating Partnership
Comprehensive (loss) income attributable to common
stockholders
For the Year Ended December 31,
2022
2021
2023
$
(371,303) $
(28,197) $
(25,444)
(14,584)
(411,331)
(20,464)
109,795
25,206
31,839
18,485
22,127
(13,981)
3,342
(1,733)
2,059
6,857
9,565
18,481
(21,538 )
(2,908 )
540
$
(296,794) $
9,755 $
(5,425 )
See notes to consolidated financial statements.
73
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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Net (loss) income
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Depreciation and amortization
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Amortization of deferred financing costs
Loss from unconsolidated joint ventures
Real estate impairment losses on unconsolidated joint ventures
Distributions of earnings from unconsolidated joint ventures
Realized and unrealized losses on real estate related fund investments
Loss (income) from unconsolidated real estate related funds
Distributions of earnings from unconsolidated real estate related funds
Amortization of above and below-market leases, net
Loss recognized upon consolidation of real estate related fund
investments that were previously unconsolidated
Realized and unrealized gains on marketable securities
Other non-cash adjustments
Changes in operating assets and liabilities:
Real estate related fund investments
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
Investment in and contributions of capital to unconsolidated joint ventures
Advances to a partner in One Steuart Lane
Repayment of advances by a partner in One Steuart Lane
Investment in a mezzanine loan
Contributions of capital to unconsolidated real estate related funds
Due from affiliates
Repayment of amounts due from affiliates
Distributions of capital from unconsolidated real estate related funds
Investment in real estate related funds
Sales of marketable securities
Purchases of marketable securities
Net cash used in investing activities
For the Year Ended December 31,
2022
2021
2023
$
(371,303 ) $
(28,197) $
2,059
250,644
(4,874 )
20,321
6,219
20,126
250,172
17,096
107,722
822
117
(5,376 )
-
-
669
(3,128 )
5,813
(12,200 )
(3,542 )
(13,663 )
12,224
277,859
(100,526 )
(40,715 )
(35,715 )
38,935
(20,000 )
(2,077 )
-
-
-
-
-
-
(160,098 )
232,517
(13,602)
19,003
6,156
21,566
31,685
1,324
-
1,239
1,318
(1,748)
2,627
-
1,188
-
(8,284)
(15,083)
(7,545)
3,658
(1,185)
246,637
(125,805)
(15,812)
-
-
-
(5,018)
(59,000)
59,000
1,506
(7,454)
-
-
(152,583)
232,487
(2,495 )
18,612
9,127
24,896
-
7,278
-
(782 )
676
(3,070 )
-
(1,535 )
3,146
-
1,920
(18,438 )
(8,283 )
16,246
(37,538 )
244,306
(112,001 )
(11,750 )
-
-
-
(3,324 )
-
-
4,926
-
40,228
(21,562 )
(103,483 )
See notes to consolidated financial statements.
76
PARAMOUNT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
$
(Amounts in thousands)
Cash Flows from Financing Activities:
Repayment of notes and mortgages payable
Proceeds from notes and mortgages payable
Contributions from noncontrolling interests in consolidated real estate related funds
Distributions to noncontrolling interests in consolidated real estate related funds
Dividends paid to common stockholders
Distributions paid to common unitholders
Contributions from noncontrolling interests in consolidated joint ventures
Distributions to noncontrolling interests in consolidated joint ventures
Settlement of accounts payable in connection with repurchases of common shares
Debt issuance costs
Repurchase of shares related to stock compensation agreements
and related tax withholdings
Repurchases of common shares
Net cash used in 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
For the Year Ended December 31,
2022
2021
2023
(273,000 ) $
232,050
55,837
(8,828 )
(48,873 )
(3,808 )
-
(8,657 )
(1,847 )
(648 )
- $
-
3,257
-
(67,062)
(5,962)
-
(40,699)
-
-
(205 )
-
(57,979 )
(284)
(63,153)
(173,903)
(850,000 )
888,566
-
-
(61,297 )
(6,182 )
121
(30,539 )
-
(16,915 )
(235 )
-
(76,481 )
59,782
449,817
509,599 $
(79,849)
529,666
449,817 $
64,342
465,324
529,666
408,905 $
40,912
449,817 $
524,900 $
4,766
529,666 $
428,208 $
81,391
509,599 $
408,905 $
40,912
449,817 $
434,530
30,794
465,324
524,900
4,766
529,666
$
$
$
$
$
$
144,388 $
893
139,332 $
2,711
132,476
1,762
Non-Cash Transactions:
Common shares issued upon redemption of common units
Dividends and distributions declared but not yet paid
Change in value of interest rate swaps and interest rate caps
Write-off of fully amortized and/or depreciated assets
Additions to real estate included in accounts payable and accrued expenses
Transfer of deposit to investment in unconsolidated joint ventures
Repurchases of common shares included in accounts payable and accrued expenses
Increase (decrease) due to consolidation of real estate related fund
investments that were previously unconsolidated:
Real estate related fund investments
Investments in unconsolidated real estate related funds
Noncontrolling interests in consolidated real estate related funds
11,871
8,360
(25,444 )
34,317
21,815
-
-
128,743
18,026
31,839
11,386
14,595
6,230
1,847
-
-
-
100,500
(8,965)
91,535
961
16,895
6,857
46,594
12,177
6,230
-
-
-
-
See notes to consolidated financial statements.
77
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 91.8% of, the Operating Partnership as of December 31, 2023.
As of December 31, 2023, we owned and/or managed a portfolio of 18 properties aggregating 13.8 million square feet comprised
of:
(cid:120) Eight wholly and partially owned Class A properties aggregating 8.7 million square feet in New York, comprised of 8.2 million
square feet of office space and 0.5 million square feet of retail, theater and amenity space;
(cid:120) Six wholly and partially owned Class A 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
(cid:120) Four managed properties aggregating 0.8 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 several real estate related
funds for institutional investors and high net-worth individuals.
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.
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”.
78
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 may discontinue applying the equity method of accounting when the investment in the joint venture is reduced to zero and when
we have no obligation to provide financial support to the joint venture. Upon discontinuing equity method accounting, 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. We review our investments in unconsolidated joint ventures for impairment whenever events or
changes and circumstances indicate a decline in the fair value of the investment below the investment carrying amount and such decline
is other than temporary.
Investments that do not qualify for consolidation or equity method accounting are accounted for under the cost method.
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.
79
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Cash
Restricted cash consists primarily of cash restricted or escrowed under loan agreements for debt service, real estate taxes, property
insurance, capital improvements and security deposits held on behalf of our tenants.
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” in 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” in 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 or loss (outside of earnings) and subsequently reclassified to earnings over the term that the
hedged transaction affects earnings.
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.
80
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2023, are classified as Level 2 in the fair value hierarchy.
Real Estate Related Fund Investments
Our real estate related fund investments include mezzanine loan investments made by Paramount Group Real Estate Fund X,
LP (“Fund X”). Fund X qualifies as an investment company pursuant to ASC Topic 946, Financial Services - Investment
Companies. Accordingly, the underlying investments are generally carried at fair value, except investments that have a fair
value above par value and where the borrower has the option to prepay the loan are carried at par value. These investments are
classified as Level 3 in the fair value hierarchy.
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 the 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.
81
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
82
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $484,000, $1,942,000, and $2,024,000 for the years ended December 31, 2023, 2022 and 2021, respectively. In addition,
our TRSs had combined deferred income tax expense of $181,000, $101,000 and $703,000 for the years ended December 31, 2023,
2022 and 2021, respectively.
The following table reconciles net loss attributable to Paramount Group, Inc. to estimated taxable income for the years ended
December 31, 2023, 2022 and 2021.
(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
Our share of real estate impairment losses of
unconsolidated joint ventures
Other, net
Estimated taxable income
$
For the Year Ended December 31,
2022
2021
2023
$
(259,744 ) $
(36,403 ) $
(20,354 )
6,832
39,037
19,052
-
226,230
3,014
34,421 $
(5,780 )
54,892
17,607
-
31,685
20,352
82,353 $
3,082
62,218
16,933
(28,793 ) (1)
-
27,476
60,562
(1)
In December 2021, the deferred compensation plan was terminated and the net proceeds were distributed to the plan participants.
The following table sets forth the characterization of dividend distributions for federal income tax purposes for the years ended
December 31, 2023, 2022 and 2021.
Ordinary income
Long-term capital gain
Return of capital
Total
2023
Amount
$
0.158 (1)
-
0.019
0.177 (2)
$
For the Year Ended December 31,
2022
2021
%
Amount
%
Amount
%
89.3 % $
0.0 %
10.7 %
100.0 % $
0.373 (1)
-
-
0.373 (3)
100.0 % $
0.0 %
0.0 %
100.0 % $
0.253 (1)
0.023
0.004
0.280 (4)
90.4 %
8.2 %
1.4 %
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 year ended December 31, 2023 of $0.035 per share, that were paid in January 2024, were attributable
to the year ending December 31, 2024 for federal income tax purposes.
(3) Dividends declared in the fourth quarter of the year ended December 31, 2022 of $0.0775 per share, that were paid in January 2023, were a split-
year dividend with $0.070425 per share attributable to the year ended December 31, 2022 for federal income tax purposes and the remaining
$0.007075 per share attributable to the year ended December 31, 2023.
(4) Dividends declared in the fourth quarter of the year ended December 31, 2021 of $0.07 per share, that were paid in January 2022, were attributable
to the year ended December 31, 2022 for federal income tax purposes.
83
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (“CODM”), makes key operating decisions, evaluates financial results and manages
our business. See Note 21, 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.
Certain prior year balances have been reclassified to conform to current year presentation.
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. ASU 2020-04 was effective beginning March
12, 2020 to December 31, 2022. 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 2021-01 was
effective beginning January 7, 2021 to December 31, 2022. In December 2022, the FASB issued ASU 2022-06 to extend the
effectiveness date of ASU 2020-04 and ASU 2021-01 from December 31, 2022 to December 31, 2024. In June 2023, we entered into
loan modifications in connection with the transition from LIBOR to Secured Overnight Financing Rate (“SOFR”) for our variable rate
loans and we applied the practical expedient to all such modifications.
In August 2023, the FASB issued ASU 2023-05, an update to ASC Topic 805, Business Combinations. ASU 2023-05 clarifies
existing guidance by requiring a joint venture to recognize and initially measure assets contributed and liabilities assumed at fair value,
upon its formation, in the joint venture's separate financial statements. These amendments are effective prospectively for all joint venture
formations with a formation date on or after January 1, 2025, with early adoption permitted. We will apply the provisions of ASU 2023-
05 to new joint ventures, as applicable, but do not believe the adoption of ASU 2023-05 will have a material impact on our consolidated
financial statements.
In November 2023, the FASB issued ASU 2023-07, an update to ASC Topic 280, Segment Reporting. ASU 2023-07 enhances the
segment reporting by requiring disclosures of (i) the significant segment expenses that are regularly provided to the CODM and included
within each reported measure of segment profit or loss, (ii) the composition of the other segment items, including the nature and type of
the other segment items, and (iii) the title and position of the CODM. ASU 2023-07 is effective for our year ending December 31, 2024
and for our interim periods that begin on January 1, 2025, with early adoption permitted. We are evaluating the impact of ASU 2023-
07 on our consolidated financial statements.
84
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Consolidated Real Estate Related Funds
Real Estate Related Fund Investments (Fund X)
Real estate related fund investments on our consolidated balance sheets represent the investments of Fund X, which invests in
mezzanine loans. We are the general partner and investment manager of Fund X, which, prior to December 12, 2022, was accounted for
under the equity method of accounting (see Note 4, Investments in Unconsolidated Real Estate Related Funds). Subsequent to December
12, 2022, we increased our ownership interest in Fund X to 13.0% and began consolidating Fund X into our consolidated financial
statements.
The following table sets forth the details of income or loss from real estate related fund investments for the year ended December
31, 2023 and the period from December 12, 2022 to December 31, 2022.
(Amounts in thousands)
Net investment income
Net realized losses
Net unrealized losses
Loss recognized upon consolidation of real estate related
fund investments that were previously unconsolidated
Loss from real estate related fund investments
Less: noncontrolling interests in consolidated real estate related fund
Loss from real estate related fund investments attributable
to Paramount Group, Inc.
For the Year Ended December 12, 2022 to
December 31, 2023
December 31, 2022
Period from
$
11,347 $
(46,894)
(60,828)
-
(96,375)
84,784
$
(11,591)
$
394
-
-
(2,627 )
(2,233 )
(420 )
(2,653 )
Residential Development Fund (“RDF”)
We are also the general partner of RDF in which we own a 7.4% interest. RDF owns a 35.0% interest in One Steuart Lane, a for-
sale residential condominium project, in San Francisco, California. We consolidate the financial results of RDF into our consolidated
financial statements and reflect the 92.6% interest that we do not own as noncontrolling interests in consolidated real estate related
funds. RDF accounts for its 35.0% interest in One Steuart Lane under the equity method of accounting. Accordingly, our economic
interest in One Steuart Lane (based on our 7.4% ownership interest in RDF) is 2.6%. See Note 5, Investments in Unconsolidated Joint
Ventures.
4. Investments in Unconsolidated Real Estate Related Funds
We are the general partner and investment manager of Paramount Group Real Estate Fund VIII, LP (“Fund VIII”) which invests in
real estate and related investments. As of December 31, 2023, our ownership interest in Fund VIII was approximately 1.3%. We account
for our investment in Fund VIII under the equity method of accounting.
Prior to December 12, 2022, we owned an 8.2% interest in Fund X and accounted for our investment in Fund X under the equity
method of accounting. Subsequent to December 12, 2022, we began consolidating Fund X into our consolidated financial statements
(see Note 3, Consolidated Real Estate Related Funds).
As of December 31, 2023 and 2022, our share of the investments in unconsolidated real estate related funds was $4,549,000 and
$3,411,000, respectively, which is reflected as “investments in unconsolidated real estate related funds” on our consolidated balance
sheets. We recognized losses of $822,000 and $1,239,000 for the years ended December 31, 2023 and 2022, respectively, and income
of $782,000 for the year ended December 31, 2021, for our share of earnings, which is reflected as “(loss) income from unconsolidated
real estate related funds” in our consolidated statements of income.
85
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.
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 (1)
55 Second Street (2)
111 Sutter Street (1)
1600 Broadway (2)
60 Wall Street (1)
One Steuart Lane (2)
Oder-Center, Germany (2)
Investments in unconsolidated joint ventures
Paramount
Ownership
As of December 31,
2023
2022
50.0%
67.0%
44.1%
49.0%
9.2%
5.0%
35.0% (3)
9.5%
$
$
- $
-
30,322
-
8,646
-
89,949
3,322
132,239 $
-
192,948
85,340
-
9,113
25,034
77,961
3,107
393,503
(Amounts in thousands)
Our Share of Net (Loss) Income:
712 Fifth Avenue (1)
Market Center (1)
55 Second Street (2)
111 Sutter Street (1)
1600 Broadway (2)
60 Wall Street (1)
One Steuart Lane (2)
Oder-Center, Germany (2)
Loss from unconsolidated joint ventures
$
$
2023
For the Year Ended December 31,
2022
2021
-
$
(161,514 ) (4)
(55,018 ) (5)
-
-
(25,001 ) (7)
(28,727 ) (8)
(38 )
(270,298 )
$
$
-
(10,405 )
(2,943 )
(35,190 ) (6)
(9 )
(89 )
(4,696 )
81
(53,251 )
$
(10,265 )
(11,848 )
(2,912 )
(2,658 )
-
66
2,678
43
(24,896 )
(1) At December 31, 2023, our basis in the joint ventures that own 712 Fifth Avenue, Market Center, 111 Sutter and 60 Wall Street was
negative. Since we have no further obligation to fund additional capital to these joint ventures, we have discontinued the equity method
of accounting, and accordingly, we no longer recognize our proportionate share of earnings. Instead, we recognize income only to the
extent we receive cash distributions from the joint ventures and recognize losses to the extent we make cash contributions to the joint
ventures.
(2) As of December 31, 2023, the carrying amount of our investments in 55 Second Street, 1600 Broadway, One Steuart Lane and Oder-
Center, Germany was greater than our share of equity in these investments by $462, $306, $590, $4,063, respectively, and primarily
represents the unamortized portion of our capitalized acquisition costs.
(3) Represents RDF’s economic interest in One Steuart Lane, a for-sale residential condominium project. Our economic interest in One Steuart
(4)
(5)
(6)
(7)
(8)
Lane (based on our 7.4% ownership interest in RDF) is 2.6%.
In the fourth quarter of 2023, the joint venture that owns Market Center recognized a $341,872 real estate impairment loss, of which our
67.0% share was $229,054. Given that our share of the real estate impairment loss together with our share of operating and other losses
recognized in the fourth quarter brought the basis of our investment in the joint venture below zero, in accordance with GAAP we were
limited to recognizing $148,906 of the real estate impairment loss during the year ended December 31, 2023.
In the fourth quarter of 2023, the joint venture that owns 55 Second Street recognized a $119,279 real estate impairment loss, of which
our share was $52,590.
In the fourth quarter of 2022, the joint venture that owns 111 Sutter Street recognized a $64,663 real estate impairment loss, of which our
share was $31,685.
In May 2023, the joint venture that owns 60 Wall Street defaulted on the $575,000 non-recourse mortgage loan securing the property. The
joint venture is currently in negotiations with the lender to modify the loan. Additionally, in the second quarter of 2023, the joint venture
recognized a $455,893 real estate impairment loss, of which our share was $24,734.
In the third quarter of 2023, One Steuart Lane recognized $68,407 of impairment losses related to residential condominium units, of which
RDF’s share was $23,942.
86
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
thereof 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,
2023
2022
1,528,595 $
167,355
52,164
246,824
84,179
2,079,117 $
1,744,706 $
5,026
98,462
1,848,194
230,923
2,079,117 $
2,377,084
252,540
69,599
322,232
87,054
3,108,509
1,834,916
10,972
50,783
1,896,671
1,211,838
3,108,509
(Amounts in thousands)
Income Statements:
Revenues:
Rental revenue
Other income (2)
Total revenues
Expenses:
Operating (2)
Depreciation and amortization
Total expenses
Other income (expense):
Interest and other income (loss), net
Interest and debt expense
Real estate impairment loss
Loss before income taxes
Income tax expense
Net loss
2023
For the Year Ended December 31,
2022
2021
$
155,549 $
11,234
166,783
169,826 (3)
67,727
237,553
3,035
(73,485 )
(917,044 ) (4)
(1,058,264 )
(32 )
$
(1,058,296 ) $
194,031 $
65,850
259,881
152,313
85,949
238,262
991
(62,173 )
(64,663 ) (5)
(104,226 )
(60 )
(104,286 ) $
229,420
139,705
369,125
220,396
107,079
327,475
(111 )
(63,493 )
-
(21,954 )
(32 )
(21,986 )
(1) Represents residential condominium units at One Steuart Lane that are available for sale.
(2)
(3)
Includes proceeds and cost of sales from the sale of residential condominium units at One Steuart Lane.
Includes $68,407 of impairment losses related to condominium units at One Steuart Lane, of which RDF’s share was $23,942. See
note 8 on page 86.
(4) Represents real estate impairment losses related to Market Center, 55 Second Street, and 60 Wall Street, of which our share was
$148,906, $52,590, and $24,734, respectively. See notes 4, 5, and 7 on page 86.
(5) Represents a real estate impairment loss on 111 Sutter Street, of which our share was $31,685.
87
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
2023
2022
$
$
$
$
262,541 $
(194,536 )
68,005 $
136,820 $
(108,817 )
28,003 $
337,104
(246,723 )
90,381
138,726
(102,533 )
36,193
(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,
2021
2022
2023
5,376 $
1,748 $
3,070
19,563 $
21,645 $
26,507
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, 2024.
(Amounts in thousands)
For the Year Ending December 31,
2024
2025
2026
2027
2028
$
Above and Below-
Market Leases, Net
In-Place Leases
5,862 $
4,541
2,711
2,398
2,318
14,631
10,110
7,501
6,857
6,778
88
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Debt
On September 27, 2023, a joint venture in which we have a 31.1% interest, completed a $232,050,000 refinancing of 300 Mission
Street, a 655,000 square foot Class A office building in San Francisco. The interest-only loan bears a fixed rate of 4.50% and matures
in October 2026. The loan replaces the previous $273,000,000 loan that bore interest at 3.65% and was scheduled to mature in October
2023.
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, 2023
As of December 31,
2022
2023
Dec-2029
Fixed
2.99 % $ 1,250,000 $ 1,250,000
One Market Plaza (1)
Feb-2024 (2)
Fixed
4.03 %
975,000
975,000
1301 Avenue of the Americas
Aug-2026
Aug-2026
Fixed (3)
SOFR + 368 bps (4)
31 West 52nd Street
300 Mission Street (1)
Jun-2026
Oct-2026
Fixed
Fixed
Total notes and mortgages payable
Less: unamortized deferred financing costs
Total notes and mortgages payable, net
2.49 %
8.18 %
4.87 %
500,000
360,000
860,000
500,000
360,000
860,000
3.80 %
500,000
500,000
4.50 %
232,050
273,000
3.88 %
3,817,050
(13,566 )
3,858,000
(17,682 )
$ 3,803,484 $ 3,840,318
$750 Million Revolving
Credit Facility
Mar-2026 SOFR + 135 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) This loan was modified and extended on February 1, 2024. See Note 22, Subsequent Events for detail.
(3) Represents variable rate loans that have been fixed by interest rate swaps through August 2024. See Note 8, Derivative Instruments and Hedging
Activities. On June 16, 2023, we amended the loans to replace LIBOR with SOFR, effective July 7, 2023.
(4) Represents variable rate loans, where SOFR has been capped at 4.5% through August 2024. See Note 8, Derivative Instruments and Hedging
Activities. On June 16, 2023, we amended the loans to replace LIBOR with SOFR, effective July 7, 2023.
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, 2023.
(Amounts in thousands)
2024
2025
2026
2027
2028
Thereafter
Total
Mortgages Payable
$
975,000 (1) $
975,000 (1) $
Notes and
Revolving
Credit Facility
-
1,592,050
-
-
1,250,000
-
1,592,050
-
-
1,250,000
-
-
-
-
-
-
(1) Represents the mortgage loan at One Market Plaza, which was modified and extended on
February 1, 2024. See Note 22, Subsequent Events for detail.
89
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Derivative Instruments and Hedging Activities
On July 29, 2021, in connection with the $860,000,000 refinancing of 1301 Avenue of the Americas, we had entered into interest
rate swap agreements with an aggregate notional amount of $500,000,000 to fix LIBOR at 0.46% through August 2024. On June 16,
2023, we amended the swap agreements to replace LIBOR with SOFR, effective July 7, 2023. We also entered into interest rate cap
agreements with an aggregate notional amount of $360,000,000 to cap LIBOR at 2.00% which expired in August 2023. Upon expiration
of these agreements, we entered into new interest rate cap agreements for the same notional amount to cap SOFR at 4.50% through
August 2024. 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 loss of
$25,444,000 for the year ended December 31, 2023, and other comprehensive income of $31,839,000 and $6,857,000 for the years
ended December 31, 2022 and 2021, respectively, from the changes in the fair value of these derivative financial instruments. See Note
10, Accumulated Other Comprehensive Income. During the next twelve months, we estimate that $13,008,000 of the amounts to be
recognized in accumulated other comprehensive income will be reclassified as a decrease to interest expense.
The table below provide additional details on our interest rate swaps and interest rate caps that are designated as cash flow hedges.
Property
(Amounts in thousands)
Notional Effective
Amount
Date
Maturity
Date
Benchmark Strike
Rate
Rate
Fair Value as of
December 31, 2023 December 31, 2022
1301 Avenue of the Americas
$ 500,000
Jul-2021 Aug-2024
SOFR
Total interest rate swap assets designated as cash flow hedges (included in "other assets")
0.49 % $
$
13,726 $
13,726 $
32,681
32,681
Property
(Amounts in thousands)
Notional Effective
Amount
Date
Maturity
Date
Benchmark Strike
Rate
Rate
Fair Value as of
December 31, 2023 December 31, 2022
1301 Avenue of the Americas
1301 Avenue of the Americas
$ 360,000 Aug-2023 Aug-2024
Jul-2021 Aug-2023
360,000
SOFR
LIBOR
Total interest rate cap assets designated as cash flow hedges (included in "other assets")
4.50 % $
2.00 %
$
1,263 $
-
1,263 $
-
6,123
6,123
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,
2023, 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 $200,000,000 of our common
stock, from time to time, in the open market or in privately negotiated transactions. As of December 31, 2022, we had repurchased a
total of 24,183,768 common shares at a weighted average of $7.65 per share or $185,000,000 in the aggregate. As of December 31,
2023, we have $15,000,000 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.
90
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Accumulated Other Comprehensive Income
The following table sets forth changes in accumulated other comprehensive income or loss by component for the years ended
December 31, 2023, 2022 and 2021, including amounts attributable to noncontrolling interests in the Operating Partnership.
(Amounts in thousands)
Amount of income related to the cash flow hedges
recognized in other comprehensive (loss) income (1)
Amount reclassified from accumulated other comprehensive
income (decreasing) increasing interest and debt expense (1)
Amount of (loss) income related to unconsolidated joint ventures
recognized in other comprehensive (loss) income (2)
Amounts reclassified from accumulated other comprehensive
income (decreasing) increasing loss from unconsolidated joint ventures (2)
For the Year Ended December 31,
2022
2021
2023
$
5,595
$
39,865 $
6,069
(31,039 )
(8,026 )
788
(5,055 )
18,859
5,562
(9,529 )
(374 )
4,003
(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) 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, 2023 and 2022, noncontrolling interests in our consolidated joint ventures
aggregated $413,925,000 and $402,118,000, respectively.
Consolidated Real Estate Related Funds
Noncontrolling interests in our consolidated real estate related funds consist of equity interests held by third parties in our
Residential Development Fund and Fund X. As of December 31, 2023 and December 31, 2022, the noncontrolling interests in our
consolidated real estate related funds aggregated $110,589,000 and $173,375,000, 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, 2023
and 2022, noncontrolling interests in the Operating Partnership on our consolidated balance sheets had a carrying amount of
$287,089,000 and $242,982,000, respectively, and a redemption value of $100,650,000 and $86,644,000, respectively, based on the
closing share price of our common stock on the New York Stock Exchange at the end of each year.
91
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 91.8% of, the Operating Partnership as of December 31, 2023. 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, 2023 and 2022, the Operating Partnership
held interests in consolidated VIEs owning properties and real estate related funds 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
Accounts and other receivables
Real estate related fund investments
Investments in unconsolidated joint ventures
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,
2023
2022
3,284,532 $
176,354
10,005
775
89,949
207,938
45,190
38,209
7,374
3,860,326 $
2,450,401 $
48,952
17,180
5,852
2,522,385 $
3,364,482
144,446
13,647
105,369
77,961
197,658
49,485
50,553
9,860
4,013,461
2,489,902
61,492
21,936
6,051
2,579,381
Unconsolidated VIEs
As of December 31, 2023, the Operating Partnership held variable interests in entities that own our unconsolidated real estate related
funds that were deemed to be VIEs. The following table summarizes our investments in these unconsolidated real estate related 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,
2023
2022
$
$
4,549 $
18
4,567 $
3,411
21
3,432
92
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)
Real estate related fund investments
Interest rate swap and cap assets (included in "other assets")
Total assets
$
$
Total
- $
14,989
14,989 $
(Amounts in thousands)
Real estate related fund investments
Interest rate swap and cap assets (included in "other assets")
Total assets
$
$
Total
105,369 $
38,804
144,173 $
As of December 31, 2023
Level 2
Level 1
Level 3
- $
-
-
$
- $
14,989
14,989
$
-
-
-
As of December 31, 2022
Level 2
Level 1
- $
-
-
$
- $
38,804
38,804
$
Level 3
105,369
-
105,369
Real Estate Related Fund Investments
Real estate related fund investments are comprised of investments in mezzanine loans made by Fund X. The investments are
measured at fair value on our consolidated balance sheets and are classified as Level 3. The table below summarizes the changes in the
fair value of real estate related fund investments for the year ended December 31, 2023 and the period from December 12, 2022 to
December 31, 2022.
Period from
(Amounts in thousands)
Beginning balance
Consolidation of Fund X
Additional investments
Proceeds from sale of an investment
Net realized losses
Net unrealized (losses) gains
Other, net
Ending balance
For the Year Ended December 12, 2022 to
December 31, 2023
$
December 31, 2022
105,369 $
-
11,897
(8,769 )
(46,894 )
(60,828 )
(775 )
- $
$
-
104,726
-
-
-
643
-
105,369
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, 2023
Fair
Value
Carrying
Amount
As of December 31, 2022
Fair
Value
Carrying
Amount
Notes and mortgages payable
Revolving credit facility
Total liabilities
$
$
3,817,050 $
3,517,549 $
3,858,000 $
-
-
-
3,817,050 $
3,517,549 $
3,858,000 $
3,566,096
-
3,566,096
93
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
For the Year Ended December 31,
2022
2021
2023
$
$
635,314 $
76,156
711,470 $
645,950 $
56,869
702,819 $
635,513
54,905
690,418
The following table is a schedule of future undiscounted cash flows under non-cancelable operating leases in effect as of
December 31, 2023, for each of the five succeeding years and thereafter commencing January 1, 2024.
(Amounts in thousands)
2024
2025
2026
2027
2028
Thereafter
Total
$
$
620,031
580,941
503,576
443,031
440,988
1,969,146
4,557,713
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
2023
For the Year Ended December 31,
2022
2021
$
$
11,075 $
7,278
3,244
21,597
9,721
31,318 $
12,270 $
7,981
8,170
28,421
9,137
37,558 $
13,284
8,589
6,600
28,473
7,895
36,368
(1) Primarily comprised of (i) tenant requested services, including cleaning, overtime heating and cooling and (ii) parking income.
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, 2022
Balance as of December 31, 2023
(Decrease) increase
Total
Management
Management
and Other
Asset
Property
Disposition, Leasing
Acquisition,
$
$
2,611 $
2,554
(57 ) $
2,138 $
1,850
(288) $
338 $
586
248 $
135
118
(17 )
94
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. 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,
2022
2023
2021
$
$
146,771 $
6,219
152,990 $
137,708 $
6,156
143,864 $
132,887
9,127 (1)
142,014
(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.
17. 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 Time-Based LTIP (“T-LTIP”) units, Performance-Based LTIP (“P-LTIP”) units,
Time-Based Appreciation Only LTIP (“T-AOLTIP”) units and Performance-Based Appreciation Only LTIP (“P-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, T-LTIP units and P-LTIP units. “Not full value awards” are awards
that require the payment of an exercise price such as T-AOLTIP units and P-AOLTIP units.
During the years ended December 31, 2023, 2022 and 2021, we recognized $20,321,000, $19,003,000 and $18,612,000,
respectively, of expense in connection with stock-based compensation awards.
2023 Annual Equity Grants
2023 P-LTIPs
On January 25, 2023, the Compensation Committee of our board of directors (the “Compensation Committee”) approved the
2023 performance program, a multi-year performance-based long-term incentive compensation program. Under the program,
participants may earn awards in the form of P-LTIP units based on our achievement of rigorous Net Operating Income (“NOI”)
goals over a three-year performance measurement period beginning on January 1, 2023 and continuing through December 31, 2025.
The amount of P-LTIP units otherwise earned based on the achievement of the NOI goals would then be increased or decreased
based on our Total Shareholder Return (“TSR”) versus that of our New York City office REIT peers (comprised of Vornado Realty
Trust, SL Green Realty Corp. and Empire State Realty Trust) but the modifier will not result in a total payout exceeding 100% of
the units granted. Additionally, if our TSR is negative over the three-year performance measurement period, then the number of P-
LTIP units that are earned under the program will be reduced by 30.0% of the number of such awards that otherwise would have
been earned. Furthermore, awards earned under the program are subject to vesting based on continued employment with us through
December 31, 2026, with 50.0% of each award vesting upon the conclusion of the performance measurement period, and the
remaining 50.0% vesting on December 31, 2026. Our Named Executive Officers are required to hold earned awards for an
additional year following vesting. The 2023 P-LTIP unit awards had a fair value of $7,067,000 on the date of the grant, which is
being amortized into expense over the four-year vesting period using a graded vesting attribution method.
95
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2023 T-LTIP Units, T-AOLTIP Units and Restricted Stock
On January 25, 2023, we also granted an aggregate of 796,349 T-LTIP units, 2,054,270 T-AOLTIP units and 81,531 shares of
Restricted Stock to our executive officers and employees that will vest over a period of three to four years and had an aggregate
grant date fair value of $8,783,000, which is being amortized into expense on a straight-line basis over the vesting period.
Incentive and Retention Equity Grants
In addition to the 2023 Annual Equity Grants that were made on January 25, 2023, the Compensation Committee granted on
September 8, 2023, equity awards (“Incentive and Retention Equity Grants”) to a broad group of employees, including our executive
officers. The purpose of the Incentive and Retention Grants is to further incentivize and align our executive officers and employees with
our stockholders and to support employee retention. The Incentive and Retention Equity Grants were granted in the form of T-LTIP
units and P-AOLTIP units, and are intended to be in lieu of the 2024 and 2025 Annual Equity Grants. A total of 4,112,044 T-LTIP units
and 7,518,519 P-AOLTIP units were granted pursuant to the Incentive and Retention Equity Grants. These units had an aggregate grant
date fair value of $28,863,000, that is being amortized into expense over the four-year vesting period. Below are the details of the awards
granted.
T-LTIPs
The T-LTIP units are subject to service-based vesting, with 50% of the units vesting on October 1, 2026 and the remaining
50% of the units vesting on October 1, 2027. Our Named Executive Officers are required to hold the T-LTIP units for an additional
year following vesting.
P-AOLTIP
The P-AOLTIP units will only be earned and eligible to be converted into common units if the highest consecutive 20-trading
day average closing stock price of our common stock on the New York Stock Exchange during the 10-year term (“Applicable
Price”) exceeds $5.12, which was the closing stock price of our common stock on the New York Stock Exchange on the date of
grant by the following performance levels:
(cid:120) No P-AOLTIP units are earned if the Applicable Price is less than 25%, or $6.40;
(cid:120)
(cid:120)
(cid:120)
33% of the P-AOLTIP units are earned if the Applicable Price is greater than 25%, or $6.40;
67% of the P-AOLTIP units are earned if the Applicable Price is greater than 50%, or $7.68;
100% of the P-AOLTIP units are earned if the Applicable Price is greater than 75%, or $8.96.
The P-AOLTIP units are subject to linear interpolation for performance between levels. In addition, the P-AOLTIP units are
also subject to time-based vesting, with 20% of the earned units vesting on October 1, 2026 and the remaining 80% of the earned
units vesting on October 1, 2027. Furthermore, our Named Executive Officers are required to hold the earned P-AOLTIP units for
an additional year following vesting.
2020 P-LTIPs
The three-year performance measurement period with respect to our 2020 P-LTIP units ended on December 31, 2022. On January
25, 2023, the Compensation Committee determined that (i) our TSR ranked in the 75th percentile amongst the TSR of our New York
City office REIT peers and (ii) our TSR ranked in the 37th percentile amongst the performance of the SNL U.S. Office REIT Index
constituents, resulting in a payout of approximately 59.7% of the 2020 P-LTIP units granted. Additionally, in accordance with the
program, the final payout was reduced by 30.0% since our TSR was negative over the three-year performance measurement period.
Accordingly, only 443,713, or 41.5% of the 2020 P-LTIP units that were granted under the program, were earned.
96
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are additional details related to equity awards outstanding as of December 31, 2023.
T-LTIP Units
We grant our executive officers, non-employee directors and employees T-LTIP units which vest over a period of three to five years
and are subject to a taxable book-up event, as defined. T-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 T-LTIP
units granted in the year ended December 31, 2023 had a grant date fair value of $22,962,000, which is being amortized into expense
on a straight-line basis over the vesting period. As of December 31, 2023, there was $23,352,000 of total unrecognized compensation
cost related to unvested T-LTIP units, which is expected to be recognized over a weighted-average period of 2.9 years. The following
table summarizes our T-LTIP unit activity for the year ended December 31, 2023.
Unvested as of December 31, 2022
Granted
Vested
Cancelled or expired
Unvested as of December 31, 2023
T-AOLTIP Units
Units
Weighted-Average
Grant-Date Fair Value (per unit)
9.56
4.46
9.48
-
5.51
1,998,245 $
5,153,019
(676,793 )
-
6,474,471 $
We grant our executive officers T-AOLTIP units which vest over a period of three to four years. T-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 T-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 T-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 T-AOLTIP units granted in
the year ended December 31, 2023 had a grant date fair value of $3,752,000, which is being amortized into expense on a straight-line
basis over the vesting period. The fair value of the T-AOLTIP unit is estimated using an option-pricing model with weighted average
expected volatility of 40.0%, expected life of 4.8 years, risk free interest rate of 3.6% and expected dividend yield of 3.7%.
As of December 31, 2023, there was $4,287,000 of total unrecognized compensation cost related to unvested T-AOLTIP units,
which is expected to be recognized over a weighted-average period of 2.4 years. The following table summarizes our T-AOLTIP unit
activity for the year ended December 31, 2023.
Weighted-
Average
Exercise Price
(per unit)
Weighted-Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic
Value
Shares
Outstanding as of December 31, 2022
Granted
Exercised
Cancelled or expired
Outstanding as of December 31, 2023
T-AOLTIP units vested and expected to vest as of
December 31, 2023
T-AOLTIP units exercisable as of December 31, 2023
4,587,874 $
2,054,270
-
-
6,642,144 $
6,408,998 $
3,311,485 $
8.80
6.17
-
-
7.99
8.00
8.32
5.1 $
5.1 $
4.8 $
-
-
-
97
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P-LTIP Units
We grant our executive officers and employees P-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 P-LTIP units based on our performance over a three-year performance measurement period. If the designated
performance objectives are achieved, awards earned under the program are subject to vesting over a period of four years and are also
subject to a taxable book-up event, as defined.
The P-LTIP units granted in the year ended December 31, 2023 had a grant date fair value of $7,067,000, which is being amortized
into expense over the four-year vesting period using a graded vesting attribution method. As of December 31, 2023, there was $8,320,000
of total unrecognized compensation cost related to unvested P-LTIP units granted, which is expected to be recognized over a weighted
average period of 2.1 years. The following table summarizes our P-LTIP unit activity for the year ended December 31, 2023.
Unvested as of December 31, 2022
Granted
Earned and Vested
Cancelled or expired
Unvested as of December 31, 2023
P-AOLTIP Units
Units
Weighted-Average
Grant-Date Fair Value (per unit)
6.49
5.40
6.99
6.99
5.92
4,307,802 $
2,618,748
(443,713 )
(549,140 )
5,933,697 $
We grant our executive officers P-AOLTIP units which vest over a period of three to four years. P-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 P-AOLTIP units were granted, however the P-AOLTIP units will only be earned and eligible to be converted into
common units if the requisite performance objectives are achieved. P-AOLTIP units earned 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 P-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 P-AOLTIP units granted in the year ended December 31, 2023 had a grant date fair value of $11,428,000, and is being
amortized into expense over the vesting period. The fair value of the P-AOLTIP units granted is estimated using an option-pricing model
with weighted average expected volatility of 34.0%, expected life of 10.0 years, risk free interest rate of 4.5% and expected dividend
yield of 4.5%.
As of December 31, 2023, there was $9,500,000 of total unrecognized compensation cost related to unvested P-AOLTIP units
granted, which is expected to be recognized over a weighted average period of 3.6 years. The following table summarizes our P-AOLTIP
unit activity granted for the year ended December 31, 2023.
Outstanding as of December 31, 2022
Granted
Exercised
Cancelled or expired
Outstanding as of December 31, 2023
P-AOLTIP units vested and expected
to vest as of December 31, 2023
P-AOLTIP units exercisable as of
December 31, 2023
Weighted-
Average
Exercise Price
(per unit)
Weighted-Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic
Value
Shares
- $
7,518,519
-
-
7,518,519 $
-
5.12
-
-
5.12
9.7 $
376,000
6,992,223 $
5.12
9.7 $
350,000
- $
-
- $
-
98
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock
We grant shares of restricted stock to certain non-employee directors and our employees which vest over one to four years. The
shares of restricted stock granted in the year ended December 31, 2023 had a grant date fair value of $743,000, which is being amortized
into expense on a straight-line basis over the vesting period. As of December 31, 2023, there was $1,421,000 of total unrecognized
compensation cost related to restricted stock, which is expected to be recognized over a weighted-average period of 2.0 years. The table
below summarizes our restricted stock activity for the year ended December 31, 2023.
Shares
Weighted-Average
Grant-Date Fair Value (per share)
Unvested as of December 31, 2022
Granted
Vested
Cancelled or expired
Unvested as of December 31, 2023
269,108 $
136,831
(109,151 )
(11,137 )
285,651 $
9.59
5.43
9.87
9.76
7.49
Stock Options
We did not grant any stock options in the years ended December 31, 2023, 2022 and 2021. As of December 31, 2023, we had
1,988,993 stock options outstanding that had a weighted average exercise price of $17.05 per share and a remaining life of 1.7 years.
18. Earnings Per Share
The following table summarizes our net loss and the number of common shares used in the computation of basic and diluted loss
per common share, which includes the weighted average number of common shares outstanding and the effect of dilutive potential
common shares, if any.
(Amounts in thousands, except per share amounts)
Numerator:
For the Year Ended December 31,
2022
2021
2023
Net loss attributable to common stockholders
Earnings allocated to unvested participating securities
Numerator for net loss per common share - basic and diluted
$
(259,744 ) $
(50 )
(259,794 )
(36,403 ) $
(85 )
(36,488 )
(20,354 )
(70 )
(20,424 )
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
216,922
-
221,310
-
216,922
221,310
218,701
-
218,701
Loss per common share - basic and diluted
$
(1.20 ) $
(0.16 ) $
(0.09 )
(1) The effect of dilutive securities for the years ended December 31, 2023, 2022 and 2021 excludes 18,749, 20,064 and 23,775 weighted average
share equivalents, respectively, as their effect was anti-dilutive.
99
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Related Parties
Management Agreements
We provide property management, leasing and other related services to certain properties owned by members of the Otto Family.
We recognized fee income of $1,042,000, $1,322,000 and $1,726,000 for the years ended December 31, 2023, 2022 and 2021,
respectively, in connection with these agreements, which is included as a component of “fee and other income” in our consolidated
statements of income. As of December 31, 2023 and 2022, amounts owed to us under these agreements aggregated $40,000 and $52,000,
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 related funds. We recognized fee income of $16,567,000, $24,315,000 and $23,240,000 for the years ended December
31, 2023, 2022 and 2021, respectively, in connection with these agreements, which is included as a component of “fee and other income”
in our consolidated statements of income. As of December 31, 2023 and 2022, amounts owed to us under these agreements aggregated
$2,552,000 and $3,032,000, respectively, which are included as a component of “accounts and other receivables” on our consolidated
balance sheets.
HT Consulting GmbH
We have an agreement with HT Consulting GmbH (“HTC”), a licensed broker in Germany, to supervise selling efforts for our joint
ventures and private equity real estate related funds (or investments in feeder vehicles for these funds) to investors in Germany. 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 costs aggregating $392,000, $713,000 and $645,000 for the years ended
December 31, 2023, 2022 and 2021, respectively, in connection with this agreement. As of December 31, 2023 and 2022, we owed
$102,000 and $119,000, respectively, to HTC under this agreement, which are included as a component of “accounts payable and
accrued expenses” on our consolidated balance sheets.
ParkProperty Capital, LP
ParkProperty Capital, LP (“ParkProperty”), an entity partially owned by Katharina Otto-Bernstein (a member of our board of
directors), leased 3,330 square feet at 1633 Broadway (“1633 Lease”). In December 2022, upon expiration of the 1633 Lease,
ParkProperty entered into a five-year lease for 4,233 square feet at 1325 Avenue of the Americas. We recognized rental revenue of
$276,000, $220,000 and $212,000 in the years ended December 31, 2023, 2022 and 2021, respectively, pursuant to these leases.
Mannheim Trust
A subsidiary of Mannheim Trust leases 3,127 square feet of office space at 712 Fifth Avenue, our 50.0% owned unconsolidated
joint venture, pursuant to a lease agreement which expires in June 2025. The Mannheim Trust is for the benefit of the children of Dr.
Martin Bussmann, who is a member of our board of directors. We recognized $183,000, $364,000 and $362,000 for the year ended
December 31, 2023, 2022 and 2021, respectively, for our share of rental income pursuant to this lease.
Other
We have entered into an agreement with Kramer Design Services (“Kramer Design”) to develop branding and signage for the
amenity center at 1301 Avenue of the Americas. Kramer Design is 100% owned by the spouse of Albert Behler, our Chairman, Chief
Executive Officer and President. During the year ended December 31, 2023, we incurred and paid Kramer Design $165,000, in
connection with services rendered pursuant to this agreement.
100
PARAMOUNT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. Commitments and Contingencies
Insurance
We carry commercial general liability coverage on our properties, with limits of liability customary within the industry. Similarly,
we are insured against the risk of direct and indirect physical damage to our properties including coverage for the perils such as floods,
earthquakes and windstorms. Our policies also cover the loss of rental income during an estimated reconstruction period. Our policies
reflect limits and deductibles customary in the industry and specific to the buildings and portfolio. We also obtain title insurance policies
when acquiring new properties. We currently have coverage for losses incurred in connection with both domestic and foreign terrorist-
related activities, as well as cybersecurity incidents. While we do carry commercial general liability insurance, property insurance,
terrorism insurance and cybersecurity insurance, 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 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, 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 consolidated 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, 2023, 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.
101
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 $62,500,000. 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.
21. 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
(excluding One Steuart Lane)
NOI (1)
(Amounts in thousands)
Property-related revenues
Property-related operating expenses
NOI from unconsolidated joint ventures
(excluding One Steuart Lane)
NOI (1)
$
$
$
$
$
$
For the Year Ended December 31, 2023
Total
New York
San Francisco
Other
721,191 $
(293,965 )
460,715 $
(204,301)
37,360
464,586 $
12,880
269,294 $
261,954 $
(87,478 )
24,347
198,823 $
For the Year Ended December 31, 2022
Total
New York
San Francisco
Other
711,956 $
(277,422 )
468,409 $
(199,085)
45,141
479,675 $
13,257
282,581 $
245,560 $
(74,396 )
31,596
202,760 $
For the Year Ended December 31, 2021
Total
New York
San Francisco
Other
698,313 $
(265,438 )
443,384 $
(191,793)
43,597
476,472 $
11,303
262,894 $
258,188 $
(69,976 )
32,221
220,433 $
(1,478 )
(2,186 )
133
(3,531 )
(2,013 )
(3,941 )
288
(5,666 )
(3,259 )
(3,669 )
73
(6,855 )
(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.
102
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 (loss) income:
Fee income
Depreciation and amortization expense
General and administrative expenses
Loss from real estate related fund investments
NOI from unconsolidated joint ventures (excluding One Steuart Lane)
Loss from unconsolidated joint ventures
Interest and other income, net
Interest and debt expense
Other, net
(Loss) income before income taxes
Income tax expense
Net (loss) income
Less: net (income) loss attributable to noncontrolling interests in:
Consolidated joint ventures
Consolidated real estate related funds
Operating Partnership
Net loss attributable to common stockholders
$
For the Year Ended December 31,
2022
2021
2023
$
464,586 $
479,675 $
476,472
21,597
(250,644 )
(61,986 )
(96,375 )
(37,360 )
(270,298 )
14,837
(152,990 )
(1,244 )
(369,877 )
(1,426 )
(371,303 )
28,421
(232,517 )
(59,487 )
(2,233 )
(45,141 )
(53,251 )
5,174
(143,864 )
(1,709 )
(24,932 )
(3,265 )
(28,197 )
(20,464 )
109,795
22,228
(259,744 ) $
(13,981 )
3,342
2,433
(36,403 ) $
28,473
(232,487 )
(59,132 )
-
(43,597 )
(24,896 )
3,017
(142,014 )
(134 )
5,702
(3,643 )
2,059
(21,538 )
(2,893 )
2,018
(20,354 )
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, 2023
December 31, 2022
December 31, 2021
22. Subsequent Events
Total
New York
San Francisco
Other
$
8,006,215 $
8,453,254
8,494,562
5,214,504 $
5,311,636
5,336,210
2,342,395 $
2,631,265
2,696,131
449,316
510,353
462,221
On February 1, 2024, we, together with our joint venture partner, modified and extended the existing mortgage loan at One Market
Plaza, a 1.6 million square-foot two-building trophy asset in San Francisco, California. The existing $975,000,000 loan, which bore
interest at a fixed rate of 4.03%, was scheduled to mature on February 6, 2024. In connection with the modification, the loan balance
was reduced to $850,000,000, following a $125,000,000 paydown by the joint venture, of which our 49.0% share was $61,250,000. The
modified loan bears interest at a fixed rate of 4.08%, matures in February 2027 and has an option to extend for an additional year, subject
to certain conditions.
103
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, 2023, 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, 2023, 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, 2023.
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, 2023 that have materially affected, or are reasonably likely to
materially affect our internal control over financial reporting.
104
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, 2023, 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, 2023, 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, 2023, of
the Company and our report dated February 14, 2024, 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 14, 2024
105
ITEM 9B. OTHER INFORMATION
Rule 10b5-1 Trading Arrangement
During the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities
Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement
(as such terms are defined in Item 408 of Regulation S-K).
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 2024 Annual Meeting of
Stockholders (which is scheduled to be held on May 16, 2024), 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.
106
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
(a) The following documents are filed as part of this report:
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:
Pages in this
Annual
Report on
Form 10-K
ii Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2023, 2022 and 2021
108
(b) The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index on page 111 of this Annual Report, on Form
10-K, and is incorporated herein by reference.
ITEM 16. FORM 10-K SUMMARY
None.
107
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T
PARAMOUNT GROUP, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31,
2022
2021
2023
$
8,143,777 $
8,028,061 $
-
-
-
107,156
(34,317 )
8,216,616 $
-
127,102
(11,386 )
8,143,777 $
7,963,315
-
-
111,340
(46,594 )
8,028,061
(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
$
$
$
1,297,553 $
208,583
1,112,977 $
195,962
966,697
192,874
(34,317 )
1,471,819 $
(11,386 )
1,297,553 $
(46,594 )
1,112,977
109
Exhibit
Number
EXHIBIT INDEX
Exhibit Description
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8†
10.9†
10.10†
10.11†
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.
Seventh Amended and Restated Bylaws of Paramount Group, Inc., effective August 1, 2023, incorporated by reference to
Exhibit 3.1 to the Registrant’s Form 8-K filed with the SEC on August 4, 2023.
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 Registrants Form 10-K filed with
the SEC on February 15, 2023.
Second Amended and Restated Limited Partnership Agreement of Paramount Group Operating Partnership LP, dated as of
October 26, 2020, incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-K filed with the SEC on February
22, 2022.
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.
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.
110
10.12†
10.13†
10.14
10.15
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
Paramount Group, Inc. Executive Severance Plan, incorporated by reference to Exhibit 10.13 to the Registrant's Form 10-
K filed with the SEC on February 22, 2022.
Paramount Group, Inc. Non-Employee Director Compensation Plan, incorporated by reference to Exhibit 10.13 to the
Registrants Form 10-K filed with the SEC on February 15, 2023.
Form of AOLTIP Unit Award Agreement, incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed
with the SEC on September 12, 2023.
Form of LTIP Unit Award Agreement, incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed with
the SEC on September 12, 2023.
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.
97.1*
Paramount Group, Inc. Compensation Recovery Policy.
101*
104*
*
**
†
The following materials from the Paramount Group, Inc. Annual Report on Form 10-K for the fiscal year ended December
31, 2023 formatted in Inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii)
the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the
Consolidated Statements of Cash Flows, and (vi) the related Notes to Consolidated Financial Statements. The instance
document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
document.
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.
111
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 14, 2024
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 14, 2024
By: /s/ Ermelinda Berberi
(Ermelinda Berberi)
Senior Vice President, Chief Accounting Officer
(duly authorized officer and principal accounting officer)
112
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 14, 2024
By:
/s/ Wilbur Paes
(Wilbur Paes)
Chief Operating Officer, Chief Financial Officer and Treasurer
(Principal Financial Officer)
February 14, 2024
By:
/s/ Ermelinda Berberi
(Ermelinda Berberi)
Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer)
February 14, 2024
By:
/s/ Thomas Armbrust
(Thomas Armbrust)
Director
By:
/s/ Martin Bussmann
(Martin Bussmann)
Director
By:
/s/ Karin Klein
(Karin Klein)
By:
/s/ Peter Linneman
(Peter Linneman)
Director
Director
By:
/s/ Katharina Otto-Bernstein
(Katharina Otto-Bernstein)
Director
By:
/s/ Mark Patterson
(Mark Patterson)
By:
/s/ Hitoshi Saito
(Hitoshi Saito)
By:
/s/ Paula Sutter
(Paula Sutter)
By:
/s/ Greg Wright
(Greg Wright)
Director
Director
Director
Director
113
February 14, 2024
February 14, 2024
February 14, 2024
February 14, 2024
February 14, 2024
February 14, 2024
February 14, 2024
February 14, 2024
February 14, 2024
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-253882 on Form S-3 and Registration
Statement No. 333-200351 on Form S-8 of our reports dated February 14, 2024, relating to the financial statements
of Paramount Group, Inc. and the effectiveness of Paramount Group, Inc.’s internal control over financial reporting
appearing in this Annual Report on Form 10-K for the year ended December 31, 2023.
Exhibit 23.1
/s/ Deloitte & Touche LLP
New York, New York
February 14, 2024
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 14, 2024
/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 14, 2024
/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:
the Annual Report on Form 10-K for the year ended December 31, 2023 (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 14, 2024
/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:
the Annual Report on Form 10-K for the year ended December 31, 2023 (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 14, 2024
/s/ Wilbur Paes
Name: Wilbur Paes
Title: Chief Operating Officer, Chief Financial Officer and Treasurer
2
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Corporate Highlights
We are a best-in-class owner, operator and manager of
Class A office properties. Our trophy buildings are some
of the most sought-after addresses in New York and
San Francisco.
Nationally Recognized
Diverse and high-creditworthy tenant base
Experienced and Diverse
Management team with proven track record
156473Cover_2023AR_032124
2
Corporate Data
Paramount Group 2023 Annual Report
Board of Directors
Management
About Our Stock
Albert Behler
Chairman,
Chief Executive Officer & President
Albert Behler
Chairman,
Chief Executive Officer & President
Our common stock is listed on the
New York Stock Exchange under the
symbol PGRE.
Thomas Armbrust
Chairman of the Supervisory Board,
CURA Vermögensverwaltung
Wilbur Paes
Chief Operating Officer,
Chief Financial Officer and Treasurer
Annual Meeting
Thursday, May 16, 2024
Martin Bussmann
Former Trustee, Mannheim Trust
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
Hitoshi Saito
Former Senior Executive Managing
Director and Global Head,
Mitsui Fudosan CO. Ltd
Paula Sutter
Chief Executive Officer,
Paula Sutter LLC
Greg Wright
Chief Investment Officer,
Digital Realty Trust, Inc.
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Peter Brindley
Executive Vice President,
Head of Real Estate
Gage Johnson
Senior Vice President,
General Counsel and Secretary
Ermelinda Berberi
Senior Vice President,
Chief Accounting Officer
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
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PARAMOUNT GROUP OPERATING PARTNERSHIP LP
03.22.2024 16:36PM
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156473 Cover_2023AR_032124
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Corporate Headquarters
1633 Broadway
New York, New York 10019
(212) 237-3100
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