Paramount Group Q4 2024 Earnings Report

Paramount Group EPS Results

• Actual EPS: $0.19
• Consensus EPS: $0.17
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Paramount Group Revenue Results

• Actual Revenue: $186.27 million
• Expected Revenue: $180.41 million
• Beat/Miss: Beat by +$5.87 million
• YoY Revenue Growth: N/A

Paramount Group Announcement Details

• Quarter: Q4 2024
• Date: 2/27/2025
• Time: After Market Closes
• Conference Call Date: Friday, February 28, 2025
• Conference Call Time: 10:00AM ET

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

Paramount Group Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

[Operator]

Please note that this conference call is being recorded today, 02/20/2025. I will now turn the call over to Tom Hennessy, Vice President of Business Development and Investor Relations.

[Tom Hennessy, Vice President of Business Development and Investor Relations at Paramount Group]

Thank you, operator, and good morning, everyone. Before we begin, I would like to point everyone to our fourth quarter twenty twenty four earnings release and supplemental information, which were released yesterday. Both can be found under the

[Tom Hennessy, Vice President of Business Development and Investor Relations at Paramount Group]

heading Financial Results in the Investors section of the Paramount Group website at www.pgre.com. Some of our comments will be forward looking statements within the meaning of the federal securities laws. Forward looking statements, which are usually identified by the use of words such as will, expect, should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

[Tom Hennessy, Vice President of Business Development and Investor Relations at Paramount Group]

During the call, we will discuss our non GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter twenty twenty four earnings release and our supplemental information. Hosting the call today, we have Mr. Albert Baylor, Chairman, Chief Executive Officer and President of the company Wilbur Pays, Chief Operating Officer, Chief Financial Officer and Treasurer and Peter Brinley, Executive Vice President, Head of Real Estate.

[Tom Hennessy, Vice President of Business Development and Investor Relations at Paramount Group]

Management will provide some opening remarks and we will then open the call to questions. With that, I will turn the call over to Albert.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Good morning, everyone. Thank you for joining our call today. Yesterday, we released our fourth quarter results, reporting core FFO of $0.19 per share, bringing our total for the year to $0.8 per share, which is at the high end of our most recent guidance range. Looking ahead, we have initiated 2025 core FFO per share guidance with a range between $0.51 and $0.57 per share, along with the 2025 leasing guidance range between 1,800,000 square feet. Wilbur will review our financial results and guidance in greater detail.

[Albert Behler, Chairman, CEO & President at Paramount Group]

In the fourth quarter, we leased approximately 109,000 square feet, bringing our full year total to 763,500 square feet leased. This volume is 3% ahead of last year and near the midpoint of our original guidance for the year, though it trails our revised target from November. In New York, we leased approximately 57,000 square feet in the fourth quarter. While our quarterly leasing in New York did not meet the revised targets we had set for ourselves in November, the pipeline remains robust. Peter will cover this in more detail shortly.

[Albert Behler, Chairman, CEO & President at Paramount Group]

We are seeing strong interest from a wide array of tenants, particularly in the financial services and legal sectors. This demand reaffirms our conviction in the long term appeal of our high quality, strategically located space in New York's core submarkets. The flight to quality remains a consistent theme as we begin the new year with talent increasingly focused on premier buildings in core locations. Our portfolio is benefiting from this trend, particularly along Sixth Avenue where the Paramount Club continues to be a significant differentiator in the market. This amenity has proven transformative, not just in attracting new tenants, but in fostering a vibrant workplace community that enhances tenant satisfaction and retention.

[Albert Behler, Chairman, CEO & President at Paramount Group]

In San Francisco, while the market continues to lag New York, we see encouraging signs. The November election results potentially signal the beginning of a political shift and in our view are a clear indication of reduced patients from the electorate. In our portfolio this quarter, we leased approximately 51,000 square feet, bringing our full year total to approximately 339,000 square feet leased. Our 2024 leasing activity in San Francisco was over 40% higher compared to last year. We are definitely seeing progress as the market continues to improve.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Majority of our leasing activity in San Francisco remains focused on renewals and shorter terms. The flight to quality is also evident and San Francisco's position

[Albert Behler, Chairman, CEO & President at Paramount Group]

as

[Albert Behler, Chairman, CEO & President at Paramount Group]

a hub for tech innovation and its leadership in AI focused venture capital funding underscore its potential for recovery. We are confident our portfolio is well suited to capitalize on these trends. Moving to our capital allocation activities. Subsequent to the end of the year, we closed the sale of a 45% interest in 900 And Third Avenue, raising approximately $95,000,000 in net proceeds. The transaction valued the property at $210,000,000 or $354 per square foot.

[Albert Behler, Chairman, CEO & President at Paramount Group]

We continue to own the remaining 55 interest and we will continue to lease and manage the property. This transaction underscores the underappreciated value of our assets in the public market, highlighting the difference between the underlying long term value of our real estate compared to levels at which our stock currently trades. The transaction also further strengthens our balance sheet, offering enhanced flexibility in our capital allocation strategy. We ended the year with approximately $461,000,000 and $400,000 in cash and restricted cash, excluding non core assets and before the impact of the partial sale of 900 And Third Avenue. Further adjusting for the sale of 900 And Third Avenue would bring our cash and restricted cash to 546.5.

[Albert Behler, Chairman, CEO & President at Paramount Group]

As we experienced with our sale of 900 And Third, the broader real estate transaction market continues to exhibit signs of resurgence. We are seeing an uptick in potential deals, which could signal a more active market in the coming year. The persistent gap between buyer and seller expectations also continues to narrow, potentially unlocking more opportunities. In this evolving landscape, we remain committed to our disciplined approach to capital allocation. Our strong financial position enables us to act swiftly on attractive opportunities, particularly those involving strategic partnerships where we can leverage our market expertise.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Lastly, I'm particularly proud to highlight that Paramount achieved a graph of five star rating for the sixth consecutive year in 2024, earning sector leader status in the Office America category. This recognition, which places us among the top performers out of over 2,200 global participants demonstrates our unwavering commitment to environmental stewardship and sustainable operations. Our score outperformed the GRASB average by 21 and we achieved an A rating for public disclosure, reflecting our dedication to the transparency and stakeholder engagement. These achievements underscore that our focus on sustainability isn't just about meeting current standards. It's about setting them.

[Albert Behler, Chairman, CEO & President at Paramount Group]

This leadership position in ESG practices increasingly resonates with our tenants and investors who prioritize partnerships with environmentally responsible landlords. With that, I'll hand over to Peter.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Thank you, Albert, and good morning. During the fourth quarter, we leased approximately 109,000 square feet with 53% occurring in New York and the balance in San Francisco. The weighted average term for leases signed during the fourth quarter was eleven point one years. At quarter end, our same store portfolio wide lease occupancy rate as share was 84.8%, up 10 basis points from last quarter. In both New York and San Francisco, tenants continue to prioritize premier centrally located amenity rich buildings.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

We remain focused on cultivating our strong tenant relationships, securing renewals for upcoming lease expirations and filling our vacant spaces. For the full year, approximately 40% of our leasing activity occurred on vacant space or space scheduled to roll in 2024. The balance of our leasing activities served to de risk lease roll in 2025 and beyond. Looking ahead, we are very encouraged by the current level of interest in our portfolio, particularly in New York where improving market dynamics in Midtown's core submarkets combined with our market leading amenity offering at the Paramount Club have helped generate significant momentum in our portfolio. Subsequent to quarter end, we completed a significant new lease for 131,000 square feet at 900 And Third Avenue addressing both vacant and soon to be vacant floors.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Our pipeline continues to grow with approximately 350,000 square feet of leases out, approximately half of which are for vacant space and the balance for space scheduled to expire in 2025 and 2026. Additionally, we are in advanced stage negotiations for more than 200,000 square feet of proposals. Turning to the New York market. Midtown's Fourth Quarter leasing activity marked the highest quarterly total since Q4 twenty nineteen, exceeding the five year quarterly average by 73%. For the full year, Midtown's 20 20 4 leasing activity exceeded leasing activity for full year 2023 by 38%.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

This increased leasing activity in Midtown resulted in 2,500,000 square feet of positive absorption during the fourth quarter, the highest quarterly total in nearly twenty five years. Business sentiment continues to improve irrespective of industry resulting in tenants' willingness to make longer term lease commitments. In fact, there are currently more than three fifty active tenants in the market in Manhattan for more than 25,000,000 square feet, exceeding Manhattan's Twenty Eighteen-twenty Nineteen demand profile. Increased tenant demand coupled with conversions of select office buildings and little to no new development is leading to a scarcity of high quality availability in Midtown's premier buildings. We are gaining momentum in our New York portfolio as evidenced by our current pipeline and expect the improving market dynamics will support increased leasing and improved deal economics in the year ahead.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Our New York portfolio is currently 85% leased on a same store basis at share, unchanged from last quarter. Our lease expiration profile in New York remains manageable with approximately 6% expiring of share during 2025. Shifting to San Francisco, market wide leasing activity continues to steadily improve. San Francisco employees have been returning to the office at an increasing rate as more tech companies modify their workplace policy to be more office centric. As we have seen in New York, return to work on a larger scale in San Francisco will drive increased leasing activity in 2025 and beyond.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

AI based companies accounted for 86 leases totaling more than 1,000,000 square feet in 2024 and have become an increasingly large percentage of the tenants in the market as they continue to raise significant venture capital funding. This past year San Francisco based companies raised $47,300,000,000 or roughly 20% of the venture capital funding throughout The United States. With more than 1,400 AI based startups, San Francisco is far and away the largest innovation hub in The United States and where many of these leading edge companies will operate and grow their business. While overall market conditions remain challenging given elevated supply, there continues to be a steady uptick in leasing inquiries and tour activity, which have increasingly led to proposals and an increased number of transactions. In fact, San Francisco's Fourth Quarter leasing activity was commensurate with the pre pandemic quarterly average of approximately 2,300,000 square feet resulting in the strongest full year leasing total since 2019.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

We remain focused on our soon to be move outs, notably the backfill of Google space at One Market Plaza and the portion of JP Morgan space at 1 Front Street that expire this year. We are currently developing plans to deliver exceptional amenities at both 1 Market Plaza and 1 Front Street leveraging our experience from the Paramount Club. We are confident that our amenity plan will resonate with existing tenants and prospective tenants alike and look forward to updating you on our plan on future calls. At year end, our San Francisco portfolio was 83.8% leased on a same store basis at share, up 20 basis points from last quarter. Our lease expiration profile in San Francisco is significant with approximately 29% expiring at share in 2025, '60 '6 percent of which is comprised of Google at 1 Market Plaza and JPMorgan at 1 Front Street.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

With that summary, I will turn the call over to Wilbur, who will discuss the financial results.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

Thank you, Peter, and good morning, everyone. Yesterday, we reported core FFO of $0.19 per share for the fourth quarter, which was $0.01 ahead of consensus estimates, bringing our full year 2024 core FFO to 0.8 per share. Same store cash NOI growth in the fourth quarter was basically flat at negative 0.1%, bringing full year same store cash NOI growth to negative 1.1%, which came in better than our expectations as we continue to rein in operating expenses. While real estate impairment losses do not have an effect on FFO, I do want to highlight that during the fourth quarter, the fifty five second Street joint venture recorded an $87,200,000 non cash real estate impairment loss. Our 44.1 percent share of this impairment loss was $38,400,000 However, we were limited to recognizing only $29,800,000 as it brought the basis of our investment in the joint venture to zero.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

During the fourth quarter, we executed 11 leases for a total of 108,824 square feet at weighted average starting rents of $85.65 per square foot and for a weighted average lease term of eleven point one years. We ended 2024 with forty seven executed leases aggregating 763,449 square feet. While our financial results came in at or ahead of our most recent guidance, we missed the mark on our most recent leasing activity and same store occupancy goals. This was primarily due to a significant lease that fell through at the goal line, which unfortunately can happen sometimes. Having said that, our leasing team came through in a big way with the execution of the 131,000 square foot lease at 900 And Third Avenue in the first quarter, which sets us up nicely as we move into 2025.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

As Albert indicated earlier, in January, we sold a 45% interest in 900 Third Avenue at a gross asset valuation of $210,000,000 The sale yielded us net proceeds of approximately $95,000,000 of which $9,500,000 was reflected in the $461,400,000 year end cash and restricted cash balances and the remaining will be reflected on our balance sheet at the end of the first quarter. As most of you know, nine hundred and third was one of the assets supporting our unsecured credit facility. In order to permit the sale of the asset, we modified our credit facility to reduce the number of assets supporting the facility and improve certain covenants while limiting our borrowing capacity to 200,000,000 Now let me turn to our 2025 guidance. We expect 2025 core FFO to be between $0.51 and $0.57 per share or $0.54 per share at the midpoint. This represents a $0.26 per share decrease from the $0.8 reported in 2024.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

The $0.26 decrease in core FFO is comprised of the following: a $0.17 decrease in cash NOI resulting primarily from the scheduled lease expirations, including that of JPMorgan and Google in our San Francisco portfolio, which has been telegraphed for quite some time a $0.04 decrease in non cash straight line rent revenue

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

a $0.02

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

decrease from the disposition of a 45% interest in 900 Third Avenue in January 2025, a $0.02 decrease in fee and other income due to lower yields and certain non recurring fees earned in 2024, a $0.01 decrease in lease termination income, which we typically do not budget for, a $0.01 increase in interest and debt expense, partially offset by a $0.01 decrease in general and administrative expenses. We expect same store growth to remain negative in 2025 and range between negative 11% and negative 7% on a cash basis and negative 13% and negative 9% on a GAAP basis, driven by the significant lease expirations in 2025. And we expect our leasing velocity to improve in 2025 and our goal is to lease between 1,800,000 square feet. Notwithstanding that leasing goal, we expect year end same store occupancy to remain roughly flat given the significant expirations in 2025 and are guiding to a year end portfolio wide same store lease occupancy rate between 83.985.9%. While we do not give specific guidance metrics with respect to New York and San Francisco, I will say that our assumptions include that occupancy in New York will continue to improve in 2025, while occupancy in San Francisco will further deteriorate in 2025, driven by the sheer magnitude of the JPMorgan and Google lease expirations.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

Please refer to Page six of our supplemental package and our investor deck for additional information regarding our 2025 guidance. With that, operator, please open the lines for questions.

[Operator]

Thank you. We will now

[Operator]

be conducting a question and answer session. Our first question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.

[Manus E, Senior Associate at Evercore]

Thanks. Good morning, everyone. This is Manus on for Steve. I just got a quick question on the deals that you were unable to sign, specifically the one that you were mentioning that fell through at the finish line. Could you maybe talk about the reasons to why that happened?

[Manus E, Senior Associate at Evercore]

Maybe if it was like location based, if the tenant was hesitant or if you couldn't agree on rental rates, just for us to understand a little bit of a color here would be helpful.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Sure. This is Peter. Good morning. The ultimate reason is not entirely known. It is highly unusual for a lease to be an execution and for it to be pulled.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

And so that was really very unfortunate. I think it's probably more productive quite honestly to talk about our plan going forward and we have a couple of tenants that are very seriously interested in these two floors right now. And so, while this other decision, I think, the other tenant that didn't ultimately transact is mulling what they will ultimately do. I think we will likely proceed with, a really very credit worthy tenant for those two floors in the not too distant future. In fact, we think we're getting close.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

So, we think we'll have a good story to tell. Ultimately, it was unfortunate, but those two floors at the base of 1301 are squarely in the middle of where all of this activity that you're familiar with along Sixth Avenue is occurring. And it sits directly on top of, the arguably the finest, club, in New York and I'm referring of course to the Paramount Club which is at 1301 Avenue Of The Americas.

[Albert Behler, Chairman, CEO & President at Paramount Group]

And Steve, this deal,

[Albert Behler, Chairman, CEO & President at Paramount Group]

I mean it's really unfortunate as Peter was saying and very, very, very unusual that something like this happens and I feel for Peter and the team. The only good thing here is that current leases that Peter and the team are talking about are significantly higher end rent and I think that's a good momentum that we are going to see now here at the beginning of twenty twenty five that finally we can push rent a little bit and that goes across the portfolio in New York.

[Manus E, Senior Associate at Evercore]

Got it. That makes sense. I appreciate the color. And maybe one follow-up question, if I may. Could you maybe touch on the progress or the current stand for the two non core assets, so 111 or Market Center in terms of a potential sale or lender resolution or just kind of like the thoughts, as we stand now in the beginning of twenty twenty five that would be helpful?

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

True, Madison. And I don't think there's much to talk about 111 yet frankly. If you recall, we got an extension there that runs through the December. So we're going to resume conversations with the lender on that front. But as we've highlighted before, there's no risk to Paramount's balance sheet with respect to 111 Sutter because we're not funding the debt shortfalls.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

We're not funding the TIs to lease that. We continue to manage the property and we have optionality on that asset. Market center, I'm sure you guys have all seen the press reports and you saw our disclosure. That asset is in the market. That deal has been awarded.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

We continue to work with the lender, to sell that property and that remains ongoing. We expect a resolution perhaps as early as the second quarter, at which point the assets will come off our books, the debt will come off our books and we'll recognize a tax loss that we can play around with.

[Manus E, Senior Associate at Evercore]

Great. That is for me. Thank you.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Great. Thanks. Good morning. The 2025 leasing target of 900,000 square feet at the midpoint seems maybe a little ambitious relative to the 763,000 that you did and what would some what some would argue is a pretty strong New York leasing market in 'twenty four. So can you just talk about what gives you confidence in that acceleration in 'twenty five?

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

And related to that, I think Peter said there's around 500,000 square feet of leases under contract or in advanced stage negotiations. So, that would leave 400,000 of speculative leasing to get to the target. Is that kind of the right way to think about it?

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Yes. Hi, Blayne.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Let me start answering let me start maybe answering the question going back to 2024. The market was very fragmented with regard to leasing. A lot of the leasing happened in the Park Avenue area and we don't have an asset there. Our asset is nine hundred and third outside of that submarket. And it seems to be moving and there's with regard to a high quality properties, there seems to be a lack of assets and the market is moving more towards Sixth Avenue and the Westside.

[Albert Behler, Chairman, CEO & President at Paramount Group]

And that's why we are quite confident that the leasing guidance can be achieved. And especially with the mishap that happened in the fourth quarter on that one transaction, we were really counting on that being done and it was really pretty much ready to be signed. And that space as Peter was saying is already marketed to other tenants who were basically left on the sidelines and that's a significant square footage. So, we are very confident that we achieved this guidance.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Okay, great. Thanks, Alvaro. Yes, go ahead, Peter.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Just to add to that, we're sitting here, it's just about March. We have, as I mentioned, leases out at various stages, but leases out nonetheless of $350,000 call it two thirds of which is in New York. And then I mentioned advanced stage proposals for $200,000 or more. And of course, there's quite a bit beyond that in terms of proposals being exchanged. But just in terms of what we're seeing in the market, the way our offerings are positioned, we feel very confident as we sit here in just about March, call it, that we will achieve what we put forward by way of velocity and 900,000 in midpoint.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

Blaine, you had one question in terms of dimensioning that's speculative just to clarify that. Your math does not include in the speculative the 100,031 square foot lease that was already done, right? So when Peter is talking about a 500,000 square foot pipeline that is excluding the already executed lease that took place in the first quarter. So your $400,000 of speculative math would get reduced at a minimum by that 131 square foot lease.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Got it. That's very helpful. And then, Peter, maybe sticking with you, leasing CapEx as a percentage of the initial rent rose to the highest level we have on record in the fourth quarter. Can you just talk about whether there were any specific leases that drove that increase and more generally kind of what you're seeing with respect to concessions for new leases on the market?

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Sure, sure, Blayne. I wouldn't read into that as a trend. What really what drove that was a deal that we chose to turnkey space, in other words, build it for a tenant. It was on a lower floor in one of our buildings and as a percentage of initial rents that turnkey was a little bit higher than where we've been historically. But generally speaking, what I expect we'll see in the year ahead is I think for owners certainly Paramount that have well positioned premier type assets, we will have pricing power in the year ahead particularly for higher floors.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

80% of Midtown's availability is on Floors 24 and below. So interestingly, when you have an upper floor, it's becoming increasingly scarce and I think as a result, we have pricing power. Concessions we know are elevated. They certainly have stabilized. I do think given that Midtown is being picked over real time, some tenants are out in the market a little bit earlier and their objective is to not pay double rent.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

So, for that reason, I think free rent will likely remain where it is. It will probably start to come down at some point, but remain where it is just in the near term for that reason. And I think TIs may start to come in a little bit as the market continues to tighten. I recognize that over the last three or five years inflation has had an impact on the cost to improve space. But that being said, I do think that this market is moving very quickly in Midtown specifically.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

We feel really very good about fundamentals improving and we think that our product mix will allow us to, like I said, achieve better net effective rents in the year ahead.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

Blayne, just to add to what Peter said, I mean, in your comment that it screened as being very high, aside from the fact that you had the turnkey recognized that, you had only 100,000 square feet of leasing activity or so in the fourth quarter. So you have a turnkey, you have it on low floors and so and you have limited activity, so that number screened high. If you look at the full year based on the 763,000 square feet that was leased, those numbers are more in line with what we have been reporting quarter over quarter, more in line with what our peers have been reporting. And so quarterly metrics can fluctuate, but it's important to highlight that it was on very limited activity.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Got it. That's absolutely fair. And one more if I can. I know we're just starting 2025 and I appreciate your commentary and transparency on the '25 move outs. But I wanted to ask if you could give any color on the largest expirations in '26 and your updated thoughts on which are likely move outs and which are still in negotiation?

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

So, Blaine, I would say that a number of the expirations in 2026 are currently in negotiation and under discussion. But certainly, I think the largest known move out, if you look at New York specifically, Showtime represents the largest likely move out in 2026. And so, 57% of our 2026 expirations will occur at 16.33% driven largely by Showtime. I will tell you that we have several tenants that have expressed interest in this block of space. The number of high quality blocks in Midtown continues to dwindle.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

And so we are active on that block of space. But that's the largest, I would say, at this point, likely move out in our portfolio in 2026. And if you think about the largest sort of moving parts in San Francisco, you have Morgan Lewis, Autodesk, Visa and KPMG. I think Visa is a known move out and KPMG is a known move out. The other two I think are too soon to comment on.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Great. Very helpful. Thank you, guys.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Thanks, Haig.

[Operator]

Thank you. Our next question comes from the line of Ron Kamden with Morgan Stanley. Please proceed with your question.

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Hey, just two quick ones. Just on the San Francisco, we've heard sort of different REITs, different property types talking about the turnaround coming there. And I'm just curious, just commentary on the market overall and how you're feeling today. And then if you could just specifically on some of the expirations, just remind us what the plan is for the backfill, large tenant, small tenant, redev, just what's the plan of attack there would be helpful.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Great. Let me start on that and thanks for asking the question because San Francisco, despite the fact that we did significantly better leasing in 2024 than in 2023, seems to be getting quite active already in the first two months. And I think the impact might be that we have new leadership there and the new mayor, Luri, is setting new goals and I think the leadership change in Washington might have brought more clarity to some of the tenants that are very active in the San Francisco market. So even in the first two months, we already increased and Peter can go into details of what I'm talking about, leasing demands, showing space and as you know, our assets are in good quality locations and are of good quality. So we and we always have said this over the last at least six to eight earnings calls that San Francisco seems to be lagging behind New York.

[Albert Behler, Chairman, CEO & President at Paramount Group]

The economy is not as diversified as in New York economy, but now it seems to be picking up also with the move of people being back in the office, large tech companies who for example, the Chairman of Salesforce had said initially after the pandemic that nobody had to go ever back to the office now is calling for five days in the office. So those kind of samples are important to change people's attitude.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Peter?

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

And adding to what Albert just now outlined, we all are well familiar with the supply demand problem in San Francisco and I think we're all assessing real time what's happening here. I can tell you it generally out in the field feels actually much more active to start the year. Tour activity is up. We've had a number of inquiries, number of broker calls.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Return to office is happening in a more significant way. We all know that's the fuel that drives leasing velocity. Venture capital funding to San Francisco based companies has been quite significant and these early stage companies are all acknowledging the importance of the office in order to execute on their lofty plans. And so they're out in the market. We're well positioned and that the CBD will likely be the North And South Financial District will continue to be, I think, the first submarkets to recover in all of this.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

This is where the majority of the leasing velocity is occurring. And so, all of this is just now percolating. We have a plan, of course, to backfill the known move out, as you asked about with Google and JPMorgan. We have several leases out between the two buildings and we have a good amount of tour activity. We're also working now to work through our amenity plan.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

It's one thing to talk about amenities, it's another to have, I think the skill to execute on amenities that actually do move the needle for our tenants. And so, we're putting some quite a bit of work into leveraging what we have learned at the Paramount Club and what we're able to deliver and do that in a San Francisco way at our properties in San Francisco. So all of that I think will help drive additional velocity. But I would just say, Ron, to start the year, while we're not where we need to be ultimately by way of demand, we did just come off the best year we've had since 2019. We all would like to see more demand, but the tenants in the market profile continues to increase.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

And just out in the field, we are feeling generally considerably better to start the year than we did at this time last year.

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Great. That's helpful. And then my second one is, so I saw the $279 Market Center loan. I think the plan there is working with the lenders to sell the property. So I guess my if I think about the 2026 maturities, I know it's early, but any indications on what the plan for those are and where you think you could sort of refinance?

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Thanks.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

Sure. Look, I think the 2026 maturities a little bit too soon to talk. The overall market continues to improve, especially in New York. A lot of the 2026 maturities are in New York market improving for high quality assets, high quality sponsors. The banks and insurance companies continue to sit on the sidelines as they work through their loan books, but CMBS issuance has picked up tremendously.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

In fact, in 2024 CMBS activity was 2.5x that of 2023. So the market continues to improve, spreads continue to come in. So, we're going to tackle that as we move into the second half of twenty twenty five and into 2026.

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Great. That's it for me. Thank you.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Thank you. Goodbye.

[Operator]

Thank you. Our next question comes from the line of Tom Catherwood with BTIG. Please proceed with your question.

[Thomas Catherwood, MD & REITs Equity Research at BTIG]

Thanks and good morning everybody. Wilbur, sorry, I want to go back to your answer to Blaine's leasing question to make sure I get the numbers right. Between the 131,000 square feet of leasing thus far in 1Q and roughly 500,000 square feet in the active pipeline, it leaves roughly 300,000 square feet of yet to be identified leasing opportunities to hit the midpoint of guidance. Am I getting that right?

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

Not necessarily. Let me just add clarify one. The 131,000 square foot does not represent the first quarter leasing activity. That just represents one significant deal that was done in the first quarter, right? So there is other activity that has been executed until when Peter dimensioned the pipeline, he said, look, it's 500,000 square feet and it's growing.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

So when you take that right now, if you were to adjust to factor the 131,000, you'd come up to about 270,000 square feet, plus minus of speculative activity. But again, that does not include other leases that have been executed in the first quarter thus far and the pipeline growing.

[Thomas Catherwood, MD & REITs Equity Research at BTIG]

Okay. So

[Thomas Catherwood, MD & REITs Equity Research at BTIG]

let me try it a different way. It would then seem that roughly two thirds of the midpoint 900,000 square feet is already identified, maybe even higher. But that seems like a very high percentage at the beginning of the year. Is that normal to have kind of that much identified for your leasing target once you give guidance? Or am I thinking about this the wrong way?

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

I think it depends. Look, we look at the portfolio. We look at the role in any given year. We look at fundamentals in the market, we look at the pipeline. When he quotes a pipeline, you are assuming the entire pipeline is converted to a lease.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

That is not factually correct either. So that does not typically happen. The pipeline is more to give you guys comfort as to what do we see in the hopper. 2024 and 2023, we leased slightly under 800,000 square feet. But if you went to 2021 and 2022, we leased close to 1,000,000 square feet in those years.

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

And when we sit around the table and come through the guidance and the goals, the goals have to be robust, the goals have to be stretch goals and we try to triangulate between what we're seeing in the market as fundamentals continue to improve, and establish these goals at the onset. And then we'll continue to tweak them as we go forward. But when we sat and determined these goals, it was a very good feeling about reaching the midpoint of our goal as we establish it in the beginning of the

[Wilbur Paes, COO, CFO & Treasurer at Paramount Group]

year.

[Thomas Catherwood, MD & REITs Equity Research at BTIG]

Okay. Then maybe pivoting over, kind of thinking through the Albert, I think you mentioned over $500,000,000 in cash with the closing of the partial interest sale at 900 and third. How much of that cash is earmarked for redevelopments or CapEx spending, maybe, for example, on one front, which you pulled out of the same store pool? And then how many of that how much of that $500,000,000 could be allocated towards new investments should they arise?

[Albert Behler, Chairman, CEO & President at Paramount Group]

Yes, it's a good question. We always consider all the options that we have. So nothing is really earmarked specifically. And it's too early to exactly identify of what's required at one front or other assets. I think I mentioned on the other call, we have to keep a certain amount of firepower.

[Albert Behler, Chairman, CEO & President at Paramount Group]

If you have a bankruptcy, you might consider share buybacks. But for the time being, we keep our options open. We want to stay liquid. And we're also looking at opportunities. And as I have said in the past, we will only go asset light.

[Albert Behler, Chairman, CEO & President at Paramount Group]

That means we will only invest a small amount of our equity and we will find partners who will co invest with us. There is quite an active line of people who think the correction has been overdone and it's a more or less perfect time to get back into the market. So we are the acquisition team is very busy looking at all the opportunities we have and we are very focused on that. And I think it was a great execution for the team and great for the shareholders to get a piece of nine hundred and third sold at about 25% north of what NAB currently is considered by the market. So I think that shows that the pricing might not be correct in the public markets at this point.

[Operator]

Thank you. Our next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Thanks for taking the questions. Sorry if you answered this, I joined late, but just specifically on Google and JPMorgan and I'm not sure if you gave any sense of like the pipeline. I know they'll need to move out etcetera, but just what are the options or how the pipeline to backfill those two specifically?

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Yes. Hi, Vikram. This is Peter. So I did mention earlier that we've got several leases out between the two buildings, those being one front, one market. And tour activity, while you always want to see more demand and we are starting to see more by way of demand in San Francisco, has been steady.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

We are also, I think, I mentioned earlier, delivering amenities, which are becoming increasingly important to tenants in San Francisco to both properties. And so we're in the process of rolling all of that out and that has been very well received by prospective tenants. And so, as I mentioned, we do have several leases out. Tour activity is picking up. It's been feeling quite a

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

bit

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

better since the beginning part of this year relative to how we felt at this time last year. And so we'll have more to report in the coming quarters, but San Francisco seems to be moving in the right direction as we've said now several times on this call. And we look forward to executing on what we have in front of us and converting some of the new opportunities that have come about most recently with both the increase in tour activity and the exchange of proposals, of course. And so, that's where we are currently.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

And then, just last one, is there a thought about several years ago, you JVed part of small part of 1633. Is there a, I guess, a thought or interest in additional JVs or asset sales or even just bigger picture more strategic kind of action just given where the stock is trading perhaps absolute and relative to peers?

[Albert Behler, Chairman, CEO & President at Paramount Group]

As we had said in the past, if we find the right value and we find a partner who is willing to buy a piece of an asset and we think that is decent pricing as we had done with 1633 as you said that was early in the pandemic. We would definitely consider other joint ventures and then making use of that equity and create and have flexibility and make sure that we can grow potentially with other opportunities and or share buybacks or potentially dividends as well.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Thank you.

[Albert Behler, Chairman, CEO & President at Paramount Group]

You're welcome.

[Operator]

Thank you. Our next question comes from the line of Dylan Brzezinski with Green Street. Please proceed with your question.

[Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC]

Hi, guys. Thanks for taking the question. I guess just going back to your comments on sort of the acquisition team being as busy as ever, but there's still sort of being a wider bid ask spread, to really necessitate transactions to start clearing. I mean, as you guys look across San Francisco and New York, I mean, do you guys get the sense that New York is getting to a point where that buy sell spread is much narrower than it is in San Francisco? Or can anybody just talk about that across the market footprint today?

[Albert Behler, Chairman, CEO & President at Paramount Group]

I think both markets are very different. And it really depends. Sometimes it's capitulation of an owner or the debt team taking over and really don't wanting to take over. It's different in each case. And the spread I think is getting narrower in some cases and there's some assets that are getting considered to be put on the market for recapitalization that weren't in the market for a while.

[Albert Behler, Chairman, CEO & President at Paramount Group]

So we are looking at those as well. And I think in San Francisco it's more that you can look for deep value, but you really have to be a believer in San Francisco coming back because the development is at least twelve months behind New York City and that's shown in the value that you can achieve. But it's definitely riskier than investing in at least in our kind of markets in Midtown, mainly in Midtown Of New York.

[Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC]

That's helpful. Thanks, Albert. And I guess just one more touching on sort of large tenant leasing activity, especially in San Francisco. You guys starting to see sort of a recovery there? I know traditional big tech has sort of been on the sidelines as it relates to leasing.

[Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC]

But can you kind of talk about just the broader larger tenant activity in San Francisco, New York today?

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

Yes. So I think we're seeing a lot of activity from more early stage companies. Some of the traditional companies over the past year like law firms in New York, in some cases were rightsizing actually, which was very different than what we were experiencing in New York with law firms expanding. But we're seeing a lot of smaller tech activity, a large percentage or about roughly 30% of the tenant in the market profile is comprised of AI companies, many of them early stage and they're high octane type tenants with significant funding, but they're not looking for 30,000, 40 thousand square feet. They're looking for significantly less space.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

So I think your average deal size in the first half of this year might be a little bit smaller in San Francisco. But certainly with the return to office, we are starting to hear from some of the larger tech companies for the first time who have been largely dormant for the past several years as we all know, starting to inquire again. And that's that is I think something that we have seen in early going this year. So I think it's not entirely clear just yet, but we are feeling very good about the number of inquiries that we've had out in the field, the number of tours that we've had. They are with not only financial service firms, law firms, but they're increasingly with technology companies that are reengaging.

[Peter Brindley, Executive VP & Head of Real Estate at Paramount Group]

And so I think this will be a really very interesting year for us to see how it develops in San Francisco.

[Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC]

Awesome. Thanks guys. Appreciate it.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Thank you.

[Operator]

Thank you. We have reached the end of the question and answer session. I would like to turn the floor back to Albert Wheeler for closing remarks.

[Albert Behler, Chairman, CEO & President at Paramount Group]

Thank you, Paul, for joining us here today on this call. We look forward to providing an update on our continued progress when we report our first quarter twenty twenty five results. Goodbye.

[Operator]

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Tom Hennessy, Vice President of Business Development and Investor Relations
• Albert Behler, Chairman, CEO & President
• Peter Brindley, Executive VP & Head of Real Estate
• Wilbur Paes, COO, CFO & Treasurer

Analysts

• Manus E, Senior Associate at Evercore
• Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities
• Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley
• Thomas Catherwood, MD & REITs Equity Research at BTIG
• Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.
• Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC