PGRE - Earnings call transcript Q3 2024

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Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group Third Quarter 2024 Earnings Conference Call.[Operator Instructions] Please note that this conference call is being recorded today, October 31, 2024. I will now turn the call over to Tom Hennessy, Vice President of Business Development and Investor Relations. Thank you.

begin. may You

Thomas Hennessy

and operator, everyone. Thank good you, morning,

the we our third-quarter I were of yesterday. found the like Investors website in supplemental would to everyone released under be can www.pgre.com. point Paramount to Both Financial XXXX section which Results the Before information, begin, heading at earnings Group and release

the laws. Some of forward-looking be securities will statements within federal our comments the meaning of

that are words subject are materially usually numerous results other identified such of as expect. We which impact use results operating or financial caution refer actual exercise for our in will, statements, uncertainties condition. them. our Forward-looking and similar from and to the phrases to risks relying risks SEC cause that filings should on discussion expect, Therefore, could by you what you detailed could we differ a to future interpreting should more and the of

supplemental Albert. the Management questions. and the call to that, will Peter open our be Hosting measures and the of Chief which we to have substitute call, then measures, Wilbur company; we Chief non-GAAP Financial the be Head Treasurer; XXXX not GAAP. over should release will President results operating GAAP is can believe with Mr. or company's Vice in today, the and third-quarter Paes, With in in some we accordance Officer most and of turn considered we will will the Officer, information. Executive the measure Albert as During isolation reconciliation our Behler, Brindley, financial of our Officer, measures provide President, Real a for evaluating in performance. Chairman, opening Estate. discuss remarks, directly these our useful These Operating I call Executive prepared comparable call and A available to Chief earnings

Albert Behler

total above joining quarter of consensus. results, per share, today. released reporting our $X.XX Good leased. you Yesterday, square a $X.XX feet quarter, leased feet, XXX,XXX third morning, call we we FFO our square core everyone. XXX,XXX for to year-to-date In Thank the our third bringing

of third are We beginning now the New leased feet the square of in In we XX,XXX of York, had most at quarter. trending we goals the the ahead established year. that

quarter the in two be of we most quarters, York. our New York will minutes, that And leasing Peter in was robust. quarter While pipeline, in will to trailing which leasing a expect New fourth the third previous complete of the cover is the in few

law from last This alike. This high-quality, New from seeing office wide of firms. are the tenants, our prospective array conviction of exceptional Club Avenue, Tai beneath Fung, amenity I'm quarter, to quickly existing become tenants a bespoke tenant-focused of report in unique the at new differentiator, our spaces. retain creating has tremendous received Broadway. glass the our attract investment Din enthusiastic enhancing restaurant which Paramount financial a been brokers long-term XXXX success The the has we our opened key good unveiled and reception demand in appeal Sixth reaffirms cube validates also iconic at The both core ability has services receiving it submarkets. tenants, spaces We on and interest tenants, of that York's reviews happy July Michelin-star XXXX in and to especially located strategically ones.

La Italian vibrant on bakery space competitive our and amenities sophistication new the dimension with generated these in Tai to of last Pecora are significant portfolio, our adding us energy market. addition a welcomed carefully Bianca, restaurant Italian curated buzz, apart elevating unique at highly Broadway. XXXX All headquarters. remaining the retail Din a offerings a Rosetta setting have also a In signed and to we These Fung, lease

this our improvement to demand, properties the to rates confident across to meet Francisco. spaces, we towards San continue well are driving highest of assets. and our York gravitate New occupancy Shifting office businesses quality leasing positioned As are

that that to renewed In we third recall expire last call, earnings set was approximately JPMorgan in One As their unlikely Street expiry. was Front JPMorgan our renew the you to their XX% quarter, the from XXXX XXXX. will indicated of space majority at of

in While we disappointed post square One expiration, all with near-term the to at of outcome terrific continue of Front San are their one XXXX presence CBD. asset Front about a have at finest expiry. is XXX,XXX JPMorgan a significant the Street with feet will One Francisco locations its

return around being all buildings now our to asset a sharing in are stages planning top the details floor to plans Francisco. early look various more Front an the reimagined upcoming in with quarters. in amenities, the We of to in San among the We repositioning and added office One effort ground experience forward XX

While on San business remains Francisco make challenging, the we continue leasing our to market plan. progress

renewal-based the innovation XXX,XXX This in to as potential total recovery. XXX,XXX quarter, continues AI-focused be its we tech feet, approximately of feet underscore and its venture Francisco's leased of the and San terms. said, our shorter for Francisco quality leadership flight remains for position square square hub prevalent and year-to-date That to leasing Most in funding San bringing a to leased. capital

our are these is capitalize suited confident We portfolio on well trends. to

aimed This cash Board and our Turning a In financial utmost resilience, carefully subdued, quarterly effort suspended the cash. approximately our estate on still enhancing our to of flexibility, real signs considered market, transaction broader in It dividend. revival. to financial regular cash retaining million in excess of remains $XX basis. sheet. showing was is annualized while restricted robust our balance maintain at The $XXX decision with an an million in

opportunities. between in which seller year. market expectations uptick to in The active more gap an evolving could buyer this beginning signal remain to to We is capital potentially In narrow, are we approach unlocking persistent coming our and the a more allocation. disciplined deals, landscape, potential seeing committed

to I'll to financial strong on partnerships With act Peter. over leverage us expertise. particularly opportunities, involving hand strategic can Our where attractive swiftly market those enables position we our that,

Peter Brindley

and Albert, good you, Thank morning.

years. in XXX,XXX square quarter, and square approximately third was the feet approximately square XXX,XXX feet Francisco. San York for leases in term the third XX,XXX weighted average X.X we During leased The New during quarter with signed feet

between quarter's San evenly new was roughly and both expansions renewals in split velocity York including Francisco. The third and New leases,

to dynamics encouraged improving across trend activity leasing and us ahead ever-increasing The from positions buildings the us continue tenants, Looking both to the operated New been leverage markedly see accelerating in our prospective to allowing located, to to strength, our pipeline. finish and with market centrally amenity-rich and the fourth increased prioritizing by leasing our York, tailwind. we Francisco, where market portfolio, This well-capitalized year-to-date reputable well our and tenants tour Paramount our grow the with year quarter, we're New significant particularly we momentum San Club a have premium, interest by strong occupancy. velocity In York position see leasing plays coupled owners.

and Our upcoming space. focus remains on our renewals securing strong expirations, leasing maintaining vacant for tenant relationships,

at the year the by in XXXX The points was XXX,XXX end, pipeline out, basis XX.X%, space. lease quarter-over-quarter. more for leased than Americas. square of with expiring same-store our are several primarily vacant the occupancy with of new solid manageable or of feet with soon-to-be Leerink rate XX% At Our which vacant Avenue are fourth XXX down is at X.X% largest known which of quarter. share for remaining approximately decline was portfolio-wide the quarter This leases at expirations space move-outs, was driven tenants share

for competition X-year average for Midtown space, our greater the and force submarkets sense quarter. levels more consecutive a creating outpaced for Turning high-quality third-quarter Midtown's effect Midtown's landlords. tenants urgency activity markets. accelerate. process has to driving increased improved core continues assets Midtown's knock-on decision-making quarterly has leverage for leasing for select of resulted fourth behind in fundamentals. Throughout improving to the volume tenant tenants. demand Manhattan, has grown an throughout deal to leasing and among accelerated in space XXXX, in XXXX Demand a is The than Increased submarkets been

currently on Our a same-store portfolio XXX basis XX% New basis leased share, down points at is quarter-over-quarter. York

expiring Shifting as in the Leasing compared months share by steadily Our lease with San XXXX. X in to is improving, X.X% New up first manageable to York expiration at profile year-end. XX% Francisco. approximately approximately Francisco San activity of remains

market led for leases which in increased This San capital tour are steady continue more levels for has new with translate completed these pre-pandemic the has market. office begun approximately global given active demand San inflow capital Francisco overall XX San AI leases companies approaching AI venture Francisco-based While a space. This to from year-to-date, has than and to uptick demand, to of been approximately Francisco's levels. market tenants of raising venture increasingly inquiries requirements in funding XX% traditional in buoyed coupled tenants AI-focused more significant AI activity, developing there pipeline companies, funding, especially into significant the Of remain proposals. challenging attract elevated conditions to the to have year-to-date. supply, capital leasing XX% of

San Our recovery high-quality portfolio Francisco in progresses. market well-positioned the is as

Wilbur, future we Francisco One financial progress remain quarter-over-quarter. of space, vacant quarter same-store I discuss Front focused by the turn end, At Overall, that a results. roll months momentum basis on building the to summary, and XX and soon-to-be-vacant space at our leasing look mentioned, Plaza on basis portion ahead. most share, over encouraged will the at this the leased Street this in San to JPMorgan With One space down we're XX.X% of backfill As Market Google notably expires de-risking XXXX. forward will our the that on points at portfolio in quarter call and and who lease was

Wilbur Paes

Street morning, X.X% on to reported core cash which true-up was on Wall billings than in $X.XX and in while up than per consensus. basis Yesterday, $X.XX quarter, expense basis and GAAP our Peter, Francisco down due in in everyone. portfolio. good the a better higher Same-store growth you, share, expected we San of a Thank X.X% came FFO a

GAAP our of basis. our quarter, a XX square Mark-to-markets improved our second-generation outlook and and guidance points, starting term per for on for cash space basis square as Based GAAP $XX.XX by updated as lease year-to-date points third the leases of years. and we respectively. our were XX year, a NOI weighted and results XXX X.X basis foot on feet XX,XXX executed well square the basis of During rent negative same-store feet at totaling X.X% weighted have on XX.X% and cash growth average on XXX,XXX of a outlook negative the remainder we a average

and regarding additional guidance. FFO of we our a per $X.XX increased to guidance new our $X.XX core XXX,XXX the Page supplemental to range an changes at for leasing same-store package operational our we X occupancy midpoint. feet range by Please our such, at of share. are square feet a have guidance new points basis to range underlying information the assumptions leased From square midpoint to by XX our the of refer XXX,XXX in reduced raising $X.XX have to As standpoint,

balance our to sheet. Turning

position rate capacity million liquidity strong revolver. million interest over In cash and Our XXXX billion. for agreement swap $XXX and and the cap our the August, the $XXX full $XXX quarter into with ended under interest the entered $X.X at rate Upon $XXX to Sixth Avenue through of expiration over new on expired. the of August cap, remains share and X.X% at of $XXX cash restricted entire million We we at undrawn million the SOFR a swap million XXXX. cap

This, outstanding debt at noncore X.X rate includes San maturity weighted billion assets in the at interest end two Our and the on was debt a of X.XX% weighted years. of quarter $X.XX average average Francisco. a of course,

X.XX% weighted is average debt X.X% X.XX%. the we at average interest a debt $X.XX of debt is a interest interest floating weighted noncore weighted weighted rate XX% fixed a average of and the have XX% average of and remaining years. assets, the this on billion Excluding of maturity a at of at rate X.X rate of

on the until impact noncore we our noncore no Excluding XX With open debt the on debt our lines the Page structure. package have for operator, supplemental of for please that, questions. debt refer capital maturities Please to assets, in XXXX. the

Operator

Fargo. [Operator Instructions] from Blaine question from is Our Heck first Wells

Blaine Heck

the market potential of first, was marketed just reported Can and the hoping pricing for So your about being Market the you the to I that sale? thus was sale. timing on reception far debt on thoughts and is Center. talk It get color from some

Albert Behler

Sure, Blaine.

As the some think the it's in market of you the is sold. point right given We that The occur to that the sell now, be think, the lenders out, obviously, market are there in to resolution type future. debt asset. we will not-too-distant in out

in reception We ones so the not running the the cannot process, the we are on market. comment

to We expect And are resolution it's we the like it just later. you when to report. it you'd market, have gets will resolved, than watching guys in the happen sooner But more fact are. clearly, that

Blaine Heck

you given talk guidance of can the then leasing about lease just Okay. increased? guidance at what's that decreased year, Great. rate end volume And driving the the the

Albert Behler

guidance at there it, team, some next were of some When analysts the were deals we of sat pushed the move-out. looked Peter it not look that some mentioned because them thought that volume the probability increased the leasing driven probability read leases by back. early Sure. That some a of two of whether the deals you together about was was the at and we case. the as We getting and unexpected in the pulled within effectively, getting Essentially, executed XXXX. months those over into then notes pipeline

And and so the that, reduction. we that's tightened just caused what

in of here To the important is at get to midpoint, fourth implies to quarter. basis thing absorption that points the ended XX.X% think look revised I occupancy we leased the same-store XXX

the feet have on to at we're had of midpoint. of which to really out, what need that's space, have going get volume, feet vacant pipeline Peter comfort get the to leases to think square the to to say fourth you look said So quarter. XXX,XXX you square that mentioned XXX,XXX is a the us gives And we we and most when good

XXX,XXX vacant on of occupancy So point and the that's space, is feet, basis that we square XXX what's out driving of year. the as most uptick close the in

Blaine Heck

the a just that gone might upcoming take lot knowing can have time as of expirations occupancy floor frame to renew and these then level I comfortable now you when we've on made of the working headwinds the step based potential and to? in past you'd call I might you have think quarters. wanted on kind backfill think through back you talking or occupancy a But forward look guess, this that I And on we ask the of in of a to of there progress with tenants about see any you trough some be that spaces. any or kind is a

Peter Brindley

And Well, to at that's differently. Blaine. a question, markets have a little look think you I good both

you our I think will will see and assets New York is vibrant, occupancy. increase York much more in New that

lower little that market will in soon. of I might the is You came some the to year, back talked hopefully I it portfolio about we behind, But momentum. go for San a in the up with of optimistic article just occupancy is are would Wilbur mean bit. Francisco, very because see the office People are as say, a positive even past a significantly said Journal because that Wall an general earnings lot there coming calls. the about Street office. was yesterday. we

here So Francisco and we San see will it follow. in New York

Operator

question Sakwa Stephen from from is Evercore next Our ISI.

Steve Sakwa

own share you of on the looked for and to just as your deals. at buybacks guess I company wanted know returns capital. you've and take market to pull I option mean, for comment to trigger? I deploy the I deploy in thinking about transaction capital? what to kind kind it past, are would looking the of of about Albert, touch ability sort you sort of current how the valuation your an

So about forward? you leverage, anything buybacks? how think And new do calculus changed has sort in of acquisitions, higher as your look you

Albert Behler

in calls have or previous With it looking it that changed. cautiously we and they said that we neutral, do we to we over to And hasn't investment. Yes. question, is the position leverage relationships the invest, our buybacks, other want believe at have, to calls, policy. acquisition, If as mentioned will want office And other always an and are with still we I do we regard and not.

a our And And look equity. equity commitment the for in have very I very, as the had, double-digit Paramount. it at past, income you would be you the shown think, on and very of return should combination be returns we fee to would Our PGRE limited. good a

PGRE invested. and We some that's have that tell appreciated lot investors. of I a a not terrific equity team, platform, will of can But a capital be terrific by you there what's the

Steve Sakwa

Okay. And maybe Peter. one for

the think Just more all thinking has a for that and the type in to shape, looking either Or that Francisco. what the types types they play San or today? mesh tenants of what building, surfaced Does of buildings of you How form in any of activity? they're through Paramount way, be you space? role different for? don't the necessarily different what AI guess, the And the parts portfolio are want in what what with trying demand type looking in to of city, city importantly, are I of of part assets that up own about

Peter Brindley

and I develop of market. square velocity Yes, leases, in we're feet AI good question XXXX. of north And new leasing that X to contribute interestingly, those think to terms of and Stephen, in continues do that's are leases something towards real-time. XX% of will a demand AI assessing million really number

why venture we've the some to they good starting fundamentals. in as District, recipient are speaking, healthier is from a smaller which first that seen Francisco to That's figures, acknowledge What So of these Francisco, the many these office, lot is seen in San and sublease submarkets funding. to yes, will in of that And leasing cases, they're They AI a capital San companies more the of we opportunities. sublet huge return the pursuing importance transact. they're we've and generally be availability Financial think the start. we reflected the stabilize South North believe

these know with entirely. and what mix pronounced looking our for many and conversations that's names move in some them companies companies. our buildings that them. us. space that I do will of of And to to can are that looking are are preferences Many built we quickly. new in are in you to trend are product in their has all that, a terms there we appeal heavily front of of are AI-based don't we're say AI-based of that So cases, been But think

development a San it's So positive Francisco. very for

it requirements we're very We square AI-based feet quickly, this expecting and as continue to about north come calendar year. on of be heavily focused X companies velocity attributable million in these of to

Operator

question Our here Green Instructions] [Operator from Street. from next Burzinski Dylan is

Dylan Burzinski

survive I companies there's that? and or still guess are over AI of sort lot just obviously, this not guys the going of are are that I you I about to of of theme. of environment as on going AI which credit how AI long-term is sort a you tenants, looking these a whether know, at basis. sort continuing guess uncertainty guys I bubble a mean, on

of at sort looking Peter, you just guys being you perspective? you, lot from So sort guys curious, of credit them of to as you just how sort are companies, these had alluded new it a are viewing of as a to,

Peter Brindley

Yes. I take that with review very any something that saying to tenant is the credit seriously. process would that respect by start we we undertake

newer it's it evaluate companies. irrespective is of it limited So of some more there the letter not that with of credit. a we AI. capital we and securing But outlay in instance, how And risk to certainly these do every is just limiting to the way the That yes, by is extent with then we can, industry.

Dylan Burzinski

IRR unlevered for And changed? Francisco have those you of XX% premium I a And to looking San then call, office partners York? work seeing taking today. invest guys put a New your required cautious capital types unlevered call your those still And guess, to to you IRR. looking of I kind IRR to to to property look amongst in other I versus think capital it, appetite more alluded approach in guys are achieve, QX than partners expectations X% the you on JV probably. an JV mentioned think sort Obviously, to

Peter Brindley

Francisco, has the been cash. to are both regard And kind point haven't XXX% view. few from are transactions bought think very in of institutional debt those there investor any different for of San I that difficult very what acquisitions. get there It's been significance. normally of assets, are to financing is with markets trades very And

investors, depends also there in for is San core the more the but I Francisco to really the different. have and It take are see appetite more So it's it and We little on increased leasing digits it the risk. investors really but in double look market We you asset. whether that totally whether has bit, investor. each would on say, requirement New return do asset opportunistic core or depends depends on or And opportunistic. a of York, at interested the

Operator

Paul question-and-answer closing for Albert any I'd to the session. like to the comments. This back turn floor concludes Behler

Albert Behler

report Goodbye. today. Thank XXXX. We results continued you forward an the quarter on all we for us to you update look joining our giving progress fourth when of

Operator

This concludes today's teleconference.

may lines participation. at time. Thank disconnect your for this You again you your

Paramount (PGRE) 31 Oct 242024 Q3 Earnings call transcript