NAREIT Discussion Materials · W W Georgetown Arlington Rosslyn Waterview 1899 Pennsylvania Avenue...

NAREIT Discussion Materials November 2015

Cautionary Note on Forward-Looking Statements

In this presentation, we may make forward-looking statements within the meaning of the Federal securities laws. You can identify these statements by our use of the words “assumes,” “believes,” “estimates,” “expects,” “guidance,” “intends,” “plans,” “projects” and similar expressions that do not relate to historical matters. You should exercise caution in interpreting and relying on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and could materially affect actual results, performance or achievements. These factors include, without limitation, the risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including those set forth in Item 1A. Risk Factors of our most recently filed Annual Report on Form 10-K, as updated by our subsequently filed Quarterly Reports on Form 10-Q. We do not undertake a duty to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The data and information herein are as of September 30, 2015, unless otherwise indicated.

Consistent Focus on High Barrier-to-Entry Supply Constrained Submarkets in Gateway Cities for 20 Years

New York 72%

Washington, D.C. 13%

San Francisco 15%

Annualized Rent as of September 30, 2015 (1) Best-in-class owner and operator of high-quality, Class A office

properties in Midtown Manhattan, Washington, D.C. and San

Francisco

─ 72% (1) of annualized base rent is in Midtown Manhattan

12 Class A office properties with ~10.4 million sf (1)

Significant embedded growth from lease-up of available space

and mark-to-market of expiring rents

Strong internal growth prospects

─ Lease up of currently available space

─ Increase in-place, below-market rents as leases expire

─ Refinance existing above-market debt maturities

Redevelop and reposition properties to enhance value

Conservative balance sheet provides financial flexibility

Complementary Investment Management platform focused on

debt and preferred equity investments

Paramount Group Overview

(1) Includes 100% of consolidated and unconsolidated JV properties.

1

Long-Term Track Record

2

Highly Experienced Senior Leadership

Seasoned and Committed Management Team with Proven Track Record

Executive Years with Paramount

Years in Industry

Albert Behler Chairman, CEO and President

24 35

Michael Walsh Executive VP, CFO and Treasurer

1 30

Vito Messina Senior VP, Asset Management

13 26

Jolanta Bott Executive VP, Operations and HR

36 36

Daniel Lauer Executive VP, CIO

26 26

Ted Koltis Executive VP, Leasing

5 20

Ralph DiRuggiero Senior VP, Property Management

14 28

Gage Johnson Senior VP, General Counsel and Secretary

6 23

Wilbur Paes Senior VP, CAO

1 15

Fully-Integrated Platform

● 27 avg. years real estate experience

● 14 avg. years experience at

Paramount

─ Senior executive focus on

investment and operations

─ In-house management and leasing

● Approximately 335 employees

● No third party management

● PGRE Management in all three cities

in which we are active

3

Color

Scheme

0 0 0

92 162 216

55 86 154

102 102 102

153 153 153

5 31 64

W 57

W 45

W 44

6th A

v

5th

Av

Times Square

E 48

2nd A

v

W 52

7th

Av

3rd A

v

8th A

v 9th

Av

Columbus Circle

Grand Central Terminal

Pa

rk A

v

Mad

iso

n A

v

W 50

E 59

E 55

Lexi

ngt

on

Av

Rockefeller Center

Central Park

NY007VUG / 571253_1.worNote: Export emf usingillustrator to removethe printing error

900 Third Avenue

712 Fifth Avenue

1301 Avenue of the Americas

Midtown Manhattan

1325 Avenue of the Americas 31 West 52nd Street

1633 Broadway

Midtown Manhattan - 92.3% Leased

87.4% Leased

94.2% Leased 91.5% Leased 100.0% Leased 98.5% Leased

97.8% Leased

Irreplaceable Trophy Portfolio

4

5

Acquisition of JV Partner’s Share of 31 West 52nd Street

Transaction Overview

On October 1, 2015, we acquired the remaining 35.8% ownership interest that we did not previously own in 31 West 52nd Street from our joint venture partner for approximately $230mm, excluding $148mm for the assumption of property-level debt

Full ownership allows us to more proactively manage this property through:

Strategic and creative leasing

Flexibility in refinancing

Property and Financial Highlights

29-story, 786,647 square foot Class A office building in the heart of Midtown Manhattan located between Fifth Avenue and Avenue of the Americas

Recently signed deal to relocate ~110,000 square foot tenant in top five floors of 31 West 52nd Street to 1633 Broadway. Tenant had 2026 lease expiration and was paying rent >50% below market at 31 West 52nd Street

In-place rents significantly under market

Looking to refinance the in-place debt prior to maturity to lock in today’s low interest rates – $413.5mm due December 2017, 5.0% avg. rate

High-quality tenant base:

31 West 52nd Street New York, NY

328,992 SF

6/2024 Exp.

52,056 SF

6/2017 Exp.

18,067 SF

12/2033 Exp.

131,297 SF

4/2021 Exp. 110,338 SF

8/2016 Exp.

Color

Scheme

0 0 0

92 162 216

55 86 154

102 102 102

153 153 153

5 31 64

NY007VUG / 540917_1.WOR

Washington, D.C.

Downtown

Logan Circle Dupont Circle

George Washington University

Foggy Bottom

National Mall & Memorial Parks

9th St N

W

Cap

itol St N

W

Georgetown

Arlington

Rosslyn

Waterview

1899 Pennsylvania Avenue

425 Eye Street

Liberty Place

2099 Pennsylvania Avenue

Washington, D.C. – 90.3% Leased

62.0% Leased

98.9% Leased 88.8% Leased 80.1% Leased

96.5% Leased


6

Color

Scheme

0 0 0

92 162 216

55 86 154

102 102 102

153 153 153

5 31 64

NY007VUG / 540917_1.WOR

San Francisco

North Financial District

SoMa

South Financial District

North Beach

One Market Plaza

98.4% Leased

7


San Francisco – 98.4% Leased

Since the IPO: Leasing Progress

8

Total Portfolio Leased Percentage New York, NY

Washington, D.C.

San Francisco

90.5% 90.7% 90.7%

92.1%

93.9% 94.6% 94.8%

92.9%

4Q 2013 1Q 2014 2Q 2014 3Q 2014(IPO)

4Q 2014 1Q 2015 2Q 2015 3Q 2015

Prior to signing

~260k sf in October

93.1%

89.2% 89.4%

97.2% 96.8% 96.7% 97.8% 98.4%

4Q 2013 1Q 2014 2Q 2014 3Q 2014(IPO)

4Q 2014 1Q 2015 2Q 2015 3Q 2015

84.3% 84.3%

82.1% 80.5%

88.8% 88.5% 90.2% 90.3%

4Q 2013 1Q 2014 2Q 2014 3Q 2014(IPO)

4Q 2014 1Q 2015 2Q 2015 3Q 2015

Since the IPO: Leasing Progress (cont’d)

9

Midtown Manhattan Portfolio Leased Percentage

San Francisco Leased Percentage Average over 97%

1301 Avenue of the Americas New York, NY

91.4% 92.5% 92.9% 93.5% 94.4% 95.5% 95.2% 92.3%

4Q 2013 1Q 2014 2Q 2014 3Q 2014(IPO)

4Q 2014 1Q 2015 2Q 2015 3Q 2015

Prior to signing ~260k sf in October

Washington, D.C. Portfolio Leased Percentage

Top 10 Tenants Expiration Date

% of Total

Annualized Rent

1. 1/2028 5.0%

2. 12/2020 4.7%

3. 1/2031 4.1%

4. 6/2024 4.0%

5. 2/2023 3.9%

6. 5/2016 3.8%

7. 3/2037 2.9%

8. 4/2025 2.6%

9. 3/2016 2.6%

10. 7/2029 2.5%

Diverse and High Credit Quality Tenant Base

Top Tenants Industry Diversification

Tenancy Highlights

Sector by % of Annualized Rent

High percentage of rent derived from investment grade / nationally recognized tenants

Over 260 tenants with average lease size of over 35,000 square feet

7.6 year weighted average remaining lease term

2-3% contractual rent bumps per year on average

Other Blue Chip Tenants

S&P Credit Rating: AA

Premium Cable Network

S&P Credit Rating: A+ S&P Credit Rating: BBB

U.S. Federal Government Moody’s Credit Rating: Aa1

S&P Credit Rating: BBB

10

S&P Credit Rating: AA-

(1) 5,546 of the square feet leased expires in December 2018. (2) 100,422 of the square feet leased expires in November 2015.

(1)

(2)

Legal Services, 21.2%

Financial Services -Commercial and

Investment Banking, 19.5%

Financial Services -All other, 17.2%

Technology and Media, 13.4%

Insurance, 4.2%

Retail, 4.1%

Accounting, 3.2%

Real Estate, 2.8%

Government, 2.3%Other, 12.1%

1Q-3Q657,333

1Q-3Q745,942

4Q537,143 260,829

1,108,442

948,088

1,071,135

1,194,476

1,006,771 Average1,080,535

–

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2011 2012 2013 2014 2015

Squ

are

Foo

tage

Lea

sed

Historical Leasing Activity

Portfolio Wide Annual Square Footage Leased

11 Note: 2011 – 2012 figures represent years in which leases began as opposed to years in which leases were signed. 2013 – 2015 figures represent years in which

leases were signed.

October

2Q

3Q

4Q

4Q7.1%

1.3%

8.0%

5.3%

3.1%

5.1% 4.7%

14.1%

2.9%

6.4% 6.6%

33.0%

–

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Available 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Thereafter

Squ

are

Fo

ota

geLease Expiration Schedule

Well-Laddered Lease Expiration Schedule

12 Note: 2015 figures include month-to-month leases. Percentages do not include effect of remeasurement of expiring space. Figures exclude effect of leasing

subsequent to 3Q 2015 quarter end.

85 84 83 77

71 69

97 97

89

81

92 Avg. Energy Star Score - Current84

Avg. Energy Star Score at Benchmarking - 2008

71

–

25

50

75

100

900 Third Ave 1325 AofA 712 Fifth Ave 31 West 52nd 1633Broadway

1301 AofA Waterview 425 EyeStreet

1899 Penn.Ave

Liberty Place One MarketPlaza

Focus on Sustainability

Sustainability Highlights LEED Designations (1)

Energy Star Ratings

13 Note: 2099 Pennsylvania Avenue does not yet qualify for certain designations and ratings given current occupancy level. (1) 425 Eye Street has 2 designations. Gold for “Core and Shell” and Silver for “Commercial Interiors.”

LEED Gold5

LEED Silver5

LEED Certified

2

Designated an “Energy Star Leader”

─ Entire portfolio registered and energy usage monitored

online

LEED Certification

─ All properties either certified or on target to receive

certification

+18.3% Increase

Financial and Leasing Highlights

14

712 Fifth Avenue New York, NY 3Q 2015 Financial Highlights

Pro rata share of NOI (1): $91.4 million

Pro rata share of Cash NOI (1): $77.2 million

Pro rata share of Adjusted EBITDA (1): $86.5 million

Core FFO (1) attributable to PGRE: $42.3 million

─ Per diluted share $0.20

YTD Leasing Figures through September 30, 2015

Cash mark-to-market on 2nd generation leases 14.1%

─ New York 10.7%

─ Washington, D.C. 21.2%

─ San Francisco 54.8%

Note: Figures are not updated for acquisition of current JV partner’s 35.8% interest of 31 West 52nd Street as announced September 8, 2015 and closed on October 1,

2015. (1) Please see Appendix for definitions of non-GAAP financial measures and reconciliations to their closest GAAP equivalent.

Equity68.1%

Net Debt31.9%

Balance Sheet Positioned for Growth

Significant Capital Structure Flexibility with Access to Diverse Sources of Capital

Conservative leverage ratios

─ 31.9% Net Debt / Total Enterprise Value

─ 6.0x Net Debt / 3Q15 annualized Adj. EBITDA

Strong coverage ratios

─ 2.4x Fixed Charge Coverage ratio (1)

Unencumbered asset base (2)

─ 4 properties totaling 3.2 million sf

─ $187.0 million of annualized rent

Prudent Financing Strategy Conservative Capitalization

15

Significant additional buying power

─ $1 billion unsecured credit facility with $800 million available

─ Accordion up to $1.25 billion

Financing Future Growth

Unencumbered Annualized Rent

Note: Figures are not updated for acquisition of current JV partner’s 35.8% interest of 31 West 52nd Street as announced September 8, 2015 and closed October 1, 2015.

(1) Figure shown related to the Company’s covenant compliance only. The Company is not presenting this ratio for any other purpose and is not intending for this measure to otherwise provide information about the Company’s financial condition or results of operations.

(2) Unencumbered assets include 1301 Avenue of the Americas, 1325 Avenue of the Americas, 2099 Pennsylvania Avenue and 425 Eye Street.

Encumbered Assets

$458.5 mm71%

Unencumbered Assets

$187.0 mm29%

Maturity Schedule Management

Impact of Refinancing of 1633 Broadway

16

1633 Broadway

1899 Penn

900 Third Avenue$274.3

Waterview$210.0

31 West 52nd Street

$413.5

Lib. Place $84.0

712 Fifth Avenue$246.5

One MarketPlaza

$926.3 $897.8

$330.5

$856.2

$89.5

$0

$260

$520

$780

$1,040

$1,300

2016 2017 2018 2019 2020 2021 2022

Loan

Bal

ance

($

mm

)

1633 Broadway $1,000.0

1633 Broadway Add'l Draw

$250.0

1899 Penn

900 Third Avenue$274.3

Waterview$210.0

31 West 52nd Street

$413.5

Lib. Place $84.0

712 Fifth Avenue$246.5

One MarketPlaza

$897.8

$330.5

$856.2

$89.5

$1,250.0

$0

$260

$520

$780

$1,040

$1,300

2016 2017 2018 2019 2020 2021 2022

Loan

Bal

ance

($

mm

)

After Refinancing – Weighted Average Debt Maturity of 4.8 years (1)(2)

Before Refinancing – Weighted Average Debt Maturity of 2.3 years (1)

Note: Dollars in millions. Figures are pro forma for 100% ownership of 31 West 52nd Street. Figures exclude $24.3mm of Oder-Center debt, of which the Company’s pro

rata share is $2.3mm. (1) Weighted average debt maturity figures reflect pro rata share of all debt. (2) Assumes 1633 Broadway is refinanced with $1.25 billion of 7-year, secured debt in December 2015.

Appendix

Fund and Property Management Overview

Fund Holdings Other Assets / Managed Assets

18

PGRE serves as the GP of various investment funds

These funds’ investments have an equity value of $336.4 million as of September 30, 2015

PGRE collectively holds indirect equity interests in 3 properties as well as partial ownership of mezzanine loans and preferred equity investments including:

─ 5.1% of 60 Wall Street in Downtown Manhattan

through Fund II and Fund III

─ 3.1% of 50 Beale Street in the South Financial District

of San Francisco through Fund VII and related funds

─ 0.1% of One Market Plaza in the South Financial

District of San Francisco through Fund III

─ 1.7% of Fund VIII mezzanine loans of $86.8 million

which have an interest rates of 6.0% – 8.3%

─ 4.9% of PGRESS preferred equity investments of

$54.3 million with dividends yielding 10.3%

In addition to the fund properties, PGRE generates additional revenues though other partially owned and managed assets including:

─ 1.0% ownership and property management of 745

Fifth Avenue in the Madison / Fifth Avenue submarket

of Midtown Manhattan

─ 9.5% ownership of the Oder-Center Schwedt shopping

center in Brandenburg, Germany

─ Property management of the retail property at 718

Fifth Avenue in the Madison / Fifth Avenue submarket

of Midtown New York

─ Property management of the Commercial National

Bank Building in Washington, D.C.

Note: On October 29, 2015, Fund VII (the Company’s real estate equity fund) completed the previously announced acquisition of 670 Broadway, a 77,480 square foot creative office building in the NoHo submarket of Manhattan, for $112.0 million.

(1) All investments, excluding 75 Howard Street of which the Company has a 7.4% interest, are recorded at fair value.

Total PGRE GAAP Equity Investment of $36.3 million (1)

Reconciliation of Non-GAAP Figures

19

FUNDS FROM OPERATIONS ("FFO") (unaudited and in thousands , except share and per share data)

September 30, 2015 June 30, 2015 March 31, 2015

Reconciliation of net income (loss) to FFO and Core FFO:Net income (loss) 9,357$ 3,148$ (11,427)$

Real estate depreciation and amortization 70,654 79,421 73,583

Pro rata share of real estate depreciation and amortization

of unconsolidated joint ventures 1,512 1,530 1,476

FFO 81,523 84,099 63,632

Less FFO attributable to noncontrolling interests in consolidated joint ventures and funds (17,094) (18,614) (9,789)

FFO attributable to Paramount Group Operating Partnership 64,429 65,485 53,843

Less FFO attributable to noncontrolling interests in Operating Partnership (12,619) (12,822) (10,526)

FFO attributable to common stockholders 51,810$ 52,663$ 43,317$

Per diluted share 0.24$ 0.25$ 0.20$

FFO 81,523$ 84,099$ 63,632$

Non-core (income) expense:

Transfer taxes due in connection with the sale of shares by a former

joint venture partner - 5,872 -

Acquisition and transaction related costs 485 2,336 1,139

Predecessor income tax true-up - 721 -

Severance costs - - 3,315

Unrealized gains on interest rate swaps (15,772) (21,747) (11,978)

Pro rata share of unrealized gain on interest rate swap

of unconsolidated joint venture (37) (624) (386)

Core FFO 66,199 70,657 55,722

Less Core FFO attributable to noncontrolling interests in consolidated joint ventures and funds (13,560) (13,065) (7,291)

Core FFO attributable to Paramount Group Operating Partnership 52,639 57,592 48,431

Less Core FFO attributable to noncontrolling interests in Operating Partnership (10,309) (11,277) (9,468)

Core FFO attributable to common stockholders 42,330$ 46,315$ 38,963$

Per diluted share 0.20$ 0.22$ 0.18$

Reconciliation of weighted average shares outstanding:

Weighted average shares outstanding 212,106,718 212,106,718 212,106,718

Effect of dilutive securities 1,361 5,004 11,928

Denominator for FFO per diluted share 212,108,079 212,111,722 212,118,646

Quarter Ended

Note: Funds from Operations ("FFO") is calculated in accordance with the definition adopted by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, impairment losses on depreciable real estate and depreciation and amortization expense from real estate assets, including our share of such adjustments of unconsolidated joint ventures. Core Funds from Operations ("Core FFO") is calculated by adjusting FFO for certain other items, including acquisition and transaction related costs and unrealized gains or losses on interest rate swaps, including our share of such adjustments of unconsolidated joint ventures.


20

NET OPERATING INCOME ("NOI")(unaudited and in thousands)


Reconciliation of net income (loss) to NOI and Cash NOI:

Net income (loss) 9,357$ 3,148$ (11,427)$

Add:

Depreciation and amortization 70,654 79,421 73,583

General and administrative expenses 6,666 9,133 12,613

Interest and debt expense 42,821 42,236 41,888




Income tax expense 789 1,343 574

NOI from unconsolidated joint ventures 4,303 4,278 3,781

Less:

Income from real estate fund investments (10,933) (14,072) (5,221)

Income from unconsolidated joint ventures (1,458) (2,011) (975)

Fee income (2,085) (1,780) (1,535)


Interest and other loss (income), net 1,763 (512) (854)

NOI 106,590 107,645 101,588

Less NOI attributable to noncontrolling interests in

consolidated joint ventures (15,162) (15,193) (13,619)

Pro rata share of NOI 91,428$ 92,452$ 87,969$

NOI 106,590$ 107,645$ 101,588$

Less:

Straight-line rent adjustments (17,817) (16,091) (15,951)

Amortization of below-market leases, net (1,477) (872) (890)

Pro rata share of straight-line rent adjustments of

unconsolidated joint ventures 146 48 41

Cash NOI 87,442 90,730 84,788

Less Cash NOI attributable to noncontrolling interests in


Pro rata share of Cash NOI 77,223$ 80,457$ 75,341$

Quarter Ended

Note: Net Operating Income ("NOI") is calculated as GAAP net income or loss plus (i) depreciation and amortization (ii) general and administrative expenses (iii) interest and debt expense (iv) acquisition and transaction related costs and (v) income tax expense, less (vi) fee income (vii) unrealized gains or losses on interest rate swaps (viii) interest and other income and (ix) the gain on consolidation of a consolidated joint venture, including our share of such adjustments of unconsolidated joint ventures. We also present Cash NOI which deducts from NOI, straight-line rent adjustments and the amortization of above and below-market leases, net, including our share of such adjustments of unconsolidated joint ventures. In addition, we present our pro rata 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.


21

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA")(unaudited and in thousands)


Reconciliation of net income (loss) to EBITDA and Adjusted EBITDA:

Net income (loss) 9,357$ 3,148$ (11,427)$

Add:

Depreciation and amortization 70,654 79,421 73,583

Interest and debt expense 42,821 42,236 41,888

Income tax expense 789 1,343 574

Pro rata share of above adjustments of

unconsolidated joint ventures 2,885 2,895 3,190

EBITDA 126,506 129,043 107,808

Less EBITDA attributable to noncontrolling interests in

consolidated joint ventures and funds (27,466) (28,071) (19,323)

Pro rata share of EBITDA 99,040$ 100,972$ 88,485$

EBITDA 126,506$ 129,043$ 107,808$

Add:




Severance costs - - 3,315

Less:


EBITDA from real estate fund investments (9,730) (15,124) (4,010)

Pro rata share of unrealized gain on interest rate swap

of unconsolidated joint venture (37) (624) (386)

Adjusted EBITDA 101,452 99,756 95,888

Less Adjusted EBITDA attributable to noncontrolling interests in


Pro rata share of Adjusted EBITDA 86,518$ 84,820$ 82,477$

Quarter Ended

Note: Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is calculated as GAAP net income or loss plus (i) depreciation and amortization (ii) interest and debt expense and (iii) income tax expense, including our share of such adjustments of unconsolidated joint ventures. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") is calculated by adjusting EBITDA for certain other items, including acquisition and

transaction related costs and unrealized gains or losses on interest rate swaps, including our share of such adjustments of unconsolidated joint ventures. In addition, we present our pro rata share of EBITDA and Adjusted EBITDA which represents our share of EBITDA and Adjusted EBIDTA of consolidated and

unconsolidated joint ventures, based on our percentage ownership in the underlying assets.

NAREIT Discussion Materials · W W Georgetown Arlington Rosslyn Waterview 1899 Pennsylvania Avenue...

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