Paramount Group, Inc. (NYSE:PGRE) Q3 2023 Earnings Call Transcript

Paramount Group, Inc. (NYSE:PGRE) Q3 2023 Earnings Call Transcript November 5, 2023

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded today, November 2, 2023. I will now turn the call over to Tom Hennessy, Vice President of Business Development and Investor Relations. Please go ahead, sir.

Tom Hennessy: Thank you, operator, and good morning, everyone. Before we begin, I would like to point everyone to our third quarter 2023 earnings release and supplemental information which were released yesterday. Both can be found under the 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. 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 third quarter 2023 earnings release and our supplemental information. Hosting the call today, we have Mr. Albert Behler, Chairman, Chief Executive Officer and President of the company; Wilbur Paes, Chief Operating Officer, Chief Financial Officer and Treasurer; and Peter Brindley, Executive Vice President and Head of Real Estate.

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: Thank you, Tom, and thank you all for joining us today. Yesterday, we reported core FFO of $0.22 per share for the third quarter, which was in line with consensus estimates. In the quarter, we leased over 298,000 square feet, which was 123% higher than our quarterly average during the first half of the year. This activity was driven by robust leasing in both of our markets, New York and San Francisco. As you may recall, while our leasing results were trailing midpoint of our guidance at the end of the first half of the year, we did not adjust the downward as we believed we would make up lost ground during the third quarter, and that’s exactly what we did. Our year-to-date leasing velocity now sits at about 566,000 square feet, putting us squarely at the 750,000 square foot midpoint that we established at the beginning of the year.

Notwithstanding that, we expect to achieve the leasing goal that we set earlier, we do not expect to do the same as it relates to our occupancy goal. We had some unexpected surprises in 2023 in form of the regional bank crisis and a few lease terminations during the year, which has forced us to reduce a robust leased occupancy expectations we hope to achieve. Our new range calls for leased occupancy between 87% and 88.6%. Wilbur will provide further details on our financial results and guidance later. We continued to be in a period of economic uncertainty. While headline inflation is moderating, it is still ahead of the Fed’s target. Low unemployment and strong payroll data further complicates this dynamic. Add to this geopolitical issues, and you can see why things continue to remain in flux.

Equity markets have sold off as interest rates have moved higher and while most economists have been wrong thus far about the timing of the recession, I do not believe they are wrong altogether. Higher rates and a higher for longer narrative has and will continue to stress valuations and the dearth of liquidity in the market will compound the problem. That said, we have built the company to withstand economic downturns and this time will be no different. We have a fortress balance sheet with ample liquidity and debt that is non-recourse by design. Our portfolio continues to be leased well above market levels to a roster of blue-chip tenants and we continue to capture more than our fair share of leasing in our markets, as demonstrated by our leasing results.

Turning to our operating businesses. Our New York portfolio has remained stable at 90.4% leased. During the third quarter, we leased almost 185,000 square feet in New York or approximately 106% higher than the quarterly average during the first half of the year. New York has led the way in enforcing in-person work mandates, resulting in increased foot traffic and increased office utilization. Last quarter, I touched upon our highly talked about amenity center at 1301 Sixth Avenue, which will serve all the tenants in the Paramount campus. This 30,000 square foot amenity center is dubbed the Paramount Club and is set to open in the second quarter of 2024. Peter will provide additional color on this, including the impact it has had in our pursuit of inviting companies to join the Paramount campus.

During the third quarter, we leased over 113,000 square feet in San Francisco. Just like in New York, our San Francisco leasing not only eclipsed the quarterly average during the first half of the year by 155%, and it also represents the highest quarterly leasing volume we have had in San Francisco since the fourth quarter of 2021. Leading San Francisco-based companies continue to announce and enforce their return to office plans as concerns mount regarding productivity of remote workers. This has resulted in a steadily improving utilization figures across the San Francisco market and in our own portfolio post Labor Day. This trend, together with the changing political landscape, driven by voter awareness about the challenges facing the city will undoubtedly support improved leasing activity going forward.

Pivoting to the transaction market, activity remains subdued due to elevated interest rates, volatile equity markets and white bid-ask spreads. With no debt financing readily available, limited activity to date has been driven by smaller deals and all cash buyers. To-date, there have been very few high-quality assets brought to market, but there are signs of capitulation in the market. We will remain disciplined in our approach and deploy capital if warranted only in an asset-light approach. In closing, let me emphasize that our approach to business is rooted in a long-term perspective. Our Class A buildings and the coastal gateway markets in which we operate have demonstrated resilience, consistently evolving and growing over decades and numerous economic cycles.

With that, I will turn the call to Peter.

Peter Brindley: Thanks, Albert, and good morning. During the third quarter, we leased approximately 298,000 square feet. Our third quarter leasing activity was balanced relative to our portfolio composition. During the third quarter, we leased approximately 185,000 square feet in New York and approximately 113,000 square feet in San Francisco, including the renewal of San Francisco Health Authority at 300 Mission, one of San Francisco’s top 10 largest deals of the year. We continued to execute on our business plan while navigating the many different currents influencing market conditions in both New York and San Francisco. This period of uncertainty has caused many companies to exercise caution when making long-term real estate decisions as reflected in the broader leasing fundamentals in our two markets.

On the other hand, it has also prompted many companies, particularly those with near term lease expirations to think critically about how best to use real estate as a lever to enhance the workplace experience and support a widespread return to the office. This trend has resulted in companies ongoing and ever-increasing desire to prioritize the highest quality assets with stable ownership. Interestingly, it has also resulted in a reduction of competitive supply in our two markets as tenants and brokers alike aim to focus on well located, amenity-rich buildings run by best-in-class, well-capitalized owners, all of which benefits Paramount. We are encouraged by the utilization figures in our portfolio and expect the accelerating return to work trend to result in increased leasing activity as sentiment improves.

At quarter end, our same-store portfolio-wide leased occupancy rate at share was 88.1%, down 150 basis points from last quarter and down 330 basis points year-over-year. The drop in occupancy was largely driven by the known move out of Uber at Market Center. As we look ahead, our remaining lease expirations in 2023 are manageable with 1.3% or approximately 105,000 square feet at share expiring by year-end. Turning to our markets, Midtown’s third quarter leasing activity was approximately 2.9 million square feet, excluding renewals, was up 13% quarter-over-quarter, but 16% below the 5-year quarterly average. Availability in Midtown remains elevated at 18.1% and absorption was positive during the third quarter as there were limited space additions coupled with space withdrawals.

Tour activity in our New York portfolio continues to increase as does our pipeline of prospective tenants, most significantly on our vacant space along Sixth Avenue. At 1301 Avenue of the Americas, our market-leading amenity center, Paramount Club is set to open in Q2 2024 and continues to be a difference maker in our pursuit of leading companies. The Paramount Club will be a destination for Paramount tenants throughout our portfolio can collaborate, engage in intellectual exchange, build camaraderie and partake in curated experiences that enrich both their professional and personal lives. Communication regarding the Paramount Club will be powered at Paramount’s newly introduced tenant experience app that will offer details regarding the Paramount Club as well as other benefits of being in a Paramount building, including digital access and retailer perks.

Paramount Club membership is exclusive to our tenants and offers expertly appointed dining, wellness, conferencing and entertainment. Needless to say, existing tenants and prospective tenants alike have shown a keen interest in the Paramount Club. Our offering is resonating in the market and is timely, given company’s strong desire to deliver an elevated experience to their employees. Our New York portfolio is currently 90.4% leased on a same-store basis at share, down 10 basis points quarter-over-quarter and down 170 basis points year-over-year, largely as a result of the known lease expiration with Credit Agricole at 1301 Avenue of the Americas earlier in the year. During the third quarter, we leased approximately 185,000 square feet at a weighted average term of 6.6 years with an initial rent of approximately $73 per square foot.

Our overall lease expiration profile in New York is manageable with 1.3% or approximately 77,500 square feet at share expiring by year-end. Shifting our focus to San Francisco, leasing activity remains muted. However, we are optimistic given San Francisco remains a hotbed for premier tech talents with high-growth potential. San Francisco-based companies have raised approximately $27 billion in venture capital funding year-to-date, accounting for more than 14% of venture capital investment in the United States and more than half of the venture capital investment in the Bay Area. As a result, venture-backed companies, particularly AI, have contributed more than 1 million square feet towards tenant demand in San Francisco, which is currently 5.2 million square feet and moving closer to San Francisco’s historical average of approximately 7 million square feet.

At quarter-end, our San Francisco portfolio was 82% leased on a same-store basis at share, down 520 basis points quarter-over-quarter and down 730 basis points year-over-year driven by the known move out of Uber, which we have partially backfilled with the previously announced Waymo lease. Looking ahead, our San Francisco portfolio has 1.4% or approximately 28,000 square feet at share expiring by year-end. We look forward to updating you on our progress. With that summary, I will turn the call over to Wilbur, who will discuss the financial results.

Wilbur Paes: Thank you, Peter, and good morning, everyone. Yesterday, we reported core FFO of $0.22 per share, which is in line with consensus estimates. Same-store growth in the quarter, as expected, was negative 7.1% on a cash basis and negative 10.3% on a GAAP basis, bringing our year-to-date same-store results to negative 3.9% cash and negative 2.9% GAAP. As highlighted previously, our negative same-store growth this year was driven by the two large known lease expirations in our portfolio, namely Credit Agricole in New York and Uber in San Francisco. During the third quarter, we completed 298,259 square feet of leasing at a weighted average starting rent of $75.65 per square foot and for a weighted average lease term of 6.5 years.

Mark-to-markets on 220,495 square feet of second-generation space was essentially flat, with GAAP mark-to-market at positive 0.5% and cash mark-to-markets at negative 0.4%. Turning to our balance sheet, in late September, we refinanced with the existing lender the debt at 300 Mission, which was scheduled to mature in October. The new $232 million loan has a fixed rate of 4.5% and matures in October 2026. It replaces the previous $273 million loan that bore interest at a fixed rate of 3.65%. Needless to say, this was a terrific outcome for us and our partners. The $41 million paydown, which our share was less than $13 million was funded through existing property cash reserves. Notwithstanding the decline in cash flow from two significant lease expirations this year, the regional bank crises’ that affected two of our tenants in clearing our largest tenant.

The pay down of a portion of the debt at 300 Mission and CapEx spend, we have managed to increase our cash flow and liquidity position from year-end, which now sits at $1.217 billion compared to $1.203 billion when we began the year. We have done this through a series of austerity measures in clearing expense management and a dividend reduction, thereby enabling us to maintain our fortress balance sheet. Our $1.217 billion of liquidity is comprised of $467 million of cash and the full $750 million of capacity under our revolving credit facility. Our outstanding debt at quarter end was $3.66 billion at a weighted average interest rate of 3.9% and a weighted average maturity of 3.4 years. 87% of our debt is fixed and has a weighted average interest rate of 3.28%.

The remaining 13% is floating and has a weighted average interest rate of 8.01%. We have no debt maturing for the remainder of 2023 and $478 million at share maturing in 2024, which primarily represents our share of debt at One Market Plaza, which matures in February ’24. Turning now to our 2023 guidance. Based on our year-to-date results as well as our outlook for the remainder of the year, we have maintained our core FFO guidance of $0.86 per share by narrowing the range to be between $0.85 and $0.87 per share. We have also maintained the midpoint of our leasing guidance of 750,000 square feet by narrowing the range to be between 650,000 square feet and 850,000 square feet. Our same-store expectations were left unchanged. And as Albert highlighted earlier, our leased occupancy range was lowered to a range between 87% and 88.6%.

With that, operator, please open the lines for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Camille Bonnel with Bank of America. Please go ahead.

Camille Bonnel: Understand we still have to get through 2024, but then I see you have another 1 million square feet in San Francisco expiring in 2025. It just seems like a lot of roll coming with no more clarity around demand. I guess, how do you plan to get in front of this? And is there anything you can do from an asset management perspective to manage it?

Albert Behler: Camille, this is Albert. This is a good question but let me give you a little background with regard to San Francisco. I think San Francisco has an image currently that it is a horrible market and it looks like it. But I want to say on the positive side, I was there just a week ago to see what has developed and is developing and I can tell you that, first of all, occupancy or attendance in the buildings in San Francisco has risen dramatically, and that’s not so far published dramatically, and it’s at the same level as we currently have it here in New York City. So that’s new in the market and we will look very, very carefully at each asset, how it develops over the next 12 to 18 months and if there is an asset that cannot perform, we will have to talk to our lenders and do what’s necessary in this market.

I have mentioned before that on earnings calls that the company will be very conservative with its cash that we have currently available on the balance sheet. We have a balance sheet that is not leveraged, and we definitely will be prudent about spending or not spending that capital. So your question is a good one, and we will watch the market, how it develops over the next 12 to 18 months and look at each opportunity separate. You have to look at our portfolio since we only have asset-based lending, like it’s a conglomerate of various different, and I proudly say this, our property managers operate like they are very independent, and they run their own property. The advantage of our properties are that they are relatively large in size, and they stand alone and that’s how we look at them.

And maybe Peter wants to talk a little bit more about the leasing velocity and what he sees in the market.

Peter Brindley: Yes. Camille, good morning. I would say that demand is picking up slightly. We’re just now starting to see AI have an impact on velocity in this market, and so we’re tracking that of course very closely. But with regards to 2025 expiration, Google and JPMorgan. Google, of course, at One Market, JPMorgan at One Front, make up roughly half of the 1 million square feet that you referenced in terms of expirations in 2025, and those two tenants are no different than the rest of our tenants. We maintain very good relationships with our tenants. It’s something that we work very hard at. We, of course, are thinking about it. We’re in front of them, having productive conversations. And so while it’s too soon to say much more beyond what I’ve just now said, I can assure you that we acknowledge internally the importance of both of these tenants, and we’re front of them having productive conversations. We’ll have more to report in the future.

Camille Bonnel: Appreciate your thoughts there. And just on the leasing pipeline. Are you having many conversations with tenants about early renewals and potentially pulling forward leases broadly across the pipeline?

Peter Brindley: Yes, we are always looking to derisk roll and I think we’ve historically done a very good job of this. So, yes, we, as I just mentioned, have ongoing discussions with our tenants. We are discussing renewals with tenants that have expiries in 2024, ’25 and in some cases ’26. And so I can’t tell you that we’re in discussions with every tenant with an expiry in 2024, late ’24 or ’25, but we are in discussions with many of them. So yes, the answer to your question is we are always thinking about getting ahead of it.

Wilbur Paes: In fact, a majority of our leasing this quarter was renewal based.

Camille Bonnel: Got it. And just a final question around One Market Street being one of your best leased assets. You do have a large maturity coming up not too far now. Can you share how conversations with lenders are going on refinancing the debt and the spreads you’re generally seeing?

Wilbur Paes: Sure. First I want to just clarify, you mean One Market Plaza, not Market Street because that’s a different asset.

Camille Bonnel: Plaza, yes.

Wilbur Paes: One Market Plaza, again, we are having ongoing discussions, both with our partners and the lenders. And it’s too soon to comment on that right now, Camille, because it wouldn’t be appropriate given the discussions being very fluid, but they are very productive discussions.

Operator: Our next question comes from Ron Kamdem with Morgan Stanley. Please go ahead.

Ron Kamdem: Hey, just a couple of quick ones. Just starting with the lease occupancy guidance, can you just provide more details of what drove that 190 basis points reduction? Sorry if I missed it, but can you be specific on that?

Wilbur Paes: Sure. Peter talked about last quarter, the leasing pipeline of leases that were out for signature. We pretty much delivered on that on the velocity. The pipeline that Peter sees and that we see for the rest of the year in the fourth quarter is largely on vacant space. But as I’m sure, Ron, you’ve heard from the rest of our peer group, deals are taking longer to get done, and while we have a lot of deals, the question becomes do we get to some of these before year-end or does that have a spillover effect into 2024? We thought now is the right time to be prudent about our approach given the fact that deals are taking longer to get done and narrow that guidance. And so we are hitting on our almost every metric that we set out in the beginning of the year.

All of the guidance metrics that we set out at the beginning of the year. We are within the range and hitting closely to the midpoint of all of those metrics except the leased occupancy and that was driven by a number of factors. You had the regional bank crises that was unexpected. That impacted our numbers. You had lease terminations that came as a surprise to us, as it does to other people as well I’m sure, but that affected our numbers. These are not things we budgeted and forecasted at the time we came up with guidance. And not to mention the everchanging operating environment that we find ourselves in. So we thought it was the right thing to do to adjust the guidance at this point.

Ron Kamdem: Great. And then just two quick ones I’ll sneak into one question. At One Front Street, the space that JPM assumed, just any updated color there, what their plans are over the next several years as those leases roll? Then just switching back to sort of the cash flow statement, about $38 million this quarter. Any sort of one-timers or working capital adjustments that happened in the quarter that we should be mindful of? Thanks.

Albert Behler: To your first question, Ron, on One Front we are in communication now with JPMorgan. We had a very good communication with them up front. This was a very, very difficult situation, as you can imagine. One Front was the largest occupancy of First Republic during this year and the team did a terrific job by making sure that JPMorgan was made comfortable with the asset, with the leases there. It’s too early to say how this will develop over the next couple of years, but I can tell you that the relationship is very good.

Wilbur Paes: And Ron, getting back to, I just want to make sure I frame your question correctly. I think you’re talking about the deep line of $30-some odd million in cashflow from operating activities this quarter when you’re comparing the change from September through June, I presume. Is that correct?

Ron Kamdem: That’s right. That’s right.

Wilbur Paes: Okay. So that was driven largely by prepaid real estate taxes. We prepay a large portion of our real estate taxes on July 1 and that’s basically what happens. Obviously, those get collected through expense reimbursements over the next six months, but that’s where you saw the large decrease this quarter over last quarter.

Operator: Thank you. Our next question is from Blaine Heck with Wells Fargo. Please go ahead.

Blaine Heck: Several of your peers in New York have noted that the pace of leasing activity in properties with kind of middle of the market rents has picked up recently. I guess are you guys seeing the same and can you talk a little bit more about any changes in the number, the size and the underlying industry of the prospects you guys have for your larger vacancies, especially in the New York portfolio?

Albert Behler: Yes, I would say, Blaine, that leasing has picked up across the board, I would say because you know we have a very diversified portfolio of smaller tenants, midsize and larger tenants. The very large tenants have taken occupancy a while ago, but I think there are some tenants who are realizing now that the decisions they made are not sufficient, which is good news. Some of them are thinking about maybe taking more space because initially they were thinking about the work from home situation taking longer. They are realizing to be competitive long-term. This is not a solution and they are changing their focus. So that’s what we see in our segment here in New York.

Peter Brindley: And I would add by saying I do think leases have taken longer for a variety of reasons, and velocity in the broader sort of Midtown market has not been great year-to-date. Blaine, I will tell you that we feel a heck of a lot better about our pipeline relative to the way we felt about it earlier in the year. And a lot of that activity is centered around 1301 which gives us an opportunity to achieve some occupancy increasing leasing going forward, and that of course contains some base floors where we’re talking about rents around $70-ish per square foot. So we have quite a bit of activity. We have proposals that cover the entirety of that vacancy. We of course need to convert on the opportunities in front of us, but suffice it to say that the pipeline, Paramount’s pipeline I’ll say, feels quite good relative to where we were earlier in the year.

Blaine Heck: And Peter, has the complexion of the kind of pool of prospects changed at all as far as the underlying industries, or is it still mostly kind of traditional FIRE type tenants? A – Peter Brindley Predominantly FIRE tenants are the most active. That’s reflected more broadly in the market, but we’ve also experienced that. But we’ve seen some media companies that are now pursuing several of our opportunities, some professional service companies, law firms. We appeal to law firms in several of our buildings. So I don’t know that the complexion of industry type has changed all that dramatically, but we’re just seeing more and more tenants acknowledging the importance of the office and deciding that they want to elevate what they have to offer their employees and they’re looking to find their way into better real estate.

That’s what’s compelling them to transact in this market despite all the challenges. And we think we’re doing a good job appealing to those prospective tenants right now. And part of that I think has been supported by The Paramount Club which we referenced in our remarks. Prospective tenants and existing tenants have responded very well to our plan. It’s not just like every other amenity center, it looks and feels a bit different. It will be market leading, and it’s resonating. I think it’s helping to support not only getting initial interest but getting some of this interest to lease.

Blaine Heck: Great. That’s really helpful color. Maybe for Wilbur, can you just talk about the financing market a little bit more in general? And then, also specifically on the negotiation process on the 300 Mission loan. I guess how much scrutiny was there on current operations and future lease expirations at the building? What was the LTV that was arrived at on the loan? And how was the value determined? And then how was the length or term at 3 years determined as well?

Wilbur Paes: Sure. Look, the lending market is pretty much shut down. I don’t know how else to put it. There is no liquidity in the market for new financings. And so, I said this on our last earnings call, that most of these things are going to be negotiations and refinancings and extensions with the existing lender. The execution at 300 Mission obviously was a superior one, probably one of the best in the marketplaces, but it was a testament to, one, the sponsorship on the asset and the relationships with the lenders. And we have been very, very transparent with our lenders. We have great relationships. We talked about this very early on, what our vision for the asset was. We’re the best people to navigate this environment, and our lenders and our partners were very, very supportive and we achieved a tremendous, tremendous execution here.

I don’t want to talk about LTVs because everybody is struggling with what the V in that equation is, but there was a lot of discussion about the time and term we needed to be able to get through the business plan and that’s what we shared very closely with our lenders, and we were successful.

Operator: Thank you. Our next question is from Vikram Malhotra with Mizuho. Please go ahead.

Vikram Malhotra: I guess just with all the leasing that you outlined this quarter, the pipeline, Wilbur, would it be possible to give us sort of how do we think about the occupancy trajectory, the lease trajectory as we kind of go into ’24, just given there are several moving pieces?

Wilbur Paes: Sure. And in 2024 obviously the big move out for us which is known is Clifford Chance. That’s 329,000 square feet and that’s going to impact occupancy. It’s going to impact cash flow significantly. You also have Kasowitz at 1633. That’s a 50,000 square foot lease. That floor comes due I believe in May of ’24 as well. You have that. So those are the two really large things. And then in San Francisco you also have the impact of some of the space that was atoned after JPMorgan gave back some of the space that was subleased to tenants. That space we had outlined in the 8-K also comes back that was short term in 2024. So those are the large moving pieces on the downside. And Peter outlined Vikram, his pipeline of fourth quarter activity and leases out for signature, a majority of which is on currently vacant space. So we’ve not formulated our 2024 guidance, but we wanted to be helpful to you to have the big moving pieces here.

Vikram Malhotra: Okay. That’s helpful. I guess just, Albert, you do have optionality through your funds obviously on balance sheet stuff, but a lot of your peers, yourself are talking about renewed activity, perhaps some signs of tour activity, it’s picking up, et cetera. I’m wondering if these are truly signs of inflection or more stabilization and how that may tie into your decision to deploy either debt or equity capital over here, just from perhaps a first-mover advantage.

Albert Behler: Vikram, I’ve said it over and over again and I will repeat it here. We will be very careful not to invest Paramount’s capital. We will go into a recovery just with the asset-light model. That means we get some inbound questions by investors, to your question. We get some questions about is the market going to change? Those questions normally come not from institutional investors, more from ultra-high net worth investors from various parts of the world, and I think there will be opportunities in 2024. But so far, we haven’t seen anything that would really whet our appetite and really get us excited. But very clearly, there were very, very little of PGRE’s equity capital being invested here.

Vikram Malhotra: Okay. That’s helpful. Just I guess, Wilbur, last one. Can you just maybe update us on perhaps any potential dispositions or any capital sourcing that you may do and then utilize this buybacks? I’m just wondering, kind of given where the stock is, given sort of the broader markets, how are you thinking about buybacks and sources of those buybacks?

Wilbur Paes: Look, Vikram, I think it makes less sense for us to be executing buybacks today given that we cut the dividend to protect the balance sheet. That’s our number one focus right now, is protecting the company’s balance sheet and maintaining ample liquidity. We are still in this period of economic uncertainty and we have debt maturities coming due. Peter talked about the amenity center, capital that is going to be needed there as well. So we’re trying to be very, very prudent in terms of capital allocation. We certainly appreciate the disconnect between value and stock price, but we’re sitting with cash on balance sheet at $2 and our stock is trading at $4. But our goal is to continue to protect our balance sheet for the timing until we see the future getting clearer.

Operator: Thank you. [Operator Instructions] Our next question comes from Jay Poskitt with Evercore ISI. Please go ahead.

Jay Poskitt: I was hoping you could just bridge the gap a bit between, I know you mentioned that for the same-store lease percentage and some of those leases were probably going to slip into ’24. So I’m just curious the gap there between the reduced lease percentage guidance but then maintaining your leasing velocity for the year. Would you mind just helping bridge the gap there?

Wilbur Paes: Sure. I think we touched upon it a little bit earlier. A large portion of the activity was preleasing and renewal activity, so effectively what has happened is Peter has brought forward future lease expirations and renewed them. So that has an impact on the velocity but doesn’t have an impact on occupancy because that lease was currently already in occupancy. So we’ve derisked future roll, and so we’re hitting the leasing volume target, but the vacant space discussions have taken longer to come to fruition and that’s why we reduced the lease occupancy target.

Jay Poskitt: Okay. That’s helpful. Thank you. And then just another question. I know you said that you can’t say much about the refinancing coming in February, but I’m just curious, in discussions with the lenders, are they taking a similar stance as what you were able to negotiate with 300 Mission, or just given the different characteristics of the asset are those conversations kind of independent of each other?

Wilbur Paes: They’re very independent of each other. You cannot look at two financings and two executions the same way. It’s not a one-size-fits-all model. You’ve got to understand your lending partners. One Market Plaza is a CMBS loan, it’s different people that you’re dealing with. The characteristics of the asset matters. The characteristics of the sponsor matters. So I would not be thinking of the execution at 300 Mission and trying to apply that towards every other debt maturity that’s coming. It’s a bespoke process. Each one is treated differently.

Operator: Thank you. As there are no further questions, I will now hand the conference over to Albert Behler, CEO, for closing comments.

Albert Behler: Thank you all for joining us here today. We look forward to providing an update on our continued progress when we report our fourth quarter 2023 results. Good-bye.

Operator: Thank you. The conference of Paramount Group has now concluded. Thank you for your participation. You may now disconnect your lines.