Paramount Announces Fourth Quarter 2018 Results

– Leases 1,014,101 square feet in 2018 –
– Completes $105
million of share repurchases in 2018 –
– Initiates Guidance
for Full Year 2019 –

NEW YORK–(BUSINESS WIRE)–Paramount Group, Inc. (NYSE: PGRE) (“Paramount” or the “Company”) filed
its Annual Report on Form 10-K for the year ended December 31, 2018
today and reported results for the fourth quarter ended December 31,
2018.

Fourth Quarter Highlights:

• Reported net income attributable to common stockholders of $5.3
  million, or $0.02 per diluted share, for the quarter ended December
  31, 2018, compared to a net loss of $6.8 million, or $0.03 per diluted
  share, for the quarter ended December 31, 2017.
• Reported Core Funds from Operations (“Core FFO”) attributable to
  common stockholders of $59.3 million, or $0.25 per diluted share, for
  the quarter ended December 31, 2018, compared to $51.6 million, or
  $0.22 per diluted share, for the quarter ended December 31, 2017.
• Reported a 13.4% increase in Same Store Cash Net Operating Income
  (“NOI”) and a 12.8% increase in Same Store NOI in the quarter ended
  December 31, 2018, compared to the same period in the prior year.
• Leased 213,269 square feet, of which the Company’s share was 143,622
  square feet that was leased at a weighted average initial rent of
  $93.40 per square foot. Of the square footage leased, 118,752 square
  feet represented second generation space, for which the Company
  achieved a positive mark-to-market of 2.9% on a cash basis and 11.0%
  on a GAAP basis.
• Reported leased occupancy and same store leased occupancy of 96.4% at
  December 31, 2018, in-line with the leased occupancy and same store
  leased occupancy reported at September 30, 2018.
• Repurchased an aggregate of 7.56 million shares, or $105.4 million of
  its common stock in 2018, at a weighted average price of $13.95 per
  share, of which 7.3 million shares were repurchased in the fourth
  quarter.
• Declared a fourth quarter cash dividend of $0.10 per common share on
  December 14, 2018, which was paid on January 15, 2019.

Transactions Subsequent to Fourth Quarter:

• Completed the acquisition of 111 Sutter Street, a 293,000 square foot
  office building located in San Francisco’s North Financial District.
  Simultaneously with closing, the Company brought in a joint venture
  partner to acquire 51% of the equity interest. The Company will retain
  the remaining 49% equity interest and manage and lease the asset. The
  purchase price was $227 million, or approximately $775 per square
  foot. In connection with the acquisition, the joint venture completed
  a $138.2 million financing of the property. The four-year loan is
  interest only loan at LIBOR plus 215 basis points and has three
  one-year extension options.

Financial Results

Quarter Ended December 31, 2018

Net income attributable to common stockholders was $5.3 million, or
$0.02 per diluted share, for the quarter ended December 31, 2018,
compared to a net loss of $6.8 million, or $0.03 per diluted share, for
the quarter ended December 31, 2017.

Funds from Operations (“FFO”) attributable to common stockholders was
$56.3 million, or $0.24 per diluted share, for the quarter ended
December 31, 2018, compared to $48.1 million, or $0.20 per diluted
share, for the quarter ended December 31, 2017. FFO attributable to
common stockholders for the quarters ended December 31, 2018 and 2017
includes the impact of non-core items, which are listed in the table on
page 10. The aggregate of these items, net of amounts attributable to
noncontrolling interests, decreased FFO attributable to common
stockholders for the quarters ended December 31, 2018 and 2017 by $3.0
million and $3.5 million, or $0.01 and $0.02 per diluted share,
respectively.

Core FFO attributable to common stockholders, which excludes the impact
of the non-core items listed on page 10, was $59.3 million, or $0.25 per
diluted share, for the quarter ended December 31, 2018, compared to
$51.6 million, or $0.22 per diluted share, for the quarter ended
December 31, 2017.

Year Ended December 31, 2018

Net income attributable to common stockholders was $9.1 million, or
$0.04 per diluted share, for the year ended December 31, 2018, compared
to $86.4 million, or $0.37 per diluted share, for the year ended
December 31, 2017. Net income attributable to common stockholders for
the year ended December 31, 2018 includes $32.2 million, or $0.13 per
diluted share, of gain on sale of real estate, net of “sting” taxes and
$41.6 million, or $0.17 per diluted share, of real estate impairment
loss. Net income attributable to common stockholders for the year ended
December 31, 2017 includes $98.1 million, or $0.42 per diluted share, of
gain on sale of real estate.

FFO attributable to common stockholders was $224.5 million, or $0.94 per
diluted share, for the year ended December 31, 2018, compared to $205.6
million, or $0.87 per diluted share, for the year ended December 31,
2017. FFO attributable to common stockholders for the years ended
December 31, 2018 and 2017 includes the impact of non-core items, which
are listed in the table on page 10. The aggregate of these items, net of
amounts attributable to noncontrolling interests, decreased FFO
attributable to common stockholders for the years ended December 31,
2018 and 2017 by $5.4 million and $4.5 million, respectively, or $0.02
per diluted share.

Core FFO attributable to common stockholders, which excludes the impact
of the non-core items listed on page 10, was $229.9 million, or $0.96
per diluted share, for the year ended December 31, 2018, compared to
$210.1 million, or $0.89 per diluted share, for the year ended December
31, 2017.

Portfolio Operations

Quarter Ended December 31, 2018

Same Store Cash NOI increased by $10.5 million, or 13.4%, to $89.3
million for the quarter ended December 31, 2018 from $78.8 million for
the quarter ended December 31, 2017. Same Store NOI increased by $11.6
million, or 12.8%, to $102.8 million for the quarter ended December 31,
2018 from $91.2 million for the quarter ended December 31, 2017.

During the quarter ended December 31, 2018, the Company leased 213,269
square feet, of which the Company’s share was 143,622 square feet that
was leased at a weighted average initial rent of $93.40 per square foot.
This leasing activity, offset by lease expirations in the quarter,
caused leased occupancy and same store leased occupancy (properties
owned by the Company in both reporting periods) to remain at 96.4%
leased at December 31, 2018, in-line with the leased occupancy and same
store leased occupancy at September 30, 2018. Of the 213,269 square feet
leased in the fourth quarter, 118,752 square feet represented second
generation space (space that had been vacant for less than twelve
months) for which the Company achieved a positive mark-to-market of 2.9%
on a cash basis and 11.0% on a GAAP basis. The weighted average lease
term for leases signed during the fourth quarter was 3.3 years and
weighted average tenant improvements and leasing commissions on these
leases were $10.15 per square foot per annum, or 10.9% of initial rent.

Year Ended December 31, 2018

Same Store Cash NOI increased by $32.3 million, or 10.3%, to $347.7
million for the year ended December 31, 2018 from $315.4 million for the
year ended December 31, 2017. Same Store NOI increased by $34.0 million,
or 9.1%, to $408.7 million for the year ended December 31, 2018 from
$374.7 million for the year ended December 31, 2017.

During the year ended December 31, 2018, the Company leased 1,014,101
square feet, of which the Company’s share was 766,509 square feet that
was leased at a weighted average initial rent of $84.44 per square foot.
This leasing activity, partially offset by lease expirations in the
year, increased leased occupancy by 290 basis points to 96.4% at
December 31, 2018 from 93.5% at December 31, 2017. Same store leased
occupancy (properties owned by the Company in both reporting periods)
increased by 310 basis points to 96.4% at December 31, 2018 from 93.3%
at December 31, 2017. Of the 1,014,101 square feet leased in the year,
469,463 square feet represents second generation space (space that has
been vacant for less than twelve months) for which the Company achieved
a positive mark-to-market of 13.3% on a cash basis and 13.2% on a GAAP
basis. The weighted average lease term for leases signed during the year
was 9.1 years and weighted average tenant improvements and leasing
commissions on these leases were $9.77 per square foot per annum, or
11.6% of initial rent.

Guidance

The Company is providing Estimated Core FFO Guidance for the full year
of 2019, which is reconciled below to estimated net income attributable
to common stockholders per diluted share in accordance with GAAP. The
Company estimates that net income attributable to common stockholders to
be between $0.00 and $0.04 per diluted share. The estimated net income
attributable to common stockholders per diluted share is not a
projection and is being provided solely to satisfy the disclosure
requirements of the U.S. Securities and Exchange Commission.

The Company estimates 2019 Core FFO to be between $0.88 and $0.92 per
diluted share. The Estimated Core FFO of $0.90 per diluted share, at the
midpoint of the Company’s Guidance for 2019, when compared to Core FFO
of $0.96 per diluted share for 2018, assumes, among other items,
increases and decreases in the Company’s share of the following
components: (i) an increase in Same Store Cash NOI of 5.0% to 7.0%,
resulting in an incremental $0.08 per diluted share, offset by (ii) a
decrease in non-cash straight-line rent and amortization of above and
below-market lease revenue, net of $0.07 per diluted share, (iii) a
$0.03 per diluted share net decrease in Cash NOI from acquisition and
disposition activity, comprised of a $0.04 per diluted share reduction
from the disposition of 1899 Pennsylvania Avenue and 425 Eye Street in
2018, partially offset by $0.01 from the acquisition of a 49% joint
venture interest in 111 Sutter Street in February 2019, (iv) a decrease
in lease termination income of $0.01 per diluted share, (v) an increase
in interest and debt expense of $0.03 per diluted share, including $0.01
per diluted share resulting from new debt in connection with the
acquisition of 111 Sutter Street, and (vi) an increase in general and
administrative expenses of $0.02 per diluted share resulting solely from
the inability to capitalize internal leasing costs due to a change in
the accounting rules for such costs. In addition, the Company expects to
realize a $0.02 per diluted share benefit due to a lower number of
shares and units outstanding, resulting from the 7.5 million shares that
were repurchased in 2018.

Except as described above, these estimates reflect management’s view of
current and future market conditions, including assumptions with respect
to rental rates, occupancy levels and the earnings impact of the events
referenced in this release and otherwise to be referenced during the
conference call referred to on page 7. These estimates do not include
the impact on operating results from possible future property
acquisitions or dispositions, capital markets activity or realized and
unrealized gains or losses on real estate fund investments. The
estimates set forth above may be subject to fluctuations as a result of
several factors, including the straight-lining of rental income and the
amortization of above and below-market leases. There can be no assurance
that the Company’s actual results will not differ materially from the
estimates set forth above.

Forward-Looking Statements

This press release contains 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 the Company’s control
and could materially affect actual results, performance or achievements.
These factors include, without limitation, the ability to enter into new
leases or renew leases on favorable terms, dependence on tenants’
financial condition, the uncertainties of real estate development,
acquisition and disposition activity, the ability to effectively
integrate acquisitions, the costs and availability of financing, the
ability of our joint venture partners to satisfy their obligations, the
effects of local, national and international economic and market
conditions, the effects of acquisitions, dispositions and possible
impairment charges on our operating results, regulatory changes,
including changes to tax laws and regulations, and other risks and
uncertainties detailed from time to time in the Company’s filings with
the U.S. Securities and Exchange Commission. The Company does not
undertake a duty to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

FFO is a supplemental measure of our performance. We present FFO in
accordance with the definition adopted by the National Association of
Real Estate Investment Trusts (“Nareit”). Nareit defines FFO as 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. FFO is
commonly used in the real estate industry to assist investors and
analysts in comparing results of real estate companies because it
excludes the effect of real estate depreciation and amortization and net
gains on sales, which are based on historical costs and implicitly
assume that the value of real estate diminishes predictably over time,
rather than fluctuating based on existing market conditions. In
addition, we present Core FFO as an alternative measure of our operating
performance, which adjusts FFO for certain other items that we believe
enhance the comparability of our FFO across periods. Core FFO, when
applicable, excludes the impact of certain items, including, transaction
related costs, realized and unrealized gains or losses on real estate
fund investments, unrealized gains or losses on interest rate swaps,
severance costs and gains or losses on early extinguishment of debt, in
order to reflect the Core FFO of our real estate portfolio and
operations. In future periods, we may also exclude other items from Core
FFO that we believe may help investors compare our results.

FFO and Core FFO are presented as supplemental financial measures and do
not fully represent our operating performance. Other REITs may use
different methodologies for calculating FFO and Core FFO or use other
definitions of FFO and Core FFO and, accordingly, our presentation of
these measures may not be comparable to other real estate companies.
Neither FFO nor Core FFO is intended to be a measure of cash flow or
liquidity. Please refer to our financial statements, prepared in
accordance with GAAP, for purposes of evaluating our financial
condition, results of operations and cash flows.

NOI is used to measure the operating performance of our properties. NOI
consists of property-related revenue (which includes rental income,
tenant reimbursement income, lease termination income and certain other
income) less operating expenses (which includes building expenses such
as cleaning, security, repairs and maintenance, utilities, property
administration and real estate taxes). We also present Cash NOI which
deducts from NOI, straight-line rent adjustments and the amortization of
above and below-market leases, net, including our share of such
adjustments of unconsolidated joint ventures. In addition, we present
PGRE’s share of NOI and Cash NOI which represents our share of NOI and
Cash NOI of consolidated and unconsolidated joint ventures, based on our
percentage ownership in the underlying assets. We use NOI and Cash NOI
internally as performance measures and believe they provide useful
information to investors regarding our financial condition and results
of operations because they reflect only those income and expense items
that are incurred at property level.

Same Store NOI is used to measure the operating performance of
properties that were owned by us in a similar manner during both the
current period and prior reporting periods and represents Same Store NOI
from consolidated and unconsolidated joint ventures based on our
percentage ownership in the underlying assets. Same Store NOI also
excludes lease termination income, bad debt expense and certain other
items that may vary from period to period. We also present Same Store
Cash NOI, which excludes the effect of non-cash items such as the
straight-lining of rental revenue and the amortization of above and
below-market leases.

A reconciliation of each non-GAAP financial measure to the most directly
comparable GAAP financial measure can be found in this press release and
in our Supplemental Information for the quarter ended December 31, 2018,
which is available on our website.

Investor Conference Call and Webcast

The Company will host a conference call and audio webcast on Thursday,
February 14, 2019 at 10:00 a.m. Eastern Time (ET), during which
management will discuss the fourth quarter results and provide
commentary on business performance. A question and answer session with
analysts and investors will follow the prepared remarks.

The conference call can be accessed by dialing 877-407-0789 (domestic)
or 201-689-8562 (international). An audio replay of the conference call
will be available from 1:00 p.m. ET on February 14, 2019 through
February 21, 2019 and can be accessed by dialing 844-512-2921 (domestic)
or 412-317-6671 (international) and entering the passcode 13686702.

A live audio webcast of the conference call will be available through
the “Investors” section of the Company’s website, www.paramount-group.com.
A replay of the webcast will be archived on the Company’s website.

About Paramount Group, Inc.

Headquartered in New York City, Paramount
Group, Inc. 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 City, Washington, D.C. 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.

Contacts

Wilbur Paes
Executive Vice President, Chief Financial Officer
212-237-3122
[email protected]

Robert Simone
Director, Business Development & Investor Relations
212-237-3138
[email protected]

Media:
212-492-2285
[email protected]

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