Paramount Group, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group third quarter 2020 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, October 29, 2020. I will now turn the call over to Rob Simone, Director of Business Development and Investor Relations.

Thank you, Operator, and good morning. By now, everyone should have access to our third quarter 2020 earnings release and the supplemental information. Both can be found under the heading financial information quarterly results in the investor section of the Paramount website at www.paramount-group.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, including, without limitation, the negative impact of the coronavirus COVID-19 on the U.S. regional and global economies and our tenants' financial condition and results of operation. 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 conditions. 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. Reconciliation of these measures to the most directly comparable gap measure is available in our third quarter 2020 earnings release and our supplemental information. Hosting the call today, we have Albert Baylor, Chairman, Chief Executive Officer, and President of the company, Wilbur Pace, Executive Vice President, Chief Financial Officer, and Treasurer, and Peter Brindley, Executive Vice President, Leasing. Management will provide some opening remarks, and we will then open the call to questions. With that, I'll turn the call over to Albert.

Thank you, Rob, and thank you everyone for joining this morning. We hope that everyone is staying safe and healthy. We at Paramount are back in the office in accordance with the city and state guidelines. I'm very proud of my team's resilience and commitment to Paramount. Core FFO for the third quarter was 22 cents per share and was once again impacted by straight line write-offs in the quarter. Notwithstanding this, our core FFO results were roughly in line with consensus among our analysts. Since the onset of the pandemic and the uncertain outlook, our results are demonstrating the strengths of our assets and their resiliency during this crisis. We continue to benefit from having a high-quality portfolio of trophy assets with a blue-chip tenant roster and very limited exposure to retail. Our collections have remained solid and consistent and have not materially changed from our pre-COVID levels. In fact, portfolio-wide rent receipts were 97.5% in the third quarter up 110 basis points from 96.4% in the second quarter. Wilbur will cover this and our financial results in greater detail. Our most important initiative during the quarter was to continue to engage with our tenants who remained focused on their return to work initiatives and the reintegration of their workforce. We now have several months of experience operating in this environment. The feedback from tenants thus far has been extremely positive. From our vantage point, individuals who arrive to our buildings are feeling safe and secure in a healthy environment. We will continue to execute and advance our health measures to keep up with the science in an effort to ensure that we are holding ourselves to the highest standards of workplace safety and comfort. That being said, While several tenants are continuing to gradually return to their offices, the vast majority of them are planning for an early 2021 return. We will continue to keep you updated on what we are seeing in the field. On the leasing front, we remain laser-focused on our available space. As highlighted previously, this is primarily comprised of the 500,000 square feet Barclays block at 13016 Avenue and the 130,000 square foot block at 31 West 52nd Street. Peter will provide additional details on what we are seeing in the market. This quarter, as was the case last quarter, most of the activity was once again driven by renewals. Tenants in general remain cautious, waiting for better clarity surrounding the current environment before making longer-term decisions with respect to their space needs. Most of the renewal discussions are for terms ranging from one to three years, and that trend is evident in our own leasing results this quarter. We ended the quarter with leased occupancy of 95.6% on a same store basis. Notwithstanding the current leasing environment, We have an amazing success story at 712 5th Avenue. We have signed a long-term 16-year lease with iconic luxury jeweler Harry Winston. Let me provide some background. Harry Winston currently leases about 19,000 square feet at 718 5th Avenue, which is a retail property that we manage. Our 50% joint venture partner at 712 5th Avenue also owns 50% of 718 5th Avenue and the remaining 50% is owned by a third party. As part of the transaction, we essentially demised a portion of the 712 space that is immediately adjacent to the 718 space and opened the walls between those two spaces, thereby combining the two spaces into one fully integrated and seamless space. This innovative combination of the two spaces provides Harry Winston with approximately 37,000 square feet of prime retail space at arguably the most desirable corridors on 5th Avenue. This unique deal involved multiple stakeholders, and to say it was complicated would be an understatement. There was no leasing broker involved in this deal, and it was conceived and executed by a few senior executives at Paramount. Executing a transaction of this prominence in the current environment reflects the creative efforts of both the Paramount and Harry Winston teams, and we are delighted to welcome Harry Winston to 712 Fifth Avenue. The result of the Harry Winston expansion We have now leased 23% of the available retail space at 712 5th Avenue for essentially over 80% of the previously fully escalated rent of the prior tenant. The 16-year lease provides for a weighted average initial rent of $437 per square foot. Much like we did here at 712 5th Avenue and On numerous occasions in the past, I'm confident that we will achieve great success leasing our current availabilities at 13016 Avenue and 31 West 52nd Street. We pride ourselves on being creative in our thinking and unrelenting in our pursuit. Turning to the transaction market, volume remains very low and bid-offer spreads remain wide. The market remains in a period of price discovery. Opportunistic buyers are looking for bargains, but sellers aren't reducing their asking prices. The cost of debt capital is at historically low levels, and with liquid debt markets, would-be sellers are opting to refinance instead. How this plays out and for how long is unknown and will depend on how the global economy emerges from this current crisis. It is our view that core assets that are well leased with a blue-chip tenant roster and longer-weighted average lease terms will do a lot better in this market than transitional assets that require buyers to assume lease-up risk and add incremental capital. As you know, in early March, we entered into an agreement to sell our last remaining asset in Washington, D.C., 1899 Pennsylvania Avenue, for $115 million. As previously announced, the transaction is scheduled to close during the fourth quarter. We continue to work towards completing the transaction in that timeframe. During the third quarter and into October, we opportunistically repurchased close to 3 million shares at a weighted average price of $6.77 per share, or $20 million in the aggregate. Wilbur will give details. Of course, our number one priority is reintegrating current tenants in a safe and healthy manner. We continue to be incredibly creative and innovative as we focus on extending lease expirations and continue to engage with prospective tenants. We are focused on ensuring we maintain sufficient liquidity, which amounted to $1.3 billion at the end of the quarter, and we remain well capitalized and positioned for the long term. With that, I will turn the call to Peter.

Thanks, Albert, and good morning, everyone. During the third quarter, we leased more than 104,000 square feet at a weighted average starting rent of $73.48, which rent figure excludes the previously mentioned new lease we completed with Harry Winston for approximately 18,000 square feet at 712 Fifth Avenue. The majority of our third quarter activity was renewal-based and served to further reduce lease roll in 2020 and 2021. At quarter end, we were 95.6% leased on the same store basis, down 10 basis points quarter over quarter. Our New York and San Francisco portfolio now has a modest 46,000 square feet expiring at share over the remainder of the year. Looking ahead to 2021, we remain laser focused on the lease up of our two largest expirations, which include the Barclays space at 1301 Avenue of the Americas and TD Bank space at 31 West 52nd Street, which together comprise 629,000 square feet or approximately 67% of our 2021 lease expirations. Beyond that, our lease role is manageable with approximately 8% expiring per annum on a square footage basis between 2022 and 2024, the direct result of our ongoing strategy to pre-lease space and de-risk future lease role. While these two blocks of space remain among our top priorities in the near term, it has become increasingly apparent that manageable lease role and a portfolio comprised of best-in-class credit tenants will serve us well as we work through these difficult times. Turning to our markets. In Midtown, third quarter leasing activity of 2 million square feet, excluding renewals, was 51% below the five-year quarterly average and down 33% year-over-year, according to CBRE. Renewals of approximately 1.1 million square feet were executed during the quarter, accounting for a disproportionately high percentage of total leasing velocity, consistent with our overall portfolio. The leasing mix typically shifts toward renewals during any downturn, and as expected, tenants have largely chosen to take a wait-and-see approach toward relocating, expanding, or making significant investments in new and longer-term space commitments. With that being said, the number of new space inquiries and in-person tours has increased over the past several months. In fact, the virtual tours we gave during the second quarter have, in many instances, led to both subsequent in-person tours and negotiations which are currently underway. Our New York portfolio is 95.1 percent leased on a same-store basis, down 20 basis points quarter over quarter. During the third quarter, we leased approximately 52,000 square feet including 18,000 square feet to Harry Winston. This lease transaction was extraordinary due not only to the pandemic, but also to the intricacy of the deal itself, which required the coordination of multiple stakeholders and the expertise of numerous disciplines within each organization. We are proud to include Harry Winston as a tenant at 712 Fifth Avenue. As we have stated previously, 1301 Avenue of the America remains our primary focus as we market the Barclays block of space. Our offering is even more compelling in today's environment given certain attributes such as walkability to major transit hubs and our ability to create a private welcome center that affords not only an enormous branding opportunity on the corner of 52nd Street and 6th Avenue, but also a way for a large tenant to control both access and the overall experience for their employees and guests. Additionally, we are marketing the TD Bank space at 31 West 52nd Street, a trophy property that appeals to the most discerning of tenants. We continue to actively present both buildings through virtual presentations and in-person tours and look forward to updating you on our progress. Turning now to San Francisco. San Francisco realized limited leasing activity during the third quarter, contributing to a 270 basis point quarter over quarter increase in total vacancy as per JLL. Similar to what we are experiencing in New York, tenants have focused on renewal transactions, particularly short-term and length, and have largely taken a wait-and-see approach toward relocation, expansions, and longer-term space commitments. Despite this pause in the market, we remain long-term believers in the resiliency of the San Francisco market. Unlike prior cycles, the San Francisco market is anchored by mature, large-cap tech, financial services, and the life sciences firms, all of which will lead the way out of the recession. On another positive note, the mayor's office recently announced that non-essential offices would begin to reopen on October 27th. As we have seen in New York, increased physical occupancy results in increased new leasing activity. Our San Francisco portfolio is 96.8% leased on a same-store basis, down 10 basis points quarter over quarter. During the third quarter, we leased approximately 52,000 square feet at a weighted average term of 5.2 years, with initial rents averaging $75 per square foot. The San Francisco portfolio also has limited near-term role, resulting in a portfolio well-positioned to manage through the pandemic. With that summary, I will turn the call over to Wilbur, who will discuss the financial results.

Thanks, Peter. Yesterday, we reported core FFO of $0.22 per share, which was $0.01 below consensus. The current quarter's core FFO included non-cash write-offs of straight line rent balances aggregating $0.05 per share and $0.01 per share of free income from the Harry Winston lease. These items had a net negative impact to Core FFO of $0.04 per share. Excluding these items, Core FFO would have been $0.26 per share. As expected, our same-store results for the third quarter were once again negatively impacted by the pandemic, and more specifically by our election not to utilize the relief provisions provided by GAAP as it relates to lease modifications. As I highlighted in my prepared remarks last quarter, we are essentially recording revenue from tenants whose rents have been deferred or abated on a cash basis. We believe our approach is certainly more conservative and one that better represents the true cash NOI generated by the business in the current period. This was the primary driver in our same-store cash NOI growth being negative 1.8%. As Albert highlighted earlier, our portfolio-wide collections during the third quarter continue to remain solid at 97.5%, and office collections have improved to 99% while collections from non-office tenants had deteriorated slightly to just over 50%. As a reminder, our collection percentages are reported before any COVID-related lease modifications, unlike some of our peers who report this metric taking into account COVID-related modifications. In the quarter, we executed 10 leases covering 104,000 square feet at mark-to-markets of 3.6% on a cash basis and 9.5% on a gap basis. Mark-to-markets in New York were negative 2.4 cash and negative 3% gap. Mark-to-markets in San Francisco continued to be solid at 11.1% cash and 27% gap. Turning to our balance sheet, we ended the quarter with over $1.3 billion in liquidity comprised of over $530 million of cash and restricted cash and $800 million of capacity under our revolving credit facility. In the third quarter and into October, we repurchased 2.9 million shares at a weighted average price of $6.77 per share, or $20 million in the aggregate. Our outstanding debt at quarter end was $3.83 billion, and includes $200 million that was borrowed under our revolver. Other than the borrowings under our revolver, all of our debt is secured and non-recourse. This debt has a weighted average interest rate of 3.1% and a weighted average maturity of five years. 83% of our debt is fixed and has a weighted average interest rate of 3.4%. The remaining 17% is floating and has a weighted average interest rate of 2%. We have no debt maturing until the fourth quarter of 2021, and beyond that, our maturities are well laddered. With that, operator, please open the lines for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Vikram Malhotra with Morgan Stanley. Please go ahead.

Thanks for taking the question. My first question really pertains to the new retail lease, high-end lease that I did. Congrats on getting that done. I know it's a very, very difficult environment, actually, in the background. Could you maybe give us a little bit more color on the metric? Maybe number one, what this implies for rental values at grade, and any color you can give us on free rent providers.

Our next question comes from Blaine Heck with Wells Fargo.

Great. Thanks. Good morning. So clearly, I think the biggest question and focus for you guys continues to be the Barclays backfill at 1301. And I appreciate all the commentary on that and the prepared remarks. But can you give a little more color on how much current activity you guys have there, whether you've seen any noticeable change in interest, either positive or negative at that space since last quarter? And again, maybe just discuss your level of willingness to be flexible on rent or concessions in order to get a lease signed and a tenant in there.

And it looks like Blaine cannot hear us. Operator?

The line is live.

Can you hear us?

Hey, I got you guys now. Can you hear me? Yes, we can hear you.

Blaine, we were in a discussion with Vikram. Maybe... We can go back to that operator and then we catch up with you, Blaine.

Sure.

Yeah, that's fine.

Sorry. Vikram, are you back?

Vikram, your line is live.

Can you hear me? Vikram, are you back on?

I am back. Can you hear me?

Yes, we can hear you now, but I think the line was disrupted and we had another call in from Blaine. Did you hear what I said?

I did not. Your voice didn't come through.

Okay, let me start again. First of all, tremendous achievement, as I said in my prepared remarks of the teams, the Harry Winston, but especially also the Paramount team in putting this together. It was not only a lease deal that was done without a broker. It was very complex with three different ownerships and construction that had to be solved and resolved between the ownerships. So to your question, it is about 23% of available space of the retail space that got covered by this lease. If you look at the – if you visually look at the asset, the retail space consists of three townhouses, and it's the townhouse to the far right, if you're standing in front of the asset instead of the building, that is connected to 718. So it's the smallest space of the entire opportunity for the future, and it is about – It has about 17 to 18 feet of frontage, and as I said, about 23, 24% of the entire space.

Okay, thanks. And just to clarify, so what does this imply for rent levels at grade, and can you give us any color on how much free rent was provided?

Well, it's... It's a complex, there are a couple of floors, in total four floors plus basement space. And we reported that it's $437 per square foot on average. And that's basically the figure that covers the entire space that was taken.

And maybe just to add, Vikram, I mean, when you look at the entire space, at grade and frontage is 9,100 square feet. And what this lease did is give up effectively 1,800 square feet at grade. So that's less than 20% of your available space at grade that was done. So it leaves you with a vast majority of the space at grade that's left to lease. So as Albert said, this is a tremendous outcome when you take the rent and you average it out across the floors. We don't want to get into specific figures at what's on grade and what's on the other floors, but that should give you a lot of color to imply, you know, what rents could have been.

Got it. Okay. And can you give us a sense of maybe versus pre-COVID how the free rent period may have changed?

I would think this is pretty much a pre-COVID kind of execution. I think the figures... You know that the retail markets in New York were suffering already before COVID hit, and it's a very, very strong execution.

Got it. Great. Well, thanks so much for going back and answering my questions.

Sure. You're welcome, Vikram.

Back to Blaine Heck with Wells Fargo. Lane.

Hey, sorry. Can you hear me now? Yes. Okay, great. So I'm not sure if you guys heard my question, but just real quickly, it was on 1301. I appreciate all the commentary and the prepared remarks, but maybe if you guys can give a little bit more color, whether you're seeing any noticeable change in interest, either positive or negative since last quarter, And then, again, maybe just discuss your flexibility on rent and concessions in order to get a lease signed and a tenant in there.

Yeah. Really, since last quarter, nothing much has changed. You might recall that initially we had... planned on leasing some of the square footage in 2020, even before the lease with Barclays would expire. I took that goal off when COVID hit because of all the impacts that ensued it. So the activity has been pretty much the same. Actually, it sparked up a little bit by end August and Peter is doing virtual tours, but the impact on rent hasn't been significant compared to last quarter. So we are confident that we get a lease done. It might take longer for sure because tenants are not really in a rush to make decisions because they want to see how the pandemic really plays out, and I think that's understandable, and that's the situation at 1301.

Okay, that's helpful. Albert, you mentioned in your prepared remarks that most of the leasing in the market is for renewals for one to three years, and maybe this is more for Peter, but I'm wondering how those are treated. Are they treated as extensions and the terms are essentially unchanged, or Are you guys actually negotiating new rents and maybe even concessions as part of those deals, even though they're much shorter than usual?

Yeah, it's very much the same. It reminds me of 2008, 2009 when tenants, some of them intended to potentially take more square footage or move into another building. They delayed all those kind of decisions and We're looking just for an extension to see how the business environment would develop over the next 12 to 24 months, and that's the same situation here. So we are normally not giving concessions and just extending the lease the way it is.

And, Blaine, you can see that in our statistics. If you look at the leasing activity and the statistics that we put out this quarter, I mean, TIs and leasing commissioners, per square foot per annum were less than 50 cents. So, you know, as a percentage of initial rent, that was right around half a percent. So that's not necessarily a market kind of deal, but in instances where we're pushing out near-term lease expiration short-term, you're not getting a big pop necessarily in rent, but you're saving tremendously on the concession side.

Right. So, Blaine, you're granting them flexibility of short-term, and as a result, you have greater pricing power in exchange. So that's generally what we have seen, as you've now heard, which are fewer concessions and generally holding firm on the rents.

Great, that's helpful. Last question for me, Wilbur. We appreciate your conservative approach to cash same-store NOI and excluding the revenue from deferred rent, but given that most of your competitors are booking that rent within the quarter as they expect to recover it in a short amount of time, I was wondering if you guys had calculated it that way for maybe a little bit more of an apples-to-apples comparison with your peers.

Sure, Brandon. I appreciate it. So I think just to be clear, you're referring to the same-store cash and oil growth this quarter, which was negative 1.8%. That's right. And we treated that the way some of our peers are doing it. and reported that in cash and OI, that negative 1.8% would be a positive 2.5%. So there's a 430 basis point swing effectively impacting our results.

Great. Very helpful. Thanks, guys. Thank you. Bye-bye.

Next question comes from Jamie Feldman with Bank of America. Merrill Lynch, please go ahead.

Thank you. Congratulations on getting the the Winston deal done. I guess as we think about that space, now that that lease is done, were there other tenants that were looking at the space also that kind of needed to see how that played out that you're still talking to, or you have to go out and kind of beat the trees again?

Well, you have activities on that other space, which it's a large, unusually large space for 5th Avenue, and at that rent level's There are not that many tenants around. Peter and his team have been pursuing a current of different options, and we are still pursuing those. So I'm very, very satisfied with this outcome because it's very unusual to find a tenant like Henry Bendel, previously who took over 80,000 square feet in one space. And I think the way it's laid out now, it is very attractive for a potential one or two other tenants in that same category or similar category.

Yeah, Jamie, based on the space that Harry Winston took, we've effectively left ourselves with a very regular-shaped retail space that I think gives us enormous flexibility in terms of who we ultimately appeal to. So if you look at the space that Harry Winston took, I think we're left with, what is a very attractive and marketable piece of space and so we of course didn't reveal our negotiation to any other prospective tenant but we are thinking about the requirements that we're now discussing and thinking about how we can piece it together in a sensible way with what we're left with by way of the balance of the space so how does the remaining space break out by like square footage by floor or is it all did you say first floor or street level The ground floor equated to... Harry Winston has leased what equates to approximately 20% of the ground floor space.

And then... No, I was just going to say, you have basically 7,300 square feet at grade that's left over.

And nothing on other floors. It's just a grade?

No, no, no. It's on other floors, too. Basically, you have to look at this townhouse. There's four floors, and it has a basement. So you have... another 60,000 square feet to lease or to occupy. And you can be flexible whether the top floors are office space connected to the retail. And so it gives a lot of optionality to the use. And I think with some of these modern schemes, and lifestyle luxury tenants, I think that in that prime location on 56th and 5th, there's opportunity. But I don't want to rush into saying this lease is going to be done or the rest of the space is going to be leased within the next 6 or 12 months. We have to see how this market plays out. As you know, retail traffic is down across the board. So But this first step is a tremendous step in the right direction.

Absolutely. So you said 7,000 a grade. Then how much is in the basement and then how much is on the upper floors that's left?

We can get you that detail offline. I don't think we want to bog down the call with going floor by floor as to what's on grade and what's on basement and what's on the first floor. But suffice it to say, this is an 80,000 square foot block of space. We leased 18,000 square feet. You're left with the remaining 61, 62,000 square feet. 12% of that is on grade. And we can take the rest offline and give you those details.

Got it. Okay. And then can you talk about the marketing plan for the TD space I know you've spent a lot of time on Barclays.

Sure. You know, the space comes back in April of next year. The building shows beautifully. We have lit up, if you will, all of these floors, and we have virtual tours that we have been sharing with tenants, which have, as I've said previously, served as a precursor to in-person tours. We have some good activity, all things considered, on these floors currently. In some cases, we are trading paper, and so... Our approach is no different than that of what you have seen from Paramount as it pertains to all the large blocks of space we've leased up previously. We're getting in front of every requirement in the market and with the brokerage community, as you would expect. And our material, I think, reflects the opportunity really very nicely. So whether it's an in-person tour or my team is conducting it virtually, we think we have been highly effective in sharing this unique opportunity with the market.

Okay, and then how would you characterize the pipeline or the interest?

You know, I would say that, you know, new leasing activity, as you have seen, is down, but I would say generally, as it relates to this building, this is one of our more active properties. I would say in the last two weeks, we've had four or five in-person tours, which I would categorize as very strong.

Okay, great. And then... I guess just thinking about capital needs, I know you guys have good liquidity, but with some of these expirations coming and then some of the capex you have to put in, can you just talk about maybe over the next 12 months or so how you think about your capital needs versus your current liquidity?

Sure. I mean, again, we spent an enormous amount of time going through our capital plan in 2020 in our effort to preserve liquidity. When we look forward to 2021, we're going through that process as we speak. We consistently update that. We are very, very mindful of the upcoming lease expirations that are known move-outs. which equate to 630,000 square feet between Barclays and TD Bank. And, you know, we'll continue to look at that as we move into 2021. Obviously, we have an asset under sale in the market that will serve us with additional liquidity. And so, you know, that's basically the way we're approaching liquidity needs going into 2021.

Okay. You can't give more granular numbers? I guess I'm thinking about the CapEx needs that you'll have with these big spaces.

The CapEx needs is going to be largely at whatever TI. It's going to be a function of the TIs you're giving to the tenants to lease up that space, right? So we don't believe any of these spaces that are coming due and that we have to lease up is away from market TI, if you will. The question is, The market is in a price discovery for what concessions mean today. Concessions are elevated. We expect that to remain elevated. But even if you were doing a market deal and you say concessions are up 10%, you know, you can figure out that math as to where we think concessions lie. Now, again, that's also assuming you lease up all of the 630,000 square feet in 2021, right? So the answer is very complicated because it depends on how much of that you tackle in 2021 and how much TIs that you give in connection with those deals, but it is not going to be an above-market TI. There's not a lot of... There's not a lot of landlord work that we need to do to those spaces that would cause the capital needs to be in excess of what we otherwise would have incurred.

Jamie, both assets have been extensively renovated, the lobbies and elevator, over the last couple of years. We take great pride in keeping our assets in first-class condition. condition as you have seen I think witnessed from the couple of tours we had over the last couple of years so I think we are in a good position and I think after the pandemic the pendulum might be swinging more towards location and not necessarily towards the latest and greatest of an asset to be developed or new buildings I think it will be more important where is the building located how it can be accessed by employees and visitors. And I think our assets being close to major traffic accesses and being in Midtown, around sixths and fifths will have an advantage. We see that already with the tours of potential tenants.

Okay, that's helpful. And then last for me, how do you think about your dividend coverage? Assuming, I guess, you don't get these leased up next year, what do you think your dividend coverage would look like?

I think we don't want to be, you know, we are not giving guidance at this point. I think it's too early. And, Jamie, I hope you appreciate that, that we don't want to go into that question at this point.

Okay. All right. Thank you.

Thank you, Jamie.

Our next question comes from Steve Sakawa with Evercore. Please go ahead.

Thanks, Albert. I was hoping you could talk a little bit about just the capital allocation, the buyback program, how you're thinking about additional asset sales in today's market, given where the stock is currently trading.

Yes, Steve. Thank you. We have been in the market this year. We sold 10% of 1633 at a tremendous price per square foot. And we will not sell anything at squeezed pricing or heavily diluted asset pricing. We know that these assets are in tremendously strong shape and good position. So we have been saying in the past that we we would be considering selling an asset or parts of an asset if we have developed our lease-up story. And so it looks like, as I mentioned in my prepared remarks, like core assets are where investors want to be. And it's too early to say whether we are pursuing anything at this point, but I believe I think that investors, I can see that from other markets that we are watching, in Europe especially, investors are really focused on core and long-term stability and decent returns. So we are clearly pursuing it, but I can't give you any kind of specifics with regard to timing and size of potential returns. asset sales or joint venture partnership sales. You have seen that we used the buyback, the approved buyback program. We currently have another $80 million. So far, we bought $320 million worth of shares back, and we have $80 million available. And as we said before, we want to buy back shares we want to buy back shares on an opportunistic level, but leverage neutral.

Well, Ray, I guess just to follow up and maybe sort of to speak into Jamie's question, the leverage on at least the net debt EBITDA today is high and likely to go higher with some of these leases burning off with Barclays and TD. So at least short term, that leverage number is going to go higher. So I'm just trying to get a sense for you know, how willing you are to spend the balance of the 80 on the buyback or, you know, re-up the program, you know, if you're, you know, not more aggressive on asset sales.

Yeah, I think we would look at this opportunistically. Steve, it's too early to say. We are watching the leverage levels. We are clearly careful about that. And it's... It's really too early to say. So we want to do this strategically, but we understand what you're asking about.

And, Steve, the only thing I'd add is, I mean, you quoted leverage on a net debt to EBITDA level, and obviously there's different ways to look at leverage. You know, we're a Class A trophy portfolio owner-operator. If you look at our leverage from a loan-to-value perspective, I mean, we're in the low 40s in the worst-case scenario. So, you know, the net debt to EBITDA metric obviously will – it will – increase given the near-term lease expiration that you're seeing in 2021. Having said that, as Albert said, you know, we will look to buy shares opportunistically. Largely everything that we have executed thus far has been on a leverage neutral basis. We have bought back 320 at an implied price per foot of call it $625, $630 a foot, and we're selling assets largely north of that. We believe our capital allocation strategy is sound while being very mindful of leverage.

Okay. And then just last question, Peter, maybe just comparing contrast, you know, San Francisco, New York, I realized San Francisco has been really locked down much longer than New York has. And it seems like the city's just beginning to allow, you know, some workers to come back, but you know, how much, uh, I guess I'm trying to really figure out is, you know, when does the San Francisco pipeline begin to kind of build? And if companies are still allowing employees to work until the middle of next year, does that just kind of keep San Francisco, you know, much more behind other markets in the short term?

Yeah, Steve, I think, look, San Francisco was set back relative to New York. As you know, mid-July, the mayor of San Francisco announced an indefinite pause to the original reopening plans and effectively closed all non-essential offices, which most recently effective October 27th was reversed and now non-essential offices allowed to reopen. But for that reason, I think San Francisco lags New York. And one of the things that we subscribe to entirely is that physical occupancy will generate new leasing activity. And when you think about the occupancy level in our portfolio here in New York relative to San Francisco, we are considerably ahead of San Francisco in that regard currently. So no question relative to New York, San Francisco is lagging. But I think the good news here is that earlier this week, non-essential offices was allowed to reopen. And in speaking with my colleagues in San Francisco and others, everybody is really very eager to get back to the office. So I suspect we'll see occupancy levels in our buildings in San Francisco start to increase quickly. But that's a critically important component to activating new leasing activity, which has been impacted as a result of this decision that was made back in mid-July. So I think the next several months will be very telling in terms of what lies ahead in 2021 for San Francisco.

Great. That's it for me. Thanks. Thanks, Steve.

Our next question comes from Daniel Ishmael with Green Street. Please go ahead.

Great, thank you. Can you tell us what you're seeing in terms of opportunities from your fund business, as well as refresh us on how industrial interest is in the fundraising aspect of that business?

Sure.

We think that the opportunities will get better with regard to investing. We have a mezzanine fund number 10 that is looking for opportunities And over the last couple of quarters, there were some opportunities, but it's really not as attractive as one would believe. The markets are extremely liquid, and there's a lot of capital that's looking for investments. And there's no obvious distress yet, I would say. because of where interest rates are. The long-term rates are very attractive and will stay most probably at those levels for quite some time with the support of the Fed that they want to keep the rates at relatively low levels. So we expect that the opportunities for the mass fund investment will get better in 2021. And we are looking at opportunities here. So we have dry powder available. On the fundraising side, we, of course, are a little bit inhibited by the difficulties traveling and seeing investors. But there is interest, especially for safe mezzanine debt opportunities as well as special situations. So it's getting better because the pension funds and some of these large investors have capital inflows and they have to make sure that it gets invested.

Great. Thank you. And then with the ballot measures in California being voted on next week, Just a two-part question. I guess, one, updated thoughts in terms of what it means for your portfolio. And then, two, as you think about capital allocation, if some of those measures would pass, particularly a few of the more business-unfriendly measures in San Francisco, does that change your thinking in terms of potential new acquisitions or dispositions between your New York and San Francisco portfolios?

Sure, Danny, again, one, on Prop 15 that you're referring to, obviously it's on the ballot for November. We're watching it closely like is everybody else in that market, and polling right now is split down the middle into whether that passes or not. Having said that, the impact to our portfolio is going to be the least relative to anybody else in that market, at least in the public sector for sure, because these assets were recently acquired, and a lot of the analysts have put out reports as to what they think that means. Now, when you look at it, The thing to remember is the fact that we have the ability to pass on whatever impact there is in resulting from that to our tenants. And so the net impact to PGRE or when you think about it from an earnings drag is going to be negligible. That said, in terms of the other part of your question with respect to appetite to investing in that market, look, we've transformed our strategy to be a bi-coastal REIT. has always been to invest opportunistically. There is no formula or program to say we want to be X invested in San Francisco and Y invested in New York. That's been the model, and we will continue to follow that path opportunistically. It does not deter us from making an investment decision at this point based on what we are seeing.

Great. Thanks, guys.

Once again, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Amateo Akusanya with Mizuho. Please go ahead.

Yes, good morning, everyone. Hope everyone's well. I just wanted to go back to the Harry Winston lease. Just kind of based on some of the information you gave us, our back of the envelope map seems to be suggesting that the lease on the grid-level retail space, or at least the rent per square foot, is better than the Bendell lease, but we're still kind of coming out with numbers that seem much lower than what you're kind of seeing the brokers quoting, what kind of street retail is in that part of Manhattan. So I'll be on the ball with that, and if so, why do we deal at much lower than kind of what the brokers are quoting as market rate?

No, I think you're wrong on that. Okay. The Henry Bendell lease... with about $100 or $106 to be precise per square foot on the entire space. And this is about 87% of what we have received for the entire space that Henry Vandell had. And as we had mentioned on this call, we can lease another 60,000 plus square feet and only leased so far 18,000 square feet on the ground floor, which is the most valuable by far, the most valuable part of the lease, we have even more. So it's about 24% of the ground floor that's currently leased to Harry Vinson. So 87% of the previous rent is already covered with this lease.

Yeah, Albert, I think maybe I misspoke. Versus the Bendell lease, the numbers look much better. I guess the question I have is versus what brokers are quoting as what market is for street retail versus what I get on my math as implied rent per square foot on the street retail that you just leased to Winston. It seems to be... Yeah, but you have to...

You have to combine it. This is not just street retail. It's on four floors, and a lot of that space is in the back of the property. So it's very hard. We are happy to address it in a separate call maybe with you to walk you through it in more detail. But it's a several-floor space, and the street retail is the smallest part.

I think what you'll find, Taya, what you'll find is that that is absolutely not true. The comment you are making with respect to what brokers are quoting in the market today for street retail relative to what you can imply that 1,800 square feet at this space was leased at, you will find that that is absolutely not true.

That's helpful. We'll take it offline, but I appreciate it.

Thank you. I would like to turn the floor over to Albert Baylor for closing comments.

Well, thank you very much for being here, and we're looking forward to the next call on our next meeting. Stay safe.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.