PGRE - NYSE

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Paramount Group Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, October 27, 2022. I will now turn the conference over to Tom Hennessy, Vice President of Business Development, and Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Before we begin, I would like to point everyone to our third quarter 2022 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 Web site 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 2022 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, Head of Real Estate. Management will provide some opening remarks, and we will then open the call for questions. With that, I will turn the call over to Albert.

Thank you, Tom, and thank you, everyone, for joining us this morning. We reported core FFO for the third quarter of $0.24 per share with slightly positive year-over-year same-store cash NOI growth. These results were in line with our expectations. And as a result, we are narrowing and maintaining the midpoint of our full-year 2022 core FFO guidance of $0.97 per share. Wilbur will review our financial results and guidance in greater detail. During the quarter, we leased about 290,000 square feet, bringing year-to-date leasing to over 740,000 square feet. This quarter's leasing was roughly 40,000 square feet more than our second quarter leasing and 90,000 square feet more than our first quarter leasing results. While our leasing volumes generally remain in line with historical norms, deals are taking longer to execute and, as such, we have reduced our full-year 2022 leasing guidance by 100,000 square feet at the midpoint. In conjunction therewith, we have also reduced our very ambitious same-store leased occupancy goal. These reductions are less a function of the activity in our pipeline, but more a reflection of our view on getting some of the deals executed before year-end. Notwithstanding, our portfolio remains well leased at 91.4% with modest role as we continue to lease up vacant space and de-risk future role. Our third quarter leasing was New York driven and was highlighted by the 142,000 square foot lease with O'Melveny and Myers at 1301 Sixth Avenue, where they will take over four floors currently occupied by Credit Agricole which was set to expire in February 2023. The Credit Agricole exploration was our largest expected role in 2023 and has now been de-risked by 47%. We welcome O'Melveny to 1301 Sixth Avenue and are proud of our continuous execution at 1301 Sixth Avenue, including leasing approximately 450,000 square feet of space at the property over the past 12 months to a diverse roster of industry-leading tenants. The New York portfolio continues to perform well and has accounted for almost 80% of our year-to-date leasing velocity. The increased activity is a strong indication of an acceleration of the workforce returning to the office in New York. Commuter rails such as the Long Island railroad and Metro North are recording peak ridership. A recent Wall Street Journal article highlighted that we just passed the highest rate of office use since the pandemic began in late March 2020. We see the return to office manifesting in our own portfolio post Labor Day as office utilization rates continued to climb. While we are still not where we were before the outbreak of COVID-19, we see these developments as very positive trend in restoring the vibrancy back to the New York office market. The San Francisco portfolio continues to lag New York, but both portfolios continue to benefit from a key advantage in each market, namely the flight to quality, while our San Francisco leasing volume is more muted compared to the volume of the New York portfolio, pricing of quality space in the market remains strong. The activity we see remains at strong rates with initial starting rent on the 35,000 square feet we leased at a robust $114 per square foot and increasing a modest 1.6% on second-generation space on a cash basis and over 14% on a GAAP basis. We believe our own leasing results demonstrate the prevalence of the flight to quality for office space in our markets as more tenants are returning to work. We expect to continue to benefit from this phenomenon as tenants are seeking well-operated, well-located, well-amenitized and environmentally conscious buildings for their employees. The discerning high-quality tenants, we look for when leasing know this and know that Paramount ticks every box in these categories. Turning to the transaction market, activity continues to remain muted. The macroeconomic backdrop and rising interest rates keep buyers at bay and sellers evaluating when conditions will improve. For our part, we have always maintained a disciplined approach with our capital and continued to monitor the markets carefully. To date, we opportunistically repurchased 6.5 million shares at a weighted average price of $6.41 per share or $41.7 million in the aggregate. As has been the case since the pandemic began, we continued to maintain sufficient liquidity, which amounts to about $1.3 billion at the end of the quarter. We have maintained a defensive posture since the onset of the pandemic with our portfolio of stable trophy assets and our proven ability to allocate capital, we have remain well positioned for the long term. With that, I will turn the call to Peter.

Thanks, Albert, and good morning. During the third quarter, we leased approximately 288,000 square feet for a weighted average lease term of 12.5 years. Our third quarter leasing activity was heavily weighted toward New York with approximately 254,000 square feet leased or 88% of this quarter's leasing total. Among the most significant transactions during the quarter was the previously mentioned 142,000 square foot lease with O'Melveney and Myers at 1301 Avenue of the Americas, which further exemplifies the appeal of the building as it continues to attract today's most discerning tenants. Our pipeline remains healthy as we continue to benefit from tenants pursuing best-in-class buildings in both New York and San Francisco. At quarter end, our same-store portfolio-wide leased occupancy rate at share was 91.4%, unchanged from last quarter and up 110 basis points year-over-year. As we look ahead, our remaining lease expirations are manageable with 0.2% at share expiring by year-end and approximately 6.8% at share expiring per annum through 2024. Turning to our markets, Midtown's third quarter leasing activity of approximately 4.6 million square feet, excluding renewals, was 4.5% above Midtown's pre-pandemic 5-year quarterly average and was the second highest quarterly leasing total since Q4 of 2019. The third quarter's leasing activity was led by large relocations. Tenant's ongoing desire to raise the bar and improve the quality of their real estate has resulted in the flight to quality trend that continues in New York. Financial services continued to drive the Midtown market contributing 46% of leasing activity during the third quarter, well in excess of the 32% share of occupancy the sector currently accounts for in Midtown. And Midtown posted yet another quarter of positive net absorption during the third quarter, marking the fourth time in the past five quarters that Midtown has realized positive quarterly net absorption. Despite Midtown's elevated availability rate, recent tour activity, especially with small to mid-sized tenants, and transaction volume for high-quality direct space in the market remains solid, particularly in well-located Class A buildings. Our New York portfolio was currently 92.1% leased on a same-store basis at share, up 10 basis points quarter-over-quarter and up 220 basis points year-over-year. During the third quarter, we leased more than 250,000 square feet at a weighted average term of 12.9 years. Our overall lease expiration profile in New York is manageable with 0.1% at share expiring by year-end and 6.4% at share expiring per annum through 2024. Turning now to San Francisco, leasing activity remains muted as the market continues to take a measured approach to returning to the office. Office utilization has increased since Labor Day, however, and is currently the highest it has been since 2019, which is an encouraging trend. Despite San Francisco's elevated availability rate, the market for San Francisco's premier assets remains tight and economics, particularly for view space and trophy assets, remains strong. Similar to New York, flight to quality is a movement that continues to gain momentum in San Francisco as employers use real estate as a lever to compel their employees to return to the office. At quarter end, our San Francisco portfolio was 89.3% leased on a same-store basis at share. During the third quarter, we leased approximately 35,000 square feet at a weighted average term of 7.3 years with initial rents of approximately $114 per square foot. Looking ahead, our overall lease expiration profile in San Francisco is manageable with 0.4% at share expiring by year-end and 7.8% at share expiring per annum through 2024. Our San Francisco portfolio is well positioned to manage through the current environment. With that summary, I will turn the call over to Wilbur, who will discuss the financial results.

Thank you, Peter. Yesterday, we reported core FFO of $0.24 per share, in line with consensus estimates and $0.01 higher than the prior year's third quarter. Same-store cash NOI grew by a modest 0.4%. Much like the first and second quarters, the growth in the third quarter was once again driven by our New York portfolio which grew by a very strong 6.2%, while the same-store growth in our San Francisco portfolio, as expected, decreased by 11%. GAAP same-store NOI growth was solid at 6.3% portfolio-wide, with New York increasing by a robust 10% and San Francisco decreasing by 0.4%. During the third quarter, we executed 12 leases covering 288,554 square feet of space at a weighted average starting rent of $82.76 per square foot and for a weighted average lease term of 12.5 years. Mark-to-markets on 204,178 square feet of second-generation space was positive 4.4% on a GAAP basis and negative 10.5% on a cash basis. Given our in-line third quarter financial results and our outlook for the remainder of the year, we are maintaining our financial guidance metrics at the midpoint. We continue to expect core FFO to be $0.97 per share at the midpoint and our expectation for same-store GAAP and cash NOI growth continues to be 4% and 2%, respectively, at the midpoint. Turning to our balance sheet, we ended the quarter with almost $1.3 billion in liquidity, comprised of $500 million of cash and restricted cash and the full $750 million of undrawn capacity under our revolving credit facility. Our maturities are well laddered, and our exposure to variable rate debt is limited. Our outstanding debt at quarter end was $3.67 billion at a weighted average interest rate of [technical difficulty] of 4.3 years. 87% of our debt is fixed and has a weighted average interest rate of 3.26%, and the remaining 13% is floating and has a weighted average interest rate of 5.39%. We have no debt maturing in 2022 and roughly 5% of our share of debt maturing in 2023. With that, operator, please open the lines for questions.

Thank you. [Operator Instructions] Our first question comes from Brian Spahn with Evercore ISI. Please go ahead.

Hey, good morning. So, Peter, with concessions have been elevated now for quite a while, I'm curious at what point do you think face rents really start to come down? Or what's the downside risk there just given vacancy in the market? And maybe in particular, San Francisco, do you think price is a lever you could use to attract more demand? Or are there just not enough tenants in the market today?

I don't feel a lot of downward pressure on our direct rents. Yes, concessions are elevated. They have been for some time. But our portfolio is well leased. We're well occupied. Our buildings are highly improved. And I wouldn't go so far as to say we have tremendous pricing power, but I don't see erosion on direct asking rents in our markets.

Got it, okay.

I would say the advantage of our -- and you can see that from the average rent per square foot that we lease in San Francisco that because of the quality of our assets, we get a fair share and we get pretty good pricing in the market. So, I think we are in a pretty good spot. And it's hard to say how the market develops over the long run. But I would say we are also trending to do more longer term leases, and then it's normal to also have more concessions. You have other peers of ours or other markets where they are tending to be more short-term leases. And of course, the concessions are smaller in those kind of markets.

Okay. I guess, Peter, just building on San Francisco. Maybe could you just talk about the demand outlook there and maybe in particular, the backfilling efforts for the Uber space that's coming back next year?

Sure, I'll start with the Uber space, Brian, which is 234,000 square feet coming back in July of 2023. And what I would say is that we have some real activity on that space. I can't say much more at this point, but we do have activity there. And I think fundamentally, we'd like to see tech companies even more demonstrative in the requirement that employees return to the office. We think utilization, while it's up in San Francisco; it's not where it should be. And we regard utilization as the fuel that will power our business going forward. So, of course, it's all sort of developing real time. It has increased since Labor Day. We're at approximately 50%, which is up considerably relative to last year. But we do need to see more progress in terms of tenants returning to the office before I think we see meaningful demand in San Francisco. That being said, trophy assets like One Market continued to perform. We added another terrific tenant to the portfolio in the most recent quarter. We continue to maintain real pricing power in that asset. But fundamentally, in San Francisco, we need the technology user, and I would say the same about New York to sort of embrace a return to the office in a more meaningful way.

Got it, thanks. And maybe just one last one for Wilbur, I realize you don't have a lot of debt maturing next year at 5%. But maybe could you just talk about your plans there to refinance and where you think you could issue. And then I believe you've got some swaps expiring on the debt at 1301 Ave over the next couple of years. So, could you just talk about plans in addressing that piece as well?

As you point out, Brian, in 2023, less than 5% of our stack of debt rolls in 2023. Two of those -- one piece of debt is on 60 Wall where we are 5% of an owner. That debt has an extension option which we are going to avail ourselves of. And as you know, 60 Wall is going into a redevelopment phase. And then you have 111 Sutter and 300 Mission JV assets that we own, where we have debt maturing. 111 Sutter also has an extension option that we will avail ourselves of and 300 Mission, which matures in the second half of 2023, and we'll watch and monitor the markets to see where pricing is. The good news for this debt that's maturing, all of the debt on these assets are very, very conservatively levered. So, we don't feel we face the risk of coming out of pocket on balance sheet to be able to pay down this debt as we see the markets today. As far as the second part of your question on the swaps, the swap you mentioned on 1301 doesn't come due until 2024. We're going to continue to monitor the markets to see how that develops. But relative to the rest of the office brethren in the industry, I think we are sitting quite at a good position with respect to our exposure to variable rate debt. I said this in our prepared remarks, to be specific, I think 12.8% of our debt is variable and the remaining is fixed. So, our exposure to the current interest rate environment is limited to say best. We have a good mix of fixed and variable.

Thanks very much.

Sure.

Next question comes from Derek Johnston with Deutsche Bank. Please go ahead.

Hi, everybody. Thank you. Can you clarify why in 3Q your leased occupancy is not matching the level of leasing velocity that was printed in the quarter? So was hoping you can provide some type of color on that divergence?

Sure, Derek. Let me -- maybe I'll go first and then -- this is Albert. We -- if you recall, we always are trying to do forward-looking leasing. So, we take these opportunities where they come. And some of the leasing that has been happening has been happening in years to come, so not for the current year. So, there are less occupancy increasing that, but they are definitely de-risking the future years. And leasing management is encouraged to lease whatever is available. And if a tenant -- and we have these discussions going on, sometimes quite early because we are having offices with larger office tenants and space and they normally plan a couple of years in advance. And it's quite normal that you have these things happening. It's a little difficult to plan, but that maybe gives you a little bit more color.

Okay. I don't know if Wilbur wanted to jump in there as well because…

Maybe if I add something to that, Derek, I think -- we had -- if you go back to our prepared remarks last quarter, we had sort of cautioned that the goal was a tall order. It was ambitious to get to, but we did not reduce the occupancy range because there was activity in the pipeline that we still felt could get done, but there was not sufficient visibility. So, we said we're going to wait for another quarter before we start to fine-tune those metrics, if you will. On point with respect to your question, why leasing velocity is not down necessarily the same as the lease occupancy is, as Albert tried to allude to, was getting prelease-base done. So, essentially, we did 142,000 square foot lease with O'Melveney. If that lease had gotten done on the existing vacant floors or Barclays former space, you would have not seen that pull back in lease occupancy, if you will. But it got done on the Credit Agricole space, which doesn't come due until February of 2023. So, we -- when we sit around what we're happy that it got done, whether it's the Barclays block or the credit Agricole block because that's near-term vacancy. But what you're not seeing is the immediate impact on occupancy. You will see that now in our lease expiration profile because, as you will have noticed, we reduced the lease expirations in 2023 by 142,000 square feet on that space because we de-risk that. So, we're just as happy taking that on the Credit Agricole block versus the Barclays block. Unfortunately, as far as the metrics goes, that's the way it falls out.

Okay, thank you. Actually, that's pretty helpful. I appreciate it. I guess one last one, more bigger picture, I guess. So, look, you guys have done a fair amount of leasing so far in 2022. On the new space, are you seeing any interesting trends regarding the build out? Anything that could be attributable to a post-COVID or perhaps a hybrid work environment, any de-densification that you're seeing in requirements, any more space perhaps dedicated to entertaining or anything notable that you could share with us?

Say, I think it's fluid in terms of how tenants are improving their space. I don't think there's a one-size-fits-all approach. I do think what's driving this flight to quality trend is tenant's desire to deliver an elevated experience to their employees. I do think de-densification has been in play for some time and that will carry forward. Tenants that have been active in this market care a lot about delivering an elevated experience, like I said. In terms of what that means, I think a lot of tenants are seeking flexibility. Some of these bigger deals have flexibility built in, because I don't think most tenants have calibrated fully in terms of what exactly they're going to deliver to their tenants. I do know they're all seeking ways to either create outdoor space, create more communal opportunities that allow for this critically important interaction that's needed in person. But in terms of there being sort of a one-size-fits-all, this is what and how tenants will improve space going forward. It's changing in real time, and every tenant has a different idea of what that looks like for their firm. But the idea of delivering a better experience to reflect who they are as a brand is in play. And you would almost go so far as to say there's a renewed interest in real estate as a result of all of it. And so far this year, specifically in New York, this market has been defined by large tenants relocating in order to execute on what I'm now describing. Going forward, I do think we'll see a lot of small to midsize tenants start to follow suit. And that's exactly what we're seeing real time in a lot of our buildings. That's not to say we don't have large tenants looking at the pace of 1301 because we do, but we're starting to see the small and midsized tenants start to contribute to total leasing activity, specifically here in New York.

I think what's helpful for us is that our portfolio is pretty well-amenitized and the beauty of Paramount's portfolio in New York as well as in San Francisco that we can offer all kinds of different sizes and spaces. Like I said before, each asset, each property is -- has its own character and has its own specifics. And Peter and his team play this very, very nicely. If a tenant wants to grow, one asset might be fully leased like a 1633 and we have other options to offer. And I think that in the future it will be more important that the [Net Guards] [ph] offering, security offering services and being much more service oriented than in the past, especially in New York, but also in San Francisco.

Thank you, guys.

Thank you.

Next question comes from Vikram Malhotra with Mizuho. Please go ahead.

Thanks so much for taking the question. So, maybe just Wilbur to start with you, there's a lot of, I guess, variability, as you mentioned, amongst your peers. Variable rate debt exposure, expirations, et cetera. Can you -- I know you'll give us guidance a quarter from now, but can you just help us with some of the -- maybe the bigger blocks that we should be thinking about as we focus on'23, including maybe the interest expense trajectory?

Sure. And without getting ahead of our skis and at this point, Vikram, we're not giving guidance currently. And what I would say is we're going through that process right now. I think the good news on some of the variable rate debt that we have which, as I said before, is less than 13% of our total debt stack, is protected through interest rate cap where it caps LIBOR at 2%. And as we all know, we have eclipsed that mark. So, we are benefiting from that LIBOR cap. That cap expires in August of 2023. And that cap is on $360 million of variable rate debt, which is the debt on 1301, and it's the largest part of our debt stack that's variable. So, at some level, obviously, you have the protection through August 2023. And we will look, between now and then, to continue to extend by a new cap on that loan. So, if you're looking at interest expense trajectory without, again, giving 2023 guidance yet, I don't think you're going to see a deterioration in the interest -- or deterioration in earnings rather as a result of interest beyond $0.05, call it, $0.04 to $0.05 for Paramount.

And then just the other building blocks, just remind us, obviously, we know of the move-outs, but anything else we should be aware of?

So, if you look at our investor deck, Vikram, we did put out on our investor deck, really the large blocks. What the status is of the large blocks, how much it's leased and what the upcoming role is. But as you know, the large block vacancy we have is some of the remaining Barclays space. We got Credit Agricole, which Peter and his team have already de-risked 47% of, that expires in February '23. And then you have Uber, which is 234,000, 157,000 square feet at share for Paramount that rolled in July of 2023. So, when you look at 2023, I want to say we have under 600,000 square feet rolling and about 65% of that roll is in those two large blocks between Credit Agricole and Uber.

Okay. That's all. I guess just Albert, everyone is trying to get a better sense of where cap rates are across New York and Francisco, just other markets and I'm just curious if you have a view given sort of -- you also have a fund business and other partners in Europe. I just wanted to get a better sense of where do you think values are settling out between sort of the have and the have not buildings?

Yes. I mean across the board, you can say that not only for the United States, but also in Europe, but we'll talk about the U.S. today, because of the interest rate environment and the debt funding environment and the more tightness in the markets and recession fears and talk in front of us, cap rates have increased. And it's at least 50 basis points, I would say, across the board, but it's very hard to say because building by building, they are different, where in the past, you would invest -- having more interest in value add and opportunistic. The ones who still want to buy with more equity than in the past because of the debt difficulties and the situation that interest rates are very hard to -- and debt financing is not so easy to cover. So, those people are more interested in core investments. If it comes to who is interested, definitely, the euro investors are tracking back because of the strong dollar. They can't make sense of investing basically 20% more equity capital today only because the dollar has strengthened so much. So, if you have interest, it's more coming from the Canadian side and from the Middle East. But like in 2009, in the financial crisis -- the great financial crisis, as many call it, there was a big discrepancy between sell and ask. The buyers expected to get to seal and the sellers didn't want to capitulate. And I think this will go on for a while. And the ones who are well capitalized, they can really wait, and the ones who get under refinancing pressure or high mezzanine debt on their balance sheet. And these are more of the B class kind of assets for owners, those market participants will get under more pressure. And we would like to take advantage of that. We are not in a hurry at all. And it would be, as I said in the last calls, let's our own PGRE equity, but more with fund or joint venture partners equity, and it would be very opportunistic and not focused on core assets.

So, just maybe last clarification, you referenced PGRE equity, you bought back shares. And I guess we're trying to get a better sense of like the bid ask, where is the underlying NAV of this company? In the past, the company has received a bid from several investors over the past two years, obviously, valuing this company at a much higher level. And so, can you sort of just remind us when you're saying waiting for the right time to -- for Paramount to invest versus where the equity price is today, apart from buying shares, what else are you sort of thinking and visioning for people to realize value? And if that value is not realized, what are the next steps?

I think -- and like I had said before, not that much has changed. I think buying back our shares in a very controlled manner, that will be discussed with the Board on a quarterly basis. And we always have said we want to do it on a leverage-neutral basis. And I think that makes sense. We are still looking at opportunities to potentially taking joint venture partners in assets that we have ourselves that are valued properly. And as I mentioned, these would be more core kind of assets. But we would also do this very controlled. And I don't think it's a good idea to think about doing any kind of strategic thing at this point. We had two attempts like you mentioned in the past. They're both very opportunistic. And I think we were very transparent immediately with the market. We looked at each opportunity because we want to do the best for our shareholders. And we went to our financial advisors to the Board and we came to the conclusion that it didn't make sense for us at the point in time. So, we look at each opportunity to generate more shareholder value, but it has to make sense for the shareholders long term. It takes a long time to build -- to buy assets and develop them to the point that we have developed them. And that gets underappreciated by some of the long -- the short-term investors. And they think you could buy and sell an asset like you sell and buy a share, and that's not the case. And it takes long term like pooling a good green loan.

Fair enough. Thanks so much.

You are welcome.

[Operator Instructions] Next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Hey, thanks for having me on. Just a couple of quick ones for me, just starting on the first one on the lease rate cut on the guidance, maybe can you provide any color in terms of just -- is this more in New York? Is it more San Francisco? And just sort of maybe those tenants that you thought maybe could get done this year, like any industry, any sort of trends, is it financial, is it tech? Just sort of any color on that would be helpful.

So, maybe I'll start and then Peter can jump in as far as the tenant mix is going. I mean I don't know if you heard, I did address a portion of that question in the beginning of the call and the lease rate was cut again because of some of the activity and the big deal that we got done, which happens to de-risk the future role, which was the Credit Agricole block that comes due in February 2023 versus the existing vacant block of Barclays, and so, had that deal got done on the vacant block, you would not have seen necessarily the cut or as significant a cut in the leased occupancy percentage. And that was basically what drove that. And part of it is, obviously, as Albert alluded to in his prepared remarks, there is activity in the pipeline, but as we sit here two months before year-end and the degree at which that activity is moving forward, we didn't feel comfortable enough to say that may get done by year-end. It could, but it may not. And so, we try to do what we believe was the more conservative thing to say, let's push this out because it doesn't seem we don't have more likelihood than not that, that activity gets signed before year-end. Peter?

I would just say that the makeup, Ron, of the tenants sticking with 1301 between Credit Agricole [technical difficulty] vacant space is predominantly financial services and professional service type companies. One of the things I think that's underappreciated about New York specifically is just how diverse the city's tenant base is. So, while technology led the way in 2019 across Manhattan, contributing 25% towards leasing activity, they have been fairly inactive year-to-date, but financial services have been very active, contributing just shy of 50% of total leasing activity. So, we are seeing demand from financial service-type tenants, law firms, as evidenced by the deal that we just completed on the Credit Agricole block. But to Wilbur's point, they just haven't moved as quickly as we would like. And so we're working through that, of course. But we think we sit in a good position, and we're doing all of the blocking and tackling that we've always done in order to have success on those two blocks of space.

Great. And then my second one was just digging in a little bit on, I think, the opening comments, you also just mentioned as well, just maybe taking a little bit longer on closing on some of these leases. Any color on what are the tenants saying? Is it recession? Is it work from home is unclear plans? Like what -- is there sort of any thematics that you could point to?

I would tell you, and obviously, my colleagues can chime in, but it's less on the work from home. Obviously, there is some element to that as people, but we've not seen a direct correlation between the work from home and a reduction in space needs of demand. So, we've not seen that, and that's starting to shift where more companies are becoming more demonstrative with respect to getting the employees back into the office. I think a lot of it is driven by the macroeconomic headwinds, whether it's a persistent inflation, Fed that is hell-bent on trying to curb that through a rising interest rate and [indiscernible]. So, I think a lot of that is -- and the fears of recession is holding people back in terms of making the decisions. I think Albert alluded to that also earlier in his remarks.

Great, thanks so much.

Thank you.

There are no further questions at this time. I would like to turn the conference over to Albert Behler, Chairman, Chief Executive Officer and President, for closing remarks.

Thank you very much for joining us today, and we are looking forward to give you further updates on Paramount on the next earnings call. Goodbye.