PGRE - NYSE

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this conference call is being recorded today, February 16, 2023. I will now turn the call over to Tom Hennessy, Vice President of Business Development and Investor Relations.

Thank you, operator, and good morning, everyone. Before we begin, I would like to point everyone to our fourth 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 website at www.pgre.com. Some of our comments will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of the words such as will, expect, should or other similar phrases are subject to numerous risks and uncertainties that would 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 the 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 fourth 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 to questions. With that, I will turn the call over to Albert.

Thank you, Tom, and thank you, everyone, for joining us this morning. As we close out another year, we continue to execute on our strategic initiatives of leasing up our available space and maintaining our disciplined focus on generating long-term value for our shareholders. Yesterday, we reported core FFO for the fourth quarter of $0.25 per share, bringing our total for the year to $0.98 per share, the high end of our most recent guidance range. In the fourth quarter, we leased over 205,000 square feet, bringing our total for the year to over 947,000 square feet, above the midpoint of our most recent guidance range. We also reported positive year-over-year same-store growth of 4% on a GAAP basis and 1.7% on a cash basis. Today, we are initiating 2023 core FFO per share guidance with a range between $0.88 and $0.94 per share and an expected leasing volume of between 600,000 and 900,000 square feet. Wilbur will review our financial results and guidance in greater detail. Looking back at our performance in 2022, we executed on a number of key initiatives. We signed leases covering over 300,000 square feet at 1301 Sixth Avenue, which are our key focus. The majority of this leasing, about 259,000 square feet was with two key tenants O'Melveny & Myers and SVB Securities. These leases serve to do both, backfill existing vacancy and pre-lease over 50% of the 305,000 square feet of space vacated by Credit Agricole earlier this month. We signed a 15-year lease with Michelin Star restaurant in Tai Fung at our headquarters at 1633 Broadway under the iconic glass [indiscernible] Plaza, which is slated to open in late 2023. This transaction, which is among the top 10 largest retail leases signed during the year further exemplifies our focus on partnering with world-class retail tenants and providing a spectacular amenity for our tenants and the neighborhood. We acquired through a joint venture, a 26,000 square foot retail condominium at 1600 Broadway, which serves as a flagship for M&M's world in the heart of Times Square. M&M's world has long served as an icon for global tourism and its recent 15-year renewal and significant commitment to improve the space is a testament to the long-term value of this asset. While we met or exceeded most of our goals established at the beginning of the year, admittedly, we also did fall slightly shy of some of the lofty goals we set. All in all, I'm quite proud of our accomplishments in 2022, especially considering the slowdown in the U.S. economy spurred by the fed significant interest rate hikes aimed at curbing inflation. Notwithstanding a challenging economic environment, our 2022 report card was very good and is a direct reflection of the quality and desirability of our Class A assets, our strong tenant base and a dedicated workforce that is physically in the office. In addition to our own employees being in the office, we are thrilled to see our tenants coming back to the office. After a series of falls, starts and stops, it seems not surprisingly that the office is here to stay with several big names announcing mandatory or hybrid back-to-the-office plans, office occupancy rates have continued to climb steadily post Labor Day. These are positive signs that we believe will continue as more people begin going in permanent and employers recognize the unbeatable productive value of having the workforce together in the office. Our New York portfolio, which represents over 70% of our business continues to perform well and accounted for close to 80% of our 2022 leasing velocity. In fact, the occupancy of our New York portfolio, which now sits at 92.1%, has grown by an impressive 560 basis points since the trough in second quarter 2021, while the availability rate was up 50 basis points during the same period. While our leasing volumes remain in line with historical norms, deals continue to take longer to execute, an observation we had in the second half of 2022 and one that we continue to have so far in 2023. San Francisco continues to lag New York. But like New York, it also benefits from the flight to quality trend in the market. While the depth of demand remains sparse, pricing and quality assets remained strong. This strength is demonstrated by the results in our own portfolio, where we leased over 213,000 square feet at triple-digit starting rents of about $103 per square foot. Our focus in San Francisco will undoubtedly be on leasing the 235,000 square foot block of space at 555 market that will be vacated by Uber in July 2023. Turning to the transaction market. Activity continues to remain muted. The macro economic backdrop and rising interest rates keep buyers at bay and sellers evaluating when conditions will improve. There have not been many quality assets that have come to the market. And for those that have the bit aspread remains wide. That said, there is a wall of test maturities on the horizon, which will certainly present us with some opportunities. We will be strategic and disciplined in allocating capital as we always have been. Last but certainly not least, some of our proudest achievements this year are the great strides we meet in our sustainability initiatives. As always, our commitment to sustainability and ESG as a whole remains one of our core operating tenets. We pride ourselves on our leadership in this area and understand that has not only helped us manage operating costs, attract and retain premium tenants and ultimately enhance portfolio value, but also reduce the environmental impact we leave on the world around us. To that end, we were proud to be named 2022 Energy Star Partner of the year as we also achieved energy labels across 100% of our portfolio. Most recently, we also achieved a 5-star rating in the 2022 GRESB Real Estate Assessment for the fourth consecutive year. This distinguishes Paramount's ESG performance in the top 20% among the 1,820 entities that responded globally. Notably, we were able to maintain our market-leading performance, coming in 16 points above average despite a 20% growth in participation as the company rose to the top within both the management and performance scoring categories. We look to add to these significant achievements in 2023, ESG will continue to be integrated throughout our business and remains at the forefront of how we operate our businesses. To summarize, as we begin 2023, our priorities remain clear. We are focused on leasing up our available space and welcoming our tenants back to the office. With our portfolio of stable trophy assets and our proven ability to allocate capital, we remain well positioned for the long term. With that, I will turn the call to Peter.

Thanks, Albert, and good morning. During the fourth quarter, we leased approximately 205,500 square feet. Our fourth quarter leasing activity was weighted toward New York with 151,700 square feet leased or approximately 74% of this quarter's leasing total. Notably, O'Melveny & Myers expanded their lease by approximately 18,500 square feet at 1301 Avenue of the Americas during the fourth quarter. Within the last 2 quarters, we have pre-leased more than 50% of the space being vacated by Credit Agricole, derisking our largest 2023 lease expiration. For the full year, we leased approximately 947,000 square feet for a weighted average lease term of 8.8 years. In the face of challenging market conditions, our portfolio continues to attract more than our fair share of demand, a testament to Paramount's track record of providing exceptional services in the highest quality buildings in our markets and our team's ability to execute on our operating plan. At quarter end, our same-store portfolio-wide leased occupancy rate at share was 91.3%, down 10 basis points from last quarter and up 70 basis points year-over-year. As we look ahead, our remaining lease expirations are manageable with 4.8% at share expiring by year-end. Turning to our markets. Midtown's fourth quarter leasing activity of approximately 2.6 million square feet, excluding renewals, was down 44% quarter-over-quarter and down 30% below the 5-year quarterly average. Despite a lack luster quarter, Midtown finished the year posting a 15.2% improvement in leasing activity as compared to 2021. More importantly, the composition of tenant demand continues to highlight the ongoing bifurcation occurring in New York, where the market for Midtown's highest quality real estate in the most well-located submarkets remains active. For example, the Sixth Avenue submarket at 12.3% availability continues to outperform the broader Midtown market at 18.3% availability. We have seen evidence of this focus on quality and location in the marketing of our availabilities along Sixth Avenue at both 1301 Avenue of the Americas and 31 West 52nd Street, where we are encouraged by the interest we experienced in the second half of 2022 and into the first quarter of 2023. Our New York portfolio is currently 92.1% leased on a same-store basis at share, unchanged quarter-over-quarter and up 180 basis points year-over-year, demonstrating the resilience of our portfolio during a challenging year for Midtown. For the full year, we leased approximately 734,000 square feet, 28.6% above our annual New York leasing total over the last 5 years. Our overall lease expiration profile in New York is manageable with 3.1% net share expiring by year-end. Turning now to San Francisco. Leasing activity remains muted as the market generally has taken a measured approach to returning to the office. Many companies, however, have recently started to reestablish workplace policy, acknowledging the importance of the office with greater conviction and increasing the number of days their employees are required to be in the office. As a result, physical occupancy is steadily increasing, which will serve as a key driver in San Francisco's path toward recovery. And while tech layoffs are hitting the headlines, the reality is, for the most part, that total head count remains higher than it was in early 2020. This rebalancing of the employer-employee relationship, growing return to office mandates and the ongoing infusion of venture capital funding into new and innovative companies in San Francisco will drive demand going forward. San Francisco's availability rate remained elevated. However, the market for San Francisco's premier assets remains tight and economics, particularly for view space and trophy assets remains solid. In fact, like New York, flight to quality of the movement that continues to gain momentum in San Francisco as employers use real estate as a lever to enhance the workplace experience. Leasing challenges remain in the near term. The company's ongoing desire to elevate the quality of their real estate in San Francisco will result in outsized market share going forward for Paramount. At quarter end, our San Francisco portfolio was 88.9% leased on a same-store basis at share, down 40 basis points quarter-over-quarter and down 270 basis points year-over-year. During the fourth quarter, we leased approximately 54,000 square feet at a weighted average term of 1.7 years with initial rents of more than $95 per square foot. Looking ahead, our San Francisco portfolio has 9.3% at share expiring by year-end. The majority of this 2023 lease roll will occur at Market Center or Uber's lease expires in July of 2023. We are encouraged by the activity on this desirable block of space and look forward to updating you on our progress on our next call. With that summary, I will turn the call over to Wilbur, who will discuss the financial results.

Thank you, Peter. Good morning, everyone. I will start my prepared remarks by covering the details of our fourth quarter results and then get into the building blocks of our 2023 earnings guidance. Yesterday, we reported core FFO of $0.25 per share, bringing full year 2022 core FFO to $0.98 per share, which equates to a 6.5% growth in earnings over the prior year. Our fourth quarter results came in $0.01 ahead of consensus and $0.01 ahead of the midpoint of our guidance. Overall, our 2022 same-store growth was 4% on a GAAP basis and 1.7% on a cash basis, which was in line with our expectations. The positive same-store results were driven by our New York portfolio, which reported robust year-over-year same-store growth of 8.5% on a GAAP basis and 6.9% on a cash basis. Our San Francisco portfolio, as expected, reported negative year-over-year same-store growth of 4.2% and 8.7% on a GAAP and cash basis, respectively, driven primarily by a 270 basis point decline in occupancy. During the fourth quarter, we executed 18 leases covering 205,530 square feet of space at a weighted average starting rent of $77.66 per square foot and for a weighted average term of 3.8 years. Mark-to-markets on 16,142 square feet of second-generation space was positive 2.3% on a GAAP basis and negative 0.7% on a cash basis. While fourth quarter leasing metrics were generally in line with what we reported during the first 9 months of the year, weighted average lease terms were much shorter and driven by some short-term extensions in the quarter. Our weighted average lease term for leases executed during all of 2022 was 8.8 years. We also initiated guidance yesterday for the full year of 2023. Let me spend a few minutes discussing the assumptions used in our guidance. We expect 2020 core FFO to range between $0.88 and $0.94 per share or $0.91 per share at the midpoint, which is in line with consensus. The $0.07 per share decrease in core FFO when compared to our 2022 results is comprised of the following, negative same-store cash NOI growth between 3.5% and 5.5% or $0.08 per share, which, as a reminder, results primarily from the previously reported lease expirations of Credit Agricole's 305,000 square foot lease at 1301 Avenue of the Americas in New York and Uber's 235,000 square foot lease at Market Center in San Francisco. Lower termination income of $0.01 per share as we typically do not budget for termination income and higher interest expense of $0.05 per share. These negatives aggregating $0.14 per share are partially offset by some positives aggregating $0.07 per share and are comprised of the following, a $0.04 benefit from higher straight-line rent resulting from the commencement of new and renewal leases and a $0.03 benefit from lower weighted average shares outstanding resulting from the share buybacks that were executed in 2022. Operationally, we expect to lease between 600,000 and 900,000 square feet during '23, and we expect to end the year with a same-store leased occupancy rate between 90.8% and 91.8% or 91.3% at the midpoint, which would keep us flat relative to where we ended 2022. Turning to our balance sheet. During the fourth quarter, we utilized $43.7 million of cash from our balance sheet to repurchase $7.1 million of our outstanding shares at a weighted average price of $6.12 per share. We ended the quarter post these share buybacks with a little over $1.2 billion in liquidity, comprised of about $452 million of cash and restricted cash and the full $750 million of undrawn capacity under our revolving credit facility. Our outstanding debt at quarter end was $3.67 billion at a weighted average interest rate of 3.57% and a weighted average maturity of 4 years. 87% of our debt is fixed and has a weighted average interest rate of 3.6% and the remaining 13% is floating and has a weighted average interest rate of 5.7%. We have under $200 million of debt at share maturing in 2023 and $478 million at share maturing in 2024. And beyond that, our maturities are well laddered. With that, operator, please open the line for questions.

Thank you. [Operator Instructions] We have a first question from the line of Steve Sakwa with Evercore. Please go ahead.

Yeah. Thanks, good morning. Peter, I was just wondering if you could elaborate a little bit on the leasing environment. And in particular, the demand that you're seeing for the upcoming vacancy in San Francisco and Uber and the types of tenants that may be looking? And then also just maybe comment on a little bit the weighted average lease term. I know Wilbur touched on it, but that was obviously quite short. And I'm just curious kind of the mindset of tenants today?

Steve, I think we all know in San Francisco, there is less overall demand in the market today due to corporate earnings pressure and other macro headwinds. I will say we have a really very, I think, compelling offering at Market Center. We do know that similar to New York and San Francisco, tenants are highly discerning and they are when active looking at real estate that's well located that has something to offer. And at this point, of course, we're heavily focused on this 235,000 square foot block that, as you know, comes back in the second quarter. And I'm happy to say that we've got good activity. And I would say it's predominantly from tech users who have been pulling back as we know, but not all of them. And those that are active, we've been talking to. And as I said in my remarks, we look forward to updating you on our next call, and we hope to share with you some good progress. Similar to what we've done on the - with the Credit Agricole block, our intention is to derisk this block of space in advance of the expiration later this year. And as it relates to average term, I think I don't - I wouldn't look at the fourth quarter as indicative of what we expect going forward. I know that the term in the fourth quarter was shorter. If you look at the full year, it was considerably longer. I wouldn't chalk the fourth quarter up to any sort of trend that we're seeing in the market. We're having constructive conversations now with prospective tenants, all of whom are willing to invest capital to improve the space beyond what we would contribute by way of TI [ph] And we're talking about longer terms with these tenants, particularly at our trophy assets.

And Steve, I mean, if you look at the first 3 quarters of the year, the weighted average term on leases we executed was 10 years. It's only the fourth quarter, that was 3.8%, that blended to the 8.8% that I alluded to in my remarks.

Okay. Maybe - and then, Wilbur, one other question. Just as you look through the debt, I know it's not very heavy, but you do have a couple of mortgages coming due this year or next year. I'm just curious kind of your thoughts on the mortgage market today and sort of the re-financeability of the assets and just to extent you need to put any capital in or just how are you sort of thinking about the upcoming maturities?

Sure. So as you point out, we had 3 loans maturing in '23. I'd say all of these 3 loans are joint venture loans, the mortgage market is very, very tight right now. I mean it's tough - CMBS is basically nonexistent. And there's a lot of pressure given where values are given a declining NOI as some of these leases roll. So it's going to be challenging with respect to being able to refinance some of these assets. In our portfolio, I will tell you, we obviously are talking about 60 wells [ph] We have a 5% interest in that asset. That has a 1-year extension, which we've already availed ourselves for. And we're going to maintain discussions with the lender and our joint venture partners on that asset. The next loan we have maturing is in March of '23, that is at 111 Sutter and that one, currently, the NOI is not sufficient to cover the debt service. You saw we took an impairment on that asset. When negotiation went active discussions, us and our joint venture partner with the lender. So more to come on that. And the last maturity we have is in October of '23, which is 300 Mission. That's a fairly low levered loan. I don't envision it's got great coverage. It's a great asset. It's 84% leased in San Francisco. It's got a super nice tenant roster. We don't envision any issue with refinancing that asset. That said, that current rate is 3.65 that will undoubtedly be higher.

Great. Thanks. That's it for me.

Thank you.

Thank you.

Thank you. We take next question from the line of Blaine Heck with Wells Fargo. Please go ahead.

Great. Thanks. Good morning. I was hoping to get a little bit more detail on what you guys are seeing in terms of tenant base usage or your estimate of utilization and days in the office per week and really how those statistics have trended thus far in 2023.

Blaine, this is Albert. We -- it's a very good question. We are actually quite happy with how the occupancy has fared, especially after Labor Day, it has increased a lot in New York, but also significantly in San Francisco, especially in the middle of the week days. We are here in New York at the 70% level of occupancy. And in San Francisco, we are around 56%, 557. That's significantly more than only 4 weeks ago. And I think, as I had said previously, the recessionary environment and the focus of management on -- back to the office by having their folks around and nurturing a culture is playing out. And I think people realize that work from home is not the ultimate goal for all jobs. So I think the tide is shifting, especially for our kind of assets, where we offer Class A space and for our kind of tenants who believe in having their teams around them.

Okay. That's really helpful. And just to be clear, the 70% and 56% utilization figures you're quoting, are those relative to the peak utilization that you saw in 2019 or some other kind of base 100% number?

Basically of -- because you normally -- we never looked at this before the pandemic, as you might imagine. So we have made studies and not only us within our peer group within the industry where you basically found out that the full occupancy of office space is about 70% to 80% because the rest of the folks are traveling on vacation, their personal base and other -- so it's never 100%, you never get to 100% of physically possible occupancy. So this is based on a full occupancy considered 80% to be full occupancy.

Okay. That's really helpful. For my second question, there seems to be a healthy debate that's emerged around asset values and cap rates in this increasing interest rate environment. And since there aren't many transactions that point to Albert, I wanted to get your take on how much you think asset values and cap rate may have moved over the past year, given that increase in the cost of debt and very low availability of debt?

Yes. Also another good question, but I don't want to give you a clear figure of clear number because it's -- I give you a comparison to 2009, 2010. People were hoping including ourselves, that this would be a great opportunity to go back in the market and acquire assets. But the bid and ask was so huge because the markets were basically the sellers were expecting that the properties were way more worth than they really were, and there were no transactions, very similar to today. On top of that, this time, the debt markets are not really attractive to financing new acquisitions. So that, I think, slows down in addition to just a bit as spread. So there's significantly -- there's a significant increase of cap rates -- and I don't want to put it in figures because it really depends on asset by asset and depends on what the buyer is interested in. I mean we bought an asset last year, 160 Broadway at a very attractive cap rate, and it was an investor. The majority was a large institutional investor. We just had a very small piece and we manage the asset for them. But they were focused on cash flow, and that was attractive for them. It's still an attractive asset and the cash flow is growing. So that's -- everyone has a different idea of what they want to be investing in.

Okay. Great. And related to that, and Albert, I'll stick with you for my last question. You mentioned the wall of debt maturities that's approaching and could spur opportunities for investments, would you say you're more likely to invest with partners in a JV? Or do you think you also look at kind of on-balance sheet acquisitions?

Well, as we had said, I think I've said consistently over the last quarters, we will not invest a lot of our own capital. But there is a high demand by investors that don't have boots on the ground to find a partner like ours who has experience in these complex markets like New York and San Francisco. And they would not require us to put in a lot of equity, and that's still the same goal.

Very helpful. Thank you.

Thank you, Blaine.

[Operator Instructions] the next question from the line of Vikram Malhotra from Mizuho. Please go ahead.

Thanks for taking the question. Maybe, Peter, if you can give us some more color on some of the lease-up trajectory at the prospects of the key vacancies. You talked a little bit about the Uber space and tech demand from smaller tenants. But maybe just give us kind of the latest on what you're seeing in the pipeline. And I know it's taking longer to lease up this pressure on rents. But if you could just go through the key vacancies and the pipeline would be helpful.

Sure. I'll start at Market Center. I commented earlier. I think I may have said Q2 expiration, it's actually July of '23. Nevertheless, it's approaching. We're focused on it. And we have, as I said earlier, nice activity, and I hope to give an update on our next call indicating that we've made some progress. And I would say it's primarily tech companies that have been inquiring about Market Center 555 market specifically. Turning to New York. As you know, and as we said in our remarks, we did derisk 1301 significantly, the Credit Agricole space that they're currently vacating. We've derisked it by more than 50%. I would say that the demand for the balance is predominantly law firms, which law firms have not been the primary driver of leasing activity in Midtown. That has really been financial services with an outsized representation in terms of its -- their demand as a part of leasing activity. But we've seen quite a bit of demand from law firms. Those floors lay out very well for law firms. They're highly efficient. Multiple architects have acknowledged as much. So we have some nice interest on those floors. And then the pace of the building we have, as you know, 200,000 square feet. We've kept that ground floor vacant. We do have some tenants interested in potentially creating some branding on the ground floor and creating connectivity up to those base floors. The demand is predominantly financial services, as it has generally been now for some time, those floors lend themselves to a use more consistent with how a financial services would think about their real estate. So we're making some progress there. It's taken a little bit longer than we would like, but we have some good credit tenants at this point, expressing some interest -- and then really beyond that, the only space that I think you're asking about would be 31 West 52nd Street, the space that we get back in 2024. We also have interest in that space, too. 31 West is a trophy asset. We did the lobby a couple of years ago. It shows beautifully. We have some interest from both financial service firms and law firms once again. So still too early to say much more than that. But I think the point is while demand is less than perhaps what we had experienced in the earlier part of 2022, our theory and what we're experiencing in real time is that our portfolio continues to get looks from all prospective tenants, all tenants in the market, and it's a function of the way in which we've invested in the buildings and what we have to offer. Certainly, a slightly quality and ours to our benefit. And that's no different on the various blocks of space that I've just now outlined. We have demand on the space, of course. We're working very hard to convert that demand into signed leases. But given all that we're experiencing in the world, I think we feel generally pretty good about our own pipeline.

And that's helpful. Maybe Albert, you referenced sort of emerging distressed opportunities and you kind of talked about how you've been patient with capital. But I'm just wondering from your vantage point and maybe even conversations with maybe some of your European partners or stakeholders. How should we start thinking about the bid-ask or where New York office values could be shaking out? And I say values, but maybe you can talk in terms of cap rates. It's probably a bit us. But any sense, any early indication of core versus value-add kind of where that spread is today or where cap rates are?

Yes. Vikram, Blaine asked that question a couple of minutes ago, and I answered it. It's very hard to give you an exact figure here because it's changing kind of from asset to asset, and it really depends. It's a little bit like 2009, 2010, where we thought that there were a lot of opportunities coming up, and they didn't come up because there -- the center so they had way too much invested in the capital in an asset. They didn't want to let it go, and they got it refinanced or just hung in there because it turns relatively quickly. And I think we're in a similar situation right now. This time, I think the debt service might squeeze a little bit more. And I think some of the expiring mortgages will force some of the market participants to do something, and it will be really depending upon whether there's additional equity that the sponsor wants to invest or whether they throw in the towel and give up the asset. So it's very hard to give you a cap rate. But I can tell you that the difference between last year and this year is for sure 100 basis points.

Okay, that's helpful. And then Wilbur, just last one. I know you have room on the dividend. You adjusted that during COVID -- but as we look forward sort of on taxable income with the ins and outs of the portfolio and planned lease up, is there a scenario where you may -- where you think there's -- it's maybe prudent to create even more room? Or is there a scenario where the dividend could be under pressure as you look out over the next 3 or 2 on your taxable income projection.

So Vik, first, I would say the dividend, obviously, is a board policy, and that's something we revisit with the Board every quarter. It's something that we are going to watch closely. If you look at the commercial real estate market, certainly in the office, we are in a recession, even though if the broad economy might not be. At this point, there was no decision to address the dividend. We have a business plan. We think we can continue to execute on that. The dividend is well covered. But I cannot speculate nor what we want to speculate on what we may or may not do. That's something that we will evaluate quarterly with the board.

We take next question from the line of Derek Johnston with Deutsche Bank. Please go ahead.

So just on last been covered, but on capital allocation priorities, you repurchased some shares in 4Q. Please remind us what authorization is left. And your thoughts on further buybacks versus opportunistic JVs or any other uses you're considering?

Yes. We have another EUR 15 million authorization left in -- for buybacks. And they have been more active in the last quarter because there were more opportunity. And -- the price per share has made a lot of sense for us. So that's -- might be focused on that. But we -- in general, we are -- we want to take a balanced approach. We always take -- look at all of our opportunities on a balanced way. So we want to stay nimble and we will adjust it on a quarterly basis and depending on market information, we adjust that program as well.

Just to add to Albert, I mean, the stock is obviously -- you can -- we look at it and it's ridiculously cheap. At some level, I'll submit to you the following, okay? We're sitting with $452 million of cash on balance sheet. That equates to roughly $2 a share. You have an unencumbered asset pool generating north of $60 million of NOI, take cap rate, 6, 6 or whatever you want to use 6 only because that's a covenant calculation. But even if you were to use that, it's $1 billion of asset value, that equates to another $425 million of per share value. So the sum of that, too, is north of $6.25 and that's giving 0 credit to the encumbered asset pool, which is implying that every asset in the portfolio is underwater. And clearly, that's stupid from our perspective.

Wilbur, and I guess my last one is what do you believe? And what do you think is causing this tougher leasing environment that we're seeing today? Is it more of the secular question of hybrid and work from home? Because DB felt that exiting the pandemic, well-located Class A assets of your caliber would be best positioned. So is it the secular question or a combination because we feel it could be more recessionary, right? And this is basically a normal cyclical backdrop that through previous cycles we've seen. So just interested on your take what is the hybrid work from home, if any? And what is more cyclical and recessionary in nature?

Well, we have leased this portfolio pretty well even in -- during the pandemic and during the work from home. I think the work from home is not coming to a total end, but it's changing. I think management is demanding more time in the office because it's important for the culture, developing a culture of a company. So I think very clearly, this is a cyclical recessionary thing. And companies anticipate that times get worse before they get better, and they will not -- and it's very typical. We have seen this many, many times. They think more about if they really have demand of extending a lease or moving. They will extend the lease short term, and it's the same what we saw in 2009, 2010. If the lease was expiring, they try to extend it for 1 or 2 years. So they didn't have to make a space decision. Because you have to remember, I mean, we have to pay a lot of TIs and we lay out a lot of capital as landlords. But the tenant himself is also spending a lot of capital and a lot of money when they make a move. And that is currently, I think, a little bit more on hold than it was 6 months ago.

Excellent. Thanks. That's it for me, guys.

We take the next question from the line of Dylan Bazinsky with Green Street. Please go ahead.

Just curious, from a geographic perspective, today, I think you guys are, call it, 75% New York, 25% in San Francisco. And you mentioned possibly putting capital to work should opportunities present themselves. But I guess just as you think about putting that incremental capital to work, do you think in more in New York, more San Francisco. I'm just curious to hear your thoughts on sort of the geographic perspective in terms of potential acquisitions.

That's a good question. We look at these things and we get the questions all the time in the past. We look at it opportunistically. San Francisco is having a tougher time currently, but we are long-term investors. And I think San Francisco will come around. So we look at it on an asset-by-asset basis and market-by-market basis.

Okay. That's helpful. And then I guess just a follow-up because I know it's been asked several times in the call about where you guys think cap rates are. But I guess maybe another way of asking that is just for some of your higher quality assets, I guess where do you think market debt, all-in debt rate costs are for like something like a 153roadway or some of your higher quality assets out in San Francisco?

Yes, I don't think I want to give you a really cap rate at this point. This is kind of a distressed market situation. I mentioned -- I mentioned before on this call to a couple of other folks -- this is like 2009, 2010, and there weren't many transactions happening because bid ask is way too wide. The spread is way too wide. And that's where we are today. So I think it's very hard to give you a clear figure there. Thank you. Bye-bye.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to turn the floor back over to Albert Behler for closing comments. Over to you, sir.

Thank you, everyone, for joining us today. We really look forward to give you an update on the continued progress when we report our first quarter 2023 results. Goodbye.